Giriraj Iron Limited, Ahmedabad V. The DCIT, Circle - 2(1)(1), Ahmedabad

ITA 609/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9981 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 09-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.609/AHD/2016 (ASSESSMENT YEAR : 2012-13) GIRIRAJ IRON LTD., 14, VANSHREE BUNGLOWS, NR. UDGAM SCHOOL, OPP. SAL HOSPITAL, DRIVE IN ROAD, THALTEJ AHMEDABAD 380 054. VS. DCIT, CIRCLE 2(1)(1), NAVJIVAN TRUST BUILDING, AHMEDABAD 380 009. [PAN NO. AAECG 2514 N] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI HARDIK VORA, A.R. RESPONDENT BY : SHRI S. K. DEV, SR. D.R. DATE OF HEARING 27.03.2019 DATE OF PRONOUNCEMENT 17 .0 5 . 2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 29.01.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS)-2, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ARISING OUT OF THE ORDER DATED 28.02.2015 PAS SED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), AHMED ABAD FOR THE ASSESSMENT YEAR 2012-13. ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 2 - 2. GROUND NO.1: DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT THE A SSESSEE HAD GIVEN AN ADVANCE OF RS.10,00,000/- TO ONE SHRI SANJAY K SHAH . THE ASSESSEE WAS ASKED TO FURNISH CLARIFICATION AS TO WHETHER INTEREST BAR ING FUNDS WAS DIVERTED UNDER THE SAID ADVANCE OR FOR NON-BUSINESS PURPOSES OR FO R ACQUISITION OF CAPITAL ASSETS. FURTHER THAT, THE EXPLANATION AS TO WHY PRO PORTIONATE INTEREST EXPENSES SHOULD NOT BE DISALLOWED U/S 36(1)(III) OF THE INCO ME TAX ACT OR SHOULD BE CAPITALIZED WITH THE CAPITAL ASSETS WAS ALSO SOUGHT FOR. IN REPLY WHEREOF, THE ASSESSEE STATED THAT THE ADVANCE GIVEN TO SAID SHRI SHAH WAS FROM INTEREST BEARING FUND AND INTEREST WAS CHARGED IN THE A.Y. 2 013-14. THE ASSESSEE HAS NOT GIVEN ANY CLARIFICATION WHETHER INTEREST WAS CH ARGED FOR A.Y. 2012-13 OR NOT AND IF NOT THEN WHY. FURTHER THAT, NO EVIDENCE OF BUSINESS EXPEDIENCY OR ANY EVIDENCES GENERATING INCOME FROM SUCH LOANS AND ADVANCES GIVEN TO SHRI SANJAY K SHAH OR ANY JUSTIFICATION OR EVIDENCES THA T THE LOANS AND/OR ADVANCES WERE GIVEN OUT OF SURPLUS FUNDS AND NO INTEREST BEA RING FUNDS WERE DIVERTED FOR INTEREST FREE LOANS AND ADVANCES GIVEN WAS FURNISHE D BY THE ASSESSEE. ULTIMATELY, APPLYING THE PROVISION OF SECTION 36(1) (III) OF THE ACT ON THE AMOUNT OF INTEREST FREE LOANS AND ADVANCES @12% TOT ALING TO RS.1,20,000/- WAS CHARGED AND DISALLOWED WHICH WAS IN TURN RESTRI CTED INTEREST TO 9% TOTALING RS.90,000/- BY THE LEARNED CIT(A). HENCE THE INSTAN T APPEAL BEFORE US. 3. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT BY AND UNDER A LETTER DATED 16.07.2015 THE ASSESSEE SUBMITTED THE FOLLOWING BEF ORE THE FIRST APPELLATE AUTHORITY: ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 3 - (3) DISALLOWANCE OF INTEREST U/S 36(1)(III) OF RS. 1,20,000/- :- THE COMPANY HAS GIVEN LOAN OF RS.10,00,000/- TO SAN JAY K. SHAH - MUMBAI. DURING F.Y.2011-12 COMPANY HAS NOT RECEIVED INTERES T ON THIS ADVANCE. HOWEVER, ADVANCES OF RS.10,00,000/- ALONGWITH INTER EST OF RS. 1,50,000/- WAS RECEIVED IN F.Y.2012-13. THE LEARNED A.O. HAS DISALLOWED INTEREST U/S.36(1)( III) FOR INTEREST FREE ADVANCES GIVEN TO SANJAY K. SHAH. ACCORDINGLY, INTE REST @12% P.A. ON RS.10,00,000/- I.E. RS.1,20,000/- IS DISALLOWED OUT OF TOTAL INTEREST CLAIMED BY THE COMPANY. IN THIS CONTEXT IT WAS STATED BY THE COMPANY THAT S ANJAY K. SHAH IS BROKER OF IRON AND STEEL ITEMS. THIS PERSON HAS DONE BUSINESS WITH COMPANY AS A BROKER OF IRON AND STEEL ITEMS FOR MUMBAI BRANCH OF THE CO MPANY. IN F.Y.2012-13 ADVANCES ARE RECEIVED BACK ALONGWITH INTEREST OF RS .1,50,000/-. WE SUBMIT HEREWITH LEDGER ACCOUNT OF SANJAY K. SHAH FOR F.Y. 2011-12 AND 2012-13. IN F.Y. 2011-12, COMPANY HAS NOT CHARGED INTEREST AS H E WAS WORKING WITH COMPANY AS A BROKER. THE TOTAL INTEREST OF RS. 1,50 ,000/- RECEIVED IN F. Y.2012-13, CONSIST INTEREST FOR F. Y. 2011-12. COMP ANY HAS SHOWN INTEREST INCOME IN F.Y.2012-13. HENCE, COMPANY HAS NOT UNDER STATED ITS INCOME. THE RATE OF TAXATION IN BOTH YEAR ARE SAME AND THERE IS NO LOSS TO THE GOVERNMENT EXCHEQUER. SOMETIMES IN BUSINESS IT HAPPENS THAT TERMS OF TRAN SACTIONS ARE NOT DEFINED PRECISELY IN PARTICULAR YEAR. LOOKING TO THE BUSINE SS VOLUME OF THE COMPANY AND TAXABLE INCOME, SUCH MINOR LAPSES MAY OCCUR WHI CH SHOULD BE CONDONED BY THE INCOME TAX DEPARTMENT. IN THIS CASE, TOTAL I NTEREST INCOME RECEIVED FROM SANJAY K. SHAH IS OFFERED IN F.Y.2012-13. THE POSSIBLE REASON MAY BE, HE MAY BE FOLLOWING CASH SYSTEM OF ACCOUNTING AS HE IS HAVING BROKERAGE INCOME. IN VIEW OF ABOVE FACTS, AS INTEREST IS ACCOUNTED IN F. Y.2012-13, WE REQUEST YOUR HONOUR TO DELETE DISALLOWANCES OF INTEREST OF RS. 1,20,000/-. FURTHER THAT, ON 30.10.2015 ASSESSEE MADE A FURTHER SUBMISSION ALONG WITH A CERTAIN DOCUMENTS IN THE MANNER AS FOLLOWS U PON CONSIDERING WHICH THE LEARNED CIT(A) RESTRICTED THE DISALLOWANCE: ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 4 - (1) DIS-ALLOWANCE OF INTEREST U/S. 36(1)(III) OF RS. 1 ,20,000/-: THE COMPANY HAS GIVEN LOAN OF RS.10,00,000/- TO SAN JAY K. SHAH - MUMBAI. DURING F.Y. 2011-12 COMPANY HAS NOT RECEIVED INTERE ST ON THIS ADVANCE. THE LEARNED A. O. HAS DIS-ALLOWED INTEREST U/S. 36( 1)(III) FOR INTEREST FREE ADVANCES GIVEN TO SANJAY K. SHAH. ACCORDINGLY, INTE REST @12% P.A. ON RS.10,00,000/- I.E. RS.1,20,000/- IS DIS-ALLOWED OU T OF TOTAL INTEREST CLAIMED BY THE COMPANY. SHRI SANJAY K. SHAH IS BROKER OF IRON & STEEL ITEMS AND HAS DONE BUSINESS WITH COMPANY AS A BROKER FOR MUMBAI BRANCH OF THE C OMPANY. IN F.Y. 2012- 13 ADVANCES ARE RECEIVED BACK ALONGWITH INTEREST OF RS. 1,50,000/-. THE COMPANY HAS SHOWN INTEREST INCOME OF RS. 1,50,000/- IN F.Y. 2012-2013. WE HAVE STATED THAT RATE OF TAXATION FOR COMPANY FOR B OTH YEARS ARE SAME AND THERE IS NO LOSS TO THE GOVERNMENT EXCHEQUER. WE HA VE SUBMITTED LEDGER ACCOUNTS OF SANJAY K. SHAH FOR F.Y. 11-12 AND F. Y. 2012-13 AND INTEREST INCOME ACCOUNT OF THE COMPANY FOR F. Y. 2012-2013 ( PAGE NO.1 TO 3 OF OUR SUBMISSION DATED 16/07/2015). FURTHER WE SUBMIT FOL LOWING DOCUMENTS FOR YOUR KIND PERUSAL:- 1. PROFIT & LOSS ACCOUNT FOR F. Y. 2011-2012 AND F. Y. 2012-2013 OF THE COMPANY. 2. COPY OF INCOME TAX RETURN ALONGWITH STATEMENT OF TOTAL INCOME FOR F.Y. 2011-12 & 2012-2013. AS APPLICABLE RATE OF TAXATION FOR COMPANY IN BOTH YEAR ARE SIMILAR, THERE IS NO EVASION OF TAX. WE REQUEST YOUR HONOUR TO DELETE DISALLOWANCE OF RS.1,20,000/- AS COMPANY HAS ALREADY OFFERED INCOME IN F.Y. 2012-13. 4. WE HAVE HEARD THE RESPECTIVE PARTIES, AND PERUSE D THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM THE RECORD THA T THE LEARNED CIT(A) WAS OF THE VIEW THAT NO DETAILS AND/OR EVIDENCES WAS SUBMI TTED BY THE ASSESSEE TO PROVE THAT THE LOANS AND ADVANCES WERE GIVEN OUT OF THE SURPLUS FUNDS AND NO INTEREST BEARING FUNDS WERE DIVERTED FOR INTEREST F REE LOANS AND ADVANCES. IT WAS FURTHER NOTICED THAT THE ADVANCES OF RS.10,00,000/- TO SHRI SANJAY K SHAH HAS SHOWN AS OPENING BALANCE AS ON 01.04.2011 MEANING T HEREBY THAT THE ADVANCES WAS GIVEN IN F.Y. 2010-11 OR EARLIER TO THAT. SO FA R AS THE CHARGING OF INTEREST ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 5 - TO THE TUNE OF RS.1,50,000/- IS CONCERNED IT HAS NO T GIVEN ANY WORKING OF THE INTEREST ABOUT THE PERIOD TO WHICH THE SAME WAS PER TAINING. SINCE THE RE- PAYMENT OF THE LOAN OF RS.10,00,000/- HAS BEEN MADE ON 08.11.2012 FOLLOWED BY ANOTHER RS.5,00,000/- ON 13.12.2012 IT IS NOT AS CERTAINABLE AT WHAT RATE OF INTEREST HAS BEEN CHARGED BY THE APPELLANT AND THIS INTEREST WAS PERTAINING TO F.Y. 2012-13, NOT TO THE YEAR UNDER CONSIDERATION A ND EARLIER YEARS. FURTHERMORE, THE AOS FINDING THAT THE INTEREST BEA RING FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF GRANTING THE INTEREST F REE ADVANCES HAS NOT BEEN CONTROVERTED BY THE APPELLANT. HOWEVER, SINCE THE A PPELLANT HAS CHARGED THE INTEREST OF RS.21,38,840/- ON THE LOANS GIVEN TO TH E OTHER PARTY NAMELY GIRIRAJ EXIM PVT. LTD. @ 9%, NO JUSTIFICATION HAS BEEN FOUN D IN WORKING OUT INTEREST @ 12% AS DONE BY THE LEARNED AO WHICH HAS BEEN REST RICTED BY THE LEARNED CIT(A) @ 9% RESULTING INTEREST DISALLOWANCE TO THE TUNE OF RS.90,000/-. WE FIND NO INFIRMITY IN THE JUSTIFICATION RENDERED BY THE LEARNED CIT(A) IN RESTRICTING THE INTEREST DISALLOWANCE @9% INSTEAD O F DELETING THE SAME IN THE ABSENCE OF ANY DENIAL BY THE ASSESSEE THAT INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF GRANTING THE INTEREST F REE ADVANCES. 5. GROUND NO.2: DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WA S NOTICED THAT THE ASSESSEE HAD PAID CLUB MEMBERSHIP FEES OF RS.6,61,800/- FOR AVAILING MEMBERSHIP FROM KARNAVATI CLUB LTD. IN THE NAME OF DIRECTOR NAMELY UTKARSH SHAILESHBHAI SHAH WHICH HAS BEEN CLAIMED TO HAVE BEEN PAID BY CHEQUE NO.400311 OF YES BANK DATED 12.08.2011. THE CLARIFICATION WAS ALSO MADE BY THE LEARNED AO THAT SUCH MEMBERSHIP WAS DON E FOR BUSINESS PURPOSE AND TO RENDER GOOD HOSPITALITY TO THE CLIENTS OF TH E COMPANY. HOWEVER, THERE ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 6 - WAS NO PROOF OF RELEVANT EVIDENCES THAT SUCH PROSPE CTIVE CLIENTS OR CUSTOMERS VISITED THE CLUB WITH THE ASSESSEE DURING THE WHOLE OF THE YEAR AND WHAT WAS THE IMPACT OF SUCH BUSINESS MEETING/CONFERENCES WIT H SUCH PERSON ON THE PROFITABILITY OR THE TURNOVER OF THE ASSESSEE. NEIT HER THE LEDGER PRINT OF THE KARNAVATI CLUB DURING THE WHOLE OF THE YEAR REGARDI NG BOOKING ACCOMMODATION ALONG WITH RELEVANT RECEIPT WAS SUBMI TTED BY THE ASSESSEE AND THUS THE EXPENDITURE INCURRED FOR THE PURPOSE OF CL UB MEMBERSHIP COULD NOT BE VERIFIED BY THE LEARNED AO. NEITHER THE ASSESSEE PR OVED THAT SUCH EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR IN CONNECTION WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, SUCH CLUB MEMBERSHIP FEES TO THE TUNE OF RS.6,61,800/- WAS ADDED TO THE INCOME O F THE ASSESSEE WHICH WAS IN TURN CONFIRMED BY THE LEARNED CIT(A). HENCE, THE IN STANT APPEAL BEFORE US. 6. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LEARNED ADVOCATE APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE RELATING TO THE CLUB MEMBERSHIP FEES IN THE NAME OF THE DIRECTORS I N THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE AS ALREADY BEEN SETTLED A NUMBER OF JUDGMENTS BY DIFFERENT COURTS OF LAW INCLUDING THE IMPUGNED BENC H TRIBUNAL IN THE MATTER OF DCIT-VS-M/S. BANC OF AMERICA SECURITIES (INDIA) PVT . LTD. IN ITA NO.6611/MUM/2008 AS WELL AS IN THE MATTER OF RELIAB LE CIGARETTE & TOBACCO- VS-DCIT AND ALSO IN THE MATTER OF DEEP RAJ MINERA LS-VS-ACIT IN ITA NO.6563/MUM/2007 IN THAT VIEW OF THE MATTER THE ORD ER PASSED BY THE AUTHORITIES BELOW IS NOT SUSTAINABLE IN THE EYE OF LAW. ON THE CONTRARY, THE LEARNED DR RELIED UPON THE ORDER PASSED BY THE AUTH ORITIES BELOW. ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 7 - 7. WE HAVE HEARD THE RESPECTIVE PARTIES, AND PERUSE D THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS THAT WHILE REJECTIN G THE APPEAL OF THE ASSESSEE, THE LEARNED CIT(A) OBSERVED AS FOLLOWS: 4.4 ON THE OTHER SIDE, THE APPELLANT SUBMITTED THAT THE PAYMENT HAS BEEN MADE FROM THE BANK ACCOUNT OF THE COMPANY AND THE C OMPANY HAS INCURRED THE EXPENDITURE FOR ITS BUSINESS PURPOSE. SINCE THE MEMBER SHIP HAS BEEN PURCHASED IN THE NAME OF THE INDIVIDUAL DIRECTOR WH O REPRESENTS FOR AND ON BEHALF OF THE COMPANY AND ITS BOARD OF DIRECTORS. I T WAS ALSO MENTIONED THAT IT HAS ENTERTAINED THE OFFICIALS AND MARKETING STAFF O F THE CUSTOMERS AND SUPPLIERS COME TO AHMEDABAD FREQUENTLY AS THE CLUB OFFERS CONFESSIONAL RATES FOR LODGING AND BOARDING TO CARD HOLDERS. THEREFORE , THE BUSINESS EXPENDITURE WAS INCURRED FOR PROMOTE THE BUSINESS. IN SUPPORT, IT HAS RELIED UPON VARIOUS JUDGMENTS. 4.5 HAVING CONSIDERED THE FACTS AND SUBMISSION, IT IS NOTICED THAT THE MEMBERSHIP HAS BEEN TAKEN IN THE NAME OF THE INDIVI DUAL SHRI UTKARSH S. SHAH AND HIS FAMILY MEMBERS UNDER THE CHILDREN CATEGORY. THUS, IT CANNOT BE SAID TO BE THE CORPORATE MEMBERSHIP IN THE CLUB. MERELY THE PAYMENT HAS BEEN MADE OUT OF THE FUNDS OF THE APPELLANT COMPANY WOUL D NOT CHANGE THE NATURE OF THE MEMBERSHIP. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS THE APPELLANT HAS NOT BEEN AB LE TO PROVE THAT THE CLUB FACILITIES INCLUDING LODGING AND BOARDING HAVE BEEN UTILIZED BY THE APPELLANT FOR THE PURPOSE OF ITS CUSTOMERS OR SUPPLIERS OR FO R ARRANGING SOME SEMINAR/WORKSHOP ETC. ON GOING THROUGH THE KARNAVAT I CLUB EXPENDITURES LEDGER ACCOUNT, IT WAS NOTICED THAT IN THE YEAR UND ER CONSIDERATION NO EXPENDITURES TOWARDS ANY BOARDING/LODGINGJJNAVE BEE N INCURRED IN THIS REGARD. FURTHER IN THE SUBSEQUENT YEAR I.E. F.Y. 20 13-14, THE TOTAL EXPENDITURES ON 5 DIFFERENT DATES WERE TOTALING TO RS.670/- ONLY APART FROM THE ANNUAL MEMBERSHIP FEE. SIMILARLY, IN F.Y. 2014-15, THE EXPENDITURES WERE ONLY TO THE TUNE OF RS.1,120/- AT 10 DIFFERENT DATE S EXCLUDING THE ANNUAL MEMBERSHIP FEE. FROM SUCH A LOW AMOUNT OF EXPENDITU RES, IT IS APPARENT THAT THOSE WERE CERTAINLY NOT HAVING INCURRED FOR THE PU RPOSE OF CUSTOMERS/SUPPLIERS AND WERE IN THE NATURE OF PERSO NAL EXPENDITURES. IT WOULD NOT BE POSSIBLE TO ENTERTAIN THE GUESTS IN SUCH A S MALL AMOUNT IN THIS COSTLIER CLUB OF THE CITY. THUS, THE APPELLANT HAS TOTALLY F AILED TO PROVE THE UTILIZATION OF THE CLUB FACILITIES FOR THE PURPOSE OF BUSINESS. EV EN DURING THESE THREE YEARS THE APPELLANT HAS NOT BOOKED A SINGLE ROOM TO PROVE THAT THE SAME HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. ALTHOUGH IN T HE PRESENT APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED THE NAME AND DE SIGNATION OF THE PERSON ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 8 - AND THE COMPANY TO WHICH THAT PERSON WAS BELONG WER E SUBMITTED BUT THESE DETAILS WERE NOT VERIFIABLE. NEITHER THE PERSON WHO VISITED NOR THE COMPANY TO WHICH THE SAID PERSON BELONGS HAS BEEN ESTABLISHED WITH THE NECESSARY EVIDENCES. MOREOVER IT IS NEEDLESS TO MENTION THAT IN SUCH A SMALL AMOUNT OF EXPENDITURE CLAIMED THESE PERSONS WERE IMPOSSIBLE T O BE ENTERTAINED AND HENCE THE AUTHENTICITY OF THE DETAILS ARE IN DOUBT. 4.6 WITH REGARD TO THE CASE LAWS CITED BY THE APPEL LANT, IT IS NOTICED THAT THOSE ARE NOT IDENTICAL TO THE FACTS OF THE APPELLANT'S C ASE. FOR EXAMPLE IN THE CASE OF DCIT VS. M/S.BANC OF AMERICA SECURITIES INDIA PV T. LTD. THE ISSUE WAS IN RESPECT TO DECIDE WHETHER THE CLUB MEMBER SHIP FEE HAS TO BE TREATED AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. WHILE I N THE INSTANT CASE THE ISSUE WAS WHETHER THE EXPENDITURE WAS IN RELATION TO BUSI NESS PURPOSE OR NOT. UNDISPUTEDLY THE USE OF THE CLUB FACILITIES FOR THE PURPOSE OF BUSINESS WAS NOT THE OBJECTION OF THE AO IN THE AFORESAID CITED CASE WHICH WAS THE MOOT QUESTION IN APPELLANT'S CASE. LIKEWISE IN THE CASE OF DEEP RAJ MINERALS VS. ACIT THERE WAS THE UNDISPUTED FACT THAT THE APPELLANT HAS TAKEN THE CUSTOMERS OF THE SAID FIRM TO THE CLUB FOR BUSINESS PURPOSES AND THEREFORE THE HON'BLE ITAT HO LD THAT ONCE COMMERCIAL ANGLE IS ESTABLISHED THEN THERE IS DIFFERENCE IN TH E CORPORATE MEMBERSHIP OR A MEMBERSHIP OF WORKING PARTNER IN A CLUB. HOWEVER, I N THE APPELLANT'S CASE THE APPELLANT HAS TOTALLY FAILED TO PROVE THAT THE CLUB FACILITIES HAVE BEEN UTILIZED BY THE APPELLANT FOR ITS CUSTOMERS LIKEWISE THE FAC TS OF THE CASE OF RELIABLE CIGARETTES AND TOBACCO CO. WAS ALSO NOT RELEVANT FO R THE PURPOSE THAT THE SAID DECISION WAS BASED UPON THE JUDGEMENT OF MUMBA I HIGH COURT IN THE CASE OF OTIS ELEVATORS INDIA LTD. VS. CIT 195 ITR 6 82 WHEREBY THE BUSINESS EXPENDITURES NOT FALLING WITHIN THE MISCHIEF OF SEC TION 40(A)(V) AND THE PAYMENT HAS BEEN ALLOWED. THE ISSUE INVOLVED IN THE ABOVE CITED CASE OF OTIS ELEVATORS INDIA LTD. (SUPRA) WAS IN RESPECT OF TO T REAT THE CLUB MEMBER SHIP FEE AS PERQUISITE IN THE HANDS OF THE DIRECTORS OR ALLOWED AS BUSINESS EXPENDITURE WHICH WAS NOT THE ISSUE UNDER CONSIDERA TION IN THE INSTANT APPEAL. BUT IN THE INSTANT CASE THE ISSUE OF ALLOWABILITY O F THE BUSINESS EXPENDITURES WAS U/S.37(L) OF THE ACT AND THE PROVISIONS OF SECT ION 40(A)(V) WERE NOT IN EXISTENCE IN THE YEAR UNDER CONSIDERATION. 4.7 IN VIEW OF THE AFORESAID DISCUSSION, THE DISALL OWANCE OF THE CLAIM OF EXPENDITURE MADE BY THE APPELLANT AS REVENUE AND BU SINESS EXPENDITURE IS FOUND NOT CORRECT AND HENCE THE SAME IS CONFIRMED. THUS THE GROUND OF APPEAL IS DISMISSED. ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 9 - WE HAVE ALSO CONSIDERED THE JUDGMENT PASSED BY THE LEARNED TRIBUNAL AS RELIED UPON BY THE LEARNED AR. IT APPEARS FROM T HE RECORDS THAT THE ASSESSEE MADE A WRITTEN SUBMISSION ON 16.07.2015 BEFORE THE FIRST APPELLATE AUTHORITY WITH THE FOLLOWING CONDITIONS: (4) DIS-ALLOWANCE OF CLUB MEMBERSHIP FEES :- THE COMPANY HAS PAID RS.6,61,800/- TO KARNAVATI CLU B LIMITED BY CHEQUE NO. 400311 OF YES BANK LTD ON 12.08.2011. THE PAYME NT WAS MADE FROM COMPANY'S BANK ACCOUNT AND CLUB MEMBERSHIP IS TAKEN IN THE NAME OF DIRECTOR, SHRI UTKARSH SHAILESH SHAH. THE LEARNED A.O. HAS DIS-ALLOWED CLUB MEMBERSHIP FE ES OF RS.6,61,800/- ON FOLLOWING ASSUMPTIONS/REASONS :- * CLUB HAS ISSUED RECEIPT IN THE NAME OF DIRECTOR SHRI UTKARSH SHAILESH SHAH * MEMBERSHIP MENTIONED IN THE RECEIPT IS 'C HILDREN CATEGORY'. * AS MEMBERSHIP IS TAKEN IN 'CHILDREN CATEGORY', I T IS TAKEN FOR PERSONAL PURPOSE OF DIRECTOR AND THEIR FAMILY MEMBE R. ASSESSEE HAS TO PROVE WITH RELEVANT EVIDENCES THAT WHICH CLIENT OR CUSTOMER VISITED THE CLUB DURING THE YEAR AND ITS IMPACT OF SUCH BUSINES S MEETING ON PROFITABILITY AND TURN-OVER OF THE COMPANY. * THE COMPANY HAS NOT GIVEN LEDGER PRINT OUT OF KA RNAVATI CLUB LTD & DETAILS OF BOOKING ACCOMMODATION WITH RELEVANT RECE IPT. * IN THE ABSENCE OF ANY EVIDENCES, SUCH EXPENDITURE CANNOT BE HELD TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSIN ESS PURPOSE. THEREFORE, IT IS TREATED FOR PERSONAL PURPOSE AND D IS-ALLOWED. THE CONTENTION OF THE LEARNED A.O. TO DIS-ALLOW CLU B MEMBERSHIP FEES OF RS. 6,61,800/- IS TOTALLY INCORRECT, LOOKING TO THE FOLLOWING FACTS. * THE COMPANY HAS MADE PAYMENT BY WAY OF CHEQUE NO. 400311 OF YES BANK LTD DATED 12.08.2011. PAYMENT IS MADE FROM COM PANY'S BANK ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 10 - ACCOUNT. COMPANY HAS INCURRED THE EXPENDITURE FOR I TS BUSINESS PURPOSE. WE SUBMIT HEREWITH BANK REGISTER, LEDGER A CCOUNT, AND PAYMENT RECEIPT FROM KARNAVATI CLUB LTD. AS COMPANY HAS INCURRED EXPENDITURE, IT IS ALLOWABLE AS DEDUCTION. * KARNAVATI CLUB LTD HAS ISSUED RECEIPT IN THE NAME OF THE DIRECTOR SHREE UTKARSH SHAILESH SHAH FOR PAYMENT MADE BY THE COMPANY. DIRECTOR SHREE UTKARSH SHAILESH SHAH LOOKS AFTER MA RKETING OF THE COMPANY'S BUSINESS. ANY ONE DIRECTOR HAS TO REPRESE NT FOR & ON BEHALF OF THE COMPANY AND ITS BOARD OF DIRECTORS. A COMPAN Y IS 'ARTIFICIAL JUDICIAL PERSON' AND FOR VOTING RIGHT IN CLUB ELECT ION, ONE DIRECTOR IS REQUIRE TO REPRESENT THE COMPANY. DUE TO THIS CIRCU MSTANCES, MEMBERSHIP CARD IS ' ISSUED BY KARNAVATI CLUB LTD I N THE NAME OF ONE OF THE DIRECTOR. PROOF REGARDING DIRECTORSHIP OF SH REE UTKARSH SHAILESH SHAH IS SUBMITTED HEREWITH. * KARNAVATI CLUB IS SITUATED AT SARKHEJ-GANDHINAGA R HIGHWAY AND COMPANY'S REGISTERED OFFICE IS SITUATED AT DRIVE-IN -ROAD, THALTEJ, AHMEDABAD. THE APPROXIMATE DISTANCE OF CLUB FROM RE GISTERED OFFICE IS AROUND 3 KM. COMPANY IS DOING BUSINESS IN ENTIRE GUJARAT AND OUT OF GUJARAT ALSO. THE PURCHASE ARE FROM BIG COMPANIE S LIKE JINDAL, STEEL AUTHORITY OF INDIA LTD. (SAIL) AND OTHER COMP ANIES. THE OFFICIALS AND MARKETING STAFF OF THE CUSTOMER AND SUPPLIERS C OMES TO AHMEDABAD FREQUENTLY. ALL BUSINESS MEETINGS AND CON FERENCE WITH THE CLIENTS ARE HELD AT KARNAVATI CLUB. THE CLUB OFFERS CONCESSIONAL RATE FOR LODGING AND BOARDING TO CARDHOLDERS. LOOKING TO THE ABOVE ADVANTAGE AVAILABLE TO COMPANY IT HAS PURCHASED MEM BERSHIP WITH KARNAVATI CLUB. THIS IS PURELY FOR BUSINESS PURPOSE AND IT IS FOR GOOD HOSPITALITY TO THE CLIENTS OF THE COMPANY. THE COMP ANY'S TURNOVER IS INCREASING SIGNIFICANTLY. HENCE SUCH TYPE OF BUSINE SS EXPENDITURE IS ESSENTIAL, TO PROMOTE THE BUSINESS. * THE COMPANY HAS TAKEN ADVANTAGE OF KARNAVATI CLUB LTD DURING F.Y. 2013-14 & F.Y. 2014-15 FOR ITS CUSTOMERS/CLIENTS. W E HAVE SUBMITTED EXPENSE LEDGER ACCOUNT TO THE LEARNED A. O. VIDE OU R SUBMISSION DATED 27.02.2015, SAME ARE SUBMITTED FOR YOUR KIND PERUSA L. THIS DEMONSTRATE THAT COMPANY IS UTILISING ACCOMODATION OF KARNAVATI CHIB LTD FOR ITS CLIENT. ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 11 - * WE RELY ON FOLLOWING CASE LAWS WHERE IN IT IS HEL D BY VARIOUS AUTHORITY THAT SUBSCRIPTION FEES OF CLUB PAID BY THE COMPANY IS ALLOWABLE AS BUSINESS EXPENDITURE. WE HAVE ALSO CAREFULLY CONSIDERED THE ORDER PASSED BY THE LEARNED TRIBUNAL IN THE CASE OF DCIT-VS-M/S. BANC OF AMERIC A SECURITIES (INDIA) PVT. LTD. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: AS MENTIONED IN PARA 5.3 IN THE CASE OF SAMTEL COL OUR LTD. SUPRA, WE ARE OF THE VIEW THAT ADMISSION FEES PAID TOWARDS CORPORAT E MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITA TES SMOOTH AND SUFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD T O THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISAL LOWANCE OF RS. 16.00 LACS MADE BY THE ASSESSING OFFICERS. THE GROUND TAKEN B Y THE REVENUE ARE, THEREFORE, REJECTED.' WE HAVE ALSO CAREFULLY CONSIDERED THE ORDER IN THE CASE OF RELIABLE CIGARETTE & TOBACCO-VS-DCIT FOLLOWING THE DECISION PASSED IN THE MATTER OF OTIS ELEVATORS (INDIA)-VS-CIT REPORTED IN (1992) 19 5 ITS 682 (BOM) WHEREIN IT WAS ALSO HELD THAT CLUB FEES IS ALLOWABLE EXPENDITU RE AS MEMBERSHIP OF CLUB PROVIDES THE DIRECTORS AND THE EXECUTIVES BETTER CO NTACT WITH PERSON IN GOOD POSITION AND SERVES THE ASSESSEES BUSINESS INTEREST S. FURTHER THAT, WE HAVE ALSO CAREFULLY CONSIDERED THE ORDER IN THE CASE OF IN THE CASE OF DEEP RAJ MINERALS-VS- ACIT ON THE SAME ISSUE. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS. 'FURTHER ALSO, WE FIND THAT THE NAME APPEARING IN T HE RECORDS OF THE CLUB OR FOR THAT MATTER CONTENTS OF ANY DOCUMENTATION, IS N OT THE DETERMINING FACTOR AND WHAT IS IMPORTANT IS WHO INCURRED THE EXPENDITU RE, FROM WHOSE ACCOUNT THE MONEY IS SPENT AND FOR WHAT PURPOSE IT IS SPENT . THERE CAN BE MANY ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 12 - REASONS FOR SRI RAJESH D SHAH TO HAVE A MEMBERSHIP IN HIS NAME AND NOT IN THE NAME OF THE FIRM. AS SEEN FROM PARA 4.5 OF THE IMPUGNED ORDER THAT IT IS A UNDISPUTED FACT THAT THE ASSESSEE HAS TAKEN THE CUS TOMER OF FIRM TO THE CLUB FOR BUSINESS PURPOSE. ONCE COMMERCIAL ANGLE IS ESTABLIS HED, WE DO NOT FIND ANY DIFFERENCE IN THE CORPORATE MEMBERSHIP OR A MEMBERS HIP OF WORKING PARTNER IN A CLUB, HI THESE CIRCUMSTANCES, THE FAILURE TO I NCUR EXPENDITURE IN THE INSTANT YEAR DOES NOT MAKE ANY DIFFERENCE. IN PRINC IPLE, THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF OTIS ELEVATORS CO (IN DIA) LTD (SUPRA) HOLD RELEVANT FOR THE INSTANT ISSUE TOO. ACCORDINGLY, SE COND ISSUE RAISED BY THE ASSESSEE IS ALLOWED. TAKING INTO CONSIDERATION THE ENTIRE FACTS OF THE MATTER, THE CASE MADE OUT BY THE ASSESSEE AND THE JUDGMENT RELIED UPON AS DISCUSSED ABOVE, WE FIND THAT SUCH CLUB MEMBERSHIP FEES IS ALLOWABLE AS AN E XPENDITURE PARTICULARLY THE RATIO LAID DOWN ON THE BASIS OF THE GIVEN FACTS IN THE MATTER OF DEEP-RAJ MINERALS WHICH IS IDENTICAL TO THE FACTS OF THE INS TANT CASE IN HAND. IN THAT VIEW OF THE MATTER RELYING UPON THE SAME, WE FIND NO JUS TIFICATION IN MAKING DISALLOWANCE OF SUCH EXPENDITURE. HENCE, THE ADDITI ON MADE BY THE AUTHORITIES BELOW IS HEREBY DELETED. 8. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 17/05/2019 SD/- SD /- ( PRAMOD KUMAR ) ( M S. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 17/05/2019 PRITI YADAV, SR.PS ITA NO.609/AHD/2016 GIRIRAJ IRON LTD. VS. DCIT ASST.YEAR 2012-13 - 13 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-2, AHMEDABAD. 5. , ! ', #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 13/05/2019 (DICTATION PAGES 10) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/05/2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S .. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER