ZAMEER MOON, MUMBAI V. DCIT 12(2), MUMBAI

ITA 2027/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3175 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 07-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure
• Section: 143(3); 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER A ND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 2027 & 2028/MUM/2014 ( / ASSESSMENT YEARS: 2005-06 & 2006-07 MR. ZAMEER MOON, 102, SILVERTON BLDG., WOODHOUSE ROAD, COLABA, MUMBAI / VS. THE DCIT 12(2), AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO.AALPM 3317P ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI RAJIV KHANDELWAL SHRI NEELKANTH KHANDELWAL / REVENUE BY: SHRI AIRIJU JAIKARAN / DATE OF HEARING :16.06.2016 ! / DATE OF PRONOUNCEMENT :24.08.2016 / O R D E R PER C.N. PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGA INST THE ORDERS OF THE LD. CIT(A)-23, MUMBAI DATED 16.12.201 3 PERTAINING TO ASSESSMENT YEARS 2005-06 & 2006-07 ARISING OUT OF T HE ASSESSMENT ORDERS PASSED U/S. 143(3) OF THE ACT. 2. THE ONLY ISSUE IN THESE APPEALS ARE THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING CLUB MEMBERSHIP FEES. ITA NOS.2027 & 2028/M/14 2 3. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENTS FOR THESE TWO ASSESSMENT YEARS DISALLOW ED CLUB MEMBERSHIP FEES ON THE GROUND THAT THERE IS NO BUSI NESS EXPEDIENCY IN INCURRING THE EXPENSES, THE CLUB ITSELF IS NOT F UNCTIONAL AND ASSESSEE HAS NOT EVEN BEEN ADMITTED AS A MEMBER, TH E CLUB IS ALSO SITUATED FAR AWAY FROM MUMBAI AND THE FREQUENT MEET INGS 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 FACI LITY 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. 4. ON APPEAL THE LD. CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE WENT IN APPEAL B EFORE THE TRIBUNAL. THE TRIBUNAL IN ITA NO. 7361/M/08 AND 21 64/M/2010 DATED 30.9.2010 RESTORED THE ISSUE TO THE FILE OF T HE LD. CIT(A) FOR FRESH ADJUDICATION AND A SPEAKING ORDER ON THIS ISS UE. 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 N OT ENTITLED FOR ANY DEDUCTION ON ACCOUNT OF CLUB MEMBERSHIP FEE AS THER E IS NO BUSINESS EXPEDIENCY ON THE PAYMENTS, EXPENDITURE HAVE NOT BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS OF THE ASSESSEE. AGAINST THIS ORDER, THE ASSESSEE IS IN A PPEAL BEFORE US. 5. 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 AN D CLUB MEMBERSHIP FEE IS ALLOWABLE EXPENDITURE. HE SUBMIT S THAT THE CLUB ITA NOS.2027 & 2028/M/14 3 MEMBERSHIP FEE WAS INCURRED FOR THE PURPOSE OF THE EXPEDIENCY OF THE BUSINESS THEREFORE IS AN ALLOWABLE EXPENDITURE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY S UPPORTS 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 T O 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 BUSINES S EXPENDITURE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN THE FIRST ROUND OF APPEA L, THE TRIBUNAL SET ASIDE THIS ISSUE TO THE FILE OF THE LD. CIT(A) OBSE RVING AS UNDER : 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE SEE NO REASONS T O 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 MEMBERSHI P AND THE BUSINESS EXPEDIENCY, IF ANY, IN SPENDING MONEY TO BECOME MEMBER OF AN AURANGABAD BASED CLUB WHICH IS FAR AWAY FROM ASSESSEES NORMAL PLACE OF WORK. NO DOUBT MERELY BECAUSE CLUB IS NOT FUNCTIONAL CANNOT BE A G ROUND ENOUGH FOR MAKING THE DISALLOWANCE, AS THE AUTHORIT IES BELOW HAVE PROCEEDED TO HOLD, BECAUSE IT IS THE OBJ ECTIVE 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 BUSIN ESS. HOWEVER, AS NO MATERIAL HAS BEEN FILED BEFORE US EI THER TO DEMONSTRATE THE BUSINESS EXPEDIENCY OF THIS EXPENDI TURE, 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 T HE AMOUNT IN QUESTION CAN INDEED BE SAID TO HAVE BEEN INCURRED ITA NOS.2027 & 2028/M/14 4 FOR THE STATED PURPOSES. WHILE SO DECIDING THE MATT ER AFRESH, THE CIT(A) WILL GIVE A DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE AND DECIDE THE MATTER BY WAY OF A SPEA KING ORDER IN ACCORDANCE WITH THE LAW. 7.1. IN THE SET ASIDE PROCEEDINGS, THE LD. CIT(A) H AS EXAMINED THE ISSUE ELABORATELY WITH REFERENCE TO THE AVERMENTS O F THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE ASSESSEE AND CON CLUDED THAT THE EXPENSES INCURRED BY THE ASSESSEE ARE NOT WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE EXPENSES ARE NOT AL LOWABLE EXPENSES OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE BY THE ASSESSEE. FROM THE SUBMISSIONS MADE BY THE ASSESSEE, IT IS ABUNDANTLY CLEAR THAT THE PAYMENT O F 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 HA S GIVEN A FINDING THAT AN AMOUNT OF RS.1,25,000/ - HAS BEEN P AID TOWARDS CONTRIBUTION FOR OTHERS. THIS IS BASED