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2023 (4) TMI 1093 - AT - Income TaxDisallowance of purchase related expenses - assessee is a company engaged in power transmission - HELD THAT:- Assessee claimed that the expenditure is incurred relating to petrol, oil, lubricants for the employees of divisional office for necessary purchase for urgent work and line maintenance. AO without finding any defect in such claim made ad-hoc disallowance and the same is confirmed by ld. CIT(A) also. Assessee being a limited company subjected to statutory audits, regular books are maintained and the alleged expenses are towards petrol oil lubricants for the employees of divisional office do not find any reason to doubt the genuineness of the said expenditure. We, therefore, reverse the finding of ld. CIT(A) and delete the said ad-hoc disallowance of purchase related expenses - Hence, ground no. 1 raised by the assessee is allowed. Disallowance u/s 40(a)(ia) for non-deduction of tax at source - assessee submitted that since information about deduction of tax at source on the alleged sum is not available and therefore, the case of the assessee falls u/s 40(a)(ia) therefore, in view of the amendment made in Section 40(a)(ia) of the Act, from AY 2015-16 the disallowance may be restricted only to the extent of 30% - HELD THAT:- Through Finance Act-II, 2014 w.e.f. 01.04.2015 the amendment is brought in Section 40(a)(ia) and as per the said amendment 30% of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in Section 139(1) the said sum subjected to proviso to Section 40(a)(ia) shall not be deducted in computing the income chargeable under the head ‘Profits and gains of business or profession’. Since the year under appeal is AY 2016-17 therefore, the said amendment is applicable and therefore, the disallowance u/s 40(a)(ia) needs to be sustained only to the extent of 30% as has been requested by assessee to which there is no dispute at the end of the Revenue. Thus, ground no. 2 raised by the assessee is partly allowed. Disallowance of bad debts written off - HELD THAT:- We notice that before us the claim of the assessee is that the alleged sum has not been debited to profit and loss account but is linked to the reversal of opening balance lying in provision for doubtful debts and therefore, disallowance was uncalled for. Since this claim was not made by the assessee before ld. CIT(A), we deem it proper to restore this issue to the file of AO before whom the assessee shall file necessary evidence in support of its claim that the alleged sum has not been claimed as expenditure in the profit and loss account towards the provision of bad doubtful debts. Difference in reconciliation between associated companies receivable vis-à-vis outstanding position - The claim of the assessee is that the said difference cannot be treated as income since the same is running account and is not in the nature of income - HELD THAT:- We notice that the said addition has arisen since the assessee failed to reconcile the balances - said addition is only towards inter-company receivables shown of the associate concerns of MeECL, MePTCL and MePGCL. Assessee has not filed any reconciliation statement. Since it is an admitted fact that there is a discrepancy in the inter-company payable and the inter-company receivable, we deem it proper to restore this issue to ld. AO before whom the assessee shall file complete reconciliation statement so as to explain that there is no difference of the alleged amount - In case the assessee is able to reconcile the said difference to the satisfaction of ld. AO, the alleged addition shall stand deleted. Ground no. 3 is allowed for statistical purposes. Disallowance of total expenditure claimed by the assessee in the profit and loss account - HELD THAT:- Assessee company being owned by the Govt. of Meghalaya and the various changes brought in from 01.04.2012 on account of “The Meghalaya Power Sector Reforms Transfer Scheme, 2020” the financial statements have been prepared. AO ought to have considered this factual aspect before disallowing the total amount of expenditure claimed in the profit and loss account. We, thus, restore this issue to the file of ld. AO for afresh adjudication after considering the submissions of the assessee who shall be granted sufficient opportunity of being heard. Thus, ground allowed for statistical purposes. Disallowance u/s 14A - assessee has not offered any suo moto disallowance and AO on observing that the investments being made, computed the disallowance u/s 14A - HELD THAT:- Exercise needs to be carried out by ld. AO in this regard as to what are the investments which have fetched exempt income and only those should be considered for computing the disallowance u/s 14A - in no case such disallowance should exceed the exempt income earned by the assessee. The assessee is directed to file necessary details before ld. AO who shall examine the issue afresh in light of the settled judicial precedence after giving the assessee reasonable opportunity of being heard. Therefore, this ground raised by the assessee is allowed for statistical purposes. Disallowance of interest expenditure - assessee has claimed the expenditure towards accrued interest on G.P.F. subscriptions - AO firstly computed the disallowance u/s 14A and thereafter, while dealing with the interest expenditure came to a conclusion that the said expenditures are not allowable as the assessee did not have any business which generated any revenue - HELD THAT:- Basis of disallowance by the Revenue authority that there is no nexus between the interest expenditure and the income earned thereon is not acceptable because the assessee is a G.P.F. Trust and is an association of persons. Source of funds are from the subscriptions collected from its employees on account of provident fund. These funds are invested for earning income and part of such funds are given as loan and advance to the holding company. One cannot question the fact that there is no nexus between the funds received and the funds applied towards investments. Therefore, outrightly the disallowance of the total interest expenditure is uncalled for - assessee also raised an issue that no show cause notice was issued to the assessee before the enhancement of the addition made by ld. CIT(A). This being a violation of principles of natural justice, we direct ld. CIT(A) to give proper opportunity to the assessee and examine the issue afresh.
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