TaxTMI 
TaxTMI 
2026 (8) TMI 1722
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....sociation towards subscription fees, membership fees & cost of services, and claimed them as business expenses. The AO found that out of the said payments, a sum of Rs. 66,729/- was not laid out for business purposes. Accordingly, the AO disallowed the same and added it to the assessee's total income. 3. The aggrieved assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), it was submitted that by incurring the impugned expenses, the assessee company enabled its executives to meet business associates, collaborators, and customers in an informal environment, which helped derive intangible benefits. Hence, the expenses incurred were out of commercial/business expediency. It was also submitted that the AO, on an ad hoc basis, disallowed a sum of Rs. 66,729/- out of total expenditure incurred toward club expenses without assigning any reason and without providing an opportunity. Accordingly, it was prayed to the learned CIT(A) to delete the disallowance made by the AO. However, the learned CIT(A) confirmed the disallowances made by the AO by observing as follows: 5.4 Ground of appeal no. 4 is against disallowance of Rs. 66,729/- towards club s....
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....d cost of services, and claimed the same as business expenditure. The AO, however, held that a sum of Rs. 66,729/- was not incurred for business purposes and accordingly disallowed the same. 7.1 On going through the assessment order, we find that the AO has not given any specific reason or basis for arriving at the disallowance of Rs. 66,729/- only. The AO has accepted part of the club expenses and disallowed the balance amount on an ad hoc basis. There is no finding as to which particular payment or expenditure was not incurred for business purposes. There is also no discussion as to how the figure of Rs. 66,729/- was arrived at. Thus, once part of the expenditure under the same head has been accepted as business expenditure, the remaining expenditure could not have been disallowed merely by stating that it was not laid out for business purposes, without examining the nature and purpose of such expenditure. 7.2 Before the learned CIT(A), the assessee specifically explained that the club facilities were made available to its executives for meeting business associates, collaborators and customers in an informal environment and that such expenditure was incurred on account of c....
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.... the case of subscription to clubs, in so far as the assessee was concerned, the expenditure was incurred to promote and foster its business relationship. The object of the assessee was that its directors by remaining as members in some of the city clubs would give them certain social status, and it was obvious that by being members of the club, they would be able to meet various kinds of people in a calm and cool atmosphere of the club and because of the meeting they would develop business relationship, benefiting the assessee. Therefore, it could not be said that the possible advantage to the assessee was remote and far fetched. No doubt, there might be a personal benefit enjoyed by the director by the various types of amenities afforded at the club. But the personal benefit that went to the director was incidental to the membership of the club. The question whether a particular expenditure is allowable or not has to be tested from the point of view of the person expending the same and the object with which he incurred the expenditure. The assessee had not spent the money with the object of providing a personal relaxation to the director, but it was incurred to promote its busine....
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....ned, we find that a series of judgements have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this Court. Even otherwise, we are of the view that it is a pure business expense. 7.8 Thus, in our considered view, the allowability of club expenditure has to be examined having regard to its nature, purpose and nexus with the business of the assessee, rather than by making an ad hoc disallowance. In the present case, the assessee is a company, and the expenditure was incurred towards membership, subscription, and the cost of services of the clubs. The assessee explained that its directors and officials used such facilities for business interactions with customers, associates, and collaborators. More importantly, neither the AO nor the learned CIT(A) has identified any particular expenditure as being personal in nature or demonstrated that the same was unrelated to the business of the assessee. The Revenue has also not explained why only Rs. 66,729/- out of the total club expenditure was considered non-bus....
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.... investment shown in the financial statements. Hence, the investment shall be deemed to be made out of own fund only and disallowances of interest expenses as per clause (ii) of Rule 8D of the IT Rules are required to be made at NIL. 9.2 Regarding the disallowances of administrative expenses, the learned AR again argued that the assessee incurred no expenditure in relation to the investment. However, the learned AR alternatively submitted that if any sum of administrative expenditure needed to be disallowed. Then, such disallowances of expenses shall not exceed the exempted income of Rs. 6000/-. In this regard, the learned AR relied on the decision of the Delhi Bench of the Tribunal in Vireet Investment, reported in 188 TTJ 1. 9.3 On the contrary, the learned DR vehemently supported the findings of the authorities below. The learned DR argued that the assessee's investments are capable of yielding exempt income; therefore, the provisions of section 14A of the Act r.w.r. 8D of the rule are attracted. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The AO made disallowance of Rs. 1,12,42,750/- u/s 14A of the Act ....
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.... expenses claimed by assessee under the provision to rule 8D. 10.3 Accordingly, we delete the entire disallowance of interest expenditure made under Rule 8D(2)(ii). As regards administrative expenditure, considering the facts of the case, the disallowance u/s 14A of the Act is restricted to Rs. 6,000/-, being the amount of exempt income earned by the assessee during the year. The AO is directed accordingly. Hence, the ground of appeal raised by the assessee is partly allowed. 11. In the result, the assessee's appeal is partly allowed. 12. Coming to the assessee's appeal in ITA No. 1959/Bang/2025 for A.Y. 2014-15 13. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of depreciation and additional depreciation of Rs. 4,04,506/- claimed u/s 32(1)(ii) and (iia) of the Act. 13.1 The relevant facts are that the AO noticed that the assessee on 31st March 2014 capitalized "Sansera Bore Finishing Machine" for Rs. 23,11,464/- and claimed depreciation and additional depreciation on the same at 7.5% and 10%. The AO required the assessee to furnish the installation certificate, which the assessee failed to provide. Therefo....
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....eciation and additional depreciation for want of an installation certificate, which is unjustified, and the additions/disallowances deserve to be deleted. 15. The learned DR, on the contrary, vehemently supported the findings of the lower authorities. 16. We have heard the rival contentions of both the parties and perused the materials available on record. The issue relates to disallowance of depreciation and additional depreciation of Rs. 4,04,506/- on the "Sansera Bore Finishing Machine" capitalised by the assessee on 31.03.2014. The AO disallowed the claim mainly for want of an installation certificate, and the learned CIT(A) confirmed the same. 16.1 We find that the assessee has explained that the machine was assembled and installed by its own in-house technical team and, therefore, there was no third-party installation certificate. The assessee also furnished the Machine Handover and Feedback Form dated 27.03.2014 to establish that the machine was installed and put to use before the end of the financial year. Before us, the assessee has further relied upon the internal installation documents and the SAP record relating to capitalisation and deployment of the machine f....
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....re, the AO disallowed the claim of additional depreciation of Rs. 15,62,005/- and added it to the total income of the assessee. 17.2 The aggrieved assessee preferred an appeal before the learned CIT(A) and submitted that the expenditure incurred towards the electrical installation is part and parcel of the machinery and integral to the plant and machinery installed in the factory. The expenditure was incurred to bring the assets (Plant & Machinery) to their intended use. Therefore, the electrical installation cannot be considered in isolation from the plant & machinery. The assessee further claimed that the additional depreciation on electrical installation has been claimed only with respect to electrical installation being integral to the plant & machinery. Therefore, the claim of additional depreciation should be allowed, and the addition made by the AO be deleted. The assessee in this regard also placed reliance on several case laws. However, the learned CIT(A), after considering the facts in totality, partially allowed the assessee's ground of appeal and confirmed 50% disallowances by observing as under: "It is therefor clear from the wordings of the section tha....
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....ithout examining the nature of individual electrical installations, allowed additional depreciation only to the extent of 50% on an ad hoc basis. Accordingly, it was argued that the entire expenditure qualifies for additional depreciation u/s 32(1)(iia) of the Act. The Ld. AR relied upon the decisions in Subrata Dutta Choudhary (197 Taxman 71), Madhu Industries (132 TTJ 233) and Century Tiles (152 ITD 327). 19. The learned DR, on the other hand, supported the finding of the learned CIT(A) and prayed before us to sustain the disallowances of 50% of the additional depreciation. 20. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us whether the electrical installation in dispute is forming part of the assessee's manufacturing setup and consequently eligible for additional depreciation u/s 32(1)(iia) of the Act. The AO treated the entire electrical installation as furniture and fittings and consequently disallowed additional depreciation of Rs. 15,62,005/- only. 20.1 We find that the electrical installations in question consist of electrical wires, switches, plugs, cables, MCB boxes, control panels and....
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.... We also note that electrical installations forming an integral part of plant and machinery must be considered as plant & machinery and this is covered in favour of the assessee by the decision of Hon'ble Punjab & Haryana High court in the case of Subrata Dutta Choudhary reported in 197 Taxman 71 (Punjab ), decision of coordinate bench of Ahmedabad Tribunal in case Madhu Industries (132 TTJ 233) and Century Tiles (152 ITD 327). The relevant observation of the Tribunal in Century Tiles for reference is extracted as under: 39. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the assessee claimed depreciation at the rate of 15 per cent. on electric installations which were part and parcel of plant and machinery of the assessee. The Assessing Officer allowed depreciation at the rate of 10 per cent. to the assessee on the electric installations on the ground that as per the Income-tax Rules, depreciation on electric installations is allowable at the rate of 10 per cent. only for the assessment year 2008-09. The Commissioner of Income-tax (Appeals) by following the decisio....