2015 (3) TMI 305 - AT - Income Tax

Notional Interest charged on interest free security deposit given to various group companies - CIT(A) deleted the disallowances - Held that - As per this lease deed, the appellant has given security deposit of ₹ 58,73,460/- as interest free security deposit which is clearly mentioned in the agreement. Since, all the deposits given are interest free, no notional interest can be charge on such deposits. Considering the facts in its totality and that during the year the assessee had received interest free security deposit of ₹ 12 crores and no interest was paid on such deposits, we are of the view that the learned CIT(A) has rightly deleted the addition - Decided in favour of assessee. Disallowance of diesel expenses - Held that - The entries given by the Assessing Officer in the assessment order pertains to the expenses incurred on running of DG sets for a particular building and entry for the expenses made on a particular date. These entries nowhere suggest that these are not genuine expenses and not incurred for the business of the appellant. Further, Assessing Officer has not pointed out any defect in the correctness of diesel account maintained by the appellant. Therefore, the 2% disallowance out of entire expenditure of ₹ 76,82,51,447/- was not justified. - Decided in favour of assessee. Disallowance of maintenance and repairs expenses - Held that - The expenses incurred on maintenance and repairs were wholly and exclusively for business purposes and were in the nature of current repairs, which are allowable as revenue expenditure. Hence, the treating of the expenses of ₹ 52,90,624/- as capital expenditure is not justified.- Decided in favour of assessee. Disallowance of hire charges paid for AC, Crain, DG Sets, Photocopy machine, tanker and taxi hire charges - no expenditure has been incurred in the previous year on the basis of hire charges - Held that - The reason applied by the Assessing Officer for disallowance is not sustainable. The Assessing Officer has not brought any material on record to prove that the expenses were not genuine. The disallowance made without bringing any evidence on record contrary to the evidences submitted by the appellant was not justified. These expenses have been incurred for genuine business needs of the appellant. Hence, the disallowance made by the Assessing Officer on adhoc basis of ₹ 9,54,674/- is deleted. - Decided in favour of assessee. Disallowance of event expenses and consultancy expenses shown under the head repair and maintenance' - Held that - These expenses have been incurred on the various events organized by the appellant on the event name 'women in India cinema' for promoting business of the appellant. The appellant has given the name of the party to whom these payments were made alongwith the necessary evidences, therefore, disallowance of 25% expenses out of said expenses was not justified. - Decided in favour of assessee. Disallowance of legal and professional expenses - Held that - These expenses have been paid to various Advocates, Retainer ship fees, salary and other legal and professional services obtained by the appellant. Therefore, it cannot be said that these expenses were not genuine. Further, the Assessing Officer has not made any enquiry and has not brought any material on record to prove that the expenses under this head were not genuine. Therefore, the adhoc disallowance made on the basis of conjectures and surmises cannot be sustained.- Decided in favour of assessee. Disallowance of interest paid on account of TDS - Held that - The findings of the learned CIT(A) are that no payment relates to interest on delayed payment of TDS has been made and the interest payment actually relates to delayed payments of service tax and unclaimed bonus and salary. Hence, it is allowable as revenue expenditure, has not been rebutted by the revenue before us. We thus do not find reason to interfere with the first appellate order in this regard - Decided in favour of assessee. Disallowance of prior period expenses - the expenditure represents service tax paid on foreign services belatedly on clarity from the service taxation authorities - Held that - .4 In the absence of rebuttal of the findings of the learned CIT(A) that the liability to pay the service tax was crystallized therefore, the same was rightly claimed during the year on the basis of crystallization of expenses by the Revenue before us, we are not inclined to interfere with the first appellate order. The same is upheld. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of notional interest charged on interest-free security deposit.
2. Deletion of disallowance out of diesel expenses.
3. Deletion of disallowance of capital expenditure included in miscellaneous contract expenses.
4. Deletion of disallowance out of hire charges paid.
5. Deletion of disallowance of interest paid on TDS.
6. Deletion of disallowance of prior period expenses.
7. Deletion of disallowance out of event expenses and consultancy charges.
8. Deletion of disallowance out of legal and professional expenses.

Detailed Analysis:

Issue 1: Notional Interest on Interest-Free Security Deposit
The Assessing Officer (AO) added Rs. 29,73,740/- as notional interest on interest-free security deposits given to various group companies. The CIT(A) deleted this addition, noting that the assessee had received interest-free security deposits of Rs. 12 crores and did not pay interest on such deposits. The CIT(A) concluded that no notional interest could be charged on these deposits, supported by judicial precedents that tax liability arises only when there is actual income and not on notional income. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was rightly deleted.

Issue 2: Disallowance of Diesel Expenses
The AO disallowed Rs. 1,53,65,028/- out of diesel expenses, citing lack of original bills and vouchers. The CIT(A) deleted this disallowance, finding that the AO's observations were contrary to his own notes in the assessment order and that the expenses were justified by the increase in revenue. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not point out any defect in the books of account, which were duly audited.

Issue 3: Capital Expenditure in Miscellaneous Contract Expenses
The AO treated Rs. 52,90,624/- as capital expenditure, which was included in repair and maintenance expenses. The CIT(A) deleted this addition, noting that no new asset was created and the expenses were for maintaining existing assets. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenses were revenue in nature and not capital.

Issue 4: Disallowance of Hire Charges
The AO disallowed Rs. 9,54,678/- out of hire charges, observing that no such expenses were incurred in the previous year. The CIT(A) deleted this disallowance, noting that the expenses were grouped under miscellaneous expenses in the previous year and were justified by the increase in revenue. The Tribunal upheld the CIT(A)'s decision, finding the disallowance unjustified.

Issue 5: Interest Paid on TDS
The AO disallowed Rs. 23,934/- as interest paid on TDS. The CIT(A) deleted this disallowance, finding that the interest payment related to delayed payment of service tax and unclaimed bonus and salary, not TDS. The Tribunal upheld the CIT(A)'s decision, noting that the findings were not rebutted by the Revenue.

Issue 6: Prior Period Expenses
The AO disallowed Rs. 1,01,549/- as prior period expenses. The CIT(A) deleted this disallowance, noting that the expenses represented service tax paid on foreign services, which crystallized during the year. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability crystallized during the year and was rightly claimed.

Issue 7: Event Expenses and Consultancy Charges
The AO disallowed Rs. 13,80,790/- out of event expenses and consultancy charges. The CIT(A) deleted this disallowance, noting that the expenses were routine business expenses necessary for promoting the business. The Tribunal upheld the CIT(A)'s decision, finding the disallowance unjustified.

Issue 8: Legal and Professional Expenses
The AO disallowed Rs. 25,15,644/- out of legal and professional expenses. The CIT(A) deleted this disallowance, noting that the expenses were genuine and incurred for business purposes. The Tribunal upheld the CIT(A)'s decision, finding the disallowance based on conjectures and surmises.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of all the disallowances and additions made by the AO. The decision was pronounced in the open court on 20th February, 2015.