Donating to a mosque as a business expense is not allowed.
Facts and Issue of the Case
This appeal has been preferred against the order dated 29.07.2021 passed by the Ld. Commissioner of Income-Tax (Appeals) (National Faceless Appeal Centre, Delhi) [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising the following grounds:
The Hon’ble CIT(A)-NFAC has erred in confirming addition u/s 68 of unsecured loan received from the appellant’s wife Mrs Firdos Mondal on the basis of peak credit as against the addition of closing balance of Rs 5,21,351/- by the AO.
The appellant did file confirmation letter and ledgers during the assessment proceedings but could not give present address for reason beyond his control . Hence the addition is unjustified and may please be deleted
The Hon’ble CIT(A)-NFAC has erred in confirming disallowance of Rs 1,00,000/- paid to mosque for providing free lunch to appellant’s karagirs on the ground that no further evidences to substantiate the ground was submitted during the appeal proceedings even though the appellant did submit the same online vide ack no’s 157094211150721/19042114692409/23042114712298. (Refer Annexure II)
The payment of Rs 1,00,000/- to mosque (wrongly debited as donation in books ) were incurred exclusively as staff welfare and are allowable as business expense u/s 37(1) of the Act.
The Hon’ble CIT(A)-NFAC has erred in confirming disallowance of Rs 32,386/- being 20% of travelling expense of Rs 1,61,934/- on ground of personal use.
The appellant humbly submits that the travelling expenses of Rs 1,61,934/- are towards the air travel expenses for purchase and seeking orders for its embroidery and zari work business and not for any personal trips. Hence the addition made may please be deleted.”.
The facts of the case are that the assessee was running a proprietorship business named and styled as M/s ‘M.D. Nooruddin Zariwala’ and was engaged in the business of Zari (embroidery) and hand embroidery. For the year under consideration, the assessee filed return of income on 29.09.2012 declaring total income of Rs.14,87,140/-. The return of income filed by the assessee was selected for scrutiny and scrutiny assessment u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) was completed by the Assessing Officer on 24.03.2015 at total income of Rs.74,62,320/- after making certain additions/disallowances.
Aggrieved, the assessee preferred appeal before the Ld. First Appellate Authority [i.e. the Ld. CIT(A)], who allowed part relief to the assessee. Aggrieved additions/disallowance sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above.
Observation of the court
Court has heard rival submissions of the parties on the issue-in- dispute raised and perused the relevant material on record. As far as Ground No. 1 of the appeal is concerned the Ld. counsel of the assessee reiterated the submissions made before the Ld. CIT(A) and submitted that whereabout of divorced wife Mrs. Firdos Mondal were not available with the assessee and therefore she could not be produced before the Assessing Officer. He further submitted that divorced letter/dissolution of marriage was already submitted before the Ld. CIT(A) and therefore he had discharged his onus of establishing identity, creditworthiness and genuineness of the transaction and therefore no addition u/s 68 of the of the Act is justified. He further submitted that the Assessing Officer made addition for the closing balance in the ledger account of M/s Firdos Mondal whereas Ld. CIT(A) has directed to take peak credit in the said ledger account which is not justified on the part of Ld. CIT(A).
Court finds that the Assessing Officer made addition of Rs.52,66,833/- representing unsecured loans as unexplained cash credit u/s 68 of the Act. However, after verification of the documentary evidence filed during the course of appellate proceedings before the Ld. CIT(A), the addition has been restricted in case of loan received from M/s Firdos Mondal only, due to failure on the part of assessee to furnish her address to the Assessing Officer in remand proceedings.
Before this court, also the assessee has not provided new address of M/s Firdos Mondal or filed documentary evidence in support of identity, creditworthiness or genuineness of the transaction in respect of loans received from M/s Firdos Mondal. Further, the Ld. CIT(A) has on perusal of the ledger account of M/s Firdos Mondal in the books of the assessee has directed to take peak credit for addition. In our opinion, the Ld. CIT(A) is justified in treating peak credit and unexplained cash credit as the assessee is liable to discharge his onus in terms of section 68 of the Act for all the credit money which is received from M/s Firdos Mondal during the year under consideration. The Ld. CIT(A) has treated the peak of all credits after adjusting the money returned to her. We do not find any error or perversity in the order of Ld. CIT(A) on the issue-in- dispute and accordingly, we uphold the same. The ground No. 1 of the assessee is dismissed. In ground No. 2, the assessee has challenged disallowance of Rs.1,00,000/- paid to mosque for providing free lunch to the assessee’s employees. Before this court, the Ld. counsel of the assessee submitted a letter from mosque which is available on page 28 of the Paper Book and submitted that the payment of Rs.1,00,000/- was towards staff welfare of the employees and therefore, it should be allowed u/s 37(1) of the Act..
Court has heard rival submissions and perused the relevant material on record. 5.8. It is evident from the letter of mosque produced by the assessee that the free lunch used to be provided by the mosque labourers/artisan etc. in that area. The facility of the assessee happened to be in vicinity of mosque so those employees were availing free lunch provided irrespective whether those were employed in the facility of the assessee or not. By way of making payment of Rs.1,00,000/- by the assessee to the mosque it could not be established that the payment was a quid pro quo for the free lunch facility extended to the labourers/Karagirs of the assessee. The mosque was not under control of the assessee and free lunch was provided to the other persons and not exclusively to the labourers of the assessee. Therefore, in such circumstances, it could not be treated that the payment made by the assessee was wholly and exclusively for the purpose of the business of the assessee and accordingly the action of the Ld. CIT(A) in disallowing the ground is upheld. The ground No. 2 of the appeal of the assessee is accordingly dismissed.
In ground No. 3, the assessee has contested disallowance of Rs.32,386/- out of travelling expenses being 20% of Rs.1,61,934/- on the ground of personal use. Before this court, the Ld. counsel of the assessee submitted that travelling expenses were incurred towards air travel expenses for purchase or seeking orders for its embroidery and zari work business and not for any personal trips. This court finds that the Ld. CIT(A) has sustained the disallowance in view of the personal use of the assessee.
Before this court, the Ld. counsel of the assessee failed to substantiate that there was no personal use in travelling and petrol expenses by the assessee. Therefore, we do not find any error in the order of Ld. CIT(A) in upholding 20% of travelling expenses for personal use disallowed in terms of section 37(1) of the Act. The ground of the appeal is accordingly dismissed.
The court dismissed the appeal of the assessee.M.D.-Noorudin-Zariwala-Vs-CIT-ITAT-Mumbai