2021 (9) TMI 1078 - AT - Income Tax

Allowable business expenditure - Disallowance of expenses debited under the head 'other expenses' - as per AO there is no nexus between expenditure debited into the profit loss account and business activity of the assessee - CIT-A allowed partial relief in respect of loan processing charges, where amount held to be pertains to loans/advances of lending activity and the balance amount was sustained - HELD THAT - As we go through the nature of expenses like filing fees for ROC, office electricity, postage expenses, printing stationery and secretarial/other expenses, all expenses are in the nature of routine expenses required to be incurred by any corporate entity for maintaining corporate status of the assessee - these expenses cannot be disallowed merely for the reason that there is no revenue from operations - we direct the AO to delete additions made towards filing fees for ROC, office electricity, postage expenses, printing stationery and secretarial/other expenses. Processing charges - finding of the ld. CIT(A) that 2/3rd of processing charges relates to loans/advances of lending activity of the assessee and hence, apportioned said expenses between business activity of the assessee and non-business activity and thus, allowed relief of ₹ 75,327/-. Facts remain unchanged. The assessee has failed to bring on record any evidences to prove that said expenditure was wholly and exclusively incurred for the purpose of business of the assessee. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject arguments taken by the assessee - out of total disallowance all expenses excluding processing charges is allowed and insofar as processing charges, findings of the CIT(A) is sustained. Appeal filed by the assessee is partly allowed.

Issues:
1. Disallowance of expenses charged under various heads in the computation of taxable total income.
2. Proper justification for disallowance of expenses by the Commissioner of Income Tax (Appeals).
3. Apportionment of expenses and applicability of section 37(1) of the Act.
4. Reference to section 14A of the Act and its justification.
5. Compliance with principles of natural justice in passing the impugned order.

Issue 1: Disallowance of Expenses:
The appeal challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of expenses charged under various heads in the computation of taxable total income. The assessee contended that the disallowance was contrary to law, facts, and the circumstances of the case. The Commissioner of Income Tax (Appeals) had partly disallowed the expenses without providing proper reasons and justification.

Issue 2: Justification for Disallowance:
The Commissioner of Income Tax (Appeals) was criticized for not assigning proper reasons and justification for the disallowance of expenses. The appellant argued that the expenses were incurred for maintaining the income-earning apparatus and should have been allowable under section 37(1) of the Act. The Commissioner's failure to appreciate this aspect was highlighted as vitiating the findings in the impugned order.

Issue 3: Apportionment of Expenses:
The case involved the apportionment of expenses, particularly processing charges, between business activity and non-business activity. The Commissioner of Income Tax (Appeals) had allowed relief in part, considering that a portion of the processing charges related to the lending activity of the assessee. The Tribunal upheld this decision, noting the lack of evidence to prove that the expenditure was solely for the business purpose.

Issue 4: Reference to Section 14A of the Act:
The appellant contested the reference to section 14A of the Act, arguing that it was unjustified and had no application to the facts of the case. The Tribunal acknowledged this argument, emphasizing that the provisions of section 14A were not relevant to the circumstances under consideration.

Issue 5: Compliance with Natural Justice:
The appellant raised concerns about the lack of proper opportunity given before the passing of the impugned order. It was contended that any order passed in violation of the principles of natural justice would be considered nullity in law. However, the Tribunal did not delve deeply into this issue in the judgment.

In conclusion, the Tribunal partly allowed the appeal, directing the Assessing Officer to delete certain additions made towards routine expenses while upholding the findings regarding processing charges. The judgment provided a detailed analysis of each ground of appeal raised by the assessee, addressing the core issues related to the disallowance of expenses and the application of relevant provisions of the Income Tax Act.

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