2022 (5) TMI 105 - AT - Income Tax

Tribunal Decision: Assessee Appeals Partly Allowed, Revenue Appeals Dismissed

Genesis Color Pvt. Ltd. Versus DCIT Circle 12 (1) New Delhi And (Vice-Versa)

Genesis Color Pvt. Ltd. Versus DCIT Circle 12 (1) New Delhi And (Vice-Versa) - TMI Issues Involved:1. Sustaining addition under Section 14A read with Rule 8D.2. Disallowance of interest expenses in proportionate to funds outstanding with a subsidiary company.3. Disallowance of advances written off.4. Disallowance of advertisement and publicity expenses.5. Ad-hoc disallowance of expenses incurred through credit card.6. Deletion of additions made by the Assessing Officer.Issue-Wise Detailed Analysis:1. Sustaining Addition under Section 14A read with Rule 8D:- The assessee argued that the Assessing Officer (AO) failed to record his satisfaction regarding the disallowance of Rs. 21,630 under Section 14A, which was restricted to the exempt income earned by the assessee.- The Tribunal upheld the CIT(A)'s decision, stating that the disallowance cannot exceed the actual exempt income and found no infirmity in the CIT(A)'s order, thus dismissing the assessee's ground.2. Disallowance of Interest Expenses in Proportionate to Funds Outstanding with Subsidiary Company:- The assessee contended that the interest-free advance to its subsidiary was out of its own interest-free funds and for commercial expediency.- The Tribunal noted that the CIT(A) ruled against the assessee for want of a cash flow statement and failed to verify the correctness of the explanation provided by the assessee.- The issue was remanded back to the AO for a fresh decision, instructing the AO to verify the utilization of own funds for making interest-free advances and ascertain the business expediency.3. Disallowance of Advances Written Off:- The assessee claimed that the advances written off were for opening showrooms and were forfeited due to failure in obtaining necessary licenses.- The Tribunal found that the advances were given in the course of business and for commercial expediency, thus directing the AO to delete the addition, allowing the assessee's ground.4. Disallowance of Advertisement and Publicity Expenses:- The assessee argued that the disallowance of Rs. 7,17,625 was unjustified as the expenses were incurred for business purposes and supported by vouchers.- The Tribunal sustained the disallowance of Rs. 2,79,184 due to lack of evidence but directed the deletion of Rs. 4,38,441 related to travel and hotel expenses of directors, finding the disallowance contradictory and unsupported by specific instances.5. Ad-Hoc Disallowance of Expenses Incurred through Credit Card:- The assessee contended that the disallowance of Rs. 15,72,656 was made on an ad-hoc basis without citing specific instances.- The Tribunal found the disallowance purely conjectural and without basis, directing the AO to delete the disallowance, thus allowing the assessee's ground.6. Deletion of Additions Made by the Assessing Officer:- The Tribunal addressed several deletions made by the CIT(A) against the AO's additions, including:- Deletion of Rs. 1,17,43,995 under Section 14A, supported by the Cheminvest Ltd. case.- Deletion of Rs. 1,59,106 under Section 40A(3), finding no violation.- Deletion of Rs. 19,03,536, finding no capital expenditure.- Deletion of Rs. 3,71,112 for foreign exchange notional loss, finding no dealings in foreign exchange derivatives.- Deletion of Rs. 14,76,782 under Section 40(a)(i), finding the AO's basis vague.- Deletion of Rs. 1,54,332 for tour and travel expenses, finding the disallowance ad-hoc and unsupported by specific instances.Conclusion:- The appeals were partly allowed for the assessee and dismissed for the Revenue, with the Tribunal affirming the CIT(A)'s decisions where applicable and remanding specific issues for fresh consideration by the AO.