TMI Blog2021 (10) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... -half percent of the average of the value of investment as on the first day and the last day of the previous year i.e. ₹ 9,44,000/- i.e. 4,720/-. Thus, Ground No.1 raised by the assessee is partly allowed. Disallowance of interest and not allowing the depreciation thereon which was treated by the AO being incurred on capital expansion - Capitalization of interest was rejected on the basis that before the Assessing Officer, such ground could not have been taken without claiming it in the return of income. In support of this, Ld.CIT(A) has placed reliance on the judgement of Goetze India Ltd. vs CIT [ 2006 (3) TMI 75 - SUPREME COURT] - HELD THAT:- CIT(A) has mis-directed himself as the judgement of the Hon ble Supreme Court does not put fetters on the power of the appellate authority below for entertaining such claim. Therefore, considering the totality of the facts and material placed before us, we deem it proper and in the principle of natural justice to restore this ground to the file of Ld.CIT(A) to decide the issue afresh - Appeal of assessee are allowed for statistical purposes. Disallowance of subscription and membership expenses - contentions of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,70,888/- under chapter VI-A. The case was selected for scrutiny and the assessment was completed u/s 143(3) of the Income Tax Act, 1961( the Act ) vide order dated 17.03.2015. By framing the assessment, the Assessing Officer noticed that the assessee had claimed loss on exchange fluctuation of ₹ 97,91,000/-. The assessee was asked as to why the claim should not be disallowed. In response thereto, the assessee filed its reply however, the reply of the assessee was not found acceptable, therefore, the Assessing Officer disallowed the claim of the assessee on exchange fluctuation of ₹ 97,91,000/-. Further, the AO disallowed the expenses related to club subscription of ₹ 3,62,992/-, disallowance u/s 14A of ₹ 42,645/-, disallowance of interest on loan for capital expansion of ₹ 1,29,63,747/- and made ad-hoc disallowance of ₹ 93,562/- on travelling and conveyance of the directors. 3. Aggrieved against this, the assessee preferred appeal before Ld. CIT(A) who after considering the submissions and material on record, sustained the addition of ₹ 1,29,63,747/- made on account of disallowance of interest on capital expenses, disallowance made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong term capital gain, eligible for deduction u/s 10(38) of the Act. The Assessing Officer has rightly worked out disallowable expenses as per the provisions u/s 14A r.w.Rule 8D of I.T.Rules, 1962. Therefore, the disallowance made by the Assessing Officer is confirmed. The Assessing Officer has apportioned interest expenditure for the investments in the shares. The ground of appeal is dismissed. 9. We find that the Ld.CIT(A) has mechanically confirmed the findings of the Assessing Officer, without adverting to the submissions of the assessee that no expenditure was incurred for earning of exempt income when it was categorically contended on behalf of the assessee that no expenditure was incurred on earning of exempt income. Ld. Counsel for the assessee submitted that the assessee had subscribed to shares of its bankers in an earlier Assessment Year a long time back. It was further stated that investment had been continuing as the initial amount of investment was ₹ 9,49,000/- since these equity shares were held in DEMAT account and therefore, dividend of ₹ 1,16,000/- was also credited to assessee s bank account. It is further stated that the Assessing Officer errone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Mizuho Corporate Bank Ltd. was payable in half yearly installment as per their amortization schedule starting from 31.10.2013 to 30.04.2016. It was further contended that the Assessing Officer then proceeded to make disallowance of ₹ 1,29,63,747/- being the interest on such loan on the basis that loan was unsecured from Mizuho Corporation Bank Ltd. and the interest expenditure did not relate to Financial Year under consideration and the amount of loan had been expended for capital expansion. Thus, as per Assessing Officer, the interest expended was needed to be capitalized. Ld. Counsel for the assessee submitted that the details of interest were furnished before the authorities below. A perusal of the details indicate that interest was on two different loans from Mizuho Corporate Bank. One loan was taken in the year ended 31.03.2006 and other of ₹ 17,79,60,000/- was obtained during the year under consideration. The interest of ₹ 1,29,63,747/- included the interest on the older loan of ₹ 9,73,060/- which was for capital expansion and the interest of ₹ 1,19,90,687/- on the new loan which was taken during the year under consideration and the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .03.2012, the same is not allowable for the period under consideration. 11.3. Thus, it is evident the assessee has made a provision of interest on loans taken from Mizuho Corporation Bank, Japan for the assessment year 2012-13 and that the said interest was not paid to the said Bank. It has also been noted that the said foreign bank has branches in India and is duly on the list of Reserve Bank of India. Thus, the interest on loan is also subjected to the provisions of Section 43B of the Income Tax Act. But the interest is payable in foreign exchange subject to the Provisions of DT AA which says that such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State. But if the recipient is the beneficial owner of the interest, the tax may be charged (a) @ 10 per cent of the gross amount of the interest if the beneficial owner is a bank and (b) @ 15 per cent of the gross amount of the interest in all other cases. 11.4. In this manner the assessee has not followed the provisions of section 195 read with DTAA by not deducting TDS @ 10% of the amount payable and section 43B of the Income Tax Act. Therefore, I hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furtherance of the business, was allowable. The assessee did not prove that the expenditure was incurred wholly and exclusively for the purpose of business. 18. We have heard the rival contentions. The contentions of the assessee are, firstly, the expenditure was incurred for business expediency and secondly, the disallowance is highly excessive. We find that the expenditure is related to subscription or membership fee and expenditure incurred for business meetings. It is the contention of the assessee that the facility was provided to senior managerial personnel of the company under the terms of employment for having meetings with senior executives and probable customers. We find merit in this contention of the assessee that such membership is used for furthering social relationship and also develop business communication. Therefore, the disallowance made by the Assessing Officer is not justified. Hence, same is hereby deleted. This ground of assessee s appeal is allowed. 19. In the result, the appeal of the assessee is partly allowed. Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 11th October, 2021. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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