2017 (11) TMI 1673 - HC - Income Tax

Disallowance for payments made for donation - debited under the head of publicity expenses for which no evidence was produced to show that the same was incurred wholly and exclusively for the purpose of business - Held that - Expenses of the payment which was made by A/c Payee Cheque and Audit Report was that the payment was made and therefore there is no question of verifying document. In that view of the matter, the view taken by the Tribunal is required to be accepted. Addition on account of interest payment to its sister concerns and other group companies at lower rate than it had to pay to the borrowers - Held that - Borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under Section 36(1)(iii) Addition 40A - cash payments being not covered under Rule 6DD(g) - Held that - It is notable that r.6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the object of the legislature is to provide exception in respect of such payment which is required to be made in cash or absence of banking facilities. Rule 6DD(h) must be interpreted keeping in view this object and purpose. Therefore, the cash payments recovered under section proviso to s. 40A(3) and r.6DD(h). AO is directed to delete the addition. Addition on account of repairs and maintenance - Held that - AO has not challenged the veracity of the claim or the incurrence of the expenditure for the purpose of the business. In light of that we hereby delete the disallowance.

Issues Involved:
1. Disallowance of payments made for donation debited under publicity expenses.
2. Disallowance of interest payment to sister concerns at a lower rate.
3. Disallowance of cash payments under Section 40A(3).
4. Disallowance of repair and maintenance expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Payments Made for Donation Debited Under Publicity Expenses:
The Tribunal reversed the findings of the CIT(A) and deleted the addition made on account of disallowance for payments made for donations but debited under the head of publicity expenses. The Tribunal noted that the payments were made by A/c Payee Cheque and the audit report confirmed the payments. The Tribunal observed that the genuineness of the expenditure was not doubted, and the payments were made by cheque. Therefore, it deleted the disallowance of ?2 lakhs out of the publicity expenses. The High Court accepted the Tribunal's view, noting that the Tribunal had not committed an error in reversing the CIT(A)'s findings.

2. Disallowance of Interest Payment to Sister Concerns at a Lower Rate:
The Tribunal reversed the CIT(A)'s findings and deleted the addition of ?21,96,755/- made on account of interest payment to sister concerns and other group companies at a lower rate. The Tribunal found that the assessee had advanced funds to its group companies as a measure of commercial expediency to support the financial and liquidity needs of these companies, which were under the same management. The Tribunal cited the Supreme Court's decision in Hero Cycles Pvt. Ltd., which held that if there is a nexus between the expenditure and the purpose of business, the revenue cannot question the reasonableness of the expenditure. The High Court upheld the Tribunal's decision, agreeing that the advances were made for commercial expediency.

3. Disallowance of Cash Payments Under Section 40A(3):
The Tribunal reversed the CIT(A)'s findings and deleted the addition of ?82,67,790/- made under Section 40A(3) on cash payments. The Tribunal noted that the payments were made in a backward area where banking facilities were not available, and the payments were necessary for business expediency. The Tribunal referred to various judicial precedents, including the Gujarat High Court's decision in Anupam Tele Services and the Rajasthan High Court's decision in Smt. Harshila Chordia, which held that genuine transactions should not be disallowed merely because they were made in cash. The High Court upheld the Tribunal's decision, agreeing that the cash payments were made out of business necessity and were genuine.

4. Disallowance of Repair and Maintenance Expenses:
The Tribunal reversed the CIT(A)'s findings and deleted the addition of ?3,02,000/- made on account of repairs and maintenance. The Tribunal noted that while the assessee had not furnished details of the expenses, the AO had not challenged the veracity of the claim or the incurrence of the expenditure for the purpose of the business. The Tribunal held that in the absence of any specific reason or explanation for the disallowance, the addition should be deleted. The High Court upheld the Tribunal's decision, agreeing that the disallowance was not justified.

Conclusion:
The High Court dismissed the appeal, answering all the issues in favor of the assessee and against the department. The Tribunal's findings were upheld, and the disallowances made by the CIT(A) were deleted.

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