DCIT, New Delhi V. M/s. Jullundur Motor Agency (Delhi) Ltd., New Delhi

ITA 5878/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3783 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KIMMI DAWAT CA MS ADITI GUPTA

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5878/DEL/2015 (ASSESSMENT YEAR: 2010 - 11 ) DCIT, CIRCLE - 13(2), CE BUILDING, NEW DELHI VS. JULLUNDUR MOTOR AGENCY (DELHI) LTD, 2 - E/5, JHANDEWALAN EXTENSION, NEW DELHI PAN:AAACJ2490F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ARUN KUMAR YADAV, SR. DR ASSESSEE BY: MS. KIMMI DAWAT, CA MS. ADITI GUPTA, CA DATE OF HEARING 13/11 /2017 DATE OF PRONOUNCEMENT 0 7 / 0 2 / 2018 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) - 5, DELHI DATED 26.08.2015 FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD CIT(A) IS ERRED IN DELETING THE ADDITION OF RS. 5418000/ - MADE BY AO ON ACCOUNT OF ADVANCE COMMISSION RECEIVED IN ITS P& L A/C. 2. THAT THE ORDER OF THE LD CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3. BASED ON THE ABOVE GROUNDS OF APPEAL IT IS APPARENT THAT THE REVENUE IS AGGRIEVED DISALL OWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 5 418000/ ON ACCOUNT OF ADVANCE COMMISSION RECEIVED IN ITS PROFIT AND LOSS ACCOUNT DELETED BY THE LD. CIT (A). 4. THE ASSESSEE IS A COMPANY WHO FILED ITS RETURN OF INCOME ON 1/10/2010 AT RS. 1 59378240/ . THE AS SESSMENT UNDER SECTION 143 (3) OF THE ACT WAS PASSED ON 26/3/2013 AT RS. 164905648/ . THE MAJOR ADDITION MADE BY PAGE | 2 THE LD. AO WAS WITH RESPECT TO ADDITION ON ACCOUNT OF ADVANCE COMMISSION OF RS. 5418000/ . THE MAIN REASON FOR MAKING THE ABOVE DISALLOWANCE WAS THAT ASSESSEE HAS SHOWN ADVANCE COMMISSION RECEIVED OF THE ABOVE SUM. IT WAS NOTED BY THE LD. AO THAT ASSESSEE HAS NOT TREATED THIS ADVANCE COMMISSION AS ITS INCOME AND HAS NOT BEEN OFFERED FOR TAXATION. THE LD. AO RAISED THE QUERY THAT AS ASSESSEE I S FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING WHY THE ABOVE ADVANCE AMOUNT SHOULD NOT BE TREATED AS A COMMISSION INCOME ACCRUED. THE ASSESSEE SUBMITTED A NOTE O N ADVANCE COMMISSION IN COME IN WHICH IT HAS BEEN STATED THAT THE COMPANY ACCOUNTS FOR CREDIT NOTE WITH FULL AMOUNT AND REDUCED BY THE AMOUNT OF INCENTIVE COMMISSIONS FOR WHICH MATERIAL IS NOT RECEIVED IN THE FINANCIAL YEAR. THE AMOUNT, WHICH IS REDUCED FROM THE INCENTIVE COMMISSION, IS CREDITED TO ADVANCE COMMISSION RECEIVED ACCOUNT. THE LD. ASSE SSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE, AS ON PERUSAL OF THE PURCHASE DETAILS FILED BY THE ASSESSEE DOES NOT REFLECT ANY SUCH SYSTEM. HE THEREFORE HELD THAT THE ABOVE SUM OF RS. 5418000/ RECEIVED DURING THE YEAR AS ASSESSEES INCOME. 5. THE ASSESSEE CONTESTED THE ABOVE ADDITION BEFORE THE LD. CIT (A). HE HELD THAT APPELLANT BEING A TRADER IS GIVEN COMMISSION BY CERTAIN MANUFACTURERS ON COMPLETION OF CERTAIN TARGETS AGAINST SUPPLIES / SALES MADE TO THE APPELLANT. CERTAIN INVOICES WERE RAISED BY THE SUPPLIERS DURING THE YEAR WHEREAS THE MATERIAL IS ACTUALLY RECEIVED DURING THE NEXT FINANCIAL YEAR. NEVERTHELESS, THE SUPPLIER ISSUES A CREDIT NOTE O F COMMISSION IN RESPECT OF THE ENTIRE MATERIAL, INCLUDING GOODS IN TRANSIT, WHICH ARE NOT RECEIVED B Y THE APPELLANT DURING THE FINANCIAL YEAR OR AT THE END OF THE FINANCIAL YEAR. THE APPELLANT REDUCES THE COMMISSION ON THE PURCHASES BY THE AMOUNT OF COMMISSION ON WHICH THE MATERIAL IS NOT ACTUALLY RECEIVED AND THIS AMOUNT IS TAKEN TO THE HEAD OTHER LIAB ILITIES IN THE BALANCE SHEET. WHEN THE PURCHASES ARE RECORDED IN THE NEXT FINANCIAL YEAR ON ACCOUNT OF MATERIAL, BEING PHYSICALLY RECEIVED , THE CORRESPONDING COMMISSION ON SUCH PURCHASES IS CREDITED TO PURCHASE ACCOUNT IN THAT YEAR. ASSESSEE FURTHER SUBMITTED THE COPIES OF THE ACCOUNT AND SIMPLE INVOICES TO SHOW THE ABOVE DETAILS . LD. CIT (A ) HAS ALSO VERIFIED THE CHART PAGE | 3 SUBMITTED BY THE ASSESSEE AND SUCH CH ART WAS ALSO FORWARDED TO THE LD. ASSESSING OFFICER DURING THE REMAND PROCEEDINGS. THE CIT APPEA L AL SO EXAMINE D THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE OF THE ABOVE SUM. HE FURTHER HELD THAT IN ARRIVING AT THE CONCLUSION THAT THE RIGHT TO RECEIVE COMMISSION ACCRUE S IN RESPECT OF THOSE PURCHASES WHICH WERE RECEIVED IN THE SUBSEQUENT YEARS IN TH E PRECEDING YEAR IN THE CASE OF THE ASSESSEE , THE LD. CIT (A) HAS RECORDED A CONFLICTING OPINION AND TAKEN OPPOSITE STAND THAT THE ADVANCE COMMISSION IS TO BE TAXED ON MERCANTILE BASIS. HOWEVER THE LD. CIT (A) DELETED THE ABOVE ADDITION IN VIEW OF THE ACC OUNTING TREATMENT REGULARLY FOLLOWED BY THE APPELLANT . HE ALSO TOOK THE SUPPORT OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN DINESH KUMAR GOEL 197 TAXMANN 375 WHEREIN IT WAS HELD THAT THE RELEVANT YARDSTICK IS THE TIME OF ACCRUAL OR RECEIPT FOR THE PURPOSE OF ITS TAXATION. 6. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. ASSESSING OFFICER AND STATED THAT THOUGH THE ABOVE SUM H AS BEEN RECEIVED BY THE ASSESSEE IN THIS YEAR, HOWEVER, THE SAME WAS NOT OFFERED FOR TAXATION I N THE YEAR OF RECEIPT BUT IN THE SUBSEQUENT YEAR. HE FURTHER STATED THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE AS SOON AS THE MATERIAL IS RECEIVED DISPATCHED BY THE SUPPLIERS THE COMMISSION INCOME SHOULD HAVE BEEN ACCOUNTED F OR AS INCOME BY THE ASSESSEE. 7. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THE SAME ARGUMENTS WHICH WERE SUBMITTED BEFORE THE LD. ASSESSING OFFICER AND THE LD. CIT APPEAL . IT WAS FURTHER STATED THAT THE GOODS HAVE BEEN RECEIVED IN SUBSEQUENT YEAR AND BOOKED AS PURCHASES IN THE SUBSEQUENT YEAR THEREFORE; COMMISSION LINKED WITH THAT IS ALSO TO BE ACCOUNTED FOR IN TH AT YEAR . ALTERNATIVELY IT WAS FURTHER STATED THAT THE ASSESSEE IS A COMPANY WHICH IS CHARGED TO TAX IN BOTH THE YEARS AT SIMILAR RATE OF TAXAT ION AND MERELY BECAUSE THE INCOME EVEN IF OFFERED IN THE SUBSEQUENT YEAR OR THIS YEAR THERE IS NO LOSS TO THE REVENUE. IT WAS FURTHER STATED THAT HONBLE SUPREME COURT IN CASE OF EXCEL INDUSTRIES HAS REITERATED THE SAME PRINCIPLE. IN VIEW OF THIS, IT WAS S UBMITTED THAT ON THE MERITS, THE CASE OF THE ASSESSEE IS BASED ON THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED PAGE | 4 BY THE ASSESSEE , ACCRUAL CONCEPT, MATCHING PRINCIPLES AND EVEN OTHERWISE CONTEXT NEUTRALITY BASIS THE ORDER OF THE LD. AO IS NOT SUSTAINABLE. 8. W E HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND NOTED THE ORDERS OF THE LOWER AUTHORITIES. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE AMOUNT SHOWN AS ADV ANCE COMMISSION INCOME OF RS. 5 418000/ IS CHARGEABLE TO TAX IN THIS YEAR OR IN THE SUB SEQUENT YEAR AS OFFERED BY THE ASSESSEE. THE BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE IS EARNING COMMISSION INCOME IN RESPECT OF GOODS WHICH ARE IN TRANSIT WHICH ACCRUES IN THE YEAR IN WHICH THE GOODS ARE ACTUALLY RECEIVED AND BOOKED AS PURCHASES BY THE COMPANY. IT IS IN CONSONANCE WITH THE ACCRUAL SYSTEM OF ACCOUNTING AND THE MATCHING CONCEPT FOLLOWED BY THE ASSESSEE. NATURALLY, THE INCOME ACCRUES IN THE YEAR IN WHICH THERE IS A RIGHT TO RECEIVE SUCH INCOME AND NOT WHEN IT IS ACTUALLY RECEIVED. IT IS NOT IN DISPUTE THAT THE GOODS ARE RECEIVED IN SUBSEQUENT YEAR AND BOOKED AS PURCHASES IN SUBSEQUENT YEAR THE COMMISSION IS ALSO REQUIRED TO BE ACCOUNTED FOR AS INCOME IN THE SUBSEQUENT YEARS. IT WAS NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS RECEIVED T HE GOODS IN THIS YEAR AND THE COMMISSION HAS BEEN RECORDED AS INCOME IN THE SUBSEQUENT YEAR. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ACCOUNTING SYSTEM IS NOT FOLLOWED BY THE ASSESSEE REGULARLY. THE REVENUE ALSO COULD NOT SHOW THAT HOW EVEN IF THE G OODS ARE NOT RECEIVED THE RIGHT TO RECEIVE SUCH COMMISSION RESTS WITH THE ASSESSEE. IT COULD ALSO NOT BE POINTED OUT BY THE LD. ASSESSING OFFICER OR THE LD. DEPARTMENTAL REPRESENTATIVE THAT ANY SUCH ADJUSTMENT OR ADDITION HAS BEEN MADE IN THE HANDS OF THE ASSESSEE IN SUBSEQUENT YEARS OR IN EARLIER YEARS. THEREFORE IT IS APPARENT THAT THE ASSESSEE S METHOD OF ACCOUNTING OF RECORDING THE COMMISSION ON THE BASIS OF RECEIPT OF MATERIAL IS ACCEPTED BY THE REVENUE IN EARLIER AS WELL AS SUBSEQUENT ASSESSMENT YEAR S. THE ASSESSEE HAS SUBMITTED THE COPIES OF THE ACCOUNT OF THE VARIOUS PARTIES FROM WHOM THE COMMISSION HAS BEEN RECEIVED FROM VARIOUS SUPPLIERS DURING THE FINANCIAL YEAR. THE ABOVE DETAILS ARE ALSO SUPPORTED BY THE INVOICES OF THE SUPPLIERS WHERE IT IS CL EARLY MENTIONED THAT THE MATERIAL, WHICH HAD BEEN ORDERED BY THE APPELLANT IN THE MONTH OF MARCH 2010, HAD ACTUALLY BEEN RECEIVED BY THE PAGE | 5 APPELLANT DURING THE NEXT FINANCIAL YEAR AND BOOKED AS PURCHASES BY THE APPELLANT. EVEN OTHERWISE, THE ASSESSEE HAS OFF ERED THE INCOME IN THE SUBSEQUENT YEAR AND THE COMPANY DOES NOT HAVE DIFFERENTIAL RATE OF TAXATION FOR BOTH THE YEARS. THEREFORE, AS SUCH THE ISSUE IS TAX NEUTRAL. HOWEVER, DESPITE THE T AX NEUTRALITY FACTOR, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN DELETING THE ABOVE DISALLOWANCE ON ITS OWN MERIT . IN THE RESULT, THE SOLITARY GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 7 / 0 2 / 2018 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 7 / 02 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI