ACIT, Bangalore V. M/s Absolute Communications, Bangalore

ITA 1132/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5138 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 02-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 1132/BANG/2009 ASSESSMENT YEAR : 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(2), BANGALORE. : APPELLANT VS. M/S. ABSOLUTE COMMUNICATIONS, M-2, 6 TH MAIN, HAL III STAGE, J.B. NAGAR, BANGALORE 560 075. : RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI, ADDL. CIT (DR) RESPONDENT BY : SHRI S. RAMASUBRAMANIAN, C.A. O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER IN THIS APPEAL, THE REVENUE HAS DISPUTED THE ORDER OF THE LD. CIT (A)-III, BANGALORE IN ITA NO: 47/C 7(1)/CIT(A )-III/BNG/06-07 DATED: 20.3.2009 FOR THE ASSESSMENT YEAR 2004 - 05 IN THE CASE OF M/S. ABSOLUTE COMMUNICATIONS. 2. THOUGH THE REVENUE HAS RAISED FOUR GROUNDS, THE CRUX OF THE ISSUE IS THAT ITA NO.1132/BANG/09 PAGE 2 OF 8 THE CIT(A) ERRED IN HOLDING THAT THE TERMS OF SECO ND AGREEMENT DT.29.4.04 SUPERSEDED THE FIRST AGREEMENT DT.3.3.03 AND, THUS, THE RETAINER FEE DUE TO THE ASSESSEE FOR THE FY 03-04 H AD TO BE WORKED OUT AT THE RATE OF RS.3.50 LAKHS PER MONTH AS AGAIN ST RS.83 LAKHS ADOPTED BY THE AO BASED ON THE FIRST AGREEMENT. 3. BRIEFLY STATED, THE ASSESSEE FIRM (THE ASSESSE E IN SHORT) AN ADVERTISING AGENCY HAD ENTERED INTO AN AGREEMENT WITH TALLY SOLUTIONS PVT. LTD. [TSPL] DATED: 3.3.2003, ACCORDING TO WHIC H, THE ASSESSEE WAS TO RECEIVE RETAINER-SHIP MANAGEMENT CONSULTANCY FEES A T THE RATE OF RS.1,50,000/MONTH FOR ADVERTISEMENT SPENT UP-TO RS. 1 1.25 CRORES PER MONTH AND, FURTHER AMOUNT OF RS.25,000/- EXTRA PER MONTH ON FURTHER SPENT OF ABOVE RS.1.25 CORES IN THE SLABS OF RS.25 LAKHS EACH, APART FROM REIMBURSEMENT OF EXPENSES INCURRED IN RESPECT OF AD VERTISING, PUBLICATION MATERIAL ETC. 4. ACCORDING TO THE AO, AS PER THE SAID AGREEMENT THE NET RECEIPTS OF THE ASSESSEE FROM RETAINER-SHIP MANAGEM ENT FEES AND CONSULTANCY SHOULD HAVE BEEN RS.83 LAKHS, CONSIDERI NG THE TOTAL ADVERTISEMENT AMOUNTING TO RS.6.88 CRORES WHEREAS T HE ASSESSEE HAD SHOWN ONLY RS.26.4 LAKHS AND, THUS, THE DIFFERENCE BEING RS.56 LAKHS. 4.1. AFTER DUE CONSIDERATION OF THE ASSESSEES CON TENTIONS AS SET- OUT IN THE IMPUGNED ASSESSMENT ORDER AND ESPECIALLY THE ASSESSEES VERSION THAT THE AGREEMENT ENTERED INTO ON 3.3.2003 WAS REVISED ON 29.5.04 (SIC) 29.4.2004, ACCORDING TO WHICH, THE ASSESSEE W AS TO GET A FLAT SUM OF RS.3.5 LAKHS PER MONTH ETC., THE AO WAS OF THE VIEW THAT THE TOTAL RECEIPTS OF THE ASSESSEE FROM RETAINER-SHIP AS PER AGREEMENT DA TED 3.3.2003 WORKS OUT ITA NO.1132/BANG/09 PAGE 3 OF 8 TO RS.83 LAKHS WHILE AS PER REVISED AGREEMENT, IT W ILL WORK OUT TO RS.42 LAKHS WHEREAS THE ASSESSEE HAD SHOWN ONLY RS.26 LAK HS. ON SCRUTINIZING THE