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Income Tax Appellate Tribunal, DELHI BENCH: ‘F ’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 18.05.2016 passed by the CIT(A) -7 New Delhi, for Assessment Year 2011-12.
The grounds of appeal
are as under:- 1. “That on facts and in law, the Ld.CIT(Appeals)-7 [CIT(A)] erred in upholding the disallowance of expenditure of Rs.78,52,446 made by the AO (Out of ‘Subscription & Membership Fee’) u/s 37(1) of the Act, being annual participation fee paid to the World Economic Forum - Switzerland for the Director of the appellant during the year, by holding that the said expenditure was not incurred wholly and exclusively for the purpose of business of the appellant.
2. That on facts and in law, the CIT(A) erred in upholding the action of the AO by not appreciating the submissions of the appellant that the appellant had already suo moto added back the entire expenditure (including the aforesaid expenditure of Rs.78,52,446 incurred towards Participation Fee paid to the World Economic Forum) incurably it in terms of Rule 8D(2)(iii), the details of which were duly provided during the course of assessment proceedings as well as in the appellate proceedings before the CIT(A) and hence, no further disallowance was sustainable u/s 37(1) of the Act on this account.”
3. The assessee Company is a registered non banking financial company. During the year under consideration, the assessee company was primarily engaged in granting loans and advances. Besides this, the assessee company is also engaged in business of investment in shares and mutual funds. The assessee company filed its return of income on 29/11/2011 declaring an income of Rs. 134,21,41,396/-. Reference to the Transfer Pricing Officer was made u/s 92CA (3) of the Act dated 11/11/2013. The Transfer Pricing Officer passed the order on 14/11/2014 saying that the Transfer Pricing documentation which contains the functional and economic analysis of comparables and of assessee has been examined and placed on record. In view of the functional and economic analysis of assessee and of comparables, no adverse inference was drawn in respect of the International Transactions undertaken by the assessee during the F.Y. 2010-11. The assessee filed balance sheet and profit and loss account in which assessee claimed various expenses. During the year, the assessee claimed expenses of subscription and membership fee amounting to Rs. 1,09,03,464/- under the head Administrative and other expenses. The Assessing Officer observed that since the assessee suo moto added back a sum of Rs. 21,01,500/- being amount paid to the Federal Trade Commission in its computation as direct expenditure u/s 14A, the expenditure of Rs. 78,52,446/- being Participation Fee to the World Economic Forum for Mr. Malvinder Mohan Singh was added back to the total income of the assessee. As regards the claim for entrance fees to Wellington Sports Club, Mumbai and Life Membership fees for Country Club, the Assessing Officer made addition of Rs. 9,02,493/-.
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that the assessee company incurred the said expenditure on account of participation fee paid to World Economic Forum wholly and exclusively for the purpose of its business as the Directors of the assessee company are responsible for strategizing, organizing and running the business as per latest business strategies and new business models in this rapidly changing environment. Therefore, it is of utmost importance that Directors are updated / aware of such business strategies and models, which can be used / applied for efficiently running the affairs of the assessee company. The Ld. AR submitted that the Assessing Officer has not disputed about the expenditure incurred during the year by the assessee company. However, the Assessing Officer disallowed the expenditure by holding that the same does not relate to the business of the assessee company. As regards to allowability of Expenditure under Section 37 of the Act, the expenditure should not be specifically covered under Section 30 to 36 of the Act and should not be of capital or personal nature. Further, the expenditure should have been incurred wholly and exclusively for the purposes of business and profession of the assessee company. The Ld. AR submitted that the annual participation fee paid to World Economic Forum in question is not specifically covered under Section 30 to 36 of the Act. The Ld. AR further submitted that the expenditure is not for the benefit of any person and therefore is not of personal nature as personal expenditure means expenses satisfying personal need. In fact, the expenditure was incurred wholly and exclusively for the business of the company. Thus, the Ld. AR submitted that the Assessing Officer as well as CIT(A) was not correct in making this addition.
The Ld. DR relied upon the Assessment Order and order of the CIT(A). The Ld. DR further submitted that the payment made to the World Economic Forum and the Federal Trade Commission are not wholly and exclusively for the purpose of business of the assessee as the assessee is a Non-Banking Finance Company and hence the expenses do not relate to its business. The Ld. DR submitted that since the assessee suo moto added back a sum of Rs. 21,01,500/- being amount paid to the Federal Trade Commission in its computation as direct expenditure under Section 14A, the expenditure of Rs.78,52,446/- being Participating Fee to the World Economic Forum for Mr. Malvinder Singh is rightly added by the Assessing Officer and properly confirmed by the CIT(A).
We have heard both the parties and perused the material available on record. It is pertinent to note that in the Assessment Order, the Assessing Officer has not taken into account that the assessee has shown the Subscription and Membership Fees in Schedule 18 attached to the Profit and Loss account. Besides that there is no separate finding given by the Assessing Officer as well as by the CIT(A) as to on what basis this expenditure has not been incurred for business purpose. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for fresh adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.
In result, the appeal is partly allowed for statistical purpose. Order pronounced in the Open Court on 05th March, 2020.