2025 (12) TMI 1359 - HC - Income Tax

Revenue challenge to s.57(iii) expense deduction nexus and partial disallowance dropped as low tax effect, no law question.

The dominant issue was whether the Revenue's appeal against deletion of disallowance under s.57(iii) was maintainable and raised any substantial question ... Disallowance of expenditure incurred u/s 57(iii) - CIT(A) after examining the case of the Assessee, deleted the entire disallowance - CIT(A) after examining the case of the Assessee, deleted the entire disallowance also confirmed by ITAT - HELD THAT:- AO himself has given a finding (in the Remand Report) that a major portion of the expenditure is allowable under Section 57(iii) and there is a dispute only with reference to an amount of Rs. 2.34 Crores. Once this is the Remand Report, the dispute if any, before us, can only be of Rs. 2.34 Crores and not the entire expenditure of Rs. 18.62 Crores. Once this is the case, we find that the tax effect in this Appeal would itself be below the monetary threshold limit of Rs. 2 Crores as more particularly set out in the CBDT Circular No. 9 of 2024 dated 17th September 2024. In other words, this Appeal would have to be dismissed for low tax effect. Even otherwise, we are of the view that the findings given by the CIT(A) on the aspect of deleting the disallowance of expenditure made by the Assessing Officer to be purely factual in nature. The CIT(A) after examining all the facts and circumstances, has come to a conclusion that there is a direct nexus between the income earned and the expenditure incurred. It is on this basis that the CIT(A) deleted the disallowance made by the AO. These findings of the CIT(A) have in fact been confirmed by the ITAT in the impugned order. Once the entire matter is decided on facts, and is fact driven, we are clearly of the view that the above Appeal does not give rise to any question of law requiring an answer by this Court. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the appeal was liable to be dismissed on the ground of low tax effect after restricting the surviving dispute on disallowance of expenditure to Rs. 2.34 crores (and not Rs. 18.62 crores), in light of the applicable CBDT monetary threshold. (ii) Whether any substantial question of law arose from the Tribunal's affirmation of deletion of disallowance under Section 57(iii), where the authorities below recorded findings of direct nexus between income earned and expenditure incurred, and where perversity was not alleged. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Low tax effect and restriction of dispute to Rs. 2.34 crores Legal framework: The Court considered the CBDT monetary threshold for departmental appeals as reflected in CBDT Circular No. 9 of 2024 dated 17 September 2024. Interpretation and reasoning: The Court noted that although the Revenue framed the question on deletion of disallowance of Rs. 18.62 crores, the Assessing Officer's own remand report accepted that a 'major part' of the expenditure was allowable and expressed doubt only in relation to Rs. 2,34,81,823. Consequently, the Court held that the dispute, if any, before it could extend only to the reduced figure and not to the entire earlier disallowance. Conclusions: On this restricted amount, the Court held that the tax effect would fall below the monetary threshold of Rs. 2 crores and the appeal therefore required dismissal for low tax effect. Issue (ii): Absence of a substantial question of law-disallowance under Section 57(iii) resting on findings of fact Legal framework: The Court examined the dispute as one concerning allowability of expenditure claimed against income assessed under 'Income from Other Sources' and the application of Section 57(iii), as addressed by the appellate authorities. Interpretation and reasoning: The Court found that the Commissioner (Appeals), after examining the facts and circumstances, concluded there was a direct nexus between the income earned and the expenditure incurred, and therefore deleted the disallowance. The Tribunal confirmed these findings. The Court treated these determinations as purely factual and 'fact driven'. It also recorded that the Revenue did not contend that the findings were perverse or contrary to record. Conclusions: Since the matter stood concluded on facts by concurrent findings and no perversity was pleaded, the Court held that the appeal did not raise any question of law requiring consideration, and dismissal was warranted on merits as well.