Revisional jurisdiction u/s 263 not invocable merely because PCIT may entertain different view

Cricket Club of India Pvt. Ltd. Vs PCIT (ITAT Mumbai)

ITAT Mumbai held that AO took the plausible view of granting the benefit of mutuality after due application of mind. Accordingly, revisional jurisdiction u/s 263 cannot be invoked merely because PCIT may entertain a different view in the matter.

Facts- The assessment of the assessee was completed by AO u/s 143(3). Subsequently, the PCIT noted that the Appellant’s claim that the Appellant is a mutual concern and therefore, its income is not chargeable to tax on principle of mutuality had been accepted year after year, the Commissioner of Income Tax (Appeals) while adjudicating appeal for A.Y. 2009-10 had concluded that the Appellant was not a mutual concern and the benefit of principle of mutuality was, therefore, not available to the Appellant.

Further, for A.Y. 2010-11, the assessment order was set aside by the then PCIT-1, Mumbai vide order, dated 30/03/2015, passed u/s. 263 of the Act on the ground that the same was erroneous and prejudicial to the interest of Revenue as AO had granted the benefit of mutuality to the Appellant, whereas Appellant was not entitled for the same and therefore, Appellant’s income was liable to tax.

The PCIT was not convinced with the explanation/submission furnished by the Appellant and therefore, vide order dated 29/03/2016, passed under Section 263 of the Act the PCIT set aside the Assessment Order, dated 27/03/2014. Being aggrieved, the Appellant has preferred the present appeal.

Conclusion- Held that the view taken by the Assessing Officer to grant benefit of mutuality to the Appellant for the Assessment Year 2011-12 is a plausible view taken by the Assessing Officer after due application of mind which cannot be interfered with by the PCIT in exercise of powers under Section 263 merely because the PCIT may entertain a different view in the matter.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. These are two separate appeals preferred by the Assessee pertaining to Assessment Years 2011-12 and 2012-13. Since the appeals involved common issues, the same were heard together and are being disposed by way of a common order.

ITA No. 3652/Mum/2016 (Assessment Year 2011-12)

2. We would first take up appeal for the Assessment Year 2011-12 whereby the Appellant/Assessee has challenged the order, dated 29/03/2016 passed by the Ld. Principal Commissioner of Income Tax-1, Mumbai [hereinafter referred to as ‘the PCIT’] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the PCIT had set aside the Assessment Order, dated 27/03/2014, passed by the Assessing Officer under Section 143(3) of the Act.

3. The Appellant has, vide letter dated 31/03/2022, filed concise grounds of appeal which are as under:

“1 The CIT erred in passing the order dated 29.03.2016 under section 263 of the Act to revise the assessment order dated 27.03.2014. He failed to appreciate that the said assessment order was neither erroneous nor prejudicial to the interests of the Revenue. He also failed to appreciate that the AO had duly applied his mind and correctly treated the Appellant as a Mutual association under the law.

2. The CIT erred in making the following ‘new’ issues/points the basis of revision in the impugned order without referring to them in the show-cause notice dated 29.02.2016 issued to the Appellant and without giving the Appellant an opportunity of being heard:-

(i) whether income from flats is chargeable to tax as income from House Property in the facts of the case.

(ii) whether temporary members can be categorized as outsiders admitted to benefits of the facilities provided by the appellant based on members and frequency.

(iii) whether receipts from members by way of entry fees and annual subscription etc. and remaining varieties of receipts are to be brought to charge of tax and under which head of income.

The CIT failed to appreciate that this breach of the principles of natural justice rendered the impugned order liable to be quashed.”

4. The relevant facts in brief are that the Appellant filed return of income for the Assessment Year 2011-12 on 30/09/2011 declaring ‘Nil’ income which was revised on 30/03/2013. In the revised return, the Appellant declared income of INR 3,30,35,884/- offering to tax interest income and capital gains income to tax as per the judgment of Hon’ble Supreme Court in the case of Bangalore Club vs. CIT & Anr.: 350 ITR 509 (SC). The case of the Appellant was selected for scrutiny and notice under Section 143(2) and Section 142(1) of the Act were issued/served upon the Appellant. In response thereto the Appellant filed replies, and the assessment was completed by the Assessing Officer under Section 143(3) of the Act vide order, dated 27/03/2014 at total income of INR 4,54,38,616/-. The Assessing Officer concluded that the catering income of INR 11,94,877/- was not covered under the principle of mutuality and was liable to tax under the head ‘Income from Other Sources’. The Assessing Officer made an addition of INR 4,59,381/- under the head ‘Income from House Property’ and disallowance of INR 1,07,48,473/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 [hereinafter referred to as ‘the Rules’]. The Assessing Officer also permitted the Appellant to carry forward Long Term Capital Loss of INR 9,27,51,562/- to the subsequent assessment years.

