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TMI Blog2020 (4) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... tial question of law is held in the negative and in favour of the Revenue. Disallowance u/s 14A - HELD THAT:- In CIT VS. ESSAR TELE HOLDINGS LTD. [ 2018 (2) TMI 115 - SUPREME COURT ] the Supreme Court has held that sub-Section (2) and (3) are prospective nature and have to be utilized for computing expenditure for the assessment year 2007-08 and onwards. In the absence of any mechanism to compute the disallowance as expenditure incurred for earning exempt income, the Tribunal grossly erred in setting aside the order of the CIT (Appeals). Therefore, the second substantial question of law is answered in the negative and in favour of the assessee. CIT (Appeals) without any evidence on record, treated the adhoc disallowance of ₹ 10,000/- out of the expenditure incurred for entertainment, business, meals, gifts fees for association etc. and in disallowing ₹ 5,000/- on estimation basis. The Supreme Court in the case of WALCHAND [ 1967 (3) TMI 2 - SUPREME COURT ] has held that the Tribunal has to record the satisfaction that the expenditure was laid out or expendid wholly and exclusively for the purpose of business of the assessee and there is no reason why the full amount sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner in deleting the adhoc disallowance of ₹ 10 Lakhs out of expenditure incurred for entertainment, business, meals, gifts fees for association etc. and disallowing ₹ 5,00,000/- on a estimation basis without any evidence of the fact that such expenses were in the nature of non-business expenditure? 4. Whether the Income Tax Appellate Tribunal erred in confirming the orders of the appellate authority as well as the assessing officer in reducing 90% of ₹ 3,05,11,720/- being income from services rendered and ₹ 21,77,493/- being sundry income from profits of the business while computing deduction under Section 80HHC? 5. Whether the Tribunal committed an error in law in not considering the alternate ground raised by the appellant that 90% of the service income and sundry income was required to be reduced from profits of business for the purposes of Section 80HHC, the same should be net expenditure incurred for earning such income? 2. In I.T.A.No.7/2011 I.T.A.No.8/2011, since the same questions of law viz., question of law Nos.4 and 5 only arise for consideration, and as all the appeals pertains to the same assessee for different assessment years, they were he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 29.08.2003 allowed the appeal partly insofar as it pertains to club membership fee, expenses allegedly incurred to earn exempt income and adhoc disallowance of ₹ 10 Lakhs relatable to expenditure for entertainment, business, meals, gifts fees for association etc. However, the Commissioner rejected the appeal to the extent of disallowance of EDP expenses and reduction of 90% of the income rendered and sundry income from profits of business for the purpose of computation of deduction under Section 80HHC. Accordingly, the appeal was partly allowed. Being aggrieved, the revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal by an order dated 30.08.2010; set aside the order passed by the appellate authority and allowed the appeal preferred by the revenue. In the aforesaid factual background, this appeal has been filed. 7. Learned counsel for the appellant submitted that the Tribunal grossly erred in treating the club membership fee of ₹ 11,29,520/- in the nature of capital expenditure. It is further submitted that the Tribunal ought to have appreciated that the order passed by the Tribunal dated 21.10.2011 in CIT ANOTHER VS. INFOSYS TECHNOLOGIES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of business profits. It is further submitted that the Tribunal ought to have appreciated that in earlier years as well as subsequent years, the appellate authority had held in favour of the assessee and the revenue had not preferred any appeal. 9. On the other hand, learned counsel for the revenue submitted that the order passed by the Tribunal is just and legal and does not call for any interference. It is further submitted that issue of estimation of expenses is a finding of fact and since, the appellant had not followed the criteria under Section 37(1) of the Act, therefore, the Tribunal had quantified the amount. It is further submitted that the decision rendered in the case of WALCHAND supra supports the case of the revenue and the assessee had not produced any material to show that business income has a direct nexus with the exports. 10. We have considered the submissions made on both the sides and have perused the record. The Assessing Officer disallowed club membership expenditure on the ground that it is a capital expenditure. However, the Commissioner of Income Tax (Appeals) by an order held that in earlier years, it has been held by the Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and exclusively for the purpose of business of the assessee and there is no reason why the full amount should not have been allowed. In the instant case, no such satisfaction has been recorded by the authorities. Therefore, the third substantial question of law is also answered in favour of the assessee. 12. The Commissioner of Income Tax (Appeals) as well as the Tribunal have reduced 90% of ₹ 3,05,11,720/- being income from services rendered and ₹ 21,77,493/- being sundry income from profits of business while computing deduction under Section 80HHC. It is pertinent to note that the service charges could not be deducted as profits of business means profits of business reduced by 90% of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. In COMMISSIONER OF INCOME TAX VS. PFIZER LTD. , it has been held that Explanation (baa) in terms does not refer to export turnover. Therefore, before a receipt is liable to be excluded to the extent of 90% it must be a receipt of a nature similar to brokerage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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