DCIT, CHENNAI V. Dhandapani Finance Ltd., CHENNAI

ITA 80/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7703 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 01-12-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-01-2016
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: S SRIDHAR
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER I . T.A. NO S . 80, 902 & 903 /MDS/201 6 ASSESSMENT YEAR S :20 07 - 08 , 2009 - 10 AND 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1 (1), CHENNAI 600 034 . VS. M/S. DHANDAPANI FINANCE LTD., NO. 17/3, RAMAKRISHNA STREET, T. NAGAR, CHENNAI 600 017. [PAN:AA AC D2762K ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI N. RENGARAJ , CIT / RESPONDENT BY : SHRI S. SRIDHAR , A D VOCATE / DATE OF HEARING : 01 . 1 2 .201 6 / DATE O F P RONOUNCEMENT : 28 . 0 2 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E S E THREE APPEAL S FILED BY THE REVENUE PERTAIN TO SAME ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDER S OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS ) 1 , CHENNAI , DATED 0 6 . 1 0 .201 5 AND 18.01.2016 FOR THE ASSESSMENT YEAR S 20 07 - 08 , 2009 - 10 AND 2010 - 11 . THE FIRST COMMON GROUND RAISED IN THE APPEALS OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF CHANGE IN THE ACCOUNTING P OLICY MADE BY THE ASSESSEE. I.T.A. NO S . 80, 902 & 903 /M/16 2 I.T.A. NO. 80/MDS/2016 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE FINANCING. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 ON 30.10.2007 DECLARING LOSS OF .15,44,73,496/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] ON 11.02.2009. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATE D 21.07.2008 WAS ISSUED. AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 31.12.2009 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT .2,02,98,987/ - BY MAKING VARIOUS ADDITIONS/DISALLOWANCES . 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND RAISED VARIOUS GROUNDS WITH REGARD TO THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER. AFTER CONSIDERING THE DETAILS AVAILABLE ON RECORD, CONSIDERING THE ARGUMENTS ADVANCE D BY THE AR OF THE ASSESSEE, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY CHALLENGING THE DELETION OF DISALLOWANCE OF COLLECTION CHARGES WRITTEN OFF OF .22,67,20,425/ - . THE LD. DR HAS CONTENDED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT ACTUALLY A BAD DEBT WRITTEN OFF IN ITS I.T.A. NO S . 80, 902 & 903 /M/16 3 BOOKS AND THEREFORE, HE PLEADED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. 5. ON THE OTH ER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT DUE CHANGE IN THE METHOD OF ACCOUNTING POLICY OF COLLECTION CHARGES FROM ACCRUAL BASIS TO CASH BASIS, THE PRIOR PERIOD EXPENSES AROUSED AND THEREFORE, THE ORDER OF THE LD. CIT(A) ON THIS ISSUE SH OULD BE SUSTAINED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER HAS NOTICED THAT IN THE PROFIT AND LOSS AC COUNT, THE ASSESSEE HAS DEBITED WITH A SUM OF .22,67,20,425/ - AS PRIOR PERIOD EXPENSES. WHEN DETAILS WERE CALLED FOR , THE ASSESSEE HAS SUBMITTED THAT THE PRIOR PERIOD EXPENSES HAS BEEN ARISEN OUT OF THE CHANGE IN THE ACCOUNTING POLICY OF COLLECTION CHARGE S FROM ACCRUAL BASIS TO CASH BASIS. FURTHER, IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE PRIOR PERIOD EXPENSES OF .2278.58 LAKHS REPRESENTS EXPENSES TREATED AS RECOVERABLE AND TAKEN TO INCOME IN THE EARLIER YEARS BUT NOT RECEIVED TILL DATE. A F URTHER CLAIM WAS MADE THAT THE AMOUNT ACTUALLY REPRESENTS NON - RECOVERY OF COLLECTION CHARGES AND A DECISION HAS BEEN TAKEN TO WRITE OFF THE UNRECOVERED AMOUNT OF THE PAST FEW YEARS DURING THE YEAR. IT WAS I.T.A. NO S . 80, 902 & 903 /M/16 4 CLAIMED THAT THE SAME WAS ACTUALLY IN THE NATURE OF BAD DEBTS WRITTEN OFF AND IS NOT IN THE NATURE OF PRIOR PERIOD EXPENDITURE AS THE DECISION TO WRITE OFF WAS TAKEN DURING THE YEAR. IT WAS ALSO SUBMITTED THAT THE ENTIRE AMOUNT HAS BEEN OFFERED AS INCOME IN THE EARLIER YEARS BY DEBITING THE PARTIES AND ANY RECOVERY IN FUTURE OF THE AMOUNT WRITTEN OFF WILL BE OFFERED AS INCOME IN THE YEAR OF RECEIPT AND CLAIMED THE WRITE OFF AS ALLOWABLE AS A LEGITIMATE BUSINESS EXPENDITURE IN THE COURSE OF BUSINESS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASS ESSING OFFICER HAS OBSERVED THAT THE PRIOR PERIOD EXPENSES IS NOT ALLOWABLE AS A DEDUCTION FOR THE REASON THAT ONLY EXPENDITURE RELATING TO THE REVENUE OF THE PARTICULAR FINANCIAL YEAR ALONE CAN BE CLAIMED. UNDER THE WELL SETTLED PRINCIPLES OF ACCOUNTANCY ALSO, AS PER MATCHING CONCEPT , THE EXPENDITURE OF A PARTICULAR YEAR SHOULD BE NETTED AGAINST THE REVENUE OF THAT PARTICULAR YEAR. FURTHER, THE ASSESSEE, WHILE BRING ABOUT A CHANGE IN ACCOUNTING POLICY, IS JUSTIFIED ONLY IF IT STARTS RECKONING THE COLLECT ION CHARGES ON CASH BASIS PROSPECTIVELY AND NOT RETROSPECTIVELY. FURTHER, THE ALTERNATE CONTENTION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT IT WAS IN THE NATURE OF WRITE OFF OF COLLECTION CHARGES RECEIVABLE WAS ALSO NOT ACCEPTED ON THE GROUND THAT THE SAME CAN BE ALLOWED ONLY IF SUCH RECEIVABLE WAS ACTUALLY WRITTEN OFF IN THE BOOKS AND NOT OTHERWISE AND SINCE THE ACTUAL WRITE OFF OF THE SUMS HAS NOT BEEN TAKEN PLACE, WHICH IS A PRECONDITION FOR ALLOWANCE UNDER I.T.A. NO S . 80, 902 & 903 /M/16 5 SECTION 36(1)(VII) OF THE ACT , THE ASS ESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE. THE ASSESSEE WAS ASKED TO FURNISH CONTRACT - WISE SUMMARY OF PRIOR PERIOD EXPENSES BOOKED AGAINST THE REVENUE AND FURNISHED THE SAME, WHICH IS REPRODUCED AS UNDER: COLLECTION CHARGES .10,98,14,400/ - OVERDUE CHARGES . 1,60,97,975/ - INSPECTION CHARGES .13,30,04,400/ - 6.1 AFTER EXAMINING THE CONTRACT - WISE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS NOTICED THAT THE CHANGE IN ACCOUNTING POLICY AS PER THE NOTES ON A CCOUNTS WAS IN RESPECT OF COLLECTION CHARGES ONLY. AGAINST EACH CONTRACT NUMBER, THE CONTRACT STARTING DATE AND CONTRACT MATURITY DATE ARE FURNISHED. THE ASSESSING OFFICER HAS FURTHER NOTICED THAT MOST OF THE CONTRACTS ARE MATURING IN THE FINANCIAL YEARS F ALLING SUBSEQUENT TO THE RELEVANT PREVIOUS YEARS I.E., MANY CONTRACTS ARE MATURING IN 2007, 2008 AND 2009, WHICH IS BEYOND THE RELEVANT PREVIOUS YEAR. WHEN THE CONTRACTS ARE VERY MUCH ALIVE ON THE DATE OF THE CLAIM OF PRIOR PERIOD EXPENSES, THE ASSESSEE S CLAIM THAT SUCH COLLECTION CHARGES REPRESENT WRITE OFF OF INCOME ON COLLECTION CHARGES FROM VARIOUS PARTIES AS THEY ARE NOT RECOVERABLE, WAS NOT AT ALL JUSTIFIED. WHEN THE CONTRACTS ARE ALIVE, THE ASSESSEE CANNOT TREAT THE COLLECTION CHARGES AS NOT RECOVER ABLE EVEN BEFORE THE CONTRACT MATURES. ON PERUSAL OF THE YEAR - WISE BREAKUP OF COLLECTION CHARGES IN RESPECT OF .22.67 CRORES, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED .9.50 CRORES AS COLLECTION CHARGES PERTAINING TO THE FINANCIAL YEAR I.T.A. NO S . 80, 902 & 903 /M/16 6 2006 - 07. WHILE EXAMINING THE ITEM - WISE SUMMARY OF REVENUE OF .2554.30 LAKHS CREDITED TO PROFIT AND LOSS A CCOUNT FOR THIS ASSESSMENT YEAR, THE ASSESSING OFFICER HAS OBSERVED THAT WHEN THE ASSESSEE HAS RECKONED ONLY A SUM OF .65.48 LAKHS AS INCOME FROM COLLECTION CHARGES IN RESPECT OF PREVIOUS YEAR 2006 - 07, THE ASSESSEE S CLAIM THAT THE PRIOR PERIOD EXPENSES INCLUDE .9.50 CRORES AS COLLECTION CHARGES PERTAINING TO THE FINANCIAL YEAR 2006 - 07 IS ABSOLUTELY CONTRADICTORY. THE ASSESSEE CANNOT TREAT A SUM OF .9.5 CRORES FOR THE FINANCIAL YEAR 2006 - 07 AS INCOME NOT BEING RECOVERABLE, WHEN THE SAME HAS NOT BEEN INC LUDED AS INCOME IN RESPECT OF THAT FINANCIAL YEAR. ANOTHER ASPECT NOTED BY THE ASSESSING OFFICER WAS THAT THE ITEM - WISE BREAK UP OF REVENUE FOR THE ASSESSMENT YEAR 2007 - 08 DOES NOT INCLUDE INSPECTION CHARGES, WHEREAS, THE PRIOR PERIOD EXPENDITURE OF .22.6 7 CRORES INCLUDES INSPECTION CHARGES OF .13.30 CRORES. IN THE LIGHT OF THIS, THE REVERSAL OF INSPECTION CHARGES APPEARS TO BE ONLY A NOTIONAL DEBIT. WITH THE ABOVE OBSERVATIONS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD . CIT(A) HAS OBSERVED AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE, THE VIEW TAKEN BY THE AO, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. IN A NUTSHELL WHAT EMERGES IS THAT THE APPELLANT AS A BUSINESS DECISION ROTE OFF AS NOT RECOVERABLE COLLECTION CHARGES OF PRECEDING YEARS WHICH WERE CHARGED TO THE P & L A/C IN THE RESPECTIVE YEARS. THE WRITE OFF DURING THE YEAR IS AKIN TO NON - RECOVERABLE DUES OR BAD DEBT. DURING THE PERIOD UNDER CONSIDERATION THE APPELLANT HAS WRITTEN OFF SUCH AMOUNTS AT .22,67,20,425. ON THE CONTRARY, THE AO HAS NOT APPRECIATED THIS FACT WHILE OBSERVING IN PARA 4.2 OF THE ORDER THAT THE APPELLANT S CLAIM WAS IN THE NATURE OF PRIOR PERIOD EXPENSES WHICH HAD ARISEN ON ACCOUNT OF CHARGE IN ACCOUNTING PO LICY OF COLLECTION CHARGES I.T.A. NO S . 80, 902 & 903 /M/16 7 FROM ACCRUAL BASIS TO CASH BASIS. THE AO IS DIRECTED TO ALLOW THE CLAIM AFTER VERIFICATION AS TO WHETHER THE SAME CONSTITUTE INCOMES WHICH HAD BEEN ACCOUNTED FOR IN THE PRECEDING YEARS IN TERMS OF S. 36(1)(VII) R.W.S. 36(2) OF TH E ACT. THE GROUND IS ALLOWED. 6.2 FROM THE ABOVE IT IS VERY CLEAR THAT THE LD. CIT(A) HAS NOT GIVEN ANY FINDINGS OVER THE OBSERVATIONS OF THE ASSESSING OFFICER WITH REGARD TO THE OBJECTIONS RAISED IN THE ASSESSMENT ORDER , ESPECIALLY WHEN THE CONTRACTS AR E VERY MUCH ALIVE ON THE DATE OF THE CLAIM OF PRIOR PERIOD EXPENSES, SINCE MOST OF THE CONTRACTS ARE MATURING IN 2007, 2008 AND 2009, THE ASSESSEE S CLAIM THAT SUCH COLLECTION CHARGES REPRESENT WRITE OFF OF INCOME ON COLLECTION CHARGES FROM VARIOUS PARTIES AS THEY ARE NOT RECOVERABLE , APPEARS TO BE UNJUSTIFIED AS OBJECTED IN PARA 4.6 . MOREOVER, THE OBJECTIONS RAISED IN PARA 4.7 TO 4.10 WERE NOT ADDRESSED DURING THE COURSE OF APPELLATE PROCEEDINGS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE LD. C IT(A) TO RE - EXAMINE AND DECIDE THE ISSUE AFRESH AFTER OBTAINING SUITABLE EXPLANATIONS FROM THE ASSESSEE AS WELL AS HEARING TO THE ASSESSING OFFICER. I.T.A. NO. 902/MDS/2016 7. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2009 - 10, AFTER VERIFICATION OF DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED FROM COLUMN NO.11 OF THE FORM 3CD THAT THERE WERE NO CHANGE IN THE METHOD OF ACCOUNTING EMPLOYED VIS - A - VIS THE METHOD EMPLOYED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR. FURTHER, FROM T HE NOTES ON ACCOUNTS AS PER THE ANNUAL REPORT FOR THE PERIOD 2008 - 09 WHICH IS RELEVANT TO THE I.T.A. NO S . 80, 902 & 903 /M/16 8 CURRENT ASSESSMENT YEAR, THE COMPANY'S POLICY ON INCOME RECOGNITION WAS ENUMERATED IN SCHEDULE 18 AS FOLLOWS: A) INCOME FROM HIRE PURCHASE AND HYPOTHECATION LOAN TRANSACTIONS IS ACCOUNTED ON THE BASIS OF INTERNAL RATE OF RETURN METHOD. B) IN RESPECT OF RECEIVABLES ASSIGNED BILATERALLY WITH BANKS/ FINANCIAL INSTITUTIONS, BEING THE DIFFERENCE BETWEEN THE BOOKS VALUE OF THE ASSETS ASSIGNED AND THE SALE CONSIDERATI ON IS BOOKED AS INCOME IN THE YEAR OF CONTRACT, WHEREAS IN THE PREVIOUS YEAR THE SAME WAS AMORTISED OVER THE TENOR OF THE ASSIGNMENT OF RECEIVABLE. C) ADDITIONAL FINANCE CHARGES ARE ACCOUNTED ON ACCRUAL BASIS @18% PA WHEREAS THE CONTRACTUAL RATE IS 36%. D) COLLECTION CHARGES ARE ACCOUNTED ON CASH BASIS. E) DUE DATE MISSING CHARGES ARE ACCOUNTED ON ACCRUAL BASIS. 7.1 THUS FROM A COMBINED READING OF FORM 3CD AND THE COMPANY'S POLICY ON INCOME RECOGNITION EXHIBITED IN THE ANNUAL REPORT, THE ASSESSING O FFICER HAS OBSERVED THAT THE ASSESSEE CONTINUES TO ADOPT THE REVISED ACCOUNTING POLICY/METHOD OF ACCOUNTING IN RESPECT OF ASSIGNMENT OF RECEIVABLES, ADDITIONAL FINANCE CHARGES AND COLLECTION CHARGES AS PER THE CHANGES EFFECTED DURING THE AY 2007 - 08. SINCE THE DEPARTMENT HAS HELD THE ABOVE CHANGE IN ACCOUNTING POLICY EFFECTED DURING AY 2007 - 08 TO BE NOT FOR BONA FIDE REASONS AND AS BEING DETRIMENTAL TO THE INTERESTS OF REVENUE, WHICH FINDING HAS NOT BEEN UPSET OR CONTROVERTED BY ANY HIGHER FORUM, FOR THIS AS SESSMENT YEAR ALSO, THE IMPACT OF SUCH CHANGES IN THE FINANCIAL RESULTS REQUIRE TO BE REVERSED OR DISALLOWED. I.T.A. NO S . 80, 902 & 903 /M/16 9 7.2 VIDE LETTER D ATED 04 .11.2011, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF OUTCOME OF THE CHANGED ACCOUNTING POLICY IN THE CURRENT YEAR. SINCE THE ASSESSEE DID NOT RESPOND TO THE SPECIFIC QUERY, THE ASSESSEE WAS ONCE AGAIN GIVEN AN OPPORTUNITY TO FILE THE DETAILS VIDE LETTER DT. 23.12.2011. IN RESPONSE TO THE SAME, THE ASSESSEE FURNISHED A NOTE DT. 28.11.2011 IN WHICH MERELY STATED THAT TH E COLLECTION CHARGES WERE ACCOUNTED ON CASH BASIS; ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS; AND GAIN ON ASSIGNMENT OF RECEIVABLES RECOGNISED UPFRONT IN THE YEAR OF CONTRACT. IT ALSO STATED THAT THERE WAS NO CHANGE IN ACCOUNTING POLICY WHEN COMPARED TO PREVIOUS YEAR. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE EXACT DETAILS OF THE EFFECT OF THE REVISED POLICY ON THE CURRENT YEAR'S FINANCIALS. 7.3 FROM THE ABOVE , IT IS CLEAR THAT THE ASSESSEE HAS BROUGHT ABOUT CERTAIN CHANGES IN ITS METHOD OF ACCOUNTING /ACCOUNTING POLICY DURING THE AY 2007 - 08, WHICH HAS BEEN CONTINUED WELL INTO THE CURRENT ASSESSMENT YEAR. CONSISTENT WITH THE STAND TAKEN FOR AY 2007 - 08 REJECTING THE CHANGES IN ACCOUNTING POLICY, THE TOTAL INCOME/ LOSS RETURNED BY THE ASSESSEE FOR THE AY 2009 - 10 ALSO REQUIRES TO BE ADJUSTED TO REMOVE THE IMPACT OF THE REVISED ACCOUNTING POLICY. HOWEVER , AS THE ASSESSEE HAS NOT FURNISHED THE QUANTIFICATION OF THE IMPACT IN SPITE OF SPECIFIC QUERIES AND OPPORTUNITIES GIVEN, THE ASSESSING OFFICER WAS CONSTRAI NED TO ESTIMATE THE SAME. 7.4 THE COLLECTION CHARGES ARE STATED TO BE A FLAT CHARGE LEVIED ON ALL I.T.A. NO S . 80, 902 & 903 /M/16 10 ACCOUNTS @ .10,000/ - . HOWEVER DETAILS OF THE NUMBER OF LOAN ACCOUNTS HAVE NOT BEEN FURNISHED BY THE ASSESSEE. THE TOTAL FINANCE CHARGES CREDITED TO THE PRO FIT AND LOSS ACCOUNT WA S .33,59,73,684/ - ESTIMATING THE FINANCE CHARGES PER CONTRACT PER ANNUM AT .50,000/ - , THE NUMBER OF LOAN ACCOUNTS ESTIMATED TO BE 6720 AND THE COLLECTION CHARGES @ .10,000 PER CONTRACT HA S BEEN ESTIMATED AT .6.72 CRORES WHICH REP RESENTS COLLECTION CHARGES NOT RECOGNISED AS REVENUE BY THE ASSESSEE AS A RESULT OF CHANGED ACCOUNTING POLICY. IN THE ABSENCE OF DETAILS, THE CUMULATIVE INCREASE IN PROFITS AS A RESULT OF ACCOUNTING FOR THE ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS AND R ECOGNISING THE GAIN ON ASSIGNMENT OF RECEIVABLE UPFRONT HA S BEEN ESTIMATED TO BE R S . 1 CRORES AND WAS GIVEN SET OFF BY TREATING A SUM OF .5.72 CRORES AS THE NET DECREASE IN THE PROFITS AS A RESULT OF ADOPTION OF CHANGED ACCOUNTING POLICY, AND ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE SAME . 8. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. ADMITTEDLY THE APPELLANT IS IN THE BUSINESS OF HIRE PURCHASING AND FINA NCING AS IN THE PRECEDING YEARS. THE AO HAS BROUGHT TO TAX A SUM OF RS.5,72,00,000 AFTER SET OFF OF AN ESTIMATED SUM OF RS.1,00,00,000 BEING CUMULATIVE INCREASE IN PROFITS FOR ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS AGAINST COLLECTION CHARGES ON ESTIMA TED 6720 LOAN ACCOUNTS AT ESTIMATED RATE OF RS.10,000 PER LOAN CONTRACT. IN THE PRECEDING PARA (PARA 2 PAGE 3 - 4 OF THE ORDER) THE AO HAS ALSO NOTED THAT I.T.A. NO S . 80, 902 & 903 /M/16 11 DURING THE ASSESSMENT YEAR 2007 - 08 THE AO HAD REJECTED THE CHANGE IN ACCOUNTING POLICY AS NOT BEING I N GOOD FAITH AND AS BEING DETRIMENTAL TO THE INTEREST OF REVENUE IN COMING TO A CONCLUSION FOR THAT ASSESSMENT YEAR AND PREFERRING DISALLOWANCE OF CERTAIN CLAIMS MADE BY THE APPELLANT. THE AO HAS ALSO REFERRED TO FORM 3CD AND COMPANIES POLICY ON INCOME REC OGNITION AS ENUMERATED IN SCHEDULE 18 THEREOF IN COMING TO THE CONCLUSION THAT THE CHANGE IN ACCOUNTING POLICY WAS NOT BONAFIDE. THE AO HAS ALSO RECORDED THAT THE APPELLANT / ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF OUTCOME OF CHANGED ACCOUNTING POLICY IN THE CURRENT YEAR VIDE OFFICE LETTER DT. 4.11.2011 AND REITERATED ON 23.12.2011. THE APPELLANT HAD RESPONDED TO THE SAME VIDE NOTE DATED 28.11.2011 STATING THAT COLLECTION CHARGES WERE ACCOUNTED ON CASH BASIS, ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS AND GAIN ON ASSIGNMENT OF RECEIVABLES RECOGNIZED UPFRONT IN THE YEAR OF CONTRACT. FURTHER, AFTER TAKING INTO CONSIDERATION OTHER ASPECTS THE AO NOTED THAT THE APPELLANT HAD NOT FURNISHED THE QUANTIFICATION OF THE IMPACT OF THE CHANGE IN ACCOUNTING POLICY AND THEREBY NECESSITATING THE NEED TO ESTIMATE THE INCOME OF THE APPELLANT. WHILE RESORTING TO ESTIMATION THE AO HAD ESTIMATED EVEN THE NUMBER OF LOAN ACCOUNTS AND CONSEQUENT FINANCE CHARGES, CONTRACT CHARGES AND COLLECTION CHARGES. 