Tribunal allows appeal, reduces delay due to Covid, permits club fees as business expense.

The Tribunal condoned the delay in filing the appeal, reducing the effective delay to 90 days due to non-deliberate reasons, including the Covid-19 pandemic. Regarding the disallowance of club membership fees as a business expense, the Tribunal found the expenditure of Rs. 22,60,000/- beneficial for the company's business growth and interactions, despite being in the director's name. Consequently, the Tribunal allowed the appeal, directing the deletion of the disallowed amount.

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Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of club membership fees as a business expense.

Summary:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of around 600 days. The delay was attributed to the earlier authorized representative not informing the assessee promptly about the outcome of the impugned order and the subsequent Covid-19 pandemic, which hindered the timely filing. The Tribunal found the delay to be non-deliberate and condoned it, reducing the effective delay to 90 days after excluding the Covid-19 period.

2. Disallowance of Club Membership Fees:
The main grievance was the disallowance of Rs. 22,60,000/- paid as club membership fees to the Cricket Club of India. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the expenditure, considering it non-genuine and non-business related, as the company had wound up its business on the payment date and the membership was in the director's name under the "Member's Son Category."

The Tribunal examined the facts and judicial precedents, including the Supreme Court's decision in CIT Vs. United Glass MFG Co. Ltd., which held that club membership fees for employees are business expenses under section 37(1) of the Income Tax Act, 1961. The Tribunal noted that the company could not qualify for corporate membership due to turnover criteria and that the director's individual membership was more cost-effective and beneficial for the company's business interactions.

The Tribunal concluded that the expenditure was for the company's benefit, even though the director availed the membership in an individual capacity. The expenditure was deemed allowable as it facilitated business growth and interactions, benefiting the company/LLP.

Conclusion:
The Tribunal allowed the appeal, directing the AO to delete the addition of Rs. 22,60,000/-. The order was pronounced in the open court on 25/05/2023.

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