FIRST ADVANTAGE P.LTD, MUMBAI V. PR CIT 12, MUMBAI

ITA 5112/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9822 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 29-03-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 26-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 5112 / MUM/20 1 5 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. FIRST ADVANTAGE P. LTD., 1 ST FLOOR, BUILDING NO.7 INTERFACE LINK ROAD MALAD (W), MUM BAI VS. PR CIT 12, MUMBAI PAN/GIR NO. AAACQ0706E APPELLANT ) .. RESPONDENT ) ASSESSEE SHRI RAJAN VORA WITH SHRI HEMEN CHANDARIYA REVENUE BY MRS. S. PADMAJA DATE OF HEARING 16 / 0 6 /201 7 DATE OF PRONOUNCEME NT 26 / 07 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT DATED 21/08/2015, PASSED U/S.263 OF THE IT ACT. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - 1) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ORDER BY ADDING AN AMOUNT OF RS. 1,23,09,109/ - TO THE TOTAL INCOME. 2) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT A SUM OF RS.26,08,116/ - IS MERELY A PROVI SION FOR RENT AND, THEREFORE, IT IS DISALLOWABLE. 3) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT A SUM OF RS.75,46,339 / - IS MERELY A PROVISION FOR ELECTRICITY EXPENSES AND NO LIABILITY HAS ACCRUED DURING THE ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 2 PREVIOUS YEAR RELEV ANT TO A.Y. 2012 - 13 AND THEREFORE, IT IS DISALLOWABLE. 4) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT A SUM OF RS. 21,54,654 / - BEING OFFICE MAINTENANCE IS DISALLOWABLE. 5) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT NO LIABILITY HAS ACCRUED IN RESPECT OF PROVISION FOR RENT, ELECTRICITY AND OFFICE MAINTENANCE EXPENSES DURING THE FINANCIAL YEAR 2011 - 12 RELEVANT TO A. Y. 2012 - 13. 6) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX OUGHT TO HAVE CONSIDE RED THAT THE PROVISION FOR ABOVE EXPENSES WHICH IS OUTSTANDING AS ON 31 SI MARCH, 2012 WAS RS.2,85,917/ - , THE BREAKUP OF WHICH IS AS UNDER: ACCOUNT HEAD PROVISION FOR EXPENSES (RS.) RENT UTILITIES 1 ELECTRICITY CHARGES OFFICE MAINTENANCE CHARG ES 2,62,945/ - NIL 22,972/ - TOTAL 2,85,917/ - 7) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE AMENDMENT TO SECTION 263 BY FINANCE ACT, 2015 WHICH AMENDMENT IS EFFECTIVE FROM 1ST JUNE, 2015 EMPOWERS HIM TO INITIATE PR OCEEDINGS U/S 263 ON THE BASIS OF NOT MAKING ENQUIRY OR VERIFICATION, IN RESPECT OF A. Y. 2012 - 13 AND THE ASSESSMENT ORDER FOR WHICH WAS PASSED ON SO' MARCH, 2015 (PRIOR TO THE EFFECTIVE DATE OF AMENDMENT). 8) THE APPELLANT CRAVES LEAVE TO ALTER, AMEND A ND / OR ADD ANY OTHER GROUND OF APPEAL. 2. RIVAL CONTENTIONS HAVE BEEN HEA RD AND RECORD PERUSED. IN THIS CASE, THE ASSESSING OFFICER PASSED THE ORDER U/S. 1 43(3) ON 30.03.2015 ASSESSING TOTAL INCOME AT RS.13,41,92 , 460/ - AGAINST RETURNED INCOME OF RS. 12 , 1 9 , 90 , 540/ - AFTER DISALLOWING RS. ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 3 1 ,22 , 0 1 ,914/ - U/S. 40(A)( I ) OF THE I T A CT. THEREAFTER CIT INVOKED HIS POWERS U/S.263. 3. IN THE SHOW - CAUSE NOTICE ISSUED U/S.263 THE CIT OBSERVED THAT FROM THE PR OFIT & LOSS ACCOUNT PLACED ON RECORD FOR THE A. Y 2012 - 13, INTEREST ON FIXED DEPOSIT HAS BEEN CREDITED TO THE EXTENT OF RS. 1,03,87,939 / - WHEREAS INTER EST ACCRUED AND NOT DUE AT RS.28, 80 , 80 6 / - DOES NOT FIND PLA CE ON THE CREDIT SIDE OF THE P & L A/ C . THIS AMOUNT OF INTEREST ACCRUED BUT NOT DUE HAS BEEN REFLECTED UND ER THE HEAD 'OTHER ASSETS' IN COLUMN NO. 16 ON THE ASSET SIDE OF BALANCE SHEET . SINCE, THE ASSESSEE IS MAINTAINING THE MERCANTILE SYSTEM ACCOUNTING, THE INTEREST ACCRUED MUST HAVE CRED ITED ON THE CREDIT S I DE OF P & L A/C. THERE APPEARS TO BE THE MISTAKE WH ICH THE ASSESSING OFFICER HAS LOST S IGH T . 4. LD. CIT ALSO STATED THAT FROM T HE DETA I LS F ILED REGARDI NG THE OTHER EXPENSES, THE AMOUNTS OF RS. 2 6,08,116/ - RS.75,46,369/ - AND RS.21,54,654/ - HAVE BEEN DEBITED UNDER THE HEAD PROVISIONS FOR RENT , PRO VISION FOR ELECTRICIT Y CHARGES AND PROVISION FOR MAINTENANCE. SINCE, THE ABOVE AMOUNTS REPRESENT ONLY PROVISIONS THEY CANNOT BE ALLOWE D A DEDUCTI O N AS LIABILITY FOR THE SAME CANNOT BE SAID TO HAVE ACCRUED. 5. WITH REGARD TO THE CO MPUTATION OF INCOME AVAILABLE ON RECO RD, CIT OBSERVED THAT THE LICENSEE FEE FOR THE A . Y 2012 - 13 HAS BEEN CLAIMED TO THE EXTENT OF RS.1,22,01 ,914/ - BEIN G 100% FROM THE ASSESSMENT ORDER P A SSED BY THE A.O FOR THE A. Y 201 1 - 12, IT WA S ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 4 HELD BY THE A.O THAT THE LICENSE FEE IS ONLY CAPITAL EXPEN D ITUR E WHICH HAS BEEN SHOWN AS I NTANGIBLE. SIMILARLY, FOR THE A. Y 2012 - 13 ALSO , THE A.O SHOULD HAVE DISALLOWE D THE ENTIRE LICENSE FEES AS A CAPITAL EXPEND ITURE MAINTAINING UNIFORMITY IN HER S TA ND T AKEN FOR THE A. Y 2011 - 12 6. ASSESSEE FILED DETAILED REPLY TO T HE NOTICE ISSUED BY THE C IT . IT APPEARS THAT CIT AG RE ED WITH ALL THE ISSUES EXCEPT THE ISSUE OF PROVISION FOR RENT, ELECTRICITY CHARGES AND MAINTENANCE CHARGES. 7. IT WAS ARGUED BY LEARNED AR THAT CIT HAS ERRED IN DIRECTING THE AO FOR MAKING ADDITION OF RS .1,23,09,190/ - TO THE TOTAL INCOME OF ASSESSEE ON THE ALLEGATION OF PROVISION MADE ON ACCOUNT OF RENT, ELECTRICITY AND MAINTENANCE CHARGES. AS PER LEARNED AR THE PROVISION FOR ABOVE EXPENSES WHICH IS OUTSTANDING AS ON 31ST MARCH, 2012 WAS RS.2,85,917/ - , TH E BREAKUP OF WHICH IS AS UNDER: ACCOUNT HEAD PROVISION FOR EXPENSES (RS.) RENT UTILITIES 1 ELECTRICITY CHARGES OFFICE MAINTENANCE CHARGES 2,62,945/ - NIL 22,972/ - TOTAL 2,85,917/ - 8. OUR ATTENTION WAS INVITED TO PAGE FOUR OF THE PAP ER BOOK WHICH IS AUDITED BAL ANCE SHEET INDICATING ACCRUED EXPENSES OF RS.2,18,17,469/ - . THE BREAK - UP OF ACCRUED EXPENSES ARE PLACED AT PAGE 25 OF THE PAPER BOOK WHICH INDICATED ACCRUED EXPENSES PAYABLE AMOUNTING TO RS.60,80,813/ - . OUR ATTENTION WAS ALSO IN VITED ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 5 TO PAGE 26 OF THE PAPER BOOK GIVING BREAK - UP OF SUCH ACCRUED EXPENSES OF RS.60,80,813/ - , WHEREIN OUTSTANDING RENT WAS ONLY RS.2,62,945/ - AS AGAINST OUTSTANDING RENT CONSIDERED BY CIT AT RS.26,08,116/ - . AS PER THE LIST OF ACCRUED EXPENSES, THERE WAS N O PROVISION FOR ELECTRICITY EXPENSES AND MAINTENANCE EXPENSES. 9. IN VIEW OF THE ABOVE, IT WAS VEHEMENTLY ARGUED BY LEARNED AR THAT CIT HAS WRONGLY TAKEN PROVISION FOR EXPENSES WHICH WERE NOT AT AL L CLAIMED IN THE P & L ACCOUNT SO AS TO REDUCE THE PROFIT. HE SUBMITTED THAT CIT HAS NOT APPLIED HIS MIND AT ALL TO THE STATEMENTS FILED BEFORE HIM EXPLAINING EACH AND EVERY ITEM ASKED BY HIM IN HIS NOTICE U/S.263. 10. LEARNED AR CONTENDED THAT WHILE PASSING SCRUTINY ORDER U/S.143(3), T HE AO HAS ASKED FOR ALL THE INFORMATION AND WHICH WERE FILED BY THE ASSESSEE AND ONLY AFTER CONSIDERING THE SAME, THE AO HAS MADE ADDITION OF RS.1,22,01,914/ - U/S.40 (A)(I). OUR ATTENTION WAS ALSO INVITED TO THE DETAILED REPLY FILED BEFORE THE AO ALONGWITH RELEVANT DETAILS. 11. ON TH E OTHER HAND, LEARNED CIT DR CONTENDED THAT THERE WAS CONTRADICTION IN THE INFORMATION FILED BY ASSESSEE BEFORE CIT WITH RESPECT TO THE PROVISIONS SO MADE ON ACCOUNT OF RENT, ELECTRICITY CHARGES AND MAINTENANCE CHARGES. SHE INVITED OUR ATTENTION TO TH E REP LY FILE D BY ASSESSEE BEFORE CIT VIDE ITS LETTER DATED 11/08/2015 AND 13 /08/2015. ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 6 12. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ASSESSEE AS AN ACCOUNTING PRACTICE, CLOSES I TS BOOKS OF ACCOUNTS ON MONTHLY BASIS AND, ACCORDINGLY, INTER - ALIA PROVISION FOR THE ABOVE - REFERRED EXPENSES I.E., RENT, ELECTRICITY AND MAINTENANCE IS GENERALLY MADE AT THE END OF EACH MONTH. ON THE FIRST DAY OF THE NEXT MONTH, THE PROVISION ENTRY IS REVE RSED AND ACTUAL PAYMENT IS RECORDED. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, INSTEAD OF THE YEAR END PROVISION FIGURES IN RESPECT OF THE ABOVE - REFERRED EXPENSES, INADVERTENTLY, THE MONTH END PROVISION NUMBERS GOT FILED. HOWEVER, VIDE ITS LETTER DATED 1 3/08/2015, ASSESSEE HAD CLARIFIED THAT THE PROVISION FIGURES THAT WERE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS (AND WHICH WERE PICKED BY CIT IN THE REVISION PROCEEDINGS) WERE ACTUALLY MONTH END PROVISION FIGURES AND NOT THE PROVISION FIGURES WHICH WERE OUTSTANDING AT THE YEAR END . 13. IN VIEW OF THE ABOVE, REVISED FIGURES OF PROVISION, IN RESPECT OF THE ABOVE - REFERRED EXPENSES, AS AT THE YEAR - END, AS APPEARING IN THE BALANCE SHEET, FOR THE SUBJECT AY ALONG WITH THE MANNER IN WHICH THEY WERE PAID/S ETTLED , IN THE SUBSEQUENT YEARS ARE AS UNDER: PROVISION FOR RENT - INR 2,62,945 PROVISION FOR ELECTRICITY - INR NIL PROVISION FOR MAINTENANCE - INR 22,972 14. THUS, IT IS CLEAR THAT AS PER THE REVISED PROVISION FIGURES IN RESPECT OF RENT, UTILITIES AND OFFICE MAINTENANCE, THE TOTAL PROVISION ITA NO. 5112/MUM/2015 M/S. FIRST ADVANTAGE PVT. LTD., 7 OUTSTANDING AS AT THE YEAR - END IS INR 2,85,917/ - AND NOT RS.1,23,09,109/ - TAKEN BY CIT IN HIS ORDER U/S.263. WE ACCORDINGLY MODIFY THE ORDER OF CIT AND DIRECT THE AO TO VERIFY THE SAID PROVISION OF RS.2,85,917/ - AS BEEN CL AIMED TO BE SUBSEQUENTLY PAID / ADJUSTED IN THE SUBSEQUENT YEAR I.E. A.Y. 2013 - 14. IF THE AO FOUND THAT A SUM OF RS.2,85,917/ - HAD NOT ACTUALLY PAID IN THE NEXT YEAR, HE MAY ADD THE SAME TO THE TOTAL INCOME OF ASSESSEE. WE DIRECT ACCORDINGLY. 15. IN THE R ESULT, APPEAL IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 / 07 /2017 SD/ - ( SANDEEP GOSAIN ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 26 / 07 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//