ITAT allows Club Subscription / Expenses incurred to solicit Foreign Buyers: Disallows Expenses on Cigerattes / Wine [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench, on Tuesday allowed deduction to the assessee, Maharani of India, the club subscription/expenses incurred to solicit the foreign buyers except the amount spent on cigerrattes and wine.

The assessee is engaged in the export of garments out of India and the foreign buyers, who visited India alongwith their India based consultants from time to time to oversee production process, to verify quality of finished goods and also for designing for fabric related issues and also other various government auditing/licensing persons in connection with export business activities. It is also an undisputed fact that all the partners of the firm are working partners and they have to look after the foreign buyers and soliciting them for entertainment in hotels and clubs to run the business activities of the assessee firm smoothly.

The two-member bench comprising Judicial Member Mr. Sandeep Gosain and Accountant Member Mr. Narendra Kumar Billaiya held that the club subscriptions and expenses were incurred for the business purposes as much as it facilitated interaction with business associations etc.

“The club expenses were incurred with a view to promote to soliciting the customers in export of garments business. The A.O. noted that the expenses with regard to entertainment are related to purchase of foods items and some of the bills are in the names of the partners for Delhi Gold club. In this regard, we are of the view that assessee’s business is export of garments out of India and many of the foreign buyers came India in connection with export business activities and the assessee firm have to look after the foreign buyers and soliciting them, but at the same time, we cannot lost sight of the fact that some of the expenses claimed by the assessee are on account of purchase of cigarettes, wines etc., in our view, these expenses incurred by the assessee on purchase of cigarettes, wines etc. cannot be allowed as business expenses. Therefore, considering the totality of facts and circumstances of the case, we are of the view that sustenance of addition by the ld. CIT(A) at Rs. 11,01,445/- are on higher side and in the interest of justice, we restrict this addition to the tune of Rs.6.00 lacs and rest of the addition is directed to be deleted,” the bench said.

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