AGREEMENT DATED: 29.4.04, THE AO HAD OBSERVED THAT, 5.THE STAMP PAPER FOR THIS AGREEMENT HAS BEEN PURCHASED AS ON 29.5.04 , HOWEVER, THE AGREEMENT HAS BEEN EXECUTED BY THE ASSESSEE ON 29.4 .04, I.E., ONE MONTH BEFORE THE PURCHASE OF STAMP PAPER AND, THEREFORE T HE VERY GENUINENESS OF THE AGREEMENT DATED 29.4.04 APPEARS TO BE DOUBTFUL. FURTHER, HOW COULD THE SO CALLED AGREEMENT DT.29.4.04 HAS BEEN ENTERED INT O AFTER THE END OF THE FINANCIAL YEAR FOR WHICH INCOME HAD ACCRUED AS PER AGREEMENT DATED 3.3.03. THE ASSESSEE COULD NOT ENTER INTO ANY AGREEMENT WIT H THE SOLE MOTIVE TO REDUCE INCOME OF A PARTICULAR YEAR WHICH HAD ALREAD Y BEEN CONCLUDED AND RECEIPTS OF THAT YEAR HAD ACCRUED IN TERMS OF EARLI ER AGREEMENT DATED 3.3.03. SUBSEQUENT AGREEMENT ENTERED INTO BY THE ASSESSEE A FTER THE END OF THE FINANCIAL YEAR CAN BE MADE APPLICABLE ONLY FROM THE DATE OF EXECUTION OF THIS AGREEMENT OR AT THE MOST FROM 1.4.04 AND NOT WITH R ETROSPECTIVE EFFECT AS THE ASSESSEE IS DOING. ACCORDINGLY, THE AO HELD THAT THE NET INCOME OF THE ASSESSEE FROM RETAINER-SHIP WAS COMPUTED ON THE BAS IS OF AGREEMENT DT.3.3.03, ACCORDING TO SUCH WORKING, IT HAS BEEN A RRIVED AT RS.83 LAKHS AS AGAINST THE INCOME OF RS.26.4 LAKHS ADMITTED BY THE ASSESSEE AND THE DIFFERENCE BEING RS.56.60 LAKHS [RS.83 LAKHS 26.4 LAKHS] WAS ADDED TO THE ASSESSEES TOTAL INCOME. 5. AGGRIEVED, THE ASSESSEE CARRIED THE ISSUE BEFOR E THE CIT (A) FOR RELIEF. AFTER EVALUATING THE CONTENTIONS OF THE ASSESSEE, CONSIDERING THE ITA NO.1132/BANG/09 PAGE 4 OF 8 ACCOUNTING PRINCIPLES ACCOUNTING STANDARD (AS) 4 - AND ALSO THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIAN CE, THE LD. CIT (A) HAD OBSERVED THUS 16.ON PERUSAL OF THE CASES CITED BY H IM I FIND THAT RATIO OF THE DECISIONS OF THE CASE CITED ABOVE SUPPORTS THE CASE OF THE APPELLANT. I ALSO FIND THAT THE APPELLANT E NTERED INTO THE 2 ND AGREEMENT AS A MATTER OF BUSINESS EXPEDIENCY (AS DI SCUSSED AT PARAGRAPH 13 ABOVE) AND FOR THE BENEFIT OF THE APPE LLANT COMPANY. I THEREFORE HOLD THAT ON THE MATTER O F RETAINER FEE THE TERMS OF THE 2 ND AGREEMENT DATED 29.4.2004 [29.5.2004] SUPERSEDED THAT OF THE 1 ST AGREEMENT DATED 3.3.2003 AND, THEREFORE THE RETAIN ER FEE DUE TO THE APPELLANT FOR FY 2003-04 HAVE TO BE WORK ED OUT AT THE RATE OF 3,50,000 PER MONTH. THE TOTAL AMOUNT OF RETAINE R FEES RECEIVABLE BY THE APPELLANT FROM M/S. TALLY SOLUTION PRIVATE LIMI TED FOR AY 2004-05 THEREFORE WORKS OUT TO RS.42,00,000/-. 16.1. IN THIS REGARD THE AR OF THE APPELLANT PO INTED OUT THAT OUT OF THE ABOVE AMOUNT OF RS.42,00,000 THE APPELLANT COMPANY HAD RECEIVED AN AMOUNT OF RS.18,00,000 IN AY 2004-05 AND THE BALANCE AMOUNT O F RS.24,00,000 WAS RECEIVED IN AY 2005-06. THEREFORE, THE APPELLA NT HAS ADMITTED ONLY RS.18,00,000 AS INCOME IN AY 2004-05. THE APPELLAN T DID NOT ACCOUNT FOR THE RETAINER FEE RECEIVABLE OF RS.24,00,000/- A S INCOME IN THIS YEAR BUT HAS OFFERED IT TO TAX IN THE AY 2005-06 AS ACCO RDING TO THE APPELLANT THE SAID AMOUNT WAS RECEIVED DURING THE AY 2005-06 AND THE 2 ND AGREEMENT WAS ALSO ENTERED INTO DURING AY 2005-06. I HAVE CONSIDERED THE MATTER AND IN VIEW OF THE FACT THAT THE APPELLA NT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IN VIEW OF MY D ECISION THAT THE 2 ND AGREEMENT IS APPLICABLE RETROSPECTIVELY TO AY 2004- 05 I HOLD THAT THE ENTIRE AMOUNT OF RETAINER FEE OF RS.42,00,000 INCLU DING THE RETAINER FEE OF RS.24,00,000 IS TAXABLE IN THIS YEAR ONLY AND NO T IN THE YEAR OF RECEIPT I.E., AY 2005-06. 17.0. IN VIEW OF THE ABOVE, THE ADDITION OF RS.5 6,60,000 MADE BY THE AO, HAVING BEEN COMPUTED ON THE BASIS OF THE TERMS OF THE 1 ST AGREEMENT CANNOT BE SUSTAINED AS THE SAID AGREEMENT ITSELF HA S BEEN HELD BY ME TO HAVE BEEN SUPERSEDED BY THE 2 ND AGREEMENT. THEREFORE, THE ADDITION OF RS.56,60,000 IS DELETED. ON THE OTHER HAND, AS PER THE TERMS OF THE 2 ND AGREEMENT, THE APPELLANT IS ELIGIBLE TO RECEIVE RS .3,50,000 PER MONTH AND THE SAID AGREEMENT HAVING BEEN HELD BY ME TO BE APPLICABLE FOR THIS ASSESSMENT YEAR, THE AO IS DIRECTED TO BRING TO TAX THE WHOLE AMOUNT OF RETAINER FEE OF RS.42,00,000 IN THIS YEAR. ITA NO.1132/BANG/09 PAGE 5 OF 8 6. DISILLUSIONED WITH THE FINDING OF THE LD. CIT ( A), THE REVENUE HAS COME UP WITH THE PRESENT APPEAL. THE CRYPTIC S UBMISSION OF THE REVENUE WAS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) ERRED IN HOLDING THAT THE TERMS OF 2 ND AGREEMENT DT: 29.4.2004 SUPERSEDED THAT OF THE FIRST AGREEMENT DATED: 3.3.2 003 AND, THEREFORE, RETAINER FEE DUE TO THE ASSESSEE FOR THE FY 2003-04 HAS TO BE WORKED OUT AT THE RATE OF RS.3,50,000/- PER MONTH INSTEAD OF RS. 83,00,000/- ADOPTED BY THE AO ON THE BASIS OF FIRST AGREEMENT DATED: 3.3.2003 AND, ACCORDINGLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 6.1. ON THE OTHER HAND, THE LD. AR REITERATED MORE OR LESS WHAT HAS BEEN CONTENDED BEFORE THE FIRST APPELLATE AUTHO RITY. IN FURTHERANCE, IT WAS SUBMITTED THAT THE AO ERRED IN HOLDING THAT THE AGREEMENT ENTERED INTO IN THE FINANCIAL YEAR 2004-05 WAS TO BE IGNORED EVE N THOUGH NEGOTIATIONS FOR REVISION OF FEES WERE COMPLETED IN THE FINANCIA L YEAR 2003-04 ITSELF. IT WAS, FURTHER, SUBMITTED THAT THE UNDERSTANDING TO R EVISE THE FEES WAS ENTERED INTO AFTER THE END OF THE PREVIOUS YEAR WAS CONTRARY TO THE ASSERTION OF TSPL IN THEIR COMMUNICATION DATED 8.7.2006 AND T HE TDS CERTIFICATE ISSUED BY THE SAID COMPANY. IT WAS, THEREFORE, VEH EMENTLY ARGUED THAT THE FINDING OF THE LD. CIT (A) REQUIRES NO INTERFERENCE WHICH MAY BE SUSTAINED. 6.2. BUTTRESS HIS ARGUMENT, THE LD. A R FURNISHE D A PAPER BOOK CONTAINING 1 30 PAGES WHICH CONSIST OF, INTER ALI A, COPIES OF (I) LETTER ITA NO.1132/BANG/09 PAGE 6 OF 8 DT.8.7.06 OF TSPL; (II) AGREEMENTS ENTERED INTO ON 3.3.03 & 29.4.04; (III) TDS CERTIFICATE DT.31.3.04 ETC., 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, ATTENTIVELY VIEWED THE RELEVANT RECORDS AND ALSO TH E EVIDENCES COUPLED WITH CASE LAWS ADVANCED DURING THE COURSE OF HEARING BY THE LD. A R IN THE SHAPE OF A PAPER BOOK. 7.1. AS RIGHTLY HIGHLIGHTED BY THE LD. CIT(A), THE ASSESSEE WAS OBLIGED OR RATHER SUCCUMBED TO AGREE TO THE SECOND AGREEMENT ON SHEER BUSINESS EXPEDIENCY ONLY. WHEN TSPL HAVE INSISTED UPON TO RENEGOTIATE THE CONTRACT WITH THE ASSESSEE, THE ASSESSEE HAD NO OTHER AVENUE EXCEPT TO OBLIGE TO DICTATE OF TSPL, AS TPSL WAS, AS CONCE DED BY THE ASSESSEE, THE MAJOR CUSTOMER IN GIVING BULK ADVERTISEMENTS TO THE ASSESSEE. HAD THE ASSESSEE ANY RESERVATION WHATSOEVER WITH REGARD TO THE RESHUFFLING OF THE TERMS OF CONTRACT, THERE WAS, AS ARGUED BY THE LD. A.R, AN EVENTUALITY OF LOSING THE STRIKING PLAYER IN THE GAME ITSELF? 7.2. ON A CAREFUL PERUSAL OF THE FINDING OF THE LD . CIT(A), WE FIND THAT THE FIRST APPELLATE AUTHORITY HAD, IN FACT, AN ALYZED THE PROS AND CONS OF THE ISSUE IN A PRAGMATIC MANNER AND ARRIVED AT A CO NCLUSION THAT THE TERMS OF THE SECOND AGREEMENT WITH REGARD TO THE RETAINER FEE SUPERSEDED THAT OF THE FIRST AGREEMENT DATED: 3.3.2003. THE ASSERTION OF THE ASSESSEE THAT THE NEGOTIATIONS FOR REVISION OF RETAINER FEE WERE CONC LUDED DURING THE PREVIOUS YEAR RELEVANT TO THE AY UNDER DISPUTE. THIS FACT H AS BEEN VOUCHED BY TSPL IN ITS LETTER DT: 8.7.2006 [SOURCE: P 19 OF PB - AR] AND ALSO STATED THAT IT HAD CREATED A PROVISION FOR RS.24 LAKHS IN THE YEAR 2003.04. THE ITA NO.1132/BANG/09 PAGE 7 OF 8 VERY BONA-FIDE OF THE CLAIM OF THE EITHER PARTY ON THE ISSUE CANNOT BE SUBJECTED TO A SCANNER UNLESS THERE WAS ANY CREDIBL E DOCUMENTARY EVIDENCE IN THE POSSESSION OF THE REVENUE TO EXPOSE THEIR CLAIMS. HOWEVER, NO DOCUMENTARY PROOF WORTH THE NAME HAS BE EN BROUGHT ON RECORD TO REBUT THE ASSESSEES CLAIM. 7.3. THE CASE LAWS ON WHICH THE ASSESSEE PLACED RE LIANCE HAS SINCE BEEN CONSIDERED AND DISCUSSED BY THE LD. CIT (A) IN HIS IMPUGNED ORDER. SINCE WE ARE IN TOTAL AGREEMENT WITH HIS FI NDING, WE HAVE NOT VENTURED TO DISCUSS THE SAME WHICH OTHERWISE WOULD HAVE RESULTED IN A MERE REPETITION. 7.4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS, WE A RE OF THE CONSIDERED VIEW THAT THE FINDING OF THE LD. CIT(A) IN HIS IMPU GNED ORDER WHICH IS UNDER DISPUTE REQUIRES NO INTERFERENCE AT THIS STAGE AND, THUS, WE UPHOLD THE STAND OF THE FIRST APPELLATE AUTHORITY ON THIS SCOR E. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JULY, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 23 RD JULY, 2010. DS/- ITA NO.1132/BANG/09 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.