ACIT Circle-22 (1), New Delhi V. Rakesh Agarwal, New Delhi

ITA 2989/DEL/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77742 (ITAT-DELHI)
• Duration Of Justice: 44 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: SUMAN SEN
• Keywords: Tax effect

Judgement Text

ITA NO. 2989/DEL/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2989/DEL/2008 A.Y. : 2004-05 ACIT, CIRCLE 22(1), NEW DELHI VS. SHRI RAKESH AGGARWAL, S-54, OKHLA INDL. AREA, PHASE-II, NEW DELHI (PAN: AAEPA 6128K) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. AJAY WADHWA, CA DEPARTMENT BY : MS. SUMAN SEN, SR. DR ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-XXIII), NEW DELHI DATED 21.7.2008 PERTAINING TO ASSESSMENT YEAR 2004-05. 2. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN DE LETING THE ADDITION OF RS. 49,23,437/- MADE BY THE AO ON ACCOUNT OF CO MMISSION INCOME RECEIVED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- THE ASSESSEE IS AN ELECTRONICS ENGINEERS, PROPRIETO R OF M/S COMCON INDUSTRIES, HAVING REGISTERED OFFICE AT S-54 , OKHLA INDUSTRIAL AREA, PHASE II , NEW DELHI 110020, ENGAG ED IN THE MANUFACTURING AND SELLING OF BROADCAST EQUIPMENTS B ESIDES REPRESENTING SOME FOREIGN COMPANIES IN INDIA. DURIN G THE ITA NO. 2989/DEL/2008 2 PREVIOUS YEAR, ASSESSEE RECEIVED AN AMOUNT RS. 63,4 9,448.00 FROM M/S DALET MEDIA SYSTEM, FRANCE TOWARDS THE COM MISSION AND COST INVOLVED TO EXECUTE INSTALLATION, TESTING AND COMMISSIONING OF SYSTEM AND AT SITE WARRANTY SUPPOR T TO THE END CUSTOMER FOR ORDER BOOKED FROM M/S MAHARASHTRA ELECTRONICS STATE CORPORATION LTD (HEREIN AFTER CAL LED : MELTRON ) TO EXECUTE 'SUPPLY , INSTALLATION , TESTI NG AND COMMISSIONING OF HARD DISK BASED AUTOMATION SYSTEM AT NEW BROADCASTING HOUSE, NEW DELHI'. THE END CUSTOMER IS DIRECTORATE GENERAL : ALL INDIA RADIO (HEREIN AFTER CALLED AS ' AIR) . THE ASSESSEE , MAINTAINING THE EARLIER ACCOU NTING POLICY , HAD CREDITED 25 % OF THE TOTAL AMOUNT RECEIVED AS C URRENT YEAR INCOME TOWARDS HIS EFFORTS TO SECURE ORDER, LEAVING 75 % OF THE AMOUNT RS.49,23,437 AS PROVISIONS TO EXECUTE THE OR DER WHICH INVOLVED INSTALLATION, TESTING , COMMISSIONING OF T HE SYSTEM AND TO PROVIDE AT SITE WARRANTY SUPPORT FOR THREE Y EARS. THE ASSESSING AUTHORITY DISALLOWED THE PROVISION FOR SE RVICES CHARGES AMOUNTING RS.49,23,437.00 ON THE GROUND THA T I) THE ASSESSEE IS MAINTAINING ACCOUNT ON MERCANTILE BASIS, EVEN AMOUNT HAVE BEEN RECEIVED BY THE ASSESSEE IN THE PREVIOUS YEAR. II) NO BASIS WHATSOEVER HAVE BEEN PROVIDED BY THE ASSESSEE FOR SHOWING ONLY 25 % OF THE COMMISSION RECEIVED AS INCOME FOR THE FINANCIAL YEAR. III) THAT IT HAS SET APART 75 % OF THE FUND FOR FURTHER 3 YEARS FOR REASONS KNOWN TO THE ASSESSEE DOES NOT CARRY ANY FORCE BECAUSE : ITA NO. 2989/DEL/2008 3 A) NO PROOF OF ANY SERVICES PROVIDED BY THE ASSESSEE DURING THE YEAR AND SUCCEEDING YEARS HAS BEEN GIVEN BY THE ASSESSEE DESPITE BEING ASKED FOR THE SAME VI DE ORDER SHEET ENTRY DATED 26.12.2006 B) THERE IS NO AGREEMENT OF THE ASSESSEE WITH THE BUYE R AND THE PERSON TO WHOM SO CALLED SERVICES HAVE BEEN PROVIDED C) EVEN THE ASSESSEE'S AGREEMENT WITH THE DALET DOES NOT SPECIFY MONETARY WISE OR YEAR WISE PROVISION OF PROVIDING SERVICES. D) NO DETAILS OF EXPENSES CARRIED OUT BY THE ASSESSEE HAS BEEN PROVIDED. 4. UPON ASSESSEES APPEAL LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. LD. CIT(A) HELD AS UNDER:- RIVAL CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. AFTER CONSIDERING THE RIVAL SUBMISSIONS I FIND A SUBSTANT IAL SUPPORT IN THE CONTENTIONS OF THE ID. A.R OF THE APPELLANT. TH E NATURE OF THE BUSINESS OF THE APPELLANT IS AS SUCH THAT THE S AME HAS TO BE RECOGNIZED AS PER THE ACCOUNTING STANDARD 9 AND AS 29. IN THE ACCOUNTING STANDARD 9 ISSUED BY THE ICAI THE RE VENUE IS RECOGNIZED IN A TRANSACTION INVOLVING RENDERING OF SERVICES EITHER UNDER THE COMPLETED SERVICE CONTRACT METHOD OR UNDER THE PROPORTIONATE COMPLETION METHOD WHICHEVER RELAT ES THE REVENUE TO THE WORK ACCOMPLISHED. SINCE THE WORK AS SIGNED TO THE APPELLANT CANNOT METED IN A PARTICULAR YEAR AS EVIDENT ITA NO. 2989/DEL/2008 4 FROM THE UNDER PROPORTIONATE COMPLETION ONLY. IN TH E CASE OF ASSESSEE, ORDER WAS NOT FULLY EXECUTED IN THE YEAR UNDER CONSIDERATION AND THE SAME WAS IN THE NATURE OF SIT C (SUPPLY, INSTALLATION, COMMISSIONING AND TESTING) AGAINST WH ICH ASSESSEE GOT THE AMOUNT FROM THE FOREIGN PRINCIPAL. AS PER THE AGREEMENT WITH THE FOREIGN PRINCIPAL INSTALLATION A ND COMMISSIONING WAS THE RESPONSIBILITY OF THE ASSESS EE. WORK OF THE COMMISSIONING WAS NOT COMPLETED IN THE PREVIOUS YEAR UNDER CONSIDERATION. THEREFORE THE APPELLANT WAS RI GHT IN OFFERING PART OF ITS RECEIPTS AS INCOME IN THE YEAR UNDER CONSIDERATION ONLY. FURTHER MORE AMOUNT RECEIVED BY THE ASSESSEE INCLUDED REMUNERATION TOWARDS THE SERVICES TO BE PROVIDED DURING THE EXTENDED WARRANTY SUPPORT ALSO. ASSESSEE HAD TO SUPPORT DURING THREE YEARS WARRANTY PERIOD. UNDER THESE CIRCUMSTANCES REMUNERATION RECEIVED FOR EXTEN DED WARRANTY PERIOD CANNOT BE CONSIDERED AS INCOME OF T HE YEAR UNDER CONSIDERATION. THIS PARTICULAR FINDING FINDS SUPPORT FROM THE DECISION OF CIT VS PUNJAB TRACTOR CO-OPERATIVE MULTI PURPOSE SOCIETY LTD. 234 ITR 105, PUNJAB & HARYANA HIGH COURT. IN FACT THE ASSESSEE DID NOT BECOME THE OWNE R OF THE AMOUNT AND COULD NOT APPROPRIATE IT TILL SERVICES W ERE RENDERED IN LIEU OF WHICH IT WAS RECEIVED. THE ASSESSEE COUL D LEGALLY CLAIM THE AMOUNT AFTER RENDERING THE SERVICES. PART OF THE AMOUNT COULD BE TREATED AS INCOME IN THE YEAR UNDER CONSIDERATION ON THE BASIS OF ACCRUAL OF THE RIGHT TO APPROPRIATE THE MONEY. SINCE THE RECEIPT WAS RELATABLE TO PARTI CULAR PERIOD IN FUTURE, IT WOULD FRUCTIFY AND MATURE INTO INCOME DURING THAT PERIOD AND NOT EARLIER. THE POLICY ADOPTED BY THE A SSESSEE FOR RECOGNIZING ITS REVENUE WAS FOLLOWED CONSISTENTLY F OR THE LAST SEVERAL YEARS WHICH WAS NOT DISTRIBUTED BY THE DEPA RTMENT IN THE EARLIER YEARS. IT HAS ALSO BEEN NOTICED THAT TH E ACCOUNTING ITA NO. 2989/DEL/2008 5 POLICY ADOPTED BY THE ASSESSEE WAS IN CONFORMITY WI TH THE ACCOUNTING STANDARD AS 9 AND AS 29. THEREFORE, I DO NOT FIND ANY REASON TO INTERFERE WITH THE POLICY ADOPTED BY THE ASSESSEE FOR THE LAST SO MANY YEARS IN CONSIDERATI ON. OTHERWISE ALSO THE REVENUE HAS NOT ESCAPED ASSESSME NT. IT IS THE QUESTION OF THE POINT OF TIME WHEN THE REVENUE EARNED BY THE ASSESSEE SHOULD BE BROUGHT FOR THE TAXATION. HO WEVER, SYSTEM OF THE ADJUSTMENT OF ITS REVENUE FOLLOWED BY THE ASSESSEE HAS BEEN FOUND WELL REASONED SCIENTIFIC AN D IN CONFORMITY WITH THE ACCOUNTING STANDARD AND CONSIST ENT. THEREFORE I DIRECT THE ASSESSING OFFICER NOT TO MAK E ANY DISALLOWANCE OF THE PROVISIONS OF SERVICES OFF RS. 49,23,437/-. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE FIND THAT IN THIS CASE THE ASSESSEE IS FOLLOW ING AS-9 AND AS- 29. IN THE ACCOUNTING STANDARD-9 ISSUED BY THE ICA I PROVIDES THAT REVENUE IS RECOGNISED IN A TRANSACTION INVOLVING R ENDERING OF SERVICES EITHER UNDER THE COMPLETED SERVICE CONTRAC T METHOD OR UNDER THE PROPORTIONATE COMPLETION METHOD. IN THIS CASE WORK ASSIGNED TO THE ASSESSEE COULD NOT BE COMPLETED IN A PARTICULAR YEAR. THE REVENUE IN SUCH CASE HAS TO BE RECOGNISED UNDER PROPORTIONATE COMPLETION METHOD ONLY. AS PER THE A GREEMENT WITH THE FOREIGN PRINCIPAL INSTALLATION AND COMMISSIONIN G WAS THE RESPONSIBILITY OF THE ASSESSEE. THE WORK OF COMMIS SIONING WAS NOT COMPLETED IN THE PREVIOUS YEAR UNDER CONSIDERATION. FURTHERMORE, AMOUNT RECEIVED BY THE ASSESSEE INCLUDED REMUNERAT ION TOWARDS THE SERVICES TO BE PROVIDED DURING EXTENDED WARRANT Y SUPPORT ALSO. ASSESSEE HAD TO SUPPORT DURING THREE YEARS WARRANTY PERIOD. UNDER THESE CIRCUMSTANCES, WE AGREE WITH THE LD. CIT(A) T HAT THE REMUNERATION RECEIVED FOR EXTENDED WARRANTY PERIOD CANNOT BE ITA NO. 2989/DEL/2008 6 CONSIDERED AS INCOME FOR THE YEAR UNDER CONSIDERATI ON. ASSESSEE WOULD LEGALLY CLAIM THE AMOUNT ONLY AFTER THE RENDE RING THE SERVICES. SINCE RECEIPT WAS RELATABLE TO A PARTICULAR PERIOD IN FUTURE, IT WOULD FRUCTIFY AND MATURE INTO INCOME DURING THAT PERIOD AND NOT EARLIER. WE FURTHER FIND THAT ASSESSEE HAS BEEN FOLLOWING T HIS PRINCIPLE OF RECOGNIZING REVENUE IN THE PAST ALSO. THIS HAS NOT BEEN DISPUTED BY THE REVENUE. IN THESE CIRCUMSTANCES, WHEN THE ASSES SEE HAS BEEN FOLLOWING AS-9 AND AS-29 AND HAS BEEN FOLLOWING CON SISTENT SYSTEM OF ACCOUNTING, WE AGREE WITH THE CIT(A) THAT THERE IS NO NEED TO INTERFERE WITH THE ASSESSEES METHOD OF ACCOUNTING. 6.1 FURTHERMORE, WE FIND THAT THE IMPUGNED AMOUNT HAS BEEN OFFERED BY THE ASSESSEE FOR TAXATION IN THE SUBSEQU ENT YEARS. HENCE, IT IS NOT A CASE THAT INCOME IS ESCAPING ASSESSMENT . IN THIS REGARD, WE REFER TO THE DECISION OF THE HONBLE APEX COURT IN EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES 358 ITR 593 358 ITR 593 358 ITR 593 358 ITR 593 WHEREIN IN PARA 32 IT HAS BEEN EXPOUNDED AS UNDER: - 32. THIRDLY, THE REAL QUESTION CONCERNING US IS TH E YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUTE THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE IMPORTS AND DID DERIVE BENEFITS U NDER THE ADVANCE LICENSE AND THE DUTY ENTITLEMENT PASS B OOK AND PAID TAX THEREON. THEREFORE, IT IS NOT AS IF T HE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD T HAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WA S QUITE ITA NO. 2989/DEL/2008 7 CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BU T ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUB LIC COFFERS. 6.2 THUS, FROM THE ABOVE, IT IS APPARENT THAT THERE IS NO CASE OF MAKING THE IMPUGNED ADDITION IN THE HANDS OF THEE A SSESSEE. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DIS CUSSIONS AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/5/2014. SD/- SD/- [ [[ [R.P. TOLANI R.P. TOLANI R.P. TOLANI R.P. TOLANI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 29/5/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 2989/DEL/2008 8