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2022 (2) TMI 757 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - HELD THAT - We observed that it is fact on record that assessee has not earned any exempt income during the year, therefore no disallowance can be made u/s. 14A of the Act when assessee has not earned any exempt income. Accordingly, ground raised by the revenue is dismissed. Disallowance of foreign travelling expenses to foreign countries from where assessee was not deriving any revenue - HELD THAT - We observed that assessee has submitted capital account of the Directors and other relevant information before the Ld.CIT(A) as the additional evidences which clearly indicates that the expenses relating to two sons who were travelled with the Directors were not charged to Profit and Loss Account and were charged to personal account of the Directors. Further, he brought to notice that there is business connection in Singapore for the Directors to visit there. These are all details relating to the expenses and disallowed by the AO. CIT(A) having coterminous powers is empowered to verify the simple documents submitted before him. Therefore, it need not be remitted to Assessing Officer for further verification. Hence, the information placed before the Ld.CIT(A) and before us clearly indicate that assessee has not claimed personal expenditure relating to the family travelled in foreign trip and also there is business connection for the directors to visit Singapore. Therefore, we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, grounds raised by the revenue are dismissed. Addition made on account of informer information expenses - HELD THAT - From the record submitted before us this is a relevant expenditure incurred by the assessee during the year and also assessee is claiming this expenditure from the past several years. We also observed that Assessing Officer has not disputed the revenue or services offered by the assessee which is the services offered to rendering the services to multinational companies in the field of investigation of violation in the utilization of IPR. In our view once nature of business of the assessee is accepted, the unique aspect of informants expenses is also to be accepted, which is relevant for carry out the functions of the company. And when assessee takes services of informants certainly they will demand compensation without incurring such expenses assessee will not be able to provide effective services and continue similar services to other clients. In this case, details of informants have to kept secret and the assessee has supplied enough information to substantiate the actual payment but only kept the identity of the informants. After going through detailed finding of the Ld.CIT(A) we do not find any reason to interfere with the finding of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed and also involvement of provisions of section 69C of the Act in the case of the assessee is farfetched and accordingly, this aspect also dismissed. Ground raised by the revenue is dismissed.
Issues Involved:
1. Disallowance of expenditure under Section 14A of the Income Tax Act. 2. Addition on account of foreign traveling expenses. 3. Addition on account of informer information expenses. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure under Section 14A of the Income Tax Act: During the assessment proceedings, the Assessing Officer observed that the assessee had invested in various unquoted shares of group companies but had not made any disallowance under Section 14A of the Act. The officer concluded that since the assessee had made huge investments and borrowed money, the interest expenses incurred for the acquisition of investments should be disallowed under Section 14A, even if no exempt income was earned or received by the assessee. Consequently, a disallowance of ?2,43,131/- was made by applying Rule 8D of the I.T. Rules. The assessee appealed to the Ld.CIT(A), who, after considering detailed submissions and relying on the Hon'ble Supreme Court decision in Maxopp Investment Ltd [91 Taxmann.com 154], concluded that the disallowance under Section 14A cannot exceed the exempt income. Since the assessee had not earned any exempt income during the year, the disallowance under Section 14A was not warranted. The Ld.CIT(A) allowed the ground raised by the assessee, and the revenue's appeal on this issue was dismissed by the tribunal. 2. Addition on Account of Foreign Traveling Expenses: The Assessing Officer observed that the assessee had debited ?36,95,518/- for foreign traveling expenses, including expenses for the director's family members, which were not allowable as business expenditure under Section 37 of the Act. Specifically, ?11,92,998/- related to a Singapore trip was disallowed due to a lack of supporting documents to establish the business purpose. The Ld.CIT(A) allowed the ground raised by the assessee after considering detailed submissions, including the fact that expenses for the director's children were debited in the director's personal account, not the company's account. The Ld.CIT(A) also noted that the director's travel was for business purposes, including meetings with M/s. Hewlett-Packard Asia Pacific Pte. Ltd., which generated significant revenue for the company. The tribunal upheld the Ld.CIT(A)'s decision, noting that the assessee had provided sufficient evidence to show that the expenses were incurred for business purposes and that personal expenses were not charged to the company's account. The tribunal dismissed the revenue's grounds on this issue. 3. Addition on Account of Informer Information Expenses: The Assessing Officer disallowed ?1,37,95,570/- claimed as informer information expenses due to a lack of supporting documentary evidence or proof of payment. The assessee explained that the nature of their business required payment to informers for confidential information, which was crucial for conducting raids and investigations. The assessee provided detailed submissions, including the correlation between informer expenses and revenue generated, and cited various case laws supporting the allowability of such expenses. The Ld.CIT(A) allowed the ground raised by the assessee, relying on the decision in the previous A.Y. 2012-13, where similar disallowances were deleted. The Ld.CIT(A) noted that the nature of the assessee's business necessitated such expenses and that the payments were made from the audited books of accounts. The tribunal upheld the Ld.CIT(A)'s decision, stating that the nature of the assessee's business and the necessity of informer expenses were well established. The tribunal also noted that the Assessing Officer had not disputed the revenue or services offered by the assessee. The tribunal dismissed the revenue's grounds on this issue, including the applicability of Section 69C of the Act. Conclusion: The tribunal dismissed the revenue's appeal on all grounds, upholding the Ld.CIT(A)'s decisions regarding the disallowance under Section 14A, the addition on account of foreign traveling expenses, and the addition on account of informer information expenses. The tribunal found that the assessee had provided sufficient evidence and justification for the expenses claimed, and the disallowances made by the Assessing Officer were not warranted.
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