2013 (11) TMI 838 - AT - Income Tax

Disallowance u/s 37(1) of the Income tax act - Disallowance of Rs. 2 lacs being 50% of Club Membership Fees treating as personal expenses - Assessee had debited Rs. 4 lacs as Club Membership fee in his books of accounts Held that - Judgment of Hon ble Bombay High Court delivered in the case of Otis Elevator 1991 (4) TMI 53 - BOMBAY High Court is distinguished from - In certain cases issue regarding membership of clubs has been decided, but all such cases are of corporate assessee unlike the present case where assessee is proprietor of a concern. FAA had endorsed the views of the AO that element of utilisation of facilities for himself and the family members could not be ruled out. But, neither AO nor FAA had found as what was the facilities provided by the Club and what facilities were availed by the assessee for himself or his family members during the year under consideration - So, in the interest of justice restored the issue back to the file of the AO for fresh adjudication. Disallowance in respect of Sundry Balance written off - Assessee had debited Rs. 4, 87, 189/- under the head Sundry Expenses Contention of Revenue that amount in question was in nature of advance to suppliers, that no actual purchases were made Held that - Assessee had not routed the said transaction to P & L Account, that it had claimed that amount in question could not be recovered - He had given details of sundry debtors/creditors balance written to the AO - AO has not taken into consideration the submissions made by the assessee in this regard Proper opportunity of being heard was not provided to the Assessee - In the interest of justice matter needs to be restored to the file of the AO for fresh adjudication. Disallowance u/s 40(a)(ia) of the Income tax act - Addition on account of non-deduction of TDS as per the provisions of section 194C(1) of the Act Addition of Rs. 10. 44 lacs - Assessee had paid Rs. 10, 44, 010/- to contractor, and he did not deduct tax at source Held that - As per the provisions of the Act individuals and HUFs, who were subject to mandatory audit, had to deduct tax at sources from AY. 2003 -04. While introducing the amendment to section w. e. f. , 01. 06. 2002, if legislature in its wisdom did not include the individuals and HUFs, who had not to get their accounts audited u/s. 44AB of the Act, to deduct tax source than it was a case of reasonable classification. But, legal position was very clear that during the year under consideration proviso was very much applicable and the assessee had to deduct tax as his turn over exceeded the monetary limits prescribed by the provisions of section 44AB of the Act - FAA had rightly held that Proviso was applicable and assessee had to deduct tax source u/s. 194C of the Act for the payments made by him during the AY under consideration. - Decided against the assessee.

Summary

Issues:
1. Disallowance of Club Membership Fees
2. Disallowance of Sundry Balance written off
3. Addition due to non-deduction of TDS under section 194C(1)

Issue 1: Disallowance of Club Membership Fees:
The appellant contested the disallowance of Rs. 2,00,000 as 50% of Club Membership Fees, arguing that the expenses were allowable under section 37(1) of the Act. The First Appellate Authority (FAA) upheld the disallowance, emphasizing the lack of evidence that the club membership was used solely for business purposes. The Appellate Tribunal found that the case law cited was not directly applicable to the individual appellant. The Tribunal directed further investigation by the Assessing Officer (AO) to determine the actual utilization of club facilities for business purposes, thereby partially allowing the appeal.

Issue 2: Disallowance of Sundry Balance written off:
The appellant challenged the disallowance of Rs. 4,87,189 under Sundry Balance written off, asserting that the amount could not be recovered. The AO had not considered the details provided by the appellant regarding the written-off balances. The Tribunal observed that the AO failed to address the submissions adequately before disallowing the amount. Consequently, the Tribunal directed the matter to be reconsidered by the AO, instructing a fresh opportunity for the appellant to present their case, leading to a partial allowance of the appeal.

Issue 3: Addition due to non-deduction of TDS under section 194C(1):
The AO disallowed Rs. 10,44,010 for non-deduction of TDS, despite the appellant's argument that individuals and HUFs were not required to deduct tax under section 194C(1) during the relevant assessment year. The FAA upheld the disallowance, citing the proviso under section 194C. The Tribunal noted that the proviso mandated individuals and HUFs with turnover exceeding specified limits to deduct tax at source. The Tribunal differentiated the case relied upon by the appellant, emphasizing the applicability of the proviso during the assessment year in question. Consequently, the Tribunal ruled against the appellant on this issue.

In conclusion, the Appellate Tribunal partially allowed the appeal concerning the disallowance of Club Membership Fees and Sundry Balance written off, while ruling against the appellant on the addition due to non-deduction of TDS under section 194C(1). The Tribunal directed further investigation by the AO for the Club Membership Fees issue and reconsideration of the Sundry Balance written off issue, providing the appellant with fresh opportunities to present their case.