2024 (7) TMI 775 - AT - Income Tax

Ad hoc disallowance of various expenses debited to Profit Loss Account - HELD THAT - We find that this is a recurring issue from earlier years and Tribunal deleted such ad hoc disallowances for the assessment years 2004-05, 2005-06 2009-10 2023 (5) TMI 1091 - ITAT DELHI as held ad-hoc disallowance without bringing on record any adverse material is not sustainable. We observe that the Ld. AO required the assessee to produce the vouchers for the month of March, 2009. The assessee complied and the Ld. AO verified the same on test check basis but no defect was found. Therefore the impugned disallowance is not justified and hence has rightly been deleted by the Ld. CIT(A). Decided against revenue. Disallowance of interest paid to banks - HELD THAT - We find that this issue also came up for consideration before the Tribunal in earlier AY i.e. 2009-10 2023 (5) TMI 1091 - ITAT DELHI and the Tribunal sustained the order of the Ld.CIT(Appeals) in deleting this disallowance as held AO made the disallowance even without mentioning the name of the sister concern to whom advance was allegedly made by the assessee. The loans obtained by the assessee from Citi Bank and ICICI Bank were utilized for working capital of the assessee and from the balance sheet and details of loans and advances it is obvious that no loan or advance was made to any relative or sister concern. In the absence of any instance of utilization of borrowed fund for purposes other than business brought on record by the Ld. AO, the Ld. CIT(A) correctly deleted the impugned addition. Salary received from Ozone Pharmaceuticals Ltd.- disallowance was made stating that in the absence of any details filed by the assessee the salary received by the assessee is calculated on the basis of earlier year - CIT(Appeals) deleted this disallowance for the reason that the assessee has not received any salary during the year and the claim for TDS was only a mistake and the TDS return was also revised - HELD THAT - As Revenue could not controvert the findings of the Ld. CIT(A) and, therefore, the same is sustained. Ground no.3 of Revenue s appeal is rejected. Deduction u/s 80IB/80IC - HELD THAT - As decided in own case 2023 (5) TMI 1091 - ITAT DELHI not a single instance of transfer of finished goods or services from Baddi unit to the Guwahati unit is pointed out by the AO. The deduction u/s 80IC was claimed as per the audit report u/s 10CCB filed. Thus, all the conditions regarding grant of deduction have been satisfied. Disallowance of selling and distribution expenses - AO disallowed 25% of selling and distribution expenses on ad hoc basis are primarily on the ground that these expenses are excessive in comparison to total turnover of the assessee - HELD THAT - As the findings of the AO as well as the CIT(A) and the evidences produced in the Paper Book, we are of the view that the disallowance made by the AO at 25% is excessive. Taking note of various deficiencies pointed out by the AO as well as the findings of the CIT(A) and taking the submissions of the Assessee into consideration to meet the ends of justice, we direct the AO to restrict the disallowance to 10% of the selling and distribution expenses as against 25% disallowed and recompute the income accordingly.

Issues Involved:
1. Deletion of disallowance of various expenses.
2. Deletion of disallowance of interest paid to banks.
3. Deletion of addition of salary received from Ozone Pharmaceuticals Ltd.
4. Deduction under Section 80IB/80IC of the Income Tax Act.
5. Disallowance of selling and distribution expenses under Section 37 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Various Expenses:
The Revenue appealed against the deletion of disallowance amounting to Rs. 18,50,000/- for the AY 2010-11. The Tribunal noted that this issue was recurring from earlier years and had been decided in favor of the assessee for AYs 2004-05, 2005-06, and 2009-10. The Tribunal observed that the disallowance was made on an ad hoc basis without any adverse material. Therefore, following the earlier orders, the Tribunal sustained the CIT(A)'s order deleting the ad hoc disallowance of expenses.

2. Deletion of Disallowance of Interest Paid to Banks:
The Revenue contended the deletion of disallowance of Rs. 16,21,955/- on account of interest paid to banks. The Tribunal found that this issue had also been decided in favor of the assessee in earlier years, particularly for AY 2009-10. The Tribunal noted that the CIT(A) had deleted the disallowance because the assessee had sufficient funds of its own to cover advances to sister concerns, and no specific instance of fund diversion was brought on record by the AO. Therefore, the Tribunal upheld the CIT(A)'s order deleting the disallowance of interest paid to banks.

3. Deletion of Addition of Salary Received from Ozone Pharmaceuticals Ltd.:
The Revenue's appeal included a ground regarding the deletion of an addition of Rs. 10,86,000/- related to salary received from Ozone Pharmaceuticals Ltd. The CIT(A) deleted the disallowance, noting that the assessee had not received any salary during the year and the TDS claim was a mistake. The Tribunal observed that the Revenue could not controvert the CIT(A)'s findings and, therefore, sustained the deletion of the addition.

4. Deduction Under Section 80IB/80IC of the Income Tax Act:
The Revenue challenged the deduction under Section 80IB/80IC, arguing that the Guwahati unit was formed by splitting up or reconstructing an existing business. The Tribunal found that this issue had been decided in favor of the assessee for AY 2009-10, following the order for AY 2003-04. The Tribunal noted that the CIT(A) had allowed the deduction, observing that the Guwahati unit was located in a notified area and was eligible for deduction under Section 80IC. The Tribunal upheld the CIT(A)'s order, allowing the deduction under Section 80IB/80IC.

5. Disallowance of Selling and Distribution Expenses Under Section 37 of the Income Tax Act:
For AY 2012-13, the assessee appealed against the disallowance of Rs. 5,08,43,220/- on account of selling and distribution expenses. The AO had disallowed 25% of these expenses, deeming them excessive compared to the total turnover. The CIT(A) sustained the disallowance, noting that the assessee failed to produce complete books and supporting vouchers. The Tribunal, after considering the submissions and evidence, found the 25% disallowance excessive and directed the AO to restrict the disallowance to 10%.

For AY 2013-14, the grounds were identical to those for AY 2012-13. The Tribunal applied the same reasoning and directed the AO to restrict the disallowance to 10%.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeals, directing the AO to restrict the disallowance of selling and distribution expenses to 10% for AYs 2012-13 and 2013-14. The Tribunal upheld the CIT(A)'s orders on the deletion of disallowances and deductions under various sections of the Income Tax Act.

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