5. Subsequently, the PCIT noted that the Appellant’s claim that the Appellant is a mutual concern and therefore, its income is not chargeable to tax on principle of mutuality had been accepted year after year, the Commissioner of Income Tax (Appeals) [for short ‘CIT(A)’] while adjudicating appeal for the Assessment Year 2009-10 had concluded that the Appellant was not a mutual concern and the benefit of principle of mutuality was, therefore, not available to the Appellant. Further, for the Assessment Year 2010-11, the assessment order was set aside by the then PCIT-1, Mumbai vide order, dated 30/03/2015, passed under Section 263 of the Act on the ground that the same was erroneous and prejudicial to the interest of Revenue as the assessing officer had granted the benefit of mutuality to the Appellant, whereas Appellant was not entitled for the same and therefore, Appellant’s income was liable to tax. In view of the aforesaid, the PCIT issued show cause notice dated 29/02/2016 to the Appellant stating the aforesaid facts and highlighting the failure of the assessing officer to examine various issues. The relevant extract of the show cause notice issued under Section 263(1) of the Act read as under:

“6. Therefore, in the assessment order passed u/s. 143(3) dated 27- 03-2014 for AY 2011-12, the Assessing Officer failed to examine the following issue:

(i) Whether assessee company is a mutual organization in terms of its Memorandum and Articles of Association.

(ii) Whether the main activity of assessee, the objects enunciated in clause 3(a) to 3(d) of Memorandum of Association are being carried out commercially with a profit motive.

(iii) The effect of profit motive on mutuality.

(iv) Whether contributions made by members, and their guests, for pursuing any of the activities of the nature of games and sports, are covered by mutuality in the facts of the case.

(v) Whether the so claimed guests are sufficiently limited in number so as to be treated as guests of members or are so large as to be qualified as outsiders permitted to use the facilities of the claim.

(vi) Whether the activities of the company are run so as to treat members and non-members at par in relation to provision of facilities.

(vii) Whether activities of the company are for the benefit of third party and outsiders as well.

7. For the year under consideration [i.e. A.Y 2011-12], the income should also have been determined as if the assessee company is not a mutual concern, income of which is not chargeable to tax on the principle of mutuality. The order of assessment is, therefore, erroneous, in so far as it is prejudicial to interest of revenue. “

8. Therefore, in view of the above, it is seen that the assessment order passed u/s 143(3)of the I.T. Act, 1961, dated 27-03-2014 is erroneous, in so far it is prejudicial to the interest of revenue, hence, you are hereby given an opportunity of being heard, so as to show cause as to why the said order passed by the Assessing Officer, may not be set aside by invoking the provisions of section 263 of the 1.T Act, 1961. In this regard, you are further asked to attend this office in person or through a duly authorized representative on 11-03-2016 at 3.30 p.m., failure to which it shall be presumed that you have nothing to say in the matter under consideration and accordingly, the proceedings initiated shall be disposed off ex-parte, on merits.”

6. In response to the aforesaid show cause notice, the Appellant filed reply, dated 16/03/2016, wherein the Appellant highlighted the receipts which were offered to tax and the receipts in respect of which surplus/deficit was not offered/claimed by the Appellant on account of the benefit of mutuality. It was contended on behalf of the Appellant that receipts from non-members were already offered to tax by the Appellant, and that mere dealings with the outsiders would not result loss of benefit of mutuality in entirety. On without prejudice basis, it was contended by the Appellant in case the income of the Appellant is computed holding that the Appellant is not a mutual concern, then same would result in a loss of INR 6,04,86,501/- in the hands of the Appellant. However, the PCIT was not convinced with the explanation/submission furnished by the Appellant and therefore, vide order dated 29/03/2016, passed under Section 263 of the Act the PCIT set aside the Assessment Order, dated 27/03/2014.

7. Being aggrieved, the Appellant has preferred the present appeal challenging the aforesaid order dated 29/03/2016, passed by the PCIT under Section 263 of the Act.

8. The Ld. Authorised Representative for the Appellant appearing before us reiterated the submissions made before the PCIT and relied upon written submissions filed before PCIT, dated 16/03/2016 placed at page 4 to 24 of the paper-book. He also placed reliance upon the order dated 04/10/2017 and 15/07/2022 passed by the Tribunal in appeal for the Assessment Years 2009-10 (ITA No. 6937/Mum/20014) and 2010-11 (ITA No. 3282/Mum/2015), Per contra, Ld. Departmental Representative supported the order passed by the PCIT and relied upon the same. She submitted that the assessment order was erroneous to the extent prejudicial to the interest of the Revenue as the benefit of the mutuality was allowed to the Appellant by the Assessing Officer without making any enquiries on the issues highlighted by the PCIT.

9. We have considered the rival submissions and perused the material on record. During the course of hearing, the Ld. Authorised Representative for the Appellant had relied upon order dated 04/10/2017 passed by the Tribunal in ITA No. 6937/Mum/2014, being appeal preferred by the Appellant against the order passed by CIT(A) for Assessment Year 2009-10, and order dated 15/07/2022 passed by the Tribunal in ITA No. 3282/Mum/2015, being appeal preferred by the Appellant against the order passed by PCIT under Section 263 of the Act for Assessment Year 2010-11. It was contended on behalf of the Appellant that in view of the aforesaid orders passed by the Tribunal, the very basis on which powers of revision under Section 263 of the Act was exercised by the PCIT does not survive. The case of the Appellant for the assessment year before us is squarely covered by the decision of the Tribunal in the case of Appellant for the Assessment Year 2010-11.

10.We have perused the aforesaid order, dated 15/07/2022, passed by the Tribunal in ITA No. 3282/Mum/2015 allowing the appeal preferred by the Appellant for the Assessment Year 2010-11. We note that in identical facts and circumstances, the Tribunal had quashed the order passed under Section 263 of the Act for the Assessment Year 20 10-11 and had concluded as under:

(a) On Applicability of Principle of Mutuality – The Tribunal the Appellant has always been treated as a mutual association since its inception till Assessment Year 2008-09 and thereafter, from Assessment Year 2016-17 to 2018-19. Thus, the Revenue has accepted the principle of mutuality in respect of majority of receipts as claimed by the Appellant. The relevant extract of the order, dated 15/07/2022, passed by the Tribunal read as under:

“4 . It is not in dispute that the assessee club has been held to be a mutual association for more than 4 decades in the past. It would be relevant to note that the dispute with regard to the status of the assessee as a ‘mutual association’ arose for the first time in the Asst Year 1970- 71, though the order of the Tribunal for that year is not available. There is a reference to this dispute in the Tribunal Order dated 21.10.1976 for the Asst Year 1973-74 which is enclosed in the case law paper book. In the said order dated 21.10.1976 for the Asst Year 1973-74, the Tribunal was concerned with the question whether the amount received by the assessee from sale of tickets of the Test Match between England and India to its own members, was exempt on the principles of mutuality. The Tribunal followed its own order dated 17.6.1974 for the Asst Years 1970-71 and 1972-73 and by placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs R. W.I. T. C. reported in 24 ITR 551 (SC) held that the assessee is a mutual association and the amounts received by it from its members for sale of tickets to a cricket match do not have the character of income. It was submitted by the ld. AR as a statement from the Bar, that against this order of tribunal, no appeal has been preferred by the department before the Hon’ble Bombay High Court. In our considered opinion, this judgement of tribunal assumes importance to the impugned issue, in view of the fact that in the said judgement, the tribunal had held that the assessee is a mutual association in the context of sale of tickets to members for the Test Match between England and India and the ld. PCIT is seeking to revive the same issue in the section 263 proceedings denying exemption from principles of mutuality on the ground that the assessee sold tickets to its members for an International Cricket Match and IPL Match. This is evident from para 6.3. of the order of ld. PCIT.

4.1. We find that the ld. AR before us submitted that the assessee was a party before the Hon’ble Supreme Court in CIT vs. Bankipur Club Ltd reported in 226 ITR 97 (SC). The facts of the assessee ‘s case relating to the Asst Years 1977- 78 and 1978-79 are discussed at pages 106 and 107 of the judgement. The Hon’ble Supreme Court upheld the findings of the Tribunal and the Hon ‘ble High Court that the assessee is a mutual association and that the income from property let out to members is exempt from tax on the principles of mutuality. The operative portion of the judgement of Hon’ble Supreme Court in the case of Bankipur Club supra as applicable to the assessee alone are as under:-

“11. C.A. Nos. 10194 of 1995 and 3382 of 1997 [arising out of SLP (C) No. 22644 of 1994] relate to the assessee, the Cricket Club of India. The proceedings relate to the assessment years 1977-78 and 1978-79. Amongst others, the Cricket Club of India was in receipt of income from property owned by it – chambers in the building of the assessee let out to members, annual value of the club house and annual value of Patiala Pavillion. The above facilities were provided only to members of the association and that too temporary accommodation. The arrangement was essentially for the benefit of the members. Following the decision rendered by the Tribunal, Bombay Bench-A, for the assessment years 1974-75 and 1976-77 rendered in IT Appeal Nos. 1730 and 1913 (Bom.) of 1980, the Tribunal held that no portion of the Club House, Patiala Pavillion, etc., is let out to strangers and that these portions are let out only to the members and so, even if any income had actually accrued due from the members on the above counts, it will not be taxable on the principle of mutuality. In the application filed under section 256(2) of the Act, the High Court declined to refer the question of law posed by the revenue, to the effect, “whether the Appellate Tribunal was justified in law in holding that the income from the property held by the assessee could not be brought to charge under the provisions of sections 22 to 26 of the Act ?” The decision was followed for the assessment year 1978-79 – C.A. No. 10194 of 1995 and the High Court declined to refer any question of law for this year as well. In fact, for both the years, the decision of the Tribunal to the effect that the income received from the aforesaid counts is exempt under the principle of mutuality, was not doubted by the High Court, holding that no referable question of law arose for its decision.”

4.1.1. The said judgement of the Hon ‘ble Supreme Court is relevant because the Ld. PCIT has revived the same issues and denied exemption on the ground that the assessee has temporary members, the surplus may not be distributed equally on winding-up and there are taxable transactions with non-members.

4.2. In the Asst Year 2004-05, the ld. AO had reopened the assessment on the ground that certain receipts by the assessee from its members were not entitled to the benefit of mutuality. However, after considering the submissions, the ld. AO framed the assessment on 31.12.2009 categorically accepting that the amounts received from members was not taxable on the principles of mutuality.

4.3. In the Asst Year 2005-06, the Ld. CIT(A) allowed the appeal of the assessee with the following significant observations :-

“4.8. …..The assessee club is a very old organisation which is incorporated for the benefit of its members. The issue of principle of mutuality has been considered and upheld in the appellant’s own case in the earlier years and there is no scope for any fresh debate. In addition to this, the AO has not found any facts to suggest that the club does not run under the principles of mutuality. He has assessed the receipts only on the ground that in absence of the details of the receipts, it is not possible to know whether the receipts are received from members or outsiders. This is rather a vague observation which is not supported by any fact or evidence, So, the additions need to be deleted”.

4.4. The Ld. CIT(A) has given a similar finding with regard to the addition on account of interest received from the members.

4.5. It is pertinent to note that the department has accepted the aforesaid findings of the Ld. CIT(A). Though an appeal was filed to this Tribunal on another issue, the issue of mutuality was not challenged.

4.6. The same holds good for Asst Year 2006-07. The Department accepted the ld. CIT(A)’s finding that the assessee is a mutual association and its receipts from members are exempt on the principles of mutuality.

4.7. In the Asst Years 2004-05, 2007-08 and 2008-09, the ld. AO did not dispute that the assessee is a mutual association. However, it was held that the amounts received by the assessee by way of sponsorship fee of an event conducted for the members and for supply of food to members by an outside caterer was not exempt on the principles of mutuality. Both issues were decided in favour of the assessee by this Tribunal vide its common order dated 21.3.2016 for the Asst Years 2004 05, 2007-08 and 2008-09 vide paragraphs 11, 16 and 23 of the order.

4.8. The assessee has always been treated as Mutual Association since its inception for decades upto AY 2008-09 by the department as is evident from the tabulation handed over by the ld. AR at the time of hearing. It was submitted that this has continued even in the subsequent years i.e. Assessment Year 2016-17 to 2018-19 wherein the Ld. AO in the scrutiny assessment treated the assessee as a mutual association and accordingly has accepted Principle of Mutuality in respect of majority of receipts as claimed by the assessee”.

(b) On Taxability of Catering Revenue¹ – While dismissing the appeal of the Revenue for the Assessment Year 2008-09, the Hon’ble Bombay High Court had, vide order, dated 06/06/2019, passed in Income Tax Appeal No. 653 of 2017 affirmed the findings of the Tribunal that Catering Revenue is exempt from tax in the hands of the Appellant as per the principle of mutuality as the catering revenue was in effect the amount retained by the Appellant from the money collected from the members for food and refreshment.

(c) On Revenue from Holding Cricket Matches² – The Hon’ble Supreme Court has, in Appellant’s own case [i.e., Cricket Club of India vs. Bombay Labour Union & Anr.: AIR 1969 SC 276, dated 07/08/1968], has rejected the submission of workmen that the activity undertaken by the club is in the nature of trade or business after taking into consideration the issue relating to holding of cricket matches. Further, in any case, the PCIT had only stated that the Appellant could have earned more revenue from holding cricket matches, which is in the nature of surmise and conjecture and therefore, no proceedings could have been initiated against the Appellant on the basis of the same.

(d) On Enhancement Notice issued by the CIT(A) for the Assessment Year 2009-10³ – The main basis of revision proceedings under Section 263 of the Act for the Assessment Year 2010-11 was the enhancement order passed by the CIT(A) in appeal for the Assessment Year 2009-10. Against the said enhancement order, the Appellant had preferred appeal before the Tribunal which was partly allowed by restoring the issue raised in appeal filed by the CIT(A) for fresh adjudication after giving Appellant opportunity of being heard vide order, dated 04/10/2017, passed in ITA No. 6937/Mum/2014. Pursuant to the aforesaid order of the Tribunal, the CIT(A) had, vide order dated 29/03/2019, withdrawn the enhancement notice dated 22/08/2014. In the aforesaid order, dated 29/03/2019, the CIT(A) had concluded that the Appellant was entitled to claim the benefit of mutuality in respect of income received from its members in terms of the judgment of the Hon’ble Supreme Court in the case of CIT vs. Bankipur Club Ltd. : 226 ITR 97 (SC), and that the dealings with non-member may give rise to taxable income but that does not affect the right of the Appellant to claim exemption on the principle of mutuality in respect of the transaction with the members. Alternatively, if the principle of mutuality is denied to the Appellant then the total income of the Appellant would work out to be negative as against positive income assessed by the Assessing Officer. The aforesaid order passed by the CIT(A) has been accepted by the Revenue and has attained finality. Therefore, the primary basis of the PCIT for initiating proceedings under Section 263 of the Act by placing reliance on the findings given in the enhancement order passed by the CIT(A) for the Assessment Year 2009-10 gets completely vitiated.

(e) On Transactions with non-members not offered to tax according to PCIT⁴ – The PCIT proceeded on incorrect assumptions of facts and erred in stating that the transaction with the non-members were not offered to tax. On perusal of computation of total income and the respective returns it can be seen that the Appellant has duly offered interest income and capital gains income to tax in the revised return of income. Though these facts were brought to the knowledge of PCIT, the PCIT proceeded to pass order under Section 263 of the Act without considering the same.

(f) On Enquiries carried out by the Assessing Officer in original scrutiny assessment proceedings⁵ – The Assessing Officer had issued notice issued under Section 142(1) of the Act wherein specific queries were raised on the issues highlighted in proceedings under Section 263 of the Act. During the assessment proceedings, relevant details/reply were filed by the Appellant which were examined and verified by the Assessing Officer during scrutiny assessment proceedings. The Assessing Officer had completed assessment after making certain additions after due application of mind and after making adequate/requisite enquiries. The Assessing Officer had taken a plausible view and the PCIT was not justified in holding the assessment order as erroneous and prejudicial to the interest of the revenue merely because the PCIT has a different view of the matters.

11. We note that the facts and circumstances in Assessment Year 2011- 12 are identical to those for the Assessment Year 2010-11. In the show cause notice, dated 29/02/2016, the PCIT has asked the Appellant to show cause why the Assessment Order should not be set aside as being erroneous in so far as prejudicial to the interest of the Revenue since the Appellant is not a mutual concern, and the Assessing Officer has erred in granting the benefit of principle of mutuality to the Appellant. The aforesaid show cause is based upon the order of enhancement, dated 28/08/2014, passed by the CIT(A)- 1, Mumbai in appeal preferred by the Appellant for the Assessment Year 2009-10 and the revision order, dated 30/03/2015, passed by the Principal Commissioner of Income Tax-1, Mumbai under Section 263 of the Act on 15/07/2022 setting aside assessment order for the Assessment Year 2010-11. As regards the order of enhancement, dated, 28/08/2014, passed by the CIT(A)-1, Mumbai, it is admitted position that the said order has since been set aside in appeal by the Tribunal vide order, dated 04/10/2017, passed in ITA No. 6937/Mum/2014 whereby issues were remanded back to the file of CIT(A) for fresh adjudication. Further, while adjudicating the issues afresh as per the directions of the Tribunal, the CIT(A) has, vide order dated 29/03/2019, withdrawn the enhancement notice dated 22/08/2014. The order of CIT(A) has attained finality as the same has not been challenged by the Revenue. Keeping in view, inter alia, the aforesaid facts the Tribunal allowed appeal preferred by the Appellant for the Assessment Year 2010-11 (ITA No. 3282/Mum/2015) and quashed the order of revision, dated 30/03/2015, passed under Section 263 of the Act vide order dated 15/07/2022.

12. During the assessment proceedings, the Appellant had filed revised return for the Assessment Year 2011-12 on 30/03/2013. As per the revised computation of total income placed on record, the Appellant had offered to tax income for House Property, Capital Gains and Income from Other Sources. When the case was selected for scrutiny notice dated 01/11/2013 and 09/12/2013 were issued to the Appellant under Section 142(1) of the Act. In response thereto, the Appellant had filed reply dated 23/08/2013, 02/12/2013, 06/12/2013, 24/12/2013, 21/01/2014, 14/02/2014, 28/02/2014 and 10/03/2014. By way of aforesaid replies, the Appellant had placed before the Assessing Officer original as well as revised return of income along with reason for filing a revised return, audited financial, note on nature of activities, details relating to Income from House Property, Capital Gains Income and Income from Other Sources offered to tax, submissions relating to disallowance of deduction under Section 14A of the Act, details of receipts offered to tax and details of receipts claimed as exempt in terms of principle of mutuality as well as the assessment orders of the last three assessment years. After considering the submission and documents/details furnished by the Appellant, the Assessing Officer passed the Assessment Order, dated 27/03/2014, under Section 143(3) of the Act after making (i) addition of INR 4,59,382/- in relation to the Income from House Property, (ii) disallowance of INR 1,07,48,473/- under Section 14A of the Act and (iii) INR 11,94,877/- in respect of share in Catering Revenue. Thus, the case before us is not one in which no inquiry or verification was conducted by the Assessing Officer. The Assessing Officer carried out inquiry/verification before framing the assessment.

13. Further, it is admitted position that from inception till Assessment Year 2008-09 the Appellant has been granted the benefit of mutuality. For the Assessment Year 2009-10, the CIT(A) had, pursuant to the remand by the Tribunal, dropped enhancement notice and granted benefit of mutuality to the Appellant. Further, from Assessment Year 2016-17 to 2018-19 the benefit of mutuality has been granted to the Appellant during   the assessment proceedings.

14. Thus, the view taken by the Assessing Officer to grant benefit of mutuality to the Appellant for the Assessment Year 2011-12 is a plausible view taken by the Assessing Officer after due application of mind which cannot be interfered with by the PCIT in exercise of powers under Section 263 merely because the PCIT may entertain a different view in the [Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)]. Further, in identical facts and circumstances, the Tribunal has quashed the order passed under Section 263 of the Act for the Assessment Year 2010-11. All the contentions raised  by  the Revenue have been  considered and rejected by the Tribunal. There is nothing on record to persuade us to take a view different from the view taken by the Tribunal while quashing the order of revision passed under Section 263 of the Act for the Assessment Year 2010-11.

15. In view of the above, we quash the order, dated 29/03/20 16, passed under Section 263 of the Act and restore the assessment order dated 27/03/20 14 passed under Section 143(3) of the Act. Concise Ground 1 is, therefore, allowed whereas all the other grounds raised by the Appellant are dismissed as being infructuous.

ITA No. 4033/Mum/2017 (Assessment Year 2012-13)

16. Now we would take up appeal for the Assessment Year 2012-13 whereby the Appellant/Assessee has challenged the order, dated 29/03/2017, passed by the PCIT under Section 263 of the Act whereby the PCIT had set aside the Assessment Order, dated 30/03/2015, passed by the Assessing Officer under Section 143(3) of the Act.

17. In facts and circumstances identical to Assessment Year 2011-12, a show cause notice dated 09/02/2017 was issued by the PCIT under Section 263 of the Act for the Assessment Year 2012-13. According to the PCIT the Assessing Officer had failed to examine the issues listed in paragraph 2.5 of the aforesaid show cause notice and had failed to apply his mind to the relevant facts/issues. Thus, rendering the Assessment Order, dated 30/03/2015, for the Assessment Year 2012-13 passed under Section 143(3) of the Act erroneous in so far prejudicial to the interest of revenue which was, therefore, liable to be set aside. The relevant extract of the aforesaid show cause notice, dated 09/02/2017 read as under:

“(i) Whether assessee company is a mutual organization in terms of its Memorandum and Articles of Association.

(ii) Whether the main activity of assessee, the objects enunciated in clause 3(a) to 3(d) of Memorandum of Association are being carried out commercially with a profit

(iii) The effect of profit motive on mutuality.

(iv) Whether contributions made by members, and their guests, for pursuing any of the activities of the nature of games and sports, are covered by mutuality in the facts of the case. All the receipts/expenses were not examined by AO especially those which were claimed as covered under the concept of

(v) Whether the so claimed guests are sufficiently limited in number so as to be treated as guests of members or are so large as to be qualified as outsiders permitted to use the facilities of the claim.

(vi) Whether the activities of the company are run so as to treat members and non-members at par in relation to provision of facilities.

(vii) Whether activities of the company are for the benefit of third party and outsiders as well.

(viii) Complete assessment in haste without ensuring compliance of all queries raised in past u/s 142(1)

(ix) Huge transactions in securities have been made wherein the holding period varies from 1 day to many days, showing clearly that the activity has been carried in an organized manner with the intention to do share trading business, thus AO ought to have examined this aspect before accepting the income as Short Term capital gains and Long Term capital Gains, as shown.

(x) Accretion to assets, provisions for expenses, funds, advances appearing in the Balance Sheet were not looked into by the AO before completing this assessment.

(xi) AO further failed to examine the claim of depreciation for its allowability and correctness, especially when part of the activity are considered exempt on the concept of mutuality.

(xii) No verification/examination of receipts and expenses, along with its proper taxability for various food festivals, bar nights, valentine day function, Diwali, Christmas functions was done.

(xiii) Receipts on Members Children Plan, membership allotments were not examined form the view of taxability. The AO further failed to look into the basis of increase in ‘Reserve and Surplus’ from 314 crore to 395 crore approximately and of investments from 309 crores to 377 crores vis a vis surplus shown

(xiv) Implication of Service Tax dispute of Rs 14.73 Crore was not examined

(xv) The AO incorrectly accepted the disallowance u/s 14A r. w.r 8D @ 2% of dividend income in total disregard of Rule 8D which is mandatorily applicable as per the order of Hon’ble Bombay High Court given in Godrej Boyce Mfg Co Ltd [2010] 328 ITR 81 (Bombay)”

18. In response to the show cause notice, the Appellant filed written submissions dated 22/02/2017 contending, inter alia, that the Appellant was a mutual association entitled to claim the benefit of the principle of mutuality. However, the PCIT was not convinced and therefore, the PCIT proceeded to set aside the Assessment Order, dated 30/03/2015, for the Assessment Year 2012-13 concluding that the Appellant was not entitled to claim benefit of the principle of mutuality.

19. Both the sides agreed that the issues raised in the present appeal in relation to the Appellant’s claim of benefit of principle of mutuality are identical to those raised in appeal for the Assessment Year 2010- 11 and 2011-12. Therefore, our adjudications/findings in appeal for the Assessment Year 20 11-12, based on the decision of the Tribunal in appeal for the Assessment Year 2010-11, shall apply mutatis mutandis to the issue raised in the present appeal. We have noted that in identical facts and circumstances, the Tribunal has quashed the order passed under Section 263 of the Act for the Assessment Year 2010-11, and while doing so the Tribunal has rejected the identical contentions/reasoning of the Revenue for setting aside the Assessment Order. Therefore, in view of the reasoning and adjudication contained in paragraphs 10 to 15 above, we hold that the view taken by the Assessing Officer to grant benefit of mutuality to the Appellant for the Assessment Year 2012-13 is a plausible view taken by the Assessing Officer after due application of mind which cannot be interfered with by the PCIT in exercise of powers under Section 263 of the Act merely because the PCIT may entertain a different view in  the matter.[Malabar     Industrial   Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)].

20. As regards the issue of computation of disallowance under Section 14A of the Act highlighted by the PCIT as one of the reasons for setting aside the Assessment Order as erroneous and prejudicial to the interest of Revenue is concerned, we find that the Assessing Officer has in paragraph 5 of the Assessment Order has dealt with the issue of disallowance of expenditure under Section 14A of the Act which read as under:

“5 Disallowance Expenditure u/s 14A:

For A. Y. 2006-07 the assessing officer had made disallowance of expenditure u/s 14A on account of exempt income & investments as per Rule 8D(2)(iii) of Rs. 45,80,216/-. The CIT(A) had also confirmed the disallowance made by the A. O. However, in appeal filed by the assessee against the decision of the CIT(A), the ITAT vide order dated 29.11.2011 had restored to the file of the A.O. The Dy. CIT-(1), Mumbai has via order u/s 143(3) r. w.s. 254 of the I. T. Act, 1961 dated 22.03.2013 as decided disallowance reasonably after re-examination of the contention of the ITAT at 2% of the dividend income/exempt income. Further Assessing Officer while passing order for A. Y 2010-11 has also disallowed 2% of dividend income. The assessee company during the Assessment Year 2012-13 under consideration has earned dividend income to the extent of Rs. 52,36,429/- and Rs. 2,41,41,847 as interest on tax free Bonds. Hence, the expenditure disallowable under section 14A at 2% would be Rs. 5,87,565/-. Since, the assessee has not disallowed the said expenditure on its own in the computation of total income either in original computation of total income or in its revised computation of total income as it is mandatory from A. Y. 08-09, I hereby disallow expenditure u/s 14A of the I. T. Act of Rs. 5,87,565/-“

On perusal of the paragraph 5 reproduced hereinabove, it can be seen that the Assessing Officer taken into consideration the facts of the case and the fact that for the Assessment Years 2006-07 and 2010-11 disallowance @ 2% of the dividend income was made under Section 14A of the Act.

21. We find that for the Assessment Year 2013-14, in identical facts and circumstances, the Tribunal had in the case of the Appellant (ITA No. 2800/Mum/2018, dated 03/08/2018), quashed the order of revision passed under Section 263 of the Act holding as under:

“9. In view of the above given facts and circumstances, we are of the view that this is not a fit case for revision proceedings under section 263 of the Act, as the disallowance made by AO under section 14A of the Act, was after due application of mind to the facts of the case. The AO has conducted enquiry in regard to expenses relatable to exempt income and assessee has filed a complete note before the AO during the course of assessment proceedings and accordingly, the assessment was framed under section 143(3) of the Act. We are of the view that wherever, there are two possible views and the AO has taken one of the courses permissible, the PCIT cannot exercised his power under section 263 of the Act to differ with a view of the AO even if there has been loss of revenue. Because, the PCIT has nowhere held that as to how the assessment order is erroneous and how the computation made by AO regarding disallowance of expenses relatable to exempt income are more than what the AO has computed. Accordingly, we quash the revision order and allow the appeal of the assessee.”

22. While concluding as above, the Tribunal took note of the fact that specific query in relation to disallowance under Section 14A of the Act was raised by the Assessing Officer during the assessment In response thereto, the Appellant had filed a note on disallowance of expenditure under Section 14A of the Act wherein it was contended that the Appellant had only claimed deduction for expenditure incurred wholly and exclusively for earning income offered to tax under the head Income from House Property, Capital Gains and Income from Other Sources. Expenses relating to income not offered to tax by claiming benefit of principle of mutuality were not claimed as deduction. After taking into consideration the reply furnished by the Appellant the Assessing Officer had restricted the disallowance @ 2% of exempt income after due application of mind.

23. We note that during the assessment proceedings for the Assessment Year 2012-13 also, the Assessing Officer had raised specific query in relation to disallowance under Section 14A of the Act and in response to the same, the Appellant vide letter, dated 20/03/2015, provided details and reasoning identical to those provided during the assessment proceedings for the Assessment Year 2013-14. Thus, in similar facts and circumstances, the Tribunal had rejected the identical reasoning/contentions of the Revenue for setting aside the Assessment Order on account of incorrect computation of disallowance under Section 14A of the Act, and had quashed the order passed under Section 263 of the Act for the Assessment Year 2013-14. There is nothing on record to persuade us to take a view different from the view taken by the Tribunal while quashing the order of revision passed under Section 263 of the Act for the Assessment Year 2013-14. Accordingly, we hold that given the facts and circumstances of the case the view taken by the Assessing Officer to restrict the disallowance under Section 14A of the Act to 2% of the exempt income for the Assessment Year 2012-13 was a plausible view taken by the Assessing Officer after due application of mind which cannot be interfered with by the PCIT in exercise of powers under Section 263.

24. We also find merit in the contention raised by the Appellant that the PCIT could not have directed the conduct of roving enquiry in exercise of power under Section 263 of the Act in view of the decision of the Tribunal in the case of the Appellant for the Assessment Year 2010-11 (ITA No. 3282/Mum/2015, dated 15/07/2022) wherein, after placing reliance on the judgment of the Hon’ble Delhi High Court, it has been held as under:

“11.1. We hold that merely calling for information to see whether there is “potential reason” to hold that assessment erroneous and prejudicial to the interest of revenue, constitutes a roving or fishing inquiry. Reliance in this regard is placed on the  decision of Hon ’ble Delhi High Court in the case of CIT vs.  International Travel House Ltd reported in 344 ITR 554 (Del), it has been held that the PCIT is not permitted to exercise his  revisional powers to conduct a roving or a fishing inquiry with a  view to detecting alleged potential sources of income.” (Emphasis Supplied)

25. In the case before us the PCIT has, in paragraph 16 of the order impugned, directed the Assessing Officer to make enquiries on issues specified in paragraph 2.5(vi), (vii), (x), (xii), (xiii)) and (xiv) of the show cause notice dated 09/02/2017 without appreciating that the revenues received from non-members (including income arising from ticket sold to outsiders) have been offered to tax by the Appellant and disclosed in the computation of income. The directions issued by the PCIT are in the nature of directions to conduct a roving enquiry and therefore, run contrary to the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. : 203 ITR 108 (Bombay) and the judgment of the Hon’ble Delhi High Court in the case of CIT vs. International Travel House Ltd reported in 344 ITR 554 (Del),

26. Thus, in view of the above we hold that the PCIT was not justified in exercising the powers of revision under Section 263 of the Act. Accordingly, concise Ground No. 1 raised by the Appellant in appeal for the Assessment Year 2012-13 is allowed while all the other grounds raised by the Appellant are dismissed as being infructuous. The order, dated 29/03/20 17, passed under Section 263 of the Act is quashed and the Assessment Order dated 30/03/2015 for the Assessment Year 2012-13 passed under Section 143(3) of the Act is restored.

27. In result, both the appeals preferred by the Assessee are allowed.

Order pronounced on 30.03.2023.

Notes :

1. Refer to paragraph 5 to 5.3 of the order, dated 15/07/2022, in ITA No. 3282/Mum/2015)

2. Refer to paragraph 6 to 7 of the order, dated 15/07/2022, in ITA No. 3282/Mum/2015)

3. Refer to paragraph 8 to 8.3 of the order, dated 15/07/2022, in ITA No. 3282/Mum/2015)

4. Refer to paragraph 9 of the order, dated 15/07/2022, in ITA No.3282/Mum/2015

5. Refer to paragraph 10 to 10.1 of the order, dated 15/07/2022, in ITA No. 3282/Mum/2015