DY.CIT-8(2), MUMBAI V. M/S. KLENZAIDS CONTAMINATION CONTROL PVT. LTD., MUMBAI

ITA 6374/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1166 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-11-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 03-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT PATANKAR
• Assessee Lawyers: N JAYENDRAN
• Keywords: TDS
• Section: 143(1); 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 6374/MUM/2008 (ASSESSMENT YEAR: 2002-03) DEPUTY COMMISSIONER OF INCOME TAX 8(2) APPELLANT MUMBAI VS M/S KLENZAIDS CONTAMINATION CONTROL PVT. LTD. RES PONDENT (PAN: AAACK8427G) APPELLANT BY: SHRI ABHIJIT PATANKAR RESPONDENT BY: SHRI N JAYENDRAN O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT AND THE GROUND TAKEN IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF R S.1,14,32,250/- BEING THE DIFFERENCE BETWEEN THE INCOME AS SHOWN IN THE TDS CERTIFICATES AND THE INCOME DISCLOSED BY THE ASSESS EE. 2. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2002-0 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E MANUFACTURE OF PHARMA MACHINERY. IT FOLLOWS THE MERCANTILE SYS TEM OF ACCOUNTING. THE ASSESSMENT WAS ORIGINALLY COMPLETE D UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961, BUT SUB SEQUENTLY THE RETURN WAS SELECTED FOR SCRUTINY AND AN ASSESSMENT WAS MADE UNDER SECTION 143(3). THIS ASSESSMENT WAS LATER RE OPENED UNDER SECTION 148 IN RESPONSE TO WHICH THE ASSESSEE FILED A RETURN DECLARING INCOME OF RS.10,63,700/-. WHILE SCRUTINI ZING THE RETURN THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED ITA NO: 6374/MUM/2008 2 CONTRACT PAYMENT OF RS.1,20,15,000/- FROM M/S BHARA T BIOTECH INTERNATIONAL LTD. AND THE SAME WAS CREDITED TO THE ASSESSEES ACCOUNT ON 31.03.2002 AND ON WHICH TAX OF RS.2,45,1 06/- HAD BEEN DEDUCTED AT SOURCE WHICH WAS ALSO REMITTED TO THE G OVERNMENT ACCOUNT IN MAY 2002. IN THE RETURN FILED BY THE AS SESSEE, THE ASSESSEE CLAIMED CREDIT FOR THE TAX OF RS.2,45,106/ - DEDUCTED AT SOURCE. THE AO HOWEVER NOTICED THAT THE ASSESSEE, THOUGH IT HAD TAKEN CREDIT FOR THE TDS, DID NOT OFFER THE CONTRAC T RECEIPT FOR TAXATION IN THE RETURN. HE NOTED THAT THE ACTUAL R ECEIPT FROM M/S BHARAT BIOTECH INTERNATIONAL LTD. ON ACCOUNT OF SAL ES WAS RS.22,28,141/- AND THAT NO OUTSTANDINGS WERE SHOWN FROM THE AFORESAID COMPANY. THE AO CALLED UPON THE ASSESSEE TO RECONCILE THE AMOUNT RECEIVED FROM M/S BHARAT BIOTECH INTERNA TIONAL LTD. WITH THE TDS CERTIFICATES AND THE INCOME DECLARED IN THE RETURN, AS ALSO TO FURNISH THE DETAILS OF COMMISSION RECEIVED FROM THE AFORESAID COMPANY ALONG WITH THE DETAILS OF SALES MADE TO IT. THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE AS TO WHY THE DIFFEREN CE SHOULD NOT BE ADDED BACK TO THE INCOME. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY T HE AO, THE ASSESSEE EXPLAINED THAT ACCORDING TO THE TDS CERTIF ICATE ISSUED BY M/S BHARAT BIOTECH INTERNATIONAL LTD., AN AMOUNT OF RS.1,20,15,000/- WAS SHOWN AS HAVING BEEN CREDITED TO THE ASSESSEES ACCOUNT ON 31.03.2002, THAT THE ASSESSEE HAS NOT RECEIVED ANY AMOUNT ON 31.03.2002 FROM M/S BHARAT B IOTECH INTERNATIONAL LTD. AS STATED IN THE CERTIFICATE AND THAT THE AMOUNTS WERE RECEIVED AS ADVANCE DEPENDING ON THE PROGRESS OF THE WORK ITA NO: 6374/MUM/2008 3 UNDERTAKEN BY THE ASSESSEE FOR THE AFORESAID COMPAN Y AND THAT THE INCOME IN RESPECT OF THE WORK / SERVICES DONE FOR T HE AFORESAID COMPANY AND THE SALES TO THE SAID COMPANY HAS BEEN SHOWN IN THE RESPECTIVE YEARS. THE ASSESSEE FURTHER EXPLAINED, BY ANOTHER LETTER WRITTEN TO THE AO, THAT IT HAD RECEIVED RS.1,27,20, 750/- FROM M/S BHARAT BIOTECH INTERNATIONAL LTD. TOWARDS JOB AND S ERVICE CHARGES IN THE ASSESSMENT YEARS 2001-02 TO 2003-04. IT WAS EX PLAINED THAT THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING P HARMA PROCESSING AND PACKAGING MACHINERY WHICH WERE CUSTO M BUILT TO SUIT THE INDIVIDUAL NEEDS OF THE CUSTOMERS AND THAT AS PER THE ACCOUNTING POLICY FOLLOWED BY IT, THE INCOME IN RES PECT OF SUCH PROJECTS WAS RECOGNIZED ON COMPLETION OF THE PROJEC T. THE EXPENSES ON THE PROJECTS, IT WAS EXPLAINED, WERE CA RRIED FORWARD AS WORK-IN-PROGRESS. THE INVOICES WERE RAISED BY THE ASSESSEE ONLY ON COMPLETION OF THE PROJECT AND THEREFORE THE INCO ME IS ALSO RECOGNIZED ONLY AFTER COMPLETION OF THE PROJECT. A LONG WITH THIS EXPLANATION THE ASSESSEE ALSO STATED THAT BILLS WER E RAISED ON M/S BHARAT BIOTECH INTERNATIONAL LTD. AGGREGATING TO RS .1,27,20,750/- IN THE FOLLOWING MANNER: - ASSESSMENT YEAR 2000-01 RS. 78,75,000/- ASSESSMENT YEAR 2002-03 RS. 5,82,750/- ASSESSMENT YEAR 2003-04 RS. 42,63,000/- ---------------------- TOTAL RS.1,27,20,750/- ---------------------- ON THE ABOVE FACTS THE ASSESSEE CONTENDED THAT SINC E THE INCOME HAD BEEN OFFERED IN ACCORDANCE WITH SECTION 145 ON THE BASIS OF THE CONSISTENT METHOD OF ACCOUNTING EMPLOYED BY IT, THE TDS AMOUNT SHOULD ALSO BE CORRESPONDINGLY GIVEN CREDIT FOR AS CLAIMED BY IT. ITA NO: 6374/MUM/2008 4 4. THE ASSESSEE WOULD APPEAR TO HAVE WRITTEN TWO OT HER LETTERS DATED 21.11.2007 AND 28.11.2007 EXPLAINING AND ELAB ORATING ITS STAND. TO THE LETTER DATED 28.11.2007 THE ASSESSEE ALSO ENCLOSED A COPY OF THE LETTER DATED 24.11.2007 WRITTEN BY M/S BHARAT BIOTECH INTERNATIONAL LTD. TO IT. THE LETTERS WRITTEN BY T HE ASSESSEE TO THE AO AND THE LETTER WRITTEN BY M/S BHARAT BIOTECH INT ERNATIONAL LTD. TO THE ASSESSEE HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDER AND HENCE NOT REPRODUCED HERE, FOR THE SAKE OF BREVITY. 5. THE AO TOOK NOTE OF THE ASSESSEES SUBMISSIONS M ADE AS ABOVE BUT STILL HELD THAT THE INCOME OF RS.1,20,15, 000/- ACCRUED TO THE ASSESSEE DURING THE PERIOD FROM 01.04.2001 TO 3 1.03.2002, RELEVANT FOR THE ASSESSMENT YEAR 2002-03, WHICH IS THE YEAR UNDER APPEAL AND THAT THE ASSESSEE HAD DECLARED INCOME OF ONLY RS.5,82,750/- OUT OF THE SAME AND ACCORDINGLY ADDED THE DIFFERENCE OF RS.1,14,32,250/-. THUS THE TOTAL INCOME WAS DET ERMINED AT RS.1,24,95,950/- AS AGAINST RS.10,63,700/- DECLARED IN THE RETURN. 6. THE ASSESSEE FILED AN APPEAL TO THE CIT(A) CONTE NDING THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF THE TDS CERTIFICATE AND THAT ALL THE TRANSACTIONS WITH M/S BHARAT BIOTECH INTERNATIONAL LTD. HAVE BEEN FULLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND THE PROFIT & LOSS ACCOUNTS OF THE ASSES SEE AND, THEREFORE, THERE WAS NO JUSTIFICATION FOR ANY ADDIT ION. IT WAS ALSO CONTENDED THAT THE ASSESSEE FOLLOWS THE MERCANTILE METHOD OF ACCOUNTING AND HAS CONSISTENTLY DECLARED INCOME ONL Y ON THE COMPLETION OF THE PROJECTS UNDERTAKEN. OBJECTION W AS ALSO TAKEN IN THE GROUNDS BEFORE THE CIT(A) TO THE JURISDICTION O F THE AO TO REOPEN ITA NO: 6374/MUM/2008 5 THE ASSESSMENT. THE CIT(A) DISMISSED THE ASSESSEE S OBJECTIONS TO THE REOPENING OF THE ASSESSMENT. HOWEVER, AS RE GARDS THE ADDITION MADE ON THE BASIS OF THE TDS CERTIFICATE, THE CIT(A) FOUND MERIT IN THE ASSESSEES SUBMISSION THAT IT HAD ACCO UNTED FOR THE ENTIRE RECEIPTS OF RS.1,27,20,750/- FROM M/S BHARAT BIOTECH INTERNATIONAL LTD. OVER A PERIOD OF THREE YEARS, NA MELY, ASSESSMENT YEARS 2001-02 TO 2003-04. IN PARAGRAPH 2.9 OF HIS ORDER HE HAS GIVEN THE DETAILS OF THE AFORESAID RECEIPT DATE-WIS E, COVERING THE THREE YEARS. THE ACTUAL RECEIPT FROM M/S BHARAT BI OTECH INTERNATIONAL LTD. AMOUNTED TO RS.1,32,74,825/- AS SHOWN IN PARAGRAPH 2.8 OF THE IMPUGNED ORDER AND THIS AMOUNT HAS BEEN RECEIVED IN THE ACCOUNTING YEAR 01.04.2000 TO 31.03 .2001 RELEVANT FOR THE ASSESSMENT YEAR 2001-02. THIS CLAIM HAD AL READY BEEN MADE BEFORE THE AO BY THE ASSESSEE AND HENCE IS NOT A NEW CLAIM BEFORE THE CIT(A). THE CIT(A) FOUND THAT THE RECEI PTS WERE ACCOUNTED FOR BY THE ASSESSEE IN THREE YEARS AND SH OWN AS INCOME IN THOSE YEARS AND THEY WERE ADJUSTED AGAINST THE A DVANCES RECEIVED FROM THE AFORESAID COMPANY. THE CIT(A) FU RTHER HELD THAT THE SUSPICION OF THE AO THAT THE ASSESSEE DID NOT D ISCLOSE THE RECEIPT OF RS.1,14,32,250/- WAS UNFOUNDED AND HELD THAT THE ACCOUNTING ENTRIES CLEARLY SHOWED THAT THE ASSESSEE HAD ACCOUNTED FOR THE ENTIRE RECEIPTS OF RS.1,32,74,825/-. HE AL TERNATIVELY HELD THAT EVEN IF THE AO WANTED TO TAX THE ENTIRE RECEIPTS IN A SINGLE YEAR, HE SHOULD HAVE TAXED THE SAME IN THE ASSESSMENT YEAR 2 001-02 WHICH WAS THE YEAR OF RECEIPT. HE HOWEVER HELD THAT SINC E THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING A ND NOT THE CASH ITA NO: 6374/MUM/2008 6 SYSTEM, IT WAS ENTITLED TO APPROPRIATE THE INCOME F ROM THE RECEIPTS IN THE YEARS IN WHICH THE RESPECTIVE PROJECTS WERE COMPLETED, CONSISTENT WITH THE METHOD OF ACCOUNTING FOLLOWED B Y IT. IN THIS VIEW OF THE MATTER HE DELETED THE ADDITION OF RS.1,14,32 ,250/-. 7. THE REVENUE IS IN APPEAL. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF ASSESSMENT ENTIRELY, WHEREAS THE STAND OF THE ASSESSEE BEFORE US WAS THAT THE ENTIRE RECEIPTS FROM M/S BHARAT BIOTECH INTERNATION AL LTD. HAD BEEN ACCOUNTED FOR IN THREE DIFFERENT YEARS AND THE INCO ME EMBEDDED IN THESE RECEIPTS WERE ACCOUNTED FOR IN THE YEAR OF CO MPLETION OF THE PROJECT AND THUS THERE WAS NO JUSTIFICATION FOR THE ADDITION. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE DREW OUR AT TENTION TO THE RELEVANT DETAILS FILED IN THE PAPER BOOK REGARDING THE RECEIPTS. 8. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND THE RIVAL CONTENTIONS. IT APPEARS TO US THAT IT IS ONLY A QU ESTION OF TIMING. CONSIDERING THE DETAILS FILED BOTH BEFORE THE AO AN D THE CIT(A), THERE CAN BE NO DOUBT THAT THE ENTIRE RECEIPT OF RS .1,32,74,825/- WAS RECEIVED IN THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. HOWEVER, THESE WERE ONLY AMOUNTS REC EIVED FROM THE COMPANY AS ADVANCES AND THEREAFTER AS AND WHEN THE WORK PROGRESSED AND GOT COMPLETED, INVOICES WERE RAISED BY THE ASSESSEE AGAINST THE COMPANY AND THESE WERE TAKEN T O THE PROFIT & LOSS ACCOUNT EITHER AS SALES OR AS JOB / SERVICE CH ARGES. THIS IS ALSO CLEAR FROM THE DETAILS GIVEN IN PARAGRAPH 2.9 OF THE ORDER OF THE CIT(A). THE ASSESSEE HAS CO-RELATED THESE DETAILS WITH THE INVOICES FILED IN THE PAPER BOOK. FOR EXAMPLE, IN THE ASSESSMENT ITA NO: 6374/MUM/2008 7 YEAR 2001-02, THE ASSESSEE RAISED AN INVOICE ON 28. 11.2000 FOR RS.10,19,200/- AS SALES. ON 28.03.2001 ANOTHER INV OICE WAS RAISED ON M/S BHARAT BIOTECH INTERNATIONAL LTD. FOR RS.78, 75,000/- AND THIS WAS IN RESPECT OF THE SITE INSTALLATION WORKS FOR T HE SYSTEMS AND EQUIPMENT CONSISTING OF INTEGRATED VIAL LINES, ETC. THE COPIES OF THESE TWO INVOICES ARE COMPILED AT PAGES 16 AND 17 OF THE PAPER BOOK. SIMILARLY, IN RESPECT OF THE ASSESSMENT YEAR 2003-04 THE ASSESSEE RAISED AN INVOICE ON 07.12.2002 FOR RS.42, 63,000/- AND AS PER THE INVOICE PLACED AT PAGE 20 OF THE PAPER B OOK, THIS RELATES TO THE SITE INSTALLATION WORK DONE BY THE ASSESSEE FOR THE AFORESAID COMPANY. THE TOTAL OF SUCH INVOICES RAISED BY THE ASSESSEE IN THE THREE ASSESSMENT YEARS, I.E. ASSESSMENT YEAR 2001-0 2 TO ASSESSMENT YEAR 2003-04, COMES TO RS.1,27,20,750/- WITH REGARD TO JOB / SERVICE CHARGES. THE SALES FOR THESE THRE E YEARS AS PER THE INVOICES RAISED ON THE AFORESAID COMPANY AMOUNTS TO RS.26,64,591/-. THE AGGREGATE OF THE SALES AND THE JOBS / SERVICE CHARGES EXCEEDS RS.1,32,74,825/- RECEIVED IN THE AC COUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. THIS IS O N ACCOUNT OF THE ACTUAL INVOICES RAISED BY THE ASSESSEE ON M/S BHARA T BIOTECH INTERNATIONAL LTD. IN THE THREE ASSESSMENT YEARS AS PER DETAILS GIVEN IN PARA 2.9 OF THE ORDER OF THE CIT(A). ULTIMATELY THE POSITION BOILS DOWN TO THIS, NAMELY, WHETHER THE ASSESSEE FAILED T O DISCLOSE ANY RECEIPT FROM THE AFORESAID COMPANY. THE FINDING IS THAT THERE IS NO SUCH FAILURE AND ALL THE RECEIPTS HAVE BEEN ACCOUNT ED FOR BUT THE INCOME HAS BEEN STAGGERED OVER A PERIOD OF TIME BEC AUSE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IT APPEARS TO US TO ITA NO: 6374/MUM/2008 8 BE A CASE OF ADVANCE AMOUNTS RECEIVED BEING APPROPR IATED AS INCOME IN THE YEARS IN WHICH THE PROJECTS WERE COMP LETED BY THE ASSESSEE. AS POINTED OUT EARLIER, IT SEEMS TO BE O NLY A TIMING ISSUE. IN ANY CASE THERE IS NO JUSTIFICATION FOR HOLDING T HAT THE ASSESSEE FAILED TO DECLARE RECEIPTS OF RS.1,14,32,250/- IN T HE YEAR UNDER CONSIDERATION. WE AGREE WITH THE FINDINGS OF THE C IT(A) AS WELL AS HIS CONCLUSION, AFFIRM HIS ORDER AND DISMISS THE AP PEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY 2010. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 9 TH JULY 2010 SALDANHA COPY TO: 1. M/S KLENZAIDS CONTAMINATION CONTROL PVT. LTD. A-21, MIDC, STREET 3 ANDHERI (EAST), MUMBAI 400 093 2. DCIT 8(2) 3. CIT-VIII 4. CIT(A)-VIII 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI