2015 (8) TMI 869 - AT - Income Tax

Disallowance of expenses incurred towards feasibility study - CIT(A) deleted the addition - Held that - Aappeal filed by the Revenue is dismissed on account of low tax effect. Addition being employee s contribution deposited after the statutory due date but before the end of the relevant financial year - Held that - As relying on case of CIT vs. M/s. Hindustan Organics Chemicals Ltd 2014 (7) TMI 477 - BOMBAY HIGH COURT wherein held that we fail to understand how this deduction could have been disallowed to the Assessee. Admittedly, the Assessment Year in question is 2006-07. The second proviso to section 43B quoted above was deleted with effect from 1st April 2004 and simultaneously the first proviso was also amended bringing about a uniformity in deductions claimed towards tax, duty, cess and fee on the one hand and contribution to the employees provident fund, superannuation fund and other welfare funds on the other. These deductions being claimed in the return of income filed for the Assessment Year 2006-07, the amendments to Section 43B which came into force with effect from 1st April 2004 would have clearly applied to the Assessee s case. In this view of the matter also, we find that the ITAT was fully justified in deleting the addition of ₹ 1,82,77,138/- on account of delayed payment of provident fund of employees contribution. Considering the above settled position of law, we are of the opinion that the order of the CIT (A) is required to be reversed on this issue as such, the assessee is entitled to deduction. - Decided in favour of assessee. Allowability of the club expenses by way of membership entry fee to the club - Held that - As decided in case of Clariant Chemicals (I) Ltd vs. Addl. CIT 2014 (11) TMI 439 - ITAT MUMBAI in assessee s own case for the earlier assessment year, it has been held that an expenditure incurred on account of payment of membership entrance fee paid to the club is an allowable expenditure Decided against revenue.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenses incurred towards feasibility study.
2. Addition of employee's contribution deposited after the statutory due date.
3. Allowability of club expenses by way of membership entry fee.

Issue 1 - Disallowance of Feasibility Study Expenses:
The Revenue challenged the CIT (A)'s decision to delete the disallowance of expenses incurred towards a feasibility study. The tax effect for the appeal was less than the prescribed limit of Rs. 4 lakhs as per CBDT instructions. The Revenue's appeal was dismissed due to the low tax effect, in line with legal precedents supporting the application of the tax effect limit.

Issue 2 - Addition of Employee's Contribution:
The assessee contested the addition of employee's contribution deposited after the due date but before the end of the financial year. The assessee relied on legal judgments, including the Supreme Court's decision in CIT vs. Alom Extrusions Ltd, to argue that no distinction should be made between employer and employee contributions to provident funds. The High Court's judgment in CIT vs. M/s. Hindustan Organics Chemicals Ltd further supported the assessee's position. The Tribunal, following legal precedents and the retrospective nature of amendments to section 43B, allowed the deduction for the delayed payment of provident fund contributions. The Tribunal reversed the CIT (A)'s order and allowed the deduction, emphasizing the uniform treatment of deductions for various contributions.

Issue 3 - Club Expenses Allowability:
Regarding the club expenses by way of membership entry fee, the Revenue Authorities had restricted the disallowance to 1/5th of the claim. The assessee appealed, citing a Tribunal order in a similar case where the claim was fully allowed. The Tribunal, considering the precedent and the importance of the earlier order, allowed the assessee's claim for the full deduction of club expenses. The Tribunal reversed the CIT (A)'s decision and allowed the deduction, in line with the legal precedent and the Tribunal's earlier rulings.

In conclusion, the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance of feasibility study expenses, addition of employee's contribution, and club expenses' allowability comprehensively. The judgments and legal precedents played a crucial role in determining the outcomes of the appeals and cross objections, ensuring a fair and reasoned decision based on established legal principles.