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Income Tax Appellate Tribunal, “G ” BENCH, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI C.N. PRASAD
आदेश / O R D E R PER C.N. PRASAD, JM:
These two appeals are filed by the assessee against the orders of the Ld. CIT(A)-23, Mumbai dated 16.12.2013 pertaining to assessment years 2005-06 & 2006-07 arising out of the assessment orders passed u/s. 143(3) of the Act.
The only issue in these appeals are that the Ld. CIT(A) erred in upholding the action of the Assessing Officer in disallowing Club Membership Fees.
Brief facts are that the Assessing Officer while completing assessments for these two Assessment Years disallowed Club Membership fees on the ground that there is no business expediency in incurring the expenses, the club itself is not functional and assessee has not even been admitted as a member, the club is also situated far away from Mumbai and the frequent meetings in the club is also a remote possibility. The assessee is also not in a position to establish a single instance of using the club facility for enrichment of his business therefore he concluded that the entire payments made by the assessee in the name of club membership is not for business expediency, therefore not allowable expenses.
On appeal the Ld. CIT(A) sustained the order of the Assessing Officer against which the assessee went in appeal before the Tribunal. The Tribunal in and 2164/M/2010 dated 30.9.2010 restored the issue to the file of the Ld. CIT(A) for fresh adjudication and a speaking order on this issue. The Ld. CIT(A) by order dated 30.9. 2010 once again sustained the order of the Assessing Officer in holding that the assessee is not entitled for any deduction on account of club membership fee as there is no business expediency on the payments, expenditure have not been incurred wholly and exclusively for the purposes of the business of the assessee. Against this order, the assessee is in appeal before us.
The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and submits that the payment made by the assessee was towards club membership and club membership fee is allowable expenditure. He submits that the club membership fee was incurred for the purpose of the expediency of the business therefore is an allowable expenditure.
The Ld. Departmental Representative vehemently supports the orders of the authorities below and he submits that the assessee has not proved that these expenses/Club membership fee has been incurred for the expediency of the business and the expenses incurred towards club membership is also not paid to the club but was given to one Shri Ajay Purushty and it is only for personal purpose and no part of it can be allowed as business expenditure.
We have heard the rival submissions and perused the orders of the authorities below. In the first round of appeal, the Tribunal set aside this issue to the file of the Ld. CIT(A) observing as under :
“10. Having heard the rival contentions and having perused the material on record, we see no reasons to interfere in the findings of the authorities below. The assessee has not been able to even demonstrate that the entire amount of Rs 12,00,000 is for club membership and the business expediency, if any, in spending money to become member of an Aurangabad based club which is far away from assessee’s normal place of work. No doubt merely because club is not functional cannot be a ground enough for making the disallowance, as the authorities below have proceeded to hold, because it is the objective of the expensive, rather than end result obtained from the expenditure, which is material for deciding whether or not the expenses are incurred for the purposes of business. However, as no material has been filed before us either to demonstrate the business expediency of this expenditure, it is only fit and proper to remit the matter to the file of the CIT(A) for fresh adjudication on the question of admissibility of deduction in the light of business expediency of expenditure and also after determining whether the amount in question can indeed be said to have been incurred for the stated purposes. While so deciding the matter afresh, the CIT(A) will give a due and fair opportunity of hearing to the assessee and decide the matter by way of a speaking order in accordance with the law”.
7.1. In the set aside proceedings, the Ld. CIT(A) has examined the issue elaborately with reference to the averments of the Assessing Officer and the submissions of the assessee and concluded that the expenses incurred by the assessee are not wholly and exclusively for the purpose of business and the expenses are not allowable expenses observing as under:
“I have considered the facts of the case and the submissions made by the assessee. From the submissions made by the assessee, it is abundantly clear that the payment of Rs.12,00,000/- has not been expended wholly and exclusively for the purposes of the business of the assessee. Out of the Rs.12,00,000/-, the Assessing Officer has given a finding that an amount of Rs.1,25,000/ - has been paid towards contribution for others. This is based on the submissions made by the assessee himself in the course of the assessment proceedings. The assessee has not given details of this amount of Rs.1,25,000/- and has not shown that this was expended wholly and exclusively for the purposes of the business. The Assessing Officer's finding in the assessment order that this amount of Rs.1 ,25,000/ - was not related to the business of the assessee and, hence, not allowable has not been controverted by the assessee in the appellate proceedings. Hence, this amount is held to be not allowable as a business expenditure. As regards the payment of the balance amount of Rs.10,75,000/-, the Assessing Officer has given a finding that Rs.8,25,000/- has been made to the account of Shri Ajay Purushty and only an amount of Rs.2,50,000/- has been paid to the account of the club. It is not understandable as to why the payment of Rs.8,25,000/ - was made to the account of Shri Purushty directly and only an amount of Rs.2,50,000/ - was paid to the account of the club, when the payment is claimed to have been made towards the membership of the club, even if the said person was a promoter of the club. From the facts on record, it appears that the payments in question were made to Shri Purushty on a personal level and not for the purposes of the business of the assessee. The assessee has himself submitted that Shri Purushty had allotted contracts to the assessee and had also released the payments to him from time to time. It is, therefore, clear that the assessee has made the payments of Rs.12,00,000/ - in question out of gratitude towards the assessee and not in the course of and in connection with the earning of his business income. The assessee appears to have appreciated the help given by Shri Purushty and in appreciation of such help, the assessee has paid him the money in question in the garb of membership fees of the club. Even assuming that Shri Purushty was in a position to give certain benefits in the nature of awarding contracts to the assessee, the payments made by the assessee cannot be said to have been incurred wholly and exclusively for the purposes of the business of the assessee. The expenditure which can be allowed in relation to any activity is only such which is linked to the earnings of the income from such activity. The assessee has not shown that the above payments have been made and are in the nature of expenses incurred wholly and exclusively for the purpose of the business.
3.3.1 Another important aspect which is noticeable is that the assessee could not produce the club membership card or any other evidence relating to the allotment of club membership. It is worthwhile to note that the club is situated at Aurangabad which is many hundred kilometers away from Mumbai. How the alleged membership of the club would be beneficial to the business interest of the assessee, when the assessee's business is located at Mumbai, and the assessee is also residing in Mumbai, is not understandable. No doubt, how the business is to be conducted is best to be left to the discretion and judgment of the businessman, however, while assessing the total income of the assessee, the Assessing Officer is duty bound and well within his rights to examine whether the amount claimed as deduction was expended wholly and exclusively for the purposes of the business and whether the claim of the assessee to the expenditure was allowable as per the provisions of the Income-tax Act or not. The facts on record clearly show that the amount claimed as deduction has not been expended wholly and exclusively for the purposes of the business of the assessee. The payments made are in the nature of personal payments. Even if it is accepted that the payments have been made for the purpose of obtaining membership of the club, the assessee has not been able to establish the business expediency of acquiring the membership of a club which is hundreds of kilometers away from his place of business. Further, the assessee has also not furnished any evidence to show that the club has become operational and was capable of being used for business purposes. Even if it is assumed that the payments have been made for the purpose of obtaining membership of the club, the expenditure would be in the nature of personal expenditure.
3.3.2 In view of the aforesaid reasons, I am of the opinion that the assessee has not been able to prove the business expediency of expenditure and the facts on record clearly establish that the payments in question which have been claimed as an expenditure have not been incurred wholly and exclusively for the purposes of business of the assessee. The deduction of Rs.12,00,000/- claimed by the assessee on account of club expenses cannot, therefore, be allowed. The action of the Assessing Officer of disallowing the club expenses of Rs. 12,00,000/- is, therefore, upheld. This ground of appeal filed by the assessee is dismissed.”
7.2. On going through the order of the Ld. CIT(A), it is very clear that the expenses/club membership fee paid by the assessee cannot be allowed as business expenditure as it was not incurred wholly and exclusively for the purpose of business. The assessee could not prove with evidences that the amounts paid for club membership fee was incurred for the purpose of the business. None of the findings of the Ld. CIT(A) have been rebutted with evidences and therefore there is no valid reason to interfere with the findings/decision of the Ld. CIT(A) in upholding the disallowance made by the Assessing Officer.
In the result, both the appeals filed by the assessee are dismissed.
Order pronounced in the open court on 24th August, 2016.