2025 (6) TMI 567 - AT - Income Tax

Statutory expenditure incurred as per the directions of the Director General of Engineering and Training - expenditure account of the assessee-AOP - Assessee-AOP has declared the income from other sources and has claimed deduction u/s 57 of the Income Tax Act of the amount towards various heads including cleaning and refreshment Tea and Samosa. HELD THAT - It is an admitted fact that the assessee-AOP was registered under the Indian Societies Act and it is working under the guidelines issued by the Director General of Engineering and Training which is Government Organization. It is also an admitted fact that fixing the number of students and collecting of fees are by the assessee- AOP as directed by the Director General of Engineering Training. On perusal of the details given by the assessee most of the expenditures are salary wages fuel and all are basic minimum requirements to run the Institute. Admittedly the assessee s books of account were duly audited by the qualified Chartered Accountant. Therefore I am of the view that it is a fit case to remit the matter back to the file of ld. Assessing Officer to examine the expenditure incurred by the assessee and also examine the vouchers filed by the assessee and pass a speaking order. At the same breath I also hereby caution the assessee to promptly cooperate with the proceedings before the Ld. Assessing Officer failing which the Ld. Assessing Officer shall be at liberty to pass appropriate order in accordance with law and merits based on the materials available on the record. Thus the grounds raised by the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Assessing Officer was justified in disallowing the entire expenditure of Rs. 46,08,808/- claimed by the assessee-AOP as allowable deduction under section 57 of the Income Tax Act, despite the assessee maintaining audited books of account and furnishing vouchers in support of the expenses.
• Whether the Commissioner of Income Tax (Appeals) was correct in dismissing the appeal filed by the assessee against the disallowance of the said expenditure.
• Whether the expenditure incurred by the assessee-AOP, which is an Industrial Training Institute registered under the Indian Societies Act and operating under the directions of the Director General of Engineering and Training, should be allowed as legitimate business expenses for the purpose of income computation.
• Whether the matter requires remand to the Assessing Officer for a detailed examination of the expenditure and vouchers, and issuance of a speaking order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy and Allowability of Expenditure Claimed by the Assessee-AOP

Relevant legal framework and precedents: The primary statutory provision invoked is section 57 of the Income Tax Act, which permits deduction of expenditure incurred to earn income from other sources. The principle that genuine business expenses, properly substantiated and necessary for carrying on the business or activity, are allowable deductions is well-settled. The burden lies on the assessee to prove the genuineness and correctness of claimed expenses.

Court's interpretation and reasoning: The Tribunal recognized that the assessee-AOP is a registered Association of Persons under the Indian Societies Act, running an Industrial Training Institute affiliated with the Government of India, and operating under the directions of the Director General of Engineering and Training. The fees and number of students are fixed by the said authority. The Tribunal noted that the assessee maintains books of account, audited by a qualified Chartered Accountant, and submitted vouchers supporting the expenditure.

Key evidence and findings: The assessee submitted the Income & Expenditure Account for the year ending 31st March 2016, showing total expenses of Rs. 46,08,808/-, including salaries, wages, power and fuel charges, staff welfare, provident fund contributions, legal and professional expenses, office expenses, printing and stationery, and repairs and maintenance. The Assessing Officer disallowed the entire amount without considering any part of the expenditure or the vouchers submitted. The CIT(A) upheld the disallowance.

Application of law to facts: The Tribunal observed that the expenses are basic and necessary for running the Institute. Given that the books are audited and vouchers are available, the complete disallowance without any valid reason or detailed examination is arbitrary. The Tribunal emphasized that the expenditure was incurred as per the directions of a Government authority, lending further credence to their legitimacy.

Treatment of competing arguments: The Departmental Representative argued that the Assessing Officer and CIT(A) had considered the nature of the expenditure and were justified in disallowing it. However, the Tribunal found that no proper reasoning or speaking order was given to justify the total disallowance, and the assessee's submissions were not adequately considered.

Conclusions: The Tribunal concluded that the matter deserved a fresh examination by the Assessing Officer, including scrutiny of the vouchers and expenses, and issuance of a reasoned order. The Tribunal cautioned the assessee to cooperate fully in the proceedings to enable a proper decision.

Issue 2: Validity of the CIT(A)'s Order Upholding the Disallowance

Relevant legal framework and precedents: The appellate authority is expected to independently examine the facts and law and pass a reasoned order. The appellate order must address the submissions of the assessee and provide cogent reasons for acceptance or rejection of claims.

Court's interpretation and reasoning: The Tribunal found that the CIT(A) dismissed the appeal without properly considering the detailed submissions and documentary evidence filed by the assessee. The appellate order lacked a reasoned analysis of the expenditure and did not address the key contention that the expenses were statutory and necessary.

Key evidence and findings: The assessee had placed on record the Income & Expenditure Account and vouchers, which were not adequately dealt with by the CIT(A).

Application of law to facts: The Tribunal held that the CIT(A)'s order was not satisfactory and failed to discharge the appellate duty of detailed examination and reasoned decision-making.

Treatment of competing arguments: The Departmental Representative relied on the CIT(A)'s order, but the Tribunal found the order deficient in reasoning.

Conclusions: The Tribunal set aside the CIT(A)'s order and directed a remand for fresh consideration.

Issue 3: Whether Remand to Assessing Officer is Appropriate

Relevant legal framework and precedents: Courts and Tribunals have the discretion to remit matters back to the Assessing Officer for fresh examination where the record is incomplete or the order is non-speaking.

Court's interpretation and reasoning: The Tribunal found that the Assessing Officer did not consider even a single paisa of the expenditure or the vouchers, and passed an arbitrary order. The CIT(A) also failed to provide a reasoned order. Therefore, the Tribunal exercised its discretion to remit the matter for fresh adjudication.

Key evidence and findings: The audited books of account, vouchers, and statutory directions from the Director General of Engineering and Training were key documentary evidence supporting the assessee's claim.

Application of law to facts: The Tribunal directed the Assessing Officer to examine the expenditure and vouchers thoroughly and pass a speaking order in accordance with law and facts.

Treatment of competing arguments: The Departmental Representative opposed interference but the Tribunal found the lower authorities' orders unsatisfactory.

Conclusions: The appeal was allowed for statistical purposes and the matter remanded with directions for proper examination.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"It is an admitted fact that the assessee-AOP was registered under the Indian Societies Act and it is working under the guidelines issued by the Director General of Engineering and Training, which is Government Organization. It is also an admitted fact that fixing the number of students and collecting of fees are by the assessee- AOP as directed by the Director General of Engineering & Training."

"Most of the expenditures are salary, wages, fuel and all are basic minimum requirements to run the Institute."

"The assessee's books of account were duly audited by the qualified Chartered Accountant."

"It is a fit case to remit the matter back to the file of ld. Assessing Officer to examine the expenditure incurred by the assessee and also examine the vouchers filed by the assessee and pass a speaking order."

"I also hereby caution the assessee to promptly cooperate with the proceedings before the Ld. Assessing Officer failing which the Ld. Assessing Officer shall be at liberty to pass appropriate order in accordance with law and merits based on the materials available on the record."

The core principles established include the necessity for the Assessing Officer to consider all relevant evidence and vouchers before disallowing expenditure, the requirement for appellate authorities to pass reasoned orders addressing submissions, and the Tribunal's power to remit the matter for fresh adjudication where orders are arbitrary or non-speaking.

The final determination was to allow the appeal for statistical purposes and remit the matter to the Assessing Officer for fresh examination and speaking order