ACIT, Pune V. Shri Vinay V Kulkarni, Pune

ITA 2363/PUN/2012

• Counselvise Citation: 236324514 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2363/PN/2012 (A.Y: 2009-10) ADDL. CIT, RANGE-3, PUNE APPELLANT VS. SHRI VINAY V. KULKARNI FLAT NO.5, BLDG. NO.3, B-WING, NEW AJANTA AVENUE, KOTHRUD, PUNE 411029 PAN: ABRPK2006L RESPONDENT APPELLANT BY : SHRI P.L.PA THADE RESPONDENT BY : SHRI KIS HOR PHADKE DATE OF HEARING: 03.04.2014 DATE OF ORDER : 29.04.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-II, [IN SHOR T CIT(A)] PUNE, DATED 09.07.2012 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS.32,72,500/- MA DE ON ACCOUNT OF CONTINGENT INCOME NOT CREDITED TO PRO FIT & LOSS ACCOUNT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT EVEN IN THE MERCANTILE SYSTEM OF ACCOUNTING WHEREIN CREDIT OF TAX DEDUCTED AT SOURCE HAS BEEN CLAIMED DURING THE YEAR, SUCH CONTINGENT INCOME DID NOT ACCRUE AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 2 ERRED IN HOLDING THAT CLAIM OF EXPENDITURE BY THE PRINCIPAL AND CREDIT OF INCOME TO THE ACCOUNT OF ASSESSEE AFTER DEDUCTION OF TAX THEREOF ARE IRRELEV ANT CONSIDERATIONS AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL. 2. THE ASSESSEE IS AN INDIVIDUAL AND A PROPRIETOR C ARRYING ON THE BUSINESS ACTIVITY IN THE NAME AND STYLE OF 'SER VICOOL' WHICH COMPRISES OF TRADING OF AIR-CONDITIONING OF THE ACC ESSORIES AND EQUIPMENTS, CONTRACTS FOR INSTALLATION OF THE ACCES SORIES AND EQUIPMENTS, CONSULTING ENGINEERS IN AIR CONDITIONIN G AND COMMISSION AGENT/DEALERS FOR DAIKIN AIR-CONDITIONIN G INDIA PVT. LTD. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER OBSERVED THAT IN THE BALANCE SHEET UNDER CURRENT LI ABILITIES IN SCHEDULE 'D' THERE WAS A HEADING 'CONTINGENT INCOME ' SHOWN AT 32,72,500/-. THE ASSESSING OFFICER SOUGHT THE EXPL ANATION WITH RESPECT TO THE TAXABILITY OF THE AFORESAID AMOUNT. THE EXPLANATION FURNISHED BY THE ASSESSEE THAT REVENUE WAS RECOGNIZED ON RAISING OF THE INVOICE AS AGAINST REC EIPT OF MONEY AS MERCANTILE SYSTEM OF ACCOUNTING WAS BEING FOLLOW ED AND, THEREFORE, THE COMMISSION CREDITED BY DEDUCTING TDS WAS NOT CONSIDERED AS INCOME BUT TREATED AS 'CONTINGENT INC OME'. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE EXPL ANATION FURNISHED BY THE ASSESSEE AS CREDIT FOR THE TDS FOR THE SAID INCOME HAD BEEN CLAIMED, AND TREATED THE SAID AMOUN T AS INCOME FOR THE CURRENT ASSESSMENT YEAR 2009-10. 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAD DELETED THE SAME. THE SAME HAS BEEN OPPOSED BEFORE US ON B EHALF OF REVENUE, INTER ALIA, SUBMITTED THAT CIT(A) ERRED IN DELETING THE ADDITION OF 32,72,500/- MADE ON ACCOUNT OF CONTINGENT INCOME 3 NOT CREDITED TO PROFIT & LOSS ACCOUNT. THE CIT(A) ERRED IN HOLDING THAT EVEN IN THE MERCANTILE SYSTEM OF ACCOU NTING WHEREIN CREDIT OF TAX DEDUCTED AT SOURCE HAS BEEN C LAIMED DURING THE YEAR, SUCH CONTINGENT INCOME DID NOT ACC RUE AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. ACCORDINGLY, REQUESTED TO SET ASIDE THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTO RED ON THE ISSUE. ON THE OTHER HAND, THE LEARNED AUTHORIZED R EPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) ON THE ISSUE. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEES MAIN ACTIVITY I S THAT OF COMMISSION AGENT/DEALER FOR DAIKIN AIR-CONDITIONING INDIA PVT. LTD. THE STEPS TAKEN FOR EFFECTING THE COMMISSION B Y DAIKIN TO THE ASSESSEE INDICATES THAT AS SOON AS ORDER IS BOO KED BY DAIKIN, CREDIT FOR COMMISSION IS GIVEN TO THE ASSESSEE IRRE SPECTIVE OF THE SUPPLY OF MATERIAL AND DELIVERY OF GOODS WHICH ENSU RES EXPENSES FOR DAIKIN BUT NOT NECESSARILY INCOME TO THE ASSESS EE. THE ASSESSEE STARTS THE WORK OF INSTALLATION ONLY AFTER THE RECEIPT OF EQUIPMENT FROM DAIKIN. AFTER THE INSTALLATION IS DO NE AND COLLECTION OF MONEY AGAINST THE GOODS IS COMPLETED THE PRINCIPAL I.E. DAIKIN ADVICES THE ASSESSEE TO RAISE AN INVOIC E. ON ITS ADVICE THE ASSESSEE I.E. DEALER RAISES THE INVOICE ALONG W ITH SERVICE TAX. THE PRINCIPAL, THEREAFTER, MAKES THE PAYMENT BY WAY OF CHEQUE ADJUSTING THE COMMISSION AGAINST HIS ACCOUNT FOR SU PPLY OF GOODS. THE ASSESSING OFFICER HAS OBSERVED THAT THE TDS MADE ON THE AMOUNT WHICH HAS BEEN SHOWN AS CONTINGENT INCOM E AND ITS CLAIM BEING MADE DURING THE YEAR UNDER CONSIDERATIO N THOUGH THE RECEIPTS NOT OFFERED FOR TAXATION. MERE TAX DE DUCTION AT SOURCE IS NOT A TEST FOR DETERMINING INCOME FOR THE REASON THAT THE RESPONSIBILITY OF DEDUCTING THE TDS IS ON THE P ERSON MAKING THE PAYMENT, I.E. DAIKIN, AT THE TIME OF BOOKING OF EXPENSE OR MAKING PAYMENT WHICHEVER IS EARLIER. THE ASSESSEE OFFERS THE 4 INCOME RECEIVED BY WAY OF COMMISSION FOR TAXATION A S AND WHEN THE TRANSACTION IS COMPLETED. THE CIT(A) OBSERVED THAT THE DETAILS FILED BY THE ASSESSEE OF THE VARIOUS TRANSA CTIONS ENTERED INTO CLEARLY REVEALS THAT THE COMMISSION EARNED FRO M DAIKIN HAVE BEEN OFFERED FOR TAXATION ON THE BASIS OF COMPLETIO N OF THE SERVICE AND INSTALLATION CONTRACT IN THE RESPECTIVE YEAR AN D THIS METHOD HAS BEEN CONSISTENTLY FOLLOWED YEAR TO YEAR BY ASSE SSEE. THIS METHOD IS ALSO SEEN IN CONSONANCE WITH THE ACCOUNTI NG METHOD AS-9 IN RESPECT OF SERVICE CONTRACT AND INSTALLATIO N FEE WHICH STATES THAT REVENUE BE RECOGNIZED ONLY WHEN EQUIPME NT IS INSTALLED AND ACCEPTED BY CUSTOMER. THE TRANSACTIO N-WISE DETAILS OF AMOUNT SHOWN AS CONTINGENT INCOME BY ASSESSEE AN D ITS SUBSEQUENT BILLING IS REVEALED IN CHART OF COMMISSI ON CONTINGENT INCOME AS UNDER: DATE OF CREDIT JV NO. BILL DAT E BILL NO. COMMI SSION SERVIC E TAX BILL AMOUNT MTHS GAP TDS DT. OF RE- CEIP MTH S GAP 13- JUL- 07 179 24- MAR - 10 SC / DAIPL / 09 - 10/BAS/548 15000 1545 16545 33 1701 28- APR - 10 34 29- SEP- 07 323 24- MAR -10 SC / DAIPL / 09 - 10/BAS/549 63000 6489 69489 30 7138 28- APR -10 31 31- JAN- 08 540 24- MAR -10 SC / DAIPL / 09 - 10/BAS/551 97500 10043 107543 26 11048 28- APR -10 27 31- JAN- 08 541 24- MAR -10 SC / DAIPL / 09 - 10/BAS/552 19000 1957 20957 26 2153 28- APR -10 27 26- FEB- 08 567 23- JUL- 10 SC / DAIPL / 10 - 11 /BAS/291 115500 11897 127397 29 13086 18- AUG -10 30 310000 31931 341931 35126 B - CREDIT BY DAIKIN IN FY 2008- 09 BUT BILLED BY SERVICOOL IN FY 2009-10 2210500 227682 2438182 250454 C - CREDIT BY DAIKIN IN FY 2008- 09 BUT BILLED BY SERVICOOL IN FY 2010-11 752000 77457 329457 85204 3272500 337070 3609570 370784 5 THE REGULAR METHOD OF ACCOUNTING DETERMINES ONLY T HE MODE OF COMPUTING THE TAXABLE INCOME AND THE POINT OF TIME AT WHICH THE TAX LIABILITY ARISES. IT COULD NOT DETERM INE THE RANGE OF TAXABLE INCOME OR THE AMBIT OF TAXATION. IN THE CA SE, THERE IS NO INCOME, IT COULD NOT BE SAID THAT INCOME HAS ACCRUE D MERELY ON THE GROUND THAT THE ASSESSEE HAD FOLLOWED THE MERCA NTILE SYSTEM OF ACCOUNTING. EVEN IF THE ASSESSEE MAKES A DEBIT ENTRY TO THAT EFFECT NO INCOME COULD BE SAID TO HAVE ACCRUED TO T HE ASSESSEE. IN THE CASE NO INCOME HAS ACCRUED THERE CAN BE NO L IABILITY TO TAX ON A HYPOTHETICAL INCOME. WHAT IS TO BE CONSIDERED IS WHETHER THE INCOME HAS REALLY ACCRUED TO THE ASSESSEE. THE QUESTION WHETHER REAL INCOME HAS MATERIALIZED HAS TO BE EXAM INED IN THE CONTEXT OF COMMERCIAL AND BUSINESS REALITIES OF THE SITUATION IN WHICH THE ASSESSEE IS PLACED AND NOT WITH REFERENCE TO SYSTEM OF ACCOUNTING. THE ACCRUAL OF INCOME DOES NOT DEPEND ON THE ACCOUNTS OF ASSESSEE. WHATEVER THE POSITION OF ACC OUNTS, INCOME WOULD HAVE TO BE REFERRED BACK TO THE CHARGEABLE AC COUNTING PERIOD DURING WHICH SUCH PROFITS OR GAINS ACTUALLY AROSE OR ACCRUED AND THE ASSESSEE WOULD BE LIABLE TO TAX IN RESPECT OF THE SAME DURING THE CORRECT AND PROPER CHARGEABLE ACCOU NTING YEAR. 4.1 THE MERCANTILE ACCOUNTING SYSTEM HAS SOME SET R ULES. SINCE THERE IS OFTEN MORE THAN ONE WAYS OF UNDERSTA NDING A COMMERCIAL TRANSACTIONS FOR ACCOUNTING PURPOSES, SI NCE THE INCOME FOR INCOME TAX IS COMPUTED UNDER ORDINARY PR INCIPLES OF COMMERCIAL ACCOUNTING. THERE IS A FALL OUT IN TAX ACCOUNTING, WHICH ARE THE CONCEPT OF MATCHING PRINCIPLES IS NOT ALWAYS ACCEPTABLE, SINCE TAXABLE INCOME IS UNDERSTOOD AS A LEGAL CONCEPT AS ORDAINED UNDER THE INCOME-TAX LAW. SINCE THE AC COUNTING IS KEPT ON THE BASIS OF MATCHING PRINCIPLES, THERE CAN BE DIFFERENCE BETWEEN THE TAXABLE INCOME AND INCOME AS PER ACCOUN TS, SO AS TO REQUIRE ADJUSTMENT TO THE INCOME AS PER BOOKS TO AR RIVE AT TAXABLE INCOME FOR PURPOSES OF INCOME-TAX UNDER MER CANTILE 6 SYSTEM OF ACCOUNTING. THE INCOME ACCRUES ONLY WHEN THERE IS RIGHT TO RECEIVE SUCH INCOME, WHETHER IT IS ACTUALL Y RECEIVED OR NOT, WHAT MATTERS IS LEGAL RIGHT TO CLAIM THE SAME. SCHEDULE VI OF THE COMPANIES ACT WOULD REQUIRE INCOME ACCRUED BUT HAD NOT BECOME DUE AS PART OF PROFITS, THOUGH FOR INCOME TA X PURPOSES, CONCEPT OF INCOME 'ACCRUED BUT NOT DUE' IS A CONTRA DICTION IN TERMS, SINCE WHAT WAS NOT DUE COULD NOT HAVE ACCRUE D. WHAT IS NOT DUE CANNOT BE SUBJECT TO LEGAL ACTION TO ENFORC E RECOVERY, SO THAT INCOME IN A LEGAL SENSE COULD NOT BE TREATED A S ACCRUED, SO AS TO REQUIRE INCLUSION IN TAXABLE INCOME. MATCHIN G PRINCIPLE IN ACCOUNTING DOES NOT MAKE LEGAL SENSE IN EVERY CASE. THE PUNE ITAT BENCH IN THE CASE OF DANA INDIA PVT. LTD. ITA NO. 375/PN/09 A.Y. 2004-05 DATED 09.02.2011 BY REFERRIN G TO THE DECISION IN THE CASE OF E.D. SASSON AND CO. LTD. VS . (1972) 86 ITR 757 (SC) ON SIMILAR SET OF FACTS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN PREPONING THE AMOUNT A ND DELETED THE ADDITION TO INCOME. 4.2 IN THE CASE BEFORE US, WORK RELATE TO THE IN STALLATION AND ERECTION OF THE EQUIPMENT HAS BEEN COMPLETED IN SUB SEQUENT YEARS AS THE TIME TAKEN VARIES BETWEEN 1 MONTH TO 2 1 MONTHS. THEREFORE, THE ACCRUAL OF INCOME EARNED HAPPENED ON LY IN SUBSEQUENT YEARS AND NOT IN THE IMPUGNED F.Y. 2008- 09 RELEVANT TO A.Y. 2009-10 AS HELD BY THE ASSESSING OFFICER. T HEREFORE, THE ASSESSEE WAS JUSTIFIED TO CONTENT THAT INCOME ACCRU ES ONLY IN SUBSEQUENT YEAR WHEN THE ASSESSEE GETS AN ENFORCEAB LE RIGHT TO RECEIVE THE SAME. THE SIMILAR VIEW HAS BEEN TAKEN BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS LUCAS INDIA N SERVICES LTD. (2009) 315 ITR 273 (MAD). IN VIEW OF ABOVE FA CTUAL AND LEGAL DISCUSSION, THE ADDITION MADE BY ASSESSING OFFICER WAS RIGHTLY DELETED BY CIT(A). THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. 7 PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 29 TH OF APRIL, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH APRIL, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-II, PUNE 4) THE CIT-II, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE