2015 (11) TMI 1871 - AT - Income Tax

Disallowance made on account of BMC Charges and Custom charges - HELD THAT - In the present case, the assessee has paid the charges on account of regularization charges to the BMC and DR has not brought in our notice that any deviation is an offence under the statutory provision or by-laws of BMC. We have also seen the order passed by Commissioner of Custom (import) dated wherein, the goods of the assessee were permitted to be clear on the payment as levied under various provision of Custom Act. Considering all the disallowance made on account of BMC Charges and Custom charges are deleted. - Decided in favour of assessee. Disallowance made u/s 14A r.w.r. 8D - As per CIT disallowance out of administrative expenses worked out on the basis of formula in Rule 8D, made u/s.14A by the AO, is upheld - HELD THAT - The assessee has not satisfied the AO as to why the disallowance U/s 14 A read with Rule 8D, be not made, however before the CIT(A) the assessee had admitted that and indirect expenditure of Rs. 93,12,971/- has been charged to the P/L account an estimated amount of Rs. 10,000/- could have been incurred in earning the exempt income. Thus both the condition for invoking Rule D was satisfied. The ld AR for the assessee has not brought any material before us as to why the disallowance made u/s 14 A read with Rule D is wrong, thus the addition u/s 14A, made by AO , which was sustained by CIT(A) does not require any interference. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of expenses under Section 14A.
2. Disallowance of BMC charges under Section 37(1).
3. Disallowance of Customs charges under Section 37(1).

Issue-wise Detailed Analysis:

1. Disallowance of Expenses under Section 14A:
The assessee contested the disallowance of Rs. 62,25,245/- under Section 14A read with Rule 8D of the Income-tax Rules, 1962. The Assessing Officer (AO) calculated this amount as 0.5% of the average value of investments shown in the balance sheet. The CIT(A) upheld this disallowance, noting that the assessee's accounts were mixed and did not separately account for expenses related to earning exempt income. The CIT(A) cited the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which supports the application of Rule 8D once the AO's satisfaction is established. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the assessee failed to provide sufficient evidence to counter the disallowance.

2. Disallowance of BMC Charges under Section 37(1):
The assessee challenged the disallowance of BMC charges totaling Rs. 1,52,16,797/- for projects named "Oberoi-Woods," "Oberoi-7," and "Oberoi International School." The AO treated these charges as penal in nature under Explanation to Section 37(1) and disallowed them. The CIT(A) upheld this disallowance. The Tribunal, however, referred to the judgment in M/s M.P. Gupta vs. ITO, wherein statutory imposts paid as damages or penalties, if compensatory in nature, are allowable as business expenditure. The Tribunal noted that the payments were regularization charges and not penalties for unlawful acts. Consequently, the disallowance of BMC charges was deleted.

3. Disallowance of Customs Charges under Section 37(1):
The assessee also contested the disallowance of Rs. 44,00,000/- paid as Customs charges, which the AO treated as penal in nature and disallowed under Section 37(1). The CIT(A) upheld this disallowance. The Tribunal observed that the Customs charges were compensatory and necessary for business operations. Referring to similar judgments and the nature of the charges, the Tribunal deleted the disallowance of Customs charges.

Conclusion:
The Tribunal partly allowed the appeal. The disallowance under Section 14A was upheld due to insufficient evidence from the assessee. However, the disallowances of BMC and Customs charges under Section 37(1) were deleted, as they were deemed compensatory and necessary for business operations rather than penalties for unlawful acts. The order was pronounced in the open court on 4th November 2015.