ITO, Hyderabad V. M/s. Sushen Oils & Foods, Hyderabad

ITA 1452/HYD/2010

• Counselvise Citation: 145222514 RSA 2010
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 24-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Business expenditure; Revised return
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.503/HYD/09 : ASSESSMENT YEAR 2003 - 04 ITA NO.1452/HYD/10 : ASSESSMENT YEAR 2004 - 05 ITA NO.1860/HYD/11 : ASSESSMENT YEAR 2002 - 03 INCOME TAX OFFICER WARD 7(3), HYDERABAD V/S. M/S. SUSHEN OILS & FOODS, HYDERABAD ( PAN - AAQPS 7749 N ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. K.HARITHA, DR RESPONDENT BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 5 .1 1 .201 3 DATE OF PRONOUNCEMENT 3.2.20 14 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THE S E ARE THREE APPEALS BY THE REVENUE DIRECTED AGAINST THE ORDERS OF THE CIT(A) III HYDERABAD DATED 9.2.2009 FOR THE ASSESSMENT YEAR 2003 - 04; OF THE CIT(A) VIJAYAWADA DATED 14.9.2010 FOR THE ASSESSMENT YEAR 2004 - 05; AND OF THE CIT(A) VI HYDERABAD DATED 25.8.2011 F OR THE ASSESSMENT YEAR 2002 - 03. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FI R ST COMMON EFFECTIVE GRIEVANCE OF THE REVENUE IN TH E SE APPEALS RELATES TO THE ADDITION TO THE INCOME BY WAY OF BROKERAGE DISCLOSED BY THE ASSESSEE. 3. FACTS IN BRIEF, AS TAKEN FROM THE APPEAL FOR THE ASSESSMENT YEAR 2003 - 04, VIZ. ITA N O .503/HYD/2009, ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF AGENCY OF OIL BUSINESS. IT S ONLY SOURCE OF INCOME IS BROKERAGE RECEIVED FROM SELLERS OF EDIBLE OIL. IN THE RETURN OF INCOME FILED FOR TH E I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 2 ASSESSMENT YEAR 2003 - 04 ON 30.9.2003, ASSESSEE ADMITTED AN INCOME OF R S .2,64,150, SHOWING NET PROFIT OF RS.3,09,462 AND CLAIMING CREDIT FOR TDS OF R S .2,11,060. T HE ASSESSEE CLAIMED CREDIT FOR TDS EVEN THOUGH THE CORRESPONDING INCOME FROM WHICH TDS WAS DEDUCTED WAS NO T INCLUDED IN THE INCOME / RECEIPTS, WHICH WERE OFFERE D TO TAX ON CASH BASIS. ASSESSEE THEREUPON FILED REVISED RETURN ON 11.3.2004, DECLARI NG INCOME OF RS.1,08,670 AND EXCLUDED T H E TDS WHICH CORRESPONDED TO INCOME NOT RECEIVED AND SO NOT ADMITTED. IN THE REVISED RETURN, TDS CREDIT WAS CLAIMED AT RS.1,55,473. THE ASSESSMENT WAS INITIALLY COMPLETED ON 29.3.2005 UNDER S.143(3)OF THE ACT, DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT R S .2,29,993. THE SAID ASSESSMENT WAS SET ASIDE BY THE COMMISSIONER OF INCOME - TAX VIDE HIS ORDER D A TED 30.3.2007 PASSED UNDER S.263 OF THE ACT. 4. IN T HE FRESH ASSESSMENT MADE IN PURSUANCE OF THE DIRECT IONS OF TH E COMMISSIONER OF INCOME - TAX, WHICH GAVE RISE TO THE PRESENT APPELLATE PROCEEDINGS, TOTAL INCOME O F THE ASSESSEE WAS DETERMINED AT R S .38.05,116. IN THE SAID RE - ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT WH I LE THE BROKERAGE AMO UNT RECEIVABLE AS PER TDS CERTIFICATE WAS RS.35 , 96,137, THE ASSESSEE CREDITED ONLY THE BROKERAGE AMOUNT OF RS.17,16,359, FOLLOWING THE CASH SYSTEM OF ACCOUNTING. THE ASSESSING OFFICER REJECTED THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE FOR THE FOLLOWING REASONS - ( I ) AS PER THE PROVISIONS OF S.199 OF THE ACT, WHENEVER THE CREDIT FOR TDS IS CLAIMED, THE CORRESPONDING INCOME IS TO BE ASSESSED TO TAX IN THAT YEAR. ( II ) AS SOON AS THE SELLER DELIVERS THE GOODS TO THE BUYER, THE ROLE OF THE ASSESSEE AS BROKE R IS COMPLETE AND THE BROKERAGE ACCRUES TO HIM. ( III ) THE ASSESSEE IS NO T A CONSIGNMENT AGENT AND HENCE IS NO T RESPONSIBLE FOR COLLECTION OF AMOUNTS FROM THE BUYER OF GOODS. ( IV ) THE ASSESSEE HAS SHOWN THE INTEREST INCOME ON BANK DEPOSITS ON ACCRUAL BASIS. I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 3 ( V ) THE ASSESS EE HAS NO T SHOWN THE BROKERAGE RECEIVABLE IN ITS BALANCE SHEET. THE SAME IS NO T VERIFIABLE FROM THE BOOKS OF ACCOUNTS. ( VI ) TH E ASSESSEE HAS NO T SHOWN THE BROKERAGE RECEIPTS IN ITS BOOKS OF ACCOUNTS MUCH BEFORE THE DATE OF CRE D IT OF THE AMOUNT IN ITS BANK AC COUNT. ( VII ) THE CASH SYSTEM OF AC C OUN T IN G FOLLOWED BY THE ASSESSEE DOES NO T REFLECT THE TRUE STATE OF AFFAIRS AND THE CORRECT PROFIT OF THE BUSINESS. FOR THE FOREGOING REASONS, THE ASSESSING OFFICER HELD THAT THE BROKERAGE RECEIPTS OF THE ASSESSEE ARE TO BE AS SESSED ON ACCRUAL BASIS, AS SHOWN IN THE TDS CERTIFICATES, AND ACCORDINGLY ADDED THE DIFFERENCE OF R S .18,79,778 TO THE INCOME RETURNED BY THE ASSESSEE, WHILE COMPLETING THE ASSESSMENT UNDER S.143(3) READ W ITH S.263 OF THE ACT, VIDE O R DER DATED 26.12.2007. 5. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) CONTENDING INTER - ALIA AS FOLLOWS I ) THE ASSESSEE IS CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING SINCE ITS INCEPTION FROM ASSESSMENT YEAR 2002 - 03 TILL DATE. II ) THE ASSESSING OFFICER COULD NO T POINT ANY DEFECTS IN THE CASH SYSTEM O F ACCOUN T IN G FOLLOWED BY THE ASSESSEE, AND HE COULD NO T FIND ANY OMISSION IN RECEIPTS AND PAYM E N T S SHOWN ON CASH BASIS. III ) S.199 PROVI D ES FOR ALLOWABILITY OF TDS CREDIT IN THE YEAR IN WHICH INC OME IS ASSESSABLE, AND IT DOES NO T PROVIDE FOR TH E ASSESABILITY O F INCOME IN A PARTICULAR YEAR. IV ) THE DEDUC T ION OF T DS BY SELLER IS MANDATORY UNDER THE ACT, WHEN THE B R OKERAGE IS CREDITED EVEN THOUGH NO T PAID TO THE PAYEES. TH E STATUTORY DEDUCTION OF TDS CAN NO T CON S TRAIN THE ASSESSEE F R OM FOLLOWING THE CASH SYSTEM OF ACCOUNTING. V ) THE ASSESSEE IS NO T A MERE CONSIGNMENT AGENT, BUT A DEL CRE DERE AGENT WHO ASSUMES RESPONSIBILITY FOR THE PAYMENTS TO SELLERS. TH E REFORE, THE SELLE R S DEBIT T H E ACCOUNT OF THE ASSESSEE WITH THE I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 4 AMOUN TS DUE FROM THE BUYERS, AS AND WHEN THE PAYM E N T S F R OM BUYERS ARE RECEIVED. THEREFORE, ALTHOUGH CRE D ITED IN THE BOOKS O F THE SELLERS, IT IS NOT PAID OUT TILL THE BUYERS MAKE THE P A YM E NT, AND AS SUCH, THE ASSESSEE FOLLOWS TH E CASH SY S TEM OF ACCOUNTING FOR RECOGNIZING ITS INCOME. VI ) RECEIVABLES DO NO T FORM PART OF BALANCE SHEET IN THE CASH SYSTEM OF ACCOUNTING. THE MEMORANDA IN THE FORM OF R E GISTERS PRODUCED B E FORE THE ASSESSING OFFICER CONTAIN FULL DETAILS OF BROKERAGE RECEIVABLES AND THE ASSESS EE HAS VERIFI ABLE INFORMATION AT ANY POINT OF TIME A BOUT THE OUTSTANDIN G DUE TO HIM FROM THE SELLERS. VII ) IN THE CASH SYSTEM O F ACCOUNTING, CR E DIT FOR TH E CHEQUE RECEIVED IS TAKEN ON THE DAY OF ITS RECEIPT, EVEN THOUGH T H E COLLECTION IN THE BANK ACCOUNT IS REF LECTED AFTERWARDS. VIII ) THE IN T ER E ST INCOME OF RS.61,856 ON THE FIXED DEPOSITS WAS OFFERED FOR TAX ON RECEIPT BASIS IN THIS Y E AR. IX ) THE ASSESSING OFFICER HAS ASSESSED THE BROKERAGE RECEIPTS ON ACCRUAL BASIS IN ASSESSMENT YEAR 2002 - 03 AND 2003 - 04, THOUGH THE SAME INCOME WAS OFFERED ON CASH BASIS IN ASSESSMENT YEAR 2004 - 05 AND WAS ALSO ASSESSED UNDER S.143(1), WHEREBY RESULTING IN DOUBLE TAXATION OF THE SAME INCOME. X ) BROKERAGE INCOME ACCRUED BUT NOT RECEIVED WAS OFFERED TO TAX IN SUBSEQUENT YEARS AS AND WHEN RECEIVED . THERE WAS NO CONCEALMENT OF INCOME. ON CONSIDE R ATION OF THE VAR IOUS CONTENTIONS OF THE ASSESSEE BEFO R E HIM, IN THE LIGHT OF THE CA S E LAW RELIED, THE CIT(A) HELD THAT THE CASH SYSTEM OF ACCOUN T IN G FOLLOWED BY THE ASSESSEE IS AN ACCEP T ABL E METHOD O F ACCOUN T IN G IN TERMS OF S.145(1) OF TH E ACT, AND HENCE THE B R OKERAGE IN C OM E OFFERED FOR TAX ON CASH SYSTEM OF ACCOUNTING IS ALON E LIABLE FOR TAX. HE ALSO HELD AT THE SAME TIME THAT THE ASSESSEE IS ELIGIBL E TO CL A IM THE CREDIT FOR TDS ONLY IN RESPECT OF INCOME OFFERED TO TAX IN THIS YEAR. RELEVANT PORTION OF THE ORDER OF THE CIT(A) IN THIS BEHALF, READS AS FOLLOWS - I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 5 2.3 ..IT IS AN UNDISPU T ED FACT THAT THE APPELLANT IS FOLLOWING CASH SYSTEM O F ACCOUNTIN G SINCE ITS INCEPTION AND THE SAME IS ON E OF THE RECOGNIZED METHOD OF ACCOUN T IN G PERMITTED U/S. 145(1 ) O F THE ACT. APPELLANT HAS SHOWN BOTH RECEIPTS & PAYM E N T S ON CASH SYSTEM IN ITS BOOKS O F ACCOUNT AND NO EXCEPTION WAS POINTED OUT BY THE AO. EVEN THE INTEREST INCOME ON FIXED DEPOSITS FROM M/S. CHARGIL COMPANY WAS SHOWN ON RECEIPT B A SIS. THE APPELLANT IS A DEL CRE DERE AGENT AND IS RESPON S IBLE FOR THE PAYM E NTS TO TH E S E LLERS. I T I S EVIDENT FORM TH E FACT THAT THE SELLERS DEBIT TH E ACCOUNT O F THE APPELLANT WITH TH E AMOUN T S DUE FROM THE BUYERS. AS &WHEN THE PAYM E N T S ARE RECEIVED FROM THE BUYERS, CREDIT IS ALLOWED TO THE APPELLANT. THI S FACT WAS CONFIRMED BY ON E OF TH E SELLERS M/S. GOOD HEALTH AGRO TECH PVT. LTD. VIDE THEIR LE T TER DATED 28.3.2007 WHICH IS EXTRACTED IN PARA 6.14 OF TH E CITS ORDER U/ S. 263 OF TH E A C T. I ALSO AGREE WITH THE APPELLANTS CONTENTION THAT RE C EIVABLES MAY NO T FORM PART OF BALANCE SHEET IN CASH SYSTEM OF ACCOUN T IN G AS UPHELD BY THE HONBLE ALLAHABAD HIGH COU R T IN THE CA S E OF JANAM MANDAL LTD. (143 ITR 228). THE AMOUN T S RECEIVABLE FROM THE SELLERS ARE ASCERTAINABLE FROM THE ACCOUN T BOOKS & REGISTERS MAINTAINED BY TH E APPELLANT AS TH E PU R CH A SE ORDERS, THE SALE BILLS, BROKERAGE EARNED & PAYMENT RECEIVED ARE WELL DOCUM E NTED. TH E RECORDING OF CHEQUE RECEIPTS IN THE BOOK S OF ACCOUNT BEFORE THE DATE OF ACTUAL RECEIPTS OF THE AMOUNTS IN TH E APPELLANTS BANK ACCOUNT, DOES NO T VITIATE THE CASH SYSTEM OF ACCOUN T IN G FOLLOWED BY TH E APP E LL A N T . THE HONBL E AP H I GH COURT IN THE CA S E OF K.VENKATA REDDY(250 ITR 147) HELD THAT THE DATE OF DEPOSIT O F T H E CHEQUE FOR COLL E CTION IS TH E DATE OF RECEIPT OF ITS PROCEEDS UN L ESS & UNTIL IT IS DISHONOURED. DURING THE APPE A L PROCEE D INGS, THE LEARNED. AR FIL E D THE DE T AILS OF EACH SELLER SHOWING THAT THE BROKERAGE ACCRUED BUT NOT RECEIVED IN TH I S YEAR WAS OFFERED TO TAX IN SUBSEQUENT YEARS ON THE RECEIPT BASIS. THE ENTIRE ACCRUED BROKERAGE WAS ASSESSED AND THERE WAS NO CONCEALMENT OF INCOME. IT WAS FURTHER HIGHLIGHT E D THAT IN AY 06 - 07 TO 08 - 09, THE BROKERAGE RECEIPTS AS PER TDS CERTIFICATES WAS LES S THEN THE BROKERAGE CRE D ITED TO THE P&L ACCOU N T AND OFFERED FOR TAX. I AGREE WITH TH E CON T ENTION OF TH E LD. AR THAT THE APPELLANT IS SUBJECTED TO THE DOUBLE TAXATION OF THE SAME INCOME SIN C E ITS INCOME IS ASSESSED ON MERCANTILE BASIS IN SOME YEARS WHILE A SSESSED ON CASH SYSTEM IN OTHER YEARS. AO IS NO T JU S TIFIED IN INSISTING THAT THE BROKERAGE SHOULD B E BROUGHT