2023 (5) TMI 574 - AT - Income Tax

Expenditure incurred by the assessee towards Club subscription fees and Club services - adjustment made by the CPC u/s 143(1)(a) - Centralized Processing Centre (CPC) has treated that the alleged expenses are personal in nature as the auditor has indicated for the disallowance of such expenditure - HELD THAT - The details furnished by the auditor in the 3CD report about subscription and club services is a mere information and such type of expenditure may have some personal element but whether expenditure of any personal nature is included in such expenses can be examined only after verification of the bills and vouchers. Such observation of the auditor is similar to the observations made for the payment to the relatives under section 40A(2)(b) which cannot lead to disallowance of all expenses but only if the case of the assessee is scrutinized and such expenditure incurred for which payment has been made to relatives has to be examined by the ld. Assessing Officer as to whether such expenses are excessive or unreasonable having regard to the fair market value of the goods services or facilities, then such excess expenditure claimed by the assessee may be disallowed. Thus for the information regarding subscription and club services prima facie no adjustment was possible under the provisions of section 143(1)(a)(iv) of the Act and the CPC has exceeded its jurisdiction for making alleged disallowances. Going into the merits of the case as to whether of personal in nature was involved in the alleged amount of subscription and club services is not required to be dealt at this stage since the CPC has gone beyond the power provided in section 143(1)(a) of the Act for making the alleged disallowance. Decided in favour of assessee.

Summary

Issues involved:
The appeal concerns the disallowance of expenditure incurred by the assessee towards Club subscription fees and Club services, confirmed by the ld. CIT(Appeals) and made by the Centralized Processing Centre (CPC).

Details of Judgment:

Issue 1: Disallowance of Expenditure
The sole grievance raised by the assessee was the confirmation of the disallowance by the ld. CIT(Appeals) regarding the expenditure incurred towards Club subscription fees and Club services.

Arguments:
The assessee argued that the adjustment made by the CPC was not covered under the adjustments referred in section 143(1)(a) of the Act. On the other hand, the Departmental Representative contended that the alleged expenses were personal in nature and were indicated in the tax audit report.

Judgment:
The Tribunal examined the details of the expenses incurred by the assessee and noted that the Centralized Processing Centre (CPC) treated the expenses as personal based on the auditor's recommendation for disallowance. However, the Tribunal held that the details provided in the audit report were meant to assist the Assessing Officer in scrutiny proceedings and were not necessarily indicative of disallowances. The Tribunal emphasized that the observations made by the auditor were akin to those for payments to relatives under section 40A(2)(b) of the Act, which should only lead to disallowance if excessive or unreasonable. Therefore, the Tribunal concluded that the CPC had exceeded its jurisdiction in making the alleged disallowances and deleted the disallowance of Rs.4,47,990/-, allowing the grounds of appeal raised by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, pronouncing the order in open court on 13th April, 2023.