Addl.CIT, Hyderabad V. Smt. P.Vani, Hyderabad

ITA 368/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66384 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.368/HYD/2010 ASSESSMENT YEAR: 2006-07 ADDL. CIT, RANGE-9, HYDERABAD. ...APPELLANT VS. SMT. P. VANI, SAROORNAGAR, HYDERABAD. RESPONDENT PAN:ADFPP 2331 R APPELLANT BY : SHRI M.H. NAIK RESPONDENT BY : SHRI PVSS PRASAD DATE OF HEARING : 29-08-2012 DATE OF PRONOUNCEMENT : 19-10-2012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 18-12-2009 OF CIT (A)-VI, HYDERABAD PASSED IN APPEAL NO.0007/08-09/CIT(A)-VI/2009-10AND IT PER TAINS TO THE ASSESSMENT YEAR 2006-07. 2. GROUND NOS. 1,8 AND 12 ARE GENERAL IN NATURE AND THEY DO NOT REQUIRE ANY ADJUDICATION. 3. GROUND NOS.2 TO 7 BASICALLY INVOLVE THE SOLE ISS UE OF DELETION OF AMOUNT OF RS.41,86,000/- BY THE CIT (A). 4. BRIEFLY THE FACTS OF THE CASE ARE THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS IN THE NAME AND STYLE OF M/S C HOWDHARY ENTERPRISES. 2 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES. THE ASSESSEE IS CARRYING ON THE BUSINESS OF TRADING OF POULTRY EQUIPMENTS. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE F OR EXPORTING CAGES, RECEIVED A PURCHASE ORDER FROM DEPARTMENT OF PRESI DENTS AFFAIRS, ABU DHABI IN UAE FOR SUPPLY OF 2000 ITEMS OF ARABIAN FA CTORY CAGES FOR A TOTAL CONTRACTED AMOUNT OF USD 6,30,000. IN COURSE OF AS SESSMENT PROCEEDINGS, THE AO FOUND THAT THERE IS PRICE DIFFE RENCE OF RS.51,32,000 RELATING TO EXPORT TURNOVER. IN RESPONSE TO THE QU ERY MADE BY THE AO, THE ASSESSEE EXPLAINED THAT AS PER THE WORK ORDER, THE ASSESSEE IS TO RECEIVE PAYMENT AS PER THE TERMS AND CONDITIONS APP ROVED BY THE DEPARTMENT OF PRESIDENTS AFFARIS, ABU DHABI WHICH IS AS FOLLOWS: 40% ADVANCE ALONG WITH CONFIRMATION ORDER 40% ON HEARING THE READINESS OF THE MATERIAL 10% AFTER THE RECEIPT OF MATERIAL 10% AFTER COMPLETION OF ERECTION 5. THE ASSESSEE FURTHER SUBMITTED THAT THE COST AS PER THE WORK ORDER COMPRISED OF SUPPLY, DELIVERY AND INSTALLATION AT T HE CUSTOMERS LOCATION. AS PER THE TERMS 10% OF THE INVOICE VALUE CAN BE CL AIMED ONLY AFTER CLAIMING DELIVERY OF MATERIAL AND ANOTHER 10% CAN B E CLAIMED ONLY AFTER INSTALLATION OF SUCH EQUIPMENT AT THE CUSTOMERS LO CATION. IT WAS SUBMITTED BY THE ASSESSEE THAT SHE HAS NOT RECOGNIZ ED 20% OF THE INVOICE VALUE RELATING TO THE DELIVERY AND INSTALLATION DUR ING THE RELEVANT PREVIOUS YEAR SINCE SHE HAS NOT CARRIED OUT AND PERFORMED TH OSE OBLIGATIONS. THE ASSESSEE THEREFORE REVERSED THE INVOICE VALUE BOOKE D IN THE ACCOUNTS TO THE TUNE OF RS.51,32,000/-. THE AO HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE, THE E NTIRE AMOUNT OF SALE CONSIDERATION AS RAISED IN THE INVOICE HAS TO BE AC COUNTED FOR. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, THE AMOUNT RECEIVABLE HAS ALSO TO BE TAKEN INTO ACCOUNT FOR D ETERMINING THE PROFIT. THE AO HAS FURTHER OBSERVED THAT THE CLAIM OF THE A SSESSEE THAT SHE HAS 3 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES. NOT INCURRED ANY FREIGHT EXPENSES TILL THE END OF MARCH FOR THE EXPORT ORDER IS NOT CORRECT IN VIEW OF THE FACT THAT THE G OODS PERTAINING TO THE DATE 20-3-02006 IS RELATED NOT TO THE IMPORT EXPENS ES BUT TO THE EXPORT EXPENSES. THE AO HAS FURTHER OBSERVED THAT THE AS SESSEE HAS NOT BEEN ABLE TO PRODUCE ANY AGREEMENT WITH REGARD TO CREDIT NOTE AND ANY CREDIT NOTE GIVEN BY THE PURCHASER. THEREFORE, IN THE ABS ENCE OF ANY CONFIRMATION OF THE PARTIES, THE DEBIT NOTE RECORDE D IN THE BOOKS OF ACCOUNTS IS ONLY A SELF SERVING DOCUMENT AND CANNOT BE TAKEN INTO CONSIDERATION. WITH THE AFORESAID CONCLUSION, THE A O ADDED AN AMOUNT OF RS.51,30,000 TO THE TOTAL INCOME OF THE ASSESSEE. THE ADDITION WAS CHALLENGED BEFORE THE CIT (A). 6. BEFORE THE CIT (A) THE ASSESSEE REITERATED ITS STAND TAKEN BEFORE THE AO IN SUPPORT OF HIS CLAIM. THE ASSESSEE HOWEV ER CONTENDED BEFORE THE CIT (A) THAT OUT OF THE AMOUNT OF RS.51,32,000 REVERSED BY THE ASSESSEE, AN AMOUNT OF RS.9,46,000 HAS BEEN WRONGLY REVERSED WHICH SHOULD HAVE BEEN RECOGNIZED AS REVENUE OF THE YEAR UNDER DISPUTE. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE ACCEPTED THE CONTENTION THAT THE DELIVERY OF EQUIPMENT AND INSTA LLATION OR OBLIGATION TO BE CARRIED OUT BY THE ASSESSEE AS SELLER OF GOOD S IS IN TERMS OF THE PAYMENT AGREED UPON BETWEEN THE PARTIES. IT IS ONLY AFTER CARRYING OUT SUCH OBLIGATION, A RIGHT IS ACCRUED TO THE ASSESSEE TO RECEIVE THE PAYMENT AND WHICH IS IN TERMS OF THE ACCEPTED ACCOUNTING PR INCIPLE AS-9 OF ICAI. THE CIT (A) FURTHER ACCEPTED THE ASSESSEES CONTENT ION THAT USD 1000 IS MEANT TO COVER INCIDENTALS AT THE TIME OF INSTALLAT ION AND CORRESPONDING VALUE OF INSTALLATION JOB IS EMBEDDED IN THE INVOIC E VALUE AND FURTHER OBSERVED THAT EVERYTHING AGREED UPON BY THE SELLE R LIKE DELIVERY AND INSTALLATION IS TO BE TREATED AS MILESTONE FOR REVE NUE RECOGNITION. THE CIT (A) ALSO NEGATED THE AOS FINDING THAT THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS OF THE AGREEMENT. THE CIT (A) OBSERVED THAT THE ASSESSEE DID NOT CARRY OUT OBLIGATIONS LIKE DELIVERY AND INSTALL ATION ETC., IN THE 4 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES. ACCOUNTING YEAR UNDER CONSIDERATION. CIT (A) FURTHE R DISAPPROVED THE AOS ARGUMENT THAT SUCH PORTION OF INVOICE VALUE IS NOT RECOGNIZED AS REVENUE OF THE YEAR WAS TO BE TREATED AS WORK IN PR OGRESS OR FINISHED GOODS SINCE IT IS NOT IN CONSISTENCY WITH THE ACCOU NTING PRACTICE. THE CIT (A) HELD THAT THE SALE OF GOODS IS COMPLETED BUT TH E QUESTION OF REVENUE RECOGNITION ON THE BASIS OF CONDITIONS OF DELIVERY AND INSTALLATION OF EQUIPMENT REMAINS TO BE COMPLIED WITH. THE CIT (A) RELYING UPON A JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF C IT VS. SHOORJI VALLABDAS AND CO.(46 ITR 144) AND ITAT, DELHI BENCH IN THE CASE OF GUARDIAN INDUSTRIES CORPORATION VS. ADIT (177 TAXMA N 106) HELD THAT PORTION OF INVOICE AMOUNTING TO RS.41,86,000 DID NO T ACCRUE TO THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER DISPUTE S INCE THE ASSESSEE DID NOT GET THE RIGHT TO RECEIVE SUCH AMOUNT. HE THERE FORE DIRECTED THE AO TO DELETE THE ADDITION OF RS.41,86,000. 7. THE LEARNED DR STRONGLY SUPPORTING THE REASONING OF THE AO SUBMITTED THAT THE ASSESSEE IS ADMITTEDLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE AMOUNT RAISED IN THE SALE INVOICE HAS TO BE TREATED AS ASSESSEES INCOME FOR THE ASSESSMENT YEA R UNDER CONSIDERATION. 8. THE LEARNED AR SUBMITTED THAT THE PURCHASE ORDER RECEIVED BY THE ASSESSEE WAS CONSOLIDATED ORDER OF MANUFACTURE, SU PPLY AND ERECTION OF CAGES AT THE CUSTOMERS LOCATION. DURING THE FINAN CIAL YEAR 2005-06, THE ASSESSEE WAS ABLE TO COMPLETE MANUFACTURE OF 2000 N OS. OF CAGES AND TWO INVOICES WERE RAISED FOR GROSS WORK ORDER VAL UE WHICH AMOUNTED TO RS.2,56,60,000 FOR 2000 CAGES. OUT OF 2000 CAGES, 800 CAGES WERE EXPORTED ON 23-6-2006 AND FREIGHT EXPENSES WERE INC URRED. HOWEVER, SO FAR AS SECOND INVOICE FOR 1200 CAGES IS CONCERNED, SINCE IT WAS MARKED FOR DELIVERY ON 31-3-2006, HENCE FREIGHT EXPENSES WERE NOT INCURRED. WHILE REVERSING THE CORRESPONDING INVOICE VALUE RELATING TO FREIGHT AND INSTALLATION, NOT DONE ON 31-3-2006, THE ASSESSEE B Y MISTAKE REVERSED A SUM OF RS.9,46,000 IN EXCESS OVER AND ABOVE RS.41,8 6,000 WHICH WAS THE 5 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES. CORRECT AMOUNT TO HAVE BEEN REVERSED. IN SUM AND S UBSTANCE THE LEARNED AR SUBMITTED THAT THE RIGHT TO RECEIVE THE INCOME H AVING NOT ACCRUED TO THE ASSESSEE, THE SAME WAS NOT RECOGNIZED AS INCOME EVEN THOUGH INVOICES WERE RAISED. THEREFORE, THE ASSESSEE HAS ISSUED A DEBIT NOTE OF RS.51,32,000 TO THE DEPARTMENT OF PRESIDENTS AFFAR IRS, ABU DHABI IN UAE. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO CONSIDERED WRITTEN SUBMISSION S OF THE ASSESSEE. UNDISPUTEDLY, THE ASSESSEE HAS RAISED TWO INVOICES FOR SUPPLY OF ENTIRE 2000 CAGES DURING THE RELEVANT ASSESSMENT YEAR. SI NCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE REVE NUE SHOULD HAVE BEEN RECOGNIZED DURING THE YEAR IN WHICH THE INVOICES WE RE RAISED. HOWEVER, IT IS THE CONTENTION OF THE LD. AR THAT INVOICES FOR 1 200 CAGES WAS RAISED AND MARKED FOR DELIVERY IN 2006 AND THEREFORE FREIGHT E XPENSES WERE NOT INCURRED. THEREFORE, THE ASSESSEE REVERSED THE FRE IGHT AND INSTALLATION EXPENSES WHICH HAD NOT ACCRUED ON 31-3-2006. IN TH IS REGARD, THE ASSESSEE REFERRED TO THE DEBIT NOTE OF RS.51,32,000 /- ISSUED TO THE DEPARTMENT OF DEPARTMENT OF PRESIDENTS AFFAIRS, AB U DHABI. HOWEVER, FACT REMAINS THAT THE AO IN THE ASSESSMENT ORDER HA S OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED ANY CORRESPONDING CREDIT NOTE SENT BY THE DEPARTMENT OF PRESIDENTS AFFAIRS, ABU DHABI . EVE N IN COURSE OF HEARING BEFORE US, THE LD. AR HAS NOT PRODUCED ANY CREDIT N OTE OR STATEMENT OF ACCOUNT OF THE PURCHASER I.E., DEPARTMENT OF PRESID ENT AFFAIRS, ABU DHABI TO ESTABLISH THE FACT OF REVERSING THE INVOICE VALU E AND ISSUING THE DEBIT NOTE FOR RS.51,32,000/-. THE CIT (A) HAS ACCEPTED THE ASSESSEES CLAIM WITHOUT EXAMINING THIS ASPECT. WE THEREFORE CONSID ER IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING AN OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE TO RECONCILE THE REVERSAL MADE BY IT O F INVOICE VALUE BY PRODUCING THE STATEMENT OF AFFAIRS AND CORRESPONDIN G CREDIT NOTE FROM THE PURCHASER TO ESTABLISH THE FACT THAT INCOME HAS NOT ACCRUED TO THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDER ATION. THE AO SHALL 6 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES. PASS A REASONED ORDER AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 19-10-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 19 TH OCTOBER, 2012. COPY TO:- 1) ADDL. CIT, RANGE-9, 2 ND FLOOR, IT TOWERS, HYDERABAD. 2)SMT. P. VANI, PROPX. CHOWDARY ENTERPRISWES, HUDA COMPLEX, SAROORNAGAR, HYDERABAD. 3) THE CIT (A)-VI, HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 7 ITA NO.368 OF 2010 SMT. P. VANI, PROP. CHOWDARY ENTAERPRISES.