ASST CIT 14(1)(2), MUMBAI vs. DHL EXPRESS (INDIA) P. LTD, MUMBAI

In this appeal, the solitary Ground raised by the assessee reads as under:-

Briefly put, the relevant facts are that the respondent assessee is engaged in the business of international courier services and operation of pick-up and delivery of express courier shipments. In the course of assessment proceedings, the Assessing Officer noted that assessee had debited a sum of Rs.72,90,873/- on account of expenditure incurred on payments to Clubs. On being show caused, assessee submitted that said expenses were incurred for promotion of business and hence were allowable. The Assessing Officer disagreed with the assessee and according to him there was no material to suggest that such expenditure had resulted in promotion of business. Accordingly, he disallowed a sum of Rs.72,90,873/- in respect of Club payments.

Before CIT(A), assessee reiterated its stand that such expenditure have been incurred purely on account of business exigency and is a genuine expenditure incurred by the assessee. The CIT(A) noted that similar disallowance had come up in assessment year 2005-06 also and the action of the Assessing Officer was set-aside. In para 3.2 of his order, the CIT(A) has reproduced the discussion in the order of the CIT(A) for the earlier assessment year 2005-06. Following the precedent, as also the judgment of the Hon’ble Supreme Court in the case of CIT v. United Glass MGF Co. Ltd., Civil Appeal No.6447 of 2012 dated 12th September, 2012, the CIT(A) has deleted the addition.

Before us, Ld. Departmental Representative has merely reiterated the discussion in the assessment order to point out that expenses on account of Club payments do not prove that it was incurred for the purposes of business.

On the other hand, the Ld. Representative for the assessee pointed out that the CIT(A) has made no mistake in deleting the addition by following the judgment of the Hon’ble Supreme Court in the case of United Glass MGF Co.Ltd.(supra). It has also been pointed out that there is no dispute to the fact-situation that the impugned Club expenditure has been incurred on the employees/officers of the assessee company.

We have carefully considered the rival submissions. Quite clearly, the CIT(A) has deleted the disallowance primarily following his order for assessment year 2005-06. Though at the time of hearing, none of the parties could clearly point out the fate of the decision of the CIT(A) for assessment year 2005-06, but even otherwise also the appeal is liable to be disposed of in the light of the judgment of the Hon’ble Supreme Court in the case United Glass MGF Co. Ltd.(supra). The CIT(A) took note of the fact-situation in the instant case for assessment year 2005-06, wherein it has been noted that the membership of the Club was taken in the name of the assessee company and not in the name of the employees, the expenses were for use of Club facilities by the employees. On this basis, CIT(A) proceeded to hold that, as in the past year, the impugned expenditure was of the assessee company, though for the purpose of allowing certain benefits to its employees. Before us, there is no challenge to the fact-situation and under these circumstances it has to be held that expenditure incurred for the purposes of welfare of the employees is an allowable expenditure, being payments made to clubs, following the judgment of the Hon’ble Supreme Court in the case of United Glass MGF Co. Ltd.(supra). In this view of the matter, we hereby affirm the decision of the CIT(A) and Revenue fails in its appeal.

In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on 18/11/2016