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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R
PER AMARJIT SINGH, AM:
The present filed by the assessee is directed against the order passed by the CIT(A)-54, Mumbai, which in turn arises from the assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961, dated 21.12.2019 for A.Y. 2017-18. The assessee has assailed the impugned order on the following grounds before us:
J.M. Baxi & Co. Vs. The DCIT, CC-6(4)
“DISALLOWANCE OF SPEED MONEY U/s 37 (1) :
1. The Learned CIT (A) erred in confirming the disallowance of Rs.20,27,2807- as sundry expenses u/s. 37(1) of the Income Tax Act, 1961 by wrongly treating the same as part of administrative expenses.
2. The Learned CIT (A) failed to appreciate the fact that the appellant suo moto on its own volition had already disallowed a sum of Rs 6,75,804/- in its computation of income u/s 37{ 1) of the Act. 3. The Learned CIT (A) erred in not appreciating the fact that administrative expenses did not include any sundry expenses as wrongly stated by the Learned AO in his assessment order. 4. The Learned CIT (A) failed to appreciate that in view of the ITAT's decision in the own case of the appellant for earlier years and also in the case of its sister concern, viz. M/s N. Jamanadas & Co. on the same issue of speed money u7s 37(1) , the disallowance was restricted to Rs 6,75,804 /- being 25 % of the expense. The Learned AO had wrongly in his assessment order disallowed a further amount of Rs 20,27,280/- as part of speed money u/s 37(1) by erroneously treating the same as included in administrative expenses. The Learned AO erroneously considered that speed money u/s 37(1) was included in administrative expenses. 5. The Learned CIT (A) failed to appreciate that sundry expenses were incurred by the Appellant were for and on behalf of its Principals, for whom the Appellant acted as an agent. Thus, the expenses incurred were on the principal's account and were not incurred by the Appellant on its own account. 6. The Learned CIT (A} failed to appreciate that the appellant and its group concerns never spent any money which is illegal and opposed to public policy. DISALLOWANCE OF BUSINESS PROMOTION EXPENSES:
2. The Learned CIT (A) erred in confirming the ad hoc disallowance of Rs.1,95,714/-out of business promotion expenses. 2.1 The Learned CIT (A) failed to appreciate the fact that the AO had not considered the submissions filed by the appellant during the course of assessment proceedings. The Learned AO had wrongly stated in the Assessment Order that the appellant had failed to establish business expediency and purpose of these expenses. The appellant craves leave to add, alter, amplify, modify, reframe or delete any of the aforesaid grounds at or before the hearing.”
The fact in brief is that the assessee has filed a return of income declaring income at Rs. Nil on 30.11.2017. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 10.08.2018 and 27.09.2019. The remaining relevant facts are discussed while adjudicating the ground of appeal filed by the assessee as follows:
J.M. Baxi & Co. Vs. The DCIT, CC-6(4)
“DISALLOWANCE OF SPEED MONEY U/s 37 (1) :
The Learned CIT (A) erred in confirming the disallowance of Rs.20,27,2807- as sundry expenses u/s. 37(1) of the Income Tax Act, 1961 by wrongly treating the same as part of administrative expenses.
2. The Learned CIT (A) failed to appreciate the fact that the appellant suo moto on its own volition had already disallowed a sum of Rs 6,75,804/- in its computation of income u/s 37{ 1) of the Act. 3. The Learned CIT (A) erred in not appreciating the fact that administrative expenses did not include any sundry expenses as wrongly stated by the Learned AO in his assessment order. 4. The Learned CIT (A) failed to appreciate that in view of the ITAT's decision in the own case of the appellant for earlier years and also in the case of its sister concern, viz. M/s N. Jamanadas & Co. on the same issue of speed money u7s 37(1) , the disallowance was restricted to Rs 6,75,804 /- being 25 % of the expense. The Learned AO had wrongly in his assessment order disallowed a further amount of Rs 20,27,280/- as part of speed money u/s 37(1) by erroneously treating the same as included in administrative expenses. The Learned AO erroneously considered that speed money u/s 37(1) was included in administrative expenses. 5. The Learned CIT (A) failed to appreciate that sundry expenses were incurred by the Appellant were for and on behalf of its Principals, for whom the Appellant acted as an agent. Thus, the expenses incurred were on the principal's account and were not incurred by the Appellant on its own account. 6. The Learned CIT (A} failed to appreciate that the appellant and its group concerns never spent any money which is illegal and opposed to public policy.
Ground of No. 1 to 6 of the appeal of the assessee are interconnected to the similar issue on identical facts, therefore, all these ground of appeal are adjudicated together. During the course of assessment the A.O noticed that assessee had claimed expenses of Rs.1,08,11,939/- under the head office administration expenditure. The A.O stated that on perusal of the detail, it was noticed that miscellaneous expenses included entertainment expenses speed money etc. On query, the assessee explained that in the course of its business it has to incur certain expenses in the form of payment to port worker, labourer as speed money for expediting the process of loading/unloading of cargo ships from ships so that both the ships and cargo were not detained at the port for a long time as it involved substantially huge expenses. The A.O has not accepted the explanation of the assessee stated that assessee had not established the business expediency and J.M. Baxi & Co. Vs. The DCIT, CC-6(4)
the purpose of these expenses with supporting evidences. Therefore, the A.O has disallowed 25% of these expenses on adhoc basis to the amount of Rs.27,02,984/-. Since, the assessee had already disallowed Rs.6,75,804/- out of administrative expenses, therefore, the A.O had added the differential amount of Rs.20,27,280/- to the total income of the assessee.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
During the course of the appellate proceedings the ld. Counsel has contended that assessing officer has mistakenly taken it as speed money and actually the same was not speed money. He further submitted that amount pertaining to the speed money was already disallowed by the assessee, therefore, further disallowance of 25% of the administrative expenditure is not justified.
On the other hand, ld. D.R relied on the order of the lower authorities.
Heard both the sides and perused the material on record. During the course of assessment the A.O observed that assessee claimed expenses under the head office administrative expenses amounting to Rs.1,08,11,939/- with regard to sundry expenses. The assessee explained that these expenses were incurred on behalf of the respective principals and have been debited to respective vessel account. The expenses was ultimately reimbursed by the principal and therefore these expenses were actually incurred on behalf of the principals and ultimately taken by the respective principal amount. The assessee has also explained the exact process of accounting and documentation of J.M. Baxi & Co. Vs. The DCIT, CC-6(4)
such expenses which is also produced in the submission of the assessee elaborated in the order at page 16 to 20 to the CIT(A) order. It is noticed that ld. CIT(A) after following the decision of coordinate bench of the ITAT in the case of M/s M. Jamunadas & Company has sustained the disallowance of 25% to such expenses made by the assessing officer. In this regard the contention of the assessee that in accordance with the above referred decision of the ITAT it has already made suo moto disallowance of Rs.6,75,084/- which was not considered by the lower authorities before making further disallowance. In the light of the above facts and submission of the assessee we observe that the contention of the assessee that it has already made suo motto disallowance of Rs.6,75,804/- which pertained to the expenses of the nature of speed money and the claim that the A.O had mistakenly presumed the entire administration expenditure for computing further such disallowance @ 25% as speed money is required verification on the basis of relevant supporting detail and document. Therefore, we consider it will be appropriate to restore this issue to the file of the assessing officer for deciding de novo after verification and examination of the relevant material and submission of the assessee. Therefore, this ground of appeal of the assessee is allowed for statistical purpose.
Disallowance of Business Promotion Expenses: 2. The Learned CIT (A) erred in confirming the ad hoc disallowance of Rs.1,95,714/-out of business promotion expenses. 2.1 The Learned CIT (A) failed to appreciate the fact that the AO had not considered the submissions filed by the appellant during the course of assessment proceedings. The Learned AO had wrongly stated in the Assessment Order that the appellant had failed to establish business expediency and purpose of these expenses. The appellant craves leave to add, alter, amplify, modify, reframe or delete any of the aforesaid grounds at or before the hearing.”
J.M. Baxi & Co. Vs. The DCIT, CC-6(4)
The assessee has not pressed this ground of appeal, therefore, the same has been stand dismissed.
Additional Ground of appeal:
The Assessing Officer and the CIT Appeal erred in disallowing the expenditure of Rs. 10,00,000/- by invoking Rule 8D of the Income Tax Rules. In fact, the exempt Income from Dividend on shares were received from Group Companies and therefore no expenditure were incurred to earn that income.
During the course of assessment the A.O noticed that assessee has earned dividend income of Rs.5,91,00,000/- during the year out of which Rs.10 lac was claimed as exempt income. The assessee has suo motto disallowed an amount of Rs.40,000/- u/s 14A being expenditure attributable to exempt income. However, the assessing officer has computed the disallowance u/s 14A r.w.rule 8D of the I.T. Rules 1962 to the amount of Rs.15,83,888/- and after reducing Rs.40,000/- suo motto disallowance, balance disallowance of Rs.15,43,888/- was added to the total income of the assessee.
The ld. CIT(A) has restricted the disallowance to the extent of exempt income of Rs.10 lac.
During the course of the appellate proceedings before us, the ld. Counsel of the assessee has contended that as per Sec. 115BBDA the dividend income of Rs.10 lac is not taxable and submitted that provision of the above referred Sec. was not taken into consideration while computing the disallowance in the case of the assessee.
On the other hand, the ld. D.R has supported the order of the lower authorities.
Heard both the sides and perused the material available on record. The ld. CIT(A) has restricted the disallowance computed by the assessing
J.M. Baxi & Co. Vs. The DCIT, CC-6(4) officer u/s 14A r.w.rule 8D to the extent of the exempt income of Rs.10 lac earned by the assessee. During the course of the appellate proceedings before us the ld. Counsel has referred the provision of Sec. 115BBDA and contended that provision of this section was not considered while computing disallowance in the case of the assessee. Therefore, we are of the considered view that it would be appropriate to restore this issue to the file of the assessing officer for deciding afresh after taking into consideration the applicability of provision of Sec. 115BBDA and after verification of the relevant material and submission of the assessee. Accordingly, the additional ground of appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 31.01.2022
Sd/- Sd/- (AMARJIT SINGH) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 31.01.2022 Rohit, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//
( Asst. Registrar) ITAT, Mumbai