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TMI Blog2010 (9) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue supported the assessment order. 4. First, we take up the appeal for the Assessment Year 2004-05. The grounds raised by the revenue in this year are as under: "(1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.9,23,000/- made by the A.O. on account of member entry fees by treating it as revenue receipts disregarding the fact that the assessee had failed to file any documentary evidence in support of its claim. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 1,00,000/- made by the A.O. on account of festival expenses disregarding the fact that the expenditure was not relevant to the year under consideration and is maintaining mercantile system of accountancy." 4.1 Regarding ground No. 1, the facts are that it is noted by the A.O. on page 2 of the assessments order that the assessee society received an amount of Rs. 9.23 lacs but the same was not included in the income of the assessee on the plea that it is received on account of members entry fee and hence it is a corpus receipt and cannot be added into i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar association receives an amount from members, whether by way of subscription or otherwise (not being remuneration received for rendering any specific services to such member) has to be deducted from the expenditure incurred by such association during that previous year (other than expenditure deductible in computation of income under any other provision of this Act and expenses in the nature of capital expenditure) solely for the purpose of protection and advancement of common interest of its members and if such expenses are in excess of such receipt, deduction should be allowed of such excess of expenditure over receipt for computation of income of the association. It is noted that nature of this receipt in question should be decided in the light of the provisions of section 44A(1) as to whether such receipts are to be deducted from the expenditure incurred by the assessee club for the purpose of protection or advancement of common interest of its members. If it is found that the entry fee were paid to the assessee club in order to acquire the right to avail the services or facilities extended by the assessee club then, as per the judgment of Hon'ble High Court of Mumbai r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the submission of Ld. D.R. for the revenue and have gone through the order of authorities below. We find that the basis of disallowance made by the A.O. is that this expense of Rs. 1 lac is related to Assessment Year 2001-02 and the same is not allowable in the present year i.e. Assessment Year 2004-05, This is not the claim of the assessee that the expenditure has crystallized during this year. The disallowance was deleted by the Ld. CIT(A) on this basis that the advance payment is in the nature of bad debt which is allowable u/s 36(1)(vii) of the I. T. Act, 1961. We are not in agreement with the Ld. CIT(A) on this aspect because for the purpose of allowing deduction as bad debt u/s 36(1)(vii), the assessee has to fulfil additional burden as prescribed u/s 36(2) as per which it had to be seen that the amount in question was taken into account in computation of income of the assessee in the year of write off or in an earlier previous year. This not a case of the assessee that this payment of Rs. 1 lac was at any time taken by the assessee as income and hence, the provisions of section 36(1)(vii) are not applicable for the reason that the provisions of section 36(2) are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing mercantile system of accounting, deduction on account of these two expenses is not allowable in the present year. By making this observation, the A.O. made disallowance for these amounts, total of which comes to Rs. 2,12,808/-. Being aggrieved, the assessee carried the matter in appeal before CIT(A). Ld. CIT(A) had deleted this disallowance on the basis that these expenses actually crystallized in the year under consideration and hence, this deduction is allowable in the present year. Now, the revenue is in appeal before us. 5.5 It is submitted by the Ld. D.R. that there is no basis given by Ld. CIT(A), as per which, it has been observed by him that these expenses actually crystallized in the year under consideration. It is submitted by him that the matter may be restored back to the file of the A.O. for fresh decision after examining this claim of the assessee that these expenses actually crystallized in the present year. 5.6 We have considered the submissions of Ld. D.R. for the revenue and have gone through the orders of authorities below. We find that there is no such claim lodged by the assessee before the A.O. that these expenses actually crystallized during the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee carried the matter in appeal before the Ld. CIT(A) who has held that the assessee is entitled to deduction u/s 44A(3); of the I. T. Act and now revenue is in appeal before us. 5.9 It is submitted by the Ld. D.R. that the provisions of section 44A(3) is required to be considered along with the provisions of section 44A(1) because deduction is in fact allowable u/s 44A(1) and if such deduction exceeds 50% of gross total income of the association computed before making any allowance u/s 44A, then deduction under this section should be restricted to 50% of the total income of the association. It is also submitted that as per section 44A(1) receipt on account of remuneration received for rendering any specific services to the members are to be excluded. Our attention was drawn to the provisions of clause (iii) of section 28 and it is submitted that those receipts which are not covered by clause (iii) of section 28 are to be deducted from expenses incurred by trade, professional or similar association which are incurred for the purpose of protection and advancement of common interest of members and if such expenses are in excess of such receipts, then deduction is allowable for se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o nay other provision of this Act under which any allowance or loss in respect of any earlier assessment year is carried forward and set off against the income for the relevant assessment year. (3) The amount of deficiency to be allowed as a deduction under his section shall in no case exceed one-half of the total income of the association as computed before making any allowance under this section. (4) This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its members except as grants to any association or institution affiliated to it." 5.10.1 From the reading of section 28(iii) and section 44A, we find that the receipt of assessee has to be bifurcated into two parts. One part is receipt on account of specific services performed for its members. These receipts are considered as business income as per the provisions of section 28(iii). Similarly, the expense of the assessee has to be bifurcated into two parts, i.e. the revenue expenditure and capital expenditure. No deduction is allowed on account of capital expenditure from any receipt. The revenue expenditure should be further bifurcated into tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of Ld. CIT(A) on this issue and restore that of the A.O. This ground of revenue is allowed. 5.11 Ground NO. 4 of the appeal reads as under: "(4) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 34,483/- made by the A.O. on account of telephone expenses disregarding the fact that the assessee had failed to establish that these expenses were incurred wholly and exclusively for the business purposes and the possibility of personal use canto be ruled out." 5.12 The brief facts of the case are that it is noted by the A.O. in para 12 of the assessment order that the assessee has debited Rs. 2,06,902/- on accounts of telephone expenses in the income & expenditure account. It is also noted by the A.O. that these expenses are on account of mobile phones and fixed phones out of which 4 phones are landlines and 14 mobile phones. It is also noted by the A.O. that 7 mobile phones, have been purchased in the individual name of Col. P S Vasudeva who had been the manager of the club. The A.O. said that it is impracticable/unbelievable that a person would use 7 mobile phones at a time for the purpose of club. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No. 2, it is submitted that the same is identical to ground No. 3 in Assessment Year 2005-06 and the same can be decided on similar lines. 6.3 We have considered the submissions of the Ld. D.R. We find that ground No. 1 in the present year is identical to ground No. 1 in Assessment Years 2004-05 & 2005-06. This ground has been decided by us as per para 4.2 above in Assessment Year 2004-05 & para No.5.2 in Assessment Year 2005-06 respectively. In the Assessment Year 2004-05, this matter has been restored back to the file of the A.O. for a fresh decision as per various discussion given in para 4.2 above. In Assessment Year 2005-06, the issue was decided by following the order in Assessment Year 2004-05. Accordingly, in Assessment Year 2006-07 also this issue is restored back to the file of the A.O. for a fresh decision as per the directions given by the tribunal in Assessment Year 2004-05 as per para 4.2 above. Ground No.2 of appeal is identical to Ground No.3 in Assessment Year 2005-06. In that year this issue was decided against the assessee as per para Nos. 5.10 & 5.10.1 above. On similar lines, in this year also this issue is decided in favour of the revenue and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, in this year also, this issue is returned back to the file of the A.O. with similar directions. Ground No. 2 of the revenue is allowed and it is held that no deduction is allowable to the assessee u/s 44A(3) as per our decision on this issue in Assessment Year 2005-06 as per para 5.10 above. 7.3 Regarding ground No. 3 of the appeal of the revenue, we are in agreement with Ld. D.R. of the revenue that there was no occasion for Ld. CIT(A) to make this observation that the income of the assessee is not taxable as per principle of mutuality because the assessee itself has declared an income of Rs. 49,87,580/- as per the return of income filed by it on 2.11.2007. Over and above this income, the A.O. has made addition of Rs. 36.29 lacs on account of receipt of entrance fee from members and of Rs. 24,93,790/- regarding claim of the assessee for deduction u/s 44A(3). Before the A.O., there is no claim of the assessee that income of the assessee is not taxable as per the principle of mutuality. Both these additions made by the A.O. are subject matter of appeal as per ground Nos. 1 & 2 of the revenue. Ld. CIT(A) has although made some observation in para 11 of his order that income of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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