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Facts
The assessee appealed against the CIT(A)'s order regarding club expenses and disallowance under Section 14A. The AO had made additions for club expenses and Section 14A disallowance, which the CIT(A) partly deleted or confirmed.
Held
The Tribunal held that club expenses incurred by a corporate entity are wholly and exclusively for business purposes and thus allowable. For Section 14A, the disallowance should be restricted to investments yielding exempt income. Additions to book profit under Section 115JB for Section 14A disallowances are not permissible.
Key Issues
Allowability of club expenses, computation of disallowance under Section 14A, and addback of Section 14A disallowance to book profit under Section 115JB.
Sections Cited
14A, 115JB, 10(34)
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 01.07.2025 for the AY 2017-18.
The issue raised in ground no.1 is against the order of ld. CIT (A) partly deleting the addition to the extent of ₹2,13,957/-, being 50% of ₹4,27,914/- in respect of club expenses as against the total addition made by the ld. AO of ₹5,81,098/- incurred by the assessee in respect of club subscription charges.
2.2. During the appellate proceedings, the ld. CIT (A) deleting the disallowance of subscription and entry fees to the tune of ₹1,53,184/- on the ground that the assessee being a corporate person and the expenses cannot be said to have been incurred for the personal purposes. However, the ld. CIT (A) in respect of remaining expenses of ₹4,27,914/- which are in respect of club services and facility use, sustained the addition which is equal to 50% on adhoc basis thereby sustaining the addition to the tune of ₹2,13,937/- on the ground that director/ shareholders of the assessee might have utilized the club facility for their personal visits and entertainment.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that during the course of assessment proceedings the ld. AO has never raised any query qua the allowability of club expenses and therefore, the assessee did not have any occasion to furnish any explanation qua the admissibility of these expenses. We note that the ld. CIT (A) upheld the disallowance to the tune of ₹50% of the club expenses and facility on adhoc basis without giving any reasoning/ justification for the same. In our opinion, the disallowance cannot be made on estimation and presumption basis as has been held in the case of CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349
The issue raised in ground no.2 is against the order of ld. CIT (A) confirming the addition of ₹1,33,25,000/-u/s 14A read with Rule 8D of the Rules.
3.1. The facts in brief are that the ld. AO during the course of assessment proceedings, noted that the assessee has earned dividend income of ₹7.47 crores during the year which was also disclosed by the assessee in note no. 21 of the audited balance sheet. Out of the said dividend, the assessee earned dividend to the tune of ₹1,91,30,687/- from foreign subsidiary company and it was duly offered to tax in the return of income, the remaining dividend of ₹5,82,75,000/- was received from Indian Company and same was exempt from tax u/s 10(34) of the Act. The assessee submitted before the ld. AO that it had not incurred any expenses for earning the exempt income. However, the plea of the assessee was not accepted by the ld. AO and he invoked the provisions of Section 14A read with Rule 8D of the IT Rules, 1962 and computed the disallowance at ₹ 1,33,25,000/- by taking into account the total balance of investments 3.2. In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee.
3.3. After hearing the rival contentions and perusing the materials available on record, we find that the undisputed facts are that the assessee has investments as on 31st March, 2016 and 31st March, 2017, in the balance sheets which included the investments which yielded the exempt income as well as the investments which did not yield any exempt income during the year. We note that the assessee has made before the ld. AO without prejudice submission that if the main plea of the assessee is not accepted which is qua the fact that the assessee has not incurred any expenses towards earning of exempt income and even if the provisions of Section 14A read with Rule 8D is invoked even then the disallowance works out to ₹59,40,500/- based upon the average value of investments which yielded exempt income during the year. The assessee has made a very detailed arguments before us corroborating all these facts and in the light of various case laws/ decisions , we hold that the disallowance is to be restricted to the extent of the amount which is based upon the average value of investments which yielded only exempt income
The issue raised in ground no.3 is against the order of ld. CIT (A) confirming the addition of ₹1,33,25,000/- as made by the ld. AO u/s 14A read with Rule 8D of the Rules to the book profit u/s 115JB of the Act.
4.1. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO has added the amount of disallowance of ₹1,33,25,000/- to the book profit as computed u/s
In the Result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 13.01.2026.