2022 (3) TMI 390 - HC - Income Tax

Addition u/s 43B - deduction of payment of electricity duty disallowed - the Assessee paid the amount in dispute, it paid it only into an account from which the State Government could not withdraw the amount. - as argued the said sum is a crystallized liability and deposited in a no lien account pursuant to the directions of the Hon ble Orissa High Court - HELD THAT - In the present case, while the Assessee may not have furnished a bank guarantee, its deposit of the disputed electricity duty amount in a no-lien/escrow account was only to ensure that during the pendency of the litigation the said disputed amount is not in fact paid directly to the State Government. Therefore, the net result is no different from the kind of payment made by the Assessee in the aforementioned two cases by furnishing bank guarantees in lieu of such disputed payment of duty. In all three instances, therefore, the requirement of Section 43 B of the Act is not satisfied. - Decided against assessee. Expenditure incurred on foreign travel of Directors of the Appellant disallowed - whether same has been undertaken wholly and exclusively for the business of Appellant Company? - HELD THAT - While the names of the cities, the names of the Directors and the amount spent on each of them were specified there were no further details furnished to indicate that the expense was for purely business purposes. The AO was not, in the considered view of this Court, acting unreasonably in concluding that in the absence of better particulars to substantiate the claim that it was only for business purposes, it could not be wholly allowed. In the circumstances, disallowing 20% thereof cannot be held to be improper or legally impermissible. Since the claim of the Assessee was that the expenses of wholly and exclusively for the business of the Assessee, and for no other purpose, it was incumbent on the Assessee to discharge the burden of substantiating that fact. In the considered view of the Court, the Assessee cannot be said to have discharged said burden satisfactorily.- Decided against assessee.

Summary

Issues Involved:
1. Disallowance of deduction for payment of electricity duty under Section 43B of the Income Tax Act.
2. Disallowance of foreign travel expenditure of Directors.

Detailed Analysis:

Issue 1: Disallowance of Deduction for Payment of Electricity Duty under Section 43B

The Assessee, engaged in the manufacture and sale of ferro alloys, challenged the disallowance of electricity duty payment under Section 43B of the Income Tax Act. The Assessee had deposited the disputed amount of electricity duty in a no-lien/escrow account as per court orders, contending that this constituted "actual payment" under Section 43B. The Assessing Officer (AO), Commissioner of Income Tax (Appeals) [CIT (A)], and the Income Tax Appellate Tribunal (ITAT) disagreed, holding that such a deposit did not meet the criteria of "actual payment" since the State Government did not have access to the funds.

The Court emphasized that Section 43B requires the Assessee to have "actually paid" the sum, meaning the payee (State Government) must have received it. The deposit in a no-lien/escrow account did not satisfy this requirement as the State Government could not access the funds. The Court referenced the Gujarat High Court decision in Mugat Dyeing and Printing Mills v. ACIT and the Rajasthan High Court decision in CIT v. Rajasthan Patrika (P) Limited, which held that furnishing a bank guarantee does not equate to actual payment. The Court concluded that the Assessee's deposit in the no-lien/escrow account was similar to furnishing a bank guarantee and did not fulfill the requirement of Section 43B. Therefore, the Court ruled in favor of the Department, affirming the disallowance of the electricity duty deduction.

Issue 2: Disallowance of Foreign Travel Expenditure of Directors

The Assessee claimed a deduction of ?1,55,80,882/- under "Export Promotion Expenses" for the foreign travel of its Directors. The AO disallowed 20% of this expenditure, citing insufficient details to substantiate that the expenses were incurred solely for business purposes. The CIT (A) and ITAT upheld this disallowance.

The Court agreed with the AO, noting that while the Assessee provided the names of the Directors, the cities visited, and the amounts spent, it did not furnish detailed evidence proving the expenses were exclusively for business purposes. The Court held that the Assessee failed to discharge the burden of proof required to substantiate its claim. Consequently, the Court ruled in favor of the Department, affirming the disallowance of 20% of the foreign travel expenses.

Conclusion:

The Court dismissed the appeal, ruling in favor of the Department on both issues. The disallowance of the electricity duty payment under Section 43B was upheld as the deposit in a no-lien/escrow account did not constitute "actual payment." The disallowance of 20% of the foreign travel expenditure was also upheld due to insufficient evidence proving the expenses were solely for business purposes. The appeal was dismissed with no order as to costs.