ACIT, C-6, Ludhiana V. Majestic Hotels Ltd., Ludhiana

ITA 171/CHANDI/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0688 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S KHERA
• Assessee Lawyers: JAGDEEP GOEL
• Keywords: Business expenditure; Earning of tax free income; Assessment record; Commercial expediency
• Section: 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B, CHANDIGARH , !'# $' % & , '( BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM ./ ITA NO.171/CHD/2018 / ASSESSMENT YEAR : 2012-13 THE A.C.I.T., CIRCLEL-6, LUDHIANA. M/S MAJESTIC HOTELS LTD., FEROZEPUR ROAD, LUDHIANA. ./PAN NO: AAACM9066F /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI JAGDEEP GOEL, CIT DR ! / REVENUE BY : SHRI R.S. KHERA, CA '# $ /DATE OF HEARING : 28.08.2018 %&'(# /DATE OF PRONOUNCEMENT: 26.11.2018 ') /ORDER PER ANNAPURNA GUPTA, AM : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA (IN SHORT CIT(A)) DATED 2.11. 2017 PASSED U/S 250 (6) OF THE INCOME TAX ACT, 1961 (IN SHORT REFERRED TO AS ACT). 2. GROUND NOS.1 AND 1.1 RAISED BY THE REVENUE READS AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.24,56,693/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES ON THE REASONING THAT NO EXEMPT INCOME WAS EARNED IN THE RELEVANT YEAR ? ITA NO.171/CHD/2018 A.Y.2012-13 2 1.1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.24,56,693/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT PARTICULARLY WHEN THE SIMILAR DISALLOWANCE HAD BEEN PARTLY CONFIRMED BY THE CIT(A) IN THE CASE OF M/S MALWA COTTON & SPINNING MILLS LTD. IN AYS 2010-11, 2011-12 AND 2012-13 ? 3. THE ISSUE RAISED IN THE ABOVE GROUND RELATES TO THE DELETION OF DISALLOWANCE OF EXPENSES MADE BY INVOKI NG PROVISIONS OF SECTION 14A OF THE ACT. 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSE SSEE HAD MADE INVESTMENT IN THE SHARES OF MACRO DAIRY VE NTURE (P) LTD. AMOUNTING TO RS.6,50,33,600/- AND IT WAS A LSO NOTICED THAT ASSESSEE HAD INCURRED INTEREST EXPENDI TURE OF RS.2,35,30,153/-. THE ASSESSEE WAS ASKED TO EXPLAIN WHY INTEREST EXPENDITURE RELATING TO INVESTMENT IN MACR O DAIRY VENTURE (P) LTD. (SUPRA) NOT BE DISALLOWED BY INVO KING THE PROVISIONS U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. IN RESPONSE TO THE SAME, THE ASSESSEE SUBMITTED ITS REPLY WHICH WAS CONSIDERED BUT NOT AC CEPTED BY THE A.O. NOT BEING SATISFIED WITH THE CORRECTNES S OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN MADE IN RELATION TO THE INCOME WHICH DID NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR THE IMPUGNED YEAR. THEREFO RE, DISALLOWANCE OF RS.24,56,693/- WAS CALCULATED AND A DDED TO THE TOTAL INCOME OF THE ASSESSEE U/S 14A READ WITH RULE 8D OF THE RULES. ITA NO.171/CHD/2018 A.Y.2012-13 3 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT( A) WHO DELETED THE DISALLOWANCE ON FINDING THAT NO DIVIDEN D/EXEMPT INCOME HAD BEEN EARNED DURING THE YEAR AND FOLLOWIN G THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT, FARIDABAD VS. LAKHANI MARKETING INC. (2014) 49 TAXMANN.COM 257, HOLDING CATEGORICALLY THAT UNLESS AND UNTIL THERE IS A RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS, SECTION 14A CANNOT BE INVOKED. TH E LD.CIT(A) ALSO NOTED THAT IDENTICAL PROPOSITION HAD BEEN LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA (P) LTD. (2015) 57 TAXMANN.COM 28, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY ( P) LTD. (2014) 272 CTR 262 (GUJ), THE HON'BLE ALLAHABAD HIG H COURT IN THE CASE OF SHIVAM MOTORS (P) TD. (2015) 272 CTR 277 (ALL), THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (2015) 378 ITR 33(DEL) AND THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. (2017) 392 ITR 633. 6. BEFORE US THE LD. DR RELIED UPON THE ORDER OF TH E A.O. AND STATED THAT THE CLAIM OF THE ASSESSEE THAT IT H AD INCURRED NO EXPENDITURE FOR THE PURPOSE OF MAKING T HE IMPUGNED INVESTMENT IN SHARES OF MACRO DAIRY VENTUR E (P) LTD. WAS UNACCEPTABLE AND FURTHER THAT AS PER CBDT CIRCULAR NO.5 OF 2014 IT HAS BEEN CLARIFIED THAT WHETHER THE RE IS EXEMPT INCOME OR NOT DURING THE YEAR, RULE 8D WILL BE APPLIED TO THE INVESTMENT FOR WORKING OUT DISALLOWA NCE U/S 14A OF THE ACT. ITA NO.171/CHD/2018 A.Y.2012-13 4 7. THE LD. COUNSEL FOR ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A), POINTING OUT THEREFRO M THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF LA KHANI MARKETING INC. (SUPRA) HAD CATEGORICALLY HELD THAT WHERE NO EXEMPT INCOME HAS BEEN EARNED NO DISALLOWANCE U/S 1 4A IS WARRANTED AND FURTHER DRAWING OUR ATTENTION TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF RED INGTON (INDIA) LTD. (SUPRA) WHICH HAD BEEN CONSIDERED BY T HE CIT(A) ALSO AT PARA 5.7 OF HER ORDER, POINTING OUT THAT TH E HON'BLE COURT IN THE SAID DECISION HAD EXPRESSED ITS INABIL ITY TO SUBSCRIBE TO THE VIEW EXPRESSED IN THE AFORESAID CI RCULAR OF CBDT. THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE HON'BLE MADRAS HIGH COURT HAD NOTED THAT THE PROVIS IONS OF SECTION 14A WERE INSERTED AS A RESPONSE TO THE JUDG MENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MAHARASHTRA SUGAR MILLS LTD. (1971) 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT (20 00) 242 ITR 450 IN TERMS OF WHICH EXPENDITURE INCURRED BY A N ASSESSEE CARRYING ON COMPOSITE BUSINESS GIVING RISE TO BOTH TAXABLE AS WELL AS NON-TAXABLE INCOME WAS ALLOWABLE IN ENTIRETY WITHOUT APPORTIONMENT. IT WAS THUS THAT SE CTION 14A OF THE ACT WAS INSERTED PROVIDING THAT NO DEDUCTION WOULD BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN REL ATION TO EARNING OF INCOME EXEMPT FROM TAXATION. THE HON'BLE MADRAS HIGH COURT HELD THAT THE PROVISIONS IS CLEARLY RELA TABLE TO THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR AN TICIPATED INCOME. THEREFORE, THE VIEW PROPOUNDED BY THE CBDT CIRCULAR THAT SECTION 14A WOULD BE ATTRACTED EVEN T O EXEMPT ITA NO.171/CHD/2018 A.Y.2012-13 5 INCOME INCLUDABLE IN TOTAL INCOME WAS NOT ACCEPTA BLE. OUR ATTENTION WAS DRAWN TO THE RELEVANT FINDINGS OF THE CIT(A) AT PARAS 4.7 AND 4.8 AS UNDER: 4.7 RECENTLY THE HON'BLE HIGH COURT OF MADRAS IN TH E CASE OF REDINGTON (INDIA) LTD. [2017] 392 ITR 633 EXPRESSED ITS INABILITY TO SUBSCRIBE TO THE VIEW EXPRESSED VIDE TH E AFORESAID CIRCULAR OF THE CBDT. ELABORATING ON THE DISAPPROVAL OF THE CIRCULAR, IT WAS STATED THAT THE PROVISIONS OF SECT ION 14A WERE INSERTED AS A RESPONSE TO THE JUDGMENTS OF THE SUPR EME COURT IN CIT VS. MAHARASHTRA SUGAR MILLS LTD. [1971] 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT [200 0] 242 ITR 450 IN TERMS OF WHICH, EXPENDITURE INCURRED BY A N ASSESSEE CARRYING ON A COMPOSITE BUSINESS GIVING RI SE TO BOTH TAXABLE AS WELL AS NON-TAXABLE INCOME, WAS ALLOWABLE I N ENTIRETY WITHOUT APPORTIONMENT. IT WAS, THUS, THAT SECTI ON 14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHALL BE A LLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF INCOME EXEMPT FROM TAXATION. AS OBSERVED BY THE SUP REME COURT IN THE JUDGMENT IN THE CASE OF CIT VS. WALFORT SHARE & STOCKBROKERS (P) LTD.[2010] 326 ITR 1: THE MANDATE OF S. 14A IS CLEAR. IT DESIRES TO C URB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAIN ST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TAX INCENTIV E BY WAY OF AN EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO E XEMPT INCOME.' 4.8 IN VIEW OF THE AFORESAID, THE HON'BLE MADRAS H IGH COURT HELD THAT THE PROVISION IS CLEARLY RELATABLE T O THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED IN COME. THE VIEW PROPOUNDED BY THE CBDT CIRCULAR TO THE EFFECT T HAT SECTION 14A WOULD BE ATTRACTED EVEN TO EXEMPT INCOME 'INCLU DABLE' IN TOTAL INCOME WOULD ENTAIL THE ASSESSMENT OF NOTIONA L INCOME, ASSUMED TO BE EXEMPT IN THE FUTURE, IN THE PRESENT ASSESSMENT YEAR, THE COMPUTATION OF TOTAL INCOME IN TERMS OF S ECTION 5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SANCTION IN LAW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTIC ULARLY IN THE CONTEXT OF EFFECTING A DISALLOWANCE IN CONNECTI ON THEREWITH. THE EXEMPTION EXTENDED TO DIVIDEND INCOME, IT WAS H ELD, WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WA S EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INC URRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNO T BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME [MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. 225IT R 802,(SC)]. THE HON'BLE COURT, THEREAFTER, HELD THAT LANGUAGE OF SECTION 14A SHOULD BE READ IN THAT CONTEXT AND SUCH T HAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT AND ITA NO.171/CHD/2018 A.Y.2012-13 6 CONCLUDED THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D CANNOT BE MADE APPLICABLE IN A VACUUM I.E. IN THE ABSENCE OF EXEMPT INCOME. 8. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT F IND ANY MERIT IN THIS GROUND RAISED BY THE REVENUE. THE FAC T THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR FROM THE IMPUGNED INVESTMENTS MADE IN THE SHARES OF MACRO DAIRY VENTURE (P) LTD. IS NOT DISPUTED. MOREOVER, A S POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE IT HAS BEEN CAT EGORICALLY HELD BY VARIOUS HIGH COURTS, AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE ABOVE, THAT NO DISALLOWANCE U/ S 14A OF THE ACT IS WARRANTED WHEN NO EXEMPT INCOME IS EARNE D. MORE IMPORTANTLY, EVEN THE HON'BLE JURISDICTIONAL H IGH COURT HAS HELD SO IN THE CASE OF LAKHANI MARKETING INC. (SUPRA). THE LD. DR HAS NOT BROUGHT TO OUR NOTICE A NY CONTRARY DECISION EITHER OF THE HON'BLE JURISDICTIO NAL HIGH COURT OR OF THE HON'BLE APEX COURT IN THIS REGARD. FURTHER THE RELIANCE PLACED BY THE LD. DR ON THE CBDT CIRCU LAR HAS BEEN DEALT WITH BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. (SUPRA) CATEGORICALL Y EXPRESSING ITS INABILITY TO SUBSCRIBE TO THE VIEW L AID DOWN IN THE SAID CIRCULAR, BY POINTING OUT THAT THE PROVISI ONS OF SECTION 14A OF THE ACT WERE RELATABLE TO THE EARNIN G OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME SINCE THEY WERE BROUGHT ON THE STATUTE TO NEGATE/NULLIFY THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAHARASHTR A SUGAR MILLS LTD. (SUPRA) AND IN RAJASTHAN STATE WAREHOUSI NG CORPORATION (SUPRA) WHEREIN IT WAS HELD THAT THE EX PENSES WERE TO BE ALLOWED IN ENTIRETY WITHOUT APPORTIONMEN T ITA NO.171/CHD/2018 A.Y.2012-13 7 BETWEEN TAXABLE AND NON-TAXABLE INCOME. IN VIEW OF THE SAME, WE FIND NO MERIT IN THE PLEADINGS OF THE LD. DR AND, THEREFORE, REJECT THE SAME. GROUND NOS.1 AND 1.1 R AISED BY THE REVENUE ARE, THEREFORE, DISMISSED. 9. GROUND NOS.2, 2.1 AND 2.2 RAISED BY THE REVENUE RELATE TO THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES M ADE UNDER SECTION 36(1)(III) OF THE ACT AND READ AS UNDER: 2. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.1,33,11,998/- MADE BY THE ASSESSING OFFICER UNDER SECTION 36(L)(III) OF THE INCOME-TAX ACT PARTICULARLY WHEN SHE HAS FOLLOWED THE DEC ISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 ITR 1 IN MANY CASES WHILE CONFIRMING THE DISALLOWANCE OF INTEREST ? 2.1 WHETHER ON THE FACTS & CIRCUMSTANCES OF THE C ASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.1,33,11,998/- MADE BY THE ASSESSING OFFICER UNDER SECTION 36(L)(III) OF THE INCOME-TAX ACT PARTICULARLY WHEN THE SAID ADVANCES GIVEN TO M/S MACRO DAIRY VENTURE PVT. LTD. WERE MADE OUT OF COMPOSITE FUNDS INCLUDING THE BORROWED FUNDS ? 2.2 WHETHER ON THE FACTS & CIRCUMSTANCES OF THE C ASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.1,33,11,998/- MADE BY THE ASSESSING OFFICER UNDER SECTION 36(L)(III) OF THE INCOME-TAX ACT PARTICULARLY WHEN THE ASSESSEE FAILED TO DEMONSTRAT E THE COMMERCIAL EXPEDIENCY OF ADVANCES WERE GIVEN TO M/S MACRO DAIRY VENTURE PVT. LTD. OUT OF COMPOSITE FUNDS INCLUDING THE BORROWED FUNDS DELETING THE DISALLOWANCE OF RS.1,33,11,998/- MADE BY THE ASSESSING OFFICER UNDER SECTION 36(L)(III) OF THE INCOME-TAX ACT PARTICULARLY WHEN THE SAID ADVANCES GIVEN TO M/S MACRO DAIRY VENTURE PVT. LTD. WERE MADE OUT OF COMPOSITE FUNDS INCLUDING THE BORROWED FUND. 10. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCES OF ITA NO.171/CHD/2018 A.Y.2012-13 8 RS.10,23,99,988/- TO M/S MACRO DAIRY VENTURES PVT. LTD. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE PROPORTI ONATE INTEREST ON THE ABOVE SAID SUM SHOULD NOT BE DISALL OWED. DUE REPLY WAS FILED BY THE ASSESSEE, WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER FOR THE REASON THAT THE AS SESSEE HAD MIXED FUNDS, IN THE FACE OF WHICH AS PER THE ASSESS ING OFFICER, PROVISIONS OF SECTION 36(1)(III) OF THE AC T WERE APPLICABLE AND FURTHER THAT NOTHING HAD BEEN BROUGH T ON RECORD TO SHOW COMMERCIAL EXPEDIENCY FOR MAKING THE SAID LOANS. THE ASSESSING OFFICER FURTHER RELIED UPON TH E JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 AND DISA LLOWED THE INTEREST RELATING TO THE IMPUGNED ADVANCES @ 13 %, WHICH WORKED OUT TO RS.1,33,11,998/-. 11. BEFORE THE LD.CIT (APPEALS) THE ASSESSEE REITER ATED ITS CONTENTIONS THAT THE ADVANCES HAD BEEN MADE OUT OF ITS OWN FUNDS AND FURTHER DEMONSTRATED THE AVAILABILITY OF THE SAID FUNDS ALSO. THE ASSESSEE ALSO CONTENDED THAT THE AD VANCES HAD BEEN MADE OUT OF BUSINESS EXPEDIENCY SINCE THE ASSESSEE WAS HOLDING SHARES IN M/S MACRO DAIRY VENT URES PVT. LTD. AS BUSINESS INVESTMENT AND SINCE M/S MACR O DAIRY VENTURES PVT. LTD. WAS INCURRING HUGE LOSSES THE SA ID ADVANCES WERE MADE TO IT BY THE ASSESSEE. THE ASSES SEE FURTHER CONTENDED THAT FOR THE PRECEDING YEAR THE I .T.A.T. HAD DELETED IDENTICAL DISALLOWANCE OF INTEREST UNDE R SECTION 36(1)(III) OF THE ACT ON FINDING THE AVAILABILITY O F SUFFICIENT OWN FUNDS WITH THE ASSESSEE. THE LD.CIT (APPEALS) F INDING ITA NO.171/CHD/2018 A.Y.2012-13 9 MERIT IN THE CONTENTION MADE BY THE ASSESSEE DELETE D THE DISALLOWANCE SO MADE HOLDING THAT THE ADVANCES HAD BEEN MADE OUT OF COMMERCIAL EXPEDIENCY AND NO BORROWED F UNDS HAD BEEN USED FOR GIVING THESE ADVANCES. THE LD.CIT (APPEALS) FURTHER HELD THAT THE CLAIM OF THE ASSESS EE COULD NOT BE DENIED MERELY ON THE ASSUMPTION THAT IT HAD DIVERTED ITS BORROWED FUNDS FOR NON BUSINESS PURPOSE. THE RE LEVANT FINDINGS OF THE CIT (APPEALS) AT PARA 5.8 OF HER OR DER ARE REPRODUCED AS UNDER: 5.8 IN MY CONSIDERED OPINION, THERE IS CONSIDERABLE FORCE IN THE CLAIM OF APPELLANT THAT, THE APPELLANT COMPANY SUBMITTED THAT ADVANCES HAD BEEN GIVEN OUT OF COMMERCIAL EXPEDIENCY AND NO SPECIFIC BORROWING HAD BEEN MADE FOR GIVING THESE ADVANCES. THE CLAIM OF THE AP PELLANT CANNOT DENY JUST FOR THE ASSUMPTION THAT THE APPELL ANT HAD DIVERTED HIS BORROWED FUNDS FOR NON-BUSINESS PURPOSE. THE ID. AO HAS NOT ADDUCED ANY EVIDENCE ON THE CONTRARY TO NEGATE THE CLAIM OF APPELLANT. IN VIEW OF THE ABOVE, I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE ID. A .R. ACCORDINGLY, DISALLOWANCE OF RS.1,33,11,998/- U/S 36(1)(III ) OF THE ACT ON ACCOUNT OF CAPITAL ADVANCE IS ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 12. BEFORE US THE LD. D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER CONTENDING THAT UNDENIABLY THE FU NDS AVAILABLE WITH THE ASSESSEE WERE MIXED FUNDS AND, T HEREFORE, THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COU RT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA) WAS SQUARE LY APPLICABLE IN THE PRESENT CASE, WHICH THE ASSESSING OFFICER HAD RIGHTLY APPLIED AND MADE THE IMPUGNED DISALLOWA NCE OF INTEREST EXPENSES. 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT (A). FURTHER, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FACTUAL ITA NO.171/CHD/2018 A.Y.2012-13 10 SUBMISSIONS MADE BEFORE THE CIT (A) DEMONSTRATING THE AVAILABILITY OF OWN FUNDS FOR THE PURPOSE OF MAKING THE IMPUGNED BUSINESS WHICH WERE TAKEN NOTE OF THE CIT (A) ALSO AT PARA 5.4 OF HER ORDER AS UNDER 5.4 THE APPELLANT HAS VEHEMENTLY CONTENDED THAT TH E APPELLANT HAS APPLIED ITS OWN INTEREST FREE FUNDS IN ADVANCING LOAN TO M/S MACRO DAIRY VENTURES PVT . THE APPELLANT HAS FILED DETAILED SUBMISSION TO EXPLAIN ITS AVAILABILITY OF INTEREST FREE FUNDS TO EVIDENCE THE AVAILABILITY OF NON-INTEREST BEARING FUNDS WITH THE APPELLANT. I HAVE CAREFULLY CONSIDERED ASSESSES SUBMISSION IT IS SEEN THA T FROM THE FY 2007-08 TO 2011-12, THE APPELLANT HAS IN ITS POSSESSION SUFFICIENT INTEREST FREE FUNDS , TO THE T UNE OF RS.1349.73 LACS FOR FINANCIAL YEAR 2007-08, RS.1498. 08 LACS FOR FINANCIAL YEAR 2008-09, RS. 1689.64 LACS FO R FINANCIAL YEAR 2009-2010, RS.2111.67 LACS FOR FY 201 0-11 AND RS. 2329.74 LACS FOR THE FY 2011-12 RELEVANT TO THE ASSESSMENT YEAR 2012-13 UNDER APPEAL. THE AMOUNT ADVANCED BY THE APPELLANT TO M/S. MACRO DAIRY VENTUR ES PVT. LTD. IS JUST RS. 1023.99 LACS ONLY, WHICH IS JUST 4 3.95 % OF THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT AS ON 31.03.2012.THEREFORE IT IS EVIDENT THAT, THE PRESUM PTION OF AO , THAT THE BORROWED FUNDS WERE USED FOR MAKING TH E PAYMENT TO M/S MACRO DAIRY VENTURES PVT. LTD. BY THE APPELLANT COMPANY IS WITHOUT BASIS AND THE INVOCATIO N OF PROVISIONS OF SECTION 36(1)(III)OF INCOME TAX ACT, 1961 IS NOT JUSTIFIED. I AM SATISFIED WITH THE CONTENTION OF APPE LLANT THAT , NO BORROWED FUNDS WERE USED FOR MAKING ADVANCES TO M/S MACRO DAIRY VENTURES PVT. LTD. SINCE THE ASSESSEE CO MPANY HAS DEMONSTRATED EFFECTIVELY THAT SUFFICIENT INTERES T FREE FUNDS WERE LYING WITH IT AT ITS DISCRETION AND FURTHE R EXPLAINED HER THAT A PART OF THE AMOUNT ADVANCED WA S ALREADY ADVANCED DURING THE FY 2010-11 RELEVANT TO TH E AY 2011-12 AND THE AMOUNT LEFT WITH M/S MACRO DAIRY VEN TURE PVT. LTD AFTER ALLOTMENT OF SHARES WAS GIVEN AS ADVA NCE TO IT ALONG WITH FURTHER FUNDS. THIS FACT IS EVIDENT FROM TH E AUDITED BALANCE SHEET OF THE COMPANY AS AT 31.03.20 12. THE ASSESSEE HAS ALSO REITERATED THAT , THE PAYMENT S MADE TO M/S. MACRO DAIRY VENTURES PVT. LTD. HAVE BEEN MA DE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, SINCE THE A SSESSEE IS HOLDING EQUITY SHARES IN THIS COMPANY AS BUSINESS INVESTMENT AND THEREFORE , THE PAYMENTS MADE TO THI S COMPANY WERE NOT A DIVERSION IN THE MATTER OF INVES TMENTS OF SURPLUS FUNDS AND THE PROVISIONS OF SECTION 36(1) (III) OF IT. ACT, 1961 ARC NOT APPLICABLE. 14. THE LD. COUNSEL FOR THE ASSESSEE FURTHER DREW O UR AT TO THE FINDINGS OF THE CIT (A) THAT THE ASSESSING OFFI CER HAD ITA NO.171/CHD/2018 A.Y.2012-13 11 FAILED TO PROVE THAT HE INTEREST BEARING FUNDS HAD BEEN DIVERTED FOR MAKING THE IMPUGNED ADVANCES AS UNDER: IT IS NOTICED THAT THE A.O. HAD MISERABLY FAILED TO DIS CHARGE HIS ONUS AND FAILED TO PROVE THAT PART OF INTEREST BEA RING FUND WAS DIVERTED AS NON INTEREST BEARING FUNDS. THUS, AD VANCES MADE ARE MUCH BELOW THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT IN THE FORM OF CAPITAL AND RESERVES A ND SURPLUS. IT IS HELD BY HON'BLE MUMBAI HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 THAT IF FUNDS ARE AVAILABLE, BOTH INTEREST FREE AND INTEREST BEARING , THEN A PRE ASSUMPTION ARISE THAT INVESTMENTS ARE MADE OUT O F INTEREST BEARING FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET INVESTMENT, NO DISALLOWANCE OF INTEREST IS WARRANTED . RESPECTFULLY, FOLLOWING THE RATIO OF HON'BLE MUMBAI HIGH COURT DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD. I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE LD A.R 15. THEREAFTER THE LD. COUNSEL FOR THE ASSESSEE POI NTED OUT FROM THE SUBMISSIONS MADE BEFORE LD.CIT (A) THAT ID ENTICAL DISALLOWANCE MADE IN THE PRECEDING YEAR I.E. ASSESS MENT YEAR 2010-11, HAD BEEN DELETED BY THE I.T.A.T. ON F INDING THE AVAILABILITY OF SUFFICIENT OWN FUNDS FOR MAKING THE IMPUGNED ADVANCES AS UNDER: E) IT IS IMPORTANT TO BRING TO YOUR KIND NOTICE THAT THE HON'BLE ITAT DELHI BENCH E NEW DELHI VIDE ITS ORDER IN ITA NO. 1689/DEL/2013/AY 2008-09 AND ITA NO.6260/DEL/2013/AY 2010-11 IN CASES OF DC/7 CIRCLE-6(1) NEW DELHI VS. M/S. MAJESTIC HOTELS LTD. AND M/S. MAJESTIC HOTELS LTD. VS. A DDL. CIT RANGE-6 NEW DELHI (COPY ENCLOSED) HAS CATEGORICALLY GIVEN ITS FINDING THAT THE APPELLANT ASSESSEE HAVING OWN ADEQUATE SUFFICIENT INTEREST FREE FUNDS AT ITS DISPOSAL AND H AS DECIDED IN FAVOR OF THE APPELLANT AND HAS DELETED THE ADDITION OF INTEREST DISALLOWANCE AMOUNTING TO RS.24,05,433/-FOR THE ASSESSM ENT YEAR 2008-2009 AND RS.29,63,872/- FOR THE ASSESSMEN T YEAR 2010-2011 MADE BY THE LD. PREDECESSOR ASSESSING OFF ICERS OF THE APPELLANT. 16. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, ST ATED THAT THE LD.CIT (A) HAD RIGHTLY DELETED THE DISALLOWANCE OF INTEREST MADE, ON ACCOUNT OF AVAILABILITY OF SUFFIC IENT OWN FUNDS HAVING BEEN DEMONSTRATED BY THE ASSESSEE FOR MAKING ITA NO.171/CHD/2018 A.Y.2012-13 12 THE IMPUGNED ADVANCES. THE LD. COUNSEL FOR THE ASSE SSEE FURTHER POINTED OUT THAT THE COMMERCIAL EXPEDIENCY FOR MAKING THE IMPUGNED ADVANCES HAD BEEN DEMONSTRATED TO THE CIT (A) BY POINTING OUT THAT THE INVESTMENT IN M/S MACRO DAIRY VENTURES PVT. LTD. WAS A BUSINESS INVESTMENT AND SINCE M/S MACRO DAIRY VENTURES PVT. LTD. WAS INCURR ING LOSSES THE IMPUGNED ADVANCE WAS MADE TO PROVIDE FIN ANCIAL STABILITY TO IT. OUR ATTENTION WAS DRAWN TO THE REL EVANT SUBMISSIONS MADE IN THIS REGARD AS REPRODUCED IN TH E ORDER OF THE CIT (A) ALSO AS UNDER: IT IS FURTHER POINTED OUT THAT THE PAYMENTS MADE T O M/S MACRO DAIRY VENTURES PVT. LTD. AS MENTIONED ABOVE HAVE BE EN MADE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, SINCE THE ASSESSEE IS HOLDING EQUITY SHARES IN THE COMPANY AS BUS/NESS INVESTMENT AND THEREFORE THE ASSESSEE DARIFIES THAT THE PAYMENTS MADE TO THIS COMPANY WERE NOT A DIVERSION IN THE MATTER OF INVESTMENTS OF SURPLUS FUNDS AND THE PROV ISIONS OF SECTION 36(1)(III) OF IT. ACT, 1961 ARE NOT ATTRACTE D EVEN TO THE INVESTMENT. IT IS FURTHER CLARIFIED THAT THE TRANSFER OF FUNDS T O THE COMPANY WAS MADE BY THE ASSESSEE KEEPING IN VIEW THE COMMER CIAL EXPEDIENCY AND NOT WITH A VIEW OF EARNING PROFITS ON THIS AMOUNT, WHICH IS VERY MUCH A PREROGATIVE OF A PRUDEN T ASSESSEE THOUGH M/S. MACRO DAIRY VENTURES PVT. LTD. IS A SISTER CONCERN OF THE ASSESSEE. REGARDING THE AMOUNT ADVANCED TO M/S. MACRO DAIRY V ENTURES PVT. LTD. IT IS FURTHER BROUGHT TO YOUR KIND NOTICE THAT THE COMPANY AT THE MOMENT /S INCURRING HEAVY LOSSES AND IT IS A SISTER CONCERN OF THE ASSESSEE, THE REFERENCE IN TH IS REGARD MAY KINDLY BE MADE TO THE INCOME TAX RECORDS OF THE COMPANY, THE CASE OF WHICH IS UNDER SCRUTINY ASSESSMENT BEFO RE YOUR GOOD SELF FOR THE A.Y.2012-13 AND IN VIEW OF HUGE LOSS ES, THE INTEREST ON THIS AMOUNT WAS NOT CHARGED BY THE ASSESSE E.' 17. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, ST ATED THAT IN THE LIGHT OF ABOVE FACTS THE CIT (A) HAD RIGHTLY HELD THAT EVEN THE COMMERCIAL EXPEDIENCY FOR MAKING ADVANCES HAD BEEN ESTABLISHED BY THE ASSESSEE AND HAD, THEREFORE , RIGHTLY ITA NO.171/CHD/2018 A.Y.2012-13 13 DELETED THE DISALLOWANCE MADE UNDER SECTION 36(1)(I II) OF THE ACT. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LD. D.R. THE CONTENTION AND T HE BASIS OF THE LD. D.R. FOR SUPPORTING THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT IN THE PRESENT CASE, WE FIND, HAS BEEN DULY CONSIDERED AND DEALT WITH BY TH E LD.CIT (A) WHILE DELETING THE SAME. THE ONLY REASON FOR MA KING THE DISALLOWANCE, WE FIND, IS THE AVAILABILITY OF MIXED FUNDS WITH THE ASSESSEE, TO WHICH FACT THE DECISION OF THE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK I NDUSTRIES LTD. (SUPRA) HAS BEEN APPLIED AND DISALLOWANCE OF I NTEREST MADE BY THE AO. THIS CONTENTION, WE FIND HAS BEEN D ULY ADDRESSED BY THE LD. COUNSEL FOR THE ASSESSEE BY RE CORDING A FINDING OF FACT THAT SUFFICIENT OWN FUNDS WERE AVAI LABLE WITH THE ASSESSEE IN THE PRECEDING YEARS WHEN PART OF TH E ADVANCES WAS MADE AND EVEN IN THE IMPUGNED YEAR WHE N THE REMAINING ADVANCE WAS MADE. THE FACTUAL FINDING OF THE LD.CIT (A) HAVE NOT BEEN CONTROVERTED BY THE REVENU E. FURTHER THE LD.CIT (A) HAS RIGHTLY FOLLOWED THE DEC ISION OF THE HON'BLE MUMBAI COURT IN THE CASE OF RELIANCE UT ILITIES & POWER LIMITED, 313 ITR 340 TO HOLD THAT WHERE SUFFI CIENT OWN FUNDS ARE AVAILABLE NO DISALLOWANCE UNDER SECTI ON 36(1)(III) OF THE ACT IS WARRANTED WHICH PROPOSITIO N WE FIND HAS BEEN REAFFIRMED BY THE HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT , ITA NO.171/CHD/2018 A.Y.2012-13 14 JALANDHAR, 381 ITR 107. FURTHER EVEN THE I.T.A.T. I N THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 201 0-11 HAD DELETED THE DISALLOWANCE OF INTEREST MADE ON ACCOUN T OF ADVANCES GIVEN ON FINDING THE AVAILABILITY OF SUFFI CIENT OWN FUNDS WITH THE ASSESSEE. EVEN OTHERWISE, WE FIND TH AT THE ASSESSEE HAD DEMONSTRATED THE COMMERCIAL EXPEDIENCY ALSO FOR MAKING THE IMPUGNED ADVANCES. THE CONTENTION OF THE ASSESSEE WAS THAT THE INVESTMENT MADE IN M/S MACRO DAIRY VENTURE PVT. LTD. WAS A BUSINESS INVESTMENT AND SIN CE M/S MACRO DAIRY VENTURE PVT. LTD. WAS INCURRING HUGE LO SSES THE SAID ADVANCES WERE REQUIRED TO BE MADE TO IT TO TID E OVER ITS FINANCIAL DIFFICULTIES. THESE FACTS HAVE NOT BEEN C ONTROVERTED BY THE REVENUE. THEREFORE, WHEN THE ASSESSEE HAD MA DE BUSINESS INVESTMENT IN M/S MACRO DAIRY VENTURE PVT. LTD. AND THE SAID COMPANY INCURRED LOSSES, THE ADVANCES MADE BY THE ASSESSEE TO ENABLE M/S MACRO DAIRY VENTURE PVT. LTD. TO TIDE OVER ITS FINANCIAL DIFFICULTIES CAN SAFELY BE SAID TO BE COMMERCIAL ADVANCES SINCE IT IS DIRECTLY LINKED TO SAFEGUARDING THE BUSINESS INVESTMENT MADE BY THE AS SESSEE IN THE SAID COMPANY. FINDING OF THE CIT (A), THEREF ORE, THAT EVEN THE COMMERCIAL EXPEDIENCY OF THE SAID ADVANCE HAD BEEN ESTABLISHED BY THE ASSESSEE IS, WE HOLD CORREC T. IN THE LIGHT OF THE ABOVE WE CONCUR WITH THE LD.CIT (A) TH AT THE COMMERCIAL EXPEDIENCY OF THE ADVANCES HAVING BEEN DEMONSTRATED AND ALSO THE AVAILABILITY OF SUFFICIEN T OWN FUNDS FOR MAKING THE IMPUGNED ADVANCES, THERE WAS N O REASON OR OCCASION TO WARRANT ANY DISALLOWANCE OF I NTEREST UNDER SECTION 36(1)(III) OF THE ACT. THE ORDER OF LD.CIT (A) ON ITA NO.171/CHD/2018 A.Y.2012-13 15 THIS ACCOUNT, IN DELETING THE DISALLOWANCE OF INTER EST AMOUNTING TO RS.1,33,11,998/- IS, THEREFORE, UPHELD . GROUND NOS.2, 2.1 AND 2.2 RAISED BY THE REVENUE ARE DISMIS SED. 19. GROUND NOS.3 AND 3.1 RAISED BY THE REVENUE READ S AS UNDER: 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.1,00,000/- MADE BY THE ASSESSING OFFICER OUT OF CLUB EXPENSES PARTICULARLY WHEN THE ASSESSEE FAILED TO DEMONSTRATE THE COMMERCIAL EXPEDIENCY OF SUCH EXPENDITURE WHEN IT RUNS A VERY HIGH STANDARD HOTEL AT ITS PLACE OF BUSINESS ? 3.1 WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.1,00,000/- MADE BY THE ASSESSING OFFICER OUT OF CLUB EXPENSES PARTICULARLY WHEN NO MATERIAL WAS BROUGHT ON THE APPELLATE/ASSESSMENT RECORDS TO DEMONSTRATE THE VERACITY OF SUCH EXPENDITURE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES ? 20. IN THE AFORESAID GROUNDS THE REVENUE HAS CHALLE NGED THE DELETION BY THE CIT(A) OF DISALLOWANCE OF CLUB EXPENSES CLAIMED BY THE ASSESSEE. 21. THE BRIEF FACTS RELEVANT TO THE SAME ARE THAT T HE A.O. HAD DISALLOWED A SUM OF RS.1 LAC CLAIMED BY THE ASS ESSEE ON ACCOUNT OF CLUB MEMBERSHIP OF SUTLEJ CLUB HOLDING T HAT NO BUSINESS ACTIVITY EMERGED FROM THE SAID EXPENSES. T HE LD.CIT(A) DELETED THE SAID DISALLOWANCE ON FINDING THAT THE MEMBERSHIP WAS TAKEN IN THE NAME OF SENIOR EXECUTIV ES OF THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINES S, AS THE CLUB WAS NOT OFFERING CORPORATE MEMBERSHIP IN THE N AME OF THE COMPANY TO WHICH EFFECT A CERTIFICATE HAD ALSO BEEN FILED BY THE ASSESSEE FROM THE CLUB. THE LD.CIT(A), THERE FORE, HELD ITA NO.171/CHD/2018 A.Y.2012-13 16 THAT THE MEMBERSHIP OF THE CLUB HAD BEEN TAKEN FOR BUSINESS PURPOSE. THE LD.CIT(A) FURTHER NOTED THAT IDENTICAL DISALLOWANCE MADE IN THE CASE OF ASSESSEE IN ASSESS MENT YEAR 2010-11 HAD BEEN DELETED BY THE I.T.A.T. IN IT S ORDER IN ITA NO.6260/DEL/2013. 22. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE A.O., WHILE THE LD. COUNSEL FOR ASSESSEE RELIED UPON THE ORDER OF THE CIT(A). THE LD. COUNSEL FOR ASSESSEE FURTHER DR EW OUR ATTENTION TO THE SUBMISSIONS MADE BEFORE THE CIT(A) ON PAYMENT MADE TO SUTLEJ CLUB BEFORE THE CIT(A) DRAWI NG OUR ATTENTION TO THE SAME AS REPRODUCED AT PAGE 20 OF T HE ORDER WHICH IS REPRODUCED AS UNDER: B) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VID E ITS LETTER DATED 17/03/2015(COPY ENCLOSED), THE ASSESSEE HAS MADE FOLLOWING SUBMISSIONS ON THE ISSUE: 'REGARDING THE PAYMENT OF SATLUJ CLUB AMOUNTING TO RS. 1,00,000/-, THE ASSESSEE RESPECTFULLY SUBMITS THAT THE PAYMENT FOR MEMBERSHIP OF THE CLUB WAS SUBSCRIBED T O IN THE FY 2005-2006 FOR SENIOR EXECUTIVE OF THE COMPANY. TH E EXECUTIVES ENTITLED INCLUDED: A) GENERAL MANAGEMENT OPERATIONS. B) GENERAL MANAGER FINANCE C) FINANCE CONTROLLER D) FOOD & BEVERAGE CONTROLLER E) EXECUTIVE CHEF F) EXECUTIVE HOUSE KEEPER G) FRONT OFFICE MANAGER H) CHIEF EXECUTIVE OFFICER SUTLEJ CLUB IS THE PROMINENT CLUB IN THE CITY, AKI N TO DELHI GYMKHANA CLUB OR CHELMSFORD CLUB IN NEW DELHI. ALMOST ALL THE LEADING CITIZENS OF LUDHIANA ARE MEMBER S. THE REASON FOR OBTAINING THE MEMBERSHIP WAS THAT TH E SENIOR EXECUTIVES WOULD BE INTERACTING WITH PATRONS, PROMINENT BUSINESS MEN, SENIOR EXECUTIVES IN PUBLIC AND PRIVATE SECTOR IN MORE INFORMAL ENVIRONS AS AGAINST THE FORMAL HOTEL SETTING. INFORMAL EXCHANGE OF VIEWS WITH ITA NO.171/CHD/2018 A.Y.2012-13 17 PEOPLE WHO MATTER ARE CONSIDERED GOOD FOR GOODWILL AN D BUSINESS RELATIONS AS ALSO FOR THE PATTERNS. THUS, THE EXPENDITURE OF RS.1,00,000/- WAS MADE FOR IMPROVING THE BUSINESS RELATIONS AND TO INCREASE THE BUSINESS OF THE HOTEL TO FIGHT OUT THE CUT THROAT COMPETITION I N THE MARKET CONDITIONS OF LUDHIANA WHERE A NUMBER OF STA R RATED HOTELS HAVE COME UP IN THE RECENT PAST. IT IS THEREFORE, VERY HUMBLY SUBMITTED THAT NO ADVERSE INFERENCE IN THE MATTER MAY KINDLY BE MADE.' IT WAS POINTED OUT THEREFROM THAT THE MEMBERSHIP WA S SUBSCRIBED FOR FINANCIAL YEAR 2005-06 FOR SENIOR EX ECUTIVES OF THE COMPANY WHICH INCLUDED A NUMBER OF OFFICERS AS LISTED ABOVE AND SUTLEJ CLUB BEING A PROMINENT CLUB IN THE CITY, THE MEMBERSHIP WAS TAKEN SO THAT THE SENIOR EXECUTIVES WOULD INTERACT WITH PATRONS, PROMINENT BUSINESS MEN, SENI OR EXECUTIVES IN PUBLIC AND PRIVATE SECTOR IN MORE INF ORMAL ENVIRONMENTS AND THUS DEVELOP GOODWILL AND BUSINESS RELATION FOR THE ASSESSEE. IT WAS ALSO POINTED OUT THAT IDENTICAL DISALLOWANCE MADE IN ASSESSMENT YEAR 2010 -11 IN THE CASE OF THE ASSESSEE WAS DELETED BY THE I.T.A.T . VIDE ITS ORDER DATED 6.11.2015. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY MERIT IN THE PRESENT GROUNDS RAISED BEFORE US. THE FACT THAT THE MEMBERSHIP WAS SUBSCRIBED FOR IN ASSESSMENT YEAR 20 05-06 FOR SENIOR EXECUTIVES OF THE COMPANY SO AS TO ENABL E THEM TO INTERACT WITH PROMINENT BUSINESS MEN AND SENIOR EXE CUTIVES, HAS NOT BEEN CONTROVERTED BY THE REVENUE. FURTHER I T IS NOT DISPUTED THAT IDENTICAL DISALLOWANCE MADE IN ASSESS MENT YEAR 2010-11 HAD BEEN DELETED BY THE I.T.A.T. THE L D. DR HAS FAILED TO POINT OUT ANY DISTINGUISHING FACT FRO M ASSESSMENT YEAR 2010-11 TO US. IN VIEW OF THE SAME, WE SEE ITA NO.171/CHD/2018 A.Y.2012-13 18 NO REASON WHY THE SAID DECISION WILL NOT APPLY IN T HE PRESENT CASE ALSO. MORE SO, FOR THE REASON THAT THE ASSESSE E HAVING ESTABLISHED THAT THE MEMBERSHIP WAS TAKEN TO FACILI TATE THE SENIOR EXECUTIVES OF THE COMPANY TO MEET PROMINENT PERSONS IN INFORMAL ENVIRONMENT FOR DEVELOPING BETTER BUSIN ESS RELATIONS AND FOR PROMOTING GOODWILL OF THE ASSESSE E COMPANY. IN VIEW OF THE SAME, WE UPHOLD THE ORDER O F THE CIT(A) IN HOLDING THE CLUB MEMBERSHIP EXPENSES TO B E IN THE NATURE OF BUSINESS EXPENSES AND HENCE ALLOWABLE UND ER SECTION 37(1) OF THE ACT. THE GROUND OF APPEAL NOS. 3 & 3.1 RAISED BY THE REVENUE ARE, THEREFORE, DISMISSED. 24. IN EFFECT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $' % & (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER '( / ACCOUNTANT MEMBER *# /DATED: 26 TH NOVEMBER, 2018 * ' * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. - $ / CIT 4. - $ ( )/ THE CIT(A) 5. +./ 0 , #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35' / GUARD FILE &) $ / BY ORDER, 6 ! / ASSISTANT REGISTRAR