ASST CIT 17(3), MUMBAI vs. VIRAF J. DALAL, MUMBAI

We have carefully heard the parties and considered their submissions along with the orders of the authorities below. As far as ground no.1 is concerned, we noted that the dispute is with regard to the system of accounting followed by the assessee whether the assessee has followed cash system of accounting or mercantile system of accounting. The TAR of the assessee for the year admittedly shows that the assessee is following mercantile system of accounting. The Assessing Officer therefore, took the view that the assessee follows mercantile system while the assessee clams there was clerical error and he has filed copy of TAR for subsequent A.Y. 2013-14, which shows that the assessee was actually following cash system of accounting. Therefore, the assessee has shown royalty income on actual receipt basis. We, noted that the Assessing Officer therefore, added a sum of ` 43,15,231/- in the income of the assessee not accepting the contention of the assessee that he was following cash system of accounting. When the matter went before the CIT(A), we found that before the CIT(A) the assessee has filed reconciliation for A.Y. 2011-12, 2012-13 and 2013-14 in respect of each entry in 26AS statement and Profit & loss account for the respective years. The CIT(A) also noted that in the TAR for the A.Y. 2013-14, the assessee has categorically mentioned about cash system of accounting. The CIT(A) has duly reproduced the reconciliation made by the assessee in respect of the total amount along with the year of the receipt and on examination of all three years he gave a finding of fact that all these three years Allied Publishers credits the entry of royalty to the account of the assessee on 31st March every year while the actual payment was made on a subsequent date. Therefore, he splits the income into next financial year and consequently, the same was accounted for in the subsequent assessment year. It is not a case that a sum of ` 43,15,231/- has never been offered for taxation. The learned DR even though vehemently relied on the order of the Assessing Officer, he could not convince us that the finding given by the CIT(A) is not correct. We, therefore, do not find any illegality or infirmity in the order of the CIT(A). Thus, ground no.1 taken by the Revenue stands dismissed.

Ground no.2, relates to allowance of club expenses of ` 1,53,793/-. We have heard the rival submissions and perused the record. The CIT(A) noted that 50% of the club expenses has already been disallowed by the assessee out of the total expenses incurred amounting to ` 3,07,586/-He further noted that the Assessing Officer disallowed these expenses just mentioning that these expenses has not been incurred for the purpose of business. We also find that the Assessing Officer simply disallowed these expenses by observing that the expenditure does not relate to the business. He has not specifically pointed out which of the expenses does not relate to the business. We do not agree with the finding given by the CIT(A) that the disallowance cannot be made in the absence of any finding given by the Assessing Officer whatsoever, how far the expenses has not been incurred for the purpose of business. We, therefore, do not find any illegality or infirmity in the order of the CIT(A) deleting the said disallowance. Thus, ground no.2 raised by the revenue is also dismissed.

In the result, the appeal filed by the Revenue is dismissed.