DCIT 3(3), MUMBAI V. STOCK HOLDING CORPORATION OF INIDA LTD, MUMBAI

ITA 7671/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3935 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI .. , ! , '# ' $ BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO.7671/MUM/2010 ( & ' (' & ' (' & ' (' & ' (' / / / / ASSESSMENT YEAR: 2006-07) DY. CIT, CIRCLE 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAWAN, M. K. ROAD, MUMBAI-400 020 & & & & / VS. STOCK HOLDING CORPORATION OF INDIA LTD. B WING, 2 ND FLOOR, 224, MITTAL COURT, NARIMAN POINT, MUMBAI-400 021 ) '# ./ * ./ PAN/GIR NO. AABCS 1429 B ( )+ / APPELLANT ) : ( ,-)+ / RESPONDENT ) )+ . ' / APPELLANT BY : SHRI GIRIJA DAYAL ,-)+ / . ' / RESPONDENT BY : SHRI M. M. GOLVALA & / 0 1# / // / DATE OF HEARING : 18.07.2013 2 ( / 01# / DATE OF PRONOUNCEMENT : 18.07.2013 '3 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORDE R BY THE COMMISSIONER OF INCOME TAX (APPEALS)-7, MUMBAI (CIT(A) FOR SHORT) DATED 17.08.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2006-07 VIDE ORDER DATED 08.12.2008. 2 ITA NO.7671/MUM/2010 (A.Y. 2006-07) DY. CIT VS. STOCK HOLDING CORPORATION OF INDIA LTD. 2. THE APPEAL RAISES A SINGLE ISSUE PER ITS SOLE, F IRST GROUND, IMPUGNING THE DELETION OF AN ADDITION IN THE SUM OF RS.17.29 CRORES MADE IN R ESPECT OF ADVANCE DEPOSITORY PARTICIPANT CHARGES RECEIVED BY THE ASSESSEE DURIN G THE YEAR. 3. BEFORE US, WHILE THE LD. DR WOULD RELY ON THE AS SESSMENT ORDER, THE LD. AR, THE ASSESSEES COUNSEL, WOULD SUBMIT THE BACKGROUND FAC TS AS WELL AS THE RESPECTIVE CASES OF THE PARTIES IN THE FORM OF A SYNOPSIS. THE ASSESSEE IS A DEPOSITORY PARTICIPANT (DP), WITH OVER 4 LAKH INDIVIDUAL ACCOUNTS. ITS REVENUE IS BY WAY OF DEPOSITORY CHARGES, WHICH ARE RAISED AT AMOUNTS VARYING FROM RS.350/- TO RS.1,200 /- PER YEAR, DEPENDING ON THE NATURE OF THE ACCOUNT. THE CHARGES ARE ON AN ANNUAL BASIS, SPANNING A PERIOD OF 12 MONTHS FROM THE DATE OF WHICH THE CHARGE IS RAISED ON THE INDIV IDUAL INVESTOR/CLIENT. AS SUCH, IF THE AMOUNT IS DUE/RAISED IN THE MONTH OF MAY, SAY, IT W OULD BE REQUIRED TO BE CONTRACTUALLY SERVICED UP TO APRIL 30 OF THE FOLLOWING YEAR. THE ASSESSEE, AS PER ITS ACCOUNTING POLICY, THEREFORE, BRINGS THE RECEIPT TO INCOME ON A PROPOR TIONATE BASIS, I.E., TO THE EXTENT OF TIME LAPSED DURING THE RELEVANT YEAR. AS SUCH, 11 MONTHS EXPIRING UP TO THE FOLLOWING MARCH 31, GOING BY OUR EXAMPLE, 11/12 OF THE CHARGES ARE ACCOUNTED FOR AS INCOME FOR THE RELEVANT YEAR, AND THE BALANCE 1/12 TAKEN TO AN ADV ANCE ACCOUNT BY THE NAME ADVANCE DEPOSITORY PARTICIPANT CHARGES. THE AMOUNT OF ADVA NCE AS CREDITED TO THIS ACCOUNT IS ACCOUNTED AS INCOME FOR THE FOLLOWING, I.E., THE IM MEDIATELY SUCCEEDING, YEAR. THE ASSESSEES METHOD OF ACCOUNTING IS MERCANTILE, EVEN AS WOULD BE APPARENT FROM ITS ACCOUNTS AS WELL AS THE ASSESSMENT ORDERS FOR THE P RECEDING YEARS; THIS BEING A SUBSISTING ISSUE IN THE ASSESSEES ASSESSMENTS OVER THE PAST; SUCH AN ADDITION HAVING BEEN MADE FOR THE FIRST TIME FOR A.Y. 1989-90, SINCE WHICH IT HAS CONTINUED UP TO THE CURRENT YEAR. THE REVENUE HAS BEEN UNSUCCESSFUL AT THE FIRST APPELLAT E STAGE FOR ALL THESE YEARS. THE MATTER HAS NOT TRAVELLED BEFORE THE APPELLATE TRIBUNAL AS THE REVENUE HAD BEEN UNSUCCESSFUL IN OBTAINING COD APPROVAL, EXCEPT FOR AYS. 2002-03 & 2 003-04. FURTHER, FROM A.Y. 2007- 08 ONWARDS, THE REVENUE HAS ITSELF ACCEPTED THE POS ITION, AND HAS NOT MADE ANY ADJUSTMENT ON THIS ACCOUNT. NOT ONLY DOES THE ASSES SEES METHOD OF ACCOUNTING WARRANTS ACCEPTANCE ON MERITS; IT RECOGNIZING INCOME AS CONT RACTUALLY ACCRUED, IT WOULD ALSO BE SO PURELY ON GROUNDS OF CONSISTENCY, RELYING FOR THE P URPOSE ON THE DECISIONS IN THE CASE OF 3 ITA NO.7671/MUM/2010 (A.Y. 2006-07) DY. CIT VS. STOCK HOLDING CORPORATION OF INDIA LTD. CIT VS. WOODWARD GOVERNOR INDIA P. LTD. [2009] 312 ITR 254 (SC) AND CIT VS. BILAHARI INVESTMENT (P.) LTD. [2008] 299 ITR 1 (SC). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. THE PRIMARY FA CTS ARE NOT IN DISPUTE. IN OUR VIEW, THE REVENUES CASE IS WITHOUT MERIT. HOW COULD, ONE MAY ASK, THE ENTIRE INCOME BE SAID TO HAVE ACCRUED ON RECEIPT WHEN THE ASSESSEE IS, IN LI EU THEREOF, REQUIRED TO SERVICE THE CLIENTS ACCOUNT OVER THE FOLLOWING 12 MONTHS. EVEN THE MATCHING PRINCIPLE, WHICH IS A FUNDAMENTAL ACCOUNTING CONCEPT, LEGALLY RECOGNIZED, AND FOR WHICH WE MAY REFER TO THE DECISIONS IN THE CASE OF CIT VS. BILAHARI INVESTMENT (P.) LTD. [2008] 299 ITR 1 (SC) AND MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. VS. CIT [1997] 225 ITR 802 (SC), ADVOCATING THE SAME, APART FROM S. 145 OF THE ACT ITSELF, POST ULATING THE REQUIREMENT OF THE LAW IN THE MATTER, I.E., THAT THE METHOD OF ACCOUNTING TO BE F OLLOWED SHOULD LEAD TO TRUE AND FAIR OPERATING RESULTS. THE REVENUES RELIANCE ON ACCOUN TING STANDARD (AS)-9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), WHICH IS MANDATORY ON THE ASSESSEE- COMPANY, IS ALSO MISPLACED INASMUCH AS IT IS RECOGN IZING INCOME IN TERMS OF THE CONTRACT; THE DEPOSITORY PARTICIPANT CHARGES OBLIGING IT TO S ERVICE THE CLIENT ACCOUNT FOR A PERIOD OF 12 MONTHS. FURTHER, THE ASSESSEE HAS CONSISTENTLY F OLLOWED THE SAID METHOD OVER THE LAST TWO DECADES AND, AS EXPLAINED BY THE APEX COURT IN THE CASE OF BILAHARI INVESTMENT (P.) LTD. (SUPRA), IT IS OBLIGATORY FOR THE REVENUE TO RECORD A FINDING THAT THE ASSESSEES METHOD LEADS TO A DISTORTION OF PROFITS. WE, THEREF ORE, HAVE NO HESITATION IN CONFIRMING THE DELETION OF THE ADDITION BY THE FIRST APPELLATE AUTHORITY. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 4 05 / #4 / 0 67 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 18, 2013 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER '# / ACCOUNTANT MEMBER MUMBAI; 8& DATED : 18.07.2013 4 ITA NO.7671/MUM/2010 (A.Y. 2006-07) DY. CIT VS. STOCK HOLDING CORPORATION OF INDIA LTD. .&../ ROSHANI , SR. PS '3 / ,09 :'9(0 '3 / ,09 :'9(0 '3 / ,09 :'9(0 '3 / ,09 :'9(0/ COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT 3. ; ( ) / THE CIT(A) 4. ; / CIT CONCERNED 5. 9>? ,0& , , / DR, ITAT, MUMBAI 6. ?@' A / GUARD FILE '3& '3& '3& '3& / BY ORDER, B BB B/ // /6 6 6 6 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI