2017 (4) TMI 1142 - AT - Income Tax

Reopening of assessment - Non-deduction of tax at the time of payment - omission to disclose correct fact in the report prepared under Section 44AB - Held that - The entire TDS certificates, opening stock, gross receipts from contractors, details of purchase, list of shareholders, copy of current account, copy of sales tax, general expenses claimed by the assessee, vehicle hire charges were available before the Assessing Officer. Preparation of audit report is the exclusive function of auditor, therefore, if at all there was any negligence and omission to disclose correct fact in the report prepared under Section 44AB of the Act, this Tribunal is of the considered opinion that the assessee cannot be found fault. If the assessee suppresses any material either before the auditor or before the Assessing Officer, then we may say there was negligence on the part of the assessee. In this case, the Assessing Officer himself called upon the entire details of gross receipts, TDS certificates, details of opening stock, work in progress, payment of wages, payment of interest, payment of vehicle hire and machinery charges, copy of sales tax order, etc. Therefore, when the assessee has furnished all the details which are required in completing assessments, this Tribunal is of the considered opinion that mere omission of auditor to mention certain items in the audit report prepared under Section 44AB of the Act, that alone cannot be a reason to say that there was negligence on the part of the assessee. This Tribunal is of the considered opinion that when the assessees furnished all the details, there was no negligence on the part of the assessees, hence, proviso to Section 147 of the Act would come into operation. In view of the above, the order passed by the Assessing Officer is barred by limitation. Therefore, it cannot stand in the eye of law. - Decided in favour of assessee. Disallowance of travel expenses - Held that - The expenditure said to be incurred by the assessee for travelling to Singapore, USA, etc. Even though the assessee claims that the Managing Director s travel to Singapore was for purchase of machinery, no material was produced either before the lower authorities or before this Tribunal. The travel of Shri Devarajan, MD along with his wife for a holiday cannot be construed as business expenditure at all. The claim of expenditure on Shri Surendra P. Shah cannot be construed as business expenditure at all. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. - Decided against assessee. Disallowance of electricity charges - Held that - The assessee now claims that the intimation of adjustment of electricity charges against the deposit was received during the year, therefore, the liability crystalized during the year. This Tribunal is of the considered opinion that the liability was for the year 2010. Merely because it was adjusted during the year under consideration, it cannot be said that the liability accrued during this year. This Tribunal is of the considered opinion that the same cannot be allowed during the year under consideration. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer.- Decided against assessee. Disallowance of expenditure incurred for higher education of the employee - Held that - It is not in dispute that one Shri S. Kathirvel joined the assessee-company on 03.08.2011 and he was sponsored for higher education for the academic year 2012-14. The assessee could not produce any material to show that the said Shri Kathirvel agreed to work for the company even after completion of higher education. No bond was produced either before the Assessing Officer or before the CIT(Appeals) or before this Tribunal and no agreement was also produced. Therefore, as rightly observed by the Assessing Officer, the expenditure incurred by the assessee in the higher education of Shri S. Kathirvel was not for business purpose. When there was no compulsion on the part of Shri S. Kathirvel to serve the assessee after completing higher education, this Tribunal is of the considered opinion that the expenditure cannot be construed as revenue expenditure. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer. - Decided against assessee. Disallowance towards marriage reception of son of Managing Director - Held that - We have heard Sh. Philip George, the Ld.counsel for the assessee and Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative. The assessee admittedly incurred ₹ 7,79,899- towards setting up of subsidiary in Oman. Expenditure for setting up of subsidiary is capital expenditure. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer.- Decided against assessee. Disallowance for setting up of subsidiary - Held that - The assessee admittedly incurred ₹ 7,79,899- towards setting up of subsidiary in Oman. Expenditure for setting up of subsidiary is capital expenditure. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer. - Decided against assessee. Expenditure incurred on water connection - Held that - In the absence of any material evidence / receipt for payment for getting water connection for new office at Bangalore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.- Decided against assessee. Disallowance towards higher education of Vice President (Operations) of the company - allowable business expenditure - Held that - Even though the assessee claims that the Managing Director s son Shri P. Ramprasad was working as Vice President of the assessee- company, during the relevant period, he was not allowed to continue as employee of the assessee-company. The matter may stand differently in case Shri P. Ramprasad was granted study leave and salary was being paid during the study period. In this case, admittedly, no salary was paid to him and he was not treated as employee of the assessee-company during that period. This Tribunal is of the considered opinion that it is the responsibility of the respective parent to provide education to his son. Therefore, the Managing Director of the company is personally responsible for meeting the expenditure of his son s education. The expenditure incurred by the assessee for providing higher education to the Managing Director s son cannot be considered as business expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.- Decided against assessee. Disallowance u/s 40A(3) - Held that - AO disallowed the payment made by the assessee-company exceeding ₹ 20,000/-. However, the CIT(Appeals) restricted the claim of the assessee to 50%. This Tribunal is of the considered opinion that when the payment was made exceeding ₹ 20,000/- per day, the same has to be disallowed. However, the CIT(Appeals) restricted it to 50%. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. - Decided against assessee.

