THEME ENGINEERING SERVICES PRIVATE LIMITED,JAIPUR vs. ACIT, CIRCLE-6, JAIPUR

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ITA 14/JPR/2020Status: DisposedITAT Jaipur14 September 2020AY 2014-156 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer failed to record proper satisfaction for invoking Section 14A and Rule 8D, and that the disallowances on tour, travel, and conveyance expenses were not substantiated with evidence. Therefore, these disallowances were deleted.

What were the facts?

The assessee company challenged additions confirmed by the CIT(A) regarding disallowance under Section 14A and other expenses. The Assessing Officer had made these disallowances during scrutiny assessment.

What were the issues?

Whether the disallowance under Section 14A was justified without proper satisfaction, and if expenses for tour, travel, and conveyance were erroneously disallowed.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR

Before: SHRI RAMESH C SHARMA, AM & SHRI SANDEEP GOSAIN, JM vk;dj vihy la-@ITA No. 14/JP/2020

For Appellant: Shri Mukesh Khandelwal (CA) jktLo dh vksj ls@
Hearing: 02/09/2020Pronounced: 14/09/2020

ORDER PER: R.C. SHARMA, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A), Ajmer dated 17/10/2019 for the A.Y. 2014-15 in the matter of order passed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act).

2.

The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.

3.

In this appeal, the assessee is aggrieved for addition confirmed U/s 14A of Rs. 1,37,624/- and disallowance of expenses of Rs. 2,75,000/-.

1.

2 ITA 14/JP/2020_ Theme Engineering Service P Ltd. Vs ACIT 4. Rival contentions have been heard and record perused. Facts in brief are that the assessee concern is a private limited company and doing profession of consultancy & undertaking contracts of supervision of technical nature. The assessee filed his return of income on 29/11/2014 for A.Y. 2014-15 declaring total income of Rs. 3,69,40,920/-under the head income from business and profession and Income from other sources. The AO selected the case of assessee for scrutiny and issued a notice u/s 143(2) of the Act to the assessee on 31/08/2015 in response to the notice, the assessee submitted necessary reply.

5.

During the assessment proceedings, the AO was not satisfied about following items of deductions claimed and disallowed the same and added into returned income

Delayed deposit of employees contribution to PF 1,08,541 Delayed deposit of employees contribution to ESI 46,365 Addition u/s 14A 1,37,624 Disallowances out of expenses 2,75 000 6. By the impugned order, the ld. CIT(A) deleted the addition made on account of delayed deposit of PF and ESI contribution. However, he has upheld disallowance made U/s 14A of the Act and disallowance out of expenses, against which, the assessee is in further appeal before the ITAT.

3 ITA 14/JP/2020_ Theme Engineering Service P Ltd. Vs ACIT 7. We have considered the rival contentions and carefully gone through the orders of the authorities below. In so far as the disallowance U/s 14A of the Act is concerned, we found that as at 31.03.2013 the assessee had total investment in business assets at Rs. 22,54,47,989 against which he had only a sum of Rs. 1,08,95,957 as interest bearing funds (in the form of Long term borrowings) and rest of the funds of the assessee is interest free amounting to Rs. 21,45,52,032.

8.

We found that as at 31.03.2014 the assessee had total investment in business assets at Rs. 27,54,53,568 against which he had only a sum of Rs. 2,03,04,662 as interest bearing funds (in the form of Long-term borrowings) and rest of the funds of the assessee is interest free amounting to Rs. 25,51,48,906.

9.

In view of the above factual position, it is clear that the assessee has not incurred any interest expenditure towards investment in tax free securities. For invoking provisions of Section 14A(2) r.w.r. 8D of the Income Tax Rules, 1962, the A.O. is required to record a positive satisfaction to the effect that the claim of assessee towards for earning exempt income is not correct and he has to estimate such expenditure. Further Section 14A(3) states that provisions of sub-Section 2 shall also apply if the assessee

4 ITA 14/JP/2020_ Theme Engineering Service P Ltd. Vs ACIT claims that no expenditure has been incurred for earning exempt income. However, only after recording his satisfaction only the A.O. can proceed to apply the provisions of Rule 8D. The A.O. did not record his satisfaction about claim of the assessee for NIL expenditure for earning exempt income and hence invocation of Rule 8D is unjustified. Accordingly, we do not find any justification for the disallowance of Rs. 1,37,624/- made by the A.O. U/s 14A of the Act. Hence, we direct the A.O. to delete the same.

10.

The A.O. has also disallowed Rs. 1,50,000/- out of tour and travel expenses and Rs. 1,25,000/- out of conveyance expenses. In this regard, we found that the AO has made a casual remark for disallowing certain amount out of above cited expenses. However, not even a single iota of evidence has come to his notice evidencing the contention made by the assessee. Had there been any example of such improper voucher/ non availability of vouchers coming to his notice, same could have been quoted by him in the order. We found that the assessee company is engaged in the profession of providing services for designing of highway projects and supervision of the work executed by the contractor. The survey and site expenses include amount paid by the assessee to its workers for fooding charges, staff stay charges at site. Labour charges paid for engaging local persons for the said

5 ITA 14/JP/2020_ Theme Engineering Service P Ltd. Vs ACIT purpose etc. So far as expenditure on tours, travelling and conveyance is concerned it is for meeting out cost of travelling of the staff for such site inspection, designing etc. Normally the place of work i.e. sites are always far away from the office of the assessee and staff has to incur sufficient cost for travelling, conveyance and other expenses. Further the expenditure on both these heads is of prime importance for the assessee to sustain in the business Therefore considering the fact that assessee undertakes such designing and supervision work at various locations on pan India basis and has to hire very efficient professionals such claimed expenditure deserves to be allowed. Accordingly, we direct the A.O. to delete the disallowances so made.

11.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 14th September, 2020.

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