ACIT 7(3), MUMBAI V. VIDYASAGAR LEARNING P.LTD, MUMBAI

ITA 651/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100787 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANDHIR KUMAR GUPTA
• Keywords: Revenue expenditure
• Section: 133A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , , , BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO. 8286/MUM/2011 ( / ASSESSMENT YEAR : 2006 - 07 VIDYASAGAR LEARNING PVT. LTD., 54, MAHALAXMI NIWAS, 1 ST LANE, HINDU COLONY, DADAR (E),MUMBAI - 400 014 / VS. THE DCIT, CIRCLE - 7(3), MUMBAI / I .T.A. NO. 8518/MUM/2011 ( / ASSESSMENT YEAR : 2007 - 08 VIDYASAGAR LEARNING PVT. LTD., 54, MAHALAXMI NIWAS, 1 ST LANE, HINDU COLONY, DADAR (E),MUMBAI - 400 014 / VS. THE DCIT, CIRCLE - 7(3), MUMBAI / I .T.A. NO. 651/MUM/2012 ( / ASSESSMENT YEAR : 2007 - 08 THE DCIT, CIRCLE - 7(3), MUMBAI / VS. VIDYASAGAR LEARNING PVT. LTD., 54, MAHALAXMI NIWAS, 1 ST LANE, HINDU COLONY, DADAR (E),MUMBAI - 400 014 / I .T.A. NO . 3461 /MUM/201 2 ( / ASSESSMENT YEAR : 200 8 - 0 9 VIDYASAGAR LEARNING PVT. LTD., 54, MAHALAXMI NIWAS, 1 ST LANE, HINDU COLONY, DADAR (E), MUMBAI - 400 014 / VS. THE DCIT, CIRCLE - 7(3), MUMBAI VIDYASAGAR LEARNING PVT. LTD. 2 ./ ./ PAN/GIR NO. : AABCV 6183D ( / APPELLANT ) .. ( / RESPONDENT ) / A SSESSEE BY: SHRI PARESH SHAPARIA / REVENUE BY : SHRI RANDHIR KUMAR GUPTA / DATE OF HEARING : 6 . 0 8 .2015 / DATE OF PRONOUNCEMENT : 19 .0 8 .2015 / O R D E R PER N.K. BILLAIYA, AM: ITA NO. 8286/M/11 IS THE APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 18, MUMBAI DT. 30.10.2011 FOR ASSESSMENT YEAR 2006 - 07. ITA NOS. 8518/M/11 & 651/M/12 ARE THE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER O F THE LD. CIT(A) - 13 DATED 13.9.2011 FOR A.Y 2007 - 08 AND ITA NO. 3461/M/12 IS THE APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 13 DT. 15.2.29012 FOR A.Y. 2008 - 09. ALL THESE APPEALS BY THE ASSESSEE HAVE COMMON GRIEVANCE THEREFORE THEY WERE HEA RD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE COMMON GRIEVANCE IN ASSESSEES APPEAL FOR ALL THESE YEARS RELATE TO THE TREATMENT OF ADVANCE FEES RELATING TO DIFFERENT ACADEMIC YEARS AS INCOME ACCRUED AND DUE FOR THE CURRENT YEAR THEREBY TREATING ADVANCE FEES RECEIVED TOWARDS COURSES TO BE CONDUCTED IN FUTURE INCOME FOR THE YEAR. 3. REVENUES APPEAL IN A.Y. 2007 - 08 IS AGAINST THE DELETION OF THE ADDITION OF RS. 3,00,00 ,000 / - AND IN A.Y. 2008 - 09 THE ON LY OTHER GROUND IN ASSESSEES APPEAL RELATES TO THE DISALLOWANCE OF RS. 1,43,807/ - BEING VIDYASAGAR LEARNING PVT. LTD. 3 EMPLOYEES CONTRIBUTION TO PROVIDENT FUND PAID BEYOND DUE DATE BUT WITHIN THE GRACE PERIOD. 4. HAVING HEARD THE RIVAL CONTENTIONS AT LENGTH, WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD. COUNSEL WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD AND REFERRED TO DURING THE COURSE OF THE PROCEEDING BEFORE US. WE HAVE ALSO CA REFULLY GONE THROUGH THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS RUNNING COACHING CLASSES AT SEVERAL POINTS IN THE STATE OF MAHARASHTRA WITH ITS HUB IN MUMBAI. THE ASSESSEE IS INTO THIS B USINESS SINCE A.Y. 1999 - 2000. THE MOST CONTENTIOUS ISSUES IN ALL THESE YEARS RELATED TO THE ADVANCE FEES. AS MENTIONED ABOVE, THE ASSESSEE IS ENGAGED IN RUNNING COACHING CLASSES FOR VARIOUS ENTRANCE COURSES AND ACCEPTS FEES IN RESPECT OF THESE COACHING C LASSES SOME OF WHICH COMMENCE IN THE SUBSEQUENT FINANCIAL YEAR OR SOME ARE PARTLY HELD IN ONE FINANCIAL YEAR AND PARTLY IN THE OTHER. THE FEES ARE RECOGNIZED AS REVENUE IN THE YEAR IN WHICH THE COACHING IS ACTUALLY CONDUCTED. SINCE A.Y. 1999 - 2000, THE R EVENUE HAS CONSISTENTLY SOUGHT TO TAX THE FEES AS AND WHEN RECEIVED AND THIS VIEW OF THE REVENUE HAS BEEN CONSISTENTLY FOLLOWED UPTO A.Y. 2005 - 06. INFACT IN A.Y. 1999 - 2000, THE TRIBUNAL HAS CONFIRMED THIS VIEW OF THE DEPARTMENT AGAINST WHICH APPEAL OF THE ASSESSEE HAS NOT BEEN ADMITTED BY THE HONBLE HIGH COURT OF BOMBAY. 5.1. DRAWING SUPPORT FROM THE FINDINGS AND THE VIEW TAKEN BY THE REVENUE FOR EARLIER ASSESSMENT YEARS, THE ASSESSING OFFICER PROCEEDED BY TREATING THE ENTIRE ADVANCE FEES AS TAXABLE IN COME OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. VIDYASAGAR LEARNING PVT. LTD. 4 6. AGGRIEVED BY THIS STAND OF THE REVENUE, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS AS THE FIRST APPELLATE AUTHORITY HAS ALSO FOLLOWED THE DECISIONS GIVEN IN EAR LIER YEARS. 7. BEFORE US, IT WAS STRONGLY CONTENDED THAT THE ASSESSEE HAS CHALLENGED ITS METHOD OF ACCOUNTING AND HAS STREAMLINED THE ACCOUNTING POLICIES VIS - - VIS THE ACCOUNTING ENTRIES TO MATCH WITH THE WELL RECOGNIZED ACCOUNTING PRINCIPLES THEREFORE T HE STAND TAKEN BY THE REVENUE IN EARLIER ASSESSMENT YEARS WERE ON A DIFFERENT SET OF FACTS AND CANNOT BE APPLIED FOR THE IMPUGNED ASSESSMENT YEAR AS THE FACTS HAVE BEEN CHANGED. 7.1. AT THIS STAGE, LET US SEE THE OBSERVATIONS MADE BY THE TRIBUNAL IN ITS ORDER FOR A.Y. 1999 - 2000 IN ITA NO. 448/MUM/2003 , AT PARA - 5, THE TRIBUNAL HELD AS UNDER: WE HAVE CONSIDCR E D THE RIVAL SUBMISSIONS , PERUSED THE MATERIALS ON R ECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW, JUDGMENTS CITED BY LEARNED AR OF THE ASSESSEE AND ACCOUNTING STANDARD - 9. THIS FACT IS ACCEPTED BY THE LEARNED AR OF THE ASSESSEE IN REPLY TO QUERY FROM BENCH THAT ENTIRE FEES FROM OTHER COURSES R ECEIVED BY THE ASSESSEE AMOUNTING TO RS. 1,65,22,138/ HAS BEEN ACCOUNTE D FOR BY THE ASSESSEE ON RECEIPT BASIS AND HENCE THIS OBSERVATION OF LEAR NED CIT (A) IS NOT CORR ECT THAT THE ASSESSE E HAS BEEN ACCOUNTING FOR CERTAIN SMALL AMOUNT S OF FEES IN EARLIE R YEARS ON RECEIPT BASIS AND THIS FACT CANNOT BE DETERMINATIVE THAT THE FEES RECEIPT DURING THIS YEAR SHOULD ALSO BE ACCOUNTED FOR ON RECEIPT BASIS. THIS IS ALSO AN ADMITTED FACT THAT THE EXPENDITURE INCURRED FO R THIS COURSE I.E. MHCET COURSE AND ALSO FOR OTHER COURS E S ARE ALSO ACCOUNTED FOR BY THE ASSESSEE ON CASH BASIS: AND THE ASSESSEE HAS ADOPTED MERCANTILE SYSTE M OF ACCOUNTING ONLY WITH REGARD TO RECEIPT OF FEES B Y IT ON ACCOUNT OF MHCET COURSE AMOUN TI NG TO RS. 27,07,250/ - . NOW, THE QUESTION BEFORE US IS AS TO WHETHER THE ASSESSEE