Summary

Issues Involved:
1. Limitation for reopening assessments.
2. Disallowance of travel expenses.
3. Disallowance of electricity charges.
4. Disallowance of expenditure for employee's higher education.
5. Disallowance of marriage reception expenses.
6. Disallowance of expenditure for setting up a subsidiary.
7. Disallowance of water connection expenses.
8. Disallowance of expenditure for Vice President's higher education.
9. Disallowance under Section 40A(3) of the Income-tax Act.

Detailed Analysis:

1. Limitation for Reopening Assessments:
The appeals by the assessees challenged the reopening of assessments after four years from the end of the relevant assessment years. The assessees contended that the reopening was based on the same material already available on record, indicating a change of opinion by the Assessing Officer. The Tribunal found that the assessees had furnished all necessary details during the original assessments, and any omission in the audit report under Section 44AB was the auditor’s fault, not the assessees’. Consequently, the Tribunal ruled that the reopening of assessments was barred by limitation and set aside the orders of the lower authorities for the years in question.

2. Disallowance of Travel Expenses:
The assessee claimed travel expenses for the Managing Director and his wife for a business trip to Singapore. The Tribunal upheld the disallowance, noting that no evidence was provided to substantiate the business purpose of the trip. Additionally, expenses for the son of the Managing Director were claimed as staff welfare expenses, which the Tribunal found to be personal in nature and not business-related.

3. Disallowance of Electricity Charges:
The assessee argued that electricity charges incurred in a previous year were adjusted against a deposit in the current year, crystallizing the liability. The Tribunal upheld the disallowance, stating that the liability related to a prior year and could not be claimed in the current year merely because of the adjustment.

4. Disallowance of Expenditure for Employee's Higher Education:
The assessee sponsored an employee for higher education but did not obtain any bond or agreement ensuring the employee would continue to work for the company. The Tribunal upheld the disallowance, stating that without such an agreement, the expenditure could not be considered for business purposes.

5. Disallowance of Marriage Reception Expenses:
The Tribunal confirmed the disallowance of expenses incurred for the marriage reception of the Managing Director’s son, stating that such expenditures are personal obligations and cannot be construed as business expenses.

6. Disallowance of Expenditure for Setting Up a Subsidiary:
The Tribunal upheld the disallowance of expenses incurred for setting up a subsidiary in Oman, categorizing them as capital expenditures.

7. Disallowance of Water Connection Expenses:
The Tribunal confirmed the disallowance of expenses for obtaining a water connection for a new office due to the absence of any receipt or material evidence supporting the payment.

8. Disallowance of Expenditure for Vice President's Higher Education:
The Tribunal upheld the disallowance of expenses for the higher education of the Managing Director’s son, who was the Vice President (Operations), noting that he was not treated as an employee during the study period and no salary was paid to him.

9. Disallowance under Section 40A(3) of the Income-tax Act:
The Tribunal upheld the disallowance of payments exceeding ?20,000 per day under Section 40A(3), agreeing with the CIT(Appeals) who had restricted the disallowance to 50%.

Conclusion:
The appeals concerning the limitation for reopening assessments were allowed, while the appeal regarding various disallowances was dismissed. The Tribunal provided a detailed rationale for each issue, ensuring adherence to legal standards and principles.