Tribunal rulings on disallowances: gate expenses, deposits, employee contributions, Section 14A, transfer pricing.

Assistant Commissioner of Income Tax-13 (2) (1), Mumbai Versus Sodexo Food Solutions India Private Limited And Vice-Versa

Assistant Commissioner of Income Tax-13 (2) (1), Mumbai Versus Sodexo Food Solutions India Private Limited And Vice-Versa - TMI Issues Involved:
1. Disallowance of Gate Expenses
2. Disallowance for Delayed Payment of Employee Contribution to PF/ESIC
3. Disallowance under Section 14A
4. Deposits Written-off
5. Professional/Non-compete Fees
6. Transfer Pricing Adjustment

Detailed Analysis:

1. Disallowance of Gate Expenses:
During the assessment proceedings, the assessee's claim for gate expenses amounting to Rs. 2,98,472 was disallowed, as these were deemed illegal payments (tips to authorities at docks) and not allowable under Section 37(1). The CIT(A) confirmed this disallowance, and the assessee conceded that this issue was covered against them by previous Tribunal orders. Consequently, this ground was dismissed.

2. Disallowance for Delayed Payment of Employee Contribution to PF/ESIC:
The assessee delayed payment of employee contributions to provident fund/state insurance aggregating to Rs. 107.48 lakhs. The CIT(A) allowed partial relief by permitting deductions for contributions made within the due date, including a grace period of 5 days, but upheld disallowance for payments made beyond this period. The Tribunal found that the issue was covered in the assessee's favor by various High Court judgments, including the jurisdictional Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. Thus, the Tribunal deleted the disallowance subject to verification that all payments were made before the due date for filing the return under Section 139(1).

3. Disallowance under Section 14A:
The revenue's appeal contested the deletion of a disallowance of Rs. 5,41,294 under Section 14A. The assessee had argued that no exempt income was earned during the relevant AY, thus no disallowance was warranted. The CIT(A) accepted this argument, citing various High Court judgments. The Tribunal upheld the CIT(A)'s decision, noting that no exempt income was earned and thus no disallowance under Section 14A was justified.

4. Deposits Written-off:
The assessee wrote off security deposits forfeited due to early termination of leases, amounting to Rs. 19.56 lakhs. The AO disallowed this, considering it capital in nature. The CIT(A) allowed the deduction, reasoning that the forfeited deposits were revenue in nature as they did not result in any new asset or enduring benefit. The Tribunal upheld the CIT(A)'s decision, noting that the forfeited deposits were incurred during the course of business and thus allowable under Section 37(1).

5. Professional/Non-compete Fees:
The assessee paid Rs. 97.26 lakhs to an individual, Raju Shete, as professional fees and reimbursements. The AO treated this as non-compete fees related to the acquisition process and thus capital in nature. The CIT(A) disagreed, treating the payment as professional charges necessary for business continuity. The Tribunal found that the payment was part of the acquisition agreement and remitted the matter back to the AO for re-adjudication to determine the exact nature of services rendered and whether the expenditure was wholly and exclusively for business purposes.

6. Transfer Pricing Adjustment:
The AO made a TP adjustment of Rs. 10.49 crores based on entity-level TNMM, which the assessee contested, arguing for proportionate adjustment. The CIT(A) accepted the assessee's plea, restricting the adjustment to 2.54% of the total turnover, resulting in an adjustment of Rs. 26.63 lakhs, which was within the safe harbor limit of 5% and thus deleted. The Tribunal upheld the CIT(A)'s decision, agreeing that proportionate adjustment was justified and in accordance with judicial precedents.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was partly allowed for statistical purposes. The Tribunal directed the AO to verify certain facts and re-adjudicate specific issues, ensuring compliance with judicial precedents and statutory provisions.