2022 (2) TMI 111 - AT - Income Tax

Disallowance of speed money u/s 37(1) - expenses under the head office administration expenditure - AO stated that on perusal of the detail it was noticed that miscellaneous expenses included entertainment expenses speed money etc - HELD THAT - The assessee explained that these expenses were incurred on behalf of the respective principals and have been debited to respective vessel account. The expenses was ultimately reimbursed by the principal and therefore these expenses were actually incurred on behalf of the principals and ultimately taken by the respective principal amount. The assessee has also explained the exact process of accounting and documentation of such expenses which is also produced in the submission of the assessee It is noticed that ld. CIT(A) after following the decision of M/s M. Jamunadas Company 2017 (1) TMI 1445 - ITAT MUMBAI has sustained the disallowance of 25% to such expenses made by the assessing officer. In this regard the contention of the assessee that in accordance with the above referred decision of the ITAT it has already made suo moto disallowance which was not considered by the lower authorities before making further disallowance - we observe that the contention of the assessee that it has already made suo motto disallowance which pertained to the expenses of the nature of speed money and the claim that the A.O had mistakenly presumed the entire administration expenditure for computing further such disallowance @ 25% as speed money is required verification on the basis of relevant supporting detail and document. Therefore we consider it will be appropriate to restore this issue to the file of the assessing officer for deciding de novo after verification and examination of the relevant material and submission of the assessee. Therefore this ground of appeal of the assessee is allowed for statistical purpose. Disallowance u/s 14A r.w.r. 8D - CIT(A) has restricted the disallowance computed by the assessing officer u/s 14A r.w.rule 8D to the extent of the exempt income of 10 lac earned by the assessee - HELD THAT - During the course of the appellate proceedings before us the ld. Counsel has referred the provision of Sec. 115BBDA and contended that provision of this section was not considered while computing disallowance in the case of the assessee. Therefore we are of the considered view that it would be appropriate to restore this issue to the file of the assessing officer for deciding afresh after taking into consideration the applicability of provision of Sec. 115BBDA and after verification of the relevant material and submission of the assessee. Accordingly the additional ground of appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of Speed Money u/s 37(1)
2. Disallowance of Business Promotion Expenses
3. Disallowance of Expenditure under Rule 8D of Income Tax Rules

Issue 1: Disallowance of Speed Money u/s 37(1):
The appellant contested the disallowance of ?20,27,280 as sundry expenses under section 37(1) by the CIT(A), arguing that the amount was wrongly included in administrative expenses. The appellant had voluntarily disallowed ?6,75,804 under the same section. The CIT(A) was criticized for not recognizing that administrative expenses do not encompass sundry expenses. The appellant cited previous ITAT decisions to support their case, emphasizing that the expenses were incurred on behalf of principals, not for personal gain. The ITAT found discrepancies in the AO's assessment, noting that the disallowance should have been limited to 25% of the expense, as per earlier decisions. The case was remanded to the AO for further verification.

Issue 2: Disallowance of Business Promotion Expenses:
The appellant challenged the ad hoc disallowance of ?1,95,714 for business promotion expenses, asserting that the AO had not considered their submissions on business expediency. However, the appellant did not pursue this ground, leading to its dismissal.

Issue 3: Disallowance of Expenditure under Rule 8D of Income Tax Rules:
Regarding the disallowance of ?15,43,888 under Rule 8D for exempt dividend income, the CIT(A) limited the disallowance to the exempt income of ?10 lakh. The appellant highlighted Sec. 115BBDA, arguing that the exempt income was not taxable. The ITAT agreed to remand the issue to the AO for fresh consideration, taking into account the applicability of Sec. 115BBDA.

In conclusion, the ITAT allowed the appeal for statistical purposes, remanding the issues of speed money disallowance and Rule 8D expenditure back to the AO for further examination.