2022 (8) TMI 793 - AT - Income Tax

Disallowance of club expenditure - being incorrect claim u/s 143(1)(a)(ii) u/s 143(l)(a)(iv) on the alleged contention that the same has been mentioned in clause 21(a) of Form 3CD but not disallowed u/s 37 of the Act in the return - Assessee claims that the same was reported in clause 21(a) of Form 3CD for disclosure purposes only and same is in accordance with the Guidance Note on Tax Audit under section 44AB of the Income tax Act 1961 issued by the Institute of Chartered Accountants of India - HELD THAT - CIT(A) has confirmed the disallowance with the very summary observations without going on the facts of the case. The copy of Form 3CD available at page no. 105 of the paper book shows that in clause 21(a) of the particulars of expenditures incurred, under head of club entrance fees and subscription has been shown with regard to Gymkhana Club at Rs. 14,407/- , Holiday Club Rs.3,263/- and Panchshila Club rs. 22,610/-, totaling to Rs. 42,280/-. The auditors have not shown these expenditure to be disallowable as required to be disclosed in Annexure available at page no. 73 of the paper book. When admittedly the assessment was completed with intimation u/s 143(1) of the Act then the disallowance based upon comments of auditor in audit report could not have been made as none of the specific circumstances mentioned u/s 143(1)(a)(ii) or 143(1)(a)(iv) of the Act are met out. If at all a disallowance was to be made an opportunity of hearing by issuance of notice u/s 142(1) was therefore required. Assessee infact had had claim on merits also on the basis of judgment of Hon ble Supreme Court of India in CIT v. United Glass Mfg. Co. Ltd . 2012 (9) TMI 914 - SUPREME COURT has considered the question of club expenses and held that the Club Membership Fees for subscription is allowable as a business expenditures and had it been given opportunity under law to explain same would have been allowed. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against disallowance of club expenditure and TDS credit disallowance.

Analysis:
1. Disallowance of Club Expenditure:
- The Assessee, a chartered accountancy firm, filed an appeal against the disallowance of club expenditure amounting to Rs. 42,280. The disallowance was based on the auditor's comments in the audit report.
- The Assessee argued that the club expenditure was reported in Form 3CD for disclosure purposes only, following the Guidance Note on Tax Audit under section 44AB of the Income Tax Act, 1961. The disclosure did not constitute an incorrect claim under sections 143(1)(a)(ii) or 143(1)(a)(iv) of the Act.
- The Assessee contended that the disallowance without proper opportunity violated principles of Natural Justice. Reference was made to various judgments supporting the Assessee's position.
- The CIT(A) confirmed the disallowance without detailed analysis. However, the Tribunal observed that the disallowance based on the auditor's comments without meeting specific circumstances under sections 143(1)(a)(ii) or 143(1)(a)(iv) was unjustified. The Tribunal referred to relevant case laws and set aside the disallowance, allowing the Assessee's appeal.

2. TDS Credit Disallowance:
- The Assessee raised a ground related to the non-allowance of TDS credit amounting to Rs. 2,57,252 by the Assessing Officer. The credit was duly reflected in Form 26AS.
- During the proceedings, the Assessee did not press this ground, indicating a concession on this issue.

In conclusion, the Tribunal allowed the appeal regarding the disallowance of club expenditure, citing lack of proper opportunity and unjustified disallowance based on the auditor's comments. The TDS credit disallowance issue was not pursued by the Assessee during the proceedings. The judgment highlighted the importance of providing a fair opportunity to the Assessee and ensuring that disallowances are made in accordance with the relevant provisions of the Income Tax Act.