ROYAL INFORMATION SYSTEMS P LTD, MUMBAI V. ITO WD 8(3)(3), MUMBAI

ITA 7123/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2597 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2014
• Court: TRIBUNAL
• Department Lawyers: SRIKANT NAMDEO
• Assessee Lawyers: RISHABH S HAH
• Keywords: Business income
• Section: 143(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER) I.T.A. NO.7123 /MUM/2014 (ASSESSMENT YEAR: 2010-11) ROYAL INFORMATION SYSTEMS P LTD 203, THE SANGEET PLAZA, IFTEX PREMISES CHS LTD, MAROL NAKA ANDHERI (EAST|), MUMBI- 400 059 VS ITO, WD.83)(3), MUMBAI PAN :AAECR5820J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RISHABH SHAH, CA RESPONDENT BY SHRI SRIKANT NAMDEO, SR DR DATE OF HEARING : 27-06-2016 DATE OF PRONOUNCEMENT : 13 -07-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-18,L MUMBAI [HEREINAFTER CALLE D LD.CIT(A|)] DATED 15-09- 2014 PASSED AGAINST ASSESSMENT ORDER U/S 143(3) DT 18-03-2012 FOR A.Y. 2010- 11 ON THE FOLLOWING GROUNDS:- (1)ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING AN ADDITION OF RS.51,19,950/- 2 I.T.A. NO.7123 /MUM/2014 ON THE ALLEGED PLEA THAT THIS INCOME IS PERTAINS TO THE A.Y.2010-11, WITHOUT CONSIDERING THE FACT AND CIRCUMSTANCES OF T HE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF LEARNED ASSESSING OFFICER IN NOT APPRECIATING THE FACT THAT OUT OF THE ABOVE INCOME, THE INCOME AMOUNTING TO RS.37,12,500/ - PERTAINS TO THE A.Y. 2011'12,WHICH WAS ALREADY OFFERED BY THE A PPELLANT IN THE NEXT YEAR AND MAKING AN ADDITION AGAIN WILL TANTAMO UNT TO DOUBLE ADDITION WHICH IS NOT ACCEPTABLE AS PER THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF LEARNED ASSESSING OFFICER IN NOT ACCEPTING THE BUSINESS INC OME OFFERED BY THE APPELLANT AND BY REJECTING ALL THE EXPENSES, WI THOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE . 4.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WEL L AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF LEARNED ASSESSING OFFICER IN MAKING AN ADDITION OF RS.1,54, 00,000I- U/S.69A OF THE INCOME TAX ACT' 1961 AS ALLEGED UNEXPLAINED INCOME RECEIVED FROM M/S. SOVEREIGN SAFE SHIP MANAGEMENT L TD, WITHOUT CONSIDERING THE FACTS CIRCUMSTANCES OF THE CASE. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MA DE BY SHRI RISHABH SHAH, CA AND SHRI SRIKANT NAMDEO, JCIT, SR .DR. 3. GROUNDS 1 & 2: THESE GROUNDS PERTAIN TO SOLITARY ISSUE, WHEREIN TH E ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORI TIES IN BRINGING TO TAX THE ENTIRE AMOUNT OF RS.52,29,950 AS INCOME OF THE IMPU GNED ASSESSMENT YEAR WHEREAS AS PER THE ASSESSEE, A PART OF A THIS AMOU NT I.E. A SUM OF RS.37,12,500 PERTAINED TO THE SUBSEQUENT ASSESSMENT YEAR I.E. A .Y. 2011-12. 4. THE BRIEF FACTS ARE THAT DURING THE IMPUGNED ASSESS MENT YEAR ASSESSEE RAISED INVOICES UPON ONE OF ITS GROUP COMPANIES, VI Z. M/S SOVEREIGN SAFE SHIP MANAGEMENT PVT LTD (HEREINAFTER CALLED SSSMPL) ON A CCOUNT OF SOFTWARE 3 I.T.A. NO.7123 /MUM/2014 LICENCE AND ITS ANNUAL MAINTENANCE SERVICES FOR THE PERIOD JANUARY, 2010 TO DECEMBER, 2010 FOR AN AGGREGATE AMOUNT OF RS.51,19, 950. OUT OF THE SAID PERIOD, 3 MONTHS PERIOD I.E. JANUARY, 2010 TO MARCH , 2010 FELL IN THE IMPUGNED FINANCIAL YEAR, AND THEREFORE, THE ASSESSEE CREDITE D PROPORTIONATE AMOUNT OF RS 12,27,500 TO ITS PROFIT & LOSS ACCOUNT AS INCOME OF THE IMPUGNED FINANCIAL YEAR. BUT, THE ASSESSING OFFICER WAS OF THE VIEW TH AT SINCE INVOICES HAVE BEEN RAISED FOR THE FULL AMOUNT, TOTAL AMOUNT OF RS.51,1 9,950 SHOULD BE TREATED AS INCOME OF THE IMPUGNED YEAR. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHEREIN ORDER OF AO WAS CONF IRMED. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. 5. DURING THE COURSE OF HEARING IT HAS BEEN BROUGH T TO OUR NOTICE BY LD. COUNSEL OF THE ASSESSEE THAT ASSESSEE IS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING. THUS, INCOME ACCRUED AND EARNED FOR THE YEAR UNDER CONSIDERATION WAS ON ACCOUNT OF 3 MONTHS PERIOD AMOUNTING TO RS .12,37,500 AND ACCORDINGLY ASSESSEE RIGHTLY CREDITED ONLY THIS AMO UNT TO ITS P & L ACCOUNT. IT WAS FURTHER SUBMITTED THAT IN ANY CASE, THE REMAINI NG AMOUNT HAS BEEN INCLUDED IN THE INCOME OF THE SUBSEQUENT YEAR AND H AS BEEN ACCEPTED BY THE AO IN THE SUBSEQUENT YEAR, I.E. A.Y. 2011-12. HE R ELIED UPON THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS NAG RI MILLS CO LTD 33 ITR 681 (BOM) WHEREIN THE HIGH COURT HAS SUGGESTED THE DEPA RTMENT TO TAKE LIBERAL VIEW IN SUCH ISSUES. 6. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4 I.T.A. NO.7123 /MUM/2014 7 . IT IS NOTED BY US THAT THE ASSESSEE HAD RAISED INVO ICES ON ACCOUNT OF LICENCE FEE AND ANNUAL MAINTENANCE CHARGES FOR T HE CALENDAR YEAR JANUARY, 2010 TO DECEMBER, 2010. APPARENTLY, ONLY 3 MONTHS FELL IN THE IMPUGNED FINANCIAL YEAR I.E. A.Y. 2009-10 ENDING 31-3-2010. THE INVOICE WAS RAISED FOR FULL 12 MONTHS PERIOD. THUS, THE INCOME THAT ACCRU ED TO THE ASSESSEE DURING THE YEAR BEFORE US PERTAINED TO 3 MONTHS PERIOD O NLY. THUS, IN OUR VIEW, THE ASSESSEE HAS RIGHTLY SHOWN THE INCOME FOR 3 MONTHS PERIOD ONLY. IT IS FURTHER NOTED THAT IN ANY CASE, THE BALANCE AMOUNT HAS BEEN INCLUDED BY THE ASSESSEE IN ITS INCOME FOR THE SUBSEQUENT YEAR I.E. A.Y. 201 1-12 AND HAS BEEN ACCEPTED AS SUCH BY THE AO. UNDER THESE CIRCUMSTANCES, WE D O NOT FIND THAT THE APPROACH OF THE REVENUE WAS JUSTIFIED IN FOLLOWING SUCH A HYPER-TECHNICAL APPROACH. WE FIND THAT THE HONBLE BOMBAY HIGH COU RT HAD GIVEN CLEAR GUIDANCE FOR DECIDING SUCH MATTERS IN THE CASE OF C IT VS NAGRI MILLS CO LTD (SUPRA) BY OBSERVING AS FOLLOWS: 3.WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHOR ITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PER MISSIBLE 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 RAT E OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT ; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE AS SESSMENT YEAR 1952- 53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCO UNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HA VE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFEREN CES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIG HT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TA XABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY T O COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 5 I.T.A. NO.7123 /MUM/2014 8. IT IS FURTHER NOTED BY US THAT HONBLE SUPREME COURT HAS ALSO RECENTLY SUGGESTED THE REVENUE TO TAKE LIBERAL APPROACH IN S UCH ISSUES, IN THE CASE OF CIT VS EXCEL INDUSTRIES LTD 358 ITR 295 (SC) WITH THE FOLLOWING OBSERVATIONS: 32. THIRDLY, THE REAL QUESTION CONCERNING US IS THE YE AR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUT E THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND THE D UTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFORE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN T HE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY T HE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX E FFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS ( ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC C OFFERS. 9. IT IS FURTHER BROUGHT TO OUR NOTICE THAT TAX RATES IN BOTH THE YEARS ARE REPORTED TO BE SAME. UNDER THESE CIRCUMSTANCES, WE FIND NO JUSTIFICATION TO SUSTAIN THE ADDITION MADE BY THE AO AND, THEREFO RE, THE SAME IS DIRECTED TO BE DELETED AND GROUNDS 1 & 2 ARE ALLOWE D. 10. GROUND 3 : IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE A CTION OF THE AO IN NOT ACCEPTING THE BUSINESS INCOME OFFERED BY THE ASSESSEE COMPANY AND BY REJECTING ALL EXPENSES. 11. DURING THE COURSE OF HEARING, LD. COUNSEL DREW OUR ATTENTION ON THE ASSESSMENT ORDER WHEREIN THE AO DID NOT GRANT BENEF IT OF EXPENSES WITHOUT GIVING ANY REASONING AND WITHOUT MAKING ANY DISCUSS ION AT ALL. IT WAS SUBMITTED THAT THE APPROACH FOLLOWED BY THE AO WAS HIGHLY UNFAIR AND UNJUSTIFIED. 6 I.T.A. NO.7123 /MUM/2014 12. ON THE OTHER HAND, THE LD. DR COULD NOT GIVE ANY RE ASONING FOR THE APPROACH FOLLOWED BY THE AO. 13. WE HAVE GONE THROUGH THE PAPER BOOK FILED BEFORE US AS WELL AS THE ORDERS OF LOWER AUTHORITIES. IT IS NOTED THAT COMP LETE DETAILS AND DOCUMENTARY EVIDENCES HAVE BEEN FILED BEFORE THE LOWER AUTHORIT IES. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LD. DR. THERE WAS NO JUSTIFICA TION FOR NOT TREATING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. SIMI LARLY, THERE IS NO JUSTIFICATION FOR NOT ALLOWING THE EXPENSES CLAIMED BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE DIRECT THE AO TO TREAT THE INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS. W ITH REGARD TO THE EXPENSES, THE ISSUE IS SENT BACK TO THE FILE OF THE AO FOR ALLOWING ADEQUATE OPPORTUNITY TO THE ASSESSEE TO FILE REQUISITE DETAI LS AND EVIDENCES. THE AO SHALL CONSIDER THE ENTIRE MATERIAL ON OBJECTIVE BAS IS AND SHALL ALLOW THE EXPENSES ACCORDINGLY. NO EXPENSES SHOULD BE DISALL OWED WITHOUT CONFRONTING THE DOUBTS TO THE ASSESSEE. THIS GROUND MAY BE TREA TED AS ALLOWED, FOR STATISTICAL PURPOSE. 14. GROUND 4: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACT ION OF THE AO IN MAKING ADDITION OF RS.1.50 CRORES U/S 69A OF THE ACT AS ALLEGED UNEXPLAINED INCOME RECEIVED FROM SSSMPL. 15. THE BRIEF BACKGROUND OF THIS ISSUE IS THAT IT WAS N OTED BY THE AO FROM THE BALANCED-SHEET OF SSSMPL THAT IT HAD GIVEN ADVA NCE OF RS.1.50 CRORES TO THE ASSESSEE THROUGH ITS DIRECTOR, BUT SINCE THE AS SESSEE HAS NOT SHOWN THE RECEIPT OF SUCH ADVANCES IN ITS BOOKS OF ACCOUNT, T HEREFORE, THE AFORESAID SUM BECAME UNEXPLAINED INCOME OF THE ASSESSEE IN THE VI EWS OF THE AO AND 7 I.T.A. NO.7123 /MUM/2014 ACCORDINGLY THE HE MADE ADDITION OF THE SAME U/S 69 A OF THE ACT. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND MADE DETAILED SUBMISSIONS THAT THE IMPUGNED ADDITION IS BEYOND TH E PROVISIONS OF LAW AS WELL AS CONTRARY TO FACTS, BUT THE LD CIT (A) WAS NOT SA TISFIED WITH THE ARGUMENTS OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO. 16. BEFORE US, THE LD. COUNSEL MADE SUBMISSIONS AND ARG UMENTS TO ASSAIL THE ADDITION MADE BY THE AO. LD. DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 17. IT IS NOTED FROM THE LAST PAGE OF BALANCE-SHEET OF SSSMPL THAT A NOTE HAS BEEN GIVEN BY THE SAID COMPANY WHEREIN IT WAS MENTI ONED THAT SSSMPL HAD GIVEN AN ADVANCE OF RS.1.50 CRORES TO THE ASSESSEE COMPANY THROUGH THE DIRECTOR OF SSSMPL. IN SUPPORT OF ITS CONTENTION, IT HAS BEEN DEMONSTRATED BY THE ASSESSEE FROM ITS BANK ACCOUNT FOR THE ENTIRE Y EAR AS WELL AS THE COMPLETE BOOKS OF ACCOUNTS THAT IMPUGNED HAS NEVER BEEN RECE IVED BY THE ASSESSEE COMPANY. IN ADDITION TO THAT THE ASSESSEE ALSO SUB MITTED COPY OF CONFIRMATION FROM THE DIRECTOR OF THE SAID COMPANY WHEREIN THE S AID DIRECTOR HAD ACKNOWLEDGED THE FACTUM OF RECEIVING OF ADVANCE FRO M SSSMPL BY THE SAID DIRECTOR IN ITS BANK ACCOUNT. IT WAS DEMONSTRATED THAT ALL THESE DOCUMENTS WERE AVAILABLE ON THE RECORD OF THE LOWER AUTHORITI ES ALSO. THUS, THE UNDISPUTED FACTS ON RECORD ARE THAT THE ASSESSEE DI D NOT RECEIVE ANY SUCH AMOUNT FROM SSSMPL. THE IMPUGNED AMOUNT MIGHT HAVE BEEN RECEIVED BY THE DIRECTOR IN THE BANK ACCOUNT OF THE DIRECTOR HIMSEL F, BUT DEFINITELY NOT BY THE ASSESSEE COMPANY. THESE FACTS WERE NOT CONTROVERTE D BY THE LD. DR DURING THE COURSE OF HEARING BEFORE US. UNDER THESE CIRCU MSTANCES, THE ADDITION IN THE HANDS OF THE ASSESSEE WAS NOT PERMISSIBLE UNDER THE LAW. THE ADDITION HAS 8 I.T.A. NO.7123 /MUM/2014 BEEN MADE WITHOUT VERIFYING THE FACTS AND WITHOUT R EFERRING TO THE PROVISIONS OF LAW. IN ANY CASE, IF THE AO HAD SOME DOUBTS, TH EN THE REQUISITE ENQUIRIES SHOULD HAVE BEEN MADE IN THE HANDS OF THE SAID DIRE CTOR OR IN THE HANDS OF SSSMPL. UNLESS THE AMOUNT IS RECEIVED BY THE ASSES SEE COMPANY, THE ASSESSEE IS NOT OBLIGED UNDER THE LAW TO DISCLOSE THE SAME I N ITS BOOKS OF ACCOUNT. THUS, THE IMPUGNED ADDITION BEING PURELY ILLEGAL AND CONT RARY TO FACTS AND THUS THE SAME IS DIRECTED TO BE DELETED. THIS GROUND IS ALL OWED. 18. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN COURT ON THIS 13 TH _DAY OF JULY, 2016. SD/- SD/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 13 TH JULY, 2016 PK/- & PATEL COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , D-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES