TMI Blog2014 (7) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... On hearing both the parties and on perusal of the material on record, the issue needs to revisit the file of the AO and the closing stock valuations have to be redone in the light of the provisions of section 145A of the Act – thus, the issue is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Disallowance of 50% of license fees – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that nature of the expense is that under an agreement the assesee became a licensee member of RPG Enterprises Ltd and was entitled to use its trade mark “RPG” and also have full access to various organizational facilities developed by RPG Enterprises - there was no rationale explanation for the benefit which the assessee received by making payment - In the past 50% of disallowance had been made and the AO made disallowance of 50% of the expenses – thus, the order of the CIT(A) is upheld – Decided against Revenue. Disallowance u/s 14A of the Act – Dividend income – Held that:- CIT (A) was rightly of the view that Rule 8D is applicable only from AY 2008-2009 – Relying upon M/s. Cheminvest Ltd vs. ITO [2009 (8) TMI 126 - ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62/- CIT (A) has erred in partly confirming the over valuation of closing stock by stating that when in the closing stock unutilized Modvat credit is adjusted. Similar adjustment should be made to opening stock. However, since we have already increased the value of closing stock on the basis of actual payment of excise duty and CENVAT credit availed (section 145A of the Income Tax Act, 1961) and the same was audited and confirmed by our statutory auditors, still once again the valuation of closing stock worked out on ad-hoc basis that is incorrect. (We have carried forward the valuation of closing stock as on 31st March, 2006 as opening stock of 1st April, 2006 as per statement of 145A of the Income Tax Act return of AY 2006-2007.) 3. The issues raised in this appeal relate to (i) disallowance of foreign travel expenses; (ii) disallowance of expenditure of guest house and residential flats and (iii) over valuation of the closing stock. At the outset, in connection with the first issue ie., disallowance of foreign travel expenses‟, Ld Counsel for the assessee mentioned that the AO made addition for want of details as the assessee furnished only the sketchy details without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit filed by Shri Govind Sharma, Vice President (Taxation Crop. Affairs), and mentioned that the confirmation given by Shri Sharma is supported by the guest house register‟, which is placed in the paper book-I vide page 174 onwards. He also mentioned that this issue can also be remanded to the file of the AO to examine the expenditure incurred on guest houses and residential flats owned by the employees. It is also submitted that the expenditure incurred on employees may be fully allowed as it is incurred for the business purposes. As such, it is not clear from the record that why the assessee has to incur on the residential flats allotted to the employees of the company. Considering the no objection from the Ld DR, we remand the matter to the file of the AO with a direction to decide the issue afresh after examining the details and contents made in the said affidavit and pass a speaking order after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground no.2 raised by the assessee is allowed for statistical purposes. 8. Third issue raised by the assessee relates to the valuation of closing stock. At the outset, Ld Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was incurred wholly and exclusively for the purpose of business. (b) On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowance of 50% of license fee paid to RPG Enterprises Ltd without appreciating the fact that determination of the cost to be shares by the asssessee on the basis of turnover is grossly arbitrary having no nexus with the nature of services rendered by M/s. RPG Enterprises Ltd of the assessee company. 2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the AO to recomputed the disallowance u/s 14A on a reasonable basis relying on the judgment of Bombay High Court in the case of Godrej Boyce Mfg. Ltd without appreciating the fact that the judgment of Bombay High Court has not been accepted by the Revenue and SLP has been proposed. 3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the addition of club membership expenses of ₹ 6,16,455/- by relying on the decision in the case of M/s. Otis Elevator Co(India) Ltd, 195 ITR 682 (Bom), without appreciating that the facts of this case are not applicable to the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon‟ble Jurisdictional High Court vide Income Tax Appeal No.4148 of 2009 dated 6.12.2010 and the copy of the said judgment is placed at page 47 of the paper book-II. Considering the settled nature issue, we are of the opinion that order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground no.1 is dismissed. 15. Ground no.2 relates to the disallowance u/s 14A of the Act. In this regard, during the first appellate proceedings, CIT (A) gave a direction to the AO to calculate the disallowance u/s 14A of the Act accordingly at 5% of the dividend income received by the appellant. The said direction given by the CIT (A) is contested by the Revenue vide ground no.2 of the present appeal. 16. During the proceedings before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities and heavily relied on the order of the CIT (A). 17. On the other hand, Ld DR relied on the order of the AO. 18. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On perusal of the order of the CIT (A) in general, para 6 in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Accordingly, ground no.2 raised by the Revenue is dismissed. 20. Ground no.3 relates to the disallowance of ₹ 6,16,455/- in respect of club expenses. Briefly stated, in the return assessee claimed ₹ 6,16,455/- as expenditure on account of payments made to clubs which includes annual subscription as well as cost of club services. During the assessment proceedings, AO is not satisfied with the explanation given by the assessee and disallowed the same by holding that no evidence could be produced by the assessee to substantiate its claim. Matter travelled to the first appellate authority wherein the CIT (A), after considering the submissions of the assessee in this regard, deleted the addition vide para 8 of his order. Aggrieved, Revenue is in appeal before us. 21. During the proceedings before us, Ld DR relied on the order of the AO. 22. On the other hand, ld Counsel for the assessee relied on the order of the CIT (A). 23. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On perusal of the order of the CIT (A) in general, para 8 in particular, we find the same is relevant here ..... X X X X Extracts X X X X X X X X Extracts X X X X
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