2017 (5) TMI 1796 - AT - Income Tax

Disallowance being grant given by the appellant to Sabarmati Salt Farmers Society and claimed as deductible expenditure u/s.36(1)(xii) - HELD THAT - It is essential to bear in mind the fact that the reason of disallowance, in the original assessment proceedings, was that there was, according to the AO, a possibility of the amount coming back to the assessee, and, for that reason, amount could not be treated as having been spent. Merely because the assessee has not been able to file the fund utilization report cannot be ground enough to disallow the claim of the assessee. There is no dispute that the amounts were advanced in the course of the business of the assessee, and it has not even been case of the AO either, and, there is also no dispute that this amount is no longer recoverable from the Sabarmati Salt Farmer s Society as it has been wound up. In these circumstances, the objection taken by the AO, in the original assessment proceedings, does not hold good any longer. In any case, as the assessee rightly claims, it is at best, even going by the improvised version of the AO, a case of bad debt or a loss incidental to business which is allowable anyway. CIT(A) s action of upholding the disallowance, for want of fund utilization report, is thus unsustainable in law and on the facts of this case. The approach adopted by the authorities below in interpreting the terms of remand is too pedantic and hyper technical to meet our approval. The directions given by the Tribunal are to be interpreted in the light of its object and context. That consistently has been approach of the Hon ble Courts above. We uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance. - Decided in favour of assessee.

Summary

Issues Involved:
1. Correctness of order dated 16th April 2014 passed by CIT(A) under section 143(3) r.w.s. 254 for assessment year 2003-04.
2. Disallowance of grant given by appellant to Sabarmati Salt Farmers Society claimed as deductible expenditure u/s.36(1)(xii).
3. Allowability of the disallowed amount as deduction u/s 36(1)(vii) or u/s 37/28 of the Income Tax Act.

Analysis:
1. The appeal challenged the correctness of the CIT(A)'s order for the assessment year 2003-04. The appellant contended that the order was erroneous and contrary to the law, specifically disputing the disallowance of a grant given to Sabarmati Salt Farmers Society under section 36(1)(xii) of the Income Tax Act.
2. The Tribunal remitted the matter to the Assessing Officer for verification of whether the grants given by the appellant were from received grants and for re-adjudicating the disallowance. The Tribunal emphasized that expenditure incurred for authorized purposes is deductible under section 36(1)(xii) of the Act, and the appellant needed to provide fund utilization reports.
3. The Assessing Officer disallowed a specific amount claimed as perspective plan expenditure by the appellant, citing lack of supporting documents like fund utilization reports, grant agreements, and director's recommendations. The CIT(A) upheld this disallowance, emphasizing the need for fund utilization reports and dismissing the appellant's argument for allowance under section 36(1)(vii).
4. The Tribunal found that the disallowance was based on the possibility of the amount coming back to the appellant, which was not valid as the amount was advanced in the course of business and was no longer recoverable. The Tribunal criticized the hyper-technical approach of the authorities in interpreting the terms of remand and directed the Assessing Officer to delete the disallowance.
5. Ultimately, the Tribunal allowed the appeal, directing the Assessing Officer to delete the disallowed amount of Rs.61,08,550, as the disallowance was found to be unsustainable in law and not supported by the facts of the case.

This comprehensive analysis outlines the issues raised, the Tribunal's directions, the Assessing Officer's disallowance rationale, the CIT(A)'s decision, and the final judgment allowing the appeal and directing the deletion of the disallowed amount.