2023 (4) TMI 1093 - AT - Income Tax

Tribunal allows appeals, reverses disallowances on expenses, directs re-examination of certain issues

Meghalaya Power Transmission Corporation Limited Versus ACIT, Circle-Shillong

Meghalaya Power Transmission Corporation Limited Versus ACIT, Circle-Shillong - TMI Issues Involved:1. Disallowance of purchase-related expenses.2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.3. Disallowance of bad debts written off.4. Difference in reconciliation between inter-corporate accounts.5. Disallowance of various expenses incurred by the holding company.6. Disallowance under Section 14A for expenditure incurred in relation to income not includible in total income.7. Disallowance of interest expenditure.Issue-wise Detailed Analysis:1. Disallowance of Purchase-Related Expenses:The assessee, engaged in power transmission, claimed purchase-related expenses for petrol, oil, and lubricants. The Assessing Officer (AO) made an ad-hoc disallowance without finding any defect in the claim. The Tribunal reversed the AO's decision, considering the company's statutory audits and regular books, and allowed the expenses as genuine.2. Disallowance under Section 40(a)(ia):The disallowance under Section 40(a)(ia) was for non-deduction of tax at source on various expenditures. The Tribunal noted the amendment brought by Finance Act-II, 2014, which restricts the disallowance to 30% of the sum payable. The Tribunal allowed the appeal partly, sustaining the disallowance only to the extent of 30%.3. Disallowance of Bad Debts Written Off:The AO disallowed the provision for bad debts, considering it as a provision rather than an actual write-off. The Tribunal restored the issue to the AO for verification of the assessee's claim that the amount was not debited to the profit and loss account but linked to the reversal of the opening balance of doubtful debts. The AO was directed to provide a proper opportunity for the assessee to present necessary evidence.4. Difference in Reconciliation Between Inter-Corporate Accounts:The AO added the discrepancy between inter-company payables and receivables as unexplained credits. The Tribunal restored the issue to the AO, directing the assessee to provide a reconciliation statement to explain the discrepancy. If the assessee could reconcile the difference, the addition would be deleted.5. Disallowance of Various Expenses Incurred by the Holding Company:The AO disallowed the total expenditure claimed by the holding company, finding no nexus between the income earned and the expenditure incurred. The Tribunal restored the issue to the AO for fresh adjudication, considering the factual aspect of the company's role as a holding company and its objectives as per 'The Meghalaya Power Sector Reforms Transfer Scheme, 2010.'6. Disallowance under Section 14A:The AO disallowed expenditure under Section 14A related to investments. The Tribunal noted that only dividend-bearing securities should be considered for disallowance under Rule 8D(2)(iii). The issue was restored to the AO to examine the investments afresh and ensure the disallowance does not exceed the exempt income earned by the assessee.7. Disallowance of Interest Expenditure:The AO disallowed interest expenditure on the ground that there was no nexus between the interest expenditure and the income earned. The Tribunal found no merit in this finding, noting that the assessee, a G.P.F. Trust, invested funds received from employees' subscriptions. The Tribunal directed the CIT(A) to re-examine the issue, providing the assessee with an opportunity to present its case.Conclusion:The appeals were partly allowed, with some issues restored to the AO for fresh adjudication. The Tribunal emphasized the need for proper examination and reconciliation of accounts, providing the assessee with opportunities to present necessary evidence and ensuring adherence to judicial precedents.