TaxTMI 
TaxTMI 
2019 (5) TMI 1596
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....mbai erred in confirming the disallowance of business promotion expenses of Rs. 9,98,215/- u/s 37(1) of the Act made by the AO, being club membership fees of Appellant's representative, holding the same as expense not related to the business of Appellant. The Appellant submits that the business promotion expenses is incurred wholly and exclusively for the purpose of business of the Appellant and same shall be allowed as deductible revenue expense u/s 37(1) of the Act. Your Appellant craves leave to add, to alter or to amend the aforesaid grounds of appeal." 3. The brief facts of the case are that the assessee is engaged in trading in shares & securities. The assessment was originally framed by AO u/s 143(3) of the 1961 Act vide assessment order dated 19.11.2012 . Later the revisionary proceedings u/s. 263 of the 1961 Act were concluded by learned CIT-1, Mumbai which culminated into an revisionary order dated 12.03.2015 passed u/s. 263 of the 1961 Act, wherein it was held by learned CIT-1 that an assessment order dated 19.11.2012 passed by AO u/s. 143 of the Act is erroneous so far as prejudicial to the interest of revenue which was set aside by learned CIT with directions ....
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....th various customers, bankers etc. . The assessee submitted that owing to reasons as stated above, the said expenses were claimed as revenue expenses. During the assessment proceedings conducted by the AO u/s 143(3) read with Section 263 of the 1961 Act , the assessee however admitted that there was no agreement between the assessee and said Smt Lata Vaswani and that she was also not an employee of the assessee company. It was further confirmed by assessee that no other payment was made to said Mrs Lata Vaswani in the past or in subsequent assessment years. 5. The AO rejected the contentions of the assessee and made the additions to the income of the assessee by holding that these expenses were not incurred wholly & exclusively for the purpose of business of the assessee and the assessee had failed to prove commercial expediency , vide assessment order dated 01.03.2016 passed by the AO u/s 143(3) read with Section 263 of the 1961 Act by holding as under :- "5. I have carefully considered the submissions and reliance placed by the assessee on case laws and the same are not accepted. The assessee has claimed business promotion expenses amounting to Rs. 9,98,215/-. On perusal of th....
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.... bring out the relevant facts and prove the existence of commercial expediency. In the instant case, as discussed in detail above, the assessee has failed to provide primary facts let alone prove commercial expediency. Therefore, it is being held that the assessee has for reasons best known to itself, discharged liability of Mrs. Lata Vasvani by paying an amount of Rs. 9,98,215/- on her behalf. Since the impugned expenditure is not related to the assessees' business, it is not allowable u/s 37(1) of the Act. Hence, the claim of business promotion expenses amounting to Rs. 9,98,215/- is being disallowed as unrelated to business activity of the assessee company and added back to the total income. Penalty proceedings u/s 271(1)[c) of the I.T. Act, is being initiated for furnishing inaccurate particulars of its income." 6. In the mean time , the revisionary order dated 12.03.2015 passed by Ld. CIT u/s. 263 was challenged by the assessee before the Mumbai-tribunal and the tribunal was pleased to dismiss the appeal of the assessee in ITA no. 2094/Mum/2015 for AY 2010-11 vide appellate orders dated 15.01.2016 , by holding as under:- " 7. Before going into the merits of the issue, w....
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.... one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282." 8. Based on the legal principles enunciated by the Hon‟ble Courts, if we examine the facts available in the present case, we notice that the assessee‟s explanation that the club membership fee was paid for a representative of the assessee was accepted by the AO on the face of it. The documents furnished along with the reply letter furnished by the assessee clearly show that the membership fee was paid for Mrs. Lata Vasvani. There should not be any dispute that the club membership fee was allowed u/s 37(1) of the Act, where in there is a requirement to show that the expenditure was incurred for the ....
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.... The present appeal is against the order passed u/s 143(3) r.w.s. 263 of the IT Act dated 01.03.2016. 6. Ground No. 1 is general in nature, which does not require any specific adjudication hence, dismissed. 7. Ground No. 2 relates to disallowance of Rs. 9,98,215/- towards promotion expenses u/s 37(1) of the IT Act, being club membership fees. During the course of assessment proceedings, the AO observed that the club membership has been taken in the name of Mrs. Lata Vasvani, whom the appellant claimed to be its representative. After considering the submission of the appellant, the AO has held that the appellant has claimed business promotion expenses amounting to Rs. 9,98,215/-. This is the payment which has been made to Mumbai Cricket Association (MCA) towards life membership fees of one Mrs. Lata Vasvani, which according to the appellant is its representative. Further, it has been surfaced that Mrs. Lata Vasvani is neither a director nor an employee of the appellant company, under which she has been appointed as their representative. It is farther noticed that no other payment has been made to Mrs. Lata Vasvani in the past or in subsequent assessment years. The appellant has ....
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.... Mrs. Lata Vasvani is not associated with the appellant company and is totally a third person and the expenditure incurred in her name is unrelated to the business activity of the appellant company. The AO has disclosed these aspects in its assessment order that the expenditure incurred is not remotely related wholly and exclusively for the purpose of business activity of the appellant company the fact remains that Mrs. Lata Vasvani is not an employee of the of the appellant company nor a director of the appellant company and therefore the expenditure incurred by the appellant company on behalf of Mrs. Lata Vasvani not at all falls under any of the conditions as laid down u/s 37(1) of the IT Act and therefore the claim of the appellant is totally false and an attempt of misuse of the provisions of section 37(1) of the IT Act. The appellant company does not have any obligation to bear the liability of a third person who is not related to the company in any manner. Therefore, I did not find any reason to interfere in the findings of the AO and hence, Ground No. 2 is dismissed." 8. Now the matter is before tribunal at the behest of the assessee. The Ld. Counsel for the assessee ex....
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.... the assessee. The learned DR submitted that there is no evidence on record to prove that these membership and entrance fees paid to Mumbai Cricket Association for taking club membership in the name of Mrs Lata Vaswani was for promoting the business of the assessee. It was submitted by learned DR that no agreement entered into by assessee company with said Mrs. Lata Vasvani was produced before the authorities below to prove that she will be developing business of the assessee. It was submitted that onus is on the assessee to prove that these club membership expenses were incurred wholly and exclusively for business of the assessee which was not discharged by the assessee and onus is not on the revenue to issue summons u/s. 131 or notices u/s. 133(6) as the assessee has not discharged its onus itself which was on the assessee as per law. The Ld. DR relied upon the appellate order passed by Ld. CIT(A) and prayer is made to uphold the well reasoned order passed by learned CIT(A). It was submitted that these are club expenses toward entrance fees and membership of an unrelated party namely Mrs. Lata Vasvani and it cannot be said that these are expenses were incurred wholly and exclusiv....
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....dicial to the interest of the revenue, vide revisionary orders dated 12.03.2015 passed u/s 263 of the 1961 Act. The assessee went in appeal before tribunal challenging the revisionary order dated 12.03.2015 passed by learned CIT-1,Mumbai u/s 263 , wherein tribunal was pleased to dismiss the appeal of the assessee vide appellate orders dated 15.01.2016 in ITA no. 2094/Mum/2015 for AY 2010-11, by holding as under:- " 7. Before going into the merits of the issue, we would like to discuss about the legal position with regard to the power of Learned CIT to invoke revision proceedings under section 263 of the Act. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the....
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....ssessee‟s explanation that the club membership fee was paid for a representative of the assessee was accepted by the AO on the face of it. The documents furnished along with the reply letter furnished by the assessee clearly show that the membership fee was paid for Mrs. Lata Vasvani. There should not be any dispute that the club membership fee was allowed u/s 37(1) of the Act, where in there is a requirement to show that the expenditure was incurred for the purpose of business, it was not personal expenditure or capital expenditure etc. We notice that Mrs. Lata Vasvani was not an employee or a director of the assessee company. She was not paid any other kind of compensation from the funds of the company. Normal business practice is to take the membership in the name of the company or in the name of top employees as per their service terms and conditions. Hence, in our view, the assessing officer has failed to apply his mind on the reply given by the assessee. The assessing officer, in our view, has failed to examine as to whether the conditions specified in sec. 37(1) were satisfied or not in the claim so made by the assessee. Accordingly, we are of the view, the present c....
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....siness meetings, conferences and discussions with various customers, bankers, etc. is generalized, vague, unsubstantiated, fictitious and self serving. On the basis of facts submitted by the assessee, it has necessarily to be concluded that the assessee has made a payment on behalf of Mrs. Lata Vasvani which is of a gratuitous nature. 6. Section 37(1) permits deduction of any expenditure not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, if it is laid out or expended wholly and exclusively for the purpose of business or profession. 7. The expenditure referred to in section 37(1) would obviously mean that liability for the expenditure should be the liability of the assessee's business. It cannot be the liability of another person. It cannot be a gratuitous payment. An assessee cannot claim the liability of another person u/s 37(1) on the ground that it is revenue expenditure and spent wholly and exclusively for the purpose of its business. If commercial expediency is claimed then it is the assessees' burden to bring out the relevant facts and prove the existence of com....
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....uring the course of assessment proceedings, the AO observed that the club membership has been taken in the name of Mrs. Lata Vasvani, whom the appellant claimed to be its representative. After considering the submission of the appellant, the AO has held that the appellant has claimed business promotion expenses amounting to Rs. 9,98,215/-. This is the payment which has been made to Mumbai Cricket Association (MCA) towards life membership fees of one Mrs. Lata Vasvani, which according to the appellant is its representative. Further, it has been surfaced that Mrs. Lata Vasvani is neither a director nor an employee of the appellant company, under which she has been appointed as their representative. It is farther noticed that no other payment has been made to Mrs. Lata Vasvani in the past or in subsequent assessment years. The appellant has not brought any evidence relevant to its relationship with Mrs. Lata Vasvani on shoes(sic. whose) behalf such payment was made. Thus it has been held that that expenditure incurred under section 37(1) is not an allowable expenditure as it does not fall under the expenditure incurred for business purposes and therefore an amount of Rs. 9,98,215/- pa....
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.... of business activity of the appellant company the fact remains that Mrs. Lata Vasvani is not an employee of the of the appellant company nor a director of the appellant company and therefore the expenditure incurred by the appellant company on behalf of Mrs. Lata Vasvani not at all falls under any of the conditions as laid down u/s 37(1) of the IT Act and therefore the claim of the appellant is totally false and an attempt of misuse of the provisions of section 37(1) of the IT Act. The appellant company does not have any obligation to bear the liability of a third person who is not related to the company in any manner. Therefore, I did not find any reason to interfere in the findings of the AO and hence, Ground No. 2 is dismissed." The assessee is now before us . We have observed that club membership was taken by assessee with Mumbai Cricket Association in the name of one Mrs. Lata Vaswani for which the assessee has made payment of Rs, 9,98,215/- which was claimed as business/revenue expenses. The said Mrs Lata Vaswani is neither Director of the assessee nor employee of the assessee. It is also not brought on record that said Mrs Lata Vaswani was even working for assessee as pr....