2019 (12) TMI 1306 - AT - Income Tax

IFRS audit fees - disallowance on the ground it pertains to the period prior to the year under consideration - HELD THAT - We find that though the audit pertains for the year ended 31/12/2007, the invoice was raised by the concerned Auditor only on 28/11/2008 as the service was rendered thereon during the year under consideration. We find that the services have been crystalised during the year under consideration and accordingly become an expenditure allowable as deduction for the year under consideration. It is not the case of the revenue that assessee had indeed claimed deduction for the very same sum in the earlier year on mercantile basis. We hold that the assessee is indeed entitled for deduction towards IFRS audit fees. - Decided in favour of assessee Deduction towards service tax credit written of - addition on the basis that it pertains to earlier period - HELD THAT - It is not in dispute that this service tax receivable emanates out of the input services used for the purpose of business of the assessee. Once, the service tax input credit is not eligible to be utilised against the output tax, the same requires to be written off as business expenditure, which is what is done by the assessee in the instant case. There is no dispute that the service tax input credit was not eligible to be utilised towards output service tax by the assessee. In these circumstances, the action of the assessee in writing off the input service tax credit lying in current assets loans and advances as on 01/04/2009 and consequentially claiming the same as deduction, is in accordance with law.- Decided in favour of assessee. Adhoc disallowance of 30% of total travelling and conveyance expenses - HELD THAT - These details were subject to verification by the ld. AO in the remand proceedings and in the remand report, the ld. AO had held that some of the expenses are not fully verifiable. We find in these circumstances, some adhoc disallowance of expenses need to be made. Disallowance @30% would be on the higher side given the status of the company and the behaviour of the assessee. Hence, we hold that disallowance on an adhoc basis at 10% of total travelling and conveyance expenses would meet the ends of justice in the peculiar facts and circumstances of the instant case. Accordingly, the ground No.3 raised by the assessee is partly allowed.

Issues involved:
1. Disallowance of IFRS audit fees
2. Service tax credit written off
3. Adhoc disallowance of travelling and conveyance expenses
4. General ground raised by the revenue

Issue 1: Disallowance of IFRS audit fees
The issue revolves around the disallowance of IFRS audit fees of ?3,17,300 on the grounds that it pertains to a period prior to the year under consideration. The Tribunal noted that the fee was paid for an audit completed for the year ended 31/12/2007 but the invoice was raised during the year under consideration. The genuineness and business purpose of the expenditure were not in doubt. The Tribunal held that since the services were rendered during the year under consideration, the expenditure was allowable as a deduction. It was emphasized that the revenue did not contest that the deduction was already claimed in an earlier year. Consequently, the Tribunal directed the Assessing Officer to grant the deduction, allowing the appeal on this ground.

Issue 2: Service tax credit written off
The second issue pertains to the deduction of ?5,23,277 towards service tax credit written off, which was claimed to pertain to an earlier period. The Tribunal found that the service tax receivable was reflected in the balance sheet and arose from input services used for the business. As the input credit was not eligible to be utilized against output tax, the Tribunal deemed the write-off as a business expenditure in accordance with the law. Therefore, the Tribunal directed the Assessing Officer to allow the deduction, ruling in favor of the assessee on this ground.

Issue 3: Adhoc disallowance of travelling and conveyance expenses
The final issue concerns the adhoc disallowance of 30% of total travelling and conveyance expenses. The assessee had incurred significant expenses in this regard but faced challenges in providing supporting evidence to the Assessing Officer. The Tribunal noted that detailed break-ups were filed, and the expenses were related to site visits, trainings, meetings, and official visits. Despite the verification process, certain expenses were deemed contingent or not fully verifiable by the Assessing Officer. The Tribunal, after considering the submissions and additional evidence, reduced the disallowance to 10% of the total expenses, deeming it more appropriate given the circumstances. The Tribunal partially allowed the appeal on this ground.

General ground raised by the revenue
The general ground raised by the revenue was deemed to be of a general nature and did not require specific adjudication. Therefore, no further action or decision was necessary on this ground.

In conclusion, the Appellate Tribunal ITAT Mumbai delivered a detailed judgment addressing various issues related to the disallowance of expenses and credits. The Tribunal ruled in favor of the assessee on the disallowance of IFRS audit fees and service tax credit write-off, directing the Assessing Officer to allow the deductions. Additionally, the Tribunal partially allowed the appeal on the adhoc disallowance of travelling and conveyance expenses, reducing the disallowance percentage based on the circumstances of the case. The general ground raised by the revenue did not require specific adjudication.

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