ACIT, CHENNAI V. M/s. Integrated Enterprises Ltd., CHENNAI

ITA 1838/CHNY/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6064 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Source of fund; Reassessment proceedings
• Section: 143(3); 115JB; 145; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 1838 & 1839/MDS/2011 / ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II (3), NO. 121, UTHAMAR GANDHI SALAI, CHENNAI 600 034. VS. M/S. INTEGRATED ENTERPRISES LTD., NO. 5-A, KENCES TOWERS, NO. 1, RAMAKRISHNA STREET, T NAGAR, CHENNAI 600 017. [PAN: AAACI 1509F] ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. V. SREENIVASAN, JCIT )*%& / RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE & /DATE OF HEARING : 28.06.2017 & /DATE OF PRONOUNCEMENT : 25.09.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI I N ITA NOS. 315& 550/06- 07/A-III DATED 26.08.2011 FOR AYS 2003-04 & 04-05, RESPECTIVELY. :-2-: I.T.A. N0S. 1838 & 1839/MDS/2011 2. M/S. INTEGRATED ENTERPRISES LTD., THE ASSESSEE, IS ENGAGED IN MARKETING OF FINANCIAL INSTRUMENTS AND OTHER ALLIED SERVICES, BE SIDES BEING DEPOSITORY PARTICIPANT. WHILE MAKING THE ASSESSMENTS FOR AYS 2003-04 & 04-0 5, I N THE NOTES ON ACCOUNTS OF THE RESPECTIVE AY, THE ASSESSEE HAS DISCLOSED TH AT THE PROFIT TO THE EXTENT OF RS.9,47,82,962/- & RS.276.37 LAKHS WERE UNDERSTATE D FOR AYS 2003-04 & 04- 05, RESPECTIVELY. AFTER CONSIDERING THE ASSESSEES REPLY, MATERIAL ETC; FOR THE AY 2003-04, THE AO HELD THAT THE ASSESSEE RECOGNISED THE INCOME IN THE ASSESSMENT YEAR 2002-03 WHILE CHARGING CORRESPONDIN G EXPENDITURE IN THE ASSESSMENT YEAR 2003-04. THUS, BY ADOPTING A CHANG E IN THE ACCOUNTING PRACTICE, IT HAS SHIFTED LOSS FROM ONE YEAR TO ANO THER YEAR. ACCORDINGLY, THE AO CONSIDERED THE INCOME UNDERSTATED IN THAT YEAR A S THE INCOME OF THE CURRENT ASSESSMENT YEAR IE AY 2003-04. FOR THE AY 2 004-05, THE AO HELD THAT THE INCOME CLAIMED TO HAVE BEEN OFFERED IN THE EARL IER YEAR IS NOT IDENTIFIABLE. THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO SUBS TANTIATE THAT INCOME HAD ALREADY BEEN OFFERED IN THE EARLIER YEARS. HOWEVER , ACCORDING TO THE NOTES FORMING PART OF THE ACCOUNTS, IT IS CLEAR THAT INCO ME TO THE EXTENT OF RS. 2,76,32,502/- IS UNDERSTATED IN THE CURRENT YEAR AN D THE ASSESSEE HAS ADOPTED A CHANGE IN THE ACCOUNTING PRACTICE AS PER WHICH INCOME IS UNDERSTATED. IN THE ABSENCE OF ANY CONVINCING EVIDE NCES THAT THE AMOUNT HAS SUFFERED TAX PREVIOUSLY, THE AO ADDED RS. 2,76,32 ,502/- MENTIONED IN THE NOTES ON ACCOUNTS, AS THE INCOME UNDERSTATED. FURT HER, THE AO FOUND THAT THE ASSESSEE HAS EXCLUDED RS. 2,43,14,324/- , INFRA STRUCTURE FACILITATION CHARGES :-3-: I.T.A. N0S. 1838 & 1839/MDS/2011 RELATED TO THE YEAR 2002-03. SINCE, IT HAS NOT FIL ED ANY DETAILS FOR HAVING SHOWN THE INCOME ON ACCRUAL BASIS IN THE ASST. YEAR 2003-04, THE AO INCLUDED RS. 2,43,14,324/- RELATING TO ASST. YEAR 2003-04 AS THE INCOME FROM B USINESS. 3. AGGRIEVED ON THESE ASSESSMENT ORDERS, THE ASSESS E FILED APPEALS BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE FACTS, SUBMISSIONS OF THE AR AND THE REMAND REPORT OF THE AO, THE CIT(A) DELETED THE ADDITIONS MADE BY THE AO. 4. AGGRIEVED AGAINST THE ORDERS OF THE CIT (A), THE REVENUE FILED THESE APPEALS. THE FOLLOWING ARE THE GROUNDS OF APPEAL FO R AY 2004-05 : 2. THE LEARNED CIT (A) HAS ERRED IN DELETING THE A DDITION MADE ON ACCOUNT OF UNDERSTATEMENT OF INCOME TO THE EXTENT O F RS. 276.32 LAKHS AS THE SAME WAS ALREADY OFFERED AS INCOME IN AY 2002-03 AN D THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING. 2.1 IT IS SUBMITTED THAT THE ASSESSEE HAS BEEN CHA NGING METHOD OF ACCOUNTING FREQUENTLY. CONSEQUENTLY, THERE WAS RED UCTION IN INCOME AND THIS IS AGAINST THE PROVISIONS OF SECTION 145 OF THE IT ACT . 2.2 THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACTS GIVEN BY THE AO IN THE REMAND REPORT AND THERE WAS NO DISCUSSION IN THE ORDER OF THE CIT(A) ON THE REMAND REPORT. 2.3 IT IS SUBMITTED THAT IN PARA 4.2 OF THE ORDER, THE LEARNED CIT (A) HAD GIVEN A FINDING THAT THERE WAS NO CHANGE IN MET HOD OF ACCOUNTING. BUT THE SAME WAS NOT SUPPORTED BY PROPER FACTS AND FIGURES AS TO HOW THE INCOME ADMITTED IN THE RESPECTIVE YEARS MATCHED WITH THE R ECEIPTS AS PER BOOKS. 2.4 IT IS FURTHER SUBMITTED THAT THE AUTHORISED RE PRESENTATIVE WHILE MAKING HIS SUBMISSIONS STATED IN PARA 4.1.1 OF THE ORDER THAT THE ALLEGED CHANGE IN THE METHOD OF ACCOUNTING HAD ONLY RESULTE D IN PAYMENT OF TAX U/S. 115JB. :-4-: I.T.A. N0S. 1838 & 1839/MDS/2011 3. THE LEARNED CIT(A) HAS ERRED IN DELETING RS. 2, 43,14,324/- BEING INFRASTRUCTURE FACILITATION CHARGES. 3.1 IT IS SUBMITTED THAT THECIT (A) HAS ALLOWED TH E ASSESSEES CLAIM BASED ON FRESH EVIDENCE SUBMITTED BEFORE HIM AND TH E SAME WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER AND HENCE IT AMOUNTS T O FRESH EVIDENCE UNDER RULE 46A AS THE ASSESSING OFFICER WAS NOT GIVEN AN OPPOR TUNITY TO VERIFY THE FRESH EVIDENCE SUBMITTED BEFORE HIM. 3.2 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE RECONCILIATION FIGURES ACCORDING TO THE DETAILS FUR NISHED WORKS OUT TO RS. 443.87 LAKHS AND 243.14 LAKHS FOR ASSESSMENT YEARS 2004-05 AND 2003-04 WHICH WAS STATED TO BE 80% OF THE TOTAL INFRASTRUCTURE INCOME . 3.3 THE LEARNED CIT(A) FAILED TO NOTE THAT THE INC OME ADMITTED UNDER INFRASTRUCTURE FACILITIES WAS ONLY RS. 138.79 LAKHS ACCORDING TO THE ANNUAL REPORT FOR ASSESSMENT YEAR 2003-04 AND NOT RS. 243. 14 LAKHS AS PER THE BREAK- UP DETAILS GIVEN BY THE ASSESSEE FOR ASSESSMENT YEA R 2004-05. 5. THE DR ARGUED THE CASES ON THE LINES OF ASSESSME NT ORDERS AND THE GROUNDS OF APPEALS. PER CONTRA, THE AR SUPPORTED T HE ORDERS OF THE CIT(A) BY TAKING US THROUGH RELEVANT PORTIONS. WE HEARD THE R IVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE FIRST ISSUE IS THE A DDITION OF THE INCOME UNDERSTATED BASED ON THE NOTES ON ACCOUNT. IN THIS REGARD, THE ASSESSEES SUBMISSIONS IN ITS GROUNDS OF APPEAL BEFORE THE CIT (A) FOR AY 2004-05 IS EXTRACTED AS UNDER : 2. THE LEARNED ASSESSING OFFICER SHOULD NOT HAVE ADDED THE SAID AMOUNT OF RS. 2,76,32,S02/-AS UNDERSTATED INCOME FROM DEPO SITORY SERVICES. THE FOLLOWING WILL CLARIFY THE POSITION. EXTRACTS FROM THE ANNUAL REPORT 2001-02 THE AUDITOR OF THE COMPANY HAS REMARKED THAT THE CO MPANY HAS ADMITTED RS.1567.94 LACSAS DP INCOME FOR THE YEAR 2 001-02 AS AGAINST THE :-5-: I.T.A. N0S. 1838 & 1839/MDS/2011 ENTITLEMENT OF 770.67 LACS ONLY AND THAT THE INCOME HAS BEEN OVERSTATED TO THE EXTENT OF RS. 797.26 LACS. EXTRACTS FROM THE ANNUAL REPORT 2002-03. SIMILARLY, THE SERVICE CHARGES RECEIVED IN ADVANCE UNDER VARIOUS DEPOSITORY SERVICE SCHEMES AS ON 31.03.2002 WERE TR EATED AS INCOME OF THAT YEAR IN THE BOOKS. THE COMPANY HAS INTRODUCED TWO S CHEMES CONSEQUENT UPON THE UPWARD REVISION OF DEPOSITORY CHARGES WITH EFFE CT FROM 01.05.2002 AND TREATED THE BALANCE UNDER THE TWO SCHEMES AS ADVANC E MONEY FOR OP OPERATIONS. CONSEQUENTLY, THE PROFIT TO THE EXTENT OF RS.947.82 LACS HAS BEEN UNDERSTATED. THE DIRECTORS HAVE CLARIFIED THE SAME, WHICH FORMS PART OF THE DIRECTORS' REPORT FOR THE YEAR 2001-02 AS FOLLOWS: THE COMPANY HAS BEEN ADOPTING THE PRACTICE OF CHARG ING THE CUSTOMER IN ADVANCE FOR ONE YEAR AND TREATING THE SAME AS IN COME OF THE YEAR IN WHICH SUCH CHARGES WERE RAISED. THE BALANCE STANDING TO T HE CREDIT OF THE CUSTOMER WAS CLEARLY SHOWN AS ADVANCE FROM CUSTOMERS FOR SER VICES TO BE RENDERED. THE REGULATORY AUTHORITIES' TOOK A DIFFERENT VIEW BY IS SUING A PUBLIC CIRCULAR ADVISING US TO REFUND SUCH ADVANCES AND WITHOUT CITING ANY R EASONS. WE TOOK A SUITABLE LEGAL RECOURSE AND OUR STAND WAS VINDICATED IN APPE AL. IN THE MEANTIME, NSDL HAS RATIONALISED THE CHARGES EFFECTIVE FROM 01.05.2 002 AND IF THE NEW RATES ARE ADOPTED FOR THE FUTURE, THE AMOUNT STANDING TO THE CREDIT OF THE CUSTOMERS WILL BE WIPED OUT WITHIN A PERIOD OF ONE YEAR. HENCE, TH E MANAGEMENT THOUGHT IT FIT TO TREAT THE ENTIRE BALANCE STANDING TO THE CREDIT OF CUSTOMERS AS INCOME AFTER MAKING A PROVISION FOR RS.200 LACS TOWARDS CONTINGE NCIES AND INTRODUCED A NEW RATE STRUCTURE FOR CUSTOMERS TO AVOID COMPLICATIONS . (THE ACTUAL REPAYMENT DURING THE NEXT YEAR WAS RS.107.65 LACS ONLY) THE FOLLOWING TABLE WILL EXPLAIN THE TOTAL PICTURE TO HOW THE INCOME WAS ACCOUNTED FOR: ASST. YEAR INCOME AS PER AS-9 INCOME ADMITTE D AS PER BOOKS CLOSING BALANCE AS PER AS-9 CLOSING BALANCE AS PER BOOKS 1999 - 00 17.97 17.97 93.40 93.40 2000 - 01 387.60 387.60 1478.82 1478.82 2001 - 02 773.15 1234.69 1611.90 1150.36 :-6-: I.T.A. N0S. 1838 & 1839/MDS/2011 2002 - 03 770.68 1567.94 1258.81 - 2003 - 04 947.83 - 1394.74 1083.76 2004 - 05 1178.87 902.55 1594.03 1559.38 THE OBSERVATION OF THE LEARNED OFFICER THAT THE APP ELLANT IS ADOPTING CHANGE IN ACCOUNTING PRACTICE AS PERWHICH INCOME 'I S UNDER STATED IS NOT CORRECT.' 3) THE LEARNED ASSESSING OFFICE HAS STATED THAT HE' HAS GONE THROUGH THE PREVIOUS RECORDS.HAVING I DONE SO, HE SHOULD HA VE DEFINITELY OBSERVED AND CONCLUDED THAT THE PROPOSED ADDITION HAS ALREADY SU FFERED TAX. HENCE THERE CANNOT BE ADDITION DURING THE CURRENT YEAR ON THIS ACCOUNT. 4) THE APPELLANT DID NOT HAVE THE INTENTION TO SHIF T THE LOSS FROM ONE YEAR TO ANOTHER YEAR BY ADOPTING THIS ACCOUNTING PR ACTICE. THE REASON FOR ADOPTING THIS ACCOUNTING PRACTICE IS DEARLY MENTION ED IN .THE 2001-02 DIRECTORS' REPORT ITSELF. FURTHER THE LEARNED ASSISTANT COMMIS SIONER OF INCOME TAX IS VERY MUCH AWARE OF THE LOSS INCURREDIN THE SUBSEQUENT YE ARSUPTO THE ASSESSMENT YEAR 2005- 2006(BASED ON THE RETURNS OF INCOME FILE D). 5) WITHOUT PREJUDICE TO THE ABOVE STAND IT IS SUBMI TTED THAT TAXING THE SAID SUM HERE WOULD AMOUNTTO TAXINQ THE INCOME IN T WO ASSESSMENT YEARS. HAVING TAXED' THE INCOME FOR THIS ASSESSMENT YEAR 2 004-05,THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX SHOULD HAVE CO NSEQUENTLY REDUCED THE INCOME TO THAT EXTENT FOR THE ASSESSMENT YEAR 2002- 03 AND ACCORDINGLY REWORKED THE CARRY FORWARD LOSS POSITION. THE THEN LEARNED ASSESSING OFFICER HAS MADE SIMILAR ADDITION FOR THE ASSESSMENT YEAR 2 003-04 AND APPEAL HAS BEEN FILED AGAINST THE SAME. A RECTIFICATION PETIT ION WAS ALSO FILED BEFORE THE LEARNED OFFICER FOR THAT YEAR AND THE SAME IS PENDI NG. 6. THE RELEVANT PORTION OF THE ORDER OF THE CIT (A) ORDER IS EXTRACTED AS UNDER : 4. THE FIRST ISSUE PERTAINS TO ADDITION OF INCOME UNDERSTATED BASED ON THE NOTES ON ACCOUNT. IN THE NOTES TO THE ACCOUNT, THE APPELLANT HAS STATED THAT IT HAD INTRODUCED TWO NEW SCHEMES ON ACCOUNT OF UPW ARD REVISION IN THE DEPOSITORY CHARGES W.E.F. 01.05.2002 AND HAD TREATE D A SUM OF RS.1559.39 LAKHS BEING BALANCE UNDER THE SCHEME AS ON 31.03.20 04 AS ADVANCE MONEY :-7-: I.T.A. N0S. 1838 & 1839/MDS/2011 RECEIVED FROM CLIENTS. SINCE THE SERVICE CHARGES RE CEIVED IN ADVANCE UNDER VARIOUS DEPOSITORY SERVICE SCHEME UPTO 3L.03.2002 W ERE TREATED AS INCOME OF THAT YEAR, THE PROFIT TO THE EXTENT OF RS.276.32LAK HS COULD BE STATED TO HAVE BEEN UNDERSTATED FOR THE CURRENT YEAR. DURING THE A SSESSMENT PROCEEDINGS, THE APPELLANT STATED THAT OUT OF THE DEPOSITS/CHARGES C OLLECTED AN AMOUNT OF RS.9,92,55,021/- RELATED TO THE SERVICE RENDERED AN D THE SAME WAS SHOWN AS INCOME IN THE ACCOUNTS. AS REGARDS RS.2,76,32,502/- MENTIONED IN THE NOTES, IS STATED THAT THE AMOUNT WAS INCREASED TO SET OFF EXC ESS INCOME OFFERED IN EARLIER YEARS. THE AO HAD NOT ACCEPTED THE CONTENTION OF TH E ASSESSEE. HE OBSERVED THAT THE INCOME CLAIMED TO HAVE BEEN OFFERED IN EAR LIER YEARS IS NOT IDENTIFIABLE. THE ASSESSEE HAS ALSO NOT FURNISHED ANY DETAILS THA T THE INCOME HAS ALREADY BEEN OFFERED IN THE EARLIER YEARS. BUT THE NOTE CLE ARLY STATED THAT INCOME HAS BEEN UNDERSTATED BY RS2,76,32,502/-. FURTHER, THE A SSESSEE IS ADOPTING CHANGE IN THE ACCOUNTING PRACTICE. HENCE, HE ADDED THE ABO VE AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. IN THE REMAND REPORT, THE A O STATED THAT THE APPELLANT HAS CHANGED THE ACCOUNTING POLICY AS COMPARED TO WH AT WAS FOLLOWED IN EARLIER YEAR BY OFFERING THE ENTIRE ADVANCE RECEIVED AS INC OME OF A.YS. 2001-02 & 2002-03. HOWEVER, IN A.YS. 2003-04 &2004-05 THE AS SESSEE HAS NOT OFFERED THE ADVANCES AGAINST DP SERVICES AS INCOME OF THE R ESPECTIVE YEARS. 4.1 THELD. AR HAS STRONGLY ARGUED AGAINST THE ADDIT ION MADE BY THE AO AND THE SUBMISSION MADE IN THE REMAND REPORT. HE HAS ALSO R ELIED ON THE GROUNDS OF APPEAL IN THE WRITTEN SUBMISSION HE HAS ARGUED AS U NDER: 'THE MAIN BUSINESS ACTIVITY OF THE COMPANY WAS PROV IDING ONE OF TOTAL INVESTMENT SOLUTIONS TO INVESTORS SPRE AD ACROSS THE COUNTRY ONE OF ITS ACTIVITIES WAS PROVIDING DEPOSIT ORY PARTICIPANT SERVICES. THE COMPANY IS ACTING AS REPRESENTATIVE ( DEPOSITORY PARTICIPANT) OF INVESTOR IN THE DEPOSITORY SYSTEMS PROVIDING THE LINK BETWEEN THE COMPANY AND INVESTOR THROUGH DEPOSITORY (NSDL). IT MAINTAINS ELECTRONIC RECORDS OF SECURITIES ACCOUNT BALANCE AND INTIMATE THE STATUS OF HOLDING TO THE ACCOUNT HOLDE R FROM TIME TO TIME - THE CLIENTS OF THE DP NEEDS TO OPEN AN ACCOUNT TO DEAL IN SHARES IN ELECTRONIC FORM FOR WHICH THE COMPANY IS RAISING BI LLS TOWARDS DEMAT, REMAT, TRANSACTION, CUSTODIAL AND MAINTENANCE CHARG ES. THIS TYPE OF :-8-: I.T.A. N0S. 1838 & 1839/MDS/2011 OPERATING INCOME IS CALLED E SHARE- DP INCOME AND S HOWN IN THE P&L ACCOUNT AS SUCH. WHEN DEMAT ACCOUNT (ESHARE) IS OPENED BY INVESTOR, THE COMPANY COLLECTS INITIAL AMOUNT AS PER SCHEME PREVA ILING AT THE TIME WITH EXIT OPTION AT ANY TIME AFTER ONE YEAR FROM TH E DATE OF ACCOUNT OPENING. WHENEVER TRANSACTION TAKES PLACE SUCH AS DEMAT, REM AT, PURCHASE OF SHARES, SALE OF SHARES, MONTHLY CHARGES ARE RAISED ALONG WITH MAINTENANCE CHARGES DEPENDING UPON THE SCHEME. FURTHER THE CHARGES ARE COLLECTED TO MAINTAIN THE INITIAL AMOUN T OF RESPECTIVE SCHEME AT THE END OF EACH QUARTER. THE CHARGES ON T HE ABOVE TRANSACTION ARE TREATED AS E SHARE INCOME AT MONTHL Y INTERVAL AND THE CHARGES ARE COLLECTED AT QUARTERLY INTERVALS. F URTHER IF NOT PAID BY CLIENT THE SAME AMOUNT IS ADJUSTED WITH THE INITIAL AMOUNT AT THE END OF THE PERIOD AND THE BALANCE STANDING TO THE CREDI T OF CUSTOMERS WAS CLEARLY SHOWN AS A LIABILITY AS 'ADVANCE FROM C USTOMERS FOR SERVICES TO BE RENDERED. THE COMPANY HAS BEEN ADOPT ING THE PRACTICE OF CHARGING THE CUSTOMER IN ADVANCE FOR ON E YEAR AND TREATING THE SAME AS INCOME OF THE YEAR IN WHICH TH E CHARGES ACCRUED. THIS WAS DONE PURELY TO REDUCE THE COST OF COLLECTION. THE COMPANY CHARGED RS.300 FROM THE CLIENTS AS ANNU AL MAINTENANCE CHARGES FOR THE PERIOD FROM 01-01-2001. THOUGH THE ANNUAL MAINTENANCE CHARGES IS FOR THE PERIOD FROM 1 .1.2001, IN RESPECT OF CLIENTS WHO HAVE OPENED THEIR ACCOUNTS P RIOR TO 1.1.2001 AND OPERATED THEIR ACCOUNTS FOR MORE THAN 12 MONTHS , THE COMPANY DID NOT REFUND THE AMOUNT AS THE CLIENTS HAVE ENJOY ED THEIR SERVICES FOR MORE THAN ONE YEAR HENCE THE ENTIRE AMOUNT RECE IVED UNDER DP CHARGES WAS TREATED AS INCOME OF THE YEAR ENDED 31. 3.2001. CONSEQUENTLY INCOME WAS OVERSTATED TO THE EXTENT OF RS. 461.54 LAKHS. THE COMPANY'S AUDITORS DULY NOTED THE SAME I N THEIR REPORTS, WHICH WAS ALSO DULY CONSIDERED BY THE BOARD AND ACC ORDINGLY DEALT WITH IN THEIR REPORT FOR THE YEAR. THE ASSESSMENT F OR THE ASSESSMENT YEAR 2001-02 WAS COMPLETED U/S. 143(3) ON MARCH, 20 04. FOR THE ASSESSMENT YEAR 2002-03, THE PETITIONER FIL ED THE RETURN OF INCOME ADMITTING INCOME OF RS. RS.1567.94 LACS. DURING THE :-9-: I.T.A. N0S. 1838 & 1839/MDS/2011 YEAR, SEBI TOOK A DIFFERENT VIEW BY ISSUING A PUBLI C CIRCULAR ADVISING THE PETITIONER TO REFUND SUCH ADVANCES. IN THE MEAN TIME, NSDL ALSO RATIONALIZED THE CHARGES EFFECTIVE FROM 1.5.2002 AN D IF THE NEW RATES WERE ADOPTED, THE AMOUNT STANDING TO THE CREDIT OF THE CUSTOMERS WAS SUFFICIENT FOR ADJUSTMENT TOWARDS SERVICES TO B E RENDERED FOR THE NEXT 10 OR 12 MONTHS ONLY. CONSIDERING ALL THESE FA CTS, THE PETITIONER COMPANY THOUGHT IT FIT TO TREAT THE ENTIRE BALANCE STANDING TO THE CREDIT OF CUSTOMERS AS INCOME AFTER MAKING A PROVIS ION OF RS.200 LACS TOWARDS 'PROBABLE REFUND POSSIBILITIES'. THE COMPAN Y ALSO INTRODUCED A NEW RATE STRUCTURE (TWO SCHEMES) TO AVOID SUCH CO MPLICATIONS IN FUTURE. CONSEQUENTLY, INCOME WAS OVER STATED FOR THE YEAR E NDED 31- 03-2002 TO THE EXTENT OF RS. 797.26 LAKHS. THE AUDI TORS OF THE PETITIONER COMPANY DULY NOTED THE SAME IN THEIR REP ORT WHICH WAS ALSO DULY CONSIDERED BY THE BOARD AND ACCORDINGLY D EALT WITH IN THEIR REPORT FOR THE YEAR. WHILE THE ASSESSMENT FOR THE ASSESSMENT YEAR 2001- 02 WAS COMPLETED U/S. 143(3), THE ASSESSMENT WAS ORIGINALL Y COMPLETED FOR THE ASSESSMENT YEAR 2002-03 UNDER SEC 143(1) OF THE ACT. (THE ASSESSMENT FOR ASSESSMENT YEAR 2002-03 WAS SUBSEQUE NTLY REOPENED U/S. 148 OF THE ACT AND THE ASSESSMENT HAS NOW BEE N COMPLETED U/S. 143(3) OF THE ACT RESULTING IN A DEMAND OF RS. 8.04IAKHS CONSEQUENT TO THE ADDITION MADE TO THE EXTENT OF RS . 75. 90 LAKHS. CONSEQUENT TO THE OVER STATEMENT OF INCOME FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03, THERE WAS UND ERSTATEMENT OF INCOME FOR THE ASSESSMENT YEAR 2003-04 AND 11 20 04-05 TO THE EXTENT OF RS. 947.83 LACS AND RS.276.32 LAKHS. WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT FOR THE A.Y. 2003-04 AND 2004-05 U/S. 143(3) OF THE ACT, TH E ASSESSING OFFICERS DID NOT CONSIDER THESE FACTS. BASED ON THE QUALIFICATIONS MADE IN THE AUDIT REPORTS OF THE RESPECTIVE YEARS, THE LEARNED ASSESSING OFFICER ASSESSED THE UNDERSTATED INCOME A S ADDITIONAL INCOME OF THE RESPECTIVE YEARS. THIS IS IN ADDITION TO THE INCOME ALREADY OFFERED AND ASSESSED FOR THE A.Y. 2001-02 A ND 2002-03 BY THE PETITIONER COMPANY. :-10-: I.T.A. N0S. 1838 & 1839/MDS/2011 EVEN DURING THE COURSE OF REOPENED ASSESSMENT FOR A SST. YEAR 2002-03, IT WAS REQUESTED BEFORE THE LEARNED ASSESS ING OFFICER THAT THE INCOME VOLUNTARILY OFFERED BY THE ASSESSEE FOR THIS YEAR WHICH WAS ONCE AGAIN ASSESSED IN THE ASST. YEARS 2003-04 AND 2004-05 BE EXECUTED. BUT THIS WAS NOT CONSIDERED BY THE LEARNE D ASSESSING OFFICER. THIS HAS RESULTED IN DOUBLY TAXING THE SAM E INCOME. IN VIEW OF THE JURISDICTION ALREADY FILED FOR OFFER ING THE ENTIRE AMOUNT TO THE CREDIT OF THE CUSTOMERS AS INCOME FOR THE ASST. YEAR 2002-03 (WHICH HAS ALSO BEEN ACCEPTED BY THE DEPART MENT IN THE COURSE OF REASSESSMENT PROCEEDINGS FOR THE ASST. YE AR 2002-03). IT IS REQUESTED THAT THE ADDITION MADE FOR THE ASST. YEAR S 2003-04 AND 2004-05 MAY PLEASE BE DELETED AND JUSTICE RENDERED. ' 4.1.1 THE LD. AR FURTHER STATED THAT THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) HAS ISSUED AS9 REGARDING RECOGNITION O F INCOME FOR SERVICE CONTRACTS. HE HAS FILED A RECONCILIATION WHEREBY TH E INCOME OFFERED FOR VARIOUS YEARS MATCHES WITH THE INCOME ACCRUED FOR VARIOUS Y EARS. HE HAS ALSO FILED RECONCILIATION FOR THE AYS. 1999-00 TO 2004-05 WHER EBY THE INCOME OFFERED TO TAX HAS BEEN MATCHED WITH THE INCOME ACCRUED. AS RE GARDS THE CONTENTION OF THE AO IN THE REMAND REPORT FOR AYS. 2003-04 AND 20 04-05 THAT THERE WASCHANGE IN THE ACCOUNTING POLICY, THE LD. AR STAT ED THE AO HAS NOT UNDERSTOOD THE FACTS PROPERLY AND THAT THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING. EVEN ASSUMING FOR ARGUMENT SAKE THAT TH ERE WASA CHANGE IN THE METHOD OF ACCOUNTING, THE DEPARTMENT WILL HAVE TO PROVE THAT THE CHANGE OF ACCOUNTING POLICY RESULTED IN TAX EVASION. FOR THIS HE RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN CIT V . ANNAMALAI FINANCE LTD, 275 ITR 451 (MAD) AND CIT V ANNAMALAI FINANCE LTD, 319 ITR 196 (MAD). IN THE INSTANT CASE, THE DEPARTMENT IS NOT IN A POSITION TO PROVE THAT DUETOTHE ALLEGED CHANGE OF ACCOUNTING METHOD ADOPTED BY THE APPELLANT, THE DEPARTMENT SUFFERED ANY LOSS OR SUCH A CHANGE OF METHODOLOGY ATTRACTS TAX E VASION. ON THE CONTRARY, BY OFFERING THE ENTIRE RECEIPTS AS INCOME FOR THE AY. 2003-04, THERE WAS BOOK PROFIT OF RS.3,29,69,323/-. NET ASSESSABLE INCOME F OR INCOME-TAX PURPOSE WAS A LOSS ONLY AFTER SETTING OFF EARLIER YEARS' CARRY FO RWARD LOSS. THE APPELLANT HAS ONLY PAID BOOK PROFIT TAX OF RS.25,22, 153/- U/S 15 5JB. THUS, THE ALLEGED :-11-: I.T.A. N0S. 1838 & 1839/MDS/2011 CHANGE IN THE METHOD OF ACCOUNTING HAS ONLY RESULTE D IN PAYMENT OF TAX U/S 115JB TAX BY THE APPELLANT. 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS, SUBMISS ION OF THE ID. AR AND THE REMAND REPORT OF THE AO. I HAVE ALSO GONE THROUGH T HE DECISIONS RELIED ON BY THE ID. AR I HAVE ALSO GONE THROUGH THE RECONCILIAT ION AND OTHER DETAILS GIVEN FOR AYS. 1999-00 TO 2004-05. THE ARGUMENT OF THE AP PELLANT THAT THE INCOME OVERSTATED IN AYS. 2001-02.& 2002-03 HAS AGAIN SUFF ERED TAX IN THE AYS. 2003- 04 & 2004-05 HAS SUBSTANCE IN IT. EVEN THE RECTIFIC ATION SAID TO HAVE BEEN FILED FOR THE AY 2002-03 TO EXCLUDE THE INCOME OFFERED AS OVERSTATED HAS NOT YET BEEN DISPOSED OFF. ACCORDING TO THE AO, THE APPELLA NT HAS CHANGED THE ACCOUNTING POLICY AS COMPARED TO WHAT WAS FOLLOWED IN EARLIER YEARS BY OFFERING THE ENTIRE ADVANCE RECEIVED AS INCOME OF AYS. 2001- 02 & 2002-03. THIS IS FACTUALLY NOT CORRECT BECAUSE THE ENTIRE BALANCE OU TSTANDING WAS OFFERED AS INCOME FOR AY 2002-03 ONLY AND NOT FOR THE ABOVE TW O YEARS. FURTHER, THE APPELLANT HAS OFFERED THIS ONLY FOR THE DEPOSITORY INCOME AND NOT FOR OTHER SOURCES OF INCOME. THUS AUDITORS HAVE ALSO ONLY QUA NTIFIED THE OVERSTATED INCOME OF THE TWO YEARS AND HAVE NOT COMMENTED THAT THERE WAS CHANGE IN THE ACCOUNTING POLICY. I ALSO AGREE THAT THERE WAS NO C HANGE IN THE METHOD OF ACCOUNTING. THE DECISIONS RELIED ON BY THE ID. AR A LSO SUPPORTS THE CASE OF THE APPELLANT. IN VIEW OF THE ABOVE FACTS, THE ADDITION MADE BY THE AO IS DELETED AND THE GROUND IS ALLOWED. 7. THUS , THE ASSESSEE HAS CLEARLY EXPLAINED THAT HOW AND FOR WHAT REASON IT HAS EXCESSIVELY ADMITTED INCOME IN AYS 2001-02 & 2002-03, RESPECTIVELY (AS SEEN IN PARA 4.1 OF THE ORDER OF THE CIT(A) EXTRACT ED, SUPRA, AND BY ITS RECONCILIATION SUBMITTED TO THE CIT(A) IN ITS GROUN DS OF APPEAL, AS EXTRACTED IN PARA 5, SUPRA) WHICH RESULTED IN THE CONSEQUENT UND ER STATEMENT OF INCOME FOR THE AY 2003-04 & 2004-05 AT RS. 947.83 LAKHS AN D 276.32 LAKHS, RESPECTIVELY. THIS FACT HAS BEEN VERIFIED BY THE A SSESSING OFFICER IN THE REASSESSMENT MADE FOR THE ASSESSMENT YEAR 2002-03 A ND THE DEPARTMENT HAS :-12-: I.T.A. N0S. 1838 & 1839/MDS/2011 ACCEPTED SUCH INCOME IN THAT ASSESSMENT YEAR HAS AL SO BEEN BROUGHT TO THE NOTICE OF THE CIT(A). ON THE ABOVE FACTS AND CIRCU MSTANCES, THE DECISION OF THE CIT(A) EXTRACTED, ABOVE, THAT THE INCOME OVERST ATED IN ASSESSMENT YEARS 2001-02 & 2002-03 HAS AGAIN SUFFERED TAX IN THE AYS 2003-04 & 2004-05 AND THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING ETC. , DOES NOT REQUIRE ANY INTERFERENCE. THE DECISION OF THE CIT(A) ON THIS I SSUE IS UPHELD AND THE CORRESPONDING GROUNDS OF THE REVENUE ARE DISMISSED . 8. THE NEXT ISSUE IS THE ADDITION TOWARDS INFRASTRU CTURE FACILITATION CHARGES. IN THIS REGARD , THE ASSESSEES SUBMISSIONS IN ITS GROUNDS OF APPEAL BEFORE THE CIT(A) FOR AY 2004-05 IS EXTRACTED AS UNDER : 6) REGARDING INFRASTRUCTURE FACILITATION CHARGES THE FOLLOWING IS SUBMITTED. THE APPELLANT ENTERED INTO A WORKING ARRANGEMENT WI TH INSIGHT SHARE BROKING SERVICES LIMITED WHEREBY THE APPELLANT IS E NTITLED TO HAVE A SHARE IN THE BROKERAGE INCOME EARNED FROM OUR CLIENTS. AS TH E ARRANGEMENT WAS ORAL, AND THE SHARING RATIO WAS NOT CLEARLY DETERMINED, T HE APPELLANT ADMITTED THE ENTIRE AMOUNT RECEIVED FROM INSIGHT AND ITS PARENT COMPANY AS INCOME FROM INFRASTRUCTURE FACILITATION CHARGES. AN AGREEMENT W AS REACHED IN APRIL, 2005 FOR SHARING 60% OF THE INCOME BUT INSIGHT WENT BACK ON ITS ARRANGEMENT AND AGREED TO SETTLE THE TERMS AT 50% ONLY WITH RETROSP ECTIVE EFFECT. DUE TO STRAINED RELATIONSHIP, THE ARRANGEMENT WAS CANCELLE D IN MARCH, 2006 WITH THE APPELLANT STARTING ITS OWN SHARE BROKING ACTIVITY. THE INCOME AGREED TO BE SHARED BY INSIGHT AS PER FINAL ARRANGEMENT AND INCO ME AS ADMITTED BY THE APPELLANT IS GIVEN BELOW. (THE MATTER IS STILL UNDE R NEGOTIATION AND FINAL AMOUNT IF ANY RECEIVED FROM INSIGHT WILL BE OFFERED AS INC OME IN THE YEAR RECEIPT) ASSESSMENT YEAR INCOME ADMITTED RS. IN LAKHS INCOME AS AGREEMENT 2003-04 243.14 72.86 2004-05 443.88 291.24 :-13-: I.T.A. N0S. 1838 & 1839/MDS/2011 2005-06 100.13 355.06 2006-07 120.00 187.99 TOTAL 907.15 907.15 THE APPELLANT HAS THUS ADMITTED THE ENTIRE INCOME T HAT TOO EARLIER THAN WHEN ACCRUED. THE INFRASTRUCTURE FACILITATION INCOME IN THE BOOKS OF THE APPELLANT FOR THE YEAR ENDED 31~03.2003 IS RS 138.79 LAKHS WHEREA S THE AMOUNT RECEIVED FROM INSIGHT SHARE BROKERS WAS RS.243.14 LAKHS AS A BOVE. THIS IS ON ACCOUNT OF THE FACT A PORTION OF EXPENSES RELATING TO DPDIVISI ON WAS WRITTEN OFF THIS INCOME. 8.1 THE RELEVANT PORTION OF THE ORDER OF THE CIT(A) IS EXTRACTED AS UNDER: 5. THE NEXT ISSUE PERTAINS TO ADDITION TOWARDS INF RASTRUCTURE FACILITATION CHARGES. THE AO FOUND THAT AN AMOUNT OF RS 4,43,87, 573/- WAS CREDITED AS INFRASTRUCTURE INCOME. HE CALLED THE DETAILS IN THI S REGARD AND MADE THE ADDITION FOR THE FOLLOWING REASONS: 'AS PER THE DETAILS, THE TOTAL COLLECTION IS RS .8, 58,77,370/- AND 80% OF THIS COMES TO RS.6, 87,01,897/-. AT THE TIME OF HEARING, IT WAS CLARIFIED THAT INSIGHT SHARE BROKING IS A BU SINESS ASSOCIATE OF THE ASSESSEE COMPANY AND AS COMPENSATION FOR SERVIC ES RENDERED AS ABOVE, THE ASSESSEE IS GIVEN 80% OF THE CHARGES COLLECTION BY INSIGHT SHARE BROKING. IT IS FURTHER STATED THAT TH E RATIO WAS SUBSEQUENTLY REDUCED TO 50% AND NOW THEY HAVE SEPAR ATED EACH OTHER. ON GOING THROUGH THE DETAILS FILED, I FIND T HAT THE ASSESSEE HAS EXCLUDED AN AMOUNT OF RS. 2,43,14,324/- BEING C HARGES RELATED TO THE YEAR 2002-03. HOWEVER, NO DETAILS ARE FILED FOR HAVING SHOWN THE INCOME ON ACCRUAL BASIS IN THE ASST. YEAR 2003- 04. THEREFORE, THE AMOUNT OF RS. 2,43, 14,324/- RELATING TO ASST. YEAR 2003-04 RECEIVED THIS YEAR IS INCLUDED IN THE INCOME FROM B USINESS RETURNED.' 5.1 THE LD. AR HAS STATED THAT THE AO HAS SIMPLY A DDED THE SAME WITHOUT VERIFYING THE 'ACTS. THE APPELLANT HAD ONLY TRIED T O RECONCILE THE INCOME EARNED DURING THE FOUR YEARS NAMELY, A.YS. 2003-04 TO 2006 -07 UPTO WHICH THERE WAS AN ARRANGEMENT WITH THE INSIGHT SHARE BROKERS FOR T HE SHARING OF INCOME. THE :-14-: I.T.A. N0S. 1838 & 1839/MDS/2011 APPELLANT HAS OFFERED INCOME MORE THAN WHAT IS DUE ON THE EARLIER UNDERSTANDING THAT THE APPELLANT IS ENTITLED TO HIG HER SHARE OF INCOME. THE INCOME OFFERED FOR A.YS. 2003-04 AND 2004-05 WORKED OUT TO NEARLY 95% AND 75% RESPECTIVELY. THEREAFTER WHEN THE RELATIONSHIP STRAINED, THE SHARING PERCENTAGE WAS ALSO FINALLY AGREED AT 50%. THE INCO ME HAS BEEN OFFERED IN EXCESS OF WHAT HAS ACCRUED TO THE APPELLANT. BY ADD ING THE INCOME OFFERED IN THE AY. 2003-04 AGAIN IN THE AY. 2004-05, THE AO HA S TAXED THE INCOME TWICE. 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSION MADE BY THE APPELLANT. I HAVE ALSO SEEN THE RECONCI LIATION SUBMITTED BY THE ID. AR. IT IS SEEN THEREFROM HAD THE INCOME ADMITTED BY THE APPELLANT WAS RS.138.79 LACS AND RSA43.88 LACS FOR AYS. 03-04 AND 2004-05 RESPECTIVELY. THE AMOUNTS AGREED, ON THE OTHER HAND, WERE RS.70.00 LA CS AND RS.291.24 LACS RESPECTIVELY. HENCE, THE APPELLANT HAS ADMITTED EXC ESS INCOMEOF RS.152.64 LACS (I.E. RS.443.88 LACS - RS.291.24 LACS) DURING THE Y EAR. IN VIEW OF THE FACTS NARRATED ABOVE, THE ACTION OF THE AO IS NOT CORRECT AND WOULD AMOUNT TO ADDING THE SAME AMOUNT TWICE WHICH IS NOT PERMISSIBLE. ACC ORDINGLY, THE ADDITION IS DELETED AND THE GROUND IS ALLOWED. 8.2 THUS, IT IS CLEAR FROM THE RECONCILIATION SUBMI TTED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL BEFORE THE CIT(A) THAT IT HAS AD MITTED EXCESS OF INCOME OF RS. 152.64 LAKHS (I.E. RS. 443.88 LACS RS. 291.24 LACS) DURING THE YEAR. THUS, THE ACTION OF THE AO IS NOT CORRECT. THE CIT (A) DELETED SUCH ADDITION STATING THAT IT WOULD AMOUNT TO ADDING THE SAME AMO UNT TWICE, WHICH IS NOT PERMISSIBLE. ON THE FACTS BROUGHT ABOVE, THE DECIS ION OF THE CIT(A) DOES NOT REQUIRE ANY INTERFERENCE AND HENCE UPHELD. THE COR RESPONDING REVENUES GROUNDS OF APPEAL ARE DISMISSED. :-15-: I.T.A. N0S. 1838 & 1839/MDS/2011 9. FOR AY 2003-04, ON THE ISSUE OF UNDERSTATED INCO ME, THE REVENUE FILED APPEAL IN ITA NO. 1838 OF 2011, ALMOST ON SIMILAR G ROUNDS AS MADE IN AY 2004-05. SINCE, THE ISSUE OF UNDERSTATED INCOME OF RS. 9,47,82,962/- IS ON THE SAME SET OF FACTS AS IS DISCUSSED IN AY 2004-05 , THE CIT(A) DELETED SUCH ADDITION. SINCE, THE ACTION OF THE CIT(A) IS UPHEL D, SUPRA, FOR AY 2004-05 FOR THE SAME REASONS, THE REVENUES APPEAL FOR AY 2003- 04 IS DISMISSED. 10. IN THE RESULT, THE REVENUES APPEALS FOR AYS 2 003-04 & 04-05 ARE DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 25 TH DAY OF SEPTEMBER, 2017 AT CHENNAI. SD/- ( . .. . . .. . . . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, /DATED: 25 TH SEPTEMBER, 2017 JPV /COPY TO: 1. / APPELLANT 2. /RESPONDENT 3. ) (/CIT(A) 4. /CIT 5. /DR 6. /GF