2022 (2) TMI 593 - AT - Income Tax

Disallowance of rent - allowable revenue expenditure or not? - HELD THAT - As fundamental principle in allowing expenditure u/s 37 is that it should full fill the conditions mentioned above. The expenditure should have been incurred wholly and exclusively for the purpose of business of the Appellant. In this case the appellant has not filed any documents to establish that the expenditure was incurred wholly and exclusively for the purpose of business of the expenditure. The burden of proof is on appellant. Appellant failed to discharge the same. Disallowance of Advertisement expenses - appellant has claimed advertisement expense under the broader head Administrative and Selling expenses - CIT(A) directed the AO to issue Summons u/s 131 of the Act to the persons to whom the appellant has claimed to have paid advertising charges - HELD THAT - On going through the CIT(A) s order it is observed that the CIT(A) has granted reasonable opportunity to the appellant. CIT(A) has also forwarded the copy of remand report to the appellant. However the appellant failed to file documentary evidence to establish that the so-called advertising expenses were paid wholly and exclusively for the purpose of business of the appellant. In the absence of any evidence being filed by the appellant CIT(A) has rightly confirmed the disallowance of Rs. 36, 76, 778/-. During the proceedings before this Tribunal the appellant has not filed any evidence to establish that it was wholly and exclusively incurred for the purpose of business of the appellant. The conditions to be fulfilled for claiming deduction u/s 37 of the Act has already been mentioned in earlier para. The appellant failed to prove that it fulfilled the conditions required to be fulfilled for claiming deduction u/s 37 of the Act. - Decided against assessee. Disallowance of Security Expenses - Onus to prove - allowable revenue expenditure - HELD THAT - Onus lies on the appellant to prove the genuineness of expenses claimed by the appellant as to prove by documentary evidence the genuineness of expenditure claimed and also as to prove that the expenditure was incurred wholly and exclusively for the purpose of business of the appellant. However in this case the appellant failed to prove the genuineness of expenditure and also failed that the expenditure was incurred wholly and exclusively for the purpose of business of the appellant. During the proceedings before this Tribunal the appellant has not filed any document to prove the same. As mentioned earlier initial onus is on appellant to prove that the said expenditure has been genuinely incurred wholly and exclusively for the purpose of business of the appellant. The conditions to be fulfilled for claiming deduction u/s 37 of the Act has already been mentioned in earlier para. The appellant failed to prove that it fulfilled the conditions required to be fulfilled for claiming deduction u/s 37 of the Act. Disallowance of Interest on Excise Duty - interest was not allowed as the same was shown by the appellant as payable as on 31.03.2012 due to changes in Union Budget therefore CIT(A) concluded that the liability in question has not crystallized in the year under reference - HELD THAT - Appellant could not file copy of any show cause notice or order of the Excise authorities to substantiate its claim. Only the crystallized clear liability can be allowed. As per section 43B of the Act any sum payable by assessee by way of tax duty cess or fees by whatever name called is allowable only on actual payments. As mentioned earlier it has been verified by the CIT(A) that the liability has not been crystallized during the year. Therefore the disallowance of interest on Excise duty is upheld. The ground of appeal No.4 is thus dismissed. Disallowance of Interest for delay in payment of TDS - HELD THAT - The appellant has paid interest as interest for delay in payment of TDS. This is not an allowable expenditure. Therefore disallowance by the CIT(A) is upheld. The ground of appeal No.5 is thus dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of Rent expenses.
3. Disallowance of Advertisement expenses.
4. Disallowance of Security expenses.
5. Disallowance of Interest on Excise Duty.
6. Disallowance of Interest for delay in payment of TDS.

Issue-wise Detailed Analysis:

Condonation of Delay in Filing the Appeal:
The appeal was filed beyond the statutory time limit, delayed by 86 days. The appellant company’s Director filed an affidavit explaining the delay due to the discontinuation of business and lack of employees. The Tribunal found the reasons valid and sufficient, citing the Supreme Court's principles in Collector Land Acquisition Vs. Mst. Katiji & Ors., emphasizing that substantial justice should prevail over technicalities. The delay was condoned, and the appeal proceeded on merits.

Disallowance of Rent Expenses:
The appellant claimed a rent expense of Rs. 41,08,553/-, which was disallowed by the CIT(A) on the grounds that the appellant failed to establish that the rent was paid wholly and exclusively for business purposes. The Tribunal upheld this disallowance, noting that the appellant did not provide documentary evidence to support the claim that the rented premises in Mumbai were used for business purposes. The burden of proof was on the appellant, which it failed to discharge.

Disallowance of Advertisement Expenses:
The appellant claimed advertisement expenses of Rs. 42,40,578/-, out of which Rs. 36,76,778/- was disallowed by the CIT(A) due to lack of evidence. The CIT(A) allowed only the expenses confirmed by third parties through summons. The Tribunal upheld this disallowance, noting that the appellant failed to provide evidence to prove that the expenses were incurred wholly and exclusively for business purposes.

Disallowance of Security Expenses:
The appellant claimed security expenses of Rs. 22,22,187/-, which were disallowed by the CIT(A) due to the non-response of the entities to summons and the appellant's inability to provide necessary evidence. The Tribunal upheld this disallowance, emphasizing that the appellant failed to prove the genuineness and business purpose of the expenses.

Disallowance of Interest on Excise Duty:
The appellant claimed interest on excise duty amounting to Rs. 29,89,381/-, which was disallowed by the CIT(A) as the liability had not crystallized during the relevant year. The Tribunal upheld this disallowance, noting that only crystallized liabilities are allowable, and the appellant failed to provide any show cause notice or order from the Excise authorities to substantiate the claim.

Disallowance of Interest for Delay in Payment of TDS:
The appellant claimed interest of Rs. 86,169/- for delay in payment of TDS, which was disallowed by the CIT(A) as it is not an allowable expenditure. The Tribunal upheld this disallowance, affirming that such interest is not deductible.

Conclusion:
The appeal filed by the assessee was dismissed in its entirety, with all grounds of appeal being decided against the appellant. The order was pronounced in the Open Court on 11th February, 2022.