DCIT, CHENNAI V. Madras Security Printers (P) Ltd., CHENNAI

ITA 1942/CHNY/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 2956 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 27-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SUBASHRI
• Keywords: Wrong claim; Revenue expenditure
• Section: 271(1)(c); 37(1)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.1729/CHNY/2016 / ASSESSMENT YEAR: 2010-11 M/S. MADRAS SECURITY PRINTERS PVT. LTD., NO. 72, T.H. ROAD, TONDIARPET, CHENNAI 600 081. [PAN: AAGCM0599K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE RANGE 4(1), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) ./ I.T.A.NO.1942/CHNY/2016 / ASSESSMENT YEAR: 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI. VS. M/S. MADRAS SECURITY PRINTERS PVT. LTD., NO. 72, THIRUVOTTIYUR HIGH ROAD, TONDIARPET, CHENNAI 600 081. ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : MS. M. SUBASHRI, JCIT / DATE OF HEARING : 18.02.2019 /DATE OF PRONOUNCEMENT : 06.03.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 8, CHENNAI DATED 07.03.2016 RELEVANT TO THE ASSESSMENT YEAR 2010-11. IN ITS APPEAL, THE ASSESSEE HAS CHALLENGED CONFIRMATION OF DISALLOWANCE OF EXPENSES CLAIMED AT .4.68 I.T.A. NO. 1729 & 1942/CHNY/16 2 CRORES AS WELL AS DISALLOWANCE OF SALES PROMOTION EXPENSES AT .1,15,250/-. THE REVENUE ALSO PREFERRED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-8, DATED 07.03.2016 FOR THE ASSESSMENT YEAR 2010-11 TOWARDS DELETION OF PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT]. FIRST WE SHALL TAKE UP QUANTUM ADDITION. 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF THE ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS GIVEN A SUB-CONTRACT TO A COMPANY FOR EXECUTION OF ENUMERATION AND DIGITIZATION OF FAMILIES IN TAMIL NADU AND MAINTENANCE OF KIOSKS OF THE NEXT FOUR YEAR WITH REGARD TO THE HEALTH CARDS PROPOSED TO BE ISSUED BY THE GOVERNMENT OF TAMILNADU. AS PER THE SAID AGREEMENT/ CONTRACT IT IS CLEARLY SPELL OUT AS TO WHAT ARE THE CHARGES THAT ARE TO BE PAID BY THE ASSESSEE COMPANY TO THE CONTRACTEE COMPANY. THE ASSESSEE IS SUPPOSED TO PAY ENROLMENT COST, DIGITIZATION COST AS PER THE NUMBER OF FAMILIES ENUMERATED AND THE CHARGES FOR MAINTENANCE OF DISTRICT KIOSKS FOR THE SUBSEQUENT FOUR YEARS. AS THE CONTRACTEE HAS ENUMERATED 1,30,00,000 FAMILIES DURING THE YEAR, A SUM OF .19,17,50,000/- WAS PAID TOWARDS THE CHARGES AT THE RATE OF .5.50 FOR ENROLMENT, .5.45 FOR DIGITIZATION AND . 0.90 PER EACH YEAR OF MAINTENANCE OF KIOSKS; AS PER THE AGREEMENT. BUT, AS CAN BE SEEN FROM THE AGREEMENT THE EXPENDITURE TOWARDS MAINTENANCE OF KIOSKS DOES NOT PERTAIN TO THE YEAR IN QUESTION THAT IS THE PREVIOUS YEAR 2009-10 BUT ONLY FOR THE SUBSEQUENT FOUR PREVIOUS I.T.A. NO. 1729 & 1942/CHNY/16 3 YEARS. THEREFORE, THOUGH THE ASSESSEE HAS PAID A SUM OF . 4,68,00,000/ - (WHICH IS INCLUDED IN THE GROSS PAYMENT OF .19,17,50, 000) AT THE RATE OF . 0.90 PAISE PER YEAR, FOR FOUR YEARS FOR 1.30 CRORES FAMILIES THE SAME DOES NOT PERTAIN TO THE YEAR IN QUESTION. SINCE, THIS PAYMENT OF .4,68,00,000/- IS IN THE NATURE OF ADVANCE BUT NOT EXPENDITURE PERTAINING TO THE YEAR IN QUESTION AND MOREOVER, THE SUB-CONTRACTOR HAS RECOGNIZED THIS COMPONENT OF INCOME I.E., MONEY RECEIVED TOWARDS MAINTENANCE OF DISTRICT KIOSKS FOR THE NEXT FOUR YEARS AS INCOME DURING THE NEXT FOUR YEARS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF SAID EXPENDITURE. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FACTS OF THE CASE THAT THE ASSESSEE HAS NOT ACTUALLY INCURRED AS EXPENDITURE, BUT, IT WAS IN THE NATURE OF ADVANCE AND MOREOVER, THE SUB-CONTRACTOR HAS RECOGNIZED THIS OF INCOME TOWARDS MAINTENANCE OF DISTRICT KIOSKS FOR THE NEXT FOUR YEARS AS INCOME DURING THE NEXT FOUR YEARS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. DESPITE HAVING NOTED THE NEXT DATE OF HEARING BY MAKING ENDORSEMENT IN THE ORDER SHEET, WHEN THE APPEAL WAS TAKEN FOR HEARING ON 18.02.2019, NONE APPEARED ON BEHALF OF THE ASSESSEE. FOR ONE REASON OR OTHER, THE ASSESSEE SOUGHT FOR ADJOURNMENT EVER SINCE THE QUANTUM APPEAL IS POSTED FOR HEARING I.T.A. NO. 1729 & 1942/CHNY/16 4 FROM 29.08.2016 & PENALTY APPEAL FROM 22.09.2016 ONWARDS AND SINCE THEN THE APPEALS ARE PENDING FOR ADJUDICATION. HENCE, WE PROCEED TO DECIDE THE APPEALS ON MERITS AFTER HEARING THE LD. DR. 5. WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE POINT AT ISSUE UNDER CONSIDERATION IS THAT THE DISALLOWANCE OF .4,68,00,000/- PAID BY THE ASSESSEE TO ITS SUB-CONTRACTOR TOWARDS MAINTENANCE OF KIOSKS FOR THE NEXT FOUR YEARS. THE ASSESSING OFFICER DISALLOWED THE CLAIM MADE TOWARDS MAINTENANCE OF THE KIOSKS FOR THE SUCCEEDING FOUR YEASRS OBSERVING THAT THE SAME SHOULD HAVE BEEN REFLECTED AS ADVANCE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE PROVISION OF SECTION 37(1) OF THE ACT IS THE RESIDUARY SECTION WITH REGARD TO ANY REVENUE EXPENDITURE INCURRED IN CONNECTION WITH THE BUSINESS OF ANY ASSESSEE. IN THIS CASE, THERE IS NO DISPUTE THAT MAINTENANCE EXPENDITURE IS TO BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. THE MAIN ISSUE TO BE RESOLVED IS THE YEAR IN WHICH THE DEDUCTION HAS TO BE ALLOWED. SINCE THE ASSESSEE MAINTAINS ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS, THE ASSESSEE SHOULD HAVE INCURRED THE EXPENDITURE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE DOES NOT WANT SPREAD-OVER OF THE EXPENDITURE OVER A PERIOD OF FOUR YEARS. IN THE RETURN FILED, THE ASSESSEE HAD, IN FACT, CLAIMED THE ENTIRE AMOUNT AS DEDUCTIBLE I.T.A. NO. 1729 & 1942/CHNY/16 5 EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION, THE DEDUCTION IS ALLOWABLE ONLY WHEN COURSE OF ACTION UNDERTAKEN BY THE ASSESSEE IS IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTANCY. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER UNMISTAKABLY POINTS OUT THE FACT THAT THE AGREEMENT BETWEEN THE ASSESSEE AND THE SUB-CONTRACTOR CLEARLY SPECIFIES AS TO WHAT SHOULD BE THE QUANTUM OF PAYMENT TO BE MADE FOR EACH AND EVERY WORK YEAR-WISE. MOREOVER, THE SUB-CONTRACTOR ADMITTED THE MONEY RECEIVED TOWARDS MAINTENANCE OF KIOSKS IN THE SUCCEEDING FOUR FINANCIAL YEARS. THEREFORE, IN THE ABSENCE OF ANY LIABILITY TO BE DISCHARGED, THE PAYMENT OF .4.68 CRORES MADE BY THE ASSESSEE TO SUB-CONTRACTOR HAS TO BE CONSIDERED, AT BEST, AS AN ADVANCE TOWARDS SERVICES TO BE RENDERED IN FUTURE. AN ADVANCE PAYMENT, OR SIMPLY AN ADVANCE, IS THE PART OF A CONTRACTUALLY DUE SUM THAT IS PAID OR RECEIVED IN ADVANCE FOR GOODS OR SERVICES. IT MAY BE CALLED A PREPAID EXPENSE IN ACCRUAL ACCOUNTING FOR THE ENTITY ISSUING THE ADVANCE. ADVANCED PAYMENTS ARE RECORDED AS ASSETS ON THE BALANCE SHEET SINCE THESE ASSETS ARE USED AS THEY ARE EXPENDED AND RECORDED ON THE INCOME STATEMENT FOR THE PERIOD IN WHICH THEY ARE INCURRED. BY ELABORATELY DISCUSSING THE CASE LAW AND CONSIDERING THE FACTS OF THE CASE, THE LD. CIT(A) HAS HELD THAT WHAT THE ASSESSEE PAID TO SUB-CONTRACTOR IS NOTHING BUT AN ADVANCE WHICH CANNOT BE ALLOWED AS A DEDUCTION UNDER THE PROVISIONS OF THE ACT AND ACCORDINGLY, CONFIRMED THE DISALLOWANCE OF .4,68 CRORES MADE BY THE ASSESSING OFFICER. I.T.A. NO. 1729 & 1942/CHNY/16 6 IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 6. AGAINST THE ABOVE DISALLOWANCE OF .4.68 CRORES, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND LEVIED PENALTY AT .1,59,07,320/- ON THE GROUND THAT THE ASSESSEE MADE A WRONG CLAIM OF THE EXPENDITURE WITH THE KNOWLEDGE THAT IT WAS NOT ENTITLED TO CLAIM THE EXPENDITURE. BY FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS LTD. 322 ITR 158, WHEREIN, IT WAS HELD THAT MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS AND BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. CHOLAMANDALAM INVESTMENT & FINANCE CO. LTD. 364 ITR 680, WHEREIN, IT WAS HELD THAT MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WOULD NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE AND THAT SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS, THE LD. CIT(A) CANCELLED THE PENALTY OF .1,59,07,320/- LEVIED UNDER SECTION 271(1)(C) OF THE ACT. THE LD. DR COULD NOT CONTROVERT THE ABOVE DECISIONS RELIED UPON IN THE APPELLATE ORDER. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT AND THUS, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. I.T.A. NO. 1729 & 1942/CHNY/16 7 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 6 TH MARCH, 2019 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 06.03.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.