Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 4837 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-05-2016
Appeal Filed By
Assessee
Bench Allotted
B
Next Hearing Date
13-05-2016
Assessment Year
2004-2005
Appeal Filed On
27-06-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] I.T.A NO.2034/KOL/2013 ASSESSMENT YEAR: 2004-05 PRICEWATERHOUSE COOPERS PVT. LTD. VS. ASSISTANT C OMMISSIONER OF INCOME-TAX, (PAN: AABCP9181H) CIRCLE-2, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 13.05.2016 DATE OF PRONOUNCEMENT: 18.05.2016 FOR THE APPELLANT: S/SHRI K. M. GUPTA, AR, B.K. JA IN & ALPESH GUPTA FOR THE RESPONDENT: SHRI T. K. NEOGI, JCIT, SR. DR ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XX, KOLKATA VIDE APPEAL NO. 149/CIT(A)-XX/CIRCLE-2/2011-12/KOL DATED 01.02.2013. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-2, KOLKATA U/S. 143(3) OF TH E INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2004- 05 VIDE HIS ORDER DATED 28.12.2006. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF CLUB EXP ENSES IN THE SUM OF RS.8,45,854/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO FURNISH VARIOUS DETAILS OF PA YMENTS TO CLUB AGGREGATING TO RS 13,50,635/-. THE SAID DETAILS WERE FURNISHED TO THE LD. AO AND HE AFTER PERUSING THE DETAILS ENQUIRED AS TO WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED. THE ASSESSEE FILED A WRITTEN SUBMISSION IN THIS REGARD. HOWEVER, WHILE PASSING THE ORDER, THE LD. AO LISTED OUT CERTAIN EXPENSES AGGREGATING TO RS 8,45,854/- A ND OBSERVED THE SAME AS PERSONAL EXPENDITURE AND DISALLOWED THE SAME. ON FIRST APPE AL, THE ADDITION WAS UPHELD BY THE LD. CIT(A) ON THE GROUND THAT THOUGH THE ASSESSEE TRIED TO CO-RELATE THE CLUB EXPENSES WITH ITS BUSINESS BUT NO SUPPORTING DOCUMENTS WERE PRODUCED SUBSTANTIATING ITS CLAIM THAT THESE CLUB EXPENSES WERE NOT IN THE NATURE OF NON- BUSINESS PURPOSES. THE LD. CIT(A) ALSO OBSERVED THAT THERE IS A VERY THIN LINE OF DIFFERENCE BETWEEN BUSINESS EXPENDITURE OR NON-BUSINESS EXPENDITURE ON SUCH ISS UE. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 2 ITA NO.2034/K/2013 PRICEWATERHOUSE COOPERS PVT. LTD. AY 2004-05 4. LD. AR ARGUED THAT THE ENTIRE EXPENDITURE ON ACC OUNT OF CLUB SUBSCRIPTION AND ENTERTAINMENT EXPENDITURE WERE IN CONNECTION WITH A SSESSEES BUSINESS. SUBSCRIPTION/ ENTRANCE FEES OF VARIOUS CLUBS ARE PAID ONLY TO ITS EMPLOYEES WHO ARE ENTITLED TO SUCH BENEFIT. THE ACTIVITIES UNDERTAKEN BY EMPLOYEES IN SUCH SOCIAL CLUBS ARE IN THE NATURE OF BUSINESS MEETINGS, DEALINGS AND BUSINESS GATHERINGS BETWEEN PROSPECTIVE CUSTOMERS AND/OR SENIOR EXECUTIVES OF THE ASSESSEE COMPANY, W HICH MAINLY CATERS TO THE BUSINESS INTEREST OF THE COMPANY. THESE ARE PURELY FOR THE P URPOSE OF THE BUSINESS. IT MAY BE APPRECIATED THAT IN A CONSULTANCY FIRM IT IS OBVIOU S THAT CERTAIN PROSPECTIVE CLIENTS ARE ASKED FOR LUNCH OR DINNER AT REPUTED CLUBS BECAUSE OF ITS AMBIENCE AND PRIVACY. ALTHOUGH THE LD. AO INFERRED THAT SUCH EXPENDITURE ARE INCURRED ARE PURELY PERSONAL IN NATURE, IT CANNOT BE DENIED THAT THE LD. AO HAD NO MATERIAL ON RECORD IN BRINGING SUCH ALLEGATION. HE ARGUED THAT THE TAX AUDITOR AND THE STATUTORY AUDITOR HAD CATEGORICALLY MENTIONED THAT THERE IS NO PERSONAL EXPENDITURE DEB ITED IN THE BOOKS OF ACCOUNTS. FURTHER PAYMENTS WERE MADE TO CLUBS HAVING GYM AND OTHER SPORTS FACILITIES, WHERE THE EXECUTIVE DIRECTORS COULD SPEND SOME TIME WITH THE CLIENTS WHO ARE SPORTS SAVVY. IN THE CASE OF OTIS ELEVATOR CO.(INDIA) LIMITED VS. CIT (195 ITR 6 82) THE HON'BLE BOMBAY HIGH COURT HELD THAT 'MEMBERSHIP TO CLUBS WOULD PROVIDE OFFIC ES AND EXECUTIVES BETTER CONTRACT AND ASSOCIATION WITH PERSONS IN GOOD POSIT ION AND WOULD RESULT PUBLICITY. PAYMENT OF CLUB FEES WAS WITH A VIEW TO ENABLE ASSE SSEE TO IMPROVE ITS BUSINESS RELATIONS AND PROSPECTS AND HENCE AN ALLOWABLE BUSI NESS EXPENDITURE'. IT MAY BE NOTED THAT THIS TRIBUNAL HAD ALLOWED SUCH PAYMENTS TO CLU BS IN THE CASE OF COATS OF INDIA LTD VS. DCIT [ITA 561/C/92] BY FOLLOWING CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASHOKA MARKETING LTD (181 ITR 493) . FURTHER IT HAS BEEN HELD BY THE MUMBAI TRIBUNAL IN THE CASE OF STERLITE INDUSTRIES (INDIA) LTD VS. ADDL CIT 6 SOT 497 WHEREIN THE HON'BLE TRIBUNAL RELIED ON THE DECISIONS OF THE OTI S ELEVATORS CO (INDIA) LTD. (SUPRA) AND THAT OF THE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE EXPORT CORPN. LTD VS. CIT 209 ITR 649 (GUJ) AND OBSERVED THAT AFORESAID COURTS HAD LAID DOWN T HE PRINCIPLE THAT PAYMENT OF CLUB FEES IS TO BE CONSIDERED FOR THE PR OMOTION OF THE BUSINESS INTEREST AND HENCE IS AN ALLOWABLE EXPENDITURE. RELYING ON THE S AID PRINCIPLE THE TRIBUNAL HELD THAT PAYMENT TO HEALTH CLUBS AS MEMBERSHIP SUBSCRIPTION IS ALLOWABLE BUSINESS EXPENDITURE. HE ALSO ARGUED THAT THE ACT DOES NOT PRESCRIBE ANY DISALLOWANCE ON ENTERTAINMENT AND TRAVELLING EXPENSES. SECTIONS 37(2) AND SECTION 37( 3) OF THE ACT IMPOSED CERTAIN 3 ITA NO.2034/K/2013 PRICEWATERHOUSE COOPERS PVT. LTD. AY 2004-05 RESTRICTIONS ON THE ALLOWANCE OF ENTERTAINMENT AND TRAVELLING EXPENDITURE. BOTH SUCH SECTIONS HAVE BEEN WITHDRAWN FROM THE STATUTE VIDE FINANCE ACT 1997, WITH EFFECT FROM 1 ST APRIL, 1997. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND FROM THE DETAILS OF CLUB EXPENSES FILED, TH E LD. AO HAD ALLOWED THE CLUB EXPENSES INCURRED BY THE ASSESSEE IN VARIOUS CLUBS SITUATED IN KOLKATA AND HAD SOUGHT TO DISALLOW CLUB EXPENSES INCURRED IN OTHER CLUBS OUTS IDE KOLKATA. IT CANNOT BE DOUBTED THAT ASSESSEE IS AN INTERNATIONALLY REPUTED CONSULT ANCY COMPANY HAVING CLIENTS AND BUSINESS ACROSS THE GLOBE AND IN THAT PROCESS, KEY EMPLOYEES AND DIRECTORS HAD TO TRAVEL TO VARIOUS DESTINATIONS IN FURTHERANCE OF THEIR BUS INESS. WE FIND THAT THE ISSUE IS COVERED BY THE VARIOUS DECISIONS OF HIGH COURTS AND BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 IN ITA NO. 578/KOL/2006 DATED 22.01.2010 . THE ISSUE IS ALSO COVERED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. UNITED GL ASS MFG. CO. LTD. REPORTED IN 2012-TIOL-102-SC-IT DATED 12.09.2 012 WHEREIN IT WAS HELD AS BELOW: (II) WHETHER CLUB MEMBERSHIP FEE FOR EMPLOYEES INC URRED BY THE ASSESSEE IS A BUSINESS EXPENSE AND LIABLE TO BE DEDUCTED UNDER SE CTION 37(1) OF THE INCOME TAX ACT, 1961? AS FAR AS QUESTION NO. (II) IS CONCERNED, WE FIND THAT A SERIES OF JUDGMENTS HAVE BEEN PASSED BY HIGH COURTS HOLDING THAT CLUB MEMBER SHIP FEES FOR EMPLOYEES INCURRED BY THE ASSESSEE IS BUSINESS EXPENSE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. WE ALSO FIND THAT NONE OF THE DECISIONS HAVE BEEN CHALLENGED IN THIS COURT. EVEN OTHERWISE, WE ARE OF THE VIEW THAT IT IS A PURE BUSINESS EXPENSE. IN THE CIRCUMSTANCES, THIS CIVIL APPEAL FILED BY TH E DEPARTMENT STANDS DISMISSED WITH NO ORDER AS TO COST. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE H AVE NO HESITATION IN ALLOWING THE GROUND OF APPEAL OF ASSESSEE. 6. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18.05.2 016 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 18TH MAY, 2016 JD.(SR.P.S.) 4 ITA NO.2034/K/2013 PRICEWATERHOUSE COOPERS PVT. LTD. AY 2004-05 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT PRICEWATERHOUSE COOPERS PVT. LTD. PLOT -Y-14, BLOCK EP, SECTOR V, SALTLAKE, KOLKATA-700 091. 2 RESPONDENT ACIT, CIRCLE-2, KOLKATA 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .
