ACIT, CHENNAI V. TVS Electronics Ltd., CHENNAI

ITA 1364/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96149 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Keywords: Reasonable cause; Condonation of delay

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.1364/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(1) NEW BLOCK,4 TH FLOOR, CHENNAI-34. VS M/S.TVS ELECTRONICS LTD. JAYALAKSHMI ESTATE, 29 (OLD NO.8) HADDOWS ROAD CHENNAI-600 006. PAN: AAACI0886K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR.B.NISCHAL, JCIT /RESPONDENT BY : MR. SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 19 TH AUGUST, 2015 /DATE OF PRONOUNCEMENT : 23 RD SEPTEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNA I DATED 23.02.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. THE APPEAL OF THE REVENUE IS BARRED BY LIMITATIO N OF THREE DAYS. THE REVENUE FILED A PETITION EXPLAININ G THE REASON THAT THE RECORDS OF THIS CASE INADVERTENTLY GOT MIXED UP WITH OTHER FILES AND AS SOON AS RECORDS PERTAINI NG TO THIS CASE WAS TRACED, APPEAL PAPERS WERE PREPARED FOR SUBMISSION AND DELAY IN FILING OF APPEAL IS NEITHER WANTON NOR 2 ITA NO.1364/MDS/2015 WILLFUL AND THEREFORE PRAYS FOR CONDONATION OF DEL AY. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APP EAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY IN FILING OF THE APPEAL. THE PETITION FOR CONDONATION OF DELAY IS AL LOWED AND THE APPEAL IS ADMITTED. 3. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS T HAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELE TING THE ADDITION MADE ON ACCOUNT OF UNEXPIRED VALUE OF ANNU AL MAINTENANCE CONTRACT RECEIPTS RECEIVED DURING THE YEAR. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN THE APPEAL HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.811/MDS/2010 DATED 25.05.2012 UPHOLDING THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETIN G THE ADDITION, A COPY OF WHICH IS PLACED ON RECORD. 5. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER. 3 ITA NO.1364/MDS/2015 6. HEARD BOTH SIDES AND PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISION RELIED ON. ON GOING TH ROUGH THE ORDER OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.811/MDS/2010 DATED 25.05.2012, WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL AFFIRMING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION IN RESPECT O F UNEXPIRED VALUE OF ANNUAL MAINTENANCE CONTRACT RECEIPTS RECEI VED DURING THE RELEVANT PREVIOUS YEAR. WHILE HOLDING SO , THE TRIBUNAL OBSERVED AS UNDER:- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORDE R DATED 18.3.2010 OF COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEAR, IN WHICH TWO CORE ISSUES HAVE BEEN RAISED BY IT. FIRST IS ON A DELETION OF AN ADDITION MADE BY THE A .O. ON ACCOUNT OF UNEXPIRED VALUE OF ANNUAL MAINTENANCE CONTRACTS RECEIVED BY THE ASSESSEE DURING THE RELEV ANT PREVIOUS YEAR. SECOND ISSUE IS REGARDING DELETION OF AN ADDITION OF ` 1,04,50,458/- MADE BY THE A.O. FOR NON- DEDUCTION OF TAX AT SOURCE, INVOKING SECTION 40(A)( I) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN MANUFACTURING AND SALE OF COMPUTER PERIPHERALS, HAD DURING THE RELEVANT PREVIOUS YEAR, ENTERED INTO ANN UAL MAINTENANCE CONTRACTS (AMC) WITH VARIOUS CUSTOMERS TO WHICH IT HAD SOLD ITS PRODUCTS. AS PER SUCH AMCS, ASSESSEE WAS TO PROVIDE MAINTENANCE SUPPORT FOR A PERIOD OF ONE YEAR FROM THE DATE OF CONTRACT. ASSE SSEE HAD SHOWN AS INCOME ONLY THAT PART OF THE REVENUE PERTAINING TO THE AMCS WHICH FELL WITHIN THE RELEVA NT PREVIOUS YEAR. IN OTHER WORDS, PRO RATA REVENUE FO R THE PERIOD FALLING OUTSIDE THE PREVIOUS YEAR, WAS NOT O FFERED AS INCOME. EXPLANATION OF THE ASSESSEE WAS SOUGHT AND REPLY OF THE ASSESSEE WAS AS UNDER:- 4 ITA NO.1364/MDS/2015 AS PER ACCOUNTING POLICY OF THE COMPANY, THE REVENUE ARISING OUT OF ANNUAL MAINTENANCE CONTRACTS WITH CUSTOMERS IN OUR PRODUCTS BUSINESS (PRINTERS, UPS, ETC) IS RECOGNIZED ON ACCRUAL BASIS. THIS IS DETERMINED BASED ON PERIOD OF CONTRA CT AS AGREED WHILE RAISING THE COMMERCIAL INVOICE FOR AMC ON CUSTOM ERS. FOR EXAMPLE IF ` 600 IS CHARGED FOR ONE PRINTER FOR A PERIOD OF 12 MONTHS OF CONTRACT, REVENUE IS RECOGNIZED AT THE RAT E OF ` 50 PER MONTH STARTING FROM MONTH 1 OF AMC PERIOD. UNEXPIRED SERVICE CONTRACT REPRESENTS THE PERIOD FAL LING DUE AFTER THE ACCOUNTING PERIOD FOR WHICH AMC IS ALREADY CHARGED IN THE INVOICE BUT FOR WHICH REVENUE NEEDS TO BE RECO GNIZED IN THE LATER PERIOD. HENCE THE INVOICE VALUE TO THE EX TENT OF UNEXPIRED PERIOD, IS DISCLOSED AS CURRENT LIABILITY SINCE THE SAME IS TOWARDS PROVIDING SERVICE TO THE CUSTOMER, FOR A FUTURE PERIOD. THIS IS IN LINE WITH THE AS 9 FOR REVENUE RECOGNITION AND IS STATED IN OUR NOTES TO ACCOUNTS. ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, INCOME ACCRUED TO THE ASSESSEE AT THE TIME OF RAISI NG THE INVOICE FOR THE AMC AND THEREFORE, ASSESSEE WAS BOU ND TO SHOW THE FULL AMOUNT AS PER AMC AS ITS INCOME. THO UGH THE ASSESSEE RELIED ON THE DECISION OF HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT V. CORAL ELECTRONICS (P) L TD. (274 ITR 336), A.O. WAS OF THE OPINION THAT IN THAT CASE, TH ERE WAS INDEFINITENESS REGARDING THE SERVICE TO BE RENDERED , BUT HERE IN ASSESSEES CASE, THE SERVICE TO BE RENDERED WAS DEFINED AND DEFINITE. HE, THEREFORE, MADE AN ADDITION OF ` 3,68,19,800/- FOR THE UNEXPIRED VALUE OF AMCS NOT O FFERED BY ASSESSEE AS ITS INCOME. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT WHEN IT ENTERED INTO AMCS, 100% REVENUE WAS RECEIVED ONLY AS AN ADVANCE. THE AMCS WERE FOR A PERIOD OF 12 MONTHS AND A PART OF THE 12 MONTHS PERIOD WOULD ALWAYS FALL BEYOND THE END OF T HE FINANCIAL YEAR. THE UNEXPIRED PERIOD OF CONTRACTS REPRESENT LIABILITY OF THE ASSESSEE FOR MEETING ITS MAINTENANCE OBLIGATIONS AND THEREFORE, CORRESPONDIN G REVENUE COULD NOT BE RECOGNIZED. IN ANY CASE, AS P ER THE ASSESSEE, ANY CUSTOMER COULD TERMINATE THEIR AM C AGREEMENT BEFORE THE EXPIRY OF THE CONTRACT AND THE ASSESSEE WAS BOUND TO REFUND THE AMOUNT PERTAINING TO THE UNEXPIRED PERIOD. CIT(APPEALS) WAS APPRECIATIV E OF THIS CONTENTION OF THE ASSESSEE AND DELETED THE ADD ITION MADE BY THE A.O. 4. BEFORE US, LEARNED D.R. SUBMITTED THAT CIT(APPEALS) ERRONEOUSLY RELIED ON THE DECISION OF 5 ITA NO.1364/MDS/2015 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CO RAL ELECTRONICS (P) LTD. (SUPRA). ACCORDING TO HIM, IN THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT, THE SERVICE TO BE RENDERED BY THE CONCERNED ASSESSEE WA S NOT AT ALL DEFINITE, WHEREAS, IT WAS CLEARLY DEFINE D IN THE PRESENT CASE. WHEN THE ASSESSEE HAD RAISED INVOICE S ON ITS CUSTOMERS AND RECEIVED AMOUNTS TOO AS PER TH E AMC, ASSESSEE WAS BOUND TO ACCOUNT FOR SUCH INCOME. EVEN UNDER MERCANTILE SYSTEM, THE FUNDS WHICH HAD BEEN RECEIVED BY THE ASSESSEE, HAD TO BE TREATED AS INCOME. 5. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT INCOME NOT OFFERED BY THE ASSESSEE PERTAINED TO UNEXPIRED PERI OD OF AMC FALLING OUTSIDE THE END OF THE RELEVANT PREVIOU S YEAR. THERE IS ALSO NO DISPUTE THAT A PART OF UNEX PIRED PERIOD ALWAYS FELL OUTSIDE THE RELEVANT PREVIOUS YE AR, GOING INTO THE SUBSEQUENT YEAR. THERE IS ALSO NO DISPUTE THAT ASSESSEE HAD RECOGNIZED ITS INCOME ON PRO RATA BASIS FOR THE DURATION OF THE AMC CONTRACTS IN THE RELEVANT PREVIOUS YEAR. THE CLIENTS OF THE ASSESSE E COULD AT ANY POINT CANCEL THE CONTRACT AND GET A RE FUND FOR THE UNEXPIRED PERIOD. THIS ITSELF MEANT THAT T HE AMOUNT RECEIVED BY THE ASSESSEE AT THE POINT OF TIM E IT ENTERED INTO AN AMC WAS NOTHING BUT AN ADVANCE, WHI CH ON THE PROGRESS OF EACH DAY GOT CONVERTED INTO REVE NUE. THE INCOME WAS ACCRUING ON A DAY-TO-DAY BASIS BASED ON THE PROGRESS OF TIME AND IT DID NOT ACCRUE ON TH E DAY OF ENTERING INTO THE CONTRACT. AN OBLIGATION WAS T HERE ON THE ASSESSEE TO REFUND THE UNEXPIRED VALUE OF AMC, IF THE AMC WAS CANCELLED BY ITS CUSTOMERS. SO, WE CANNOT SAY THAT WHOLE OF THE INCOME HAD ACCRUED TO THE ASSESSEE AT THE POINT OF TIME IT ENTERED INTO THE A MC. THE OBLIGATION ARISING OUT OF THE CONTRACT AS WELL AS EARNING OF THE INCOME RAN SIDE BY SIDE AND PROGRESS ED SIMULTANEOUSLY. THEREFORE, CONTENTION OF THE ASSES SEE THAT IT COULD NOT RECOGNIZE REVENUE FOR THE UNEXPIR ED PERIOD OF AMC IS ON STRONG FOOTING. PRINCIPLE OF MATCHING CONCEPT OF INCOME AND EXPENSES, COMES TO THE AID OF THE ASSESSEE IN SUCH A SITUATION. ASSES SEE, IN OUR OPINION, WAS JUSTIFIED IN ITS CLAIM THAT INC OME RELATABLE TO THE UNEXPIRED PERIOD OF AMC COULD BE CONSIDERED ONLY IN THE SUBSEQUENT YEAR AND NOT IN T HE RELEVANT PREVIOUS YEAR. CIT(APPEALS), IN OUR OPINI ON, 6 ITA NO.1364/MDS/2015 HAD TAKEN A CORRECT DECISION WHICH DOES NOT REQUIRE ANY INTERFERENCE. 7. SINCE THE FACTS AND CIRCUMSTANCES ARE BEING IDEN TICAL, RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUN AL, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THIS ASSESSMENT YEAR ALSO AND REJECT THE GROUNDS RAISED BY THE REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 23 RD SEPTEMBER, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .