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2022 (8) TMI 595 - AT - Income TaxAddition u/s 14A - Expenditure on exempt income - HELD THAT - As the issue is squarely covered in favour of the assessee and the AO has not brought out the nexus that the assessee has made investments in the instrument given to rise to exempt income out of interest bearing funds, we presume that the investment came out of available interest free funds. Hence, we delete the disallowance and allow the appeals of the assessee on this issue. Disallowance of expenses relatable to exempt income u/r.8D(2)(iii) of the Rules, i.e. average value of investment @ 0.5% i.e. particularly in AY 2012-13 - We direct the AO to verify the investments which give rise to exempt income and consider for disallowance u/r.8D(2)(iii) of the Rules, only those investments which has given rise to exempt income only and accordingly, make disallowance. Similar is the position in AY 2013-14, wherein u/r.8D(2)(iii) of the Rules, the disallowance and for the AY 2014-15, the disallowance - Similar are directions in these two assessment years. AO will verify the instrument giving rise to exempt income and only for those instruments, the investment will be considered for making disallowance u/r.8D(2)(iii) of the Rules and accordingly, this common issue is decided in terms of above directions. Consequently, the appeal filed by the assessee is partly allowed for statistical purposes. Disallowance of staff training expenses - assessee stated that persons were deputed for higher studies only after taking the large business interest of the assessee company into consideration and its large number of associated companies - as argued company sponsored the persons and deputed them for higher study on the understanding that on completion of advanced study, they would return to India and serving the company or in any of its group/associated company promoted by the group concern in a position of responsibility - HELD THAT - After hearing both the sides and going through the facts of the case, we noted that this issue is exactly identical and there is no change in facts in these two years also, what was before the ITAT in AY 2010-11 2015 (7) TMI 1411 - ITAT CHENNAI and hence, taking the issue as covered, we decide the issue against the assessee. This issue in both the appeals of the assessee is dismissed. Disallowance of foreign travel expenses - Allowable revenue expenses u/s 37 - HELD THAT - Before us, assessee only made bald submission that the assessee has spent money towards travel expenditure of Consultants of the assessee company and for this, he relied on the decision of JK Industries Ltd. v. CIT 2011 (3) TMI 23 - CALCUTTA HIGH COURT - Now, we noted that the Hon ble Madras High Court has categorically held that expenses on foreign travel, wife of Director of assessee s company, the assessee has to show that the expenditure is incurred for the business purpose. Here, even now, on a query from the Bench, the ld.Counsel could not produce any evidence or explain how the business expenditure incurred for foreign travel of sister of Director of the assessee company that Ms.Anitha Raajyalaxmi Ratnam, is for the purpose of business. He failed to do so. In the absence of any evidence, we have no alternative except to confirm the addition. Disallowance of medical expenses of family member of the Director of the assessee company - HELD THAT - Hon ble Madras High Court relied on the decision in the case of Gordon Woodroffe Leather Manufacturing Co. 1961 (12) TMI 4 - SUPREME COURT wherein, certain tests laid down by the Hon ble Supreme Court were that the payment should have been made as a matter of practice which affected the quantum of salary. There should be expectation by the employee for payment of medical expenses. The sum of money was expended on the ground of commercial expediency and in order to facilitate indirectly the carrying on of the business of the assessee. If any one of the tests was not satisfied that medical expenditure incurred on by an employee should not be allowed as a valid business expenditure in the hands of the assessee u/s 37 - Based upon the above points, the High court held that the expenditure in connection with the payment of Medical expenses met out by the company even though, the same had been spelt out in the letter of appointment cannot be regarded as sufficient for treating the expenditure as business expenditure. As in the case of CIT v. TIAM House Service Ltd. 1998 (11) TMI 45 - MADRAS HIGH COURT wherein, the decision of the Hon ble Supreme Court was followed. We are of the view that these expenses incurred towards medical expenses of the relative of the Director of the assessee company in foreign currency are personal in nature and not in relation to any business connection. Hence, the lower authorities have rightly disallowed the same and we confirm the same. Disallowance of Interest for diversion of borrowed funds to subsidiary company at Lower rate of Interest - HELD THAT - Assessee stated at the best, the matter can be referred back to the file of the AO for verification of the actual availability of surplus funds. Since, assessee has filed these details before us as the assessee is having surplus funds with it for making advance to TVS Srichakra Ltd. according to us, in such situation, no disallowance has been made in view of the decision of the Hon ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd.,. 2009 (1) TMI 4 - BOMBAY HIGH COURT Accordingly, we remit this issue back to the file of the AO with the above directions. This issue is allowed for statistical purposes. TDS u/s 194C - disallowance made in respect of freight charges paid for non-deduction of TDS - HELD THAT - We noted that CIT(A) has given exactly the same findings that there are penal provisions for the lapse, no disallowance can be made by invoking provisions of Sec.40(a)(ia) and accordingly, respectfully following the decision of the Hon ble Madras High Court in the case of Dilip Kumar 2019 (11) TMI 987 - MADRAS HIGH COURT and we dismiss this appeal filed by the Revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of staff training expenses. 3. Disallowance of foreign travel expenses. 4. Disallowance of medical expenses of family members of the Director. 5. Disallowance of interest for diversion of borrowed funds to a subsidiary company at a lower rate of interest. 6. Disallowance under Section 40(a)(ia) for non-deduction of TDS on freight charges. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The first common issue concerns the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, related to expenses incurred to earn exempt income. The AO disallowed interest and administrative expenses under Rule 8D of the Income Tax Rules for various assessment years. The Tribunal noted that the assessee had sufficient interest-free funds to make investments that generated exempt income. Citing the Bombay High Court decision in CIT v. HDFC Bank Ltd., the Tribunal held that no disallowance could be made if the investments were made from interest-free funds. The Tribunal directed the AO to verify the investments that gave rise to exempt income and make disallowances accordingly. Consequently, the appeals were partly allowed for statistical purposes. 2. Disallowance of Staff Training Expenses: The second common issue pertains to the disallowance of staff training expenses. The assessee argued that the expenses were incurred for higher studies of employees to benefit the company. However, the Tribunal referenced its earlier decision in the assessee's case for AY 2010-11, which disallowed similar expenses, stating that such expenses were personal in nature and not for business purposes. The Tribunal upheld the disallowance, dismissing the appeals on this issue. 3. Disallowance of Foreign Travel Expenses: The third common issue involves the disallowance of foreign travel expenses incurred by a consultant who was a relative of the Director. The AO and CIT(A) disallowed the expenses, considering them personal in nature. The Tribunal found that the assessee failed to provide evidence that the expenses were for business purposes. Citing relevant case law, the Tribunal confirmed the disallowance, dismissing the appeals on this issue. 4. Disallowance of Medical Expenses of Family Members of the Director: The fourth common issue concerns the disallowance of medical expenses incurred for the spouse of a Director. The AO disallowed the expenses, considering them personal in nature. The Tribunal referenced the Madras High Court decision in CIT v. TIAM House Service Ltd., which held that such expenses are personal and not deductible as business expenses. The Tribunal confirmed the disallowance, dismissing the appeals on this issue. 5. Disallowance of Interest for Diversion of Borrowed Funds to a Subsidiary Company at a Lower Rate of Interest: The fifth issue involves the disallowance of interest for advancing funds to TVS Srichakra Ltd. at a lower interest rate than the borrowing rate. The AO disallowed the interest difference, and the CIT(A) confirmed the disallowance. The Tribunal noted that the advances were made for business purposes and charged interest at 11%. The Tribunal remitted the issue back to the AO to verify the availability of surplus funds and reconsider the disallowance. The appeal was allowed for statistical purposes. 6. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Freight Charges: The sixth issue pertains to the disallowance of freight charges for non-deduction of TDS under Section 194C. The AO disallowed the expenses due to delayed filing of TDS returns. The CIT(A) deleted the disallowance, stating that the procedural lapse does not warrant disallowance under Section 40(a)(ia). The Tribunal upheld the CIT(A)'s decision, referencing the Madras High Court decision in Dilip Kumar v. ACIT, which held that procedural lapses should not result in disallowance. The appeal by the Revenue was dismissed. Conclusion: The appeals filed by the assessee were partly allowed for statistical purposes, and the appeal filed by the Revenue was dismissed. The Tribunal provided detailed directions for the AO to verify specific facts and reconsider certain disallowances based on the principles established in relevant case law.
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