2023 (7) TMI 1454 - AT - Income Tax

Festival gift and puja expenses allowed as business expenditure with proper documentation under Section 14A

The Assistant Commissioner of Income Tax, Central Circle-1, Raipur (C.G.) Versus M/s. Chhattisgarh Steel & Power Limited.

ITAT Raipur upheld CIT(Appeals) decisions allowing festival, gift, and puja expenses as business expenditure with proper documentation. Court rejected ... Disallowance of festival, gift, and puja expenses - HELD THAT:- We find that the CIT(Appeals), had observed, that the aforesaid expenses claimed by the assessee company were related to and incurred for the purpose of its business. As further observed by CIT(Appeals) that the aforesaid expenses were duly reflected in the books of accounts of the assessee company and the AO had not pointed out any specific instance of defect in the vouchers supporting the aforesaid claim for deduction of expenses while making the disallowance - Disallowance of the assessee’s claim for deduction of the aforesaid expenses festival expenses and gift expenses. Disallowance u/s 14A r.w Rule 8D - HELD THAT:- As observed by the CIT(Appeals) and, rightly so, now when the assessee company had substantial interest free funds available with it to justify the investments made in the exempt dividend income yielding unquoted equity shares, therefore, no disallowance of any part of its claim for deduction of interest expenditure was called for u/s 14A r.w Rule 8D(2)(ii) of the Income tax Rules, 1963. Our aforesaid view is supported by the judgment of HDFC Bank [2016 (3) TMI 755 - BOMBAY HIGH COURT] wherein it was held that no disallowance u/s.14A can be made in respect of interest paid on borrowings if assessee's own funds and non-interest-bearing funds exceeded the amount of investments in tax free securities. Disallowance u/s 40(a)(ia) - transmission/wheeling charges u/s 194C or 194-I or u/s.194J - HELD THAT:- Similar view had been taken in the case of CIT Vs. Maharashtra State Electricity Distribution Co. Ltd [2015 (5) TMI 396 - BOMBAY HIGH COURT] wherein, it was observed by the Hon’ble High Court that as the transmission charges and/or Wheeling charges were not amounts paid under any arrangement for use of land, building, plan machinery, equipment, furniture, fitting etc. and therefore, could not be brought within the meaning of rent. Equally, it was observed that the payments were not fees for technical services. It was also held by the Hon’ble High Court that the expression of Transmission charges and/or Wheeling charges entails distribution of electricity in the area of the Corporation and they could not be subject to provisions of Section 194-I of the Act. Also, we find that similar issue had been adjudicated by the Tribunals in favour of the assessee in the case of GRIDCO Limited [2011 (11) TMI 77 - ITAT, CUTTACK] and that of Noida Power Company Ltd. [2018 (3) TMI 1080 - ITAT DELHI] We, thus, on the basis of our aforesaid deliberations, finding no infirmity in the view taken by the CIT(Appeals), uphold the same. Disallowance out of ash handling expenses - HELD THAT:- We find that the A.O had not pointed out any specific bill or voucher which as per him was not verifiable. Also, the AO had not given any reason as to why the assessee’s claim for deduction of the aforesaid expenditure was not admissible. As is discernible from the records, the expenses were incurred by the assessee company for its business purposes and were duly recorded in the books of account. The CIT(Appeals) had deleted the ad-hoc disallowance of ash handling expenses correctly. Delayed deposit of employee’s share of contribution towards EPF is liable to be disallowed as per the mandate of Section 36(1)(va) r.w.s. 2(24)(x) - HELD THAT:- As relying on Checkmate Services P. Ltd. [2022 (10) TMI 617 - SUPREME COURT] therefore, in terms of our aforesaid observations we respectfully follow the same and uphold the view taken by the AO and sustain the disallowance of the delayed deposit of employees share of contribution towards EPF Disallowance u/s.14A r.w Rule 8D - HELD THAT:- When the assessee company had admittedly not received any exempt income during the year under consideration, therefore, no disallowance u/s.14A of the Act was called for in its hand. Our aforesaid view is fortified by the judgment of Chettinad Logistics Pvt. Ltd [2018 (7) TMI 567 - SC ORDER] and Cheminvest Limited [2015 (9) TMI 238 - DELHI HIGH COURT] Backed by the aforesaid judicial pronouncements, it was submitted by the AR that as per the settled position of law no disallowance u/s.14A in absence of any exempt income could have been made in the hands of the assessee company. We, thus, now when the assessee company had not received any exempt dividend income during the year under consideration, therefore, no disallowance u/s.14A of the Act was warranted in its case. Accordingly, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT(Appeals), we uphold the same Disallowance u/s 40(a)(ia) of transmission/wheeling charges - HELD THAT:- As in own case while adjudicating the Ground of appeal No.3, the present issue is disposed off on the same terms. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the disallowance u/s 40(a)(ia) of the Act of transmission charges we uphold the same. Thus, the Ground of appeal No.3 raised by the revenue is dismissed. Issues Involved:1. Disallowance of festival, gift, and puja expenses.2. Disallowance under Section 14A read with Rule 8D.3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on transmission charges.4. Disallowance of ash handling expenses.5. Disallowance of delayed deposit of employee contributions towards EPF.Detailed Analysis:(A) Disallowance of Rs. 1,36,688/-:The Assessing Officer (AO) disallowed the assessee's claim for deduction of festival, gift, and puja expenses totaling Rs. 1,36,688/-. The CIT(Appeals) upheld the disallowance of puja expenses (Rs. 3,185/-) but vacated the remaining disallowances. The Tribunal found that the expenses were related to the business and were duly reflected in the books of accounts without any specific defect pointed out by the AO. The Tribunal upheld the CIT(Appeals)' decision to vacate the disallowance of festival and gift expenses, finding no infirmity in the decision.(B) Disallowance under Section 14A read with Rule 8D: Rs. 1,08,17,711/-:The AO disallowed interest expenses of Rs. 1,08,17,711/- under Section 14A read with Rule 8D, as the assessee failed to substantiate that investments in exempt dividend income-yielding shares were made from its own funds. The CIT(Appeals) vacated the disallowance on the grounds that the assessee had substantial interest-free funds and had not earned any exempt income during the year. The Tribunal upheld the CIT(Appeals)' decision, noting that the assessee had sufficient interest-free funds and had not earned any exempt income, thus no disallowance was warranted.(C) Disallowance under Section 40(a)(ia) for transmission charges: Rs. 1,18,63,401/-:The AO disallowed transmission charges of Rs. 1,18,63,401/- under Section 40(a)(ia) for non-deduction of TDS. The CIT(Appeals) deleted the disallowance, relying on judicial pronouncements that no TDS was required on transmission charges under Sections 194C, 194-I, or 194J. The Tribunal upheld the CIT(Appeals)' decision, referencing similar judicial precedents and finding no obligation for TDS on transmission charges.(D) Disallowance of ash handling expenses: Rs. 5,17,200/-:The AO disallowed 10% of ash handling expenses (Rs. 5,17,200/-) due to lack of supporting bills. The CIT(Appeals) vacated the disallowance, noting that the expenses were recorded in the books and no specific defects were pointed out. The Tribunal upheld the CIT(Appeals)' decision, finding the disallowance to be presumptive and unsupported by evidence.(E) Disallowance of delayed deposit of employee contributions towards EPF: Rs. 1,48,041/-:The AO disallowed the delayed deposit of employee contributions towards EPF (Rs. 1,48,041/-). The CIT(Appeals) vacated the disallowance, but the Tribunal reversed this decision, referencing the Supreme Court's ruling in Checkmate Services Pvt. Ltd. vs. Commissioner of Income Tax-I, which held that delayed deposits beyond the due dates prescribed under the respective Acts are disallowed as per Section 36(1)(va) read with Section 2(24)(x).Result:- Appeal for A.Y. 2012-13 (ITA No. 91/RPR/2020) dismissed.- Appeal for A.Y. 2013-14 (ITA No. 92/RPR/2020) partly allowed, upholding the disallowance of delayed EPF deposits but dismissing other grounds.