2017 (10) TMI 1092 - AT - Income Tax

Revision u/s 263 - taxability of one time membership entrance fees - no enquiry has been made by the Assessing Officer on this issue and this issue has not been examined by him - Held that - From the notice issued under section 143(2) and the reply submitted by the assessee, we noted that it is not a case of no enquiry but a case where the AO has made the enquiry and has taken a decision not to treat one time membership fees received as revenue receipt. On this basis it cannot be said that there is an error in the order of the AO. In our opinion the assessee cannot direct the AO as how should he draft the assessment order and what should be included while passing the assessment order. A perusal of the order passed by the CIT indicated that the assessment order passed by the Assessing Officer was cancelled on the ground that the Assessing Officer has not made proper enquiry and verification in respect of the issue as discussed above. This, in our considered opinion, cannot be sufficient ground for cancelling the assessment. While making the assessment order, it is the satisfaction of the Assessing Officer who made the enquiry and it should be touchstone of assessment order passed by him. No cogent material or evidence was brought to our knowledge by the Ld. DR which may prove that view taken by the Assessing Officer in the case of the assessee was unsustainable in law. Therefore, we are of the view that the order passed by the CIT is illegal and without jurisdiction. - Decided in favour of assessee.

Issues Involved:
1. Validity of invoking jurisdiction under section 263 of the Income Tax Act.
2. Treatment of one-time membership entrance fees as capital or revenue receipts.

Detailed Analysis:

1. Validity of Invoking Jurisdiction under Section 263:
The primary issue in this appeal is whether the Commissioner of Income Tax (CIT) was justified in invoking jurisdiction under section 263 of the Income Tax Act. The CIT issued a show cause notice to the assessee, indicating that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue because the AO did not treat the one-time membership entrance fees as revenue receipts. The CIT argued that the AO failed to make any enquiry on this issue, leading to an erroneous order.

The assessee countered by stating that the AO had indeed made enquiries during the assessment proceedings and had accepted the one-time membership entrance fees as capital receipts based on the decision of the Bombay High Court in the case of Diners Business Services Pvt. Ltd. The assessee provided detailed explanations and documents during the assessment proceedings, which the AO considered before passing the order.

The Tribunal noted that for invoking jurisdiction under section 263, both conditions—that the order is erroneous and prejudicial to the interests of the revenue—must be satisfied. The Tribunal found that the AO had made due enquiries and had taken a possible view supported by judicial precedents. Therefore, the order could not be deemed erroneous merely because the CIT disagreed with the AO's view.

2. Treatment of One-Time Membership Entrance Fees:
The second issue revolves around whether the one-time membership entrance fees should be treated as capital receipts or revenue receipts. The assessee treated the fees as capital receipts based on the Bombay High Court's decision in Diners Business Services Pvt. Ltd., which held that such fees are not liable to be taxed. The AO accepted this treatment in the assessment years 2003-04 and 2004-05.

The CIT, however, contended that in earlier assessment years (2003-04 to 2008-09), the fees were treated as revenue receipts and brought to tax, which was upheld by the CIT(A). The CIT argued that there was no change in facts and circumstances in A.Y. 2009-10, and the AO's failure to treat the fees as revenue receipts made the order erroneous and prejudicial to the revenue's interests.

The Tribunal observed that the AO had made enquiries and accepted the assessee's explanation based on judicial precedents. The Tribunal referenced the Supreme Court's decision in Malabar Industries Co. vs. CIT, which stated that where two views are possible, and the AO has taken one view, it cannot be deemed erroneous merely because the CIT disagrees. The Tribunal also cited the jurisdictional High Court's decision in CIT vs. Gabriel India Ltd., which held that the AO's decision could not be considered erroneous if it was based on enquiries and explanations provided by the assessee.

The Tribunal concluded that the AO's view was one of the possible views, supported by judicial precedents, and thus, the order was neither erroneous nor prejudicial to the revenue's interests. Consequently, the Tribunal held that the CIT's invocation of section 263 was not justified.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, ruling that the CIT's order under section 263 was illegal and without jurisdiction. The AO's assessment order was upheld as it was based on due enquiries and a possible view supported by judicial precedents. The one-time membership entrance fees were rightly treated as capital receipts, and the order was not erroneous or prejudicial to the revenue's interests.

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