TMI Blog2023 (3) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee s own funds were far more than the value of investments which yielded the exempt income. In the present case, we note that the assessee has invested in equity shares - Therefore on this count, we find merit in the contentions of the A.R that no disallowance can be made under Rule 8D(2)(ii). In view of the above facts and circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. Club expenses confirmed as incurred for business purposes - HELD THAT:- We observe that the assessee reported revenue from operations of Rs. 28,751 Lacs whereas the expenses were only Rs. 1,58,263/-. We find merit in the contentions of assessee that these expenses were incurred primarily for the business purpose and for promoting the interest of the company and therefore allowable u/s 37 - The case of assessee finds support from the decision of in the case of CIT vs. United Glass Mfg. Co. Ltd. [ 2012 (9) TMI 914 - SUPREME COURT] wherein it was held that such expenses are purely business expenses. Club membership fee incurred by the assessee is business expense u/s 37 of the Act and none of the decisions have been challenged in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount in Rs. Amount in Rs. Bank of India Limited 55,300 2,00,000 2,00,000 McLeaod Russel India Limited 16,458 2,00,000 2,00,000 Eveready Industries India Limited 16,104 3,15,000 3,15,000 TOTAL 87,862 7,00,000 7,00,000 Pertinent to note that during the year, the assessee has not made any investments in the equity shares. The assessee calculated the disallowance u/s 14A of the Act at Rs. 4,000/- by taking average value of investments in shares which yielded dividend during the year. No disallowance was made by the assessee under Rule 8D(2)(ii) on the grounds that the assessee s own funds were sufficient to cover the investments in shares which yielded dividend during the year. The AO invoked the provisions of Section 14A read with Rule 8D by observing that the assessee has failed to prove that expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any satisfaction the addition made u/s 14A is required to be deleted. The Ld. A.R also submitted that the assessee has not made any investments into the shares and securities during the year and whatever investments are there are carried over/ brought forwards from the preceding years. Therefore the Ld. A.R submitted that the assessee has not incurred any expenditure in earning exempt income. The Ld. A.R also referred to the investments in three securities namely: i) Bank of India Ltd., ii) McLeaod Russel India Ltd. and iii) Eveready Industries India Ltd. on which the total dividend of Rs. 87,862/- was received during the year and the assessee also computed suo-moto disallowance of Rs. 4,000/- u/s 14A by taking these investments as opening and closing balance and after applying 0.5% to the average investments, Rs.3,500/- was computed under Rule 8D(2)(iii) and was rounded up to Rs. 4,000/-. The Ld. A.R submitted that the disallowance u/s 14A read with Rule 8D can only be made by referring to the investments which yielded exempt income during the year and not the entire investments. In defense of his argument, the Ld. A.R. relied on the decision of Hon ble Calcutta H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income received during the year was Rs. 87,862/- on three securities as per the table appended in para 3 supra. Besides we note that the assessee s own funds were sufficient to cover the investments made in shares and securities. In this background, the various pleas made before the Bench by the Ld. A.R., is being adjudicated. After perusal of the order of assessment we find that the AO has not recorded any satisfaction by referring to books of account as to how the disallowance made by the assessee of Rs. 4,000/- u/s 14A of the Act read with Rule 8D(2)(iii) is wrong and simply invoked the provisions of Section 14A read with Rule 8D to make the disallowance which is not correct as the recording of satisfaction is pre-requisite for invoking provisions of Section 14A of the Act which is in consonance with the ratio laid down by the Hon ble Supreme Court in the case Maxopp Investment reported in (2018) 402 ITR 640 (SC). On this score alone the order of ld CIT(A) cannot be sustained. On the issue of retrospective application amendment brought by Finance Act, 2022 to Section 14A of the Act by inserting non-obstante clause and explanation to Section 14A of the Act, we find that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India . The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . 19. When the Explanation seeks to give an artificial meaning to earned in India and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. (emphasis supplied) 8. Consequently, this Court is of the view that the amendment of section 14A, which is for removal of doubts cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammedv. State of Kerala [2000] 113 Taxman 470/245 ITR 360 and Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in brief are that during the year, the assessee has incurred expenses of Rs. 1,58,263/- as club expenses. The AO disallowed the same on the ground that the said expenses were incurred on personal refreshment and not for the purpose of business of the assessee. 11. In the appellate proceedings, the Ld. CIT(A) has passed cryptic order by simply dismissing the appeal of the assessee on the ground that the assessee has failed to substantiate the fact that this expense is wholly and exclusively spent for the business purpose. 12. After hearing the rival contentions and perusing the material on record, we observe that the assessee reported revenue from operations of Rs. 28,751 Lacs whereas the expenses were only Rs. 1,58,263/-. We find merit in the contentions of assessee that these expenses were incurred primarily for the business purpose and for promoting the interest of the company and therefore allowable u/s 37 of the Act. The case of assessee finds support from the decision of Hon ble Supreme Court in the case of CIT vs. United Glass Mfg. Co. Ltd. reported in [2012] 28 taxmann.com 429 (SC) wherein it was held that such expenses are purely business expenses. The Hon ble Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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