KAMALA OVERSEAS, MUMBAI V. ACIT 14(1), MUMBAI

ITA 6111/MUM/2012

• Counselvise Citation: 611119914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R NINAWE
• Assessee Lawyers: VIJAY MEHTA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO.6111/MUM/2012 (ASSESSMENT YEAR: 2006-07) M/S. K AMALA OVERSEAS 101, NIRANJAN, 1 ST FLOOR MARINE DRIVE, E ROAD MUMBAI-400 002. VS. ACIT - 14(1) MUMBAI-400 020. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. : AADFK 2426 M ASSESSEE BY : SHRI VIJAY MEHTA REV ENUE BY : SHRI R.R. NINAWE DATE OF HEARING : 09/06 /2014 DATE OF PRONOUNCEMENT : 18/06 /2014 O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER: THIS IS APPEAL FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A) DATED 09/07/2012 FOR THE ASSESSMENT YEAR 2006-07 IN THE MATTER OF IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961(THE ACT). 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FI RM HAVING FOUR PARTNERS. THE ASSESSEE FIRM IS ENGAGED IN THE EXPOR T OF PHARMACEUTICAL PRODUCTS. THE RETURN FILED BY THE ASSESSEE FOR THE AY. 2006-07 WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS NOTICED BY THE AO. THAT THE ASSESSEE HAS PAID RS. 7 LAKHS TOWARDS ENTRANCE FEE OF THE WIAA CLUB IN RESPECT OF THE MEMBERSHIP OF MR. DEVEN DRA R. SHAH WHO'S ITA NO.6111/M/12 AY:06-07 2 HUF IS A PARTNER OF THE FIRM. THE ASSESSEE CONTENDE D THAT BEING AN EXPORT FIRM, THERE ARE FOREIGN CUSTOMERS AND MANY A TIME MEETINGS ARE HELD IN THE CLUB. THE ASSESSEE ALSO EXPLAINED TO TH E AO THAT THE ASSESSEE - FIRM DID NOT OWN ANY OFFICE PREMISES AND CLUB MEM BERSHIP IS REQUIRED FOR ENTERTAINING THE GUESTS. THE ASSESSEE ALSO EXPL AINED THAT THE SAID CLUB MEMBERSHIP HAD RESULTED IN PROMOTION OF ITS BU SINESS. THE AO WAS OF THE OPINION THAT MEMBERSHIP OF THE CLUB IS A PERSONAL PRIVILEGE OF THE PARTNER WHO USED AND ENJOYED THE PROPERTY OF THE CL UB AS WELL AS AMENITIES/BENEFITS AND FACILITIES PROVIDED THEREIN. THE AO ALSO OBSERV ED THAT THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE CLUB MEMBERSHIP HAD PROMOTED ITS BUSINESS WITH EVIDENCE. THE AO ALS O NOTED THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW AS TO HOW THE CLUB MEMBERSHIP WAS INSTRUMENTAL IN GENERATING THE BUSIN ESS. AO OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE ANY GUEST ENTRY BILL TO ESTABLISH THE CLAIM. 2.1 IN VIEW OF ABOVE DISCUSSION AO DISALLOWED PAYME NT OF CLUB MEMBERSHIP FEE. PENALTY WAS ALSO LEVIED U/S. 271(1) (C) FOR SUCH DISALLOWANCE AND THE SAME WAS CONFIRMED BY CIT(A) A ND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFUL LY AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. CLUB MEMBE RSHIP FEE PAID BY PARTNERSHIP FIRM FOR OBTAINING MEMBERSHIP IN THE NA ME OF ONE OF THE PARTNERS WAS DISALLOWED ON THE PLEA THAT THE ASSESS EE WAS NOT GOING TO GET ANY BENEFIT OUT OF SUCH MEMBERSHIP. THE OBJECTI ON OF AO WAS ALSO THAT MEMBERSHIP WAS TAKEN IN THE NAME OF PARTNER AN D THAT THE ASSESSEE COULD NOT SHOW DOCUMENTARY EVIDENCE FROM T HE BILL OF THE CLUB THAT CUSTOMERS OF FIRM HAD VISITED THE CLUB. AFTER DISALLOWING THE MEMBERSHIP FEE, ASSESSING OFFICER ALSO LEVIED PENAL TY U/S. 271(1)(C) OF THE ACT FOR SUCH DISALLOWANCES. FROM THE RECORD, WE FIND THAT BYE-LAWS OF ITA NO.6111/M/12 AY:06-07 3 THE CLUB I.E. WIAA CLUB (NOW MALABAR HILL CLUB) DO NOT PERMIT PARTNERSHIP FIRM AS A MEMBER. IT IS ONLY A PARTNER IN HIS INDIVIDUAL CAPACITY OR A LIMITED COMPANY THAT IS ADMITTED AS A MEMBER. THAT WAS THE REASON FOR MAKING THE PARTNER AS MEMBER OF CLUB RATHER THAN THE PARTNERSHIP FIRM ITSELF. FURTHER, WE FIND THAT THER E WAS FULL DISCLOSURE OF MEMBERSHIP FEE PAID BY FIRM NOT ONLY IN THE PROFIT & LOSS A/C BUT ALSO IN TAX AUDIT REPORT FILED IN FORM 3CD. THUS, NEITHER T HERE WAS CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS. HAVING MEMBERSHIP IN A GOOD CLUB GIVES EDGE TO THE BUSINESS. VISITING SUCH CLUB AND MEETING WITH ALIKE CLUB MEMBERS PROVIDES BUSINESS OPPORTUNI TY. BY HAVING MEMBERSHIP OF THE CLUB ASSESSEE FIRM GOT ADVANTAGE OF COMMERCIAL NATURE. SINCE ASSESSEES BUSINESS CONSTITUTED EXPOR T OF PHARMACEUTICALS, IN THE REGULAR COURSE OF BUSINESS, IT WAS RECEIVING FOREIGN CUSTOMERS AND MANY TIME MEETINGS WERE HELD IN THE CLUB, WHICH LED TO INCREASE IN ASSESSEES BUSINESS. MERE DISALLOWANCE OF SUCH PAYM ENT ON THE PLEA THAT ASSESSEE COULD NOT PRODUCE DOCUMENTARY EVIDENCE TO SUBSTANTIATE CLAIM OF VISITING OF FIRMS CUSTOMERS TO CLUB IS NOT SUFF ICIENT FOR IMPOSING PENALTY U/S. 271(1)(C) ON THE PLEA OF FURNISHING WR ONG PARTICULARS. TAKING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, VIS--VIS NATURE OF ASSESSEES BUSINESS, WE DO NOT FIND ANY MERIT IN TH E ORDER OF LOWER AUTHORITIES FOR IMPOSING PENALTY BY DISALLOWING MEM BERSHIP FEE PAID TO THE CLUB. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH JUNE, 20 14. SD/- SD/- (VIVEK VARMA) JUDICIAL MEMBER (R.C. SHARMA ) ACCOUNTANT MEMBER MUMBAI, DATED: 18-06-2014 JV. ITA NO.6111/M/12 AY:06-07 4 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.