2016 (1) TMI 902 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions on Expenses Disallowance, Emphasizes Need for Substantiation

The Tribunal upheld the decisions of the ld CIT(A) on both issues, dismissing the appeal filed by the Revenue. The disallowance of business promotion ... Disallowance on account of business promotion expenditure - CIT(A) deleted the disallowance - Held that:- The major portion of the expenses i.e. ₹ 7,88,883/- pertains to expenses incurred abroad and foreign travel. This disallowance has already been deleted and the Assessing Officer is not in appeal. As regards balance amount of ₹ 3,82,937/-, the ld. CIT(A) has already confirmed the disallowance to the extent of ₹ 1,00,000/- in respect of element of personal expenses, yet the Assessing Officer is in appeal. There is no material, however, to show that the personal expense incurred in the credit card statement exceeds the amount of disallowance which has been confirmed by the ld. CIT(A). In our considered view, action of the ld. CIT(A) seems to be reasonable and it does not call for any interference in the matter, particularly in the absence of any material having been brought on record to show that the disallowance confirmed by the ld. CIT(A) is inadequate or unreasonable. We, therefore, uphold the action of the ld. CIT(A) and decline to interfere in the matter. - Decided against revenue Disallowance on account of interest expenses - assessee itself had agreed that the advances are made out of loan from HDFC Bank (interest bearing fund) - CIT(A) deleted the disallowance - Held that:- as noted by the ld. CIT(A), the assessee has share capital of ₹ 2,97,21,600/- and accumulated profit to the extent of ₹ 2,20,75,710/-. Clearly, therefore, the assessee has sufficient non-interest bearing funds which covers more than the interest free advance of ₹ 45,00,000/- to its director. In view of this factual position and in the light of Hon'ble Bombay High Court's judgement in the case of CIT vs. Reliance Utilities [2009 (1) TMI 4 - HIGH COURT BOMBAY ], which holds that as long as sufficient interest free funds are available to an assessee, no disallowance can be made in respect of interest free advances given by the assessee. To that extent, we approve the action of ld. CIT(A) and decline to interfere in the matter.- Decided against revenue Issues:1. Disallowance of business promotion expenditure.2. Disallowance of interest expenses on interest-free advance.Issue 1: Disallowance of Business Promotion ExpenditureThe Assessing Officer challenged the order of the ld CIT(A) regarding the disallowance of business promotion expenses totaling &8377; 2,82,937. The Assessing Officer noted a significant increase in business promotion expenses compared to the previous year and found lack of substantiating evidence for most expenses. The ld CIT(A) partially allowed the appeal, deleting &8377; 7,88,883 related to foreign travel expenses and restricting the disallowance to &8377; 2,82,937. The ld CIT(A) considered arguments regarding domestic business promotion expenses and confirmed a disallowance of &8377; 1,00,000 for personal expenses, ultimately deleting the remaining &8377; 2,82,937. The Tribunal upheld the ld CIT(A)'s decision, stating that the disallowance was reasonable and no new evidence was presented to question it. The Tribunal dismissed the appeal on this ground.Issue 2: Disallowance of Interest Expenses on Interest-Free AdvanceThe Assessing Officer disputed the deletion by the ld CIT(A) of a disallowance of &8377; 2,75,450 related to interest expenses on an interest-free advance. The advance of &8377; 45,00,000 was given to a director, and the Assessing Officer contended that the interest should be disallowed as the advance was funded by a loan from HDFC Bank. However, the ld CIT(A) found that the assessee had sufficient non-interest bearing funds, including share capital and accumulated profits, to cover the interest-free advance. Citing the Hon'ble Bombay High Court's judgment, the Tribunal agreed with the ld CIT(A) that as long as the assessee had ample interest-free funds, no disallowance should be made regarding interest-free advances. Consequently, the Tribunal upheld the decision of the ld CIT(A) and dismissed the appeal on this ground.In conclusion, the Tribunal upheld the decisions of the ld CIT(A) on both issues, dismissing the appeal filed by the Revenue. The judgment provided detailed analysis and legal reasoning for each issue, emphasizing the importance of substantiating expenses and the availability of interest-free funds to cover advances.