2019 (4) TMI 1667 - AT - Income Tax

Disallowance of Pooja Expenses of the total expenditure claimed - Addition on adhoc basis - HELD THAT - Assessee had furnished unit wise details of day to day Pooja Expenses before the Ld. CIT(A). Further, the remand report was also called upon by the CIT(A) from the AO. AO has not disputed the contention of the assessee that out of the total Pooja Expenses of ₹ 1,47,886/-, an amount of ₹ 83,316/- was relatable to Haridwar Unit, the total income of which was eligible for deduction u/s 80IC. Further, considering the small amount of ₹ 64,570/- incurred by the assessee for normal day to day Pooja expenses as compared to the total returned income of ₹ 12,94,52,310/-, we do not find any justification on the part of the lower authorities in making the aforesaid disallowance, as admittedly, the said Pooja expenses have been incurred in the premises of the unit for the need of the workers and to maintain peace and harmony among them. Disallowance of foreign travelling expenses - HELD THAT - CIT(A) has allowed the expenditure relating to the foreign travel of the wife as well as has restricted the disallowance relating to the boarding lodging of the children to the extent of 25% of the total boarding lodging expenditure as against 50% made by the AO. As noted above, the assessee has disputed the calculation made by the CIT(A) in this respect also. Since there is a calculation issue, we restore the matter to the file of the AO to recompute / calculate the disallowance made under this head after going through the order of the AO as well as considering the relief granted by the CIT(A). Disallowance of interest expenditure u/s 36(1)(iii) - HELD THAT - The issue is now squarely covered by the recent decision of the Hon'ble Supreme court in the case of CIT (LTU) Vs. Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT as affirmed the proposition of law that if the own funds / interest free funds are available with the assessee to meet the investment, presumption will be that the assessee had used its own / interest free funds for the said investment. This issue is accordingly decided in favour of the assessee and the disallowance made u/s 36(1)(iii) of the Act is ordered to be deleted. Appeal of the Revenue is dismissed on account of low tax effect being hit by the CBDT Circular No. 3/2018 dated 11.07.2018, whereas, the Cross objections of the assessee, in view of our observations made above, are treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Appeal by Revenue against CIT(A) order.
2. Tax effect below ?20 lakhs leading to appeal dismissal.
3. Disallowance of Pooja expenses.
4. Disallowance of foreign traveling expenses.
5. Disallowance of interest expenditure u/s 36(1)(iii).

Issue 1: Appeal by Revenue against CIT(A) order
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-2, Ludhiana. The appeal was dismissed due to the low tax effect, which was less than ?20 lakhs. The Circular No. 3/2018 set the monetary limit for filing appeals by the Department before the Tribunal at ?20 lakhs. The dismissal was in line with the decision of the Hon'ble Punjab & Haryana High Court in a similar case, leaving the legal issue raised by the Revenue open for future adjudication.

Issue 2: Disallowance of Pooja expenses
The assessee raised cross objections regarding the disallowance of Pooja expenses by the CIT(A). The CIT(A) had restricted the disallowance to ?75,000 out of a total claim of ?1,47,886. The assessee argued that these expenses were for maintaining good relations with workers and for business purposes. The Tribunal found no justification for the restriction imposed by the CIT(A) and allowed the cross objection, ordering the disallowance to be deleted.

Issue 3: Disallowance of foreign traveling expenses
The assessee contested the disallowance of ?5,52,897 out of foreign traveling expenses totaling ?48,23,473. The disallowance was related to expenses on the wife and children of the director of the company. The Tribunal noted discrepancies in the calculation of the disallowance and remanded the matter to the Assessing officer for recomputation. The Tribunal directed a review of the disallowance considering the relief granted by the CIT(A) and the actual expenses incurred.

Issue 4: Disallowance of interest expenditure u/s 36(1)(iii)
The assessee challenged the confirmation of disallowance of interest expenditure amounting to ?12,25,292 under section 36(1)(iii). The assessee argued that there were sufficient own funds available to meet the investment, as evidenced by the financial figures provided. Citing a Supreme Court decision, the Tribunal ruled in favor of the assessee, ordering the disallowance to be deleted. The decision was based on the availability of own funds to cover the investment.

In conclusion, the appeal by the Revenue was dismissed due to the low tax effect, as per the CBDT Circular. The cross objections of the assessee were allowed on the issues of Pooja expenses and interest expenditure, with directions for a review of the disallowance of foreign traveling expenses. The Tribunal provided detailed reasoning for each issue, ensuring a fair and comprehensive adjudication.