2022 (11) TMI 1031 - AT - Income Tax

Disallowance u/s.14A r.w.Rule 8D(2) - disallowance of expenses was suomoto made by the assessee in the return of income - HELD THAT - We find that assessee is having sufficient own funds which is evident from the balance sheet in page 3 of the paper book and hence, it could be reasonably presumed that the investments which had yielded exempt income to the assessee had been made out of interest free funds available with the assessee by placing reliance on the decision of South Indian Bank Ltd 2021 (9) TMI 566 - SUPREME COURT - We direct that there could be no disallowance of interest in terms of Rule 8D(2)(ii) of the Rules. The ld. AO is directed accordingly to delete the same. Disallowance made under Rule 8D(2)(iii) of the rules - We direct the ld.AO to consider only those investments which had actually yielded exempt income to the assessee during the year under consideration and recompute the disallowance accordingly. The workings for the same are given by the assessee in page 43 of the paper book. The ld. AO is directed to verify the same and re-compute the disallowance. Accordingly, the ground of assessee allowed for statistical purposes. Disallowance of foreign travel expenses - Allowable business expenditure - HELD THAT - We find that the grievance of the Revenue seems to be that wife of Director had accompanied Director to the foreign country and her expenditure is also debited in the books of the company. This is factually incorrect as is evident from the perusal of the ledger account of travelling expenses (International), wherein the travel expenditure of Director's wife has been reimbursed by her to the assessee company and the expenditure of the assessee is duly credited to that extent. This categorically goes to prove that no expenditure pertaining to Director's wife has been debited in the books of the assessee company. Hence, there cannot be any personal element of expenditure debited in the assessee company s books. These details were duly furnished before the lower authorities which had been ignored by the lower authorities. Hence, we have no hesitation in directing the ld. AO to delete the disallowances made on account of foreign travel expenses - ground raised by the assessee is allowed. Adhoc disallowance at 5% in respect of travelling expenses, sales promotion, office maintenance and staff welfare expenses - HELD THAT - The assessee in order to maintain the guest house had incurred expenditure towards groceries, fruits, vegetables, purchase of milk etc., The ld. AO observed that these groceries are meant for the purposes of guest house and hence, not incurred for business purpose of the assessee. We are unable to persuade ourselves to accept to this argument of the Revenue as the expenditures were incurred by the assessee in the guest house maintenance which are meant for usage of the assessee company employees and its Directors on their official visits. Obviously those persons who are staying in the said guest house on their official trip had to consume food, tea, coffee etc., for which purpose, the aforesaid groceries are very much required to be purchased and kept ready. Had these employees gone and stayed in a private hotel, the assessee company would have to incur the accommodation purpose together with the food bills thereon which would be more costlier for the assessee. Travelling expenses Incurred to meet various customers and to go along with various customers coming from various parts of the country for evaluation of mining prospects. The assessee also takes help of reputed experts and consultants in the field and had to incur their travelling expenses while visiting on their official trips for the purpose of benefit of the assessee company. Hence, we hold that the entire travelling expenses as being incurred wholly and exclusively for the purpose of business of the assessee only and there cannot be any adhoc disallowance towards the same. The ld. AO is directed to delete the same. Sales promotion Expenses - Bills of the same were duly furnished before the lower authorities. The assessee also pointed out that a sum was incurred as conference expenses wherein the same was paid to M/s. Thackers Caterers for providing food in the conference meeting to the customers of the assessee who attended conference. These expenses are to be construed only as expenditure incurred in the normal course of business of the assessee company. We hold there cannot be any adhoc disallowance of the same without finding any defect in the books or in the bills and vouchers produced by the assessee before the lower authorities. The ld. AO is directed accordingly. Office maintenance charges - We are unable to persuade ourselves to the stand taken by the Revenue as the premises in which these expenses were incurred where the business of the assessee is being carried on. It is duty bound on the part of the assessee to pay maintenance charges to the housing society and house keeping charges to a contractor outsourced by the housing societies. Hence, we hold that the said expenditure is wholly and exclusively incurred for the purpose of the business of the assessee and accordingly allowable as deduction. The ld. AO is directed accordingly. Staff welfare expenses - We find that assessee has incurred expenses towards milk, tea, water, medicines, vegetables kept at guest house. We have already held that assessee is maintaining guest houses at various locations to house its employees on their official visits. Accordingly, these expenses are to be mandatorily incurred to maintain the said guest house for providing basic amenities to its employees. Hence, we hold that these are wholly and exclusively incurred for the purpose of business and accordingly, the ld. AO is directed to allow deduction for the same in toto. Accordingly, the ground No.4 raised by the assessee is allowed.

Summary

Issues:
1. Disallowance u/s.14A of the Act r.w.Rule 8D(2) of the Rules.
2. Disallowance of foreign travel expenses.
3. Adhoc disallowance of expenses at reduced rates by the CIT(A).
4. Challenge against the sustained adhoc disallowance by the CIT(A).
5. General ground not requiring specific adjudication.

Issue 1: Disallowance u/s.14A of the Act r.w.Rule 8D(2) of the Rules:
The appeal addressed disallowance under Rule 8D(2) of the Rules concerning investments yielding exempt income. The Tribunal found the assessee had sufficient own funds, thus no disallowance of interest under Rule 8D(2)(ii) was warranted. For disallowance under Rule 8D(2)(iii), the Tribunal directed the AO to consider only investments yielding exempt income, allowing the appeal for statistical purposes.

Issue 2: Disallowance of Foreign Travel Expenses:
The challenge involved disallowance of foreign travel expenses. The Tribunal noted the necessity of foreign visits for business opportunities, emphasizing the expenses were incurred for business purposes. It was clarified that no personal element of expenditure was debited in the company's books. The Tribunal directed the AO to delete the disallowances made on foreign travel expenses.

Issue 3: Adhoc Disallowance of Expenses at Reduced Rates by the CIT(A):
The Tribunal addressed the adhoc disallowance of expenses, reduced by the CIT(A) from 20% to 5%. It was highlighted that expenses were incurred for business purposes, such as travelling to meet customers and experts. The Tribunal directed the AO to delete the adhoc disallowance, emphasizing the expenses were wholly and exclusively for business purposes.

Issue 4: Challenge Against the Sustained Adhoc Disallowance by the CIT(A):
The appeal challenged the sustained adhoc disallowance by the CIT(A) at reduced rates. The Tribunal examined various expenses, including travelling, sales promotion, office maintenance, and staff welfare. It concluded that these expenses were incurred wholly and exclusively for business purposes, directing the AO to allow deductions for the same.

Issue 5: General Ground Not Requiring Specific Adjudication:
The final ground raised by the assessee was of a general nature and did not necessitate specific adjudication. The Tribunal allowed the appeal for statistical purposes, pronouncing the order on the mentioned date.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT MUMBAI, providing insights into the reasoning and outcomes for each issue raised in the appeal.