2023 (7) TMI 463 - AT - Income Tax

Disallowance of expenses u/s 37(1) by the CPC - Associateship fees paid to Mumbai Cricket Association - Membership of the employees of the company including Chairman and Managing Director. - Wholly and exclusively for the purposes of his business or not - CPC invoking section 143(1)(a)(iv) made disallowance for the reason that amount disallowed by the Tax Auditor in the audit report i.e. form No. 3CD, has not been taken into account by the assessee while computing the total income in the return - Whether allowable expenditure u/s 37? - HELD THAT - Membership entries fee to club could be business expenditure in case of corporate membership , but not in case of individual club membership. In the case of Bayer Vapi P Ltd 2019 (5) TMI 1208 - GUJARAT HIGH COURT also the issue was related to membership of the employees of the company including Chairman and Managing Director. Assessee has submitted that club membership was used by his employees and customers of business, but as per the normal rules of the club, such individual membership can t be allowed by other than individual except as a guest accompanied with the said individual. Thus, as far as individual assessee, is concerned, disallowance of club membership for one time entry fee is not debatable and correctly disallowed by the CPC invoking section 143(1)(a) of the Act. On merit also, the claim of club membership one time entry fee is disallowable on the ground of personal expenditure. Even if the assessee uses its club facility for soliciting customers, the recurring expenditure may be allowed as business expenditure subject to verification but not the one-time entry fee. As in the case of L Jairam Parwani vs DCIT 2018 (5) TMI 635 - MADRAS HIGH COURT held that payment made for acquiring membership in a social club could not be allowed as business expenditure , more so, when there was no evidence to prove that membership of Social club was acquired for entertaining customers by the assessee. Therefore, the Ld. CPC is justified in making adjustment u/s 143(1)(a) the Act. Decided against assessee.

Summary

Issues Involved:
1. Disallowance of Associateship fees as a business expenditure.
2. Legality of adjustment made under section 143(1)(a) of the Income-tax Act, 1961.

Summary:

1. Disallowance of Associateship Fees:
The assessee claimed the Associateship fees of Rs. 10,76,720 paid to Mumbai Cricket Association as a business expenditure under section 37 of the Income-tax Act, 1961. The Ld. Commissioner of Income-tax (Appeals) [CIT(A)] confirmed the disallowance, stating that the payment was a one-time club membership fee, which is capital in nature and not allowable as a revenue expenditure. The CIT(A) differentiated between ongoing expenses for club services, which are allowable, and one-time membership fees, which are not.

2. Legality of Adjustment under Section 143(1)(a):
The assessee argued that the adjustment made by the Centralized Processing Centre (CPC) under section 143(1)(a) was not justified, as the disallowance of the club membership fee is a debatable issue. The assessee cited various judicial precedents to support the claim that such fees could be allowable business expenditures. However, the Tribunal noted that the tax auditor had listed the club membership fee as a capital expenditure in the audit report, which the assessee did not account for in the return. The Tribunal upheld the CPC's adjustment, stating that the adjustment was valid under section 143(1)(a)(iv) as it was based on the tax audit report indicating the expenditure as disallowable.

The Tribunal also referenced several cases, including Deloitte Touche Tohmatsu India P. Ltd and United Glass Mfg Co. Ltd, to conclude that while corporate membership fees for employees might be allowable, individual membership fees are not. The Tribunal found that the one-time entry fee for individual club membership is a personal expenditure and not allowable as a business expense, even if the club facilities are used for business purposes.

Conclusion:
The appeal of the assessee was dismissed, with the Tribunal confirming that the disallowance of the Associateship fees as a capital expenditure was correct and the adjustment made under section 143(1)(a) was justified.