2024 (11) TMI 356 - AT - Income Tax

Disallowance of the deduction claimed on account of lease rentals - Whether allowable revenue expenditure, being paid by Appellant to the owner of the leased assets for using those leased assets for the purpose of its business? - HELD THAT - We find merit in the submission of the Ld. AR. Here in this case, the genuineness of lease rent has not been questioned by the authorities below. The reasoning for the disallowance is only that the same has not been debited in the books of accounts. Undisputedly, this claim has been made in the ITR in the computation of income. As relying on Kedarnath Jute Mills Ltd. 1971 (8) TMI 10 - SUPREME COURT we are of the considered view that the lease rent upheld by the Ld. CIT(A) is allowable expenditure. Decided in favour of assessee. Disallowance of bogus conveyance telephone expenses - HELD THAT - Since nothing has been brought on the record by the Ld. AR to controvert and demonstrate that the finding of the CIT(A) is erroneous and needs interference. We therefore, in view of the facts of the case, do not find it fit to interfere with the finding of the CIT(A). This ground thus stands dismissed. Taxability of sundry creditor - AR contended that the section 41(1) of the Act did not empower the AO to write off the sundry creditors - HELD THAT - The sundry creditors are in the nature of credits in the Books of account and it is the duty of the appellant/assessee to explain and demonstrate the genuineness of sundry creditors, if questioned. The appellant/assessee is further required to controvert the finding of the CIT(A). It cannot be ruled out that these liabilities had not been disposed of earlier through cash or otherwise. The idle/unaltered/static sundry creditors, in particular, require verification/investigation. Appellant/assessee deserves reasonable opportunity of being heard to make shortcomings or non-compliances. In view thereof, without offering any comment on merit of this issue, we deem it fit to set aside the finding of the CIT(A) in this regard and remit this matter back to the file of the AO for de-novo consideration. Appellant/assessee should ensure compliances during the set-aside proceeding before the AO. AO is also required to provide reasonable opportunities of being heard to the appellant/assessee before deciding this issue on merit. Disallowance u/s 40(a)(ia) - AR submitted that the expenditure disallowed and offered for tax in earlier years due to the TDS default were claimed as expenditure after payment of TDS thereon in the relevant year - HELD THAT - We find merit in the argument of the DR that it needs verification. We therefore, direct the AO to verify that whether the sum claimed as deduction in the relevant year has ever been offered for tax in earlier years and whether it is a case of late deposit of TDS or otherwise, etc. In case the same had been offered for tax in earlier year and it fulfills all the terms conditions for allowability in the relevant year as per the law, the same has to be allowed accordingly.

Summary

Issues Involved:
1. Disallowance of lease rent deduction.
2. Disallowance of conveyance and telephone expenses.
3. Taxability of sundry creditors.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Lease Rent Deduction:
The primary issue was whether the lease rent of Rs. 71,86,600/- paid by the appellant should be allowed as a revenue expenditure. The appellant argued that the lease rent was for helicopters taken on lease, and although not debited in the books as it was treated as a finance lease, it was claimed as a deduction in the Income Tax Return (ITR). The appellant relied on the principle that the existence or absence of entries in the books is not decisive for claiming deductions, as upheld by the Supreme Court in Kedarnath Jute Mills Ltd. The Tribunal found merit in the appellant's argument, noting that the genuineness of the lease rent was not questioned and that similar deductions were allowed in subsequent years. Thus, the Tribunal set aside the CIT(A)'s order, allowing the lease rent deduction as a legitimate business expenditure.

2. Disallowance of Conveyance and Telephone Expenses:
The appellant contested the disallowance of 50% of conveyance and telephone expenses, amounting to Rs. 9,84,356/-, arguing that these were legitimate reimbursements to employees. However, the CIT(A) found discrepancies in the vouchers, such as round figures, lack of employee details, and mostly cash payments, which raised doubts about the genuineness of these expenses. The Tribunal agreed with the CIT(A)'s findings, noting the absence of concrete evidence from the appellant to substantiate the claims. Consequently, the Tribunal upheld the disallowance, dismissing this ground of appeal.

3. Taxability of Sundry Creditors:
The issue concerned the addition of Rs. 10,89,145/- related to sundry creditors, which the CIT(A) deemed non-genuine. The appellant argued that these were legitimate liabilities, citing subsequent payments and legal obligations to pay. However, the CIT(A) found no evidence of payments or actions to settle these liabilities, leading to the conclusion that they were no longer payable. The Tribunal noted the need for further verification of these static liabilities and remitted the matter back to the Assessing Officer (AO) for de-novo consideration, allowing the appellant an opportunity to provide evidence of the genuineness of these creditors.

4. Disallowance under Section 40(a)(ia) of the Act:
The appellant challenged the disallowance of Rs. 1,77,450/- under Section 40(a)(ia), claiming the expenditure was previously disallowed due to TDS defaults but was now deductible upon TDS payment. The Tribunal found merit in the need for verification by the AO to ascertain whether the amount was taxed in earlier years and whether it was a case of late TDS deposit. The Tribunal directed the AO to verify these aspects and allow the deduction if all conditions for allowability were met, thus restoring the issue to the AO for necessary actions.

Conclusion:
The appeal was partly allowed, with the Tribunal granting relief on the lease rent deduction, upholding the disallowance of conveyance and telephone expenses, and remanding the issues of sundry creditors and Section 40(a)(ia) disallowance for further verification.