2015 (5) TMI 787 - AT - Income Tax

Disallowance of cash expenditure u/s. 40A(3) - Held that - The disallowance is attracted with reference to the mode of payment, and not for the expenditure per se. In the instant case, however, the assessee claims to have paid directly to the staff on the occasion of the birth date of the water park. There is, therefore, no question of production of any purchase vouchers. The assessee, who has booked the expenditure by way of a single entry in its books of account, ought to have, in our view, led evidence to substantiate its claim of the expenditure being by way of cash paid to staff in sums ranging from ₹ 100 to ₹ 1000/-, so that each payment, constituting an independent expenditure, is less than ₹ 20,000/-, which we observe to be its consistent stand throughout. The matter is, accordingly, restored back to the file of the A.O. to allow the assessee an opportunity to exhibit its claim - Decided in favour of assesse for statistical purposes. Treatment to business promotion expense as donation - further, allow deduction, where and to the extent exigible - Held that - The ld. CIT(A) found the business purpose of advertisement, or business advantage in general, as missing. However, we observe no opportunity by him to exhibit so to the assessee, who pleaded its case before him toward the sums as being not exigible to deduction of tax at source. It could, for example, well be that the T-shirts given to the participants of the marathon run bear the assessee s name or insignia or the like, for it to have advertisement value, and which also defines its business purpose. Similarly, payment to IAAPI, which, besides ₹ 73,315/-, also includes two other payments of ₹ 26,292/- and ₹ 25,000/-, as sponsorship, would need to be explained and, therefore, their business purpose shown. Coming to the second limb of the matter, i.e., of the same being exigible for deduction of tax at source, so that the deduction would only follow the same, in our view, our consideration of the same could only follow an adjudication by the first appellate authority, and which could only be after his definite findings as to the allowability or otherwise of the same on the anvil of section 37(1) after allowance of due opportunity to state its case to the assessee. The matter is, accordingly, restored back to the file of the ld. CIT(A) to determine the nature of the sums paid and, accordingly, decide the issue of allowability in accordance with the law - Decided in favour of assesse for statistical purposes. Income from operations - Held that - The assessee s explanation of the same being an advance is, firstly, in contradiction to its treatment of the same as a receipt (income). When, if so, was the balance payment of ₹ 19,656/-; the rate of ₹ 200/- per person being admitted, received, even as observed by the ld. CIT(A)? In fact, there would be similar instances as well, and which would reflect and exhibit both the validity of the assessee s claims as well as the modus operandi being followed by the assessee in such cases. For which date was the booking? Did it materialize? Were tickets issued and in what number? Such like questions arise as a concomitant to the assessee s explanation, and which we find as totally unanswered/not met. Further, an advance would not be received in an odd, but only in a, round figure. The same in fact works to a sum calculated for 18 persons. The assessee has also not disputed that the booking was for 108 persons. It also does not contend of any discount, which would though work to a huge, incomprehensible rate of 83.33%. The assessee s case is sans any details/evidence. We, accordingly, find no infirmity in the inclusion of the sum of ₹ 19,656/- as the assessee s income - Decided against assessee. Disallowance of repair and maintenance expenditure - Held that - The matter should go back to the file of the A.O. for necessary verification and adjudication in accordance with the law. True, the impugned expenditure is abnormally large in relation to the monthly average, which works to ₹ 2.92 lacs, i.e., upon excluding the impugned sum from the total claim of ₹ 45.84 lacs for the year. However, it is not the case that the assessee has not furnished any explanation, or one which is not plausible. Non furnishing of the relevant evidence, thus, should not prove fatal to its case the sole purpose of procedural law being to promote justice. - Decided in favour of assesse for statistical purposes. Disallowance of director s remuneration - CIT(A) restricted the disallowance to ₹ 3 lacs, i.e., allowing the salary as paid to her for the immediately preceding year - Held that - disallowance by the A.O. stood made in the absence of any evidence being led by the assessee towards its claim, and which position continues even before us. The Revenue, however, is not in appeal. The allowance for the immediately preceding year, as it appears to us, in-as-much as there is no claim for assessment u/s.143(3) for that year, is per the summary procedure under the Act, and which cannot be said to be either an assessment or an acceptance thereof by the Revenue. The ld. CIT(A) has allowed the assessee s claim to that extent in view of the explanation of she being an educated lady attending to the business activities, even as no evidence toward the same has been furnished at any stage, so that there is no proof of the services rendered by her. We, accordingly, have no hesitation in confirming his order. - Decided against assessee Disallowance u/s.14A - Held that - Investment decisions are complex in nature, requiring time and effort, i.e., in terms of market research and continuing analysis of the developments, so as to enable decision making with regard to the acquisition or retention or sale. The assessee s claim, therefore, that it had not incurred any administrative expenditure, could not be accepted. Section 14A includes within its sweep both direct and indirect expenditureRule 8D has to be resorted to where the assessee cannot substantiate its claim with reference to its accounts, as in the present case, of having not incurred any expenditure in relation to the exempt income. Its claim for expenditure would thus stand to be disallowed, i.e., in part, irrespective of whether the income not forming part of the total income has actually ensued or not - Decided against assesse. Disallowance of electricity expenditure - Held that - As evident from the fore-going, no case for allowance of the impugned claim stands made before the authorities below, with, rather, the first appellate authority observing the assessee to have committed a volte face, contradicting itself. The position continues as such, so that no improvement in its case has been made by the assessee, whose case remains wholly unsubstantiated even before us. We, accordingly, have no hesitation in confirming the disallowance - Decided against assesse. Disallowance of miscellaneous expenditure - Held that - restoring the matter back to the file of the A.O. for consideration of the assessee s case on merits, and a decision as per law, after allowing the assessee an opportunity for being heard - Decided in favour of assesse for statistical purposes.

Summary

Issues Involved:
1. Disallowance of cash expenditure under Section 40A(3).
2. Treatment of business promotion expenses as donations and applicability of Section 80-G.
3. Inclusion of unreported income from group bookings.
4. Disallowance of repair and maintenance expenditure.
5. Disallowance of director's remuneration.
6. Disallowance under Section 14A.
7. Disallowance of electricity expenditure.
8. Disallowance of miscellaneous expenditure.

Detailed Analysis:

1. Disallowance of Cash Expenditure under Section 40A(3):
The first issue concerns the disallowance of cash expenditure amounting to Rs. 47,050 under Section 40A(3) of the Income Tax Act, 1961. The assessee claimed that the amount was spent on cash gifts to staff, ranging from Rs. 100 to Rs. 1000 per employee, on the occasion of the park's annual day. The Assessing Officer (A.O.) disallowed the expenditure due to the absence of supporting bills/vouchers. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance. The Tribunal restored the matter back to the A.O. to allow the assessee an opportunity to substantiate its claim with evidence, emphasizing that the disallowance is based on the mode of payment rather than the expenditure itself.

2. Treatment of Business Promotion Expenses as Donations and Applicability of Section 80-G:
The second issue involves the treatment of business promotion expenses totaling Rs. 10,33,540 as donations by the CIT(A). The A.O. initially disallowed the expenses due to non-deduction of tax at source, invoking Section 40(a)(ia). The expenses included sponsorship payments to various events, such as Rs. 5,00,000 for T-shirts for a marathon. The CIT(A) did not find the expenses to be for business purposes or advertisement and treated them as donations, allowing deduction under Section 80-G where applicable. The Tribunal restored the matter back to the CIT(A) to determine the nature of the sums paid and decide the issue of allowability in accordance with the law, after hearing the parties.

3. Inclusion of Unreported Income from Group Bookings:
The third issue pertains to the inclusion of Rs. 19,656 as unreported income from group bookings. The A.O. found a discrepancy in the income reported for a group booking of 108 persons at Rs. 200 per person, where only Rs. 1,944 was recorded. The assessee claimed it was an advance payment, which was not accepted by the A.O. due to lack of supporting evidence. The CIT(A) upheld the inclusion. The Tribunal found no infirmity in the inclusion, considering it a case of revenue suppression rather than notional income.

4. Disallowance of Repair and Maintenance Expenditure:
The fourth issue involves the disallowance of Rs. 13,69,000 claimed as repair and maintenance expenditure. The A.O. disallowed the expenditure due to its abnormality compared to the monthly average and lack of supporting evidence. The CIT(A) confirmed the disallowance. The Tribunal restored the matter back to the A.O. for verification and adjudication in accordance with the law, allowing the assessee an opportunity to furnish relevant details.

5. Disallowance of Director's Remuneration:
The fifth issue concerns the disallowance of Rs. 3 lacs out of Rs. 6 lacs claimed as director's remuneration to Mrs. Ritika A. Muchhala. The A.O. disallowed the remuneration due to lack of evidence of her qualifications or services rendered. The CIT(A) restricted the disallowance to Rs. 3 lacs, considering the remuneration paid in the preceding year. The Tribunal confirmed the CIT(A)'s decision, noting the absence of evidence of services rendered by her.

6. Disallowance under Section 14A:
The sixth issue pertains to the disallowance of Rs. 6,250 under Section 14A for expenditure related to exempt income. The A.O. applied Rule 8D due to the assessee's inability to substantiate its claim of not incurring any expenditure. The CIT(A) upheld the disallowance. The Tribunal confirmed the disallowance, following the decisions in relevant cases that support disallowance irrespective of actual exempt income.

7. Disallowance of Electricity Expenditure:
The seventh issue involves the disallowance of Rs. 34,530 out of Rs. 54.22 lacs claimed as electricity expenditure. The A.O. disallowed the proportionate amount related to properties not owned by the assessee. The CIT(A) confirmed the disallowance, noting the assessee's contradictory statements. The Tribunal upheld the disallowance due to lack of substantiation by the assessee.

8. Disallowance of Miscellaneous Expenditure:
The eighth issue concerns the disallowance of Rs. 5.05 lacs out of Rs. 6.21 lacs claimed as miscellaneous expenditure. The A.O. disallowed the expenditure due to lack of supporting evidence. The CIT(A) confirmed the disallowance, following his decision on repair and maintenance expenditure. The Tribunal restored the matter back to the A.O. for verification and adjudication, similar to the repair and maintenance expenditure issue.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, restoring several matters back to the A.O. and CIT(A) for further verification and adjudication in accordance with the law. The order was pronounced in the open court on May 05, 2015.