DCIT, New Delhi V. M/s Medsave Healthcare Ltd, New Delhi

ITA 503/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9656 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 09-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 09-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI D.R.SINGH, JM AND SHRI R.C.SHARMA, AM ITA NO.503/DEL/2009 ASSESSMENT YEAR : 2003-04 DY.COMMISSIONER OF INCOME TAX, CIRCLE-6(1), NEW DELHI. VS. M/S MEDSAVE HEALTHCARE LIMITED, F-701A, LADO SARAI, NEW DELHI 110 030. PAN NO.AABCS8148M. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.K.LAL, DR. RESPONDENT BY : SHRI SANJAY SOOD, CA. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 27.11.2008 FOR THE AY 2003-04, IN THE MATTER OF DEL ETION OF PENALTY IMPOSED U/S 271(1)(C) OF THE IT ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME ALONGWITH AUDITED FINANCIAL STATEMENTS INCLUDING NOTES TO ACCOUNTS AND TAX AUDIT REPORT. AS PER SCHEDULE 14 RELATING TO SIGNIFICANT ACCOUNTING POLICIES AND THE NOTES ANN EXED THERETO. POINT A(C) RELATES TO REVENUE RECOGNITION WHEREIN IT HAS CLE ARLY BEEN STATED THAT TPA FEES IS INVOICED TO INSURANCE COMPANY ON QUARTERLY BASIS . THE TPA FEE IS RECOGNIZED INCOME ON THE BASIS OF 70% OF AMOUNT INVOICED TO IN SURANCE COMPANY IN THE FIRST QUARTER TO MEET INITIATION CARD ISSUANCE RELATED CO STS. BALANCE 30% IS RECOGNIZED OVER NEXT THREE QUARTERS EQUALLY. WITH REGARD TO SPREADING OF INCOME, THE AO DID NOT AGREE AND AFTER REFERRING TO THE MERCANTILE SYS TEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE, HE ADDED ENTIRE AMOUNT OF TPA FEE AS INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN THE FIRST APPEAL, CIT(A) CONFIRMED THE ACTION OF THE AO. HOWEVER, IN AN APPEAL FILED BEFO RE THE TRIBUNAL, THE ISSUE WAS ITA-503/D/2009 2 DECIDED IN FAVOUR OF THE ASSESSEE WITH A DIRECTION TO THE AO TO WORK OUT CORRESPONDING EXPENSES ADOPTED IN THE NEXT YEAR AND TO ALLOW THE CLAIM OF THE ASSESSEE IN THIS YEAR AND TO GIVE CONSEQUENT EFFECT IN SUBSEQUENT YEARS. 3. AFTER THE ADDITIONS WERE MADE, THE AO ALSO LEVIE D PENALTY U/S 271(1)(C) WITH RESPECT TO THE ADDITION SO MADE. IN THE APPEA L FILED AGAINST THE PENALTY ORDER, THE CIT(A) DELETED THE SAME BY OBSERVING THAT SINCE THE SERVICES TO BE RENDERED BY THE ASSESSEE FOR ONE YEAR FROM THE DATE OF POLICY, THE EXPENSES WILL HAVE TO BE INCURRED FOR ONE YEAR TO PROVIDE FOR BOOK SERVICES, THEREFORE, AS PER THE MATCHING CONCEPT OF ACCOUNTING INCOME AND EXPENSES, THERE WA S NO FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME BY THE ASSESSE E, THEREFORE NO PENALTY WAS WARRANTED FOR SUCH ACCOUNTING OF INCOME. AGGRIEVED BY THIS ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF THIRD PARTY INSURANCE ADMINISTRATIVE SE RVICES (IN SHORT TPA) AND HAS A NETWORK OF BRANCHES TO CARRY OUT SUCH WORK. THE CO MPANY IN ITS BOOKS RECOGNIZED TPA FEES AS ITS INCOME ON THE BASIS OF APPORTIONING 70% OF THE QUARTER IN WHICH THE FEES WAS RECEIVED AND BALANCE 30% WAS BOOKED AS INCOME IN THE NEXT THREE QUARTERS. ACCORDINGLY, THE ASSESSEE FOLLOWED MATCH ING CONCEPT OF INCOME AND EXPENSES TO BE INCURRED IN RESPECT OF THIRD PARTY I NSURANCE. AS THE INCOME WAS BELONGING TO ONE YEAR AND THE SERVICES WERE TO BE R ENDERED FOR THE ENTIRE ONE YEAR, THE AMOUNT OF TPA FEES RECEIVED IN THE LAST QUARTER OF THE YEAR WAS BELONGING TO THE PERIOD COVERING THREE QUARTERS OF THE NEXT YEAR ALSO. KEEPING IN VIEW THE EXPENSES TO BE INCURRED IN NEXT THREE QUARTERS, THE PART OF THE INCOME WAS ALSO POSTPONED TO THE THREE QUARTERS OF THE NEXT YEAR. THE AO WAS OF THE VIEW THAT ENTIRE FEE SHOULD BE BOOKED AS INCOME IN THE QUARTE R IN WHICH IT WAS RECEIVED AND INVOICED AND THE APPORTIONMENT IN THE NEXT THREE QU ARTERS WAS NOT CORRECT. AS PER ITA-503/D/2009 3 ASSESSEE, IT ADOPTED PRINCIPLE OF MATCHING CONCEPT WHICH REQUIRES THAT EXPENSES FOR THE ACCOUNTING PERIOD SHOULD BE MATCHED AGAINST REL ATED INCOME. 5. IN VIEW OF THE ABOVE DISCUSSION, IT IS CRYSTAL C LEAR THAT ASSESSEE HAS GIVEN FULL DISCLOSURE WITH RESPECT TO THE NATURE OF INCOM E RECEIVED AND THE EXPENSES TO BE INCURRED THEREON. EVEN IN THE SCHEDULE-14 RELATING TO THE SIGNIFICANT ACCOUNTING POLICIES AND THE NOTES ANNEXED THERETO, THE ASSESSE E HAS CLEARLY STATED THAT TPA FEES IS INVOICED TO THE INSURANCE COMPANY ON QUART ERLY BASIS WHICH IS RECOGNIZED AS INCOME ON THE BASIS OF 70% OF THE AMOUNT INVOICE D IN THE FIRST QUARTER TO MEET INITIATION CARD INSURANCE RELATED COST. BALANCE 30 % WAS RECOGNIZED OVER NEXT THREE QUARTERS EQUALLY. POINT A(C) IN SCHEDULE-14 WHICH RELATED TO REVENUE RECOGNITION. ENTIRE INFORMATION WAS FURNISHED ALON GWITH THE RETURN OF INCOME. WE FOUND THAT EVEN IN THE QUANTUM APPEAL FILED BY T HE ASSESSEE AGAINST THE DECLINE BY THE REVENUE AUTHORITIES, SUCH ADOPTION OF RECOGN ITION OF INCOME, THE TRIBUNAL VIDE ITS ORDER DATED 25.6.2009 DIRECTED THE AO TO A LLOW THE CLAIM OF THE ASSESSEE IN THIS YEAR RELATING TO THE CORRESPONDING EXPENSES AD OPTED IN THE NEXT YEAR AND TO REWORK OUT THE INCOME ACCORDINGLY. AO WAS ALSO DIR ECTED TO GIVE CONSEQUENCE EFFECT IN THE SUBSEQUENT YEARS ALSO. THE RECOGNITI ON OF TPA INCOME IN THIS WAY AND THE JUSTIFICATION FURNISHED FOR THE SAME WAS BO NA-FIDE. THERE WAS NO CONCEALMENT OF INCOME NOR ANY FURNISHING OF INACCUR ATE PARTICULARS, THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FO R DELETING THE PENALTY WITH RESPECT TO RECOGNITION OF THE 30% OF THE TPA INCOME AS HAVING BEEN SPREAD OVER THE NEXT THREE QUARTERS, INSOFAR AS THE TPA FEE SO RECEIVED WAS BELONGING TO THE FULL YEAR I.E. FOUR QUARTERS. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2009. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.09.2009. VK. ITA-503/D/2009 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR