2022 (8) TMI 1262 - AT - Income Tax

Validity of reassessment proceedings - fresh tangible information - Change of opinion - HELD THAT - It cannot be said that there is any tangible information which came into possession of the Assessing Officer enabling him to form an opinion that the income had escaped assessment. Thus very factual premises on which the reassessment proceedings were initiated is mistaken of acts. Therefore, in such circumstances, the reassessment proceedings cannot be said to be validly assumed as held in the recent judgement of the Hon ble Bombay High Court in the case of Raimaladitya Textile Pvt. Ltd. 2022 (3) TMI 1414 - BOMBAY HIGH COURT held mistake certainly not to be reason to believe that income escaped assessment. Further, in the absence of any tangible material, it cannot be said that there exist the reasons to believe that the income chargeable to tax had escaped assessment. Thus, it is settled position of law that the Assessing Officer had no power to revise assessment which has been concluded and no assessment can be reopened on the mere change of opinion in the case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . Thus, we are of the considered opinion that the Assessing Officer had failed to satisfy necessary ingredients before invoking the jurisdiction u/s 147 of the Act and, therefore, the reassessment proceedings are not valid in law. Accordingly, we quash the reassessment proceedings. Expenditure at the rate of 7.5% of the interest income claimed - HELD THAT - Admittedly, there is no specific expenditure incurred to earn the interest income. However, incurring of sum indirect expenditure cannot be ruled out. It is trite law that what can be taxed is only real income not hypothetical income, when the specific expenditure cannot be identified, it is appropriate to estimate certain amount of expenditure. We allow 7.5% of the interest income as allowable expenditure. The ratio of the decision of the Hon ble Supreme Court in the case of Bangalore Club 2013 (1) TMI 343 - SUPREME COURT has no application in deciding the issue of allowability of expenditure. The issue in the said decision is in relation to the taxability of interest income received from corporate members invoking the principle of mutuality, whereas, in the present case, it is a question of allowability of expenditure against the interest income, therefore, the decision of Hon ble Supreme Court in the case of Bangalore Club (supra) has no application to the instant case. Accordingly, the ground of appeal no.3 raised by the assessee stands allowed. Certain percentage of expenditure against the receipts from the members guest on account of venue charges from members guest, dinner receipts from members guest, receipts from cricket ground books from members guest - HELD THAT - Admittedly, this issue was squarely covered by the decision of the Hon ble ITAT in assessee s own case in earlier years and the decision of the Hon ble Supreme Court in the case of Bangalore club 2013 (1) TMI 343 - SUPREME COURT have no application, inasmuch as, the issue before the Hon ble Supreme Court in the said case relates to the taxability of the interest earned on FDs from the corporate members on the principle of mutuality. Admittedly, in the present case, the assessee club has not sought exemption of income earned from the above activities but only sought the deduction of expenditure as certain percentage of the receipts. It was rightly allowed by the ld. CIT(A) following the decision of the Hon ble ITAT in assessee s own case in earlier years. Therefore, we do not find any merit in the grounds of appeal raised by the Revenue Nature of receipts - entrance fees received from the corporate members, NRI receipts - revenue or capital receipts - HELD THAT - Whether the entrance fee is as revenue account or capital account is no more res-integra as the issue was decided by the Hon ble Bombay High Court in the case of CIT vs. W.I.A.A. Club Ltd. 1979 (1) TMI 5 - BOMBAY HIGH COURT we hold that the entrance fee received from the corporate members is capital in nature and uphold the order of the ld. CIT(A). The decision relied upon by the Assessing Officer have no application to the issue. Hence, the ground of appeal no.5 and 6 raised by the Revenue stands dismissed.

Summary

Issues Involved:
1. Validity of reassessment proceedings.
2. Disallowance of expenditure claims against various receipts.
3. Taxability of entrance fees received from non-members and corporate members.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue was whether the reassessment initiated by the Assessing Officer (AO) under section 147 was valid. The AO reopened the assessment based on the Supreme Court's decision in the Bangalore Club case, which held that interest income from banks by clubs is not exempt under the principle of mutuality. However, the Tribunal noted that the appellant club's return of income was consistent with the law established in its own case for the assessment year 1994-95, where the expenses claimed were allowed. The Tribunal emphasized that the AO did not have fresh tangible information to justify reopening the assessment, as required under section 147. Consequently, the reassessment proceedings were quashed as invalid.

2. Disallowance of Expenditure Claims Against Various Receipts:
The AO had disallowed various expenditure claims made by the appellant club against interest income, venue charges, dinner receipts, cricket ground bookings, hoarding charges, and miscellaneous receipts. The CIT(A) had upheld some of these disallowances but allowed others based on previous ITAT decisions. The Tribunal reiterated that the expenditure claims were in line with the ITAT's earlier decisions and should be allowed. Specifically, the Tribunal allowed 7.5% of the interest income as deductible expenditure, following the principle of consistency from previous years. The Tribunal also upheld the CIT(A)'s decision to allow certain percentages of expenditure against venue charges, dinner receipts, and cricket ground bookings from members' guests.

3. Taxability of Entrance Fees Received from Non-Members and Corporate Members:
The AO had taxed the entrance fees received from non-members and corporate members, arguing that these members did not have voting rights and their membership was for a limited tenure. The CIT(A) held that the entrance fees from corporate and NRI members were capital receipts and thus not taxable. The Tribunal supported this view, citing the Bombay High Court's decision in the W.I.A.A. Club Ltd. case, which held that entrance fees are capital receipts as they are paid once for acquiring membership rights. The Tribunal dismissed the Revenue's appeal on this ground, affirming that the entrance fees should not be treated as revenue receipts.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, quashing the reassessment proceedings and allowing the expenditure claims as per earlier ITAT decisions. The Tribunal also upheld the CIT(A)'s decision that entrance fees from non-members and corporate members are capital receipts and not taxable. The cross-appeals filed by the Revenue were dismissed.