2022 (3) TMI 1240 - AT - Income Tax

Income deemed to accrue or arise in India - dividend income from Joint venture with investment in the P.E. Oman - as per AO assessee has not paid tax either in the source country or in India - HELD THAT - Issue of dividend income from investment in the P.E. in Oman is concerned the same being included in the taxable income and thereafter rebate of tax has been allowed to the assessee by means of tax credit u/s 90(2) read with Article 25(2) and (4) of the Indo Oman DTAA, the dividend earned can be said to be exempt from tax and but the provisions of section 14A would not be attracted. This consistent view has been taken by the predecessor of Ld. F.A.A. for the assessment year 2008-09 and 2009-10 and also upheld in assessee s own case 2018 (5) TMI 1035 - ITAT DELHI and 2018 (5) TMI 1021 - ITAT DELHI No Reason is cited by revenue to distinguish the same. Thus, in regard to ground no. 1 and 2, the appeal of revenue has no substance to interfere in the Ld FAA order. Allowability of Horticulture expenses u/s 37(1) - Addition of 10% of horticulture expenses as element of personal use - CIT-A deleted the addition - HELD THAT - Tribunal is of considered opinion that assessee is not a private entity but a Multi State Cooperative Society registered under Multi State Co-operative Society s Act, 2002 and thereby bound by statutory provisions with regard to utilization of funds so there cannot be any presumption of use of the funds for any private use. Ld FAA rightly observed that Ld. AO while making the disallowance has failed to bring on record any specific finding that element of personal nature is involved in these expenses Assessee is engaged in the manufacturing of chemical fertilizers and certainly the premises of the assessee require maintenance of extensive green channels and green belts for balancing environmental hazards which are quite probable, due to the nature of activities of the assessee company. The ld. F.A.A has taken into consideration the requirements laid by Central Pollution Control board and Environment Protection Laws to justify the expenses. There is no prudence in expecting the assessee to maintain log book for employee wise / premise wise expenditure, as expenditure was for maintenance of the green belts in the township and manufacturing units and not on identifiable individuals. Thus, in regard to grounds no. 3 4 also there is no substance to interfere in the Ld. FAA order. - Decided against reveue.

Summary

Issues:
1. Disallowance of expenses related to income exempt from tax under Section 14A.
2. Disallowance of horticulture expenses due to alleged personal nature.

Issue 1: Disallowance of expenses related to income exempt from tax under Section 14A

The case involved an appeal by the revenue against an order passed by the Commissioner of Income Tax (Appeals)-11, New Delhi, partially allowing the assessee's appeal against the order of the Additional CIT. The dispute arose from the revision of the assessee's return to exclude business income earned from its Permanent Establishment (PE) in Oman to avoid excess tax payment. The Revenue argued that the assessee revised the return to avoid tax due to a change in tax rates in Oman. The Assessing Officer (AO) disallowed the exempt income under Section 14A read with Rule 8D, resulting in a total disallowance of ?3133.42 lac. The First Appellate Authority (FAA) held that the income was not exempt and subject to tax under Indian laws, thus not eligible for disallowance under Section 14A. The FAA referred to previous orders in favor of the appellant and upheld that the investment in the PE in Oman was taxable in India and should be treated as such for disallowance under Section 14A.

Issue 2: Disallowance of horticulture expenses due to alleged personal nature

The Assessing Officer made a disallowance of 10% of horticulture expenses totaling ?60,70,000, treating them as personal due to the non-maintenance of a log book. The FAA observed that the AO failed to establish any personal element in these expenses and deleted the addition. The FAA noted that the expenses were necessary for compliance with environmental laws and pollution control requirements. The Tribunal considered the nature of the assessee as a Multi-State Cooperative Society bound by statutory provisions, ruling out any presumption of personal use of funds. The Tribunal agreed with the FAA's view that the expenses were justified by environmental regulations and the nature of the assessee's activities. It was deemed impractical to expect the maintenance of a log book for such expenses, as they were related to green belt maintenance for environmental balance, not individual use. Consequently, the Tribunal found no basis to interfere with the FAA's decision on the horticulture expenses.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the FAA's orders regarding the disallowance of expenses related to exempt income under Section 14A and the horticulture expenses. The Tribunal found no substance in the revenue's grounds for appeal and affirmed the FAA's decisions.