Asstt.Commissioner of Income Tax, Lucknow V. Shri Nishant Priyadarshi , Lucknow

ITA 621/LKW/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5165 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Keywords: Royalty expenses

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.621/LKW/2012 A.Y.:2008 - 09 A.C.I.T., RANGE - 1, LUCKNOW. VS. SHRI NISHANT PRIYADARSHI, PROP. ACE EDUCATION ACADEMY, SECTOR - A, ALIGANJ, LUCKNOW. PAN:AELPP6446C (APPELLANT) (RESPONDENT) C.O.NO.22/LKW/2013 (IN ITA NO.621/LKW/2012) A.Y.:2008 - 09 SHRI NISHANT PRIYADARSHI, PROP. ACE EDUCATION ACADEMY, SECTOR - A, ALIGANJ, LUCKNOW. PAN:AELPP6446C VS. A.C.I.T., RANGE - 1, LUCKNOW. (OBJECTOR) (RESPONDENT) REVENUE BY SHRI Y. P. SRIVASTAVA, D.R. ASSESSEE BY NONE DATE OF HEARING 19/12/2013 DATE OF PRONOUNCEMENT 2 7 /12/2013 O R D E R PER A. K. GARODIA, A.M. THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE, WHICH ARE DIRECTED AGAINST THE ORDER OF CIT ( A) - I, LUCKNOW DATED 03/10/2012 FOR ASSESSMENT YEAR 2008 - 2009. 2 2. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE DATE OF HEARING, ALTHOUGH THE NOTICE OF HEARING WAS DULY SERVED ON THE ASSESSEE AS PER ACKNOWLEDGEMENT AVAILABLE ON RECORD. INSPITE OF THIS , NEITHER ANYBODY APPEARED ON BEHALF OF THE ASSESSEE NOR ANY REQUEST WAS FILED FOR ADJOURNMENT OF THE CASE. HENCE, WE PROCE ED TO DECIDE THIS APPEAL AND CROSS OBJECTION EX - PARTE QUA THE ASSESSEE. 3 . FIRST WE TAKE UP THE APPEAL FILED BY THE REVENUE. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE EASE IN ALLOWING A DEDUCTION OF RS.68,61,121/ - ON ACCOUNT OF ROYALLY PAYABLE WITHOUT APPRECIATING THE FACT THAT ROYALTY PAYABLE @17% OF GROSS RECEIPT OF RS.3,29,87,169/ - OFFERED AS INCOME FOR THE YEAR AMOUNTS TO RS.56,07,818/ - ONLY. HE HAS ALLOWED EXCESS DEDUCTION OF RS.12,53,303/ - . 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ALIENING A DEDUCTION ON ACCOUNT OF ROYALTY PAYABLE EVEN THOUGH THIS PART OF THE RECEIPTS ON WHICH SUCH ROYALLY HAS BEEN CALCULATED HAVE BEEN OFFERED TO TAX IN THE NEXT ASSESSMENT YEAR. SUCH ROYA LTY PAYABLE IN FUTURE CANNOT BE ALLOWED AS DEDUCTION IN THIS YEAR. 3. APPELLANT CRAVES LEAVE TO ADD OR AMEND (HE GROUND OF APPEAL, AS STATED ABOVE AS AND WHEN NEED OF DOING SO ARISES WITH THE PRIOR PERMISSION OF THE HON'BLE BENCH. 4. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 5 . WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) AS PER PARA 3.3 AND 3.4 OF HIS ORDER, WHICH ARE REPROD UCED BELOW FOR THE SAKE OF REFERENCE: 3 3.3 IN VIEW OF THE ABOVE DISCUSSION IT IS CLEAR THAT THE ASSESSING OFFICER DID NOT FULLY APPRECIATE THE METHOD OF ACCOUNTING FOLLOWED FOR ACCOUNTING OF RECEIPT COLLECTION DISCLOSED AT RS.3,59,30,668/ - . THE ASSESSING OFFICER CALCULATED THE AMOUNT OF ROYALTY PAYABLE ONLY @15% TAKING THE FEE RECEIPTS AT RS.3,29,87,169/ - . HE CONSIDERED THE ROYALTY ONLY @15% OF THESE RECEIPTS WHILE AS PER THE AGREEMENT BETWEEN THE APPELLANT AND TIME, THE TOTAL AMOUNT WAS PAYABLE AT 17% C OMPRISING ROYALTY @15% OF THE FEES AND 2% OF THE FEES RECEIPT FOR NATIONAL LEVEL MEDIA ADVERTISING. IN THE REMAND REPORT SUBMITTED BY THE AO ON REEXAMINATION OF WHOLE ISSUE, NO EXCESS CLAIM FOR ROYALTY HAS BEEN POINTED OUT. IN FACT, IT HAS BEEN FURTHER CL ARIFIED IN THE REMAND REPORT THAT THE DISALLOWANCE TO THE EXTENT OF RS.7,52,907/ - ON ACCOUNT OF EXCESS CLAIM WORKED OUT BY THE ASSESSING OFFICER IN HIS ASSESSMENT WAS ATTRIBUTABLE TO THE SERVICE TAX. AS ALREADY MENTIONED IN THE ASSESSMENT YEAR 2009 - 10, THE AO, WHO HAS SUBMITTED THE REMAND REPORT, FOUND THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND CLAIM FOR ROYALTY AS PROPER. 3.4 HAVING REGARD TO THE POSITION DISCUSSED ABOVE, THE APPELLANT'S CLAIM FOR ROYALTY IS FOUND TO BE IN ORDER AND DISALLOWANC E OF RS.19,13,045/ - WHICH THE AO MADE HOLDING THE CLAIM AS EXCESSIVE IS NOT FOUND SUSTAINABLE. GROUND 1 RAISED AGAINST THIS DISALLOWANCE IS THEREFORE ALLOWED. 5 .1 BEFORE THESE PARAS OF LEARNED CIT(A), IN PARA 3.2 OF HIS ORDER, IT IS NOTED BY LEARNED CI T(A) THAT THE ASSESSEE HAS COMPUTED THE AMOUNT OF ROYALTY PAYABLE AT RS.68,61,121/ - ON THE BASIS OF 17% GROSS RECEIPTS OF RS.3,59,30,668/ - . IN THE SAME PARA, IT IS ALSO NOTED BY LEARNED CIT(A) THAT THE ASSESSEE HAS SHOWED ONLY RS.3,29,87,169/ - AS THE FEES RECEIVED IN HIS PROFIT & LOSS ACCOUNT. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT WHEN IN THIS YEAR, THE ASSESSEE HAS ACCOUNTED FOR RECEIPT OF ONLY RS.329.87 LAC, ROYALTY @ 17% IS ALLOWABLE IN THIS YEAR ONLY ON THIS RECEIPT AND NOT ON ADVANC E RECEIPTS, WHICH WERE NOT DECLARED AS INCOME IN THE PRESENT YEAR. ROYALTY PAYABLE ON ADVANCE RECEIPT HAS TO BE ALLOWED IN THE YEAR IN 4 WHICH THE RECEIPT IS DECLARED AS INCOME. THIS IS SO AS PER MATCHING PRINCIPLE ALSO. EXPENSES HAVE TO BE CLAIMED IN THE YEAR IN WHICH THE CORRESPONDING RECEIPTS ARE DECLARED AS INCOME. HENCE, MODIFYING THE ORDER OF LEARNED CIT(A), WE DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION ON ACCOUNT OF ROYALTY @17% IN RESPECT OF GROSS RECEIPT DECLARED BY THE ASSESSEE AS INCOME IN THE PRESENT YEAR I.E. RS. 3,29,87,169/ - . ACCORDINGLY, THE ISSUE IS DECIDED IN FAVOUR OF THE REVENUE. AS A RESULT, THE APPEAL OF THE REVENUE IS ALLOWED. 6 . NOW WE TAKE UP THE CROSS OBJECTION FILED BY THE ASSESSEE. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. AS PER THE FACTS STATED IN THE ANNEXED STATEMENT OF FACTS, THE ASSESSEE HAS CHOSEN THE MERCANTILE SYSTEM OF ACCOUNTING SINCE THE INCEPTION OF THIS BUSINESS AND HAS BEEN CONTINUOUSLY MAINTAINING THE BOOKS OF ACCOUNTS ON ACCRUAL BASIS AND HAS A LSO BEEN CONTINUOUSLY FOLLOWING THE SAME METHOD OF BOOKING THE ROYALTY EXPENSES ON THE FEES COLLECTED DURING THE YEAR AND THE ROYALTY DUE THEREON AS PER THE CONTRACTUAL OBLIGATION AS PER THE TERMS & CONDITIONS OF THE FRANCHISE AGREEMENT. SIMILARLY, THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY RECOGNIZES THE REVENUE UP TO MARCH FEES AND THE FEES COLLECTED FOR EVERY COURSE RUNNING BEYOND MARCH OF THE YEAR IS SHOWN AS ADVANCE FEES COLLECTED IN THE BALANCE SHEET OF THE ASSESS EE. THE PROVISION OF ADVANCE FEES IS RECOGNIZED AS REVENUE IN THE NEXT FINANCIAL YEAR. AS PER THE ABOVE MERCANTILE SYSTEM OF ACCOUNTING REGULARLY AND CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE SINCE INCEPTION OF THIS BUSINESS, THE EXPENSES OF ROYALTY I S ACCOUNTED FOR ON DUE BASIS ON THE FEES COLLECTED DURING THE YEAR AS PER CONTRACTUAL OBLIGATION AND THE REVENUE OF FEES IS RECOGNIZED ON ACCRUED BASIS FOR UP TO THE MARCH FEES AND THE FEES COLLECTED FOR EVERY COURSE RUNNING BEYOND MARCH OF THE YEAR IS SHO WN AS ADVANCE FEES 5 COLLECTED IN THE BALANCE SHEET OF THE ASSESSEE. THE PROVISION OF ADVANCE FEES IS RECOGNIZED AS REVENUE IN THE NEXT FINANCIAL YEAR. 2. THIS REGULAR AND CONSISTENT MERCANTILE SYSTEM OF ACCOUNTING FOR THE ACCOUNTING OF ROYALTY PAYMENTS AND RECOGNITION OF REVENUE OF FEES HAS BEEN CONTINUOUSLY ACCEPTED BY THE DEPARTMENT IN THE PAST AND HAS ALSO BEEN ACCEPTED BY THE LEARNED ASSESSING OFFICER WRITING THE REMAND REPORT AND WHO ALSO COMPLETED THE SCRUTINY ASSESSMENT OF THE ASSESSEE FOR IMMEDIATEL Y SUCCEEDING ASSESSMENT YEAR 2009 - 2010. 3. AS PER SECTION 145(1) OF THE INCOME TAX ACT, 1961, THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS & PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, SUBJECT TO THE PROVISIONS OF SUB - SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. 4. AS PER THE ABOVE SETTLED LAW, THE MERCANTILE SYSTEM OF ACCOUNTING ALLOWS ALL THE EXPENDITURE WHICH ARE LEGALLY / CONTRACTUALLY DUE DURING THE ACCOUNTING PERIOD AND RECOGNIZES ALL THE REVENUE WHICH HAS ACCRUED DURING THE ACCOUNTING PERIOD. BUT THIS SETTLED LAW NOWHERE STATES THAT THE EXPENSES CLAIMED SHOULD BE PRORATA TO THE RECOGNIZED REVENUE, WHICH IS SOUGHT TO BE CLAIMED AS PER GROUND NO. 2 OF THE GROUNDS OF THE APPEAL OF THE DEPARTMENT. HENCE, THE EXCESS ALLOWANCE CLAIMED AS PER GROUND NO. 1 OF THE GROUN DS OF APPEAL OF THE DEPARTMENT IS BAD IN LAW AND DESERVES TO BE QUASHED. 7 . LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THIS ISSUE IS CORRELATED WITH THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL AND IN VIEW OF THE MATCHING PRINCIPLE, WE DO NOT FIND AN Y MERIT IN THESE GROUNDS RAISED BY 6 THE ASSESSEE IN THE CROSS OBJECTION. THEREFORE, ALL THE GROUNDS OF THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. 9 . IN THE COMBINED RESULT, THE APPEAL OF THE REVENUE IS ALLOWED AND CROSS OBJECTION OF THE ASSESSEE I S DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H DECEMBER, 2013. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. DR, ITAT, LUCKNOW