TO TAX ON TH E BASIS THAT TH E SERVICE OF BROKERAGE IS COMPLETED ANTERIOR TO THE RECEIPT OF THE BROKERAGE. THIS IS NEGATION OF P R OVI SI ONS OF S.14 56(1) OF TH E A C T AND AMOUN T S TO IMPOSITION OF MERCANTILE SYSTEM O F ACCOUN T IN G . HONBLE ITAT MUMBAI IN TH E CA S E OF NANA G. PATEKAR (2009)(27 SOT 8) AND SURAJ UK INDUSTRIES LTD. 2009 (27 SOT 47) HELD THAT IT IS NO T SUFFICI E N T FOR THE ASSESSING OFFICER TO SAY THAT THE INCOME CANNOT B E DEDUCED F R OM THE METHOD OF ACCOUN T IN G FOLLOWED BY THE ASSESSEE. IN ORDER TO INVOKE THE P R OVIS I ON S OF S.145(3) OF TH E A C T, THE AO MUST RECORD A FINDIN G THAT THE AC C OUNTS WERE INCORRECT & INCOM PLE TE. CON S I D ERING ALL THE FACTS AND CIR C UM S TANCES O F THE CASE, I HOL D THAT THE CASH SYSTEM OF ACCOUN T IN G FOLLOWED BY THE APPELLANT IS AN ACCEPTABLE METHOD OF ACCOUN T IN G IN TERMS OF S.145(1) OF THE ACT. HENCE THE BROKERAGE INCOME OFFERED FOR TAX ON CASH SYSTEM OF ACCOUNTING IS I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 6 ALON E LIABLE FOR TAX. AT THE SAME TIME, THE APPELLANT IS ELIGI B LE TO CL A IM THE CRE D IT F O R TDS ONLY IN RESPECT OF INCOME OFFERED FOR TAX IN THIS Y E AR. 6 . FOR THE OTHER TWO YEARS ALSO, VIZ. 2002 - 03 AND 2004 - 05, BUT FOR THE AMOUNTS INVOLVED, FACTS ARE IDENTICAL, AND IN FACT, THE COMMISSIONERS (APPEAL) IN THE SEPARATE ORDERS PASSED BY THEM, DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER TO THE BROKERAGE INCOME DISCLOSED BY THE ASSESSEE, BY FOLLOWING THE ABOVE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2003 - 04. 7 . AGGRIEVED BY THE ABOVE ORDER S OF THE C OMMISSIONERS (A PPEAL ) ON THIS ISSUE FOR THE THREE YEARS , REVENUE PREFERRED THE PRESENT APPEAL S BEFORE US. 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED ON THE ORDER S OF THE ASSESSING OFFICER AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN NOT APPROVING THE FINDING OF THE ASSESSING OFFICER AND GRANTING RELIEF TO THE ASSESSEE. SHE SUBMITTED THAT THE A SSESSING OFFICER HAS PASSED A SPEAKING ORDER GIVING ELABORATE REASONS TO SUBSTANTIATE HIS CONCLUSION THAT CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT REFLECT THE TRUE STATE OF AFFAIRS OF THE ASSESSEES BUSINESS. SHE ALSO SUBMITTED THAT THER E ARE NO AGREEMENTS OF THE ASSESSEE WITH THE SELLER, FURNISHED BEFORE THE REVENUE AUTHORITIES, THOUGH IT IS CLAIMED BY THE ASSESSEE THAT H E IS A DEL CREDERE AGENT. IT IS ALSO SUBMITTED THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR 2003 - 04 WAS MADE IN PURSUA NCE OF THE DIRECTIONS OF THE COMMISSIONER OF INCOME - TAX, IN THE LIGHT OF THE CRITICAL AND CLINCHING FINDINGS, NOTED IN HIS ORDER UNDER S.263 OF THE ACT. SHE ALSO REFERRED TO THE DISCREPANCY REL A TING TO ONE OF THE PRINCIPAL, I.E. GOOD HEALTH AGRO T E CH P V T. LTD., AND SUBMITTED THAT AS PER WHOSE TDS CERTIFICATE TOTAL BROKERAGE DUE TO THE ASSESSEE WAS RS.3,44,750 FOR THE ASSESSMENT YEAR 2003 - 904 AND AS PER THE ACCOUNTS THE OUTSTANDING PAYABLE TO TH E ASSESSEE AS ON 31.3.2003 WAS R S .528, BUT THE ASSESSEE, IN THE PROFIT & LOSS ACCOUNT, HAD DI S CLO S ED RECEIPTS OF ONLY RS.1,50,000ALLEGEDLY ON CASH BASIS. IT IS SUBMITTED THAT THE A SSESSEES CLAIM IN THAT BEHALF IS UNCORROBORATED BY TH E VERSION OF THE PRINCIPAL, VIZ. GOO D HEALTH AGRO T E CH PV T . LTD. IT IS ALSO S UBMI T TED THAT PROVIS I ONS OF EXPLANAT I ON (F) TO PROVI S O TO S.13 9 (9) WHICH OBLIGATES AN ASSESSEE EVEN IN NO ACCOUN T S CA S E TO I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 7 DISCLOSE AMOUNTS OF TOTAL SUNDRY DEBTORS, WHEREAS THE ASSESSEE, ALLEGEDLY FOLLOW ING THE CASH SYSTEM OF ACCOUNT DID NEITHER POSSESS NOR FURNISH ANY SUCH PARTICULARS. IT IS ALSO SUBMITTED THAT IN THE ORIGINAL ASSESSMENT FOR THE ASSESSMENT YEAR 2003 - 04 AS WELL AS FOR THE FIRST YEAR O F ASSESSMENT , V IZ. 2002 - 03 , THE METHOD OF ACCOUNTING OF THE ASSESSEE WAS SHOWN TO BE MERCANTILE, AGAINST WHICH OBSERVATION THE ASSESSEE HAD NOT FILED ANY APPEAL. SHE SUBMITTED THAT THE CASE - LAW RELIED UPON BY THE CIT(A) IN THE IMPUGNED ORDERS IS NOT APPLICABLE. 9 . THE LEARNED COUNSEL FOR THE ASSESSEE , ON THE OTHER HAND, REITERATING THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, STRONGLY RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE, BEING A DEL CREDERE AGENT, IS JUSTIFIED IN RECOGNIZING THE INCOME BY WAY OF BROKERAGE ONLY ON ACTUAL RECEIPT BASIS. HE SUBMITTED THAT THE ASSESSING O FFICER IS NOT JUSTIFIED IN OBSERVING THAT THE ROLE OF THE ASSESSEE CEASED WITH THE DELIVERY OF THE GOODS BY THE SELLER TO THE BUYER. HE SUBMITTED THAT THOUGH THE AMOUNT OF BROKERAGE IS CREDITED TO THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE SELLER, I T IS ACTUALLY PAID TO THE ASSESSEE ONLY UPON RECEIPT OF THE SALE PROCEEDS BY THE SELLER FROM THE PURCHASER, AND AS SUCH , THE ROLE OF THE ASSESSEE DOES NOT CEASE UNTIL THE SALE PROCEEDS ARE RECEIVED BY THE SELLER FROM THE PURCHASER OF THE GOODS , UPON WHICH EVENT ALONE ASSESSEE ACTUALLY RECEIVES ITS BROKERAGE. WITH REGARD TO THE IMPACT OF THE DIRECTIONS OF THE COMMISSIONER OF INCOME - TAX UNDER S.263 OF THE ACT IN THE ORDER PASSED FOR ASSESSMENT YEAR 2004 - 05, ON ANY CONCLUSION THAT MAY BE ARRIVED AT IN THE FRE SH ASSESSMENT PROCEEDINGS THAT MAY BE TAKEN UP IN PURSUANCE THEREOF, RELIANCE IS PLACED ON THE DECISIONS IN ITA NOS.178/VIZAG/01 AND THREE OTHERS IN SMT.V.JOGULAMBA AND ANOTHER, FOR THE ASSESSMENT YEARS 1998 - 99 AND 2004 - 05; AND OF THE DECISION OF THE KE RALA HIGH COURT IN THE CASE OF AZHIMALA BEACH R E SORTS (P)LTD. V/S. CIT IN IT APPEAL NO.95 OF 2009 DATED 3.11.2009, DULY FUR N ISHING COPIES THEREOF BEFORE US. HE FILED ELABORATE WRITTEN SUBMISSIONS REITERATING THESE CONTENTIONS. I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 8 1 0 . WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF TH E LOWER AUTHORITIES. WE HAVE ALSO GONE THROUGH THE DETAILED WRITTEN SUBMISSIONS FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THE DECISIONS RELIED UPON BY THE PARTIES . ASSESSMENT YEAR 2002 - 03 IS THE FIRST YEAR OF ASSESSMENT SINCE THE INCEPTION OF THE BUSINESS OF THE ASSESSEE AND THE ASSESSEE HAS CLAIMED TO BE FOLLOWING CASH SYSTEM OF ACCOUNTING SINCE ITS INCEPTION OF THE BUSINESS. THE ASSESSING OFFICER FINDING THE DISCREPANCY BETWEEN THE INCOME DISCLOSED BY THE A SSESSEE AND THE INCOME AS PER THE TDS CERTIFICATES , OBSERVING INTER - ALIA THAT CASH SYSTEM OF ACCOUNTING DOES NOT REFLECT TRUE STATE OF AFFAIRS OF THE ASSESSEES BUSINESS, MADE THE IMPUGNED ADDITIONS , PROCEEDING ON THE BASIS OF BUSINESS RECEIPTS AS PER TDS CERTIFICATES, IGNORING THE BOOK RESULTS DISCLOSED BY THE ASSESSEE . THE CIT(A) HAS GIVEN ELABORATE REASONING IN THE ORDER IMPUGNED FOR ASSESSMENT YEAR 2004 - 05, VIDE PARA 2.3 OF HIS ORDER FOR THAT YEAR DATED 9.2.2009, RELEVANT PORTION OF WHICH WE HAVE EXTRA CTED IN PARA 5 HEREINABOVE, WHICH HAS BEEN FOLLOWED FOR THE OTHER YEARS UNDER APPEAL BEFORE US, FOR DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER , FOR THE YEARS UNDER APPEAL. 1 1 . IT IS EVIDENT FROM THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES A ND THE MATERIAL AVAILABLE ON RECORD THAT THE ASSESSEE IS A DEL CRE DERE AGENT DEALING IN OIL BUSINESS. NO MATERIAL TO DISPUTE THIS FINDING OF THE C OMMISSIONERS (A PPEALS ) HAS BEEN BROUGHT ON RECORD BY THE REVENUE , EXCEPT FOR THE PLEA THAT THE ASSESSEE HAS N OT PRODUCED ANY AGREEMENTS TO SUBSTANTIATE THAT CLAIM. ASSESSEES FAILURE TO FURNISH COPIES OF THE RELEVANT AGREEMENTS AND CONSEQUENT ABSENCE OF AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THE SELLERS, FOR WHOM HE ACTS AS A DEL CRE DERE AGENT, IS NOT C RUCIAL, AS THE FINDING OF THE COMMISSIONERS (APPEAL) IN THAT BEHALF, IS CORROBORATED BY OTHER EVIDENCE ON RECORD INCLUDING THE METHOD OF ACCOUNTING FOLLOWED AND CONSISTENT PLEA OF THE ASSESSEE IN THAT BEHALF RIGHT FROM THE BEGINNING, WHICH WAS NOT CONTROVE RTED. SINCE CASH SYSTEM OF ACCOUNTING IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING PERMITTED UNDER S.145(1) OF THE ACT, WHEN THE ASSESSEE CLAIMS TO BE FOLLOWING THE SAID SYSTEM BOTH IN RESPECT OF RECEIPTS AND PAYMENTS IN ITS BOOKS OF ACCOUNT, AS CORRECTL Y OBSERVED BY THE CIT(A), THERE IS NO JUSTIFICATION FOR REJECTING THE I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 9 BOOK RESULTS DISCLOSED BY THE ASSESSEE. MERE CREDITING OF THE BROKERAGE DUE TO THE ASSESSEE IN THE BOOKS OF THE SELLER, DOES NOT MEAN THAT IT AUTOMATICALLY BECOMES THE INCOME OF THE ASS ESSEE. MORE SO, WHEN, AS PLEADED BY THE ASSESSEE, THE AMOUNT OF BROKERAGE DUE TO THE ASSESSEE IS ACTUALLY PAID ON REALIZATION OF THE SALE PROCEEDS. THIS PLEA OF THE ASSESSEE HAS BEEN FOUND TO BE CORRECT BY THE LOWER AUTHORITIES ON EXAMINATION OF ONE OF THE PRINCIPALS. FURTHER, M ERELY BECAUSE THE PRINCIPAL OF THE ASSESSEE, VIZ. THE SELLER, CREDITS THE AMOUNT OF BROKERAGE DUE TO THE ASSESSEE IN A PARTICULAR YEAR, THOUGH NOT ACTUALLY PAID IN THAT YEAR, AND CLAIMS DEDUCTION IN RESPECT THEREOF, BY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT CANNOT BE SAID THAT THE RECIPIENT SHOULD ALSO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND DISCLOSE THE INCOME IN THAT YEAR. IN THE PRESENT CASE ALSO, ASSESSEE IS NOT RECOGNISING THE INCOME IN THE YEAR IN WHICH IT ACCRUE S, SINCE IT IS NOT FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, BUT CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING. SINCE THE SELLER - PRINCIPAL IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND CREDITING THE BROKERAGE PAYABLE TO TH E ASSESSEE TO THE ACCOUNT OF THE ASSESSEE IN ITS BOOKS, ON DUE BASIS AND IRRESPECTIVE OF ACTUAL PAYMENT, IT OBVIOUSLY IS OBLIGED TO DEDUCT TAX AT CREDIT, AND AS SUCH, THE TDS CERTIFICATES ISSUED WOULD BE REFLECTING HIGHER FIGURES THAN WHAT ACTUALLY IS PAID OUT BY THE SELLERS TO THE ASSESSEE . IN THE CIRCUMSTANCES, EVEN THE TDS CERTIFICATES WOULD NOT BE A CLINCHING MATERIAL TO DETERMINE THE ACTUAL INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE. IN ANY EVENT, THE CIT(A) WHILE ACCEPTING THE CLAIMS OF THE ASSESSEE WITH REGARD TO THE RETURNED INCOMES FOR THE YEARS UNDER APPEAL, ALSO HELD AT THE SAME TIME THAT THE ASSESSEE IS ELIGIBLE TO CLAIM CREDIT FOR TDS ONLY IN RESPECT OF INCOME OFFERED FOR TAX IN THE RELEVANT YEAR. IN THAT PROCESS, THE CIT(A) ALSO UPHELD THE VIEW TA KEN BY THE ASSESSING OFFICER THAT THE ASSESSEE CANNOT CLAIM CREDIT FOR THE TDS UNLESS AND UNTIL THE INCOME IN RELATION TO WHICH TDS, WAS MADE WAS OFFERED TO TAX IN THE RELEVANT YEAR. SINCE THE ASSESSEE IS FOUND TO BE A DEL CRE DERE AGENT, THE ROLE OF TH E ASSESSEE, AS OBSERVED BY THE CIT(A) IN THE IMPUGNED ORDER, DOES NOT CEASE SIMPLY ON BOOKING THE ORDER FOR THE SELLER OR THE DELIVERY OF GOODS TO THE PURCHASER, BUT EXTENDS TILL THE TIME THE SALE PROCEEDS ARE REALIZED BY THE SELLER FROM THE BUYER. CONS IDERING THE NATURE OF THE ASSESSEES BUSINESS, AS A DEL CRE I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 10 DERE AGENT , IN WHICH ACTUAL RECEIPT OF THE BROKERAGE WOULD DEPEND ON THE ACTUAL REALIZATION OF THE SALE PROCEEDS BY THE SELLER FROM THE PURCHASER, AS CLAIMED BY THE ASSESSEE AND ACCEPTED BY THE CI T(A) , ASSESSEE IS JUSTIFIED IN FOLLOWING CASH SYSTEM OF ACCOUNTING , FINDING IT TO BE APPROPRIATE FOR ITS BUSINESS. WHEN THE ASSESSEE CLAIMS TO BE FOLLOWING THAT METHOD OF ACCOUNTING CONSISTENTLY , AND IT HAS BEEN RECOGNIZED BY THE STATUTE , THERE IS NO JUST IFICATION FOR THE ASSESSING OFFICER TO DISTURB THE BOOK RESULTS DISCLOSED BY THE ASSESSEE. IN THIS VIEW OF THE MATTER, WO DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE CIT(A) ON THIS ASPECT. WE ACCORDINGLY UPHOLD THE SAME, REJECTING THE GROUNDS OF THE REVENUE ON THIS ISSUE IN THE APPEALS FOR ALL THE THREE YEARS. 12 . THE NEXT ISSUE COMMON IN APPEALS FOR ASSESSMENT YEARS 2002 - 03 AND 2004 - 05, VIZ. ITA NO.1860/HYD/2011 AND 1452/HYD/2010, RELATES TO DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RE SPECT OF INSURANCE CHARGES, WHICH HAS BEEN DELETED BY THE CIT(A). 1 3 . FACTS OF THE CASE , IN BRIEF ARE THAT THE ASSESSING OFFICER DISALLOWED THE INSURANCE EXPENSES CLAIMED BY THE ASSESSEE ON THE GR O UN D THAT THE ASSESSEE BEIN G A BROKER, IS NO T RESPONSIB L E FOR DELIVERY OF GOODS TO THE BUYER. HE ALSO OBSERVED THAT THE ASSESSEE HAS NO T PRODUCED ANY AGRE E M E NT ENTERED WITH THE SELLERS OR BUYERS TO SHOW THAT IT WAS ASSESSEES RESPONSIBILITY AND THE EXPENSES WERE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. 1 4 . IN BOTH THE ORDERS IMPUGNED IN THE APPEALS FOR THE ASSESSMENT YEAR S 2002 - 03 AND 2004 - 05, THE FIRST APPELLATE AUTHORITIES SIMPLY FOLLOWED THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE FOR THE ASSESSMENT YEAR 2003 - 04. FROM THE SAID APPELLATE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2003 - 04 DATED 9.2.2009, IT IS EVIDENT THAT DURING THE APPELLATE PROCEEDINGS, IT WAS PLEADED THAT THE ASSESSEE BEING A DEL CRE DERE AGENT , IS RESPONSIBLE FOR THE GOODS FROM THE TIME T HE GOODS LEAVE THE STATION OF THE SELLER UNTIL THEY REACH THE BUYER, AND THE BUYER WILL NOT BECOME LIABLE TO PAY UNTIL THE GOODS REACH HIM SAFELY . THE SELLER ACTUALLY PREPARES THE DELIVERY S L IPS AND DOCUMENTS BY I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 11 INCLUDING THE BROKERAGE PAYABLE TO THE ASSE SSEE THEREIN, AND AS SUCH THE INSURANCE IS TAKEN BY THE ASSESSEE FOR GOODS IN TRANSIT FROM THE SELLERS TO BUYERS AND THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE UNDER S.37(1) OF THE ACT. THE CIT(A), OBSERVING THAT THE ASSESSEE, BEING A DEL CRE DERE AGEN T, IS RESPONSIBLE FOR PAYMENT OF SALE AMOUNTS TO TH E SELLERS, WHICH IN TURN DEPENDS ON THE SAFE DELIVERY OF GOO D S TO THE BUYERS, AND ALSO OBSERVING THAT INSURANCE AMOUNT IS IN THE NATURE OF AN INCENTIVE PROVIDED BY THE ASSESSEE TO THE BUYERS AND SELLERS, H ELD THAT THE SAID INSURANCE E XPENSES INCURRED BY THE ASSESSEE ARE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF TH E ASSESSEE, AND THE SAME ARE ALLOWABLE UNDER S.37(1) OF THE ACT. 1 5 . AGGRIEVED BY THE RELIEF GRANTED BY THE FIRST APPELLATE AUTHORITIES, REVENUE PREFERRED PRESENT APPEALS ON THIS ISSUE, STRANGELY ONLY FOR THE ASSESSMENT YEARS 2002 - 03 AND 2004 - 05 , AND NOT FOR THE ASSESSMENT YEAR 2003 - 04 FOR WHICH A SPEAKING ORDER HAS BEEN PA SSED BY THE CIT(A) . 1 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED ON THE ORDERS OF THE ASSESSING OFFICER, SUBMITTED THAT INSURANCE CHARGES ARE NOT ALLOWABLE UNDER S.37( 1) OF THE ACT, AS THE ASSESSEE IS MERELY AN AGENT, AND THE INSURANCE CHARGES SHALL HAVE TO BE BORNE EITHER BY TH SELLER OR BY THE BUYER IN TERMS OF THE AGREEMENT THAT MAY BE THERE IN BETWEEN THEM. 1 7 . LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE, BEING A DEL CRE DERE AGENT, CONTINUES TO BE RESPONSIBLE TILL THE TIME THE SALE PROCEEDS ARE REALISED BY THE SELLER FROM THE PURCHASER, THE INSURANCE CHARGES HAVE TO BE INCURRED BY THE ASSESSEE TO PROTECT ITS OWN BUSINESS INTERESTS, AND AS SUCH IT IS ALLOWABLE UNDER S.37(1) OF THE ACT.. 1 8 . WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. WE FIND NO MERIT IN THE GRIEVANCE OF THE REVENUE I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 12 ON THIS I SSUE. FIRSTLY, AS NOTED ABOVE, WHILE THE DETAILED/SPEAKING ORDER DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OF INSURANCE CHARGES CLAIMED BY THE ASSESSEE HAS BEEN PASSED BY THE CIT(A) IN THE APPELLATE ORDER FOR ASSESSMENT YE AR 2003 - 04, FOR THAT YEAR NO APPEAL HAS BEEN FILED BY THE REVENUE ON THIS ISSUE, THEREBY ACCEPTING THE ORDER OF THE CIT(A) IN THAT BEHALF. THAT BEING SO, THERE IS NO JUSTIFICATION IN CONTESTING THE ORDERS OF THE COMMISSIONERS (APPEAL) ON THIS ISSUE FOR THE ASSESSMENT YEARS 2002 - 03 AND 2004 - 05 , AS THEY SIMPLY FOLLOWED THE REASONING GIVEN IN THE APPELLATE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2003 - 04. FURTHER, AS CORRECTLY OBSERVED BY THE CIT(A) IN THE ORDER FOR ASSESSMENT YEAR 2003 - 04, WHICH HAS BEE N ADOPTED FOR THE OTHER TWO YEARS, ASSESSEE, BEING A DEL CRE DERE AGENT, IS RESPONSIBLE FOR PAYMENT OF SALE AMOUNTS TO THE SELLERS, WHICH IN TURN DEPENDS ON THE SAFE DELIVERY OF GOODS TO THE BUYERS. IN ANY EVENT, AS FURTHER OBSERVED BY THE CIT(A), IT MAY ALSO BE IN THE NATURE OF AN INCENTIVE PROVIDED BY THE ASSESSEE TO THE BUYERS AND SELLERS. WE ACCORDINGLY FIND NO INFIRMITY IN THE IMPUGNED ORDERS OF THE CIT(A) ON THIS ISSUE ALSO, AND THE COMMISSIONERS (APPEALS) ARE JUSTIFIED IN HOLDING THAT THE INSURANCE EXPENSES CLAIMED BY THE ASSESSEE ARE ALLOWABLE UNDER S.37(1) OF THE ACT. WE ACCORDINGLY UPHOLD THE ORDERS OF THE COMMISSIONERS(APPEAL) ON THIS ISSUE AS WELL, AND REJECT THE GROUNDS OF THE REVENUE IN THE APPEALS FOR THE ASSESSMENT YEAR 2002 - 03 AND 2004 - 0 5. 1 9 . IN THE RESULT, ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 3 . 2.2014 SD/ - SD/ - (B.RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 0 3 FEBRUARY, 2014 I TA NO. 503/ HYD/2009 AND TWO OTHERS M/S. SUSHEN OILS & FOODS, HYDERABAD 13 COPY FORWARDED TO: 1. M/S. SUSHEN OILS & FOODS, DOOR NO.15 - 2 - 457, VENKATESWARA NILAYAM, KISHAN GUNJ, HYDERABAD 2 . INCOME TAX OFFICER WARD 7(2), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V 4. COMMISSIONER OF INCOME - TAX(APPEALS) - V HYDERABAD COMMISSIONER OF INCOME - TAX IV, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S