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2022 (8) TMI 487 - AT - Income TaxRevision u/s 263 - principles of mutuality - CIT(A) enhanced the assessment by denying the mutuality principles and computed the total income on commercial manner - HELD THAT - Department accepted the ld. CIT(A)'s finding that the assessee is a mutual association and its receipts from members are exempt on the principles of mutuality. In the Asst Years 2004-05, 2007-08 and 2008-09, AO did not dispute that the assessee is a mutual association. However, it was held that the amounts received by the assessee by way of sponsorship fee of an event conducted for the members and for supply of food to members by an outside caterer was not exempt on the principles of mutuality. Both issues were decided in favour of the assessee by this Tribunal vide its common order dated 21.3.2016 for the Asst Years 2004 05, 2007-08 and 2008-09 vide paragraphs 11, 16 and 23 of the order. The assessee has always been treated as Mutual Association since its inception for decades upto AY 2008-09 by the department as is evident from the tabulation handed over by the ld. AR at the time of hearing. As submitted that this has continued even in the subsequent years i.e. Assessment Year 2016-17 to 2018-19 wherein the Ld. AO in the scrutiny assessment treated the assessee as a mutual association and accordingly has accepted Principle of Mutuality in respect of majority of receipts as claimed by the assessee. Taxability of Catering Revenue - addition made on account of club share income of assessee from caterer, on the ground that the same was exempt under principle of mutuality - HELD THAT - Hon'ble Bombay High Court 2019 (6) TMI 447 - BOMBAY HIGH COURT has affirmed the finding of this Tribunal in allowing 'Catering Revenue' as income exempt from tax under the principle of Mutuality. Hence, the said issue of applicability of mutuality principle is further covered/ settled in favour of assessee. Hence the observation made by the ld. PCIT in this regard is totally untenable in the eyes of law. Revenue from holding Cricket Matches - Hon'ble Supreme Court in assessee's own case 1968 (8) TMI 200 - SUPREME COURT had duly considered the issue relating to holding of cricket matches and had clearly laid down that the activity of cricket cannot be held in the nature of trade or business. In any case, we find that the ld. PCIT had only stated that the assessee could have earned more revenue from holding cricket matches. This is only a mere surmise and conjecture on the part of the ld. PCIT. The law is very well settled that no proceedings could be initiated on an assessee merely on surmise and conjecture. We hold that there is no reason for the ld. AO to take a divergent view while framing the assessment for the year under consideration. Hence we are unable to persuade ourselves to agree to the contention of the ld. PCIT that the order of the ld. AO is erroneous. Hence initiation of revision proceedings u/s 263 of the Act deserves to be quashed on this count itself as cumulative twin conditions for invoking section 263 proceedings are not satisfied in this case. Transactions with Non-Members not offered to tax according to ld. PCIT - We have gone through the computation of total income of the assessee for the year under consideration together with the respective returns. We find that the assessee had duly offered the interest income and capital gains to tax in the revised return of income. We find that the ld. PCIT had proceeded completely on incorrect assumption of fact. We hold that the ld. PCIT has grossly erred in stating that the transactions with non-members have not been offered to tax by the assessee. All these facts were duly brought to the knowledge of the ld. PCIT in the reply given to the show cause notice issued u/s 263 of the Act. None of the factual submissions had been considered by the ld. PCIT while passing the revision order u/s 263 of the Act. This goes to prove the complete non-application of mind on the part of the ld. PCIT in the instant case, while invoking his revisionary jurisdiction u/s 263 of the Act. Hence the order of the ld. PCIT u/s 263 of the Act deserves to be quashed on this count also in respect of this issue. Enquiries carried out by the ld. AO in original scrutiny assessment proceedings - As it could be safely concluded that the assessment order has been passed after due application of mind and after making adequate and requisite enquiries by the Ld. AO and accordingly the said order cannot be held to be erroneous and prejudicial to the interests of the Revenue only because the Ld. PCIT takes a different view of the matter. We have already held hereinabove that the view taken by the ld. PCIT is grossly incorrect on various counts. In any case, once a possible view has been taken by the ld. AO in the assessment proceedings, the same cannot be subject matter of revision by the ld. PCIT in the section 263 proceedings, merely because the ld. PCIT is of a different view on the same set of facts. Reliance in this regard is placed on the decision of Hon ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT which has been approved by the Hon'ble Supreme Court in Malabar Industrial Co Ltd vs. CIT 2000 (2) TMI 10 - SUPREME COURT PCIT has directed the conduct of a roving and fishing inquiry which is not permissible in law - Merely calling for information to see whether there is potential reason to hold that assessment erroneous and prejudicial to the interest of revenue, constitutes a roving or fishing inquiry. Reliance in this regard is placed on the decision of Hon ble Delhi High Court in the case of CIT vs. International Travel House Ltd 2010 (9) TMI 347 - DELHI HIGH COURT it has been held that the PCIT is not permitted to exercise his revisional powers to conduct a roving or a fishing inquiry with a view to detecting alleged potential sources of income. Thus we hold that the ld. PCIT had grossly erred in invoking revisionary jurisdiction u/s 263 of the Act for more than one reason as detailed supra. Accordingly, the revision order passed by him u/s 263 of the Act is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Validity of proceedings initiated under Section 263 of the Income Tax Act, 1961. 2. Applicability of the principle of mutuality to the assessee's income. 3. Taxability of various receipts including catering revenue, income from cricket matches, interest income, and capital gains. 4. Adequacy of enquiries conducted by the Assessing Officer (AO) during the original assessment proceedings. 5. Legality of the Principal Commissioner of Income Tax's (PCIT) direction for a fresh assessment. Issue-wise Analysis: 1. Validity of Proceedings Initiated Under Section 263: The assessee argued that the Commissioner of Income Tax (CIT) erred in initiating proceedings under Section 263, claiming the reasons were contrary to the facts and provisions of the Income Tax Act, 1961. The Tribunal noted that the assessee was historically treated as a mutual association, and the CIT's reliance on the assessment of the previous year (AY 2009-10) was flawed. The Tribunal concluded that the CIT's initiation of Section 263 proceedings was based on incorrect assumptions and was not justified. 2. Applicability of the Principle of Mutuality: The Tribunal highlighted that the assessee had been treated as a mutual association for over four decades. Citing previous judgments, including those from the Supreme Court, the Tribunal reaffirmed that the principle of mutuality applied to the assessee. The Tribunal noted that the CIT's attempt to deny mutuality based on the structure of membership and transactions with non-members was invalid. The principle of mutuality was upheld for the assessee's transactions with its members. 3. Taxability of Various Receipts: - Catering Revenue: The Tribunal cited the Bombay High Court's decision, which affirmed that catering revenue retained by the club from members was exempt under the principle of mutuality. - Income from Cricket Matches: The Tribunal referred to a Supreme Court judgment which stated that holding cricket matches was not a commercial activity but part of promoting the game. The Tribunal found the CIT's assumption that the club could have earned more revenue speculative and not a valid ground for revision. - Interest Income and Capital Gains: The Tribunal noted that these were already offered to tax by the assessee in the revised return. The CIT's claim that these were not offered to tax was incorrect. 4. Adequacy of Enquiries Conducted by the AO: The Tribunal examined the original assessment proceedings and found that the AO had made detailed enquiries and applied his mind to various aspects, including the principle of mutuality, catering revenue, and income from cricket matches. The Tribunal held that the AO's assessment was thorough and could not be deemed erroneous or prejudicial to the interests of the revenue. 5. Legality of the PCIT's Direction for a Fresh Assessment: The Tribunal criticized the PCIT for directing a fresh assessment based on speculative and incorrect assumptions. It was highlighted that the PCIT's direction for further enquiry constituted a roving or fishing inquiry, which is not permissible under law. The Tribunal emphasized that once a possible view had been taken by the AO, the PCIT could not revise the order merely because he had a different view. Conclusion: The Tribunal quashed the revision order passed under Section 263 by the PCIT, holding that the original assessment by the AO was neither erroneous nor prejudicial to the interests of the revenue. The appeal of the assessee was allowed, reaffirming the principle of mutuality and the adequacy of the AO's original assessment.
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