M/s. IT Enfraservices Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5032/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58893 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Keywords: Business income

Judgement Text

ITA NOS. 5032 & 5033/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 5032 & 5033/DEL/2011 A.YRS. : 2007-08 & 2008-09 M/S IT ENFRASERVICES PVT. LTD., 85, GROUND FLOOR, WORLD TRADE CENTRE, BARAKHAMBA LANE, NEW DELHI VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(1), ROOM NO. 312, CR BUILDING, NEW DELHI PAN/GIR NO. : AABCIO514K) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. RAJIV JAIN, CA DEPARTMENT BY : MS. Y.S. KAKKAR, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER BENCH BENCH BENCH BENCH THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS) FOR ASSESSMENT YEARS 2007-08 & 2008-09. 2. THE GROUND PRESSED IN ASSESSMENT YEAR 2007-08 R EADS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHERE THE ASSESSEE COMPANY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING (MANDATORY FOR A COMPANY UNDER THE COMPANIES ACT, 1956) AND DISCLOSED RENTAL ITA NOS. 5032 & 5033/DEL/2011 2 INCOME U/H BUSINESS INCOME, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XV WAS WRONG IN SUSTAINING THE ADDITION MADE BY ASSESSING OFFICER FOR ADVANCE RENT AMOUNTING TO ` 61,68,250/- IN A.Y. 2007-08 WHICH IN ACCORDANCE WITH THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE WAS DECLARED AS INCOME IN THE SUBSEQUENT ASSESSMENT YEAR. 3. THE GROUND PRESSED IN ASSESSMENT YEAR 2008-09 R EADS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHERE THE ASSESSEE COMPANY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING (MANDATORY FOR A COMPANY UNDER THE COMPANI ES ACT, 1956) AND DISCLOSED RENTAL INCOME U/H BUSINES S INCOME WHICH WAS ELIGIBLE FOR 100% DEDUCTION U/S. 8 0IA OF THE IT ACT, 1961, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XV WAS WRONG:- - IN SUSTAINING THE ADDITION MADE BY TAXING ADVANCE RENT AMOUNTING TO ` 31,50,000/- WHICH IN ACCORDANCE WITH THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ITA NOS. 5032 & 5033/DEL/2011 3 ASSESSEE WAS DECLARED AS INCOME IN THE SUBSEQUENT YEAR. 4. SINCE THE FACTS IN THE CASE ARE IDENTICAL, HENC E, WE ARE ADJUDICATING THE CASE WITH REFERENCE TO ASSESSMENT Y EAR 2007-08. 5. THE ASSESSEE IN THIS CASE OPERATES A SOFTWARE TE CHNOLOGY PARK BY THE NAME OF LOGIX TECHNO PARK AND LETS OUT ON RENT S PACE(S) IN THIS PARK TO VARIOUS SOFTWARE /BPO AND OTHER COMPANIES. T HE MAIN SOURCE OF INCOME OF THE ASSESSEE IS THUS RENTAL RECEIPTS F ROM THESE TENANTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSAL OF THE AUDITED BALANCE SHEET AS SUBMITTED BY THE ASSESSEE, ASSESSING OFFICER FOUND THAT FOLLOWING TWO ITEMS ARE ADMITTED ON THE LIABILITY SIDE OF THE BALANCE SHEET (I) SECURITY DEPOSIT - ` 10,3 8,20,552/- & (II) ADVANCE RENT - ` 61,68,250/-.. 5.1 AS REGARDS THE ADVANCE RENT ASSESSING OFFICER OPINED THAT ADVANCE RENT IS THE PAYMENT OF SOME PORTION OF RENT BY A TENANT TO A LANDLORD IN ADVANCE. AS THE WORD RENT IS APPENDED TO THE WORD ADVANCE SO IT FOLLOWS THAT THE WORD ADVANCE RENT TA KE ITS COLOURS FROM THE WORD RENT. ADVANCE RENT IS CONSIDERED TAXABLE INCOME FOR THE YEAR IN WHICH THE LANDLORD RECEIVED THE PAYMENTS. IN TH IS CASE, THE AMOUNT OF ADVANCE TAX WAS ` 61,68,250/-. ASSESSING OFFICE R OPINED THAT THIS IS ITA NOS. 5032 & 5033/DEL/2011 4 NOTHING BUT A RENT RECEIVED IN ADVANCE FROM THE TENA NTS WHO HAVE SEPARATELY GIVEN SECURITY DEPOSITS ALSO. HE FURTH ER OPINED THAT THE NATURE OF THIS ADVANCE RENT IS INCOME AND INCOME ON LY. THIS NATURE CANNOT CHANGE SIMPLY BY THE ACCOUNTING TREATMENT ACCO RDED TO IT BY THE ASSESSEE IN TREATING IT AS A LIABILITY. ASSES SING OFFICER NOTED THAT ASSESSEE HAS NO OBLIGATION TO RETURN BACK THIS ADV ANCE RENT TO THE TENANTS. IT IS THUS NOT A LIABILITY AND ONCE A CREDIT BALANCE LOSES ITS COLOUR AS A LIABILITY IT AUTOMATICALLY BECOMES AN IN COME. THEREFORE, ASSESSING OFFICER HELD THAT REJECTING THE CLAIM OF THE ASSESSEE THAT ADVANCE RENT OF ` 61,68,250/- IS A CURRENT LIABILIT Y, THIS AMOUNT OF ADVANCE RETURN IS BROUGHT TO TAX AND HENCE AN ADDI TION OF ` 61,68,250/- IS MADE TO THE TOTAL INCOME OF THE ASSESS EE. 6. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) IT WAS SUBMITTED THAT ADVANCE TAX BECOMES TAXABLE AS THE INCOME OF THE YEAR IN RESPECT OF WHICH RENT IS DUE / RECEIVABLE AND NOT IN THE YEAR OF RECEIPT, AS THE SAME IS ADJUSTED. ASSESSEE FURTHER SUBMITTED THAT ASSESSING OFFICER HAS TAXED THE ASSESSEE TWICE BY MAKING ADDITION OF ADVANCE TAX, WHILE THE ASSESSEE HAS ALREADY GIVEN T AX ON GROSS RENT. AFTER EXAMINING THE DOCUMENTS, EVIDENCE, RELEVANT PR OVISIONS OF LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD TH AT ASSESSING OFFICER HAS RIGHTLY TAXED THE ADVANCE RENT SINCE ASSESSEE WAS IN ITA NOS. 5032 & 5033/DEL/2011 5 RECEIPT OF THE SAME. HOWEVER, THE SAME CANNOT BE TAXED TWICE AND ASSESSING OFFICER WAS DIRECTED TO GIVE CREDIT/ REL IEF TO THE ASSESSEE FOR THE AMOUNT OF ADVANCE RENT WHICH WAS RECEIVED EARLIE R AND WHICH HAS BEEN DISCLOSED IN THE GROSS RECEIPT SUBSEQUENTLY. LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFI CER NOT TO TAX THE AMOUNT TWICE, ONCE AS ADVANCE TAX AND THE SECOND TI ME AS GROSS TAX. LD. COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT THE RENT MUST BE TAXED, ON RECEIPT BASIS, IN THE YEAR IN WHICH IT IS RECEIVED. 7. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE FOLLOWING THE MERCANTI LE SYSTEM OF ACCOUNTING. HENCE, THE RENT RECEIVED IN ADVANCE H AS TO BE TAXED ON MERCANTILE BASIS. IN THIS REGARD, HE REFERRED THE PAGE NO. 42 OF THE PAPER BOOK WHEREIN SECTION 209 OF THE COMPANIES ACT HAS BEEN EXTRACTED. LD. COUNSEL OF THE ASSESSEE BROUGHT O UR ATTENTION TO CLAUSE 3B OF THE SAID SECTION WHICH MANDATES THAT PR OPER BOOKS OF ACCOUNT SHALL NOT BE DEEMED TO BE KEPT IF SUCH BOO KS ARE NOT KEPT ON ACCRUAL BASIS AND ACCORDING TO THE DOUBLE ENTRY SYS TEM OF ACCOUNTING. LD. COUNSEL FURTHER BROUGHT TO OUR ATTENTION PAGE NO. 44 OF THE PAPER BOOK WHEREIN SECTION 211 OF THE COMPANIES ACT, 19 56, HAS BEEN ITA NOS. 5032 & 5033/DEL/2011 6 EXTRACTED. IN THIS CONNECTION, IT IS MENTIONED TH AT IN CLAUSE 3A THAT EVERY PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE COMPANY SHALL COMPLY WITH THE ACCOUNTING STANDARDS. LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE PAGE NO. 46 OF THE PAPER BOOK WHEREIN ACCOUNTING STANDARD (AS)I HAS BEEN EXTRACTED. IN THE SAID AC COUNTING STANDARD IN PARA 10 IN CLAUSE (C) IT HAS BEEN MENTIONED THAT ACCRUAL IS ALSO ONE OF THE GENERALLY ACCEPTED AS FUNDAMENTAL ACCOUNT ING ASSUMPTIONS. BASED ON THE SUBMISSION, LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT ASSESSEE HAS RECEIVED RENT IN ADVANCE. THERE IS NO DOUBT THAT THE RENT RECEIVED IN ADVANCE AS SPECIFICALLY BEING OFF ERED FOR TAXATION WHEN IT IS DUE. HENCE, HE CLAIMED THAT WHEN AD VANCE RENT IS RECEIVED, THE SAME IS NOT TAXABLE IN THIS YEAR, WHI CH PERTAINS TO THE SUBSEQUENT PERIOD OF WHICH IT RELATES. HENCE, H E PLEADED THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE DESERVES TO BE SET ASIDE. 8.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. SHE VEHEMENTL Y CLAIMED THAT SINCE THE AMOUNT OF THE RENT HAS ACTUALLY BEEN RECEIVED, I T SHOULD BE TAXED IN THE YEAR IT RECEIVED, REGARDLESS OF THE FACT THA T IT IS ADVANCE RENT OR JUST RENT. 8.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IT IS ADMITTED FACT OF THE C ASE THAT ADVANCE RENT ITA NOS. 5032 & 5033/DEL/2011 7 HAS BEEN RECEIVED BY THE ASSESSEE. IT IS ALSO CLEAR THAT ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN M ERCANTILE SYSTEM OF ACCOUNTING THE INCOME IS ACCOUNTED FOR IN THE PERIOD TO WHICH IT PERTAINS. IN THIS CASE THE RENT RECEIVED IN ADVAN CE DID NOT PERTAIN TO THE IMPUGNED ASSESSMENT YEAR. THEY BELONG TO THE SU BSEQUENT YEAR. HENCE, ASSESSEE HAS CORRECTLY CLASSIFIED THE SAME A S ADVANCE RENT AND OFFERED THE SAME FOR TAXATION, WHICH WAS DUE FOR CU RRENT YEAR ONLY. IN THIS VIEW OF THE MATER, IN OUR CONSIDERED OPINION, A UTHORITIES BELOW HAVE ERRED IN HOLDING THAT RENT WILL BE TAXED ON RE CEIPT BASIS IRRESPECTIVE OF THE FACT THAT THE SAME HAS BEEN RECE IVED IN ADVANCE. HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES B ELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/3/2012. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 15/3/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES