2021 (2) TMI 384 - HC - Income Tax

Deduction on account of amortization of expenditure u/s 35D - Addition being the estimated disallowance out of general expenses - disallowance of interest when the assessee had not produced any evidence to show that the loan on which the interest was paid was taken for the purpose of business of the assessee - addition under the head information and processing charges - Tribunal deleted addition - HELD THAT - The issues involved in the present appeal is only question of fact and the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) have given a categorical and substantial finding with regard to all the issues. We do not find any ground much less any substantial question of law to interfere with the order of the Income Tax Appellate Tribunal. The appeal is liable to be dismissed

Summary

Issues:
- Deduction of amortization of expenditure under Section 35D
- Disallowance of estimated general expenses
- Disallowance of interest expenditure
- Addition of information processing charges

Analysis:

1. Deduction of amortization of expenditure under Section 35D:
The appellant challenged the order disallowing the claim towards amortization of expenditure under Section 35D for the assessment year 1995-96. The CIT (Appeals) found that the aggregate amount of expenditure exceeded the permissible limit based on the capital employed in the business. The respondent was found eligible for a deduction of 10% of the capital employed, resulting in a further deduction of &8377; 14,65,000. The Tribunal upheld this decision, stating that the respondent met the criteria for the deduction.

2. Disallowance of estimated general expenses:
The Assessing Officer had made an estimated disallowance of 10% of general expenses without concrete evidence or material to support the estimation. The Appellate Authority and the Tribunal concurred that the disallowance was based on estimation without sufficient grounds. Since the accounts of the respondent were not rejected and no evidence was provided to challenge the estimation, the disallowance was deemed unjustified.

3. Disallowance of interest expenditure:
Regarding the disallowance of interest expenditure, the Assessing Officer raised concerns about non-compliance with Section 40(a)(i) regarding the payment of interest or loan. However, the respondent was able to demonstrate before the Appellate Authority that the interest paid on loans taken from parties outside India was legitimate and necessary for business purposes. The Tribunal accepted the explanations provided and ruled in favor of the respondent, allowing relief from the disallowance.

4. Addition of information processing charges:
The respondent successfully proved before the CIT (Appeals) that the amount disallowed for information processing charges was paid to a relevant society for services rendered. The Tribunal agreed that the nature of the expenditure was not capital in nature and was essential for day-to-day business activities. As the expenditure was not for acquiring capital assets but for operational services, the disallowance was deemed unwarranted.

In conclusion, the High Court dismissed the appeal, emphasizing that the issues raised were primarily questions of fact. Both the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) had provided substantial findings on all issues. The Court found no grounds or substantial questions of law to interfere with the lower authorities' orders, leading to the dismissal of the Tax Case Appeal without costs.