DEEPAK C DALAL,MUMBAI vs. ITO 12(1)(4), MUMBAI

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ITA 3086/MUM/2012Status: DisposedITAT Mumbai30 October 2015AY 2007-085 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal allowed the club membership fees by following precedent, upheld the disallowance of foreign travel expenses due to lack of business nexus, and restricted the disallowance of telephone expenses to 5%. Interest under sections 234A, 234B, and 234C was considered consequential.

What were the facts?

The assessee appealed against the disallowance of club membership fees, foreign travel expenses, and a portion of telephone expenses. The Assessing Officer and CIT(A) had disallowed these expenses, deeming them personal in nature.

What were the issues?

The primary issues were the allowability of club membership fees and foreign travel expenses as business expenditures, and the extent of disallowance for telephone expenses.

Which sections of the Income-tax Act were involved?

Section 234A,Section 234B,Section 234C

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Income Tax Appellate Tribunal, MUMBAI “D” BENCH, MUMBAI

Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI RAJESH KUMAR.

Hearing: 08.10.2015Pronounced: 30.10.2015

This appeal has been filed by assessee against the order of Commissioner of Income-Tax (Appeals)-21, Mumbai, dated 01.03.2012 for A.Y. 2007-08 on following grounds: “1. The Commissioner of Income-tax (Appeals) - 21, Mumbai (hereinafter referred to as the CIT(A) erred in upholding the action of the Income-tax Officer 12(1)(4), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs 10,04,416 being club membership fees on the ground that the same is personal expenditure and cannot be allowed as expense incurred wholly and exclusively for the purpose of business.

The appellant contends that on the facts and in circumstances of the case and in law, the CIT(A) ought not to have upheld the disallowance of the said expense inasmuch as the said same is a necessary business expenditure and hence, the disallowance requires to be deleted.

2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing foreign travel expenses of Rs 8,04,552 by treating the same to be personal in nature.

The appellant contends that on the facts and in law, the CIT(A) ought not to have upheld the disallowance of the said expense inasmuch as the said expense is incurred wholly and exclusively for the purpose of business and hence, the disallowance requires to be deleted.

3. CIT(A) erred in upholding the action of the Assessing Officer in disallowing 10 per cent of telephone expenses on the ground that the expenditure is incurred for personal purpose.

A.Y. 07-08 [Mr. Deepak C. Dalal vs. ITO] Page 3

The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the disallowance of the said expense and hence, the disallowance requires to be deleted.

The appellant, in the alternative, contends that the disallowance is on a higher side and requires to be reduced.

4. The CIT(A) erred in upholding the action of the Assessing Officer in charging interest under sections 234A, 234B and 234C of the Act.

The appellant contends that the Assessing Officer ought not to have charged the impugned interest under sections 234A, 234B and 234C inasmuch as-

(a) the Assessing Officer has not given an opportunity to the appellants before charging the said interest as required by the principles of nature justice,

(b) the charging of interest is not in accordance with law.”

2.

First issue is with regards to allowability of Rs.10,04,416/- being club membership fees. Learned Authorized Representative pointed out that this issue is covered in favour of assessee vide order of Hon’ble Bombay High Court in case of Otis Elevator Co. (India) Ltd. vs. CIT [1992] 195 ITR 682 (Bom.), wherein it has been held that payment of club fees made to promote business interests is allowable expenditure and similar view has been taken by ITAT, Mumbai ‘H’ Bench in case of Lubrizol India Pvt. Ltd. vs. ACIT in for A.Y. 2004-05. Nothing contrary has been brought to our knowledge on behalf of ITA No.3086/Mum/12 A.Y. 07-08 [Mr. Deepak C. Dalal vs. ITO] Page 4 Revenue. Facts being similar, so, following same reasoning, club membership fee is allowed as revenue expenditure. Assessing Officer is directed accordingly.

3.

Next issue is with regards to disallowance of foreign travel expenses of Rs.8,04,552/- by treating the same to be personal in nature. Assessee claimed said sum towards foreign travel expenses. Assessing Officer noticed that expenses were incurred for travelling to USA, Dubai and Thailand. The issue of foreign travel is not in dispute but its nexus with assessee’s business was doubted. So, same was disallowed, which was confirmed by CIT(A). The stand of assessee before us is that expenditure for foreign travel was for business purpose. On other hand, learned Departmental Representative relied upon the orders of authorities below.

3.1 After going through rival submissions and material on record, we find that there is nothing on record that assessee’s foreign trip has nexus with business of assessee. The latest market trends, global trends and development in business of securities and stock exchange were readily available in India itself by using information technology and for that purpose; there was no need for making foreign travel. Accordingly, Assessing Officer was justified in disallowing the same. We uphold the same.

4.

Next issue is with regards to disallowance of 10% out of telephone expenses on the ground that the expenditure is A.Y. 07-08 [Mr. Deepak C. Dalal vs. ITO] Page 5 incurred for personal purpose. Taking all facts and circumstances into consideration, we restrict the disallowance 5%. Last issue is with regards to interest u/s 234A, 234B and 234C of Act which is consequential.

5.

As a result, appeal filed by assessee is partly allowed as indicated above.

Pronounced in the open Court on this the 30th day of October, 2015.

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