POLARIS SHIPPING P. LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 1792/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1092 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 19-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA
• Assessee Lawyers: BEENA PILLAI
• Keywords: Set aside
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D.K. AGARWAL, JM & SHRI R.K.PANDA, AM I.T.A. NO. 1792/MUM/2009 (ASSESSMENT YEAR : 2004-05) M/S. POLARIS SHIPPING PVT. LTD. 9, ISMAIL BUILDING, 381, DN ROAD, FORT, MUMBAI-400 001 PAN:AAACP3188H VS. ACIT-5(2) MUMBAI APPELLANT RESPONDENT APPELLANT BY : MS. BEENA PILLAI RESPONDENT BY : MR. DEEPAK SUTARIYA ORDER DATE OF HEARING: 25.06.2010 DATE OF ORDER: 16.07.2010 PER R.K. PANDA, AM , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 19 TH DECEMBER, 2008 OF THE CIT(A)-V, MUMBAI RELATING TO ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IN ITS GROUNDS APPEAL HAS CHALLENGED T HE ORDER OF THE CIT(A) IN CONFIRMING ADDITION OF RS.3,38,250/- MADE BY THE ASSESSING OFFICER. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN SHIPPING BUSINESS AND IS OWNER OF ONE INLAND GOING SHIP. DURING THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER CALLED FO R DETAILS OF RECEIPTS OF FREIGHT AND HE FOUND THAT THE ASSESSEE HAS RECEIVED RS.37,43,300 FROM M/S. AJMERA CEMENT PVT. LTD. ON THIS ACCOUNT. THE ASSES SING OFFICER CALLED FOR A COPY OF REPORT OF M/S. AJMERA CEMENT PVT. LTD. U/S. 133(6) OF INCOME-TAX ACT, 1961 AND COMPARED THE SAME WITH THE LEDGER ACC OUNT OF THIS PARTY AS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER ITA NO. 1792/MUM/2009 M/S. POLARIS SHIPPING PVT. LTD. ========================= 2 FOUND THAT THE ASSESSEE HAS NOT ACCOUNTED FOR BILL NO. PLS/12 DATED 31.3.2004 OF RS.3,38,250/- IN ITS BOOKS OF ACCOUNT. ACCORDING TO THE ASSESSING OFFICER THIS BILL HAS BEEN ISSUED BY THE ASSESSEE AND RECEIVED BY M/S. AJMERA CEMENT PVT. LTD. BEFORE 31.3.2004. THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT ON MERCANTILE BASIS AN D THEREFORE, IT SHOULD HAVE DISCLOSED THE ABOVE FREIGHT FROM M/S. AJMERA C EMENT PVT. LTD. IN THE CURRENT YEAR. NOT BEING SATISFIED WITH THE EXPLANA TION GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 3,38,250 TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL BEFORE THE CIT(A) IT WAS SUBMITTED THAT T HE BILL UNDER REFERENCE WAS ISSUED ON 31.3.2004. THESE WERE HIRE CHARGES RECEIVED IN ADVANCE FOR FREIGHT. IT WAS FURTHER SUBMITTED THAT THE SHIP HAD STARTED SAILING ON 1 ST APRIL, 2004 AND SINCE SERVICES WERE RENDERED IN TH E FINANCIAL YEAR 2004-05, THE BILL UNDER REFERENCE WAS ACCOUNTE D FOR IN THE FINANCIAL YEAR 2004-05. IT WAS SUBMITTED THAT THE BILL WAS A CCOUNTED FOR WHEN THE SERVICES WERE RENDERED AND ACCORDINGLY NO ADDITION CAN BE MADE TO THE INCOME OF THE ASSESSEE IN THE CURRENT YEAR. 5. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF T HE ASSESSING OFFICER BY HOLDING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT . THE CLAIM OF THE APPELLANT THAT IT ACCOUNTED FOR FREIGHT BILL S WHEN SERVICES ARE RENDERED CANNOT BE ACCEPTED. THE APPE LLANT HAS FILED PHOTOCOPY OF LEDGER ACCOUNT OF HIRE CHARGES. IT IS FOUND THAT ALL OTHER BILLS ARE ACCOUNTED FOR BY THE APPEL LANT AS AND WHEN FREIGHT BILLS WERE ISSUED. THE APPELLANT COUL D NOT EXPLAIN AS TO WHY WHEN FREIGHT BILLS WERE NORMALLY ACCOUNTE D FOR AT THE TIME OF ISSUE, THIS PARTICULAR BILL WAS NOT ACC OUNTED FOR ON THE SAME BASIS. THE APPELLANT ALSO COULD NOT EXPLA IN THAT IT HAS ACCOUNTED FOR BILLS ON SAME BASIS IN THE EARLIE R YEAR OR IN THE SUBSEQUENT YEAR. THE BILL HAS BEEN ISSUED BY T HE APPELLANT ON 31.3.04. THE SAME HAS ALSO BEEN RECEIVED BY M/S . AJMERA CEMENT P. LTD. ON THE SAME DATE AND TREATED AS EXPE NSES BY ITA NO. 1792/MUM/2009 M/S. POLARIS SHIPPING PVT. LTD. ========================= 3 M/S. AJMERA CEMENT P. LTD. IN THE FINANCIAL YEAR 03 -04. ACCORDINGLY THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE INCOME HAS ACCRUED TO THE APPELLANT AT THE TIME OF ISSUE OF THIS BILL. THE ACTION OF THE ASSESSING OFFICER IS UPHEL D. THIS GROUND OF APPEAL NOT ALLOWED. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. AJMERA CEMENT P VT. LTD. (ACPL) WHO CHARTERED GOODS WEIGHING APPROXIMATELY 825 M.T. FRO M VERAVAL TO MUMBAI PORT FOR WHICH THE PRICE FIXED FOR THE SERVI CE RENDERED WAS CALCULATED AT THE RATE OF RS.400 PER M.T. AS PER T HE AGREEMENT M/S. ACPL WAS TO MAKE ADVANCE PAYMENT TO THE ASSESSEE AND THE BALANCE WAS PAYABLE AFTER 7 DAYS AFTER THE CONSIGNMENT REACHED ITS DESTINATION. THEREFORE, THE PAYMENT FOR SERVICES RENDERED BY THE ASSESSEE WAS CLUBBED WITH A LIABILITY, BEING THE SHIP LEAVING THE PORT O F VERAVAL ON 1 ST APRIL, 2004. THEREFORE, THE LIABILITY TO PAY THE FEES FOR SERVIC ES RENDERED BY THE ASSESSEE ARISES ONLY AFTER THE SHIP LEAVES THE PORT OF VERAVAL I.E., ON 1 ST APRIL, 2004. REFERRING TO THE VARIOUS DOCUMENTS FI LED IN THE PAPER BOOKS, HE SUBMITTED THAT THE SHIP HAS SAILED ON 1 ST APRIL, 2004. SHE SUBMITTED THAT THE PAYMENT RECEIVED IN ADVANCE DOES NOT ACCRUE TO THE ASSESSEE AS THE ASSESSEE HAS NOT ACQUIRED A LEGAL RIGHT TO RECEIVE THE SAME. FOR THIS PROPOSITION, SHE RELIED ON THE DECISION OF THE HON BLE CALCUTTA HIGH COURT REPORTED IN 202 ITR 492. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ASHOKBHAI CHIMANBHAI R EPORTED IN 56 ITR 42, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT THE INCOME IS SAID TO BE RECEIVED WHEN IT REACHES THE ASSESSEE. WHEN THE RIGHT TO RE CEIVE THE INCOME BECOMES VESTED IN THE ASSESSEE IT IS SAID TO ACCRUE OR ARISE. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. ACE BUILDERS PVT. LTD. REPORTED IN 202 ITR 324, SHE SUB MITTED THAT THE HONBLE COURT IN THE SAID DECISION HAS HELD THAT INCOME IS HELD TO ACCRUE ONLY WHEN ITA NO. 1792/MUM/2009 M/S. POLARIS SHIPPING PVT. LTD. ========================= 4 THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THAT INCOM E. IN OTHER WORDS, INCOME CAN BE SAID TO ACCRUE ON THE DATE WHEN THE D EBT BECOMES DUE. UNLESS THE RIGHT TO PROFIT COMES INTO EXISTENCE THE RE IS NO ACCRUAL OF PROFIT. SHE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAS RECEIVED THE AMOUNT AS AN ADVANCE AGAINST FUTURE SERVICES. SINC E THE AMOUNT RECEIVED DOES NOT ACCRUE TILL SUCH SERVICES ARE RENDERED THE SAME HAS TO BE SHOWN AS ADVANCE AND NOT AS REVENUE INCOME. SHE REFERRED TO ACCOUNTING STANDARD 9 WHICH DEFINES REVENUE RECOGNITION IN RES PECT OF SERVICES RENDERED ACCORDING TO WHICH IN CASE OF SERVICES REV ENUE IS RECOGNISED WHEN SUBSTANTIALLY ALL OF THE ACTS HAVE BEEN COMPLE TED. SHE SUBMITTED THAT IN THE INSTANT CASE THE ASSESSEE HAD CORRECTLY ACCOUNTED THE INCOME RECEIVED FOR THE SERVICES RENDERED TO M/S. ACPL AND , THEREFORE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN BRINGING THE AMOUN T TO TAX IN THE CURRENT ACCOUNTING YEAR. 7. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS RAISED BILLS TOTALLING TO RS.40,81,540 WHICH IN CLUDED THE BILL NO PLS/12 DATED 31 ST MARCH, 2004 FOR RS.3,38,250 WHICH HAS NOT BEEN INC LUDED BY THE ASSESSEE COMPANY AS ITS RECEIPT DURING THE YEAR. A CCORDING TO THE ASSESSING OFFICER SINCE THE SAID BILL WAS RECEIVED AND CREDITED BY THE CHARTER ON 31 ST MARCH, 2004, THEREFORE, THE SAID BILL WAS ISSUED B Y THE ASSESSEE COMPANY BEFORE THE CLOSE OF THE YEAR AND S INCE THE ASSESSEE COMPANY FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING , THE SAME SHOULD HAVE BEEN DECLARED AS ITS INCOME FOR THE A.Y. 2004- 05. ACCORDING TO THE ASSESSEE SINCE THE SHIP SAILED ON 1 ST APRIL, 2004, THE AMOUNT WAS RIGHTLY ITA NO. 1792/MUM/2009 M/S. POLARIS SHIPPING PVT. LTD. ========================= 5 TREATED AS ADVANCE AS ON 31 ST MARCH, 2004 AND HAS BEEN DECLARED AS INCOME ONLY IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE QUESTION INVOLVED IN THE IMPUGNED CASE IS AS TO WHETHER THE AMOUNT OF RS.3,38,250 SHOULD BE INCLUDED IN THE TOTAL INCOME FOR A.Y. 2004-05 OR FO R A.Y. 2005-06. ON BEING QUESTIONED BY THE BENCH, THE LEARNED COUNSEL FOR TH E ASSESSEE FILED COPIES OF THE RETURN OF INCOME FOR THE A.Y. 2005-06 TO SUB STANTIATE THAT THE ABOVE RECEIPT OF RS.3,38,250 HAS BEEN DECLARED AS INCOME IN THE SAID ASSESSMENT YEAR. FURTHER WE FIND THE ASSESSEE HAS FILED ITS R ETURN FOR A.Y. 2004-05 DECLARING LOSS OF RS.20,91,860 AND FOR A.Y. 2005-06 DECLARING LOSS OF RS.40,44,340. THEREFORE, WHETHER THE ABOVE AMOUNT OF RS.3,38,250 HAS TO BE CONSIDERED AS A PART OF THE TOTAL RECEIPT FOR A. Y. 2004-05 OR A.Y. 2005-06 DOES NOT MAKE MUCH DIFFERENCE SO FAR AS THE AMOUNT OF TAX IS CONCERNED SINCE THE ASSESSEE HAS NO LIABILITY TO PAY ANY TAX IN EITHER OF THE YEARS. FURTHER IT IS A PECULIAR CASE WHEN THE AMOUNT HAS B EEN RECEIVED ON 31 ST MARCH AND ADMITTEDLY THE SHIP HAS STARTED SAILING O N 1 ST APRIL, 2004. WE, THEREFORE, FIND SOME FORCE IN THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE INCOME ACCRUES TO THE ASSESSEE ON LY WHEN THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THAT INCOME. FURTHER A CCORDING TO THE ACCOUNTING STANDARD-9 WHICH DEFINES REVENUE RECOGNI TION IN RESPECT OF SERVICES RENDERED, THE REVENUE IS RECOGNISED WHEN S UBSTANTIALLY ALL OF THE ACTS HAVE BEEN COMPLETED. SINCE IN THE INSTANT CAS E ALTHOUGH THE AMOUNT OF RS.3,38,250 HAS BEEN RECEIVED ON 31 ST MARCH, 2004, BUT THE FACT REMAINS THAT THE SHIP HAS STARTED SAILING ONLY 1 ST APRIL, 2004. SINCE THE ASSESSEE HAS ALREADY OFFERED THE AMOUNT OF RS.3,38,250 AS ITS RE CEIPT IN THE ACCOUNTING PERIOD 1.4.2004 TO 31.3.2005, THEREFORE, THE ADDITI ON OF THE SAME TO THE TOTAL RECEIPT FOR THE IMPUGNED ASSESSMENT YEAR UNDE R THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, WILL AMOUNT TO DOUBLE ADDITION WHICH IS NOT JUSTIFIED. IN THIS VIEW OF T HE MATTER, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R TO DELETE THE ADDITION OF RS.3,38,250. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO. 1792/MUM/2009 M/S. POLARIS SHIPPING PVT. LTD. ========================= 6 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 16 TH JULY, 2010. SD/- (D.K. AGARWAL) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 16 TH JULY, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-V, MUMBAI 4. THE CIT, MC-V, MUMBAI 5. THE DR C BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO