2017 (5) TMI 634 - AT - Income Tax

Disallowance of interest paid to NBFCs and finance charges as per provision of section 40(a)(ia) - Held that - In the light of order in the case of R.K.P. Company (2016 (7) TMI 447 - ITAT RAIPUR) wherein held that in the case of non deduction of tax, it is proper to remit the matter to the file of AO for limited verification as to whether recipient of payment has included the same in his computation of business income offered to tax, we restore this issue back to the file of the Assessing Officer with a limited direction to examine whether the payee NBFCs have included the interest paid by the assessee in its return of income and paid the tax on the same. The assessee is at liberty to submit certificate in Form No.26. - Decided in favour of assessee for statistical purposes. Disallowance of Car running & maintenance expenses, Office telephone and traveling expenses and mess expenses - Held that - CIT(A) after considering the preceding years gross receipt and expenditure held that adhoc disallowances is not warranted for the relevant assessment year. The gross profit of the current assessment year is more than the G.P. of the previous assessment year. The book result of the assessee was accepted and no specific defects were pointed out. The gross receipt for the current assessment year had increased to ₹ 14.86 crores from ₹ 12.26 crores in the previous assessment year. The expenditure claimed under the various heads (under dispute) are less in the current assessment year compared to the expenditure allowed in previous assessment year. Therefore, no adhoc disallowance of ₹ 1,44,666/- and ₹ 50,000/- are warranted in the facts and circumstances of the case. - Decided against revenue

Summary

Issues:
1. Disallowance of interest paid to NBFCs under section 40(a)(ia) of the Income Tax Act
2. Disallowance of car running & maintenance, office telephone, and traveling expenses
3. Disallowance of mess expenses

Issue 1: Disallowance of interest paid to NBFCs under section 40(a)(ia) of the Income Tax Act:
The Revenue appealed against the CIT(A)'s order deleting the addition of ?33,35,974 made by the AO for disallowance of interest paid to NBFCs under section 40(a)(ia) of the IT Act for the assessment year 2011-12. The ITAT Raipur considered the retrospective application of the Finance Act, 2012 amendments to sections 201(1) and 40(a)(ia), requiring verification if the payee included the interest income in their business income. Citing relevant case laws, the Tribunal directed the AO to verify if the NBFC payees included the interest paid in their income tax returns, allowing the appeal for statistical purposes.

Issue 2: Disallowance of car running & maintenance, office telephone, and traveling expenses:
The AO disallowed ?1,44,666 for expenses related to car running & maintenance, office telephone, and traveling, citing lack of verifiability and potential personal use. Additionally, a lump sum of ?50,000 for mess expenses was disallowed due to similar reasons. The CIT(A) overturned these disallowances based on the increase in gross receipts and expenditure compared to the previous year, indicating no need for ad hoc disallowances. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal against the disallowances.

In conclusion, the ITAT Raipur partially allowed the Revenue's appeal for statistical purposes regarding the disallowance of interest paid to NBFCs under section 40(a)(ia) while dismissing the appeal concerning the disallowance of car running & maintenance, office telephone, and traveling expenses, as well as mess expenses.