M/s MKJ Tradex Ltd., Kolkata V. DCIT, CIR-4(2), KOLKATA, Kolkata

ITA 1044/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1514 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHERJEE
• Assessee Lawyers: S K TULSIYAN
• Keywords: Capital asset; Business expenditure; Commercial expediency; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1044 / KOL / 2016 ASSESSMENT YEAR :2008-09 M/S MKJ TRADEX LTD. UNIT-1, 3 RD FLOOR, SAGAR ESTATE, 2 CLIVE GHAT STREET, KOLKATA-700001 [ PAN NO.AADCM 5953 G ] V/S . DCIT, CIRCLE-4(2), AAYAKAR BHAWN, 4 TH FLOOR, KOLKATA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S.K. TULSIYAN /BY RESPONDENT SHRI ARINDAM BHATTACHERJEE, ADDL. CIT-DR /DATE OF HEARING 09-01-2018 /DATE OF PRONOUNCEMENT 14-02-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA DAT ED 27.04.2016. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-4 KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 02.12.2010 FOR ASSESSMENT YEAR 2008-09. SHRI S.K. TULSIYAN, LD. ADVOCATE APPEARED ON BEHALF OF ASSESSEE AND SHRI ARINDAM BHATTACHERJEE, LD. DEPARTMENTAL REPRESENTAT IVE APPEARED ON BEHALF OF REVENUE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 2 1. THAT THE LEARNED CIT(A) ERRED IN CONFIRMING ADD ITION OF ADVERTISEMENT EXPENSE OF RS.6,09,402/ MADE BY THE A O, NOT APPRECIATING THE FACT THAT THE SAID EXPENSE INCURRE D IN PUBLISHING THE ACHIEVEMENT OF THE MD OF THE COMPANY IN THE NEWSPAP ERS HAS ADDED TO THE BRAND VALUE OF THE COMPANY AND AS SUCH WAS A CO MMERCIAL EXPEDIENCY TO PROMOTE THE BUSINESS. 2. THAT THE LEARNED CIT(A) ERRED IN CONFIRMING ADDI TION OF MEMBERSHIP FEES PAID TO CLUB OF RS.52,555/- MADE BY THE AO, NO T APPRECIATING THE FACT THAT THE SAID EXPENSE WAS INCURRED FOR THE PUR POSE OF PROMOTING THE BUSINESS. 3. THAT THE ORDER OF THE CIT(A) SHOULD ACCORDINGLY BE MODIFIED AND THE ASSESSEE BE GRANTED NECESSARY RELIEF AS PRAYED FOR N THIS APPEAL. 4. THAT, THE APPELLANT CRAVES LEAVE TO ALTER, AMEND , RESCIND AND SUBSTITUTE ANY OF THE ABOVE-MENTIONED GROUNDS AND A DD ANY FURTHER GROUNDS BEFORE OR AT THE TIME OF HEARING OF THE APP EAL. 3. FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO.1 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY SUSTAI NING THE DISALLOWANCE OF 6,09,402/- ON ACCOUNT OF EXPENDITURE INCURRED ON A DVERTISEMENT. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN BUSINESS OF TRADING IN STAIN LESS STEEL AND ALLIED PRODUCTS. THE ASSESSEE IN THE YEAR UNDER CONSIDERAT ION HAS CLAIMED EXPENSE OF 6,09,402/- FOR CELEBRATING FRENCH NATIONAL DAY. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT ASSESSEE H AD NO EXPORT BUSINESS TO FRANCE. THEREFORE, THE EXPENSE CLAIMED BY IT HAV E NOT BEEN INCURRED IN CONNECTION ITS BUSINESS ACTIVITY. ACCORDINGLY, THE AMOUNT OF 6,09,402/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF ASSESSE E. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT HAS IN CURRED AN EXPENSE OF RS. 5,91,402/- ONLY FOR PUBLISHING THE AWARD CONFERRED ON MR. MAHENDRA KUMAR JALAN, CHAIRMAN AND MANAGING DIRECTOR (MD) OF THE C OMPANY BY THE FRENCH EMBASSY OF INDIA. IT WAS PUBLISHED IN REGIONAL DAIL Y NEWSPAPER ANANDABAZA PATRIKA PUBLISHED ON 21.06.2007. BESIDES THE ABOVE AN EXPENSE OF RS.18,000/- WAS INC URRED FOR ARTWORK, FRENCH TRANSLATION AND CREATIVE WORK IN CONNECTION WITH THE SAID ADVERTISEMENT IN THE DAILY NEWSPAPER ANANDA BAZAR. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 3 THE COPY OF THE INVOICES AND A COPY OF THE SAID NEW SPAPER CUTTING ARE ENCLOSED AT PAGE 1-6 OF THE PAPER BOOK. MR. MAHENDR A KUMAR JALAN, MANAGING DIRECTOR OF THE ASSESSEE-COMPANY WAS HONOR ARY CONSULATE DE FRANCE FOR THE PERIOD FEBRUARY, 2003 TO AUGUST 2008 . HE WAS CONFERRED THE AWARD OF OFFICER DE IORDRE NATIONAL DE MERITE BY J ACQUES CHIRAC, PRESIDENT OF FRANCE FOR HIS PIVOTAL ROLE AS HONORARY CONSUL OF F RANCE IN KOLKATA, IN PROMOTING TRADE AND CULTURE BETWEEN FRANCE AND INDI A. THE SAID AWARD WAS AWARDED TO HIM BY DOMINIQUE GIRARD, AMBASSADOR DE F RANCE EN INDE, FRENCH EMBASSY IN INDIA IN A SPECIAL CEREMONY HELD IN KOLK ATA ON 21.06.2007. SINCE THE AWARD WAS OF A GREAT HONOUR FOR THE ASSESSEE-CO MPANY ALSO, IT WAS DECIDED TO PUBLISH THE SAME IN THE DAILY NEWSPAPER SO AS TO DISSEMINATE THE INFORMATION ABOUT THE AWARD AMONG THE GENERAL PUBLI C. THE SAID ADVERTISEMENT IS AKIN TO SALES PROMOTION EXPENSES O F THE ASSESSEE-COMPANY IN AS MUCH THE GENERAL PUBLIC WAS MADE AWARE OF THE HIGH INFLUENTIAL POSITION AND ACHIEVEMENTS OF THE M.D OF THE COMPANY AND AS S UCH IS ALLOWABLE U/S. 37(1) OF THE ACT. IT IS AN ACCEPTED FACT THAT THE C HAIRMAN-CUM-MD OF THE ASSESSEE-COMPANY HOLDS A PIVOTAL POSITION IN THE AS SESSEE-COMPANY AND IS IN-CHARGE OF ALL THE MAJOR DECISIONS OF THE ASSESSE E-COMPANY. THE EXPENSE INCURRED IN PUBLISHING THE ACHIEVEMENT OF THE MD OF THE ASSESSEE-COMPANY IN THE NEWSPAPERS HAS ADDED TO THE BRAND VALUE OF THE ASSESSEE-COMPANY AND AS SUCH WAS A COMMERCIAL EXPEDIENCY TO PROMOTE THE BUSINESS. SINCE THE ADVERTISEMENT EXPENSE INCURRED IS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE-COMPANY. THE SAME OUGHT TO BE ALLOWED U/S. 37(1) OF THE ACT. IN THIS REGARD, LD. AR OF THE ASSESSEE SUBMITTED THAT IT WOULD BE BEFITTING TO DISCUSS SECTION 37(1) OF THE ACT. SECTION 37 IS A R ESIDUARY SECTION FOR ALLOWABILITY OF BUSINESS EXPENDITURE AND THE SAME I S REPRODUCED BELOW:- 37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 4 CONDITION FOR ALLOWANCE U/S 37(1) A) SUCH EXPENDITURE SHOULD NOT BE COVERED UNDER T HE SPECIFIC SECTION I.E. SECTIONS 30 TO 36; B) EXPENDITURE SHOULD NOT BE OF CAPITAL NATURE; C) THE EXPENDITURE SHOULD BE INCURRED DURING THE PR EVIOUS YEAR; D) THE EXPENDITURE SHOULD NOT BE OF PERSONAL NATURE . E) THE EXPENDITURE SHOULD HAVE BEEN INCURRED WOE FO R THE PURPOSE OF THE BUSINESS OR PROFESSION; F) THE BUSINESS SHOULD BE COMMENCED. IF ALL THE ABOVE CONDITIONS ARE SATISFIED, THE ASSE SSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 37 OF THE ACT. FURTHER, IT WILL BE W ORTHWHILE TO DISCUSS THE MEANING OF THE WORDS ADVERTISEMENT WHICH HAS BEEN DEFINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SARADA PLYWOOD INDUSTRIES LTD. VS. CIT (1999) 2328 ITR 354 (CAL) WHEREIN THE HON'BLE COURT HAS HELD:- THE WORD ADVERTISEMENT HAS BEEN STATED TO MEAN A NOTICE GIVEN IN A MANNER DESIGNED TO ATTRACT PUBLIC ATTENTION. ANY EX PENSES INCURRED BY WAY OF ADVERTISEMENT MUST BE CONSIDERED FROM THE PO INT OF VIEW OF THE ASSESSEE AND NOT FROM ANY OTHER ANGLE. IN THE PRESENT CASE, ALL THE CONDITIONS STIPULATED IN SECTION 37(1) OF THE ACT ARE DULY MET. AS SUCH THE EXPENSE INCURRED IN ADVERTISE MENT IN THE NEWSPAPERS AMOUNTING TO RS.6,09,402/- IS AN ALLOWABLE EXPENSE. THE AO DISALLOWED THE SAID EXPENSE ON THE SOLE PRETEXT THAT THE ASSESSEE- COMPANY HAS MADE NO EXPORT TO FRANCE. IN THIS REGARD, IT IS SUBMITTED T HAT THE AWARD HAS GIVEN TO THE MD OF THE COMPANY IN A SPECIAL CEREMONY HELD IN KOL KATA ON 21.06.2007 WHEREIN ALL THE TOP INDUSTRIALISTS OF INDIA WERE PR ESENT. EVEN IF THE ASSESSEE HAS NOT PROCURED ORDERS OVERSEAS, THIS AWARD HAS AD DED TO THE BRAND VALUE OF THE ASSESSEE-COMPANY AND INCREASED THE REVENUE FROM OPERATIONS IN THE DOMESTIC MARKET. FURTHER, MR. MAHENDRA KUMAR JALAN WAS ONE OF THE MEMBERS SITTING ON THE DAIS AND REPRESENTING THE CO UNTRY IN THE ANNUAL FRENCH NATIONAL DAY CELEBRATION HELD ON 14.07.2007 IN KOLKATA AND ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 5 ADDRESSED HIS SPEECH TO THE TOP INDUSTRIALISTS IN I NDIA AND EMBASSY OF FRANCE. IN VIEW OF THE ABOVE, IT IS HUMBLY REQUESTED BEFORE YOUR HONOUR TO DELETE THE DISALLOWANCE OF 6,09.402/- INCURRED IN RELATION TO ADVERTISEMENT EX PENSES. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF A SSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THEE AR OF TH E APPELLANT. THE AO HAS MENTIONED THE ASSESSEE HAS GOT NO EXPORT TO FRA NCE NOR ANY BUSINESS CONNECTION. THE AR HAS ALSO NOT PROVED ANY BUSINESS CONNECTION WITH THESE EXPENSES DEBITED TO PROFIT AN D LOSS ACCOUNT DURING THE APPELLATE PROCEEDING. HENCE, THE ADDITIO N AS MADE BY THE AO IS CONFIRMED. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPE AL BEFORE US. 6. LD. AR FOR THE ASSESSEE HAS FILED PAPER BOOK WHI CH IS RUNNING PAGES FROM 1 TO 30 AND REITERATED THE SAME SUBMISSION THA T WERE MADE BEFORE LD. CIT(A). ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS ARE AS UNDER:- A) SHRI MAHENDRA KUMAR JALAN IS THE MANAGING DIRECT OR OF THE ASSESSEE-COMPANY. B) THE AWARD WAS CONFERRED BY THE PRESIDENT OF FRAN CE TO SHRI MAHENDRA KUMAR JALAN IN PROMOTING THE TRADE AND CUL TURE BETWEEN FRANCE AND INDIA WHICH IS EVIDENT FROM THE CERTIFIC ATE ENCLOSED ON PAGE 6 OF THE PAPER BOOK C) THE NEWS OF THE AWARD WAS PUBLISHED IN THE LOCAL NEWSPAPER AS EVIDENT FROM THE NEWSPAPER CUTTING PAGE 5 OF THE PA PER BOOK. HOWEVER, THE COST INCURRED BY ASSESSEE ON THE ADVERTISEMENT WAS DISALLOWED BY THE AO ON THE GROUND THAT THERE WAS NO EXPORT TO FR ANCE. THEREFORE, THE IMPUGNED EXPENSES ARE NOT CONNECTED WITH THE BUSINE SS OF ASSESSEE. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 6 D) THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY PL AYS VERY PIVOTAL ROLE IN THE COMPANY WHICH INTER ALIA INCLUDES THE FOLLOWING:- O FORMULATING AND SUCCESSFULLY IMPLEMENTING COMPANY POLICY. O DIRECTING STRATEGY TOWARDS THE PROFITABLE GROWTH A ND OPERATION OF THE COMPANY. O DEVELOPING STRATEGIC OPERATING PLANS THAT REFLECT THE LONGER-TERM OBJECTIVES AND PRIORITIES ESTABLISHED BY THE BOARD. O MAINTAINING AN ONGOING DIALOGUE WITH THE CHAIR OF THE BOARD. O PUTTING IN PLACE ADEQUATE OPERATIONAL PLANNING AND FINANCIAL CONTROL SYSTEMS. O ENSURING THAT THE OPERATING OBJECTIVES AND STANDAR DS OF PERFORMANCE ARE NOT ONLY UNDERSTOOD BUT OWNED BY TH E MANAGEMENT AND OTHER EMPLOYEES. O CLOSELY MONITORING THE OPERATING AND FINANCIAL RES ULTS AGAINST PLANS AND BUDGETS. O TAKING REMEDIAL ACTION WHERE NECESSARY AND INFORMI NG THE BOARD OF SIGNIFICANT CHANGES. O MAINTAINING THE OPERATIONAL PERFORMANCE OF THE COM PANY. O MONITORING THE ACTIONS OF THE FUNCTIONAL BOARD DIR ECTORS. O ASSUMING FULL ACCOUNTABILITY TO THE BOARD FOR ALL COMPANY OPERATIONS. O REPRESENTING THE COMPANY TO MAJOR CUSTOMERS AND PR OFESSIONAL ASSOCIATIONS. O BUILDING AND MAINTAINING AN EFFECTIVE EXECUTIVE TE AM. FROM THE ABOVE, IT IS INFERRED THAT THE ROLE OF THE MANAGING DIRECTOR IS VERY CRUCIAL FOR THE SUCCESS OF THE ASSESSEE-COMPANY. TH US, THE AWARD CONFERRED TO THE MD IS GOING TO INCREASE THE IMAGE OF THE ASS ESSEE-COMPANY AT NATIONAL /INTERNATIONAL LEVEL IN THE AREA OF THE BUSINESS CO NNECTIONS. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 7 IN REJOINDER LD. DR HAS NOT BROUGHT ANYTHING ON REC ORD SUGGESTING THAT THE MD OF THE ASSESSEE-COMPANY WAS ASSOCIATED WITH ANY OTHER ACTIVITY OR GROUP OF COMPANIES. IT IS WELL SETTLED LAW THAT THE EXPENDITURES INCURR ED BY THE ASSESSEE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ARE ALLOWED AS DEDUCTIO N U/S. 37(1) OF THE ACT. IN OUR VIEW, THE REASON GIVEN BY THE AO THAT THE NO BU SINESS ACTIVITY WAS CARRIED ON BY THE ASSESSEE WITH FRANCE IS NOT TENABLE IN VI EW OF THE FACT THAT ALLOWABILITY OF THE EXPENDITURE DOES NOT DEPEND UPO N THE OUTCOME OF THE EXPENDITURE. RATHER, THE EXPENDITURES ARE INCURRED BY THE BUSINESS ENTERPRISE FOR THE GROWTH OF THE BUSINESS AND IT IS NOT NECESS ARY THAT ALL THE EXPENDITURES WOULD ENTAIL POSITIVE RESULT TO THE COMPANY. IN THE INSTANT CASE, THE EXPENDITURE HAS BEEN INCURRED AND CLAIMED BY THE AS SESSEE UNDER THE HEAD ADVERTISEMENT WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. THE M EANING OF THE AWARD ADVERTISEMENT HAS BEEN DEFINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SARDA PLYWOOD INDUSTRIES LTD. VS. CIT (1999) 238 ITR 354 (CAL), WHEREIN THE HON'BLE COURT HAS HELD:- IT IS NOW A WELL SETTLED PRINCIPLE OF LAW THAT ANY EXPENSES INCURRED BY WAY OF ADVERTISEMENT MUST BE CONSIDERED FROM THE POINT OF VIEW OF THE ASSESSEE AND NOT FROM ANY OTHER ANGLE. ONCE IT IS FOUND THAT THE EXPENDITURE HAD BEEN, AS A MATTER OF FACT, INCURRED BY THE ASSESSEE FOR PUBLICITY OR ADVERTISEMENT, IT IS NOT FOR THE DEPARTMENT TO CONSIDER WHETHER COMMERCIAL EXPEDIENCY JUSTIFIED TH E EXPENDITURE. REASONABLENESS OF THE EXPENDITURE CAN BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER IN FACT THE AMOUNT WAS SPENT. IN THIS VIEW OF THE MATTER, THE TRIBUNAL WAS NOT JU STIFIED IN DISALLOWING PART OF SAID EXPENDITURE. IN THE ABOVE PROPOSITION, WE FEEL THAT THE IMPUGNED EXPENDITURE HAS BEEN INCURRED BY ASSESSEE EXCLUSIVELY FOR ITS BUSINESS A CTIVITY AND THEREFORE THE SAME IS ELIGIBLE FOR DEDUCTION US 37(1) OF THE ACT. AS SUCH, IN THE GIVEN FACTS AND CIRCUMSTANCES NO DISALLOWANCE OF IMPUGNED EXPEN DITURE IS WARRANTED. THUS, WE REVERSE THE ORDER OF LOWER AUTHORITIES AND DIRECT THE AO TO DELETE THE ADDITION. WE ORDER ACCORDINGLY. HENCE, THIS GROUND OF ASSESSEE IS ALLOWED. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 8 8. NEXT ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF CLUB MEMBERSHIP FEES PAI D BY ASSESSEE OF 52,555/-. 9. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURRED CLUB MEMBERSHIP EXPENSES AND OTHER RELATED EXPENSES AS D ETAILED UNDER:- SR.NO PAID TO AMOUNT (RS) REMARKS/NATURE OF EXPENSES 1 INDIAN CHAMBER OF COMMERCE (ICC) 3,00,000 ANNUAL CORPORATE MEMBERSHIP FEES 2 FEDERATION OF INDIAN CHAMBER OF COMMERCE AND INDUSTRY (FICCI) 60,000 ANNUAL CORPORATE MEMBERSHIP FEES 3 TAJ MAHAL HOTELS 44,896 ANNUAL CORPORATE MEMBE RSHIP FEES 4 CALCUTTA CLUB LTD. 7,022 EXPENSES INCURRED AT CLUB 5 THE CALCUTTA SWIMMING CLUB LTD. 637 EXPENSE S INCURRED AT CLUB TOTAL 4,12,555 HOWEVER, THE AO OBSERVED THAT THIS CLUB EXPENSES HA VE BEEN INCURRED BY THE DIRECTOR AND SENIOR EXECUTIVES OF THE ASSESSEE-COMP ANY WHICH ARE PERSONAL IN NATURE. AS SUCH, THERE IS NO CONNECTION BETWEEN THE EXPENSES INCURRED BY THE DIRECTOR AND SR. EXECUTIVES OF THE ASSESSEE-COM PANY WITH THE BUSINESS OF ASSESSEE. THUS, AO DISALLOWED THE EXPENSES OF 4,12,555/- AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT-A SUBMITTED THAT THE PURPOS E FOR TAKING CORPORATE MEMBERSHIP OF THE CLUB IS TO INCREASE BUSINESS RELA TION THROUGH THE DIRECTOR AND TOP EXECUTIVES OF THE ASSESSEE-COMPANY. AS SUCH , VARIOUS BUSINESS MEETINGS / SEMINARS ARE HELD IN THE CLUB PREMISES W ITH PROSPECTIVE BUYERS. THEREFORE, SAME EXPENSES WERE INCURRED EXCLUSIVELY FOR THE PURPOSE OF PROMOTION OF ASSESSEES BUSINESS. HOWEVER, LD. CIT( A) AFTER CONSIDERING THE CONTENTION OF ASSESSEE ALLOWED RELIEF IN PART TO AS SESSEE BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT. THE EXPENSES OF RS.3.60 LACS ARE RELATING TO INDIAN CHAMBER OF C OMMERCE (ICC) AND FEDERATION OF INDIAN CHAMBER OF COMMERCE AND INDUST RY (FICCI) ARE TO BE CONSIDERED FOR BUSINESS PURPOSE AND BALANCE EXPENSE S ARE BEING CONSIDERED TO PERSONAL NATURE. THE AR HAS ALSO NOT FILED ANY EVIDENCE FOR BUSINESS PURPOSE OF THESE BALANCE EXPENSES DURING THE APPELL ATE PROCEEDINGS. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 9 ACCORDINGLY, AO IS DIRECTED TO DELETE THE ADDITION TO THE EXTENT OF RS.3.60 LACS AND BALANCE AMOUNT OF ADDITION IS CONFIRMED. THIS G ROUND OF APPEAL IS PARTLY ALLOWED. BEING AGGRIEVED, BY THIS ORDER OF LD. CIT(A) ASSESS EE FILED SECOND APPEAL BEFORE US. 11. LD. AR BEFORE US REITERATED THE SAME SUBMISSION S THAT WERE MADE BEFORE LD. CIT(A) AND PRAYED BEFORE US TO DELETE TH E SAME. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN THE INSTANT CASE THE AO DISALLOWED THE CLUB EXPENSES CLAIMED BY THE ASSESSEE ON THE GROUND THAT THESE WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. THE VIEW TAKEN BY THE AO WAS PARTLY CONFIRMED BY THE LD CIT(A). NOW THE ISSUE BEFORE US ARISES FOR THE ADJUDICATION SO AS TO WHETHER THE CLUB EXPENSES INCURRED BY THE ASSESSEE ARE HAVING ANY NEXUS WITH THE BUSINESS OF THE ASSESSEE IN THE AFOR ESAID FACTS AND CIRCUMSTANCES. IN THIS CONNECTION, WE FIND THAT THE CLUBS PROVIDED SEVERAL KINDS OF FACILITIES SUCH AS CONFERENCES, BUSINESS M EETINGS, AS WELL AS PROVISION FOR MULTIMEDIA EXHIBITION. MANY CLUBS ALL OW MEMBERSHIP TO COMPANIES OR OTHER BUSINESS ENTITIES. THE MEMBERSHI P IS GIVEN IN NAME OF COMPANY OR OTHER CONCERN. IT IS VERY WELL KNOWN THA T THE CLUBS ARE A PLATFORM TO MEET PEOPLE. THE MEETINGS CAN BE PRIVATELY ORGAN IZED OR CAN BE IN THE COURSE OF MASS MEETINGS OR GATHERINGS AT THE TIME O F FUNCTIONS OR CELEBRATIONS AT CLUB. BY VISITING CLUBS, CHANCES OF MAKING NEW C ONTACTS IMPROVE. WITH NEW CONTACTS PEOPLE CAN DO MORE INTERACTIONS WHICH CAN BE BENEFICIAL FOR BUSINESS AND PROFESSION. THEREFORE BUSINESS ORGANIZATIONS LI KE COMPANY, FIRM, BANK, CO-OPERATIVE SOCIETY ETC. FUNCTIONS THROUGH HUMAN A GENCIES WHICH MAY BE DIRECTORS OR OTHER OFFICERS OF BUSINESS ORGANIZATIO N. THEREFORE, BUSINESS ORGANIZATIONS PROVIDE FACILITY TO THEIR OFFICERS TO ATTEND AND AVAIL SERVICES OF CLUBS. CLUBS MAKE COMPANY OR OTHER BUSINESS ORGANIZ ATION AS ITS MEMBER. ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 10 THIS IS GENERALLY CALLED AS CORPORATE MEMBERSHIP. T HE EXPENSES MAY BE IN NATURE OF ENTRANCE FEES, ANNUAL FEES, LIFE MEMBERSH IP FEES AND REIMBURSEMENT OF ACTUAL EXPENSES ETC. THE PURPOSE OF THE EXPENDIT URE IS TO HAVE A SUITABLE PLATFORM FOR MEETING PEOPLE AND GETTING ADVANTAGES OF MEETING MANY PEOPLE AT A TIME TO MAINTAIN OLD CONTACTS AND ALSO TO MAKE NEW CONTACTS. THE MAIN PURPOSE OF THE ORGANIZATION IS TO INDUCE ITS OFFICE RS TO ATTEND SUCH PLACES FOR MAINTAINING AND MAKING CONTACTS FOR THE BENEFIT OF BUSINESS. EVEN IF SOME PERSONAL ADVANTAGE IS OBTAINED BY OFFICERS, IT WILL BE IN NATURE OF MAINTAINING GOOD RELATIONS WITH OFFICERS AND IN NATURE OF STAFF WELFARE EXPENSES. THEREFORE, THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. BY OBTAINING MEMBERSHIP FOR A PERIOD OF MORE THAN O NE YEAR, THERE MAY BE AN ADVANTAGE OF ENDURING NATURE. HOWEVER, SUCH ADVANTA GE IS IN THE FIELD OF REVENUE BENEFIT AND NOT FOR OBTAINING ANY CAPITAL A SSET OR OBTAINING BENEFIT IN CAPITAL FIELD. THEREFORE SUCH EXPENSES WILL BE OF R EVENUE NATURE. IN THIS REGARD WE FIND SUPPORT & GUIDANCE FROM THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. GROZ BE CKERT ASIA LIMITED REPORTED IN 351 ITR 196 WHEREIN IT WAS HELD AS UNDE R : THE CORPORATE MEMBERSHIP WAS OBTAINED FOR RUNNING T HE BUSINESS WITH A VIEW TO PRODUCE PROFIT. SUCH MEMBERSHIP DOES NOT BR ING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF T HE BUSINESS. IT IS AN EXPENDITURE INCURRED FOR THE PERIOD OF MEMBERSHIP A ND IS NOT LONG LASTING. BY SUBSCRIBING TO THE MEMBERSHIP OF A CLUB, NO CAPITAL ASSET IS CREATED OR COMES INTO EXISTENCE. BY SUCH MEMBERSHIP, A PRIVILEGE TO USE FACILITIES OF A CLUB ALONE, ARE CONFERRED ON THE ASSESSEE AND THAT TOO F OR A LIMITED PERIOD. SUCH EXPENSES ARE FOR RUNNING THE BUSINESS WITH A VIEW T O PRODUCE THE BENEFITS TO THE ASSESSEE. CONSEQUENTLY, IT CANNOT BE TREATED AS CAPITAL ASSET. WE ALSO FIND SUPPORT & GUIDANCE FROM THE JUDGMENT O F HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LIMITED R EPORTED IN 326 ITR 425 WHEREIN IT WAS HELD AS UNDER : THE EXPENDITURE INCURRED TOWARDS ADMISSION FEE WAS TOWARDS CORPORATE MEMBERSHIP. THE NATURE OF THE EXPENDITURE WAS ONE F OR THE BENEFIT OF THE ASSESSEE. THE 'BUSINESS PURPOSE' BASIS ADOPTED FOR ELIGIBILITY OF EXPENDITURE UNDER SECTION 37 WAS THE CORRECT APPROACH. THAT WAS MORE SO IN VIEW OF THE TRIBUNAL'S FINDINGS THAT IT WAS THE ASSESSEE WHICH NOMINATED THE EMPLOYEES WHO WOULD AVAIL THE BENEFIT OF CORPORATE MEMBERSHIP GIVEN TO THE ASSESSEE. [PARA 5.1] ITA NO.1044/KOL/2016 A.Y. 2008-09 M/S MKJ TRADEX LTD. VS. DCIT CIR-4(2), KOL. PAGE 11 THE OTHER HURDLE FOR QUALIFICATION OF THE EXPENDITU RE UNDER SECTION 37 IS THAT EXPENDITURE INCURRED SHOULD NOT BE ON CAPITAL ACCOU NT. IT IS WELL-SETTLED THAT AN EXPENDITURE WHICH GIVES ENDURING BENEFITS IS, BY IT SELF, NOT CONCLUSIVE AS REGARDS THE NATURE OF THE EXPENDITURE. EVEN A LUMP SUM PAYMENT IS NOT DECISIVE AS REGARDS THE NATURE OF THE PAYMENT. THE TRUE TEST FOR QUALIFICATION OF EXPENDITURE UNDER SECTION 37 IS THAT IT SHOULD BE I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE EXP ENDITURE SHOULD NOT BE TOWARDS CAPITAL ACCOUNT. IN THE INSTANT CASE, THE A DMISSION FEE PAID TOWARDS CORPORATE MEMBERSHIP WAS AN EXPENDITURE INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT TOWARDS CAPITAL ACC OUNT AS IT ONLY FACILITATED SMOOTH AND EFFICIENT RUNNING OF THE BUSINESS ENTERP RISE AND DID NOT ADD TO PROFIT EARNING APPARATUS OF THE BUSINESS ENTERPRISE . [PARA 5.2] THEREFORE, THE TRIBUNAL'S ORDER WAS TO BE UPHELD AN D THE REVENUE'S APPEAL WAS TO BE DISMISSED. IN VIEW OF ABOVE, WE REVERSE THE ORDER OF AUTHORITI ES BELOW. HENCE, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 14/ 02/2018 SD/- SD/- ($ &) ( &) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (- 14 / 02 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S MKJ TRADED LTD., UNIT-1, 3 RD FLOOR, SAGAR ESTATE,2 CLIVE GHAT STREET, KOL KATA-001 2. /RESPONDENT-DCIT, CIRCLE-4(2), AAYAKAR BHAWAN, 4 TH FLOOR, KOLKATA-69 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 $$3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,