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TMI Blog2016 (9) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,86,009/-. The case was selected for scrutiny and on following the procedure and on considering the annual accounts, Tax Audit Report and other claims made on behalf of the assessee during the assessment proceedings, the AO assessed the business income at Rs. 15,00,145/-. 3. While assessing the income of the assessee u/s. 143(3) of the Act, the AO disallowed the interest expenses claimed by the assessee as exempt and added back Rs. 84,52,516/-, Rs. 89,000/- towards club membership, Rs. 1,36,49,714/- towards written off claim, Rs. 41,39,764/- towards prior period legal expenses, Rs. 13,13,117/- claimed towards advances written off, Rs. 28,68,900/- on the ground of non-deduction of TDS on certain payments, Rs. 1,41,216/- towards audit expenses disallowed in the earlier year and Rs. 1,51,942/- disallowing donation. 4. As against this, the assessee carried the matter in appeal before the CIT(A), who by way of impugned order confirmed the additions u/s. 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the "Rules") towards club membership fees, audit expenses disallowed in the earlier year and deleted the addition made by the AO basing on special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Calcutta Rowing Club disregarding various judicial pronouncements as relied on by the cross objector. 5. That on facts as well as on law, the Learned CIT(A) - VI, Kol has erred in confirming the disallowances on account of the claim of the Cross objector amounting to Rs. 1,41,216 which was disallowed in immediately preceding year for non deduction of tax at source, even though the TDS was duly deducted and deposited by the Cross objector into the account of Central Government in the year under appeal and accordingly claimed in the return of income. 6. That, your cross objector begs your leave to urge any additional ground of appeal or to modify any ground of appeal before or at the time of hearing." 7. We have heard Ld. DR. None appeared on behalf of the assessee in spite of opportunities given. In these circumstances, we find no other option but to proceed on the basis of the arguments advanced by the Ld. DR and the material available on record. It is the argument of the Ld. DR that the Ld. CIT(A) held in deleting Rs. 41,39,764/- being payment made relating to earlier and prior period and a sum of Rs. 6,60,101/- under the head advance written off in respect of the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,67,818 shares of DPSC Ltd. out of which 68,702 shares were acquired with the borrowed fund of Rs. 218.28 lacs and such loan was obtained in FY 2005-06 from five lenders, and the entire loan was discharged in the FY 2005-06 and 2006-07. Since the assessee does not dispute the invocation of section 14A of the Act read with Rule 8D(2)(iii) of the Rules, aspects relating to the management expenses are not adverted to by us. 9. Ld. CIT(A) having considered the books of account of the assessee, Tax Audit Report and other relevant matter found that as on the date of investment the assessee had paid interest on huge borrowings and there was no direct investment from any exclusive capital funds having any direct nexus of its origin and being invested as investments earning exempted income. The Ld. CIT(A) satisfied himself that the offering of Rs. 2 lacs by the assessee was without any basis and no documents supporting the same are produced. As a matter of fact, as rightly observed by the Ld. CIT(A) there may not always be a direct and immediate nexus between any capital or the borrowing funds with the investments. It cannot be ruled out that the loans taken for the purpose of capital expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decisions : i) ACIT Vs. Champion Commercial Co. Ltd. in ITA No. 644/Kol/2012 for AY 2008-09 of Kolkata ITAT; ii) ISG Traders Ltd. Vs. CIT in ITA No. 264/Kol/2003 reported in (2011-TOIL- 621-HC-Kol-IT; iii) Technopak Advisors (P) Ltd. Vs. Addl. CIT reported in (2012) 18 taxmann.com 146 (Del.); iv) Cheminvest Ltd. Vs. ITO reported in (2009) 121 ITR 318 (Del)(SB); v) Sonata Information Technology Ltd. Vs. DCIT reported in 2012-TIOL-721- ITAT-MUM: vi) Sanchayita Mercantile (P) Ltd. Vs. ACIT (2008) 25 SOT 57 (Mum) and vii) CIT Vs. RKBK Fiscal Services Pvt. Ltd. (2013)-TIOL-188-HC-Kol-IT and stated that it is for the assessee to state the source of investment to earn exempt income by production of materials that such investments were made with the funds available in the hands of the assessee at the relevant point of time without taking the benefit of any loan. 11. As a matter of fact, it is the finding of the Ld. CIT(A) that the assessee failed to produce cogent material before him to show that they have sufficient funds in their hands at the time of the alleged investments of funds or that the admitted borrowings had never been utilised for investments to earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose. It is the expenditure in relation to business purpose alone that could be allowed as expenditure u/s. 37(1) of the Act. Unless and until the assessee removes this doubt in the mind of the lower authorities that the club membership was used solely for the purpose of business and not for the personal purpose of the directors or their family members or personal friends etc. merely because the assessee says that it has a potentiality to expand the business avenues, in a routine manner, such an expense cannot be allowed to be deducted. Hence, we find it necessary to direct the Ld. AO to verify this fact with reference to the material to be produced by the assessee and to give a finding as to the tax liability of the assessee in respect of the expenditure incurred to secure the access to the club. We, therefore, set aside the finding of the lower authorities on this aspect and restore this issue for fresh adjudication of the Ld. AO. This ground of Cross Objection of assessee is allowed for statistical purposes. Issue No. (iii) 13. Now coming to the claim of the assessee in respect of Rs. 1,41,216/- u/s. 40(a)(ia) of the Act towards audit fee is concerned, the assessee company book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses but rightly corrected by the Ld. CIT(A) holding that the liability for the payment to the advocates crystallized during the period relevant to the AY 2008-09 and as such, a sum of Rs. 31,55,362/- was to be allowed as expenditure pertaining to AY 2008-09 and the bills relating to Rs. 8,10,657/- though issued in the AY 2009-10 but the services were rendered during the AY 2008-09 incurring liability, as such, the assessee had an option to create the provisions for the payment of the same or may debit exact amount on the basis of bills received immediately in the next FY. This finding of Ld. CIT(A) is well considered one and we do not see any illegality or irregularity in it. We, therefore, confirm the same and dismiss the ground no. 1 of appeal of revenue. Issue No. (v): 15. Now coming to the disallowance of advances written off amounting to a total of Rs. 13,13,117/- of which the credit from Govt. Departments is a part, is concerned, the Ld. CIT(A) discussed this in the light of the written submissions made by the assessee and recorded a finding that the assessee written off this amount being irrecoverable u/s. 36(1)(vii) of the Act and they have not received tax credit certi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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