2023 (2) TMI 554 - AT - Income Tax

Disallowance of rent expenditure - bogus claim of rent and being disallowance u/s 40(a)(ia) for non-deduction of tax on rent paid - HELD THAT - We find that when the matter travelled before CIT(A), he erred in considering the correct figures of rent disallowance. He ought to have dealt with the issue of disallowances of rent separately but in the finding, he has deleted the disallowance u/s 40(a)(ia) of the Act but wrongly mentioned Rs. 3,30,000/- which ought to have been correctly mentioned at Rs. 3,67,500/-. Therefore, so far as the disallowance u/s 40(a)(ia) is concerned, the same already stands deleted by ld. CIT(A). Disallowance of Rs. 3,30,000/- is concerned the assessee has claimed that the same was paid through banking channel and included payment Paid to Mrs. Sangeeta Bhartia, Mrs. M. Mallickavalli and Smt. G. Nookaratnam. Necessary evidences have also been filed in the paper book in support of this claim. CIT(A) has not dealt with this issue, however looking to the fact that the assessee being a private limited company of which books of accounts are regularly audited and has paid the rent through account payee cheque and permanent account numbers of all the three parties are duly submitted, we find no reason to doubt the genuineness of the said claim. Therefore, the disallowance at Rs. 3,30,000/- is deleted. Hence ground no. 1 1(a) 1(b) raised by the assessee is allowed. Disallowance of technical service charges - said amount was paid to Bhavishya International towards the consultancy charges from April, 2014 to March, 2015 but the contents of the bill were not clear as to whether they pertain to the year under consideration - HELD THAT - The issue needs to be restored to the file of ld. AO for necessary verification and the assessee is directed to file all the relevant details including bank statement and the nature of consultancy services taken from M/s. Bhavishya International and whether the same can be allowed as a business expenditure. Needless to mention that proper opportunity of being heard should be provided to the assessee. The assessee is also directed to remain vigilant and file necessary documents, if considered necessary, in support of its grounds of appeal and should not take adjournment, unless otherwise required for reasonable cause. Disallowance of statutory audit fees - HELD THAT - CIT(A) could not appreciate the fact that as per the mercantile system of accounting, the assessee has rightly claimed the statutory Audit fees as expenditure for the year to which it pertains. The alleged statutory audit fees was for the FY 2014-15 i.e. AY 2015-16 for which the audit work is to be carried out from the close of the year till the finalization of the balance sheet and profit loss account. In our considered view such claim was rightly made by the assessee. Therefore, finding of ld. CIT(A) is set aside and disallowance of statutory audit fees made by AO is deleted. In the result, ground no. 4 raised by assessee is allowed. Disallowance of business promotion expenses - HELD THAT - Assessee being unable to furnish relevant details before both the lower authorities but considering the larger interest of justice since the Directors have to incur various expenses on day-to-day basis in the regular course of business of a company, are of the considered view that disallowance of 25% of the said sum of Rs. 13,97,949/- will meet the end of justice. We accordingly confirm the disallowance partly. Disallowance of commission charges - disallowance was made by ld. AO on account of mismatch of figures - HELD THAT - The assessee failed to succeed before ld. CIT(A) also. However, before us the assessee has made reference to the reconciliation statement providing the details that total debits for the FY 2014-15 was Rs. 9,13,458/- out of which a sum of Rs. 1,74,000/- was reduced towards reimbursement of expenses incurred by agent during direct shipment on which tax not deductible and on the remaining net commission TDS of Rs. 82,162/- was worked out and therefore, the gross commission was Rs. 8,21,620/- as per the Form No. 16A. We, thus find merit in the submissions made by the assessee and hold that disallowance for commission charges. Ground of assessee is allowed.

Summary

Issues:
1. Disallowance of rent payment and technical service charges.
2. Disallowance of car repair charges, renovation charges, and other expenses.
3. Disallowance of statutory audit fees.
4. Disallowance of business promotion expenses.
5. Disallowance of commission charges.

Analysis:

Issue 1 - Disallowance of Rent Payment:
The appeal pertains to the disallowance of rent expenditure, including non-deduction of tax on rent paid. The Tribunal found discrepancies in the disallowance figures by the CIT(A) and corrected the amount. The Tribunal allowed the disallowance of Rs. 3,30,000 for rent payment made through banking channels, supported by evidence, and deleted the disallowance. The disallowance under section 40(a)(ia) was already deleted by the CIT(A).

Issue 2 - Disallowance of Technical Service Charges:
The disallowance of technical service charges amounting to Rs. 48,92,421 was contested. The Tribunal noted the lack of clarity in the bill contents and directed the issue to be restored to the AO for verification. The assessee was instructed to provide necessary details for verification, failing which the AO could adjudicate the issue. The ground was allowed for statistical purposes.

Issue 3 - Disallowance of Statutory Audit Fees:
The disallowance of statutory audit fees at Rs. 3,42,000 was challenged. The Tribunal observed that the fees were claimed for the relevant financial year and were allowable as per the mercantile system of accounting. The disallowance made by the AO was deleted, and the ground was allowed.

Issue 4 - Disallowance of Business Promotion Expenses:
The disallowance of business promotion expenses at Rs. 7,48,970 was disputed. The Tribunal acknowledged the failure of the assessee to provide documents but considered the necessity for business expenses. A partial disallowance of 25% of the claimed amount was upheld, and the remaining disallowance was deleted.

Issue 5 - Disallowance of Commission Charges:
The disallowance of commission charges at Rs. 1,87,692 was contested due to a mismatch in payment figures. The Tribunal reviewed the reconciliation statement provided by the assessee, which clarified the discrepancy. The disallowance was deemed unnecessary, and the ground was allowed.

In conclusion, the appeal filed by the assessee was partly allowed concerning the various disallowances made by the authorities. The Tribunal provided detailed reasoning for each issue, considering the evidence presented and applicable legal provisions. The decision aimed to ensure fair treatment and proper verification of expenses while upholding the principles of taxation law.