ON T HE SUBMISSIONS MADE BY THE ASSESSEE HIMSELF IN THE COU RSE OF THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS NOT GI VEN DETAILS OF THIS AMOUNT OF RS.1,25,000/- AND HAS NOT SHOWN THAT THIS WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSES OF THE BUSINESS. THE ASSESSING OFFICER'S F INDING IN THE ASSESSMENT ORDER THAT THIS AMOUNT OF RS.1 ,25,0 00/ - WAS NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND , HENCE, NOT ALLOWABLE HAS NOT BEEN CONTROVERTED BY THE ASSE SSEE IN THE APPELLATE PROCEEDINGS. HENCE, THIS AMOUNT IS HE LD TO BE NOT ALLOWABLE AS A BUSINESS EXPENDITURE. AS REGARDS THE PAYMENT OF THE BALANCE AMOUNT OF RS.10,75,000/-, TH E 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 ACC OUNT OF THE CLUB. IT IS NOT UNDERSTANDABLE AS TO WHY THE PA YMENT OF RS.8,25,000/ - WAS MADE TO THE ACCOUNT OF SHRI PURU SHTY DIRECTLY AND ONLY AN AMOUNT OF RS.2,50,000/ - WAS P AID TO THE ACCOUNT OF THE CLUB, WHEN THE PAYMENT IS CLAIME D TO HAVE BEEN MADE TOWARDS THE MEMBERSHIP OF THE CLUB, EVEN ITA NOS.2027 & 2028/M/14 5 IF THE SAID PERSON WAS A PROMOTER OF THE CLUB. FROM THE FACTS ON RECORD, IT APPEARS THAT THE PAYMENTS IN QU ESTION WERE MADE TO SHRI PURUSHTY ON A PERSONAL LEVEL AND NOT FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. THE A SSESSEE HAS HIMSELF SUBMITTED THAT SHRI PURUSHTY HAD ALLOTT ED 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 A ND NOT IN THE COURSE OF AND IN CONNECTION WITH THE EARNING OF HIS BUSINESS INCOME. THE ASSESSEE APPEARS TO HAVE APPRE CIATED THE HELP GIVEN BY SHRI PURUSHTY AND IN APPRECIATION OF SUCH HELP, THE ASSESSEE HAS PAID HIM THE MONEY IN QUESTI ON IN THE GARB OF MEMBERSHIP FEES OF THE CLUB. EVEN ASSUM ING THAT SHRI PURUSHTY WAS IN A POSITION TO GIVE CERTAI N BENEFITS IN THE NATURE OF AWARDING CONTRACTS TO THE ASSESSEE , THE PAYMENTS MADE BY THE ASSESSEE CANNOT BE SAID TO HAV E BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES 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 AC TIVITY. THE ASSESSEE HAS NOT SHOWN THAT THE ABOVE PAYMENTS HAVE BEEN MADE AND ARE IN THE NATURE OF EXPENSES INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. 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 KILOME TERS AWAY FROM MUMBAI. HOW THE ALLEGED MEMBERSHIP OF TH E CLUB WOULD BE BENEFICIAL TO THE BUSINESS INTEREST O F THE ASSESSEE, WHEN THE ASSESSEE'S BUSINESS IS LOCATED A T 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 TO TAL INCOME OF THE ASSESSEE, THE ASSESSING OFFICER IS DU TY BOUND AND WELL WITHIN HIS RIGHTS TO EXAMINE WHETHER THE A MOUNT CLAIMED AS DEDUCTION WAS EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSES OF THE BUSINESS AND WHETHER THE CL AIM OF THE ASSESSEE TO THE EXPENDITURE WAS ALLOWABLE AS PE R THE ITA NOS.2027 & 2028/M/14 6 PROVISIONS OF THE INCOME-TAX ACT OR NOT. THE FACTS ON RECORD CLEARLY SHOW THAT THE AMOUNT CLAIMED AS DEDUCTION H AS NOT BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES 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 OBTAININ G MEMBERSHIP OF THE CLUB, THE ASSESSEE HAS NOT BEEN A BLE TO ESTABLISH THE BUSINESS EXPEDIENCY OF ACQUIRING THE MEMBERSHIP OF A CLUB WHICH IS HUNDREDS OF KILOMETER S AWAY FROM HIS PLACE OF BUSINESS. FURTHER, THE ASSES SEE HAS ALSO NOT FURNISHED ANY EVIDENCE TO SHOW THAT THE CL UB HAS BECOME OPERATIONAL AND WAS CAPABLE OF BEING USED FO R BUSINESS PURPOSES. EVEN IF IT IS ASSUMED THAT THE P AYMENTS HAVE BEEN MADE FOR THE PURPOSE OF OBTAINING MEMBERS HIP 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 BU SINESS EXPEDIENCY OF EXPENDITURE AND THE FACTS ON RECORD C LEARLY ESTABLISH THAT THE PAYMENTS IN QUESTION WHICH HAVE BEEN CLAIMED AS AN EXPENDITURE HAVE NOT BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE DEDUCTION OF RS.12,00,000/- CLAIMED BY THE ASSE SSEE ON ACCOUNT OF CLUB EXPENSES CANNOT, THEREFORE, BE A LLOWED. 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 A SSESSEE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AS IT WAS NOT IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSES SEE COULD NOT PROVE WITH EVIDENCES THAT THE AMOUNTS PAID FOR CLUB MEMBE RSHIP FEE WAS INCURRED FOR THE PURPOSE OF THE BUSINESS. NONE OF T HE FINDINGS OF THE LD. CIT(A) HAVE BEEN REBUTTED WITH EVIDENCES AND TH EREFORE THERE IS NO VALID REASON TO INTERFERE WITH THE FINDINGS/DECI SION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. ITA NOS.2027 & 2028/M/14 7 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2016. SD/- SD/- (D.KARUNAKARA RAO) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 24 TH AUGUST, 2016 . % . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI