I.T.O.8(3)-3, MUMBAI V. ROYAL TOSHALI HOLIDAY CLUB PVT. LTD., MUMBAI

ITA 6802/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3822 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K K VED

Judgement Text

ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO.6802/MUM/2012 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER 8(3)(3), ROOM NO.202 AAYAKAR BHAVAN, MK ROAD, MUMBAI 400020 VS. M/S ROYAL TOSHALI HOLIDAY CLUB PVT. LTD, C-309 CRYSTAL PLAZA, NEW LINK ROAD, ANDHERI (WEST) MUMBAI 400055 PAN: AACCR 8904 N (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI MOHIT JAIN, DR ASSESSEE BY: SHRI K.K. VED DATE OF HEARING: 04/04/2013 DATE OF PRONOUNCEMENT: 10/04/2013 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A) 18 MUMBAI DATED 29.7.2011. THE REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISAL LOWANCE MADE UNDER SECTION 40(A)(IA) OF REIMBURSEMENT OF EXPENDITURE OF ` .12,20,111 PAID TO PRESTIGE HOLIDAYS RESORTS PVT LTD TO WHICH IT HAD PAID COMMISSION OF ` .15,25,137 WITHOUT APPRECIATING THE FACTS AND WITHO UT CONSIDERING THE CBDTS CIRCULAR NO.715 DATED 08-08- 1995 ON THE ISSUE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN DELETING THE ADDITION OF ` .45,885 BEING 50% OF THE MONEY FORFEITED BY ASSESSE E FROM DEFAULTERS, WITHOUT APPRECIATING THE FACT THAT ONCE MONEY IS FORFEITED BY ASSESSEE, THERE IS NO CONTRAC TUAL OBLIGATION TO REFUDN ANY AMOUNT AND THEREFORE, ASSESSEES OFFER OF ONLY 50% OF THE FORFEITED AMOUN T FOR ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 2 OF 6 TAX IS ARBITRARY AND A MERE RUSE TO DEFER TAXATION OF THE BALANCE 50% AMOUNT INDEFINITELY. 2. WE HAVE HEARD THE LEARNED DR AND THE LEARNED COUNSE L IN DETAIL. 3. GROUND NO.1 PERTAINS TO THE ISSUE OF INVOKING THE P ROVISIONS OF SECTION 40(A)(IA) ON AN AMOUNT OF ` .12,20,111 PAID TO M/S PRESTIGE HOLIDAYS RESORTS PVT. LTD IN ADDITION TO T HE COMMISSION. ACCORDING TO AO, THIS AMOUNT OF REIMBURSEMENT WAS P ART OF COMMISSION ITSELF ON WHICH TDS UNDER SECTION 194H W AS APPLICABLE AND AS ASSESSEE HAS NOT DEDUCTED ANY TAX, THE SAME IS TO BE DISALLOWED UNDER SECTION 40(A)(IA). HE GIVES A FIND INGS THAT THE AMOUNTS ARE REIMBURSEMENT OF VARIOUS EXPENDITURES, BUT CONSIDERED THEM AS PART OF COMMISSION. ASSESSEE MAD E DETAILED SUBMISSIONS BOTH ON FACTS AND ON LAW WHICH WERE REC ORDED IN PARA 2.3 OF THE CIT (A) ORDER ELABORATELY AND ULTIMATELY HE DELETES THE SAME BY HOLDING AS UNDER: 2.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL AND IN VIEW OF THE FACTS BROUGHT ON RECORD AND SUBMISSIONS MADE AND DECISIONS OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF SIEMENS AKTIONGESELLSCHAF T VS. CIT (2009) 310 ITR 320 AND HON'BLE MUMBAI ITAT IN T HE CASE OF LINKLATERS LLP VS. INCOME TAX OFFICER (2010 ) 134 TTJ 20, THE DISALLOWANCE/ ADDITION MADE BY AO IS HEREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED . 4. SINCE IT IS A FACT THAT ASSESSEE HAS REIMBURSED THE TELEPHONE CHARGES OF ` .3,20,283, PRINTING AND STATIONERY OF ` .18,200 AND BUSINESS PROMOTION EXPENSES OF ` .8,81,636 TOTALING TO ` .12,20,111 IN TERMS OF CLAUSE 7 OF THE MARKETING AGENCY AGREEM ENT DATED 11.03.2004 TO THE SAID PRESTIGE HOLIDAYS RESORTS PV T LTD, THE REIMBURSEMENT OF THE EXPENDITURE DOES NOT CALL FOR ANY DEDUCTION OF TAX, AS HELD BY THE JURISDICTIONAL HIGH COURT RELIE D UPON BY THE CIT (A). WHATEVER COMMISSION WAS PAID BY ASSESSEE, THAT AMOUNT WAS ALREADY COVERED BY THE TDS ON WHICH THERE IS NO DIS PUTE. AS SEEN ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 3 OF 6 FROM THE ORDER OF AO ALSO, HE DISALLOWED THE AMOUNT UNDER SECTION 40(A)(IA) WITH A CLEAR MENTION OF REIMBURSEMENT OF THE EXPENSES, SO THERE IS NO DISPUTE TO THE NATURE OF THE EXPENDITUR E CLAIMED. IN VIEW OF THIS, WE SEE NO REASON TO INTERFERE WITH THE ORD ER OF THE CIT (A) WHO NOT ONLY CONSIDERED THE FACTS BUT ALSO CONSIDER ED THE LAW ON THE ISSUE IN ARRIVING AT THAT DECISION. THE GROUND IS ACCORDINGLY REJECTED. 5. GROUND NO.2 IS WITH REFERENCE TO BRINGING TO TAX AN AMOUNT OF ` .45,885 BEING 50% OF THE MONEY FORFEITED BY ASSESSE E FROM THE DEFAULTED MEMBERS. AO NOTICED THAT ASSESSEE OFFERED 50% OF THE FORFEITED MONEY, THEREFORE, HE BROUGHT TO TAX THE B ALANCE 50% OF ` .45,885 IN THE YEAR UNDER CONSIDERATION INSPITE OF ASSESSEES OBJECTIONS IN DOING SO. BEFORE THE CIT (A) IT WAS S UBMITTED THAT: I) AS ASSESSEE IS ENGAGED IN THE BUSINESS OF SELLING HOLIDAY POINTS BASED TIMESHARES. II) IN TERMS OF THE METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE IT RECOGNIZES INCOME FROM SALES OF TIME SH ARE ONLY WHEN THE FULL CONTRACT VALUE IS RECEIVED. THIS IS IN ACCORDANCE WITH THE ACCOUNTING STANDARD 9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA ON REV ENUE RECOGNITION. III) ACCORDINGLY PERSONS WHO HAVE OPTED FOR PAYMENT OF T HE MEMBERSHIP FEES IN INSTALLMENTS ARE NEITHER RECOGNI ZED AS THE MEMBERS NOR ARE THE FEES RECEIVED BY THE ACCOUNTED FOR AS INCOME TILL THE TIME THE FULL AM OUNT OF FEES IS RECEIVED. IV) TILL SUCH TIME THE WHOLE AMOUNT OF FEE IS RECEIVED THE AMOUNTS ARE ACCOUNTED FOR AS A LIABILITY UNDER THE HEAD ADVANCES FROM CUSTOMERS. ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 4 OF 6 V) IN THE CASE OF DEFAULTS IN PAYMENT OF SUBSEQUENT INSTALLMENTS, THE AMOUNT RECEIVED BY THEM TILL THE DATE OF DEFAULT IS FORFEITED. VI) THE DEFAULTS OCCUR GENERALLY ON ACCOUNT OF THE FOLL OWING TWO BROAD REASONS: A) THE PROSPECTIVE CUSTOMER LOSING INTEREST IN THE SCHEME OR B) HE IS IN GENUINE NEED OF FUNDS FOR SOME OTHER EMERGENCIES. VII) THIS FORFEITED AMOUNT IS ACCOUNTED FOR AS UNDER: A) 50% IS DIRECTLY CREDITED TO THE INCOME AS RETAINED MONEY ACCOUNT AND TREATED IN WHICH THE FORFEITURE TAKES PLACE AND ACCOUNTED FOR AS INCOME. B) THE BALANCE 50% IS TRANSFERRED TO THE RETENTION MONEY ACCOUNT AND TREATED AS A LIABILITY AS ON THE YEAR END. THIS IS TO TAKE CARE OF AN EVENTUALITY OF SUBSEQUENT REFUNDS TO THE DEFAULTING PARTIES IN CAS E OF GENUINE DIFFICULTIES LIKE SAY A FAMILY EMERGENCY , ACCIDENT, HOSPITALIZATION ETC. C) ANY UNUTILIZED AMOUNT OUT OF THE AFORESAID BALANCE OF 50% IS OFFERED TO TAX AS INCOME OF THE IMMEDIATE LY SUCCEEDING AY. VIII) ACCORDINGLY DURING THE YEAR UNDER CONSIDERATION ASSESSEE FORFEITED A SUM OF ` .91,770 (NET OF REFUNDS/ TRANSFERS) ON FORFEITED CONTRACTS. IX) 50% OF THE SAID AMOUNT WAS OFFERED TO TAX DURING TH E YEAR UNDER CONSIDERATION AND THE BALANCE AMOUNT WAS TRANSFERRED TO THE LIABILITY ACCOUNT. ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 5 OF 6 X) ACCORDINGLY, AN AMOUNT OF ` .1,50,138 WAS OFFERED TO TAX DURING THE YEAR UNDER CONSIDERATION, THE BREAK-UP O F WHICH IS AS FOLLOWS: A) ` .45,885 (50% OF THE RETENTION MONEY OF ` .91,770 RECEIVED DURING THE YEAR) B) ` .1,04,254(50% OF THE RETENTION MONEY OF ` .2,08,508 RECEIVED DURING THE PRECEDING PREVIOUS YEAR I.E. AY 2007-08). 6. ON CONSIDERING THE FACTS AND METHOD OF ACCOUNTING B EING FOLLOWED AND ALSO THE FACT THAT 50% OF THE RETENTIO N MONEY FORFEITED DURING EARLIER YEAR WAS OFFERED DURING THE YEAR ON A CONSISTENT METHOD OF ACCOUNTING, THE LEARNED CIT (A) DELETED T HE SAME HOLDING IT AS UNDER: 3.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL AND THE FACTS BROUGHT ON RECORD. THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CON TROLS INDIA (P) LTD VS. CIT (2009) 314 ITR 62 ON WHICH APPELLANT HAS PLACED RELIANCE IS CLEARLY IN APPELLA NTS FAVOUR AND RESPECTFULLY FOLLOWING THE RATIO OF THE HON'BLE SUPREME COURT IN THE ABOVE MENTIONED DECISION AO IS DIRECTED TO DELETE THIS DISALLOWANCE/ADDITION AND T HIS GROUND OF APPEAL IS ALLOWED. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE UPHOLD THE ORDER OF THE LEARNED CIT (A) AS ASSESSEE IS CONSISTENTLY FOL LOWING THE ACCOUNTING TREATMENT IN A RATIONALE MANNER. IT WAS SUBMITTED THAT 50% OF THE RETENTION MONEY WAS KEPT ASIDE BY ASSESS EE TO MEET THE EVENTUALITY OF HAVING TO REFUND THE AMOUNTS TO PROS PECTIVE CUSTOMERS WHO DO NOT PAY THE REMAINING INSTALLMENTS BECAUSE OF GENUINE REASONS OF EMERGENCY, ACCIDENT, HOSPITALIZA TION ETC. THIS METHOD OF ACCOUNTING HAS BEEN FOLLOWED BY ASSESSEE RIGHT SINCE ITS INCEPTION AND HAS ALWAYS BEEN ACCEPTED IN EARLIER Y EARS. THIS CAN BE ASCERTAINED FROM THE FACT THAT AN AMOUNT OF ` .1,04,254 BEING 50% OF THE RETENTION MONEY RECEIVED DURING THE PREV IOUS YEAR WAS ITA NO.6802 OF 2011 ROYAL TOSHALI HOLIDAY CLUB PVT LTD MUMBAI PAGE 6 OF 6 OFFERED AS INCOME OF THIS YEAR ALONG WITH 50% OF TH E RETENTION MONEY OF THIS YEAR TOTALING TO AN AMOUNT OF ` .1,50,138. THERE IS NO RATIONALE IN DISTURBING ASSESSEES METHOD OF ACCOUN TING WHICH IS BEING ACCEPTED CONSISTENTLY AND THERE IS NO EVASION OF ANY INCOME BUT ONLY THE TIMING OF BRINGING IT TO TAX. HAD AO E XCLUDED THE AMOUNT OFFERED DURING THE YEAR ON THE SAME PRINCIPL ES IN WHICH HE BROUGHT THE BALANCE 50% OF THE AMOUNT TO TAX, THERE COULD HAVE BEEN SOME JUSTIFICATION IN THE ACTION OF AO. HE DID NOT DO SO. SINCE ASSESSEES METHOD OF ACCOUNTING IS CONSISTENT AND I S BASED ON A RATIONALE METHOD, WE UPHOLD THE ORDER OF THE CIT (A ) AND REJECT THE GROUND. 8. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH APRIL, 2013 SD/- SD/- (DR. S.T.M. PAVALAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 10 TH APRIL, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI