2020 (12) TMI 973 - AT - Income Tax

Claim of deduction of expenditure u/s 37(1) - Contribution to BATF - contribution made by the assessee to BATF as per the directions of Dy. Commissioner of Bellary District Administration for the purpose of infrastructure development and to maintain cordial relationship with the Government and provide social facilities to the deprived class and which has a nexus with the assessee business - HELD THAT - We find that the AO has not disputed the genuineness of the expenditure and of the view, that it is not connected to the business and not allowable under Section 37(1) of the Act. We considered the judicial decisions and the provisions of law, are of the opinion that the contribution made by the assessee is wholly and exclusively for the purpose of business and is allowable under Section 37(1) of the Act. Accordingly, we set aside the order of CIT (Appeals) on this disputed issue and direct the Assessing Officer to delete the addition and allow the ground of appeal of the assessee. Provision for audit fees - AO has disallowed the claim as the assessee has failed to deduct the TDS and applied the provisions of Section 40(a)(ia) - contentions of the Ld. AR that the Audit fee was not credited to the Auditors Account and was lying in the provision for audit fees payable account - alternative contention submitted by the Ld. AR, that the recipient has offered the income for income tax purpose and paid taxes as per the second proviso to Section 40(a)(ia) of the Act, and therefore the payee has discharged his obligation - HELD THAT - We considering the submissions and the facts, are of the opinion that the matter requires examination and verification of fact that the payee has discharged its obligation to pay the taxes on Audit fees. Hence to meet ends of justice, we provide one more opportunity to the assesses to substantiate the claim before the Assessing Officer with proof of offering of income by the payee for income tax purpose. Accordingly, we set aside the order of the CIT (Appeals) on this disputed issue and restore the entire disputed issue for limited purpose to the file of AO to examine and verify the claim and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the details and allow the ground of appeal of assessee allowed for statistical purposes.

Summary

Issues Involved:

1. Disallowance of ?5,00,00,000/- contribution to Bellary Agenda Task Force (BATF).
2. Disallowance of ?15,00,000/- provision for audit fees due to non-deduction of TDS.

Detailed Analysis:

1. Disallowance of ?5,00,00,000/- Contribution to BATF:

The assessee, engaged in the business of trading iron ore, filed a return for the Assessment Year 2010-11 declaring an income of ?125,81,33,780/-. During scrutiny, the Assessing Officer (AO) disallowed ?5 Crores contributed to BATF, stating it was not incurred for business purposes. The assessee argued that the contribution was made to maintain a cordial relationship with the local administration and benefit the deprived class, hence it should be allowed under Section 37(1) of the Income Tax Act, 1961. The CIT (Appeals) upheld the AO's decision, relying on the jurisdictional High Court decision in CIT Vs. Infosys Technologies Ltd. (2013-TIOL-507-HC-Kar-IT: 349 ITR 588).

At the Tribunal, the assessee reiterated that the contribution was wholly and exclusively for business purposes, referencing judicial decisions in Kanhaiyalal Dudheria Vs. JCIT & Another (2019) 418 ITR 410 (Kar) and CIT Vs. Infosys Technologies Ltd. (2014) 360 ITR 714 (Kar). The Tribunal noted that the contribution was directed by the Deputy Commissioner for infrastructure development, which indirectly benefited the assessee's business. The Tribunal found that the contribution had a business nexus and was allowable under Section 37(1). Thus, the Tribunal set aside the CIT (Appeals) order and directed the AO to delete the addition.

2. Disallowance of ?15,00,000/- Provision for Audit Fees Due to Non-Deduction of TDS:

The AO disallowed ?15 lakhs provision for audit fees under Section 40(a)(ia) of the Act, as the assessee failed to deduct TDS. The assessee argued that the audit fee was credited to the "audit fees payable" account and not to the auditor's account, thus no TDS was deducted. Additionally, the assessee contended that the recipient had offered the income for tax purposes, invoking the second proviso to Section 40(a)(ia).

The CIT (Appeals) upheld the AO's disallowance, stating that TDS provisions apply even if the provision is made in the books of accounts. The Tribunal, considering the submissions, opined that the matter required verification of whether the recipient had discharged their tax obligations. The Tribunal set aside the CIT (Appeals) order on this issue and remanded it to the AO for verification, providing the assessee an opportunity to substantiate the claim.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal directed the AO to delete the addition regarding the BATF contribution and to verify the facts concerning the provision for audit fees. The decision emphasized the necessity of substantiating claims with adequate evidence and maintaining compliance with statutory provisions.