M/s. Kone Elevators Pvt. ltd., CHENNAI V. ACIT, CHENNAI

ITA 2354/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4206 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 16-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANTHI KRISHNAN
• Assessee Lawyers: G BASKAR
• Keywords: Opportunity of being heard
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS.1182/MDS/2012 & ./ I.T.A.NOS.2352 TO 2354/MDS/2016 ( / ASSESSMENT YEARS: 2006-07,2008-09 & 2009-10) M/S. KONE ELEVATOR INDIA PRIVATE LIMITED, C/O.N.C. RAJAGOPAL & CO., CHARTERED ACCOUNTANTS, NO.22, KRISHNASWAMY AVENUE, MYLAPORE, CHENNAI 600 004. VS THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(4), CHENNAI 34. PAN: AAACK2567P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI G. BASKAR, ADVOCATE /RESPONDENT BY : MS. JAYANTHI KRISHNAN, JCIT /DATE OF HEARING : 26.04.2017 ! /DATE OF PRONOUNCEMENT : 20.06.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX, CHENNAI DATED 29.03.2012 IN C.NO.218(38)/CIT-1/263/ 2011-12 DATED 29.03.2012 FOR THE ASSESSMENT YEAR 2006-07 PA SSED U/S. 263 R.W.S. 143(3), 250(6) OF THE ACT AND THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.211, 209,212/2013-14 DATED 31.03.2016 FOR THE ASSESSMENT YEARS 2006-07, 2008-09 & 2009-10 PASSED U/S. 250(6) R.W.S . 143(3) OF THE ACT. 2 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 2. ITA NO.1182/MDS/2012:- THE ASSESSEE HAS RAISED SEVERAL GROUNDS AGAINST THE ORDER PASSED BY THE LD.CIT U/S. 263 OF THE ACT, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT WITHOUT APPREC IATING THE REVENUE RECOGNITION PRINCIPLES CONSISTENTLY FOLLOWE D BY THE ASSESSEE AS PER AS9 HELD THAT THE ORDER PASSED BY T HE LD.AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE WITHOUT ANY BASIS BY HOLDING THAT AS7 WOULD BE APPLICABLE I N THE CASE OF THE ASSESSEE. 2.1 SINCE, BOTH THE PARTIES AGREED THAT THE APPELLA TE ORDER PASSED U/S.250(6) , 143(3) OF THE ACT MAY BE HEARD ON MERITS, THE APPEAL OF THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD.CIT U/S.263 OF THE ACT IS HEREBY DISMISSED. 3. ITA NO.2352, 2353 & 2354/MDS/2016:- IN ALL THESE APPEALS, THE ASSESSEE HAS RAISED IDE NTICAL GROUNDS. FOR THE SAKE OF CONVENIENCE, THOSE GROUND S ARE BRIEFLY STATED HEREIN BELOW FOR ADJUDICATION, WHICH ARE ACK NOWLEDGED BY BOTH THE PARTIES AT THE TIME OF HEARING:- 3 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 THE ASSESSEE HAS BEEN CONSISTENTLY RECOGNIZING I TS INCOME ON COMPLETION OF THE SALE OF ELEVATORS/ESCAL ATORS/LIFTS ETC., HOWEVER ONLY WITH RESPECT TO THE CONTRACT WITH DELH I METRO RAIL LTD (DMRL), THE ASSESSEE WAS RECOGNIZING ITS INCOME ON PERCENTAGE COMPLETION METHOD. ON THE ABOVE PRACTIC E FOLLOWED BY THE ASSESSEE, THE LD.CIT(A) HAS ERRED BY HOLDING THAT THE APPELLANT IS BOUND TO FOLLOW ACCOUNTING STANDARD 7 AND THEREBY ADOPT PERCENTAGE COMPLETION METHOD FOR ALL ITS CONT RACT IRRESPECTIVE OF THE TIME DURATION INVOLVED IN SUCH CONTRACTS AND WITH SUCH DIRECTION REMITTED BACK THE MATTER TO THE FILE OF LD.AO. 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE APPELL ANT IS A COMPANY INVOLVED IN THE BUSINESS OF DESIGN, MANUFAC TURE, SUPPLY, ERECTION, INSTALLATION AND MAINTENANCE OF L IFTS AND ESCALATORS APART FROM BEING ENGAGED IN SOFTWARE EXP ORT. THE ONLY DISPUTE IN THE APPEALS IS THE REVENUE RECOGNIT ION METHOD TO BE FOLLOWED WITH RESPECT TO MANUFACTURE AND SALE OF THE ABOVE MENTIONED PRODUCTS OF THE ASSESSEE. THE ASSESSEE WA S RECOGNIZING ITS INCOME TOWARDS THE MANUFACTURE SALE AND ERECTION OF ITS PRODUCTS CONSISTENTLY UNDER PROJECT COMPLETION METHOD. HOWEVER, WITH RESPECT TO ITS NEW ASSIGNMENT OF 4 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 SUPPLYING ELEVATORS, LIFTS FOR THE DELHI METRO PROJ ECTS, THE ASSESSEE RECOGNIZED ITS INCOME ON PROJECT COMPLETIO N METHOD IN COMPLIANCE WITH THE ACCOUNTING STANDARD 7. THE LD. CIT IN HIS ORDER U/S.263 OPINED THAT ASSESSEE HAS BEEN CONTRAD ICTING HIS STAND BEFORE VARIOUS FORUM AND THUS THE METHOD OF R ECOGNITION OF INCOME OF THE ASSESSEE LACKS CLARITY I.E., THE APPL ICABILITY OF AS 7 OR APPLICABILITY OF AS 9, THEREFORE BY HOLDING THAT THE ORDER PASSED BY THE LD.AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, REMITTED THE MATTER BACK TO THE FIL E OF LD.AO FOR THE AY 2006-07. THEREAFTER THE LD.AO COMPLETED TH E ASSESSMENT FOR THE AY 2006-07, 2007-08 & 2008-09 BY ADAPTING PERCENTAGE COMPLETION METHOD WITH RESPECT TO ALL TH E CONTRACTS EXECUTED BY THE ASSESSEE BASED ON THE INFORMATION G ATHERED FROM THE RECORDS ON ESTIMATE BASIS. 3.2 ON APPEAL, THE LD.CIT(A) REMITTED BACK THE MATT ER TO THE LD.AO WITH THE FOLLOWING OBSERVATION:- 4.2.7. IN VIEW OF THE ABOVE, I HAVE NO HESITATION IN HOLDING THAT THE APPELLANT'S METHOD OF ACCOUNTING IS NOT CORRECT ' ENTIRELY SINCE IT DOES NOT RESULT IN IDENTIFYING THE TRUE AN D PROPER INCOME OF THE APPELLANT, THE APPELLANT IS BOUND TO FOLLOW ACCOUNTING STANDARD AS-7 AND THEREBY PERCENTAGE COMPLETION MET HOD FOR ALL ITS CONTRACTS IRRESPECTIVE OF THE TIME DURATION INVOLVED IN SUCH CONTRACTS. NEVERTHELESS, THE ASSESSING OFFICER DID NOT 5 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 DIVULGE IN CLEAR TERMS THE BASIS OF EITHER ESTIMATI NG THE INCOME AT 47% OF THE TOTAL EXPENDITURE FOR ASSESSMENT YEAR S 2006-07 AND 2009-10 OR FOR COMPUTING THE GROSS PROFIT AT 10 % OF THE TOTAL CONTRACT VALUE FOR A.Y. 2008-09. THEN AGAIN, I DO NOT AGREE WITH THE CONTENTION OF T HE APPELLANT THAT THE ASSESSING OFFICER ERRED IN NOT REJECTING T HE BOOKS OF ACCOUNT, BUT ONLY ATTEMPTED TO CORRECT THE METHOD O F ACCOUNTING FOLLOWED BY THE APPELLANT IN VIEW OF THE FACT THAT THE APPELLANT SUO MOTU CHANGED THE METHOD OF ACCOUNTING FROM THE ASSESSMENT YEAR 2004-05 AND THE ASSESSING OFFICER M ADE A CATEGORICAL OBSERVATION THAT THE ACCOUNTING STANDAR D AS- 7 HAS TO BE FOLLOWED BY THE APPELLANT. HOWEVER, AS RIGHT LY POINTED OUT BY THE APPELLANT, THE ADDITION OF INCOME IN RESPECT OF 'SUPPLY AND INSTALLATION UNDER MODERNIZATION' AND 'INCOME F ROM MAINTENANCE SERVICES RENDERED' OF RS.7,85,11,000/- AND RS.25,22,55,000/- RESPECTIVELY FOR THE A.Y. 2006-07 AND RS.28,46,00,000/- AND RS.63,50,00,000/- RESPECTIVEL Y FOR THE A.Y. 2009-10 HAD RESULTED IN DOUBLE ADDITION. SECON DLY, THE ESTIMATION OF INCOME ON CONTRACT VALUE FOR ONE YEAR AND ESTIMATION BASED ON EXPENDITURE INCURRED IN ANOTHER YEAR WOULD ALSO LEAD TO TAXING THE SAME INCOME TWICE. ALL THE SAME, THE APPELLANT'S CONTENTION' THAT IT FOLLOWS AS-9 FOR A CCOUNTING LONG TERM CONTRACTS ENTERED INTO WITH DELHI METRO AND TH AT AS-9 SQUARELY APPLIES TO ALL OTHER CONTRACTS UNDERTAKEN HAS NO FOUNDATION AFTER THE DECISION OF THE CONSTITUTION B ENCH OF THE HON'BLE SUPREME COURT IN APPELLANT'S OWN CASE, IT I S IMPERATIVE THAT THE APPELLANT FOLLOWS ACCOUNTING STANDARD AS-7 WITHOUT EXCEPTION. SINCE THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2006 -07, 2008- 09 AND 2009-10 ONLY ARE IN APPEAL BEFORE ME AND THE COMPUTATION OF INCOME FOR THE ASSESSMENT YEARS UNDE R CONSIDERATION REQUIRES RECONCILIATION WITH THE INCO ME ASSESSED IN THE CASE OF THE APPELLANT PERTAINING TO OTHER AS SESSMENT YEARS, THE ASSESSING OFFICER IS DIRECTED TORE-COMPU TE THE INCOME OF THE APPELLANT IN ACCORDANCE WITH THE FINDINGS AN D THE 6 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 CONCLUSIONS ARRIVED AT IN THIS ORDER AFTER PROVIDIN G PROPER OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 3.3 BEFORE US, THE LD.AR DID NOT HAVE ANY OBJECTION FOR THE MATTER TO BE REMITTED BACK TO THE FILE OF LD.AO, BU T HE PLEADED THAT THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH AS 7 AND AS 9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH THE ASSESSEE IS MANDATORILY BOUND TO FOLLOW. THE L D.DR THOUGH OPPOSE TO THE SUBMISSIONS OF THE LD.AR FINALLY AGRE ED TO THE PROPOSAL OF THE LD.A.R FOR REMITTING BACK THE MATTE R FOR FRESH CONSIDERATION ON THE ISSUE. 3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIAL ON RECORD. WE FIND MERIT IN THE SUBMI SSION OF THE LD.AR. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ISSUE HAS TO BE DEALT IN ACCORDANCE WITH THE ACCOUNTING S TANDARD LAID DOWN BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF I NDIA, WHICH THE ASSESSEE HAS TO MANDATORILY FOLLOW. MOREOVER, ONLY IF THE ACCOUNTING STANDARDS ARE COMPLIED WITH, THE CORRECT PROFIT OF THE ASSESSEE CAN BE DETERMINED. THEREFORE, IN THE INTER EST OF JUSTICE, WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.A O FOR FRESH CONSIDERATION AND DECIDE THE MATTER AFTER APPLYING THE RELEVANT 7 ITA NO.1182/MDS/2012 ITA NOS.2352 TO 2354/MDS/2016 APPLICABLE ACCOUNTING STANDARDS LAID DOWN BY THE IN STITUTE OF CHARTERED ACCOUNTANTS OF INDIA, AFTER DULY GIVING O PPORTUNITY TO THE ASSESSEE OF BEING HEARD. ACCORDINGLY THE ORDER OF THE LD.CIT(A) STANDS MODIFIED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1182/CHNY/2012 IS DISMISSED AND THE OTHER APPEAL S OF THE ASSESSEE HEREIN ABOVE ARE ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN THE COURT ON THE 20 TH JUNE, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 20 TH JUNE, 2017 JR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF