VEEDOL CORPORATION LIMITED,KOLKATA V. DCIT, CIRCLE 4(1), KOLKATA

ITA 1945/KOL/2025

AI Insights

The case involves Veedol Corporation Limited appealing against the order of the National Faceless Appeal Centre, which had partly sustained additions made by the Assessing Officer regarding club subscription charges and disallowances under Section 14A read with Rule 8D of the Income Tax Act. The Tribunal found that the club expenses incurred by a corporate entity are wholly and exclusively admissible as business expenses, referencing several Supreme Court and High Court decisions. Furthermore, the Tribunal agreed with the assessee's argument that the disallowance under Section 14A should be based only on the average value of investments that yielded exempt income. The Tribunal also ruled that the addition to book profit under Section 115JB was not justified, citing the Supreme Court's decision that such adjustments are not allowed under the section.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 829977 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Kolkata
• Assessment Year: misc
• Appeal Filed On: 26-08-2025
• Other Referred Cases: CIT vs. Daulat Ram Rawatmull, Omar Salay Mohamed Sait vs. Commissioner of Income-tax, Commissioner of Income Tax vs. United Glass Mfg. Co. Ltd., Commissioner of Income-tax vs. Johnston Pumps (India) Ltd., Kesoram Industries Ltd. Vs. Pr. CIT, Principal Commissioner of Income-tax vs. REI Agro Ltd., Principal Commissioner of Income-tax vs. Shalimar Pellet Feeds Ltd., ACIT vs. Vireet Investment (P.) Ltd., Electrosteel Castings Ltd. vs. Deputy Commissioner of Income Tax, Central Circle-4(4), Kolkata, Apollo Tyres Ltd. vs. Commissioner of Income-tax, Malayala Manorama Co. Ltd. vs. Commissioner of Income-tax, Trivandrum, Sobha Developers Ltd. vs. Deputy Commissioner of Income Tax, LTU, Bangalore, Principal Commissioner of Income-tax vs. J.J. Glastronics (P.) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BONNIE DEBBARMA
• Assessee Lawyers: ANUP SINHA
• Keywords: Set aside; Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM ITA No.1945/KOL/2025 (Assessment Year: 2017-18) Veedol Corporation Limited Yule House, 8, Dr. Rajendra Prasad Sarani, Kolkata-700001, West Bengal Vs. DCIT, Circle 4(1) Aaykar Bhawan Poorva, 8th Floor, P-7, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AABCT1122C Assessee by : Shri Anup Sinha, AR Revenue by : Shri Bonnie Debbarma, DR Date of hearing: 29.10.2025 Date of pronouncement: 13.01.2026 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 01.07.2025 for the AY 2017-18. 2. The issue raised in ground no.1 is against the order of ld. CIT (A) partly deleting the addition to the extent of ₹2,13,957/-, being 50% of ₹4,27,914/- in respect of club expenses as against the total addition made by the ld. AO of ₹5,81,098/- incurred by the assessee in respect of club subscription charges. Printed from counselvise.com Page | 2 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 2.1. The facts in brief are that the ld. AO during the course of assessment proceedings found that the assessee has debited to the profit and loss account a sum of ₹5,85,098/- on account of club subscription charges. According to the ld. AO these expenses are personal in nature and not expended wholly and exclusively for the purpose of business and therefore, not allowable. Consequently, these were added to the income of the assessee. 2.2. During the appellate proceedings, the ld. CIT (A) deleting the disallowance of subscription and entry fees to the tune of ₹1,53,184/- on the ground that the assessee being a corporate person and the expenses cannot be said to have been incurred for the personal purposes. However, the ld. CIT (A) in respect of remaining expenses of ₹4,27,914/- which are in respect of club services and facility use, sustained the addition which is equal to 50% on adhoc basis thereby sustaining the addition to the tune of ₹2,13,937/- on the ground that director/ shareholders of the assessee might have utilized the club facility for their personal visits and entertainment. 2.3. After hearing the rival contentions and perusing the materials available on record, we find that during the course of assessment proceedings the ld. AO has never raised any query qua the allowability of club expenses and therefore, the assessee did not have any occasion to furnish any explanation qua the admissibility of these expenses. We note that the ld. CIT (A) upheld the disallowance to the tune of ₹50% of the club expenses and facility on adhoc basis without giving any reasoning/ justification for the same. In our opinion, the disallowance cannot be made on estimation and presumption basis as has been held in the case of CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349 Printed from counselvise.com Page | 3 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 (SC)vide order dated 12-09-1972 and Omar Salay Mohamed Sait vs. Commissioner of Income-tax [1959] 37 ITR 151 (SC) dated 05-03- 1959. We also note that in our opinion, the club expenses incurred by the assessee which is a corporate entity is wholly and exclusively admissible as has been held in the case of Commissioner of Income Tax vs. United Glass Mfg. Co. Ltd. [2012] 28 taxmann.com 429 (SC) dated 12-09-2012 and Commissioner of Income-tax vs. Johnston Pumps (India) Ltd. [1988] 172 ITR 333 (Calcutta) dated 24-07-1986. Therefore, we modify the finding of the ld. CIT (A) and direct the ld. AO to delete the entire addition. The ground no.1 is allowed. 3. The issue raised in ground no.2 is against the order of ld. CIT (A) confirming the addition of ₹1,33,25,000/-u/s 14A read with Rule 8D of the Rules. 3.1. The facts in brief are that the ld. AO during the course of assessment proceedings, noted that the assessee has earned dividend income of ₹7.47 crores during the year which was also disclosed by the assessee in note no. 21 of the audited balance sheet. Out of the said dividend, the assessee earned dividend to the tune of ₹1,91,30,687/- from foreign subsidiary company and it was duly offered to tax in the return of income, the remaining dividend of ₹5,82,75,000/- was received from Indian Company and same was exempt from tax u/s 10(34) of the Act. The assessee submitted before the ld. AO that it had not incurred any expenses for earning the exempt income. However, the plea of the assessee was not accepted by the ld. AO and he invoked the provisions of Section 14A read with Rule 8D of the IT Rules, 1962 and computed the disallowance at ₹ 1,33,25,000/- by taking into account the total balance of investments Printed from counselvise.com Page | 4 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 as per the balance sheet as on 31.03.2016 and 31.03.2017 by excluding the investments in M/s Price Thomas Holdings Ltd. by placing reliance on CBDT notification No.43/2016/F No. 370142/7/2016-TPL dated 02.06.2016. The ld. AO also not accepted the without prejudice submission made by the assessee, to restrict the disallowance to ₹59,40,500/-, which is based upon the average value of investments, which yielded the exempt income during the year. 3.2. In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee. 3.3. After hearing the rival contentions and perusing the materials available on record, we find that the undisputed facts are that the assessee has investments as on 31st March, 2016 and 31st March, 2017, in the balance sheets which included the investments which yielded the exempt income as well as the investments which did not yield any exempt income during the year. We note that the assessee has made before the ld. AO without prejudice submission that if the main plea of the assessee is not accepted which is qua the fact that the assessee has not incurred any expenses towards earning of exempt income and even if the provisions of Section 14A read with Rule 8D is invoked even then the disallowance works out to ₹59,40,500/- based upon the average value of investments which yielded exempt income during the year. The assessee has made a very detailed arguments before us corroborating all these facts and in the light of various case laws/ decisions , we hold that the disallowance is to be restricted to the extent of the amount which is based upon the average value of investments which yielded only exempt income Printed from counselvise.com Page | 5 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 during the year. Therefore, we find merit in the plea of the assessee that if at all the disallowance u/s 14A is to be made that has to be restricted to an amount calculated on the basis of these investments which yielded exempt income only. The case of the assessee find support from the decisions of the Hon'ble Jurisdictional High Court in case of Kesoram Industries Ltd. Vs. Pr. CIT (2022) 136 taxmann.com 210 (Cal.), Principal Commissioner of Income-tax vs. REI Agro Ltd. [2022] 140 taxmann.com 71 (Calcutta)[07-03-2022], Principal Commissioner of Income-tax vs. Shalimar Pellet Feeds Ltd. [2022] 138 taxmann.com 124 (Calcutta)/[2022] 287 Taxman 134 (Calcutta)/[2023] 453 ITR 547 (Calcutta)[22-02-2022], ACIT vs. Vireet Investment (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB)[16-06-2017], Electrosteel Castings Ltd. vs. Deputy Commissioner of Income Tax, Central Circle-4(4), Kolkata [2021] 125 taxmann.com 308 (Kolkata - Trib.)/[2021] 189 ITD 183 (Kolkata - Trib.)[28-02-2019]. We, therefore respectfully following the ratio laid down in the above decisions, are not in concurrence with the conclusion drawn by the ld. CIT (A). Consequently, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to restrict the disallowance to ₹59,40,500/-. The ground no.2 is partly is allowed. 4. The issue raised in ground no.3 is against the order of ld. CIT (A) confirming the addition of ₹1,33,25,000/- as made by the ld. AO u/s 14A read with Rule 8D of the Rules to the book profit u/s 115JB of the Act. 4.1. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO has added the amount of disallowance of ₹1,33,25,000/- to the book profit as computed u/s Printed from counselvise.com Page | 6 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 115JB of the Act which in our opinion is wrong and cannot be sustained. The ld. CIT (A) confirmed the order of the lower authorities AO on this issue. The case of the assessee is squarely covered by the decision of Hon'ble Apex Court in the case of Apollo Tyres Ltd. vs. Commissioner of Income-tax [2002] 122 Taxman 562 (SC)/[2002] 255 ITR 273 (SC)/[2002] 174 CTR 521 (SC)[02-05-2002], wherein the Hon'ble Apex Court had held that adjustment are not provided in section 115J of the Act cannot be made to increase book profit for the purpose of Section 115J of the Act. The case of the assessee also squarely covered by the decision of Hon'ble Apex Court in the case of Malayala Manorama Co. Ltd. vs. Commissioner of Income-tax, Trivandrum [2008] 300 ITR 251 (SC)/[2008] 216 CTR 102 (SC)[10- 04-2008], wherein the Hon'ble Apex Court has held that the explanation to Section 115JB (2) of the Act has not provided any provision for addition of disallowance u/s 14A read with Rule 8D of the rules and the ld. AO is not empowered to add back the disallowance under the provision while calculating the book profit u/s 115Jb of the Act. Similar raito has been laid by Sobha Developers Ltd. vs. Deputy Commissioner of Income Tax, LTU, Bangalore [2021] 125 taxmann.com 72 (Karnataka)/[2021] 278 Taxman 338 (Karnataka)/[2021] 434 ITR 266 (Karnataka)[04-01-2021] and Principal Commissioner of Income-tax vs. J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka)/[2022] 287 Taxman 610 (Karnataka)/[2022] 446 ITR 712 (Karnataka)[13-04-2022]. The case of the assessee is also covered by the decision of the Special Bench in the case of ACIT vs. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)/[2017] 58 ITR(T) 313 (Delhi - Trib.) (SB)/[2017] 165 ITD 27 (Delhi - Trib.) (SB)/[2017] 188 TTJ 1 Printed from counselvise.com Page | 7 ITA No. 1945/KOL/2025 Veedol Corporation Limited; A.Y. 2017-18 (Delhi - Trib.) (SB)[16-06-2017]. Considering the ratio laid down in the above decisions, we are inclined to set aside the order of ld. CIT (A) and direct the AO to delete the addition. The ground no. 3 is allowed. 5. In the Result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 13.01.2026. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 13.01.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "