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TMI Blog2023 (4) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... lls u/s 40(a)(ia) therefore, in view of the amendment made in Section 40(a)(ia) of the Act, from AY 2015-16 the disallowance may be restricted only to the extent of 30% - HELD THAT:- Through Finance Act-II, 2014 w.e.f. 01.04.2015 the amendment is brought in Section 40(a)(ia) and as per the said amendment 30% of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in Section 139(1) the said sum subjected to proviso to Section 40(a)(ia) shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . Since the year under appeal is AY 2016-17 therefore, the said amendment is applicable and therefore, the disallowance u/s 40(a)(ia) needs to be sustained only to the extent of 30% as has been requested by assessee to which there is no dispute at the end of the Revenue. Thus, ground no. 2 raised by the assessee is partly allowed. Disallowance of bad debts written off - HELD THAT:- We notice that before us the claim of the assessee is that the alleged sum has not been debited to profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exercise needs to be carried out by ld. AO in this regard as to what are the investments which have fetched exempt income and only those should be considered for computing the disallowance u/s 14A - in no case such disallowance should exceed the exempt income earned by the assessee. The assessee is directed to file necessary details before ld. AO who shall examine the issue afresh in light of the settled judicial precedence after giving the assessee reasonable opportunity of being heard. Therefore, this ground raised by the assessee is allowed for statistical purposes. Disallowance of interest expenditure - assessee has claimed the expenditure towards accrued interest on G.P.F. subscriptions - AO firstly computed the disallowance u/s 14A and thereafter, while dealing with the interest expenditure came to a conclusion that the said expenditures are not allowable as the assessee did not have any business which generated any revenue - HELD THAT:- Basis of disallowance by the Revenue authority that there is no nexus between the interest expenditure and the income earned thereon is not acceptable because the assessee is a G.P.F. Trust and is an association of persons. Source of fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts as well as in law in not deleting the addition to the extent of Rs. 411252/- on account of payment made for POL included in Purchase Related Expenses and therefore the addition is liable to be deleted. 2. That Learned CIT(A) erred in facts as well as in law in not deleting the addition to the extent of Rs.475750/-u/s 40(a)(ia) on account of payment made for Filing Fee with ROC, Audit Fee and Consultancy Charges and therefore the addition is liable to be deleted. 3. For that the appellant craves leave to add, alter, amend or modify any or all the grounds of appeal prior to or during the course of hearing. I.T.A. No. 362/GTY/2019 Meghalaya Power Distribution Corporation Limited: 1. That Learned CIT(A) erred in facts as well as in law in not deleting the addition to the extent of Rs. 1860795/- u/s40(a)(ia) on account of payment made to Legal Professional, Audit Fee and Consultancy Fee and therefore the addition is liable to be deleted. 2. That Learned CIT(A) erred in facts as well as in law in not deleting the addition to the extent of Rs. 78663132/- on account of Bad Debts written off and therefore the addition is liable to be deleted. 3. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no. 1 relates to disallowance of purchase related expenses of Rs. 1,44,242/-. We notice that the assessee is a company engaged in power transmission and hundred percent holding is with Meghalaya Energy Corporation Ltd. and its nominees. Loss of Rs. 2,98,51,729/- declared in the e-return filed on 07.10.2017 and the same was subjected to complete scrutiny. One of the issues for consideration by ld. AO is regarding purchase related expenses of Rs. 1,44,242/-. The assessee claimed that the expenditure is incurred relating to petrol, oil, lubricants for the employees of divisional office for necessary purchase for urgent work and line maintenance. Ld. AO without finding any defect in such claim made ad-hoc disallowance and the same is confirmed by ld. CIT(A) also. We, however, considering the fact that the assessee being a limited company subjected to statutory audits, regular books are maintained and the alleged expenses are towards petrol oil lubricants for the employees of divisional office do not find any reason to doubt the genuineness of the said expenditure. We, therefore, reverse the finding of ld. CIT(A) and delete the said ad-hoc disallowance of purchase related expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to petrol, oil, lubricants, for the employees of divisional office for necessary purchase for urgent work and line maintenance. Ld. AO without finding any defect in such claim made ad-hoc disallowance and the same was confirmed by ld. CIT(A) also. We, however, considering the fact that the assessee being a limited company is subject to statutory audits, regular books are maintained and the alleged expenses are towards petrol, oil, lubricants for the employees of divisional office, do not find any reason to doubt the genuineness of the said expenditure. We, therefore, reverse the finding of ld. CIT(A) and delete the said ad-hoc disallowance of purchase related expenses of Rs. 4,11,252/-. Hence, ground no. 1 raised by the assessee is allowed. 7.1. Ground no. 2 is regarding disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at source for and expenditure of Rs. 4,75,750/-. At the outset, ld. Counsel for the assessee submitted that since the information about deduction of tax at source on the alleged sum is not available and therefore, the case of the assessee falls u/s 40(a)(ia) of the Act and therefore, in view of the amendment made in Section 40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under appeal is AY 2016-17 therefore, the said amendment is applicable and therefore, the disallowance u/s 40(a)(ia) of the Act needs to be sustained only to the extent of 30% i.e. Rs. 5,58,238/- as has been requested by ld. Counsel for the assessee to which there is no dispute at the end of the Revenue. Thus, ground no. 1 raised by the assessee is partly allowed. 8.1. Ground no. 2 relates to disallowance of bad debts written off of Rs. 7,86,63,132/-. Ld. CIT(A) has dealt with this issue in para 6.2 6.3 of the impugned order and same reads as follows: 6. Ground No 3. The ground is against disallowance of provision for bad debt amounting to Rs. 7,86,63,132/- 6.1 Relevant page of AO's order is extracted as under: From the audited accounts of the assessee company, it is seen that provision for bad and doubtful debts Rs 7,36,63,132/- is clustered under the head Other Expenses . In the ITR, no disallowance u/s 36(1)(viia) is shown . The A/R explained that the error was made while filing return and has agreed to the disallowance. Accordingly, the amount is added back to the total income. (Addition Rs. 7,86,63,132/-) 6.2 In the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt but is linked to the reversal of opening balance lying in provision for doubtful debts and therefore, disallowance was uncalled for. Since this claim was not made by the assessee before ld. CIT(A), we deem it proper to restore this issue to the file of ld. AO before whom the assessee shall file necessary evidence in support of its claim that the alleged sum has not been claimed as expenditure in the profit and loss account towards the provision of bad doubtful debts. Needless to mention that proper opportunity of being heard should be provided to the assessee. The assessee is also directed to remain vigilant and file necessary documents, if considered necessary, in support of its grounds of appeal and should not take adjournment, unless otherwise required for reasonable cause. In case after providing sufficient opportunity to the assessee, there is no compliance by the assessee, then ld. AO can adjudicate the issue in accordance with law. 8.3. Ground no. 3 relates to difference in reconciliation between associated companies receivable vis- -vis outstanding position. The claim of the assessee is that the said difference cannot be treated as income since the same is running acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is able to reconcile the said difference to the satisfaction of ld. AO, the alleged addition shall stand deleted. Thus, ground no. 3 is allowed for statistical purposes. 8.5. Ground no. 4 is general in nature which needs no adjudication. 8.6. In the result, the appeal filed by the assessee in ITA No. 362/GTY/2019 is partly allowed for statistical purposes. ITA No. 363/GTY/2019 Meghalaya Energy Corporation Limited (Formerly known as Meghalaya State Electricity Board): 9. Through ground no. 1 the assessee has challenged the action of ld. CIT(A) confirming the disallowance of total expenditure of Rs. 17,36,28,423/- claimed by the assessee in the profit and loss account. We notice that based on the information available and the audited profit and loss account wherein against the other income at Rs. 2,58,27,501/-, the assessee has claimed expenditure of Rs. 17,36,32,424/- and on looking to these figures both the lower authorities came to a conclusion that since the income shown by the assessee is income from other sources, therefore the expenses claimed in the profit and loss account cannot be allowed as there is no nexus between income earned and expenditure incurred. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture has been claimed; firstly, towards interest accrued on provident fund deposits from its employees and secondly, the bank charges of Rs. 351/-. When the matter travelled before ld. CIT(A), he on observing that exempt income is of Rs. 48,51,419/- curtailed the disallowance u/s 14A of the Act to the extent of exempt income in view of the settled judicial propositions and the disallowance so confirmed by ld. CIT(A) is in challenge before us. 10.1. We notice that the status of the assessee is an association of persons of the employees of the Meghalaya Energy Corporation Ltd. Further, we notice that the provident fund deducted from the employees is appearing on the liability side of the balance sheet which also shows the opening balance, subscription received during the year, interest accrued, disbursement/withdrawal during the year. The said sum is partly invested in mutual funds and other equities and partly given as loan and advance to the holding company. From perusal of the impugned orders, it is discernible that for the purpose of calculating the disallowance total investments u/s 14A of the Act investments considered are at Rs. 49.90 Cr. This investment consists of both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loan and advance to the holding company. One cannot question the fact that there is no nexus between the funds received and the funds applied towards investments. Therefore, outrightly the disallowance of the total interest expenditure is uncalled for. Ld. Counsel for the assessee also raised an issue that no show cause notice was issued to the assessee before the enhancement of the addition made by ld. CIT(A). This being a violation of principles of natural justice, we direct ld. CIT(A) to give proper opportunity to the assessee and examine the issue afresh in light our observations made herein above. Therefore, this ground raised by the assessee is also allowed for statistical purposes. 10.3. Ground no. 3 is general in nature which needs no adjudication. 10.4. In the result, the appeal filed by the assessee in ITA No. 364/GTY/2019 is allowed for statistical purposes. 11. In the result, the appeals filed by the assessee in ITA Nos. 360 361/GTY/2019 are partly allowed, ITA No. 362/GTY/2019 is partly allowed for statistical purposes and in ITA Nos. 363 364/GTY/2019 are allowed for statistical purposes. Kolkata, the 28th February, 2023 - - TaxTMI - TMITax - Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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