Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 6367 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-07-2016
Appeal Filed By
Assessee
Bench Allotted
A
Next Hearing Date
29-06-2016
Assessment Year
2010-2011
Appeal Filed On
07-03-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI PARTHA SARTHI CHAUDHURI, JUDICIAL MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 199/HYD/2013 2006 - 07 DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD M/S. ALCHEMIST HR SERVICES (P) LTD., HYDERABAD [PAN: AAECA8769K] 386/HYD/2014 2010 - 11 ALCHEMIST (HR) SERVICES (P) LTD., HYDERABAD [PAN: AAECA8769K] DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD FOR REVENUE : SHRI K.E. SUNIL BABU, DR FOR ASSESSEE : SHRI Y. RATNAKAR, AR DATE OF HEARING : 29-06-2016 DATE OF PRONOUNCEMENT : 01-07-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : S THESE TWO ARE APPEALS BY REVENUE AND ASSESSEE FOR AYS. 2006-07 & 2010-11 RESPECTIVELY, WHICH RELATE TO THE SA ME ISSUE. SINCE COMMON ISSUE IS INVOLVED, THESE ARE HEARD TOGETH ER AND DISPOSED-OFF BY THIS COMMON ORDER. 2. THE MAIN ISSUE TO BE CONSIDERED IN THESE APPEALS IS WHETHER THE AMOUNTS RECEIVED BY ASSESSEE IN RESPECTIVE ASSESSMENT YEARS ARE TO BE ASSESSED ON RECEIPT BASIS O R TO BE ASSESSED ON ACCRUAL BASIS IN THE LATER YEARS. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 2 -: 3. ASSESSEE PROVIDES PLACEMENTS TO THE SUCCESSFUL STUDENTS OF THE MBA PROGRAMME BEING CONDUCTED BY ICFAI THROUGH A SPECIAL PLACEMENT SCHEME (SPS). ASSESSEE A LSO OFFERS WIDE RANGE OF HR SOLUTIONS TO THE MANUFACTURING AND S ERVICE SECTORS DRAWING UP ON THE KNOWLEDGE AND EXPERIENCE OF ITS PROFESSIONAL TEAM. THE MBA PROGRAMMES ARE NOT CONDUC TED BY ASSESSEE, BUT ARE CONDUCTED BY ANOTHER INSTITUTE ICFAI. AS PART OF MBA PROGRAMME, ICFAI OFFERS PLACEMENT SERVICES AF TER THE COURSE IS COMPLETED FOR WHICH ASSESSEE PROVIDES SER VICES. THE FEES FOR THE SERVICES RS. 3,300/- PER PERSON IS COL LECTED BY ICFAI AND WAS REMITTED TO ASSESSEE AT THE BEGINNING OF THE COU RSE ITSELF. THUS, ASSESSEE IN AY. 2006-07 HAD RECEIVED A SUM OF RS. 3,80,85,000/- TOWARDS PLACEMENT FEE FROM THE STUDENTS P URSUING LONG DISTANCE TRAINING PROGRAMME COURSES CONDUCTED BY ICFAI SUCH AS MS FINANCE, MBA AND MCA. THESE ARE NOT CAMP US PROGRAMMES AND WERE UNDER TAKEN BY PERSONS WHO ARE I N EMPLOYMENT. SINCE THE COURSE IS FOR A PERIOD OF TWO YEARS, THE SERVICES ACCORDING TO THE BROCHURE GIVEN BY THE ASSESS EE-COMPANY STARTS AT THE END OF SECOND YEAR, AFTER THE PERSONS COMP LETE THE COURSE SUCCESSFULLY. THE REGISTRATION UNDER SPS IS O PTIONAL AND VALID FOR A PERIOD OF FOUR YEARS FROM THE DATE OF RE GISTRATION. IN PRACTICE IN THE FIRST TWO YEARS, THERE ARE NO SERVICES AS THE CANDIDATES UNDERGO MBA PROGRAMME AND ASSESSEE UNDERTA KES TO PROVIDE PLACEMENTS TO THE SUCCESSFUL STUDENTS OF PROGR AMMES WITHIN THREE MONTHS FROM THE RECEIPT OF COMPLETION CERTIF ICATES FROM THE REGISTERED STUDENTS. SINCE ASSESSEES OBLIGA TION TO PROVIDE PLACEMENT COMMENCES AFTER THE COMPLETION OF T WO YEARS COURSE FOR WHICH THE CANDIDATE GOT REGISTERED, ASSES SEE ACCOUNTED THE INCOME IN THIRD AND FOURTH YEARS DURING WHICH ASSE SSEES I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 3 -: OBLIGATION TO RENDER ANY SERVICE TO THE REGISTERED STUDE NTS ARISES. THE OBLIGATION CONCLUDES AT THE END OF FOURTH YEAR. 3.1. THUS, EVEN THOUGH THE PERIOD OF FOUR YEARS IS I NVOLVED FROM THE DATE OF REGISTRATION, ASSESSEE RECOGNIZED THE INCOME IN THIRD AND FOURTH YEAR WHEN ITS OBLIGATION ARISES TO PRO VIDE THE SERVICE. ACCORDINGLY, ASSESSEE DID NOT OFFER ANY IN COME FROM THIS SPS IN THE YEAR AY 2006-07 BUT OFFERED THE INCOMES IN AYS. 2008-09 AND 2009-10 AT 50% OF THE RECEIPTS IN EACH YEA R. THUS, EVEN THOUGH ASSESSEE RECEIVED RS. 3.80 CRORES DURING THE PERIOD 01-04-2005 TO 31-03-2006 INCOME OF RS. 1,90,42,500/ - WAS OFFERED FOR THE FIRST TIME IN ACCOUNT YEAR 2007-08 REL EVANT FOR AY. 2008-09. ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOU NTING AND HAS CONSISTENTLY RECOGNISED THE INCOME IN THE SAME MANN ER. IN THE ASSESSMENT FOR THE AY. 2006-07, AO WAS OF THE OPINI ON THAT ASSESSEE HAS RECEIVED AMOUNT OF RS. 3,80,85,000/- AN D THE SAME WAS NOT OFFERED TO TAX. HOLDING THAT ASSESSEE HAS SPENT AMOUNTS DURING THE YEAR, HE BROUGHT THE ENTIRE AMOUNT TO TAX. IN LATER YEARS FROM AY. 2007-08 TO 2010-11, THE ASSESSMENTS HAV E BEEN ACCEPTED ON THE BASIS OF ASSESSEES DECLARED INCOME S, MAY BE RECEIPTS SHOWN BY ASSESSEE IN THE P&L ACCOUNT ARE MO RE THAN THE RECEIPTS THROUGH FRESH REGISTRATIONS. IN AY. 2010-1 1 AGAIN, ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 4,47,10,000/- AND AS PER THE ACCOUNTING PRACTICE BEING FOLLOWED BY ASSESSEE, IT HAS OFFERED AN AMOUNT OF RS. 2,23,55,000/- IN AY. 2012-13 ALONGW ITH 50% OF THE AMOUNT RECEIVED IN AY. 2009-10. THE AO, WHILE A CCEPTING THE AMOUNTS OFFERED BY ASSESSEE PERTAINING TO RECEIPTS IN EARLIER YEARS, FURTHER BROUGHT TO TAX THE AMOUNT OF RS. 4,47,10, 000/- IN AY. 2010-11 ON THE BASIS OF THE RECEIPTS FOR THE SAME REASONS CONSIDERED IN AY. 2006-07. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 4 -: 4. IN APPEAL FOR AY. 2006-07, ON THE BASIS OF DETAI LED SUBMISSIONS OF ASSESSEE BOTH ON FACTS AND ON LAW, TH E LD. CIT(A) REMANDED THE MATTER TO AO AND AFTER CONSIDERING THE REM AND REPORT AND DETAILED OBJECTIONS FROM ASSESSEE, ACCEPTED THE ASSESSEES CONTENTIONS AND DELETED THE ADDITION SO MADE BY STATING AS UNDER: 7. I HAVE GONE THROUGH THE FACTS OF THE CASE, REMA ND REPORT AND THE SUBMISSIONS OF THE APPELLANT. IN THE PRESEN T APPEAL, THE ONLY ISSUE FOR CONSIDERATION IS WHETHER OR NOT THE SPECIAL PLACEMENT FEE OF RS. 3,80,85,000/- RECEIVED BY THE APPELLANT FROM ICFAI CONSTITUTES INCOME FOR THE ASSESSMENT YEAR 2006-07. IN THIS CONTEXT, SOME OF THE CLAUSES OF THE MEMORANDUM OF U NDERSTANDING ENTERED ON 1-4-2005 BY THE APPELLANT WITH ICFAI ARE EXTRACTED BELOW FOR THE SAKE OF CLARITY: '2. A STUDENT ENROLLING FOR A LONG DISTANCE COURSE WITH ICFAI OR ITS SPONSORED UNIVERSITY IS GIVEN THE OPTION TO AVA IL THE PLACEMENT SUPPORT RENDERED BY THE SECOND PARTY, SUBJECT TO TE RMS OF REGISTRATION FRAMED BY BOTH PARTIES BY MUTUAL CONSE NT. THE CHARGES FOR SUCH PLACEMENT SUPPORT ARE COLLECTED BY ICFAI AT TIME OF ENROLMENT TO THE COURSE. THEREAFTER THE APPLICAT ION FORMS FOR REGISTRATION AND THE PLACEMENT SUPPORT CHARGES ARE PASSED ON BY ICFAI TO THE SECOND PARTY TO THE TERMS OF THE REGUL ATIONS. 3. THE SECOND PARTY AGREES TO PROVIDE PLACEMENT ANY WHERE IN INDIA OR ABROAD TO THE REGISTERED STUDENTS WITHIN T HREE MONTHS FROM THE DATE ON WHICH THE PROGRAM COMPLETION CERTIFICAT E IS ISSUED BY THE UNIVERSITY SUBJECT TO THE TERMS OF REGULATIONS. 4. THE PRESCRIBED FEE IS INITIALLY RS.3,000/- (EXCL UDING SERVICE TAX) AND SHALL BE PAYABLE BY ALL ELIGIBLE STUDENTS OPTING FOR THE SCHEME. THE SECOND PARTY HAS A RIGHT TO REVIEW THE FEE. 5. ALL THE AGREED TERMS AND CONDITIONS BY BOTH PART IES FOR THE PLACEMENT SCHEME SHALL BE STIPULATED IN THE APPLICA TION FORM TITLED 'ALCHEMIST (SPECIAL PLACEMENT SCHEME) REGULATIONS, 2005. A COPY OF THE AGREED TERMS OF THE SCHEME IS ENCLOSED HERETO AND SHALL FORM PART OF THIS MOU. THE CONTENTS OF THE REGULATI ONS SHALL GOVERN THE MUTUAL RIGHTS AND OBLIGATIONS OF BOTH PA RTIES AND ALSO THE OBLIGATIONS OF THE SECOND PARTY TOWARDS THE STU DENTS ENROLLING FOR THE PLACEMENT SERVICES. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 5 -: 6. ALL OBLIGATIONS OF THE SECOND PARTY UNDER THE SC HEME WILL CEASE IF THE REGISTERED STUDENT DOES NOT COMPLETE THE PROGRA M DURING THE VALIDITY PERIOD. REFUND OF FEES PAID SHALL BE IN AC CORDANCE WITH THE AGREED TERMS AND CONDITIONS FORMING PART OF THE ENC LOSED REGULATIONS 2005. 7.REGISTRATION OF STUDENTS DE NOVO ON EXPIRY OF VAL IDITY PERIOD WILL BE ACCEPTED AS STIPULATED IN THE REGULATIONS, WHICH ARE SUBJECT TO REVIEW PERIODICALLY BY MUTUAL CONSENT. 8. THE SECOND PARTY SHOULD MAINTAIN ALL THE PLACEME NT RECORDS OF THE STUDENTS OF THE FIRST PARTY AND SHALL PROVIDE T HE RECORD FROM TIME TO TIME TO THE FIRST PARTY AS AND WHEN REQUIRE D OR DEMANDED.' 7.1 IT IS ALSO EQUALLY IMPORTANT TO BROWSE THROUGH SOME IMPORTANT CLAUSES OF ALCHEMIST (SPECIAL PLACEMENT S CHEME) REGULATIONS, 2005, WHICH HAVE BEEN EXTRACTED BELOW: 'A.0503 THE SCHEME IS AVAILABLE ONLY FOR THE BENEFI T OF THE REGISTERED STUDENTS ON OPTIONAL BASIS. TO CLARIFY F URTHER, THE ELIGIBLE STUDENTS ARE FREE TO APPLY OR NOT APPLY FO R THE SCHEME. A.0504 THE APPROVED PROGRAMS ARE MS (FINANCE), MBA AND MCA OFFERED ON A DISTANCE LEARNING BASIS BY THE UNI VERSITY. A.0508 (1) THE REGISTERED STUDENT SHALL MAKE AN APP LICATION IN THE PRESCRIBED FORM TO THE SERVICE PROVIDER WITHIN THIRTY DAYS FROM THE SPECIFIED DATE. (2) THE SERVICE PROVIDER AGREES TO PROVIDE PLACEMENT ASSISTANCE TO THE REGISTERED STUDENTS WIT HIN THREE MONTHS FROM THE RECEIPT OF COMPLETED APPLICATION FROM THE REGISTERED STUDENT. A.0512 THE STUDENT SHALL BE ENTITLED TO CLAIM REFUN D OF THE PRESCRIBED FEE SO LONG AS THE SERVICE PROVIDER DOES NOT RENDER ANY PLACEMENT SERVICE IN RESPECT OF SUCH STUDENT WITHIN THE TIME SPECIFIED IN REGULATION A. 0508(2). THE OBLIGATION TO RENDER THE SERVICE ON THE PART OF THE SERVICE PROVIDER SHALL C OMMENCE ONLY UPON THE COMPLETION OF THE STUDY BY THE STUDENT IN ACCORDANCE WITH THE RULES OF THE UNIVERSITY AND WITHIN THE VALIDITY PERIOD.' 7.2 IT IS A FACT THAT THE SPECIAL PLACEMENT FEE IS APPLICABLE TO APPROVED PROGRAMS OFFERED THROUGH DISTANCE LEARNING MODE, WHICH ARE OF TWO TO THREE YEARS DURATION. NORMALLY, THE A CADEMIC SESSION STARTS AFTER ENROLMENT PROCESS FOR A COURSE IS COMP LETED. HENCE, IT IS INCUMBENT TO GO THROUGH THE ENROLMENT PROCESS IN VOLVED IN COURSES OFFERED BY ICFAI UNIVERSITY. FOR THIS PURPO SE, THE INFORMATION HAS BEEN GATHERED FROM THE WEBSITES OF ICFAI UNIVERSITY ICFAI.IN, ICFAI.ORG, IUTRIPURA.EDU. ON V ERIFICATION, IT IS I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 6 -: OBSERVED THAT THE ENROLMENT OF STUDENTS TO THE COUR SES OFFERED BY ICFAI UNIVERSITY TAKES PLACE THROUGHOUT THE YEAR FO UR TIMES AND ACCORDING TO ONE'S OWN CONVENIENCE, THE STUDENTS CA N ENROL INTO ANY OF THE ABOVE PROGRAMS THROUGHOUT THE YEAR I.E., JUNE 30TH, SEPTEMBER 30TH, DECEMBER 3PT AND MARCH, 3PT. THUS, AS PER THEIR ENROLMENT, THE STUDENTS ARE ELIGIBLE TO WRITE THE E XAMINATIONS DURING JANUARY, APRIL, JULY AND OCTOBER IF ENROLMEN T IS DONE IN JUNE, SEPTEMBER, DECEMBER AND MARCH RESPECTIVELY. M OREOVER, THE SPECIAL FEATURE OF COURSE OFFERED BY ICFAI UNIVERSI TY THROUGH DISTANCE LEARNING MODE IS A STUDENT ENROLLED FOR AN Y OF TWO OR THREE YEAR COURSE HAS THE OPTION TO COMPLETE THE COURSE I N A TOTAL OF SEVEN YEARS. NOW COMING TO THE ISSUE OF SPECIAL PLA CEMENT FEE RECEIVED BY THE APPELLANT, THE TERMS AND CONDITIONS STIPULATED IN MOU ENTERED BY THE APPELLANT WITH THE UNIVERSITY SH OULD NOT BE READ IN ISOLATION AND IT SHOULD BE READ IN CONSONAN CE WITH THE ALCHEMIST (SPECIAL PLACEMENT SCHEME) REGULATIONS, 2 005. THE TWO AGREEMENTS SPEAK ABOUT THE OBLIGATIONS OF THE APPEL LANT AS ALSO THE ENTITLEMENT OF CLAIM FOR REFUND BY THE STUDENTS IN CASE OF NON- FULFILLMENT OF THE CONDITIONS BY THE APPELLANT. KEE PING IN VIEW THE SPECIAL FEATURE OF ENROLMENT PROCESS INVOLVED IN A YEAR I.E., FOUR TIMES A YEAR FOR THE ABOVE COURSES THROUGH DISTANCE LEARNING MODE, ABSOLUTELY THERE WOULD NOT BE ANY KIND OF ACTIVITY RATHER OBLIGATION ON THE PART OF THE APPELLANT TO SEARCH FOR A PROSPE CTIVE EMPLOYER ETC., INASMUCH AS IT IS NOT POSSIBLE FOR ALL THE ST UDENTS TO GET ENROLLED AT THE START OF THE ACADEMIC YEAR. MOREOVE R, UNCERTAINTY PREVAILS IN THE FIRST YEAR ITSELF AS NORMALLY THERE WOULD BE MORE WITHDRAWALS IN THE INITIAL YEAR AND CONSEQUENTLY RE FUND OF FEE. FURTHER, THE TERMS OF THE ALCHEMIST (SPECIAL PLACEM ENT SCHEME) REGULATIONS, 2005 CLEARLY SPECIFIES THAT THE OBLIGA TION OF THE APPELLANT TO PROVIDE SERVICES COMMENCES UPON COMPLE TION OF THE STUDY BY THE ELIGIBLE STUDENT, WHICH MEANS AFTER PR ODUCTION OF 'PROGRAM COMPLETION CERTIFICATE'. 7.3 THE SCHEME OF THE INCOME TAX ACT IS TO CHARGE I NCOME TAX ON 'TOTAL INCOME OF THE ASSESSEE IN THE RELEVAN T PREVIOUS YEAR'. FOR INCOME TO BE TAXABLE, THERE HAS TO BE ACCRUAL O F INCOME IN THE FIRST PLACE. AS HAS BEEN HELD IN THE CASE OF E.D. S ASSOON & CO. LTD. V. CIT[1954] 26 ITR 27 (SC)], ACCRUAL OF INCOME TAK ES PLACE WHEN THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME . THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUGH IT MAY BE REC EIVED LATER ON ITS BEING ASCERTAINED. THE ASSESSEE MUST HAVE CONTR IBUTED TO ITS ACCRUING OR ARISING BY RENDERING SERVICES OR OTHERW ISE; AND A DEBT MUST HAVE BEEN CREATED IN HIS FAVOUR. THEREFORE, UN LESS AND UNTIL HIS CONTRIBUTION OR PARENTHOOD IS EFFECTIVE IN BRIN GING INTO EXISTENCE A DEBT OR A RIGHT TO RECEIVE THE PAYMENT, FOR INCOM E TO 'ACCRUE', THE MERE EXPRESSION 'EARNED' IN THE SENSE OF RENDERING THE SERVICES, ETC., BY ITSELF IS OF NO AVAIL. IN ORDER THAT INCOM E MAY SAID TO HAVE ACCRUED AT A PARTICULAR POINT OF TIME, IT MUST HAVE RIPENED INTO A DEBT AT THAT MOMENT, I.E., THE ASSESSEE SHOULD HAVE ACQUIRED A I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 7 -: RIGHT TO RECEIVE PAYMENT AT THAT MOMENT, THOUGH THE RECEIPT ITSELF MAY TAKE PLACE LATER. THE DATE OF ACCRUAL, ON THE O THER HAND, DEPENDS UPON THE NATURE AND TERMS OF THE STATUTE OR AGREEMENT WHICH GIVES RISE TO THE RIGHT INCOME IS SAID TO BE RECEIVED WHEN IT REACHES THE ASSESSEE, WHEREAS WHEN THE RIGHT TO REC EIVE INCOME BECOMES VESTED IN THE ASSESSEE IT IS SAID TO 'ACCRU E OR ARISE'. THEREFORE, THE BASIC CONCEPT IS THAT THE ASSESSEE M UST HAVE ACQUIRED THE 'RIGHT TO RECEIVE THE INCOME'. ACCORDI NGLY, IT FOLLOWS THAT, WHERE THE ASSESSEE HAS NO RIGHT TO INCOME, TH E SAME CANNOT BE SAID TO HAVE ACCRUED. IN THE PRESENT CASE, THE A PPELLANT HAS NO RIGHT TO RECEIVE THE INCOME TILL ITS OBLIGATION TO PERFORM THE SERVICES COMMENCES. 7.4 ADVANCE IS NOT INCOME. THE HIGH COURT IN THE CA SE OF PUNJAB TRACTORS CO-OPERATIVE MULTIPURPOSE SOCIETY L TD. [1998] 234 ITR 105/[1997] 95 TAXMAN 579 (PUNJ. & HAR.) HELD TH AT THE MONEY RECEIVED FROM THE BUYERS COULD NOT BE TREATED TO BE INCOME, UNLESS RIGHT TO APPROPRIATE IT TOWARDS THE SERVICES HAD AC CRUED OR ARISEN. SO LONG AS THE RIGHT DID NOT EXIST, THE MONEY RECEI VED FROM THE BUYERS REMAINED ADVANCE MONEY. THE COURT FURTHER HE LD THAT DEPOSITS OR ADVANCES RECEIVED BY THE ASSESSEE BECAM E TRADING RECEIPTS WHEN THE ASSESSEE BECAME ENTITLED TO APPRO PRIATE THE SAME TO ITS INCOME 'AT THE TIME OF RENDERING THE SE RVICE.' 7.5 RECENTLY, THE CHENNAI SPECIAL BENCH OF TRIBUNAL HELD IN THE CASE OF ASSTT. CIT V. MAHINDRA HOLIDAY RESORTS (INDIA) LTD. [2010] - 5 TAXMANN.COM 55 THAT THE ENTIRE AMOUNT OF TIME-SHARE MEMBERSHIP FEE RECEIVABLE BY THE ASSESSEE UPFRONT A T THE TIME OF ENROLMENT OF A MEMBER IS NOT THE INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR ON ACCOUNT OF CONTRACTUAL OBLIGATION T HAT IS FASTENED TO THE RECEIPT TO PROVIDE SERVICES IN FUTURE OVER THE TERM OF CONTRACT. THE TRIBUNAL HAS LAID DOWN SIGNIFICANT GUIDING PRIN CIPLES ON 'ACCRUAL CONCEPT' IN THE LIGHT OF CONFLICTING DECIS IONS AND INTERPRETED VARIOUS SUPREME. COURT DECISIONS TO ARRIVE AT THE C ONCLUSION. 7.6 THE ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT, OR THE WAY IN WHICH ENTRIES ARE MADE IN THE BOOKS OF ACCOU NT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFITS OR SUFFERED ANY LOSS. HOWEVER, BOOKS OF ACCOUNT CANNOT BE DISREGARDED WHERE THE ACCOUNTS ARE CORRECTLY MAD E IN ACCORDANCE WITH APPLICABLE ACCOUNTING PRINCIPLES AN D THE SAME IS NOT IN CONTRADICTION TO THE PROVISIONS OF THE ACT. THE APEX COURT IN CIT V. UP. STATE INDUSTRIAL DEVELOPMENT CORPN. [199 7] 225 ITR 703/92 TAXMAN 45 (SC), HELD THAT EVEN IN THE MERCAN TILE SYSTEM OF ACCOUNTING IT IS ONLY THE ACCRUAL OF REAL INCOME WHICH IS CHARGEABLE TO TAX AND ACCRUAL IS A MATTER OF SUBSTA NCE TO BE DECIDED ON COMMERCIAL PRINCIPLES HAVING REGARD TO T HE BUSINESS CHARACTER OF THE TRANSACTIONS AND THE REALITIES AND SPECIALTIES OF THE SITUATION. IT WAS OBSERVED THAT WHERE THE ASSES SEE WAS I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 8 -: MAINTAINING THE ACCOUNTS CORRECTLY IN ACCORDANCE WI TH THE PRINCIPLES OF ACCOUNTANCY AS APPLICABLE AND THE REV ENUE AUTHORITIES COULD NOT SHOW THAT THE SAME WAS REPUGN ANT TO ANY PROVISION OF THE ACT, THE BOOKS OF ACCOUNT COULD NO T BE DISREGARDED. 7.7 IN THE PRESENT APPELLANT'S CASE, THOUGH THE SPE CIAL PLACEMENT FEE WAS RECEIVED IN FULL, YET THE APPELLA NT HAD NOT BECOME RICHER AS THERE WAS A CORRESPONDING LIABILIT Y ON THE APPELLANT TO SERVICE THE MEMBERS FOR THE CONTRACTED PERIOD. THUS, THE SPECIAL PLACEMENT FEE REPRESENTS ONLY AN ADVANC E IN THE HANDS OF THE APPELLANT AND IT BECOMES OWNER OF THE ENTIRE SUM ONLY WHEN THE SERVICE OBLIGATION IS FULLY DISCHARGE D. AS PER THE ACCOUNTING STANDARD (AS) ON RECOGNITION OF THE REVE NUE FROM SERVICE TRANSACTIONS, WHEN SERVICES ARE PROVIDED BY AN INDETERMINATE NUMBER OF ACTS OVER A SPECIFIC PERIOD OF TIME, THE REVENUE IS RECOGNIZED ON A STRAIGHT LINE BASIS OVER THE SPECIFIC PERIOD, UNLESS THERE IS EVIDENCE THAT SOME OTHER ME THOD BETTER REPRESENTS THE PATTERN OF PERFORMANCE. THE TAX AUTH ORITY HAD NO RIGHT TO TINKER WITH THE ACCOUNTS OF THE TAXPAYER I F THE METHOD OF ACCOUNTING WAS SYSTEMATICALLY FOLLOWED AND WAS IN A CCORDANCE WITH THE AS AND THE METHOD FOLLOWED BY THE TAXPAYER WAS NOT IRRATIONAL, BUT WAS SANCTIFIED BY USAGE. IN THE PRE SENT CASE, THE ASSESSING OFFICER COULD NOT REBUT THE CLAIM OF THE APPELLANT BY VERIFYING THE BOOKS OF ACCOUNT AND SHOW THAT ANY PO RTION OF THE AMOUNT OF RS. 3,80,85,000/- WAS UTILISED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. HENCE, THE SPECIAL PLACEMENT FEE OF RS.3,80,85,000/- RECEIVED BY THE A PPELLANT IS ONLY AN ADVANCE AND TO BE TREATED AS SUCH FOR THE F INANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 AND THE SAM E CANNOT BE TAXED IN THE YEAR OF RECEIPT. ACCORDINGLY, THE ADDI TION MADE BY THE ASSESSING OFFICER IS DELETED. 7.8 AS FAR AS ACCRUAL OF INCOME IS CONCERNED, THE A SSESSING OFFICER HAS NOT MADE OUT A CASE FOR REVENUE AND HEN CE THE METHOD ADOPTED BY THE APPELLANT FOR TAXING 50% EACH OF THE ADVANCE IN THE ASSESSMENT YEARS 2008-09 AND 2009-10 IS AS PER THE ACCOUNTING STANDARDS FOLLOWED BY THE APPELLANT AND NEED NOT BE INTERFERED WITH. 5. REVENUE IS AGGRIEVED ON THE ABOVE ORDER AND RAIS ED THE FOLLOWING GROUNDS: 2. THE LEARNED CIT(APPEALS) ERRED IN DELETING TH E ADDITIONS HOLDING THAT THE SPECIAL PLACEMENT FEES OF RS. 3,80 ,85,000/- IS ONLY AN ADVANCE AND THE SAME CANNOT BE TAXED IN THE YEAR OF RECEIPT. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 9 -: 3. THE LEARNED CIT(APPEALS) OUGHT TO HAVE UPHELD TH E ADDITION BASING ON THE FINDING OF THE ADDL. CIT DUR ING REMAND PROCEEDINGS WHICH INDICATE THAT THERE ARE NO SPECIF IC SERVICES RENDERED BY THE ASSESSEE TO THE STUDENTS AND IT IS ONLY A SCHEME TO COLLECT MONEY FROM THE STUDENTS AND AS SUCH THER E IS NO REASON TO POST PONE THE INCOME TO A LATER DATE. 6. IN AY. 2010-11, HOWEVER, LD. CIT(A) DEFERRED FR OM THE ABOVE ORDER OF THE PREDECESSOR AND CONFIRMED THE ADDI TION BY STATING AS UNDER: 7. THE INFORMATION ON RECORD IS CAREFULLY CONSIDER ED. INSTITUTE OF CHARTERED FINANCIAL ANALYSTS OF INDIA (ICFAI), TRIPURA, IS CONDUCTING DISTANCE LEARNING PROGRAMME FOR THE C OURSES, NAMELY MS(FINANCE), MBA AND MCA. DURATION OF THESE COURSES IS GENERALLY FOR TWO YEARS. AT THE TIME OF ADMISSION I F THE STUDENT DESIRES TO ENROLL HIMSELF WITH THE ASSESSEE FOR ITS SERVICES IN SECURING THE EMPLOYMENT THEN THE STUDENT HAS TO REG ISTER WITH THE ASSESSEE BY PAYING CERTAIN FEE WHICH GENERALLY AROU ND 3 THOUSAND RUPEES PER CANDIDATE. AS PER THE DETAILS SUBMITTED DURING THE APPELLATE PROCEEDINGS THERE ARE 13,460 STUDENTS WHO ARE ENROLLED FOR DIFFERENT COURSES DURING F.Y. 2009-10. THE STUD ENTS HAVE GOT OPTION TO SEEK' FOR REFUND BEFORE THE COMPLETION OR AFTER THE COMPLETION OF THEIR COURSE. THE ASSESSEE IS UNDER O BLIGATION TO RENDER HIS SERVICES ONLY IF THE STUDENT SUCCESSFULL Y COMPLETES HIS COURSE. FOR THE LAST SEVERAL YEARS THE ASSESSEE HAS BEEN RECEIVING THE FEES FROM THE STUDENTS AND WAS OFFERING 50% IN THE 3RD YEAR AND 50% IN THE 4TH YEAR OF RECEIPT. THE ASSESSEE WA S ASKED TO PRODUCE THE NAMES AND ADDRESSES OF THE STUDENTS ENR OLLED, TYPE OF SERVICES RENDERED, NAMES AND ADDRESSES OF AT LEAST FEW STUDENTS WHO WERE EMPLOYED THROUGH HIM, DID ANY OF THE STUDE NT SOUGHT FOR REFUND, NUMBER OF STUDENTS PLACED FOR EMPLOYMENT DU RING THE LAST 2-3 YEARS, THEIR NAMES AND ADDRESSES. OUT OF MORE T HAN 13,000 STUDENTS FROM WHOM THE FEE WAS COLLECTED, HE COULD NOT GIVE NAMES AND ADDRESSES OF HALF A DOZEN STUDENTS TO WHO M THE ASSESSEE RENDERED PLACEMENT SERVICES/SECURED EMPLOY MENT. IT IS SURPRISING TO NOTE THAT THOUGH HE HAS NOT PROVIDED ANY SERVICES TO ANYBODY, NONE OF THEM SOUGHT FOR ANY REFUND. TAKING INTO ACCOUNT THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, TH E INEVITABLE CONCLUSION ONE CAN ARRIVE AT IS, IT IS ONLY A MECHA NISM TO COLLECT FEE FROM THE GULLIBLE STUDENTS AT THE TIME OF ADMISSION ITSELF BY GIVING A FALSE HOPE OF PROVIDING EMPLOYMENT TO THEM IN FUTUR E. SINCE THE AMOUNTS COLLECTED FROM EACH ONE OF THEM WAS ONLY OF FEW THOUSAND RUPEES, NONE OF THEM SEEM TO HAVE LODGED ANY COMPLA INT WITH THE POLICE. FURTHER, AS NOTED IN THE ASSESSMENT ORDER T HOUGH SOME OF THE STUDENTS HAVE TRIED TO CONTACT THE ASSESSEE EIT HER FOR SERVICES I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 10 -: OR FOR REFUND OF MONEY, THERE IS NO RESPONSE FROM T HE ASSESSEE. THE ENTIRE AFFAIRS OF THE ASSESSEE CLEARLY PROVE THAT I T IS ONLY A MECHANISM TO COLLECT THE MONEY FROM GULLIBLE STUDEN TS WITHOUT RENDERING ANY SERVICES TO ANYONE OF THEM AT ANY POI NT OF TIME. IN THE CASE OF SOM NATH MAINI VS CIT 306 ITR 414, THE HON'BLE PUNJAB & HARYANA HIGH COURT HELD THAT THE GENUINENE SS OF TRANSACTION CAN BE REJECTED EVEN IF ASSESSEE BACKS WITH EVIDENCE IF SUCH EVIDENCE IS NOT TRUSTWORTHY. FURTHER, THE HON' BLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS CIT 214 ITR 80 1 HELD THAT THE HUMAN PROBABILITY AND CIRCUMSTANTIAL EVIDENCE HAS T O BE KEPT IN MIND TO DECIDE THE GENUINENESS OF THE TRANSACTIONS. TAKING INTO ACCOUNT THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT NO SERVICES WERE RENDERED BY THE ASSES SEE AT ANY POINT OF TIME EITHER IN THE PRESENT YEAR OR IN THE EARLIER YEARS. SO THE QUESTION OF POSTPONING THE TAX LIABILITY TO THE SUBSEQUENT YEARS ON THE GROUND THAT THE LIABILITY TO RENDER SERVICES ARISES LATER, HAS NO BASIS AT ALL. IN ANY CASE, THERE IS ABSOLUTELY N O GROUND TO OFFER 50% OF THE RECEIPTS IN 3RD YEAR AND BALANCE 50% N T HE 4TH YEAR. EVEN GOING BY WHAT THE ASSESSEE IS SAYING, THE ENTI RE AMOUNT HAS TO BE TAXED IN THE 3RD YEAR ITSELF, I.E. A.Y. 2012- 13. IN VIEW OF THE DETAILED DISCUSSION MADE, SINCE NO SERVICES WERE EV ER RENDERED AND NO REFUND WAS EVER GIVEN BY THE ASSESSEE, THE E NTIRE AMOUNT HAS TO BE TAXED IN A.Y. 2010-11 ITSELF. THEREFORE, THE SECOND GROUND OF APPEAL IS DISMISSED. 7. ASSESSEE IS AGGRIEVED IN THIS YEAR AND RAISED 1 1 GROUNDS WHICH ARE STATED TO BE CONCISE GROUNDS BUT MAI NLY ARGUMENTS ON THE ISSUE OF CONFIRMING THE AMOUNT RECEIV ED, BUT NOT ACCRUED IN THE YEAR OF RECEIPT. THERE IS ONE MORE ISSUE ALSO IN AY. 2010-11 WHICH WILL BE ADJUDICATED IN THE LATER PART OF THE ORDER. 8. LD. COUNSEL REFERRING TO THE PAPER BOOKS PLACED ON RECORD IN RESPECTIVE YEARS AND DETAILED SUBMISSIONS M ADE BEFORE THE LD. CIT(A) AND ALSO REFERRING TO THE SEQUENCE OF EVENTS IN THE RESPECTIVE ASSESSMENT PROCEEDINGS OVER THE PERIOD OF TI ME, SUBMITTED THAT ASSESSEE IS CONSISTENTLY OFFERING THE INCO MES FROM AY. 2006-07 TO 2013-14. THE DETAILS OF WHICH ARE AS UNDER: I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 11 -: DETAILS OF SPECIAL PLACEMENT FEE RECEIVED AND OFFERED FOR TAX FINANCIAL YEAR ASST. YEAR AMOUNT RECEIVED AMOUNT OFFERED FOR TAX AND TAXED 1 - 4 - 2005 TO 31-3-2006 2006 - 07 3,80,85,000 -- 1 - 4 - 2006 TO 31-3-2007 2007 - 08 1,97,54,0 79 -- 1 - 4 - 2007 TO 31-3-2008 2008 - 09 75,57,450 1,90,42,500 1 - 4 - 2008 TO 31-3-2009 2009 - 10 1,62,00,000 1,90,42,500 98,77,040 2,89,19,540 1 - 4 - 200 9 TO 31-3-2010 20 1 0 - 11 4,47,10,000 98,77,040 37,78,725 1,36,55,765 1 - 4 - 2010 TO 31-3-2011 2011 - 12 -- 37,78,725 81,00,000 1,18,78,725 1 - 4 - 2011 TO 31-3-2012 2012 - 13 -- 81,00,000 2,23,55,000 3,04,55,000 1 - 4 - 2012 TO 31-3-2013 2013 - 14 -- NIL BECAUSE THE ENTIRE SUM OF OF RS. 2,23,55,000 REFUNDED AS SERVICES WERE DISCONTINUED REFERRING TO THE ABOVE CHART, IT WAS SUBMITTED THAT IN THE FIRST YEAR I.E., AY. 2006-07, ASSESSEE RECEIVED RS. 3.80 CRORES WHICH WAS OFFERED TO INCOME TAX IN AYS. 2008-09 AND 2009-10 AS THE SERVICES WERE RENDERED DURING THOSE YEARS. LIKE-WIS E, THE RECEIPT IN AY. 2007-08 WERE OFFERED IN AYS. 2009-10 AND 201 0-11. AO IN AY. 2006-07 BROUGHT THE ENTIRE AMOUNT TO TAX. IN LATER YEARS THE INCOMES OFFERED WERE ACCEPTED. AGAIN IN AY 2010-11, WITHOUT EXCLUDING THE AMOUNTS OFFERED AO AGAIN BROUGHT TO TAX RECEIPTS OF THAT YEAR. IT WAS SUBMITTED THAT AS CAN BE SEEN FROM THE A BOVE STATEMENT, THE RECEIPTS IN AYS. 2008-09 AND 2009-10 ARE LESS I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 12 -: THAN THE AMOUNTS OFFERED ON ACCRUAL BASIS BY ASSESSE E. LD. COUNSEL ALSO PLACED ON RECORD THE ORDERS FOR AY. 201 1-12, WHEREIN ASSESSEES INCOMES WERE ACCEPTED AND IN AY. 2012-13, WHEREIN ORDER PASSED U/S. 143(3), ASSESSEES INCOME S OFFERED OUT OF THE RECEIPTS IN ACCOUNTING YEAR 2008-09 AND 2009-10 . THAT IS PART OF 50% OF RECEIPTS RECEIVED IN AY. 2009-10 RELEV ANT FOR AY. 2010-11 WERE ACCEPTED. LD. COUNSEL ALSO BROUGHT TO OUR NOTICE THAT 50% OF THE AMOUNT WAS REFUNDED TO THE PARTIES IN FY. 2012- 13 RELEVANT FOR AY. 2013-14, WHICH WAS ALSO ACCEPTED BY THE AO. IT WAS SUBMITTED THAT ONLY 50% OF THE AMOUNT BROUGHT TO TAX IN AY. 2010-11 HAS ACCRUED TO ASSESSEE AND OFFERED IN A Y. 2012-13. 8.1. COMING TO THE ARGUMENT OF THE AO THAT ASSESSEE HAS SPENT EXPENDITURE IN AY. 2006-07, IT WAS SUBMITTED THAT AS SESSEE HAS NOT SPENT ANY AMOUNT TOWARDS PLACEMENT SERVICES AND THE EXPENDITURE CLAIMED IN P&L A/C PERTAIN TO OTHER HR SERV ICES RENDERED TO THE CORPORATE SECTOR ON WHICH THERE WAS EX PENDITURE BUT NOT FROM SPS. HE REFERRED TO THE SUBMISSIONS MAD E TO THE CIT(A) FOR EXAMINATION OF THE BOOKS TO SUPPORT THE CON TENTION THAT NO EXPENDITURE WAS INCURRED IN AY. 2006-07 FOR SPS P URPOSES. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) IN AY. 2010-11 HAS PASSED CERTAIN ADVERSE COMMENTS WHICH ARE NOT WARRANTED, ON THE FACTS OF THE CASE AS THE CIT(A) MISUNDERSTOOD THE SCHEME. IT WAS SUBMITTED THAT ASSESSEE WAS NOT CONDUCTING THE MBA PROGRAMMES AND THEY ARE NOT STUDENTS OF ASSESSEE. THE SERVICES FOR PLACEMENT WILL ARISE ONLY AFTER THE END OF COURSE WITH ICFAI AND THERE ARE PROVISIONS FOR REFUND OF THE AMOUNTS DUR ING THE PERIOD. IN FACT, ASSESSEE DISCONTINUED THE SERVICES I N AY. 2013-14 AND ENTIRE AMOUNT OUTSTANDING OF RS. 2.23 CRORES WAS R EFUNDED AND THIS WAS ALSO ACCEPTED BY AO IN THAT YEAR. IT WAS SUBMITTED I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 13 -: THAT THE ORDER OF THE CIT(A) IN AY. 2006-07 IS TO BE U PHELD AND ORDER OF CIT(A) IN 2010-11 IS TO BE REVERSED. 9. LD. DR IN REPLY, HOWEVER, REFERRED TO THE DETAILE D ORDER OF THE AO AND CIT(A) TO SUBMIT THAT ASSESSEE HAS RECEIV ED SUBSTANTIAL SUMS IN THE FIRST YEAR AND THESE SHOULD HA VE BEEN OFFERED TO TAX ON RECEIPT BASIS. HE SUPPORTED THE ORDER OF CIT(A) IN AY. 2010-11 AND DEFERRED FROM THE ORDER OF CIT(A) IN AY. 2006-07, ON WHICH REVENUE IS AGGRIEVED. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE ENTIRE RECORD OF ASSESSEE AND PAPER BOOKS PLACED ON RECORD. AS SEEN FROM THE SCHEME OF SPS, THE BASIC FACTS WHICH ARE NECESSARY FOR CONSIDERATION OF THE ISSUE AND ARE NOT I N DISPUTE ARE AS UNDER: I. THE DURATION OF THE LONG DISTANCE TRAINING PROGRAMME CONDUCTED BY ICFAI IS 24 MONTHS OR 2 YEARS; II. THE STUDENTS WHO JOINED THE COURSE IN ASST. YEAR 2006-0 7 WILL BE QUALIFYING THE COMPLETION OF THE COURSE AFTER 24 MONTHS; III. ASSESSEE HAS AGREED TO PROVIDE PLACEMENT SERVICES FOR STUDENTS ONLY AFTER THEIR COMPLETION OF THE COURSE AND N OT BEFORE. A STUDENT HAS NO RIGHT TO DEMAND PLACEMENT SERV ICE BEFORE COMPLETION OF THE COURSE AS PER THE CONTRACT. A50 8(1); IV. A STUDENT IS ENTITLED TO CLAIM REFUND OF THE PRESCRIBED FEE SO LONG AS THE ASSESSEE DOES NOT RENDER ANY PLACEMENT S ERVICE (A0512); I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 14 -: V. AFTER COMPLETION OF THE COURSE, THE STUDENT SHALL MAKE A N APPLICATION WITHIN 30 DAYS FROM THE DATE ON WHICH PROGRAMME COMPLETION CERTIFICATE WAS ISSUED BY ICFAI FOR AVAILING PLACEMENT SERVICE. (A502(13), A508(1), A05 02(8); VI. IT IS ONLY AFTER MAKING THE APPLICATION BY REGISTERED S TUDENT AFTER COMPLETION OF THE COURSE THAT THE OBLIGATION TO RE NDER THE SERVICE ON THE PART OF THE ASSESSEE COMMENCES. A508 (2); VII. THE PERIOD DURING WHICH THE PLACEMENT SERVICE HAS TO BE RENDERED FALLS AFTER 24 MONTHS AND WILL EXPIRE BEFO RE THE END OF 48 MONTHS FROM THE DATE OF REGISTRATION. (A502(15), A0502(3), A0513; VIII. STUDENTS WHO WERE ADMITTED IN ASST. YEAR 2006-07 AND WHO QUALIFY THE OBLIGATION TO PERFORM THE SERVICE FALLS IN ASST. YEARS 2008-09 AND 2009-10 VIZ. AFTER 24 MONTHS BUT BEFORE 48 MONTHS; 10.1. ACCRUAL OF INCOME DEPENDS UPON THE APPLICATIO N OF LEGAL PRINCIPLES AND NOT ON THE BASIS OF ANY ENTRIES M ADE IN THE BOOKS OF ACCOUNT. ASSESSEE HAS ACCOUNTED FOR THE IN COME ON THE BASIS OF THE ACCRUAL, FOLLOWING THE GUIDELINES ISSUE D BY THE ICAI ON ACCOUNTING PRINCIPLES. THE AGREEMENT UNDER THE SCHEME OF SPS INCLUDING APPLICATION FOR REGISTRATIONS ARE VERY CLEA R THAT THE SERVICES FOR PLACEMENT SCHEME ARE TO BE RENDERED AFTE R COMPLETION OF THE COURSE BY THE STUDENTS WHICH GENERALLY TAKES ABOU T 24 MONTHS. THUS, THE AMOUNT COLLECTED IN THE FIRST YEAR ALONG WITH ADMISSION OF THE STUDENTS IN THE COURSE FOR THE ICFAI W ILL BE CONSIDERED AS AN ADVANCE AMOUNT AS FAR AS ASSESSEE I S CONCERNED, BECAUSE IN THE FIRST TWO YEARS, NO SERVICE S ARE TO BE I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 15 -: RENDERED. THE SCHEME ITSELF STARTED IN THE FINANCIAL YEAR RELEVANT FOR AY. 2006-07 AND AS STATED BY ASSESSEE, DISCONTINU ED W.E.F. 01-04-2012. THE AMOUNTS RECEIVED IN THE FIRST YEAR WE RE BROUGHT TO TAX ON RECEIPT BASIS BY THE AO, WHICH ARE IN FACT O FFERED IN LATER YEARS AND WERE ALSO ACCEPTED BY THE AO IN THOSE ASSE SSMENT YEARS WITHOUT ANY MODIFICATION. AGAIN SINCE THE RECEIP TS IN AY. 2009-10 WERE MORE THAN WHAT HAS OFFERED BY ASSESSEE, AO RESORTED TO BRINGING IN TO TAX THE AMOUNT RECEIVED IN TH AT YEAR ON RECEIPT BASIS, EVEN THOUGH, IN THE EARLIER THREE ASSESS MENT YEARS, I.E., AYS. 2007-08, 2008-09 AND 2009-10, ASSESSEES METHOD OF ACCOUNTING WAS ACCEPTED AND INCOMES OFFERED WHICH AR E MORE THAN RECEIPTS DURING THE YEAR WERE ACCEPTED AS SUCH. THERE IS NO CONSISTENCY IN THE DEPARTMENTAL STAND AS FAR AS ASSESSM ENT PROCEDURE IS CONCERNED. 11. BE THAT AS IT MAY, AS FAR AS THE TAXABILITY OF INCO ME IS CONCERNED, ONE HAS TO EXAMINE THE DETERMINATION OF ACC RUAL OF INCOME. FOR THIS, THE TERMS AND CONDITIONS OF THE CO NTRACT AS STATED ABOVE CLEARLY INDICATES THAT ASSESSEE HAS NOT REND ERING ANY SERVICES IN THE FIRST TWO YEARS AND LIABILITY TO PROV IDE SERVICE WILL ARISE ONLY IN THIRD YEAR I.E., AFTER THE END OF THE CO URSE BY THE CANDIDATE. 12. ASSESSEE RELIED ON THE DECISION OF THE DELHI BEN CH IN THE CASE OF K.K. KHULLAR VS. DCIT [304 ITR (AT) 295] . IN THIS CASE, THE ASSESSEE RECEIVED CERTAIN AMOUNTS FOR SERVICES TO BE RENDERED OVER A PERIOD OF TIME. THE ENTIRE AMOUNT OF RS. 4,89, 397/- RECEIVED WAS TAXED AS INCOME ALTHOUGH SOME OF THE SERV ICES HAVE NOT BEEN PERFORMED DURING THE YEAR. THE MATTER WAS CARRIED ON IN APPEAL AND THE TRIBUNAL HELD THAT TO THE EXTENT TO WHICH THE I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 16 -: SERVICES ARE NOT PERFORMED, THE AMOUNTS RECEIVED CANNO T BE TAXED AS INCOME. FOLLOWING PORTION OF THE HEAD NOTE AT PAGE S 295 AND 296 ARE EXTRACTED BELOW: 'THE ASSESSEE, AN ADVOCATE, RECEIVED CERTAIN AMOUNT S FOR SERVICES TO BE PERFORMED OVER A PERIOD OF TIME. THE AMOUNT RECEIVED FROM THE CLIENT IN RESPECT OF THE SERVICES RENDERED IN THE YEAR UNDER CONSIDERATION WAS SHOWN AS INCOME AND TH E ADVANCE RETAINER FEE WAS SHOWN AS ADVANCE IN THE BOOKS OF A CCOUNT. THAT PORTION OF THE ADVANCE WHICH WAS CO-RELATED TO THE SERVICES RENDERED IN THE YEAR WAS OFFERED FOR TAXATION BY DE BITING IT TO THE ADVANCE ACCOUNT. THE ASSESSEE EXPLAINED THAT THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING. THE ASSESSING O FFICER HELD THAT AS THE PROVISIONS OF SECTION 145 PERMIT TED ON LY THE CASH OR THE MERCANTILE SYSTEM OF ACCOUNTING THE ASSESSEE COULD NOT MAINTAIN THE BOOKS ON THE HYBRID SYSTEM AND TOOK THE ENTIRE ADVANCE AS INCOME AND MADE AN ADDITION OF RS. 4,89,397. ON APP EAL, THE COMMISSIONER(APPEALS) HELD THAT IN RESPECT OF RETAI NER FEES, THE SAME SYSTEM HAD TO BE FOLLOWED AS FOR OTHER PROFESS IONAL RECEIPTS AND THE PRINCIPLES OF RES JUDICATA WOULD NOT APPLY TO INCOME TAX PROCEEDINGS. ON APPEAL BY THE ASSESSEE : HELD, ALLOWING THE APPEAL, THAT THE INCOME ONLY, TO THE EXTENT OF THE AMOUNT PERTAINING TO SERVICES RENDERED VESTE D IN THE ASSESSEE. THE REST OF THE AMOUNT WAS TAKEN AS LIABI LITY TO BE ADJUSTED IN SUBSEQUENT YEARS AS AND WHEN THE SERVIC ES WERE RENDERED.' APPLYING THE ABOVE TO THE FACTS OF THE CASE IT IS S UBMITTED THAT DURING THE ASSESSMENT YEAR 2006-07 NO PLACEMEN T OF SERVICES WERE RENDERED TO ANY OF THE STUDENTS. THEY ARE NOT ENTITLED FOR ANY SERVICES TO BE RENDERED TILL THEY COMPLETE THEI R COURSE WHICH IS 24 MONTHS FROM THE DATE OF THEIR JOINING. THE LIAB ILITY TO RENDER SUCH SERVICES WILL THEREFORE FALL IN THE ASSESSMENT YEARS 2008-09 AND 2009-10. UNTIL THAT POINT OF TIME THESE AMOUNT S DO NOT VEST IN THE APPELLANT AS ITS INCOME. IT IS MERELY A DEPOSI T OR ADVANCE AND DOES NOT PARTAKE THE CHARACTER OF INCOME. 