TMI Blog2015 (1) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006 TO TAX APPEAL NO. 1380 of 2006 With TAX APPEAL NO. 1443 of 2011 TO TAX APPEAL NO. 1444 of 2011 - - - Dated:- 18-12-2014 - MR. KS JHAVERI AND MR. K.J.THAKER, JJ. FOR THE APPELLANT : MR MANISH BHATT, SENIOR ADVOCATE WITH MRS MAUNA M BHATT, ADVOCATE FOR THE RESPONDENT : MR RK PATEL, ADVOCATE JUDGEMENT Per: K S Jhaveri: 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as 'the Tribunal'), the revenue has preferred the present Tax Appeals assailing the following orders Tax Appeal No. Date of Tribunal's order ITA (SS) No. Assessment Year 1159/2006 08/02/06 2083/Ahd/2005 2002-03 1375/2006 23/12/05 30/Ahd/2003 1989-90 to 1998-99 and upto 17.03.1999 1376/2006 23/12/05 206/Ahd/2004 1989-90 to 1998-99 and upto 17.03.1999 1377/2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer? TAX APPEAL NO. 1443 OF 2011 [A] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of ₹ 4,31,95,051/= rejecting the accounting policies? TAX APPEAL NO. 1444 OF 2011 Whether the Appellate Tribunal is right in law and on facts in deleting the addition of ₹ 16,38,89,666/= made by the Assessing Officer invoking the provisions of Section 145 (3) of the Act, towards the membership fees? 2. The assessee company is engaged in the business of providing discount cards to the members on payment of prescribed fees which is called membership fees which is a one-time fee and is non-refundable. The period of membership varies between one to thirty years. It is the case of the assessee that the payment of the membership is nontransferable. The accounts of the assessee had been prepared on accrual basis and accordingly it had apportioned the membership fees received from the members enrolled in a particular accounting year over the entire period of their membership. 2.1 The Assessing Officer concluded that the method of accounting followed by the assesee was not correct as the amount of total membership fees had ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually as well as legally incorrect. 4. Mr. R.K. Patel, learned advocate appearing for the assessee supported the impugned order passed by the Tribunal and submitted that no interference is called for in the same. He submitted that the method of accounting followed by the assessee is a recognized method and true and fair profit of each assessment year is determined through the same. He further submitted that the assessee company provides various facilities to the card holders/members. 5. We have heard learned advocates for both the sides and perused the materials on record. The main dispute in all these appeals is with regard to the correctness of the method of accounting of the assessee company for recording the receipt by way of membership fee and the expenses by way of commission and insurance premium. The assessee company is following mercantile system of accounting but the dispute is when the assessee has issued the facility card for a number of years, whether the membership fee received for number of years accrues in the year in which the card is issued or whether it should be spread over to the number of years for which the card is issued. 5.1 In this regard it sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected is taxed in the year of receipt then in the subsequent year when the assessee will incur the expenditure there will be loss. That would give distorted picture of the working result of the assessee. In view of the above, we respectfully following the above decision of ITAT, Hyderabad Bench in the case of Treasure Island (P) Ltd (supra) hold that the method of accounting followed by the assessee was proper and correct method and the Assesing Officer has wrongly rejected the same. 6. In this regard we are supported by the decisions of the Apex Court as well as this Court, Bombay and Delhi High Courts. The Bombay High Court in the case of Taparia Tools Ltd. vs. Jt. CIT, [2003] 260 ITR 102 has observed that in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed. Under the Mercantile System of Accounting, this Matching is required to be done on accrual basis. Under this Matching concept, revenue and income earned during an Accounting Period, irrespective of actual cash in-flow, is required to be compared with expenses incurred during the same period, irrespective of actual outflow of cash. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, therefore, would accrue on rendering of services. 6.3 This Court has also taken the same view in a recent decision in the case of Snesh Resort Pvt. Ltd vs. Dy. CIT rendered in Tax Appeal No. 113 of 2004 on 18.11.2014. This Court has observed as under: 6.2 Similarly in the case of Bilahari Investment P. Ltd (supra) the Apex Court has held that since from the various statements produced, the entire exercise arising out of the change of method from the completed contract method to deferred revenue expenditure was revenue neutral, the completed contract method was not required to be substituted by the percentage of completion method. 7. Considering the aforesaid observations of the Tribunal as well as the decisions relied upon by learned advocate for the assessee, we are of the opinion that the Tribunal has committed an error in passing the impugned order so far as considering the membership fees as income when the assessee had not resumed giving the services of the water park to its members. Under such circumstances, the amount received by way of membership fees was required to be considered as an advance and thereafter as and when the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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