MAYA ENTERTAINMENT LTD., MUMBAI V. ACIT - 11(1), MUMBAI

ITA 7098/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7991 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: S C TIWARI
• Keywords: Bogus purchase; Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Wholly owned subsidiary; Bad and doubtful debts; Commercial expediency; Ignorance of law
• Section: 133(6); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM , , ITA NO. 507 / MUM/ 20 1 3 ( / ASSESSMENT YEAR: 20 09 - 10 ) M /S MAYA ENTERTAINMENT LTD 23 SHAH INDL ESTATE, OFF VEERA DESAI RD, ANDHERI (W) MUMBAI - 400053 / VS. ASSTT. COMMISSIONER OF INCOME - TAX - 11(1), ROOM NO.467, 4 TH FLOOR, AAYAKAR BHAVAN, M K MARG, MUMBAI - 40 0020 ( / APPELLANT) ( / RESPONDENT ) ITA NO. 1157 / MUM/ 201 3 ( / ASSESSMENT YEAR: 20 09 - 10 ) ASSTT. COMMISSIONER OF INCOME - TAX - 11(1), MUMBAI - 400020 / VS. M /S MAYA ENTERTAINMENT LTD , MUMBAI - 4000 53 ( / APPELLANT) ( / RESPONDENT ) ITA NO. 7098/ MUM/ 2013 ( / ASSESSMENT YEAR: 2007 - 08 ) M /S MAYA ENTERTAINMENT LTD , MUMBAI - 400053 / VS. ASSTT. COMMISSIONER OF INCOME - TAX - 11(1), MUMBAI - 400020 ( / APPELLANT) ( / RESPONDENT ) ITA NO. 813/ MUM/ 2014 ( / ASSESSMENT YEAR: 2007 - 08 ) ASSTT. COMMISSIONER OF INCOME - TAX - 11(1), MUMBAI - 400020 / VS. M /S MAYA ENTERTAINMENT LTD , MUMBAI - 400053 ( / APPELLANT) ( / RESPONDENT ) 2 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 ./ PAN : AAB CM7192B ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : SHRI S C TIWARI /RESPONDENT BY : SHRI SUMAN KUMAR / DATE OF HEARING : 9 .2.2017 / DATE OF PRONOUNCEMENT : 28. 2.2017 / O R D E R PER RAJESH KUMAR, A. M: THESE CROSS - APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LD. CIT(A), MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 200 7 - 08 AND 200 9 - 10 . SINCE THE ISSUES URGED IN THESE APPEALS ARE IDENTIC AL IN NATURE , THEY WERE HEARD TOGETHER , CLUBBED TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. ITA NO.7098/MUM/2013 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER: 1 - THE L.CIT(A) ERRED IN LAW AND ON FA CTS AND IN THE CIRCUMSTANCES OF T HE CASE IN CONFIRMING T HE DISALLOWANCE OF DEPRECIATION OF RS.14,35,200/ - IN RESPECT OF SOFTWARE PURCHASED FROM TWO PARTIES AGGREGATING TO RS.47,84,000/ - ALLEGING THE PURCHASE TO BE BOGUS. 2. THE L.CIT(A) ERRED IN LAW AND O N FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE TREATMENT OF PREPAID EXPENSES AS PRIOR PERIOD EXPENSES; 2.2. THE L.CIT(A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF PREPAID EXPENSES OF RS.21,64,800/ - IN RESPECT OF COMMISSION AND BROKERAGE WHICH WAS PAID 3 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 IN ADVANCE IN THE FY 2005 - 06 AMOUNTING TO RS.27,06,000/ - , AND OUT OF WHICH RS.5,41,200/ - WAS ALLOWED IN ASSESSMENT YEAR 2006 - 07; 3. THE ORDER OF THE COMMISSIONER ( APPEALS) BEING CONTRAR Y TO LAW, EVIDENCE AND FACTS OF THE CASE SHOULD BE SET ASIDE, AMENDED OR MODIFIED. 3 . FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 29.10.2007 DECLARING NIL INCOME. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION AND SA LE OF TELEVISION SOFTWARE, RENDERING TECHNICAL SERVICES AND IMPARTING TRAINING COURSE S IN ADVANCE CINEMATIC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS PURCHASED TWO COMPUTER - SOFTWARE FROM DIFFERENT PARTIES I.E. M/S SAP TAGIRI IMPEX PVT LTD AND M/S SATGURU TRADI N G PVT LTD FOR A CONSIDERATION OF RS.23,92,000/ - EACH AGGREGATING TO RS.47,84,000/ - ON WHICH THE ASSESSEE CLAIMED DEPRECIATION AT THE RATE OF 30% BEING OF 60%, THE RATE APPLICABLE FOR COMPUTERS, AS THE ASSETS WERE PUT TO USE FOR LESS THAN 180 DAYS) AT RS.14,35,200/ - . VIDE ORDER SHEET ENTRY DATED 16.11.2009, THE AO CALLED UPON THE ASSESSEE TO PRODUCE THE CONFIRMATION S FROM THE SUPPLIERS. THE AO ALSO ISSUED NOTICED U/S 133(6) TO THESE PARTIES. THE LD. AR OF THE ASSESSEE RESPONDED TO THE NOTICE BY SUBMITTING THAT WITHIN ONE WEEK IT WAS NOT POSSIBLE TO PRODUCE CONFIRMATION S FROM THESE PARTIES. HOWEVER, THE COPY OF INVOICES, PAN W AS FURNISHED BEFORE THE AO. THE AO , AFTER CONSIDERING THE REPLY OF THE ASSESSEE , CAME TO THE CONCLUSION THAT THE ASSESSEE MADE BOGUS PURCHASES FROM THESE PARTIES FOR THE REASONS THAT THE NOTICES ISSUED U/S 4 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 133(6) WERE RETURNED UNSERVED AND INCOME TAX INSPECTOR AFTER VISITING THE GIVEN ADDRESS ES REPORTED BACK THAT THESE PARTIES WERE NOT AVAILABLE AT THE GIVEN ADDRESS ES , NON FILING OF NO CONFIRMATION S FROM THESE SUPPLIERS AND THUS, THE ASSESSEE HAS FAILED TO DISCHARGE ONUS CAST UPON IT AND FINALLY ADDED BACK THE DEPRECIATION OF RS.14,35,200/ - . 4 . IN THE APPELLATE PROCEEDINGS, THE FA A DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 4.2 I HAVE PERUSED THE FACTS IN THIS CASE. AFTER ISSUING NOTICES U/S 133(6) AND AFTER DEPUTING THE INSPECTOR FOR SPOT VERIFICATIONS , THE AO ASKED THE APPELLANT TO FILE CONFIRMATION S. IN THE CIRCUMSTANCES, THE APPELLANT CANNOT NOW TAKE THE PLEA THAT NATURAL JUSTICE HAS BEEN VIOLATED. IN THE ABSENCE OF ANY CONFIRMATION, THE AO HAS RIGHTLY HELD THAT THE PURCHASE WERE BOGUS. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED AGGRIEVE D BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE FAA HAS GROSSLY ERRED IN CONFIRM ING THE ORDER OF THE AO ON THIS ISSUE AS THE ASSESSEE HAS PURCHASED SOFTWARE FROM THESE TWO PARTIES ACTUALLY AND PAYMENTS WERE ALSO MADE THROUGH BANKING CHANNELS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED ALL THE REQUISITE DETAILS SUCH AS INVOICE, BANK STATEMENT S AND PAN OF THE PARTIES INCLUDING THE ADDRESSES BEFORE THE AO . THE AO ALSO D EPUTED INSPECTOR TO VISIT THE SUPPLIERS TO MAKE FURTHER INVESTIGATION AND USED REPORT OF THE INSPECTOR AGAINST THE ASSESSEE WITHOUT CONFRONTING THE SAME TO THE ASSESSEE AND THEREFORE THE PRINCIPLE OF NATURAL JUSTICE HAS BEEN 5 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 GROSSLY VIOLATED IN FRAMING THE ASSESSMENT BY THE AO . THE LD AR, IN SUPPORT OF HIS ARGUMENT, STRONGLY RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF H.R. MEHTA V/S ACIT IN IT APPEAL NO. 58 OF 2001, DATED, J UNE 30 , 2016 [2016] 72 TAXMANN.COM 110 ( BOMBAY ) . FINALLY, THE LD.AR SUBMITTED THAT THE PURCHASES BEING GENUINE AND THE PAYMENT THEREOF WERE PAID THROUGH BANKING CHANNELS AND THUS THE ASSESSEE HAS DISCHARGED ONUS CAST UPON IT BY FILING ALL THE NECESSARY DOCUMENTS BEFORE THE AO AND THE AO WITHOUT FURT HER VERIFICATION AND CONFRONTING THE INSPECTOR REPORT TO THE ASSESSEE CAME TO THE CONCLUSION THAT THE PURCHASES WERE BOGUS. THE LD. AR FURTHER SUBMITTED THAT MERE FACT THAT THE SUPPLIERS COULD NOT BE SERVED WITH THE NOTICES AS THEY WERE NOT AVAILABLE AT THE GIVEN ADDRESS, IT COULD NOT BE HELD THAT THE NONE OF SUPPLIERS EXISTED . THE LD COUNSEL ARGUED THAT THE ASSESSEE HAS DULY DISCHARGED ITS PRIMARY ONUS BY FILING THE NECESSARY INVOICES, DETAILS OF PAYMENT AND BANK STATEMENT S AND PAN OF THE SUPPLIERS. THE LD. AR FURTHER SUBMITTED THAT THE LD.CIT(A) HAS ALSO NOT CONSIDERED ALL THESE FACTS ON RECORDS AND HENCE THE ORDER OF THE LD.CIT(A) SHOULD BE REVERSED AND THE AO SHOULD BE DIRECTED TO ALLOW DEPRECIATION. 6 . ON THE OTHER HAND, THE LD. DR STRONGLY OBJECTE D TO THE PLEA PUT FORT H BY THE LD.AR AND STRONGLY RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 6 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 7 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW RELIED UPON BY THE A SSESSEE. WE FIND THAT THE ASSESSEE HAS PURCHASED SOFTWARE FROM TWO PARTIES DURING THE YEAR ON WHICH THE ASSESSEE CLAIMED DEPRECIATION AT THE RATE OF 30 % FOR THE REASONS THAT THE ASSETS WERE PUT TO USE FOR LESS THAN 180 DAYS AND THE PAYMENT S FOR THE PURCHAS ES OF SOFTWARE S WERE MADE BY ACCOUNT PAYEE CHEQUES AND THE DETAILS THEREOF WERE FILED BEFORE THE AO ALONG WITH THE INVOICES, PAN AND BANK STATEMENT S . IT HAS BEEN SUBMITTED BEFORE THE AO THAT WITHIN A WEEK CONFIRMATION S FROM THESE PARTIES COULD NOT BE SU PPLIED AS THE PERIOD WAS TOO SHORT AND ALSO INSPECTOR DEPUTED BY THE AO FOR VERIFICATION COULD NOT BE DONE AS THESE PARTIES WERE NOT AVAILABLE AT THE GIVEN ADDRESS ES AND NOTICES ISSUED U/S 133(6) ALSO RETURNED BACK UNSERVED. CONSIDERING ALL THESE FACTUAL ASPECTS OF THE MATTER, WE ARE OF THE OPINION THAT THE ASSESSEE HAS DISCHARGED ALL THE ONUS CAST UPON IT BY FILING NECESSARY DETAILS SUCH AS COPY OF INVOICES, BANK DETAILS AND PAYMENT THROUGH CHEQUES INCLUDING PAN BEFORE THE LOWER AUTHORITIES AND THE AO TH EREAFTER WITHOUT CARRYING OUT ANY EXTENSIVE VERIFICATION CAME TO THE CONCLUSION THAT THE PURCHASES WERE BOGUS. MOREOVER , THE REPORT OF T HE INSPECTOR WAS NOT CONFRONTED TO THE ASSESSEE BEFORE PROCEEDING TO DISALLOW THE DEPRECIATION CLAIMED BY THE ASSESSEE BY TREATING THE PURCHASES AS BOGUS. THE OPINION FORMED BY THE AO THAT THE PURCHASES WERE BOGUS WAS ON MERE FACT THAT THE NOTICES ISSUED TO THE PARTIES U/S 133(6) WERE NOT SERVED AND 7 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 RETURNED BACK UNSERVED AND THE INSPECTED DEPUTE D TO VERIFY THE FACTS COUL D NOT FIND THEM ON THE GIVEN ADDRESS ES CANNOT BE CONSIDERED AS SUFFICIENT GROUND FOR TREATING THE PURCHASES BEING BOGUS ONE AND CONSEQUENTLY DISALLOW ING THE DEPRECIATION CLAIMED BY THE ASSESSEE. WE FIND THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF H R MEHTA (SUPRA) WHEREIN IT HAS BEEN HELD THAT ONCE IT WAS ESTABLISHED THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS IT IS NOT FAIR ON THE PART OF THE AO TO CAME TO THE CONCLUSION THAT THE TRANSACTIONS WERE BOGUS WI THOUT CONFRONTING THE ASSESSEE TH AT THE MATERIAL USED AGAINST HIM AND WITHOUT ALL O WING T HE CROSS - EXAMINATION BY THE DEPARTMENT TO THE ASSESSEE. IN THE PRESENT CASE ALSO, THE REPORT OF THE INSPECTOR HAS BEEN USED AGAINST THE ASSESSEE AND THE ASSESSEE WAS NOT ALLOWED TO REBUT THE FINDING OF THE INSPECTOR. IN VIEW OF THIS FACTUAL ASPECT ARE OF THE OPINION THAT THE ORDER OF THE LD.CIT(A) DESERVES TO BE SET ASIDE. ACCORDINGLY , WE SET ASIDE THE OR DER OF T HE LD.CIT(A) AND DIRECT THE AO TO ALLOW DEPRECIATION AS PRAYED BY T HE ASSESSEE. 8 . THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION MADE ON ACCOUNT OF PREPAID EXPENSES WHICH WAS CHARGED UNDER THE HEAD PRIOR PERIOD EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FO U ND THAT THE ASSESSEE DEBITED EXPENSES UNDER THE HEAD PRIOR PERIOD EXPENSES (I) DEBITS RELATING TO EARLIER YEARS (NOTE B10 TO ACCOUNTS) AMOUNTING TO RS.1,98,159/ - AND (II) COMMISSION AND BROKERAGE AMOUNTING TO 8 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 RS.21,64,800/ - AGGREGATING TO RS.23,62,95 9/ - . ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED AND BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. WITH REFERENCE TO THE POINT NO.(I), THE LD. AR ADMITTED AND OFFERED BEFORE THE AO THAT AN AMOUNT OF RS.1,98,159/ - SHOULD BE DISALLOWED. WHEREAS IN RESPECT OF POINT NO.(II) THE AMOUNT OF RS.21,64,800/ - , IT WAS SUBMITTED THAT THESE ARE THE PAYMENTS OF COMMISSION AND BROKERAGE MADE THROUGH SUYASH I NTERNATIONAL IN THE PREVIOUS YEAR 2005 - 06 OF RS.27,00,000/ - OUT OF WHICH RS.21,64,800/ - PERTAINS TO THE CURRENT YEAR I.E. FINANCIAL YEAR 2006 - 07 AND AT THE END OF THE YEAR WAS SHOWN IN THE BALANCE SHEET AS ON 31.3.2006 UNDER THE HE A D PREPAID EXPENSES AN D CLAIMED THE SAME IN THE CURRENT YEAR AS ADMISSIBLE REVENUE EXPENSES ON ACCOUNT OF COMMISSION AND BROKERAGE. HOWEVER, THE AO BRUSHED ASIDE THE SUBMISSIONS OF THE LD.AR CITING VARIOUS REASONS THAT NO BILLS AND VOUCHERS WERE PRODUCED AND ONLY GENERAL VO UCHERS AS ON 31.3.2006 WERE PRODUCED AND CONSEQUENTLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS PERIOD PERIOD EXPENSES. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE FAA WHO VIDE PARA 6.2 OF THE APPELLATE ORDER DISMISSED THE APPEAL OF THE ASSESSE E BY OBSERVING AND HOLDING AS UNDER: 6.2 I HAVE PERUSED THE DOCUMENTARY EVIDENCE RELIED UPON BY THE APPELLANT IN IS PAPER BOOK. THE INVOICE OF SUYASH INTERNATIONAL IS DATED 15.10.2005, RELATING TO PREVIOUS YEAR 2005 - 06. THE PAYMENT HAS ALSO, BEEN MADE IN FY 2005 - 06. THEREFORE, I AM IN AGREEMENT WITH THE AO, THERE IS NO NEXUS BETWEEN THE PREPAID EXPENSES AND PERVIOUS 9 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 YEAR 2006 - 07. IN THE CIRCUMSTANCES, THIS ROUND OF APPEAL IS DISMISSED. 9 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACE D BEFORE US INCLUDING THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT. WE FIND THA T THE ASSESSEE HAS MADE PAYMENT S TO SUYASH INTERNATIONAL TOWARDS INTRODUCING THE CLIENTS RAGDOLL LTD, HEALTH FARM PINEWOOD STUDIOS, IVER HEALTH BUCKS, SLO ONH, UK ON 15.10.2005 AS PER INVOICE AND ALSO FILED NETWORK ACKNOWLEDGEMENT, MESSAGE DELIVERED AT PAGE 66 AND 67 OF THE PAPER BOOK. WE FIND MERIT IN THE ARGUMENT OF THE LD. AR THAT PART OF THE EXPENSES INCURRED PERTAINING TO NEXT YEAR AND WERE NOT CLAIMED IN THAT Y EAR BUT SEPARATED AND SHOWN UNDER THE HEAD PREPAID EXPENSES AS ON 31.3.2006 WHICH WERE REVERSED IN THE FINANCIAL YEAR 2006 - 07 AND CHARGED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD PRIOR PERIOD EXPENSES. THE LD. AR VEHEMENTLY POINTED OUT THAT THESE IN FACT ARE NOT PRIOR PERIOD EXPENSES BUT THE EXPENSES WHICH RELATED TO THE CURRENT YEAR BUT INCURRED IN THE PREVIOUS YEAR. WE FIND FROM THE FACTS BEFORE US THAT THE ASSESSEE HAS INCURRED AND PAID COMMISSION AND BROKERAGE EXPENSES WHICH WERE RIGHTLY ACCOUNTE D FOR BY THE ASSESSEE BY DEBITING PART LY I N THE FINANCIAL YEAR 2005 - 06 AND SHOWING THE BALANCE UNDER THE HEAD PREPAID EXPENSES WHICH WERE DULY CHARGED TO THE PROFIT AND LOSS ACCOUNT THOUGH UNDER WRONG HEAD PRIOR PERIOD EXPENSES. THE DEPICTION OF EXPENS ES IN THE PROFIT AND LOSS ACCOUNT UNDER WRONG HEAD WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING THE EXPENSES WHEN THE 10 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 EXPENSES PERTAIN TO THE CURRENT YEAR. ACCORDINGLY, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE OF COMMISSION AND BROKERAGE EXPENSES ETC OF RS. 21,64,800/ - . 10. GROUNDS OF APPEAL NO.3, 4 AND 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. ITA NO.813/MUM/2014 11 . GROUNDS OF APPEAL RAISED IN THIS APPEAL ARE AS U NDER : 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.36,03,439/ - MADE ON ACCOUNT OF LEASE RENT PAID TO THE SUBSIDIARY; 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.5,42,65,010/ - MADE ON ACCOUNT OF THE ASSESSEE POSTPONING HE RECOGNITION OF T HE RE V ENUE AND VIOLATING T HE MATCHING PRINCIPLE OF ACCOUNTANCY 12 . DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD ADVANCED LOAN OF RS.5.50 CRORES TO ITS 100% SUBSIDIARY COMPANY M/S DORIAN LEASING AND INFOTECH PVT LTD IN FINANCIAL YEAR 2005 - 06. THE SAID LOAN WAS USED IN THE CURRENT FINANCIAL YEAR TO PURCHASE THE IMMOVABLE PROPERTY AT MALAD (W), MUMBAI - 64 WHICH WAS LEASED OUT BY THE SUBSIDIARY COMPANY TO ASSESSEE FOR ANNUAL RENT OF RS.95,23,800/ - AND THE ASSESSEE COMPANY RECEIVED INTEREST OF RS.59,20,361/ - FROM THE SUBSIDIARY COMPANY DURING THE CU RRENT YEAR ON THE SAID LOAN . THE ASSESSEE COMPANY HAS ALSO PAID INTEREST TO THE TUNE OF RS.26.66 LACS DURING THE FINANCIAL YE A R 11 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 2006 - 07 ON THE LOAN OF RS.5.51 CRORES TAKEN FROM THE BANKS AGAINST THE MORTGAGE OF THE PROPERTY. THE AO VIDE ORDER SHEET ENT RY DA T ED 31.8.2009 CALLED UPON THE ASSESSEE TO EXPLAIN THE TRANSACTIONS WHICH WAS RESPONDED AND REPLIED BY THE ASSESSEE VIDE LETTER DATED 24.11.2009 BY SUBMITTING THAT THE PREMISES IN WHI CH THE OFFICE OF THE ASSESSEE WAS LOCATED WAS OWNED BY THE SUBSIDIAR Y COMPANY WHICH WAS OWNED BY M/S RAHEJA GROUP PRIOR TO ITS ACQUISITION BY THE ASSESSEE . THE SAID RAHEJA GROUP TRANSFERRED SHAREHOLDING IN DORIAN LEASING AND INFOTECH PVT LTD. TO THE ASSESSEE AND THE ASSESSEE THEREAFTER TOOK THE OFFICE SPACE ON LEASE FR OM THE SAID SUBSIDIARY COMPANY. IT WAS OUT OF PURE BUSINESS EXIGENCY AND BUSINESS CONSIDERATION THAT THE LEASE OF THE OFFICE PREMISES WAS TAKEN. HOWEVER, THE AO DOUBTED THE TRANSACTION AS SHAM AND ACCORDINGLY DISALLOWED THE DIFFERENCE BETWEEN THE RENT P AID AND INTEREST RECEIVED AND ADDED RS. 36,03,439/ - TO THE TOTAL INCOME OF THE ASSESSEE BEING DIFFERENCE BETWEEN THE RENTAL OF RS.95,23,800/ - AND THE INTEREST RECEIVED FROM THE SAID SUBSIDIARY COMPANY RS.59,20,361/ - . 13 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED THE ADDITION AFTER CONSIDERING THE SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE APPELLANT COMPANY HAS ADVANCED LOAN O F RS. 5.50 CRORES TO ITS - 100% SUBSIDIARY COMPANY M/S. INFOTECH LEASING AND INFOTECH P.LTD. ON WHICH INTEREST OF RS. 59.20 LAKHS WAS RECEIVED. IT IS FURTHER SEEN THAT THE SUBSIDIARY COMPANY HAS PURCHASE AN IMMOVABLE PROPERTY DURING FY. 06 - 07 LOCATED AT MAL AD (W), MUMBAI WHICH WAS TAKEN BY 12 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 THE APPELLANT ON ANNUAL LEASE RENTAL OF RS. 95.23 LAKHS. THEREFORE, THE AO WAS OF THE VIEW THAT HOW THE LEASE RENTAL OF RS. 95.23 LAKHS WAS ALLOWABLE AS THE APPELLANT HAS PARTED WITH ITS OWN FUND AND PAID LEASE RENTAL ON T HE PROPERTY. ACCORDINGLY, THE AO MADE DISALLOWANCE OF RS. 36.03 LAKHS BEING RENTAL AMOUN T OF RS. 95.23 LAKHS LESS INTEREST RECEIVED FROM SUBSIDIARY COMPANY AT RS. 50.20 LAKHS, TREATING THE TRANSACTIONS AS SHAM TRANSACTION. I FIND THE CONTENTION - OF - THE - APP ELLANT AS - CORRECT THATTF1E - ADNAS NOT REFERRED ANY SECTION UNDER WHICH THE SAID DISALLOWANCE HAS BEEN MADE. THE APPELLANT COMPANY HAS TAKEN BUSINESS DECISION TO PURCHASE DORIAN, AS IT WANTED TO ACQUIRE OFFICE SPACE, HENCE, SAME CO ULD NOT BE ALTERED BY THE A O. THE APPELLANT COMPANY WAS REQUIRED A OFFICE SPACE BUT THAT OFFICE SPACE COULD BE REQUIRED ONLY WITH A RIDER THAT THE APPELLANT HAS TO ACQUIRE THE SAID COMPANY TO WHOM THE OFFICE PREMISE BELONGS. THEREFORE, THE SUBSIDIARY COMPANY DORIAN HAD OBLIGATION WH ICH HAD TO BE DISCHARGED, HENCE HOLDING COMPANY IS BOUND TO DISCHARGE THE SAME. I ALSO FOUND THAT IT IS NOT THE CASE OF THE AO THAT BUSINESS PREMISE WAS NOT USED FOR BY THE APPELLANT AND THAT THE LEASE RENT PAID BY THE APPELLANT WAS EXCESSIVE. IT IS ALSO N OT IN DISPUTE THAT THE PREMISE WAS NOT LET OUT BY THE SUBSIDIARY COMPANY TO THE APPELLANT. IT IS SEEN THAT THERE ARE 2 INDEPENDENT TRANSACTIONS WHICH ARE DONE AT ARM'S LENGTH AND LEASE PAYMENTS ARE BASED ON THE USER OF THE PROPERTY AND INTEREST RECEIVED BA SED ON MARKET RATE OF INTEREST ON AMOUNT OF ADVANCE. MERELY BECAUSE, THE SUBSIDIARY HAS NIL TAXABLE INCOME, AFTER CLAIMING DEDUCTION U/S. 24. IT DOES NOT MEAN THAT THE TRANSACTION WAS SHAM, SINCE THE FACTUAL POSITION HAS NOT BEEN DISPUTED BY THE AO. I FIND THAT THERE IS VALID LEASE AGREEMENT BETWEEN THE APPELLANT AND THE SUBSIDIARY COMPANY. THE INTEREST ON LOAN WAS RECEIVED AT MARKET RATE BY THE APPELLANT COMPANY AND THE LEASE RENT IS ALSO PAID ON THE BASIS OF LEAVE AND LICENCE AGREEMENT PREVAILING AT MARKE T RATES. THEREFORE, THE TRANSACTIONS CANNOT BE RECORDED AS SHAM OR VOID. ACCORDINGLY, THE DISALLOWANCE OF LEASE RENTAL AMOUNTING TO RS.36,03,439/ - IS WITHOUT ANY BASIS AND NOT IN ACCORDANCE WITH LAW, ACCORDINGLY SAME IS THEREFORE DELETED 2.1 AS THE FAC TS AND THE ISSUE, IN THIS YEAR, REMAINS THE SAME, I AM INCLINED TO FOLLOW THE DECISION OF MY PREDECESSOR AND ALLOW HIS GROUND OF APPEAL 1 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. WE FIND 13 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 THAT THE AO HAS FAILED TO BRING ON RECORD ANY MATERIAL WHICH PROVE D THAT THE TRANSACTION OF ADVANCING MONEY, USE THEREOF FOR THE PURCHASE OF PREMISES WHICH WAS IN TURN LEASED OUT TO THE ASSESSEE ON RENTAL , ASSESSEE RECEIV IN G INTEREST TO THE TUNE OF RS.59,20,361/ - ON THE LOAN ADVANCED WAS A SHAM . THE LD. CIT(A) HAS RIGHTLY CAME TO THE CONCLUSION THAT IT IS THE COMMERCIAL TRANSACTION WHICH ENTERED PURELY OUT OF BUSINESS EXIGENCY AND COMMERCIAL CONSIDERATION AND THEREFORE COR RECTLY DELETED BY THE LD.CIT(A). MOREOVER, THE AO HAS FAILED TO BR ING ON RECORDS ANOTHER ANGLE OF THE TRANSACTIONS THAT THE INTEREST RECEIVED BY THE ASSESSEE AND RENTALS PAID W ERE NOT AT THE MARKET RATE AND THEREFORE, WE ARE INCLINED TO UPHOLD THE ORDER O F THE LD.CIT(A) BY DISMISS ING THE APPEAL OF THE REVENUE ON THIS ISSUE . 1 5. THE ISSUE RAISED IN SECOND GROUNDS OF APPEAL IS IN RESPECT OF DELETING THE DISALLOWANCE OF RS.5,42,65,010 / - AS MADE BY THE AO ON THE GROUND THAT THE ASSESSEE POSTPONED THE RECOG NITION OF THE REVENUE THEREBY VIOLATING THE MATCHING PRINCIPLE OF ACCOUNTANCY. 1 6. THE ASSESSEE WAS ENGAGED IN IMPARTING TRAINING TO THE STUDENTS IN CINEMATIC COURSE UNDER THE BRAND NAME MAAC . UP TO FINANCIAL YEAR ENDED 31.3.2006, THE ASSESSEE USED TO REC OGNIZE INCOME FROM TRAINING COURSES ON BILLING BASIS. HOWEVER, FROM THE FINANCIAL YEAR 2006 - 07 THE ASSESSEE CHANGED INCOME RECOGNITION METHOD TO ACCRUAL MEANING THEREBY THREAT ONLY THAT PART OF THE FEE ON WHICH THE COMPANY HAS ACTUALLY RENDERED TRAINING T O THE 14 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 STUDENTS WERE SHOWN AS INCOME . ACCORDINGLY, THE ASSESSEE OUT OF TOTAL SYSTEMS BILLING OF RS.36.89 CRORES IN THE EDUCATION DIVISION (MAAC) DURING THE FINANCIAL YEAR 2006 - 07 CARRIED FORWARD 22.60 CRORES TO THE ENSUING FINANCIAL YEARS ON THE ANALOGY THAT THE SERVICES WERE RENDERED IN THAT YEAR . ACCORDINGLY, THE AO RAISED QUERY ON THE ASSESSEE WHICH WAS REPLIED BY THE ASSESSEE BY SUBMITTING THAT REVENUE RECOGNITION HAS BEEN CHANGED BY FOLLOWING AS - 9 WHICH PROVIDE S FOR RECOGNITION OF REVENUE OVER A P ERIOD OF TIME TO WHICH THE SAID FEES PERTAIN AND A NOTE WAS GIVEN IN THE DIRECTORS REPORT MENTION ING THAT RS.22.60 CRORES SYSTEMS BILLING WAS CARRIED FORWARD TO SUBSEQUENT FINANCIAL YEARS FOR THE REASONS THAT TRAINING /INSTRUCTIONS WOULD BE IMPARTED IN TH E THOSE FINANCIAL YEAR S . THE AO OBSERVED THAT THE COURSE FEES WE RE RECEIVED BY THE ASSESSEE AS PER THE AGREEMENT ENTERED BY AND BETWEEN THE ASSESSEE AND THE FRANCHISE ES. THE RESPONSIBILITY OF THE ASSESSEE WAS TO PROVIDE COURSE MATERIAL AND UPDATE THE SAM E FROM TIME TO TIME AND THE EXPENSES ON THE COURSE MATERIAL WERE I NCURRED IN THE BEGINNING OF THE COURSE S . WHEREAS THE ASSESSEE HAD AN IRREVOCABLE RIGHT ON THE FEES RECEIVED . ACCORDINGLY CAME TO THE CONCLUSION THAT THE FEES RECEIVED BY THE ASSESSEE COMPA NY SHOULD HAVE BEEN OFFERED FOR TAXATION IN THE CURRENT YEAR BY REJECTING THE CONTENTIONS RAISED BY THE ASSESSEE THAT RECOGNITION OF FEES IN THE CURRENT YEAR WOULD VIOLATE MATCHING PRINCIPLE OF ACCOUNTANCY BY CALCULATING RS.5,42,65,010 / - AS SHORT FALL IN THE FEES CREDITED TO PROFIT AND LOSS ACCOUNT DURING THE YEAR IN THE FOLLOWING MANNER: 15 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 FROM THE SUBMISSION FILED, THE REVENUE SHORT - OFFERED BY THE AS COMPANY ON ACCOUNT OF STUDENTS FEES IS WORKED OUT AS UNDER: I. STUDENTS FEES CREDITED TO P/L A/C RS.14,29,44,8 96 II. FRANCHISEES PAYMENT DEBITED TO P/L A/C RS. 9,03,95,0 19 III II AS A PERCENTAGE OF I (II /I *100) 63.23% IV. STUDENTS FEES RECEIVED DURING THE YEAR - RS.29,04 ,94,6 61 V. FRANCHISEES SHARE (IV * ILL) - RS.18,36,79, 774 VI. NET FEES THAT SHOULD BE CREDITED TO P/L A/C (IV - V) RS.1 0 ,68,14,8 87 VII. NET FEES ACTUALLY CREDITED TO P/L A/C (I - II ) - RS. 5,25,49,8 77 VIII. SHORTFALL IN THE FEES CREDITED TO P/L A/C (VI - VII) RS.5,42,65,010 17 . THE LD. CIT(A) ALSO CALLED REMAND REPORT FROM THE AO WHICH STATES THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAID SYSTEM IN THE SUBSEQUENT YEAR ALSO. 18 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SU BMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW ON THE POINT. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CHANGED SYSTEM OF REVENUE RECOGNITION QUA THE COURSE FEE RECEIVED FROM THE STUDEN TS IN CINEMATIC TRAINING DIVISION FROM BILLING BASIS TO ONLY TO THE SYSTEM WHICH RECOGNIZED THE REVENUE BASIS ON THE TRAINING IMPARTED/SERVICES RENDERED. IN OUR OPINION, THE ASSESSEE HAS EVERY RIGHT TO CHANGE THE METHOD OF ACCOUNTING PROVIDED THE SAME IS CONSISTENTLY FOLLOWING THE SUBSEQUENT YEARS. MOREOVER, THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM THE AO WHICH CONFIRM ED THAT THE ASSESSEE WAS FOLLOWING THE SAID SYSTEM OF ACCOUNTING IN THE SUBSEQUENT YEARS. WE ARE THEREFORE IN AGREEMENT WITH T HE CONCLUSION DRAWN BY THE LD. CIT(A) THAT THE AO WAS NOT RIGHT IN REJECTING 16 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THEREFORE WE UPHOLD THE SAME. ACCORDINGLY, THE GROUND TAKEN BY THE REVENUE IS REJECTED BY UPHOLDING THE ORDER OF THE L D. CIT(A) ON THIS ISSUE. ITA NO.507/MUM/13 19 . GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READS AS UNDER: 1. THE LEARNED CIT CA) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.1 ,06,307/ - IN RESPECT OF FOREIGN TRAVEL ON THE GROUND THAT THE LIABILITY WAS ASCERTAINED AND STOOD INCURRED DURING THE FINANCIAL YEAR 2007 - 08. 2. THE LEARNED CIT CA) ERRED IN NOT ADJUDICATING THE CLAIM OF PRIOR PERIOD EXPENSES OF RS.3,06,387/ - INCURRED ON ADVERTISING AND MARKETING. 3. THE LEARNED CIT CA) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.1,38,537/ - IN RESPECT OF REPAIR AND MAINTENANCE ON THE GROUND THAT THE LIABILI TY AROSE IN EARLIER YEARS AND WAS KNOWN TO THE APPELLANT AND THEREFORE IT COULD MAKE PROVISION FOR THE SAME. 4. THE LEARNED CIT CA) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.4,09,175/ - IN RESPECT OF ADVERTISEMENT AND MARKETING EXPENSES HOLDING THESE EXPENSES TO HAVE BEEN INCURRED IN FINANCIAL YEAR 2005 - 06, 2006 - 07 AND 2007 - 08 WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WERE DEBITED TO THE FRANCHISES AS RECOVERABLE FROM THEM AND DURING THE PR EVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEARS IT WAS AGREED BY THE APPELLANT THAT THE FRANCHISES NEED NOT REIMBURSE THE AMOUNT OF RS.4,09,175/ - . HENCE DEDUCTION OF RS.4,09,175/ - IS ALLOWABLE THIS YEAR . 5. THE LEARNED CIT CA) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.8,57,781 / - AS NOT PERTAINING TO ANY EARLIER YEAR WITHOUT APPRECIATING THE. RS.8,57,781 / - IS EXPENDITURE INCURRED IN EARLIER EARS AND DEBITED THE FRANCHISES AS THEIR SHARE OF THE EXPEN DI TURE. THE FRANCHISES IN THE PREVIOUS YEAR RE L EVANT TO THIS ASSESSMENT YEAR EXPRESSED INABILITY TO 17 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 PAY THE SAME AND THE APPELLANT ON ACCOUNT OF COMMERCIAL EXPEDIENCY AGREED TO WAIVE THE RECOVERY OF RS.8,57,781 / - AND HENCE THIS WAS EXPENDITURE OF THIS YEAR. 6) THE LEARNED CIT CA) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN ALLOWING SOME PRIOR PERIOD EXPENSES AND DISALLOWING SOME OTHER PRIOR PERIOD EXPENSES WHEN THE GROUND OR CLAIM OF ALL THE EXPENSES WAS THE SAME VIZ. CRYSTALLIZATION O F THE EXPEN SES IN THIS YEAR ONLY. 7) EACH GROUND OF APPEAL HEREINABOVE IS INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 8) THE APPELLANT CRAVES LEAVE TO RESERVE TO ITSELF THE RIGHT TO ADD, TO ALTER OR AMEND OR ANNUL ANY OF THE GROUNDS OF APPEAL AT O R BEFORE THE TIME OF HEARING AND TO PRODUCE ADDITIONAL GROUND TAKEN BY THE ASSESSEE VIDE LETTER DATED 7.10.2014 READS AS UNDER : DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS RS.85,98,557/ - . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, WHILE COMPUTING THE BUSINESS INCOME OF THE APPELLANT UNDER THE NORMAL PROVISIONS OF THE ACT, SHOULD HAVE ALLOWED DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS, AS PROVIDED IN SECTION 36(L)(VII) OF THE ACT , IN THE LIGHT OF THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF VIJAYA BANK V/SO CIT REPORTED IN 323 ITR 166 WHICH IS RELIED UPON BY THE APPELLANT IN THIS APPEAL. THE SAID DEDUCTION FOR PROVISION FOR DOUBTFUL DEBTS REMAINED TO BE CLAIMED BY THE A PPELLANT IN THE RETURN OF INCOME ON ACCOUNT OF BONAFIDE IGNORANCE OF LAW. 20 . THE LD. AR SUBMITTED BEFORE US THAT THE ADDITIONAL GROUND RAISED QUA DEDUCTION IN RESPECT OF RS.85,98,557/ - VIDE APPLICATION DATED 7.10.2014 IS ARISING OUT OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK V/SO CIT REPORTED IN 323 ITR 166 (SC) AND THEREFORE, THE ASSESSEE WAS 18 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 WITHIN ITS RIGHT TO RAISE THE ISSUE BY WAY OF ADDITIONAL GROUND BEFORE THIS TRIBUNAL SINCE THE ISSUE EMANATE D AND AROSE FROM THE O RDER OF LD.CIT(A) AND THEREFORE SHOULD BE ADMITTED FOR ADJUDICATION BY THE BENCH. THE LD. DR WHILE STRONGLY OPPOSING THE ADMISSION OF ADDITIONAL GROUND FOR THE REASONS THAT THE ASSESSEE HAS NEITHER RAISED THIS ISSUE BEFORE THE AO NOR BEFORE THE LD. CIT(A) AND ALSO NOT BEFORE THE TRIBUNAL AT THE TIME OF FILING OF THE APPEAL. 21 . WE HAVE HEARD THE RIVAL CONTENTION S ON THE ADMISSION OF ADDITIONAL GROUND RAISED BY THE ASSESSEE. ON PERUSAL OF THE MATERIAL PLACED BEFORE THE BENCH , WE FIND MERIT IN THE SUBMISSIO N OF THE LD.AR THAT THE ISSUE WAS CROPPED OUT OF THE JUDGMENT OF THE HONBLE SUPREME COURT AND THE ASSESSEE HAS EVERY RIGHT TO RAISE THE ISSUE BY WAY OF ADDITIONAL GROUND. ACCORDINGLY, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION AND RE STORE TH E SAME TO THE FILE OF AO TO DECIDE DE - NOVO AS PER FACT AND LAW BY AFFORDING THE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ADDITIONAL GROUND TAKEN BY THE ASSESSEE IS ALLOWED. 22 . THE ISSUE RAISED BY THE ASSESSEE IN THE ORIGINAL GROUNDS OF APPEAL NO.1 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.1,06,307/ - ON THE GROUND THAT THESE PERTAINS TO FINANCIAL YEAR 2007 - 08 IN RESPECT OF FOREIGN TRAVEL ON THE GROUND THAT THE LIABILITY WAS ASCERTAINED AND STOOD INCURRED DURIN G THE FINANCIAL YEAR 2007 - 08. THE PRIOR PERIOD EXPENSES AS CLAIMED BY THE ASSESSEE ARE AS UNDER: 19 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 TRAVELLING FOREIGN EXPENSES RS.1,06,307 MOBILE EXPENSES RS.800 ADVERTISING AND MARKETING EXPENDITURE RS.3,06,387 LAST YEAR SALARY RS.1,700 FOR POSTAGE AND TELEGRAM RS.767 PRINTING AND STATIONERY RS.18,606 REPAIRS AND MAINTENANCE RS. 1,38,537 BUSINESS PROMOTION EXPENSES RS.20,000 CREDIT NOT RAISING ON FRANCHISEE RS.4,09,175 PETTY EXPENSES RS.22,392 ROOM BOOKING RS.2,847 PARTNER SHIPS SHARES TRANSFER RS.8,57,781 TOTAL RS.18,92,499 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS . RS.18,92,499/ - UNDER THE HEAD PRIOR PERIOD EXPENSES IN ITS PROFIT AND LOSS ACCOUNT AND ISSUED SHOW CAUSE VIDE QUESTIONNAIRE DATED 29.8.2011 TO THE ASSESSEE TO JUSTIFY THE ADMISSIBILITY OF PRIOR PERIOD EXPENSES WHICH WAS RESPONDED BY THE ASSESSEE VIDE LETTER DATED 29.10.2011 BY FILING THE DETAILS OF PRIOR PERIOD EXPENSES. THE AO AFTER PERUSING THE REPLY OF THE ASSESSEE CAME TO THE CONCLUSION THAT THE ASSESSEE COULD NOT JUSTIFY THE PRIOR PERIOD EXPENSES AND THEREFORE DISALLOWED THE SAME U/S 37 OF THE ACT BY ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 23 . IN THE APPELLATE PROCEEDINGS THE FA A PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE SUBMISSIONS AND CONTENTIONS AS RAISED BY THE ASSESSEE DURING THE COURSE OF HEARING BEFORE THE FAA BY OBSERVING AND HOLDING AS UNDER : 20 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 3.3 I HAVE CONSIDERED THE FACTS AND FIND THAT THE AO H AS MADE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 18,92,500/ - AS THE APPELLANT FAILED TO JUSTIFY THE SAME. HOWEVER, DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS FILED DETAILED SUBMISSION IN RESPECT OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.18,92,4 99/ - IN PARA 3.2 ABOVE. IT IS SEEN THAT MOST OF THE EXPENSE HAVE BEEN CRYSTALLIZED DURING THE YEAR AND THEREFORE INCURRED DURING THE YEAR, THEREFORE SAME ARE ALLOWABLE AS DEDUCTION. HOWEVER, EXPENSES RELATING TO REPAIRS & MAINTENANCE AMOUNTING TO RS. 1,38 ,537/ - , I FIND THAT THESE WERE RAISED IN EARLIER YEARS BUT THE APPELLANT DISPUTED THE LIABILITY. HENCE, SAME WERE DEBITED IN THE CURRENT YEAR ON SETTLEMENT OF DISPUTE. HOWEVER. SINCE THE LIABILITY WAS AROSE EARLIER AND IT WAS KNOWN TO THE APPELLANT. THEREF ORE, THE APPELLANT COULD HAVE MADE PROVISION FOR THE SAME. HENCE, DISALLOWANCE OF SUCH EXPENDITURE AMOUNTING TO RS. 1,38,537/ - IS SUSTAINED. AS REGARDS FOREIGN TRAVEL EXPENSES OF RS. 1,06,307/ PERTAINING TO FY. 07 - 08, OF WHICH LIABILITY WAS ASCERTAINED AND SAME WERE STANDS INCURRED DURING THE SAME PERIOD. HENCE, SAME CANNOT BE ALLOWED AS PRIOR PERIOD EXPENSES. THEREFORE' DISALLOWANCE MADE OF SUCH AMOUNT IS UPHELD. AS REGARDS AMOUNT OF RS. 4,09,175/ - RELATING, TO CREDIT NOTES IN RESPECT OF FRANCHISEE, I FIND THAT THESE EXPENDITURE HAVE BEEN INCURRED ON ADVERTISEMENT AND MARKETING DURING THE FY. 05 - 06, 06 - 07 AND 07 - 08. HENCE, SAME HAVE BEEN RIGHTLY DISALLOWED BY THE AO. ACCORDINGLY DISALLOWANCE MADE BY THE AO IS SUSTAINED. SIMILARLY, EXPENDITURE ON BUSINESS PA RTNERS SHARE TRANSFER AMOUNTING TO RS. 8,57,781/ - ARE ALSO BE .BORNE BY FRANCHISEE BUT THEY HAVE EXPRESSED INABILITY TO BORNE THESE EXPENSES. THEREFORE, THIS LIABILITY ON ACCOUNT OF THIS EXPENDITURE DOES NOT PERTAIN TO EARLIER YEAR, HENCE, DISALLOWANCE SO MADE IS CONFIRMED. IN THE LIGHT 0 ABOVE, THE DISALLOWANCE RELATING TO FOREIGN TRAVELING EXPENSES, ADVERTISEMENT AND MARKETING, REPAIRS & MAINTENANCE, CREDIT NOTES RAISED ON FRANCHISEE AND PARTNERSHIP SHARE TRANSFER IS CONFIRMED AND BALANCE OTHER .DISALLOWA NCE REGARDING THE EXPENSES MENTIONED IN PARA 6.2 ABOVE ARE DELETED. THE AO IS DIRECTED TO RECALCULATE THE DISALLOWANCE ACCORDINGLY. THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED 2 4 . THE LD.AR VEHEMENTLY SUBMITTED BEFORE US THAT THE FOREIGN TRAVEL E XPENSES WERE INCURRED DURING THE FINANCIAL YEAR 2007 - 08 BUT DUE TO DISPUTE AS TO THE AMOUNT , THE SAME COULD NOT BE CHARGED TO THE PROFIT AND LOSS ACCOUNT AND FINALLY CHARGED TO PROFIT AND LOSS ACCOUNT DURING THE FINANCIAL 21 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 YEAR 2008 - 09 WHEN SANCTIONED ON 31 .7.2008 AFTER THE INTERFERENCE OF THE HIGHER MANAGEMENT . IN RESPECT OF ADVERTISEMENT AND MARKETING EXPENSES OF RS.3,06,387/ - , THE LD. AR SUBMITTED THAT THE BILLS WERE RECEIVED LATE WHICH COMPRISES OF RS.77,025/ - INCURRED IN THE MONTH OF JUNE 2006, BUT NO T PAID BY THE COMPANY AS TERMS AND CONDITIONS OF THE CONTRACT WERE NOT FULFILLED AND SIMILARLY RS.194,400/ - PERTAINS TO THE EARLIER YEARS TOWARDS ADVERTISEMENT EXPENSES WERE PRESENTED ON 1.12.2008 AND PAID ON 9.01.2009. THE LD. COUNSEL SUBMITTED THAT TH E SAID EXPENSES CRYSTALLIZED DURING THE YEAR AND DESERVES TO BE ALLOWED. SIMILARLY, VARIOUS OTHER EXPENSES WERE ALSO INCURRED BY THE ASSESSEE IN THE EARLIER YEARS BUT WERE CRYSTALLIZED DURING THE YEAR. SIMILARLY, THE EXPENSES TOWARDS REPAIRS AND MAINTENA NCE RS.1,38,537/ - WERE CRYSTALLIZED DURING THE YEAR AND CHARGED ACCORDINGLY TO THE PROFIT AND LOSS ACCOUNT . T HE SAID AMOUNT WAS PAYABLE TO M /S EMERSON NETWORK ( POWER) INDIA. SIMILARLY, AS REGARDS THE DEBIT NOTES RAISED ON FRANCHISEE S RS.4,09,175 / - , T HE LD. AR SUBMITTED THAT IN THE FINANCIAL YEAR 2005 - 06 , 2006 - 07 AND 2007 - 08 THE ASSESSEE INCURRED SOME EXPENSES ON ADVERTISEMENT PART OF WHICH WAS TO BE BORNE BY THE FRANCHISEE S AND THEREFORE THE ASSESSEE ISSUED A DEBIT NOTE S FOR THE AMOUNT OF SHARE OF EA CH FRANCHISE S . HOWEVER, DUE TO INABILITY TO PAY THE FULL AMOUNT OF SUCH EXPENSES BY THE FRANCHISEES ON THE GROUND THAT THEY WERE NOT DOING GOOD BUSINESS AND HENCE THE EXPENSES COULD NOT BE RECOVERED IN FULL AN D THEREFORE THE AMOUNT WAS CHARGE D TO THE PROFI T AND LOSS ACCOUNT AS BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE 22 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 PURPOSE OF BUSINESS AS THE SAME WAS CRYSTALLIZED DURING THE YEAR. QUA T HE EXPENSES OF BUSINESS PARTNERSHIP AMOUNTING TO RS.8,57,781 / - , THE ASSESSEE INCURRED THESE EXPENSES ON ADVERTISEMENT AND PART OF WHICH WAS TO BE BORNE BY SOME FRANCHISEES . HOWEVER, WHEN THE FRANCHISEES FAILED TO MEET REQUIREMENT, THE ASSESSEE TREATED THESE EXPENSES AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND CHARGED TO PROFIT AND LOSS ACCOUNT DU RING THE YEAR ACCORDINGLY. FINALLY, THE LD. AR PRAYED BEFORE THE BENCH THAT ALL THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WERE EITHER CRYSTALLIZED DURING THE YEAR OR FINALLY SETTLED DURING THE YEAR AND THUS PERTA IN ED TO THE CURRENT YEAR AND NOT TO THE YEARS TO WHICH TO WHICH THE BILLS OF THESE EXPENSES WERE PERTAIN ED . 2 5 ON THE OTHER HAND, THE LD.DR HEAVILY RELIED ON THE ORDERS OF AUTHORITIES BELOW. 2 6 . HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL PLA CED BEFORE THE BENCH BY THE RESPECTIVE PARTIES INCLUDING THE ORDERS OF AUTHORITIES BELOW. IT IS CLEAR FROM THE ORDERS OF AUTHORITIES BELOW THAT THE EXPENSES WERE INCURRED AND CHARGED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT AS THE AMOUNTS WERE SETTL ED DURING THE YEAR IN THE CASE OF ADVERTISEMENT EXPENSE, FOREIGN TRAVEL EXPENSES, REPAIR AND MAINTENANCE, FRANCHISEE. WE FIND THAT THESE EXPENSES COULD NOT BE CHARGED TO THE PROFIT AND LOSS ACCOUNT AS THE BILLS WERE NOT SETTLED DUE TO DISPUTE AND FINALLY DUE TO INTERFERENCE OF HIGHER 23 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 AUTHORITIES OF THE ASSESSEE , THE BILLS WERE SETTLED DURING THE YEAR WHICH IN OUR OPINION WERE RIGHTLY CHARGED TO PROFIT AND LOSS ACCOUNT AS THE FINAL QUANTIFICATION OF THE AMOUNT OF EXPENSES TOOK PLACE DURING THE YEAR. IN VIE W OF THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF THE LD.CIT(A) WAS NOT CORRECT AND IS SET ASIDE AND ACCORDINGLY AND WE DIRECT THE AO TO ALLOW THE EXPENSES AS PERTAINING TO CURRENT YEAR BY DELETING THE DISALLOWANCE. ITA NO.1157/MUM/20 13 2 7 . ONLY ISSUE RAISED BY THE REVENUE PERTAINS TO DELETION OF DISALLOWANCE OF RS.36,03,439 / - MADE ON ACCOUNT OF LEASE RENT PAID TO THE SUBSIDIARY. 2 8 . WE HAVE ALREADY DISCUSSED THIS ISSUE IN ITA NO.813/MUM/2014 AND DISMISSED THE APPEAL OF THE REVENUE ON IDENTICAL GROUND, HE NCE THE DECISION TAKEN THEREIN WOULD MUTATIS MUTANDI APPLY TO THIS CASE TOO. HENCE, THE APPEAL OF THE REVENUE IS DISMISSED FOR THE REASONS STATED THEREIN ABOVE . 29 . IN THE RESULT, APPEAL OF THE A SSESSEE BEARING ITA NO.7098/MU/2013 IS ALLOWED, ITA NO. 813/MUM/2014 OF THE REVENUE IS DISMISSED , ITA NO.507/MUM/2013 IS ALLOWED AND THAT OF ITA NO.1157/MUM/2013 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH FEB, 2017. SD SD ( /MAHAVIR SINGH ) ( / RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER 24 ITA NO. 507/MUM/13 ,1157/MUM/2013 ITA NO.7098/MU/2013 & 813/MUM/2014 MUMBAI ; DATED : 28. 2 .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI