Davis Langdon & Seah Consulting India Private Limited, Bangalore V. DCIT, Bangalore

ITA 1190/BANG/2011

• Counselvise Citation: 119021114 RSA 2011
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN
• Assessee Lawyers: B N SUDARSHAN
• Keywords: Business expenditure; Revised return
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 1190 /BANG/20 11 (ASSESSMENT YEAR : 2008-09) M/S. DAVIS LANGDON & SEAH CONSULTING INDIA PVT. LTD., 3 RD FLOOR, RAHEJA CHANCERY, NO.133, BRIGADE ROAD, BANGALORE-560 025 PAN AADFD 9246J VS. DY. CO MMISSIONER OF I NCOME TAX , CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI B.N. SUDARSHAN. RESPONDENT BY : SHRI A. SUNDAR RAJAN. DATE OF HEARING : 01.11.2012. DATE OF PRONOUNCEMENT : 21.12.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE DATED 12.09.2011 FOR ASSESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE COMPANY (HEREINAFTER REFERRED TO A S THE ASSESSEE) IS IN THE BUSINESS OF QUALITY SURVEYING SERVICES, PROVIDING THE ESTIMA TION OF EXPENDITURE OF ALREADY COMPLETED OR PARTIALLY COMPLETED OR TO BE COMMENCED WORKS OF CIVIL CONSTRUCTIONS AND ELECTRICAL INSTALLATIONS. IT FILED ITS RETURN OF I NCOME FOR ASSESSMENT YEAR 2008-09 ON 24.9.2008 DECLARING INCOME OF RS.5,75,68,722. IN TH E CASE OF THE ASSESSEE, A SURVEY 2 ITA NO.1190/BANG/11 ACTION UNDER SECTION 133A OF THE INCOME TAX ACT, 19 61 (HEREIN AFTER REFERRED TO AS 'THE ACT') WAS CONDUCTED AT ITS BUSINESS PREMISES ON 31. 3.2008. IN THE COURSE OF SURVEY, A DOCUMENT WAS FOUND CONTAINING THE COMPUTATION OF PR OFIT AND LOSS FOR THE F.Y. 2007-08 IN WHICH THE NET PROFIT FOR THE SAID PERIOD WAS RS.6,5 7,08,388. A SWORN STATEMENT OF MR. LORIMER A DOIG, DIRECTOR OF THE ASSESSEE WAS ALSO R ECORDED AT THE TIME OF SURVEY IN WHICH HE STATED THAT WHILE THE TURNOVER FOR THE YEAR ENDI NG 31.3.2008 WAS APPROX. RS.17 TO 18 CRORES AND THE NET PROFIT IS AROUND RS.6 TO 7 CRORE S. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED UPON THE A SSESSEE TO EXPLAIN THE DIFFERENCE / SHORTFALL OF RS.81,39,668 I.E. BETWEEN THE NET PROF IT OF RS. 6,75,61,800 REFLECTED IN THE PROFIT AND LOSS ACCOUNT FOUND IN THE COURSE OF SURV EY ON 31.3.2008 AND THE NET PROFIT OF RS.5,94,22,132 DECLARED IN THE PROFIT AND LOSS ACCO UNT FILED ALONG WITH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09. THE ASSESSEE STATED THAT CONSULTANCY CHARGES BOOKED AT RS.17,72,25,886 IN THE PROFIT AND LOSS AC COUNT FOUND AT THE TIME OF SURVEY WERE INFLATED AS IT INCLUDED A WRONGLY REPORTED AMOUNT R S.72,00,000 WHICH WAS TRANSFERRED TO ADVANCES AND AN INVOICE HAVING VALUE OF RS.10 LAKHS WAS REVERSED AND THAT THIS RECONCILED THE DIFFERENCES IN THE FIGURE OF NET PROFIT AS WAS REFLECTED AT THE TIME OF SURVEY VIS--VIS THE NET PROFIT IN THE RETURN OF INCOME FOR THE RELE VANT PERIOD. THIS EXPLANATION PUT FORTH BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESS ING OFFICER, WHO WAS OF THE VIEW THAT THE PROFIT SHOWN IN THE DOCUMENT FOUND IN THE COURS E OF SURVEY WAS CONCLUSIVE AND ADDED THE DIFFERENCE OF RS. 81,39,668 TO THE ASSESSEE'S I NCOME THEREBY DETERMINING THE INCOME OF THE ASSESSEE AT RS.6,57,08,388 IN THE ORDER OF A SSESSMENT FOR ASSESSMENT YEAR 2008- 09 PASSED UNDER SECTION 143(3) OF THE ACT ON 29.11. 2010. 3 ITA NO.1190/BANG/11 2.2 THE ASSESSEE WAS AGGRIEVED BY THE ORDER OF ASSE SSMENT FOR ASSESSMENT YEAR 2008-09 DT.29.11.2010 AND CARRIED THE MATTER IN APP EAL BEFORE THE CIT (APPEALS). THE CIT (APPEALS) AGREED WITH THE FINDINGS OF THE ASSES SING OFFICER AND DISMISSED THE ASSESSEE'S APPEAL BY HIS ORDER DT.12.9.2011. 3.1 AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPE ALS) DT.12.9.2011, THE ASSESSEE IS NOW BEFORE THIS TRIBUNAL. IN THE GROUN DS RAISED IN THIS APPEAL THE ASSESSEE CONTENDS AS UNDER : 1 THE LEARNED CIT (A) I HAS SIMPLY AND MERELY GONE BY THE ASSESSING OFFICERS ORDER WITHOUT CONSIDERING THE FACTS AND DO CUMENTS PRODUCED BEFORE HIM, WITHOUT VERIFYING THE VERACITY AND CORR ECTNESS OF THE FIGURES SHOWN IN THE AUDITED BALANCE SHEET AND APPRECIATING THE FACTS AND SUBSTANCE OF THE CASE. 2 THE SURVEY WAS CONDUCTED ON 31/03/2007 AT 11 CLOCK IN THE MORNING AND EVEN IF THE RECORDS ARE MAINTAINED ON MINUTES BASIS ONE FULL DAY WAS LEFT FOR ACCOUNTING ENTRIES. THIS FACT IS NOT CONSIDERED BY THE ASSESSING OFFICER. HOW CAN THE A O EXPECT THE COMPANY TO CLOSE ITS BOOKS OF ITS ACCOUNT IN THE MORNING. 3 THE A O FAILED TO RECOGNIZE THE BASIS OF ACCOUNTING CERTAIN EXPENSES ON ACCRUAL BASIS AND ESPECIALLY FOR THE YEAR ENDING WH ERE CERTAIN EXPENSE DETAILS ARE TO COME FROM VARIOUS QUARTERS AND PROVI SION NEED TO BE MADE FOR EXPENSES INCURRED BUT NOT PAID AS ON A PARTICUL AR DAY. THE AO HAS OVERLOOKED THE BASIC ACCOUNTING POLICY ON ACCRUAL B ASIS AND PROCEEDED ON CASH SYSTEM OF ACCOUNTING. WE WOULD LIKE TO FURTHER STATE THAT THE ASSESSEE HAD 4 BRANCHES AT THAT TIME AND HAD TO WAI T FOR THE DETAILS FROM BRANCHES FOR FINALIZING ACCOUNTS. 4 THE CIT HAS NOT APPRECIATED THE FACT THAT RECTIFICA TION OF MISTAKES IS PART OF LIFE AND THAT THE ACCOUNTS ARE AUDITED SUBSEQUEN T TO LAST DAY OF MARCH OF ANY YEAR AND ANY MISTAKE POINTED OUT BY AUDITOR NEEDS TO BE RECOGNIZED BY THE COMPANY AND CORRECT ITS BOOKS AC CORDINGLY. IF EVERYTHING IS ACCEPTED AS SHOWN ON A PARTICULAR DAY , THEN THERE WAS NO NEED FOR AUDIT OF ACCOUNTS AND OTHER STATUTORY OBLI GATIONS. 5 THE AO HAS NOT GONE IN TO THE SUBSTANCE AND NATURE OF ENTRIES. INSTEAD SIMPLY GONE BY THE FORM, LETTERS AND WORDS MENTIONE D. 6 THE CIT HAS NOT DISCUSSED THE DOCUMENTS/EVIDENCES P RESENTED BEFORE HIM IN THE ORDER AND HAS NOT REJECTED THE DOCUMENTS . CIT DID NOT 4 ITA NO.1190/BANG/11 APPRECIATE THE FACT THAT THE AO HAS NOT CONSIDERED THE TECHNICAL REPORTS TO ESTABLISH WHEN THE WORK WAS STARTED AND WHEN IT WAS COMPLETED. THE DIRECTOR OF THE COMPANY WAS PRESENT IN THE HEARING ONCE TO EXPLAIN THE DETAILS AND THE OFFICER REFUSED TO HEAR HIM AND GET FURTHER DETAILS. 7 GIVEN AN OPPORTUNITY WE CAN PROVE THAT THE AMOUNT R ECEIVED FROM ALIENS GROUP IS AN ADVANCE AND AN INCOME. 8 REGARDING THE TRAVELLING EXPENSES AO HAS NOT VERIFI ED THE BILLS THOUGH THE COMPANY IN ITS LETTER TO THE AO THAT IT IS READY TO FURNISH VOUCHER/ DOCUMENTS AND ARBITRARILY DISALLOWED THE EXPENSES. IT IS A FACT THAT THE DIRECTORS AND OTHER EMPLOYEES WHO TAKE UP FOREIGN T OURS AND PAY THE AMOUNT THROUGH THE CREDIT CARDS TAKE ABOUT 1 TO 1/ MONTHS FOR SUBMITTING BILLS AND CAN BE PAID ONLY AFTER THEY CO ME TO OFFICE. WE ARE READY TO SUBMIT ALL THE BILLS FOR VERIFICATION. 9 THE ASSESSEE SUBMITS THAT THE DISALLOWANCE MADE BY THE CIT(A) I BE REJECTED AND PASS NECESSARY ORDERS TO GIVE RELIEF F ROM PAYMENT OF RS 29,85,090 AND RESTORE THE JUSTICE. 10 THE ASSESSEE BE ALLOWED TO PRODUCE PROOF OF ADVANCE AND TRAVELLING EXPENDITURE VOUCHERS AT THE TIME OF HEARING. 11 THE ASSESSEE PREYS THE TRIBUNAL TO ALLOW THE ASSESS EE TO FILE REVISED RETURN FOR THE ASSESSMENT YEAR 2009-10 AS THE INCOM E HAS BEEN RECOGNIZED IN THAT YEAR IN CASE THE APPEAL IS DISMI SSED. OTHERWISE THE ASSESSEE WILL BE MADE TO PAY TAX TWICE ON THE SAME INCOME, WHICH IS AGAINST THE PRINCIPLES OF JUSTICE. 12 THE ASSESSEE BE ALLOWED TO GIVE ANY OTHER GROUNDS T HAT MAY BE AVAILABLE AT THE TIME OF HEARING. 3.2 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPRE SENTATIVE AND LEARNED DEPARTMENTAL REPRESENTATIVE AND CAREFULLY PERUSED A ND CONSIDERED THE MATERIAL ON RECORD. 4.0 ON PERUSAL OF THE GROUNDS RAISED, THIS APPEAL I NVOLVES THE FOLLOWING ISSUES : I) W HETHER THE DOCUMENT FOUND IN THE COURSE OF SURVEY C ARRIED OUT ON 31.3.2008, DEPICTING THE NET PROFIT FOR THE YEAR ENDING 31.3.2008 AT RS. 6,75,61,600 IS CONCLUSIVE EVIDENCE AND CAN BE RELIED UPON, IN PREFERENCE TO THE AUDITED FI NAL ACCOUNTS AS APPENDED TO THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08. II) WHETHER OR NOT THE REPORTING OF REVENUE OF RS.7 2 LAKHS BY THE ASSESSEE IS AS PER THE MERCANTILE SYSTEM OF ACCOUNTING AND 5 ITA NO.1190/BANG/11 III) WHETHER THE EXPENDITURE OF RS. 10 LAKHS ON TR AVEL OF THE DIRECTOR HAS NOT BEEN PROPERLY REPORTED IN THE RETURN OF INCOME FOR ASSES SMENT YEAR 2008-09. 5.1 A SURVEY ACTION UNDER SECTION 133A OF THE ACT I S CONDUCTED BY THE ASSESSING OFFICER IN ORDER TO GATHER INFORMATION FOR ASCERTAI NING THE CORRECT INCOME EXIGIBLE TO TAX IN THE CASE OF AN ASSESSEE. THE FINDINGS THAT EMER GE FROM A SURVEY ACTION ARE A GOOD INDICATOR FOR UNDERSTANDING THE REAL AFFAIRS OF THE BUSINESS OF AN ASSESSEE. TO THAT EXTENT, THE DOCUMENTS / INFORMATION ETC. FOUND IN THE COURSE OF SURVEY FORM AN IMPORTANT PART OF EVIDENCE THAT CAN BE UTILSIED BY THE ASSESS ING OFFICER TO DETERMINE THE CORRECT INCOME OF THE ASSESSEE. HOWEVER, IT DOES NOT AUTOM ATICALLY FOLLOW THAT THE EVIDENCE FOUND / COLLECTED IN THE COURSE OF SURVEY IS ABSOLUTELY CONCLUSIVE AND HAS TO BE FOLLOWED WITHOUT PROPER EXAMINATION / VERIFICATION. FURTHER, IT CAN NOT BE THE CASE THAT SOLELY ON THE BASIS OF DOCUMENTS / INFORMATION ETC FOUND IN THE COURSE OF SURVEY ACTION, THE AUDITED BOOKS OF ACCOUNTS CAN BE TOTALLY DISREGARDED. THE ASSESSEE OUGHT TO BE AFFORDED ADEQUATE OPPORTUNITY TO EXPLAIN THE FINDINGS OF THE SURVEY T O RECONCILE THE DIFFERENCES, IF ANY, BETWEEN THE FINDINGS OF THE SURVEY VIS--VIS THE CO RRESPONDING DETAILS IN RETURN OF INCOME. 5.2 IN THE INSTANT CASE, IT IS A MATTER OF RECORD T HAT THE ASSESSEE HAD NEITHER DISPUTED NOR DISOWNED THE VERACITY OF THE DOCUMENT REFLECTIN G THE NET PROFIT OF RS. 6,75,61,800 FOR THE YEAR ENDING 31.3.2008. IT IS THE CONTENTION OF THE ASSESSEE THAT - (I) THE AMOUNT OF RS. 72 LAKHS WHICH WAS SHOWN AS R EVENUE RELATING TO ONE PARTICULAR INVOICE AND REFLECTED IN THE NET PROFIT OF RS. 6,75 ,61,800 FOR THE YEAR ENDING 31.3.2008 IN 6 ITA NO.1190/BANG/11 THE DOCUMENT FOUND IN THE COURSE OF SURVEY, IS IN F ACT AN ADVANCE RECEIVED DURING THIS YEAR AND HAS BEEN REFLECTED / SHOWN AS REVENUE' IN THE SUBSEQUENT YEAR AND (II) THAT CERTAIN TRAVEL EXPENDITURE OF RS. 10 LAKH S PERTAINING TO THE DIRECTORS TRAVEL RELATING TO THE RELEVANT PERIOD ENDING ON 31.3.2008 WAS NOT BOOKED IN THE DOCUMENT FOUND IN THE COURSE OF SURVEY ACTION. THESE CHANGES, IT IS SUBMITTED, HAVE BEEN EFFECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AFTER THE SURVEY ACTION ON 31.3.2008 AND T HE NET PROFIT OF RS. 5,96,22,132 DECLARED IN THE RETURN OF INCOME FOR ASSESSMENT YEA R 2008-09 FILED ON 24.9.2008 IS AS PER THE AUDITED BOOKS OF ACCOUNT AFTER INCORPORATIN G THESE TWO CHANGES. 6.1 AS REGARDS THE ISSUE OF REVENUE REPORTING, THE ASSESSEE IN THE RELEVANT PERIOD HAD RAISED AN INVOICE BEARING NO.1130/239 DT.31.1.2008 FOR RS. 72 LAKHS ON M/S. ALLIANCE GROUP INFRA PVT LTD., HYDERABAD TOWARDS PROFESSIONAL FEES . THIS AMOUNT OF RS. 72 LAKHS WAS REFLECTED IN THE DOCUMENT FOUND IN THE COURSE OF SU RVEY AND FORMED PART OF THE NET PROFIT OF RS. 6,75,61,800 REFLECTED THEREIN FOR THE YEAR E NDING 31.3.2008. IT IS HOWEVER SEEN THAT THIS AMOUNT OF RS. 72 LAKHS IS SHOWN AS AN AD VANCE IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 FILED ON THE BASIS OF THE A UDITED BOOKS OF ACCOUNT REPORTEDLY AS PER THE ADVICE OF THE STATUTORY AUDITORS. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS AMOUNT OF RS. 72 LAKHS HAS BEEN DECLARED AS INCOME AND APPLICABLE TAX LIABILITY WAS DISCHARGED DURING THE SUBSEQUENT YEAR VIZ. ASSESSME NT YEAR 2009-10. 6.2 THE ISSUE BOILS DOWN TO WHETHER THE AMOUNT HAS TO BE SHOWN AS INCOME IN THE YEAR UNDER CONSIDERATION VIZ. ASSESSMENT YEAR 2008-09 AS HELD BY THE AUTHORITIES BELOW OR AS INCOME OF THE SUBSEQUENT YEAR IN 2009-10 AS SUBMITT ED BY THE ASSESSEE. 7 ITA NO.1190/BANG/11 6.3 WE FIND FROM THE RECORDS THAT THE ASSESSING OFF ICER HAS RELIED ON THE DOCUMENT FOUND DURING SURVEY ON 31.3.2008 TO COME TO THE CON CLUSION THAT THE ENTIRE AMOUNT OF RS. 72 LAKHS HAS TO BE TREATED AS INCOME IN THE YEAR UN DER CONSIDERATION, RELEVANT TO ASSESSMENT YEAR 2008-09 ONLY. THE LEARNED CIT (APP EALS) WHILE AGGREEING WITH THE ASSESSING OFFICERS RELIANCE ON THE DOCUMENT FOUND DURING THE SURVEY, HAS ALSO OBSERVED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING T HE MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE ENTIRE AMOUNT OF RS. 72 LAKHS HAS TO BE A CCOUNTED AS REVENUE IN THE YEAR OF RAISING THE INVOICE VIZ. ASSESSMENT YEAR 2008-09. 6.4 PER CONTRA, THE ASSESSEE'S CONTENTION IS THAT I T IS A REGULAR TRADE PRACTICE TO RECEIVE THE ADVANCE AMOUNT AT THE TIME OF SIGNING T HE CONTRACT WHEN THE WORK HAS NOT EVEN COMMENCED AND THE REVENUE IS TO BE RECOGNIZED ONLY WHEN THE WORK HAS PROGRESSED TO A SPECIFIED PERCENTAGE. IT IS ALSO SUBMITTED TH AT REVENUE RECOGNITION IS BASED ON TECHNICAL REPORTS AS TO WHEN THE WORK COMMENCED AND WHEN IT WAS COMPLETED. IN SUPPORT OF THIS PROPOSITION, THE ASSESSEE SUBMITS THAT IT H AS PRODUCED BEFORE THE AUTHORITIES BELOW CONFIRMATION FROM THE CLIENT EVIDENCING THAT THE PAYMENT OF RS. 72 LAKHS RECEIVED REPRESENTED ADVANCES. IN WRITTEN SUBMISSION FILE D ON 31.10.2012 THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED AS UNDER : AN AMOUNT OF RS 72,00,000 + SERVICE TAX WAS BILLED ON A CUSTOMER ALLIANS GROUP. THIS BEING 10% OF ADVANCE ON SIGNING THE DOCUMENT. IT IS AN INDUSTRIAL PRACTICE TO COLLECT 10% OF THE TOTAL PROJECT ON SIGNING THE CONTRACT. THIS IS JUST TO MAKE SURE THE CLIENT IS S ERIOUS ENOUGH TO DO BUSINESS. IN CASE FOR SOME REASON THE PROJECT IS SH ELVED BEFORE THE BEGINNING OF THE CONTRACT WORK, THE ADVANCE AMOUN T IS SUBJECT TO REFUND. AGAINST 72,00,000 ONLY 15,00,000 WAS RECEIV ED BEFORE 31/03/2008. 8 ITA NO.1190/BANG/11 PLEASE FIND ATTACHED IN ANNEXURE 1, THE COPY OF THE INVOICE NO 294 DATED 31/01/2008 WHEREIN IT IS CLEARLY MENTIONED THE AMOU NT IS FOR ADVANCES- CONFIRMATION OF APPOINTMENT. IT IS PRACTICE OF THE COMPANY TO TREAT SUCH AMOUNTS AS ADVANCES TILL SUCH TIME THE ACTUAL WORK BEGINS AND THEN TREAT AS INCOM E. IN THE SUBSEQUENT YEAR ON 30/09/2008, THE SAID INVO ICE FOR RS 72,00,000 IS REVERSED AND AN AMOUNT OF RS 14,15,023 IS ACCOUN TED AS INCOME, AS THE PARTY DID NOT AGREE TO PAY THE BALANCE. PLEASE REFER TO ANNEXURE II FOR THE PROOF OF CANCELLATION AND FRESH ACCOUNTING. THE ASSESSING OFFICER HAS TREATED A TRANSACTION AS INCOME AMOUNT OF WHICH HAS NOT BEEN RECEIVED FULLY AND SUBSEQUENTLY THE CONTRACT GETTING CANCELLED ONLY ON THE BASIS THAT IT WAS TREATED AS INCOME AS ON 31.03.20008 IE THE DAY OF SURVEY WITHOUT ACTUALLY G OING IN TO THE MERITS AND INDEPENDENTLY ESTABLISHING WHETHER IT WAS AN AD VANCE OR INCOME. WITH THIS THE ASSESSEE HAS LOST AN OPPORTUNITY TO R EVERSE THE INCOME IN SUBSEQUENT YEAR AND THE TAX LEVIED ON THIS IS UNJUS TIFIED. THE APPELLANT HAS MENTIONED THAT IT WAS AN ERROR OF ACCOUNTING AND THE SAME WAS RECTIFIED AT THE TIME OF AUDIT AFTER THE M ISTAKE WAS POINTED BY THE STATUTORY AUDITOR BASED THE ACCOUNTING STANDARD AND PRACTICES FOR REVENUE RECOGNITION. ALL THE RELEVANT DOCUMENTS HAVE BEEN PRODUCED BEFOR E BOTH THE ASSESSING OFFICE AND THE LEARNED CIT APPEALS (1). WE REQUEST THE HONOURABLE BENCH INSTILL THE JUSTICE BY ALLOWING THE APPELLANT TO TREAT THE AMOUNT AS ADVANCE AS ON 31/0 3/2008. 6.5 IT IS NOT IN DISPUTE THAT THE ASSESSEE IS CONSI STENTLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE MERCANTILE SYSTEM OF ACC OUNTING REQUIRES THE PERSON TO ACCOUNT FOR ITS INCOME AND EXPENSES ON AN ACCRUAL BASIS R ATHER THAN ON ACTUAL BASIS. WHEN THE INCOME ACCRUES IS A MATTER OF FACT THAT WOULD DEPEN D UPON THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. MERELY BECAUS E AN INVOICE HAS BEEN RAISED FOR A PARTICULAR AMOUNT, IT DOES NOT AUTOMATICALLY BECOME INCOME IN THE YEAR OF RISING OF THE INVOICE. RECOGNITION OF INCOME / REVENUE RECOGNITI ON BASED ON CERTAIN MILESTONES OF WORK COMPLETED IS AN ACCEPTED METHOD OF ACCOUNTING AND I T WOULD ALSO FALL WITHIN THE REALM OF 9 ITA NO.1190/BANG/11 MERCANTILE SYSTEM OF ACCOUNTING. MERELY BECAUSE A DOCUMENT FOUND IN THE COURSE OF SURVEY REFLECTED THE TOTAL INVOICE AMOUNT OF RS. 72 LAKHS AS PART OF REVENUE' FOR THE YEAR ENDING 31.3.2008, IT WOULD NOT BE IN THE FITNESS OF THINGS TO IGNORE OR BRUSH ASIDE THE AUDITED BOOKS OF ACCOUNTS ON THE BASIS OF WHICH THE RETURN OF INCOME IS FILED ONLY BECAUSE THE SAME AMOUNT IS TREATED AS AN ADVANCE. IN THE SE CIRCUMSTANCES, THE AUTHORITIES BELOW OUGHT TO HAVE EXAMINED THE CLAIM OF THE ASSES SEE THAT THE REVENUE RECOGNITION DONE IN RESPECT OF THIS PARTICULAR INVOICE IS AS PER THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE AND WHETHER THE SYSTEM OF REVENUE RECOGNITION AS A PERCENTAGE OF WORK COMPLETED IS AS PER THE ACCEPTED METHOD OF ACCOUNTI NG. WE FIND THAT THE AUTHORITIES BELOW HAVE NEITHER EXAMINED THIS ISSUE NOR BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE'S PROPOSITION IS INCORRECT. IT IS ALS O SEEN THAT THE ASSESSEE HAS CLAIMED THAT THE AMOUNT IN QUESTION OF RS. 72 LAKHS HAS BEEN OFF ERED TO TAX IN THE SUBSEQUENT YEAR I.E. THE PERIOD RELEVANT TO ASSESSMENT YEAR 2008-09 WHIC H CLAIM TOO, WE FIND, HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW. IN THESE CIRCUM STANCES, WE ARE CONSTRAINED, IN THE INTEREST OF EQUITY AND JUSTICE, TO REMAND THIS ISSU E BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION OF THE CLAIM OF THE ASSESSE E IN THE LIGHT OF THE FACTS ON RECORD, THE VIEWS OF THE AUTHORITIES BELOW, SUBMISSIONS OF THE ASSESSEE AND OUR OBSERVATIONS IN PARAS 6.1 TO 6.5 ABOVE. IT IS ORDERED ACCORDINGLY. 7.0 DISALLOWANCE OF EXPENDITURE ON TRAVEL 7.1 ONE OF THE EXPLANATIONS PUT FORWARD BY THE ASSE SSEE IN ITS ATTEMPT TO RECONCILE THE DIFFERENCE BETWEEN THE NET PROFIT AS ON 31.3.2008 R EFLECTED AS PER THE DOCUMENT FOUND IN THE COURSE OF SURVEY AND THE NET PROFIT AS PER THE RETURN OF INCOME FILED ON THE BASIS OF 10 ITA NO.1190/BANG/11 AUDITED BOOKS OF ACCOUNTS WAS THAT CERTAIN TRAVELLI NG EXPENSES AMOUNTING TO APPROX. RS. 10 LAKHS INCURRED BY THE DIRECTOR WAS NOT FULLY ACCOUN TED AS ON THE DATE OF SURVEY. IT IS CONTENDED BY THE ASSESSEE THAT THOUGH THE DIRECTOR HAD INCURRED THE EXPENSES IN THE F.Y. 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09, THE BI LLS THEREOF WERE SUBMITTED AFTER 31.3.2008 AND SINCE THEY RELATE TO THE PERIOD UNDER CONSIDERATION, THESE EXPENSES HAVE BEEN ACCORDINGLY ACCOUNTED IN THAT YEAR. IT IS ALS O SUBMITTED THAT SINCE THE DETAILS / BILLS OF THESE EXPENSES WERE NOT AVAILABLE AT THE TIME OF SURVEY, THESE EXPENSES DID NOT FIND A PLACE OR MENTION IN THE DOCUMENT FOUND DURING THE S URVEY. BEFORE US, IN WRITTEN SUBMISSION, IT WAS SUBMITTED AS UNDER : AN AMOUNT OF RS.9,39,668 REPRESENTING THE DIFFERE NCE BETWEEN EXPENSES ACCOUNTED AS ON THE DATE OF SURVEY (WHICH WAS ON 31 ST MORNING MARCH, 2008 AND THE AUDITED FIGURES, HAS BEEN DISALLOWED. BY DOING THIS THE ASSESSING OFFICER HAS IGNORED THE AUDITED BALANCE SHEET SIGNED BY A PROFESSIONAL CHARTERED ACCOUNTANT. THE ASSESSING OFFICER SHOULD HAVE REJECTED THE ENTIRE BOOKS OF ACCOUNT AND MADE AN INDEPENDENT ASSESSMENT OF THE INCOME. THE ASSESSING OFFICER OU GHT TO HAVE EXAMINED THE GENUINENESS OF THE TRANSACTION INDEPENDENTLY INSTEA D OF RELYING ON THE SURVEY REPORT, THE APPELLANT HAS SUBMITTED ALL THE VOUCHER S, LEDGER EXTRACTS ETC TO PROVE THE GENUINENESS OF THE TRANSACTION. THE ASSE SSING OFFICER HAS IGNORED ALL THESE. IN THE CASE OF TRAVELLING EXPENDITURE O NE OF THE DIRECTORS HAD INCURRED FOREIGN TRAVEL EXPENSES AMOUNTING TO RS. 1 0.49 LAKHS. HE HAD RETURNED TO OFFICE ONLY ON THAT DAY AND HENCE HAD NOT SUBMIT TED THE BILL. THE PAYMENTS FOR THESE EXPENSES WERE MADE THROUGH HIS CREDIT CAR D. HENCE THERE WAS NO URGENCY OF SUBMITTING THE BILL ALSO. IT IS QUITE NATURAL AND ACCEPTED ACCOUNTING PRINCIP LE TO MAKE PROVISION FOR EXPENSES AS ON THE YEAR ENDING DATE BASED ON THE BI LLS RECEIVED SUBSEQUENTLY AND RELATED TO MARCH OR EARLIER PERIOD OF THE ACCOU NTING YEAR. AS SUCH ON 31 ST MARCH SO MANY ENTRIES WILL BE PASSED THOUGH THE BIL LS ARE RECEIVED SUBSEQUENTLY. IT IS SURPRISING THAT THE ASSESSING OFFICER EXPECTS ALL EXPENSES INCLUDING PROVISION FOR EXPENSES FOR WHICH EVEN THE BILLS WOULD NOT HAVE BEEN RECEIVED TO BE ACCOUNTED ON MORNING OF THE DAY OF C LOSURE OF THE ACCOUNTING YEAR. IT IS HIGHLY UNJUSTIFIED. 11 ITA NO.1190/BANG/11 7.2 THE ASSESSING OFFICER DISALLOWED THE DIRECTORS TRAVEL EXPENSES ON THE GROUND THAT THE ASSESSEE HAD MERELY FILED THE LEDGER ACCOUNT TH EREOF AND HAS NOT PROVED THAT THE SAME WERE NOT FULLY ACCOUNTED FOR AT THE TIME OF SU RVEY. THE LEARNED CIT (APPEALS) WHILE SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER OBSERVED :- . DURING THE COURSE OF SURVEY, THE PERSONS PRESE NT DID NOT GIVE AN IOTA OF INKLING ABOUT SUCH TRAVEL BY THE DIRECTOR AND IT IS STRANGE THAT THE DIRECTOR OF SUCH PROMPT COMPANY WOULD FAIL TO CLAIM SO BELATEDL Y. THIS IS AGAINST THE PRINCIPLE OF PREPONDERANCE OF PROBABILITY AND A PLO Y TO EXPLAIN THE BALANCE DEFICIENCY. 7.3 FROM THE DISCUSSION ABOVE AND THE MATERIAL ON R ECORD, WE FIND THAT BOTH THE ASSESSING OFFICER AND THE LEARNED CIT (APPEALS) DOU BTED THE GENUINENESS OF THE EXPENDITURE INCURRED ON TRAVEL OF DIRECTOR. NO CLE AR FINDING HAS BEEN GIVEN AS TO WHAT WAS THE EXPENDITURE THAT WAS ACCOUNTED FOR AT THE TIME OF THE SURVEY AND AFTER THE END OF THE FINANCIAL YEAR; WHAT WERE THE SUPPORTING DOCUME NTS CALLED FOR BY THE AUTHORITIES; WHAT DOCUMENTS WERE PRODUCED / SUBMITTED BY THE ASSESSEE AND WHETHER THESE DOCUMENTS SUPPORT THE CLAIM OF THE ASSESSEE THAT THESE ARE BU SINESS EXPENDITURE. MERELY BECAUSE THE SAID EXPENDITURE WAS BOOKED AFTER THE LAST DATE OF THE FINANCIAL YEAR, DOES NOT MAKE THE EXPENDITURE AS NOT GENUINE. THE ASSESSING OFFI CER OUGHT TO HAVE EXAMINED THE VERACITY OF THE CLAIM BY VERIFICATION OF THE SUPPOR TING DOCUMENTS TO DETERMINE WHETHER THEY WERE ALLOWABLE BUSINESS EXPENDITURE; BUT DID N OT DO SO AND SUMMARILY REJECTED THE ASSESSEE'S CLAIM WHICH IS UNSUSTAINABLE. IN VIEW O F THE FACTS AND CIRCUMSTANCES, AS LAID OUT ABOVE, WE, IN THE INTEREST OF JUSTICE AND EQUIT Y REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION OF THE ASSESS EE'S CLAIM IN THE LIGHT OF THE FACTS ON 12 ITA NO.1190/BANG/11 RECORD, THE SUBMISSIONS MADE AND OUR OBSERVATIONS I N PARAS 7.1 TO 7.3 ABOVE. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DEC., 2012. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE