2017 (5) TMI 1713 - AT - Income Tax

Disallowance of administrative expenses on ad hoc basis - HELD THAT - AO observed that evidence which was produced in support of Administrative and other Expenses were defective in one way or other. Admittedly the disallowance is made on adhoc basis no specific defect or shortcoming is pointed out by the authorities below. Therefore under the facts of the present case we hereby direct the Assessing Officer to delete the disallowance made on account of Administrative Expenses. This ground of the Assessee s appeal is allowed. Disallowance of electricity expenses by invoking of provision of section 40A(3) - HELD THAT - We are unable to accept the contention of the Ld. Counsel for the assessee as provisions are quite clear the decision have been rendered under the belief that if any Government Company qualifies to be state in term of Article 12 would be entitled for exemption under Rule 6DD(b). The terms state cannot be construed as Government as given in the aforesaid provision. The terms state is used for a public purpose but for the purpose of interpretation of rules 6DD(b) this cannot be taken as if all the Government s companies are exempt merely because they qualified to be termed as state under Article 12 of the Constitution of India. Had the intention of the legislation was to exempt other Government Companies as well as same would have been mentioned in the provision of rule 6DD(b) as has been specifically mentioned in clause (a) of Rule 6DD in respect of Reserve Bank of India Banking Company. State Bank of India or any Subsidiary Banking any Cooperative Bank Land mortgaged Bank any Primary Agricultural Credit Society any Primary Credits society Life Insurance Corporation of India. Clause (b) of Rule 6DD cannot be stretched to the extent of bringing every Government entity/company into the fold of exempt category. Therefore had the intention of the legislation was to exempt the Government electricity company it would have been mentioned in the Clause (b) of Rule 6DD. Therefore this Ground of the assessee s appeal is dismissed.

Summary

Issues:
1. Adhoc disallowance of administrative expenses
2. Disallowance of electricity expenses under section 40A(3) of the IT Act

Issue 1: Adhoc Disallowance of Administrative Expenses

The appeal was against the adhoc disallowance of administrative expenses by the Assessing Officer (AO). The appellant argued that previous disallowances were already made, and any further disallowance would lead to double taxation. The appellant contended that expenses were exclusively for business purposes, and no personal expenses were debited. The CIT(A) restricted the disallowance to a lesser amount. The appellant, a Private Ltd. Company, had audited accounts accepted by auditors. The ITAT directed the AO to delete the disallowance due to lack of specific defects or shortcomings in the evidence.

Issue 2: Disallowance of Electricity Expenses under Section 40A(3)

The second ground of appeal was related to the disallowance of electricity expenses under section 40A(3) of the IT Act. The appellant claimed exemption under Rule 6DD(b) of the Income-tax Rules 1962, as the company was linked to a government entity. However, the departmental representatives opposed this, stating that the company did not qualify for the exemption. The CIT(A) upheld the disallowance of a portion of the electricity expenses. The ITAT dismissed the appeal, stating that the company did not fall under the exemption clause of Rule 6DD(b) as the legislation did not intend to exempt all government companies under this rule.

In conclusion, the ITAT partially allowed the appeal, directing the deletion of the adhoc disallowance of administrative expenses while confirming the disallowance of electricity expenses under section 40A(3) of the IT Act. The judgment provided detailed reasoning based on the specific provisions of the law and the facts presented during the proceedings.