Shaival Reality Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax

सुनवाई क तार ख/ Date of Hea ring : 20 /04/201 5 घोषणा क तार ख /Date of P ronouncement: 24/04/2015

आदेश /O R D E R

PER SHRI S.S. GODARA, JUDICIAL MEMBER

This assessee's appeal for A.Y.2008-09, arises from order of CIT(A)-XIV, Ahmedabad dated 23.09.2011 in case appeal no.CIT(A)- XIV/ Addl. CIT, R-/2010-11, deleting disallowance/addition of Rs.35,51,000/- being club membership fees paid to Karnavati Club, in proceedings u/s.143(3) of the Income Tax Act in short 'the Act'.

ITA No.3091/Ahd/2011 Shaival Reality Pvt. Ltd.

For A.Y. 2008-09 -2-

2. In the course of hearing, the Revenue strongly reiterates its pleadings and seeks to restore the impugned addition of Rs.35.51 lac arisen from disallowance of membership fees paid to Karnavati Club. The assessee has not chosen to appear despite service of notice dated 05.03.2015. Therefore, it is proceeded ex-parte.

3. The assessee-company filed its return on 25.08.2008 admitting income of Rs.2,47,65,473/-. The same was 'summarily' processed. The Assessing Officer took up scrutiny. He noticed the assessee-company to have claimed membership and subscription fees of Rs.37,50,376, includes payments for institution life membership fees of Rs.1.5 lac paid to the Ahmedabad Military and Rifle Training Association, Rs.34,01,000/- in case of Karnavati Club for institutional membership fees additional nominees charges. It submitted to have obtained corporate membership and entrance. The assessee clarified about the nature of the membership fees and the facilities flowing therefrom. It explained that the said facilities are meant for its employees, director and business associates. The Assessing Officer perceived these payments to be not bringing any benefit to the assessee or having any nexus with its business. He negated assessee's pleas quoting case law of ITA No.3091/Ahd/2011 Shaival Reality Pvt. Ltd.

For A.Y. 2008-09 -3-

hon'ble Delhi High Court in CIT vs. Samtel Color Limited 326 ITR 425 (Del) and disallowed/added this sum of Rs.35.51 lac.

3. The assessee's preferred an appeal. The CIT(A) has deleted the impugned disallowance as under:

"3.3 I have carefully perused the assessment order and the submissions given by the appellant. The appellant has made the payment for taking the Institutional Club Membership of Karnavati Club and Rifle Club. In this connection, the appellant has submitted that the payment was made for the purpose of business and to get advantage of commercial nature. The appellant has also relied on the cases of Gujarat State Export Corporation Ltd. vs. CIT [209 ITR 649, Gujarat] and CIT vs. Samtel Colour Ltd. [326 ITR 425, Delhi wherein it was held that the payment of entrance fee for becoming member of the club cannot be termed as capital expenditure. It was in the nature of advantage in the commercial sense but it is not an advantage in the capital fee. I am inclined to agree with the submission made by the appellant, more particularly when there is a direct decision of jurisdictional high court on the issue. The expenditure on admission fee paid towards corporate membership was incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of business enterprise and does not add to the profit earning apparatus of the business enterprise. Accordingly, the disallowance of Rs, 35,51,000/- made by the A. O. is directed to be deleted. The ground of appeal is, therefore, allowed.

4. We have heard the Revenue and perused the relevant findings. There is no dispute about the very factum of the assessee having incurred the impugned expenditure as well as the heads thereof. The Revenue reiterates the Assessing Officer's findings. We find from a perusal of the hon'ble jurisdictional High Court decision (supra) that very similar ITA No.3091/Ahd/2011 Shaival Reality Pvt. Ltd.

For A.Y. 2008-09 -4-

expenses have been allowed as revenue expenditure holding it to be incurred for business promotion. The Revenue fails to quote distinction of facts. And also does not refer any case law to the contrary. In these circumstances, we draw cue from hon'ble High Court decision and hold that the impugned expenditure is meant for smooth running of business. The CIT(A)'s findings are affirmed. The Revenue's ground is rejected.

5. The Revenue's appeal is dismissed.

Order pronounced in the Court on this day, the 24 April, 2015 at Ahmedabad.

Sd/- Sd/- (PRAMOD KUMAR) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 24/04/2015 Prabhat Kr. Kesarwani, Sr. P.S. आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad