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TMI Blog2024 (8) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... arned any different pattern. In this case, the assessee is providing beauty health packages and there is an input cost which is variable from year to year whereas the members desirous of availing the services pay the amount in advance. The entire amount has been offered to tax. The working of the amounts offered for taxation given by the assessee has not been disputed by the Revenue authorities in the years before us and also accepted the methodology in the A.Y. 2012-13 and A.Y. 2013-14. Hence, keeping in view the entire facts and circumstances peculiar to the instant case, the appeal of the assessee is hereby allowed. Disallowance u/s 14A - no exempt income earned - HELD THAT:- Both the parties fairly submitted that the assessee has not earned any exempt income. Now, it is a settled matter that no disallowance is called for in the absence of any exempt income u/s 14A resulting in deletion of disallowance. Interest paid to NOIDA on plot installment - expenditure incurred on account of interest and acquisition of the capital asset is not allowable as per the proviso to Section 36(1)(iii) - CIT(A) affirmed the decision of the AO holding that interest cost should be added to the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' on accrual basis of accounting over the life of membership period as per accounting standard as notified by CBDT under section 145(2) being mandatory on assessee to follow. 3. That the learned CIT(A) was not Justified on facts and law in sustaining the action of the assessing officer in ignoring the contention of the assessee that when the change of method of accounting is bonafide and mandatory u/s 145(2) and consistently followed in the subsequent years by the assessee company, no addition can be made by invoking the provision of section 145(3) of the Income Tax Act. 4. That the learned CIT(A) under the facts and circumstance of the case has committed a mistake of law in sustaining the action of the assessing officer in not accepting the change of policy of accounting in respect of membership fees from cash systematic mercantile system, as per provision of section 209 of the Companies Act and subsequently followed consistently year after year by the assessee company. 5. That the learned CIT(A) under the facts and circumstances of the case has committed a mistake of law in sustaining the action of the assessing officer for incorrectly holding that the assessee's action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case has committed a mistake of law in sustaining the action of the assessing officer for incorrectly holding that the assessee's action in apportionment of the income, which had accrued and received in the year itself, is not justified. The assessee has apportioned only the income received between the income accrued and not accrued during the year. 5. That the learned CIT(A) had acted against the law and facts of the case in sustaining the addition of Rs. 3,13,512/- by incorrectly holding that the appellant had a vested right, with no obligation to return the same, the income is absolutely ascertained determined and specified over which the appellant has exclusive right in contravention of the Judgement of Jurisdictional Delhi High Court in case of CIT VS Dinesh Kumar Goyal 331 ITR 10 which is squarely applicable in case of assessee. 6. That the learned CIT(A) had acted against the law and facts by Incorrectly holding that assessee acquire a right to received the membership fees and the amount received by appellant in its own right and there was a debt incurred by the payers in favour of appellant and amount received by appellant was clearly in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses and Rs. 7,55,236/- on telephone expenses which was incurred wholly and exclusively for the business purpose of the appellant company. 3. That the learned CIT(A) under the facts and circumstances of the case has committed a mistake of law and facts in sustaining the action of the assessing officer by disallowing Depreciation of Rs. 3,39,503/- out of the depreciation claimed @ 60% as per entry III(5) of the New App I of Income tax Rule 1962 by the appellant company on Microsoft Navision software when the assessee has not acquired the software or its source code but has only acquired the right to use and as per Note 7 to appendix I to I.T Rules Computer software is goods and is a tangible asset by itself and not intangible asset. 4. That the learned CIT(A) under the facts and circumstances of the case has committed a mistake of law in sustaining the action of the assessing officer for making the addition on account of membership fee amounting to Rs. 1,57,74,577/- on the basis of decision of predecessor CIT(A) for A.Y 2008-2009. 5. That the learned CIT(A) under the facts and circumstances of the case has committed a mistake of law in sustaining the action of the assessing office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting disallowance of Rs. 20,38,149/- u/s 14A of the Income Tax Act, 1961 (hereinafter referred as the Act ) by not considering the provisions of Section 14A of the Act which stipulate computation of disallowance u/s 14A of the Act mandatorily under Rule 8D(2) of the Income Tax Rules, 1962 (hereinafter referred as the Rules )? 2. Whether on the facts and circumstances of the case, Ld. CIT(A) is legally justified in deleting disallowance of Rs. 20,38,149/- u/s 14A of the Act without considering legal principle that allowability disallow ability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon'ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody [1978] 115 ITR 519 and without considering ratio decidendi as upheld in the cases of CIT Vs. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC) and Maxopp Investment Vs CIT[2012] 347 ITR 272 (Delhi) on application of provisions of section 14A of the Act? 3. Whether on the facts and circumstances of the case, fid, CIT(A) is legally justified in deleting the addition of Rs. 1,33,83,324/-on account of undisclosed membership fee by not considering the fact that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accrual basis. The assessee company was consistently following the mercantile system of accounting but the membership fee received from the customer was being accounted for by the assessee company on the receipt basis up to A. Y. 200708. The change in the accounting policy is stated to be bona fide and had been done to match with the mercantile system of accounting regularly followed by the assessee As a result of this change in the accounting policy the assessee company, out of total receipts of Rs. 3,99,153/- received during the year as membership fee, has shown only Rs. 2,04,51,871/- as income for the year under consideration and the balance amount of Rs. 1,94,68,282/- has been taken in schedule 13, annexed to balance sheet, of current liabilities and provision as advance for membership fees. I have considered the submissions made on behalf of the assessee. The question which is to be looked in to in this case is whether the receipts by way of membership fee, which was undoubtedly is not an advance and is also not refundable, is the income in the hands of the assessee. The assessee is not receiving this membership fees in advance and there is no system of running bills. The me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrual basis. During the assessment year 2008-2009, the appellant company received membership fees of Rs. 39,920,153/- out of which a sum of Rs. 19,468,282/- has been shown under the head membership fees received in advance as it pertains to the membership for the period from 1st April 2008 and onwards and balance membership fees of Rs. 20,451,871/- since relate to assessment year 2008-2009 under consideration was shown as income during the assessment year 20082009. The same accounting policy has been consistently followed in subsequent years. Even under section 145(1) of the Income tax Act, the company is bound to follow one system of accounting either cash or mercantile. It cannot adopt mixed system of accounting i.e. hybrid system. The Id. AR argued that as per Accounting Standard 1 which is mandatory u/s 145(2), Accrual refers to the assumption that revenues and costs are accrued, that is recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the period to which they relate. Therefore the appellant company apportioned the membership fees on accrual basis over the life of membership period. The assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount is not refundable. It is a settled principle that a receipt constitutes income, when an assessee is vested with the right to receive the payment. In the present case, as pointed above, since the appellant was vested with the right to receive the entire amount of membership fee from the payer, which is not refundable and there is no matching of corresponding services / facility / expenditure to be incurred by the assessee for a specified period of time, nor the same has been pointed out by the assessee, no portion of the membership fee collected by the assessee during the year can be said to be in the nature of advance and thus, not income of the relevant year. On the concept of accrual of income , the Supreme Court in the case of E. D. Sassoon and Co. Ltd. vs. CIT as reported in 26 ITR 27 held as under: It is clear, therefore, that income may accrue to an assessee with the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may received later on its being ascertained. The basis conception is that they must have acquired a right to receive the income. There must be a debt owned to him by so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid businesses, the assessee collected total fee in lieu of the services, viz., coaching/beauty/slimming package to be provided over a period of time. The amount of total fee collected in relation to aforesaid services rendered during the year were offered to tax as income and the balance payment corresponding to services in the succeeding year(s) was treated as advance and not as income exigible to tax. The Hon ble Delhi High Court upheld that the amount of fee collected relating to unexecuted services was in the nature of advance and not income liable to tax in the hands of the assessee. The aforesaid case is clearly distinguishable from the facts of file appellant, inasmuch as the fee collected in the aforesaid case satisfied the matching concept. Further, in the above case, the assessee had not changed the accounting policy of segregating the income during the relevant year, as in the case of the appellant. In the present case, there is clear attempt on the part of the appellant in deferring the taxation of accrued/ vested income received during the relevant year by suddenly changing the accounting policy. Such income is received by the appellant as its accrued income, over w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The amount received as membership cannot be treated as income in the same year as the period of membership runs over a longer duration. It was submitted that the advances received from customer has been duly offered as and when the services were completely provided to them. It was argued that the contentions of the Revenue cannot be accepted since until the services in reference to the membership amount are completely provided to the customers, the same cannot be treated as income. The ld. AR relied on the judgments of Hon ble Delhi High Court in the case of CIT Vs. Dinesh Goyal (331 ITR 16), the Special bench of ITAT in ACIT Vs. Mahindra Resort (131 TTJ 1). Further, the ld. AR submitted that the Revenue itself in the subsequent year i.e. A.Y. 2012-13 and A.Y. 2013-14 has accepted the accounting of membership fee from the assessee. Therefore, the settled position accepted by the Revenue itself cannot be disturbed. The ld. AR also submitted that the assessee has neither forfeited any of the advance received from the customer nor there was any noncompletion of providing of services and as and when the services are provided, the entire amount was offered to tax. 14. Heard the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance. Interest paid to NOIDA on plot installment: And also in Ground No. 5 : ITA No. 3548/Del/2018 : A.Y. 20112012 (Revenue Appeal) 19. During the year, the assessee paid Rs. 1,16,300/- as interest towards the property allotted by NOIDA. The ld. CIT(A) affirmed the decision of the Assessing Officer holding that interest cost should be added to the cost of land allotted by the NOIDA and hence the same cannot be held to be business expenditure. The expenditure incurred on account of interest and acquisition of the capital asset is not allowable as per the proviso to Section 36(1)(iii). Disallowance of 5%: 20. The AO disallowed a sum of Rs. 3,33,617/- being 5% of expenses on business promotion, travelling, telephone expenses. We hold that no ad-hoc disallowance is permissible without bringing any rationale for such disallowance. 21. Depreciation : Not pressed. ITA No. 3548/Del/2018 : A.Y. 2011-2012 (Revenue Appeal) 22. The grounds relating to membership fee, Section 14A, adhoc disallowance, depreciation stands covered by the above order. Non-deduction of TDS on transaction charges levied by the bank on credit card transactions: Notification No. 56/2012 - CBDT 23. To Mitigate Complian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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