2023 (7) TMI 366 - AT - Income Tax

Disallowance of Expenditure u/s 57 (iii) - expenditure in the P L account in the form of salary, maintenance and other expenses which had been disallowed - AO noted that the appellant had earned interest on FDRs against which the appellant had claimed expenditure - HELD THAT - Under the scheme of Income tax act, the total income of the company is chargeable to tax under section 4 of the Act. The total income has to be computed in accordance with the provisions of the Act - The income of the assessee rightly falls under the head Income from other sources . As per the provisions of Section 57(iii), all the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income has to be allowed as deduction. We find that employee remuneration, salary, legal expenses, board meeting expenses, Director sitting fees cannot be attributable to the interest earned from the fixed deposits. Reliance is being placed on the judgment of CIT Vs. V.P. Gopinathan 2001 (2) TMI 10 - SUPREME COURT wherein held that there should be a nexus between the expenditure incurred and the income earned. Hence, the facts and circumstances of the instant case, we hereby affirm the order of the ld. CIT(A). Appeal of the assessee is dismissed.

Summary

Issues Involved:
The appeal against the order of the CIT(A) regarding disallowance of expenses incurred by the appellant, exceeding the scope of limited scrutiny, and the validity of assessment order in light of CBDT instructions.

Disallowance of Expenses:
The assessee claimed expenses of Rs. 46,76,255/- incurred during business operations, contending they were necessary for income generation and maintaining corporate status. The Assessing Officer disallowed these expenses under section 57(iii) of the Act, which was upheld by the CIT(A).

Scope of Limited Scrutiny:
The assessee argued that the Assessing Officer exceeded the limited scrutiny scope by making additions to the returned income. However, it was found that the AO acted within jurisdiction by disallowing expenses and determining the appropriate tax section during assessment proceedings under section 143(3) of the Act.

Validity of Assessment Order:
The AO disallowed a significant amount of expenditure incurred by the appellant, leading to the dispute. The appellant's claim that the expenses were directly related to income generation was not accepted, and the disallowance was upheld by the ITAT Delhi based on the provisions of Section 57(iii) of the Income Tax Act.

Conclusion:
The ITAT Delhi dismissed the appeal, affirming the disallowance of expenses by the lower authorities. The judgment emphasized the necessity of a direct nexus between expenses incurred and income earned, citing relevant legal precedents. The decision was based on the provisions of Section 57(iii) of the Act, leading to the dismissal of the appellant's appeal.