ANAND JHAWAR,KOLKATA vs. ITO, WD-34(2), KOLKATA, KOLKATA

The assessee has raised the following grounds:- 1) That the order of the Learned Commissioner of Income Tax (appeals)-10/Kol is arbitrary, based on surmises and bad in law as well as on facts. 2) That the Learned Commissioner of Income Tax (appeals)-10/Kol was not justified in confirming disallowance/addition of Rs.1 ,46,556/- on account of Interest paid on loan wrongly made by the Learned Assessing Officer. 3) That the Learned Commissioner of Income Tax (appeals)-10/Kol was not justified in confirming disallowance/addition of Rs.65,150/-on account of Sales promotion expenses. 4) That on the facts and in the circumstances of the case, additions/disallowances are liable to be deleted.

Going by the above the only effective grounds are ground nos. 2 and 3 and remaining grounds 1,4 & 5 which needs no adjudication and are dismissed.

Ground no-2 is relating to the addition of Rs.1,34,100/- made for violation of Section 194A of the Act invoking the provision U/section 40(a)(ia) of the Act.

During scrutiny proceedings the AO found that the assessee has credited amounts as interest in respect of following parties, which was claimed as deduction to an extent of Rs.1,46,556/- towards payment of interest on loans :- 1) Maa Kali Project Pvt. Ltd Rs.34,000/- 2) Rotoflex Printing & Laminates Rs.30,090/- 3) S.K. Jhawar (HUF) Rs.82,466/-

According to AO, the assessee should have deducted TDS u/s. 194A of the Act and according to AO for which assessee admitted that the same is an advertent mistake. Accordingly, the AO added an amount of Rs.1,46,556/- to the total income of the assessee.

In first appeal, before the CIT-A assessee contended that all such loan creditors taken such amount received from the assessee as their income and duly disclosed the same in their respective returns filed u/s. 139(1) of the Act and paid taxes thereon. In support of his contention he relied on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Ansal land Mark Township (P) Ltd.

The CIT-A confirmed the addition made by the AO only on the ground that the said three payees did not file the certificates in Form 26A and opined that mere filing of returns does not fully establish that they disclosed

Before us the ld. AR reiterated the same submission as made before the CIT-A and urged to remand the issue to the file of the AO for verification of the said three payees whether they disclosed such interest income in the their respective returns of income

On the other hand, the ld.DR submits that the AO has to verify the returns of income of such three payees whether they have filed Form 26A.

Heard rival submissions and perused the material available on record. We find that the assessee filed the copies of returns of income of such three (3) creditors before the CIT-A. But the CIT-A confirmed the impugned addition made by the AO only on the ground that the assessee could not produce the Form No. 26A, which is required to be filed before him to confirm whether such payees offered such receipts to tax or not. Taking into consideration the submissions of the Ld.AR and in the interest of justice , we are of the view that the issue shall go back to the AO for verification of the same and keeping in view of the principle enunciated by the Hon’ble High Court of Delhi supra, we are of the view that the if the concerned payee(s) has taken into account the relevant sum as received from Assessee towards payment of interest for computing income in their returns of income furnished u/s. 139 of the Act and has paid tax due on the income declared in such return, We, therefore, set aside the impugned order of CIT(A) to the

Ground no. 2 is relating to confirmation of disallowance of Rs.65,150/- on account of sales promotion expenses.

During the scrutiny proceedings, the AO found that the assessee has debited an amount of Rs.77,724/- on account of sales promotion expenses in his profit and loss account. Out of which an amount of Rs.65,150/- paid in favour of Ordinance Club. According to AO, the assessee admitted that such payment was made towards club membership and claimed such expenses incurred for the purpose and benefit of his business activities. The AO treated the same as assessee’s personal expenditure in nature and added the same to his total income.

Before the CIT-A the assessee contended that the membership obtained to avail the facilities of such club for meeting and affording entertainment with business associates, which in turn helps the assessee in promoting his business and relied on various decisions of Tribunal and Hon’ble High Courts.

The CIT-A was of the view that the assessee could not demonstrate as to how the payment towards club membership would benefit the business of assessee. Accordingly, he confirmed the impugned addition as made by the AO on this issue.

The ld.AR reiterated the same submissions as made before the CIT-A and relied on the decisions of the Hon’ble High Court of Delhi in the case of CIT Vs. Samtel Colour Limited dated 30-01-2009 in ITA 1152/2008 and in

On the contrary, the ld.DR submits that the assessee admitted before the AO that the said amount was no where related to business activities of assessee and on such admission, the AO has rightly added such amount to the total income assessee and supported the orders of CIT-A and AO.

In reply, the ld.AR also submits that the assessee cannot be put to hardship that if the AR of assessee before the AO admits the same.

Heard rival submissions and perused the material available on record. We find that the ld.AR of the assessee before the AO admitted such amount was not at all related to benefit of assessee’s business. The CIT-A in his order opined that the assessee could not produce any evidence showing that the said amount was paid in obtaining club membership was used for the benefit or for promotion of his business. The Hon’ble High Court of Delhi in the case of Nestle India Ltd was pleased to hold the expenses incurred by the assessee therein towards membership fees was for the business purpose and the relevant finding of the Hon’ble High Court supra in this regard is reproduced herein below:- We find from a perusal of the assessment order that a membership fee of Rs. 2 lakhs was paid by the assessee to the Madras Gymkhana Club. In so far as expenses by the assessee towards food etc., are concerned, they were subject to disallowance under section 37(2) of the Income- tax Act, 1961. We have also seen Otis Elevator Co. (India) Ltd. v. CIT[1992] 195 ITR 682 (Born.) where it appears that the Appellate Assistant Commissioner had given a categorical finding that payments made by the assessee towards club membership fee was to promote its business. It is true that in so far as the present case is concerned, there is no specific finding that the payment was made by the assessee for improving its business but since the Assessing Officer has allowed a deduction of 50 per cent. of Rs. 2 lakhs (that is Rs. 1 lakh) under section 37(2) of the Act, 1961, we are of the opinion, he did so on the basis that the expenditure incurred was for business purposes, otherwise the entire amount would have been disallowed by the Assessing Officer. Consequently, even though there is no explicit finding to that effect, but there is an implicit acknowledgment that the expenses incurred by the assessee was for the business purposes. Therefore, we are of the opinion that there is no error in the view taken by the Tribunal in concluding that the expenses incurred by the assessee towards membership fee was for the business purposes and that the assessee was entitled to a deduction as claimed.”

Further, we may refer to the decision as relied on by the Ld.AR in the case of Samtel Color Limited supra, the Hon’ble High Court of Delhi agreed with the conclusion as arrived by the tribunal that corporate membership itself meant it was for the benefit of the assessee and not for any particular employee as it had a right to nominate and substitute an employee at any point of time. Relevant findings of which are reproduced here in below:- 4. Since both the Revenue and the assessee were aggrieved by the order of the CIT(A) cross appeals were preferred against his order. The Tribunal after considering the submissions made as well as authorities cited before it returned a finding of fact that the expenditure incurred by the assessee was to obtain corporate membership of the clubs which entitled it to sponsor specified number of employees to enjoy the benefits of the clubs for which separate payments had to be made. It further concluded that the membership by itself did not confer any enduring benefit on the assessee. The Tribunal noted the fact that corporate membership itself meant it was for the benefit of the assessee and not for any particular employee as it had a right to nominate and substitute an employee at any point of time. In these circumstances it concluded that since membership allowed the employees to interact with its customers the expenses were for business purposes and, therefore, there was no reason to disallow the expenditure either wholly or in part. 5. Having heard the learned counsel for the Revenue as well as the assessee we are of the view that the impugned judgment of the Tribunal deserves to be upheld for the following reasons:- 5.1 The expenditure incurred towards admission fee, admittedly, was towards corporate membership. As correctly held by the Tribunal, the nature of the expenditure was one for the benefit of the assessee. The ‘business purpose’ basis adopted for eligibility of expenditure under Section 37 of the Act was the correct approach. This is more so in view of the Tribunal’s findings that it was the assessee which nominated the employee who would avail the benefit of the corporate membership given to the assessee.”

The Hon’ble High Court agreed with the Tribunal that the club membership by itself did not confer any enduring benefit on the assesse and

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 31 -01-2017