2017 (4) TMI 238 - AT - Income Tax

Pooja expenditure - Held that - AO opined that the pooja expenses cannot be treated as business expenditure and could be only considered as personal expenditure. Therefore he disallowed the pooja expenses of 21, 594/- and added to the income of the assessee. The Ld. CIT(A) also confirmed the addition because the assessee had not furnished any details with respect to pooja expenses in order to prove that it is not personal expenditure. We do not subscribe to this view of the Revenue authorities. In every business establishment it is customary to follow certain religious procedures in order to please the Gods for prosperity and development. Considering the nature and the turnover of the business we are of the considered view that the amount spent by the assessee as pooja expenditure is quite meager and reasonable. Therefore we hereby direct the Ld. AO to delete the addition made towards pooja expenditure. Invoking of Section 14A and Rule 8D - Held that - We also make it clear that for the investments made in mutual funds provisions of Section 14A read with Rule 8D will be applicable since the assessee would incur some expenditure at least for the decision making process as to in which mutual fund the investment has to be made and at what point of time exit from such funds. It is ordered accordingly.

Summary

Issues:
1. Condonation of delay in filing appeal
2. Disallowance of pooja expenses
3. Invocation of Section 14A and Rule 8D

Condonation of delay in filing appeal:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Coimbatore. The delay of 7 days in filing the appeal was due to a mistake by the appellant's staff in understanding the order. The Director of the company filed a condonation petition, which was opposed by the Ld. DR. However, considering the short delay and the issue involved, the delay was condoned, and the matter was heard on merit.

Disallowance of pooja expenses:
The Ld. AO disallowed pooja expenses of ?21,594 as personal expenditure, which was confirmed by the Ld. CIT(A) due to lack of details provided by the assessee. However, the ITAT held that in business establishments, it is customary to conduct religious procedures for prosperity. Considering the nature of the business, the amount spent on pooja expenses was deemed reasonable. Therefore, the ITAT directed the Ld. AO to delete the addition of ?21,594 made towards pooja expenditure.

Invocation of Section 14A and Rule 8D:
The Ld. AO invoked Section 14A and Rule 8D to disallow notional expenditure on investments yielding exempt income. The assessee argued that investments made in subsidiary companies from interest-free funds should not attract Section 14A. The ITAT agreed with the assessee, citing precedents where similar investments did not warrant disallowance under Section 14A. The matter was remitted back to the Ld. AO to reconsider the issue in light of the Tribunal's decision and to apply Section 14A read with Rule 8D only if investments were made from borrowed funds. The ITAT clarified that provisions of Section 14A would apply to investments in mutual funds.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, directing the Ld. AO to delete the addition made under Section 14A for investments in sister concerns and to recompute disallowance if investments were made from borrowed funds. The ITAT emphasized the applicability of Section 14A read with Rule 8D based on the nature of investments and directed a fresh assessment in accordance with law and merits.