DCIT, CIR-5(1), KOLKATA, KOLKATA vs. M/S SPENCER'S RETAIL LTD., KOLKATA

- This Revenue’s appeal for assessment year 2009-10 arises against Commissioner of Income Tax(Appeals)-2, Kolkata’s order dated 25.07.2016, passed in case No.981/CIT(A)-2/14-15, reversing the Assessing Officer’s action inter alia disallowing / adding assessee’s club expenditure claim, ESOP, section 36(1)(va) disallowance on account of late payment of employees’ contribution to ESI/PF and Section 14A r.w. Rule 8D disallowance of ₹20,32,700/-; respectively involving proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.

This assessee is a company engaged in retail trading of food items, non-food items, music, books etc. It claimed its club expenditure of ₹17,39,624/- in its books of account. Its case therein was to have incurred the DCIT, Cir-5(1), Kol. Vs. M/s Spencer’s Retail Ltd. Page 2 above expenses primarily for organizing seminars and training workshops for its employees’ throughout the country. An amount of ₹13,76,485/- represents its subscription as against the cost of using club facilities of ₹3,63,139/-. The Assessing Officer declined assessee’s claim by treating the above club services to be in the nature of its director’s personal expenses instead of business expenditure. All this resulted in the impugned disallowance. The CIT(A) accepts assessee’s challenge to the impugned disallowance by concluding that the assessee had duly proved the impugned expenditure as incurred for entrance fee, subscription as well as holding seminars and training programmes etc., exclusively for business purposes. There is a category finding of fact that assessee’s directors had never attended or used the above club. The same has gone unrebutted at the Revenue’s behest. We find that various hon'ble courts in CIT vs. Sundaram Industries Ltd. 240 ITR 335, Otis Elevatdor Co. (India) Ltd. 195 ITR 682, CIT vs. Groz Beckert Asia Ltd 31 taxmann.com 115 hold that club expenses incurred to facilitate smooth running as allowable business expenditure. We thus affirm CIT(A)’s finding under challenge.

The Revenue’s next substantive ground challenges the CIT(A)’s order holding assessee’s employees’ stock option “ESOP” expenditure disallowance of ₹17,70,000/- as revenue expenditure. We notice herein as well that Assessing Officer nowhere doubted all other aspects of assessee’s ESOP scheme. He declined the corresponding expenditure claimed only on the ground that it was not revenue expenditure. The CIT(A) follows this Tribunal’s Special Bench decision in Biocon Ltd. vs. ACIT 35 taxmann.com 335 adjudicating the very issue in assessee’s favour. Learned Departmental Representative fails to dispute that the very legal position continues till date. We therefore reject Revenue’s instant second substantive ground as well.

The Revenue’s third substantive ground pleads that CIT(A) erred in granting relief of ₹48,96,848/- to the assessee thereby deleting the u/s 36(1)(va) disallowing of employees’ ESI/PF on account of late payment. Suffice to say, we find that assessee had deposited the said employees’