2016 (3) TMI 317 - AT - Income Tax

Disallowance of labour welfare expenses - Held that - The said expenditure has been incurred towards Corporate Social Responsibility. The said expenditure incurred by the assessee has not been disputed by the Department. The only objection raised is that it is not on account of business expediency. The Corporate Social Responsibility discharged by the assessee shows its sensitivity towards the society at large. Such expenditures need not be measured in the terms of business expediency. The Companies Act, 2013 mandates the companies to contribute 2% of the profit towards Corporate Social Responsibility. The Government also recognizes the need and importance of Corporate Social Responsibility to be discharged by the Corporate houses. Thus, we are of the considered view that the expenditure has to be allowed. - Decided in favour of assessee

Summary

Issues Involved:
1. Write-off of bad debts.
2. Disallowance of labor welfare expense.
3. Disallowance of computer repairs expenses.
4. Disallowance of un-reconciled balance of sundry creditors.

Issue-Wise Detailed Analysis:

1. Write-off of Bad Debts:
The Revenue appealed against the Commissioner of Income Tax (Appeals) decision to allow the assessee's claim of Rs. 40,45,951/- as bad debts written off. The Assessing Officer had disallowed this claim, arguing that transactions with the parties continued in subsequent years and the debts were only a year old. The Commissioner of Income Tax (Appeals) accepted the assessee's claim based on precedents set by the South India Surgical Co. Ltd. Vs. ACIT and TRF Ltd. Vs. CIT. The Tribunal upheld the Commissioner of Income Tax (Appeals) decision, referencing the Supreme Court's ruling in TRF Ltd. which clarified that post-01.04.1989, it is sufficient for the debt to be written off as irrecoverable in the accounts of the assessee without needing to establish its irrecoverability. The Tribunal found no change in facts from previous years and dismissed the Revenue's appeal.

2. Disallowance of Labor Welfare Expense:
The assessee appealed against the disallowance of Rs. 65,310/- paid to the Bihar Relief Fund as part of Corporate Social Responsibility (CSR). The Tribunal noted that the expense was for supplying milk to flood-affected areas and recognized the importance of CSR. The Tribunal highlighted that such expenses need not be measured solely in terms of business expediency and referred to the Companies Act, 2013, which mandates CSR contributions. Consequently, the Tribunal allowed this expense.

3. Disallowance of Computer Repairs Expenses:
The assessee contested the disallowance of Rs. 8,87,103/- for computer repairs, arguing that supporting invoices and bills were submitted but not considered by the authorities. The Tribunal reviewed the evidence and decided that the issue required further examination by the Assessing Officer. The Tribunal remanded the matter back to the Assessing Officer to verify the provided documents and decide accordingly, allowing this ground of appeal for statistical purposes.

4. Disallowance of Un-Reconciled Balance of Sundry Creditors:
The assessee also challenged the disallowance of Rs. 35,000/- of un-reconciled balance of sundry creditors, arguing that both debit and credit entries should be considered. The Tribunal agreed with the assessee's contention and deemed it appropriate to remit the issue back to the Assessing Officer to verify the reconciliation details and provide the benefit of netting where applicable. This ground of appeal was also allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the write-off of bad debts and partly allowed the assessee's appeal, remanding the issues of computer repairs expenses and un-reconciled balance of sundry creditors back to the Assessing Officer for further verification. The labor welfare expense related to CSR was allowed. The order was pronounced on January 29, 2016.