SUD CHEMIE INDIA PRIVATE LIMITED,ERNAKULAM vs. DCIT, CORPORATE CIR 2(1),KOCHI, ERNAKULAM

Brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of manufacture of industrial grade catalysts for petrochemicals, refineries, fertilizer and air gas purification Sud Chemie India Pvt. Ltd. industries. The return of income for AY 2016-17 was filed on 30.11.2016 declaring total income of Rs. 2,24,34,35,960/-. Against the said return of income, the assessment was completed by DCIT, Corporate Circle-2(1), Kochi (hereinafter called "the AO") vide order dated 20.12.2018 passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) at a total income of Rs. 2,46,39,46,775/- after making several disallowances. The disallowances, inter alia, included the disallowance claim for deduction u/s. 35(2AB) of the Act of Rs. 19,74,30,996/- and the disallowance of subscription fees paid to club of Rs. 34,367/-. The AO disallowed the claim for deduction u/s. 35(2AB) on the ground that the prescribed authority had not certified the amount of capital expenditure incurred in Form 3CL. Similarly the AO also made disallowance of subscription paid to club by holding that membership of club is taken in the name of the Director of the company.

Being aggrieved, an appeal was filed before the CIT(A), who wide the impugned order confirmed the addition u/s. 35(2AB) and also confirmed the addition on account of subscription fees paid to the club.

Being aggrieved, the appellant is in appeal before us in the present appeal.

Grounds of appeal 1 to 4 are general in nature. Ground No. 2 challenges the findings of the CIT(A) confirming the disallowance Sud Chemie India Pvt. Ltd. of claim for deduction u/s. 35(2AB) of the Act. It is submitted that there is no requirement under law for certification of expenditure by prescribed authority in Form 3CL placing reliance on the decision of the Hon'ble Gujarat High Court in the case of Banco Products (India) Ltd. v. DCIT [2018] 405 ITR 318. He submits that for availing benefit u/s. 35(2AB) of the Act what is required is the approval. The fact that it was approve subsequently cannot be a ground for disallowance of the claim for deduction u/s. 35(2AB) of the Act. He also placed reliance on the judgement of Hon'ble Madras High Court in the case of CIT vs. TVS Electronics Ltd. [2019] 419 ITR 187.

On the other hand, the learned Sr. DR, placing reliance on the orders of the lower authorities, submits that from the material on record it is clear that Form 3CL was approved on 04.04.2016 for the period of 01.04.2016 to 31.03.2017. Therefore, the expenditure required to be certified by prescribed authority.

We have heard the rival contentions and perused the material available on record. The issue that arise for our consideration is whether the CIT(A) was justified in confirming the disallowance of claim for deduction u/s. 35(2AB) for want of certification of the expenditure incurred in Form 3CL by the prescribed authority. Rule 61B of I.T. Rules has been amended w.e.f. 01.07.2016 requiring certification of the expenditure by prescribed authority in Form 3CL. It is further submitted that in the rectification proceedings Sud Chemie India Pvt. Ltd. pursuant to the application made by the assessee u/s. 154 of the Act, vide order dated 26.02.2019 passed u/s. 154 the amount of disallowance was restricted to Rs. 72,88,996/-. From the material on record it is not clear as on what ground the disallowance was restricted to Rs. 72,88,996/- and moreover what is impugned before us is the order passed u/s. 143(3), not the order passed u/s. 154 of the Act. In the circumstances it is not discernable from the material on record as to how the AO had restricted the disallowance only to Rs. 72,89,996/-. In the circumstances, we are of the considered opinion that if the appellant is aggrieved by the order u/s. 154 the remedy of appeal should be exercised only against the order u/s. 154 and not u/s. 143(3) of the Act. Therefore, this ground of appeal is dismissed.

Next ground of appeal challenges the subscription paid for club membership. It is submitted that the subscription fees paid to the membership of the club is only for business purposes in order to improve the business connections of the appellant placing reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Samtel Colour Ltd 326 ITR 425 that the same may be allowed as revenue expenditure. There is no dispute that the membership of the club was acquired only for business purposes. The membership fees is only revenue in nature in view of the decision of Hon'ble High Court (supra). Accordingly, we direct the AO to allow this as revenue expenditure.