ACIT , LTU, NEW DELHI vs. MAWANA SUGAR LTD., NEW DELHI

Date of hearing 05.10.2021 Date of pronouncement 14.10.2021 ORDER PER O.P. KANT, AM:

This appeal by the Revenue is directed against order dated 29/06/2018 passed by the learned Commissioner of Income-tax (Appeals)-22, New Delhi [in short ‘the Learned CIT(A)’] for assessment year 2013-14, raising following grounds:

1. On the facts and the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.1,93,03,014/- made by the AO u/s 14A of the I.T. Act read with Rule 8D of the Income Tax Rules, 1962.

2. On the facts and the circumstances of the case and in law, Ld. CIT(A) has erred in deleting 30% disallowance amounting to Rs.1,52,75,060/- on account of staff welfare expenses made by the AO.

2. Briefly stated facts of the case are that the assessee company is engaged in the business of manufacturing and sale of sugar, industrial chemicals, distillery production and power. For the year under consideration, the assessee filed return of income on 30/11/2013 declaring total loss of ₹ 129,61,25,190/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed on 10/03/2016 under section 143(3) of the Act, the Assessing Officer made certain additions/disallowances and assessed total loss of ₹ 124,47,85,235/-. On further appeal, the Ld. CIT(A) allowed part relief to the assessee. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

3. Before us, the parties appeared through Videoconferencing facility. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Ground No. 1 of the appeal relates to disallowance of ₹ 4. 1,93,03,014/- under section 14A of the Act read with Rule 8D of Income-Tax Rules, 1962, which was made by the Assessing Officer, however, deleted by the learned CIT(A). During the year under consideration, the assessee did not earn exempt income and, therefore, the Learned CIT(A) deleted the disallowance following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd., reported in 378 ITR 33. We do not find any error in the order of the Ld. CIT(A) in following the binding precedent of Hon’ble jurisdictional High Court. Accordingly, the ground No. 1 raised by the Revenue is dismissed.

5. The ground No. 2 raised by the Revenue relates to disallowance made by the Assessing Officer of ₹ 1,52,75,060/- being 30% of the staff welfare expenses, which has been deleted by the Learned CIT(A). According to Assessing Officer, children bus expenses ( Rs.16,72,949/-); expenses for school welfare (Rs.1,13,74,151/- ); interdepartmental employees socialization (Rs.3,31,010/-); inter unit sports expenses; NSC officers ladies club expenses etc. were not in the nature for earning of business profit. The assessee submitted that staff welfare expenses were incurred for providing facilities to the employees, primarily in the nature of canteen expenses, dispensary expenses, expenses on the refreshment to employees in the office, expenses incurred in residential colony of the employees. As regard to school expenses, the assessee submitted that the school is being run by the company in employees colony for providing education to the children of employees as the factory and residential colony are located outside the city. The school is being run by the company since 1957 and the expenses have always been allowed in past as business expenditure. The other expenses incurred for employees like club expenses etc. have also been allowed in past. The Learned Assessing Officer disallowed the 30% of the staff welfare expenses holding that the expenses were not incurred for the purpose of the business of earning profit. The Learned CIT(A) deleted the disallowance observing that Assessing Officer has not made definite observation with regard to particular expense that same is not business expenditure. We are of the opinion that no disallowance is permitted in law without bringing on record specific expense as not incurred wholly and exclusivly for the purpose of the business. We do not find any error in the order of the Learned CIT(A) on the issue in dispute and, accordingly, we uphold the same, the ground No. 2 of the appeal of the Revenue is dismissed.