9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (10) TMI 1009 - AT - Income TaxExcessive or unreasonable expenses - Payment to relatives / specified persons - Fair Market value of services rendered - Reimbursement/ support services - AO disallowed 25% thereof applying the provisions of section 40A(2)(b) - CIT(A) deleted the additions - HELD THAT - During the year out of the expenditure incurred, expense partly cross charged to the assessee on a cost to cost basis in the ratio of the office space sub-leased by the assessee for its art gallery to the total area of the branch. AO wrongly treated reimbursement as support service expense when no support service expenses were incurred / claimed during the year. As submitted by the AR that actual expenses incurred is allocated and recovered by REL Infra on the basis of Cost Allocation Logics Policy for the Religare group. TDS is duly deducted on payment made to REL Infra. AO has not doubted the genuineness of expenditure and there is nothing on record to establish that payment is excessive or unreasonable. CIT(A) is perfectly justified in deleting the impugned disallowance. We find that the appeal of the Revenue filed against the CIT(A) s order for AY 2012-13 stands dismissed by the Tribunal 2019 (12) TMI 1662 - ITAT DELHI - We therefore find no reason to sustain the impugned disallowance. These grounds are rejected. Disallowance of rental expenditure claimed - On the basis of old rent agreement the AO computed rent payable and disallowed amount for not being for the purpose of assessee s business out of the total rental expenditure claimed - Owing to continuous losses in the operation of art gallery business, the assessee shut down its art gallery and vacated the premises taken on lease except for area of 837 sq. ft. which was retained for functioning of registered office, thus revised rent agreement made - CIT(A) deleted addition - HELD THAT - AR supported the order of the Ld. CIT(A) who deleted the impugned disallowance after considering the correct revised rent agreement holding that the expenditure was incurred for the purposes of business. On consideration of the facts and circumstances of the case, we observe that the impugned disallowance has been made by the AO due to inadvertent submission of the old rent agreement by the assessee before him. However, revised rent agreement was produced before the CIT(A) who after allowing opportunity to the Ld. AO to offer his comments gave relief to the assessee, interalia that the revised rent agreement cannot be treated as an afterthought and that the expenditure was incurred wholly and exclusively for the purposes of assessee s business. We concur with the findings of the Ld. CIT(A) and decline to interfere. Write off of CENVAT tax Credit - disallowance made holding that the assessee cannot suo-moto write off the credit available and the same is allowable only against future service tax liability - CIT(A) deleted the addition - HELD THAT - It is not in dispute that the statutory auditors of the assessee company have duly certified the impugned write off in the company s audited financial statements which is on record of the Ld. AO. Therefore, it cannot be said that it is not verifiable. The explanation of the assessee for write off has not been accepted by the Ld. AO without any cogent and valid reasons. The judicial consensus is that write off of CENVAT Credit is an allowable deduction under section 37(1) of the Act in the year it has been debited to the books of account. Disallowance on account of finance cost - assessee paid interest on ICDs taken from group companies out of which the assessee suo moto disallowed u/s 14A and the balance amount was claimed as deduction - AO disallowed 50% u/s 37(1) for the reason that such huge amount of borrowing and repayment is not attributable to the business of the assessee - CIT(A) deleted the impugned disallowance - HELD THAT - There is no finding that any part of the borrowed funds were utilised for purposes other than business. Hence adhoc 50% disallowance is not justified. On perusal of the order of the Ld. CIT(A) we observe that the CIT(A) noted of his appellate order that during the year the funds required by the assessee aggregated to Rs. 36.03 crores and that the quantum of ICDs borrowed by the assessee never exceeded Rs. 30.75 crores. Consequently, the borrowals made by the assessee never exceeded its working capital requirement of Rs. 34.67 crore in the year. The Ld. CIT(A) s order on the issue is well reasoned and backed by precedents. Appeal of the Revenue is dismissed.
Issues Involved:
1. Deletion of addition on account of reimbursement/support charges. 2. Allowance of additional evidence without counter comments under Rule 46A. 3. Deletion of addition without proper enquiries and reasonableness test under section 40A(2)(b). 4. Deletion of disallowance of rental expenses. 5. Deletion of disallowance of write-off of CENVAT tax credit. 6. Deletion of disallowance of finance cost. Summary: 1. Deletion of Addition on Account of Reimbursement/Support Charges: The Revenue challenged the deletion of Rs. 8,01,799/- by the CIT(A) on account of reimbursement/support charges. The AO had disallowed 25% of the claimed expenditure of Rs. 32,07,199/- under section 40A(2)(b). The CIT(A) deleted the disallowance, following the appellate order for AY 2012-13, noting that the expenses were cross-charged on a cost-to-cost basis and the AO had not doubted the genuineness of the expenditure. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's grounds. 2. Allowance of Additional Evidence Without Counter Comments: The Revenue argued that the CIT(A) erred in allowing additional evidence without calling for counter comments from the AO under Rule 46A. The Tribunal found that the CIT(A) had indeed called for and considered the remand report from the AO before making a decision, thus rejecting the Revenue's contention. 3. Deletion of Addition Without Proper Enquiries and Reasonableness Test: The AO had disallowed the claimed expenses without making proper enquiries and tests of reasonableness under section 40A(2)(b). The CIT(A) deleted the disallowance after considering the correct revised rent agreement and the business purpose of the expenditure. The Tribunal upheld the CIT(A)'s findings, noting that the revised rent agreement was not an afterthought and the expenditure was incurred wholly and exclusively for business purposes. 4. Deletion of Disallowance of Rental Expenses: The AO disallowed Rs. 1,15,27,945/- out of the claimed rental expenses of Rs. 1,79,50,486/- based on an old rent agreement. The CIT(A) accepted the revised rent agreement and deleted the disallowance. The Tribunal concurred with the CIT(A)'s findings, noting that the revised agreement was valid and the expenditure was for business purposes. 5. Deletion of Disallowance of Write-off of CENVAT Tax Credit: The AO disallowed the write-off of Rs. 1,81,03,975/- of CENVAT credit, arguing it could only be set off against future service tax liability. The CIT(A) deleted the disallowance, relying on judicial precedents that allowed such write-offs as business expenditure under section 37(1). The Tribunal upheld the CIT(A)'s decision, noting the statutory auditors' certification and the judicial consensus supporting the write-off. 6. Deletion of Disallowance of Finance Cost: The AO disallowed 50% of the finance cost, amounting to Rs. 60,16,402/-, on the grounds that the borrowings were not attributable to business purposes. The CIT(A) deleted the disallowance, noting that the borrowings were within the working capital requirements and incurred wholly for business purposes. The Tribunal agreed with the CIT(A)'s well-reasoned order, supported by precedents, and rejected the Revenue's ground. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of the disallowances on various grounds. The order was pronounced in the open court on 9th August 2023.
|
