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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI CHANDRA MOHAN GARG & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA-TP No. 1718/H/2019 A.Y.: 2015-16 Value Labs Technologies, Vs. Asst. Commissioner of Hyderabad. Income-tax, Circle – 8(1), PAN – AAIFV 6716 G Hyderabad. (Appellant) (Respondent) Assessee by: Shri P. Murali Mohan Rao Revenue by: Shri Y.V.S.T. Sai Date of hearing: 11/10/2021 Date of pronouncement: 29/11/2021 O R D E R PER BENCH: This appeal filed by the assessee is directed against the order passed u/s 143(3) r.w.s. 144C(13) of the Income- tax Act, 1961, dated 23/10/2019 for AY 2015-16 on the following grounds of appeal: “1. The AO erred in not erred in not issuing Draft Assessment order as per procedure laid down u/s 143(3) r.w.s, 92CA(3) r.w.s. 144C(3) of the Act by issuing lice or demand uls 156 of the Act along with Draft assessment dated 28.12.2018. which tantamount to passing of Final Assessment Order.
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The ld. AO/DRP erred in disallowing provision for consultancy s for Rs.32,OO,OOO/- . 2.1 Erred in making the disallowance of Provision for consultancy charges for Rs. 32,00,000/- without considering the explanation or the appellant. 2.2 Erred in making adjustment towards Provision for consultancy charges amounting to Rs.32,00,000/- without appreciating the fact that the assessee has reversed the amount of Rs.32,00,000 in the subsequent year and the same has been added back and suffered tax . 2.3 Erred in not appreciating the fact that, amount is already considered in the subsequent year i.e. AY 2016- 17, by the Assessee and further disallowance would tantamount to double tax at ion. 2.4 Erred in not appreciating the fact that the assessee during the year under consideration has recorded the provision by mistake. The assessee itself in the subsequent year has rectified the mistake by reversing the provision made and paid the tax. 2.5 Erred in not appreciating the fact that the tax rate of both the years is same and therefore there is no loss to revenue. 2.6 Erred in not appreciating the fact that the assessee is entitled for tax credit during the year under consideration for the taxes paid on the reversal or provision in the subsequent year. 3. The appellant may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing or the appeal.”
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Briefly the facts of the case are that the assessee engaged in the business of software division and information technology enabled support services, filed its return of income for Ay 2016-17 on 24/11/2015 declaring total income of Rs. 51,44,73,940/-. Subsequently, the case was selected for scrutiny and accordingly, statutory notices were issued to the assessee. In response, the assessee submitted ITR along with all annexure and schedules and computation of income.
2.1 On verification of the record, the AO observed that the assessee had entered into international transactions of Rs. 98,01,58,884/- with its Associate Enterprises during the year and accordingly, approval was obtained from the Pr. CIT-2, Hyderabad and the case was referred to the Transfer Pricing Officer (TPO). On the basis of TPO’s order, the income of the assessee was enhanced by Rs. 9,84,111/- u/s 92CA(3) of the Act.
2.2 The AO noted that the assessee had made a provision of Rs. 32 lakhs towards consultancy charges. In this regard, the AR of the assessee submitted a note, which is as under: "During the F. Y.20 14-15, one of the partners retired from partnership with effect from 31st July, 2014, subsequent to that we have made necessary provisions in the books of accounts and passed the reversal entries on 1st August 2014. But in consultancy charges account we have made a provision of Rs. 16,00,000/-
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Subsequently in Aug'14 instead of reversing the provision, we have made an addition provision of Rs.16,00,000/-. Hence, the total provision of Rs.32,00,000/- to be disallowed and tax(AMT) to be calculated accordingly.”
2.3 Accordingly, the AO disallowed the said amount of Rs. 32,00,000/-.
With regard to the addition of Rs. 32,00,000/-, the DRP confirmed the addition observing that the AO has correctly disallowed the provision for consultancy charges as the assessee’s claim that it is reversed in the next year will not make this provision as an allowable expenses in the impugned AY.
Aggrieved, the assessee is in appeal before the ITAT.
Before us, the ld. AR of the assessee submitted that the provision of consultancy charges has been reversed in the subsequent AY 2016-17 and the tax has been paid and, therefore, it should be allowed in this year, as the same cannot be taxed twice. He relied on the following judgments: 1. CIT Vs. Skyline Great Hills, [2016] 68 taxmann.com 188 2. Sri G.V. Arjun Goud Vs. ITO, 1939/Hyd/2017 3. ITO Vs. Shri Rajeevkumar N. , ITA No. 1803/Ahd/2008 4. ACIT Vs. Shree Shiv Vankeshawar Educational & Social welfare Trust, [2019] 106 taxmann.com 249
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The ld. DR, on the other hand, relied on the orders of revenue authorities.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. It is observed that the provision for consultancy charges has been added in this AY, against which, the ld. AR of the assessee put-forth his arguments before us that it has been reversed in the subsequent AY i.e. 2016-17 and paid tax on it. Considering the submissions of the assessee and the orders of revenue authorities, we observe that for computing taxable income for any assessment year, sections 3, 4 & 5 of the Income-tax Act, 1961 are come into play. Section 3 defines the Previous Year; section 4 is a charging section & section 5 is scope of total income. Therefore, if the assessee earns income in any previous year, the tax should be paid on the earned income in that previous year. Hence, in the impugned case, according to the AO, the provision made towards consultancy charges was not allowable for the impugned AY. i.e. it was the income of the impugned AY which was reduced by the assessee from the profit earned by making provision towards consultancy charges. Same amount cannot be taxed twice. In our considered view, as noted above, the assessee is liable for payment of tax on the provision for consultancy charges in this year to which the
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AO has done properly. Therefore, we deem it fit and proper to remit this issue to the file of the AO for a limited purpose to verify as to whether the assessee has been reversed the provision for consultancy charges in the subsequent AY i.e. 2016-17 and the same has taken into consideration for tax purposes. If the assessee has reversed the provision in AY 2016-17 and paid taxes thereon, then, adjust the demand of tax if any for the impugned AY on the disputed amount, as per law within a reasonable time so that hardship to the assessee can be avoided. 8. In the result, appeal of the assessee is partly allowed for statistical purposes in above terms. Pronounced under Rule 34(4) of ITAT Rules, 1963 on 29/11/2021. Sd/- Sd/- (CHANDRA MOHAN GARG) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 29th November, 2021. Kv` Copy to : 1 M/s Value Labs Technologies, C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2 ACIT, Circle – 8(1), Hyderabad. 3 DRP - 1, Bengaluru Pr. CIT - 2, Hyderabad. 4 5 ITAT, DR, Hyderabad. 6 Guard File.
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S.No. Details Date 1 Draft dictated on 2 Draft placed before author Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement 7 File sent to Bench Clerk 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order