MULTICONSULT P.LD, MUMBAI V. ITO 8(2)(3), MUMBAI

ITA 3517/MUM/2011

• Counselvise Citation: 351719914 RSA 2011
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3517/ M/2011 ASSESSMENT YEAR: 2007 - 08 M/S. MULTICONSULT PVT. LTD. 303/304, INDRADARSHAN BLDG. NO.18, NEXT TO TARAPORE GARDEN, ANDHERI (W), MUMBAI 400 053 PAN: AABCM8450A VS. INCOME TAX OFFICER 8(2) - 3 MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. GOPAL & SHRI JITENDRA SINGH REVENUE BY : SHRI RAVI PRAKASH, D.R. DATE OF HEARING : 13.03 .201 4 DATE OF PRONOUNCEMENT : 21.05.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 27.12.10 RELEVANT TO ASSESSMENT YEAR 2007 - 08 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: THE LEARNED CIT(A) ERRED IN, 1 . CONFIRMING ADDITION TO TOTAL INCOME OF RS.10,95,000/ - ON ACCOUNT OF CHANGE OF METHOD OF ACCOUNTING TO CASH SYSTEM. 2 . CONFIRMING ADDITION TO TOTAL INCOME OF RS.1,91,567/ - OUT OF TRAVELING EXPENSES. ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 2 GROUND NO.1 2. VIDE GROUND NO.1, THE ASSESSEE HAS AGITATED THE CONFIRMATION OF ADDITION OF RS.10,95,000/ - ON ACCOUNT OF CHANGE IN METHOD OF ACCOUNTING. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT THE ASSESSEE HAD DISCLOSED ITS INCOME FOLLOWING THE CASH SYSTEM OF ACCOUNTING WHEREAS THE BOOKS WERE BASED ON MERCANTILE SYSTEM OF ACCOUNTING. HE FURTHER OBSERVED THAT THE ASSESSEE HAD COMPUTED INCOME FOR INCOME TAX PURPOSES AS WELL AS FOR THE PROFIT & LOSS ACCOUNT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING UP TO ASSESSMENT YEAR 2003 - 0 4 . THEREAFTER NO RETURN WAS FILED BY THE ASSE SSEE FOR THREE SUBSEQUENT ASSESSMENT YEARS. HOWEVER, THE RETURN FOR THE SAID THREE YEARS I.E. ASSESSMENT YEARS 2004 - 05, 2005 - 06 & 2006 - 07 WAS FILED ONLY A DAY AFTER THE FILING OF THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007 - 08. THE AO OBSERVED THAT THE RETURNS FOR ASSESSMENT YEAR 2004 - 05 AND 2005 - 06 WERE NON - EST AS THE RETURN FOR THOSE YEARS WERE FILED EVEN BEYOND THE STIPULATED DATE FOR FILING OF BELATED RETURNS AND THE RETURN FOR ASSESSMENT YEAR 2006 - 07 WAS FILED BELATEDLY. THE ASSESSEE HAD BEEN FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING TILL 2003 - 04 BUT SUDDENL Y IN ASSESSMENT YEAR 2007 - 08 HAD CHANGED IT TO CASH SYSTEM. THE EFFECT OF THE SAID CHANGE OF SYSTEM OF ACCOUNTING RESULTED IN ESCAPEMENT OF INCOME OF RS.10,95,000/ - AS THE TOTAL INCOME , AS PER M ERCANTILE SYSTEM OF ACCOUNTING, CAME OUT TO RS.21,45,745/ - AS AGAINST THE RETURN INCOME OF RS.10,95,000/ - . HE THEREFORE HELD THAT THE ACT OF CHANGE OF ACCOUNTING SYSTEM OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 WAS NOT BONAFIDE AND HE ACCORDINGLY ADDED BACK THE ABOVE AMOUNT INTO THE INCOME OF THE ASSESSEE. 3 . IN THE FIRST APPEAL, THE LD. CIT(A) ALSO HELD THAT THE ACT OF CHANGE OF ACCOUNTING SYSTEM OF THE ASSESSEE FROM MERCANTILE SYSTEM TO CASH SYSTEM WAS ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 3 WITHOUT ANY JUSTIFIABLE EXPLANATION. HE THEREF ORE UPHELD THE ADDITION SO MADE BY THE AO. THE ASSESSEE HAS THUS COME INTO APPEAL BEFORE US. 4 . WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THERE WAS NO ESCAPEMENT OF INCOME EVEN AFTER CHANGE OF ACCOUNTING SYSTEM FROM MERCANTILE SYSTEM TO CASH SYSTEM. HE HAS FURTHER SUBMITTED THAT EVEN FOR THE THREE YEARS FOR WHICH THE ASSESSEE HAD FILED BELATED RETURNS, T HERE WAS NO TAXABLE INCOME DURIN G THE SAID YEARS . T HERE WAS NO IMPACT ON REVENUE ON ACCOUNT OF CHANGE OF METHOD OF ACCOUNTING FOR COMPUTING THE INCOME. HE HAS FURTHER CONTENDED THAT F ROM THE ASSESSMENT YEAR 2004 - 05 , THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE CASH SYSTEM OF ACCOUNT ING. EVEN THE RETURNS OF THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 [NON SCRUTINY AS S ESSMENT UNDER SECTION 143(1)] AND FOR ASSESSMENT YEAR 2009 - 10 [SCRUTINY ASSESSMENT UNDER SECTION 143(3)] HAVE BEEN ACCEPTED BY THE DEPARTMENT IN WHICH THE ASSESSEE HAS ADOP TED THE CASH SYSTEM OF ACC OUNTING. EVEN A SHOW CAUSE NOTICE WAS ALSO ISSUED TO THE ASSESSEE FOR CHANGE OF SYSTEM OF ACCOUNTING PERTAINING TO ASSESSMENT YEAR 2009 - 10 WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 22.06.12 ( COPIES PLACED ON PAPER BOOK PAGE 45 & 46) AND THEREAFTER NO FURTHER PROCEEDINGS WERE INITIATED/MADE AND AS SUCH THE EXPLANATION OFFERED BY THE ASSESSEE HAS BEEN DEEMED TO BE ACCEPTED BY THE DEPARTMENT FOR ASSESSMENT YEAR 2009 - 10. ON THE OTHER HAND, THE LD. D.R. HAS STRONGLY RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. HE HAS FURTHER STRESSED THAT THE ASSESSEE HAS NOT GIVEN ANY VALID REASON FOR CHANGE OF ACCOUNTING SYSTEM AND EVEN THE RETURN FOR THREE YEARS WAS NOT FILED BY THE ASSESSEE AFTER ASSESSMENT YEAR 2003 - 04. THE ASSE SSEE BEING A COMPANY WAS NOT SUPPOSED TO GIVE LAME EXCUSES FOR CHANGE OF SYSTEM OF ACCOUNTING. ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 4 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. THERE IS NO DOUBT THAT THE ASSESSEE HAS NOT GIVEN ANY PLAUSIBLE EXPLA NATION FOR CHANGE OF SYSTEM OF ACCOUNTING FROM THE ASSESSMENT YEAR 2004 - 05 ONWARDS. HOWEVER, THE FACT WHICH IS RELEVANT AT THIS STAGE IS THAT THE ASSESSEES INCOME TAX RETURNS, FOR SUBSEQUENT ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 ON TH E BASIS OF CASH SYSTEM OF ACCOUNTING, HAVE BEEN ACCEPTED BY THE DEPARTMENT. EVEN THOUGH THE ASSESSEE DID NOT FILE RETURN FOR THE ASSESSMENT YEAR 2004 - 05 AND 2005 - 06 OR THE RETURN WAS BELATEDLY FILED BEYOND THE STIPULATED DATE , YET THERE IS NO ALLEGATION B Y THE DEPARTMENT THAT THERE WAS SOME TAXABLE INCOME FOR THE SAID ASSESSMENT YEARS WHICH HAD ESCAPED ASSESSMENT OR THERE WAS ANY IMPACT ON THE REVENUE ON ACCOUNT OF CHANGE OF METHOD OF ACCOUNTING FOR COMPUTING THE INCOME ON THE BASIS OF CASH SYSTEM OF ACCOU NTING . WHEN FACED THE SOMEWHAT SIMILAR FACTS AND CIRCUMSTANCES, THE CO - ORDINATE BENCH OF TH IS TRIBUNAL , IN THE CASE OF M/S. JAMNADAS MORARJEE FINANCE PVT. LTD. IN ITA NO.3875/M/03 VIDE ORDER DATED 18.09.08 WHILE RELYING UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF VISHNU INDUSTRIAL GASES PVT. LTD. , HAS OBSERVED AS UNDER: 7. WE FIND, THE HONBLE DELHI HIGH COURT IN THE CASE O F VISHNU INDUSTRIAL GASES PVT. LTD . (SUPRA) HAS HELD AS UNDER: 3. IN A DECISION RENDERED ABOUT 50 YEARS AGO , THE BOMBAY HIGH COURT, SPEAKING THROUGH CHIEF JUSTICE TENDOLKAR IN COMMISSIONER OF INCOME TAX, DELHI, AHMER, RAJASTHAN AND MADHYA PRADESH VS. NAGRI MILLS CO. LTD. [1953] 33 ITR 681 OBSERVED AS FOLLOWS: WE HAVE OFTEN WONDERED WHY THE INCOME TAX AUTHOR ITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 5 AT A UNIFORM RATE, AND WHETHER DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952 - 53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953 - 54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGH TING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPA RTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 4. THE SITUATION DOES NOT SEEM TO HAVE CHANGED OVER THE LAST FIFTY YEARS AND THE REVENUE CONTINUES TO AGITATE THE QUESTION WHETHER TAX IS LEVIABLE IN A PARTICULAR YEAR OR IN SOME OT HER YEAR. THIS IS HARDLY A QUESTION THAT SHOULD REQUIRE US TO EXERCISE OUR MINDS PARTICULARLY SINCE THERE IS NO DOUBT THAT THE TAX HAS BEEN PAID AND THE RATE OF TAX REMAINS THE SAME FOR BOTH THE ASSESSMENT YEARS. 8. CONSIDERING THE TOTALITY OF THE FACT S OF THE CASE AND CONSIDERING THE FACT THAT THE ASSESSEE HAD ALREADY DECLARED THE ABOVE TWO AMOUNTS AND OFFERED TO TAX IN ASSESSMENT YEAR 1997 - 98 AS PER THE ACCOUNTING SYSTEM FOLLOWE3D BY IT AND RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT CITED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT NO ADDITION IS CALLED FOR THE SAME AMOUNT IN ASSESSMENT YEAR 1996 - 97. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.1,34,935/ - FROM ASSESS MENT YEAR 1996 - 97. 6 . IN THE CASE IN HAND ALSO, IT IS NOT THE CONTENTION OF THE REVENUE THAT DUE TO CHANGE OF SYSTEM OF ACCOUNTING ANY INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT OR THAT THE RATE OF TAX HAS BEEN CHANGED IN THE SUBSEQUENT YEARS. MOREOV ER, WHEN IN THE SUBSEQUENT YEARS THE CASH SYSTEM OF ACCOUNT HAS BEEN ACCEPTED BY THE DEPARTMENT THEN, NOW AT THIS STAGE , IF THE ASSESSEE WILL BE ASKED TO ADOPT MERCANTILE SYSTEM , THE ASSESSEE WILL HAVE TO FILE REVISED RETURNS FOR SUBSEQUENT ASSESSMENT YEAR S AND WHICH MAY FURTHER GIVE RISE TO MORE ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 6 COMPLICATIONS. ACCORDINGLY, WE DO NOT FIND ANY REASON, AT THIS STAGE, TO ASK THE ASSESSEE TO ADOPT MERCANTILE SYSTEM OF ACCOUNTING. 7 . IN VIEW OF THE ABOVE, THE IMPUGNED ADDITIONS ARE HEREBY ORDERED TO BE DELET ED. GROUND NO.2 8 . VIDE THE GROUND NO.2, THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF RS.1,91,567/ - RELATING TO FOREIGN TRAVEL EXPENSES INCURRED BY ITS DIRECTORS ON TRAVEL TO DELHI. THE ASSESSEE CLAIMED BEFORE THE AO THAT THE SAID FOREIGN TRIP WAS MAD E BY THE DIRECTORS TO EXPLORE THE JOINT VENTURE POSSIBILITY FOR MAKING INVESTMENT. THE AMOUNT WAS SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AO DISALLOWED THE SAID CLAIM ON THE GROUND THAT THE ASSESSEE HAD FAILED TO PRO VE THAT THE SAID TRAVELLING EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. 9 . IN THE FIRST APPEAL, THE LD. CIT(A) CONFIRMED THE AD DITION OBSERVING THAT NO EVIDENCE/ DOCUMENTS HAVE BEEN FURNISHED BY THE ASSESSEE TO SUBST ANTIATE ITS CLAIM THAT THE SAID TRAVELLING EXPENSES WERE IN FACT FOR THE BUSINESS OF THE ASSESSEE. 1 0 . LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE NECESSARY DETAILS WERE PRODUCED BEFORE THE AO , BUT THE AO FAILED TO TAKE NOTE OF THE SAME. EVEN THE L D. CIT(A) ALSO DID NOT GO THROUGH THE DETAILS SUBMITTED BY THE ASSESSEE. ON THE OTHER HAND, LD. D.R. HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 1 1 . AFTER CONSIDERATION OF THE MATTER, WE ARE OF THE VIEW THAT , IF THE ASSESSEE HAD PRODUCED DET AILS AND EVIDENCES JUSTIFYING THE VISIT OF THE DIRECTOR TO DELHI AND FURTHER THAT THE EXPENDITURE WAS MADE FOR THE PURPOSE OF THE BUSINESS OF ITA NO. 3517/M/2011 M/S. MULTICONSULT PVT. LTD. 7 THE ASSESSEE , THE REQUIRED EVIDENCES SHOULD BE LOOKED INTO BY THE AO. ACCORDINGLY, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ABOVE ISSUE AFRESH AFTER CONSIDERING THE NECESSARY DETAILS AND EVIDENCES, IF ANY, FURNISHED BY THE ASSESSEE. NEEDLESS TO SAY , THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 1 2 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.05. 201 4 . SD/ - SD/ - ( P.M. JAGTAP ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 21.05. 201 4 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.