M/S ISAGRO (ASIA) AGRO CHEMICALS PVT LTD.,MUMBAI vs. DY CIT CIRCLE-6 (3)(1), MUMBAI

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ITA 6701/MUM/2019Status: DisposedITAT Mumbai01 July 2021AY 2013-143 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that there is no presumption that club expenses cannot be for business purposes and that the disallowance was based on surmises and conjecture. The Tribunal set aside the CIT(A)'s order and directed that the expenditure be allowed.

What were the facts?

The assessee incurred club expenses of Rs. 1,15,734/- which were disallowed by the AO. The assessee contended that these expenses were incurred by the Managing Director for business promotion, meeting customers and dealers. The CIT(A) confirmed the disallowance.

What were the issues?

Whether club expenses incurred by the Managing Director for business promotion are allowable as a deduction. Whether the disallowance was based on sufficient evidence or conjecture.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” Bench, Mumbai

For Respondent: Shri Manpreet Singh Duggle
Hearing: 05.05.2021Pronounced: 01.07.2021

O R D E R Per Shamim Yahya (AM) :- The appeal by the assessee is directed against the order of learned CIT(A) dated 16.1.2017 for assessment year 2013-14.

2.

The grounds of appeal

read as under :- “1. Ld. CIT(A) erred in confirming disallowance of Rs.1,15,734/- being club expenses incurred by the appellant observing that there is no evidence to show that said expenditure incurred by a Director are incurred wholly and exclusively for business purpose.

2. Ld.CIT(A) erred in not considering the fact that expenses were incurred through Managing Director of the company, not a shareholder for the purpose of the business of the company and there is nothing to show that expenses were not incurred for the business of the appellant.

3. Appellant prayed that disallowance made be deleted.”

3.

Brief facts of the case are that during the course of assessment proceedings, the AO observed from Column 21(a) of the Tax audit report that assessee incurred club expenses amounting to Rs.1,15,734/- and asked the 2 M/s. Isagro (Asia) Agro Chemicals P. Ltd.

assessee as to why disallowance in audit report were not taken into consideration during the computation of income and why the aforesaid amount should be allowed as deduction. In reply assessee submitted that expenses are in the nature of business promotion incurred by the Mg Director for the purpose of business for meeting with the customers, dealers, stockists of the company and hence are allowable as business expenditure. However, A.O. did not accept the contention of the assessee on the ground that assessee failed to establish that such club membership resulted in promotion of its business and it was a personal privilege entitling the member.

4.

Upon assessee’s appeal learned CIT(A) confirmed the disallowance.

5.

Against this order assessee is in appeal before us.

6.

We have heard learned Departmental Representative and perused the records. It will be gainful to refer to the wisdom expressed by the Assessing Officer in giving his reasons for rejecting assessee’s contention without narrating as to what enquiry he has made.

“The membership of the club is a personal privilege entitling the member to use and enjoy the property of the club and all other amenities, benefits and facilities provided therein. The club is therefore a meeting place for relaxation, recreation, entertainment, amusements and social interaction. But can it be said that membership of the club either by Director or any Executives of a company results in promotion of business. It may be remotely possible but then the onus is on the assessee to establish that the club membership has promoted its business, with evidence.”

7.

Learned CIT(A) while confirming the disallowance has not dealt with the above reasoning. In our considered opinion there is no presumption that there cannot be a business meeting in a club and it is only meant for relaxation. Moreover, there is nothing on record as to what evidence was required which assessee failed to provide. Hence, the disallowance being based upon surmises and conjecture is not sustainable. Hence, we set aside the order of learned CIT(A) and direct that the expenditure is to be allowed.

3 M/s. Isagro (Asia) Agro Chemicals P. Ltd.

8.

In the result, assessee’s appeal is allowed.

Pronounced in the open court on 1.7.2021.

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