DCIT, CHENNAI V. Sify Communications Ltd., CHENNAI

ITA 1232/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95916 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 18-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2015
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: SAROJ KUMAR PARIDA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! ' # , $ %& BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NOS. 1229 TO 1232/MDS/2015 / ASSESSMENT YEARS : 2001-02, 2002-03, 2004-05 & 2005 -06 THE DEPUTY COMMISSIONER OF INCOME-TAX, LTU-1, CHENNAI. ( /APPELLANT) VS M/S. SIFY COMMUNICATIONS LTD. II FLOOR, TIDEL PARK BUILDING, 4, CANAL BANK ROAD, TARAMANI, CHENNAI-113. PAN AAECS9101P ( /RESPONDENT) / APPELLANT BY : DR. B. NISCHAL, JCIT / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE / DATE OF HEARING : 18.08.2015 ! / DATE OF PRONOUNCEMENT : 21.08.2015 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINS T THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX(APPE ALS) - - ITA 1229 TO 1232/15 2 DATED 13.3.2015 FOR THE ASSESSMENT YEARS 2001-02, 2 002-03, 2004-05 AND 2005-06. 2. THE COMMON ISSUE IN ALL THESE APPEALS IS WITH RE GARD TO DELETION OF ADDITION MADE TOWARDS UNEARNED INCOME T HOUGH THE ASSESSEE USED TO RAISE INVOICES AGAINST SERVICES TO BE RENDERED. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER HAS MADE THE ADDITION OF DEFERRED (UNEARNED) INCOME DEC LARED BY THE ASSESSEE IN THE BALANCE SHEET AS AT THE END OF THE RESPECTIVE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR WITHOUT CREDITING THE SAME TO THE PROFIT AND LOSS ACCOUNT. ACCORDING TO THE ASSESSING OFFICER, THE SAME IS LIABLE FOR TAXAT ION. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS AD OPTED A DEVICE TO POSTPONE THE INCOME FOR THE PURPOSE OF TA X ONLY WHILE CREDITING ITS ACCOUNT BY THE SAME AMOUNT IN THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. THE ASSESSING OFF ICER ALSO STATED IN THE ASSESSMENT ORDER THAT SIMILAR ISSUE W AS CONSIDERED IN THE CASE OF SIFY LTD., SISTER CONCERN OF THE ASS ESSEE COMPANY. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFO RE THE COMMISSIONER OF INCOME-TAX(APPEALS). 4. BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THE LD. - - ITA 1229 TO 1232/15 3 AR EXPLAINED THAT THE UNEARNED INCOME WAS ACCOUNTED AS INCOME IN THE YEAR IN WHICH THE SERVICES WERE RENDE RED. THE AR ALSO FURNISHED BEFORE THE COMMISSIONER OF INCOME-TA X(APPEALS), THE COPIES OF FEW INVOICES RELATING TO DEFERRED INC OME OR UNEARNED INCOME. THE LD. AR ALSO FURNISHED BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THE COPIES OF THE ORDERS OF CIT(APPEALS) IN ITA NO.191/2010-11 IN THE CASE O F M/S. SIFY TECHNOLOGIES LTD. FOR ASSESSMENT YEAR 2003-04, IN I TA NO.171/2011-12 IN THE CASE OF M/S. SIFY COMMUNICATI ONS LTD. FOR ASSESSMENT YEAR 2006-07, IN ITA TR.1/2010-11/LTU(A) IN THE CASE OF M/S. SIFY TECHNOLOGIES LTD. FOR ASSESSMENT YEAR 2007-08 AND ALSO THE ORDER OF ITAT, B BENCH, CHENNAI IN I TA NO.851/MDS/2013 DATED FOR ASSESSMENT YEAR 2008-09, WHEREIN IDENTICAL ISSUE WAS ALLOWED IN FAVOUR OF THE ASSESS EE AND DECIDED AGAINST THE DEPARTMENT. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FINDINGS O F THE ASSESSING OFFICER IN VARIOUS ASSESSMENT YEARS, THE COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE A SSESSEE BEING IN THE BUSINESS OF INFORMATION TECHNOLOGY SER VICES, EARNS INCOME FROM SUCH SERVICES. THE MERE RAISING OF INV OICES DOES - - ITA 1229 TO 1232/15 4 NOT RESULT IN EARNING OF ANY INCOME. THE COMMISSIO NER OF INCOME-TAX(APPEALS) FURTHER HELD THAT IN THE PRESEN T CASE, THE INCOME IS EARNED BY THE ASSESSEE ONLY WHEN THE SERV ICES ARE RENDERED. THE COMMISSIONER OF INCOME-TAX(APPEALS) FURTHER OBSERVED THAT ON IDENTICAL ISSUE, IN ASSESSEES OWN CASE, FOR THE ASSESSMENT YEAR 2008-09, THE TRIBUNAL HELD THAT THE ASSESSEE HAD RECOGNIZED THE INCOME CORRECTLY AND ALLOWED THE CLAIM. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO D ELETE THE ADDITION MADE IN ALL THE ASSESSMENT YEARS UNDER CON SIDERATION. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN NO T APPRECIATING THE FACT THAT THE ASSESSEE USED TO RAI SE INVOICES AGAINST SERVICES TO BE RENDERED AND ONCE THE INVOIC ES ARE RAISED, THAT CONSTITUTES A SALE TO BE RECOGNISED. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE INCOME HAS TO BE CHARGED ON ACCRUAL BASIS. THEREFORE THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE RELEVANT INV OICE IS RAISED. HE FURTHER SUBMITTED THAT THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF SO UTHERN CABLES & ENGINEERING WORKS (289 ITR 167) AND THE DECISION OF THE - - ITA 1229 TO 1232/15 5 SUPREME COURT IN THE CASE OF CHOWRINGEE SALES BUREA U P. LTD. (87 ITR 542), WHEREIN IT WAS HELD THAT IF A RECEIPT IS A TRADING RECEIPT, THE FACT THAT IT WAS NOT SHOWN AS SUCH IN THE BOOKS DOES NOT PREVENT THE TAXABILITY OF SUCH INCOME. THE LD. DR FURTHER SUBMITTED THAT ON AN IDENTICAL ISSUE, THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO.851/MDS/2013 DATE D 4.10.2013, HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND CARRIED IN FURTHER APPEAL U/S.260A. ACCORDINGLY, THE LD. D .R. PRAYED THAT THE ORDER OF THE CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 6. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDE R OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2003-04 AND 2006- 07 WHEREIN THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE IN ITA NOS.1400 & 1401/MDS/13, AS FOLLOWS: 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSING OFFICER ADDED ` 66,88,000/- IN ASSESSMENT YEAR 2003-04 AND ` 69,10,620/- IN ASSESSMENT YEAR 2006-07 TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYST EM OF ACCOUNTING AND THEREFORE, THE INCOME ACCRUED DURING THE YEAR WAS LIABLE TO TAX ACCORDING TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THAT THE ASSESSEE HAS ADOPTED A DEVICE BY WHICH DEFERRED INCOME HAS BEEN TAKEN DIRECTLY TO BALANCE - - ITA 1229 TO 1232/15 6 SHEET UNDER CURRENT LIABILITIES INSTEAD OF CREDIT ING THE SAME TO THE PROFIT AND LOSS ACCOUNT. 8. ON APPEAL, THE CIT(A) FOLLOWING THE ORDER DATED 26.09.09 OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 PASSED IN ITA NO.1954/MDS/07, ALLOWED THE APPEAL OF THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE CIT(A). THE ONLY SUBMISSION WAS THAT AS THE DEPARTMENT HAS NOT ACCEPTED THE ORDER OF THE TRIBUNAL DATED 26.09.09 PASSED IN ITA NO.1954/MDS/07 IN ASSESSEES OWN CASE FOR A.Y. 2003-04, THEREFORE TO KEEP THE ISSUE ALIVE, THE PRE SENT APPEAL HAS BEEN FILED BY THE DEPARTMENT. LD. D.R. ALSO COULD NOT FILED ANY MATERIAL BEFORE US TO SHOW THAT THE ORDER OF THE TRIBUNAL FOLLOWED BY LD. CIT(A) FO R A.Y. 2003-04 HAS BEEN VARIED IN APPEAL BY HIGHER FORUM NEITHER THE OPERATION OF THE ORDER HAS BEEN STAYED. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS CONFIRMED AND THE GROUNDS OF APPEALS OF REVENUE ARE DISMISSED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE CONTENTION OF THE LD. AR IS THAT TH E DEFERRED INCOME IN THIS ASSESSMENT YEAR WAS CARRIED FORWARD AND DULY TAKEN INTO ACCOUNT IN THE NEXT ASSESSMENT YEAR AND OFFERED FOR TAXATION. REGARDING THIS, THE BENCH PUT A QUESTION TO THE LD. AR TO SHOW HOW IT WAS OFFERED FOR TAXATION IN RESPECT OF EACH ASSESSMENT YEAR. THE LD. AR OF THE ASSESSEE WAS NO T ABLE TO POINT OUT THE EXACT AMOUNT OFFERED FOR TAXATION IN SUBSEQUENT ASSESSMENT YEARS. BEING SO, WE FEEL IT APPROPRIATE TO REMIT THE - - ITA 1229 TO 1232/15 7 ENTIRE ISSUE TO THE FILE OF THE AO TO EXAMINE, WHET HER THE ASSESSEE HAS OFFERED THE DEFERRED INCOME OF EACH AS SESSMENT YEAR IN SUBSEQUENT ASSESSMENT YEARS FOR TAXATION AN D IF IT IS ACTUALLY OFFERED FOR TAXATION BY THE ASSESSEE IN TH E SUBSEQUENT ASSESSMENT YEARS, THE ADDITION IS UNWARRANTED. WIT H THESE OBSERVATIONS, WE REMIT THE ENTIRE ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 8. IN THE RESULT, THE APPEALS OF REVENUE ARE ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 21 ST OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( '# $%& ' ) ( ' & ( ) ) *+,-..-/-01234-54-6-37 *+,-234-5889-4 :7 % '; /JUDICIAL MEMBER ';<=>>8?2@-2@A1BC14 '% /CHENNAI, D' /DATED, THE 21 ST AUGUST, 2015. MPO* 'E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I*7 /CIT(A) 4. I /CIT 5. GJ$ K /DR 6. $LM /GF.