JCIT (OSD), CHENNAI V. Johnson Lifts Private Limited, CHENNAI

ITA 1415/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8813 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-05-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset converted into stock in trade

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1412 TO 1416/MDS/2016 / ASSESSMENT YEARS : 2006-07,2007-08,2008-09, 2011-12 & 2012 -13 THE JT. COMMISSION ER OF INCOME TAX(OSD) LARGE TAXPAYER UNIT 1 CHENNAI VS. M/S JOHNSON LIFTS PVT. LTD NO.1 EAST MAIN ROAD ANNA NAGAR WESTERN EXTN. CHENNAI 600 101 [PAN AAACJ 0838 Q ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 04 - 0 8 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 0 8 - 2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE REVENUE AGAINST TH E COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APP EALS)-17, CHENNAI, DATED 25.2.2016 FOR THE IMPUGNED ASSESSMEN T YEARS. 2. THE SOLE GRIEVANCE RAISED BY THE REVENUE IS REGARDI NG THE CIT(A)S DIRECTION TO CONSIDER THE ANNUAL MAINTENAN CE CHARGES(AMC) ITA NO. 1412 TO1416/16 :- 2 -: COLLECTED BY THE ASSESSEE FROM ITS CUSTOMERS SPREA D OVER THE TENURE OF THE ANNUAL MAINTENANCE CONTRACTS. 3. FACTS APROPOS ARE THAT THE ASSESSEE, A COMPANY ENG AGED IN THE BUSINESS OF MANUFACTURING, SUPPLY AND INSTALLAT ION OF LIFTS AND ESCALATORS, WAS COLLECTING SUMS FROM ITS CUSTOMERS AS AMC. THE CURRENT LIABILITIES IN THE BALANCE SHEET REFLECTED SUCH RECEIPTS AS INCOME RECEIVED IN ADVANCE. THE ASSESSING OFFICER QUERIED THE ASSESSEE WHY SUCH INCOME SHOULD NOT BE CHARGED TO T AX FOR THE RESPECTIVE ASSESSMENT YEARS WHEN IT WAS RECEIVED. REPLY OF THE ASSESSEE WAS THAT OBLIGATIONS UNDER THE ANNUAL MAIN TENANCE CONTRACTS FELL IN TWO DIFFERENT FINANCIAL YEARS AND INCOME WA S RECOGNIZED BASED ON ACCOUNTING STANDARD-9 TO THE EXTENT IT WAS RELAT ABLE TO THE GIVEN ASSESSMENT YEAR. THE ASSESSEE ALSO PLACED RELIANC E ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF TVS ELECTRO NIC LTD VS. DCIT, 22 TAXMANN 215. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT AMC WAS A SIMPLE AND NON REFUNDABLE RECEIPT. FURTHE R, AS PER THE ASSESSING OFFICER IN THE AMC AGREEMENT, THERE WAS N O CLAUSE FOR CANCELLATION. EVEN WHEN THE ASSESSEE HAD A RIGHT TO TERMINATE THE CONTRACT IN SPECIFIC CIRCUMSTANCES, THERE WAS NO PR OVISION FOR REFUNDING THE MONEY FOR THE UNEXPIRED PERIOD OF THE CONTRACT TO ITS CUSTOMERS. AS PER THE ASSESSING OFFICER, AMC WAS CLEVERLY WORD ED. RELYING ON THE ITA NO. 1412 TO1416/16 :- 3 -: JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS G.S.R. KRISHNAMURTHY, 262 ITR 393, THE ASSESSING OFFICER H ELD THAT THE ENTIRE AMOUNT RECEIVED AS AMC HAD TO BE CONSIDERED AS INCO ME OF THE ASSESSEE AND COULD NOT BE ALLOWED TO SPREAD OVER TH E PERIOD OF AMC FOR EACH OF THE YEARS. THE ASSESSING OFFICER, THE REFORE, TOOK THE WHOLE OF THE AMC RECEIVED AS INCOME AND SPREAD OVER CLAIM BY THE ASSESSEE WAS NOT ALLOWED. THE ADDITION MADE FOR TH E VARIOUS ASSESSMENT YEARS ON ACCOUNT OF THIS TREATMENT CAME TO ` 3,19,08,754/- FOR ASSESSMENT YEAR 2006-07, ` 1,31,70,193/- FOR ASSESSMENT YEAR 2007-08, ` 1,69,69,898/- FOR ASSESSMENT YEAR 2008-09, ` 13,61,52,668/- FOR ASSESSMENT YEAR 2011-12 AND ` 4,88,93,856/- FOR ASSESSMENT YEAR 2012-13. 4. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE BEFORE THE CIT(A) WAS THA T THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2 009-10 IN I.T.A.NO.222/MDS/2013, DATED 1.8.2014, ON THE VERY SAME SET OF FACTS, HAD HELD IN FAVOUR OF THE ASSESSEE. THE CIT(A) WA S APPRECIATIVE OF THIS CONTENTION. HE HELD THAT FACTS AND ISSUE INVO LVED WERE IDENTICAL TO THE CASE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 200 9-10. HE, THUS HELD THAT THE ADDITION MADE ON ACCOUNT OF INCOME RE CEIVED IN ADVANCE ITA NO. 1412 TO1416/16 :- 4 -: WAS NOT LEGALLY TENABLE AND DELETED THE ADDITION FO R ALL THE IMPUGNED ASSESSMENT YEARS. 5. NOW BEFORE US, STRONGLY ASSAILING THE ORDER OF THE CIT(A), LD. DR SUBMITTED THAT ASSESSEE WAS NOT REQUIRED TO REF UND ANY AMOUNT OF THE AMC RECEIVED FROM ITS CUSTOMERS IN THE EVENT OF CANCELLATION OF THE AMC. AS PER THE LD. DR, THE CIT(A) ERRED IN ALLOWI NG THE SPREADOVER OF SUCH RECEIPTS CONSIDERING THE PERIOD OF AMC COVERAG E. RELIANCE WAS PLACED ON THE JUDGMENT OF MADRAS HIGH COURT IN G.S. R KRISHNAMURTHY (SUPRA). 6. PER CONTRA, THE LD. AR SUBMITTED THAT THE ISSUE STO OD SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. LD . AR SUBMITTED THAT IN THE SAID DECISION ALSO, THE DEPARTMENT HAD RELIED ON THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF G.S.R KRISHNAMURTHY (SUPRA). FURTHER, AS PER THE LD. AR, MATCHING PRIN CIPLES OF ACCOUNTING REQUIRED INCOME AND LIABILITY TO BE RECOGNIZED PRO- RATA. DISTINGUISHING THE JUDGMENT IN THE CASE OF G.S.R KRISHNAMURTHY(SUP RA), LD. AR SUBMITTED THAT IN THE SAID CASE WHAT WAS INVOLVED W AS MONEY RECEIVED FOR LEASE OF FILMS. IT WAS ONE TIME TRANSACTION AN D THE LESSEE WAS NOT REQUIRED TO PROVIDE ANY SERVICE. LD. AR FURTHER SU BMITTED THAT THERE WAS CONTINUOUS OBLIGATION ON THE PART OF THE ASSES SEE TO PROVIDE AMC ITA NO. 1412 TO1416/16 :- 5 -: SERVICES. RELIANCE WAS PLACED ON THE JUDGMENT OF T HE DELHI HIGH COURT IN THE CASE OF CIT VS DINESH KUMAR GOEL, 331 ITR 10 . 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT T HE QUESTION REGARDING TREATMENT OF AMC CHARGES RECEIVED FROM CUSTOMERS HA D COME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2009- 10 IN I.T.A.NO. 222/MDS/2013 AND THE TRIBUNAL HAD R ESOLVED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. THE DEAILED GROUNDS STATED BY THE ASSESSEE ITS ELF MAKES THE MATTER OBVIOUS AND CLEAR. THE ASSESSEE IS A M ANUFACTURER AND SUPPLIER OF LIFTS AND IT UNDERTAKES THE OF MAI NTENANCE ALONG WITH SALES. THE ASSESSEE COLLECTS SUCH ANNUAL MAINT ENANCE FEES FROM THE CUSTOMERS IN ADVANCE AND ATTRIBUTES S UCH ADVANCE COLLECTION TO THE PERIOD COVERED BY THE ANN UAL MAINTENANCE CONTRACT. THE LOWER AUTHORITIES HAVE TR EATED THE ENTIRE SUCH COLLECTION, AS THE INCOME OF THE IMPUGN ED ASSESSMENT YEAR, MAINLY ON THE GROUND THAT THE ASSE SSEE IS NOT SUPPOSED TO REFUND SUCH ANNUAL MAINTENANCE COLL ECTION TO ITS CUSTOMERS. BUT THE LOWER AUTHORITIES HAVE OVERL OOKED THE CRUCIAL FACT THAT THE ASSESSEE IS MAINTAINING ITS A CCOUNTS ON ACCRUAL BASIS AND, THEREFORE, THE ASSESSEE IS BOUND TO FOLLOW THE MATCHING PRINCIPLE OF REVENUE AND EXPENDITURE A ND AS SUCH, THE ASSESSEE IS BOUND TO PROVIDE FOR FUTURE LIABILI TY OF MAINTENANCE FROM THE ADVANCE COLLECTION MADE FROM T HE CUSTOMERS. IN FACT, THE ACCOUNTING STANDARD ON DISC LOSURE OF ACCOUNTING POLICIES NOTIFIED BY THE GOVERNMENT OF I NDIA UNDER SEC.145(2) SUPPORTS THE ABOVE POSITION BY STATING T HAT ACCRUAL REFERS TO THE ASSUMPTION THAT REVENUES AND COSTS AR E ACCRUED, THAT IS, RECOGNIZED AS THEY ARE EARNED OR INCURRED (AND NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN THE FIN ANCIAL STATEMENTS OF THE PERIODS TO WHICH THEY RELATE. TH EREFORE, WHEN THE ASSESSEE HAS ASSUMED THE OBLIGATION FOR MA INTAINING THE LIFTS SOLD BY THE ASSESSEE FOR A PARTICULAR PER IOD OF TIME AND THE ASSESSEE COLLECTS FEE FOR SUCH SERVICES IN ADVA NCE, IT IS INCUMBENT UPON THE ASSESSEE TO PROVIDE THE LIABILIT Y FOR UNEXPIRED PERIOD FROM THE TOTAL ADVANCE COLLECTIONS MADE FROM THE CUSTOMERS. ITA NO. 1412 TO1416/16 :- 6 -: 5. THE APPREHENSION OF THE REVENUE THAT THE ASSESSE E IS NOT BOUND TO REFUND THE MONEY TO THE CUSTOMERS, IS ANSW ERED BY THE PROVISIONS OF LAW STATED IN SEC.41(1) OF THE AC T. ON SCRUTINY OF THE LIABILITY OF THE ASSESSEE REGARDING ANNUAL M AINTENANCE CHARGES, IF THE ASSESSING OFFICER FINDS THAT CERTAI N AMOUNTS ARE NOT NECESSARY TO BE CARRIED FORWARD IN THE LIABILIT Y ACCOUNT FOR THE REASON THAT THE PERIOD OF CORRESPONDING OBLIGAT ION HAS ALREADY BEEN EXPIRED, IT IS WITHIN THE COMPETENCE O F THE ASSESSING OFFICER TO BRING SUCH AMOUNT TO TAX AS IN COME UNDER SEC.41(1) OF THE ACT. WHENEVER THE OBLIGATION ASSUMED BY THE ASSESSEE EXPIRES AND CORRESPONDINGLY ANY PRO VISION FOR LIABILITY IS REMAINING IN THE ACCOUNTS, THAT MUCH O F THE UNCONSUMED PROVISION COULD BE TREATED AS INCOME OF THE ASSESSEE. 6. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ADDITION SUSTAINED BY THE LOWER AUTHO RITIES OF ` 8,20,45,067/-IS NOT JUSTIFIED AND ACCORDINGLY, THE SAID ADDITION IS DELETED. 8. COMING TO THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF G.S.R KRISHNAMURTHY(SUPRA), STRONGLY RELIED ON BY THE LD. DR, WHAT WE FIND THAT THE SAID JUDGMENT WAS RELATED TO LEASING OUT OF FILMS WHICH STAND ON A DIFFERENT FOOTING WHEN COMPA RED TO AMC. AMC REQUIRED THE ASSESSEE TO PROVIDE SERVICES TO THE C LIENTS DURING THE TENURE OF SUCH CONTRACTS AND THEREFORE, BY VIRTUE O F THE MATCHING PRINCIPLES, THE ASSESSEE CAN SPREAD OVER THE INCOM E THROUGHOUT THE PERIOD OF THE TENURE OF AMC. WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN RELYING ON THE DECISION OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. W E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ITA NO. 1412 TO1416/16 :- 7 -: 9. IN THE RESULT, ALL THE APPEALS OF THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF