2016 (10) TMI 534 - AT - Income Tax

Disallowance of Club Membership Fees - Held that - . On going through the order of the Ld. CIT(A), it is very clear that the expenses/club membership fee paid by the assessee cannot be allowed as business expenditure as it was not incurred wholly and exclusively for the purpose of business. The assessee could not prove with evidences that the amounts paid for club membership fee was incurred for the purpose of the business. None of the findings of the Ld. CIT(A) have been rebutted with evidences and therefore there is no valid reason to interfere with the findings/decision of the Ld. CIT(A) in upholding the disallowance made by the Assessing Officer. - Decided against assessee

Summary

Issues:
Disallowance of Club Membership Fees as business expenditure.

Analysis:
The appeals were filed by the assessee against the orders of the Ld. CIT(A) pertaining to assessment years 2005-06 & 2006-07 regarding the disallowance of Club Membership Fees. The Assessing Officer disallowed the fees citing lack of business expediency, non-functionality of the club, distance from Mumbai, and absence of evidence of using the club for business enrichment. The Ld. CIT(A) upheld the disallowance, leading to the appeals before the Tribunal. The Tribunal had earlier remitted the issue to the Ld. CIT(A) for fresh adjudication, which resulted in the same decision of disallowance. The assessee contended that the fees were for business expediency, while the Departmental Representative supported the lower authorities' decisions.

The Tribunal observed that the entire amount for club membership lacked evidence of business expediency, especially as the club was far from the assessee's place of work. The Ld. CIT(A) detailed that a portion of the fees was paid to another individual, not the club directly, indicating personal rather than business-related expenditure. The absence of proof of club membership, the distance from Mumbai, and the lack of business benefit from the club were highlighted. The Tribunal noted that the payments were personal in nature, not directly linked to business activities, and lacked evidence of business necessity. The Ld. CIT(A)'s decision to uphold the disallowance was based on the failure to establish the business purpose of the expenses.

In conclusion, the Tribunal dismissed both appeals, affirming the disallowance of Club Membership Fees as business expenditure. The decision was based on the lack of evidence demonstrating that the fees were incurred wholly and exclusively for the purpose of the business. The Tribunal found that the payments were more personal in nature, not directly related to business operations, and did not serve a business purpose. The findings of the Ld. CIT(A) were upheld, emphasizing the necessity to establish the business expediency of expenses to claim them as allowable deductions.