M/S. N.C. RAJAGOPAL & CO., CHENNAI V. DCIT, CPC, BENGALURU

ITA 817/CHNY/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0816 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-10-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 29-09-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; TDS
• Section: 143(1)

Judgement Text

आयकर अपील सं./ITA No.817/Chny/2020 िनधा रण वष /Assessment Year: 2017-18 M/s.N.C.Rajagopal & Co., 22, V. Krishnaswamy Avenue, Luz Church Road, Mylapore, Chennai. v. The Dy. Commissioner- of Income Tax, CPC, Bangalore. [PAN: AAAFN 0572 A] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.G.Baskar, Adv. & Mr. I.Dinesh, Adv. यथ क ओर से /Respondent by : Mr.Sajit Kumar, JCIT सुनवाई क तारीख/Date of Hearing : 02.03.2022 घोषणा क तारीख /Date of Pronouncement : 09.03.2022 आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-2, Chennai, dated 01.09.2020 and pertains to assessment year 2017-18. 2. The assessee has raised the following grounds of appeal: 1.1 The action of CIT(A) in dismissing the appeal is bad in law and is in gross violation of the provisions of the Income Tax Act. 1.2 The C!T(A) ought to have quashed the intimation inasmuch as the disallowances made are not prima facie adjustments contemplated in Sec. 143(1) of the IT Act; and hence beyond the jurisdiction of the Assessing Officer. आयकर अपीलीय अिधकरण, ‘बी’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI ी वी. दुगा राव, माननीय ाियक सद एवं ी जी. मंजूनाथा, माननीय लेखा सद के सम BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA No.817/Chny/2020 :: 2 :: 2.1 The CIT(A) erred in upholding the disallowance of additional expenditure in the nature of car expenses to the tune of Rs.4,316/- without considering the breakup of the conveyance and car expenses in a proper perspective. 2.2 The CIT(A) erred in upholding the disallowance of club expenses of Rs.99,549/-and club subscription amounting to Rs.2,09,799/- totaling to Rs.3,09,348/- without adverting to the detailed submissions made in a proper perspective. 2.3 The CIT(A) failed to appreciate the fact that for the subsequent AY 2018-19, the AO himself has allowed the club expenses and the same was appreciated by the Ld. CIT(A). 2.4 The CIT(A) failed to consider the fact that the expenditure incurred is revenue expenditure allowable expenditure u/s.37 of the IT Act and not personal. 3.1 The CIT(A) erred in upholding the short credit for TDS without adverting to the detailed submissions in the form of statement showing TDS credit from A.Ys.2014-15toA.Y.2017-18. 3.2 The CIT(A) erred in observing that only TDS mentioned in Form-26AS alone would be allowed credit. This exhibits his ignorance; more particularly the provisions of Sees. 199 and 200 of the IT Act. 3.3 The CIT(A) failed to note even the ROI asks for details like this: (8) Amount out of (6) or (7) being claimed this year (only if corresponding income is being offered for tax this year) 3.4 The CIT(A) failed to appreciate that the appellant follows cash system of accounting and credit for TDS can be claimed only in the year in which there is actual receipt of fees. 3. The brief facts of the case are that assessee filed its return of income for the AY 2017-18 on 07.10.2017 admitting a total income of Rs.2,94,52,927/-. The return filed by the assessee has been processed u/s.143(1) of the Act and determined total income at Rs.2,97,66,591/- by making additions towards disallowance of car expenses and club subscription and club expenses amounting to Rs.3,13,664/- by holding that there is inconsistency in total amount of disallowance as per Income Tax Return when compared to amount mentioned in the Annexure to Tax Audit Report in Form No.3CD. The assessee carried the matter in appeal before ITA No.817/Chny/2020 :: 3 :: the First Appellate Authority, but could not succeeded. The Ld.CIT(A) for the reasons stated in his appellate order dated 01.09.2020, sustained the additions made by the AO towards disallowance of car expenses and club expenses by holding that the assessee did not furnish any evidence to establish that club subscription and club expenses were incurred for promoting the business of the assessee. The Ld.CIT(A) had also rejected the claim of the assessee for short credit for TDS on the ground that the AO allowed TDS credit as per Form No.26AS for the relevant assessment year and he cannot go beyond what was available in Form No.26AS. Therefore, rejected the arguments of the assessee and sustained the additions made by the AO towards disallowance of expenses and also credit for short TDS. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. 4. The Ld.AR for the assessee submitted that adjustment made by the AO towards disallowance of car expenses and club subscription and club expenses is outside the scope of adjustment as provided u/s.143(1)(a) of the Act, therefore, the Ld.CIT(A) has erred in not considering the arguments of the assessee that the AO cannot make adjustment towards disallowance of expenses. The Ld.AR further submitted that expenses incurred by the assessee towards subscription to club and club expenses is for the development of the business of the assessee. Therefore, the same needs to be allowed as incurred wholly and exclusively for the purpose of business. ITA No.817/Chny/2020 :: 4 :: 5. The Ld.DR, on the other hand, submitted that as per Clause (iv) of Sec.143(1)(a) of the Act, the AO can make adjustment towards disallowance of expenditure indicated in the Audit Report, but not taken into account in computing the total income in the return. Therefore, there is no merit in arguments of the Ld.Counsel for the assessee that the AO cannot make adjustment towards disallowance of expenses u/s.143(1)(a) of the Act. As regards, disallowance of expenditure, the Ld.DR submitted that the assessee has failed to make out a case that expenditure incurred towards subscription fee paid to club and expenses of club is not personal in nature, but business expenditure incurred for the purpose of business of the assessee. 6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The Ld.AR for the assessee argued that adjustment made by the AO towards disallowance of subscription fee paid to club is not permissible u/s.143(1)(a)(iv) of the Act. We find that as per Clause (iv) of Sec.143(1)(a) of the Act, the AO can make adjustment towards expenditure indicated in the Audit Report, but not taken into account in computing the total income in the return. In this case, the Tax Auditor has quantified the expenses of personal in nature in his Audit Report issued in Form No.3CD. The AO has made adjustment on the basis of qualified report issued by the Tax Auditor. Therefore, we are of the considered view that there is no merit in the arguments taken by the assessee, then adjustment made by the AO towards disallowance of ITA No.817/Chny/2020 :: 5 :: subscription fee paid to club, is not permissible u/s.143(1)(a)(iv) of the Act. As regards additions made towards car expenses and subscription fee paid to club, although assessee claims that in Form No.3CD, the Tax Auditor has reported expenses of personal in nature in respect of car expenses of Salem Branch at Rs.16,970/- instead of actual expenses of Rs.12,654/- being 10% of Salem Office car expenses of Rs.1,26,537/-, we find that the assessee claims to have made disallowance of Rs.12,654/- being 10% of car expenses on Salem Branch, wherein, the Tax Auditor has reported Rs.16,970/-. The difference between expenses reported by the assessee and the expenses disallowed by the Tax Auditor is at Rs.4,316/- and the same has been added by the AO. The facts need to be verified with reference to statement of total income filed by the assessee and Tax Auditor Report issued by the Auditor. Therefore, we are of the considered view that this issue needs to go back to the file of the AO. 7. As regards disallowance of club subscription and club expenses, on perusal of details filed by the assessee including break up of club expenses, we find that the assessee has made payments to various clubs in Chennai and other places, which are in the nature of personal expenditure incurred by the partners as members of various clubs. Therefore, we are of the considered view that expenditure incurred by the assessee towards payment to clubs, is in the nature of personal expenditure and unless, the assessee demonstrate that subscription fee paid to clubs is for development of business of the assessee deduction cannot be allowed. In this case, the ITA No.817/Chny/2020 :: 6 :: claim of the assessee is that expenses incurred for subscription fee paid to clubs is for the purpose of business of the assessee. The AO has made adjustment without verifying the claim of the assessee that the expenses incurred for the purpose of business of the assessee. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in light of claim of the assessee that subscription fee paid to club and club expenses is for the purpose of business of the assessee. Hence, we set aside the issue to the file of the AO and direct the AO to re-consider the issue in light of various averments made by the assessee. 7. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order pronounced on the 09 th day of March, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) याियक सद य/JUDICIAL MEMBER Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद य/ACCOUNTANT MEMBER चे ई/Chennai, दनांक/Dated: 09 th March, 2022. TLN आदेश क ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु"/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु" (अपील)/CIT(A) 6. गाड फाईल/GF