Relief to Axis Finance Ltd: ITAT Allows Club Membership Fees for Employees incurred as Business Expense [Read Order]

Axis Finance Limited, the assessee challenged the order of CIT(A), National Faceless Appeal Centre (NFAC), Delhi, passed against the assessment order passed by National e-Assessment Centre, under section 143(3) of the Income-tax Act, 1961 (“Act”), dated 06.04.2021 for Assessment Year 2018-19.

The NFAC has erred in upholding the disallowance of club membership expense stating that the appellant's statutory auditor in entry no. 21 of Audit Report gives further acknowledgement towards these expenses being of personal nature, without appreciating that such club membership expense is not disclosed as personal or inadmissible in nature in the tax audit report and were merely reported to comply with the format of Form 3CD i.e. the tax audit report.

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The issue involved is in respect of disallowance made by Assessing Officer towards expenditure incurred by the assessee amounting to Rs.7,59,872/- towards club membership fees, club subscription fees and restaurant charges at the club. The Assessing Officer had made the addition by noting that these items are inadmissible as mentioned in the Tax Audit Report furnished by the assessee.

These expenses were reported by the tax auditor in the Tax Audit Report in Form 3CD in the relevant clauses by way of disclosure and not as inadmissible expenses. For this, reference was made to the Tax Audit Report contained in Form 3CD placed on record. Clause 21(a) of Form 3CD requires furnishing of details of amounts debited to the profit and loss account being in the nature of capital, personal, advertisement expenditure, etc. Under the head ‘expenditure incurred at clubs’ being entrance fees and subscriptions, amount of Rs.34,950/- is reported at Sr.No.1 as subscription fees and amount of Rs.6,03,041/- is reported at Sr. No.2 as membership fees.

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Another amount of Rs.1,21,881/- is reported under the heading, ‘expenditure incurred at clubs being cost for club services and facilities’ mentioned as restaurant charges at club. It is on these noting that Assessing Officer took an adverse view and disallowed the same to make an addition.

Assessee is a non-deposit accepting non-banking finance company registered with Reserve Bank of India. It filed its return of income on 04.10.2018, reporting total income at Rs.332,10,00,310/- which was revised on 17.11.2019 with the same total income reported in the original return.

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The two member bench of Shri Amit Shukla, Judicial Member and Shri Girish Agrawal, Accountant Member relied in the Supreme Court ruling in the case of CIT vs. United Glass Manufacturing Co. Ltd. [2012] and observed that club membership fees for employees incurred by the assessee is business expense under section 37 of the Act.

In respect of claim of restaurant charges at the club incurred by the assessee, it is not discernible as to whether these were incurred for the purpose of business or were on account of personal expenses by the employees. Accordingly, restaurant expenses at the club are on account of food and beverages which are held to be disallowed.

Assessee thus gets relief in respect of expenses incurred towards membership fees and subscription fees and the balance of Rs.1,21,881/- is sustained as addition.

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