Donations and Subscriptions Paid for Pujas and Functions are Business Expenditure: ITAT [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ), in Power Maxx India Pvt.Ltd v.DCIT held that donations and subscriptions paid for pujas and functions are the business expenditure.

The appellants (Assessee) Power Max India Pvt Ltd is a  company engaged in the business of manufacturing of boilers and related accessories.In the returns filed for A.Y.2011-12, the company declared a total income of Rs. 1,96,40,682/-. The AO noticed that the Assessee had deducted tax at 1% only from the payments made to some subcontractors where he was liable to deduct tax @20%  as per the provision of section 206AA . Since there was a short deduction of tax, the AO made a disallowance of Rs. 22,46,041/- on account of relevant payments made to the sub-contractors under section 40(a)(ia) of the Act. The AO also found that the Assessee had deducted tax at source only at 1% instead of 2% as applicable in the case firms upon the payments made to two sub-contractors namely Aman Construction Co. and Biswas Construction. The AO held that tax @2% was deducted by the Assessee from the 50% of

such amount and the balance amounting to Rs. 56,81,220/- was disallowed under section 40(a)(ia) of the Act. The AO further noted that the Assessee had failed to deduct tax on cumulative payment amounting to Rs. 37,23,755/-. He accordingly disallowed the said amount also under section 40(a)(ia). Thus a total disallowance of Rs. 1,16,51,016/- was made by the AO under section 40(a)(ia) in the assessment completed under section 143(3) of the Income Tax Act.

Besides, The assessee had debited a sum of Rs. 3,26,412/- on account of donations and subscriptions In the profit and loss account filed along with its return of income. During the course of assessment proceedings, the Assessee failed to furnish any documentary evidence to establish that the expenditure on donations and subscriptions was incurred wholly and exclusively for the purpose of its business. The same was also disallowed by the AO.

Aggrieved by the Assessment order the appellants filed the appeal before the CIT(A).The CIT(A), rejected the contentions of the Assessee that disallowance u/s 40(a)(ia) can be made only for non-deduction of Tax and not in the case of short deduction of tax and confirmed the order made by AO.The CIT(A), also confirmed the disallowance on account of donations and subscriptions.

The ITAT held that if there is any shortfall due to any difference of opinion as to the taxability of any items or the nature of payment falling under various TDS provisions, the Assessee  can be declared to be an Assessee in default u/s201 of the Act, but no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. The ITAT relied upon the decision of the Kolkata High Court in DCIT vs S.K. Tekriwal (260 CTR 76). The ITAT modified the order of CIT(A) and restricted the disallowance from Rs 1,16,51,016 to 37,23,755.

With regard to the issue of disallowance of the amount debited in P&L A/c under the head of donations and subscriptions, The ITAT modified the order of CIT(A) and reduced the disallowance by 50%. The ITAT held that the contention of the appellant that the donations and subscriptions given for the different poojas and functions performed in their construction sites, amounts to expenditure under the head of donations and subscriptions were not fully verifiable in the absence of the relevant details and supporting documentary evidence.