6. THE APPELLANT, ON THE OTHER HAND, HAS MAINTAINED THAT IT COLLECTS CHARGES TOWARDS EXPENSES INCURRED ON ALL LIFE CONTRACTS WHICH ARE MEANT TO COVER THE COST OF INCIDENTAL EXPENSES AND RECOGNIZES THE SAME AS COLLECTION CHARGES ON CASH BASIS W.E.F. F.Y. 2006 - 07 RELEVANT TO AY . 2007 - 08. WITH RESPECT TO THE ADDITION MADE BY THE AO OF RS.6.70 CRORES THE SAME WERE DISPUTED ON THE GROUNDS THAT (I) COLLECTION CHARGES WERE CONSIDERED ON ACCRUAL BASIS BY THE AO AS ALSO THE GAIN ON ASSIGNMENT RECEIVABLE WHILE IN FACT THE SAME OUGHT NOT TO BE SO CONSIDERED IN VIEW OF THE RISKS AND UNCERTAINTY INVOLVED IN RESPECT OF THE COLLECTION. IN DEFENCE OF ITS CHANGE IN ACCOUNTING POLICY TO CASH BASIS IN RESPECT OF COLLECTION CHARGES, THE APPELLANT PLACED RELIANCE ON THE RATIO OF CIT V. PSIDC 250 IT R 351 TO UNDERLINE THE POINT THAT THERE WAS NO MALAFIDE INTENTION IN CHANGE OF THE ACCOUNTING POLICY. FURTHER IT WAS PLEADED THAT THE CASE OF THE APPELLANT WERE GOVERNED BY THE DIRECTIONS OF THE RESERVE BANK OF INDIA. SIMILARLY, WITH REGARD TO THE REDUCTIO N OF GAIN RECOGNIZED ON ASSIGNMENT OF RECEIVABLES BY RS.1 CRORE THE APPELLANT DISPUTED THE SAME AND THE VIEW TAKEN BY THE AO. 7. THE APPELLANT PLEADED THAT THE AO HAD FAILED TO APPRECIATE THAT NON LEVY OF COLLECTION CHARGES BY THE APPELLANT WAS NOT A CH ANGE IN THE NATURE OF ACCOUNTING POLICY BUT WAS A BUSINESS POLICY DECISION BY THE APPELLANT THAT COLLECTION CHARGES NEED NOT BE CHARGED CONSIDERING THE PREVAILING BUSINESS CONDITION, REALIZATION OF COLLECTION CHARGES ETC. IN OTHER WORDS, THE DECISION NOT T O ACCOUNT FOR COLLECTION CHARGES WAS A BUSINESS POLICY DECISION. AS A ONE TIME MEASURE THE APPELLANT STOPPED CHARGING COLLECTION CHARGES AND HENCE THE QUESTION OF ACCRUAL OF INCOME DID NOT ARISE. WHERE INCOME ITSELF HAD NOT ACCRUED, IT WAS ARGUED THAT THE ESTIMATION RESORTED TO BY THE AO WAS NOT I.T.A. NO S . 80, 902 & 903 /M/16 12 WARRANTED. IT RELIED ON CIT(A) ORDER IN PARA 3 TO INDICATE THAT SUCH POLICY OF NON - LEVY OF COLLECTION CHARGES WAS FOLLOWED BY THE APPELLANT SINCE A.Y. 2007 - 08. IT IS IN THIS LIGHT THAT THE ADDITION MADE ON ACCOUNT O F COLLECTION CHARGES IS NOT CONSISTENT WITH THE POLICY REGULARLY EMPLOYED BY THE APPELLANT. THE FUTURE OPERATIONS OF THE APPELLANT ARE IN CONSISTENCY WITH THE BONAFIDE INTENT OF ITSELF. 8. THE APPELLANT PLACED ON RECORD THE EXTRACT FROM THE MINUTES OF 2 00 TH MEETING OF THE BOARD OF DIRECTORS OF THE APPELLANT COMPANY HELD ON 28.5.2011. ALSO PLACED ON RECORD ARE THE MINUTES OF THE 39TH AUDIT COMMITTEE MEETING OF THE BOARD OF DIRECTORS OF THE APPELLANT COMPANY ON 28.5.2011 WHEREIN IT WAS NOTED THAT LIST OF N ON - PERFORMING ASSETS TO THE EXTENT OF RS.2113.82 LAKHS AND LOSS ON SALE OF RE - POSSESSED ASSETS OF RS.893.39 LAKHS WAS TAKEN ON RECORD BY THE COMMITTEE. IN PARA 5(D) IT WAS PASSED THAT AS A BUSINESS POLICY THE COMPANY DID NOT CHARGE COLLECTION CHARGES AND H ENCE THERE IS NO INCOME UNDER COLLECTION CHARGES FOR THE PERIOD 1.10.2009 TO 31.3.2011. SIMILAR EXTRACTS FROM THE MINUTES OF THE 161 ST MEETING OF THE BOARD OF DIRECTORS HELD ON 11.5.2007 WAS PLACED ON RECORD WHEREIN THE COLLECTION CHARGES WAS AT RS.300 PER MONTH PER CONTRACT. IN THE SAID MINUTES IT WAS FURTHER RESOLVED THAT UNCOLLECTED PORTION OF COLLECTION CHARGES AMOUNTING TO RS.2,267.20 LAKHS WERE WRITTEN OFF AFTER THE AUDIT COMMITTEE APPROVAL. 9. THE APPELLANT PLEADED VIDE ITS LETTER 15.12.2015 TO TH E ABOVE AND DREW THE ATTENTION TO THE RATIO IN THE CASE OF INDIA EQUIPMENT LEASING LTD 293 ITR 350 AND ELGI FINANCE LTD 293 ITR 357 WHEREIN IT WAS HELD BY THE JURISDICTIONAL COURT THAT ACCRUAL OF INCOME IS NOT AUTOMATIC. FURTHER, THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD V. JCIT 320 ITR 577 (2010) CONFIRMED THE PREPOSITION THAT INCOME - TAX IS A TAX ON 'REAL INCOME' I.E., PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLE SUBJECT TO THE PROVISIONS OF THE I.T. ACT. IN SUM, IT WAS PLEADED THAT DURING THE RELEVANT PERIOD THE APPELLANT DID NOT CHARGE COLLECTION CHARGES ON THE BORROWERS AND THAT SUCH DECISION IS A BUSINESS POLICY DECISION AND NOT A CHANGE IN ACCOUNTING POLICY AND FURTHER THAT NO REAL INCOME HAS ACCRUED TO THE APPELLANT. 10. PERUSAL OF THE RETURN OF INCOME FILED FOR A.Y. 2009 - 10 SHOWS THAT THE APPELLANT HAD ONLY ACCOUNTED FOR INCOME FROM BUSINESS OR PROFESSION AT ( - ) RS.13,87,97,896 BEING CARRIED FORWARD OF LOSS AND HAD ACCOUNTED FOR NO INCOMES UNDER OTHER HEADS. IN THE P & L A/C UNDER THE I NCOME SCHEDULE, INCOME FROM FINANCING OPERATIONS IN SCHEDULE 12 WAS SHOWN AT RS.33,59,73,684 AND OTHER INCOME IN SCHEDULE 13 OF RS.86,13,956. FURTHER BREAK - UP WITH REGARD TO SCHEDULE 12 REFLECTED FINANCE CHARGES OF THE SAME AMOUNT OF RS.33,59,73,684 WHICH EXCLUDED CHARGES WHICH HAD NOT ACCRUED. 11. IN ELGI FINANCE LTD 293 ITR 357 THE ISSUE BEFORE THE HON'BLE COURT WAS WHETHER THE ITAT WAS RIGHT IN DELETING THE INTEREST ACCRUED ON NON - PERFORMING ASSETS. ON THE FACTS OF THAT CASE CONCERNING A COMPANY ENGAG ED I.T.A. NO S . 80, 902 & 903 /M/16 13 IN THE BUSINESS OF LEASING FINANCE AND HIRE PURCHASE, THE AO NOTICED THAT IN THE P& L A/C FOR THE PREVIOUS YEAR THE ASSESSEE HAD NOT ADMITTED THE INTEREST ACCRUED ON A TRANSACTION IN RESPECT OF HIRE PURCHASE, LEASING, BILL DISCOUNTING, SHORT TERM LOAN E TC. THE AO PROPOSED TO BRING THE ACCRUED INTEREST ON THOSE ITEMS TO TAX AS INCOME OF THE ASSESSEE RELATING TO THE ASSESSMENT YEAR. THE ASSESSEE OFFERED DETAILED EXPLANATION THAT INCOME WAS NOT JUSTIFIED ACCORDING TO CLASSIFICATION SUGGESTED BY RBI ON ASSET S WHICH WERE TO BE TREATED AS NON - PERFORMING ASSETS. THE ASSESSEE, BEING AN NBFC WAS BOUND TO FOLLOW THE MANDATORY GUIDELINES ISSUED BY RBI ON CLASSIFICATION OF ASSETS, RECOGNITION OF INCOME AND NORMS FOR MAKING PROVISIONS. THE PLEA OF THE ASSESSEE THAT IN COME PERTAINING TO NON - PERFORMING ASSETS SHOULD NOT BE CONSIDERED AS INCOME WAS REJECTED BY THE AO ON THE GROUND THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHERE BOTH INCOME AND EXPENDITURE SHOULD BE ACCOUNTED FOR ON ACCRUAL BASIS. THE AO WAS ALSO OF THE OPINION THAT THE GUIDELINES ISSUED BY THE RBI WAS FOR THE PURPOSE OF FINANCIAL DISCIPLINE AND INVESTOR PROTECTION AND NOT FOR ANY CHANGE TO BE BROUGHT IN THE METHOD OF ACCOUNTING. THE AO REJECTED THE PLEA AND BROUGHT TO TAX THE INTEREST INCOME ACCRUED THEREON. THE DECISION OF THE AO WAS CONFIRMED BY CIT(A) WHICH WAS CARRIED BEFORE THE ITAT. THE ITAT WAS OF THE VIEW THAT THE LOWER AUTHORITIES HAD ERRED IN TREATING THE INTEREST ON NON - PERFORMING ASSETS AS INCOME OF THE ASSESSEE FOR THE REL EVANT ASSESSMENT YEAR. BEFORE THE HIGH COURT IT WAS ARGUED BY REVENUE THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE BOTH INCOME AND EXPENDITURE SHOULD BE ACCOUNTED FOR ON ACCRUAL BASIS. FURTHER IT WAS ARGUED THAT THE GUIDELI NES ISSUED BY RBI ALSO COULD NOT BE USED TO CHANGE THE METHOD OF ACCOUNTING. THE APPELLANT HAD RELIED UPON THE JUDGMENT OF THE JURISDICTIONAL COURT IN CIT V. INDIA EQUIPMENT LEASING LTD., MADRAS IN TC(A) NO.744 & 349 OF 2004 REPORTED AT [2007] 212 CTR MAD. THE HIGH COURT HELD THAT IN THE CASE OF NON - PERFORMING ASSETS THE ACCRUAL OF INCOME HAS TO BE EXAMINED IN THE LIGHT OF NOTIFICATION ISSUED BY RBI ON CLASSIFICATION OF ASSETS AND AS - 9 ISSUED BY ICAI AND VARIOUS CIRCULARS OF CBDT. IT WAS OF THE OPINION THAT IF NO INCOME IS RECOGNIZED AT ALL FROM SUCH ASSETS, THERE IS NO QUESTION OF APPLYING THE PRINCIPLE OF ACCRUAL WHICH COMES INTO PLAY ONLY WHEN INCOME IS RECOGNIZED. IN THE PRESENT CASE THE ASSESSEE HAS CLASSIFIED ITS ASSETS ON THE BASIS OF THE NOTIFICATION ISSUED BY RBI AND FOUND THAT CERTAIN ASSETS ARE COMING UNDER THE CATEGORY OF NON - PERFORMING ASSETS FROM WHICH NO INCOME HAS BEEN RECOGNIZED IN CONSONANCE WITH NOTIFICATION ISSUED BY RBI AND AS - 9 ISSUED BY ICAI. THEREFORE, THE NON - RECOGNITION OF INCOME BY THE ASSESSEE WAS JUSTIFIED AND THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT. IT WENT INTO OBSERVE FURTHER THE INTEREST FROM SUCH NON - PERFORMING ASSETS WILL BE TAXED IN APPROPRIATE ASSESSMENT YEARS ON THE BASIS OF A CTUAL RECEIPT. 12. WITHOUT HAVING PREJUDICE TO THE ABOVE AND FOR ARGUMENT SAKE EVEN IT IS TAKEN THAT THE APPELLANT NEEDED TO ACCOUNT FOR THE INCOME ON MERCANTILE BASIS THE SAME WOULD BE SUBSEQUENTLY WRITTEN OFF AS BAD DEBTS HAVING REGARD I.T.A. NO S . 80, 902 & 903 /M/16 14 TO THE FACT THA T THE FINANCES / LOANS WERE NOT PERFORMING AND NO INTEREST WAS FORTHCOMING. SUCH A PRINCIPLE WAS UPHELD IN THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SRI VINAYAGA PICTURES, 161 ITR 65. AMONGST OTHERS RELYING ON A DECISION IN CIT V. JWALA PRASAD TIWARI, 24 ITR 537(BOM.) IT WAS OBSERVED THEREIN' .... IT IS OPEN TO A BUSINESS MAN TO TAKE A VIEW THAT THE DEBT IS ENTIRELY BAD AND THERE IS ABSOLUTELY NO POSSIBILITY TO RECOVER IT, IN WHICH CASE HE MAY DEBIT THE P&L A/C AND CREDIT THE AMOUNT TO HI S DEBTOR; OR IT MAY BE THAT A BUSINESS MAN MAY TAKE A VIEW THAT THE DEBT IS NOT BAD BUT DOUBTFUL IN WHICH CASE HE WOULD NOT TAKE THE RISK OF CLOSING THE ACCOUNT OF HIS DEBTOR BUT HE MAY DEBIT THE P & L A/C AND HE MAY MAKE CORRESPONDING ENTRY IN ANOTHER APP ROPRIATE ACCOUNT. ... '(P.540). IT WAS CONCLUDED BY OBSERVATION THAT ' ... WE SHOULD ALSO KEEP IN MIND THAT IN THIS CASE FOR THE VERY SAME YEAR WHEN THE INCOME IS STATED TO HAVE ACCRUED, THE REVERSE ENTRY RELATING TO RECEIPTS OF THE CHEQUES ALSO HAVE BEEN MADE. THIS FACT, TAKING WITH THE OTHER CIRCUMSTANCES THAT THIS INCOME IS NOT SHOWN IN P&L A/C, CLEARLY ESTABLISHES THAT THE ASSESSEE INTENDED TO TREAT THIS AS IRRECOVERABLE IN THAT YEAR ITSELF.' 13. ON APPRECIATING THE SUM TOTALITY OF FACTS PLACED BEFOR E ME AND MATERIAL ON RECORD, I AM OF THE CONSIDERED OPINION THAT THE RATIO IN THE CASE OF ELGI FINANCE LTD 293 ITR 35 WILL APPLY SQUARELY TO THE FACTS OBTAINING IN THE CASE OF THE APPELLANT. THE VIEW TAKEN BY THE AO TO BRING TO TAX COLLECTION CHARGES WHICH HAS NOT BEEN RECOGNIZED BY THE APPELLANT AND ESTIMATED BY THE AO AT RS.6.72 CRORES THEREFORE CANNOT BE UPHELD. THIS GROUND OF APPEAL IS ALLOWED. 9. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD BOTH SIDES, PERUS ED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED ON PERUSAL OF FORM 3CD AND THE COMPANY S POLICY ON INCOME RECOGNITION GIVEN IN THE ANNUAL REPORT THAT THE ASS ESSEE CONTINUES TO ADOPT THE REVISED ACCOUNTING POLICY/METHOD OF ACCOUNTING IN RESPECT OF ASSIGNMENT OF RECEIVABLES, ADDITIONAL FINANCE CHARGES AND COLLECTION CHARGES AS PER THE CHANGES EFFECTED DURING THE ASSESSMENT YEAR 2007 - 08. SINCE THE DEPARTMENT HAS HELD THE ABOVE CHANGE IN ACCOUNTING POLICY EFFECTED DURING THE ASSESSMENT YEAR 2007 - 08 TO BE NOT I.T.A. NO S . 80, 902 & 903 /M/16 15 FOR BONA FIDE REASONS AND AS BEING DETRIMENTAL TO THE INTERESTS OF REVENUE, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO, THE IMPACT OF SUCH CHANGES IN THE FINANCIAL RESULTS REQUIRED TO BE REVERSED OR DISALLOWED. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF OUTCOME OF THE CHANGED ACCOUNTING POLICY IN THE CURRENT YEAR. THE ASSESSEE FURNISHED A NOTE MERELY STATING THAT THE COLLECTION CHARGES WERE ACCOUNTED ON CASH BASIS, ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS AND GAIN ON ASSIGNMENT OF RECEIVABLES RECOGNIZED UPFRONT IN THE YEAR OF CONTRACT. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE EXACT DETAILS OF THE EFFECT OF THE REVISED POLICY ON THE CURRENT YEAR S FINANCIALS. CONSISTENT WITH THE STAND TAKEN FOR ASSESSMENT YEAR 2007 - 08 REJECTING THE CHANGES IN ACCOUNTING POLICY, THE TOTAL INCOME/LOSS RETURNED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 ALSO REQUIRES TO BE ADJUSTED TO REMOVE THE IMPACT OF THE RE VISED ACCOUNTING POLICY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HAS FURNISHED CONTRACT - WISE SUMMARY IN SUPPORT OF ITS CLAIM OF PRIOR PERIOD EXPENSES, OUT OF WHICH, THE ASSESSING OFFICER HAS NOTICED THAT MA NY CONTRACTS ARE MATURING IN 2007, 2008 AND 2009. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE QUANTIFICATION OF THE IMPACT IN SPITE OF SPECIFIC QUERIES AND OPPORTUNITIES GIVEN TO IT. THEREFORE, BASED ON THE TOTAL FINANCE CHARGES CREDITED TO THE PROFIT AND LOSS ACCOUNT OF .33,59,73,684/ - , THE ASSESSING OFFICER ESTIMATED THE FINANCE CHARGES PER CONTRACT PER ANNUM AT .50,000/ - , THE NUMBER OF LOAN ACCOUNTS WAS ESTIMATED TO BE 6720 AND I.T.A. NO S . 80, 902 & 903 /M/16 16 THE COLLECTION CHARGES @ .10,000/ - PER CONTRACT AND THE COLLECTION CHARGES REPRESENTS .6. 72 CRORES NOT RECOGNIZED AS REVENUE BY THE ASSESSEE AS A RESULT OF CHANGED ACCOUNTING POLICY. IN THE ABSENCE OF DETAILS, THE CUMULATIVE INCREASE IN PROFITS AS A RESULT OF ACCOUNTING FOR THE ADDITIONAL FINANCE CHARGES ON ACCRUAL BASIS AND RECOGNIZING T HE GA IN ON ASSIGNMENT OF RECEIVABLE UPFRONT WAS ESTIMATED TO BE .1 CRORE AND THE SAME WAS SET OFF. ACCORDINGLY, .5.72 CRORES WAS TREATED AS THE NET DECREASE IN THE PROFITS AS A RESULT OF ADOPTION OF CHANGED ACCOUNTING POLICY AND DISALLOWED THE SAME. BY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF CIT V. ELGI FINANCE LTD. 293 ITR 357, WHEREIN THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE ACCRUAL OF INCOME IS NOT AUTOMATIC AND INTEREST TO BE TAXED ON THE BASIS OF ACTUAL RECEIPTS, THE PREPOSITION LAID DOWN IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT 320 I TR 577 THAT INCOME TAX IS A TAX ON REAL INCOME , THE VIEW TAKEN TO BRING TO TAX THE COLLECTION CHARGES WHICH HAS NOT BEEN RECOGNIZED BY THE ASSESSEE , WHICH WAS ESTIMATED BY THE ASSESSING OFFICER TO THE EXTENT OF . 6.72 CRORES WAS DIRECTED TO BE DELETED AND THE LD. CIT(A) ALLOWED THE APPEAL FILED BY THE ASSESSEE. 10.1 IN THE INSTANT CASE, THE ASSESSEE HAS NOT QUANTIFIED THE IMPACT OF THE REVISED ACCOUNTING POLICY, THE ASSESSING OFFICER ESTIMATED THE COLLECTION C HARGES ON ACCRUAL BASIS. MOREOVER, IN THE APPELLATE ORDER AGAINST THE ALTERNATE PLEA OF THE ASSESSEE THAT WHILE FRAMING THE ASSESSMENT FOR THE I.T.A. NO S . 80, 902 & 903 /M/16 17 ASSESSMENT YEARS 2011 - 12 AND 2012 - 13 THE ASSESSING OFFICER HAS CONSIDERED THE CONTRACT @ .300/ - , WHEREAS IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE RATE ADOPTED BY THE ASSESSING OFFICER WAS .50,000/ - PER CONTRACT, WHICH IS EXORBITANTLY HIGH. IN VIEW OF THE RULINGS OF THE HON BLE SUPREME COURT IN THE CA S E OF SOUTHERN TECHNOLOGIES LTD. V. JCIT (SUPRA) THAT THE I NCOME TAX IS A TAX ON REAL INCOME AND NOT ON ACCRUED INCOME , THE ASSESSING OFFICER WAS INCORRECT IN ESTIMATING THE FINANCE CHARGES. IN THIS CASE, THE ASSESSEE IS ALSO IN FAULT IN NOT QUANTIFYING THE SAME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR T HE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HAS FURNISHED CONTRACT - WISE SUMMARY BEFORE THE ASSESSING OFFICER AND THE ASSESSIN G OFFICER ALSO OBSERVED THAT MOST OF THE CONTRACTS ARE MATURING IN THE FINANCIAL YEARS FALLING SUBSEQUENT TO THE RELEVANT PREVIOUS YEARS I.E., MANY CONTRACTS ARE MATURING IN 2007, 2008 AND 2009. THEREFORE, JUST BECAUSE THE ASSESSEE HAS NOT SHOWN THE INCOME IN THE P & L ACCOUNT, IT CANNOT BE ESTABLISHED THAT THE ACTUAL RECEIPTS ARE IRRECOVERABLE. UNDER THE ABOVE FACTS AND C IRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO FURNISH THE DETAILS OF OUTCOME OF THE CHAN GED ACCOUNTING POLICY IN THE CURRENT YEAR OR OTHERWISE, THE ASSESSING OFFICER IS DIRECTED TO RESTRICT TO .300/ - PER CONTRACT AS WAS DONE IN THE ASSESSMENT YEARS 2011 - 12 AND 2012 - 13. ACCORDINGLY, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R TO DECIDE THE ISSUE AFRESH AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. I.T.A. NO S . 80, 902 & 903 /M/16 18 11. LIKEWISE, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO THE REVENUE HAS RAISED SIMILAR GROUNDS ON IDENTICAL FACTS. IN VIEW OF THE ABOVE FINDINGS FOR THE ASSESSMENT YEAR 2009 - 10, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 12 . IN THE RESULT, THE ALL APPEAL S OF REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON T HE 28 TH F EBRUARY , 2017 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 28 . 0 2 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.