2019 (12) TMI 1234 - AT - Income Tax

Addition of prior period expenses crystalised - HELD THAT - The assessee has not brought any other material other than submitting that the expenditure was approved by the board subsequently, therefore, the expenditure crystalised in the year under appeal. In my considered view, the assessee ought to have claimed such expenditure in the year when the expenditure was incurred. Undisputedly, the assessee has deducted tax on such expenditure. Moreover, the revenue has not doubted about genuineness of the expenditure. However, agreement with the view expressed by the CIT(A) that mere approval by the board in subsequent year would not be sufficient to hold that the expenditure was crystalised in the year under consideration. In fact, there is no dispute about the quantum of expenditure nor any dispute was pending. The assessee submitted that the A.O. should be directed to allow such expenditure when the expenditure was incurred as the tax has already been deducted by the assessee. Therefore, direct the A.O. to allow expenditure in the year when such expenditure was incurred, if law so permits at this belated stage. Ground of the assessee s appeal is disposed of in the terms indicated herein above. Disallowance of electricity expenses - HELD THAT - As perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the property was given on rent from October, 2012 at a monthly rent of ₹ 13,15,000/- and a rent of ₹ 81 lakhs has been credited in the profit loss account. It is pointed out by the CIT(A) that the assessee could not furnish any evidence regarding occupation of the property in December, 2012. The assessee has admittedly received rent for the relevant period. Therefore, it cannot be inferred that the property in question was used wholly and exclusively for business purpose. Hence, the expenditure has rightly been disallowed. This ground of the assessee s appeal is dismissed. Deduction u/s 24(a) - HELD THAT - Admittedly, the assessee has offered rental income and claimed deduction u/s 24 of the Act. Therefore, since the expenditure is related to the property, which has been let out by the assessee, this expenditure cannot be treated as business expenditure as claimed by the assessee. Disallowance of travelling expenses - authorities below have disallowed the claim on the basis that no supporting evidence regarding travelling being for business purpose has been given. It is undisputed fact that the assessee is a subsidiary of Japanese company - HELD THAT - Such evidences could not be filed. I find that the Ld. CIT(A) has dismissed the ground purely on the basis that no evidence related to convening of meeting, purpose of meeting and minutes of meeting was furnished. Therefore, set aside the impugned order and restore the issue to the A.O. for verification of purpose and minutes of meeting. The assessee is hereby directed to furnish the minutes of meeting held at Japan with the parent company. If such minutes are produced by the assessee demonstrating the nature and purpose of journey to Japan, the A.O. would delete the addition. Ground of the assessee is allowed for statistical purposes.

Issues Involved:
1. Sustaining the disallowance of prior period expenses of ?3,00,000.
2. Sustaining the disallowance of ?1,36,795 out of electricity expenses.
3. Sustaining the disallowance of ?3,07,636 out of rates and taxes expenses.
4. Sustaining the disallowance of travelling expenses of ?9,77,444.

Issue-wise Detailed Analysis:

1. Sustaining the Disallowance of Prior Period Expenses of ?3,00,000:
The assessee argued that the expenditure was incurred in respect of furnishing and furniture under perquisites as salary to its Directors, and the approval for this expenditure was received in the next financial year, thus crystallizing the expense in the year under appeal. However, the tribunal agreed with the CIT(A)'s finding that the expenditure was incurred in the earlier period and merely approving it in a subsequent board meeting does not change its nature as a prior period expense. The tribunal upheld the disallowance of ?3,00,000, directing the A.O. to allow the expenditure in the year it was incurred if permissible by law.

2. Sustaining the Disallowance of ?1,36,795 out of Electricity Expenses:
The assessee contended that the electricity expenses were incurred during the vacancy period before the property was occupied by the tenant and should be allowed as business expenses. However, the tribunal noted that the property was rented out from October 2012 and the rent was credited in the profit & loss account. Since the assessee could not furnish evidence of the property being vacant in December 2012, the tribunal upheld the disallowance of ?1,36,795, agreeing that the expenditure was not used wholly and exclusively for business purposes.

3. Sustaining the Disallowance of ?3,07,636 out of Rates and Taxes Expenses:
The assessee claimed that the amount of ?2,90,285 pertained to lease rent and maintenance charges paid to MPAKVN on the premises let out to Netlink Software Pvt. Ltd. However, the tribunal upheld the CIT(A)'s observation that since the assessee had already claimed a 30% deduction under section 24(a) of the Act for rental income, the additional expenses related to the property could not be treated as business expenses. The tribunal dismissed the ground, maintaining the disallowance of ?3,07,636.

4. Sustaining the Disallowance of Travelling Expenses of ?9,77,444:
The assessee argued that the travelling expenses were incurred for business purposes, specifically for attending meetings in Japan with the major shareholder, Fujitsu. The tribunal noted that the CIT(A) disallowed the expenses due to the lack of evidence such as agenda papers, minutes of meetings, and details of participants. However, considering the totality of facts, the tribunal set aside the impugned order and remanded the issue back to the A.O. for verification of the purpose and minutes of the meeting. The assessee was directed to furnish the necessary evidence to substantiate the business purpose of the travel expenses. If the evidence is satisfactory, the A.O. would delete the addition.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, with specific directions for the A.O. to verify and potentially allow certain expenses based on further evidence. The tribunal upheld the disallowance of prior period expenses, electricity expenses, and rates and taxes expenses, while remanding the issue of travelling expenses for further verification. The order was pronounced in the open court on 26.12.2019.

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