RAHUL MOHANLAL BAFNA, MUMBAI V. ITO-21(3)(1), MUMBAI

ITA 453/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6689 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 30-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R N VASANI; V H VASANI A RS
• Keywords: Business income; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 143(2); 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH M UMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.453/MUM/2019 ( ASSESSMENT YEAR: 2014-15 ) RAHUL MOHANLAL BAFNA 2004, CASA GRANDE TOWER S.B.MARG, DELISLE ROAD NEXT TO PENINSULA PARK LOWER PAREL MUMBAI-400 013 VS. ITO-21(3)(1) PIRAMAL CHAMBERS, LALBAUG, PAREL MUMBAI-400 012 PAN/GIR NO.AAFPB1869F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI R.N. VASANI & SHRI V.H.VASANI, ARS REVENUE BY SHRI ASHISH KUMAR, DR DATE OF HEARING 27/01/2020 DATE OF PRONOUNCEMENT 05/02/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)48, MUMBAI, DATED 31/12/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ID. CIT(A)-48 COMMITTED GROSS ERROR OF LAW AND FACTS IN CONFIRMING THE DISALLOWANCES MADE BY THE ASSESSING OFFICER-21(3)(1) OF RS. 22,50,009/- OR THE GROUND THAT THE EXPENSES INC URRED WERE NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 2 2. SHE FAILED TO APPRECIATE THE FACTS THAT THE SA ID EXPENSES WERE REVENUE IN NATURE, INCIDENTAL AND WHOLLY & EXCLUSIV ELY FOR THE PURPOSE OF EARNING INCOME, 3. SHE FAIRED TO APPRECIATE THE FACTS THAT CLUB M EMBERSHIP FEE BEING REVENUE IN NATURE AND ROT CAPITAL OR PERSONAL EXPEN SE IS ALLOWABLE U/S 37[1) / 57 OF THE INCOME-TAX ACT, 1951 4. SHE ERRED IN NOT ACCEPTING THE FACTS THAT THE CORPORATE MEMBERSHIP BEING COSTLY IT WAS TAKEN BY HIM IN HIS INDIVIDUAL NAME AND CLAIMED AGAINST HIS REVENUE INCOME. 5. SHE ERRED IN MERELY CONFIRMING THE ADDITION MA DE ON ASSUMPTION BY THE ASSESSING OFFICER WITHOUT DISPUTING THE NEXUS, NECESSITY, BUSINESS EXPEDIENCY AND GENUINENESS EXPLAINED BY THE APPELLA NT. 6. SHE ERRED IN NOT ACCEPTING THE JURISDICTIONAL P RECEDENTS SUBMITTED BY THE APPELLANT IN THE COURSE OF APPELLATE AND ASSESS MENT PROCEEDINGS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNER IN PARTNERSHIP FIRM OF M/S OKAY INDUSTRIES. THE ASSES SEE HAS DECLARED LOSS FROM BUSINESS/PROFESSION, LOSS FROM INCOME FRO M HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE ASSESSE HAS FILED HER RETURN OF INCOME, DECLARING TOTAL LOSS AT RS. 14,09 ,440/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS FOR THE REASON S NEGATIVE INCOME FROM PARTNERSHIP FIRM RESULTING IN REDUCTION OF THE TAXABLE INCOME AND ACCORDINGLY, NOTICES U/S 143(2) AND 142 (1) OF THE I.T.ACT, 1961, WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CALLED FOR. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE LD. AO NOTED THAT THE ASSESSEE IS A PARTNER IN A PARTNERSHIP FIRM M/S OKAY INDUSTRIES AND THE ONLY I NCOME DECLARED UNDER THE HEAD INCOME FROM BUSINESS IS INTEREST FRO M PARTNERSHIP FIRM CURRENT ACCOUNT AND CAPITAL ACCOUNT. THE LD. AO, FURTHER NOTED THAT AGAINST INCOME FROM PARTNERSHIP FIRM, THE ASSE SSEE HAS CLAIMED DEDUCTIONS FOR VARIOUS EXPENDITURE, INCLUDING MEMBE RSHIP, ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 3 SUBSCRIPTION FEES PAID TO NATIONAL SPORTS CLUB OF INDIA (NSCI) OF RS. 22,47,200/-. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY MEMBERSHIP AND SUBSCRIPTION FEES PAID TO NSCI O F RS. 22,47,200/- SHALL NOT BE DISALLOWED, WHILE COMPUTIN G INCOME FROM BUSINESS AND PROFESSION, BECAUSE SAID EXPENDITURE I S IN THE NATURE OF PERSONAL EXPENDITURE, WHICH CANNOT BE ALLOWED AS DEDUCTION. IN RESPONSE, THE ASSESEE VIDE LETTER, DATED 21/11/2016 SUBMITTED THAT EXPENDITURE INCURRED ON CLUB MEMBERSHIP AND SUBSCRI PTION FEES IS DEDUCTIBLE UNDER SECTION 37 OF THE I.T.ACT, 1961 A GAINST INCOME ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. TH E LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO, TAKEN NOTE OF PROVISION OF SECTION 37 OF THE ACT,OPINED T HAT ANY EXPENDITURE, WHICH IS IN THE NATURE OF CAPITAL EXPE NDITURE OR PERSONAL EXPENSES OF THE ASSESSEE SHALL NOT BE ALLOWED AS DE DUCTION U/S 37 OF THE I.T.ACT, 1961. ACCORDINGLY, DISALLOWED CLUB MEMBERSHIP AND SUBSCRIPTION FEES PAID TO NATIONAL SPORTS CLUB OF I NDIA OF RS. 22,50,000/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESEE HAS REITERATED HER SUBMISSIONS MADE BEFORE THE LD. AO A LONG WITH CERTAIN JUDICIAL PRECEDENTS AND ARGUED THAT EXPENDITURE IN CURRED IN THE COURSE OF BUSINESS OR PROFESSION FOR CLUB MEMBERSHI P AND SUBSCRIPTION FEES IS IN THE NATURE OF REVENUE EXPEN DITURE, WHICH IS DEDUCTIBLE U/S 37(1) OF THE I.T.ACT, 1961. THE LD.C IT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO, TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY IN HER INDIVIDUAL CAPACITY, CAME TO THE CO NCLUSION THAT EXPENDITURE INCURRED FOR CLUB MEMBERSHIP AND SUBSC RIPTION FEES ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 4 PAID TO NATIONAL SPORTS CLUB OF INDIA IS NOT IN TH E NAME OF THE FIRM AND ALSO, THE AMOUNT HAS NOT BEEN PAID FROM FIRM AC COUNT. THEREFORE, IT CANNOT BE SAID THAT EXPENDITURE IS IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WHICH CAN BE ALLOWED AS DEDUCTION U/S 37(1) OF THE I.T.ACT, 1961. ACCORDING LY, CONFIRMED ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF PAYMENT MADE TO NATIONAL SPORTS CLUB OF INDIA FOR MEMBERSH IP AND SUBSCRIPTION FEES. AGGRIEVED BY THE LD.CIT(A) ORDER , THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) WAS ERRED IN CONFIRMING ADDITIONS MADE BY THE LD. AO T OWARDS DISALLOWANCES OF CLUB MEMBERSHIP AND SUBSCRIPTION F EES, WHICH WAS CLAIMED AS BUSINESS EXPENDITURE AGAINST INCOME FROM BUSINESS BEING INTEREST ON CAPITAL AND CURRENT ACCOUNT FROM PARTNERSHIP FIRM WITHOUT APPRECIATING THE FACT THAT CLUB MEMBERSHIP FEES AND SUBSCRIPTION FEES IS IN THE NATURE OF REVENUE EXPEN DITURE, WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LD. AR, FURTHER REFERRING TO VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPRE ME COURT, IN THE CASE OF CIT VS UNITED GLASS MANUFACTURING COMPANY. LTD. IN CIVIL APPEAL NO. 6447-6449 OF 2012 SUBMITTED THAT THE HON BLE SUPREME COURT CATEGORICALLY HELD THAT CLUB MEMBERSHIP FEES FOR BENEFIT OF EMPLOYEES BUSINESS EXPENSES DEDUCTIBLE U/S 37(1) O F THE I.T.ACT, 1961. IN THIS REGARD, HE RELIED UPON THE FOLLOWING JUDICIAL PRECEDENTS:- 1. CIT V. UNITED GLASS MFG. CO. LTD. [CIVIL APPEA L NOS, 6447 TO 6449 OF 2012] 2. CIT (LARGE TAX PAYER UNIT), CENTRE-1, MUMBAI V . LUBRIZOL INDIA LTD. [2013] 218 TAXMAN 69 (BOMBAY) ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 5 3. CIT V- APOLLO TYRES LTD. (NO. 3) [2019] 416 IT R 554 (KER) 4. PC1T V. BAYER VAPI PVT. LTD. [2019] 13 ITR-OL 639 (GUJ) 5. DY. CIT V, M/S. DELOITTE TOUCHEETOHMATSU [ITA NO.3017/MUM./2016 MUM-TRIB] 6. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD. AO, AS WELL AS THE LD.CIT(A) SUBMITTED THAT THE LD. AO WAS RIGHT IN DISALLOWED SUBSCRIPTION AND MEMBERSHIP FEE PAID TO NATIONAL SPORTS CLUB OF INDIA, BECAUSE THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY IN HER INDIVIDUAL CAPACITY IN ORD ER TO GET THE BENEFIT OF DEDUCTIONS TOWARDS SAID EXPENDITURE, WHILE COMP UTING INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. HE, FURTHER SUBMITTED THAT ALTHOUGH, VARIOUS COURTS HAVE HELD T HAT CLUB MEMBERSHIP FEES PAID FOR THE BENEFIT OF EMPLOYEES I S IN THE NATURE OF REVENUE EXPENDITURE, WHICH IS INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. BUT, FACT REMA INS THAT IN THIS CASE, THE ASSESSEE HAS CLAIMED DEDUCTIONS TOWARDS S AID EXPENDITURE AGAINST BUSINESS INCOME BEING INTEREST ON CAPITAL AND CURRENT ACCOUNT FROM PARTNERSHIP FIRM, WITHOUT HAVI NG ANY BUSINESS ACTIVITY CARRIED IN HER INDIVIDUAL CAPACITY. THEREF ORE, THE LD. AO, AS WELL AS THE LD.CIT(A) WERE RIGHT IN DISALLOWED SAID EXPENDITURE. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSEE HAS MADE PAYMENT OF RS. 22,50,009/- TOWARD S MEMBERSHIP FEES AND SUBSCRIPTION FEES TO JUHU VILE PARLE, GYMKHANA AND NATIONAL SPORTS CLUB OF INDIA AND CLAI MED DEDUCTIONS TOWARDS SAID EXPENDITURE, WHILE COMPUTIN G INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION BEING INTEREST ON CAPITAL AND CURRENT ACCOUNT FROM PARTNERSHIP FIRM M/S OKAY ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 6 INDUSTRIES. THE PROVISIONS OF SECTION 37(1) DEALS W ITH A SITUATION, WHERE ANY EXPENDITURE INCURRED OR LAID OUT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS OR PROFESSION, BUT SUCH EXPENDITURE SHO ULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE. IN ORDER TO GET THE BENEFIT OF DEDUCTION ANY EXPEND ITURE, FIRST THE ASSESSEE SHOULD CARRIED OUT SOME BUSINESS ACTIVITY AND SECONDLY, THE EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE IS NEITHER, CARRIED OUT ANY BUSINESS ACTIVITY IN HER I NDIVIDUAL CAPACITY, NOR INCURRED SAID EXPENDITURE WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, BECAUSE WHEN THERE IS NO BUSINESS ACTIVITY THE ARGUMENT THAT CLUB MEMBERSHIP FEES AND SUBSCRIPTION WOULD BENEFIT THE BUSINESS OF THE ASSESSEE IS VERY FARFETCHED. ADMITTEDLY, THE ASSESSEE HAS DERIVED INTEREST INCOM E FROM PARTNERSHIP FIRM AGAINST WHICH SHE HAD CLAIMED VARI OUS DEDUCTIONS, INCLUDING SUBSCRIPTION AND MEMBERSHIP FEES PAID TO VARIOUS CLUBS. FURTHER, THE MEMBERSHIP FEES ALSO NOT IN THE NAME O F THE FIRM OR IN THE NAME OF ALL THE PARTNERS. THE PAYMENTS FOR ME MBERSHIP FEES HAS NOT BEEN MADE FROM PARTNERSHIP FIRM ACCOUNT, BU T, RATHER IT HAS BEEN PAID FROM ASSESSEE OWN FUNDS. THEREFORE TO CLA IM THAT SUCH EXPENDITURE IS RELATED TO THE BUSINESS INCOME OF TH E FIRM, IN WHICH THE ASSESSEE IS A PARTNER IS INCORRECT. NO DOUBT, V ARIOUS COURTS, INCLUDING THE HONBLE SUPREME COURT HAVE HELD THAT IF CLUB MEMBERSHIP FEES IS INCURRED FOR THE BENEFIT OF THE EMPLOYEES, THEN IT WOULD BE IN THE NATURE OF REVENUE EXPENDITURE WHOLL Y AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSE AND IS DEDUCTIBLE U/S 37(1) OF THE I.T.ACT, 1961. BUT, IN ORDER TO APPLY THE RATIO OF THE SAID DECISION, IT ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 7 IS FOR THE ASSESSEE TO PROVE THAT SHE IS IN FACT C ARRYING OUT BUSINESS IN HER INDIVIDUAL CAPACITY AND IN ORDER TO BENEFIT HER BUSINESS, SHE HAD INCURRED SAID EXPENDITURE. IN THIS CASE, THE A SSESSEE IS NEITHER CARRYING OUT ANY BUSINESS ACTIVITY, NOR INCURRED SA ID EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE BENEFIT OF HER BUSI NESS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT I N THE CONTENTION OF THE ASSESSEE AND ALSO, THE SUPPORT TAKEN FROM VARIO US CASE LAWS. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS OF THE LD.CIT(A) IN CONFIRMING DISALLOWANC ES MADE BY THE LD. AO TOWARDS SUBSCRIPTION AND MEMBERSHIP FEES PAI D TO CLUBS, WHILE COMPUTING INCOME UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION. ACCORDINGLY, WE ARE INCLINE D TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AND DISMISS, APPEAL FILED BY THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/02/20 20 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED /02/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// ITA NO.453/MUM/2019 RAHUL MOHANLAL BAFNA 8 (ASSTT. REGISTRAR) ITAT, MUMBAI DATE INITIAL WHETHER DICTATION PAD ENCLOSED WITH THE FILE : YES/ NO (AS THE ORDER HAS BEEN TYPED WITH THE HELP OF MANUSCRIPT) 1. DRAFT DICTATED ON 23/01/2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER