2023 (4) TMI 380 - AT - Income Tax

Ad-hoc disallowance at the rate of 10% on credit card expenses - assessee has contended that the alleged additions made by ld. AO are merely on suspicion and no defect has been pointed out in the details of the expenditure given by the assessee - HELD THAT - In the assessment order framed u/s 153A r.w.s. 143(3) of the Act ld. AO made only two disallowances; firstly towards personal expenses included in the credit card expenses and secondly the disallowance at the rate of 10% of the foreign travel expenses. Prima Facie the said disallowance is ad-hoc in nature. AO ought to have made reference to any of such expenses given in the books which could indicate that they are personal in nature. Merely making disallowance just for the sake of concluding the assessment is not a justified approach. Expenses through credit card have been claimed as general business expenditure in order to attend the business meetings. No specific defect has been pointed out by the Revenue authorities and as claimed by ld. Counsel for the assessee that in the subsequent years no such disallowance has been made in the scrutiny proceedings carried out As alleged disallowance is based on merely conjectures, surmises and suspicion and the same deserves to be deleted. Thus, the addition for ad-hoc disallowance made is deleted. Decided in favour of assessee. Ad-hoc disallowance at the rate of 10% on foreign travel expenses - HELD THAT - Taking a consistent view and observing that the alleged disallowance for foreign travel expenses is merely ad-hoc in nature, we delete the said disallowance. Disallowance of brokerage - HELD THAT - The brokerage bill was received, accounted for and settled during the year under appeal. Tax at source has been deducted thereof. The genuineness of the brokerage expenses has not been doubted by the Revenue authorities. This being a genuine claim of business expenditure towards brokerage, the same deserves to be allowed. We, thus, set aside the finding of ld. CIT(A) and delete the said disallowance - Decided in favour of assessee. Nature of receipt - sales tax incentives - whether the sales tax incentive is a capital receipt and is to be excluded for the purpose of computing book profit u/s 115JB? -HELD THAT - The sales tax incentive received by the assessee is for setting up of industries in the backward areas of West Bengal and is not directly related to the revenue growth of the assessee company, we hold it to be a capital receipt not liable to tax. See M/S. BIRLA CORPORATION LTD 2021 (1) TMI 154 - ITAT KOLKATA , M/S. SOVAISPAT LIMITED 2020 (6) TMI 100 - ITAT KOLKATA , CHAPHALKAR BROTHERS PUNE 2017 (12) TMI 816 - SUPREME COURT , RELIANCE INDUSTRIES LTD. 2009 (4) TMI 516 - BOMBAY HIGH COURT MAT Computation - exclusion of the sales tax incentive for the purpose of computing book profit u/s 115JB - HELD THAT - The sales tax incentive which is the capital receipt (as held above in the preceding para) given to the assessee for achieving industrialization in the backward areas of West Bengal, is not required to be included in the book profit for computing the tax liability u/s 115JB of the Act - See SICPA INDIA PRIVATE LIMITED (FORMERLY KNOWN AS SICPA INDIA LTD.) VERSUS D.C.I.T., CIRCLE-8, KOLKATA 2017 (3) TMI 1383 - ITAT KOLKATA

Issues Involved:

1. Ex-parte order passed by CIT(A).
2. Ad-hoc disallowance of credit card expenses.
3. Ad-hoc disallowance of foreign travel expenses.
4. Disallowance of brokerage expenses.
5. Treatment of sales tax incentive as capital receipt.
6. Exclusion of sales tax incentive from book profit under Section 115JB.
7. Other general and consequential grounds.

Summary of Judgment:

1. Ex-parte Order Passed by CIT(A):
The appellant contended that the CIT(A) passed an ex-parte order under Section 250 without considering the adjournment petition filed by the assessee. The Tribunal noted that the CIT(A) ignored the adjournment petition and concluded that passing the ex-parte order was a complete denial of natural justice.

2. Ad-hoc Disallowance of Credit Card Expenses:
The Tribunal addressed the ad-hoc disallowance of 10% on credit card expenses for the Assessment Years (AY) 2012-13, 2013-14, and 2014-15. The Tribunal found that the disallowance was based on conjectures and surmises without pointing out specific defects in the expenditure details provided by the assessee. The Tribunal deleted the disallowance, holding it to be unjustified.

3. Ad-hoc Disallowance of Foreign Travel Expenses:
Similarly, the Tribunal dealt with the ad-hoc disallowance of 10% on foreign travel expenses for the same assessment years. The Tribunal found that the disallowance was also ad-hoc in nature and deleted it, following the same rationale as for the credit card expenses.

4. Disallowance of Brokerage Expenses:
For AY 2014-15, the Tribunal considered the disallowance of brokerage expenses amounting to Rs. 8,78,771/-. The Tribunal found that the brokerage expenses were genuine business expenditures, accounted for and settled during the year with tax deducted at source. The Tribunal deleted the disallowance, allowing the ground raised by the assessee.

5. Treatment of Sales Tax Incentive as Capital Receipt:
The Tribunal admitted additional grounds regarding the sales tax incentive being treated as a capital receipt. The Tribunal referred to various judicial pronouncements, including the Hon'ble Supreme Court and jurisdictional High Court decisions, and concluded that the sales tax incentive received under the West Bengal Industrial Promotion Scheme was a capital receipt, not liable to tax. The Tribunal allowed the additional grounds for AY 2012-13, 2013-14, and 2014-15.

6. Exclusion of Sales Tax Incentive from Book Profit under Section 115JB:
The Tribunal addressed whether the sales tax incentive should be excluded from book profit computation under Section 115JB. Citing judgments from the Hon'ble Jurisdictional High Court and other precedents, the Tribunal held that the sales tax incentive, being a capital receipt, should not be included in the book profit for computing tax liability under Section 115JB. The Tribunal allowed the additional grounds for AY 2012-13, 2013-14, and 2014-15.

7. Other General and Consequential Grounds:
The Tribunal noted that other grounds raised by the assessee were general and consequential in nature, requiring no specific adjudication.

Conclusion:
The appeals filed by the assessee for AY 2012-13, 2013-14, and 2014-15 were partly allowed by the Tribunal.

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