2020 (2) TMI 1690 - AT - Income Tax

Nature of expenses - club entrance fees - Revenue or capital expenditure - HELD THAT:- As decided in CIT vs. Samtel Colour Limited [2009 (1) TMI 26 - DELHI HIGH COURT] holds that such an admission fee expenditure incurred for corporate membership is very much allowable as revenue expenditure. Thus both the learned lower authorities have erred in law and on facts in disallowing the impugned payments as capital expenditure. The same stands deleted.

Deduction u/s 35D regarding share issue expenditure - whether amortization is allowable only for “pre-operative expenses”? - HELD THAT:- No merit in Revenue’s instant stand since section 35D(1)(ii) makes it clear that such an expenditure is allowable not only that pertaining to “before the commencement his business” but also “after the commencement of his business, in connection with extension of his undertaking or in connection with its setting up of a new unit”.

This tribunal’s recent decision in M/s MBL Infrastructure Ltd [2020 (1) TMI 457 - ITAT KOLKATA] has held similar share issue expenses as eligible for section 35D amortization - We adopt the above detailed reasoning mutatis mutandis and accept the assessee’s contention seeking impugned amortization.

CIT-DR said that the assessee did not identify the share issue expenses - He fails to dispute that the assessee’s impugned expense have already been recorded in the books of accounts forming part of records. We thus allow the assessee’s instant second substantive ground as well.

Disallowance u/s 40(a)(ia) - Assessee not filing the necessary details of its payees - effect of section 40(a)(ia) 2nd proviso inserted in the Act vide Finance Act 2012 w.e.f. 01.04.2013 - HELD THAT:- We wish to clarify here that hon’ble Kerala high court in Thomas George Muthoot [2015 (7) TMI 810 - KERALA HIGH COURT] had held the very proviso as having prospective operation only. We note in this backdrop that the assessee’s omission, if any, in not filing the necessary details of its payees is not fatal to its cause in view of the legal developments qua interpretation of the above-stated amended proviso involving divergent views from various high courts. We thus accept the assessee’s instant third substantive grievance for statistical purposes and leave it open for the Assessing Officer to carry out the necessary factual verification as per law. This substantive ground is taken as accepted for statistical purposes.

Disallowance u/s 14A - administrative expenses disallowance - HELD THAT:- Both the lower authorities have erred in law invoking the impugned disallowance in case of an assessee’s shares held as stock-in-trade. The assessee’s instant fourth substantive grievance is accepted.

Disallowance of interest claim u/s 36(1)(viii) after changing allocation of operative expenses from asset to turnover basis - HELD THAT:- We notice qua the instant issue as well that this tribunal’s coordinate bench’s decision in Allahabad Bank [2019 (6) TMI 993 - ITAT KOLKATA] as held assessee-Bank was required to manage both performing as well as nonperforming assets and the operating expenses incurred by it thus were attributable to non-performing assets also. This vital aspect was not appreciated by the authorities below in proper perspective and as rightly contended by assessee, the basis adopted by them for apportioning the operating expenses without proper appreciation of the vital position resulted in a distorted picture - basis adopted by the assessee for the apportionment of operating expenses was more fair and reasonable and the same followed consistently by the assessee in the earlier years was accepted by the revenue.

Thus we conclude that both the lower authorities have erred in changing assessee’s allocation from asset to turnover basis thereby including even the non-performing assets as well. The impugned section 36(1)(viii) disallowance is directed to be deleted therefore.

Provision for fraud and dacoity disallowed - assessee argued since the impugned provision has followed reasonable prudence after taking into account all fraud and dacoity cases and therefore allowable as per the hon’ble apex court’s landmark decision in Chainrup Sampatram [1953 (10) TMI 2 - SUPREME COURT]- HELD THAT:- the assessee’s income realized from the corresponding customers as well as insurance sums to this effect have also been declared in the year(s) of actual receipt. Learned CIT-DR is fair enough in submitting that all these aspects requires AO’s factual verification. We therefore restore the instant issue back to AO for carrying out necessary factual verification.

Assessee appeal partly allowed.