2023 (7) TMI 1512 - AT - Income Tax

Assessee wins appeal on commission expenses, share capital additions deleted, section 35 weighted deduction disallowed

ITAT Kolkata allowed the assessee's appeal on multiple grounds. Commission expenses of Rs. 15 lakh were allowed following precedent from the same ... Disallowance of commission expenses - As alleged that assessee has not furnished the addresses of customers who were provided the services by these companies and that the Principal Officers of these companies were not produced before the AO - HELD THAT:- This issue has already been dealt by the Coordinate Bench of ITAT, Kolkata in assessee’s own case for AY 2010 -11 [2018 (7) TMI 2356 - ITAT KOLKATA] wherein commission and brokerage was allowed. Accordingly, we allow the claim of the assessee in respect of commission of Rs. 15 lakh. Thus, the ground taken by the assessee in this respect is allowed. Unexplained share capital and share premium - onus to prove - HELD THAT:- We note that Ld. AO without even going through and discussing the details submitted by the subscriber company, insisted for personal appearance to prove the identity, creditworthiness of the subscriber and the genuineness of the transaction. To our mind, Ld. AO could have taken an adverse view, only if, he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to what further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber company. We find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing company and the genuineness of the transaction towards sum received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the ld. CIT(A) and delete the addition so made. Accordingly, grounds taken by the assessee in this respect are allowed. Disallowance of expenditure in respect of payment made for mediclaim insurance which was paid for the staff members of the assessee, by Director of the company, through his credit card - HELD THAT:- We find that claim of assessee is justifiable as the disallowance has been made owing to the mode of payment which is through the credit card of the Director but for the benefit of the employees of the assessee which is towards mediclaim insurance premium and the same has been adequately corroborated by the documentary evidence placed on record. We thus, delete the addition made in this respect. Accordingly, ground taken by the assessee in this respect is allowed. Disallowance made towards prior period expenses - HELD THAT:- At the time of maturity of fixed deposit, it was observed that excess provision of income had been made and this excess provision was reversed and written off under the head “Prior Period expenses” in the P&L Account for the year under consideration. Thus, Ld. Counsel asserted that there is no expenditure which has been claimed during the earlier years and the disallowance so made deserves to be deleted. We agree with the submissions made by the ld. Counsel and delete the addition so made. Accordingly, ground taken by the assessee in this respect is allowed. Disallowance on interest accrued on the aforesaid unsecured loans - HELD THAT:- Reference was made to first proviso to sec. 201 of the Act according to which payer shall not be deemed to be an assessee in default in respect of non-deduction of tax if the payee has furnished its return and taken into account such sum for computing the income and paid the taxes due thereon. Considering the overall factual matrix on this issue, we accept the finding of the Ld. AO as stated in the remand report allowing the interest expense. We also allow the claim of interest which has been sustained by the Ld. AO based on the submissions made by the Ld. Counsel of the assessee as discussed above. Accordingly, disallowance of interest expense on the unsecured loan amount is allowed. Grounds taken in this respect are allowed. Addition made on account of share application money including share premium u/s. 68 - HELD THAT:- Assessee had furnished all the relevant details and evidence for the entire sum and there is no basis and reason to give a partial allowance and sustain the balance though the evidence and explanation applied to the entire sum. Having perused the material on record and the submissions of the assessee, we are in agreement with the contention of the Ld. Counsel and accordingly, delete the addition. Disallowance made in respect of payment made by the assessee for weighted deduction u/s. 35 (1)(ii) - HELD THAT:- As decided in case of DCIT Vs. A. R. Stanchem (P) Ltd [2023 (7) TMI 1510 - ITAT KOLKATA] assessee is not entitled for the deduction claimed u/s. 35(1)(ii) of the Act in respect of payments made to both SHGHP and MIERE(the done trusts). Relief granted by ld. CIT(A) on this issue is set aside. Grounds taken by the Revenue are allowed. Disallowance on account of interest expenses for late payment of statutory liabilities - an interest paid on delayed payment of sales tax etc. being adding to the cost/purchase price or decreasing the profit margin on sales may be taken into account for computation of profit or to say computation of taxable income, but that concession is not available in respect of interest on Income tax. Hence, any case laws dealing with the levy of indirect taxes and interest thereupon are not applicable for the purpose of interpretation of the relevant provisions of the Income Tax Act.” The Coordinate Bench in Premier Irrigation Adritec Pvt. Ltd. [2023 (1) TMI 1124 - ITAT KOLKATA] thus, held that the interest payment on delayed deposit of income tax whether TDS or otherwise is not an allowable expenditure. Issues Involved:1. Ex parte order and violation of natural justice principles.2. Disallowance of commission expenses.3. Addition of unexplained share capital and share premium.4. Disallowance of mediclaim expenditure.5. Disallowance of prior period expenses.6. Addition of unsecured loans as unexplained cash credits.7. Disallowance of interest on unsecured loans.8. Disallowance of deduction under Section 35(1)(iii).9. Disallowance of interest on late payment of statutory liabilities.Detailed Analysis:1. Ex Parte Order and Violation of Natural Justice:The assessee contended that the appellate order was passed ex parte without considering the records and without providing a meaningful opportunity after the migration of the appeal to the National Faceless Appeal Centre (NFAC). The Tribunal acknowledged lapses in the new faceless regime and noted that the documents and materials on record were not adequately considered by the NFAC. It emphasized the importance of adhering to the principles of natural justice and decided to adjudicate the issues based on the arguments and materials presented.2. Disallowance of Commission Expenses:The assessee argued that the commission paid to group companies was genuine and supported by documentation, including TDS certificates and bank statements. The Tribunal referred to a previous decision in the assessee's favor for a similar issue in an earlier assessment year and found no change in the facts or applicable law. Consequently, the Tribunal allowed the claim of commission expenses, holding that the assessee had substantiated the business purpose of the payments.3. Addition of Unexplained Share Capital and Share Premium:The assessee provided evidence of the identity, creditworthiness, and genuineness of the transaction with the share subscribing company, which was a group company and a regular taxpayer. The Tribunal noted that the Assessing Officer (AO) failed to identify discrepancies in the evidence provided. The Tribunal relied on judicial precedents to conclude that the burden had shifted to the AO, who did not discharge it. Thus, the Tribunal deleted the addition of Rs. 4,01,00,000/-.4. Disallowance of Mediclaim Expenditure:The expenditure on mediclaim insurance for staff, paid via the Director's credit card and later reimbursed, was disallowed as personal expenditure. The Tribunal found the claim justifiable, as the payment was for the benefit of employees and adequately supported by evidence. Therefore, the Tribunal allowed the deduction.5. Disallowance of Prior Period Expenses:The assessee explained that the prior period expenses were due to the reversal of excess income provision from fixed deposits. The Tribunal accepted this explanation and deleted the disallowance, finding the claim reasonable and supported by the facts.6. Addition of Unsecured Loans as Unexplained Cash Credits:The Tribunal examined the remand report, which accepted the assessee's claims regarding unsecured loans. The AO had verified the transactions and found them genuine. The Tribunal upheld the findings of the remand report and deleted the addition of Rs. 8,37,58,545/-.7. Disallowance of Interest on Unsecured Loans:The Tribunal considered the AO's remand report, which allowed the interest expense except for a portion where TDS was not deducted. The Tribunal accepted the assessee's explanation regarding the non-deduction of TDS and allowed the entire interest expense of Rs. 66,88,007/-.8. Disallowance of Deduction Under Section 35(1)(iii):The Tribunal referred to a recent Supreme Court judgment that disallowed similar claims due to misuse of the status conferred under Section 35(1)(iii). The Tribunal followed this precedent and disallowed the deduction of Rs. 87,50,000/- claimed for donations to a trust involved in routing back donations.9. Disallowance of Interest on Late Payment of Statutory Liabilities:The Tribunal upheld the disallowance of interest on delayed TDS payments, following the precedent that such interest is not allowable. However, it allowed the interest on other statutory liabilities, such as VAT and service tax, as they do not have the character of a penalty.Conclusion:The Tribunal allowed the appeal for AY 2012-13 and partly allowed the appeal for AY 2013-14, providing relief on several grounds while adhering to judicial precedents and the principles of natural justice.