2016 (6) TMI 333 - AT - Income Tax

Disallowance under section 14A r.w Rule 8D - Held that - CIT(A) has not given any proper basis for working out the disallowance under section 14A r.w. Rule 8D; specifically when the disallowance is far in excess of the exempt dividend income earned in the year under consideration. In this view of the matter, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the AO to decide the issue afresh - Decided in favour of assessee by way of remand Disallowance of Corporate Club Membership Fee - Held that - The issue of allowability of payment of club membership fee by the company on behalf of its employee as a business expenditure has been settled in favour of the assessee by the decision of the Hon ble Apex Court in the case of CIT, Bangalore vs. United Glass Mfg. Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT . Thus we hold that the expenditure of ₹ 1,00,000/- incurred by the assessee on club membership fees for employees is admissible business expenditure and therefore direct the AO to delete the disallowance of ₹ 1,00,000/- made in this respect.- Decided in favour of assessee. Foreign Exchange Losses - Held that - The orders of the learned CIT(A) for assessment years 2009-10 and 2010-11 holding that foreign exchange losses for assessment years 2009- 10 and 2010-11 respectively were business losses and directing the AO to allow the same calls for no interference from us and we therefore confirm an uphold the same. See Commissioner of Income-Tax Versus Badridas Gauridu (P.) Ltd. 2003 (1) TMI 61 - BOMBAY High Court Disallowance under section 40(a)(ia) - non payment of TDS before the end of the financial year, by which time it was due to be paid - Held that - The Hon ble Calcutta High Court in the case of CIT vs. Virgin Creation (2011 (11) TMI 348 - CALCUTTA HIGH COURT ) has held that the amendment to section 40(a)(ia) of the Act by Finance Act, 2010 w.e.f. 01.04.2010 was retrospective and therefore TDS has to be paid on or before the due date specified for filing the return of income under section 139(1) of the Act; in this case 30.09.2009. In view of the fact that in the case on hand, the assessee has admittedly made the payments of TDS in the next financial year but before the due date for filing the return of income under section 139(1) of the Act the assessee s case is squarely covered in its favour by the aforesaid decision of the Hon ble Calcutta High Court. Thus we uphold the order of the learned CIT(A) directing the AO to delete the disallowance under section 40(a)(ia) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance of Corporate Club Membership Fee.
3. Foreign Exchange Losses.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

For A.Y. 2007-08:
The assessee earned exempt dividend income of ?46,655/- and claimed no expenditure was incurred. The AO invoked Section 14A r.w. Rule 8D and disallowed ?15,38,089/-, which was reduced to ?10,00,000/- by the CIT(A) on an adhoc basis. The Tribunal noted that a Coordinate Bench had already restored this issue to the AO for fresh examination, and thus, without rendering a finding on the merits, it restored the issue to the AO for fresh adjudication. Consequently, the assessee’s appeal was treated as allowed for statistical purposes.

For A.Y. 2009-10 and 2010-11:
The assessee earned exempt dividend income of ?41,126/- and ?40,003/- respectively. The AO disallowed ?18,86,195/- for A.Y. 2009-10 and ?17,38,275/- for A.Y. 2010-11. The CIT(A) restricted the disallowance to ?1,07,754/- for A.Y. 2009-10 and 0.5% of average investments for A.Y. 2010-11. The Tribunal, following the decisions of the Hon'ble Punjab & Haryana High Court in Empire Package P. Ltd. and the Hon'ble Delhi High Court in CIT vs. Deepak Mittal, held that the disallowance cannot exceed the exempt income and restored the matter to the AO for fresh examination. Consequently, the assessee’s CO for A.Y. 2009-10 and 2010-11 and Revenue’s ground for A.Y. 2010-11 were treated as allowed for statistical purposes.

2. Disallowance of Corporate Club Membership Fee for A.Y. 2009-10:
The assessee challenged the disallowance of ?1,00,000/- for Corporate Club Membership fees. The Tribunal, following the decision of the Hon'ble Apex Court in CIT, Bangalore vs. United Glass Mfg. Co. Ltd., held that the expenditure on club membership fees for employees is admissible as business expenditure. Consequently, the CO’s ground for A.Y. 2009-10 was allowed.

3. Foreign Exchange Losses:

For A.Y. 2009-10 and 2010-11:
The AO disallowed foreign exchange losses of ?16,72,85,011/- for A.Y. 2009-10 and ?6,53,06,057/- for A.Y. 2010-11 as speculative losses. The CIT(A) held these losses as business expenditure, not speculation losses. The Tribunal concurred with the CIT(A), noting that the assessee entered into forward contracts to hedge against foreign exchange losses on export sales proceeds, which were not speculative in nature. The Tribunal upheld the CIT(A)’s decision, confirming these losses as business losses. Consequently, Revenue’s grounds for A.Y. 2009-10 and 2010-11 were dismissed.

4. Disallowance under Section 40(a)(ia) of the Act for A.Y. 2009-10:
The AO disallowed ?10,04,650/- for non-payment of TDS before the end of the financial year. The CIT(A) deleted the disallowance, following the decision of the Hon'ble Calcutta High Court in CIT vs. Virgin Creations, which held that TDS paid before the due date of filing the return under Section 139(1) is allowable. The Tribunal upheld the CIT(A)’s decision, dismissing Revenue’s ground for A.Y. 2009-10.

Conclusion:
- Assessee’s appeal for A.Y. 2007-08 is allowed for statistical purposes.
- Revenue’s appeals for A.Y. 2009-10 and 2010-11 are partly allowed for statistical purposes.
- Assessee’s CO for A.Y. 2009-10 is partly allowed.
- Assessee’s CO for A.Y. 2010-11 is partly allowed for statistical purposes.

Order pronounced in the open court on 7th June, 2016.