CAN BE ALLOWED TO ADOPT CASH SYSTEM OF ACCOUNTING WITH REGARD TO SOME RECEIPTS AND EXPENSES AND MERCANTILE SYSTEM OF ACCOUNTING VIDYASAGAR LEARNING PVT. LTD. 5 WITH REGARD TO ONE PART OF RECEIPT I.E. RECEIPT ON ACCOUNT OF MHCET COURSE. IN THIS REGARD, WE FIND THAT PROVISIONS OF SEC. 145(1) ARE VERY CLEAR AS PER WHICH W.E.F. 1.4.97, INCOME UNDER THE HEAD PROFITS AND GAINS FROM PROFESSION IS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULA RLY EMPLOYED BY THE ASSESSEE AND SINCE THE ASSESSEE IS REGULARLY EMPLOYING CASH SYSTEM OF ACCOUNTING TILL THIS YEAR, WE ARE OF THE CONSIDERED OPINION THAT THE ACTION TAKEN BY THE ASSESSING OFFICER IN TAXING THE RECEIPT OF THE ASSESSEE OF RS. 27,07,250/ - RE CEIVED BY THE ASSESSEE DURING THIS YEAR ON ACCOUNT OF MHCET COURSE IS CORRECT. REGARDING THE ACCOUNTING STANDARD I.E. AS - 9 ON WHICH, RELIANCE IS PLACED BY LD. CIT(A) AND BY LD. AR OF THE ASSESSEE, WE FIND THAT AS PER THE FOOT NOTE GIVEN IN THIS ACCOUNTI NG STANDARD, IT HAS BEEN MADE CLEAR THAT THIS ACCOUNTING STANDARD (AS IN THE CASE OF OTHER ACCOUNTING STANDARDS) ASSUMES THAT THE THREE FUNDAMENTAL ACCOUNTING ASSUMPTIONS I.E. GOING CONCERN, CONSISTENCY AND ACCRUAL HAVE BEEN FOLLOWED IN THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS. THIS ACCOUNTING STANDARD I.E. AS - 9 CANNOT BE MADE APPLICABLE IN THIS CASE BECAUSE THE ASSESSEE IS NOT FOLLOWING ACCRUAL METHOD OF ACCOUNTING WITH REGARD TO ITS RECEIPTS AND EXPENSES EXCEPT THE IMPUGNED RECEIPT. JUD GEMENT OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF TAPARIA TOOLS (SUPRA) IS ALSO DISTINGUISHABLE BECAUSE IN THAT CASE, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IN VIEW OF THIS FACT, IT IS HELD BY HONBLE BOMBAY HIGH C OURT THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING THIS MATCHING IS REQUIRED TO BE DONE ON ACCRUAL BASIS. SINCE, IN THE PRESENT CASE THE ASSESSEE IS NOT FOLLOWING MERCANTILE SYSTEM OOF ACCOUNTING WITH REGARD TO EXPENSES AND WITH REGARD TO OTHER RECEIPTS EXCEPT RECEIPT ON ACCOUNT OF MHCET COURSE, THIS JUDGEMENT IS NOT APPLICABLE IN THIS CASE. UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE AND IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF LD. CIT(A) IS NOT SUSTAINABLE ON THIS ISSUE AND HENCE, WE REVERSE THE SAME AND RESTORE THE ORDER OF AO ON THIS ISSUE. THIS GROUND OF THE REVENUE IS ALLOWED. VIDYASAGAR LEARNING PVT. LTD. 6 7.2. THUS IT CAN BE SEEN THAT IN A.Y. 1999 - 2000, THE TRIBUNAL HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE IS NOT FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 7.3. DURING THE IMPUGNED ASSESSMENT YEAR, THE CLAIM OF THE ASSESSEE IS THAT IT HAS CHANGED ITS METHOD OF ACCOUNTING. NOW THE ISSUE BEFORE US IS TO DECIDE WHETHER THE ASSESSEE CAN CHANGE METHOD OF ACCOUNTING? IT IS A WELL SETTLED PROPOSITION OF LAW THAT AN ASSESSEE IS ENTITLED TO CHANGE THE METHOD OF ACCO UNTING REGULARLY EMPLOYED BY HIM. WHAT HE MUST ALTER, HOWEVER, IS HIS REGULAR METHOD I.E. TO SAY HE MUST ABANDON WHAT UPTO THAT TIME HAS BEEN HIS REGULAR METHOD AND START A NEW REGULAR METHOD AND NOT MERELY A NEW METHOD FOR A CASUAL PERIOD. FOR THIS PROPO SITION, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SWARUPCHAND 4 ITR 42 0 . THIS MEANS THAT A BONAFIDE CHANGE IN THE METHOD OF ACCOUNTING IS TO BE ACCEPTED BY THE DEPARTMENT. ALL THAT ASSESSEE HAS TO DO IS TO SA TISFY THE DEPARTMENT THAT HE INTENDS TO ADOPT CHANGED METHOD OF ACCOUNTING THEREAFTER OR THAT HE HAS INFACT ADOPTED IT THEREAFTER THAT SATISFIES THE REQUIREMENT OF SEC. 145. THE METHOD OF ACCOUNTING CAN BE CHANGED BONAFIDE. IF THE METHOD IS FOLLOWED RE GULARLY AND HAS BONAFIDE, THERE DOES NOT APPEAR TO BE ANY REASON WHY THE CHANGE SHOULD NOT BE ALLOWED. 7.4. THE STATUTE STIPULATES THAT THE INCOME SHALL BE COMPUTED ON THE BASIS OF THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. IT SHOUL D MEAN DURING THE PERIOD UNDER CONSIDERATION. HOWEVER, THE PROVISION CANNOT BE INTERPRETED TO MEAN THAT ONCE A SYSTEM OF ACCOUNTING IS ADOPTED, IT CAN NEVER BE CHANGED. REGULAR CANNOT IN THE PRESENT CONTEXT MEAN PERMANENT. VIDYASAGAR LEARNING PVT. LTD. 7 7.5. ALL THAT SEC. 145(1) L AID DOWN IS THAT IF AN ASSESSEE REGULARLY EMPLOYED A METHOD OF ACCOUNTING, HIS INCOME UNDER THE TWO SPECIFIED HEADS SHOULD BE COMPUTED IN ACCORDANCE THEREWITH. THAT SECTION IN ITS TERMS DOES NOT REQUIRE ANY ENQUIRY INTO THE BONOAFIDES OF THE ASSESSEE IN FOLLOWING A REGULAR METHOD. A RECOGNIZED METHOD OF ACCOUNTING FOLLOWED REGULARLY WOULD NECESSARILY RESULT IN A PROPER COMPUTATION OF THE ASSESSEES REAL INCOME. 7.6. ONLY IN THE YEAR WHERE A CHANGE IN THE METHOD OF ACCOUNTING IS INTRODUCED, FOR THE FIR ST TIME, IT IS TO BE EXAMINED BY THE REVENUE AUTHORITIES WHETHER THE CHANGE INTRODUCED IS MEANT TO BE REGULARLY FOLLOWED OR NOT. IT IS IN THIS CONTEXT ONLY THAT THE EXPRESSIONS GOOD FAITH AND BONAFIDE OCCUR IN THE OBSERVATIONS IN THE JUDGEMENT OF SWARUP CHAND (SUPRA) BY THE HONBLE HIGH COURT OF BOMBAY. IN THE LIGHT OF THE ABOVE JUDICIAL DISCUSSION, LET US NOW SEE ON THE FACTS WHETHER THE ASSESSEE HAS ACTUALLY CHANGED ITS METHOD OF ACCOUNTING AND HAS ADOPTED THE PRINCIPLES OF MERCANTILE SYSTEM OF ACCOUNTING. IN ITS NOTES TO ACCOUNTS FOR THE ACCOUNTING YEAR ENDING 31.3.2006, THE AUDITORS HAVE REMARKED UNDER THE HEAD SIGNIFICANT ACCOUNTING POLICIES IN RESPECT OF ACCOUNTING CONVENTION AS UNDER THE COMPANY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING RECOGNIZING INCOME AND EXPENSES ON ACCRUAL BAS IS . THE ACCOUNTING STATEMENTS ARE PREPARED ON HISTORICAL COST CONVENTION AND AS A GOING CONCERN. 7.7. IN RESPECT OF CHANGE IN METHOD OF VALUATION OF CLOSING STOCK, THE AUDITORS REPORT IS AS UNDER: THE COMPANY HAS BEEN FOLLOWING A POLICY OF TREATING PURCHASES OF PAPER UTILIZED FOR THE PURPOSE OF PRINTING STUDY MATERIALS AS AN VIDYASAGAR LEARNING PVT. LTD. 8 EXPENDITURE AT THE TIME OF PURCHASE . HOWEVER, THIS YEAR IN ORDER TO ENSURE A BETTER MATCHING OF COSTS AND REVENUES, THE PAP ER CONSUMED HAS BEEN TREATED AS EXPENDITURE, WHILE THE BALANCE HAS BEEN TREATED AS STOCK IN THE BALANCE SHEET. 7.8. IN THE SCHEDULES FORMING PART OF BALANCE SHEET AS ON 31.3.2006, WE FIND THAT THIS YEAR THE ASSESSEE HAS SHOWN ADVANCE RENT, SALARY PAYABLE AND UNDER THE EXPENDITURE HEAD OF PRINTING AND STATIONERY, CLOSING STOCK OF MATERIALS HAVE BEEN REDUCED THEREBY SHOWING THAT ONLY EXPENDITURE RELATING TO THE YEAR UNDER CONSIDERATION HAS BEEN CLAIMED. 7.9. IN SO FAR AS THE RECOGNITION OF THE REVENUE IS CONCERNED, THE FOLLOWING CHART WOULD EXPLAIN THE FACTS : VIDYASAGAR LEARNING PVT. LTD. 9 7.10. THE AFOREMENTIONED FACTS CLEARLY ESTABLISHES THE INTENTION AND BONAFIDES IN FAVOUR OF THE ASSESSEE. 8. AS MENTIONED ELSEWHERE, THE ASSESSEE IS RUNNING COACHING CLASSES THEREFORE WHETHER IN ORDER THAT INCOME BE CHARGEABLE IT SHOULD ACCRUE OR ARISE TO ASSESSEE DURING THE PREVIOUS YEAR. MERELY BECAUSE THE ASSESSEE HAS RECEIVED THE FEES IN ADVANCE OF CLASSES TO BE CONDUCTED IN DIFFERENT FINANCIAL YEARS, IT CANNOT BE SAID THAT THE RIGHT HAS ACC RUED TO THE ASSESSEE. SINCE THE RIGHT WILL ACCRUE ONLY WHEN THE SERVICES ARE RENDERED AND NOT MERELY BY PROMISING FOR SERVICES. THE HONBLE HIGH COURT OF DELHI HAD THE OCCASION TO CONSIDER THE ISSUE HAVING IDENTICAL FACTS AS THAT OF THE ASSESSEE IN THE C ASE OF CIT VS DINESH KUMAR GOEL 331 ITR 10. IN THAT CASE ALSO THE ASSESSEE WAS RUNNING A COACHING INSTITUTE, TOTAL FEES FOR ENTIRE COURSE, WHICH MIGHT HAVE BEEN OF TWO YEARS DURATION WAS TAKEN FROM STUDENTS AT THE TIME OF THEIR ADMISSION. THE ASSESSEE C LAIMED THAT THE SAID FEE TAKEN IN ADVANCE DID NOT BELONG TO RELEVANT ASSESSMENT YEAR ALONE AS IT WAS RELATED TO NEXT ASSESSMENT YEAR AS WELL AND, THEREFORE, FEE TO THAT EXTENT WOULD NOT BE TAXABLE IN THE RELEVANT ASSESSMENT YEAR BUT WOULD BE SHOWN AS RECEI PT IN NEXT YEAR. THE AO HOWEVER TAXED ENTIRE FEE IN THE RELEVANT ASSESSMENT YEAR AS IN OUR CASE . ON APPEAL COMMISSIONER OF (APPEALS) ALLOWED ASSESSEES CONTENTION THAT EVEN THOUGH MONEY HAVE BEEN RECEIVED SERVICES AGAINST THAT MONEY HAD TO BE RENDERED TO THE ASSESSEE IN NEXT ASSESSMENT YEAR, THEREFORE, RECEIPT OF THAT AMOUNT COULD NOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. THE TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) AND THE HONBLE HIGH COURT CONFIRMED THE D ECISION OF THE TRIBUNAL. THE HONBLE HIGH COURT AT PARA - 23 OBSERVED AS UNDER: VIDYASAGAR LEARNING PVT. LTD. 10 WE MAY REFER TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS BILAHARI INVESTMENT (P) LTD., (2008) 299 ITR 1 WHEREIN THE SUPREME COURT HAS TAKEN VARIOUS JUDGEMENTS WHERE THE MATCHING CONCEPT IS DEFINED AND EXPLAINED. WE MAY REFER TO THE PASSAGE EXTRACTED BY THE SUPREME COURT FROM ITS JUDGMENT IN THE CASE OF J.K. INDUSTRIES VS UNION OF INDIA (2007) 165 TAXMAN 323 IN THE FOLLOWING TERMS: 82 MATCHING CONCEPT IS BASE D ON THE ACCOUNTING PERIOD CONCEPT. THE PARAMOUNT OBJECT OF RUNNING A BUSINESS IS TO EARN PROFIT. IN ORDER TO ASCERTAIN THE PROFIT MADE BY THE BUSINESS DURING A PERIOD, IT IS NECESSARY THAT REVENUES OF THE PERIOD SHOULD BE MATCHED WITH THE COSTS (EXPEN SE) OF THAT PERIOD. IN OTHER WORDS, INCOME MADE BY THE BUSINESS DURING A PERIOD CAN BE MEASURED ONLY WHEN THE REVENUE EARNED DURING A PERIOD IS COMPARED WITH THE EXPENDITURE INCURRED FOR EARNING THAT REVENUE. HOWEVER, IN CASES OF MERGERS AND ACQUISITIONS , COMPANIES SOMETIMES UNDERTAKE TO DEFER REVENUE EXPENDITURE OVER FUTURE YEARS WHICH BRINGS IN THE CONCEPT OF DEFERRED TAX ACCOUNTING. THEREFORE, TODAY IT CANNOT BE SAID THAT THE CONCEPT OF ACCRUAL IS LIMITED TO ONE YEAR. 83. IT IS A PRINCIPLE OF RECOGN IZING COSTS (EXPENSES) AGAINST REVENUES OR AGAINST THE RELEVANT TIME PERIOD IN ORDER TO DETERMINE THE PERIODIC INCOME. THIS PRINCIPLE IS AN IMPORTANT COMPONENT OF ACCRUAL BASIS OF ACCOUNTING. AS STATED ABOVE, THE OBJECT OF AS 22 IS TO RECONCILE THE MATCH ING PRINCIPLE WITH THE FAIR VALUATION PRINCIPLES. IT MAY BE NOTED THAT RECOGNITION, MEASUREMENT AND DISCLOSURE OF VARIOUS ITEMS OF INCOME, EXPENSES, ASSETS AND LIABILITIES IS DONE ONLY BY ACCOUNTING STANDARDS AND NOT BY PROVISIONS OF THE COMPANIES ACT. 8.1. THE HONBLE HIGH COURT FURTHER REFERRED TO THE RELEVANT PORTION OF ACCOUNTING STANDARD - 9 OF THE ICAI AS UNDER: 7. RENDERING OF SERVICES 7.1 REVENUE FROM SERVICE TRANSACTIONS IS USUALLY RECOGNIZED AS THE SERVICE IS PERFORMED, EITHER BY THE PROPORTIONATE VIDYASAGAR LEARNING PVT. LTD. 11 COMPLETION METHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. (I) PROPORTIONATE COMPLETION METHOD. PERFORMANCE CONSISTS OF THE EXECUTION OF MORE THAN ONE ACT. REVENUE IS RECOGNIZED PROPORTIONATELY BY REFERENCE TO THE PERFORMANCE OF EACH ACT. THE REVENUE RECOGNIZED UNDER THIS METHOD WOULD BE DETERMINED ON THE BASIS OF CONTRACT VALUE, ASSOCIATED COSTS, NUMBER OF ACTS OR OTHER SUITABLE BASIS. FOR PRACTICAL PURPOSES, WHEN SERVICES ARE PROVIDED BY AN INDETERMINATE NUMBER OF ACTS OVER A SPECIFIC PERIOD OF TIME, REVENUE IS RECOGNIZED ON A STRAIGHT LINE BASIS OVER THE SPECIFIC PERIOD UNLESS THERE IS EVIDENCE THAT SOME OTHER METHOD BETTER REPRESENTS THE PATTERN OF PERFORMANCE. (II) COMPLETED SERVICE CONTRACT METHOD. PERFORMANCE CONSISTS OF THE EXECUTION OF A SINGLE ACT. ALTERNATIVELY, SERVICES ARE PERFORMED IN MORE THAN A SINGLE ACT, AND THE SERVICES YET TO BE PERFORMED ARE SO SIGNIFICANT IN RELATION TO THE TRANSACTION TAKEN AS A WHOLE THAT PERFORMANCE CANNOT BE DEEMED TO HAVE BEEN COMPLETED UNTIL THE EXECUTION OF THOSE ACTS. THE COMPLETED SERVICE CONTRACT METHOD IS RELEVANT TO THESE PATTERNS OF PERFORMANCE AND ACCORDINGLY REVENUE IS RECOGNIZED WHEN T HE SOLE OR FINAL ACT TAKES PLACE AND THE SERVICE BECOMES CHARGE ABLE. (EMPHASIS SUPPLIED)' READING OF THE AFORESAID (AS) 9 MAKES IT CLEAR THAT REVENUE IS RECOGNIZED ONLY WHEN THE SERVICES ARE ACTUALLY RENDERED. IF THE SERVICES ARE RENDERED PARTIALLY, REVEN UE IS TO BE SHOWN PROPORTIONATE WITH THE DEGREE OF COMPLETION OF THE SERVICES. THIS REALLY CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.2. CONSIDERING THE ENTIRE FACTUAL MATRIX AS MENTIONED ELSEWHERE IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HER EINABOVE, IN OUR CONSIDERED OPINION, THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION SHOWS A BONAFIDE CHANGE AND THEREFORE, WE DO NOT FIND ANY REASON WHY THE SAME SHOULD NOT BE ACCEPTED BY THE AO. WE, ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO RECOMPUTE THE INCOME OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR S VIDYASAGAR LEARNING PVT. LTD. 12 ACCEPTING ITS METHOD OF ACCOUNTING. THIS GRIEVANCE OF THE ASSESSEE IN ALL THE YEARS UNDER CONSIDERATION IS ALLOWED. 9. BEFORE PARTING, THE FOLLOWING OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DINESH KUMAR GOEL NEED SPECIAL MENTION. THOUGH OUR DISCUSSION ON THE ISSUE IS COMPLETE, THE PARTING COMMENTS NEED TO BE MADE. THE RECEIPTS RELATE TO THE UNEXECUTED PACK AGES, WHICH ARE NOT SHOWN IN THE INSTANT YEAR WOULD BE SHOWN IN THE SUCCEEDING YEAR. RATE OF TAX IN RESPECT OF COMPANIES REMAINS THE SAME IN ALL THESE YEARS. THEREFORE, THE REVENUE DOES NOT LOSE ANYTHING, AS IT WOULD RECEIVE THE TAX ON THIS INCOME IN THE S UCCEEDING YEAR. STILL ISSUES ARE RAISED AND MUCH OUTCRY IS MADE FOR NOTHING. IN A DECISION RENDERED ABOUT 50 YEARS AGO, THE BOMBAY HIGH COURT, SPEAKING THROUGH CHIEF JUSTICE TENDOLKAR IN CIT V. NAGRI MILLS CO. LTD. [1958] 33 ITR 681 (BOM) OBSERVED AS UNDER (PAGE 684) : 'WE HAVE OFTEN WONDERED WHY THE INCOME - TAX AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME - TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT ; BUT IN THE CASE OF I NCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952 - 53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953 - 54, SH OULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT ; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPART MENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' 10. THE ALTERNATIVE PLEA OF THE ASSESS EE BECOMES OTIOSE. VIDYASAGAR LEARNING PVT. LTD. 13 ITA NO. 615/MUM/2012 - REVENUES APPEAL A.Y. 2007 - 08 11. THE REVENUE IS AGGRIEVED BY THE DELETION OF THE ADDITION OF RS. 3 CRORES. 11.1. THE FACTS OF THE CASE ARE THAT A SURVEY WAS CONDUCTED ON 18.1.2007. DURING THE COURSE OF THE SURVEY PROCEEDINGS, STATEMENT OF SHRI SURENDRA V.KAMAT WAS RECORDED U/S. 133A OF THE ACT. IN THAT STATEMENT, QUESTION NO. 10 WAS PUT TO MR. KAMATH WHICH RELAT ED TO A SUSPENSE ACCOUNT UNDER WHICH IT WAS MENTIONED CREDITORS FOR E XPENSES PAYABLE RS. 3,00,00 ,00 0/ - 11.2. DETAILS OF THE EXPENSES WERE FURNISHED. THEN IN RESPECT OF QUESTION NO. 14 WHERE THE PERSON WAS ASKED TO FURNISH COMPLETE BILLS AND VOUCHER S SHOWING HIS INABILITY AMOUNT OF RS. 3 CRORES WAS OFFERED AS ADDITIONAL INCOME FOR THE FINANCIAL YEAR 2006 - 07. IN ITS COMPUTATION OF INCOME, THE ASSESSEE HAS ADDED RS. 3 CRORES AS EXPENSES DISALLOWED AS PER DECLARATION U/S. 133A OF THE ACT. THE AO HAS AD DED RS. 3 CRORES ON ACCOUNT OF DISCLOSURE AT THE TIME OF SURVEY. 12. THE LD. CIT(A) DELETED THE ENTIRE ADDITION OBSERVING THAT THE ADDITION OF RS. 3 CRORES MADE BY THE AO AGAIN OVER AND ABOVE THE AMOUNT OF RS. 3 CRORES ALREADY DISCLOSED BY THE ASSESSEE IS NOT MAINTAINABLE. AS MENTIONED ELSEWHERE, THE ASSESSEE HAS ADDED THE AMOUNT OF RS. 3 CRORES IN ITS COMPUTATION OF INCOME, WE DO NOT FIND ANY REASON WHY THE SAME HAS BEEN ADDED BACK BY THE AO. THE LD. CIT(A) HAS RIGHTLY DELETED THE DOUBLE ADDITION MADE B Y THE AO. THEREFORE, NO INTERFERENCE IS CALLED FOR. VIDYASAGAR LEARNING PVT. LTD. 14 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 14. THE ONLY OTHER GROUND REMAINS TO BE DECIDED IN A.Y. 2008 - 09 IN ASSESSEES APPEAL IN ITA NO. 3461/M/12. THE ASSESSEES GRIEVANCE RE LATES TO THE ADDITION OF RS.1,43,807/ - TOWARDS EMPLOYEES CONTRIBUTION TO PROVIDENT FUND PAID BE Y OND DUE DATE BUT WITHIN THE GRACE PERIOD. 14.1. WHILE SCRUTINISING THE RETURN OF ASSESSMENT YEAR 2008 - 09, THE AO OBSERVED THE FOLLOWING NOTINGS OF THE AUDITORS IN THE TAX AUDIT REPORT. MONTH AMOUNT DUE DATE DATE OF PAYMENT MAY 2007 34,976/ - 15.6.2007 16.6.2007 NOVEMBER 2007 40,345/ - 15.12.2007 17.12.2007 JANUARY 2008 36,133/ - 15.2.2008 20.2.2008 FEBRUARY 2008 32,353/ - 15.3.2008 17.3.2008 TOTAL 1,43,807/ - 14.2. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY RS. 1,43,807/ - SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME. THE ASSESSEE REPLIED AS UNDER: IN REPLY, THE ASSESSEE HAS STATED THAT NO DISALLOWANCE IS REQUIRED TO BE MADE IN VIEW OF THE PROVISIONS AS PER CLAUSE (III) OF CENTRAL PROVIDENT FUND COMMISSIONERS CIRCULAR NO. E - 128 (1) 60 - 111 DATED 1`9.3.1964 AS MODIFIED BY CIRCULAR NO. E11/128 DATED 2 4.10.1973, FIVE DAYS OF GRACE PERIOD ARE ALLOWED TO EMPLOYEES FOR PAYMENT OF PROVIDENT FUND CONTRIBUTION. HENCE, THE DUE DATE FOR PAYMENT OF P - ROVIDENT FUND CONTRIBUTION IS 15 DAYS FROM THE END OF THE MONTH IN WHICH SALARIES ARE PAID PLUS GRACE PERIOD OF THE 5 DAYS. SINCE THE ASSESSEE HAS MADE THE PAYMENT OF PROVIDENT FUND CONTRIBUTION OF THE ASSESSEE WITHIN THE EXTENDED DUE DATE I.E. 20 TH OF THE FOLLOWING MONTH, THE SAME SHOULD NOT BE DISALLOWED. VIDYASAGAR LEARNING PVT. LTD. 15 14.3. THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSES SEE AND DISALLOWED RS. 1,43,807/ - . 15. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THE AMOUNT HAS BEEN DEPOSITED WITHIN THE GRACE PERIOD AND ALSO BEFORE FI LING THE RETURN OF INCOME. THEREFORE, THE SAME SHOULD BE ALLOWED. 16.1. THIS ISSUE IS NO MORE RES INTEGRA AS THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS GHATGE PATIL TRANSPORTS LTD. 368 ITR 749 HAS HELD THAT NOTHING CONTAIN IN THIS SEC. 43 B SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME. THE HONBLE HIGH COURT FOLLOWED ITS OWN ORDER IN THE CASE OF CIT VS HINDUSTAN ORGANICS CHEM ICALS LTD 48 TAXMANN.COM 421 FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD (2009) 319 ITR 306. RESPECTFULLY FOLLOWING THESE DECISION, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 1,43,807/ - . 17. IN THE RE SULT, THE APPEALS OF THE ASSESSEE IN ITA NOS. 8286/M/11, 3461/M/12 AND 8518/M/11 ARE ALLOWED AND REVENUES APPEAL IN ITA NO. 651/M/12 IS DISMISSED. OR DER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST , 2015 SD/ - SD/ - ( VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 19 TH AUGUST , 2015 FIT FOR PUBLICATION UPTO PARA - 10 AM JM VIDYASAGAR LEARNING PVT. LTD. 16 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ RJ , SR. PS