BALRAJSINGH JAGJITSINGH KHARBANDA,MUMBAI vs. ADIT, CPC , BANGALORE
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 18.01.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2019-2020, raising following grounds :
The learned Hon'ble Commissioner of Income-tax (A) erred in confirming the disallowance of Associateship fees of Rs. 10,76,720 paid to Mumbai Cricket Association towards licence for using its facility wholly and exclusively
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for the purposes of his business disregarding the following for the purposes of his business disregarding the following for the purposes of his business disregarding the following factual aspects: factual aspects: a. The present area of the office premises of the assessee is a. The present area of the office premises of the assessee is a. The present area of the office premises of the assessee is not sufficient to cater the needs of the visitors or customers not sufficient to cater the needs of the visitors or customers not sufficient to cater the needs of the visitors or customers of the assessee. The sales team of the assessee also meets ssee. The sales team of the assessee also meets ssee. The sales team of the assessee also meets at Mumbai Cricket Association in view of shortage of space at Mumbai Cricket Association in view of shortage of space at Mumbai Cricket Association in view of shortage of space at the office. b. The assessee used the premises of Mumbai Cricket b. The assessee used the premises of Mumbai Cricket b. The assessee used the premises of Mumbai Cricket Association for meeting its Association for meeting its customers on regular basis. customers on regular basis. c. The expenses are incurred as licence for using the facility c. The expenses are incurred as licence for using the facility c. The expenses are incurred as licence for using the facility of the Association. of the Association. d. There is no enduring benefit availed by the assessee. d. There is no enduring benefit availed by the assessee. d. There is no enduring benefit availed by the assessee. e. The expense incurred is not a capital expenditure. f. e. The expense incurred is not a capital expenditure. f. e. The expense incurred is not a capital expenditure. f. The licence fee is not transferable and available only till The licence fee is not transferable and available only till The licence fee is not transferable and available only till the life of the proprietor of the business. life of the proprietor of the business. g. The expenses incurred is commensurate with the g. The expenses incurred is commensurate with the g. The expenses incurred is commensurate with the assessee's turnover for the year. assessee's turnover for the year. 2. The learned Hon'ble Commissioner of Income 2. The learned Hon'ble Commissioner of Income-ta (A) erred ta (A) erred in confirming the disallowance of Associateship fees of Rs. in confirming the disallowance of Associateship fees of Rs. in confirming the disallowance of Associateship fees of Rs. 10,76,720 made by the PC while passing an intimation u/s. 0 made by the PC while passing an intimation u/s. 0 made by the PC while passing an intimation u/s. 143(1) of the Income 143(1) of the Income-tax Act, 1961 though it is not an tax Act, 1961 though it is not an adjustment as prescribed u/s. 143(1)(a) of the Act and it is adjustment as prescribed u/s. 143(1)(a) of the Act and it is adjustment as prescribed u/s. 143(1)(a) of the Act and it is a debatable issue on the facts and circumstances of the a debatable issue on the facts and circumstances of the a debatable issue on the facts and circumstances of the case and in law. case and in law. 2. Briefly stated, facts of the case are that the assessee , facts of the case are that the assessee , an , facts of the case are that the assessee individual, filed return of income for the year under consideration filed return of income for the year under consideration filed return of income for the year under consideration which has been processed by the Centralized Processing Centre, which has been processed by the Centralized Processing Centre, which has been processed by the Centralized Processing Centre, Bangalore (CPC) on 02.06.2020 under Bangalore (CPC) on 02.06.2020 under section 143(1) of section 143(1) of the Income- tax Act, 1961 (in short ‘the Act’) (in short ‘the Act’) . In order u/s 143(1) of the Act . In order u/s 143(1) of the Act
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i.e.intimation order, the order, the Ld. CPC made upward upward adjustment of Rs.10,76,720/- to the returned income. to the returned income.
Aggrieved, the assessee filed appeal before the Ld. CIT(A) and Aggrieved, the assessee filed appeal before the Ld. CIT(A) and Aggrieved, the assessee filed appeal before the Ld. CIT(A) and claimed that this amount of Rs.10,76 claimed that this amount of Rs.10,76,720/-, which was paid for the , which was paid for the entry fee of the membership of Mumbai Cricket Association, entry fee of the membership of Mumbai Cricket Association, entry fee of the membership of Mumbai Cricket Association, Bandra, for the benefit of the employees for the benefit of the employees and for entertaining the for entertaining the customers of its business, therefore business, therefore, same is allowable expenditure , same is allowable expenditure in terms of section 37 of the in terms of section 37 of the Act. The Ld. CIT(A), however rejected however rejected the contention of the assessee observing as under: the contention of the assessee observing as under:
“5.1I have carefully considered the submissions of the 5.1I have carefully considered the submissions of the 5.1I have carefully considered the submissions of the appellant. appellant. appellant. Appellant Appellant Appellant submitted submitted submitted that that that the the the amount amount amount of of of Rs.10,76,720/ Rs.10,76,720/- paid to Shirke Infrastructure Ltd. which is paid to Shirke Infrastructure Ltd. which is managing the MCA Recreation Centre at Bandra Kurla aging the MCA Recreation Centre at Bandra Kurla aging the MCA Recreation Centre at Bandra Kurla Complex, Bandra East is club membership fee taken for the Complex, Bandra East is club membership fee taken for the Complex, Bandra East is club membership fee taken for the benefit of employees and entertaining the guests in its benefit of employees and entertaining the guests in its benefit of employees and entertaining the guests in its business. There is no doubt a business man has to business. There is no doubt a business man has to business. There is no doubt a business man has to entertain the guests for the business promot entertain the guests for the business promotion. However, ion. However, the issue here is, there are two kinds of payments to clubs. the issue here is, there are two kinds of payments to clubs. the issue here is, there are two kinds of payments to clubs. One is 'Club membership fee' paid as one time payment for One is 'Club membership fee' paid as one time payment for One is 'Club membership fee' paid as one time payment for getting the membership and second kind of payment is getting the membership and second kind of payment is getting the membership and second kind of payment is running expenditure paid for usage of club, food and running expenditure paid for usage of club, food and running expenditure paid for usage of club, food and beverages etc. Th beverages etc. There is no doubt that the expenditure ere is no doubt that the expenditure incurred for using the club food and beverages expenses for incurred for using the club food and beverages expenses for incurred for using the club food and beverages expenses for entertaining entertaining entertaining the the the business business business guests guests guests is is is an an an allowable allowable allowable expenditure, but the 'club membership fee' is not a revenue expenditure, but the 'club membership fee' is not a revenue expenditure, but the 'club membership fee' is not a revenue
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expenditure but it is a 'capital expenditure'. Sec expenditure but it is a 'capital expenditure'. Sec expenditure but it is a 'capital expenditure'. Section 37 reads as under. reads as under.
"37. (1) Any expenditure (not being expenditure of the "37. (1) Any expenditure (not being expenditure of the "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature described in sections 30 to 36 and not being in the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the nature of capital expenditure or personal expenses of the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for assessee), laid out or expended wholly and exclusively for assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed he purposes of the business or profession shall be allowed he purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits in computing the income chargeable under the head "Profits in computing the income chargeable under the head "Profits and gains of business or profession". and gains of business or profession".
Condition for allowance under section 37 Condition for allowance under section 37
Such expenditure should not be covered under the specific Such expenditure should not be covered under the specific Such expenditure should not be covered under the specific section i.e. sections 30 to 36. ection i.e. sections 30 to 36.
Expenditure should not be of capital nature Expenditure should not be of capital nature
The expenditure should not be of personal nature. The expenditure should not be of personal nature. The expenditure should not be of personal nature.
The expenditure should be incurred during the previous The expenditure should be incurred during the previous The expenditure should be incurred during the previous year.
The expenditure should have been incurred wholly or The expenditure should have been incurred wholly or The expenditure should have been incurred wholly or exclusively for th exclusively for the purpose of the business or profession. e purpose of the business or profession.
The business should be commenced. The business should be commenced.
5.2 In this case, the membership fee paid to the club is 5.2 In this case, the membership fee paid to the club is 5.2 In this case, the membership fee paid to the club is admittedly a one admittedly a onetime membership fee paid to a Club, MA ime membership fee paid to a Club, MA Recreation Centre, which is capital in nature.Therefore, the Recreation Centre, which is capital in nature.Therefore, the Recreation Centre, which is capital in nature.Therefore, the disallowance made by the AO ance made by the AO-CPC is in order and CPC is in order and confirmed. Ground number 1 is dismissed. confirmed. Ground number 1 is dismissed.”
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Before us, the Ld. Counsel of the assessee filed a Before us, the Ld. Counsel of the assessee filed a Before us, the Ld. Counsel of the assessee filed a paper book containing pages 1 to 117 including a containing pages 1 to 117 including a copy of the return of income copy of the return of income and tax audit report and tax audit report in prescribed form, i.e. form No. 3CD of .e. form No. 3CD of Income-tax Rules, and submitted that the and submitted that the club membership fee club membership fee cannot be disallowed or cannot be disallowed or prima facie adjusted while passing adjusted while passing u/s 143(1)(a) , because firstly, it is not an adjustment intimation u/s 143(1)(a) , it is not an adjustment prescribed under section 143(1)(a) of the Act,secondly, the prescribed under section 143(1)(a) of the Act prescribed under section 143(1)(a) of the Act disallowance of club membership fee club membership fee as capital expenditure u/s as capital expenditure u/s 37(1) of the Act isa 37(1) of the Act isa debatable issue ,therefore, the Ld. CPC is not therefore, the Ld. CPC is not justified in making adjustment invoking section 143(1)(a) of the Act. justified in making adjustment invoking section 143(1)(a) of the Act. justified in making adjustment invoking section 143(1)(a) of the Act. The learned counsel in support of the con The learned counsel in support of the contention, relied on the tention, relied on the decision of Tribunal in the case of decision of Tribunal in the case of ChetasGulabbhai Desai Vs DCIT ChetasGulabbhai Desai Vs DCIT in ITA No. 1934/Mum/2021 in ITA No. 1934/Mum/2021 and in the case of and in the case of SCV & LLP Vs DCIT in ITA No. 1756/Del/2020. DCIT in ITA No. 1756/Del/2020. The Ld. Counsel also justified The Ld. Counsel also justified that on merit also the expenditure incurred on e that on merit also the expenditure incurred on entries fees of the ntries fees of the club is allowable expenditure. In support of club is allowable expenditure. In support of contention, contention, he relied on the decision of the Tribunal in the case of DCIT Vs Del DCIT Vs Deloitte (i) the decision of the Tribunal in Touche Tohmatsu India P. Ltd in ITA No. 276,277,2200 & Touche Tohmatsu India P. Ltd in ITA No. 276,277,2200 & Touche Tohmatsu India P. Ltd in ITA No. 276,277,2200 & 3017/Mum/2016 , (ii) Decision of Hon’ble Suprem , (ii) Decision of Hon’ble Suprem , (ii) Decision of Hon’ble Supreme Court in the case of CIT Vs United Glass mfg Co. Ltd in Civil Appeal no. 6447 CIT Vs United Glass mfg Co. Ltd in Civil Appeal no. 6447 CIT Vs United Glass mfg Co. Ltd in Civil Appeal no. 6447 of 2012, (iii) ITA No. ITA No. ITA No. 6611/Mum/2008 ITA No. 6611/Mum/2008 in the case of DCIT v. Banc of America Securities (India) (P) Ltd. (Mum ITAT) DCIT v. Banc of America Securities (India) (P) Ltd. (Mum ITAT) DCIT v. Banc of America Securities (India) (P) Ltd. (Mum ITAT) (iv) ITA Nos.4281 & 4983/Mum/2011 for assessment year 4281 & 4983/Mum/2011 for assessment year 4281 & 4983/Mum/2011 for assessment year 2006-07in the case of in the case of Clariant Chemicals (I) Ltd. v. Addl. CIT (I) Ltd. v. Addl. CIT (Mum ITAT) and decision of Hon’ble Gujrat High Court in the case and decision of Hon’ble Gujrat High Court in the case and decision of Hon’ble Gujrat High Court in the case
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of PCIT Vs Bayer Vapi P Ltd reported in (2019) 106 PCIT Vs Bayer Vapi P Ltd reported in (2019) 106 PCIT Vs Bayer Vapi P Ltd reported in (2019) 106 taxmann.com 395 (Guj). taxmann.com 395 (Guj).