12.1. ASSESSEE ALSO RELIED ON THE DECISION OF CIT V S. DINESH KUMAR GOEL [331 ITR 10] (DELHI). IN THIS CASE, THE A SSESSEE COLLECTED RS. 1,99,70,106 TOWARDS TUITION FEES. THIS TUITION FEES RELATE TO THE FINANCIAL YEARS 1996-97 AND 1997-98. T HE ENTIRE AMOUNT WAS COLLECTED IN ADVANCE AT THE TIME OF REGISTRA TION ITSELF. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 17 -: THE ASSESSEE INITIALLY HAS TAKEN THE ENTIRE AMOUNT AS IN COME, BUT FILED A REVISED RETURN STATING THAT A SUM OF RS. 55,44 ,834/- RELATED TO THE TUITION FEES FOR THE NEXT YEAR WHERE THE SE RVICES HAVE TO BE PERFORMED IN THE NEXT YEAR AND CANNOT BE INCLUDED AS INCOME IN THE ASSESSMENT YEAR 1997-98 MERELY BECAUSE THE ENTIRE AMOUNT WAS RECEIVED DURING THIS YEAR. THE COURT HA D TO GO INTO THE ACCRUAL OF INCOME WITH REFERENCE TO POINT OF TIME WH EN THE SERVICES HAVE TO BE RENDERED. RELEVANT PORTION OF THE HEAD NOTE AT PAGES 10 AND 12 IS EXTRACTED BELOW: U/S. 5(1)(B) OF THE INCOME TAX ACT, 1961 WHEN THE I NCOME ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O THE ASSESSEE IN INDIA DURING THE PREVIOUS YEAR, IT IS TO BE TAXED I N THAT YEAR. IT IS IMPORTANT, THEREFORE, THAT RECEIPT OF A PARTICULAR AMOUNT IN THE RELEVANT YEAR SHOULD BE AN 'INCOME' UNDER THE PROVI SION. THE RELEVANT YARDSTOCK IS THE TIME OF ACCRUAL OR ARISAL FOR THE PURPOSE OF TAXATION VIZ. IN ORDER TO BE CHARGEABLE, THE INCOME SHOULD ACCRUE OR ARISE TO THE ASSESSEE DURING THE PREVIOUS YEAR. TH ERE MUST BE A 'RIGHT TO RECEIVE THE INCOME ON A PARTICULAR DATE, SO AS TO BRING ABOUT A CREDITOR AND DEBTOR RELATIONSHIP ON THE REL EVANT DATE'. A RIGHT TO RECEIVE A PARTICULAR SUM UNDER AGREEMENT W OULD NOT BE SUFFICIENT UNLESS THE RIGHT ACCRUED BY RENDERING OF SERVICES AND NOT BY A PROMISE FOR SERVICES: WHERE THE RIGHT TO RECEI VE IS ANTERIOR TO THE RENDERING OF SERVICES, THE INCOME WOULD ACCRUE ON THE RENDERING OF SERVICES.' 'HELD, DISMISSING THE APPEALS, THAT THOUGH AT THE T IME OF ADMISSION, THE STUDENTS WERE REQUIRED TO DEPOSIT TH E WHOLE FEE FOR THE ENTIRE COURSE, THAT WAS ONLY A DEPOSIT OR ADVAN CE AND IT COULD NOT BE SAID THAT THIS FEE HAD BECOME DUE AT THE TIM E OF DEPOSIT. THE FEE WAS CHARGED IN ADVANCE FOR THE ENTIRE COURSE, P RESUMABLY BECAUSE THERE SHOULD NOT BE ANY DEFAULT BY THE STUD ENTS DURING THE PERIOD OF COURSE. THE FEE WAS NOT DUE AT THE TI ME OF DEPOSIT. THE SERVICES IN RESPECT OF FINANCIAL YEAR 1997-98, FOR WHICH ALSO THE PAYMENT WAS TAKEN IN ADVANCE WERE YET TO BE REN DERED' ON THE ABOVE BASIS, THE ADVANCE WAS NOT CONSIDERED TO BE INCOME FOR THE ASSESSMENT YEAR 1997-98. IN THE SAM E BATCH OF CASES IN A SIMILAR SITUATION, IN A CASE WHERE THE A SSESSEE CARRYING ON BEAUTY AND SLIMMING THE ENTIRE AMOUNT WAS COLLEC TED FOR BEAUTY AND SLIMMING PACKAGES FOR WHICH PART OF THE SERVICES WERE NOT RENDERED, THE QUESTION WAS WHERE THE SERVICES W ERE NOT I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 18 -: RENDERED COULD IT BE TAKEN AS INCOME. THE COURT HE LD THAT THE RECEIPTS WERE NOT INCOME AS THE SERVICES WERE YET T O BE PERFORMED. THE RELEVANT PORTION OF THE HEAD NOTE AT PAGE-12 IS EXTRACTED BELOW: THE ASSESSES WERE IN THE BEAUTY AND SLIMMING BUSIN ESS HAVING VARIOUS CENTRES IN DELHI AND OUTSIDE. CLIENTS PAID THE ENTIRE FEE IN ADVANCE FOR A BEAUTY AND SLIMMING PACKAGE. PART OF THE SALES ON WHICH SERVICES REMAINED TO BE RENDERED IN THE SUCCEEDING YEAR, WERE SHOWN AS 'UNEXECUTED PACKAGES' AT THE END OF THE YEAR BY THE ASSESSEE TREATING THE RECEIPTS FOR WHICH SERVICES WERE YET TO BE RENDERED IN THE NEXT YEAR AS ADVANCE AND NOT AS INCOME EXIGIBLE TO TAX. THE QUES TION WAS WHETHER RECEIPTS RELATING TO THE SALE OF UNEXECUTED PACKAGE S WERE INCOME ACCRUED OR ARISING IN THE FINANCIAL YEAR IN WHICH THEY WERE RE CEIVED. HELD, THAT THE RECEIPTS WERE NOT INCOME ACCRUING OR ARISING TO THE ASSESSEE IN THE ASSESSMENT YEAR IN QUESTION. ' IDENTICAL FACTS PREVAIL IN THE APPELLANT'S CASE. TH E AMOUNT WAS CHARGED IN ADVANCE BECAUSE THERE SHOULD NOT BE ANY DEFAULT IN PAYMENT BY THE STUDENTS AT A LATER POINT OF TIME . THE AMOUNT WAS RECEIVED UNDER AGREEMENT IN THE ASSESSMENT YEAR 2006-07 WITH A PROMISE THAT UPON COMPLETION OF THEIR COURSE AFTER TWO YEARS, THE APPELLANT WOULD RENDER PLACEMENT SERVICE S TO THE STUDENTS. THEREFORE, THE RECEIPT OF MONEY IS ANTERI OR TO THE RENDERING OF SERVICES. IT THEREFORE DOES NOT BECOME THE INCOME IN THE HANDS OF THE APPELLANT UNTIL THE PLACEMENT OF S ERVICE IS ACTUALLY PROVIDED TO THE STUDENTS. 13. THUS IT WAS VERY CLEAR THAT THE AMOUNT CAN NOT BE BROUGHT TO TAX ON RECEIPT BASIS UNLESS THE SAME HAS ACC RUED TO ASSESSEE AS INCOME. IN VIEW OF THE FACTS OF THE CASE A S WELL AS LAW ON THE SUBJECT, WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT(A) IN AY. 2006-07, WHEREIN HE HAS CORRECTLY ANALYSED THE LE GAL AND FACTUAL POSITION AND DELETED THE AMOUNT IN THAT YEAR. 14. FURTHER, AS SEEN FROM THE ORDER OF THE CIT(A) IN AY. 2010-11, IT IS VERY CLEAR THAT LD. CIT(A) MISUNDERSTOOD THE ENTIRE SCHEME. FIRST OF ALL, THE FEE WAS NOT COLLECTED FROM GULLIBLE STUDENTS BY ASSESSEE, AS THE ADMISSION WAS TAKEN IN THE ICFAI IN I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 19 -: THE DISTINCT LEARNING PROGRAMME. AS A PART OF THE CURR ICULUM SERVICES OF PLACEMENT WERE ALSO OFFERED, WHICH IS OP TIONAL. THEREFORE, THERE IS NO COMPULSION ON THE PART OF THE STU DENT TO AVAIL THE PLACEMENT SERVICES. SECONDLY, THE MECHANISM TO COLLECT FEE FROM GULLIBLE STUDENTS AT THE TIME OF ADMISSION D OES NOT ARISE, AS THE STUDENT WERE GIVEN AN OPTION WHICH THEY MAY OR M AY NOT AVAIL. THERE IS ALSO NO FALSE HOPE OF PROVIDING EM PLOYMENT, AS THE SERVICES FOR EMPLOYMENT WERE RENDERED WITH A MINIMUM GUARANTEE OF SALARY, WHICH THE STUDENTS MAY AVAIL OR MA Y NOT AVAIL. TERMS OF AGREEMENT ARE VERY CLEAR AS MOST OF THE OPTIONS ARE GIVEN TO THE STUDENT ITSELF AND THE OBLIGATION TO REND ER SERVICES ENDS AT THE END OF FOURTH YEAR OR ACCEPTING THE PLACEMEN T BY THE STUDENT. THE CASE LAW RELIED ON BY THE CIT(A) IN TH E CASE OF SOM NATH MAINI VS. CIT [306 ITR 414] AND DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT [21 4 ITR 801] REGARDING HUMAN PROBABILITY DOES NOT ARISE ON THE FA CTS OF THE CASE, AS THE TERMS AND CONDITIONS OF THE SERVICE ARE VERY CLEAR AND THIS ISSUE WAS ANALYSED BY THE CIT(A) IN AY. 2006-07 ITSELF AS EARLY AS 30-11-2012 IN HIS ORDER FOR AY. 2006-07. LD. CIT(A) IN AY. 2010-11 DID NOT EVEN MAKE ANY COMMENT WHY IT HAS TO BE DEFERRED FROM THE EARLIER ORDER AND WHY A DIFFERENT S TAND IS TAKEN ON THE SAME SET OF FACTS. FURTHER, THERE IS ALSO A FACT UAL ERROR IN THE FINDING OF THE CIT(A) THAT NO SERVICES WERE RENDER ED AND NO REFUND WAS EVER GIVEN BY ASSESSEE. THESE TWO FIND INGS WERE ALSO NOT CORRECT AS ASSESSEE WAS RENDERING SERVICES FROM AY. 2008-09 TO 2012-13 AND THERE WAS REFUND IN AY. 2013-14, SINC E THESE FACTS EVEN THOUGH PLACED BEFORE THE LD. CIT(A), WERE N OT CORRECTLY APPRECIATED, WE ARE NOT IN A POSITION TO APPROVE THE O RDER OF CIT(A) IN AY. 2010-11. WE ARE OF THE FIRM OPINION THAT ASSESS EE HAS CORRECTLY ACCOUNTED THE INCOMES IN THE THIRD AND FOURTH YEARS ON I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 20 -: ACCRUAL BASIS AND AS SEEN FROM THE TABLE OF AMOUNTS RE CEIVED AND AMOUNTS OFFERED FOR TAX IN RESPECTIVE YEARS, IT IS THE DEPARTMENT WHICH IS NOT CONSISTENT IN ITS ASSESSMENT PROCEDURE. AS CAN BE SEEN, REVENUE HAS ACCEPTED HIGHER AMOUNTS OFFERED THA N THE RECEIPTS (ADVANCES) IN THE INTERREGNUM PERIOD WITHOUT D ISTURBING IN AYS 2007-08, 2008-09 AND 2009-10 AND ALSO ACCEPTI NG OFFERED INCOMES IN AY. 2011-12 AND 2012-13. ASSESSEES METH OD OF ACCOUNTING IS ACCORDING TO THE PRESCRIBED METHOD OF AC COUNTING OF ICAI AND METHOD OF ACCOUNTING EVEN THOUGH NOT NOTIFIED, IS BINDING FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE AP HIGH COURT IN THE CASE OF CIT VS. PACT SECURITIES & FINANCI AL SERVICES LTD., & OTHERS [374 ITR 681] (T&AP). IN VIEW OF THE FACTS STATED ABOVE AND THE LAW ON THE SUBJECT, WE ARE OF THE OPINION THAT ASSESSEE HAS CORRECTLY ACCOUNTED THE INCOMES IN THIRD A ND FOURTH YEAR ON ACCRUAL BASIS AND THE AMOUNTS CANNOT BE BROUG HT TO TAX ON RECEIPT BASIS, AS THESE ARE ONLY ADVANCES WITHOUT A NY OBLIGATION TO SERVICE IN THE YEAR OF RECEIPT. ACCOR DINGLY, THE REVENUES APPEAL IN AY. 2006-07 IS DISMISSED UPHOL DING THE ORDER OF CIT(A) AND ASSESSEES APPEAL IN AY. 2010-1 1 IS ALLOWED SETTING ASIDE THE ORDER OF CIT(A) IN THAT YEAR ON THE IS SUE. 15. THERE IS ANOTHER GROUND IN AY. 2010-11 ON THE I SSUE OF ADDITION MADE TOWARDS EXCESS PROVISION OF GRATUITY AND EL ENCASHMENT. AS SEEN FROM THE ASSESSMENT ORDER, THERE I S NO DISCUSSION WHILE MAKING THESE ADDITIONS, WHETHER ASSE SSEE HAS ADDED THEM IN THE COMPUTATION SUO MOTTO IS ALSO NOT CLEAR. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT THERE IS NO SUCH DEBIT TO P&L A/C AND NO DETAILS WERE CALLED FOR BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS ALSO FURTHER SUBMITTED TH AT THERE IS NO INDICATION AS TO THE REASONS WHY THE ADDITIONS W ERE MADE. I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 21 -: IN SPITE OF THAT, THE LD. CIT(A) DISMISSED THE GROUNDS S TATING THAT NO SUBMISSIONS WERE MADE. WE ARE ALSO UNABLE TO VER IFY ON WHAT BASIS THESE TWO ADDITIONS WERE MADE BY THE AO. IN THE COMPUTATION STATEMENT, ASSESSEE ITSELF HAS ADDED AN AMOUN T OF RS. 4,02,029/- AND RETURNED INCOME AT RS. 59,36,876/- WAS TAKEN AS BASIS FOR MAKING THE ADDITION. THEREFORE, F URTHER ADDITION OF RS. 1,56,231/- SEEMS TO BE WITHOUT ANY BASI S. LIKE- WISE, EL ENCASHMENT OF RS. 1,41,271/-. WE ARE NOT SU RE WHETHER ANY AUDIT REPORT HAS QUANTIFIED THE ABOVE AMOUNTS. SI NCE THE AOS ORDER IS SILENT AND CIT(A) ORDER IS ALSO CRYPTIC , WE HAVE NO OPTION THAN TO SET ASIDE THESE TWO ADDITIONS TO THE FIL E OF AO TO EXAMINE AND DECIDED THE ISSUE AFRESH. IF THESE AMOU NTS WERE BROUGHT TO TAX BY MISTAKE, AO IS DIRECTED TO DELETE THE SAME. WITH THESE DIRECTIONS, THE GROUNDS PERTAINING TO THESE A DDITIONS ARE RESTORED TO THE FILE OF AO FOR EXAMINATION OF RECOR D AND DECIDING AFRESH. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JULY, 2016 SD/- SD/- ( PARTHA SARTHI CHAUDHURI ) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBE R HYDERABAD, DATED 1 ST JULY, 2016 TNMM I.T.A. NOS. 199/HYD/2013 & 386/HYD/2014 :- 22 -: COPY TO : 1. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD. 2. M/S. ALCHEMIST HR SERVICES (P) LTD., PLOT NO. 52 , PUNJAGUTTA, NAGARJUNA HILLS, HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-V, HYDERABAD . 4. COMMISSIONER OF INCOME TAX(APPEALS)-II, HYDERABA D. 5. COMMISSIONER OF INCOME TAX-I, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.
