THE DCIT, CIRCLE-2(1)(2), AHMEDABAD vs. M/S. KARNAVATI CLUB LTD., AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH AHMEDABAD

BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No. 2381/Ahd/2015 (Assessment Year: 2012-13) Asst. Commissioner of Income Tax, Cir. 2(1)(2), A’bad, 1st Floor, Navjivan Trust Building, Ahmedabad 380 009 Appellant Vs. M/s. Karnavati Club Ltd., Sarkhej Gandhinagar Highway, Ahmedabad Respondent PAN: AAACK7865Q

राज�व क� ओर से/By Revenue : Nidhi Srivastava, CIT D.R. आवेदक क� ओर से/By Assessee : Sulabh Padshah, A.R. सुनवाई क� तार�ख/Date of Hearing : 05.10.2017 घोषणा क� तार�ख/Date of Pronouncement : 12.10.2017

ORDER PER S. S. GODARA, JUDICIAL MEMBER

This Revenue’s appeal for assessment year 2012-13 arises against the CIT(A)-2, Ahmedabad’s order dated 27.05.2015 in case no. CIT(A)- 2/291/DC.Cir.2(1)(2)/2014-15, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short “the Act”.

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Assessing Officer had rejected assessee’s accounting treatment given to its above entrance fee to be a capital receipt. He was of the view that the above amount was non refundable entitling its members concerned to use all the club amenities. He further rejected assessee’s reliance placed on preceding assessment years’ findings on the very issue right up to this tribunal as well as hon’ble jurisdictional high court. All this resulted in the impugned entrance fee being treated as revenue receipt of the relevant previous year leading to addition in question of Rs.16,18,59,750/-.

“2.3. Decision:

I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the addition of Rs. 16,18,59,750/- being Entrance Fees received as income of the appellant company. The appellant on the other has stated that the matter is covered and already decided in favor of assessee by Hon'ble ITAT in its own case in ITA No. 26827A/2000 for A.Y. 1994-95, ITA No. 23377A/2002 for A.Y. 1998-99, ITA No. 93/A/2012 for A.Y. 2008-09. The appellant has further stated that identical issue has been decided in favor of appellant by Hon'ble CIT(A) for A.Y. 2011-12. It is noted that the similar issue has been decided by me in the case of the appellant for the A.Y. 2011-12 in appeal No. CIT(A)-VIII/DCIT/Cir. 4 7340/13-14 dated 16/06/2014. For the sake of clarity, the findings given by me in para-3.3 are reproduced here under: - "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the addition of the entrance fee charged by the club for enrolment of its member. The appellant has claimed that the entrance fee received was one time fee and only members were eligible to use the facilities of the club and the entrance fee so received was non-refundable. The AO was of the opinion that the benefit of mutuality is not available to the appellant. It has been mentioned by the AO that in A.Y 1996 -97 similar addition was made and accordingly the addition was being made in this year. It has been brought to my notice that the issue is covered by the earlier orders of honourable ITAT Ahmedabad in the case of the appellant itself. Honourable ITAT has held that the entrance fee is not chargeable to tax. The honourable ITAT has decided the issue in favour of the appellant in ITA number 2486/Ahd/2012 for A,Y 2009 - 10. It is noted from the above mentioned facts that the issue is covered in favour of the appellant by the decisions of honourable ITAT in earlier years. Respectfully following the judgement of honourable ITAT Ahmedabad in the case of the appellant, the addition made by the AO is directed to be deleted.

ITA No. 2381/Ahd/15 [ACIT vs. M/s. Karnavati Club Ltd.] A.Y. 2012-13 - 3 - The ground of appeal is accordingly, allowed." As the facts are similar, following the finding given by me in earlier assessment year the disallowance made by the AO is directed to be deleted subject to verification as mentioned above. The ground of appeal is accordingly, allowed.”

Decision: “3.3. I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of Rs.28,96,940/- being 10% of the Repairs and Maintenance Expenses of Rs. 1,97,63,862/-. The appellant on the other has stated that the AO was not at all correct in treating the 10% of Repairs and Maintenance expenses as capital expenditure particularly when detailed explanations and supporting evidences were provided to A.O. It is further stated that the A.O. has erred in concluding that Repairs & Maintenance Expenditure have enduring benefit for the

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appellant's business. It has further relied on following decisions of Hon'ble High Courts in the case of; (i) CIT v. Vishal Paper Industries (Punjab & Haryana High Court) 36 Taxman.com 19 & (ii) CIT v. Sagar Talkies (Karnataka High Court) 173 Taxman 12. The appellant has stated that matter is also covered & decided in favour of assessee by Hon'ble CIT(A) for A.Y. 2011-12 by his order dated 16/06/2014. It is noted that the similar issue has been decided by me in the case of the appellant for the A.Y. 2011-12 in appeal No. CIT(A)-VIII/DCIT/Cir. 4/340/13-14 dated 16/06/2014. For the sake of clarity, the findings given by me in para-3.3 are reproduced here under: - "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made a disallowance of 10% of total repairs and maintenance expenses of Rs.1.97 crores. It has been held by her that certain expenses, out of the expenses claimed by the appellant as revenue expenses, were not in the nature of current repairs as the same were in respect of civil works done during the year. She accordingly, held that 10% of the repairs and maintenance expenses incurred by the appellant during the year were in the nature of capital expenses and disallowance was made to that extent. The appellant on the other hand has submitted that the AO was not justified in treating 10% of expenses as capital as detailed explanation and supporting evidences were given to her. The appellant has not derived any enduring benefit out of those repairs. On careful consideration of entire facts related to the issue it is noted that the expenses were incurred for renovation of club and other civil works such as replacement of tiles and renovation of activity centers. In earlier years also that the appellant club has followed the practice of booking similar expenses as revenue items. It is further noted that the expenditure is not in the nature which would lead to permanent or enduring benefit to the appellant club. The appellant club is a popular club and lot of members were using various facilities of the clubs which results in wear and tear of the existing assets of the club which necessitates frequent repairing. It is further noted that the AO has not pointed out any specific item of expenditure which has resulted into enduring benefit and is in the nature of capital expenditure incurred by the appellant. In view of these facts and circumstances, the disallowance made by the AO cannot be sustained. The same is therefore, directed to be deleted. The ground of appeal is accordingly, allowed." As the facts are similar, following the finding given by me in earlier assessment year the disallowance made by the AO is directed to be deleted subject to verification as mentioned above. The ground of appeal is accordingly, allowed.”

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the above co-ordinate bench decision (supra) has already rejected Revenue’s similar argument qua the very issue. We therefore see no reason to adopt a different approach in the impugned assessment year. This second substantive ground is also declined.

[Pronounced in the open Court on this the 12th day of October, 2017.]

Sd/- Sd/- (MANISH BORAD) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 12/10/2017