2025 (5) TMI 32 - AT - Income Tax

Validity of order of CIT(A) ADDL/JCIT-12 u/s 250 - Deduction towards club entrance fees - Whether a claim made for the first time during assessment proceedings without a revised return can be entertained by the Assessing Officer or appellate authority. HELD THAT - We find that during the course of assessment proceedings the assessee claimed deduction towards club entrance fees by filing an application however the AO neither considered nor discussed the same which is against the principles of natural justice. Similarly CIT(A) also did not record any findings on the issue but simply dismissed the appeal of the assessee. We also note that the said club entrance fees were incurred for the promotion of the business interest and hence the same is an allowable expenditure. Hon ble Supreme Court in the case of Mahalaxmi Sugar Mills Ltd. 1986 (7) TMI 83 - SUPREME COURT has clearly held that the income tax authorities must grant relief to the assessee if the facts and materials available on record justify such relief even if the assessee has not made a specific claim before the Assessing Officer. In the present case the facts relating to club entrance fees was very much available on record. The assessee had submitted its claim before the AO along with supporting documents and the expenditure was duly reflected in books of accounts. We further note that the duty of the AO is to assess correct income and the legitimate tax must be assessed and collected. We find it just and proper to allow the claim of the assessee and we direct the AO to allow the claim of club entrance fees as debited by the assessee in books of accounts and recompute the total income of the assessee. Appeal of the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Assessing Officer's addition of Rs. 55,000/- to the assessee's declared income without any discussion or application of mind in the assessment order is justified.

(b) Whether the expenditure of Rs. 11,80,000/- incurred as club entrance fees, which was debited in the assessee's books of account and claimed as a deduction during assessment proceedings, is allowable as a business expenditure under the Income Tax Act.

(c) Whether the Assessing Officer was justified in ignoring the assessee's fresh claim for deduction of club entrance fees made during assessment proceedings without considering it on merits.

(d) Whether the Commissioner of Income Tax (Appeals) was justified in dismissing the assessee's claim for deduction of club entrance fees without recording any findings.

(e) Whether a claim made for the first time during assessment proceedings without a revised return can be entertained by the Assessing Officer or appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of addition of Rs. 55,000/- without application of mind

The Tribunal noted that the Assessing Officer added Rs. 55,000/- to the declared income but the assessment order was silent on the grounds or reasons for such addition. The CIT(A) deleted this addition on the ground that it was made without application of mind. The Tribunal concurred with the CIT(A)'s finding and upheld the deletion of this addition, emphasizing that additions must be supported by reasons and proper discussion in the assessment order to satisfy principles of natural justice.

Issue (b), (c), and (d): Allowability of club entrance fees of Rs. 11,80,000/- and treatment of claim

Relevant legal framework and precedents: The Income Tax Act allows deduction of expenses incurred wholly and exclusively for the purpose of business. The Tribunal relied on the Supreme Court decision in CIT vs. United Glass Mfg. Co. Ltd. which held that expenses incurred for business promotion are allowable deductions. Further, the Supreme Court in Mahalaxmi Sugar Mills Ltd. emphasized that income tax authorities must grant relief if facts and materials on record justify such relief, even if the claim was not specifically made before the Assessing Officer.

Court's interpretation and reasoning: The Tribunal observed that the club entrance fees were genuinely incurred and reflected in the books of account. The assessee had made a specific claim for deduction during assessment proceedings by submitting an application supported by documents. However, the Assessing Officer ignored this claim without discussing or deciding upon it, violating principles of natural justice. The CIT(A) also dismissed the claim without recording any reasons or findings.

Key evidence and findings: The claim was supported by the assessee's books of accounts and a written submission dated 22.12.2019. The expenditure was incurred for promoting business interests, which falls within the ambit of allowable business expenses.

Application of law to facts: Applying the legal principles, the Tribunal held that the club entrance fees are deductible as they are incurred wholly and exclusively for business purposes. The failure of the Assessing Officer and CIT(A) to consider the claim amounted to denial of natural justice and incorrect application of law.

Treatment of competing arguments: The Revenue relied on the Supreme Court decision in Goetze (India) Ltd. vs. CIT which held that no new claim can be entertained by the Assessing Officer without a revised return. The Tribunal rejected this submission, noting that the appellate authority can entertain such claims and that the Assessing Officer has a duty to determine the correct income on the basis of materials on record, regardless of procedural technicalities.

Conclusions: The Tribunal directed the Assessing Officer to allow the club entrance fees of Rs. 11,80,000/- as claimed and recompute the total income accordingly.

Issue (e): Entertaining new claims during assessment proceedings without revised return

The Tribunal addressed the contention that the Assessing Officer cannot entertain new claims without a revised return. While the Revenue relied on the Supreme Court ruling in Goetze (India) Ltd., the Tribunal clarified that the duty of the Assessing Officer is to assess the correct income based on the facts and materials available. The Tribunal further noted that the appellate authority has the power to entertain claims even if not made before the Assessing Officer. This principle was supported by the Supreme Court's decision in Mahalaxmi Sugar Mills Ltd. that relief must be granted if justified by facts on record.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The income tax authorities must grant relief to the assessee if the facts and materials available on record justify such relief, even if the assessee has not made a specific claim before the Assessing Officer."

"The duty of the Assessing Officer is not only to assess but also to determine the correct income of the assessee on the basis of books of account of the assessee."

"The club entrance fees amounting to Rs. 11,80,000/- incurred for the promotion of business interest is an allowable expenditure."

"The addition of Rs. 55,000/- without any discussion or application of mind is unjustified and rightly deleted."

Accordingly, the Tribunal allowed the appeal, set aside the order of the CIT(A) on the club entrance fees issue, and directed the Assessing Officer to allow the deduction and recompute the income.

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