DCIT, New Delhi V. M/s. Telecommunications Consultants India Ltd., New Delhi

ITA 4129/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3877 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 12-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Keywords: Retrospective amendment; Reassessment proceedings
• Section: 143(3); 37(1); 147; 148

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4129/DEL/2011 (ASSESSMENT YEAR: 2005 - 06 ) DCIT, CIRCLE - 16(1), NEW DELHI VS. TELECOMMUNICATIONS CONSULTANTS INDIA LTD, TCIL BHAWAN, GREATER KAILASH - I, NEW DELHI PAN:AAACT0061H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHRAVAN GOTRU, SR. DR ASSESSEE BY: SHRI SIYASH SINHA, ADV SHRI RAHUL YADAV, ADV DATE OF HEARING 22/08 / 2017 DATE OF PRONOUNCEMENT 27/10/2017 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT ( A) - XIX, NEW DELHI DATED 02.06.2011 FOR THE ASSESSMENT YEAR 2005 - 06. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED BY NOT APPRECIATING THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSEE HAD NOT FURNISHED DETAILS RELATING TO NATURE OF THE PRIOR PERIOD EXPENSES AND THE YEAR IN WHICH THE LIABILITY CRYSTALLIZED BESIDES NOT FURNISHING THE EXPENSES BILLS AND VOUCHERS AND THEREFORE IT CANNOT BE SAID THAT ALL MATERIAL RELEVANT FOR THE ASSESSMENT HAD BEEN DISCLOSED FULLY DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDI NGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LIGHT OF THE PROVISIONS OF LAW THE AO WAS AMPLY JUSTIFIED IN MAKING THE DISALLOWANCE OF RS. 12366111/ - OUT OF THE CLAIMS OF PRIOR PERIOD EXPENSES IN THE REASSESSMENT PROCEEDINGS. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PUBLIC SECTOR UNDERTAKING IS A FULLY OWNED COMPANY OF THE GOVERNMENT OF INDIA UNDER THE ADMINISTRATIVE CONTROL OF MINISTRY OF COM INDICATION INFORMATION TECHNOLOGY. THE COMPANY IS A PRIMARY DISCIPLINARY CONSULTANCY ORGANIZATION PROVIDING FULL RANGE OF CONSULTANCY, DESIGN AND ENGINEERING SERVICES IN ALL THE FIELDS OF TELECOMMUNICATION IN INDIA AS WELL AS ABROAD. THE MAJOR CLIENTS OF THE COMPANY IN INDIA OF THE DEPARTMENT OF TELECOMMUNICATIONS, BSNL, MTNL, RAILWAYS, GA IL AND POWER GRID ETC. 4. FOR THE ASSESSMENT YEAR 2005 06 ASSESSEE FILED ITS RETURN OF INCOME ORIGINALLY AND THE ASSESSMENT WAS COMPLETED ON 03/12/2007 AT AN INCOME OF RS. 1 2633 9586/ . SUBSEQUENTLY PAGE 2 OF 5 NOTICE UNDER SECTION 1 48 OF THE INCOME TAX ACT WAS ISSUED ON 16/3/2010 WHEREIN THE REASONS RECORDED THAT THE ASSESSEE HAS SHOWN IN FORM NUMBER 3CD REPORT PRIOR PERIOD INCOME OF RS. 5863220/ - IN THE PROFIT AND LOSS ACCOUNT AND DEDUCT ED THERE FROM PRIOR PERIOD EXPENSES OF THE 12365111/ WHICH SHOULD HAVE BEEN DI SALLOWED. ASSESSEE FILED ITS OBJECTION, WHICH WERE DISPOSED OF WIDE ORDER DATED 22/12/2010. AFTER HEARING THE CASE THE LD. ASSESSING OFFICER IS DISALLOWED A SUM OF RS. 1 TO 366111/ IS PRIOR PARADE EXPENSES. CONSEQUENTLY THE ASSESSMENT UNDER SECTION 143 (3 ) READ WITH SECTION 147 OF THE ACT WAS PASSED ON 27/12/2010 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1 3870 5697/ AGAINST THE ASSESSED INCOME UNDER SECTION 143 (3) ON 03/12/2000 OF RS. 1 2633 9586/ . 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT APPEAL. HE VIDE ORDER DATED 2/6/2011 DELETED THE ADDITION ON ACCOUNT OF PRIOR PARADE EXPENSES. WITH RESPECT TO THE REOPENING, HE DID NOT DECIDE THE ISSUE, AS THE LEGALITY AND VALIDITY OF THE REASSESSMENT ARE ACADEMIC IN NATURE, AS HE HAS ALRE ADY DELETED THE MAIN ADDITION. REVENUE AGGRIEVED WITH THE SAME IS IN APPEAL BEFORE US. 6. WITH RESPECT TO GROUND NO. 1 OF THE APPEAL IS AGAINST THE REOPENING OF THE ASSESSMENT. WE HAVE CAREFULLY PRODUCED THE ORDER OF THE LD. CIT (A) WHEREIN THE LD. CIT APPEAL HAS NOT DECIDED THE ISSUE ABOUT THE REOPENING OF THE ASSESSMENT BUT HAS DELETED THE ADDITION MADE IN THE REOPENED ASSESSMENT PROCEEDINGS ON MERITS. AS THE REVENUE IS NOT AGGRIEVED WITH THE ORDER OF THE LD. CIT APPEAL ON THIS ASPECT THIS GROUND OF APPEAL I S DISMISSED. 7. WITH RESPECT TO GROUND NO. 2 OF THE APPEAL, LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. ASSESSING OFFICER. 8. THE LD. AUTHORIZED REPRESENTATIVE VEHEMENTLY STATED THAT THE LD. CIT APPEAL HAS CORRECTLY DELETED THE ADDITION BY FOLLOWING THE ORDER IN CASE OF THE ASSESSEE FOR EARLIER YEARS. HE FURTHER BASED ON RECORD THE WRITTEN SUBMISSION CONTESTING THE VALIDITY OF REASSESSMENT PROCEED INGS. ON THE MERITS OF THE CASE HE SUBMITTED THAT THESE ARE THE EXPENDITURE, WHICH CRYSTALLIZED DURING THE YEAR THEREFORE, THEY ARE NOT PRIOR PERIOD EXPENDITURE HE RELIED ON THE SEVERAL DECISIONS SUPPORTING HIS VIEW. 9. WE HAVE CAREFULLY CONSIDERED RIVAL CONT ENTIONS AS WELL AS THE PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSEE IS A GOVERNMENT ORGANIZATION FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING WHERE THE EXPENSES ARE RECOGNIZED ONLY WHEN THEY ARE CRYSTALLIZED. IT WAS FURTHER STATED THAT THESE EXPENDITURE HAVE BEEN CRYSTALLIZED DURING THE YEAR AND THEREFORE THERE BEEN ACCOUNTED SO. THE ASSESSEE IS ALSO EXPLAINED VARIOUS REASON WHY THE EXPENDITURE HAVE BEEN CRYSTALLIZED DURING THE YEAR SUCH AS RECEIPT OF CLAIM FROM SUBCONTRACTORS A LATER DATE WHE N THE WORK WAS DULY CARRIED OUT IN COMPLETED IN EARLIER YEARS, ACCEPTANCE OF ADDITIONAL CLAIMS, RECEIPT OF INVOICES OF MATERIALS AND LATER DATE, MEASUREMENT OF WORK DONE BY THE CLIENT AFTER THE CLOSING OF THE ACCOUNTS, STAFF SALARY PAYMENTS REVISION OF PAY STRUCTURES ETC WITH PAGE 3 OF 5 RETROSPECTIVE EFFECT. THE IDENTICAL ISSUE AROSE IN THE CASE OF THE ASSESSEE WHEREIN FOR ASSESSMENT YEAR 2006 2007 THE LD. CIT APPEAL HAS ALLOWED THE CLAIM OF THE ASSESSEE RELYING UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN C ASE OF SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD VERSUS CIT 213 ITR 523. THE LD. CIT APPEAL ALSO RELIED UPON HIS OWN ORDER FOR EARLIER YEARS WHEREIN IDENTICAL DISALLOWANCES BEEN DELETED. HONBLE GUJARAT HIGH COURT IN SAURASHTRA CEMENT & CHEMICAL IND USTRIES LTD VERSUS CIT 213 ITR 523 HAS HELD THAT: - . 9. QUESTION NO. 5 RELATES TO THE EXPENDITURE OF RS. 39,823 ACTUALLY INCURRED DURING THE PREVIOUS YEAR BUT WAS NOT ALLOWED AS DEDUCTION FROM THE PROFIT OF THE PREVIOUS YEAR ON THE GROUND THAT THE LIABI LITY IN RESPECT OF VARIOUS EXPENSES INCLUDED IN THE AFORESAID SUM HAD ARISEN IN THE EARLIER PREVIOUS YEAR AND NOT IN THE RELEVANT PREVIOUS YEAR AND AS THE ASSESSEE MAINTAINED THE ACCOUNTS ON MERCANTILE SYSTEM, THE SAME WAS NOT ALLOWABLE EXPENSES OF THE PRE VIOUS YEAR IN QUESTION. 10. FROM THE STATEMENT OF THE CASE AND THE ORDER OF THE TRIBUNAL IT APPEARS THAT THE CONTENTION OF THE ASSESSEE WAS THAT THE EXPENDITURES IN DISPUTE WERE INCURRED IN THE YEAR UNDER CONSIDERATION BECAUSE THEY WERE QUANTIFIED IN THE P REVIOUS YEAR CONCERNED, AND THE COMMISSIONER (APPEALS) REST CONTENDED BY SAYING THAT WHEN THE EXPENSES RELATED TO THE EARLIER ACCOUNTING YEARS, HOW EACH OF THESE EXPENSES COULD BE QUANTIFIED IN THE YEAR OF CONSIDERATION. THE TRIBUNAL AFFIRMED THE DISALLOWA NCE BY OBSERVING THAT THERE IS NO DISPUTE THAT THE ASSESSEE - COMPANY MAINTAINED ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS. IT WAS OBSERVED THAT IF THAT IS SO, THERE WAS NO JUSTIFICATION IN CLAIMING THESE EXPENSES FOR THE ASSESSMENT YEAR UNDER APPEAL. HAVING CONSIDERED THE MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE ON SUCH ABSTRACT PROPOSITION. MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS U PON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEARS, IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THAT THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE PREVIOUS YEAR. THE TRUE PROFITS AND GAINS OF A PREVIOUS YEAR ARE REQUIRED TO BE COMPUTED FOR THE PURPOSE OF DETERMINING TAX LIABILITY. THE BASIS OF TAXING INCOME IS ACCRUAL OF INCOME AS WELL AS ACTUAL RECEIPT. IF FOR WAN T OF NECESSARY MATERIAL CRYSTALLISING THE EXPENDITURE IS NOT IN EXISTENCE IN RESPECT OF WHICH SUCH INCOME OR EXPENSES RELATES, THE MERCANTILE SYSTEM DOES NOT CALL FOR AN ADJUSTMENT IN THE BOOKS OF ACCOUNT ON ESTIMATE BASIS. IT IS ACTUALLY PAGE 4 OF 5 KNOWN INCOME OR E XPENSES, RIGHT TO RECEIVE OR LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLISED, IS TO BE TAKEN INTO ACCOUNT UNDER MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME OR LIABILITY, WHICH IS YET TO BE CRYSTALLISED, CAN ONLY BE ADJUSTED AS CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. TO ILLUSTRATE, WE FIND FROM THE DETAILS OF THE EXPENSES THAT CERTAIN EXPENSES ARE RELATED TO THE FEES PAID TO THE EXPERTS, OUT OF POCKET EXPENSES INCURRED BY THE CONSULTATION FIRM AN D DISCHARGE OF LIABILITY ON ACCOUNT OF DEMURRAGES CLAIMED BY THE PORT AUTHORITIES. SUCH ITEMS WITHOUT INVESTIGATION INTO THE FACT ABOUT THE CRYSTALLIZATION OF SUCH DUES CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THEY RELATE TO THE TRANSACTIONS PERTAINI NG TO EARLIER