2019 (11) TMI 271 - AT - Income Tax

Disallowance on account of 4/5th out of City Environmental Development and Preservation Expenses - nature of expenditure - HELD THAT - The alleged expenses are not preoperative expenditure which needs to be allowed @ 1/5th for 5 years. The said expenses can be either termed as non business expenses or business expenditure. If they are termed as business expenditure then they can be either termed as revenue or capital expenditure. No such distinction has been made by the Ld. AO about the alleged expenses. It is noteworthy that the assessee company is working under the direction of State Government. It gets the power to acquire the land develop housing project and other amenities for the public at large. Such land are acquired on concessional rates. Major reason for giving such wide powers and providing of precious land to the assessee authority is to develop the City in a well-organized manner keeping the interest of public at large. Construction of Flyover Parks Central Lighting on various main roads Plantation on various roads Construction of OPD at M.Y. Hospital are few of such work which are for the overall development of the City and provides facility for the public. Incurring of such expenses increases the brand value of IDA and also poses confidence of public at large in the working of IDA. Such expenses allowed by the revenue authorities in the past as well as in the future assessment proceedings and also because the impugned expenses have direct bearing with the overall business model of the assessee find no reason to interfere in the finding of Ld. CIT(A) who has deleted the impugned disallowance. Ground No.1 of Revenue s appeal stands dismissed. Disallowance of provisional expenses claimed under the head Employees Remuneration and Benefits - HELD THAT - From perusal of the finding as well as going through papers filed in the paper book we observe that such working of making provision for the expenses and reversing the actual expenses incurred has been carried out consistently from year to year basis and the provisions are made as per the well calculated ascertained liability. There may be some excess provision in some years and may be less provision in same years but the process keeps on going because for the purpose of maintaining accounts on mercantile basis provisioning of expenses has to be made by the assessee in the books of account. Therefore finding of Ld. CIT(A) needs no interference Addition u/s 14A - HELD THAT - We find force in the contention of the Ld. counsel for the assessee and the finding of Ld. CIT(A) who was rightly followed the judgment of Hon ble Delhi High Court in case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT . Since there is no exempt income earned by the assessee during the year disallowance u/s 14A of the Act was uncalled for. Disallowance of Audit fees - HELD THAT - Following the judicial precedence as well as looking to the fact that Local Government Audit Fees bill of preceding year was settled during the year and genuineness of business expenditure is not in doubt were are of the view that lower authorities erred in denying the claim to the assessee. Thus we delete the disallowance of Audit Fees Disallowance of three expenses incurred towards Jhanki-Pradarshani Seminar Devi Ahilya Utsav Malwa Utsav - whether the alleged amount is liable to be disallowed as donation and charity or whether such amount incurred by the assessee is allowable as business expenditure? - HELD THAT - We therefore respectfully following the judgment of Hon ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development 2018 (12) TMI 762 - DELHI HIGH COURT are of the considered view that the alleged amount should be allowed as business expenditure as it indirectly help to increase business of the assessee authority. Expenses which are incurred on the direction of the State Government for various events in which public at large takes part are the expenses in the nature of advertisement and brand building of the assessee namely IDA . Such expenses should be considered to have been incurred in the normal course of business allowable u/s 37(1) of the Act. Reliance was also placed by us on the judgment of Hon ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development 2018 (12) TMI 762 - DELHI HIGH COURT . However in the instant appeal for A.Y. 2012-13 disallowance of impugned amount also includes the disallowance for Rs. 3, 75, 065/- debited by the assessee under the head of other donation. No details have been placed before us about the actual purpose of this amount. It is also not emanating from the record that the alleged amount has been paid on the direction of the State Government. We therefore are of the considered view that out of total disallowance disallowance for other donation stands confirmed.

Summary

Issues Involved:

1. Disallowance of expenses as capital in nature.
2. Disallowance of provisional expenses under Employees Remuneration and Benefits.
3. Disallowance of expenses under Section 14A.
4. Disallowance of audit fees as prior period expenses.
5. Disallowance of expenses for Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav, and Malwa Utsav.
6. Denial of exemption under Sections 11 and 12 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Expenses as Capital in Nature:

The revenue challenged the deletion of an addition of Rs. 15,73,65,419/- made by the AO, treating City Environmental Development and Preservation Expenses as capital expenditure. The AO allowed only 1/5th of the expenses, disallowing the rest. The CIT(A) deleted the disallowance, noting that these expenses were consistently allowed in previous years and were incurred for the general development of the city, not creating any enduring benefit for the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing the principle of consistency and the nature of expenses as revenue.

2. Disallowance of Provisional Expenses under Employees Remuneration and Benefits:

The AO disallowed Rs. 21,27,835/- as contingent liability, but the CIT(A) deleted the addition, finding the provision to be an ascertained liability. The Tribunal upheld this, noting the consistency in the assessee's accounting treatment and the acceptance of such provisions in previous assessments.

3. Disallowance of Expenses under Section 14A:

The AO made a disallowance of Rs. 6,461/- under Section 14A, which the CIT(A) deleted, citing the Delhi High Court's ruling in Cheminvest Ltd. v. CIT-VI, where no disallowance is warranted if no exempt income is earned. The Tribunal upheld this deletion.

4. Disallowance of Audit Fees as Prior Period Expenses:

The AO disallowed Rs. 1,67,93,500/- as prior period expenses, but the CIT(A) provided relief except for Rs. 5,99,000/-. The Tribunal found that the liability for audit fees crystallized during the relevant year and allowed the entire amount, citing judicial precedents supporting the deduction of such expenses when liability is settled in a subsequent year.

5. Disallowance of Expenses for Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav, and Malwa Utsav:

The AO disallowed Rs. 31,27,208/- as donations not related to business purposes. The CIT(A) upheld this view. However, the Tribunal allowed these expenses, recognizing them as business expenditures incurred under the direction of the State Government, enhancing the 'brand' value of the assessee. The Tribunal cited the Delhi High Court's ruling in Pr. CIT v. Indian Farm Forestry Development, supporting the deduction of such expenses.

6. Denial of Exemption under Sections 11 and 12 of the Income Tax Act:

The Tribunal noted that the assessee's application for registration under Section 12AA was rejected by the CIT-I, Indore, and upheld by the ITAT, Indore. The matter was pending before the High Court. Consequently, the Tribunal upheld the denial of exemption under Sections 11 and 12 for the relevant assessment year.

Conclusion:

The Tribunal dismissed the revenue's appeal for A.Y. 2011-12, allowed the assessee's appeal for A.Y. 2011-12, and partly allowed the assessee's appeal for A.Y. 2012-13. The Tribunal's decisions were based on principles of consistency, the nature of expenses, and judicial precedents.