TMI Blog2019 (5) TMI 1596X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same in the name of the assessee or its directors/employees. Thus there is a complete failure on the part of the assessee to prove genuineness of these expenses and there is a failure to prove that these expenses were incurred wholly and exclusively for the purpose of business of the assessee. The assessee had failed to discharge the onus as was casted on the assessee by virtue of Section 37(1) and in our considered view, there is no merit in the appeal filed by the assessee which stood dismissed. - Decided against assessee - I.T.A. No.4663/Mum/2017 - - - Dated:- 22-5-2019 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri. Jitendra Jain For the Revenue : Shri. O.P Meena (DR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 4663/Mum/2017, is directed against appellate order dated 04.05.2017 in appeal no. CIT(A)-3/DCIT-1(3)(2)/IT-14/2016-17, passed by learned Commissioner of Income Tax(Appeals)-3, Mumbai (hereinafter called the CIT(A) ), for assessment year 2010-11, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT was prima facie of the view that said Mrs Lata Vaswani was not associated with assessee company and appeared to be a third person and accordingly expenditure incurred according to learned CIT would be unrelated to the business activities of the assessee company. As per learned CIT , the AO did not made detailed enquiry as to how the assessee benefitted from the club membership taken in the name of one Mrs. Lata Vaswani . The learned CIT was of the view that since Mrs Lata Vaswani being third party , she will be able to utilise the benefits of club membership in any way and for any purpose whatsoever. For the aforesaid reasons, the learned CIT was pleased to set aside the assessment order dated 19.11.2012 passed by the AO by holding the same to erroneous so far as prejudicial to the interest of the Revenue , vide revisionary order dated 12.03.2015 passed by learned CIT u/s 263 of the 1961 Act. 4. The AO in compliance with directions of learned CIT u/s 263, initiated proceedings for framing of an assessment u/s. 143(3) r.w.s. 263 . The assessee was called upon to explain reasons and justification for incurring expenses to the tune 9,98,215/- towards club membersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed that no other payments have been made to the said Smt. Lata Vasvani in the past or in subsequent assessment years. The onus is squarely upon the assessee to bring out all relevant facts relating to its relationship with Mrs. Lata Vasvani on whose behalf it made the impugned payment. The onus is also upon the assessee to bring out the facts and provide documentary evidences which will establish the rights and obligations of the parties involved i.e. Mrs. Lata Vasvani and the assessee. The assessee has failed to discharge its onus. In the absence of such clarification, the contention of the assessee that Mrs. Lata Vasvani assisted the assessee to hold day to day business meetings, conferences and discussions with various customers, bankers, etc. is generalized, vague, unsubstantiated, fictitious and self serving. On the basis of facts submitted by the assessee, it has necessarily to be concluded that the assessee has made a payment on behalf of Mrs. Lata Vasvani which is of a gratuitous nature. 6. Section 37(1) permits deduction of any expenditure not being expenditure of the nature described in section 30 to 36 and not being in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions. Hence, in our view, the assessing officer has failed to apply his mind on the reply given by the assessee. The assessing officer, in our view, has failed to examine as to whether the conditions specified in sec. 37(1) were satisfied or not in the claim so made by the assessee. Accordingly, we are of the view, the present case is a case of lack of enquiry on the claim made by the assessee. Further, in the absence of required enquiry, it cannot be said that the assessing officer has taken one of the possible views. Accordingly, we are of the view that there is no infirmity in the action of the Ld CIT in initiating the revision proceedings u/s 263 of the Act. Accordingly, we affirm his order. 9. In the result, the appeal filed by the assessee is dismissed. 7. The assessee challenged the assessment order dated 01.03.2016 passed by the AO u/s. 143(3) r.w.s. 263 before Ld. CIT(A) who was also pleased to dismiss the appeal filed by the assessee vide appellate order dated 04.05.2017 ,by holding as under:- 5. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred for business purposes and therefore an amount of ₹ 9,98,215/- paid by the appellant on behalf of Mrs. Lata Vasvani is disallowed u/s 37(1) of the IT Act and added back to the income of the appellant. 7.1 On the other hand the appellant submitted that the appellant has made payment of ₹ 9,98,215/- to Mumbai Cricket Association towards membership fees of its representative Mrs. Lata Vasvani for utilizing the facilities of the club for meeting and entertaining business associates with the intention of extending business relationship and promoting the business. The expenses were claimed as revenue expenses and debited to its P L A/c as 'Business Promotion Expenses' under Schedule 13 as Administration Expenses as the payment is in the name of payment made to club, same was reported by the Tax Auditor in Form 3CD at point 17(d). It was further submitted that the appellant company is engaged in the business of trading in shares and securities, investment in shares and financing and Mrs. Lata Vasvani was instrumental in advising investment planning in shares and securities. Being representative of the appellant comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director nor an Employee of the assessee. It was explained that she is promoting the business of the assessee and is its representative . The learned counsel for the assessee drew our attention to the orders of authorities below and submitted that since Mrs. Lata Vaswani is representative of the assessee , she was made member of MCA for arranging meetings and entertaining business associates with the intention of extending business relationships and promoting the business. It was submitted that these expenses were thus claimed as business expenses as these expenses were incurred wholly and exclusively for its business which should be allowed u/s 37(1) of the 1961 Act. Our attention was drawn to page no. 1 of the paper book wherein copy of acknowledgement of income-tax return is placed. Our attention was drawn to page 15 of the paper book wherein audited Profit and Loss account of the assessee is placed. Our attention was also drawn to page 20 of the paper book wherein details of payment made to Mumbai Cricket Association of Rs, 9,98,215/- is placed. Our attention was also drawn by learned counsel for the assessee to page 27 of the paper book wherein copy of reply submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Director of the assessee nor its employees. It was submitted by learned DR that Mrs Lata Vaswani has not rendered any services to the assessee as per material on record. It was submitted that no payments were made to said Mrs Lata Vaswani by assessee apart from these club membership fee paid on her behalf. It was submitted that these club membership fees are personal expenses of Mrs Lata Vaswani and authorities below rightly disallowed these expenses.It was prayed by learned DR that disallowance of these expenses be upheld. 10. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is engaged in trading in shares securities. We have observed that assessee has paid ₹ 9,98,215/- towards club membership fees and entrance fees to Mumbai Cricket Association for seeking membership in the name of one Mrs. Lata Vasvani, which was claimed by the assessee as business/revenue expenses in return of income filed with Revenue. Originally assessment was framed by Revenue u/s 143(3) of the 1961 Act vide assessment order dated 19.11.2012 passed by the AO. Later, the Ld. CIT-1,Mumbai passed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression prejudicial to the interests of the Revenue , the Supreme Court held, it is of wide import and is not confined to a los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Accordingly, we are of the view, the present case is a case of lack of enquiry on the claim made by the assessee. Further, in the absence of required enquiry, it cannot be said that the assessing officer has taken one of the possible views. Accordingly, we are of the view that there is no infirmity in the action of the Ld CIT in initiating the revision proceedings u/s 263 of the Act. Accordingly, we affirm his order. 9. In the result, the appeal filed by the assessee is dismissed. The AO framed an assessment order dated 01.03.2016 u/s 143(3) read with Section 263 of the 1961 Act in pursuance to directions given by learned CIT vide revisionary order dated 12.03.2015 u/s 263, holding that assessee could not prove that Mrs. Lata Vasvani was working for the assessee nor it could be proved that these expenses towards club membership fee to MCA were incurred wholly and exclusively for the purpose of business of the assessee , by holding as under:- 5. I have carefully considered the submissions and reliance placed by the assessee on case laws and the same are not accepted. The assessee has claimed business promotion ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of its business. If commercial expediency is claimed then it is the assessees' burden to bring out the relevant facts and prove the existence of commercial expediency. In the instant case, as discussed in detail above, the assessee has failed to provide primary facts let alone prove commercial expediency. Therefore, it is being held that the assessee has for reasons best known to itself, discharged liability of Mrs. Lata Vasvani by paying an amount of ₹ 9,98,215/- on her behalf. Since the impugned expenditure is not related to the assessees' business, it is not allowable u/s 37(1) of the Act. Hence, the claim of business promotion expenses amounting to ₹ 9,98,215/- is being disallowed as unrelated to business activity of the assessee company and added back to the total income. Penalty proceedings u/s 271(1)[c) of the I.T. Act, is being initiated for furnishing inaccurate particulars of its income. Aggrieved by an assessment framed by the AO u/s 143(3) read with Section 263 of the 1961 vide assessment order dated 01.03.2016 , the assessee filed first appeal with learned CIT(A) who also pleased to dismiss the appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Lata Vasvani on shoes(sic. whose) behalf such payment was made. Thus it has been held that that expenditure incurred under section 37(1) is not an allowable expenditure as it does not fall under the expenditure incurred for business purposes and therefore an amount of ₹ 9,98,215/- paid by the appellant on behalf of Mrs. Lata Vasvani is disallowed u/s 37(1) of the IT Act and added back to the income of the appellant. 7.1 On the other hand the appellant submitted that the appellant has made payment of ₹ 9,98,215/- to Mumbai Cricket Association towards membership fees of its representative Mrs. Lata Vasvani for utilizing the facilities of the club for meeting and entertaining business associates with the intention of extending business relationship and promoting the business. The expenses were claimed as revenue expenses and debited to its P L A/c as 'Business Promotion Expenses' under Schedule 13 as Administration Expenses as the payment is in the name of payment made to club, same was reported by the Tax Auditor in Form 3CD at point 17(d). It was further submitted that the appellant company is engaged in the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taken by assessee with Mumbai Cricket Association in the name of one Mrs. Lata Vaswani for which the assessee has made payment of Rs, 9,98,215/- which was claimed as business/revenue expenses. The said Mrs Lata Vaswani is neither Director of the assessee nor employee of the assessee. It is also not brought on record that said Mrs Lata Vaswani was even working for assessee as professional or consultant rendering services to the assessee. No commercial relations of the assessee with said Mrs Lata Vaswani was brought on record by the assessee. Bald statements are made that said Mrs. Lata Vaswani is representative of the assessee and she is arranging meetings and promoting business of the assessee which is not sufficient to discharge onus as is casted on the assessee under statute. The assessee has also not brought on record any business being generated through the efforts/introduction of said Mrs. Lata Vasawani. It is accepted and admitted by the assessee that apart from this club membership fee of ₹ 9,98,215/- being made to secure club membership in the name of Mrs. Lata Vaswani , no other payments were made to or on behalf of said Mrs. Lata Vaswani. On being asked by the Be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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