ACCOUNTING YEAR. IN THIS CONNECTION IT IS USEFUL TO REFER TO A DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. NATHMAL TOLARAM [1973] 88 ITR 234 WHICH WAS A CASE ARISING UNDER THE INDIAN INCOME - TAX ACT, 1922, AS TO THE INTERPRETATION OF SECTION 10(2) ( XV ) WHICH IS CORRESPONDING TO SECTION 37(1) OF THE 1961 ACT. THE QUESTION RELATED TO THE CLAIM OF DEDUCTION ON ACCOUNT OF THE SALES TAX LIABILITY PA ID DURING THE YEAR 1957 - 58, WHEREAS THE LIABILITY RELATED TO THE ACCOUNTING YEAR 1949 - 50. THE DIVISION BENCH IN THAT CASE OBSERVED AS UNDER: '. . . UNDER SECTION 4 OF THE INCOME - TAX ACT, THE INCOME THAT ACCRUES OR ARISES DURING ANY PREVIOUS YEAR ALONE IS T O BE TAKEN NOTE OF. THERE IS, THEREFORE, A BAR TO INCLUDE ANY INCOME THAT ACCRUES OR ARISES OUTSIDE THE PREVIOUS YEAR SUBJECT TO THE DEEMING PROVISIONS IN THE ACT. THERE IS, HOWEVER, NO EXPRESS BAR IN LAW,. NOR ONE BY NECESSARY IMPLICATION, RESTRICTING THE POWER OF THE INCOME - TAX OFFICER TO EXCLUDE THE EXPENDITURE LAID OUT OR EXPENDED UNDER SECTION 10(2) ( XV ) OF THE 1922 ACT. WE ARE, THEREFORE, UNABLE TO ACCEDE TO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE DEPARTMENT. SECTION 10(2) ( XV ) , SHORN OF OTHER DETAILS FOR OUR PURPOSE, PROVIDES FOR MAKING ALLOWANCES OF ANY EXPENDITURE 'LAID OUT' OR 'EXPENDED'. THE WORDS 'LAID OUT' ARE WITH REFERENCE TO THE MERCANTILE SYSTEM WHILE THE WORD 'EXPENDED' IS WITH REGARD TO THE CASH SYSTEM. ONCE THERE WAS THE SALES TAX DEMAND IN THIS CASE, WHICH WAS AN ENFORCEABLE LIABILITY AND AS SUCH A REAL EXPENDITURE, FOR WHICH THE ASSESSEE LAID OUT THE AMOUNT BY DEBITING HIS ACCOUNT IN THE ACCOUNTING YEAR WHICH WAS ALSO THE YEAR OF DEMAND OF THE DEPARTMENT, DEDUCTION CAN BE LEGITIMA TELY CLAIMED UNDER SECTION 10(2) ( XV ) . HERE IS A CASE, WHERE THERE IS NO DOUBT ABOUT THE GENUINENESS OF THE EXPENDITURE. THERE IS ALSO THE COMPULSIVENESS IN THE SALES TAX DEMAND WHICH CAN BE IGNORED ONLY AT PERIL OF THE ASSESSEE. THIS EXPENDITURE HAD NEVE R BEEN TAKEN NOTE OF IN THE EARLIER YEARS FOR ONE REASON OR THE OTHER. IN THE ABSENCE OF ANY LEGAL BAR IN THE WAY OF THE ASSESSEE CLAIMING THIS EXPENDITURE IN THE YEAR OF DEMAND FOR WHICH PROVISION HAS ALREADY BEEN MADE IN HIS ACCOUNTING YEAR, DEDUCTION UN DER SECTION 10(2) ( XV ) IS PERMISSIBLE IN LAW AND HAS BEEN RIGHTLY ALLOWED BY THE TRIBUNAL. ' (P. 238) WE ARE IN RESPECTFUL AGREEMENT WITH THE SAID VIEW EXPRESSED BY THE GAUHATI HIGH COURT. WE, THEREFORE, ANSWER QUESTION NO. 5 IN THE NEGATIVE, I. E. , IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE. PAGE 5 OF 5 THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT APPEAL AS WELL AS COULD NOT PLACE BEFORE US ANY REASON THAT THE EXPENDITURE HAS NOT BEEN CRYSTALLIZED DURING THE YEAR. IN VIEW OF THIS GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 7 / 1 0 / 2 0 1 7 - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 / 1 0 / 2 0 1 7 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI