2018 (12) TMI 191 - AT - Income Tax

Disallowance of expenditure being the professional fee paid to Preroy AG - Held that - As decided in assessee s own case 2016 (5) TMI 280 - ITAT MUMBAI we uphold the disallowance made by the Assessing Officer on this issue. As regards the point submitted by the learned counsel of the assessee for consideration, we find that the above order of the ITAT has already been appealed by the assessee before the Hon ble High Court. We note that the matter is already before the Hon ble High Court and we are of the considered opinion that these points referred by the learned counsel of the assessee are not cogent. Accordingly, we decline to accept these submissions, and consequently we do not find it proper to distinguish the consistently held view of the tribunal. Disallowance u/s 14A - Held that - We direct that the disallowance u/s 14A should be made in respect of only those investments which yielded dividend income during the year under consideration and disallowance should be restricted to 0.5% of the average value of such investments. Disallowance of business expenses - Held that - As the assessee submitted that in Assessment Year 1999- 2000, the Tribunal had held that the same should be done pro-rata as that of Sec. 14A of the Act. Upon careful consideration, we follow the same and order accordingly. Interest u/s 234D - whether CIT(A) has erred in holding that interest u/s 234D should not be charged where refund has been received before 01.06.2003? - Held that - As find merits in the Appellant submission that Sec. 234D has been inserted by the Finance Act 2003 w.e.f. June 1st 2003. Accordingly, all the ingredients for its applicability must take place after its coming into force. The AO is, therefore, directed not to charge interest u/s. 234D where refund has been received by the assessee before the date of insertion of Sec. 234D. In the result the appeal is allowed.

Summary

Issues Involved:
1. Disallowance of professional fees paid to Preroy AG (PAG).
2. Disallowance of business center fees.
3. Disallowance of telephone expenses.
4. Disallowance of foreign air travel expenses.
5. Disallowance of local travel expenses.
6. Disallowance under section 14A of the Income Tax Act.
7. Disallowance of donations from administrative expenses.
8. Failure to pass a clear and speaking order.
9. Charging of interest under section 234D.

Detailed Analysis:

1. Disallowance of Professional Fees Paid to Preroy AG (PAG):
The primary issue revolves around the disallowance of professional fees paid to PAG. The Tribunal consistently decided against the assessee, referencing previous judgments from Assessment Years 1995-96 to 1997-98. The Tribunal found that the services rendered were by Mr. Sushil Premchand as a director of the assessee company, not by PAG independently. The Tribunal upheld the disallowance, noting that the same issue had been appealed to the High Court. The Tribunal declined to accept the assessee's submission that the fees should be allowed as the income was taxed in PAG's hands, emphasizing that the legitimacy of the expenditure must be independently examined.

2. Disallowance of Business Center Fees:
This issue was not separately addressed in the detailed judgment provided. However, it is implied that the Tribunal's consistent approach to professional fees would likely apply here, requiring clear evidence of services rendered directly by the entity charging the fees.

3. Disallowance of Telephone Expenses:
The Tribunal did not provide a specific ruling on this issue in the detailed judgment. However, it can be inferred that such disallowances would be scrutinized based on the nature of the expenses and their direct connection to business activities.

4. Disallowance of Foreign Air Travel Expenses:
The Tribunal upheld the disallowance of foreign air travel expenses for the director's wife, referencing previous judgments where no evidence was provided to show that the travel was "wholly and exclusively for the purposes of business." The Tribunal cited the Kerala High Court's decision in Ram Bahadur Thakur Ltd. vs CIT, affirming that such expenses must be demonstrably for business purposes.

5. Disallowance of Local Travel Expenses:
Similar to foreign travel expenses, the Tribunal likely requires clear evidence that local travel expenses are directly related to business activities. The detailed judgment does not specifically address this issue, but the principle of requiring substantial evidence applies.

6. Disallowance Under Section 14A of the Income Tax Act:
The Tribunal directed that disallowance under section 14A should be made only for those investments yielding dividend income during the year, restricting the disallowance to 0.5% of the average value of such investments. This follows the Special Bench ruling in ACIT vs Vireet Investments and decisions in the assessee's own case for previous years.

7. Disallowance of Donations from Administrative Expenses:
The Tribunal did not specifically address this issue in the detailed judgment. However, it would follow the general principle of requiring clear evidence that such expenses are directly related to earning tax-free income.

8. Failure to Pass a Clear and Speaking Order:
The Tribunal did not explicitly address this procedural issue in the detailed judgment. However, the detailed analysis and references to previous judgments imply that the Tribunal strives to provide clear and reasoned orders.

9. Charging of Interest Under Section 234D:
The Tribunal upheld the CIT(A)'s decision that interest under section 234D should not be charged where refunds were received before the section's introduction on June 1, 2003. The Tribunal found no infirmity in the CIT(A)'s order, which directed that interest should not be charged for refunds granted before the section's effective date.

Conclusion:
The Tribunal's judgment is thorough and consistent with previous decisions, emphasizing the need for clear evidence and adherence to established legal principles. The disallowances were upheld based on a lack of substantial evidence demonstrating that expenses were wholly and exclusively for business purposes. The Tribunal also provided specific guidance on the application of section 14A, aligning with precedents and ensuring a reasoned approach to disallowances.