2022 (4) TMI 1420 - AT - Income Tax

Disallowance of club expenditure - HELD THAT - As in column 21A of the Tax Audit Report in Form 3CD it was reported under the head personal expenditure (as per the prescribed format). CPC it is noted is guided by the artificial intelligence which has picked up this particular disclosure in the Tax Audit Report and has taken it as gospel truth and has disallowed the same without notice to assessee. Be that as it may be, before us assessee has brought to our notice that the assessee has incurred this expenditure for the purpose of business and since decades it has been incurring such kind of expenditure and the department has been allowing consistently. However, for the first time this disallowance has been done by CPC. We find this averment as correct. Therefore, applying the rule of consistency as per the decision of Hon ble Supreme court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT when the facts permeating in the earlier years are same and there is no change in law and facts on an issue which the department has allowed, then the said issue should not be disturbed. Therefore, we allow the claim of the assessee in respect of the expenditure since no change in facts or law could be brought to our notice and direct deletion of the addition. Therefore, this ground of appeal of assessee is allowed. Disallowance made in respect of PF ESI in respect employee s contribution u/s. 36(1)(va) r.w.s. 2(24)(x) - HELD THAT - AR brought to our notice that the assessee has remitted the PF ESI dues before the date of filing of return of income u/s. 139(1) of the Act and the same was deposited , which fact is discernable from a perusal of the Tax Audit Report (TAR) and on a perusal of the same it is seen that the assessee has deposited employees contribution before the due date of filing of the return. Therefore we are inclined to allow this ground of appeal of the assessee and direct the A.O. to delete the addition and hold that the Amendment brought in Finance Act 2021 w.e.f. 01.04.2021 by inserting an Explanation to section 36(1)(va) and section 43B of the Act is prospective in nature and would apply from AY 2021-22 onwards and, therefore, the amendment is not applicable to this assessment year (Assessment Year 2018-19) under consideration. Appeal of assessee allowed.

Summary

Issues:
1. Disallowance of club expenditure claimed by the assessee.
2. Disallowance made in respect of PF & ESI in respect employee's contribution.

Issue 1: Disallowance of Club Expenditure
The appeal was against the disallowance of club expenditure claimed by the assessee in its return of income. The CPC disallowed the expenditure without issuing any notice, which the Ld. AR argued was not permissible under the law. The Ld. CIT(A) confirmed the disallowance based on the auditor's report flagging the expenditure as personal. However, the Ld. AR contended that the expenditure was incurred for the business purpose and should be allowed. The tribunal found that the assessee had consistently incurred such expenditure for business purposes, and the department had allowed it in previous years. Applying the rule of consistency, the tribunal allowed the claim of the assessee and directed the deletion of the addition.

Issue 2: Disallowance of PF & ESI Contribution
The second ground of appeal was against the disallowance made in respect of PF & ESI contribution in employee's contribution. The Ld. AR argued that since the assessee had remitted the contribution before filing the return of income, no disallowance was warranted. The CIT(A) referred to an amendment brought in by the Finance Act 2021, considering it retrospective, which the Ld. AR argued was only prospective. The tribunal cited a previous case where it was held that the amendment was prospective and would apply from AY 2021-22 onwards. As the assessee had remitted the dues before the due date of filing the return, the tribunal allowed the appeal, directing the AO to delete the addition and holding that the amendment was not applicable to the assessment year under consideration.

In conclusion, the tribunal allowed both grounds of appeal, ruling in favor of the assessee in both instances. The disallowance of club expenditure was overturned based on the rule of consistency, and the disallowance of PF & ESI contribution was set aside as the contribution was made before the due date of filing the return of income. The tribunal emphasized the prospective nature of the amendment brought in by the Finance Act 2021 and its applicability from AY 2021-22 onwards.