M/s. CERG Advisory Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2780/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5132 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANSHUL PRAKASH
• Keywords: Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.2780/DEL/2014 ASSESSMENT YEAR : 2010-11 CERG ADVISORY PVT. LTD., E-121, 2 ND FLOOR, MASJID MOTH, GREATER KAILASH-III, NEW DELHI. PAN: AACCC3327R VS. DCIT, CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARANDEEP SINGH, CA DEPARTMENT BY : SHRI ANSHUL PRAKASH, SR. DR DATE OF HEARING : 14.08.2017 DATE OF PRONOUNCEMENT : 17.08.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 20.02.2014 IN RELATION TO T HE ASSESSMENT YEAR 2010-11. ITA NO.2780/DEL/2014 2 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST CONFIRMATION OF ADDITION AMOUNTING TO RS.8,83,208/- ON ACCOUNT OF S UBSCRIPTION INCOME RECEIVED IN ADVANCE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN RENDERING CONSULTANCY SERVICES AND ALSO PUBLISHING SOME MAGAZINE. A SUM OF RS.8,83,208/- WAS SHOWN AS `ADVA NCE SUBSCRIPTION INCOME ALONG WITH OTHER CREDITORS. ON BEING CALLE D UPON TO EXPLAIN AS TO WHY THIS AMOUNT BE NOT CHARGED TO TAX, THE ASSES SEE CONTENDED THAT IT WAS IN THE NATURE OF ADVANCE SUBSCRIPTION AND, HENC E, NOT CHARGEABLE TO TAX. THE ASSESSEE FURTHER SUBMITTED THAT IT WAS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING AND SIMILAR ADVANCE SUBSCRIPTI ON RECEIVED IN THE PRECEDING YEAR WAS OFFERED FOR TAX DURING THE YEAR UNDER CONSIDERATION. NOT CONVINCED, THE ASSESSING OFFICER MADE ADDITION FOR THIS SUM DESPITE NOTICING THAT SIMILAR ADDITION MADE BY THE CIT(A) F OR THE PRECEDING YEAR WAS DELETED IN THE FIRST APPEAL. THE ASSESSING OFF ICER REFUSED TO ACCEPT THE LD. CIT(A)S ORDER FOR THE PRECEDING YEAR ON TH E GROUND THAT THE REVENUE COULD NOT PREFER APPEAL BECAUSE OF LOW TAX EFFECT. THE LD. ITA NO.2780/DEL/2014 3 CIT(A) CONFIRMED THE ADDITION FOR THE CURRENT YEAR. THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF ADDITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS EE RECEIVED A SUM OF RS.8.83 LAC AS ADVANCE SUBSCRIPTION PERTAINING TO THE CERTAIN ISSUES OF THE MAGAZINE TO BE PUBLISHED IN THE SUCCEEDING YEAR . ADMITTEDLY, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. IN CONTRAST TO THE `CASH SYSTEM OF ACCOUNTING, WHERE INCOME IS RECOGN IZED ON RECEIPT, UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, AN INCO ME ACCRUES AND IS CHARGED TO TAX WHEN RIGHT TO RECEIVE IT IS FINALLY ACQUIRED. IF AN AMOUNT IS RECEIVED IN THE NATURE OF ADVANCE TO BE ADJUSTED AG AINST THE INCOME ACCRUING IN THE SUBSEQUENT YEAR, THE SAME CANNOT BE SUBJECTED TO TAX IN THE YEAR OF RECEIPT. ADMITTEDLY, THE ASSESSEE RECEI VED RS.8.83 LAC AS ADVANCE SUBSCRIPTION. IT CAN BE SEEN FROM THE TABL E GIVEN ON PAGE 5 OF THE IMPUGNED ORDER THAT THERE WAS OPENING ADVANCE R ECEIPT OF SUBSCRIPTION TO THE TUNE OF RS.8,55,689/- WHICH HAS BEEN OFFERED TO TAX BY THE ASSESSEE IN THE CURRENT YEAR. SIMILARLY, TH E AMOUNT RECEIVED AS ITA NO.2780/DEL/2014 4 ADVANCE SUBSCRIPTION DURING THE INSTANT YEAR HAS BE EN OFFERED TO TAX IN THE SUCCEEDING YEAR AS HAS BEEN RECORDED IN PARA B ON PAGE 2 OF THE ASSESSMENT ORDER. UNDER SUCH CIRCUMSTANCES, IT BEC OMES PATENT THAT THE AMOUNT OF ADVANCE SUBSCRIPTION CANNOT BE SUBJECTED TO TAX IN THE YEAR OF RECEIPT. WE, THEREFORE, OVERTURN THE IMPUGNED ORDE R ON THIS ISSUE AND ORDER FOR THE DELETION OF ADDITION. 5. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS AG AINST THE SUSTENANCE OF DISALLOWANCE OF RS.12 LAC OUT OF TOTAL DISALLOWA NCE OF RS.24 LAC MADE BY THE AO FROM PROFESSIONAL FEES PAID BY THE ASSESS EE TO MR. SAGNIK GOSWAMI. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS OBSERVED THAT THE ASSESSEE PAID A SUM OF RS.25 LAC AND ODD AS PROFESSIONAL FEE TO ONE MR. SAGNIK GOSWAMI. ON B EING CALLED UPON TO JUSTIFY THE PAYMENT, THE ASSESSEE SUBMITTED THAT MR . SAGNIK GOSWAMI IS A RELATIVE OF THE DIRECTOR, BUT, COMPETENT AND WELL EXPERIENCED. A COMPARATIVE CHART OF THE PROFESSIONAL FEE PAID TO O THER PROFESSIONALS AND THEIR RESPECTIVE QUALIFICATIONS VIS--VIS THE AMOUN T PAID TO SHRI SAGNIK GOSWAMI WAS ALSO PLACED ON RECORD, WHICH HAS BEEN I NCORPORATED ON ITA NO.2780/DEL/2014 5 PAGE 3 OF THE ASSESSMENT ORDER. THE ASSESSEE SUBMI TTED THAT SHRI SAGNIK GOSWAMI IS A QUALIFIED CHARTERED ACCOUNTANT AND HAD RENDERED SERVICE TO THE CLIENTS OF THE ASSESSEE, RECEIPTS FROM WHICH WERE MUCH MORE THAN THE PAYMENT. THE ASSESSING OFFICER NOTICED THAT SI MILAR ADDITION MADE BY HIM FOR THE ASSESSMENT YEAR 2009-10 WAS CONFIRME D IN THE FIRST APPEAL. FOLLOWING THE SAME, HE MADE AN ADDITION OF RS.24 LAC. THE LD. CIT(A) REDUCED THE ADDITION TO RS.12 LAC, AGAINST W HICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS ING OFFICER HAS REFERRED TO THE ORDER PASSED BY THE CIT(A) FOR THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR, NAMELY, 2009-10 IN WHICH THE ADDIT ION SO MADE BY THE ASSESSING OFFICER WAS CONFIRMED. THE LD. AR HAS PL ACED ON RECORD A COPY OF THE ORDER DATED 13.09.2013 PASSED BY THE TR IBUNAL IN WHICH THE MATTER HAS BEEN RESTORED TO THE ASSESSING OFFICER F OR CONSIDERING THE RELEVANT AGREEMENT ETC. WITH SHRI SAGNIK GOSWAMI. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007- 08, VIDE ITS ORDER ITA NO.2780/DEL/2014 6 DATED 16.05.2014, WHOSE COPY HAS ALSO BEEN PLACED I N THE PAPER BOOK AT PAGE 6. IT HAS BEEN BROUGHT TO OUR NOTICE THAT WHI LE GIVING EFFECT TO THE ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEA R 2009-10, THE ASSESSING OFFICER, VIDE HIS ORDER DATED 21.11.2014, HAS NOT MADE ANY ADDITION TOWARDS PAYMENT TO MR. SAGNIK GOSWAMI. SI MILAR IS THE POSITION IN RESPECT OF THE ORDER PASSED BY THE ASSE SSING OFFICER FOR THE ASSESSMENT YEAR 2007-08 GIVING EFFECT TO THE TRIBUN AL ORDER. A COPY OF SUCH ORDER DATED 09.10.2015 PASSED BY THE ASSESSING OFFICER HAS ALSO BEEN PLACED ON PAGE 67 ONWARDS OF THE PAPER BOOK IN WHICH NO SUCH ADDITION HAS BEEN MADE. IN VIEW OF THE ABOVE DISCUS SION, IT IS CLEAR THAT THE DEPARTMENT HAS ACCEPTED THE GENUINENESS OF PAYM ENT TO MR. SAGNIK GOSWAMI AND ITS ELIGIBILITY FOR DEDUCTION FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE FACTS OF WHICH ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE INSTANT YEAR. 7. IT CAN BE SEEN FROM THE IMPUGNED ORDER THAT THE LD. CIT(A) INVOKED THE PROVISIONS OF SECTION 40A(2)(B) FOR SUSTAINING DISALLOWANCE AT 50% OF THE AMOUNT PAID TO MR. SAGNIK GOSWAMI. HOW THE DISALLOWANCE HAS ITA NO.2780/DEL/2014 7 BEEN SUSTAINED BY THE LD. CIT(A) AT 50% IS NOT UNDE RSTANDABLE. IT CAN BE SEEN FROM THE IMPUGNED ORDER THAT MR. SAGNIK GOSWAM I EARLIER WORKED WITH COMPANIES LIKE GTC INDUSTRIES, AMERICAN EXPRES S BANK, LORD KRISHNA BANK, AMROP INDIA AND CHR GLOBAL BEFORE JOI NING THE ASSESSEE. IT IS FURTHER RELEVANT TO NOTE THAT HE W AS PAID RS.25.30 LAC IN THE YEAR UNDER CONSIDERATION WHICH IS EQUAL TO THE PAYMENTS TO OTHER PROFESSIONALS, NAMELY, VISHAL MORE AND ARINDAM MUKH ERJEE, EMPLOYED BY THE ASSESSEE. THESE TWO PROFESSIONALS ARE M.A. (ECONOMICS), WHEREAS SHRI SAGNIK GOSWAMI IS A QUALIFIED CHARTERE D ACCOUNTANT. IT IS FURTHER PERTINENT TO NOTE THAT THE ASSESSEE EARNED RS.73.76 LAC FROM THE ASSIGNMENTS HANDLED BY SHRI SAGNIK GOSWAMI FOR WHIC H HE WAS PAID A SUM OF RS.25.30 LAC. UNDER THESE CIRCUMSTANCES, WE ARE SATISFIED THAT THERE IS NO REASON FOR SUSTAINING EVEN PARTIAL DISA LLOWANCE. WE, THEREFORE, ORDER FOR THE DELETION OF THIS ADDITION ALSO. ITA NO.2780/DEL/2014 8 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.08.201 7. SD/- SD/- [K. NARASIMHA CHARY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 17 TH AUGUST, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.