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SCV & Co. LLP, New Delhi vs. DCIT - (Income Tax Appellate Tribunal) (17 Aug 2022)

Club Membership Fees for subscription is allowable as a business expenditure


Direct Taxation

Assessee is a chartered accountancy firm engaged in providing services in the field of Assurance, Risk Advisory, Tax Advisory, Corporate Advisory and Outsourcing. During the relevant assessment year, the Appellant had filed its return of income at a total income of Rs. 2,08,91,050. Vide rectification order, under Section 154 of the Income Tax Act, 1961, the disallowances were made, thereby assessing the total income at Rs. 2,10,88,870 and raising a demand of Rs. 1,11,850. The Appellant filed an appeal against the rectification order under Section 154 of the Act. Subsequent to the above rectification order, the Appellant received another rectification order. The said rectification was as a suo-moto rectification done by the Department for which no showcase notice was given to the Appellant. Learned CIT(A) had dismissed the appeal while confirming the disallowance of Rs. 4280.

Learned CIT(A) has confirmed the disallowance with the very summary observations without going on the facts of the case. The copy of Form 3CD available in paper book shows that, in clause 21(a) of the particulars of expenditures incurred, under head of club entrance fees and subscription has been shown regard to Gymkhana Club at Rs. 14,407 , Holiday Club Rs.3,263 and Panchshila Club rs. 22,610, totaling to Rs. 42,280. The auditors have not shown these expenditure to be disallowable as required to be disclosed in paper book. When admittedly the assessment was completed with intimation under Section 143(1) of the IT Act then the disallowance based upon comments of auditor in audit report could not have been made as none of the specific circumstances mentioned under Section 143(1)(a)(ii) or 143(1)(a)(iv) of the IT Act are met out. If at all a disallowance was to be made ,an opportunity of hearing by issuance of notice under Section 142(1) was therefore required.

Supreme Court of India in CIT v. United Glass Mfg. Co. Ltd. has considered the question of club expenses and held that, the Club Membership Fees for subscription is allowable as a business expenditures and had it been given opportunity under law to explain same would have been allowed. Thus, the findings of Learned CIT(A) cannot be sustained. The impugned order of learned CIT(A) and the assessment order qua the impugned disallowance of Rs. 42,280 is set aside.


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