PANCARD CLUBS LTD, MUMBAI v. DCIT 7(1), MUMBAI

ITA 2389/MUM/2009 | 2004-2005
Pronouncement Date: 16-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 238919914 RSA 2009
Assessee PAN AAACP9093R
Bench Mumbai
Appeal Number ITA 2389/MUM/2009
Duration Of Justice 1 year(s) 11 month(s)
Appellant PANCARD CLUBS LTD, MUMBAI
Respondent DCIT 7(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 16-03-2011
Date Of Final Hearing 27-12-2010
Next Hearing Date 27-12-2010
Assessment Year 2004-2005
Appeal Filed On 15-04-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI. R.S.PADVEKAR JUDICIAL MEMBER. I.T.A. NO. 2389/MUM/2009. ASSESSMENT YEAR : 2004-05. AND I.T.A. NO. 2418/MUM/2009. ASSESSMENT YEAR : 2005-06. PANCARD CLUBS LTD. DY. COMMISSIONER OF INCOME TAX 111 KALYANDAS UDYOG BHAVAN VS. 7(1) MUMBAI. NR. CENTURY BHAVAN PRABHADEVI MUMBAI-400 0025. PAN AAACP9093R. APPELLANT BY : S/SHRI S.E. DASTUR/NITESH DOSHI/ D.V. LAKH ANI. RES PONDENT BY : SHRI NARESH KUMAR BALODIA. O R D E R PER J. SUDHAKAR REDDY A.M. : THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-7 MUMBAI PASSED U/S 263 OF THE INCOME TAX ACT ON 16-03-2009 FOR THE ASSESSMENT YEAR 2004-05 AND ON 1 7-02-2009 FOR THE ASSESSMENT YEAR 2005-06. AS THE ISSUES ARISING IN BOTH THE APP EALS ARE COMMON FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE OR DER OF THE CIT U/S 263 FOR THE ASSESSMENT YEAR 2005-05 PASSED ON 17-2-2009 IS THE MAIN ORDER AND THAT THE SAME 2 MAY BE TAKEN UP FIRST. IT IS ALSO SUBMITTED THAT TH E ISSUES ARISING IN THE 263 ORDER FOR THE ASSESSMENT YEAR 2005-06 ARE SAME AS IN A.Y. 200 4 05 AND THE DECISION TAKEN ON THE VALIDITY OF THE ORDER U/S 263 FOR THE ASSESS MENT YEAR 2004 05 CAN BE FOLLOWED FOR THE ASSESSMENT YEAR 2005 06. THUS WE TAKE ITA NO. 2418/MUM/2009 FIRST. 3. FACTS IN BRIEF: THE FACTS ARE BROUGHT OUT AT PARA 3 TO PARA 3.3 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05. THEY ARE EXTRACTED BELOW F OR READY REFERENCE: 3. PANCARD CLUB IS A COMPANY OF PANORAMIC GROUP OF COMPANIES HAVING BUSINESS INTERESTS AND ACTIVITIES IN THE FIELDS OF HOTEL INDUSTRIES RESORTS CLUBS ETC. ASSESSEE COMPANY OFFERS CARD FACILITIES WHICH INCLUDES SAVINGS AND DISCOUNTS ON PURCHASES MADE BY CARD MEMBERS PLU S CLUB FACILITIES WHICH INCLUDES HEALTH FACILITIES GYMNASIUM SPORTS RESTAURANT SWMMING POOL SAUNA JACUZZI WATER PARK CHOLDREN GAME VI DEO PARLOUR ETC. TO ITS MEMBERS. 3.1 THE COMPANY OFFERS HOLIDAY SCHEME TO CARD MEMBE RS AT A DISCOUNTED/SPECIAL PRICE ON ACCOUNT OF ADVANCE ROOM NIGHTS MARKETED THROUGH ITS AGENTS. THE AGENTS ARE ENTITLED TO A CO MMISSION ON THE OFFER PRICE COLLECTED BY THEM. THE ASSESSEE HAD DEDUCTED TAX ON COMMISSION PAYMENTS AND PAID IT ON 2.9.2005. THE COMPANY CHARGED MEMBER SHIP ENTRANCE FEE WHICH IS NON-REFUNDABLE TO ITS MEMBERS TO COVER THE INITIAL ADMINISTRATION COST. THE ENTRANCE FEE IS LINKED TO EACH MEMBERSHIP APPLICATION IRRESPECTIVE OF THE NUMBER OF ROOM NIGHTS PURCHASED UNDER THE AP PLICATION. 3.2 THE MEMBER IS ENTITLED TO UTILIZE THE ROOM NIGH TS AS PER THE TERMS OF ENTITLEMENT OF THE SCHEME. UTILISATION CAN BE MADE AT ANY OF THE HOTELS/CLUBS OWNED BY PCL OR ITS SUBSIDIARIES AND ALSO AT OTHER AFFILIATED DESTINATIONS. MEMBERS SHALL COMMENCE UTILIZATION OF THEIR ROOM NI GHTS ENTITLEMENT AFTER 60 DAYS FROM THE DATE OF THE MEMBERSHIP (SUBJECT TO MAXIMUM UTILIZATION OF 25% OF THE TOTAL ROOM NIGHTS BOUGHT BY THE MEMBER). 3.3 THE CARD MEMBERS ARE ENTITLED TO SURRENDER THE ROOM NIGHTS IN CASE THEY DO NOT UTILIZE THEM. THE MEMBERS MAY SURRENDER THEIR UNUSED ENTITLEMENT OF ROOM NIGHTS IN WRITING TO THE COMPAN Y AND OPT FOR SURRENDER VALUE. THE ACTUAL SURRENDER VALUE SHALL BE DETERMIN ED AT THE TIME OF SURRENDER OF ROOM NIGHTS AND SHALL BE PAID ON THE E XPIRY OF MEMBERSHIP. IN 3 LIEU OF SURRENDER VALUE MEMBERS MAY OPT TO BUY OR U TILIZE THE PRODUCTS AND SERVICES OF THE COMPANY AND ITS GROUP COMPANIES. TH E PRODUCTS AND SERVICES INTERALIA INCLUDES HERBAN PRODUCTS FOOD AND FROZEN YOGURT COUPONS OF TCBY/NATHANS IT TRAINING SOFTWARE DEVELOPMENT AU DITORIUM/HALL AT CLUBS. 4. FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE FI LED ITS RETURN OF INCOME ON 31-10-2005 DECLARING A TOTAL LOSS OF RS.46 34 99 47 4/-. THE RETURN WAS ACCOMPANIED BY A PROFIT & LOSS ACCOUNT BALANCE SHE ET AND A TAX AUDIT REPORT IN FORM NO. 3CD. THE APPEAL WAS PROCESSED U/S 143(1) O N 5-4-2006 AND THEREAFTER IT WAS SELECTED FOR SCRUTINY BY ISSUE OF NOTICE U/S 14 3(2) ON 30-10-2006 WHICH WAS SERVED ON 31-10-2006. THE AO ON 27-4-2007 PASSED A N ASSESSMENT ORDER U/S 143(3) INTER ALIA DISALLOWING INTEREST ON INTERES T PAID LOANS AND ADVANCES. HE FURTHER MADE PROPORTIONATE DISALLOWANCE FROM NUCA F ROM OUT OF PREOPERATIVE EXPENSES. HE MADE A DISALLOWANCE OF SURRENDER VALUE WHICH IS IN THE FORM OF INTEREST EXPENDITURE. THE DISALLOWANCE WAS RESTRICT ED TO 6% OF CASH BALANCE IN HAND WHICH WORKS OUT TO RS.1 66 24 356/-. THUS HE W ORKED OUT THE PREOPERATIVE EXPENSES UNDER NUCA FOR THE YEAR FOR RS.49 09 70 16 8/-. HE FURTHER DISALLOWED THE SHORT TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS INDULGED IN ILLEGAL CONSTRUCTION ACTIVITY AND H ENCE THE SAME IS NOT ALLOWABLE AS THERE WAS CONTRAVENTION IN LAW. THUS THE AO ASSESSE D THE TOTAL LOSS AT RS.48 09 14 236/-. 5. THE CIT-7 MUMBAI VIDE ORDER DATED 17-2-2006 PA SSED U/S 263 OF THE ACT SET ASIDE THE ASSESSMENT ORDER DATED 27-4-2007 WI TH A DIRECTION TO THE AO TO PASS A FRESH ASSESSMENT ORDER IN CONFORMITY WITH THE DIR ECTIONS CONTAINED IN THE 263 ORDER. 6. THE CIT HELD THAT THE ORDER IS ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASON THAT : 4 A) THE ASSESSMENT ORDER WAS PASSED PRIOR TO THE DA TE OF FINAL HEARING HENCE THE SAME IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. B) THAT PROCEEDS FROM ADVANCE SALE ROOM NIGHTS I S A TAXABLE RECEIPT U/S 5 OF THE ACT AND THAT THE ASSESSEE HAS NOT OFFERED ADVANCE SALE OF ROOM NIGHTS AS INCOME BUT IS DEDUCTING ALL THE EXPENSES SUCH AS MARKETING EXPENSES HOLIDAY MEMBERSHIP SURRENDER VALUE ADMINISTRATIVE EXPENSES AND PERSONAL EXPENSES WHICH GIVE A DISTORTED PICTURE AND IS NOT IN CONSONANCE W ITH THE MATCHING PRINCIPLES. THE CIT DIRECTED THE AO TO INCLUDE THE ENTIRE AMOUNT OF RS.88 00 09 610/- RECEIVED BY THE ASSESSEE AS ADVANCE SALE OF ROOM NIGHTS AS IN COME. C) THAT NO DEDUCTION IS ALLOWABLE ON HOLIDAY MEMB ERSHIP SURRENDER VALUE AS IT IS A CONTINGENT LIABILITY AS FOR ACCR UAL OF SURRENDER VALUE CERTAIN CONDITIONS ARE TO BE SATISFIED. HE HELD THAT PRORAT A ALLOCATION OF THE SURRENDER VALUE ON TENURE BASIS IS NOT A SCIENTIFIC BASIS FOR THE REASON THAT THE SURRENDER VALUE IN QUESTION IS PAYABLE ONLY AFTER THE EXPIRY OF THE TE NURE OF THE OPTION I.E. WHEN OPTION TO AVAIL OF IS NOT EXERCISED. THAT DEDUCTION ON ACCOUNT OF SURRENDER VALUE IS NOT ALLOWABLE FOR THE REASON THAT THE ASSESSEE HAS NOT OFFERED THE RECEIPTS ON ADVANCE SALE OF ROOM NIGHTS. THE CIT DIRECTED THE A O TO DISALLOW THE DEDUCTION AMOUNT OF RS.22 09 84 169/- CLAIMED AS HOLIDAY MEM BERSHIP SURRENDER VALUE. D) DEDUCTION OF MARKETING EXPENSES CANNOT BE ALLOW ED FOR THE REASON THAT THE ASSESSEE HAS DEBITED ENTIRE EXPENSES WHICH GOES AGAINST HIS OWN THEORY THAT THE EXPENSES SHOULD BE AMORTIZED. THAT THE AO WAS DUTY BOUND TO LOOK INTO THE EXPENDITURE CLAIMED BY THE ASSESSEE AS INCURRE D TOWARDS AWARDS AND PRIZES AND TOWARDS PAYMENT TO INSURANCE COMPANIES. THE AO DID NOT PROPERLY EXAMINE THE EXPENDITURE CLAIMED BY THE ASSESSEE TOWARDS PERFORM ANCE BONUS DEVELOPMENT BONUS AND FIELD ALLOWANCES WITH A VIEW TO FINDING OUT THE GENUINENESS OF THE SAID 5 EXPENDITURE AS WELL AS THE ALLOWABILITY OF THE SAME . THE CIT DIRECTED THE AO TO LOOK INTO THIS ASPECT AND ALLOW THE EXPENDITURE ONL Y AFTER PROPER VERIFICATION. E) THAT THE NON-UTILIZATION COMPENSATION ALLOWANCE (HEREINAFTER REFERRED TO AS NUCA) WHICH IS PAID BY THE ASSESSEE TO THE C USTOMERS FOR NON-UTILIZATION OF THE SERVICES/FACILITIES AS ON 31 ST MARCH 2005 WAS RS.133 38 73 874/- AND WHEREAS THE TOTAL MEMBERSHIP FUND WAS RS.153 91 08 673/- AN D THAT THE ASSESSEE FAILED TO OFFER THE DIFFERENCE AMOUNT AS INCOME THUS MAKING THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. HE HELD THAT THE AO HAS TO EXAMINES THE STATEMENT OF THE AS SESSEE THAT NON TAXABILITY OF THE DIFFERENCE BETWEEN MEMBERSHIP FUNDS RECEIVED FROM N UCA. HE HELD THAT THE AO HAS NEVER EXAMINED THE ACCOUNTING OF THE AMOUNT REC EIVED BY A MEMBER UNDER THESE SCHEMES AND ALSO WHETHER THE SAME CAN BE TAX ED AS REVENUE RECEIPTS AND WHETHER THE PROVISIONS OF NUCA WAS AN ALLOWABLE EXP ENDITURE. HE DIRECTED THE AO TO EXAMINE THE ASSESSABILITY OF RS.20 52 34 763/ - WHICH IS THE DIFFERENCE BETWEEN THE TOTAL MEMBERSHIP FUND AND THE AMOUNT PA YABLE TO NUCA AS ON 31 ST MARCH 2005 AS PER LAW AND IN ACCORDANCE WITH THE AVAILABLE FACTS IN THIS REGARD. F) THAT THE AO HAS NOT EXAMINED AS TO WHETHER THE ASSESSEE HAS COMPLIED WITH THE TDS PROVISIONS. HE OBSERVED THAT THE AO HAS NOT EXAMINED WHETHER THE TDS HAS BEEN DEPOSITED WITHIN THE STIPU LATED TIME. HE DIRECTED THE AO TO EXAMINE WHETHER ANY EXPENDITURE IS DISALLOWABLE U/S 40A(IA). 6. THE LEARNED CIT AT PARA 3 AND 4 PAGE 17 AND 18 H ELD AS FOLLOWS : I HAVE CONSIDERED THE AFORESAID SUBMISSIONS OF TH E ASSESSEE. AS HAS ALREADY BEEN DISCUSSED IN THE PRECEDING PARAGRAPHS THE DOMINANT PURPOSE OF THE HOLIDAY MEMBERSHIP SCHEME WAS TO PROVIDE ACCOMM ODATION TO THE MEMBERS ON THE CONCESSIONAL PRICE REFERRED TO AS O FFER PRICE. THE SURRENDER VALUE ON EXPIRY OF THE SCHEME IN THE EVEN T OF A MEMBER NOT AVAILING OF THE OPTION TO USE THE ROOM NIGHTS ALREA DY SOLD IS INCLUSIVE OF THE ACCRETION IN THE OFFER PRICE IN THE TENURE OF THE S CHEME. THE DIFFERENCE 6 BETWEEN THE ESTIMATED SURRENDER VALUE AND THE OFFER PRICE IS BEING DEBITED AS EXPENDITURE ON PRO RATA BASIS. THE DOCUMENTS ENUMER ATE CONDITIONS FOR AVAILABILITY OF THE ROOM NIGHTS AS ALREADY STATED. IN CASE OF NON AVAILING OF THE OPTION ALSO THE MEMBER OR A NOMINEE HAS THE OP TION TO BUY PRODUCTS OF THE COMPANY OR COULD BE COMPENSATED IN SOME OTHER W AYS. FOR THE SURRENDER VALUE TO ACCRUE CERTAIN CONDITIONS ARE TO BE SATIS FIED. THEREFORE THE LIABILITY TO PAY THE SURRENDER VALUE ON EXPIRY OF THE TENURE OF THE SCHEME IS ONLY A CONTINGENT LIABILITY. SECONDLY THE PRO RATE ALLOCA TION ON TENURE BASIS IS ALSO NOT A SCIENTIFIC BASIS TO CLAIM THE EXPENDITURE BEC AUSE THE SURRENDER VALUE IS PAYABLE ONLY AFTER EXPIRY OF THE TENURE OF THE SCHE ME WHEN OPTION TO AVAIL OF IS NOT EXERCISED. THE MANNER IN WHICH A PARTICULAR LIABILITY IS PROVIDED FOR ON THE PREPARATION OF ACCOUNTS IS NOT A DETERMINING FA CTOR AS REGARDS ITS ALLOWABILITY UNDER THE I.T. ACT. THE RELIANCE PLACE D BY THE ASSESSEE ON THE RATIO OF DECISION IN THE CASE OF CIT VS. SWAROOP VE GETABLE PRODUCTS (SUPRA) IS ALSO NOT CORRECT SINCE THE FACTS IN THAT CASE AR E DIFFERENT. IN THAT CASE AS PER TERMS AND CONDITIONS OF THE MANUFACTURER CERTAIN A MOUNT WAS PAYABLE ON THE SUGARCANE PURCHASED BY THEM. THE ASSESSEE WAS SUPPO SED TO PAY ADDITIONAL AMOUNT AS PER GOVT. RULES. INSPITE OF THE DISPUTE O N THE ISSUE OF PAYMENT OF ADDITIONAL AMOUNT THE ASSESSEE HAD CLAIMED THE SAM E AS AN ALLOWABLE DEDUCTION. THE CLAIM WAS HELD ALLOWABLE ON THE BASI S OF MERCANTILE SYSTEM FOLLOWED BY THE ASSESSEE. IT IS EVIDENT FROM THIS T HAT THE LIABILITY IN THE SAID CASE WAS NOT CONTINGENT BUT ONLY A DISPUTED LIABILI TY. IN THE PRESENT CASE THE SURRENDER VALUE BEING PROVIDED WOULD BECOME PAYABLE ONLY ON THE HAPPENING OR NON HAPPENING OF CERTAIN EVENTS. HENCE THE LIABILITY HAD NOT ACCRUED. WITHOUT PREJUDICE TO THE SAME THE ASSESSE E HAD NOT OFFERED THE CORRESPONDING RECEIPTS AS ADVANCE SALE OF ROOM NIGH TS EITHER. HENCE THE CLAIM OF DEDUCTION AGAINST THE SURRENDER VALUE WAS NOT ALLOWABLE. IN VIEW OF THE FOREGOING I HOLD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION OF RS.22 09 84 169/- CLAIMED UNDER THE H OLIDAY MEMBERSHIP SURRENDER VALUE AND THE ASSESSMENT ORDER DATED 27. 4.2007 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE ON THIS ACCOUNT. THE A.O. IS DIRECTED NOT TO ALLOW THE SAID AMOUNT AS EX PENDITURE WHILE DETERMINING THE INCOME FROM BUSINESS FOR THE A.Y. 2 005-06. AGGRIEVED THE ASSESSEE FILED THIS APPEAL ON THE FO LLOWING GROUND : 1. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN ASSUMIN G THE JURISDICTION U/S 263 OF INCOME-TAX ACT 1961 IN RESPECT OF SIX I TEMS MENTIONED IN HIS 7 ORDER. THE BASIC CONDITIONS OF ISSUE OF NOTICE ARE NOT SATISFIED. THE APPELLANT SUBMITS THAT THE ORDER PASSED BY THE ASSE SSING OFFICER IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 2. THE COMMISSIONER OF INCOME-TAX HAS OVERLOOKED THAT EVEN AFTER THE ISSUE OF THE NOTICE U/S 263 THE ASSESSING OFFICER HAS COM PLETED THE ASSESSMENT FOR THE A.Y. 2006-07 AND DID NOT FELT IT NECESSARY TO TAKE A DIFFERENT VIEW. 3. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN CONCLUD ING THAT THE SUM OF RS.73 31 23 220/- RECEIVED BY THE APPELLANT AS ADVA NCES TOWARDS SALE OF ROOM NIGHTS IS ITS INCOME ASSESSABLE FOR A.Y. 2004- 05. 4. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN DIRECTI NG THE ASSESSING OFFICER TO INCLUDE THE AMOUNT OF RS.73 31 23 220/- AS INCOME OF THE APPELLANT CHARGEABLE TO TAX FOR A.Y. 2004-05. 5. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN CONCLUD ING THAT THE APPELLANT WAS NOT ENTITLED TO DEDUCTION OF RS.11 66 60 401/- BEING THE PRORATA AMOUNT RELATABLE TO THE PRESENT YEAR OF TH E DIFFERENCE BETWEEN THE OFFICE PRICE AS COLLECTED BY THE APPELLANT AND THE SURRENDER VALUE AS DETERMINED BY THE MANAGEMENT. 6. THE COMMISSIONER OF INCOME-TAX HAS ERRED DIRECTING THE ASSESSING OFFICER TO DISALLOW DEDUCTION OF RS.11 66 60 401/- AS CLAIMED BY THE APPELLANT FOR A.Y. 2004-05. 7. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN DIRECTI NG THE ASSESSING OFFICER TO EXAMINE THE ASSESSABILITY OF RS.64 70 32 729/- BEING THE DIFFERENCE BETWEEN RS.159 99 63 858/- (TOTAL MEMBER SHIP FUNDS) AND RS.95 29 31 129/- (THE NON UTILISATION ALLOWANCE PA YABLE BY THE APPELLANT). THE COMMISSIONER OF INCOME-TAX HAS ERRE D IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THE CHARGEABILITY TO T AX OF RS.64 70 32 729/- WITHOUT RECORDING A FINDING AS TO HOW ANY PART THEREOF COULD AT ALL BE SUBJECTED TO TAX. 8. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN DIRECTI NG THE ASSESSING OFFICER TO ALLOW THE MARKETING EXPENSES OF RS.14 46 76 029/- AFTER PROPER VERIFICATION AND LOOKING INTO THIS ASPECT. 9. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN STATING THAT IT WAS NOT THE APPELLANTS CASE THAT THE EXPENDITURE HAD BEEN ALLO WED BY THE ASSESSING OFFICER AFTER PROPER EXAMINATION. 10. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN RESTORI NG THE ISSUE OF ALLOWABILITY OF THE MARKETING EXPENDITURE WITHOUT S TATING SPECIFICALLY HOW THE ASSESSING OFFICER HAD ERRED IN ALLOWING THE SAME. 11. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN CONCLUD ING THAT THE DISALLOWANCE OF RS.3 64 10 160/- SHOULD HAVE BEEN C ONSIDERED WHILE WORKING OUT THE ASSESSED LOSS. THE CONCLUSION REACH ED BY THE 8 COMMISSIONER OF INCOME-TAX THAT THE INCOME-TAX OFFI CER HAS NOT GIVEN PROPER TREATMENT TO THIS DISALLOWANCE IS NOT JUSTIF IED. THE APPELLANT SUBMITS THAT THE DIRECTION GIVEN BY THE COMMISSIONE R OF INCOME-TAX IS NOT JUSTIFIED. 12. THE COMMISSIONER OF INCOME-TAX HAS ERRED IN CONCLUD ING THAT THE DISALLOWANCE OF RS.1 69 85 568/- SHOULD HAVE BEEN C ONSIDERED WHILE WORKING OUT THE ASSESSED LOSS. THE CONCLUSION REACH ED BY THE COMMISSIONER OF INCOME-TAX THAT THE ASSESSING OFFIC ER HAS NOT GIVEN PROPER TREATMENT TO THIS DISALLOWANCE IS NOT JUSTIF IED. THE APPELLANT SUBMITS THAT THE DIRECTION GIVEN BY THE COMMISSIONE R OF INCOME-TAX IS NOT JUSTIFIED. 13. THE APPELLANT CRAVES THE PERMISSION TO ADD ALTER O R AMEND THE GROUNDS OF APPEAL WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. 7. THE LEARNED SENIOR ADVOCATE SHRI S.E. DASTUR A PPEARED ON BEHALF OF THE ASSESSEE ALONG WITH MR. NITESH JOSHI AND MR. D.V. L AKHANI. MR. DASTUR EXPLAINED THE VARIOUS SCHEMES OPERATED BY THE ASSESSEE. HE SU BMITTED THAT THE MEMBER MAKES A UPFRONT PAYMENT A CERTAIN AMOUNT AND IS AL LOWED TO STAY FOR A CERTAIN PERIOD IN A RESORT SUBJECT TO CERTAIN TERMS AND C ONDITIONS. HE POINTED OUT THAT IF THE PERSON DOES NOT AVAIL THE FACILITY OF STAY IN THE RESORT THE AMOUNT WILL BE PAID BACK TO HIM ALONG WITH CERTAIN COMPENSATION WHICH IS WORKED OUT AS PER THE SCHEME. AFTER EXPLAINING THE SCHEME MR. DASTUR CHA LLENGED THE VALIDITY OF THE ORDER PASSED U/S 263 BY THE CIT ON 17-02-2009. THE SUBMISSIONS ARE AS FOLLOWS: I) THAT THE AO HAS EXAMINED THE SCHEMES RUN BY THE ASSESSEE IN DETAIL AND HAS THEREAFTER ALLOWED THE CLAIMS MADE BY THE ASSESSEE. THAT THE CIT PASSED AN ORDER U/S 263 HOLDING THAT THE ENTIRE AMOUNT OF ADVANCES RECEIVED IS TO BE TAXED AS INCOME IGNORING THE FACT THAT THE ASSESSEE HAS TO RETURN THE AMOUNT AND ALSO IGNORING THE FACT THAT THE ASSESSEE HAS TO INCUR EX PENDITURE IN FUTURE YEARS. II) THAT THE CIT WAS WRONG IN HOLDING THAT THE AO PASSED AN ORDER BEFORE WAITING FOR THE DETAILS AND PRIOR TO THE DATE OF FI NAL HEARING AS THE ASSESSMENT ORDER 9 WAS PASSED ON 27-4-2007 AND THEREAFTER THE AO WHO BECOMES A FUNCTUS OFFICIO WRONGLY ISSUED A NOTICE ON 30-4-2007 CALLING FOR D ETAILS AND FIXING THE CASE FOR HEARING. HE POINTED OUT THAT IN THE COPY OF THE ORD ER-SHEET ENTRY THE LAST NOTING OF THE DATE OF HEARING WAS RECORDED AS 26-4-2007 AND T HAT THERE ARE NO ENTRIES THEREAFTER EXCEPT THAT THE ASSESSMENT WAS COMPLETED ON 27 4 2007. THE LEARNED COUNSEL FILED A PAPER BOOK RUNNING INTO 379 PAGES A ND SUBMITTED THAT ALL THE DETAILS CALLED FOR VIDE NOTICE DATED 30-4-2007 HAD ALREAD Y BEEN FURNISHED TO THE A.O. DURING THE ORIGINAL ASSESSMENT AND THAT THIS IS EVI DENT FROM THE PAPER BOOK PAGES 20 TO 277. HIS CASE IS THAT THE A.O. AFTER RECEIVI NG ALL THE INFORMATION AND DOCUMENTS HAS ONCE AGAIN CALLED FOR THE SAME AFTER COMPLETING THE ASSESSMENT. III) THAT IN THE NOTICE DATED 30-4-2007 THE AO RE FERRED TO FOUR ITEMS I.E. A) DISALLOWANCE U/S 40A(2)(B). B) DETAILS OF MARKETING EXPENSES. C) PRODUCTION OF BANK ACCOUNT AND D) THE ADDITION TO THE BLOCK ASSETS. HE POINTED OUT THAT THE CIT IN HIS 263 ORDER HAS NO T TOUCHED UPON THE ISSUE OF DISALLOWANCE U/S 40A(2)(B) THE ISSUE OF ADDITION T O BLOCK ASSETS NOR FOUND ANY DISCREPANCY IN THE BANK ACCOUNTS. THUS HE SUBMITS THAT THESE INFORMATION SOUGHT BY THE A.O. POST ASSESSMENT HAVE NO BEARING ON THE REVISION UNDER SECTION 263. HE SUBMITTED THAT THE CIT CONSIDERED ONLY ONE ITEM I.E . EVIDENCES IN RESPECT OF MARKETING EXPENSES. HE SUBMITTED THAT CONSEQUENT TO THE PASSING OF AN ORDER BY THE CIT U/S 263 THE AO HAS MADE A FURTHER ASSESSMENT A ND THAT IN THIS ASSESSMENT THE AO HAS NOT MADE ANY DISALLOWANCE ON ACCOUNT OF MARK ETING EXPENDITURE. THUS HE SUBMITS THAT THE INFORMATION CALLED FOR BY THE AO O N 30-4-2007 SUBSEQUENT TO THE COMPLETION OF THE ASSESSMENT HAS NOT RESULTED ULTI MATELY ANY DISALLOWANCE OR ADDITION AND HENCE THIS GROUND FOR RE OPENING IS DEVOID OF ANY MERIT. 10 IV) THAT IN THE FRESH ASSESSMENT ORDER PASSED BY T HE AO CONSEQUENT TO THE ORIGINAL ORDER U/S 143(3) BEING SET ASIDE BY TH E CIT IN 263 PROCEEDINGS ONLY TWO ADDITIONS WERE MADE I.E. ON ACCOUNT OF (A) ADVANCE RENT RECEIVED ON ACCOUNT OF SALE OF ROOM NIGHTS AND (B) DISALLOWANCE OF EXPE NDITURE IN THE FORM OF SURRENDER VALUE. ON ALL OTHER ISSUES ON WHICH THE CIT REVISE D THE 263 ORDER THE AO ULTIMATELY DID NOT MAKE ANY ADDITIONS/DISALLOWANCE. THUS HE SUBMITTED THAT HE WOULD ADVANCE ARGUMENTS ONLY ON THESE TWO ISSUES ON LY. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE RECEIPT OF ADVANCE ON SALE OF ROOM NIGHTS AMOUNTING TO RS.88 CRORES I S NOT INCOME AS THE ASSESSEE HAS A CONTRACTUAL LIABILITY / OBLIGATION TO RETURN THE AMOUNT WITH CERTAIN COMPENSATION. HE EMPHASIZED THE FACT THAT THE ASSES SEE HAS AN OBLIGATION TO REFUND THIS ADVANCE AMOUNT RECEIVED ON SALE OF ROOM NIGHTS AND HENCE ARGUED THAT THE SAME CANNOT BE TREATED AS INCOME. HE RELIED ON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA HOLIDAYS & RES ORTS (INDIA) LTD. IN ITA NOS. 2412 TO 2416/MDS/2005 AND C.O.NOS. 7 TO 11/MDS/2006 DATED 26-5-2010 REPORTED IN 132 TTJ 1 AND SUBMITTED THAT THE SPECIAL BENCH H AS HELD THAT THE ENTIRE RECEIPT CANNOT BE TAXED IN THE YEAR OF RECEIPT FOR THE VARI OUS REASONS GIVEN THEREIN AND THAT IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. THERE WAS NO PROVISION WHATSOEVER OR AN OBLIGATION ON BEHALF OF THE ASSESS EE TO REFUND THE AMOUNT. HE SUBMITS THAT THE CASE OF THE ASSESSEE STANDS ON A S TRONGER FOOTING FOR THE REASON THAT THERE IS AN OBLIGATION TO REFUND THE AMOUNT U NLIKE IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD.. HE FURTHER POINTED OUT THAT IN THE CASE OF MAHINDRA HOLIDAYS THERE WAS AN ANNUAL PAYMENT TO BE MADE BY THE ASSESSEE AND WHEREAS IN THE CASE OF THE ASSESSEE THERE IS NO SUC H ANNUAL PAYMENT. 9. THE LEARNED COUNSEL FURNISHED A CHART GIVING FAC TS AND FIGURES TO DEMONSTRATE THAT LESS THAN 0.5% OF THE PERSONS WHO HAVE PAID ADVANCES FOR ROOM 11 NIGHT HAVE ACTUALLY UTILIZED THE ROOM AND TO DEMO NSTRATE THAT IN ALMOST ALL THE CASES THE ASSESSEE WAS BOUND TO REFUND THE ADVANCE S ALONG WITH A MARKED UP COMPENSATION. THUS HE SUBMITTED THAT EVEN ON FACTS THE ADVANCES CANNOT BE TAKEN AS INCOME AS ULTIMATELY THEY HAD BEEN RETURNED. 10. ON THE SECOND ISSUE OF PROVISION FOR EXPENDITUR E BY WAY OF SURRENDER VALUE THE LEARNED COUNSEL SUBMITTED THAT BASED ON THE FA CTS AND FIGURES HARDLY ANY CUSTOMER WHO HAS PAID ADVANCE FOR ROOM NIGHT HAS A CTUALLY UTILIZED THE ROOM AND THAT THE ASSESSEE WAS FORCED TO REFUND THE AMOUNT O F ADVANCE WITH COMPENSATION AND HENCE LOOKING AT THE EXPERIENCE AND THE FACTS A ND FIGURES THE PROVISION MADE BY THE ASSESSEE AS SURRENDER VALUE IS CORRECT. HE P OINTED OUT TO THE SCHEME AND SUBMITTED THAT THERE IS A CAP ON THE NUMBER OF ROOM NIGHTS THAT THE ASSESSEE CAN UTILIZE IN A YEAR AND THE CAP VARIES FROM 25% TO 33 %. 11. HE SUBMITTED THAT THE DIRECTION OF THE CIT THAT THE ENTIRE AMOUNT OF RS.22 CRORES IS NOT DEDUCTIBLE IS NOT SUSTAINABLE IN LA W. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF METAL BOX COM PANY OF INDIA VS. THEIR WORKMEN REPORTED IN 73 ITR 53 (SC). HE SUBMITTED TH AT ALL THE DECISIONS ON THE ISSUE OF TAXABILITY OF ADVANCE SALE OF ROOM NIGHTS AND THE PROVISION FOR EXPENDITURE HAVE BEEN REFERRED TO IN THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA HOLIDAYS. 12. THE LEARNED COUNSEL SUBMITTED THAT THE ORDER PA SSED U/S 263 IS BAD IN LAW AS THE AO HAS CALLED FOR ALL THE DETAILS AS PER HIS LE TTER WHICH IS AT PAGE 78 OF THE PAPER BOOK AND ONLY ON RECEIPT OF THE ENTIRE DETAIL S HE HAD PASSED THE ASSESSMENT ORDER. WHILE SUBMITTING THAT THE AO HAS NOT ASKED A NY SPECIFIC QUESTION AS TO WHY RS.88 CRORES WAS NOT TAXABLE IN THIS YEAR HE SUBMI TTED THAT THIS THE ASPECT WAS CONSIDERED BY THE AO IN THE EARLIER ASSESSMENT YEAR S AND AN OPINION FROM A LEADING CHARTERED ACCOUNTANT FIRM A.F. FERGUSON & CO. WAS FILED AND THAT THIS IS AT PAGE 12 358 AND 367 OF THE ASSESSEES PAPER BOOK. HE SUBMIT TED THAT THE AO DISCUSSED THE SCHEME FULLY AND APPLIED HIS MIND AND THEREAFTER CA ME TO A CONSIDERED POSSIBLE VIEW AND HENCE THE CIT WAS WRONG IN INVOKING THE PR OVISIONS OF SECTION 263. HE RELIED ON THE FOLLOWING CASE LAWS FOR THE PROPOSIT ION AS TO WHAT IS INCOME. I) CIT VS. MAX INDIA LTD. 295 ITR 282.(SC) II) CIT VS. PUNJAB TRACTORS CO-OPERATIVE MULTIPURP OSE SOCIETY LTD. 234 ITR 105 (P&H) 13. HE SUBMITTED THAT ON THE ISSUE OF ALLOWABILITY OF MARKETING EXPENSES THE CIT HAS GIVEN A OPEN REMAND AND THERE IS NO FINDING AS TO ANY INFIRMITY IN THE MARKETING EXPENSES. HE SUBMITS THAT SUCH DIRECTION S TO LOOK INTO THE MATTER CANNOT BE GIVEN U/S 263 AS THERE IS NO FINDING THAT THE OR DER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE VEHEMENTLY CONTENDE D THAT A REVISION U/S 263 CANNOT BE DONE JUST TO ASK THE AO TO VERIFY CERTAIN HEADS OF ACCOUNT. HE RELIED ON THE JUDGMENT OF THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR INDIA 256 ITR 1 AT PAGE 19 FOR THE PROPO SITION THAT THERE IS A PRESUMPTION IN LAW THAT THE AO HAS PROPERLY VERIFIE D ALL THE CLAIMS OF THE ASSESSEE. 14. SIMILARLY HE SUBMITTED THAT THE ADDITION ON ACC OUNT NUCA THERE WAS NO COLLECTION OR PAYMENT IN THE YEAR AND THAT NUCA STO PPED IN JUNE 2002 AND HERE ALSO THE ISSUE IS JUST SET ASIDE TO THE AO WITH A D IRECTION TO LOOK INTO THE MATTER AND ULTIMATELY THE AO HAS NOT MADE ANY ADDITION. THUS H E SUBMITS THAT THE ORDER OF THE CIT IS ERRONEOUS. 15. LASTLY MR. DASTUR SUBMITS THAT SETTING ASIDE T HE ISSUE TO THE FILE OF THE AO FOR EXAMINING THE DISALLOWANCE U/S 40A(IA) IS ERRON EOUS AS THERE IS NOTHING POINTED OUT BY THE CIT AS TO WHAT CONSTITUTES AN ERROR AND WHAT PREJUDICE IS CAUSED TO THE REVENUE. HE SUBMITTED THAT THE ASSESSMENTS CANNOT B E SET ASIDE JUST TO ENABLE THE 13 AO TO ONCE AGAIN EXAMINE THE ISSUE BY MAKING ROVING ENQUIRIES. HE SUBMITTED THAT THE ORDERS U/S 263 FOR BOTH THE ASSESSMENT YEARS HA VE TO BE QUASHED AS ILLEGAL AND WITHOUT JURISDICTION. HE RELIED ON CERTAIN CASE LAW S WHICH WE WILL BE DISCUSSING DURING THE COURSE OF THIS ORDER. 16. THE LEARNED CIT-DR MR. NARESH KUMAR BALODIA O N THE OTHER HAND OPPOSED THE CONTENTIONS OF THE ASSESSEE. AT THE OUT SET HE POINTED OUT THAT THERE ARE CERTAIN DISCREPANCIES IN THE PAPER BOOK FILED BY TH E ASSESSEE I) THE FIRST BEING THAT IN ITEM NO.3 OF THE INDEX FOR THE ASSESSMENT YEAR 2 005-06 TOTAL TO 258 PAGES AND WHEREAS AT PAGE 290 THE WRITTEN SUBMISSIONS OF THE ASSESSEE TO CIT DURING 263 PROCEEDINGS ARE INCLUDED THE NUMBER OF PAGES WERE 201 PAGES. THUS THERE IS A DISCREPANCY OF 57 PAGES IN THE PAPER BOOK FILED BEF ORE THE ITAT II) REFERRING TO ITEM NO.17 WHICH IS A COPY OF THE OPINION REGARDIN G POLICIES OF HOLIDAY MEMBERSHIP FEES M/S A.F. FERGUSONS C.A MUMBAI PA GE NO. 358-379 AND PAGE 213 OF THE PAPER BOOK IT WAS SUBMITTED THAT THE CO PIES OF THE OPINION WAS FILED WITH THE AO IN THE ASSESSMENT PROCEEDINGS FOR THE A SSESSMENT YEAR 2003-04 AND NOT DURING THE CURRENT ASSESSMENT YEAR 2005-06. HE POINTED OUT THAT PURPORTED REPORT OF M/S. A.F. FERGUSONS WAS NOT FILED EVEN D URING THE PREVIOUS ASSESSMENT YEAR 2004-05 WHEREIN THE CIT ALLOWED THE AUTHORIZE D REPRESENTATIVE TO INSPECT ALL THE RECORDS OF THE EARLIER YEAR; III) THAT THE AS-29 WAS NOT CONSIDERED BY M/S A.F FERGUSONS & CO. IN ITS REPORT AND THE REPORT WA S MARKED BY INADEQUACY DEFICIENCY AND INCOMPLETENESS AND IS UNRELIABLE AND HENCE IS INVALID IV) THAT PAGES 20 78 89 109 AND 206 WHICH ARE COPIES OF THE LET TERS DATED 6-3-2007 29-3-2007 10-4-2007 24-4-2007 AND 26-4-2007 FILED BY THE ASS ESSEE BEFORE THE AO DURING THE ASSESSMENT ARE LETTERS FILED BY THE ASSESSEE D URING ASSESSMENT AND THEY CONTAINS LIST OF DETAILS AND DOCUMENTS SUBMITTED DU RING ASSESSMENTS. IN NONE OF 14 THESE DOCUMENTS THE REPORT OF FERGUSONS APPEARS. TH US HIS CASE IS THAT THE REPORT OF A.F. FERGUSONS & CO. SHOULD NOT BE TAKEN INTO ACCOU NT. 17. COMING TO THE OTHER ISSUES THE SUBMISSIONS OF MR. BALODIA ARE SUMMARIZED AS UNDER : I) 263 PROCEEDINGS ARE INITIATED AS THE ASSESSMENT WAS DONE IN A SUMMARY MANNER WITH UNDUE HASTE AND IN AN IRREGULA R MANNER WITHOUT CONDUCTING RELEVANT NECESSARY PROPER AND REQUIS ITE ENQUIRIES. THE SUBMISSIONS MADE BY THE ASSESSEE WERE ACCEPTED AT FACE VALUE WI THOUT ADEQUATE ENQUIRY. II) AT PAGE 19 OF THE ASSESSEES PAPER BOOK THE AS SESSEES REPLY TO THE QUERY OF THE AO DATED 30-4-2007 MENTIONS THE DATE O F SUBMISSIONS BY HAND AGAINST EACH ITEM FOR REQUISITION AND THAT THESE DATES MENT IONED CONTRADICT THE DATES IN THE ASSESSMENT ORDER SHEET ENTRIES. THAT THE CIT HAS NO TED SOME OF THESE CONTRADICTIONS IN HIS ORDER CLEARLY. THUS NO EVIDENCE AS MENTIONED IN ITEM 4 TO 13 OF THE REQUISITION MADE BY THE AO ON 30-4-2007 WERE EVER PRODUCED AS PER THE ORDER SHEET. III) THE AO HAS NOT EXAMINED THE DETAILS OF NUCA THE PROVISION FOR SURRENDER VALUE. THAT BUSINESS DEVELOPMENT EXPENSES OF RS.12.96 CRORES CONSISTS OF INSURANCE PREMIUM OF RS.5.67 CRORES AND THE AO H AS NOT ENQUIRED INTO THE GENUINENESS AND ALLOWABILITIES OF THESE EXPENSES WI TH RESPECT TO INTER ALIA MATCHING CONCEPT. IV) THAT THE AO IN THE ASSESSMENT ORDER HAS NOT DI SCUSSED THE VARIOUS ISSUED RAISED BY THE CIT IN HIS 263 PROCEEDINGS AND THE ORDER IS STEREO TYPE AND MECHANICAL. V) MARKETING EXPENSES HAVE NOT BEEN PROPERLY EXAMI NED BY THE AO. THE BASIS OF QUANTIFICATION WAS NOT EXAMINED BY THE AO WARRANTY AN ORDER U/S 263 BY THE CIT. THAT THE NUMBER OF HOLIDAY TIME SHARES SCH EME LAUNCHED ARE MORE THAN 15 WHAT THE ASSESSEE HAS DECLARED ON PAGE 294 OF THE P APER BOOK. THE NUMBER OF SCHEMES ARE TABULATED BY THE CIT IN ANNEXURE I AS 9 SCHEMES. THAT A VERIFICATION OF THE CHART GIVING THE AMOUNTS REFUNDED DURING TH E YEAR DISCLOSES THAT THE PAYMENT OF REFUND IN DIFFERENT YEARS IS NOT AS PER THE SCHEME OF MEMBERSHIP. A TABLE HAS BEEN GIVEN TO DEMONSTRATE THAT ON A COMPA RISON OF FACTUAL REFUNDS OF SUBSCRIPTION ON MATURITY ITS SURRENDER VALUE IT R EVEALS THAT THE AMOUNT REFUNDED IS MUCH LESSER THAN WHAT IS REFUNDABLE AS PER THE SCHE ME. HE SUBMITTED THAT THE PROVISION MADE ON ESTIMATE BASIS DO NOT MATCH ACTUA L AND THE VARIATION IS LARGE. A CALCULATION WAS SUBMITTED TO DEMONSTRATE THAT THE A CTUAL REFUNDS GIVEN BY THE ASSESSEE IS ONLY OF ABOUT 1/3 RD OF THE SUBSCRIPTION THAT HAS MATURED. VI) CALCULATIONS ARE SUBMITTED TO PROVE THAT THERE IS SOME DISCREPANCY IN ARRIVING AT THE PROVISION OF SURRENDER VALUE. IT WA S POINTED OUT THAT WHEN THE SCHEMES STARTED IN JULY 2002 AND HAS A GRACE PERIO D OF 60 DAYS THE ASSESSEE CHOSE TO MAKE A PROVISION RIGHT FROM JULY 2002 WHEN THE CUSTOMER IS NOT ENTITLED TO UTILIZE THE TOTAL NIGHTS PURCHASED. THAT FOR THE AS SESSMENT YEAR 2002-03 NO SCHEME HAD COMPLETED ONE YEAR BY MARCH 2003 FOR THE REAS ON THAT ALL THE SCHEMES WERE LAUNCHED IN JULY 2002 AND THE QUESTION OF SUBSCRIB ER NOT USING HOTEL NIGHTS IS ENTITLED TO WITHIN ONE YEAR OF SUBSCRIPTION DOES NO T ARISE. THUS THE LIABILITY TO REFUND SUBSCRIPTION OF SURRENDER VALUE DID NOT ARIS E. THAT THE CALCULATION AND ESTIMATION OF SURRENDER VALUE IS NOT IN LINE WITH T HE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS VS. CIT 245 ITR 428. REFERENCE IS MADE TO AS38 AND NOTE TO THE ACCOUNTS SCHEDULE XIV WHICH IS AT PAGE 13 OF THE PAPER BOOK. THAT PROVISION FOR SURRE NDER VALUE HAS BEEN MADE AS IF IT IS A PROVISION FOR INTEREST ON BORROWED FUNDS. VII) IN CERTAIN SCHEMES THE TENURE IS FOUR YEARS A ND CAP FOR UTILIZATION OF ROOM NIGHTS IS 25% AND THE ASSESSEE IS ENTITLED TO AVAIL THE ROOM NIGHTS BEFORE THE 16 CLOSURE OF THE ACCOUNTING YEAR AND THUS MAKING A PR OVISION OF THE SCHEME IN THE INITIAL YEAR CANNOT BE JUSTIFIED AND THAT THE AO HA S NOT EXAMINED THESE ASPECTS AT ALL. VIII) DIRECT EXPENSES LIKE COMMISSION AT THE RATE OF 25% ADDITIONAL COMMISSION UNDER THE HEAD BUSINESS DEVELOPMENT EXPE NSES INSURANCE PREMIUM ETC. ARE DEBITED TO THE PROFIT & LOSS ACCOUNT AND C LAIMED AS EXPENSES BUT NO CORRESPONDING REVENUE HAS BEEN CREDITED. IN ADDITIO N PROVISIONS FOR SURRENDER VALUE OF RS.417/- HAS ALSO BEEN MADE. THUS MERELY O N ADVANCE SALE OF ROOM NIGHT A LOSS OF RS.1042/- HAS BEEN BOOKED WHERE AN AMOUNT OF RS.3000/- IS COLLECTED AS ADVANCE SALE FOR A PERIOD OF 3 YEARS ALLOWING 5 NI GHTS STAY AND IN THE ALTERNATIVE TOTAL SURRENDER VALUE OF RS.4250/-. THE LEARNED DR SUBMITS THAT THE AO HAS NOT EXAMINED THE MATCHING CONCEPT INASMUCH AS THE CORRE SPONDING CREDITS OF REVENUE HAS NOT BEEN OFFERED TO TAX. AS FAR AS THE PROVISIO N FOR SURRENDER VALUE IS CONCERNED THE LEARNED DR SUBMITS THAT THE SUBSCRIB ER IS ENTITLED TO UTILIZE 25% OF THE NIGHT I.E. ONE NIGHT IN EACH YEAR AND IN CASE H E DOES NOT UTILIZE THE SAME HE IS ENTITLED FOR RS.250/- PER ROOM NIGHT AS SURRENDER V ALUE. ON COMPLETION OF EACH YEAR OF MEMBERSHIP A PROVISION OF UNUTILIZED ROOM NIGHT IS MADE FOR EVERY COMPLETED YEAR. HIS CASE IS THAT THOUGH THE ASSESSEE IS BOUN D ACCOUNTING STANDARD 29 THE METHOD OF COMPUTATION OF SUCH PROVISION SHOULD BE O N RELIABLE HISTORICAL AND STATISTICAL DATA AND THAT SUCH THING WAS NOT DONE. THE COMPUTATION OF THE PROVISION FOR SURRENDER VALUE IS NOT DONE SCIENTIFICALLY AND THAT THE AO HAS NOT EXAMINED THIS ASPECT. IX) THAT THERE IS NO SUBMISSION REGARDING THE TAXA BILITY OF THE SURPLUS IN NUCA. HE SUBMITTED THAT THE AO HAS NOT EXAMINED THE TAXABILITY OF RECEIPT ALLOWABILITY OF DEDUCTION AND ALSO TAXABILITY OF SU RPLUS IN NUCA ACCOUNT AND THUS THE ORDER IS PREJUDICIAL AND ERRONEOUS. 17 X) THAT THE SUBMISSION OF THE ASSESSEE THAT THE YE AR IN WHICH THE EXPENDITURE IS INCURRED NEED NOT NECESSARILY BE TH E YEAR IN WHICH THERE IS CORRESPONDING INCOME IS AGAINST THE MATCHING CONCE PT. 18. ON THE FIRST GROUND OF A REVISION I.E. PASSING OF ASSESSMENT ORDER PRIOR TO THE DATE OF FINAL HEARING ON 15 TH MAY 2007 THE LEARNED DR SUBMITTED THAT: A) NOTICE HAS BEEN ISSUED ON 30-4-2007 SEEKING DET AILS AND POSTING THE CASE ON 15-5-2007 AND WHEREAS THE ASSESSMENT WAS CO MPLETED ON 27-4-2007 WHICH SHOWS THAT THE ASSESSMENT ORDER WAS PASSED PR IOR TO DATE OF HEARING. B) AT PAGE 13 OF THE WRITTEN SUBMISSIONS THE LEARN ED DR IN BLOCK LETTERS STATES AS FOLLOWS: IRREGULAR ARBITRARY MANNER IN WHICH ASSESSMENT HAS BEEN COMPLETED AND ASSESSMENT ORDER BEING ANTEDATED. THE LEARNED DRS CASE IS THAT THE ASSESSMENT ORDER DEMAND NOTICE WERE DATED PRIOR TO ISSUAL OF NOTICE U/S 142(1) ON 30-4-2007 AND THIS CAN BE ASCERTAINED FROM THE FACT THAT IN THE COMPUTATION SHEET ITNS 150A TH ERE IS OVERWRITING AND THE DATE HAS BEEN CHANGED FROM 26-4-2007 TO 27-4-2007. FOR M AKING THIS ALLEGATION THE LEARNED DR ALSO RELIES ON CURRENT DEMAND AND COLLE CTION REGISTER AND SUBMITS THAT IT IS AN ESTABLISHED PROCEDURE OF DEPARTMENT T HAT ALL THE ASSESSMENTS COMPLETED IN AN YEAR ARE TO BE ENTERED INTO THIS REGISTER IN SERIATUM AND CHRONOLOGICALLY. HE POINTS OUT THAT IN THE REGISTER ENTRY IS MADE ON 2 4-5-2007 AND SUBMITS THAT THIS PROVES THAT THE ASSESSMENT ORDER IS NOT PASSED ON 2 7-4-2007. THUS HE SUBMITS THAT FROM EXAMINATION OF THE ENTRIES IN THE DCR THE AS SESSMENT HAS BEEN COMPLETED ON OR AFTER 18-5-2007 BUT ON OR BEFORE 24-5-2007. T HUS HE SUBMITS THAT THE AO IS NOT FUNCTUS OFFICIO AFTER 24-4-2007 AS THE ASSESSM ENT WAS NEVER COMPLETED ON THAT DATE AND AS THE ASSESSMENT ORDER IS ANTEDATED. HE R ELIED ON THE PROCEDURE 18 PRESCRIBED BY THE CBDT TO BE FOLLOWED BY THE ASSES SING OFFICERS ON COMPLETION OF ASSESSMENT AND SUBMITTED THAT THE ENTRY IN THE D CR SHOULD BE MADE ON THE DATE OF PASSING THE ASSESSMENT ORDER. 19. THE LEARNED DR SUBMITS THAT THE AO HAS PASSED A N ORDER ACTING IN DEFIANCE OF ALL BINDING GUIDE LINES AND INSTRUCTIONS AND COM PLETED THE ASSESSMENT WITHOUT CONDUCTING NECESSARY AND RELEVANT ENQUIRIES IN A HU RRIED AND HIGHLY IRREGULAR MANNER WHICH IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE SUBMITTED THAT THE REQUEST OF THE AO DATED 30-4-2007 FOR FILING DETAI LS OF PAYMENT U/S 40A(2B) ALONG WITH SUPPORTING EVIDENCE WAS NOT FILED AS THE ASSES SEE HAS ONLY GIVEN DETAILS VIDE LETTER DATED 6-4-2007 WHICH ARE SIMILAR TO THE DET AILS IN THE TAX AUDIT REPORT BUT ALSO THAT THE ASSESSEE HAS NOT ENCLOSED ANY EVIDENC E WITH THE REPLY. 20. THE LEARNED DR SUBMITS THAT THOUGH THE ASSESSEE CLAIMS PROOF PRODUCED PURCHASE BILLS IN RESPECT OF ADDITION TO FIXED ASSE TS NO SUCH RECORDING IS THERE IN THE ORDER SHEET ENTRY AND HENCE THE CLAIM IS INCORR ECT AND THE AO HAS NOT APPLIED HIS MIND. THAT THOUGH THE AO HAS DIRECTED THE ASSES SEE TO PRODUCE CASH BOOK ACCOUNTS ETC. FROM THE ORDER SHEET IT DOES NOT S EEM THAT THE SAME ARE PRODUCED. HENCE THE AO FAILED TO EXAMINE THE BOOKS OF ACCOUNT . THUS HE CLAIMS THAT THE ORDER IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. 21. ON THE ISSUE OF ACCOUNTING OF ADVANCE SALE OF R OOM NIGHTS OF RS.88 00 09 610/- THE LEARNED DR SUBMITTED THAT T HE CIT HAS EXAMINED THE FEATURES OF THE SCHEME AND THE CONTRACT ENTERED BY SELLING THE ROOM NIGHTS. HE SUBMITTED THAT THE PREDOMINANT PURPOSE OF SALE OF R OOM NIGHTS IS NOT TO REFUND THE SALE PROCEEDS AT SURRENDER VALUE BUT IS FOR ACTUAL UTILIZATION OF THE ROOM NIGHTS BY THE SUBSCRIBER. THE REFUND CAN BE CLAIMED ONLY AFTE R THE EXPIRY OF THE TENURE OF THE SCHEME. THAT THE PERIOD OF THE SCHEME VARY FROM 3 T O 10 YEARS AND THE QUESTION OF REFUND IF ANY ARISES ONLY AFTER A LONG PERIOD OF 9 TO 10 YEARS IN MOST OF THE CASES. 19 THAT THE ASSESSEE HAS NOT FOLLOWED THE MATCHING CON CEPT AS HE HAS BOOKED EXPENDITURE BUT NOT RECOGNIZED CORRESPONDING INCOME . THAT IF THE SALE IS RECOGNIZED ONLY ON ACTUAL UTILIZATION OF THE ROOM N IGHTS THEN EXPENSES SHOULD ALSO BE DEBITED ACCORDINGLY. THAT THE CLAIM OF THE ASSES SEE THAT THE AO HAS EXAMINED ALL THESE ASPECTS DURING THE SCRUTINY PROCEEDINGS FOR T HE ASSESSMENT YEAR 2003-04 IS NOT BORNE OUT OF RECORD. THAT THE CIT CONSIDERED TH E ARGUMENTS OF THE ASSESSEE THAT: A) MONEY COLLECTED DOES NOT HAVE THE CHARACTER OF INCOME; B) IS NOT ASSESSABLE UNLESS THE ROOM NIGHTS ARE AC TUALLY UTILIZED; C) THE RECEIPT CANNOT BE UNCONDITIONALLY APPROPRI ATED; D) THE PROPOSITIONS LAID DOWN BY THE JUDGMENT OF PU NJAB & HARYANA HIGH COURT IN THE CASE OF PUNJAB TRACTOR COOP. MULT IPURPOSE SOCIETY LTD . 142 CTR 20 AND THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. 270 ITR 1 AND HELD T HAT THESE CASE LAWS ARE NOT APPLICABLE AND ALSO THAT THE CLAIMS OF THE ASSESSEE ARE WRONG. E) THAT THE CIT HELD THAT THE PRIMARY PURPOSE OF T HE SCHEME WAS ONLY TO ATTRACT SUBSCRIBER AND THAT THE REFUND CLAUSE IN TH E SCHEME IS IMMATERIAL AND THAT THE JUDGMENT OF THE HONBLE (SUPREME COURT?) COURT IN THE CASE OF CIT VS. BAZPUR CO-OP. SUGAR FACTORY LTD. 172 ITR 321 IS APPLICABLE . F) THAT THE CIT HAS RECORDED THAT THE ASSESSEE ON THE ONE HAND HAS NOT CREDITED ITS ACCOUNTS WITH THE SALE PROCEEDS OF ROO M NIGHTS BUT ON THE OTHER HAND DEBITED DIRECT EXPENSES ON ACCOUNT OF MARKETING ETC . G) THAT THE CIT HAS CLEARLY RECORDED THAT THE AO H AS NOT RAISED ANY QUERIES IN THIS REGARD AND HENCE THERE IS NO APPLIC ATION OF MIND. 20 22. ON THE ISSUE OF ALLOWABILITY OF RS.22.10 CRORES UNDER THE HEAD HOLIDAY MEMBERSHIP SURRENDER VALUE THE LEARNED DR SUBMITT ED THAT: A) THE AO HAS NOT RAISED ANY QUERY IN THIS REGARD NOR EXAMINED THE METHOD OF COMPUTATION OR THE ALLOWABILITY ON THE GR OUND OF MATCHING CONCEPT. B) THAT THE CIT HAS RECORDED THAT CERTAIN CONDITIO NS ARE TO BE FULFILLED AS PER THE SCHEME AND THE CONTRACT BEFORE THE CLAIM O F SURRENDER VALUE CAN BE MADE BY THE SUBSCRIBER AND HENCE IT IS AT BEST A CONTING ENT LIABILITY. C) THAT THE CIT HAS ALSO HELD THAT THE PRORATA ALL OCATION OF THE SURRENDER AND OFFERED PRICE ON TENURE BASIS TO CLAIM THE EXPE NDITURE ON THIS ACCOUNT BECAUSE THE SURRENDER VALUE IS PAYABLE ONLY AFTER EXPIRY OF THE TENURE OF THE SCHEME WHEN NO UTILIZATION IS MADE. D) THAT THE LIABILITY HAS NOT ACCRUED AND THE JUDG MENT OF THE HONBLE COURT IN THE CASE OF CIT SWARUP VEGETABLE PRODUCT S 210 ITR 716 DOES NOT APPLY. E) THAT THE CIT HAS ALSO RECORDED THAT THE DEDUCTI ON OF SURRENDER VALUE WAS CLAIMED WITHOUT OFFERING CORRESPONDING INCOME A ND HENCE THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 22. ON THE ISSUE OF MARKETING EXPENSES THE LEARNED DR SUBMITTED : I) THAT THE CIT HAS NOTED THAT THE ASSESSEE HAS NO T DISPUTED THE FACT THAT ALL THESE EXPENSES WERE NOT PROPERLY EXAMINED BY TH E AO WITH RESPECT TO THEIR GENUINENESS AND ALLOWABILITY. II) THAT THE ASSESSEE HAS DEBITED ALL EXPENSES IN CONTRADICTION OF ITS THEORY THAT DIRECT EXPENSES SHOULD BE AMORTIZED OVER THE P ERIOD OF THE SCHEME AND HENCE THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE. 21 23. ON THE DIFFERENCE OF MEMBERSHIP FUNDS COLLECTED AND NUCA PAYABLE THE LEARNED DR SUBMITTED THAT THE AO HAS NOT EXAMINED T HE ASSESSABILITY OF THE DIFFERENT AMOUNT UNDER THIS HEAD AND HENCE THE ORD ER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE FURTHER POINTS O UT THAT THE AO HAS NEVER EXAMINED WHETHER THE PROVISION FOR NUCA IS AN ALLOW ABLE DEDUCTION AND AS TO THE TAXABILITY OF THE AMOUNTS RECEIVED FROM THE MEMBERS UNDER THE SCHEME. 24. ON THE PAYMENT OF TDS LIABILITIES AS ON 31-3-20 05 AND APPLICABILITY OF SECTION 40A(IA) THE LEARNED DR SUBMITTED THAT THE ASSESSEE FURNISHED THE DETAILS DURING 263 PROCEEDINGS REGARDING TDS AND THAT THE SE DETAILS WERE NOT PRODUCED BEFORE THE AO AND HENCE THE AO HAS NOT EXAMINED IT RESULTING IN AN ERRONEOUS ORDER BEING PASSED WHICH IS PREJUDICIAL TO THE INTE REST OF THE REVENUE. 25. THUS THE LEARNED DR SUPPORTED THE ORDER OF THE CIT PASSED U/S 263 ON ALL THE POINTS RAISED BY THE CIT IN THE 263 ORDER. 26. IN ADDITION THE LEARNED DR MADE THE FOLLOWING SUBMISSIONS IN SUPPORT OF THE ORDER U/S 263. I) THAT THE ORDER WAS PASSED BY THE AO WITHOUT MA KING ANY ENQUIRY REGARDING THE TAXABILITY OF VARIOUS RECEIPTS AND LI ABILITIES PRE-OPERATIVE PROJECT EXPENDITURE ETC. AND THAT THE ASSESSMENT ORDER IS S TEREO TYPE AND A MECHANICAL ASSESSMENT ORDER. RELIANCE WAS PLACED ON THE JUDGME NT OF THE ITAT MUMBAI BENCH IN THE CASE OF ARVEE INTERNATIONAL VS. ADDL. CIT 101 ITD 495. II) RELIANCE WAS PLACED ON THE FULL BENCH JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 256 ITR 1 FOR THE PROPOSITION LAID DOWN IN PARA 15 WHERE IT IS HELD THAT THE CIT IS EM POWERED U/S 263 TO REVIEW THE ORDER OF THE REVENUE. 22 III) THAT RELIANCE IS PLACED ON SOHAMN DATA PROCE SSING & FINANCE P. LTD. ITA NO. 774/MUM/2009 ORDER DATED 26-10-2010 WHEREIN THE MUMBAI BENCH CONSIDERED THE JUDGMENT IN THE CASE OF KELVINATOR O F INDIA LTD. (SUPRA) AND HELD THAT THE CIT HAS POWER OF REVISION U/S 263 WHERE TH E AO HAS OVERLOOKED A VITAL ASPECT OF ASSESSMENT AND THAT THE PROPOSITION LAID DOWN IN THE CASE OF KELVINATOR OF INDIA LTD. IS FOR PROCEEDINGS UNDER SECTION 147 AND NOT FOR PROCEEDINGS UNDER SECTION 263. IV) RELIANCE IS PLACED ON THE DECISION IN THE CASE OF TATA BP SOLAN INDIA LTD. IN ITA NO. 3381/MUM/2009 ORDER DATED 30-9-20 10 FOR THE PROPOSITION THAT IF THE AO DID NOT RAISE ANY SPECIFIC QUERY AND HAVING NOT DONE SO IT WAS A FAILURE ON THE PART OF THE AO TO MAKE ENQUIRY WHICH WAS NECESS ARY IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND HENCE THE CIT WAS RIG HT IN EXERCISING JURISDICTION U/S 263. V) THAT FAILURE TO EXAMINE ANY CLAIM MADE BY THE A SSESSEE WOULD TANTAMOUNT THE ORDER BEING PREJUDICIAL AND ERRONEOU S TO THE INTEREST OF THE REVENUE. VI) THAT THE JUDGMENT IN THE CASE OF MALABAR INDUST RIAL CO. LTD. 243 ITR 83 (SC) IS IN HIS FAVOUR AS THE HONBLE COURT HELD THAT INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW OR NON APPLIC ATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BAS ED ON NO OR INSUFFICIENT MATERIAL SO AS TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. VII) THAT THE SUBMISSIONS OF THE ASSESSEE HAVE BEE N ACCEPTED AT FACE VALUE WITHOUT ENQUIRY OR APPLICATION OF MIND AND HENCE IT CANNOT BE SAID THAT A CONSCIOUS VIEW IS TAKEN BY THE AO. THUS THE QUESTION OF FORMI NG A POSSIBLE JUDICIAL VIEW DOES NOT ARISE. RELIANCE IS PLACED ON THE JUDGMENT OF GREEN WORLD CORPORATION VS. 23 ITO & ORS. 285 ITR 118 FOR THE PROPOSITION THAT OFF ICE RECORD AND OFFICE NOTE CAN BE RELIED FOR THE PURPOSE OF UPHOLDING 263 ORDER AN D IN THIS CASE ENTRIES IN THE DCR SHOULD BE CONSIDERED AND 263 ORDER SHOULD BE UPHELD . VII) THAT ASSESSMENT ORDER DOES NOT BECOME INVALID JUST BECAUSE IT IS ANTEDATED OR PASSED IN AN IRREGULAR MANNER. THAT AN TEDATING OF AN ASSESSMENT ORDER WOULD MERELY VITIATE THE COURSE OF THE PROCEEDINGS BUT SUPERVENING IRREGULARITY OR ILLEGALITY HAS TO BE SET RIGHT BY PUTTING THE PROCE EDINGS BACK ON RIGHT. VIII) THAT WHEN THE ORDER IS CURABLE IT IS THE D UTY OF THE COURT TO CURE IT. RELIANCE WAS PLACED ON SEWUTTORY RAMBULLAV & SON 20 4 ITR 580 (CAL.). THAT HYDERABAD BENCH OF THE ITAT IN THE CASE OF TREASURE ISLAND RESORTS (P) LTD. VS. DCIT 90 ITD 814 REJECTED THE CONTENTION THAT THE OR DER IS ANTEDATED BY RELYING ON THE ENTRY MADE IN DCR REGISTER. RELIANCE IS PLACED ON THE JUDGMENT OF THE CHENNAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF RAJLAK SHMI MILLS LTD. VS. ITO 121 ITD 343. IX) THAT THE AO HAVING FAILED TO MAKE ENQUIRIES AS REGARDS ALLOWABILITY OF PROVISION FOR GRATUITY THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THAT IT IS INCUMBENT ON THE AO TO INVES TIGATE THE FACTS STATED IN THE RETURN. RELIANCE IS ALSO PLACED ON THE JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF JAGDISH KUMAR GULATI VS. CIT 269 ITR 71 (ALL.) F OR THE PROPOSITION THAT WHEN THE ASSESSMENT ORDER IS VERY BRIEF AND IT IS EVIDEN T FROM THE ASSESSMENT ORDER THAT THE AO DID NOT TRY TO MAKE ANY ENQUIRY ON THE RELEV ANT ISSUE AND THE DETAILS FURNISHED BY THE ASSESSEE THE ORDER IS PREJUDICIAL AND ERRONEOUS. RELIANCE IS PLACED IN THE CASE OF SAIPEM S.P.A. VS. CIT REPORTED IN 12 3 ITD 153 FOR THE PROPOSITION THAT A VIEW TAKEN BY THE AO WITHOUT PROPER ENQUIRY CANNOT BE REGARDED AS A PLAUSIBLE VIEW. 24 X) THAT THE AO FAILED TO TAKE INTO CONSIDERATION T HE DECISION OF THE TRIBUNAL IN THE CASE OF STERLING HOLIDAY RESORTS (I NDIA) LTD. VS. ACIT 295 ITR 162 (AT) ORDER DATED 19 TH JANUARY 2007 WHICH WAS A DECISION APPLICABLE AT THE TIME OF PASSING OF THE ASSESSMENT ORDER WHEREIN THE BEN CH HELD THAT THERE IS ABSOLUTELY NOTHING IN THE ACT TO PERMIT THE ASSESSEE TO TREAT PART OF THE INCOME AS DEFERRED INCOME AND HENCE THE ORDER IS PREJUDICIAL. XI) THAT THE AO HAS NOT EXAMINED THE ABNORMAL RESU LT THROWN UP IN THE PROFIT & LOSS ACCOUNT FOR THE REASON THAT THE MATC HING CONCEPT HAS NOT BEEN FOLLOWED. FOR THE PRINCIPLES OF MATCHING CONCEPT R ELIANCE IS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F TPARIA TOURS LTD. 260 ITR 102 AND THE ORDER OF THE HYDERABAD BENCH OF THE TRI BUNAL IN THE CASE OF TREASURE ISLAND RESORTS (P) LTD. VS. DCIT (SUPRA). IN THIS O RDER EMPHASIS WAS PLACED ON THE FINDING THAT THE ISSUE WHETHER THE AMOUNT IS REFUND ABLE OR NOT IS NOT RELEVANT. RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF DCIT (IT) VS. SPECO ELECTRIC POWER CONSTRUCTION CORPN. LTD. 126 TTJ 539. RELIANC E IS PLACED ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V S. MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. 131 TTJ 1 AND SUBMITTED THAT E VEN IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. THERE WAS A REFUND CLAUSE AND TO DEMONSTRATE ATTENTION WAS DRAWN TO PARA 13 AND 22 OF THE ORDER. IN THIS CASE LAW WAS ALSO RELIED UPON FOR THE PROPOSITION THAT THERE IS NO BASIS FOR RECOGNIZING OF INCOME IN THE RATIO OF 40S TO 60S. RELIANCE WAS ALSO PLACED ON PARA 30 AND 31 OF THAT ORDER. XII) THAT MARKETING EXPENSES INCLUDING BUSINESS DE VELOPMENT EXPENSES ETC. HAVE TO BE AMORTIZED FOR THE PERIOD OF THE SCHEME T O AVOID DISTORTION OF PROFITS AND RELIANCE PLACED WAS ON THE JUDGMENT OF HONBLE MADR S HIGH COURT IN THE CASE OF MANGAL TIRTH ESTATES LTD. 303 ITR 366 AND ACIT VS. ASIA RESORTS LTD. 96 TTJ 909 (CH.). 25 XIII) RELIANCE WAS PLACED ON AS9 AND IT WAS ARGUED THAT THE ADVANCE SALE OF ROOM NIGHTS IS INCOME. RELIANCE WAS PLACED ON AS 29 FOR THE PROPOSITION THAT THE PROVISION MADE FOR SURRENDER VALUE IS WRONG. 27. THE DR TABULATED THE DATA IN ANNEXURE 1 2 AND 3 FOR DEMONSTRATING THAT THE PROVISION FOR SURRENDER VALUE WAS WRONGLY MADE AND THAT HISTORICAL DATA HAS NOT BEEN CONSIDERED. IT IS POINTED OUT THAT THE SPECIAL BENCH IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. HELD THAT IT IS NO T POSSIBLE TO ESTIMATE SUCH LIABILITY REASONABLY ON SCIENTIFIC BASIS. 28. THEREAFTER THE LEARNED DR CONTROVERTED THE VARI OUS SUBMISSIONS MADE BY THE ASSESSES COUNSEL BY REPEATING HIS CONTENTIONS THAT MATCHING CONCEPT HAS TO BE CONSIDERED THAT PROVISION HAS BEEN MADE FOR ALL RO OM NIGHTS SOLD IN ADVANCE IRRESPECTIVE OF WHETHER THERE HAS BEEN UTILIZATION OR NOT. 29. THAT THE LEARNED SENIOR COUNSEL MR. DASTUR HAD SUBMITTED THAT THE MAXIMUM UTILIZATION OF ROOM NIGHT IN A YEAR IN CASE OF CO MFORT SCHEME IS 33% AND WHEREAS THE BROCHURE OF THIS SCHEME SUGGESTS THAT THE SUBSC RIBER CAN UTILIZE ONLY 25% OF THE TOTAL ROOM NIGHTS IN A YEAR AND THEREFORE THE SCH EME IS UNWORKABLE FROM CONCEPTION ITSELF. 30. THAT DISTINGUISHING THE DECISION OF MAHINDRA HO LIDAYSS CASE ON THE GROUND THAT THERE IS NO ANNUAL MAINTENANCE CHANGE IN THE CASE OF THE ASSESSEE AND ON THE CONTRARY A REFUND OBLIGATION IS EXISTING IN THE CA SE OF THE ASSESSEE AND NOT IN THE CASE OF MAHINDRA HOLIDAYS THE LEARNED DR SUBMITTED THAT THE ROOM RENT COLLECTED INCLUDES AMC AND HENCE SUCH DISTINGUISHING IS DESTR UCTIONS UNCALLED FOR. REGARDING REFUND OBLIGATION HIS CASE IS THAT IN PA RA 24 OF THE ORDER OF THE SPECIAL BENCH IT IS MADE CLEAR THAT THERE ARE CERTAIN RULE S WHEREIN REFUND HAS TO BE GIVEN. 26 31. THAT THE SPECIAL BENCH HAS EXAMINED THE GUIDANC E NOTE ISSUED BY ICAI AND HELD THAT THE GOAL OF ACCRUAL BASIS OF ACCOUNTING I S TO RELATE THE ACCOMPLISHMENT AND EFFORTS SO THAT THE REPORTED NET INCOME MEASUR ES AN ENTERPRISES PERFORMANCE DURING THE PERIOD. HE SUBMITS THAT CRUX OF THE INT ERNATIONAL ACCOUNTING STANDARD (IAS 18) IS THAT WHEN THE OUTCOME OF A TRANSACTION OF RUNNING OF SERVICES CAN BE ESTIMATED RELIABLY REVENUE ASSOCIATED WITH THE TRA NSACTION SHOULD BE RECOGNIZED BY REFERENCE TO THE STAGE OF COMPLETION OF THE TRANSAC TION AS AT THE BALANCE SHEET DATE AND SUBMITTED THAT THE ASSESSEE COULD NOT DEMONSTRA TE AS TO HOW THIS STANDARD APPLIES TO IT. ON THE STATEMENT OF REFUND FILED BY THE ASSESSEE THE LEARNED DR SUBMITTED THAT IT IS NOT CLEAR WHETHER THE REFUNDS AND SURRENDER VALUE IS ON MATURITY OR IT IS ON CANCELLATION OF SUBSCRIPTION. HE POINTED OUT THAT THE ASSESSEE HAS CREATED PROVISIONS FOR THE SAME BUT REVERSAL O F PROVISION IN CASE OF CANCELLATION OF SUBSCRIPTION WAS NOT INDICATED AND THE AO HAS NOT EXAMINED THE SAME. 32. THAT THE REFUNDS ARE ONLY ABOUT 1/3 RD OF AMOUNT PAYABLE AS PER THE SCHEME. WHILE SUBMITTING THAT THE ARGUMENT OF THE COUNSEL T HAT THE RATE OF UTILIZATION OF ACCOMMODATION IS LOW IS GOOD FOR ACCOUNTING THE L EARNED DR SUBMITS THAT IT IS NOT ENOUGH TO CLAIM DEDUCTION AS PER LAW. 33. REFERRING TO THE RELIANCE PLACED BY THE ASSESSE E ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF METAL BOX CO. 73 ITR 53 IN SUPPORT OF THEIR CLAIM THAT LIABILITY ON ACCOUNT OF REFUND AT SURRENDER VA LUE HAS TO BE ALLOWED AS A DEDUCTION THE LEARNED DR SUBMITTED THAT IT IS POSS IBLE ONLY IF THE CORRESPONDING BENEFITS ARE CREDITED TO THE ACCOUNT. HE GAVE A TAB LE TO DEMONSTRATE THAT THE ASSESSEE HAS CREATED THE PROVISION IMMEDIATELY AFTE R THE SALE OF ROOM NIGHTS AND HAS NOT GIVEN ANY CONSIDERATION FOR THE INITIAL WAI TING PERIOD OF 60 DAYS PRESCRIBED IN THE SCHEME NOR DID THE ASSESSEE WAIT FOR THE CO MPLETION OF ONE YEAR FROM THE 27 DATE OF ENROLMENT IN THE SCHEME SO AS TO CONCLUDE T HAT THE SUBSCRIBER HAD ACTUALLY NOT USED THE ROOM AND CHOSE TO SURRENDER HIS ENTITL EMENT. HE DISTINGUISHED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. VS. CIT 314 ITR 75 BY SUBMITTING THAT WARRANTY IN THAT CASE WAS AN INTEGRAL PART OF THE SALE PRICE WHICH HAS BEEN FULLY CREDITED TO THE BO OKS OF ACCOUNT AND AS THE INCOME WAS TAKEN INTO ACCOUNT THE SUPREME COURT STATED TH AT FUTURE WARRANTY EXPENSES ARE TO BE ESTIMATED ON A SCIENTIFIC BASIS UTILIZING HI STORICAL STATISTICAL DATA AND WHEREAS IN THE ASSESSEES CASE THE INCOME IS NOT TAKEN INTO ACCOUNT. HE ALSO DISPUTED THE CLAIM OF THE SENIOR COUNSEL THAT A SCIENTIFIC METHO D HAS BEEN USED BY THE ASSESSEE FOR ESTIMATION OF LIABILITY. HE SUBMITTED THAT THE GROUNDS OF REVIEW TAKEN BY THE CIT WAS CORRECT AND THE QUANTUM IS NOT MATERIAL AND WHAT IS MATERIAL IS THE FOUNDATION OF THE ORDER. 34. THE LEARNED DR MADE AN ALTERNATIVE SUBMISSION T HAT 60% OF THE GROSS RECEIPTS OF ADVANCE SALE OF ROOM NIGHTS MAY BE CONS IDERED AS INCOME AFFRONT BY FOLLOWING THE RATIO OF THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. (SUPRA). 35. THE LEARNED DR ALSO FILED WRITTEN SUBMISSIONS R UNNING INTO 70 PAGES AND ATTACHED FOUR ANNEXURES AND THREE OTHER LOOSE SHEET S. HE ALSO FILED A PAPER BOOK RUNNING INTO 343PAGES CONSISTING OF COPIES OF 19 CASE LAWS RELIED UPON BY THE REVENUE. 36. THE LEARNED SENIOR COUNSEL MR. DASTUR IN HIS REJOINDER SUBMITTED THAT THE ORDER OF THE CIT HAS TO BE JUDGED ON THE REASONS GI VEN BY THE CIT. HE CONTENDED THAT THE BENCH HAS TO SEE THE REASONS RECORDED BY T HE COMMISSIONER IN EXERCISING HIS POWER OF A REVISION U/S 263 AND THAT IT IS NOT OPEN TO THE DR TO LEAD ARGUMENTS CONTRARY TO THE FACTS RECORDED BY THE CIT. HE SUBMI TTED THAT THE CIT DID NOT SAY THAT THE ORDER IS ANTEDATED AND THAT IT IS NOT FOR THE DR TO GIVE AN ENTIRELY DIFFERENT 28 VERSION AND ENTIRELY DIFFERENT REASONS FOR JUSTIFYI NG THE REVISION U/S 263. HE SUBMITTED THAT IF THE ARGUMENT OF THE LEARNED DR T HAT THE ASSESSMENT ORDER IS NOT PASSED ON 27-4-2007 AND THAT THE ORDER WOULD HAVE BEEN PASSED ON ANY OF THE DATES BETWEEN 18 TH MAY 2007 AND 25 TH MAY 2007 THEN IT SHOULD BE HELD THAT THERE IS NO ORDER PASSED ON 27-4-2007 AND HENCE THE ILLEG AL ORDER OF THAT DATE HAS TO BE DISCARDED AND THAT THE CONSEQUENTIAL REVISION ORDER UNDER SECTION 263 SHOULD ALSO BE NULLIFIED. HE REFERRED TO THE CHARTS FILED BY HI M AND SUBMITTED THAT THE ASSESSEE HAS REFUNDED ALL THE MONEY THAT HAS BEEN COLLECTED BY WAY OF ADVANCE SALE OF ROOM NIGHT AND FACTUALLY THE LEARNED DR IS WRONG IN SUBM ITTING THAT ONLY 30% OF THE AMOUNT HAS BEEN REFUNDED. HE SUBMITTED THAT LESS TH AN 1% OF THE SUBSCRIBER WHO PAID ADVANCE FOR ROOM NIGHT ACTUALLY AVAILED STAY IN THE ROOM AND THAT MORE THAN 99% OF THE SUBSCRIBER HAD ACTUALLY COLLECTED BACK N OT ONLY THE CONTRIBUTION BUT ALSO SURRENDER VALUE. HE SUBMITTED THAT THE ASSESSEE HAD DATA TO DEMONSTRATE THAT IN ALMOST OF THE CASES WHERE THE SUBSCRIBER HAS PAID ADVANCE FOR ROOM NIGHT HAVE PREFERRED TO TAKE BACK THE ADVANCE ALONG WITH SURRE NDER VALUE AND THAT BASED ON SUCH HISTORICAL DATA THE ASSESSEE HAS ESTIMATED TH E REFUNDS. THUS HE EMPHASIZED THAT THIS IS NOTHING BUT ADVANCE AND THE QUESTION O F TREATING THE ADVANCE AS INCOME DOES NOT ARISE. HE EMPHASIZED THAT THE RECEIPT IN Q UESTION IS NOT INCOME PER SE. ON THE ARGUMENT THAT THE DECISION OF THE TRIBUNAL IN T HE CASE OF STERLINE HOLIDAY RESORTS (INDIA) LTD. 111 ITD 116 IS AVAILABLE AT TH E TIME OF PASSING OF THE ASSESSMENT ORDER AND THAT THE A.O. IGNORED THE PROP OSITION IN THE SAME THE LEARNED SENIOR COUNSEL SUBMITTED THAT THERE WERE OTHER CONT RARY DECISIONS OF THE ITAT ON THAT DATE AND THE AO HAS RAISED THE SPECIFIC QUERY ON THIS ISSUE WHICH IS AT PAGE 78 OF THE PAPER BOOK AND THE ASSESSEE HAD REPLIED VIDE PAGE 78 88 AND 279 OF THE PAPER BOOK. HE POINTED OUT THAT FACTUALLY IT IS INC ORRECT TO SAY THAT THE AO HAS NOT EXERCISED HIS MIND ON THIS ISSUE. HE POINTED OUT TH AT THE ENTIRE SCHEME WAS UNDERSTOOD BY THE AO AND THE SCHEME WAS BROUGHT OUT IN BRIEF IN THE ASSESSMENT 29 ORDER. HE REITERATED THAT THE AO HAS TAKEN A PERMI SSIBLE VIEW AFTER APPLICATION OF HIS MIND. HE SUBMITTED THAT THERE IS A PRESUMPTION THAT THE AO HAS APPLIED HIS MIND AND SEEN ALL THE ASPECTS AND FOR THIS HE RELIE D ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LT D. 256 ITR 1 (SC) AT PAGE 19. HE REFERRED TO THE JUDGMENT OF THE SUPREME COURT IN TH E CASE OF CIT VS. BAZARPUR COOOP. SUGAR FACTORY LTD. 172 ITR 321 (SC) AND SUB MITTED THAT THIS WAS EXPLAINED BY THE SUPREME COURT IN THE CASE OF SIDDH ESHWAR SAHAKARI SAKHAR KARKHANA LTD. V.S CIT 270 ITR 1 AT PAGE 30 AND SUBM ITTED THAT REFUND OF DEPOSIT WAS NOT THE ISSUE THERE. ON THE PROVISION MADE THE LEARNED COUNSEL SUBMITTED THAT THE LIABILITY IS SPREAD OVER THE PERIOD OF THE SCHE ME AND IN EACH YEAR THE RIGHT TO RECOVER THE SURRENDER VALUE ACCRUES TO THE SUBSCRIB ER. HE RELIED ON THE DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD. VS. CIT 225 ITR 802 (SC). 37. MR. DASTUR REFERRED TO THE JUDGMENT OF THE SPEC IAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD . (SUPRA) AND SUBMITTED THAT THE SPECIAL BENCH HELD THAT NO PART OF THE RECEIPT IS TAXABLE FOR THE REASON THAT THE EXPENDITURE IS YET TO BE INCURRED. HE REFERRED TO P ARA 27 29 AND 30 OF THE SAID ORDER. 38. ON ADVANCE ROOM NIGHTS RECEIVED MR. DASTUR SUB MITTED THAT THE DIRECTIONS OF THE CIT TO THE AO IS VERY CLEAR THAT THE ENTIRE AMOUNT OF RS.88 CRORES IS TO BE TAKEN AS INCOME AND SUBMITTED THAT THE TRIBUNAL DOE S NOT HAVE THE RIGHT TO MODIFY THE ORDER OF THE CIT U/S 263. FOR THE SUBMISSIONS T HAT THE ORDER OF THE CIT PASSED U/S 263 HAS TO BE EXAMINED ON THE STRENGTH OF THE REASONS GIVEN IN THAT PARTICULAR ORDER AND FOR THE PROPOSITION THAT THE TRIBUNAL CAN NOT MODIFY THE ORDERS OF THE CIT THE LEARNED COUNSEL RELIED UPON CERTAIN CASE LAWS W HICH WE WILL BE DEALING WITH IN DUE COURSE. 30 39. MR. DASTUR EMPHASIZED THAT IN THE CASE ON HAND A REFUND OBLIGATION IS FASTENED ON THE ASSESSEE AND NO SUCH OBLIGATION IS THERE IN THE CASE OF MAHINDRA HOLIDAYS AND RESORTS (INDIA) LTD. REFERRING TO THE DECISION IN THE CASE OF TAPARIA TOOLS 260 ITR 302 RELIED UPON BY THE LEARNED DR TH E LEARNED COUNSEL SUBMITTED THAT THIS CASE LAW DEALS WITH SPREADING OVER OF EXP ENDITURE AND HAS NOTHING TO DO WITH THE ISSUE WHETHER INCOME HAS ACCRUED. HE SUBMI TTED THAT THE CASE LAW DEALS WITH PERIOD COST. SIMILARLY HE SUBMITTED THAT THE T RIBUNAL DECISION IN THE CASE OF JCIT VS. TIRRUMALAI CHEMICALS LTD. 9 SOT 744 IS NOT APPLICABLE. REFERRING TO AS9 HE SUBMITTED THAT THE ACCOUNTING STANDARD PROCEEDS ON THE FOOTING THAT THERE IS INCOME AND ACCRUAL OF INCOME IS ASSUMED. HE POINTED OUT THAT IN THE CASE ON HAND THE ISSUE IS WHETHER THERE IS INCOME AT ALL. 40. ON THE SECOND ISSUE OF DISALLOWANCE OF RS.22 CR ORES THE LEARNED COUNSEL SUBMITTED THAT THE CITS DIRECTIONS ARE RELEVANT A ND THAT THIS CANNOT BE MODIFIED BY THE TRIBUNAL AND HAS TO BE TESTED ON THE REASONS GIVEN IN THE ORDER. HE SUBMITTED THAT THE ASSESSEE IS NOT ONLY REQUIRED TO REFUND TH E AMOUNT TO THE SUBSCRIBER BUT WAS ALSO REQUIRED TO PAY ON ADDITIONAL AMOUNT FROM TIME TO TIME. HE ONCE AGAIN TOOK THIS BENCH THROUGH THE REASONS GIVEN BY THE CIT AND SUBMITTED THAT BY THE TIME THE CIT PASSED THE ORDER THE DATA RELEVANT FOR 6 YEA RS WAS AVAILABLE AND THAT HE SHOULD HAVE CONSIDERED THE HISTORICAL DATA FOR EXAM INING THE ADEQUACY OF THE PROVISION. HE SUBMITTED THAT IT IS NOT CORRECT TO S AY THAT THE LIABILITY WAS PROVIDED FROM THE FIRST MONTH ITSELF AS IT WAS ONLY IN THE E ND OF THE YEAR THAT THE ASSESSEE WAS ESTIMATING THE LIABILITY AND FOR MAKING THE CAL CULATION CERTAIN AMOUNT WAS ALSO CONSIDERED FROM THE INITIAL OR FIRST MONTHS. HE REL IED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPN. LTD. 225 ITR 802 AND SUBMITTED THAT THE DECISION IN THE CASE OF- ITO VS. TUNGABHADRA INDUSTRIES LTD. 207 ITR 557 RELIED UPON BY THE LEARNED DR IS N O MORE GOOD LAW AND FOR THE 31 SAME HE REFERRED TO THE JUDGMENT IN THE CASE OF NA TIONAL ENGINEERING INDUSTRIES LTD. VS. CIT 236 ITR 577 SPECIFICALLY AT PAGE 579. ON THE SUBMISSION THAT THE PROVISION IS NOT MADE ON A SCIENTIFIC BASIS MR. DA STUR FILED A CALCULATION SHEET AND SUBMITTED THAT BASED ON HISTORICAL DATA AND CUSTOME R BEHEVIOUR THE ESTIMATE IS MADE AS THE ENTIRE AMOUNT IS TO BE RETURNED WITH P REMIUM. HE POINTED OUT THAT THE CIT HAS NO BASIS FOR ISSUING THE DIRECTIONS TO DISA LLOW THE PROVISIONS. IN RESPECT OF THE FIRST SIXTY DAYS HE SUBMITTED THAT ONCE THE MO RATORIUM IS OVER I.E. ON 60 DAYS THE LIABILITY WOULD ARISE FOR THAT FIRST 60 DAYS A LSO. ON THE SUBMISSION OF THE DR THAT CERTAIN SCHEMES ARE UNWORKABLE HE SUBMITTED T HAT THIS IS ALL THE MORE REASON TO JUSTIFY THE PROVISION MADE BY THE ASSESSEE. ON T HE ALLEGATION THAT THE AMOUNT WAS COLLECTED PRIOR TO THE LAUNCH OF THE SCHEME TH E LEARNED COUNSEL PRODUCED FURTHER PAMPHLETS AND SUBMITTED THAT MANY SCHEMES ARE PRE LAUNCHED YEAR AFTER YEAR AND THE DR WAS FACTUALLY INCORRECT AND THAT HE HAD A WRONG IMPRESSION. 41. MR. DASTUR VEHEMENTLY CONTENDED THAT THE CIT HA S NOT REFERRED TO ANY OF THE REASONS MENTIONED BY THE LEARNED DR AND ALLEGED THA T THE LEARNED DR WANTED TO PASS AFRESH ORDER UNDER SECTION 263 BY GIVING HIS OWN SET OF REASONS AND SUBMITTED THAT THIS IS NOT PERMISSIBLE. HE SUBMITTED THAT THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. VS. CIT 24 5 ITR 428 VERY MUCH APPLIES TO THE CASE OF THE ASSESSEE. ON THE OTHER ISSUES HE S UBMITTED THAT THE CIT HAS SIMPLY RESTORED THESE MATTERS TO THE FILE OF THE AO FOR FR ESH VERIFICATION AND THAT SUCH A DIRECTION IS NOT PERMISSIBLE. HE ONCE AGAIN DREW TH E ATTENTION TO THE BENCH TO THE VARIOUS DOCUMENTS IN THE PAPER BOOKS TO DEMONSTRATE THAT THE AO HAD IN FACT ASKED FOR THE DETAILS AND HAD VERIFIED THE SAME. 42. THE LEARNED DR IN HIS REJOINDER RELIED ON THE DECISION OF K.C.P. LTD. V/S CIT 245 ITR 421. HE AGAIN REBUTTED THE ARGUMENTS RAISED BY MR. DASTUR. 32 43. LATER AFTER THE CASE WAS HEARD AND ORDERS WERE RESERVED THE LEARNED DR VIDE HIS LETTER DATED 27-01-2011 SUBMITTED THAT ON SIMILAR FACTS AND ISSUES THAT ARISE IN THIS APPEAL QUESTIONS ARE PENDING BEFORE THE SPECIAL BENCH OF THE TRIBUNAL AT CUTTACK IN THE CASE OF M/S T.K. INTERNATIONAL LT D. BHUVANESHWAR IN ITA NO. 76/CTK/2007 AND THAT THE ORDERS IN THE PRESENT MATT ER SHOULD BE KEPT RESERVED OR THE ORDER DEFERRED TILL THE SPECIAL BENCH IN THE CA SE OF M/S T.K. INTERNATIONAL LTD. (SUPRA) PRONOUNCES THE ORDER. THE BENCH DIRECTED TH E REGISTRY TO POST THIS APPLICATION OF THE LEARNED DR FOR HEARING ON 18 TH FEB. 2011. ON THAT DATE SHRI S.E. DASTUR SENIOR ADVOCATE FILED AN ORDER OF THE TRIBUNAL IN THE CASE OF T.K. INTERNATIONAL (SUPRA) ORDER DATED 27-07-2010 IN ITA NO. 76/CKT/2007 AND ITA NO. 154/CKT/2008 AND SUBMITTED THAT THE ISSUE HAS A LREADY BEEN DISPOSED OF BY THE DIVISION BENCH OF THE TRIBUNAL BY FOLLOWING TH E DECISION OF THE SPECIAL BENCH IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS LTD. (SU PRA). HE POINTED OUT THAT M/S. T.K. INTERNATIONAL LTD. WAS AN INTERVENER IN THE C ASE OF MAHINDRA HOLIDAYS & RESORTS LTD. (SUPRA). HE FURTHER SUBMITTED THAT THE LEARNED DR SHOULD HAVE MADE THE APPLICATION AFTER PROPER VERIFICATION OF THE FA CTS AND FURTHER SUBMITTED THAT THOUGH THIS BEING A STAY GRANTED MATTER AND THE LEA RNED DR HAS TAKEN NUMEROUS ADJOURNMENTS ON VARIOUS GROUNDS AND THAT THIS HAS C AUSED GRAVE PREJUDICE TO THE ASSESSEE AND THAT THERE SHOULD BE NO FURTHER DELAY IN RESOLVING THE ISSUE. THE LEARNED DR SOUGHT A SHORT ADJOURNMENT ON PERSONAL G ROUNDS. IN VIEW OF THE REQUEST FOR ADJOURNMENT WE ADJOURNED THE CASE TO 25 TH FEB. 2011. ON THIS DATE THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED A LETTER STAT ING THAT HIS INFORMATION ABOUT A SPECIAL BENCH BEING PENDING IS WRONG AND EXPRESSED HIS REGRET AND INDICATED THAT THE ORDER MAY BE PRONOUNCED. 44. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE A S THE CUTTACK BENCH OF THE TRIBUNAL HAS ALREADY DISPOSED OF THE CASE OF T.K. I NTERNATIONAL (SUPRA) AND AS THERE 33 IS NO OTHER SPECIAL BENCH DECISION WHICH IS AWAITED ON DATE ON THIS VERY ISSUE WE PROCEED TO DISPOSE OF THE ISSUE ON HAND. 45. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D WE HAVE TO HOLD AS FOLLOWS. 46. THE ARGUMENTS OF THE PARTIES CAN BE CATEGORISED INTO THREE ASPECTS. THE FIRST IS WHETHER THE ASSESSMENT ORDER WAS PASSED WITHOU T PROPER APPLICATION OF MIND AND WITHOUT VERIFICATION OF THE DETAILS SUBMITTED A ND WITHOUT CONSIDERING THE VITAL ASPECTS REQUIRED TO BE CONSIDERED IN AN ASSESSMENT; (II) WHETHER THE DIRECTION OF THE CIT THAT THE ADVANCE RECEIVED ON SALE OF ROOM NIGHT S IS TO BE TREATED AS INCOME IS CORRECT OR NOT; (III) WHETHER THE DIRECTION OF THE CIT TO THE A.O. TO DISALLOW THE PROVISIONS MADE FOR HOLIDAY MEMBERSHIP SURRENDERED VALUE IS CORRECT OR NOT. THE ENTIRE ARGUMENTS ARE CENTERED ON THESE THREE ISSUES AND EACH PARTY MADE THEIR POINTES FROM DIFFERENT ANGLES ON THE SAME ISSUE. WE FIRST CONSIDER THE ARGUMENT OF THE LEARNED SR. COUNSEL SHRI S.E. DASTUR. THE ARGU MENTS THAT THE CIT WAS WRONG IN HOLDING THAT THE ASSESSING OFFICER PASSED THE OR DER PRIOR TO THE DATE OF FINAL HEARING APPEARS TO BE CORRECT. THE DETAILS CALLED F OR VIDE LETTER DATED 30 TH APRIL 2007 BY THE ASSESSING OFFICER FROM THE ASSESSEE WE RE FURNISHED MUCH PRIOR TO THE COMPLETION OF ASSESSMENT AND EXCEPT FOR ASKING THE ASSESSING OFFICER TO VERIFY THE MARKETING EXPENSES THERE IS NO POINT RAISED BY THE CIT IN HIS 263 ORDER ON THE OTHER THREE ISSUES I.E. DISALLOWANCE UNDER SECTION 40A(2B) PRODUCTION OF BANK ACCOUNT AND ADDITION TO BLOCK OF ASSETS. WHILE SAYI NG SO WE ALSO OBSERVE THAT WHILE THE ASSESSING OFFICER CALLED FOR INFORMATION ON ACCOUNT OF MARKETING EXPENSES ETC. THE SAME WERE FILED ONLY ON 26 TH APRIL 2007 AND IN OUR CONSIDERED OPINION SUCH VOLUMINOUS DETAILS CANNOT BE EXAMINED IN ONE DAY AND ORDER PASSED ON 27 TH APRIL 2007. WE WOULD BE DEALING WITH THE OTHER ARG UMENTS OF THE LEARNED 34 SR. COUNSEL IN SUBSEQUENT PARAGRAPHS. THE ARGUMENT S THAT IN THE FRESH ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R/W 263 NO ADDITION HAS BEEN MADE EXCEPT IN THE CASE OF ADVANCE RENT RE CEIVED ON SALE OF ROOM NIGHTS AND PROVISIONS FOR HOLIDAY MEMBERSHIP SURRENDERED V ALUE AND THUS THE REVISION ON ACCOUNT OF OTHER ISSUES IS BAD IN LAW CANNOT BE ACCEPTED. THE REVISION HAS TO BE EXAMINED ONLY ON THE FACTS EXISTING DURING THE REVI SION AND NOT GOVERNED BY SUBSEQUENT EVENTS. COMING TO THE DIRECTION ON TREAT MENT OF ADVANCE RECEIVED ON SALE OF ROOM NIGHTS AS INCOME WE WOULD DEAL WITH T HE ISSUE IN SUBSEQUENT PARAGRAPHS. BUT AS TO THE ISSUE WHETHER THE ASSESSI NG OFFICER HAS EXAMINED THESE VITAL ASPECTS DURING THE COURSE OF ASSESSMENT PROCE EDINGS OR NOT WE FIND THAT THE ASSESSING OFFICER HAS NOT SPECIFICALLY EXAMINED THI S ISSUE AND THIS IS CONCEDED BY THE LEARNED SR. COUNSEL SHRI DASTUR WHEN HE SUBMI TTED THAT THE ASSESSING OFFICER HAS NOT ASKED ANY SPECIFIC QUESTION AS TO WHY THE A MOUNT WAS NOT TAXABLE IN THIS YEAR. HE TRIED TO DEFEND THE ASSESSEE BY SUBMITTING THAT IN THE EARLIER ASSESSMENT YEAR THE OPINION OF A LEADING CHARTERED ACCOUNTANT S FIRM WAS FILED ON THE ISSUE OF TAXABILITY OF ADVANCE SALE OF ROOM NIGHTS. FILING O F AN OPINION IN THE PREVIOUS ASSESSMENT YEARS IN OUR OPINION DOES NOT LEAD TO OUR CONCLUSION THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND AND EXAMINED THE ISSUE OF TAXABILITY ON ACCRUAL OF THE AMOUNTS RECEIVED ON ADVANCE SALE OF ROOM NIGHTS DUR ING THE IMPUGNED ASSESSMENT YEARS. WE DO NOT AGREE WITH THE ARGUMENT THAT THE A SSESSING OFFICER HAS AFTER DUE VERIFICATION AND AFTER APPLICATION OF MIND HAS CO ME TO A CONSIDERED VIEW THAT THESE ADVANCES ARE NOT TAXABLE AS INCOME. WE ARE IN CLINED TO UPHOLD THE ORDER PASSED UNDER SECTION 263 ON THIS PARTICULAR ASPECT OF NON APPLICATION OF MIND ON THE ISSUE WHETHER THE ADVANCE AMOUNT RECEIVED ON AC COUNT OF SALE OF ROOM NIGHTS IS TO BE CONSIDERED AS INCOME OR NOT. ON THE OTHER ISS UES OF MARKETING EXPENDITURE ADDITION ON ACCOUNT OF NUCA AND DISALLOWANCE UNDER SECTION 40A(IA) WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE ACADEMIC TO ADJUDICATE THIS ISSUE AS 35 ULTIMATELY NO ADDITION HAS BEEN MADE BY THE ASSESSI NG OFFICER IN THE ASSESSMENT ORDER PASSED IN PURSUANCE TO 263 ORDER AND AS WE HA VE ALREADY HELD THAT ON THE ISSUE OF TAXABILITY OF ADVANCE RECEIVED ON SALE OF ROOM NIGHTS THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND AND HENCE ON THI S ACCOUNT THE RE OPENING SHOULD BE UPHELD. 46(A) COMING TO THE ARGUMENTS OF LEARNED DEPARTMENT AL REPRESENTATIVE THE ISSUE WHETHER THERE ARE DISCREPANCIES IN THE PAPER BOOK F ILED HAS BEEN RESOLVED BY THE CLARIFICATION GIVEN BY THE LEARNED SR. COUNSEL IN ANY EVENT THESE ISSUES ARE NOT CRUCIAL TO THE DECISION TO BE GIVEN IN THIS CASE. C OMING TO THE OPINION GIVEN BY THE A.F. FERGUSONS WE HAVE ALREADY HELD THAT THEY ARE NOT PART OF THE RECORD OF THE CURRENT YEAR. THE ENTIRE EFFORT MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS TO CONVINCE THE BENCH THAT THE ASSESSING OFFICER HA S NOT PROPERLY EXAMINED MANY ISSUES AND THAT THE ORDER WAS PASSED IN A SUMMARY M ANNER WITH UNDUE HASTE AND WITHOUT CONDUCTING THE RELEVANT NECESSARY AND PROP ER AND REQUISITE ENQUIRIES. WE ARE PARTIALLY CONVINCED ON THESE SUBMISSIONS. IF NO T IN ALL THE ISSUES RAISED BY THE LEARNED SR. COUNSEL AT LEAST ON SOME ISSUES LIKE TAXABILITY OF ADVANCE SALE OF ROOM NIGHTS AND ALLOWABILITY OF PROVISIONS OF HOLIDAY ME MBERSHIP SURRENDERED SCHEME WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER ACCEPTED THE SUBMISSIONS OF THE ASSESSEE ON FACE VALUE WITHOUT CONDUCTING RELEVANT NECESSARY PROPER AND REQUISITE ENQUIRIES THOUGH THEY WERE VI TAL ISSUES. 46(B) ON THE ISSUE OF TAXABILITY OF AMOUNT RECEIVED AS ADVANCE SALE OF ROOM NIGHTS AND ALLOWABILITY OF PROVISIONS OF HOLIDAY MEMBERSHI P SURRENDERED SCHEME WE WOULD DEAL WITH THE SAME IN SUBSEQUENT PARAGRAPHS. ON THE ISSUE WHETHER THE ASSESSMENT ORDER IS ANTE DATED IS ALSO DEALT SEPARA TELY. LEARNED DEPARTMENTAL REPRESENTATIVE HAS RAISED SO MANY ISSUES WHICH IN OUR CONSIDERED OPINION WERE 36 NOT AT ALL THE BASIS ON WHICH THE CIT HAS MADE REVI SION UNDER SECTION 263. THOUGH WE HAVE MENTIONED THE ARGUMENTS WE DO NOT DEEM IT NECESSARY TO ANSWER EACH AND EVERY ARGUMENT WHEN IT IS CLEAR THAT THE ARGUMENT WAS NOT ON THE BASIS OF WHICH THE CIT HAS PASSED HIS ORDER OF REVISION UNDER SECT ION 263. 46(C). THE ISSUE THAT WE HAVE TO CONSIDER IS WHETHE R THE ORDER OF THE CIT PASSED U/S 263 HAS TO BE EXAMINED BASED ON THE REASONS AND FIN DINGS RECORDED THEREIN AND NOT BASED ON REASONS AND SUBMISSIONS WHICH ARE GIVEN BY THE REVENUE AT THE TIME OF HEARING TO SUBSTANTIATE THE ORDER PASSED U/S 263. THE LAW ON THIS SUBJECT IS CLEAR. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. JAGADHRI ELECTRIC SUPPLY AND INDUSTRIAL CO. 140 ITR 490 HEL D AS FOLLOWS : HELD THE JURISDICTION VESTED IN THE CIT UNDER S. 263(1) IS OF A SPECIAL AND EXCLUSIVE NATURE. AT THE TIME OF HEARING OF THE APPEAL AGAINST CIT'S ORDER UNDER S. 263(1) IF THE ASSESSEE CAN SATISFY THE TRIBUNAL THAT THE GROUNDS FOR DECISION GIVEN IN THE ORDER BY THE CIT ARE WRONG ON FACTS OR ARE NOT TENABLE IN LAW THE TRIBUNAL HAS NO OPTION BUT TO ACCEPT THE APPEAL AND TO SET ASIDE THE ORDER OF THE CIT. THE TRIBUNAL CANNOT UPHOLD THE ORDER OF THE CIT ON ANY OTHER GROUND WHICH IN ITS OPINIO N WAS AVAILABLE TO THE CIT AS WELL BUT WAS NOT RELIED UPON BY THE CIT IN H IS S. 263(1) ORDER. IF THE TRIBUNAL IS ALLOWED TO FIND OUT THE GROUNDS AVAILAB LE TO THE CIT TO PASS AN ORDER UNDER S. 263(1) THEN IT WILL AMOUNT TO SHARIN G OF THE EXCLUSIVE JURISDICTION VESTED IN THE CIT WHICH IS NOT WARRAN TED UNDER THE ACT. IT IS ALL THE MORE SO BECAUSE THE REVENUE HAS NOT BEEN GIVEN ANY RIGHT OF APPEAL UNDER THE ACT AGAINST AN ORDER OF THE CIT UNDER S. 263(1). FURTHER IN VIEW OF THE MATTER IN APPEAL THE TRIBUNAL CANNOT UPHOLD THE ORDER APPEALED AGAINST ON THE GROUNDS OTHER THAN THOSE TAKEN BY TH E CIT IN HIS ORDER. IT IS CIT'S SATISFACTION ACCORDING TO WHICH HE MAY PASS N ECESSARY ORDERS THEREUNDER IN ACCORDANCE WITH LAW. IF THE GROUNDS W HICH WERE AVAILABLE TO HIM AT THE TIME OF THE PASSING OF THE ORDER DO NOT FIND MENTION IN HIS ORDER APPEALED AGAINST THEN IT WILL BE DEEMED THAT HE RE JECTED THOSE GROUNDS FOR THE PURPOSE OF ANY ACTION UNDER S. 263(1). IN THIS SITUATION THE TRIBUNAL WHILE HEARING AN APPEAL FILED BY THE ASSESSEE CANNO T SUBSTITUTE THE GROUNDS WHICH THE CIT HIMSELF DID NOT THINK PROPER TO FORM THE BASIS OF HIS ORDER. ACCORDINGLY ON THE FACTS OF THE PRESENT CASE THE T RIBUNAL WAS NOT COMPETENT TO TAKE INTO CONSIDERATION THE FACT OF IN CREASE IN THE NUMBER OF ADULT PARTNERS FROM 10 TO 11 WHEN THE ADDL. CIT HAD NOT IN FACT RELIED UPON THE SAID CHANGE IN HOLDING THE ITO'S ORDER TO BE ERRONEOUS. 37 47. IN THE CASE OF CIT VS. CHANDRIKA EDUCATIONAL TR UST 207 ITR 108 THE KERALA HIGH COURT HELD AS FOLLOWS : IN ENTERTAINING AN APPEAL FROM THE COMMISSIONERS ORDER WHAT THE TRIBUNAL DOES IS TO EXAMINE WHETHER THE SAID ORDER IS SUSTAINABLE IN LAW AND WHETHER IT IS WITHIN THE POWERS CONFERRED BY SECTIO N 263. THEREFORE WHEN THE COMMISSIONER HAS CHOSEN TO SET ASIDE THE ORDER OF THE INCOME-TAX OFFICER ONLY ON A PARTICULAR GROUND THE TRIBUNAL I S NOT ENTITLED TO GO BEYOND AND SUSTAIN THE ORDER OF THE COMMISSIONER ON GROUND S DIFFERENT FROM THAT RELIED ON BY THE COMMISSIONER HIMSELF. CIT V. JAGADHRI ELECTRICAL SUPPLY AND INDUSTRIAL CO . [1983] 140 ITR 490 (P&H) FOLLOWED. 48. THE HONBLE COURT HELD THAT; THE COMMISSIONER OF INCOME-TAX HAD SET ASIDE THE ORDER OF ASSESSMENT ON THE SOLE GROUND OF DELAYED WITHDRAWAL OF THE SHARE OF PROFITS AND IT WAS NOT OPEN TO THE TRIBUNAL TO SUSTAIN IT O N OTHER GROUNDS. 49. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. L.F.DSILVA 192 ITR 547 OBSERVED AS FOLLOWS : THE JURISDICTION VESTED IN THE COMMISSIONER UNDER SECTION 263(1) OF THE INCOME-TAX ACT 1961 IS OF A SPECIAL NATURE OR IN OTHER WORDS THE COMMISSIONER HAS THE EXCLUSIVE JURISDICTION UNDER T HE ACT TO REVISE THE ORDER PASSED BY THE INCOME-TAX OFFICER IF HE CONSID ERS THAT ANY ORDER PASSED BY HIM WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIA L TO THE INTERESTS OF THE REVENUE. IN THE MEMORANDUM OF APPEAL THE ASSESSEE IS SUPPOSED TO ATTACK THE ORDER OF THE COMMISSIONER AND TO CHALLENGE THE GROUNDS FOR DECISION GIVEN BY HIM IN HIS ORDER. AT THE TIME OF THE HEARI NG IF THE ASSESSEE CAN SATISFY THE TRIBUNAL THAT THE GROUNDS FOR DECISION GIVEN IN THE ORDER BY THE COMMISSIONER ARE WRONG ON FACTS OR ARE NOT TENABLE IN LAW THE TRIBUNAL HAS NO OPTION BUT TO ACCEPT THE APPEAL AND TO SET ASIDE THE ORDER OF THE COMMISSIONER. THE TRIBUNAL CANNOT UPHOLD THE ORDER OF THE COMMISSIONER 38 ON ANY OTHER GROUND WHICH IN ITS OPINION WAS AVAI LABLE TO THE COMMISSIONER AS WELL. HELD THAT IN THE INSTANT CASE THE SOLE BASIS OF THE NOTICE ISSUED UNDER SECTION 263 WAS THAT THE CONTRIBUTION TO THE SHARE IN THE IMMOVABLE PROPERTY AS CONTRIBUTION TO THE SHARE CAPITAL OF THE PARTNER SHIP FIRM RESULTED IN TRANSFER OF AN ASSET AND IN THE SAID PROCESS WH ATEVER GAIN WAS EARNED WAS LIABLE TO CAPITAL GAINS TAX UNDER SECTION 45. THE C OMMISSIONER OF INCOME- TAX PROCEEDED AS IF THERE WAS A VALID TRANSFER UNDE R A GENUINE SITUATION. IT WAS NOT HIS CASE THAT THE CONTRIBUTION TOWARDS THE SHARE CAPITAL MADE BY THE ASSESSEE WAS ONLY A DEVICE FOR CONVERTING THE ASSET INTO MONEY. THE BASIS OF THE INITIATION OF PROCEEDINGS BY THE COMMISSIONER C OULD NOT BE ALTERED BY THE TRIBUNAL. SEONDLY THE TRIBUNAL HAD GIVEN A DEF INITE FINDING THAT THE TRANSACTION WAS GENUINE. HENCE THE ASSESSEE WAS NO T LIABLE TO TAX ON CAPITAL GAINS. CIT V. HARIKISHAN JETHALAL PATEL [1987] 168 ITR 472 (GUJ). 50. FROM THE ABOVE IT IS CLEAR THAT IT IS NOT OPEN FOR US TO UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX EXERCISING HIS POWER U/S 263 ON GROUNDS DIFFERENT FROM THAT RELIED UPON BY THE COMMISSIONER ITSELF. WITH THIS BACKGROUND WE NOW CONSIDER EACH ISSUE BASED ON WHICH THE CIT HAS REV ISED THE ORDER U/S 263 OF THE INCOME-TAX ACT 1961. 51. THE FIRST ISSUE IS THAT THE ASSESSMENT ORDER IS PASSED PRIOR TO THE DATE OF FINAL HEARING ON 15 TH MAY 2007. WE AT THE FIRST INSTANCE CONSIDER THE CASE LAWS RELIED UPON THE COUNSELS ON THE NATURE AND SCOPE OF REVISI ON U/S 263. THE CASE THAT HAS BEEN RELIED UPON STRONGLY BY BOTH THE PARTIES IS A CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83. IN THIS JUDGMENT THE HONB LE SUPREME COURT HAS HELD THAT : A) THE PRE-REQUISITE TO EXERCISE OF JURISDICTION B Y THE CIT SUO MOTU U/S 263 IS THAT THE ORDER OF THE ITO SATISFIES THE TWIN CONDITIONS NAMELY I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERR ONEOUS AND 39 II) IT IS PREJUDICIAL TO THE INTEREST OF THE REVEN UE. B) THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO. C) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORREC T APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOU S. D) IN THE SAME CATEGORY ARE ANTE ORDERS PASSED W ITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. E) THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. F) IF DUE TO AN ERRONEOUS ORDER OF THE ITO THE RE VENUE IS LOSING THE TAX LAWFULLY PAYABLE BY A PERSON IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE PREJUDICIAL TO THE INTEREST OF THE REVENUE IS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A O. G) EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN OR DER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE RE VENUE. FOR EXAMPLE IF THE AO ADOPTED ONE OF THE VIEW PERMISSIBLE IN LAW OR WHER E TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES N OT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER WHICH IS PREJUDICIAL TO THE I NTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. H) IF THE AO PASSED AN ORDER WITHOUT APPLICATION O F MIND OR FAILED TO APPLY HIS MIND TO THE CASE IN ALL PERSPECTIVE THE ORDER PASSED BY HIM WAS ERRONEOUS. I) MERE ACCEPTANCE OF A STATEMENT FILED BY THE ASS ESSEE IN THE ABSENCE OF ANY SUPPORTING MATERIAL AND WITHOUT MAKING ANY ENQU IRY WOULD MAKE THE ORDER OF THE AO ERRONEOUS. 40 52. THE CASE OF GREEN WORLD CORPORATION VS. ITO 285 ITR 118 (HIMACHAL PRADESH) WAS A CASE WHERE THE AO PASSED AN ORDER ON THE DICTATES OF HIS SUPERIOR OFFICER WITHOUT CALLING FOR MORE INFORMATION AND IN SUCH A SITUATION THE HONBLE COURT HAS HELD THAT THE ORDER WAS PASSED BY THE AO ON ACCOUNT OF UNWARRANTED INTERFERENCE BY SUPERIOR AUTHORITY. 53. IN THE CASE OF GABRIAL INDIA 203 ITR 108 THE H ONBLE COURT HELD THAT TWIN CONDITIONS OF THE ORDER BEING ERRONEOUS AND SUCH ER ROR RESULTING IN PREJUDICE TO THE REVENUE HAVE TO BE SATISFIED. IT HELD THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. JUST BECAU SE AN ORDER IN THE OPINION OF THE COMMISSIONER SHOULD HAVE BEEN WRITTEN MORE ELABOR ATELY CANNOT BE A REASON FOR BRANDING THE ORDER AS ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. IN THIS CASE THE ITO HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE AND ON RECEIVING THE EXPLANATION ALLOWED THE CLAIM. IN SUCH A SITUATION THE HONBLE COURT HELD THAT THE ORDER CANNOT BE TERMED AS ERRONEOUS SIMPLY BECAUSE IN THE ASSESSMENT ORDER THE AO DID NOT MAKE ELABORATE DISCUSSION IN THIS REGARD . 54. THE COMMISSIONER AFTER INITIATING PROCEEDINGS F OR REVISION AND HEARING THE ASSESSEE COULD NOT SAY THAT THE ALLOWANCE OF THE C LAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME TAX O FFICER TO REEXAMINE THE MATTER AND THAT THIS WAS NOT PERMISSIBLE. 55. IN THE CASE OF CIT VS MAX INDIA LTD. REPORTED IN 295 ITR 282 (SC) THE HONBLE SUPREME COURT REITERATED THE PRINCIPLES LAI D DOWN IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA). IT HELD THAT THE LAW P REVAILING AS ON THE DATE OF PASSING OF AN ASSESSMENT ORDER SHOULD BE APPLIED NOT WITHS TANDING RETROSPECTIVE 41 AMENDMENT WHILE EXAMINING WHETHER VIEW TAKEN BY TH E AO AT THE RELEVANT TIME WAS UNSUSTAINABLE IN LAW. 56. THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE O F RAJYA LAXMI MILLS LTD. VS. ITO HELD THAT IF AN ASSESSING OFFICER FAILED TO MA KE ANY ENQUIRY AS REGARDS ALLOWABILITY OF A CLAIM THE SAME WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IS AMENABLE TO REVISIONAL JURISDICT ION OF CIT. IT FURTHER HELD THAT THE CIT CAN HOLD THE ORDER AS ERRONEOUS ON THE GROU ND THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO SHOULD HAVE MADE FURTHER ENQUIRIES BEFORE ACCEPTING THE STATEMENT MADE BY THE ASSESSEE IN HIS RETURN. IT POINTED OUT THAT THE AO IS NOT ONLY AN ADJUDICATOR BUT IS ALSO AN INVEST IGATOR AND HENCE HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APP ARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. 57. IN THE CASE OF JAGDISH KUMAR GULATI VS. CIT 269 ITR 71 THE HONBLE ALLAHABAD HIGH COURT HAS HELD THAT THE ASSESSMENT O RDER CAN BE HELD TO BE ERRONEOUS AND PREJUDICIAL WHEN IT IS PASSED WITHOUT PROPER ENQUIRIES. 58. IN THE CASE OF SAIPEN S.P.A. VS. CIT THE DELHI C-BENCH OF THE TRIBUNAL 123 ITD 153 WAS CONSIDERING THE CASE WHERE THE AO HAD TAKEN A VIEW WHICH IS NEITHER AS PER THE DTAA NOR AS PER SECTION 44BB AND IN SUCH A SITUATION IT CANNOT BE HELD THAT IT WAS A POSSIBLE VIEW THOUGH THE DEPARTMENT HAD IN EARLIER YEARS ACCEPTED SUCH CLAIMS OF THE ASSESSEE. THE TRIBUNAL HELD THAT DUE TO LACK OF PROPER ENQUIRY AND FOR WANT OF PROPER APPLICATION OF MIND BY THE ASSESSING OFFICER THE CIT WAS JUSTIFIED IN EXERCISING HIS JURISDICTION U/S 263. 59. IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (DEL) (FB) 256 ITR 1 THE HONBLE COURT WAS CONSIDERING THE VALIDITY OF REOPE NING. THE HONBLE COURT HELD THAT THE AO DOES NOT HAVE ANY JURISDICTION TO REVIE W HIS OWN ORDER AND WHAT CANNOT BE DONE DIRECTLY CANNOT BE DONE INDIRECTLY. IT HELD THAT REOPENING CANNOT BE 42 MADE ON A CHANGE OF OPINION. THE LEARNED COUNSEL RE LIES ON PARA 23 OF THIS JUDGMENT WHERE IT IS HELD THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SUB-SECTION (3) OF SECTION 143 A PRESUMPT ION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIND. 60. THE LEARNED DR ON THE OTHER HAND RELIED ON PA RA 15 OF THIS JUDGMENT WHEREIN IT IS HELD THAT THE AO DOES NOT POSSESSES T HE POWER OF REVIEW SO AS TO INITIATE REASSESSMENT PROCEEDINGS OR TO RECTIFY A M ISTAKE AND THAT IN SUCH A SITUATION IT CANNOT BE SAID THAT THE REVENUE IS WI THOUT REMEDY AS SECTION 263 OF THE ACT EMPOWERS THE CIT TO REVIEW AN ORDER WHICH IS PREJUDICIAL TO THE REVENUE. 61. IN ITA NO. 774/MUM/2009 THE MUMBAI E-BENCH OF THE TRIBUNAL IN THE CASE OF SOHAM DATTA PROCESSING AND FINANCE PVT LTD. OR DER DATED 26 TH FEB. 200 HELD THAT THE DECISION AND THE PROPOSITION IN THE CASE O F KELVINATOR OF INDIA LTD. (SUPRA) IS RELEVANT ONLY IN THE CONTEXT OF JUDGING THE VALI DITY OF INITIATION OF REASSESSMENT PROCEEDINGS U/S 148 OF THE ACT AND NOT TO 263 PROCE EDINGS. THE 263 ORDER PASSED BY THE COMMISSIONER WAS UPHELD AS THERE IS NOT EVEN A REFERENCE TO CERTAIN AGREEMENTS AND HENCE IT CANNOT BE HELD THAT IT IS A POSSIBLE VIEW. 62. IN THE CASE OF TATA B SOLAN INDIA LTD. ITA NO. 3381/MUM/2009 THE E- BENCH OF THE TRIBUNAL IN ITS ORDER DATED 30 TH SEPT. 2010 WAS CONSIDERING A SITUATION WHERE THE AO DID NOT RAISE ANY SPECIAL QU ERY REGARDING THE CLAIM OF DEPRECIATION AT 80% ON CERTAIN ITEMS OF MACHINERY WHICH WERE CLAIMED AS RENEWABLE ENERGY DEVISES. AS NECESSARY ENQUIRIES WE RE NOT MADE THE ORDER U/S 263 WAS UPHELD. 63. IN THE CASE OF ARVEE INTERNATIONAL VS. ADDL. C IT 101 ITD 495 THE MUMBAI BENCH OF THE TRIBUNAL HELD THAT WHEN AN ASSESSMENT IS MADE WITHOUT APPLICATION OF MIND THE ORDER WILL BE ERRONEOUS. 43 64. ON THESE PARAMETERS WE EXAMINE THE FACTS OF TH E PRESENT CASE. 65. THE FIRST GROUND ON WHICH THE CIT PASSED HIS RE VISION IS THAT THE ASSESSMENT ORDER WAS PASSED PRIOR TO THE DATE OF FINAL HEARING WHICH IN HIS OPINION WAS 15 TH MAY 2007. WE FIND THAT THIS FINDING HAS THREE COMPO NENTS (I) WHETHER THE ASSESSMENT ORDER WAS PASSED PRIOR TO THE DATE OF FI NAL HEARING; (II) WHETHER ANY FRESH INFORMATION WAS SOUGHT BY THE ASSESSING OFFIC ER AFTER THE COMPLETION OF ASSESSMENT OR HAS THE ASSESSING OFFICER IN POST AS SESSMENT PROCEEDINGS SOUGHT THE VERY SAME INFORMATION WHICH HE HAD ASKED PRIOR TO THE COMPLETION OF ASSESSMENT; AND (III) WHETHER IN VIEW OF THE VOLUMI NOUS DETAILS FILED BY THE ASSESSEE IT COULD BE SAID THAT THE ASSESSING OFFIC ER DID NOT HAVE ENOUGH TIME TO EXAMINE THE SAME AND HAS PASSED THE ASSESSMENT ORDE R WITHOUT VERIFYING THE DETAILED SUBMITTED AND WITHOUT PROPER APPLICATION O F MINE. 65(I) THE CIT IN THIS CASE HAS REVISED AN ORDER OF ASSESSMENT DATED 27 TH APRIL 2007. THE CASE OF THE LEARNED DEPARTMENTAL REPRESEN TATIVE IS THAT THE ASSESSING OFFICERS ORDER IS ANTI DATED. IN OUR CONSIDERED OPINION IT SHOULD NOT LIE IN THE MOUTH OF REVENUE TO ARGUE THAT THE ASSESSMENT ORDE R IN QUESTION WAS NOT PASSED ON 27 TH APRIL 2007 BUT WAS PASSED POSSIBLY SOMEWHERE BETW EEN 18 TH MAY 2007 AND BEFORE 24 TH MAY 2007. SUCH AN ARGUMENT IS SELF DESTRUCTIVE A S IN OUR OPINION IF IT IS ACCEPTED THEN THERE IS NO VALID ASSESSMEN T ORDER PASSED ON 27 TH APRIL 2007 WHICH COULD HAVE BEEN REVISED BY THE CIT. THIS IS N OT THE CASE OF CIT. THE LEARNED DEPARTMENTAL REPRESENTATIVE IS WRONG AND FACTUALLY INCORRECT IN ARGUING THAT THE ASSESSMENT ORDER IS ANTI DATED. A PERUSAL OF THE ASSESSMENT RECORD AND THE O RDER SHEET ENTRIES DISCLOSE THAT THE ASSESSMENT ORDER WA S PASSED ON 27-4-2007. AFTER THAT DATE THERE ARE NO ORDER SHEET ENTRIES IN THE A SSESSMENT DIARY. THE LEARNED DR BASES THESE ARGUMENTS ON CERTAIN INTERNAL REGISTERS MAINTAINED BY THE DEPARTMENT AND THE MANUAL OF OFFICE PROCEDURE. A PERUSAL OF TH E ENTRIES IN THE CURRENT 44 DEMAND AND COLLECTION REGISTER DISCLOSE THAT THE ENTRIES ARE NOT MADE DATE- WISE AND IN FACT AN ENTRY IN THE CASE OF THE PRECIS ION CLAUSE (2) LIMITED IS MADE AFTER THE ENTRY IN THE CASE OF PSL & CO. THE ASSESS MENT ORDER IN THE CASE PRECISION CLAUSE (2) LIMITED WAS PASSED ON 9 TH MAY 2007 AND WHEREAS THE ASSESSMENT ORDER IN THE CASE OF PSL & CO. WAS PASSED ON 24 TH MAY 2007. IN ANY EVENT AN ENTRY PASSED IN CURRENT DEMAND AND COLLECTION REGISTER C ANNOT BE THE BASIS OF DETERMINATION OF THE DATE OF PASSING THE ASSESSMENT ORDER. EVEN THE LEARNED CIT- DR IS UNABLE TO PINPOINT A PARTICULAR DATE ON WHICH THE ASSESSMENT ORDER IS IN HIS VIEW WAS PASSED. HE JUST GIVES A PERIOD OF A RANGE OF 4 TO 5 DAYS. THIS ARGUMENT IS DISMISSED AS BEREFT ON MERIT. THE CASE LAWS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN SUPPORT OF HIS ARGUM ENT THAT EVEN AN ANTI DATED ORDER IS VALID DOES NOT HELP THESE CASE LAWS ARE NOT ON THIS POINT. 66. COMING TO THE FINDING OF THE CIT THAT THE AO IS SUED A LETTER ON 30 TH APRIL 2007 ASKING FOR SOME DETAILS AND FIXING THE DATE OF HEARING ON 15-05-2007 AND THAT THE ORDER OF ASSESSMENT WAS PASSED PRIOR TO THAT ON 27 TH APRIL 2007 WE HOLD THAT THE AO IS FUNCTUOUS OFFICIO AFTER 27 TH APRIL 2007 I.E. ON PASSING OF THE ASSESSMENT ORDER. THE LETTER ISSUED ON 30 TH APRIL 2007 ASKING FOR SOME DETAILS IS WITHOUT AUTHORITY. THUS IN OUR HUMBLE OPINION THIS CANNOT BE A BASIS FOR INVOKING POWERS OF REVISION U/S 263 OF THE ACT. 67. COMING TO THE ISSUE WHETHER THE ASSESSING OFFIC ER HAD ASKED FOR SUCH DETAILS WHICH ARE ALREADY FILED BY THE ASSESSEE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS AND WHICH ARE PART OF THE ASSESSMENT RE CORD VIDE THE ASSESSING OFFICERS LETTER DATED 30 TH APRIL 2007 WE FIND THAT THE ASSESSEE HAS SHOWN EV IDENCE THAT ALL THE DETAILS SOUGHT FOR VIDE LETTER DATED 30 TH APRIL 2007 WERE IN FACT FILED BEFORE THE ASSESSING OFFICER BEFORE COMPLETION OF ASSESSMENT ON 27.4.2007. IN ANY EVENT AS WE HAVE HELD THAT THE LETTER DATED 30 TH APRIL 2007 WAS ISSUED BY THE 45 ASSESSING OFFICER WITHOUT JURISDICTION AND AS WE HA VE HELD THAT THE ASSESSING OFFICER WAS FUNCTUS OFFICIO AFTER 27 TH APRIL 2007 THE LETTER DATED 30 TH APRIL 2007 HAS NO LEGAL SANCTION. THUS LOOKING AT THE ISSUE F ROM ANY ANGLE IN OUR OPINION THE CIT WAS WRONG IN REVISING THE ORDER ON THE GROUND T HAT THE ASSESSMENT ORDER WAS PASSED PRIOR TO THE DATE OF FINAL HEARING. THIS IS FACTUALLY INCORRECT AS THE DATE OF FINAL HEARING AS PER ASSESSMENT RECORD WAS ON 26 TH APRIL 2007. IN FACT THE CIT HIMSELF AT PAGE 5 OF HIS ORDER RECORDED THAT THE LAST HEARING TOOK PLACE ON 26 TH APRIL 2007. 68. COMING TO THE ISSUE AS TO WHETHER THE ASSESSIN G OFFICER HAS NOT APPLIED HIS MIND AND HAS COMPLETED THE ASSESSMENT WITHOUT VERIF YING THE DETAILS SUBMITTED AND OVER LOOKING VITAL ASPECTS WE FIND THAT THE CIT HA S SPECIFICALLY CONSIDERED THE LETTER DATED 06-04-2007 FILED BY THE ASSESSEE WHER EIN THE ASSESSEE HAS FURNISHED DETAILS OF PAYMENT U/S 40A(2B). THESE DETAILS WERE SIMILAR TO ANNEXURE-B OF THE TAX AUDIT REPORT. THE COMMISSIONER OBSERVED THAT TH E ASSESSEE HAS NOT EXPLAINED WITH EVIDENCE AS TO HOW THE PAYMENTS AMOUNTING TO R S.19 52 988/- WERE REASONABLE. NO EVIDENCE WAS GIVEN. SIMILARLY THOUG H THE ASSESSEE CLAIMED TO HAVE PRODUCED BILLS IN RESPECT OF ADDITION OF FIXED ASSE TS VIDE LETTER DATED 26-04-2007 THE COMMISSIONER FOUND THAT THE CLAIMS ARE NOT CORR OBORATED BY ORDER SHEET ENTRIES OR THE EVIDENCE ON RECORD. AT PAGE 5 PARA 3 AND 4 T HE CIT OBSERVED AS FOLLOWS : THE LAST HEARING TOOK PLACE ON 26.4.2007 AND THE A .O. HAD PASSED THE ORDER ON 27.4.2007. EVEN IF THE ASSESSEES CLAIM WE RE TO BE ACCEPTED THE DETAILS FURNISHED WERE VOLUMINOUS WHICH REQUIRED EN OUGH TIME TO EXAMINE BEFORE PASSING OF THE ORDER. THE HASTE IN WHICH THE ORDER WAS PASSED AMPLY DISPLAYS THAT THERE WAS NO REAL APPLICATION OF MIND BY THE A.O. BEFORE PASSING THE ASSESSMENT ORDER. THIS IS FURTHER OBVIO US FROM THE FACT THAT WHEREAS THE ASSESSEE HAD SUO MOTU DISALLOWED AN AMO UNT OF ` 7 08 706 BEING LOSS ON DEMOLITION OF THANE CLUB HOUSE AS IS EVIDENT FROM THE STATEMENT OF COMPUTATION ATTACHED WITH THE RETURN THE A.O. HAS DEVOTED ONE PARAGRAPH (PARA 5.1 OF THE ASSESSMENT ORDER) I N DISALLOWING THIS 46 AMOUNT. IN HIS REPLY DATED 19.7.2008 THE ASSESSEE S A.R. HAS STATED THAT THIS IS AN EXAMPLE OF APPLICATION OF MIND BY THE A. O. WHICH IN FACT IS OTHERWISE. WHEN AN EXPENDITURE IS NOT CLAIMED AS DE DUCTION THERE IS NO NEED FOR ANY DISCUSSION IN THE ASSESSMENT ORDER TO DISALLOW THE SAME. 69. IN OUR CONSIDERED OPINION THE REASONS GIVEN BY THE CIT AS RECORDED ABOVE JUSTIFY THE INVOKING OF JURISDICTION U/S 263 AS OB VIOUSLY THE ASSESSMENT ORDER HAS BEEN PASSED WITHOUT APPLICATION OF MIND AND WITHOUT DOING NECESSARY ENQUIRIES. THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. ARE SQUARELY APPLICABLE AS THE ORDER PASSED WAS WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE AND WITH OUT APPLICATION OF MIND. 70. IT IS A FACT THAT THE DETAILS FURNISHED BY THE ASSESSEE ARE VOLUMINOUS AND REQUIRE SUFFICIENT TIME FOR EXAMINATION. IT IS ALSO TRUE THAT CERTAIN DETAILS COLLECTED CONTAINED VITAL ASPECT OF ASSESSMENTS. THE ISSUE WH ETHER ADVANCE SALE OF ROOM NIGHTS IS INCOME OR NOT AND ALSO THE ALLOWABILITY O F EXPENDITURE DEBITED UNDER THE HEAD HOLIDAY MEMBERSHIP SURRENDERED VALUE ETC. HAVE NOT BEEN CONSIDERED AND EXAMINED IN THE ASSESSMENT ORDER. THUS ON THIS PARTICULAR POINT WE AGREE WITH THE FINDINGS OF THE CIT THAT HE HAS RIGHTLY EXERCIS ED THE POWER OF REVISION UNDER SECTION 263. 71. NOW WE CONSIDER THE SECOND MAJOR GROUND THAT T HE REVISION I.E. ACCOUNTING OF ADVANCE SALE OF ROOM NIGHTS THE FACTS HAVE ALRE ADY BEEN BROUGHT OUT BOTH IN THE ASSESSMENT ORDER AS WELL AS IN THE ORDER OF CIT AND THE ARGUMENTS OF THE PARTIES. THE DEPARTMENTAL REPRESENTATIVE IN HIS ARGUMENTS STRESSED ON THE POINT THAT THE PREDOMINANT PURPOSE IS TO SELL THE ROOM NIGHTS. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS COLLECTED AN ADVANCE UNDER PROMISE TO MAKE AVAILABLE TO ITS CUSTOMERS ROOMS IN AT ANY OF ITS HOTELS / CLUBS OW NED BY IT OR BY ITS SUBSIDIARY AS WELL AS OWNED BY THE OTHER AFFILIATED DESTINATIONS. IT IS ALSO UNDISPUTED THAT A CUSTOMER IS ENTITLED TO SURRENDER THE ROOM NIGHTS I N CASE THEY DO NOT UTILIZE THEM 47 AND OPT FOR SURRENDER VALUE. WHEN A CUSTOMER OPTS F OR SURRENDER VALUE HE SHALL BE PAID IN CASH BY THE ASSESSEE OR IN THE ALTERNATIVE THE CUSTOMER MAY OPT TO BUY OR UTILISE THE PRODUCTS AND SERVICES OF ITS COMPANY AN D ITS GROUP COMPANIES. THE CIT HAS BROUGHT OUT THE SCHEME WHICH IS THE BAS IS ON WHICH WE HAVE TO ADJUDICATE THE ISSUE FOR READY REFERENCE WE EXTRAC T THE SAME FROM PAGES 8 AND 9 OF THE CITS ORDER. I HAVE GONE THROUGH THE ADVERTISEMENT BROCHURE IN RESPECT OF ALL THE NINE SCHEMES IN OPERATION DURING THE RELEVANT ACCOU NTING YEAR. THE ADVERTISEMENT BROCHURES ARE SPECIFIC SO FAR AS THE OBJECTIVE OF THE SCHEMES IS CONCERNED. THE PRIMARY OBJECTIVE IN CO OPTING A PERSON AS A MEMBER IS TO PROVIDE ACCOMMODATION AND OTHER FACI LITIES TO AVAIL OF THE FACILITIES DURING THE HOLIDAY PERIOD. BASIC FEA TURES OF THE SCHEME ARE SIMILAR. AS ON ILLUSTRATION THE FEATURES OF CO MFORT MEMBERSHIP SCHEME HAVING A TENURE OF THREE YEARS ARE DETAILED. THIS SCHEME PROVIDES FOR FIVE ROOM NIGHTS PACKAGE AT AN OFFICER PRICE OF ` 3 000. THIS SCHEME WAS EFFECTIVE FROM 1 ST APRIL 2004. THE TERMS AND CONDITIONS FOR THE MEMBERSHIP ARE AS FOLLOWS: I) THE TENURE IS THREE YEARS. II) THE MEMBERSHIP IS ACCEPTED FOR MINIMUM OF 5 NIGHTS AND THEREAFTER IN MULTIPLE OF TWO ROOM NIGHTS. III) ROOM IS DEFINED TO MEAN A STANDARD NON AIR CONDITIONED ACCOMMODATION PROVIDED FOR A COUPLE AND CHILD BELO W 5 YEARS OF AGE. IV) THE ENTITLEMENT OF ROOM NIGHTS IS DEFINED TO MEAN ACCOMMODATION ONLY THAT SHALL BE PROVIDED TO THE ME MBERS. V) IN CASE THE ROOM NIGHTS ARE NOT AVAILED OF DURING T HE 3 YEARS TENURE PERIOD THE MEMBER WOULD BE ENTITLED TO SURR ENDER VALUE OF ` 4 250 @ ` 850 PER ROOM NIGHT) . VI) MEMBER SHALL COMMENCE UTILIZATION OF THE ROOM NIGHT S ENTITLEMENT AFTER 60 DAYS FROM THE DATE OF MEMBERSH IP. VII) THE ROOM NIGHTS CAN BE AVAILED IN THE EXISTING OR T HE AFFILIATED FACILITIES FOR AVAILING OF THE AFFILIATED FACILITI ES EXCHANGE FEE OF ` 150 PER ROOM NIGHT WILL BE CHARGED. 48 VIII) THE MEMBER MAY SURRENDER THEIR UNUSED ENTITLEMENT O F ROOM NIGHTS TO THE COMPANY AND OPT FOR SURRENDER VALUE . IX) PAYMENT AGAINST UNUSED ROOM NIGHTS WILL BE MADE AFT ER THE EXPIRATION OF THE MEMBERSHIP PERIOD . X) IN LIEU OF SURRENDER VALUE MEMBERS MAY OPT BY OR U TILIZE THE PRODUCTS AND SERVICES OF THE COMPANY AND ITS GROUP COMPANIES. THE PRODUCT AND SERVICES INTER ALIA INCLUDES HERBAL PRODUCTS FOOD AND FOOD COUPONS I.T. TRAINING SOFTWARE DEVEL OPMENT AUDITORIUM / HALL AT THANE CLUB ETC . XI) THE MEMBER SHALL BE ENTITLED TO FREE INSURANCE COVE R AS PER THE ELIGIBILITY UNDER THE SCHEME. XII) IN CASE OF NATURAL / ACCIDENTAL DEATH OF THE MEMBER S THE MEMBERSHIP SHALL BE TRANSFERRED IN THE NAME OF THE NOMINEE AS MENTIONED IN THE MEMBERSHIP APPLICATION FORM WHO SH ALL BE ENTITLED FOR UNUSED ROOM NIGHTS SETTLEMENT OF CLAI M AMOUNT BUT INSURANCE BENEFITS SHALL BE TRANSFERRED IN FAVOUR O F THE NOMINEE. THE AFORESAID FEATURES EXIST IN ALL THE SC HEMES OF MEMBERSHIP FLOATED BY THE ASSESSEE COMPANY. [EMPHA SIS ADDED ] A PERUSAL OF THE SCHEME SHOWS THAT A MEMBER PAYS ` 3 000 FOR A FIVE NIGHT PACKAGE AND THAT IF HE DOES NOT AVAIL OF ANY OF THE ROOM OR FACILITIES HE IS ENTITLED TO ` 4 250 AS SURRENDER VALUE. THE RIGHT TO CLAIM OF S URRENDER VALUE ACCRUES TO THE CUSTOMER / MEMBER ON PAYMENT OF ` 3 000. THE ASSESSEE HAS NO RIGHT TO APPROPRIATE OR TAKE AS INCOME THE AMOUNT OF ` 3 000 BEFORE THE CUSTOMER / MEMBER EXERCISE ANY OF THE OPTIONS GIVEN IN THE SCHEME I.E. (I) AV AIL THE ROOM IN THE ASSESSEES HOTEL OR RESORT; (II) AVAIL ROOM IN AFFILIATED FACILITIES (IN SUCH CASE THE RECEIPT HAS TO BE TRANSFERRED TO AFFILIATED FACILITY); (III) OPT FOR SURRENDER VALUE; (IV) OPT TO UTILISE THE SURRENDER VALUE IN AVAILING OF THE SERVICES OR PUR CHASING THE PRODUCT OF THE COMPANY. UNLESS THE CUSTOMER / MEMBER UTILISES THE SERVICES OR EXERCISES HIS OPTION OF PURCHASE ETC. IN OUR OPINION INCOME DO ES NOT ACCRUE TO THE ASSESSEE. 49 ANOTHER VITAL POINT IS THAT IF THE RECEIPT OF ` 3 000 FROM MEMBER AS A FLOATING ADVANCE FOR ROOM NIGHTS IS INCOME THEN THE LD. CIT WAS BOUND TO HOLD THAT THE PAYMENT OF SURRENDER VALUE OF ` 4 250 IS EXPENDITURE TO BE ALLOWED. THIS WAS NOT DONE BY THE LD. CIT. THE ASSESSEE HAS FURNISHED FOLLOWING STATISTICS WH ICH WE EXTRACT FOR ANALYSIS. F. YEAR SCHEME NAME OP. BAL AMOUNT COLLECTED REFUNDED UTILISATION CLOSING BAL. 2002 03 COMFORT 117 151 200 600 117 150 600 LUXURY 191 979 300 425 191 978 875 PREMIUM 12 410 000 12 410 000 REGULAR 15 963 000 102 000 15 861 000 ROYAL 105 058 800 5 600 105 053 200 STANDARD 38 219 160 1 960 38 217 200 SUPREME 10 854 480 10 854 480 TOTAL 491 635 940 8 585 491 525 355 % 0.001% 2003 04 COMFORT 117 150 600 173 715 200 40 800 290 825 000 LUXURY 191 978 875 353 233 990 12 750 545 200 115 PREMIUM 12 410 000 20 673 120 1 871 120 1 120 31 2 10 880 REGULAR 15 861 000 33 218 000 1 989 000 47 090 000 ROYAL 105 053 200 79 150 120 17 640 184 185 680 STANDARD 38 217 200 46 724 120 7 560 84 933 760 50 SUPREME 10 854 480 12 754 000 840 23 607 610 GOLDEN 1 846 800 1 846 800 PLATINUM 15 748 700 15 748 700 TOTAL 737 064 650 3 860 120 80 710 1 224 648 575 0.006% 2004 05 COMFORT 290 825 000 268 122 400 732 600 558 214 800 LUXURY 545 200 115 350 791 935 1 021 700 894 970 350 PREMIUM 31 210 880 25 500 000 5 236 000 51 474 880 REGULAR 47 090 000 58 266 000 13 056 000 92 300 000 ROYAL 184 185 680 98 562 520 1 479 240 281 268 960 STANDARD 84 933 760 42 609 320 136 640 127 406 440 SUPREME 23 607 640 15 951 275 46 760 39 515 135 GOLDEN 1 846 800 2 462 400 615 600 3 693 600 PLATINUM 15 748 700 40 065 300 55 814 000 TOTAL 1 224 648 575 902 334 150 18 907 600 3 416 9 40 2 104 658 185 0.16% 2005 06 COMFORT 558 214 800 196 698 671 58 102 450 75 900 996 735 121 LUXURY 894 970 350 609 871 969 2 867 675 191 675 1 501 785 969 PREMIUM 51 47 880 26 358 075 340 000 77 492 955 REGULAR 92 300 000 71 381 500 1 734 000 161 947 5 00 ROYAL 281 268 960 125 668 118 772 765 172 655 405 991 658 STANDARD 127 406 410 57 008 754 136 045 271 040 18 4 008 109 SUPREME 39 515 155 28 070 873 167 040 4 120 67 417 868 GOLDEN 3 693 600 4 164 000 7 797 600 REGAL 6 569 400 25 000 6 544 400 PLATINUM 55 814 000 75 966 010 232 950 131 547 06 0 TOTAL 2 104 658 185 1 501 700 370 64 377 925 712 3 90 3 541 268 240 0.02% 51 2006 07 COMFORT 996 735 121 989 856 575 120 313 395 1 866 278 301 LUXURY 1 501 785 969 1 739 395 861 2 935 365 3 23 8 246 465 PREMIUM 77 492 955 34 503 045 170 000 111 826 000 REGULAR 161 947 500 121 889 050 1 622 000 282 214 550 ROYAL 405 991 658 365 051 952 652 170 770 391 440 STANDARD 184 008 109 114 124 366 66 325 298 066 1 50 SUPREME 67 417 868 82 809 432 98 525 150 128 775 GOLDEN 7 797 600 3 129 300 4 668 300 REGAL 6 544 400 12 810 375 900 19 353 875 PLATINUM 131 547 060 82 433 630 168 730 085 45 25 0 605 TOTAL 3 541 268 240 3 542 874 286 297 718 065 6 7 86 424 461 000% 2007 08 COMFORT 1 866278 301 201 670 929 302 138 530 78 70 0 1 765 732 000 LUXURY 3 238 246 465 315 780 435 2 147 060 136 850 3 551 742 990 PREMIUM 111 826 000 26 283 700 1 700 138 108 000 REGULAR 282 214 550 134 640 000 416 854 550 ROYAL 770 391 440 59 561 205 996 445 38 080 828 91 8 120 STANDARD 298 066 150 28 425 080 11 200 21 880 326 458 150 SUPREME 150 128 775 137 329 055 462 725 1 680 286 993 425 GOLDEN 4 668 300 410 400 564 300 4 514 400 REGAL 19 353 875 41 783 465 61 137 340 PLATINUM 45 250 605 280 947 395 326 198 000 NEW COMFORT 1 189 351 500 1 800 1 189 349 700 NEW LUXURY 1 572 129 900 3 600 1 572 126 300 NEW ROYAL 279 784 750 279 784 750 TOTAL 6 786 424 461 4 268 097 814 306 320 260 284 290 10 747 917 725 0.002% 52 72. A PERUSAL OF THE ABOVE DISCLOSES THAT A VERY NE GLIGIBLE PERCENTAGE OF THE CUSTOMER / MEMBER ONLY UTILISE THE ROOM NIGHTS. MOR E THAN 99% OF THE CUSTOMERS SURRENDER THE ROOM NIGHTS WHICH IS NOT ONLY THE AMO UNT PAID BUT WHICH IS INCLUSIVE OF A PREMIUM OVER AND ABOVE THE COLLECTED VALUE. TH E LEARNED DEPARTMENTAL REPRESENTATIVE ALSO FILED A CHART TO PROVE HIS POIN T THAT THE REFUNDS ARE NOT DONE IN ITS ENTIRETY AND THAT ONLY ABOUT 30% OF THE AMOUNT IS RETURNED. WE DO NOT EXTRACT THIS CHART AS IT WILL NOT SERVE THE PURPOSE FOR T HE REASON THAT THE FACT REMAINS THAT THE ASSESSEE IS OBLIGED TO REFUND THE AMOUNT WHEN C LAIMED AND JUST BECAUSE A SMALLER PORTION IS RETURNED IT DOES NOT MEAN THAT THE RECEIPT BECOMES INCOME. EVEN OTHERWISE AS WE HAVE UPHELD THE REVIEW U/S 263 IT WOULD BE OPEN TO THE AO TO EXAMINE THE CORRECTNESS OF THE QUANTIFICATION OF IN COME ACCOUNTED. IN PRINCIPLE THE METHOD ADOPTED BY THE ASSESSEE IS CORRECT AND IS UP HELD. ON THESE FACTS WE EXAMINE THE CASE LAWS RELIED UPON BY BOTH THE PARTI ES. (I) IN THE CASE OF TAPARIA TOOLS LTD. V/S JCIT (20 03) 260 ITR 102 (BOM.) THE HONBLE JURISDICTIONAL HIGH COURT WAS C ONSIDERING THE MATCHING CONCEPT. IT HELD THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IN ORDER TO DETERMINE THE NET INCOME OF ACCOUNTING YEAR THE REVENUE AND OTHER INCOMES ARE MATCHED WITH THE COST OF RESOURCES CONSUMED (EXPENSES) AND THE SALE IS REQUIRED TO BE DONE ON ACCRUAL BASIS. IT HELD THAT THE REVENUES AND INCOME EARNED DURING AN ACCOUNTING PERIOD IRRESPECTIVE OF THE ACTUAL CASH FLOW IS REQUIRED TO BE COMPARED WITH THE EXPENSES INCURRED FOR THE SAME PERIOD IRRESPECTIVE OF THE CASH OUT FLOW. IT HELD THAT IF THE MATCHING COST IS NOT APPLIED THEN THE PROFITS GET DISTORTED. THE LE ARNED DEPARTMENTAL REPRESENTATIVE RELIED HEAVILY ON THIS ASPECT OF MAT CHING CONCEPT. WHEN THERE IS NO INCOME THE QUESTION OF RECOGNIZIN G A PARTICULAR 53 PORTION AS INCOME UNDER THE MATCHING CONCEPT DOES N OT ARISE. IT HAS TO BE FIRST SEEN IF THERE IS AN INCOME. JUST BECAUSE E XPENDITURE IS CLAIMED THE RECEIPT WHICH IS NOT INCOME DOES NOT BECOME INC OME. MATCHING CONCEPT TALKS ABOUT APPORTIONING INCOME WHEN THERE IS CORRESPONDING EXPENDITURE WHICH IS SPREAD OVER A PERIOD OF TIME. A CAPITAL RECEIPT DOES NOT BECOME A REVENUE RECEIPT JUST BECAUSE SOM E EXPENDITURE IS INCURRED ON THE CAPITAL RECEIPT AND CLAIMED BY THE ASSESSEE. THUS WE DO NOT AGREE ON THIS ISSUE WITH THE LEARNED CIT AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE. (II) IN SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. V/S C IT & ORS. (2004) 270 ITR 001 (SC) THE HON'BLE SUPREME COURT HAS HELD AS FOLLOWS: HELD (I) REVERSING THE DECISION OF THE HIGH COURT THAT THE LINE OF ENQUIRY IN ORDER TO DETERMINE THE TRUE NATURE AND CHARACTER OF THE RECEIPTS DID NOT STOP AT ASCERTAINING THE MERE FAC T WHETHER THE REALIZATION WAS IN THE COURSE OF TRADING. ALTHOUGH THE USE OF THE EXPRESSION DEPOSIT DID NOT CONCLUDE THE ISSUE TH E EXPRESSION WAS USED IN THE BYE LAWS TO MEAN JUST WHAT IT SAID. THE REPAYMENT OF LO ANS TAKEN FOR CAPITAL EXPENDITURE AND THE SHARE CAPITAL OF THE GOVT. WERE TWO SPECIFIED EVENTS WHICH WERE BY NO MEANS UNCERTA IN THOUGH THE TIME OF REPAYMENT WAS INDEFINITE. ON THE OCCURRENCE OF THE TWO EVENTS THE RIGHT TO DEMAND REFUND WOULD ACCRUE TO THE MEMB ER DEPOSITOR. SUCH A RIGHT THOUGH CONTINGENT IN NATURE INITIALLY INHERED IN THE DEPOSITOR FROM THE BEGINNING . THE WORD MAY IN THE BYE LAWS HAD TO BE CONSTRUED AS SHALL AND THE BOARD WAS BOUND TO ALLOT SHARES TO THE MEMBERS IN RELATION TO THE DEPOSITS AFTER FULL REPAYMENT TO THE GOVT. AND THE FINANCIAL INSTITUTIONS. THE EXISTENCE OF THE OTHER FEATURES SUCH AS TRANSFERABILITY OF THE DEPOSIT TO ANOTHER M EMBER AND THE PROVISION FOR REFUND OF THE DEPOSITED AMOUNT TO THE MEMBER IN CASE OF CESSATION OF MEMBERSHIP OR TO HIS LEGAL HEIRS IN CA SE OF DEATH INDICATED THAT THE DEPOSITED AMOUNT COULD NOT BE TR EATED AS MONEY BELONGING TO THE ASSESSEE SOCIETY . THE PAYMENT OF INTEREST AT A SPECIFIED RATE FROM YEAR TO YEAR WAS CONSISTENT ONL Y WITH THE FACT THAT THE DEPOSITED AMOUNT STILL BELONGED TO THE MEMBERS. AND THE FACT THAT THE DEPOSITED AMOUNTS WERE CREDITED TO THE INDIVIDU AL ACCOUNTS OF THE MEMBERS CORROBORATED THE CIRCUMSTANCES THAT THE DEP OSITS BELONGED 54 TO THE MEMBERS. THE AMOUNTS DEDUCTED FROM THE CANE PRICE TOWARDS THE NON REFUNDABLE DEPOSITS WERE NOT TRADING RECEIP TS OF THE ASSESSEE. CIT V/S BAZPUR CO OPERATIVE SUGAR FACTORY LTD. (1988) 172 ITR 321 (SC); (1988) 3 SCC 553 AND SHREE NIRMAL COMMERCIAL LTD. V/S CIT (1992) 192 ITR 694 (BOM.) DISTINGUISHED. (II) REVERSING THE DECISION OF THE HIGH COURT THAT THE AMOUNT OF REFUNDABLE DEPOSITS COULD NOT IN ANY SENSE BE TREAT ED AS INCOME OF THE ASSESSEE SOCIETY . [EMPHASIS ADDED ] 73. IN OUR OPINION THE RATIO LAID DOWN IN THIS JUD GMENT WHICH IS RELIED UPON BY THE LD. SR. COUNSEL SQUARELY APPLIES TO THE FACTS OF THE CASE IN VIEW OF THE OBLIGATION FASTENED UPON THE ASSESSEE TO REFUND THE AMOUNT OF ADVANCE RECEIVED ON SALE OF ROOM NIGHTS. THE SCHEME GIVES A RIGHT TO TH E CUSTOMER TO TAKE BACK HIS MONEY WITH PREMIUM AND IN SUCH A SITUATION WE DO N OT SEE HOW IT COULD BE TREATED AS A TRADING RECEIPT. (III) IN ACIT V/S MAHINDRA HOLIDAYS & RESORTS (I) L TD. (2010) 131 TTJ 1 (SB) (CHENNAI) THE SPECIAL BENCH OF THE TRI BUNAL WAS CONSIDERING THE CASE WHERE THE FACTS WERE THAT THE COMPANY HAD NO OBLIGATION TO REFUND THE AMOUNT. IT WAS A CASE WHER E THE ASSESSEE HAD NOT MADE ANY PROVISIONS FOR ANY LIABILITY WHICH THE COMPANY COULD CLAIM THAT IT WOULD INCUR IN FUTURE. IN THE CASE ON HAND UNLIKE IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (I) LTD. (SUPRA ) THERE IS A CLEAR OBLIGATION ON THE PART OF THE ASSESSEE TO NOT ONLY REFUND THE AMOUNT OF ADVANCE ROOM NIGHTS COLLECTED BUT ALSO PAY A PREMIU M ALONG WITH IT. IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (I) LTD. (SUPRA) AN ANNUAL MAINTENANCE CHARGE WAS COMPULSORILY COLLECTED OR O NLY ADMINISTRATIVE CHARGE WAS COLLECTED FROM CUSTOMER / MEMBER IRRESPECTIVE OF THE FACT AS TO WHETHER THE CUSTOMER / MEMBER MAKES USES OF RESORT OR NOT. IN THE CASE ON HAND THERE I S NO SUCH ANNUAL 55 MAINTENANCE CHARGE COLLECTED. THESE ARE THE FUNDAME NTAL DIFFERENCE BETWEEN THESE TWO CASES. THE SPECIAL BENCH DID CONS IDER ALL THE POINTS INCLUDING THE ACCOUNTING STANDARD AS/29 AND AS/9 RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND HAS COME TO CONCLUSION THAT THE ENTIRE RECEIPT CANNOT BE IN THE FIRST YEAR. IN FACT THE SPECIAL BENCH DECISION CLEARLY COVERS THE CASE ON HAND TO THE EXTENT THAT THE DIRECTION OF THE CIT THAT THE ENTI RE ADVANCE HAVE TO BE TAXED IS BAD IN LAW. THE TRIBUNAL HELD AS FOLLOWS: INCOMEACCRUALTIME-SHARE MEMBERSHIP FEE RECEIVABLE AT THE TIME OF ENROLMENT OF MEMBERSTHOUGH A DEBT IS CREATED IN FAVOUR OF THE ASSESSEE IMMEDIATELY ON EXECUTION OF THE AGREEMENT IT CANNOT BE SAID THAT THE ASSESSEE HAS FULLY CONTRIBUTED TO ACCRUAL OF INCOME BY RENDERING SERVICESASSESSEE IS BOUND TO PROVIDE ACC OMMODATION TO THE MEMBERS FOR ONE WEEK EVERY YEAR TILL THE CURREN CY OF THE MEMBERSHIPTILL THE ASSESSEE FULFILS ITS PROMISE T HE PARENTHOOD CANNOT BE TRACED TO ITFURTHER IF THE ASSESSEE CON FIRMS THE RESERVATION OF A MEMBER BUT IS NOT ABLE TO PROVIDE THE ALLOTTED OR AN ALTERNATE ACCOMMODATION IT IS LIABLE TO PAY LIQUID ATED DAMAGES TO THE MEMBERTHESE TYPES OF CONTINGENCIES WILL ALWAYS ENT AIL OUTFLOW OF RESOURCES FOR THE ASSESSEE IN FUTURE THEREFORE TH ERE IS EVERY POSSIBILITY OF AN OBLIGATING EVENT ARISING WHICH WI LL RESULT IN AN OUTFLOW OF RESOURCESTHERE IS A CONTINUING LIABILIT Y ON THE PART OF THE ASSESSEE NOT ONLY TO PROVIDE ACCOMMODATION BUT ALSO TO PROVIDE OTHER INCIDENTAL SERVICES ATTACHED WITH THE ACCOMMODATION IT IS NOT ONLY DIFFICULT TO QUANTIFY THE FUTURE LIABILITY BUT ALSO TO REASONABLY ESTIMATE ITNO SCIENTIFIC BASIS IS SHOWN TO QUANTIFY THE SAM E EVEN REASONABLYTHEREFORE EVEN IF THE ASSESSEE HAD CHOS EN TO PROVIDE FOR THE LIABILITY IN EVERY YEAR TO COMPLY WITH THE MATC HING CONCEPT IT WOULD HAVE BEEN WHOLLY UNSCIENTIFIC AND ARBITRARYA VERMENT IN THE AFFIDAVIT FILED BY THE ASSESSEE BEFORE THE SERVICE- TAX AUTHORITIES TO THE EFFECT THAT ONCE THE AGREEMENT IS SIGNED NO SERVICE IS LEFT TO BE RENDERED BY THE ASSESSEE IS NOT RELEVANT IN THIS RE GARDBY SAYING SO THE ASSESSEE MEANT THAT THERE IS NO TAXABLE EVENT U NDER THE SERVICE-TAX LAWS ONCE A PERSON BECOMES A MEMBERSINCE A DEFINIT E LIABILITY IS 56 CAST ON THE ASSESSEE TO FULFIL ITS PROMISE IT CANN OT BE SAID THAT THE ENTIRE FEE RECEIVED BY IT HAS ACCRUED AS INCOME AN D RECOGNIZING THE ENTIRE RECEIPT AS INCOME IN THE YEAR OF RECEIPT WOU LD LEAD TO DISTORTIONONLY WAY TO MINIMISE THE DISTORTION IS T O SPREAD OVER A PART OF THE INCOME OVER THE ENSUING YEARS THEREFOR E THE ENTIRE AMOUNT OF TIME-SHARE MEMBERSHIP FEE RECEIVABLE BY T HE ASSESSEE UPFRONT AT THE TIME OF ENROLMENT OF A MEMBER IS NOT INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR (IV) IN TREASURE ISLAND RESORTS PVT. LTD. V/S DCIT (2004) 90 ITD 814 (HYD.) THE TRIBUNAL HELD AS FOLLOWS: INCOMEACCRUALSPREAD OVER OF CLUB MEMBERSHIP FEES ASSESSEE-CLUB TREATING THE FEES COLLECTED FROM MEMBERS AS REVENUE RECEIPTS BUT AS PER AS- 9 PRESCRIBED BY THE ICAI SPREADING OVER THE SAME F OR FIVE YEARS IN THE CASE OF PERMANENT MEMBERS AND TWO YEARS IN THE CASE OF T EMPORARY MEMBERS JUSTIFIEDSERVICES ARE RENDERED BY ASSESSEE TO VARI OUS CATEGORIES OF MEMBERS ON A CONTINUING BASISCEILING ON NUMBER OF MEMBERS AND REFUNDABILITY OR OTHERWISE OF THE FEES ARE IMMATERI AL FOR PURPOSES OF APPLICABILITY OF AS- 9AS-9 HAS BEEN MADE MANDATORY BY THE ICAI W.E.F. 1ST APRIL 1991 AND NO AUDITOR CERTIFYING ACCOUNTS CAN AFFORD TO IGNORE IT FACT THAT MEMBERSHIP FEE WAS UTILISED IN CREATION/A CQUISITION OF FIXED ASSETS ON WHICH DEPRECIATION WAS CLAIMED IS NO GROU ND TO REJECT THE CLAIM FOR SPREAD OVERWHENEVER THERE IS A RECEIPT GIVING RISE TO A LIABILITY A PROVISION CAN BE CREATED AGAINST THE RECEIPT FOR TH E LIABILITYTHERE BEING NO CONFLICT BETWEEN THE PROVISIONS OF IT ACT AND AS -9 THERE IS NO QUESTION OF PRECEDENCE OF FORMER OVER THE LATTER WHEN DULY MANDATED ACCOUNTING STANDARD IS FOLLOWED IT CANNOT BE SAID THAT INCOME CANNOT BE DEDUCED PROPERLY IN TERMS OF PROVISO TO S. 145 BUT THE THIN GS ARE OTHER WAY ROUND FURTHER IF THE ENTIRE RECEIPT IS SHOWN IN THE CURR ENT YEAR THERE WOULD BE SUBSTANTIAL DEFICIT IN FUTURE YEARS GIVING A COMPLE TELY DISTORTED PICTURE OF WORKING RESULTS . [EMPHASIS ADDED ] (V) THE TRIBUNAL HELD THAT WHEN MEMBERSHIP FEE IS C OLLECTED GIVING THE RIGHT TO THE MEMBER OVER THE PERIOD OF FIVE YEA RS THE ALLOCATION OF INCOME OR THE RECOGNITION OF REVENUE OVER A PERIOD OF FIVE YEARS IS QUITE RATIONAL AND IN CONFORMITY WITH THE AS/9. IT HELD THAT IF THE ENTIRE MEMBERSHIP FEE IS TAXED IN THE FIRST YEAR IT WOULD GIVE A TOTALLY 57 DISTORTED PICTURE OF THE WORKING RESULTS OF THE ASS ESSEE AS SUBSTANTIAL PROFITS WOULD BE TAXED IN THE YEAR UNDER APPEAL AND WHEREAS SUBSTANTIAL LOSS WOULD BE TAXED IN THE SUBSEQUENT Y EARS. THE FACTS OF THE CASE SHOW THAT THE ASSESSEE WAS NOT UNDER THE O BLIGATION TO REFUND THE ADVANCE COLLECTED BY IT. THUS THIS CASE DOES N OT SUPPORT THE FINDINGS OF THE CIT THAT THE ENTIRE ADVANCE RECEIVE D ON SALE OF ROOM NIGHTS SHOULD BE TAXED IN THE YEAR OF RECEIPTS ITSE LF IRRESPECTIVE OF THE FACT THAT AS TO WHETHER THE ASSESSEE HAS ACTUALLY AVAILED THE FACILITIES OF ROOM NIGHTS IN ANY ONE OF THE PROPERTIES OF THE ASSESSEE OR IN ITS SUBSIDIARIES OR ASSOCIATE CONCERNS. (VI) THE NEXT DECISION RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS IN THE CASE OF CIT V/S MANGAL TI RTH ESTATES LTD. (2008) 303 ITR 366 (MAD.). THIS IS A CASE WHERE THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF SALE OF MULTISTORIED OF FICE CUM SHOPPING COMPLEX AND HAS FOLLOWED THE PROJECT COMPLETION MET HOD. THE ASSESSEE WAS RECEIVING SERVICE CHARGES SEPARATELY F OR PROVIDING AIR CONDITION FACILITY FOR THE PERIOD OF FIVE YEARS. HO NBLEBLE MADRAS HIGH COURT HELD THAT THE SALE CONSIDERATION OF SHOP S AND PREMISES WAS INCLUSIVE OF AIR CONDITION FACILITIES AND THEREFORE THE ENTIRE CONSIDERATION WAS LIABLE TO TAX IN THE YEAR ON RECE IPT AS PER PROJECT COMPLETION METHOD. IN OUR OPINION THIS CASE LAW HA S NO RELEVANCE TO THE FACTS OF THE CASE. (VII) THE NEXT DECISION IS THE ORDER OF TRIBUNAL C HANDIGARH BENCH RENDERED IN ACIT V/S ASIA RESORTS LTD. (2005) 96 T TJ 909 (CHAND.). THIS IS A CASE WHERE THE ASSESSEE RECEIVED ADVANCE SUBSCRIPTION IN ITS 58 HOTEL BUSINESS UNDER A TIME SHARING AGREEMENT WHER EBY THE CUSTOMER WAS ENTITLED TO CERTAIN FACILITIES OVER A NUMBER OF YEARS. THE TRIBUNAL HELD THAT THE INCOME IS ASSESSABLE ON PROPORTIONATE BASIS. THIS DECISION ALSO DOES NOT HELP THE REVENUE AS IN THE CASE ON HAND WHAT WAS RECEIVED WAS ADVANCE WITH EMBEDDED OBLIGATION F OR REFUND AS AND WHEN THE CUSTOMER / MEMBER AVAILED OF THE ROOM NIGH TS THE PROPORTION WAS TAKEN AS INCOME. IN ANY EVENT THE S PECIAL BENCH IN MAHINDRA HOLIDAYS & RESORTS (I) LTD. (SUPRA) HAS C ONSIDERED THIS CASE. (VIII) IN JCIT V/S TIRUMALAI CHEMICALS LTD. (2006) 9 SOT 744 (MUM.) THE MUMBAI BENCH OF THE TRIBUNAL CONSIDERED THE MATCHING CONCEPT AND IT HELD THAT THE ASSESSEE HAD ADOPTED A SCIENTIFIC AND HAD WRITTEN OFF AND ALLOCATED THE EXPENDITURE PROPORTIO NATELY FOR THE ENTIRE PERIOD OF LIFE OF THE EQUIPMENT AND THAT IN DIFFERI NG THE REMAINING EXPENDITURE TO THE YEARS CORRESPONDING TO THEIR INC OME YEARS THE ASSESSEE HAD SOUGHT TO MATCH THE EXPENDITURE TO THE CORRESPONDING REVENUE EARNING YEARS. THE TRIBUNAL HELD THAT THE E XPENDITURE IN QUESTION SHOULD BE ALLOCATED TO OVER THE PERIOD OF FIVE YEARS. (IX) IN CIT V/S PUNJAB TRACTORS CO OPERATIVE MULTIPURPOSE SOCIETY LTD. (1998) 234 ITR 105 (PUNJ.) THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF TRACTOR AND MOTORC YCLE AND THEIR PARTS BESIDES UNDERTAKING REPAIRS OF THE SAME. THE ASSESSEE HAD RECEIVED ADVANCE FROM BUYERS OF TRACTOR TO COVER SE RVICE CHARGES OF TRACTOR FOR THE PERIOD OF ONE YEAR AFTER THE EXPIRY OF WARRANTY PERIOD OF ONE YEAR. THE ASSESSEES CONTENTION WAS THAT THERE IS AN OBLIGATION ON 59 THE PART OF ASSESSEE TO PROVE VERY SERVICES TO THE TRACTOR FOR ONE YEAR AS REQUIRED BY THE MANUFACTURERS AND AFTER THE EXPI RY OF WARRANTY PERIOD A FURTHER PERIOD OF ONE YEAR WAS ALSO COVER ED BY THE ASSESSEE FOR SERVICING THE TRACTOR AND THAT THOSE SERVICES O F THE POST WARRANTY PERIOD THE ASSESSEE RECEIVED MONEY FROM THE BUYERS . THE ASSESSING OFFICER BROUGHT THE SAME ON TAX TO PROPORTIONATE BA SIS. THE CIT INVOKED HIS POWER UNDER SECTION 263 AND HELD THAT T HE AMOUNT RECEIVED BY THE ASSESSEE FROM THE CUSTOMERS TOWARDS POST WARRANTY SERVICE CHARGES WAS TAXABLE. THE CIT HELD THAT THES E WERE TRADING RECEIPTS. THE TRIBUNAL REVERSED THE ORDER. ON APPEA L THE HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT THE ASSESSEE DID NOT BECOME THE OWNER OF THE AMOUNT AND COULD NOT APPROPRIATE I T TILL SERVICES WERE RENDERED IN LIEU OF WHICH IT WAS RECEIVED AN ADVANC E. THE HONBLE COURT HAS OBSERVED AS UNDER: HELD MONEY WAS PAID BY THE BUYERS OF TRACTORS TO THE ASSESSEE TOWARDS PWS CHARGES. SERVICES WERE REQUIRED TO BE RENDERED BY THE ASSESSEE FOR ONE YEAR AFTER THE EXPIRY OF THE WARRANTY PERIOD T HAT IS TO SAY ONE YEAR AFTER THE DATE OF RECEIPT OF MONEY. THE ASSESSEE WA S ALSO BOUND TO REFUND THE DEPOSIT TO A MEMBER OF THE SCHEME IF THAT MEMBE R SO DESIRED. THE ASSESSEE HAD REFUNDED A SUM OF RS. 19 320 TO THOSE PERSONS WHO DID NOT WANT TO CONTINUE AS MEMBERS OF THE SCHEME. EVERY RE CEIPT WAS THUS NOT NECESSARILY INCOME. THE ASSESSEE HAD MADE ADJUSTMEN T OF THE AMOUNT RECEIVED FROM THE PWS ADVANCES ACCOUNT TO THE WORKS HOP INCOME ACCOUNT DURING THE QUARTER IN WHICH THE WORK OF REPAIRS AND SERVICING WAS DONE. THE AMOUNT RECEIVED ONE YEAR EARLIER WAS THUS NOT RELEVANT TO THE ASSESSEE S INCOME AND WAS DEPENDENT UPON THE SERV ICES RENDERED BY THE ASSESSEE. THE ASSESSEE DID NOT BECOME THE OWNER OF THE AMOUNT AND COULD NOT APPROPRIATE IT TILL SERVICE WAS RENDERED IN LIE U OF WHICH IT WAS RECEIVED IN ADVANCE. THE ASSESSEE COULD LEGALLY CLAIM THE AM OUNT AFTER RENDERING THE SERVICES . PART OF THE AMOUNT COULD BE TREATED AS INCOME IN THE YEAR UNDER ASSESSMENT ON THE BASIS OF THE ACCRUAL OF THE RIGHT TO APPROPRIATE THE MONEY. THE DEPOSITED AMOUNT WAS TRANSFERRED AS INCO ME AS SOON AS SERVICE WAS RENDERED. THE ASSESSEE TREATED THE AMOUNT RECEI VED AS INCOME BY 60 TRANSFERRING IT TO THE WORKSHOP INCOME ACCOUNT. THU S ADJUSTMENT OF THE ADVANCE MONEY TOWARDS INCOME WAS MADE KEEPING IN V IEW THE PERIOD IN WHICH ACTUAL SERVICES WERE RENDERED. THE QUESTION I S AS TO WHEN THE MONEY IS TO BE TREATED AS INCOME. SINCE THE RECEIPT WAS R ELATABLE TO A PARTICULAR PERIOD IN FUTURE IT WOULD FRUCTIFY AND MATURE INTO INCOME DURING THAT PERIOD AND NOT EARLIER. THE ASSESSEE WAS REGULARLY FOLLOWING THE SYSTEM OF ADJUSTMENT. THE MONEY RECEIVED FROM THE BUYERS COUL D NOT BE TREATED TO BE INCOME UNLESS RIGHT TO APPROPRIATE IT TOWARDS THE S ERVICES HAD ACCRUED OR ARISEN. SO LONG AS THE RIGHT DID NOT EXIST THE MON EY RECEIVED FROM THE BUYERS REMAINED ADVANCE MONEY. IT IS THE APPROPRIAT ION OF THE MONEY TOWARDS THE OBJECT AND PURPOSE FOR WHICH IT WAS REC EIVED WHICH IS RELEVANT. DEPOSITS OR ADVANCES RECEIVED BY THE ASSE SSEE BECAME TRADING RECEIPTS WHEN THE ASSESSEE BECAME ENTITLED TO APPRO PRIATE THE SAME TO ITS INCOME AT THE TIME OF RENDERING THE SERVICE . [EMPHASIS ADDED ] THIS CASE APPLIES ON ALL FORUMS TO THE FACTS OF THI S CASE. THE ASSESSEE DID NOT BECOME AN OWNER OF THE AMOUNT UNLESS THE S ERVICES ARE RENDERED. THIS CASE COVERS THE CASE ON HAND AND APP LYING THIS JUDGMENT WE HAVE TO DECIDE THE CASE IN FAVOUR OF T HE ASSESSEE. (X) IN CIT V/S BAZPUR CO OPERATIVE SUGAR FACTORY LT D. (1988) 172 ITA 321 (SC) THE HON'BLE SUPREME COURT HAS HELD AS FOL LOWS: IF A RECEIPT IS A TRADING RECEIPT THE FACT THAT I T IS NOT SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NOT PREVENT THE ASSESSING AUTHORITY FROM TREATING IT AS A TRADING RECEIPT. THE SAME PRI NCIPLE CAN BE DERIVED FROM THE DECISION OF THIS COURT IN PUNJAB DISTILLIN G INDUSTRIES LTD. VS. CIT (1959) 35 ITR 519 (SC) : TC13R.487 IN THAT CASE TH E ASSESSEE CARRIED ON BUSINESS AS A DISTILLER OF COUNTRY LIQUOR AND SOLD THE PRODUCE OF ITS DISTILLERY TO LICENSED WHOLESALERS. UNDER A SCHEME DEVISED BY THE GOVERNMENT THE DISTILLER (ASSESSEE) WAS ENTITLED TO CHARGE THE WHO LESALER A PRICE FOR THE BOTTLES IN WHICH THE LIQUOR WAS SUPPLIED AT RATES FIXED BY THE GOVERNMENT WHICH HE WAS BOUND TO REPAY WHEN THE BOTTLES WERE R ETURNED. IN ADDITION TO THE PRICE FIXED UNDER THE GOVERNMENT SCHEME THE AS SESSEE TOOK FROM THE WHOLESALERS CERTAIN FURTHER AMOUNTS DESCRIBED AS S ECURITY DEPOSITS WITHOUT THE GOVERNMENT'S SANCTION AND ENTIRELY AS A CONDITI ON IMPOSED BY THE ASSESSEE ITSELF FOR THE SALE OF ITS LIQUOR. THE MON EYS DESCRIBED AS SECURITY DEPOSITS WERE ALSO RETURNED AS AND WHEN THE BOTTLES WERE RETURNED BUT IN 61 THIS CASE THE ENTIRE SUM TAKEN IN ONE TRANSACTION W AS REFUNDED WHEN 90 PER CENT. OF THE BOTTLES COVERED BY IT WERE RETURNED. T HE PRICE OF THE BOTTLES RECEIVED BY THE ASSESSEE WAS ENTERED BY IT IN ITS G ENERAL TRADING ACCOUNT WHILE THE ADDITIONAL SUM WAS ENTERED IN THE GENERAL LEDGER UNDER THE HEADING 'EMPTY BOTTLES RETURN SECURITY DEPOSIT ACCO UNT'. THE QUESTION WAS WHETHER THE ASSESSEE COULD BE ASSESSED TO TAX ON TH E BALANCE OF THE AMOUNTS OF THESE ADDITIONAL SUMS LEFT AFTER THE REF UNDS MADE OUT OF THE SAME. IT WAS HELD THAT THE ADDITIONAL AMOUNT DESCRI BED AS SECURITY DEPOSIT BY THE ASSESSEE WAS REALLY AN EXTRA PRICE FOR THE B OTTLES AND WAS A PART OF THE CONSIDERATION FOR THE SALE OF LIQUOR; IT DID NO T MAKE ANY DIFFERENCE THAT THE ADDITIONAL AMOUNT WAS ENTERED IN A SEPARATE LED GER TERMED 'EMPTY BOTTLES RETURN DEPOSIT ACCOUNT'. IT WAS HELD THAT T HESE ADDITIONAL AMOUNTS WHICH REMAINED AFTER THE REFUNDS WERE MADE WERE TR ADING RECEIPTS OF THE ASSESSEE AND LIABLE TO TAX. APPLYING THESE PRINCIPL ES TO THE PRESENT CASE IN OUR OPINION IT MAKES NO DIFFERENCE THAT IN THE BY E-LAW THESE AMOUNTS HAVE BEEN REFERRED TO AS DEPOSITS AND THE ACCOUNT IN WHI CH THESE RECEIPTS WERE ENTERED HAS BEEN CALLED 'LOSS EQUALIZATION AND CAPI TAL REDEMPTION RESERVE FUND'. THE ESSENCE OF A DEPOSIT IS THAT THE RE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON WHOSE BEHALF I T IS MADE ON THE FULFILLMENT OF CERTAIN CONDITIONS. IN THIS CASE THE HON'BLE SUPREME COURT ON FACTS REJECTED THE CONTENTION OF THE ASSESSEE THAT WHAT WAS RECEIVED WERE DEPOSITS. IT HELD THAT WHAT IS TO BE SEEN IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOK THAT WOULD PROVE DECISIVE. THEY RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN CHOWRINGHEE SALES BUREAU PVT. LTD. V/S CIT (1973) 87 ITR 542 (SC). A PPLYING THIS PROPOSITION TO THE FACTS OF THE CASE THE ADVANCE R ECEIPT ON SALE OF ROOM NIGHTS CANNOT BE TREATED AS A TRADING RECEIPT IN VI EW OF THE OBLIGATION FASTENED ON THE ASSESSEE TO REFUND THE ADVANCE AND ALSO IN VIEW OF THE HISTORICAL DATA WHICH DEMONSTRATE THAT THE ASSESSEE HAS REFUNDED THE AMOUNT IN MORE THAN 99% OF THE CASES. WE DO NOT AGREE WITH THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RECEIP T IN A TRADING RECEIPT ON THE FACTS OF THIS CASE . 62 74. AFTER DISCUSSING THE CASE LAWS CITED BY BOTH TH E PARTIES AND AFTER APPLYING TO THE PROPOSITION LAID DOWN THEREIN TO THE FACTS OF T HE CASE WE ARE OF THE CONSIDERED OPINION THAT THE ENTIRE ADVANCE RECEIVED ON SALE OF ROOM NIGHTS CANNOT BE TREATED AS INCOME OF THE ASSESSEE FOR THE REASON THAT (A) THE ASSESSEE HAS AN OBLIGATION TO REFUND THE MONEY ALONG WITH CERTAIN COMPENSATION I F THE CUSTOMER / MEMBER EXERCISE SUCH AN OPTION; (B) THE AMOUNT RECEIVED IS AN ADVANCE AND IT IS NOT AGAINST ANY SPECIFIC ITEM IN THE SENSE THAT THE CUSTOMER / MEMBER HAS A RIGHT FOR AN OPTION TO CHOOSE TO STAY IN THE ROOM FOR A NIGHT IN ANY OF THE PROPERTY OF THE ASSESSEE OR IN THE PROPERTY OF ITS SUBSIDIARY OR IN THE PROPERTY O F ITS ASSOCIATE CONCERN. IT IS NOT A CASE WHERE A CUSTOMER HAS BOOKED A PARTICULAR ROOM IN A PARTICULAR PROPERTY FOR A PARTICULAR DATE IT IS A GENERAL AMOUNT GIVEN WHERE IN IN CUSTOMER / MEMBER HAVE OPTION OF STAYING IN MANY ALTERNATE PROPERTIES AS W ELL AS AN OPTION FOR REFUND OF MONEY WITH CERTAIN COMPENSATION CALLED SURRENDERED VALUE AS WELL AS AN OPTION THE MEMBERS / CUSTOMERS TO UTILIZE / PURCHASE PRODU CTS AND SERVICES OF THE COMPANIES AND ITS GROUP COMPANIES. THUS WHEN CUSTO MER / MEMBER HAS SO MANY OPTIONS IT CANNOT BE SAID THAT THE ASSESSEE HAS TH E RIGHT TO APPROPRIATE THE AMOUNT OF ADVANCE ON RECEIPT IRRESPECTIVE OF RENDERING OF SERVICE. JUST ON RECEIPT IT CANNOT BE SAID THAT THE INCOME HAS ACCRUED TO THE ASSESSEE . THUS IN OUR CONSIDERED OPINION THE DIRECTION OF THE CIT TO TAX THE ENTIRE ADVANCE RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF ROOM NIGHTS AS INCOME DURING THE YEAR IS BAD IN LAW AND HAS TO BE VACATED. IN OUR OPINION THE SYSTEM ADOPTED B Y THE ASSESSEE I.E. ADVANCE ON SALE OF ROOM NIGHTS IS SHOWN AS AN ADVANCE AND THER EAFTER APPORTIONMENT TO INCOME IS BASED ON THE HAPPENING OF THE EVENT OF THE CUSTO MER AVAILING THE ROOM NIGHTS IS A CORRECT METHOD. THE ALTERNATIVE PROPOSITION OF T HE LEARNED DEPARTMENTAL REPRESENTATIVE THAT A PORTION OF THE ADVANCE SHOUL D BE HELD AS TAXABLE CANNOT BE ACCEPTED IN VIEW OF THE OBLIGATION ON THE ASSESSEE TO REFUND THE MONEY. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE PRINCIP LES LAID DOWN IN THE JUDGMENT OF 63 THE HON'BLE SUPREME COURT IN THE CASE OF SIDDHESHWA R SAHAKARI SAKHAR KARKHANA LTD. (SUPRA). 75. LOOKING AT THE ISSUE FROM ANOTHER ANGLE AS ALR EADY POINTED OUT IF AN ADVANCE RECEIPT IS TO BE TREATED AS AN INCOME THE NATURAL COROLLARY WOULD BE THAT THE AMOUNT WHEN REFUNDED TO THE CUSTOMER / MEMBER ON THIS CASE EXERCISING AN OPTION OF AVAILING THE SURRENDER VALUE THE REPAYME NT SHOULD BE CONSIDERED AS AN EXPENDITURE. THE CITS DIRECTION THAT THE RECEIPT S HOULD BE TREATED AS INCOME AND KEEPING SILENT ABOUT REPAYMENT BEING TREATED AS EXP ENDITURE GIVES A DISTORTED PICTURE AND SUCH A DIRECTION CANNOT BE UPHELD. THUS WE VACATE THE DIRECTION OF THE CIT TO INCLUDE THE AMOUNT RECEIVED ON ACCOUNT OF AD VANCE SALE OF ROOM NIGHTS AS INCOME OF THE ASSESSEE FOR THE RELEVANT PERIOD. 76. THE THIRD ISSUE IS THE ALLOWABILITY OF AN AMOUN T OF ` 22 09 84 169 DEBITED UNDER THE HEAD HOLIDAY MEMBERSHIP SURRENDERED VALUE . AS ALREADY EXPLAINED THE CUSTOMER / MEMBER HAS THE OPTION TO COLLECT SUR RENDER VALUE. THE SURRENDER VALUE IS NOTHING BUT THE AMOUNT PAID BY THE CUSTOME R / MEMBER PLUS A CERTAIN AMOUNT WHICH IS IN THE FORM OF A PREMIUM OR COMPENS ATION. A PERUSAL OF THE SCHEME CLEARLY DEMONSTRATE THAT THE SURRENDERED VAL UE PAYABLE IN REFUND OF THE ADVANCE ROOM NIGHTS COLLECTED WITH A PREMIUM / COMP ENSATION AND THAT THIS COMPENSATION IS A TIME BASED OR A PERIOD BASED COST . IT IS NOT CONNECTED TO THE PERFORMANCE OR OTHER CRITERIA. IF THE CUSTOMER / ME MBER CHOOSES NOT TO AVAIL OF THE FACILITY OF ROOM NIGHT IN A PARTICULAR YEAR THE PA RTICULAR AMOUNT ACCRUES TO HIM AS SURRENDERED VALUE IN THAT YEAR. AN IMPORTANT FACT T O BE NOTICED IN THE SCHEME IS THAT THERE IS A CAP ON THE NUMBER OF ROOM NIGHTS A MEM BER CAN USE IN A YEAR. WHEN A MEMBER DOES NOT UTILISE ROOM NIGHTS IN ANY YEAR IN CLUDING THE FIRST YEAR HE LOOSES HIS RIGHT TO CERTAIN QUANTITY OF ROOM NIGHT AND GET S ENTITLED TO A CERTAIN AMOUNT OF 64 SURRENDER VALUE. IF FOR THE ENTIRE DURATION OF THE SCHEME THE CUSTOMER / MEMBER DOES NOT AVAIL THE ROOM NIGHTS THIS SURRENDERED VA LUE ACCRUES TO HIM FOR THE ENTIRE PERIOD. THE FACTS CLEARLY DEMONSTRATE THAT THE LIAB ILITY IS A TIME BASED LIABILITY AND THAT IT OCCURS FROM YEAR TO YEAR. ON THESE FACTS W E NOW EXAMINE THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. 77. IN BHARAT EARTH MOVERS V/S CIT (2000) 245 ITR 428 (SC) THE HON'BLE SUPREME COURT HELD THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN A PARTICULAR ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLOWED A LTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. W HAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPAB LE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICAT ION MAY NOT BE POSSIBLE. UNDER THESE CIRCUMSTANCES THE COURT HELD THAT THE LIABIL ITY IS NOT A CONTINGENT ONE. IT IS A LIABILITY IN PRAESENTI. THOUGH IT HAS TO BE DISCHAR GED AT A FUTURE DATE. IN OUR OPINION THIS CASE LAW APPLIES ON ALL FOUR TO THE FACTS OF T HIS CASE. LEARNED DEPARTMENTAL REPRESENTATIVE TRIED TO DISTINGUISH THIS CASE LAW B Y SUBMITTED THAT THE LIABILITY IN THIS CASE CANNOT BE ESTIMATED WITH REASONABLE CERTA INTY. IN OUR CONSIDERED OPINION THE ARGUMENT IS DEVOIDE OF MERIT. THE FACTS POINT O UT THAT THIS IS THE PERIOD COST AND ON LAPSE OF A PARTICULAR TIME PERIOD THE CUSTOMER / MEMBER GETS ENTITLED TO THE RECEIPT OF THE COMPENSATION IS SURRENDER VALUE AND THE ASSESSEE HAS CERTAINLY INCURRED THE LIABILITY. IN OUR OPINION THE LIABILI TY IS NOT ONLY ESTIMATED WITH REASONABLE CERTAINTY AS THE QUANTIFICATION IS BASED OF FACTS. THE LIABILITY HAS DEFINITELY ARISING IN THE ACCOUNTING YEAR AS THE CU STOMER / MEMBER HAS CHOSEN NOT TO AVAIL IN THIS ACCOUNTING YEAR THE SERVICES OF RO OM NIGHTS OFFERED BY THE ASSESSEE BUT HAS CHOSEN TO ENCASH THE SURRENDER VALUE. AS TH E PROVISION IS MADE ON THE HAPPENING OF AN EVENT I.E. A MEMBER NOT AVAILING A ROOM NIGHT THE QUESTION OF 65 ESTIMATION DOES NOT ARISE. THE PROVISION IS AN ACTU AL PROVISION. IN OUR OPINION THIS CASE LAW SUPPORTS THE CASE OF THE ASSESSEE. 78. IN METAL BOX COMPANY OF INDIA LTD. V/S THEIR WO RKMEN (1969) 73 ITR 53 (SC) THE ASSESSEE COMPANY ESTABLISHED ITS LIABILIT Y UNDER TWO GRATUITY SCHEMES FRAMED BY THE COMPANY AND THE AMOUNT OF LIABILITY W AS DEDUCTED FROM THE GROSS RECEIPT IN THE PROFIT & LOSS A/C. THE PROVISION WAS MADE ON THE BASIS OF ACTUARIAL VALUATION EVERY YEAR THE EXERCISE WAS REPEATED AND THE COMPANY WORKED OUT THE ADDITIONAL LIABILITY INCURRED BY IT. THE HON'BLE SU PREME COURT HAS LAID DOWN THE FOLLOWING PRINCIPLES (I) FOR AN ASSESSEE MAINTAINING THE ACCOUNTING SYS TEM AS MERCANTILE THE LIABILITY ALREADY ACCRUED THOUGH T O BE DISCHARGED AT A FUTURE DATE WOULD BE A PROPER DEDUCTION FOR WORKING OUT PROFITS AND GAINS OF ITS BUSINESS REGARD BEING TO THE ACCEPTED PRINCIPLES OF COMMERCI AL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN CASE OF AMOUNTS ACTUAL EXPENDED OR PAID; (II) JUST AS RECEIPTS THOUGH NOT ACTUAL R ECEIPTS BUT ACCRUED AND DUE ARE BROUGHT IN FOR INCOME TAX ASSESSMENT SO ALSO THE LIABILITIES ACCRUED AND DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAINS OF BUSINESS; (III) A CONDITION SUBSEQUENT TO THE FULFILLMENT OF WHICH M AY RESULT IN THE REJECTION OR EVEN EXPANSION OF LIABILITY WOULD NOT HAVE THE EFF ECT OF CONVERTING THAT LIABILITY INTO THE CONTINGENT LIABILITY; (IV) A TRADER COMPUT ING ITS TAXABLE PROFITS FOR A PARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE P AYMENTS ACTUALLY MADE TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMEN TS IN RESPECT OF THE SERVICES IN THAT YEAR TO BE MADE IN SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTIMATED. 78(I) SIMILAR VIEW HAS ALSO BEEN TAKEN IN CALCUTTA CO. LTD. V/S CIT (1959) 27 ITR 1 (SC). APPLYING THESE PRINCIPLES TO THE FACTS OF T HE PRESENT CASE WE HAVE TO HOLD THAT THE LIABILITY IN QUESTION IS NOT A CONTINGENT LIABILITY AS HELD BY THE CIT AND AS ARGUED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE LIABILITY ACCRUES TO THE 66 ASSESSEE ON THE PASSAGE OF TIME IF THE CUSTOMER / MEMBER DOES NOT OPT FOR USING ROOM NIGHTS OR OTHER SERVICES. IN FACT IT IS A LIA BILITY IN PERSENTI AS A MEMBER HAS CHOSEN NOT TO AVAIL OF A ROOM NIGHT IN THIS YEAR AN D A PROVISION OF COMPENSATION OF THIS YEAR IS MADE THOUGH PAYABLE AT A LATTER DATE. 79. IN CIT V/S SWARUP VEGETABLE PRODUCTS (1991) 21 0 ITR 716 (ALL.) THE HONBLE ALLAHABAD HIGH COURT WAS CONSIDERING THE CA SE OF AN ASSESSEE WHO FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AND HAD CL AIMED DEDUCTION IN RESPECT OF A BUSINESS LIABILITY BEFORE IT IS QUANTIFIED AND EV EN WHEN THE LIABILITY IS BEING DISPUTED. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR AND CLAIMED DEDUCTION OF THE LIABILITY THAT H AS ARISEN ON ACCOUNT OF DIFFERENCE IN CANE PRICE ACTUALLY PAID BY THE ASSESSEE AND ONE FIXED BY THE CENTRAL GOVT. IN THE NOTIFICATION THE HONBLE COURT HELD THAT THE ASSES SEE IS ENTITLED FOR DEDUCTION. 79(I) IN ROTORK CONTROLS INDIA PVT. LTD. V/S CIT ( 2009) 314 ITR 62 (SC) THE HON'BLE SUPREME COURT HELD AS UNDER: HELD : A PROVISION IS A LIABILITY WHICH CAN BE MEA SURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RE COGNIZED WHEN : (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUI RED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET NO PRO VISION CAN BE RECOGNIZED. LIABILITY IS DEFINED AS A PRESENT OBLIGATION ARISIN G FROM PAST EVENTS THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS. A PAST EV ENT THAT LEADS TO A PRESENT OBLIGATION IS CALLED AS AN OBLIGATING EVENT . THE OBLIGATING EVENT IS AN EVENT THAT CREATES AN OBLIGATION WHICH RESULTS I N AN OUTFLOW OF RESOURCES. IT IS ONLY THOSE OBLIGATIONS ARISING FRO M PAST EVENTS EXISTING INDEPENDENTLY OF THE FUTURE CONDUCT OF THE BUSINESS OF THE ENTERPRISE THAT IS RECOGNIZED AS PROVISION. FOR A LIABILITY TO QUALIFY FOR RECOGNITION THERE MUST BE NOT ONLY PRESENT OBLIGATION BUT ALSO THE PR OBABILITY OF AN OUTFLOW OF RESOURCES TO SETTLE THAT OBLIGATION. WHERE THERE AR E A NUMBER OF OBLIGATIONS (E.G. PRODUCT WARRANTIES OR SIMILAR CONTRACTS) THE PROBABILITY THAT AN 67 OUTFLOW WILL BE REQUIRED IN SETTLEMENT IS DETERMIN ED BY CONSIDERING THE SAID OBLIGATIONS AS A WHOLE. 80. LEARNED DEPARTMENTAL REPRESENTATIVE SOUGHT TO D ISTINGUISH THIS JUDGMENT BY HOLDING THAT THE ASSESSEE HAD NO PAST EXPERIENCE OR HISTORICAL DATA TO DETERMINE THE LIABILITY BY SUBSTANTIAL DEGREE OF RELIABILITY. IN OUR OPINION THIS LINE OF ARGUMENT CANNOT BE ACCEPTED ON THE FACTS OF THE CASE. AT THE END OF THE ACCOUNTING YEAR THE ASSESSEE KNOWS THAT CUSTOMER / MEMBER WHO HAS NOT A VAILED THE ROOM NIGHTS AND BASED ON THIS FACTUAL INFORMATION THE PERIOD COST IN THE FORM OF SURRENDERED VALUE HAS BEEN ESTIMATED AND A PROPER PROVISION MADE. THI S IS WHAT THE ASSESSEE DID. WHEN THE PROVISION IS MADE ON FACTS THE QUESTION O F SCIENTIFIC ESTIMATION ETC. DOE NOT ARISE. THE DATA OF THIS VERY YEAR IS RELEVANT A ND THE PROVISION IS ON ACTUAL. THIS PROVISION CANNOT BE CALLED A CONTINGENT LIABILITY. THE CIT WAS WRONG IN DIRECTING THE ASSESSING OFFICER TO DISALLOW THE ENTIRE AMOUNT OF SURRENDERED VALUE PROVIDED BY THE ASSESSEE. IT IS NOT A CASE WHERE THE CIT HEL D THAT THE ESTIMATION OF LIABILITY IS INCORRECT. IT IS A CASE WHERE THE CIT HELD THAT THE LIABILITY IN QUESTION IS A CONTINGENT LIABILITY. THUS THIS CASE IN OUR OPINI ON THIS CASE LAW GOES IN FAVOUR OF THE ASSESSEE. 81. IN CIT V/S MOTOR INDUSTRIES CO. LTD. (1998) 22 9 ITR 137 THE HON'BLE KARNATAKA HIGH COURT WAS CONSIDERING ALLOWABILITY O F PROVISIONS FOR SALARY / WAGES FOR UNUTILISED LEAVE. ON FACTS OF THE CASE T HE HONBLE COURT HELD THAT THERE IS NO CERTAINTY THAT THE PROVISION MADE FOR UNUTILI SED LEAVE WILL BE USED AT ALL SINCE THE LIABILITY ITSELF IS EITHER CONTINGENT OR NON EXISTENT. THE LEAVE EARNED DURING PARTICULAR ACCOUNTING YEAR CANNOT BE TREATED AS MONEY EARNED DURING THE YEAR. IN OUR OPINION THIS CASE LAW IS NOT OF MUCH AVAIL. 82. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT RENDERED IN MADRAS INDUSTRIAL INVESTM ENT CORP. LTD. V/S CIT (1997) 225 ITR 802 (SC). IN THIS CASE A COMPANY HA S ISSUED DEBENTURES AT A 68 DISCOUNT. THERE WAS A LIABILITY TO PAY THE DISCOUNT ED AMOUNT OVER AN ABOVE THE AMOUNT RECEIVED FOR DEBENTURES. HON'BLE SUPREME COU RT HELD THAT THE LIABILITY INCURRED BY THE COMPANY WAS FOR THE PURPOSE OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. IT APPROVED THE CLAIM OF DEDUCTION ON PROPORTIONATE BASIS OVER THE RELEVANT ACCOUNTING PE RIOD ON THE GROUND THAT THIS WAS IN CONFORMITY WITH THE ACCOUNTING PRACTICE. IT APPR OVED THE WRITE OFF OF DISCOUNT OVER A PERIOD OF THE DEBENTURES. IN OUR CONSIDERED OPINION THIS DECISION APPLIES TO THE FACTS OF THE PRESENT CASE AS IN THE CASE ON H AND ALSO THE COST TO THE ASSESSEE IS A PERIOD COST IN THE CASE OF DEBENTURES. THE ASSESS EE CLAIMED A PROPORTIONATE DEDUCTION OF THE LIABILITY BASED ON THE FACT THAT I N THIS YEAR THE MEMBER / CUSTOMER DID NOT AVAIL THE ROOM NIGHT AND THE LIABILITY HAS ACTUALLY ACCRUED TO HIM DURING THE YEAR. THUS WE ARE OF THE OPINION THAT THE DIRECTIO N GIVEN TO DISALLOW THE ENTIRE CLAIM IS ERRONEOUS AND HAS TO BE VACATED. BUT AS WE HAVE ALREADY HELD THAT REVIEW IS CORRECT AS THIS ASPECT IS NOT EXAMINED BY AO WE MODIFY THE ORDER BY MAKING IT CLEAR THAT IT WOULD BE OPEN TO THE AO TO EXAMINE TH E ADEQUACY OF THE PROVISION. AT THIS STAGE WE WOULD REFER TO OTHER CASE LAWS RE LIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED DEP ARTMENTAL REPRESENTATIVE. 83. IN K.C.P. LIMITED V/S CIT (2000) 245 ITR 421 ( SC) THE HON'BLE SUPREME COURT WAS CONSIDERING THE CASE WHETHER THE ASSESSEE HAD EXCESS REALISATION OF PRICE OVER AND ABOVE THE LEVY PRICE OF SUGAR AND SUCH A R ECEIPT WAS HELD AS A TRADING RECEIPT LIABLE TO TAX. THOUGH THE LEARNED DEPARTMEN TAL REPRESENTATIVE TRIED TO TAKE ASSISTANCE OF THIS CASE LAW WE ARE OF THE CONSIDER ED OPINION THAT THIS DOES NOT HELP THE CASE OF THE REVENUE. 69 84. LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELI ANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN RAJENDRA TRADI NG CO. V/S CIT (1976) 104 ITR 39 (BOM.) FOR THE PROPOSITION THAT THE DOMINAN T OBJECT OF THE SCHEME HAS TO BE SEEN. FOR THE SAME PURPOSE HE RELIED ON AN ANOT HER JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT RENDERED IN NUTAN WAREHOUSING COM PANY PVT. LTD. V/S DCIT (2010) 326 ITR 94 (BOM.) WHEREIN IT HAS BEEN HELD THAT THE DOMINANT INTENTION OF THE ASSESSEE HAS TO BE ASCERTAINED. BO TH THESE CASE LAWS WERE RELIED UPON WITH AN OBJECT TO DERIVE HOME TO POINT THAT WHAT THE ASSESSEE COLLECTED WAS ADVANCE FOR SALE OF ROOM NIGHTS AND NOT ANYTHING EL SE. THIS IS ALSO THE CASE OF THE ASSESSEE. WHEN BOTH THE DEPARTMENT AS WELL AS THE ASSESSEE ARE ON FACTS AGREEING THAT WHAT IS COLLECTED IS AN ADVANCE FOR SALE OF RO OM NIGHTS NOTHING TURN OUR ON THESE CASE LAWS. 85. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION IN NATIONAL ENGINEERING INDUSTRIES LTD. V/S CIT (1999) 236 ITR 577 (CAL.) WHERE THE HON'BLE SUPREME COURT HAS MADE OBSERVATION AS UNDER: SO FAR AS THE QUESTIONS REFERRED AT THE INSTANCE O F THE ASSESSEE ARE CONCERNED THE ASSESSEE HAS EXPLAINED THAT THE ASSE SSEE HAS ALREADY GOT THE BENEFIT IN REGARD TO GRATUITY IN OTHER CONC ERNED YEARS AND AS SUCH IT WOULD BE DIFFICULT FOR THE ASSESSEE TO PRES S FOR OBTAINING THE TAX BENEFIT ONCE AGAIN BY PRESSING FOR A FAVOURABLE ANSWER TO ITS QUESTION IN THAT REGARD. THE ASSESSEE HAS ALSO CONC EDED THAT INSOFAR AS THE PROPER METHOD OF DEDUCTION OF A DEBENTURE PR EMIUM PAYABLE AT THE END PERIOD OF THE DEBENTURE IS CONCERNED IT IS A PRO RATA METHOD WHEREBY THE EXTRA PREMIUM IS TO BE SPREAD OVER ALL THE YEARS WHICH ARE OCCUPIED BETWEEN THE DATE OF ISSUE AND THE DATE OF ULTIMATE REDEMPTION. ON THE BASIS OF THIS CONCESSION THE ASSESSEE DOES NOT AND CANNOT ASK FOR A FAVOURABLE ANSWER TO THE QUESTIONS REFERRED AT ITS INSTANCE IN REGARD TO DEDUCTION FOR THE LIABILITY T O PAY DEBENTURE PREMIUM. NATURALLY WHEN THE ASSESSEE ITSELF COULD N OT PRESS FOR FAVOURABLE ANSWERS IN REGARD TO ITS QUESTIONS THE DEPARTMENT HAD NOT 70 MUCH TO SAY IN THAT REGARD. BUT AS REGARDS THE QUES TIONS FRAMED AT THE INSTANCE OF THE DEPARTMENT SOME SUBMISSIONS WERE M ADE. THESE SUBMISSIONS WERE MADE EVEN IN REGARD TO THE SPREAD OVER OF DEBENTURE PREMIUM WHICH WERE ALSO REFERRED AT THE I NSTANCE OF THE DEPARTMENT. 86. COMING TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN CIT V/S TUNGABHADRA INDUSTRIES LTD. (1994) 207 ITR 553 (CA L.) THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS JUDGMENT WAS REVER SED BY THE HON'BLE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORP. LTD. (S UPRA) AND THIS FACT IS NOTED IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. (S UPRA). 87. THOUGH BOTH THE PARTIES HAVE MADE NUMEROUS ARGU MENTS ON DIFFERENT ANGLES WE FIND THAT ALL THE ARGUMENTS ARE REPETITIVE AND T RYING TO SUPPORT OR OPPOSE THE SAME POINT FROM VARIOUS ANGLES. FACTUALLY IN OUR C ONSIDERED OPINION THE SCHEMES ARE VERY CLEAR THAT THE ASSESSEE IS UNDER THE OBLIG ATION TO REFUND NOT ONLY THE ADVANCE BUT ALSO THE SURRENDERED VALUE. THE LIABILI TY IS INCURRED ON ACCOUNT OF SURRENDERED VALUE ON THE PASSAGE OF TIME AND IT IS AN ACTUAL LIABILITY AND MAKING A PROVISION FOR THE SAME IN OUR CONSIDERED OPINION IS CORRECT AND ALSO THAT NO INCOME ACCRUES TO THE ASSESSEE ON RECEIPT OF THIS A DVANCE. 88. EVEN OTHERWISE IT IS NOT WITHIN OUR POWERS TO DISTURB THE QUANTIFICATION OF THE AMOUNT THE CIT HAS DIRECTED THE ASSESSING OFFI CER TO DISALLOW. WE HAVE ALREADY DISCUSSED THE JUDGMENT OF HON'BLE SUPREME C OURT AND OTHER COURTS WHICH HAVE HELD THAT REVISIONARY ORDER UNDER SECTION 263 WOULD STAND OR FALL ON THE REASON GIVEN BY THE CIT IN HIS ORDER AND NOT OTHERW ISE. IN THIS CASE A SPECIFIC DIRECTION HAS BEEN GIVEN BY THE CIT TO THE ASSESSIN G OFFICER TO DISALLOW A PARTICULAR AMOUNT ON THE GROUND THAT THIS IS A CONT INGENT LIABILITY. SUCH A DIRECTION IS HELD AS ERRONEOUS BY US. THE LEARNED DR POINTED OUT WITH THE HELP OF A CHART 71 THAT THERE MIGHT BE SOME INACCURACIES IN QUANTIFICA TION OF PROVISIONS. BASED ON THE FACTS BROUGHT OUT THOUGH WE HAVE NO HESITATION IN VACATING THIS DIRECTION OF THE CIT ON DISALLOWING THE PROVISION MADE FOR HOLIDAY SCHEME SURRENDER VALUE WE ALSO HOLD THAT AS THE VALIDITY OF THE ORDER U/S 263 IS UPHELD IT WOULD BE OPEN FOR THE AO TO EXAMINE THE ADEQUACY OR OTHER WISE OF THE PROVISIONS. IN PRINCIPLE WE UPHOLD THE METHOD ADOPTED BY THE ASSESSEE AND ON LY ON ISSUE OF QUANTIFICATION WE HOLD THAT THE AO CAN VERIFY THE CLAIM. 89. ON THE ISSUES I.E. ACCOUNTING OF INCOME ACCOU NTING OF HOLIDAY MEMBERSHIP SURRENDERED VALUE PROVISION AND ADEQUAC Y THEREOF MARKETING EXPENSES AND ASSESSABILITY OF NUCA PAYABLE AS ALRE ADY STATED WE AGREE WITH THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIV E THAT THE ASSESSING OFFICER HAS NOT EXAMINED THESE VITAL ISSUES AND THAT THE AS SESSING OFFICER HAS NOT APPLIED HIS MIND AND HENCE THE CIT HAS CORRECTLY INVOKED THE POWER UNDER SECTION 263 ON THIS ACCOUNT. THESE ASPECTS CAN BE EXAMINED BY THE AO IN THE ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 263 OF THE ACT AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 90. PERUSAL OF PAPERS ON RECORD CLEARLY DISCLOSE TH E NON APPLICATION OF MIND BY THE ASSESSING OFFICER ON ANY OF THESE ITEMS. JUST C OLLECTING VOLUMINOUS DETAILS AND NOT PERUSING THE SAME AND COMPLETING THE ASSESSMENT IN HURRY BY ACCEPTING THE SUBMISSION OF THE ASSESSEE AT FACE VALUE AND WITHOU T APPLICATION OF MIND IS VALID REASON FOR INVOKING THE POWERS UNDER SECTION 263. T HOUGH WE DID NOT APPROVE THE CITS FINDING THAT THE ASSESSMENT WAS COMPLETED BEF ORE THE FINAL DATE OF HEARING OR BEFORE RAISING OF THE QUERIES BY THE ASSESSING OFFI CER WE AGREE WITH HIM ON THE FACT THAT THE ASSESSING OFFICER HAS NOT EXAMINED V ITAL ASPECST ON ALL THE MAJOR ISSUES AND THIS IS A CLEAR CASE OF NON APPLICATION OF MIND BY THE ASSESSING OFFICER 72 WHILE PASSING THE ASSESSMENT ORDER. IT IS A CASE WH ERE VITAL ISSUES WHICH HAVE A PHENOMENAL EFFECT OF DETERMINATION OF CORRECT TOTAL INCOME WERE NOT EXAMINED AT ALL. THUS ON THIS ACCOUNT THE ORDER PASSED UNDER SECTION 263 FOR BOTH YEARS UNDER ASSESSMENT HAVE TO BE UPHELD. 91. IN VIEW OF THE ABOVE DISCUSSION WE SUMMARIZE O UR FINDINGS AS FOLLOWS: I) THE ORDER PASSED UNDER SECTION 263 FOR THE ASSESSME NT YEARS 2005 06 AND 2004 05 ARE UPHELD FOR THE REASONS STATED ABOVE; II) THE SPECIFIC DIRECTION OF CIT GIVEN TO THE ASSESSIN G OFFICER IN HIS ORDER UNDER SECTION 263 TO BRING TO TAX THE ADVANC E SALE OF ROOM NIGHTS AS INCOME IS HEREBY VACATED. IT IS HELD THAT THE AMOUNT RECEIVED ON ACCOUNT OF ADVANCE SALE OF ROOM NIGHTS CANNOT BE ASSESSED AS INCOME OF THE ASSESSEE ON THE FACTS AND CIRCUMSTANC ES OF THE CASE. THE CORRECTNESS OF BOOKING OR RECOGNIZING INCOME CAN NEVERTHELESS BE EXAMINED IN FRESH ASSESSMENT PROCEEDING BY THE AO. III) THE DIRECTION OF THE CIT TO DISALLOW THE PROVISIONS MADE BY THE ASSESSEE ON SURRENDERED VALUE OF HOLIDAY MEMBERSHIP IS HEREBY VACATED. WE HOLD THAT THE ASSESSEE IS ENTITLED TO A DEDUCTION OF THE PROVISION MADE ON ACCOUNT OF HOLIDAY MEMBERSHIP SUR RENDERED VALUE. IT WOULD BE OPEN TO THE AO TO EXAMINE THE ADEQUACY OF THE PROVISION BY EXAMINING THE CALCULATION. 73 92. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 16-3-2011. SD/- SD/ - (R.S. PADVEKAR) (J. SUDHAK AR REDDY) JUDICIAL MEMBER. A CCOUNTANT MEMBER MUMBAI DATED: 16 TH MARCH 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR E-BENCH (TRUE COPY) BY ORDER S.T.WAKODE / PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARIES ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.