TMI Blog2016 (9) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... ally it is not possible for us to give a finding that the source of purchasing the shares in DPSC Ltd. was discharged prior to the FY 2007-08, as such, no expenditure towards interest on that aspect could have been incurred by them. We, therefore, find in these set of facts and circumstances that the finding of the Ld. CIT(A) on this aspect is very convincing and the reasons are cogent and do not warrant any interference at all. Allowable business expenditure - Claim of deduction for securing entrance fee to the Calcutta Rowing Club on the ground that such an expenditure is in the interest of business - Held that:- CIT(A) confirmed this addition not on the ground that it is a capital expenditure but the confirmation is on the question of fact. The Ld. CIT(A) expressed the opinion that the assessee has not filed any evidence whether the expenditure was the personal expenditure on directors the food expenses incurred on them and their family members and personal friends or for any business purpose. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - Decided against revenue Disallowance of advances written off - Held that:- IT(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 certificates relating to Sales Tax, Service tax and work contract tax. The Ld. CIT(A) was convinced himself with the explanation of the assessee that it is a business loss being the payment of advance in ordinary course of business. In these circumstances, the Ld. CIT(A) deleted the addition. On this score, we do not find any material forthcoming from revenue to take different view when the assessee written off the amount as irrecoverable debts and amounts to business loss. We are in agreement with the Ld. CIT(A) that the same has to be allowed as deduction and the Ld. CIT(A) has rightly del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od legal expenses to the tune of ₹ 49,39,764/-, advances written off of ₹ 13,13,117/-, amount towards which TDS was not deducted to the tune of ₹ 28,68,900/- and donation to the tune of ₹ 1,51,942/-. 5. Challenging the deletion of the legal expenses of the prior period to the tune of ₹ 41,39,764/- and advances written off in respect of the amount of tax recoverable from Government Department amounting to ₹ 6,60,101/-, the revenue preferred appeal before the Tribunal on the following grounds: 1. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition made by the AO amounting to ₹ 41,39,764/- being payment made relating to earlier/prior period. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in allowing the deduction under the head Advances written off in respect of the amount of tax recoverable from Govt. Department amounting to ₹ 6,60,101/-. 6. So also, challenging the dismissal of the appeal in respect of the disallowance u/s. 14A of the Act read with Rule 8D(2)(ii) of the Rules to the tune of ₹ 80,59,865/-, disallowing club membership to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance written off in respect of the amount of tax recoverable from Government Department. Basing on the grounds and the contentions of the Ld. DR as well as the objections raised by the assessee to the additions before the Ld. CIT(A) as we could delineate the same from the order of Ld. CIT(A), the following issues are emanating for consideration: (i) Are the authorities below justified in making an addition of ₹ 80,59,865/- u/s. 14A of the Act read with Rule 8D(2)(ii) of the Rules? (ii) Are the authorities below justified in disallowing the club membership fees to the tune of ₹ 89,000/-? (iii) Are the authorities below justified in disallowing the audit fee relating to the earlier year to the tune of ₹ 1,41,216/-? (iv) Are the Ld. CIT(A) justified in deleting the sum of ₹ 41,39,764/- claimed by the assessee as deduction towards legal expenses relating to the earlier year? (v) Are the Ld. CIT(A) justified in deleting the additions made by the AO towards advance written off including the amount of tax recoverable from the Govt. Department to the tune of ₹ 6,60,101/-? Issue No. (i): 8. So as to this issue is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween any capital or the borrowing funds with the investments. It cannot be ruled out that the loans taken for the purpose of capital expenditure for purchasing machinery will not yield any income investible for earning any exempt income. What is initially a capital expenditure with the borrowed funds could generate, in the process of manufacturing and sale of goods, the income that could be invested for generating the exempt income. It is for the assessee to demonstrate with reference to relevant accounts maintained separately to show that the exempt income is generated solely through their own funds and no part of the borrowed funds is directly or indirectly could have been utilised for generating the exempt income. Obviously, the assessee did not produce any scrap of papers before us for this purpose. 10. In so far as the plea of the assessee that the investments in DPSC Ltd. were made through the loans obtained in the FY 2005-06 and such loan was completely discharged in FY 2005-06 and 2006-07 is concerned equally there is no documentary evidence before us and the bald statement of assessee does not take the place of legal evidence or proof. At this stage, we can profitably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exempt income, either by preparing or producing separate account of expenditure or to substantiate how much of the composite expenditure incurred was in relation to the exempted income. In the absence of any evidence on this aspect matter cannot be decided merely on the statement made by the assessee that they had separate own fund utilised in the investment or that the borrowings with which the DPSC Ltd. shares were purchased were fully discharged by 2005-06 and 2006-07 so that no interest remained payable in the FY 2007-08 cannot be accepted. Unless on facts we are convinced that either all these things should have had happened, it is not possible for us to give a finding that at relevant point of time the assessee did not utilize any borrowed funds for investment to generate the exempt income. Equally it is not possible for us to give a finding that the source of purchasing the shares in DPSC Ltd. was discharged prior to the FY 2007-08, as such, no expenditure towards interest on that aspect could have been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. Issue No. (iii) 13. Now coming to the claim of the assessee in respect of ₹ 1,41,216/- u/s. 40(a)(ia) of the Act towards audit fee is concerned, the assessee company booked liability for audit fee payable to the auditors for audit of accounts of the company for the FY 2006-07 and tax at source was required to be deducted at the time of payment or credit whichever was earlier. However, no such tax deducted by 31.03.2007, as such, it was disallowed u/s. 40(a)(ia) of the Act for the AY 2007-08. However, during the FY 20-07-08, at the time of making payment of audit fees, the assessee deducted the tax at source and deposited the same on 19.09.2008 and claimed ₹ 1,41,216/- as deduction in the AY 2008-09 for the payment made in the AY 2007-08. Section 40(a)(ia) reads as under: [any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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