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2020 (10) TMI 401 - AT - Income TaxDisallowance of expenditure u/s. 37 - supply of Alcohol to Ireland Embassy where the Director of the company was Honorary Member and payment made to Taj Bengal, both dedicated under the head 'Sales Promotion Expenses' - appellant's alleged failure to establish the nexus with the business need - HELD THAT - As rightly pointed out by the DR the bills for the expenditure in question claimed to be incurred by the assessee on supply of alcohol issued by the Embassy of Ireland and for other expenses issued by Hotel Taj Bengal, Kolkata were raised in the personal name of Shri M.K. Jalan as Honorary Counsel of Ireland with the Care of Address of Keventer Agro Limited - no evidence to establish the involvement of the assessee-company in the said expenditure - we are unable to accept the claim of the assessee that the expenditure in question incurred on organizing an event to celebrate the Ireland National Day in India by its Managing D rector, Shri M.K. Jalan in his individual capacity was wholly and exclusively incurred for the purpose of business of the assessee-company and he same, in our view, was rightly disallowed by the authorities below. - Decided against assessee. Disallowance of 20% of sales promotion expenses - assessee contended by relying on the provision of sub section (2) of section 142 that the Assessing Officer was required to carry out the necessary enquiry to establish that part of the expenses claimed by the assessee on sales promotion were not for the purpose of its business - HELD THAT - Assessee-company failed to discharge the said onus successfully and satisfactorily inasmuh as the details and supporting bills and vouchers verified by the AO revealed that unverifiable and personal element was involved in the said expenditure. As rightly contended by the Id. DR, such personal and unverifiable event involved in the said expenses warranted a disallowance out of such expenses to some extent and since the disallowance so made by the AO and confirmed by the Id. CIT (A) at 20% of the sales promotion expenses is air and reasonable, we do not find any justifiable reason to interfere with the same. - There is merit in the alternative contention of assessee that the expenses incurred on organizing an event to celebrate Ireland National Day in India which was included in sales promotion having been entirely disallowed by the authorities below and the said disallowance having been confirmed by us, the disallowance of 20% should be restricted out of the balance amount of sales promotion expenses - Decided partly in favour of assessee. Disallowance of miscellaneous expenses - CIT (Appeals) confirmed the said disallowanae made by the AO keeping in view the unverifiable element involved in the expenses claimed by the assessee as specifically pointed out by the AO - HELD THAT - We agree with the view taken by the authorities below that the expenses claimed by the assessee under the head general expenses and office expenses were not fully verifiable and the same being not fully established as wholly and exclusively incurred for the purpose of the assessee's business some disallowance out of the same was called for. Since the disallowance so made at 20% by the Assessing Officer and confirmed by the Id. CIT (A) in the facts and circumstances of the case is fair and reasonable, we do not find any justifiable reason to interfere with the same - Decided against assessee. Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance by assessee - assessee earned dividend income which was claimed exempt from tax under section 10(34) - HELD THAT - We hold that the disallowance of ₹ 1,62,02,191/- made by the Assessing Officer and confirmed by the Id. CIT (A) u/ s 14A r.w. Rule 8D is liable to be restricted to ₹ 8,88,566/- being the exempt income actually earned by the assessee during the year under consideration. - Decided in favour of assessee partly.
Issues Involved:
1. Disallowance of sales promotion expenses. 2. Disallowance of miscellaneous expenses. 3. Disallowance under Section 14A of the Income Tax Act read with Rule 8D. Detailed Analysis: 1. Disallowance of Sales Promotion Expenses: - Grounds Raised: The assessee contested the disallowance of ?3,22,630/- incurred on the supply of alcohol to the Ireland Embassy and payment to Taj Bengal, and the adhoc disallowance of ?1,68,773/- (20% of total sales promotion expenses). - Assessing Officer's Findings: The expenses were partly personal and not incurred wholly and exclusively for business purposes. - CIT (Appeals) Confirmation: Upheld the disallowance for the same reasons as the Assessing Officer. - Assessee's Argument: The expenses were for business promotion as the Director was an Honorary Counsel of Ireland, and the event was for business advancement. - Revenue's Argument: The expenses were personal, and the assessee failed to establish business expediency. - Tribunal's Decision: The Tribunal found no evidence to support that the expenses were for business purposes and upheld the disallowance but agreed to restrict the 20% disallowance to the balance amount after excluding ?3,22,630/-. 2. Disallowance of Miscellaneous Expenses: - Grounds Raised: The assessee contested the disallowance of ?4,28,328/- out of miscellaneous expenses. - Assessing Officer's Findings: General and office expenses totaling ?21,41,639/- were mostly paid in cash and unverifiable. - CIT (Appeals) Confirmation: Upheld the disallowance due to unverifiable nature and lack of evidence for business expediency. - Assessee's Argument: Similar to the argument for sales promotion expenses, the disallowance was arbitrary. - Revenue's Argument: The details provided were vague and insufficient for verification. - Tribunal's Decision: The Tribunal upheld the disallowance, finding the expenses unverifiable and not fully established as business expenses. 3. Disallowance under Section 14A read with Rule 8D: - Grounds Raised: The assessee contested the disallowance of ?1,16,90,694/- after adjusting suo moto disallowance of ?45,11,497/-. - Assessing Officer's Findings: Applied Rule 8D and made a disallowance based on interest expenditure and average value of investments. - CIT (Appeals) Confirmation: Upheld the disallowance, noting the assessee's acceptance of some interest expenditure related to exempt income. - Assessee's Argument: The disallowance should not exceed the exempt income of ?8,88,566/-, and only dividend-yielding investments should be considered. - Revenue's Argument: The disallowance was correctly calculated as per Rule 8D, and the assessee's suo moto disallowance indicated incurred expenses. - Tribunal's Decision: The Tribunal admitted additional grounds raised by the assessee and held that the disallowance under Section 14A read with Rule 8D cannot exceed the exempt income. The disallowance was restricted to ?8,88,566/-, rendering other grounds on this issue infructuous. Conclusion: The appeal was partly allowed. The Tribunal upheld the disallowance of sales promotion and miscellaneous expenses but restricted the disallowance under Section 14A to the amount of exempt income actually earned by the assessee.
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