M/s. Dishnet Wireless Limited, CHENNAI V. ACIT, CHENNAI

ITA 1506/CHNY/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64099 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 29-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NO.1506(MDS)/2007 ASSESSMENT YEAR: 2002-03 M/S. DISHNET WIRELESS LTD., 327, STERLING TOWER, TEYNAMPET, ANNA SALAI, CHENNAI-600 006. PAN AAACD5767E. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE I(2), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. ANITA SUMANTH, ADVOCATE RESPONDENT BY : SHRI SHAJI P JACOB, IRS , ADDL.CIT DATE OF HEARING : 19 TH JULY, 2012 DATE OF PRONOUNCEMENT : 2 ND AUGUST, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2002-03. THE APPEAL IS DIRECTED AGAINST THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX, CHENNAI-I AT CHENNAI THROUGH HIS PROCEEDINGS DATED 30-3-2007. - - ITA 1506 OF 2007 2 THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SECTION 143(3) ON 28-3-2005. 2. THE COMMISSIONER OF INCOME-TAX, ON A PERUSAL OF THE RECORDS OF THE CASE, FOUND THAT OUT OF TOTAL AD VANCE OF ` 1,95,88,798/-, AN AMOUNT OF ` 1,60,00,000/- WAS WRITTEN OFF BY THE ASSESSEE AND IT APPEARED TO BE ON AN AD-HOC BAS IS. THE COMMISSIONER OF INCOME-TAX OBSERVED THAT THE DEBTOR S WERE NOT IDENTIFIED AND AS SUCH INDIVIDUAL ACCOUNTS WERE NOT WRITTEN OFF SO AS TO CLAIM THE BENEFIT OF BAD DEBT AS DEDUCTION. THE COMMISSIONER OF INCOME-TAX ALSO FOUND THAT THE ASSE SSEE ACCOUNTED FOR INCOME ON SALE OF PREPAID INTERNET AC CESS CARDS ON THE BASIS OF ACTUAL USAGE BY THE CUSTOMERS WHILE COMMISSION OR DISCOUNT ON SALE OF SUCH CARDS WAS CLAIMED ON TH E SALE OF CARDS. ACCORDING TO HIM, THIS IS NOT A SOUND ACCOU NTING PRINCIPLE. HE FOUND THAT THIS CRUCIAL ASPECT HAS NOT BEEN CONS IDERED BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT. ACCORDINGLY NOTICE WAS ISSUED, PROPOSING TO REVISE THE ASSESSME NT. THE ASSESSEE FILED A DETAILED REPLY AND AFTER GOING THR OUGH ALL THESE, THE COMMISSIONER OF INCOME-TAX STILL HELD THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE - - ITA 1506 OF 2007 3 REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ON TWO ISSUES OF BAD DEBTS AND INCOME FROM SALE OF INTERNE T CARDS WITH A DIRECTION TO THE ASSESSING OFFICER TO DECIDE THE MA TTER AFRESH AFTER EXAMINING THEM IN A DETAILED MANNER AND ALSO AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 3. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS C OME IN APPEAL BEFORE US. 4. WE HEARD DR. ANITA SUMANTH, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE AND SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E. 5. IT IS THE CASE OF THE ASSESSEE THAT IT IS IN TH E BUSINESS OF PROVIDING INTERNET SERVICES TO VARIOUS CLIENTS ON A PACKAGE BASIS. THE ASSESSEE HAD SUBMITTED A LIST O F CLIENTS SHOWING THEIR USER IDS AND MOST OF THE AMOUNTS WRIT TEN OFF WERE IN THE RANGE OF ` 5/- TO ` 100/-. IT IS THE CASE OF THE ASSESSEE THAT THEREFORE THE ASSESSING OFFICER HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE OF THE WRITE OFF OF BAD DEBTS. 6. REGARDING THE INCOME ON SALE OF INTERNET CARDS IT IS THE CASE OF THE ASSESSEE THAT THE ACCOUNTS HAVE BEE N PREPARED - - ITA 1506 OF 2007 4 ON THE BASIS OF ACCOUNTING STANDARD NO.9 RECOGNISED UNDER THE COMPANY LAW. 7. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ORDER PASSED BY THE ASSE SSING OFFICER IS NOT ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF THE REVENUE AND, THEREFORE, THE REVISION ORDER PASSED B Y THE COMMISSIONER OF INCOME-TAX IS NOT SUSTAINABLE IN LA W. 8. ON HEARING BOTH SIDES IN DETAIL, WE FIND THAT T HE COMMISSIONER OF INCOME-TAX HAS RAISED A VALID QUEST ION IN RESPECT OF THE RECOGNITION OF INCOME ON THE SALE OF INTERNET CARDS TO THE CUSTOMERS. THE CASE POINTED OUT BY THE COMM ISSIONER OF INCOME-TAX IS THAT THE SALE PROCEEDS ARE NOT TREATE D BY THE ASSESSEE AS INCOME AS SUCH ON THE GROUND THAT AS TH E ASSESSEE IS BOUND TO PROVIDE SERVICE IN FUTURE ALSO, THE ASS ESSEE IS ACCOUNTING FOR INCOME ON THE BASIS OF THE INTERNET TIME USED BY THE CUSTOMERS. AT THE SAME TIME HE FOUND THAT THE EXPENSES OF COMMISSION ARE CLAIMED BY THE ASSESSEE AT THE TIME OF SALE ITSELF OR AT THE TIME OF PAYMENT ITSELF. ACCORDING TO THE COMMISSIONER OF INCOME-TAX THIS IS A CONFLICT AFFECTING THE MATC HING PRINCIPLE OF INCOME AND EXPENSES AND THIS MATTER OUGHT TO HAVE B EEN - - ITA 1506 OF 2007 5 EXAMINED BY THE ASSESSING AUTHORITY IN HIS ORDER. WE AGREE WITH THE COMMISSIONER OF INCOME-TAX THAT THE ASSESSING O FFICER HAS NOT EXAMINED THIS ISSUE. THEREFORE, ON THIS POINT THE ASSESSMENT ORDER IS DEFINITELY ERRONEOUS. 9. ON THE QUESTION OF BAD DEBT ALSO, THE ASSESSING OFFICER HAS NOT EXAMINED AS TO WHETHER THE DEBTS WE RE WRITTEN OFF INDIVIDUALLY IN THE ACCOUNTS OF THE CUSTOMERS, WHICH IS A NECESSARY CONDITION FOR CLAIMING THE DEDUCTION TOWA RDS BAD DEBTS WRITTEN OFF. THE ASSESSEE HAS TO ACTUALLY WR ITE OFF AMOUNTS FROM THE INDIVIDUAL ACCOUNTS OF THE PARTIES. THE V OLUME OF THE PARTIES IS NOT MATERIAL TO BE CONSIDERED IN THIS CA SE. THE ASSESSEE MIGHT BE HAVING, AS ARGUED BY THE LEARNED COUNSEL, ALL THE NECESSARY DETAILS WITH IT AND THE ASSESSEE MIGH T HAVE WRITTEN OFF THE DEBTS INDIVIDUALLY FROM THE ACCOUNTS OF THE CUSTOMERS. BUT THE ISSUE IS THAT THIS CRUCIAL ASPECT WAS NOT LOOKE D INTO BY THE ASSESSING OFFICER. THEREFORE, ON THIS POINT ALSO T HE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS. 10. BOTH THE ERRORS COMMITTED BY THE ASSESSING OFF ICER, BEING PROVED CORRECT, DEFINITELY WOULD CAUSE PREJUD ICE TO THE INTERESTS OF THE REVENUE INASMUCH AS IT WOULD OVERS TATE THE LOSS - - ITA 1506 OF 2007 6 OF THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE CO MMISSIONER OF INCOME-TAX IS JUSTIFIED IN HOLDING THAT THE ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF THE REVENUE AS FAR AS THESE TWO IS SUES ARE CONCERNED. 11. IN THESE CIRCUMSTANCES WE ARE NOT INCLINED TO INTERFERE WITH THE REVISION ORDER PASSED BY THE COM MISSIONER OF INCOME-TAX. 12. THE APPEAL FILED BY THE ASSESSEE IS ACCORDINGL Y DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 2 ND OF AUGUST, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 2 ND AUGUST, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.