2016 (1) TMI 1414 - AT - Income Tax

Revision u/s 263 - AO 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 - Claim of club membership fee - HELD THAT - Assessee s explanation that the club membership fee was paid for a representative of the assessee was accepted by the AO on the face of it. The documents furnished along with the reply letter furnished by the assessee clearly show that the membership fee was paid for Mrs. Lata Vasvani. There should not be any dispute that the club membership fee was allowed u/s 37(1) of the Act, where in there is a requirement to show that the expenditure was incurred for the purpose of business, it was not personal expenditure or capital expenditure etc. We notice that Mrs. Lata Vasvani was not an employee or a director of the assessee company. She was not paid any other kind of compensation from the funds of the company. Normal business practice is to take the membership in the name of the company or in the name of top employees as per their service terms and conditions. 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. 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. - Decided in favour of assessee.

Summary

Issues:
Validity of revision order u/s 263 of the Act for the assessment year 2010-11 regarding deduction claimed for payment to Mumbai Cricket Association.

Analysis:
The assessee challenged the revision order dated 12.03.2015 passed by Ld CIT-I, Mumbai u/s 263 of the Act for the assessment year 2010-11. The assessing officer (AO) completed the assessment under section 143(3) of the Act on 19.11.2012. The Ld CIT found the deduction claimed by the assessee towards payment made to Mumbai Cricket Association to be erroneous. The payment was made for club membership in the name of a third party claimed to be the representative of the assessee. The Ld CIT held that the AO failed to examine the expenditure claim as per conditions under section 37(1) of the Act, leading to the initiation of revision proceedings under section 263 of the Act.

The Ld A.R argued that the AO accepted the explanation provided by the assessee regarding the membership fee for the representative, and hence, the Ld CIT lacked jurisdiction to revise the assessment order. The Ld A.R cited a tribunal decision supporting the view that the AO's inquiry and the assessee's reply did not amount to a lack of enquiry. Additionally, the Ld A.R contended that the club membership fee was an allowable deduction as per relevant case law and that the Ld CIT's decision was a mere change of opinion, not warranting revision proceedings under section 263.

On the other hand, the Ld D.R argued that the payment for club membership was made for a third party not associated with the assessee, and the AO allowed the deduction without verifying the facts. The Ld D.R relied on a Supreme Court decision to support the justification for the revision proceedings initiated by the Ld CIT. The tribunal analyzed the legal position concerning the power of the CIT to invoke revision proceedings under section 263 of the Act, emphasizing that an order must be considered erroneous and prejudicial to the interests of the revenue for the section to apply. The tribunal concluded that the AO failed to apply his mind to the claim made by the assessee, leading to a lack of enquiry, justifying the initiation of revision proceedings by the Ld CIT.

In light of the above analysis, the tribunal dismissed the appeal filed by the assessee, affirming the Ld CIT's order to set aside the assessment order for the assessment year 2010-11.