On the other hand, the Ld. Departmental Representa On the other hand, the Ld. Departmental Representa On the other hand, the Ld. Departmental Representative (DR) submitted that the Ld. CPC has made adjustment on the basis of submitted that the Ld. CPC has made adjustment on the basis of submitted that the Ld. CPC has made adjustment on the basis of the information available in the 3CD report the information available in the 3CD report, which was filed along which was filed along with return of income and there being varia with return of income and there being variation in the 3CD report in the 3CD report and in the return of income on the issue of member in the return of income on the issue of membership fee ship fee, the Ld. CIT(A) is justified in upholding the adjustment CIT(A) is justified in upholding the adjustment in terms of section in terms of section 143(1)(a) of the Act. On the merit, the learner DR submitted that the On the merit, the learner DR submitted that the On the merit, the learner DR submitted that the assessee has acquired club membership in the individual name assessee has acquired club membership in the individual name assessee has acquired club membership in the individual name which is for personal purposes and cann which is for personal purposes and cannot be held as acquired for ot be held as acquired for the purpose of the business. He submitted that any expenses for the purpose of the business. He submitted that any expenses for the purpose of the business. He submitted that any expenses for entertaining business customer during club visit, could have been entertaining business customer during club visit, could have been entertaining business customer during club visit, could have been allowed as business expenditure subject to verification, however the allowed as business expenditure subject to verification, however the allowed as business expenditure subject to verification, however the one-time entrance fee for acqu time entrance fee for acquiring club membership by individual iring club membership by individual member member member cannot cannot cannot be be be treated treated treated as as as business business business expenditure. expenditure. expenditure. He He He distinguished the cases relied upon by the assessee and submitted distinguished the cases relied upon by the assessee and submitted distinguished the cases relied upon by the assessee and submitted that in the cases relied upon by the assessee subject matter was that in the cases relied upon by the assessee subject matter was that in the cases relied upon by the assessee subject matter was related to the corporate membership related to the corporate membership acquired for the benefit of the acquired for the benefit of the employees as well as for entertaining business customers by the employees as well as for entertaining business customers by the employees as well as for entertaining business customers by the employees.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that the the Ld. Ld. CPC CPC has has made made disallowance disallowance of expenditure expenditure of of
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Rs.10,76,720/- invoking section 143(1)(a)(iv) of the Act, for the invoking section 143(1)(a)(iv) of the Act, for the invoking section 143(1)(a)(iv) of the Act, for the reason that amount disallowed by the Tax Auditor in t amount disallowed by the Tax Auditor in t amount disallowed by the Tax Auditor in the audit report i.e. form No. 3 i.e. form No. 3CD, has not been taken into account into account by the assessee while computing the total income in the return. The computing the total income in the return. The computing the total income in the return. The ld. CPC has also invoked section invoked section 143(1)(a)(ii) holding the same as 143(1)(a)(ii) holding the same as incorrect claim by the assessee. The CPC has also held this incorrect claim by the assessee. The CPC has also held this incorrect claim by the assessee. The CPC has also held this adjustment as an arithmetic arithmetic error u/s 143(1)(a)(iv) of the Act. u/s 143(1)(a)(iv) of the Act.
6.1 The relevant provisions of section 143(1)(a) of the Act The relevant provisions of section 143(1)(a) of the Act The relevant provisions of section 143(1)(a) of the Act referred by the Ld CPC are reproduced f are reproduced for ready reference:
(a) the total income or loss shall be computed after making the (a) the total income or loss shall be computed after making the (a) the total income or loss shall be computed after making the following adjustments, namely: following adjustments, namely:- (i) any arithmetical error in the return; ) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is (ii) an incorrect claim, if such incorrect claim is (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; apparent from any information in the return; apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year ) disallowance of loss claimed, if return of the previous year ) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the for which set off of loss is claimed was furnished beyond the for which set off of loss is claimed was furnished beyond the due date specified under sub due date specified under sub-section (1) of section 139; section (1) of section 139; (iv) disallowance of (iv) disallowance of expenditure or increase in income] increase in income] indicated in the audit report but not taken into account indicated in the audit report but not taken into account indicated in the audit report but not taken into account in computing the total income in the return; in computing the total income in the return; (v) disallowance of deduction claimed under "[section 10AA or (v) disallowance of deduction claimed under "[section 10AA or (v) disallowance of deduction claimed under "[section 10AA or under any of the provisions of Chapter VI under any of the provisions of Chapter VI-A under the A under the heading"C. - -Deductions in respect of certain incomes", if ] the tions in respect of certain incomes", if ] the return is furnished beyond the due date specified under sub return is furnished beyond the due date specified under sub return is furnished beyond the due date specified under sub- section (1) of section 139; or section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or (vi) addition of income appearing in Form 26AS or Form 16A or (vi) addition of income appearing in Form 26AS or Form 16A or Form16 which has not been included in computing the tota Form16 which has not been included in computing the tota Form16 which has not been included in computing the total income in the return: income in the return:
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Provided that no such adjustments shall be made unless an that no such adjustments shall be made unless an that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either intimation is given to the assessee of such adjustments either intimation is given to the assessee of such adjustments either in writing or in electronic mode: in writing or in electronic mode:” 6.2 On perusal of the tax audit report in Form No. 3CD filed by the On perusal of the tax audit report in Form No. 3CD filed by the On perusal of the tax audit report in Form No. 3CD filed by the assessee, we find that under the clause 21(a e find that under the clause 21(a), thetax tax auditor listed the items, which are in the nature of the capital are in the nature of the capital are in the nature of the capitalexpenditure, personalexpenditure, personalexpenditure, advertisement expenditure etc. which are not advertisement expenditure etc. which are not allowable u/s 37(1) of the Act. The relevant clause of the tax audit allowable u/s 37(1) of the Act. The relevant clause of the tax audi allowable u/s 37(1) of the Act. The relevant clause of the tax audi report is reproduced as under report is reproduced as underfor ready reference:
21 a Please furnish the details of amounts debited to the profit and loss account, being Please furnish the details of amounts debited to the profit and loss account, being Please furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal the nature of capital, personal advertisement expenditure etc advertisement expenditure etc Capital expenditure Capital expenditure Particulars Amount in Rs Personal expenditure Personal expenditure Particulars Amount in Rs Advertisement expenditure in any souvenir, brouchure, tract, Advertisement expenditure in any souvenir, brouchure, tract, Advertisement expenditure in any souvenir, brouchure, tract, pamphlet or the like published by a political party pamphlet or the like published by a political party Particulars Amounts in Rs. Expenditure incurred at clubs being entrance fees and Expenditure incurred at clubs being entrance fees and Expenditure incurred at clubs being entrance fees and subscripts Particulars Amount in Rs Membership Fees Membership Fees 1076720 Expenditure incurred at clubs being cost for club services and facilities used. Expenditure incurred at clubs being cost for club services and facilities used. Expenditure incurred at clubs being cost for club services and facilities used. Particulars Amount in Rs Expenditure by way of penalty or fine for violation of any law for the time being Expenditure by way of penalty or fine for violation of any law for the time being force Particulars Amount in Rs Expenditure by way of any other penalty or fine not covered above Expenditure by way of any other penalty or fine not covered above Expenditure by way of any other penalty or fine not covered above Particulars Amount in Rs. Interest on TDS Interest on TDS 986 Expenditure incurred for any purpose which is an offence or Expenditure incurred for any purpose which is an offence or which is prohibited by law which is prohibited by law Particulars Amount in Rs.
However,in clause 15 underSchedule BP: computation of computation of 6.3 However,in clause 15 under income from business or income from business or provision,of return of income, return of income, the assessee reported the amounts debited to the profit and loss assessee reported the amounts debited to the profit and loss assessee reported the amounts debited to the profit and loss
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account as expenditure disallowable u/s 37 amounting to Rs expenditure disallowable u/s 37 amounting to Rs expenditure disallowable u/s 37 amounting to Rs. 986/- only. This amount has been taken has been taken from clause 7 of 7 of Part A-OI of the return of income. The relevant clause 7 of return of income. The relevant clause 7 of Part A-OI is r OI is reproduced as under:
6.4 On perusal of the above information On perusal of the above information, which was was submitted by the assessee along with the return of income the assessee along with the return of income, it is evident that in it is evident that in the tax audit report the tax audit report, the auditor has included the amount the auditor has included the amount club membership fee of Rs.10,76,720/ embership fee of Rs.10,76,720/-, being entries fees and entries fees and subscription in the nature of not allowable subscription in the nature of not allowable expenditure expenditure. In the
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clause 21(a) of the proforma of tax audit report, there are separate clause 21(a) of the proforma of tax audit report, there are separate clause 21(a) of the proforma of tax audit report, there are separate rows for club membership subscription fee ( i.e. entrance fee) and rows for club membership subscription fee ( i.e. entrance fee) and rows for club membership subscription fee ( i.e. entrance fee) and expenses incurred for utilising the cl expenses incurred for utilising the club services. The tax auditor ub services. The tax auditor has not proposed any disallowance for expenses incurred for has not proposed any disallowance for expenses incurred for has not proposed any disallowance for expenses incurred for utilising club services, whereas he has inferred amount for utilising club services, whereas he has inferred amount for utilising club services, whereas he has inferred amount for acquiring membership of the club as not in the nature of amount acquiring membership of the club as not in the nature of amount acquiring membership of the club as not in the nature of amount allowable under section 37 (1) of the Act. allowable under section 37 (1) of the Act. However, in the return of income, the assessee has not included said amount of membership income, the assessee has not included said amount of membership income, the assessee has not included said amount of membership for computation of the income and hence, the Ld. CPC has made for computation of the income and hence, the Ld. CPC has made for computation of the income and hence, the Ld. CPC has made adjustment while passing u/s 143(1) of the Act. adjustment while passing u/s 143(1) of the Act.Before us, the Ld. Before us, the Ld. Counsel of the assessee submitted that Counsel of the assessee submitted that the adjustment made is the adjustment made is not falling u/s 143(1)(a) of the Act. falling u/s 143(1)(a) of the Act. In the decisions relied upon by the sions relied upon by the learned counsel of the assessee in the case of Chetas counsel of the assessee in the case of Chetas Gulabbhai counsel of the assessee in the case of Chetas Desai (supra) and SCV and LLP (supra), while processing the return Desai (supra) and SCV and LLP (supra), while processing the return Desai (supra) and SCV and LLP (supra), while processing the return of income under section 143 of income under section 143(1) of the Act no oppournity was no oppournity was granted to the assessee to put forth his stand before disallowing the granted to the assessee to put forth his stand before disallowing the granted to the assessee to put forth his stand before disallowing the expenditure , whereas in the instant case the assessee was granted expenditure , whereas in the instant case the assessee was granted expenditure , whereas in the instant case the assessee was granted due oppournity for the proposed disallowance by the learned CPC, due oppournity for the proposed disallowance by the learne due oppournity for the proposed disallowance by the learne therefore the ratio of decisions relied upon by the learned counsel of f decisions relied upon by the learned counsel of f decisions relied upon by the learned counsel of the assessee are not applicable over the facts of the instant case . the assessee are not applicable over the facts of the instant case . the assessee are not applicable over the facts of the instant case .
6.5 He submitted that whether the membership fee is in the He submitted that whether the membership fee is in the He submitted that whether the membership fee is in the nature of capital expenditure, is expenditure, is a debatable issue. . Before us, with regard to adjustment invoking section 143(1)(a)(iv) of the Act is regard to adjustment invoking section 143(1)(a)(iv) regard to adjustment invoking section 143(1)(a)(iv) concerned, the Ld. Counsel submitted that the tax auditor has not , the Ld. Counsel submitted that the tax auditor has not , the Ld. Counsel submitted that the tax auditor has not
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reported the expenditure as disallow reported the expenditure as disallowable, whereas he ha , whereas he has given only list of the expenditure under the clause 21 for th list of the expenditure under the clause 21 for the purpose of the e purpose of the tax audit report. We don’t agree with the contention of the ld. tax audit report. We don’t agree with the contention of the ld tax audit report. We don’t agree with the contention of the ld counsel of the assessee. In the clause 21, the items listed are the counsel of the assessee. In the clause 21, the items listed are the counsel of the assessee. In the clause 21, the items listed are the items, which are in the nature o items, which are in the nature of items disallowable u/s 37(1) o wable u/s 37(1) of the Act. The tax auditor has not consider The tax auditor has not considered the expenses incurred for ed the expenses incurred for utilising the services of the club as disallowable under section 37 (1) utilising the services of the club as disallowable under section 37 (1) utilising the services of the club as disallowable under section 37 (1) of the Act and therefore reported the amount therefore reported the amount as nil against the s nil against the relevant row. If the contention of the learned counsel of the relevant row. If the contention of the learned counsel of the relevant row. If the contention of the learned counsel of the assessee is accepted, accepted, then the tax auditor was required to mention e tax auditor was required to mention the amount against the cost of services availed by the assessee from the amount against the cost of services availed by the assessee from the amount against the cost of services availed by the assessee from club, but the tax auditor has not reported any such amount, which club, but the tax auditor has not reported any such club, but the tax auditor has not reported any such means in the relevant clause 21 (a means in the relevant clause 21 (a), he has reported the amounts he has reported the amounts which are in the nature of non ature of non-allowable category under section allowable category under section 37(1) of the Act. The Section 143(1)(a)(iv) prescribe The Section 143(1)(a)(iv) prescribes s for taking item of expenditure which have been indicated by the tax auditor in of expenditure which have been indicated by the tax auditor in of expenditure which have been indicated by the tax auditor in audit report as in the nature of disallowable, therefore, the CPC has audit report as in the nature of disallowable, therefore, the CPC has audit report as in the nature of disallowable, therefore, the CPC has validly followed the provisions of law while making adjustment in followed the provisions of law while making adjustment in followed the provisions of law while making adjustment in terms of section 143(1)(a)(iv) of the Act. terms of section 143(1)(a)(iv) of the Act.
6.6 As far as arguments that disallowance of club membership As far as arguments that disallowance of club membership As far as arguments that disallowance of club membership being debatable, we find w we find whether the club membership entry fee is hether the club membership entry fee is a capital expenditure or a capital expenditure or not, the Tribunal in the case of the Tribunal in the case of Deloitte Touche Tohmatsu India P Ltd (supra) he Tohmatsu India P Ltd (supra), relied on the decision of the , relied on the decision of the Hon’ble Supreme Court in the case of United Glass Mfg Co. Ltd Hon’ble Supreme Court in the case of United Glass Mfg Co. Ltd Hon’ble Supreme Court in the case of United Glass Mfg Co. Ltd
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(supra), wherein it is held that club membership fees for employees wherein it is held that club membership fees for employees wherein it is held that club membership fees for employees incurred by the assessee is business expenses under section 37 of ssessee is business expenses under section 37 of ssessee is business expenses under section 37 of the Act. In the instant case membership fee expenses have been the Act. In the instant case membership fee expenses have been the Act. In the instant case membership fee expenses have been incurred for acquisition of membership for assessee individual and incurred for acquisition of membership for assessee individual and incurred for acquisition of membership for assessee individual and not for employees. The membership entry fee paid by the assessee not for employees. The membership entry fee paid by the assessee not for employees. The membership entry fee paid by the assessee is not for corporate membership. Further, the Tribunal in the case orporate membership. Further, the Tribunal in the case orporate membership. Further, the Tribunal in the case of Dy. Commissioner of Income Dy. Commissioner of Income-tax Banc of America (supra) tax Banc of America (supra) held as under:
“13. Respectfully following the above decisions of the Hon'ble 13. Respectfully following the above decisions of the Hon'ble 13. Respectfully following the above decisions of the Hon'ble Jurisdictional High Court and the Tribunal in the assessee's Jurisdictional High Court and the Tribunal in the assessee's Jurisdictional High Court and the Tribunal in the assessee's own case and for the reasons as mentioned in para 5.3 in case and for the reasons as mentioned in para 5.3 in case and for the reasons as mentioned in para 5.3 in the case of SamtelColour Ltd. supra, we are of the view we are of the view the case of SamtelColour Ltd. supra, that that that admission admission admission fees fees fees paid paid paid towards towards towards corporate corporate corporate membership of the club is an expenditure incurred membership of the club is an expenditure incurred membership of the club is an expenditure incurred wholly and exclusively for the purpose of business wholly and exclusively for the purpose of business wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and not towards capital account as it only facilitates smooth and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add efficient running of a business enterprise and does not add efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprise and to the profit earning apparatus of a business enterprise and to the profit earning apparatus of a business enterprise and accordingly we are inclined to uphold the finding of the ld. accordingly we are inclined to uphold the finding of the ld. accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the disallowance of Rs.16.00 lacs made by deleting the disallowance of Rs.16.00 lacs made by deleting the disallowance of Rs.16.00 lacs made by the Assessing Officer. The grounds taken by the revenue are, the Assessing Officer. The grounds taken by the revenue are, the Assessing Officer. The grounds taken by the revenue are, therefore, rejected. therefore, rejected.” 6.7 Further, the Tribunal in the case of Further, the Tribunal in the case of Clariant Chemicals (I) Clariant Chemicals (I) Ltd. (supra) held that membership entries fees paid to the club held that membership entries fees paid to the club held that membership entries fees paid to the club expenditure is allowable is allowable. The relevant finding is reproduced as vant finding is reproduced as under:
“5. Before us, both the parties agreed that this issue had 5. Before us, both the parties agreed that this issue had 5. Before us, both the parties agreed that this issue had come up for consideration before the Tribunal in assessment come up for consideration before the Tribunal in assessment come up for consideration before the Tribunal in assessment year 2004–05, 05, in assessee’s own case wherein the Tribunal in assessee’s own case wherein the Tribunal while allowing the assessee’s claim has followed the while allowing the assessee’s claim has followed the while allowing the assessee’s claim has followed the decision of Hon'ble Jurisdictional High Court in Elevator Co. decision of Hon'ble Jurisdictional High Court in Elevator Co. decision of Hon'ble Jurisdictional High Court in Elevator Co. India Ltd. (supra). Thus, in view of the aforesaid admitted India Ltd. (supra). Thus, in view of the aforesaid admitted India Ltd. (supra). Thus, in view of the aforesaid admitted
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position and also the judicial preced position and also the judicial precedence of the earlier year, ence of the earlier year, we also hold that such an expenditure incurred on such an expenditure incurred on we also hold that account of payment of membership entrance fee paid account of payment of membership entrance fee paid account of payment of membership entrance fee paid to the club is an allowable expenditure to the club is an allowable expenditure and, accordingly, and, accordingly, we affirm the findings of the learned Commissioner we affirm the findings of the learned Commissioner we affirm the findings of the learned Commissioner (Appeals). Thus, gro (Appeals). Thus, ground no.1, as raised by the Revenue is und no.1, as raised by the Revenue is dismissed.” 6.8 In view of the decision In view of the decisions of the Tribunal cited above it is evident of the Tribunal cited above it is evident that membership entries fee to club that membership entries fee to club could be business expenditure could be business expenditure in case of “corporatemembership “corporatemembership”,but not in case of individual club not in case of individual club membership. In the case of Bayer Vapi P Ltd (supra) also the issue In the case of Bayer Vapi P Ltd (supra) also the issue In the case of Bayer Vapi P Ltd (supra) also the issue was related to membership of the employees of the company was related to membership of the employees of the company was related to membership of the employees of the company including Chairman and Managing Director. including Chairman and Managing Director. In the grounds raised In the grounds raised, the assessee has submitted that club membership was used by his the assessee has submitted that club membership was used by his the assessee has submitted that club membership was used by his employees and customers of business, but as per the normal rules employees and customers of business, but as per the normal rules employees and customers of business, but as per the normal rules of the club, such individual membership can’t be allowed by other of the club, such individual membership can’t be allowed of the club, such individual membership can’t be allowed than individual except as a guest accompanied with the said individual except as a guest accompanied with the said individual except as a guest accompanied with the said individual. Thus, as far as individual assessee, is concerned, individual. Thus, as far as individual assessee, is concerned, individual. Thus, as far as individual assessee, is concerned, disallowance of club membership disallowance of club membership for one time entry fee is not one time entry fee is not debatable and correctly disallowed by the CPC invoking section correctly disallowed by the CPC invoking section correctly disallowed by the CPC invoking section 143(1)(a) of the Act. On merit also, the claim of club membership 143(1)(a) of the Act. On merit also, the claim of club membership 143(1)(a) of the Act. On merit also, the claim of club membership one time entry fee is disallowable on the ground of personal e time entry fee is disallowable on the ground of personal e time entry fee is disallowable on the ground of personal expenditure. Even if the assessee uses it expenditure. Even if the assessee uses its club facility for soliciting club facility for soliciting customers, the recurring expenditure may be allowed as business customers, the recurring expenditure may be allowed as business customers, the recurring expenditure may be allowed as business expenditure subject to verification but not the one-time entry fee. expenditure subject to verification but not the one expenditure subject to verification but not the one The Hon’ble Madars High Court in the case of L Jairam Parwani L Jairam Parwani The Hon’ble Madars High Court in the case of vs DCIT reported in (2018) 93 taxmann.com 291 ( Madras) held vs DCIT reported in (2018) 93 taxmann.com 291 ( Madras) vs DCIT reported in (2018) 93 taxmann.com 291 ( Madras)
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that payment made for acquiring membership in a social club could that payment made for acquiring membership in a social club could that payment made for acquiring membership in a social club could not be allowed as business expenditure , more so, when there was not be allowed as business expenditure , more so, when ther not be allowed as business expenditure , more so, when ther no evidence to prove that membership of no evidence to prove that membership of Social club was acquired for Social club was acquired for entertaining customers by the assessee entertaining customers by the assessee. Therefore, the Ld. CPC is Therefore, the Ld. CPC is justified in making adjustment u/s 143 justified in making adjustment u/s 143(1)(a) the Act. The ground Act. The ground Nos. 1 and 2 of the appeal of the assessee of the appeal of the assessee are are accordingly dismissed.
In the result, appeal of the assessee is In the result, appeal of the assessee is dismissed dismissed.
Order pronounced in the nounced in the open Court on 07/0 /06/2023. Sd/- Sd/ Sd/- Sd/ (VIKAS AWASTHY VIKAS AWASTHY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 07/06/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai
