2023 (3) TMI 821 - AT - Income Tax

Disallowance u/s 37(1) on account of advertisement expenses - Addition being expenses for non-business purpose - HELD THAT - Assessee could not prove how the said advertisement expenditure is wholly and exclusively for the purpose of the business. AR could not rebut the fact that during the assessment proceedings, it was accepted by assessee that he is unable to substantiate and therefore agreed for the addition. Expenditure incurred on advertisement was not wholly and exclusively for the purpose of the business of the assessee. Decided against assessee. Disallowance u/s 36(1)(viia) - AO observed that assessee was not having any Rural Advances, therefore, held that assessee was not eligible for deduction u/s 36(1)(viia) - HELD THAT - As decided in assessee own case 2020 (3) TMI 687 - ITAT PUNE assessee without rural branches / advances, is entitled to deduction u/s 36(1)(viia) of the Act. Decided against revenue. Disallowance u/s 40(a)(ia) r.w.s 194A - interest income earned by minor and partnership firm - HELD THAT - No specific submission has been made vis- -vis interest paid to unregistered firm. As per the bylaws of the assessee, unregistered firm and minor are not eligible to be members. As per proviso to section 194A exemption is granted only to the members in case of co-operative societies. In the case of the assessee, it is an admitted fact that minors and unregistered firms cannot become members of the society. Thus, assessee had paid interest to minor and unregistered firms who were not members of the assessee. This is violation of section 194A - we are of the opinion that the AO has rightly invoked provisions of section 40(a)(ia) of the Act and disallowed interest paid to minor and unregistered firm hence, the said addition is confirmed. Decided against assessee.

Summary

Issues:
- Disallowance of Rs.91,200 under section 37(1) of the ITA, 1961 for advertisement expenses.
- Disallowance of Rs.41,78,942 under section 36(1)(viia) for provision of bad and doubtful debts.
- Disallowance of Rs.10,59,681 for interest on deposits paid to minors and unregistered firms under section 40(a)(ia).
- Eligibility for deduction under section 36(1)(viia) without rural advances.

Advertisement Expenses Disallowance:
The AO disallowed Rs.91,200 of advertisement expenses as not wholly and exclusively for business purposes. The CIT(A) upheld the disallowance, noting lack of business expediency. The AR could not prove the expenses' business purpose, leading to dismissal of the appeal.

Disallowance under section 36(1)(viia):
The AO disallowed Rs.41,78,942 due to the absence of rural advances. However, previous decisions favored the assessee's eligibility for deduction without rural branches, leading to allowance of the appeal.

Interest Disallowance under section 40(a)(ia):
The AO disallowed Rs.7,92,500 and Rs.2,60,181 for interest paid to minors and unregistered firms, respectively, due to non-deduction of TDS. The AR's argument on minor income clubbing and TDS exemption was rejected, as minors and unregistered firms were not members. The AO's disallowance under section 40(a)(ia) was upheld, resulting in dismissal of the appeal.

Eligibility for Deduction under section 36(1)(viia):
The assessee's eligibility for deduction under section 36(1)(viia) without rural advances was confirmed based on previous favorable decisions, leading to the allowance of the appeal.

General Ground:
The general ground of appeal was dismissed as not pressed.

This judgment addressed various issues including disallowance of advertisement expenses, eligibility for deduction under section 36(1)(viia) without rural advances, and disallowance of interest paid to minors and unregistered firms under section 40(a)(ia). The decision upheld some disallowances while allowing appeals on other grounds based on legal interpretations and precedents.