M/s. D.V. Buch & Co.,, Ahmedabad v. The ACIT., Circle-9,, Ahmedabad

CO 347/AHD/2007 | 2004-2005
Pronouncement Date: 02-08-2010 | Result: Dismissed

Appeal Details

RSA Number 34720523 RSA 2007
Assessee PAN AABFD5175G
Bench Ahmedabad
Appeal Number CO 347/AHD/2007
Duration Of Justice 2 year(s) 9 month(s) 17 day(s)
Appellant M/s. D.V. Buch & Co.,, Ahmedabad
Respondent The ACIT., Circle-9,, Ahmedabad
Appeal Type Cross Objection
Pronouncement Date 02-08-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 02-08-2010
Date Of Final Hearing 29-06-2010
Next Hearing Date 29-06-2010
Assessment Year 2004-2005
Appeal Filed On 15-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABA D (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON'BLE S HRI N.S. SAINI A.M.) I.T.A. NO. 3501/AHD./2007 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- M/S. D.V. BUCH & CO. AHMEDABAD CIRCLE-9 AHMEDABAD (PAN : AABFD 5175 G) (APPELLANT) (RESPONDENT) & C.O. NO. 347/AHD/2007 (ARISING OUT OF ITA NO. 3501/AHD/2007) ASSESSMENT YEAR : 2004-2005 M/S. D.V. BUCH & CO. AHMEDABAD -VS.- ASSISTANT C OMMISSIONER OF INCOME TAX CIRCLE-9 AHMEDABAD (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY : SHRI S.N. DIVATIA DEPARTMENT BY : SHRI GAURAV BATHAM D. R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTI ON BY THE ASSESSEE ARE AGAINST THE ORDER DATED 01.05.2007 OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS)-XV AHMEDABAD FOR THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER :- (1) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -XV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.12 65 550/- ON ACCOUNT OF MOBILIZATION ADVANC E RECEIVED FROM GCPE. (2) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -XV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.90 000/- ON ACCOUNT OF CLUB MEMBERSHIP FEES. 2 ITA NO. 3501 & CO-347/AHD/2008 (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XV AHMEDABAD O UGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (4) IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XV AHMEDABAD MAY BE SET ASI DE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE GROUND NO. 1 OF THIS APPEAL ARE THAT THE ASSESSEE RECEIVED RS.14 91 500/- AS ADVANCE MONEY F ROM ITS VARIOUS CLIENTS WHICH HAS NOT BEEN OFFERED TO TAX IN THE CURRENT ASSESSMENT YEAR ON TH E GROUND THAT INCOME REPRESENTING THE SAID AMOUNT HAS MATERIALIZED IN THE SUBSEQUENT ASSESSMEN T YEAR. THIS AMOUNT OF RS.14 91 500/- COMPRISES OF THREE DIFFERENT ITEMS I.E. RS.12 65 5 50/- REPRESENTS THE MOBILIZATION ADVANCE RECEIVED FROM GUJARAT COUNCIL OF PRIMARY EDUCATION GANDHINAGAR (HEREINAFTER REFERRED AS GCPE) RS.10 000/- HAS BEEN RECEIVED FROM FINANCIAL COOPERATIVE BANK LTD. SURAT AND ANOTHER AMOUNT OF RS.2 16 000/- IS RECEIVED FROM VARIOUS CL IENTS WHO WERE INVOLVED IN DISPUTE WITH MADHUPURA MERCANTILE COOPERATIVE BANK (HEREINAFTER REFERRED AS MMCB). APART FROM THIS RS.10 000/- WAS RECEIVED FROM FINANCIAL COOPERATIVE BANK LIMITED SURAT. THE ASSESSING OFFICER ADDED THE ENTIRE AMOUNT OF RS.14 91 550/- A S ACCORDING TO HIM THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND THEREFORE ANY AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR IS REQUIRED TO BE CREDITED TO THE PROFIT & LOSS A/C. I N THE ASSESSMENT ORDER THE ASSESSING OFFICER ALSO OBSERVED THAT A COPY OF LETTER EVIDENCING CONS ULTANCY AGREEMENT DATED 9.11.2003 EXECUTED BY THE ASSESSEE WITH GCPE GANDHINAGAR INDICATES TH AT THE PAYMENT TO THE EXTENT OF 40% OF THE APPROVED AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE O N ACCEPTANCE OF THE LETTER OF AWARD. SINCE THE AMOUNT OF RS.12 65 550/- HAS BEEN RECEIVED AS P ER THE AGREEMENT AND THE PAYEE HAS TREATED THE SAME AMOUNT TO BE THEIR EXPENSE FOR THE RELEVAN T PREVIOUS YEAR THE ASSESSEE WAS OBLIGED TO DECLARE IT AS A PART OF THEIR INCOME AND MORE PARTI CULARLY WHEN THE ASSESSEE IS ADMITTEDLY FOLLOWING THE CASH SYSTEM OF ACCOUNTING. IN RESPECT OF OTHER TWO AMOUNTS THE ASSESSING OFFICER OBSERVED THAT THE SAME REPRESENT THE INCOME OF THE ASSESSEE BECAUSE THESE WERE RECEIVED BY WAY OF ADVANCE FEES. WITH THESE OBSERVATIONS THE ASSES SING OFFICER MADE THE ADDITION OF RS.14 91 550/-. 3 ITA NO. 3501 & CO-347/AHD/2008 4. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE VARIOUS SUBMISSIONS MADE BY T HE ASSESSEE DELETED THE ADDITION OF RS.12 65 550/- AND CONFIRMED THE ADDITION PERTAININ G TO THE REMAINING TWO AMOUNTS. THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) IS CONTAINED IN PARA 1.3 WHICH IS AS UNDER :- 1.3. IN ORDER TO DECIDE THE ISSUE I HAVE CAREFULLY CONSIDERED THE VARIOUS ARGUMENTS OF THE LD. AUTHORIZED REPRESENTATIVE AND HAVE PERUSED THE ASSESSMENT ORDER. THE APPELLANT IS ADMITTEDLY FOLLOWING THE CA SH SYSTEM OF ACCOUNTING AND THERE CANNOT BE ANY SECOND OPINION THAT ANY RECEIPT REPRE SENTING ANY INCOME IN SUCH SYSTEM HAS TO BE CREDITED TO THE P&L ACCOUNT. THE C ONTROVERSY IN THE PRESENT CASE HOWEVER HAS A5RISEN BECAUSE THE APPELLANT IS TREAT ING CERTAIN ADVANCES NOT TO BE THEIR INCOME AS ACCORDING TO CERTAIN PECULIAR FADS THE INCOME IS SAID TO HAVE MATERIALIZED IN THE NEXT ASSESSMENT YEAR. THE APPEL LANT HAS ADMITTEDLY RECEIVED RS. 12 65 550/- FROM GCPE GANDHINAGAR IN PURSUANCE TO AN AGREEMENT DATED 9/11/2003. AS PER CLAUSE 2 OF THE SAID AGREEMENT T HE WORK ON THE AGREED ASSIGNMENT WAS TO HE CARRIED OUT FROM THE DATE OF C LOSURE OF THE ACCOUNTS OF SSA FOR THE FY ENDING 31.03.2004. THE WORK WAS TO BE COMPLE TED WITHIN SIX MONTHS THEREAFTER I.E UPTO 30TH SEPTEMBER 2004. AS PER C LAUSE 3 OF THE SAID AGREEMENT GCPE GANDHINAGAR WAS ENTITLED TO POSTPONE OR CANCE L THE ASSIGNMENT AND/OR TO SHORTEN ITS DURATION IF DEEMED IT NECESSARY TO DO S O. THE COMBINED READING OF CLAUSE 2 AND 3 OF SHE SAID AGREEMENT THUS WOULD MAKE IT EV IDENT THAT THE ACTUAL WORK TO CARRY OUT THE CONTRACT WAS TO START ONLY AFTER THE 31ST DAY OF MARCH 2004 AND GCPE GANDHINAGAR HAD ALL THE POWERS EITHER TO CANC EL OR TO POSTPONE THE CONTRACT EITHER PRIOR TO ITS COMMENCEMENT OR EVEN THEREAFTER . BOTH THESE CLAUSES ARE THUS MATERIALLY IMPORTANT TO DECIDE AND IN THE BACKGROUN D OF THESE STIPULATIONS WHERE THE APPELLANT MAY HAVE TO FACE UNCERTAINTIES ABOUT THE EXECUTION OF THE CONTRACT TILL THE RIME IT WAS ACTUALLY EXECUTED THE ADVANCE MONEY RE CEIVED FROM GCPE DURING THE CURRENT ASSESSMENT YEAR WOULD NOT PARTAKE THE CHARA CTER OF INCOME IN THE REAL SENSE OF THE TERM. I AM THEREFORE INCLINED TO HOLD THAT T HE RECEIPT UNDER CONSIDERATION WAS RIGHTLY SHOWN AS MOBILIZATION ADVANCE BY THE APPELL ANT WHICH HAS KEPT THE MONEY IN ITS FIDUCIARY CAPACITY ON BEHALF OF THE GCPE GANDH INAGAR TILL THE POINT OF TIME WHEN THE CONTRACT ACTUALLY STOOD EXECUTED. THE OTHE R CONTENTION OF THE ID. AUTHORISED REPRESENTATIVE THAT THE PAYEE I.E GCPE GANDHINAGAR HAS ALSO TREATED THE AMOUNT OF RS. 12 65 550/- TO BE THE ADVANCE PAY MENT IN THEIR BALANCE-SHEET FILED FOR THE PERIOD 31.03.2004 IS ALSO FOUND TO BE CORRE CT. THE ASSESSING OFFICER HAS THUS WRONGLY CONCLUDED THAT THE GCPE GANDHINAGAR HAS CLA IMED THE SAID PAYMENT TO BE US EXPENDITURE FROM ITS INCOME WORKED OUT FOR THE A SSESSMENT YEAR 2004-05. THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. D C GANDHI ASSOCIATES (1994) REPORTED IN 210 ITR 919 (GUJ.) A S RELIED UPON BY THE LD R AUTHORISED REPRESENTATIVE IS DIRECTLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE IN WHICH IT HAS BEEN HELD THAT 'THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS ACCEPTED BY THE INCOME TAX AUTHORITIES FOR A NUMBER OF YEARS. THE RELATIONSHIP BETWEEN A LAWYER AND HIS CLIENT IS A F IDUCIARY ONE AND MONEYS OF CLIENTS KEPT SEPARATELY IN THE CLIENTS' ACCOUNTS ARE HELD B Y HIM LIKE A TRUSTEE UNLESS A PARTICULAR AMOUNT OUT OF IT IS EARMARKED AS HIS FEE S. WHETHER THE ACCOUNTING METHOD WAS USED BY THE ASSESSES AS A DEVICE FOR REDUCING H IS INCOME OR NOT WOULD BE A QUESTION OF FACT IN EACH CASE. IN THESE CASES IT WA S FOUND AS A MATTER OF FACT THAT THIS PARTICULAR METHOD OF ACCOUNTING ADOPTED BY THE ASSE SSES WAS NOT WITH A VIEW TO 4 ITA NO. 3501 & CO-347/AHD/2008 REDUCE THE INCOME. THERE WAS NOTHING ON RECORD TO S HOW THAT THE BILLS IN RESPECT OF COMPLETED MATTERS WERE NOT PREPARED AND SENT FOR SE TTLEMENT DURING THE RELEVANT YEAR OR WITHIN A REASONABLE TIME AND THAT TOO WITH A VIEW TO SHOW REDUCED INCOME. THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION S TO THE INCOME. NO QUESTIONS OF LAW AROSE FROM ITS ORDER'. IN THE LIGHT OF THESE FACTS THE AMOUNT OF RS.12 65 550/- RECEIVED BY THE APPELLANT AS MOBILIZATION ADVANCE FROM GCPE CANNOT BE TAXED AS INCOME FOR THE CURRENT ASSESSMENT YEAR. IT HAS BEEN SUBMITTED BY T HE LD. AUTHORISED REPRESENTATIVE THAT THE AMOUNT OF RS. 12 65.550/- HAS DULY BEEN SH OWN AS INCOME IN THE A.Y. 2005- 06. THE ASSESSING OFFICER HOWEVER WILL BE AT LIBER TY TO VERIFY THE SAME. IN SO FAR AS THE RECEIPT OF RS. 10 000/- RECEIVED F ROM FINANCIAL COOPERATIVE BANK LTD SURAT AND OF RS.2 16 000/- RECEIVED BY T HE APPELLANT FROM ITS VARIOUS CLIENTS IN THE MATTER OF MMCB IS CONCERNED THESE R ECEIPTS ARE UNDOUBTEDLY IN THE NATURE OF PROFESSIONAL FEES AND THE APPELLANT HAS N OT BEEN ABLE TO ESTABLISH ON RECORD THAT THESE RECEIPTS HAD NOT MATERIALIZED INT O THEIR INCOME DURING THE CURRENT ASSESSMENT YEAR. THE RECEIPTS OF RS. 10 000/- AND O F RS. 2 16 000/- ARE THUS RIGHTLY BEEN CHARGED TO TAX AND ADDITION TO THE EXTENT OF RS. 2 26 000/- IS CONFIRMED ON THIS SCORE. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI GAURAV BATHAM LD. D.R. APPEARED AND CONTENDED THAT THE ASSESSEE BEING A FI RM OF CHARTERED ACCOUNTANT FOLLOWING CASH SYSTEM OF ACCOUNTING. THE AMOUNT IN QUESTION OF RS. 12 65 550/- ON ACCOUNT OF MOBILIZATION ADVANCE WAS RECEIVED BY THE ASSESSEE IN THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THEREFORE THE ASSESSING OFFICER RIGHTLY TA XED THE SAME. THE LD. D.R. ACCORDINGLY CONTENDED THAT KEEPING IN VIEW THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THE ADDITION OF RS.12 65 550/- BE RESTORED. 6. ON THE OTHER HAND SHRI S.N. DIVATIA LD. COUNSE L APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THAT THOUGH THE ASSESSEE IS FOLLOWING CASH METHOD OF ACCOUNTING BUT THE AMOUNT OF RS.14 91 500/- RECEIV ED FROM THE THREE CLIENTS IS NOT TAXABLE IN VIEW OF THE FOLLOWING REASONS :- (A) AS HELD IN CASE OF ACIT VS.- UPPER GANGES SUGA R & INDUSTRIES LTD. [40 ITD 614] (CAL.) WHILE IT IS UNDOUBTEDLY TRUE THAT UNDE R THE CASH SYSTEM OF ACCOUNTING INCOME IS TAXABLE IN THE YEAR IN WHICH IT IS RECEIV ED IT IS EQUALLY TRUE THAT THE RECEIPT SHOULD BE OF 'INCOME' AND NOT MERELY MONEY FN ORDER THAT O PARTICULAR 5 ITA NO. 3501 & CO-347/AHD/2008 RECEIPT IS TO BE BROUGHT TO TAX AS INCOME IT MUST BE ESTABLISHED THAT THE RECEIPT POSSESSES OIL THE CHARACTERISTICS OF INCOME. THE BU RDEN OF PROVING THAT THE AMOUNT IS TAXABLE BECAUSE IT IS RECEIVED IN THE YEA R OF ACCOUNT LIES UPON THE DEPARTMENT MOREOVER O RECEIPT CAN BE BROUGHT TO TA X ONLY IF IT IS FOUND ON PROPER ANALYSIS OF THE NATURE THEREOF AND THE RIGHT S OF THE PARTIES TO THE DISPUTE TO BE INCOME. NOW IN THE PRESENT CASE IT IS NOT DISPUTED BY AO THAT THE AMOUNT OF RS 12 65 550/- HAS BEEN RECEIVED BY THE RESPONDED FROM GCPE AS ADVANCE TOWARDS THE CERTIFICATION WORK ASSIGNED TO IT. IT IS EQUALL Y NOT DISPUTED BY AO THAT THE SERVICES FOR CERTIFICATION WORK WAS TO COMMENCE AFT ER 31.3.2004 AND COMPLETED WITHIN 6 MONTHS I.E. DURING THE SUCCEEDING FINANCIA L YEAR AND NOT THE YEAR UNDER APPEAL. THE CLAUSE (2) OF THE AGREEMENT DATED 9.11. 2003 WITH GCPE THE ASSIGNMENT REQUIRED CERTIFICATION OF ACCOUNTS OF GR ANT RECEIPT/ UTILIZATION MAINTAINED BY VCWC FOR THE FINANCIER YEAR ENDING ON 31.3.2004. WHICH ITSELF MEANS THAT THE WORK WAS TO BE COMMENCED AND COMPLET ED IN THE NEXT FINANCIAL YEAR. EVEN AS PER CLAUSE (7) THEREOF THE FINAL REL EASE OF THE APPROVED AMOUNT WAS TO BE MADE ON SUBMISSION OF CERTIFICATE WHICH MEANS THAT ON COMPLETION OF THE WORK THE SAID AMOUNT WAS TO BE TREATED AS 'INCOME'. (B) IN CASE OF HASMUKHLAL M. PARISH VS. CIT (37 ITR 359) (BOM.) IT WAS HELD THAT 'THE PRINCIPAL THAT WHEN SALE PROCEEDS GROSS OR NE T ARE RECEIVED BY THE ASSESSEE SECTION 4 OF THE I.T. ACT IS IMMEDIATELY ATTRACTED AND THE INCOME PROFITS OR GAINS EMBEDDED THEREIN BECOME CHARGEABLE TO TAX DID NOT APPLY TO AN AMOUNT LEFT IN DEPOSIT WITH THE ASSESSEE FOR DUE PERFORMANCE OF A CONTRACT TO BE SUBSEQUENTLY APPROPRIATED TOWARDS THE PRICE ON EXECUTION OF THE SALE DEED'. ACCORDINGLY THE ADVANCE RECEIVED FROM THE CLIENTS BY THE RESPONDENT CANNOT BE SAID TO BE 'INCOME THOUGH ACTUALLY RECEIVED BECAUSE SERVICES BY WAY OF CERTIFICATION WORK WERE YET TO BE RENDERED TO GCPE. (C) EVEN IN CASE OF CIT VS. PUNJAB TRACTORS CO. OP. MULTIPURPOS E SOC. LTD. [234 ITR 105] (PH) IT WAS HELD THAT 'THE ADVANCES RECEIVED FROM CUSTOMERS TO RENDER TRACTOR REPAIR SERVICES FOR ONE YEAR AFTER T HE EXPIRY OF WARRANTY PERIOD ACCRUED AS INCOME TO THE ASSESSES ONLY WHEN THE SER VICES WERE RENDERED AND NOT AT THE POINT OF RECEIPT.' THE MONEY RECEIVED FROM T HE BUYERS COULD NOT BE TREATED TO BE INCOME UNLESS RIGHT TO APPROPRIATE IT TOWARDS THE SERVICES HAD ACCRUED OR ARISEN. SO LONG AS THE RIGHT DID NOT EXISTS THE MO NEY RECEIVED FROM THE BUYERS REMAINED ADVANCE MONEY. IT IS THE APPROPRIATION OF THE MONEY TOWARDS THE OBJECT AND PURPOSE FOR WHICH IT WAS RECEIVED WHICH IS REL EVANT. (D) IN THE CASE OF CIT VS. D.C.GANDHI ASSOCI ATES {210 ITR 929] (GUJ) THE ASSESSEE FIRM OF ADVOCATES WAS FOLLOWING CASH SYSTE M OF ACCOUNTING AND THE AMOUNT RECEIVED IN ADVANCE FROM THE CLIENTS WAS CRE DITED TO CLIENT'S ACCOUNT WHEREFROM EXPENSES LIKE STAMP DUTY REGISTRATION FEE S ETC WERE INCURRED AND AFTER THE CASE OF THE CLIENT WAS DECIDED OR THE WORK OF T HE CLIENT WAS OVER THE ASSESSEE 6 ITA NO. 3501 & CO-347/AHD/2008 PREPARED BILL AND THE FEES ACCOUNT WAS CREDITED ONL Y WHEN FINAL SETTLEMENT OF THE BILL WAS DONE. THE HON'BLE HIGH COURT UPHELD THE OR DER OF THE TRIBUNAL WHEREIN A VIEW WAS TAKEN THAT THE ADVOCATE WAS IN THE POSITIO N OF A TRUSTEE FOR HIS CLIENTS IN RESPECT OF SAID MONIES SO THAT THE SOME WERE IN THE NATURE OF TRUST AND WERE TO BE EXPENDED ON BEHALF OF THE CLIENTS IN CONNECTION WIT H HIS WORK AND THIS SYSTEM FOLLOWED OVER NUMBER OF YEARS WAS IN CONFORMITY WIT H RULES OF BAR COUNCIL OF INDIA AND HENCE THE CLIENT'S MONEY IN THE HANDS OF THE ASSESSEE WAS NOT ITS INCOME. EVEN PRESENT CASE THE CLIENT LIKE GCPE WOULD RELEA SE INITIAL AMOUNTS ON ACCEPTANCE OF THE LETTER OF AWARD BECAUSE THE RESPO NDENT WOULD BE REQUIRED TO SER UP INFRASTRUCTURE SO AS TO COPE UP WITH THE HUG E WORK OT CERTIFICATION OF 3835 VCCWS WITHIN A SHORT PERIOD OF ABOUT 6 MONTHS AND S PREAD OVER 24 DISTRICTS (SEE PAGE 27) WHICH REQUIRES SUBSTANTIAL OUTLAY. (E) RECEIPT BY ITSELF IS NOT SUFFICIENT TO ATTRACT TAX IT IS ONLY RECEIPT AS 'INCOME' WHICH CAN ATTRACT TAX [SEE CIT VS. AGRAWAL & CO. 25 ITR 293] (BOM.) R WHICH IS REVERSED ON FACTS BUT APPROVED ON PRINCIPLE IN 26 I TR 27 (SC). IT IS ALSO HELD THAT EVERY RECEIPT BY AN ASSESSEE IS NOT NECESSARILY INC OME IN HIS HANDS. IT IS ONLY WHEN IT BEARS THE CHARACTER OF ASSESSEE'S INCOME AT THAT TIME WHEN IT REACHES THE HANDS OF THE ASSESSEE THAT IT BECOMES EXIGIBLE TO T AX [REFER TO CIT VS. TOLLLYOGUNI CLUB LTD. [107 ITR 776 779) (SC). (F) UNDER SECTION 5 PROFITS ARE CHARGEABLE WHEN TH EY ACCRUE OR ARISE OR CUE RECEIVED. THE EFFECT OF THIS SECTION IS THAT THE AS SESSEE'S CHOICE OF THE SYSTEM OF ACCOUNTING DETERMINES WHETHER PROFITS ARE TO BE ACTUALLY CHARG ED WHEN THEY ACCRUE OR WHEN THEY ARE RECEIVED OR AT SOME OTHER POINT OF TIME [FATEHCHAND VS. CIT (13 ITR 198)] IF THE ASSESSEE'S ACCOUNTS ARE KEPT ON MERCANTILE BASIS THE INCOME WOULD BE TAXABLE WHEN IT ACCRUES OR IS EARNE D IRRESPECTIVE OF ACTUAL RECEIPT. ON THE OTHER HAND IF THE ACCOUNTS ORE MAI NTAINED ON THE CASH BASIS INCOME WOULD BE CHARGEABLE ONLY IF IT IS RECEIVED I N THE ACCOUNTING YEAR. FN OTHER WORDS UNLESS THE RECEIPT IN NATURE OF INCOME IS RE CEIVED MERE RECEIPT WOULD NOT BE CHARGEABLE IN THE YEAR OF RECEIPT. NOW IN THE P RESENT CASE THE RECEIPT OF ADVANCE FROM THREE PARTIES WAS MERELY A RECEIPT OF MONEY AND IT WOULD RESULT INTO INCOME ONLY WHEN THE SERVICES ARE RENDERED AND FEES ARE SETTLED. UNLESS THE PROFESSIONAL SERVICES ARE RENDERED BY THE RESPONDEN T THE AMOUNT SO RECEIVED CANNOT BE APPROPRIATED TOWARDS FEES AS INCOME AND T ILL THEN THE SAME CANNOT BE CHARGED TO TAX. I WILL BE APPRECIATED THAT THE METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT CREATE O CHARGE ON ANY RECEIP T BUT THE METHOD OF ACCOUNTING IS RELEVANT ONLY FOR THE PURPOSE OF COMPUTATION OF PROFESSIONAL OR BUSINESS INCOME. IN THE PRESENT CASE AO IS CHARGING THE REC EIPT TO TAX ON THE BASIS OF METHOD OF ACCOUNTING RATHER THAN EXAMINING WHETHER THE RECEIPT IS IN NATURE OF INCOME IN THIS YEAR. 7 ITA NO. 3501 & CO-347/AHD/2008 ON THE BASIS OF ABOVE HE CONTENDED THAT THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) IS FULLY JUSTIFIED IN DELETING THE ADDITION OF RS.12 6 5 550/-. 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. AT PAGE 29 OF THE PAPER BOOK THE ASSESSEE HAS FILED THE BALAN CE CONFIRMATION AS ON 31.03.2004 OF GUJARAT COUNCIL OF PRIMARY EDUCATION. THE SAID CONFIRMATION READS AS UNDER :- WITH REFERENCE TO YOUR LETTER FOR CONFIRMATION OF BALANCE AS ON 31.03.2004 AS PER RECORD RS.12 65 550/- (RUPEES TW ELVE LACS SIXTY FIVE THOUSAND FIVE HUNDRED FIFTY ONLY) WHICH PAID AS MOB ILIZATION ADVANCE ON 12.11.2003 BY CHEQUE NO. 668573 OF STATE BANK OF SAURASHTRA IN FAVOUR OF M/S. D.V. BUCH & CO. SHOWN AS ACCOUNT RE CEIVABLE. ON PAGE 24 OF THE PAPER BOOK THE ASSESSEE HAS FILE D RELEVANT AGREEMENT WHICH IS DATED 09.11.2003. IT APPEARS THAT THROUGH CLERICAL ERROR IN CLAUSE (2) OF THE SAID AGREEMENT IT IS MENTIONED THAT TENURE FOR CERTIFICATION WILL BE FO R 6 MONTHS FROM THE DATE OF CLOSURE OF ACCOUNTS I.E. FOR THE FINANCIAL YEAR ENDED 31 ST MARCH 2003 THE PERIOD UPTO 30 TH SEPTEMBER 2004 WHERE AS IT SHOULD BE FOR THE FINANCIAL YEAR ENDED ON 31 ST MARCH 2004. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN DE LETING THE ADDITION OF RS.12 65 550/-. 8. WITH REGARD TO GROUND NO. 2 THE LD. D.R. POINTE D OUT THAT THE ASSESSEE IS A PARTNERSHIP FIRM HAVING SIX PARTNERS. THE CLUB MEMBERSHIP OF KA RNAVATI CLUB LTD. HAS BEEN OBTAINED IN THE NAME OF SHRI DURGESH V. BUCH. SINCE THE PARTNERSHIP FIRM IS OBTAINED BY THE PARTNER IN THE INDIVIDUAL NAME AND NOT IN THE NAME OF PARTNERSHIP FIRM THE EXPENDITURE INCURRED IS OF PERSONAL NATURE AND THE SAME IS NOT ALLOWABLE. RELYING ON TH E REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HE CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN DELETING THE SAID ADDITION AMOUNTI NG TO RS.90 000/-. 9. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LD . COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PARTNERSHIP FIRM BEING A NON-JURISTIC PERSON I T CANNOT BECOME A MEMBER IN THE CLUB. THE CONTRACT FOR ADMISSION AS A MEMBER IN THE CLUB CANN OT BE EXECUTED BY THE PARTNERSHIP FIRM WITH 8 ITA NO. 3501 & CO-347/AHD/2008 A CLUB AND THEREFORE IT IS ONLY THE PARTNER WHO H AS TO ACT ON BEHALF OF THE PARTNERSHIP FIRM AND SUCH ACT WOULD BE BINDING ON THE PARTNERSHIP FIRM. SECONDLY THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE SAID EXPENSES WERE INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE FIRM. MERE MEMBERSHIP OF A REPUTED AND PRESTIGIOUS CLUB LIKE KARNAVATI CLUB WOULD ENHANCE THE IMAGE PRESTIGE AND PROFITABILITY OF THE BUSINESS THEREFORE THE EXPENDITURE IN QUESTION RIGHTLY ALLOWED BY THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS) AS REVENUE EXPENDITURE. 10. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE IMPUGNED ORDER THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) DELETED THE ADDITION OF RS.90 000/- FOR THE DETAILED REASONS GI VEN IN PARA 2.3. THE SAID REASONING READS AS UNDER :- 2.3. AFTER HAVING CONSIDERED THE ARGUMENTS OF THE AUTHORIZED REPRESENTATIVE AND PARTICULARLY PERUSING THE JUDICIAL DECISIONS AS ARE RELIED UPON IN THIS REGARD THE CLAIM OF THE REVENUE EXPENDITURE RELATING TO RS .90 000/- PAID BY THE APPELLANT FIRM TOWARDS THE CLUB MEMBERSHIP FEES NEEDS TO BE A LLOWED. THE JURISDICTIONAL HIGH COURT IN THE CASE OF GUJARAT STATE EXPORT CORP ORATION LTD. VS.- CIT (SUPRA) HAS CLEARLY HELD THAT BY PAYING THE ENTRANC E FEES TO THE SPORTS CLUB THE ASSESSEE HAS NO INTENTION TO ACQUIRE ANY CAPITAL AS SET OR TAKE ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS. BY COMMON SENSE S TANDARDS IT COULD BE STATED THAT IT WAS FOR RUNNING THE BUSINESS OR FOR BETTERI NG THE CONDUCT OF ITS BUSINESS. THE AMOUNT PAID AS AN ENTRANCE FEE WAS DEDUCTIBLE. THE DECISION OF JURISDICTIONAL ITAT IN THE CASE OF GUJARAT PETROSYNTHESE LTD. VS. - DCIT (2001) 76 ITD 257 (AHD.) IS ALSO DIRECTLY APPLICABLE IN WHICH THE EXP ENSES ON ACCOUNT OF MEMBERSHIP OF THE CLUB AND OTHER RELATED EXPENSES ARE HELD TO BE IN THE NATURE OF BUSINESS EXPENDITURE AND LIABLE TO BE ALLOWED. THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. VS.- CIT (1 992)( SUPRA) AND ANOTHER DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT V S.- SUNDARAM INDUSTRIES LTD. (1999) 240 ITR 335 (MAD.) ARE ALSO IN FAVOUR OF THE APPELLANT. IN BOTH THESE CASES THE SUBSCRIPTION FOR CLUB MEMBERSHIP WAS TAK EN IN THE NAME OF THE DIRECTORS WHEREAS THE PAYMENT WAS MADE BY THE COMPA NY. THE SAID EXPENDITURE WAS ALLOWED BY THE COURTS AS OF REVENUE IN NATURE I N THE HANDS OF THE COMPANY. FOLLOWING ALL THESE DECISIONS WITH RESPECT THE APP ELLANT IS ALLOWED THE DEDUCTION OF RS.90 000/- AND ADDITION OF THE SAME AMOUNT IS T HEREFORE DELETED. 10.1. IN OUR OPINION THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE ADDITION OF RS.90 000/-. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON THIS ISSUE. THIS GROUND OF APPEAL IS REJECTED. 9 ITA NO. 3501 & CO-347/AHD/2008 11. VARIOUS GROUNDS OF CROSS OBJECTION RAISED BY TH E ASSESSEE READ AS UNDER :- 1. BOTH THE LD. ASSESSING OFFICER AND THE LD.CIT(A ) ERRED IN LAW AND ON FACTS IN DISALLOWING/CONFIRMING THE CLAIM MADE BY THE RESPON DENT STATING THAT THE RESPONDENT FIRM FOLLOWS THE CASH SYSTEM OF ACCOUNTING AND THE CASH IS RECEIVED DURING THE YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 AND ADDED THE SAME TO THE T OTAL INCOME OF THE RESPONDENT FIRM THOUGH THE SAID AMOUNT RECEIVED WAS AN ADVANCE 0:1 A CONTRACTUAL BASIS MADE BETWEEN THE RESPONDENT FIRM AND A GROUP OF CLIENTS AND NO W ORK HAS BEEN DONE TO THEM. THUS THE ADDITION MADE IS REQUIRED TO BE DELETED.| 2. BOTH THE LD. ASSESSING OFFICER AND THE LD.CIT(A ) ERRED IN LAW AND ON FACTS IN DISALLOWING/CONFIRMING THE EXPENSES OF RS.15 000/- STATING THAT IT PERTAINS TO ASSTT. YEAR 2003-04 WITHOUT POINTING OUT ANY REASONS BECAUSE THE SAID AMOUNT WAS AL FIRST TIME USED AS DEPOSIT IN CONNECTION WITH ELECTRICITY BU T THEREAFTER THE SAID AMOUNT HAS BEEN ADJUSTED AGAINST ELECTRICITY METER READING EXPENSES IN THE YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 THUS THE DISALLOWANCE MADE IN THE ASS ESSMENT YEAR 2004-05 MAY BE REQUIRED TO BE DELETED. 12. AT THE TIME OF HEARING THE LD. COUNSEL OF THE ASSESSEE RELYING ON THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE D ELETED THE ENTIRE ADVANCE FEE RECEIVED AMOUNTING TO RS.14 91 500/-. FURTHER HE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SHOULD HAVE DELETED RS.15 000/- DISALL OWED OUT OF ELECTRICITY EXPENSES. 13. ON THE OTHER HAND THE LD. D.R. APPEARING ON BE HALF OF THE REVENUE SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 14. WE HAVE CAREFULLY GONE THROUGH THE VARIOUS SUBM ISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS PERTINEN T TO NOTE THAT AFTER CONSIDERING EACH AND EVERY CONTENTION THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) DELETED RS.12 65 500/- AND CONFIRMED THE ADDITION OF REMAINING TWO AMOUNTS . IN RESPECT OF CONFIRMING THIS ADDITION AS WELL AS THE ADDITION OF RS.15 000/- OUT OF ELECTRIC ITY EXPENSES IN OUR OPINION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGEN T REASON. WE THEREFORE INCLINE TO 10 ITA NO. 3501 & CO-347/AHD/2008 UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY BOTH THE GROUNDS OF CROSS OBJECTION ARE REJECTED. 15. IN THE RESULT THE APPEAL FILED BY THE REVENUE AS WELL AS CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 02.08.201 0 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02 / 08 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.