2015 (9) TMI 279 - AT - Income Tax

Addition invoking Ss. 36(1)(iii) and 40A(2)(b) - Held that - As decided in assessee s own case 2015 (7) TMI 361 - ITAT PUNE there is no question of disallowance of interest on account of interest free advances given to related parties. It is a reverse case wherein the assessee has obtained the loan from related parties by paying exorbitant rate of interest for which the Assessing Officer disallowed the excess interest paid to the related parties by invoking the provisions of section 40A(2)(b) of the I.T. Act. Since the assessee itself has agreed for the addition of ₹ 33,37,059/- to tax being excess interest paid to the related parties covered u/s.40A(2)(b), therefore, the CIT(A) in our opinion was fully justified in upholding the addition made by the Assessing Officer. - Decided against assessee. Disallowance u/s 14A r.w.r. 8D - Held that - As decided in assessee s own case 2015 (7) TMI 361 - ITAT PUNE Since the assessee itself had admitted that it has incurred certain expenses although the same is negligible which cannot be correctly ascertained and since certain additions were made during A.Y. 200607 and 200809 by the Assessing Officer u/s.14A and nothing has been brought on record as to the outcome of the same including the quantum, therefore, we do not find any infirmity in the order of the CIT(A) upholding the disallowance made u/s.14A r.w. Rule 8D for the impugned assessment year. - Decided against assessee. Disallowance of foundation day expenses being excessive - Authorised Representative of the assessee agreed for disallowance of 20% of the aforesaid expenses - Held that - The assessee itself has agreed before the AO for disallowance of 20% of such expenses which according to the AO was on the higher side. Nothing was brought before us to show that there was no acceptance by the assessee for such offer or the assessee was in possession of relevant bills and vouchers justifying such expenditure. We therefore uphold the order of the CIT(A) on this issue and the ground raised by the assessee is dismissed. - Decided against assessee. Adhoc disallowance of various expenses - Held that - We direct the AO to restrict such disallowance to 5% of the expenses claimed as against 10% disallowed by him and upheld by the CIT(A) - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition under Sections 36(1)(iii) and 40A(2)(b) of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
3. Disallowance of foundation day expenses.
4. Adhoc disallowance of various expenses.
5. Levy of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Sections 36(1)(iii) and 40A(2)(b):
The assessee challenged the confirmation of an addition of Rs. 34,10,881 made by the Assessing Officer (AO) by invoking Sections 36(1)(iii) and 40A(2)(b) of the Income Tax Act. The Tribunal noted that similar grounds were dismissed in the assessee's own case for the Assessment Years (AY) 2009-10 and 2010-11. The AO had disallowed an amount of Rs. 33,37,059 as excess interest paid to Directors, Members, and related parties. The assessee had previously offered this amount for taxation to "buy peace of mind," acknowledging the excess interest paid over the bank rate. The Tribunal found no merit in the grounds raised by the assessee, reiterating that the issue was factual and not legal. The Tribunal upheld the addition, dismissing the grounds raised by the assessee.

2. Disallowance under Section 14A read with Rule 8D:
The assessee contested the disallowance of Rs. 93,288 under Section 14A read with Rule 8D, arguing that no expenditure was incurred for earning exempt dividend income and that the company had sufficient non-interest-bearing funds. The Tribunal noted that similar disallowances were upheld in the assessee's own case for AY 2009-10 and 2010-11. The AO had disallowed Rs. 1,07,291 (incorrectly mentioned as Rs. 93,288) as per the provisions of Section 14A read with Rule 8D. The Tribunal upheld the disallowance, finding no infirmity in the CIT(A)'s order.

3. Disallowance of Foundation Day Expenses:
The assessee incurred Rs. 12,68,794 on foundation day expenses and agreed to a 20% disallowance during assessment proceedings. The AO disallowed Rs. 2,53,759, which was upheld by the CIT(A). The Tribunal found no infirmity in the CIT(A)'s order, noting that the assessee had agreed to the disallowance and had not provided relevant bills and vouchers to justify the expenditure. The disallowance was upheld.

4. Adhoc Disallowance of Various Expenses:
The AO made an adhoc disallowance of Rs. 1,32,400 out of Rs. 13,23,995 debited under Postage and Telephone, Furniture repair and maintenance, and cartage, noting that some expenses were supported by self-made vouchers. The CIT(A) upheld the disallowance. The Tribunal, following its decision in the assessee's own case for AY 2009-10 and 2010-11, directed the AO to restrict the disallowance to 5% of the expenses claimed, reducing the disallowance from 10%.

5. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee contested the levy of interest under Sections 234A, 234B, and 234C. The Tribunal held that the levy of interest under these sections is mandatory and consequential in nature, dismissing the ground raised by the assessee.

Conclusion:
The Tribunal dismissed the grounds related to the confirmation of addition under Sections 36(1)(iii) and 40A(2)(b), disallowance under Section 14A read with Rule 8D, and levy of interest under Sections 234A, 234B, and 234C. The Tribunal upheld the disallowance of foundation day expenses and directed the AO to restrict the adhoc disallowance of various expenses to 5%. The appeal was partly allowed.