ITAT Varanasi remands disallowance of conference expenses and related Section 270A penalty in ITO vs Neonatal Health Academy

In ITO, Varanasi v. Neonatal Health Academy (ITA Nos. 131 & 132/VNS/2024; AY 2019–20), the Varanasi Circuit Bench of the ITAT examined Revenue’s challenge against (i) deletion of a substantial disallowance of conference and seminar expenditure and (ii) cancellation of penalty levied under Section 270A. The Tribunal focused primarily on compliance with Rule 46A in relation to additional evidence produced before the CIT(A).

The dispute revolved around disallowance of ₹2,34,93,962 claimed as conference and seminar expenses, which had been added back by the Assessing Officer in the assessment framed under Section 143(3) read with Section 144B. The CIT(A) deleted this addition after admitting and relying upon fresh documents at the appellate stage, without seeking any comments or remand report from the Assessing Officer.

The ITAT held that this approach violated the mandatory requirement under Rule 46A(3) that the Assessing Officer must be given an adequate opportunity to examine or rebut any additional evidence admitted at the appellate stage. Consequently, the Tribunal set aside the relief granted by the CIT(A) and remanded both the quantum and Section 270A penalty issues back to the Assessing Officer for a fresh decision.

Background of the appeals

Appeals and assessment year involved

  • Two Revenue appeals were decided together:
    • ITA No. 131/Varanasi/2024 – quantum appeal on disallowance of expenses.
    • ITA No. 132/Varanasi/2024 – appeal on penalty under Section 270A.
  • Both appeals relate to Assessment Year 2019-20.
  • The impugned orders of the CIT(A) were dated 30/05/2024 and 31/05/2024.

Return of income and assessment

  1. The assessee, Neonatal Health Academy, filed its return of income on 31/10/2019, declaring total income of ₹32,80,500.
  2. The assessment was completed under Section 143(3) read with Section 144B on 28/09/2021.
  3. The Assessing Officer determined total income at ₹2,67,74,462.
  4. The primary adjustment was disallowance of conference and seminar expenses amounting to ₹2,34,93,962.

The Assessing Officer recorded that, despite several opportunities, the assessee did not furnish requisite details or documentary evidence during the assessment proceedings to substantiate the claim of conference and seminar expenditure.

Grounds raised by Revenue

Quantum appeal – ITA No. 131/Varanasi/2024

The Revenue’s grievances before the ITAT can be summarised as follows:

  • The Assessing Officer had disallowed ₹2,34,93,962 under the head “conference and seminar expenses” due to failure of the assessee to substantiate the claim with supporting evidence in the assessment proceedings.
  • The CIT(A) allegedly accepted incomplete or improperly supported submissions filed for the first time at the appellate stage.
  • Revenue contended that the onus rests squarely on the assessee to prove that expenditure is incurred for the purposes for which deduction is sought, and that this burden was not discharged during assessment.
  • It was pointed out that:
    • No proper factual foundation was laid by the assessee to establish genuineness of the claimed expenditure.
    • The CIT(A) wrongly emphasized that payments were made through banking channels and that the Assessing Officer had not recorded any adverse finding that conferences were not held in Uttar Pradesh.
  • According to Revenue, payment through bank is, by itself, not conclusive proof of genuineness or allowability; such transactions must still be explained and corroborated with proper documents in line with the relevant provisions of the Income Tax Act.

Penalty appeal – ITA No. 132/Varanasi/2024

On the penalty front, Revenue submitted: