ADIT(IT)-2(1), MUMBAI V. SOCIETE GENERALE, MUMBAI

ITA 3769/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1286 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 16-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 11-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BRIJMOHAN P AGARWAL
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3769/MUM/2009 (ASSESSMENT YEAR: 2002-03) ADIT (IT) - 2(1) SOCIETE GENERALE ROOM NO. 120, 1ST FLOOR MAKER CHMBERS IV, 13TH FLOO R SCINDIA HOUSE, BALLARD ESTATE VS. JB MARG, NARIMAN POINT N.M. ROAD, MUMBAI 400038 MUMBAI 400021 PAN - AABCS 7484 C APPELLANT RESPONDENT APPELLANT BY: SHRI SANDEEP GOEL RESPONDENT BY: SHRI BRIJMOHAN P. AGARWAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXI, MUMBAI DATED 12.03.2009. REVENUE IS AGGRIEVED ON TH E ISSUE OF DELETION OF GUARANTEE COMMISSION AND RAISED THE MAIN GROUND AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN DELETING THE ADDITION MADE T O GUARANTEE COMMISSION OF RS.12,75,133/- WITHOUT APPRECIATING T HE FACT - I) THAT THE TRANSACTION INVOLVING BANK GUARANTEE IS ONLY IN THE YEAR IN WHICH GUARANTEE IS GIVEN. THE ASSESSEE BANK RECEIVES THE RIGHT TO RECEIVE GUARANTEE COMMISSION THE MOMEN T THE GUARANTEE IS GIVEN FOR ANY PERIOD. THE RIGHT TO REC EIVE GUARANTEE COMMISSION IS NOT DEFERRED TO ANY SUBSEQU ENT YEAR. AS PER THE MERCANTILE SYSTEM OF ACCOUNTING WHICH IS FOLLOWED BY THE ASSESSEE, WHENEVER THE ASSESSEE RECEIVES ANY RIGHT TO RECEIVE INCOME WHETHER ACTUALLY RECEIVED OR NOT, TH E SAME IS CONSIDERED AS ACCRUED TO THE ASSESSEE; II) THAT THE JUDGMENT OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BANK OF TOKYO LTD. {71 TAXMANN 85 } IS NOT APPLICABLE TO THIS CASE; III) THAT THE JUDGMENT IN THE CASE OF MADRAS INDUST RIAL CORPORATION LTD. VS CIT {225 ITR 802} {SC} THE HON'BLE SUPR EME COURT HAS RECOGNIZED THAT ORDINARY, REVENUE EXPENDITURE W HICH IS ITA NO. 3769/MUM/2009 SOCIETE GENERALE 2 INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHIC H IT IS INCURRED. FOLLOWING SIMILAR ANALOGY, GUARANTEE COMM ISSION RECEIVABLE IS TO BE CONSIDERED AS REVENUE IN ITS EN TIRETY IN THE YEAR IN WHICH IT ACCRUES. 2. BRIEFLY STATED, THE ASSESSEE IS IN THE BUSINESS OF BANKING AND FILED THE RETURN OF INCOME AT A LOSS OF RS.10,55,90,630/-. TH E A.O. HAD DETERMINED THE TOTAL LOSS AT RS.10,68,15,511/- AND NIL UNDER S ECTION 115JB. HOWEVER, WHILE SCRUTINISING THE RETURN THE A.O. NOTICED THAT THE ASSESSEE HAS RECEIVE AN AMOUNT OF RS.2,13,21,552/- BY WAY OF GUARANTEE C OMMISSION BUT HAS TAKEN RS.2,00,46,419/- TO THE P & L ACCOUNT. THE BA LANCE RS.12,75,133/- HAS NOT BEEN SHOWN AS INCOME. THE A.O. OBSERVED THA T THE TRANSACTION INVOLVING BANK GUARANTEE IS GIVEN IN THE YEAR IN WH ICH GUARANTEE IS GIVEN AND AS PER THE MERCANTILE SYSTEM OF ACCOUNTING THE ASSESSEE HAS RIGHT TO RECEIVE THE AMOUNT AND SINCE THE ENTIRE AMOUNT WAS RECEIVED HE ADDED THE AMOUNT OF RS.12,75,133/- AS INCOME OF THE YEAR. BEF ORE THE CIT(A) IT WAS SUBMITTED THAT MERE RECEIPT OF MONEY IS NOT INCOME AND NOT SOLE TEST OF CHARGEABILITY. IT WAS SUBMITTED THAT IF THE ASSESSE E ACQUIRED A RIGHT TO RECEIVE INCOME THE INCOME CAN BE SAID TO ACCRUE THO UGH IT MAY BE RECEIVED LATER ON. UNLESS AND UNTIL A DEBT IS CREATED IN FAV OUR OF THE ASSESSEE IT CANNOT BE SAID THAT INCOME IS ACCRUED. IT WAS FURTH ER EXPLAINED THAT WHEN A BANK GIVES GUARANTEE ITS OBLIGATION EXTENDS TO THE ENTIRE PERIOD FOR WHICH GUARANTEE WAS GIVEN AND THE COMMISSION IS ACCORDING LY SPREAD OVER THE PERIOD OF BANK GUARANTEE. SINCE THE OBLIGATION IS S PREAD OVER A PERIOD OF TIME SO SHOULD BE GUARANTEE COMMISSION. DRAWING PAR ALLEL TO THE CASE OF THE MADRAS INDUSTRIAL CORPORATION LTD. VS. CIT 225 ITR 802 (SC) THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ACCOUNTING THE GUARA NTEE COMMISSION SPREAD OVER THE YEARS FOR WHICH THE GUARANTEE WAS GIVEN AN D THIS ACCOUNTING PRACTICE WAS CONSISTENTLY BEING FOLLOWED. THE CIT(A ), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MA DE BY THE A.O. BY STATING AS UNDER: - 2.3 I HAVE CONSIDERED THE FINDINGS OF LEARNED AO A ND SUBMISSION OF THE LEARNED AR. THE AO IS OF THE VIEW THAT ONCE THE AMOUNT HAS BEEN RECEIVED IT IS THE INCOME OF THE ASSESSEE WHEREAS T HE ASSESSEE CONTENDS THAT THE AMOUNT SO RECEIVED PERTAINS TO UNEXPIRED P ERIOD WHICH MAY NOT ITA NO. 3769/MUM/2009 SOCIETE GENERALE 3 BE APPORTIONABLE UNTIL THE HAPPENING OF THE EVENT. IT MAY OR MAY NOT FRUCTIFY IN TO ACTUAL RIGHT TO RECEIVE. UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF AN APPELLANT A DEBT DUE BY SOMEBODY, IT C AN NOT BE SAID THAT INCOME HAS ACCRUED TO HIM. WHEN A BANK GIVES A GUAR ANTEE, ITS OBLIGATION EXTENDS TO THE ENTIRE PERIOD FOR WHICH G UARANTEE IS GIVEN, THEREFORE IT WOULD NOT BE APPROPRIATE TO HOLD THAT SUCH GUARANTEE COMMISSION ACCRUES TO THE FULL EXTENT THE MOMENT WH EN THE BANK STANDS AS A GUARANTOR. SINCE THE OBLIGATION IS SPREAD OVER A PERIOD OF YEARS, THEREFORE THE GUARANTEE COMMISSION SO RECEIVED IS A LSO REQUIRED TO BE SPREAD OVER THE PERIOD TO WHICH PERTAINS. THIS ISSU E HAS ALSO BEEN SUBJECT MATTER OF APPEAL FROM ASSESSMENT YEAR 1998- 99, 1999-00, 2000- 01, 01-02 BEFORE MY PREDECESSOR CIT(A) WHO HAS ALLO WED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE FACT AND ARGUMENTS RELA TING TO THE ISSUE ARE SAME AS IN THE EARLIER YEARS. THE LEARNED AR HAS AL SO PLACED RELIANCE ON CIT V BANK OF TOKYO LTD. (71 TAXMAN 85) (CAL) WHICH IS DIRECTLY APPLICABLE TO FACTS OF THE CASE OF ASSESSEE. THE LE ARNED AR HAS ALSO PLACED RELIANCE ON SUPREME COURT DECISION IN THE CA SE OF MADRAS INDUSTRIAL CORPORATION LTD V. CIT (225 ITR 802 (SC) WHICH SAYS THAT THE LIABILITY OF ON ACCOUNT OF DEBENTURES CANNOT BE ALL OWED IN ONE YEAR4 AND REQUIRED THE SPREAD OVER OF THE COMMITTED OBLIGATIO N TO BE DISCHARGED IN LATER YEARS. FOLLOWING THE SIMILAR ANALOGY THE GUAR ANTEE COMMISSION PERTAINING TO UN-EXPIRED PERIOD IS ALSO REQUIRED TO BE SPREAD OVER IN THE YEARS TO WHICH IT RELATES. IN VIEW OF THESE FACTS A ND FOLLOWING THE JUDICIAL PRONOUNCEMENTS AND FINDING OF MY PREDECESSOR CIT(A) FOR EARLIER YEARS, THE ADDITION OF RS.12,75,133/- IS DELETED. THE APPE AL ON THIS GROUND IS ALLOWED. 3. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED COUN SEL. 4. THIS ISSUE IS BEING AGITATED IN EARLIER YEARS ALSO. SINCE THE ASSESSEE IS CONSISTENTLY ACCOUNTING THE GUARANTEE COMMISSION AN D SPREAD IT OVER A PERIOD OF GUARANTEE GIVEN IN EACH CASE AND SUBSTANT IAL AMOUNT OF GUARANTEE COMMISSION WAS ACCOUNTED IN THE YEAR ALSO, THERE IS NO NEED TO DEVIATE FROM THE FINDINGS OF THE CIT(A), BOTH LEGALLY AND FACTUA LLY. THERE IS NO MERIT IN REVENUES CONTENTIONS. IT IS ALSO NOTICED THAT THE A.O. HAS NOT EXAMINED WHETHER ANY SUCH BANK GUARANTEE COMMISSION RECEIVED IN EARLIER YEARS WAS ACCOUNTED IN THIS YEAR AS PER THE ACCOUNTING POLICY FOLLOWED. IF HE IS OF THE OPINION THAT THE AMOUNT HAS ACCRUED AT THE TIME OF RECEIPT ITSELF SIMILAR ADJUSTMENT FOR THE OPENING AMOUNT SHOULD ALSO HAVE BEEN CONSIDERED BY HIM. THIS WAS NOT DONE. THE ASSESSEE IS CONSISTENTL Y FOLLOWING OFFERING GUARANTEE COMMISSION SPREADING OVER THE PERIOD OF G UARANTEE GIVEN. SINCE THIS ISSUE WAS AGITATED IN EARLIER YEARS AND CONSIS TENTLY HELD BY THE CIT(A) IN ITA NO. 3769/MUM/2009 SOCIETE GENERALE 4 ASSESSEES FAVOUR, THERE IS NO NEED FOR US TO DEVIA TE FROM THE ORDERS OF THE CIT(A). ACCORDINGLY THE GROUNDS ARE REJECTED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH JUNE 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXX1, MUMBAI 4. THE DIT (INTERNATIONAL TAXATION), MUMBAI 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.