2012 (7) TMI 727 - AT - Income Tax

Addition on account of the expenses not being wholly and exclusively for the purpose of the business of the assessee - assessee did not furnish any evidence nor established the commercial expediency of various expenses ,including mess subsidy, marriage gifts & other welfare expenses referred to in the assessment order - whether the expenses on marriage gifts and other expenses were incurred wholly and exclusively for the purpose of business of the assessee - AR did not even whisper before us as to how gifts made on marriage of employees or their relations, were commercially expedient in the business of the assessee nor brought to our notice any contrary decision Held that - Expenditure on gifts made on the occasion of marriages in the families of employees cannot qualify as business expenditure, especially when no evidence has been placed before us or even the lower authorities nor any argument has been made as to how the said expenditure was incurred as a matter of commercial expediency Against assessee As regards other expenses, towards mess subsidy, sports & games or other welfare expenses Held that - CIT(A) has not recorded any findings as to the nature of these expenses nor even the AO analysed the nature of these expenses - matter remanded to CIT(A) Disallowance of employees share towards provident fund - CIT(A) allowed the claim of the assessee on account of employees contribution towards PF in the light of decision of Hon ble Supreme Court in the case Vinay Cement Ltd. (2007 (3) TMI 346 (SC)) - assessee, while computing its total income added back the said amount Held that - Matter remanded back to the file of the AO with the directions to ascertain as to whether or not the aforesaid amounts were paid on or before the due date of filing of return u/s 139(1) of the Act Service tax respectively u/s 43B of the Act - service tax payment was allowed on the ground that amount had been paid before the due date of filing of return - assessee, while computing its total income added back the said amount - Held that - Matter remanded back to the file of the AO with the directions to ascertain as to whether or not the aforesaid amounts were paid on or before the due date of filing of return u/s 139(1) of the Act

Summary

Issues involved:
1. Disallowance of expenses not wholly and exclusively for business purposes.
2. Disallowance of employees' contribution to PF after the due date.
3. Disallowance of service tax paid before the due date of filing of return.

Issue 1: Disallowance of expenses not wholly and exclusively for business purposes:
The appeal by the Revenue challenged the CIT(A)'s deletion of an addition of Rs.8 lakhs made by the Assessing Officer on the grounds that certain expenses were not entirely for the business purpose of the assessee. The AO disallowed the amount as the assessee failed to provide evidence that the expenses were incurred wholly and exclusively for business. The CIT(A) deleted the disallowance based on the argument that the increased expenses were justified due to the significant increase in receipts and workforce. However, the Revenue contended that the expenses, particularly on marriage gifts, were not commercially expedient. The Tribunal found that the nature of the expenses was not adequately analyzed and remanded the issue back to the CIT(A) for a fresh decision with proper examination of the expenses.

Issue 2: Disallowance of employees' contribution to PF after the due date:
The appeal also raised concerns about the disallowance of Rs.3,72,918/- for employees' contribution to PF after the due date. The CIT(A) allowed this claim citing a Supreme Court decision and the service tax payment allowed as it was made before the due date of filing the return. The Tribunal observed that the amounts were inadvertently added back by the assessee in the income computation. Both parties agreed to have the matter reviewed by the AO to verify the payment dates. The Tribunal directed the AO to determine the payment dates and decide on the claim accordingly, providing the assessee with an opportunity to present their case.

Issue 3: Disallowance of service tax paid before the due date of filing of return:
Similarly, the disallowance of Rs.3,29,912/- for service tax paid before the due date was contested. The CIT(A) had allowed this claim, but the Tribunal found that the matter needed further verification regarding the payment date. Consequently, the Tribunal directed the AO to investigate the payment date and make a decision after allowing the assessee a fair chance to present their case.

The Tribunal dismissed the appeal on the fourth ground as no additional issues were raised. In conclusion, the appeal was allowed in part for statistical purposes, with specific directions given for further examination and decisions on the disputed expenses and payments.