2018 (12) TMI 188 - AT - Income Tax

Disallowance u/s.14A r.w. rule 8D for the administrative expenses incurred for earning exempt income - Held that - When the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified. We allow the ground of appeal in favour of assessee by deleting the orders of disallowance u/s.14A r.w. Rule 8D of the Act passed by the authorities below. Thus, Ground No.1 of assessee s appeal is allowed. Donation expenses u/s.80G - Held that - Assessee is entitled to get deduction u/s.80G of the Act since the Disable Welfare Trust of India was rightly eligible to receive donations as claimed by the assessee. Capital nature of expenses - Held that - We are of the considered opinion that the assessee s claim towards travelling expenses is justified. But having regard to the disputed question of facts relating to the travelling expenses incurred towards the persons sponsored by the company other than the doctors needs to be verified in its proper perspective with the supporting documents to be made available by the assessee to the AO. We therefore find it proper for the ends of justice to set aside the issue to the file of AO to verify the claim of the company towards the expenses incurred upon the persons other than the doctors as indicated by the authorities below in the order impugned before us. We make it clear that the assessee will co-operate with the AO by furnishing the details of those persons to ascertain the actual expenses incurred on the medical practitioners which only required to be allowed after being fully satisfied upon verification of the details to be furnished by the assessee at the time of assessment. Assessee is thus partly allowed for statistical purposes

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961.
2. Disallowance of donation expenses under Section 80G.
3. Disallowance of Interest on TDS.
4. Disallowance of Travelling Expenses.
5. Capital Nature of Expense.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The first issue pertains to the disallowance of administrative expenses incurred for earning exempt income under Section 14A read with Rule 8D of the IT Rules, 1962. The assessee argued that the investment was made from its accumulated reserves and surplus, thus disallowance of ?1,54,414/- was not justified. The AO observed that the assessee had interest-bearing borrowed funds and made disallowance under Rule 8D. The CIT(A) partially granted relief, noting that the AO had recorded satisfaction that the appellant’s funds were mixed, and some administrative expenses must have been incurred for earning exempt income. However, the CIT(A) found that the interest payment was negligible and the interest-free funds available were more than the investments made for earning exempt income. The Tribunal, following the judgment in Pr.CIT-IV vs. Sintex Industries Ltd., concluded that since the assessee had sufficient surplus funds, no disallowance under Section 14A was warranted, thus allowing the ground of appeal in favor of the assessee.

2. Disallowance of Donation Expenses under Section 80G:
The second issue involved the disallowance of donation expenses amounting to ?15,75,000/- under Section 80G. The AO disallowed the deduction as the certificate of registration of the trust was not provided. The CIT(A) upheld the disallowance, noting that the trust was not approved for Section 80G deduction till March 2011. The assessee argued that the approval, once granted, continued perpetually unless specifically withdrawn, supported by a CBDT Circular. The Tribunal, considering the CBDT Circular No.7/2010, held that the approval continued in perpetuity, thus the donation was eligible for deduction under Section 80G. The Tribunal allowed the ground of appeal in favor of the assessee.

3. Disallowance of Interest on TDS:
The third ground regarding the disallowance of interest on TDS amounting to ?1,10,590/- was not pressed by the assessee’s representative, and hence, it was dismissed.

4. Disallowance of Travelling Expenses:
The fourth issue involved the disallowance of travelling expenses amounting to ?28,36,700/-. The AO disallowed the expenses as the assessee could not substantiate the business purpose of the seminar held in Hong Kong. The CIT(A) upheld the disallowance, noting that the expenses were incurred for a pleasure trip and were prohibited by the Indian Medical Council regulations. The assessee argued that the regulations were not applicable to the company, supported by judgments in Max Hospital vs. MCI and Solvay Pharma India Ltd. vs. Pr.CIT. The Tribunal noted that the CBDT Circular dated 01.08.2012 did not have retrospective effect and the MCI regulations did not apply to the assessee company. However, the Tribunal remanded the issue to the AO for verification of expenses incurred on persons other than doctors, thus partly allowing the ground for statistical purposes.

5. Capital Nature of Expense:
The fifth issue regarding the upholding of capital nature of expenses amounting to ?3,34,854/- was not separately discussed in the detailed judgment provided.

Conclusion:
The Tribunal allowed the appeal partly, providing relief on the disallowance under Section 14A and donation expenses under Section 80G, while remanding the issue of travelling expenses for further verification by the AO. The ground regarding interest on TDS was dismissed as it was not pressed. The judgment reflects a detailed consideration of legal precedents and relevant CBDT circulars, ensuring that the assessee’s claims were evaluated comprehensively.

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