Popular Vehicles & Services Ltd, Cochin V. ACIT, Ernakulam

ITA 619/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73918 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 25-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-09-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Principle of natural justice; Proportionate interest; Commercial expediency; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 619/COCH/2013 ASSESSMENT YEAR : 2006-07 M/S. POPULAR VEHICLES AND SERVICES LTD., MAMANGALAM, KOCHI-25 [PAN: AABCP3805G] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(3), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA REVENUE BY SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 25/03/2014 DATE OF PRONOUNCEMENT 31/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-07-2013 PASSED BY LD CIT(A)-II, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. 2. FOLLOWING TWO ISSUES ARE URGED IN THIS APPEAL:- (A) DISALLOWANCE OF INTEREST EXPENDITURE RS.46, 94,049/- (B) DISALLOWANCE OF EXPENDITURE INCURRED IN CLUBS RS.46,250/- 3. THE FACTS RELATING TO BOTH THE ISSUES ARE DI SCUSSED IN BRIEF. THE AO NOTICED THAT THE ASSESSEE HAS INVESTED A SUM OF RS.4,63,97,894/- IN VARIOUS SISTER CONCERNS AS ON 31.3.2006, WHICH INCLUDE CAPITAL CONTRIBUTION MADE IN A PARTNERSHIP FIRM TO THE TUNE OF RS.3,59,47,864/-. UNDER THE SCHEME OF THE ACT, THE SHARE INCOME RECEIVED FROM A PARTNERSHIP FIRM IS EXEMPT U/S 10(2A) OF THE ACT. THE ASSESSEE HAD ALSO CLAIMED DEDUCTION OF INTEREST EXPENDITURE OF RS.6.07 CRORES . I.T.A. NO.619/COCH/2013 2 3.1 THE AO TOOK THE VIEW THAT THE INTEREST EXPE NDITURE IS ALLOWABLE AS DEDUCTION U/S 36(1)(III) OF THE ACT ONLY IF THE BORROWED FUNDS AR E USED FOR OWN BUSINESS. SINCE THE INVESTMENT MADE IN THE SISTER CONCERNS DID NOT YIEL D ANY TAXABLE INCOME AND FURTHER SINCE THE BUSINESS CARRIED ON BY THE SISTER CONCERN S CANNOT BE CONSIDERED AS ASSESSEES OWN BUSINESS, THE AO TOOK THE VIEW THAT A PORTION O F INTEREST CLAIM RELATABLE TO THE INVESTMENT MADE IN THE SISTER CONCERNS IS NOT ALLOW ABLE AS DEDUCTION. IN THIS REGARD, THE AO TOOK SUPPORT FROM THE FOLLOWING CASE LAW:- (I) PHALTON SUGAR WORKS LTD VS. CWT (208 ITR 989) (II) CIT VS. V.I. BABY (24 ITR 248)(KER) BEFORE AO, THE ASSESSEE CONTENDED THAT THE INVESTME NT IN SISTER CONCERNS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS (OWN FUNDS). THE A O NOTICED FROM THE CASH FLOW STATEMENT THAT THE ASSESSEE HAD NEGATIVE CASH FLOW FROM OPERATIONS AND FURTHER THERE WAS INCREASE IN CASH FLOW IN VIEW OF LONG TERM BORR OWINGS. HENCE, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE ITS CLAI M OF USE OF OWN FUNDS FOR MAKING INVESTMENTS. BY PLACING RELIANCE ON THE DECISION R ENDERED IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD (205 CTR 304), THE AO TOOK THE VIEW THAT THE ONUS TO PROVE THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENT IN SISTER CONCERNS LIES UPON THE ASSESSEE. THE AO ALSO TOOK THE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE THAT THERE EXISTED A COMMERCIAL EXPEDIENCY IN MAKIN G INVESTMENTS IN THE SISTER CONCERNS. ACCORDINGLY, THE AO DISALLOWED A SUM OF RS.46,94,049/- OUT OF THE INTEREST EXPENDITURE CLAIM, BEING THE AMOUNT COMPUTED IN THE RATIO OF AVERAGE INVESTMENT TO AVERAGE LOAN BALANCE. 3.2 THE AO NOTICED THAT THE ASSESSEE HAS CLAIME D A SUM OF RS.46,250/- AS EXPENDITURE INCURRED IN CLUBS. THE AO TOOK THE VIE W THAT THIS EXPENDITURE WAS NOT EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES AND ACCO RDINGLY DISALLOWED THE SAME. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CONFIRMED BOTH THE DISALLOWANCES AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. I.T.A. NO.619/COCH/2013 3 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HEREI N IS AN AUTHORISED DEALER OF MARUTI BRAND OF VEHICLES AND AS PER THE TERMS AND CONDITIO NS OF DEALERSHIP AGREEMENT, THE ASSESSEE IS NOT ENTITLED TO DEAL IN VEHICLES OF OTH ER BRANDS. HENCE, IN ORDER TO TRADE IN VEHICLES OF OTHER BRANDS, THE PROMOTERS OF THE ASSE SSEE COMPANY WERE CONSTRAINED TO FLOAT VARIOUS COMPANIES SO THAT THEY COULD OBTAIN D EALERSHIP OF OTHER BRAND VEHICLES. THE LD A.R SUBMITTED THAT THE ASSESSEE COMPANY WOUL D BE BENEFITTED VERY MUCH BY HAVING DEALERSHIP OF VARIOUS BRANDED VEHICLES UNDER THE SAME GROUP. ACCORDINGLY HE SUBMITTED THAT THERE IS COMMERCIAL EXPEDIENCY IN MA KING INVESTMENTS IN THE SISTER CONCERNS, WHICH DEAL IN OTHER VEHICLES OF OTHER BRA NDS. HE SUBMITTED THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS (288 ITR 1) SHALL SQUARELY APPLY TO THE FACTS OF THE INSTANT CASE. T HE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE MAJOR PART OF INVESTMENTS DURING THE PAST YEARS AND DURING THE YEAR UNDER CONSIDERATION, THE INVESTMENT HAS INCREASED B Y RS.35,02,965/- ONLY. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS EARNED A PROFIT OF RS.3,09,22,164/-. HENCE THE AO WAS NOT JUSTIFIED I N PLACING RELIANCE ON THE CASH FLOW STATEMENT PERTAINING TO THIS YEAR ALONE. HE FURTHE R SUBMITTED THAT THE ASSESSEES OWN FUNDS STAND AT RS.16.30 CRORES AS ON 31.3.2006 AS A GAINST THE INVESTMENT OF RS.4.64 CRORES. ACCORDINGLY THE LD A.R SUBMITTED THAT THE ASSESSEE HAS USED ITS OWN FUNDS ONLY FOR MAKING THE IMPUGNED INVESTMENTS. THE LD A.R PLA CED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF MUNJA L SALES CORPORATION VS. CIT (298 ITR 1) AND SUBMITTED THAT THE QUESTION OF MAKING DI SALLOWANCE OF PART OF INTEREST EXPENDITURE DOES NOT ARISE, WHEN THE ASSESSEE IS IN POSSESSION OF SUFFICIENT AMOUNT OF OWN FUNDS. 5.1 THE LD A.R FURTHER SUBMITTED THAT THE LD CI T(A) HAS FOLLOWED THE DECISION RENDERED BY HONBLE KERALA HIGH COURT IN THE ASSESS EES OWN CASE RELATING TO ASSESSMENT YEAR 2004-05 REPORTED IN 325 ITR 523 (KE R) TO DECIDE THE IMPUGNED ISSUE AGAINST THE ASSESSEE. THE LD A.R SUBMITTED THAT TH E FACTS PREVAILING IN THE INSTANT YEAR IS DIFFERENT FROM THAT PREVAILED IN ASSESSMENT YEAR 2004-05. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD RECEIVED SHARE INCOME IN ASST. YEA R 2004-05 FROM THE PARTNERSHIP CONCERN IN WHICH IT WAS PARTNER AND THE SAID INCOME WAS EXEMPT U/S 10(2A) OF THE ACT. I.T.A. NO.619/COCH/2013 4 HENCE, THE HONBLE HIGH COURT HELD THAT THE EXAMINA TION OF EXISTENCE OF COMMERCIAL EXPEDIENCY IS NOT CALLED FOR, SINCE SEC. 14A(1) SPE CIFICALLY BARS ALLOWANCE OF ANY EXPENDITURE INCURRED FOR EARNING EXEMPTED INCOME. ACCORDINGLY, THE HIGH COURT HAS CONFIRMED THE DISALLOWANCE OF INTEREST MADE IN ASSE SSMENT YEAR 2004-05. THE LD COUNSEL SUBMITTED THAT, DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE DID NOT RECEIVE ANY SHARE INCOME FROM THE PARTNERSHIP FIRM IN WHICH IT WAS A PARTNER. HE SUBMITTED THAT THE PARTNERSHIP FIRM HAS INCURRED LO SS DURING THE YEAR UNDER CONSIDERATION AND HENCE THE ASSESSEE DID NOT RECEIV E ANY SHARE INCOME. HE SUBMITTED THAT THE PROVISIONS OF SEC. 14A SHALL NOT APPLY IN THE ABSENCE OF RECEIPT OF EXEMPTED INCOME. THE LD A.R ALSO SUBMITTED THAT THE ASSESSI NG OFFICER HAS NOT APPLIED THE PROVISIONS OF SEC. 14A FOR MAKING THE IMPUGNED DISA LLOWANCE AND HENCE THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE ASSESSEES OWN CASE (REFERRED ABOVE) SHALL NOT APPLY FOR THE YEAR UNDER CONSIDERA TION. 5.2 THE LD COUNSEL FURTHER SUBMITTED THAT THERE IS COMMERCIAL EXPEDIENCY IN MAKING INVESTMENTS IN THE SISTER CONCERNS AND FURTHER THE ASSESSEE HAD MADE THE SAID INVESTMENTS OUT OF OWN FUNDS (INTEREST FREE FUNDS). ACCORDINGLY HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE JUDGED ON THE BASIS OF ABOVE SAID CRITERIA. THE LD A.R SUBMITTED THAT THE QUESTION OF MAKING ANY DI SALLOWANCE FROM THE INTEREST EXPENDITURE DOES NOT ARISE IN THE INSTANT CASE. TH E LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW IN THIS REGARD. (A) WALFORT SHARE AND STOCK BROKERS PVT LTD VS. C IT (326 ITR 1)(SC) (B) CIT VS. SMT. LEELA RAMACHANDRAN (339 ITR 296) (KER) (C) CIT VS. DHANALAKSHMI BANK LTD (344 ITR 259)(K ER). 5.3 THE LD COUNSEL FURTHER SUBMITTED THAT THE A SSESSEE IS HAVING OWN FUNDS AND ALSO BORROWED FUNDS AND ONCE BOTH THE FUNDS ARE MIXED UP FOR BUSINESS PURPOSES, IT WOULD BE DIFFICULT TO PRESUME DIVERSION OF BORROWED FUNDS . IN THAT SITUATION, IT SHOULD BE PRESUMED THAT THE ASSESSEE HAS INVESTED ONLY OWN FU NDS. FOR THIS PROPOSITION, THE LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) CIT VS. HOTEL SAVERA (239 ITR 795)(MAD) I.T.A. NO.619/COCH/2013 5 (B) CIT VS. RELIANCE UTILITIES AND POWER LTD (313 ITR 340)(BOM) (C) CIT VS. RELIANCE INDUSTRIES LTD (339 ITR 632) (BOM) 5.4 WITH REGARD TO THE DISALLOWANCE OF EXPENDIT URE INCURRED IN CLUBS, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS INCURRED THE SAME F OR BUSINESS PURPOSES AND HENCE THE SAME IS ALLOWABLE AS DEDUCTION. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS. SUNDARAM INDUSTRIES LTD (240 ITR 335). 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY HONBLE KERALA HIGH COURT IN THE ASSESS EES OWN CASE, WHEREIN THE HIGH COURT HAD UPHELD THE DISALLOWANCE OF INTEREST EXPEN DITURE. THE LD D.R FURTHER SUBMITTED THAT THE ASSESSEE DID NOT SHOW THAT THERE EXISTED COMMERCIAL EXPEDIENCY IN MAKING THESE INVESTMENTS. ACCORDINGLY, THE LD D.R SUBMITTED THAT THERE IS NO NECESSITY TO INTERFERE WITH THE ORDER OF LD CIT(A) ON THE ISS UE OF DISALLOWANCE OF INTEREST. WITH REGARD TO THE DISALLOWANCE OF CLUB EXPENSES, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE ABOUT THE BUSINESS EXIGENCY IN CONNECTION WITH THE INCURRING OF CLUB EXPENSES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE DECISION RENDERED BY HONBLE KERALA HIGH COURT IN THE ASSESSEES OWN CASE REPORTED IN 325 ITR 523. WE NOTICE THAT T HE HONBLE HIGH COURT HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAD MADE INVESTM ENT IN A PARTNERSHIP FIRM AS A PARTNER AND IT DID NOT COLLECT INTEREST FROM THE PA RTNERSHIP FIRM ON THE INVESTMENT SO MADE. THUS, THE ONLY BENEFIT RECEIVED BY THE ASSES SEE WAS SHARE INCOME FROM THE FIRM WHICH WAS EXEMPT U/S 10(2A) OF THE ACT. HENCE, THE HIGH COURT CONSIDERED THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE IN TERMS OF SEC. 14A OF THE ACT AND THE HIGH COURT EXPRESSED THE VIEW THAT THE QUESTION OF CONSI DERATION OF EXISTENCE OF COMMERCIAL EXPEDIENCY IS NOT CALLED FOR. THE RELEVANT OBSERVA TIONS MADE BY THE HONBLE HIGH COURT ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE:- I.T.A. NO.619/COCH/2013 6 ...A REMAND FOR THE PURPOSE OF CONSIDERING ELIGIBI LITY FOR DEDUCTION BASED ON COMMERCIAL EXPEDIENCY, IF AT ALL THE SAME EXISTS, I S NOT CALLED FOR IN THIS CASE BECAUSE SECTION 14A(1) EXPRESSLY BARS ALLOWANCE OF ANY EXPENDITURE FOR EARNING INCOME WHICH DOES NOT CONSTITUTE PART OF THE TOTAL INCOME OF THE ASSESSEE. IT IS THE ADMITTED POSITION THAT THE ADVANCING OF INTERES T-FREE LOAN IS MADE BY THE RESPONDENT ASSESSEE ONLY TO PARTNERSHIP FIRMS OF WH ICH IT IS A PARTNER AND IT DOES NOT RECEIVE ANY INTEREST FROM THE SAME AND THE ONLY BENEFIT IS RECEIPT OF SHARE INCOME FROM SUCH FIRMS WHICH DO NOT CONSTITUTE INCO ME OF THE ASSESSEE UNDER SECTION 10(2A) OF THE ACT. THEREFORE, THE DISALLOW ANCE OF PROPORTIONATE INTEREST ON BORROWED FUNDS DIVERTED AS INTEREST FREE LOANS T O PARTNERSHIP FIRMS OF WHICH THE RESPONDENT ASSESSEE IS A PARTNER, WAS RIGHTLY M ADE BY THE OFFICER AND WE FIND NO JUSTIFICATION FOR THE APPELLATE AUTHORITIES TO ALLOW THE CLAIM. IT IS ALSO PERTINENT TO NOTE THAT REVENUE CONTENDED BEFORE THE HIGH COURT THAT THE FINDING OF THE ASSESSING OFFICER THAT THE FUNDS ADV ANCED BY THE ASSESSEE TO SISTER CONCERNS WHICH ARE PARTNERSHIP FIRMS ARE OUT OF BOR ROWED FUNDS ON WHICH INTEREST IS PAID BY THE ASSESSEE, IS NOT FOUND AGAINST BY ANY O F THE APPELLATE AUTHORITIES INCLUDING THE TRIBUNAL. 7.1 THUS, THE FACT THAT THE INTEREST BEARING FU NDS WERE DIVERTED FOR MAKING INVESTMENTS IN PARTNERSHIP FIRMS WAS PRIMA FACIE AC CEPTED BY THE HONBLE HIGH COURT IN ASST. YEAR 2004-05. THE HIGH COURT EXPRESSED THE V IEW THAT THE QUESTION ABOUT EXISTENCE OF COMMERCIAL EXPEDIENCY WAS NOT REQUIRED TO BE CONSIDERED, SINCE THE DISALLOWANCE WAS MADE U/S 14A OF THE ACT. 8. IN THE INSTANT YEAR, WE NOTICE THAT THE FACT S ARE SLIGHTLY DIFFERENT. THE DETAILS OF INVESTMENTS MADE BY THE ASSESSEE ARE GIVEN IN THE A NNEXURE TO THE BALANCE SHEET AND THEY ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENC E:- DETAILS YEAR ENDING 31-03-2006 YEAR ENDING 31-03-2005 (RS.) (RS.) POPULAR AUTOSPARES (P) LTD. 1700000 1700000 POPULAR AUTO DEALERS (P) LTD 12500 00 -- POPULAR MEGA MOTORS LTD. 7500000 7500000 CAPITAL A/C IN KUTTAKKARAN TRADING VENTURE 35947864 33694899 --------------------------------------------- --- 46397864 42894899 ============================== I.T.A. NO.619/COCH/2013 7 THUS, OUT OF INVESTMENT OF RS.4.63 CRORES, INVESTME NT MADE IN PARTNERSHIP FIRM WORKS OUT TO RS.3.59 CRORES AND THE INVESTMENT MADE IN LI MITED COMPANIES WORKS OUT TO RS.1.04 CRORES. WE HAVE ALREADY NOTICED THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE ISSUE OF DISALLOWANCE OF INTEREST IN RESPECT OF INVESTMENT MADE IN THE CAPITAL OF A PARTNERSHIP FIRM, WHEREIN THE ASSESSEE WAS A PARTNER. HENCE, THE SAID DECISION SHALL NOT APPLY TO THE INVESTMENT OF RS.1. 04 CRORES MADE IN THE LIMITED COMPANIES. 8.1 BEFORE US, THE LD A.R SUBMITTED THAT THE AS SESSEE HAS NOT RECEIVED ANY SHARE INCOME FROM THE PARTNERSHIP FIRM, WHICH IS EXEMPT U /S 10(2A) OF THE ACT. BY INVITING OUR ATTENTION TO THE PAPER BOOK, THE LD A.R SUBMITT ED THAT THE PARTNERSHIP FIRM INCURRED LOSS DURING THE YEAR UNDER CONSIDERATION AND THE AS SESSEES SHARE IN LOSS WAS RS.33.36 LAKHS. ACCORDINGLY THE LD A.R CONTENDED THAT THE R ATIO OF THE DECISION RENDERED BY THE HONBLE KERALA HIGH COURT IN THE ASSESSEES OWN CAS E REPORTED IN 325 ITR 523 SHALL NOT APPLY TO THE FACTS PREVAILING IN THE INSTANT YEAR. SECTION 14A(1) OF THE ACT READS AS UNDER:- FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. IN OUR VIEW, WHAT IS REQUIRED TO BE SEEN IS WHETHER THE INCOME FORMS PART OF TOTAL INCOME OR NOT FOR THE PURPOSE OF INVOKING PROVISION S OF SEC. 14A OF THE ACT. IF THE ANSWER IS YES, IN OUR VIEW, SEC. 14A SHALL HAVE A PPLICATION AND IF THE ANSWER IS NO, THEN SEC. 14A SHALL NOT HAVE APPLICATION. IN OUR V IEW, THE QUESTION OF ACTUAL RECEIPT OF INCOME DOES NOT REQUIRE ANY CONSIDERATION FOR INVOK ING PROVISIONS OF SEC. 14A OF THE ACT. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE SHARE INCOME FROM THE PARTNERSHIP FIRM IS EXEMPT U/S 10(2A) OF THE ACT IN THE HANDS O F THE ASSESSEE. HENCE, THE SAID INCOME SHALL NOT FORM PART OF TOTAL INCOME COMPUTED IN THE HANDS OF THE ASSESSEE. HENCE, IN OUR VIEW, THE FACT THAT THE ASSESSEE DID NOT RECEIVE ANY SHARE INCOME OR IT WAS REQUIRED TO BEAR THE SHARE OF LOSS DOES NOT HAV E ANY CONSEQUENCE. HENCE, WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF LD A.R IN T HIS REGARD. I.T.A. NO.619/COCH/2013 8 9. IN THE ALTERNATIVE, THE LD A.R SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT AMOUNT OF OWN FUNDS IN ITS HANDS VIS-A-VIS THE INVE STMENTS MADE IN THE PARTNERSHIP FIRM. IN AN EARLIER PARAGRAPH, WE HAVE NOTED THE D ETAILS OF OWN FUNDS, INVESTMENTS, ACCRETION TO INVESTMENTS AND PROFIT MADE DURING THE YEAR ETC. THE CONTENTION OF THE LD A.R APPEARS TO BE THAT THE ASSESSING OFFICER HAS NO T RECORDED A FINDING THAT THE IMPUGNED INVESTMENTS HAVE BEEN MADE OUT OF BORROWED FUNDS, WHEREAS IN THE CASE BEFORE THE HONBLE HIGH COURT THE AO HAD GIVEN A SP ECIFIC FINDING ON THAT MATTER AND THE SAME WAS NOT FOUND AGAINST. ACCORDINGLY, THE L D A.R SOUGHT TO DISTINGUISH THE DECISION RENDERED BY HONBLE HIGH COURT IN THE ASSE SSEES OWN CASE FOR AN EARLIER YEAR. BESIDES THE ABOVE, THE LD A.R ALSO PLEADED ABOUT EX ISTENCE OF COMMERCIAL EXPEDIENCY. 10. WE HAVE ALREADY NOTICED THAT THE LD CIT(A) HAS SIMPLY FOLLOWED THE DECISION RENDERED BY HONBLE HIGH COURT IN THE CONTEXT OF SE C. 14A OF THE ACT. WE HAVE ALREADY NOTICED THAT THE FACTS PREVAILING IN THE INSTANT YE AR ARE SLIGHTLY DIFFERENT, I.E., THE INVESTMENT AMOUNT OF RS.4.63 CRORES CONSISTED OF IN VESTMENT MADE IN LIMITED COMPANIES TO THE TUNE OF RS.1.04 CRORES AND THE INV ESTMENT MADE IN PARTNERSHIP FIRMS TO THE TUNE OF RS.3.59 CRORES. THE DECISION RENDER ED BY HONBLE HIGH COURT SHALL NOT APPLY TO THE INVESTMENT OF RS.1.04 CRORES MADE IN T HE LIMITED COMPANIES, SINCE THE SAID DECISION WAS RENDERED IN THE CONTEXT OF INVESTMENT MADE IN A PARTNERSHIP FIRM, THE INCOME OF WHICH IS EXEMPT U/S 10(2A) OF THE ACT. EV EN IN RESPECT OF INVESTMENTS MADE IN THE PARTNERSHIP FIRM, THE CLAIM OF THE ASSESSEE IS THAT THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS . FURTHER THE ASSESSEE IS PLEADING ABOUT COMMERCIAL EXPEDIENCY IN MAKING THE INVESTMENTS. ALL THESE CLAIMS HAVE NOT BEEN CONSIDERED BY LD CIT(A). ACCORDINGLY , WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF LD CIT(A). ACCORDINGLY, WE SET ASIDE HIS ORDER AND RESTORE THIS ISSUE TO HIS FILE WITH THE DIRECTI ON TO EXAMINE THE ISSUE AFRESH BY DULY CONSIDERING VARIOUS CONTENTIONS OF THE ASSESSEE. 11. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLUB EXPENDITURE. THE LD CIT(A) CONFIRMED THE DISALLOWANCE, SINCE THE ASSESSEE DID NOT FURNISH ANY DETAILS. IN THE CASE OF CLUB EXPENSES, WE ARE OF THE VIEW THAT THE EXPEN DITURE INCURRED TOWARDS ENTRANCE I.T.A. NO.619/COCH/2013 9 FEE / SUBSCRIPTION FEE CAN BE TERMED AS BUSINESS EX PENDITURE AND THE COST OF SERVICE COULD BE ALLOWED IF THE COMMERCIAL EXPEDIENCY IN IN CURRING THE EXPENDITURE IS PROVED. IN THE INSTANT CASE, THE DETAILS ABOUT NATURE OF EX PENSES ARE NOT AVAILABLE ON RECORD. UNLESS IT IS SHOWN THAT THERE WAS COMMERCIAL EXPEDI ENCY IN INCURRING THE CLUB EXPENDITURE OR THAT IT WAS INCURRED IN PROMOTION OF BUSINESS INTERESTS, THE SAID CLAIM MAY NOT BE ALLOWABLE. SINCE THE MAIN ISSUE IS SET ASIDE TO THE FILE OF LD CIT(A), IN THE INTEREST OF NATURAL JUSTICE, WE SET ASIDE THIS ISSU E ALSO TO HIS FILE FOR FRESH CONSIDERATION. THE ASSESSEE IS DIRECTED TO FURNISH THE BREAK-UP DE TAILS OF CLUB EXPENSES AND THEIR RELEVANCE TO THE BUSINESS CARRIED ON BY THE ASSESSE E. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 31-03-2 014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 31ST MARCH, 2014 GJ COPY TO: 1. M/S. POPULAR VEHICLES AND SERVICES LTD., MAMANGA LAM, KOCHI-25 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(3), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4.THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T, COCHIN I.T.A. NO.619/COCH/2013 10