2018 (5) TMI 579 - AT - Income Tax

Deduction u/s. 80GGC allowability - payment has been made to a newspaper being run by a political party - whether assessee has not given donation to any Political Party registered u/s. 29 of the Representative People Act, 1951? - Held that - In the present case, the payment has been made to a newspaper being run by a political party for insertion of some advertisements in the said newsletter/newspaper. The assessee has made payment of ₹ 10,50,000/- to the newsletter/newspaper during April, 2010 to March, 2011. The Commissioner of Income Tax (Appeals) while allowing the assessee s claim of deduction u/s. 80GGC observed t none of the receipts mention that the amount received is donation. However, for proper adjudication of this issue we deem it appropriate to restore the issue back to Assessing Officer for verification. If the assessee has made donation to a political party as defined u/s. 80GGC, the assessee is eligible to claim deduction under the provisions of aforesaid section. AO shall decide this issue after examining the documents on record Allowing expenditures without ascertaining the genuineness of expenditures - Held that - The onus is on the assessee to prove that the expenditure has been incurred wholly and exclusively for the purpose of business. The assessee has failed to discharge this onus. Similar is the position in respect of payment made for Business Auxiliary Services allegedly received by assessee from Shri Sham Chopra. The Commissioner of Income Tax (Appeals) in the impugned order has not referred to any document to come to a conclusion that the expenditure is not personal in nature. In the absence of any documentary evidence connecting expenditure with the business of assessee, the payments made by the assessee towards legal fee ₹ 1 crore and Business Auxiliary Service ₹ 1.10 crore have to be disallowed. Accordingly, ground No. 2 raised in appeal by the Revenue is allowed.

Summary

Issues:
1. Allowance of deduction u/s. 80GGC of the Income Tax Act.
2. Allowance of expenses without substantiating their genuineness.

Analysis:

Issue 1: Allowance of deduction u/s. 80GGC
The Revenue challenged the allowance of deduction u/s. 80GGC by the Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The assessee claimed a deduction of &8377; 10,50,000 under this section, stating that the payment was made to a newsletter run by a political party registered under the Representation of the People Act, 1951. However, the Revenue contended that the payment was for advertisement and not a donation to a political party as required by the section. The Tribunal observed that the receipts did not clearly indicate the amount as a donation. Therefore, the issue was remanded back to the Assessing Officer for verification, directing a decision after examining the documents and providing an opportunity for the assessee.

Issue 2: Allowance of expenses without substantiating genuineness
The Revenue also contested the allowance of expenses amounting to &8377; 2.10 crores by the Commissioner of Income Tax (Appeals). The assessee made payments for legal opinions/consultations and Business Auxiliary Service but failed to substantiate the purpose of these expenditures. The Tribunal emphasized that for an expense to be allowable under section 37(1) of the Act, it must be incurred "wholly and exclusively" for the business or profession. The assessee could not prove that the payments were solely for business purposes, leading to the disallowance of the expenses. The Tribunal highlighted the lack of evidence connecting the expenditures to the business activities, resulting in the disallowance of the claimed amounts.

In conclusion, the Tribunal partly allowed the Revenue's appeal concerning the deduction u/s. 80GGC and the allowance of expenses, emphasizing the necessity of substantiating expenses and ensuring compliance with the provisions of the Income Tax Act.