2019 (4) TMI 217 - HC - Income Tax

Disallowance of club expenses - expenses other than the membership fee were mainly food expenses and therefore they were in the nature of personal expenses which is not admissible under Section 37(1) - HELD THAT - It is true that the expenditure incurred by the assessee for procuring the club membership was a matter considered in the previous assessment years and the benefit given was sought to be restricted only in respect of such amount and the remaining part spent for availing the facilities was held as taxable. In the instant case, the total amount claimed by the assessee included the expenses for food and such other facilities as assessed by the Assessing Officer and hence it was disallowed by the Assessing Officer. The said finding on fact, which was upheld by the Commissioner (Appeals), ought not to have been altered by the Tribunal, holding that the issue was already found in favour of the assessee. The order passed by the Assessing Officer and affirmed by the Commissioner, disallowing a sum under the head club expenses is liable to be sustained. - Decided against assessee Contribution made to the Employees Welfare Fund Trust - HELD THAT - Referring to stand of the assessee is that it was only to facilitate transportation of the employees as per the service conditions and never amounts to any diversion of funds as alleged by the Revenue. Similar question with reference to Section 40A(9) in respect of the previous assessment years has already been considered by this Court and answered in favour of the assessee. This being the position, similar course will follow in the present case as well and there is no question of law to be considered. Disallowance u/s 14A - HELD THAT - Mandate of Section 14A can be valid and effective only from the assessment year 2007-2008, in view of the law declared in categorical terms by the Apex Court in Commissioner of Income Tax Vs. Essar Teleholdings Ltd. 2018 (2) TMI 115 - SUPREME COURT OF INDIA and the AY in question is Assessment year 2000-2001. - Decided in favour of assessee

Summary

Issues:
Challenge against Annexure-C order passed by the Income Tax Appellate Tribunal in respect of the assessment year 2000-2001.

Analysis:
The appeal was filed by the Revenue challenging the Annexure-C order passed by the Income Tax Appellate Tribunal for the assessment year 2000-2001. The sequence of events involved the assessee, engaged in the manufacture and sale of automotive tyres and tubes, filing their return, followed by a revised return, leading to the final assessment under Section 143(3) of the Income Tax Act by the Assessing Officer. The appeal process included orders by the Commissioner, Income Tax (Appeals) and the Tribunal, which interdicted the Appellate Authority's order and granted some reliefs in the Annexure-C order, now under challenge.

The first substantial question of law raised by the appellant related to the disallowance of payments made to clubs and contributions to the Apollo Tyre Employees Welfare Fund Trust under Section 40A(9). The Tribunal's decision to interfere with the Assessing Officer's disallowance was based on past assessments and was challenged by the Revenue. The Tribunal's decision to allow the entire club expenses as deduction under Section 37(1) of the Act was questioned, especially regarding expenses other than membership fees. The Tribunal's reliance on past decisions was contested, and the disallowance of a portion of the club expenses was upheld.

Regarding the contribution made to the Employees' Welfare Fund Trust, the Tribunal's decision to follow past judgments favoring the assessee was upheld, stating there was no diversion of funds. The second question raised by the appellant pertained to the disallowance of interest and other expenses under Section 14A of the IT Act. The Court's previous judgment clarified that Section 14A was applicable only from the assessment year 2007-2008, based on the Supreme Court's decision in Commissioner of Income Tax v. Essar Teleholdings Ltd. The Court found no substantial question of law remaining and allowed the appeal in part, directing the Department to pursue further steps for revised assessment and tax realization.