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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: JUSTICE P.P. BHATT & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–1, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-VI/DCIT, Cir- 1/141/2013-14 Now 242/CIT(A)-1 dated 20/02/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 21/03/2013 relevant to Assessment Year (AY) 2010-11.
The assessee has raised the following grounds in its appeal:-
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 2 - 1. The learned CIT(A) erred in law in upholding disallowance of electricity expense of Rs.675,488/-. 2. The learned CIT(A) erred in law in upholding disallowance of prior period expense of Rs.9,69,213/-.
The first issue raised by the assessee is that the Ld. CIT(A) has erred in upholding the disallowance of electricity expenses of Rs. 6,75,488/- only.
Briefly stated facts are that the assessee is a private limited company and engaged in the business of collecting, compiling and analyzing viewership date (TRP Division) and software and I.T. development (Software Development Division).
4.1. The assessee in the year under consideration has claimed electricity the expense amounting to Rs. 6,75,488/- only. But the electricity bills were not bearing the name of the assessee. The assessee claimed that it had outsourced log job work to M/s Kinjal Communications and Technologies (for short KCT). M/s KCT submitted these electricity bills to the assessee. As such, there was an arrangement between the assessee and KCT to reimburse certain actual expenses including electricity expenses incurred by it besides the professional charges.
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 3 - 4.2. Accordingly, the assessee claimed that it had reimbursed the electricity expenses to KCT on actual basis. M/s KCT submitted these bills to the assessee in respect of the work carried out on its behalf.
4.3. The assessee also claimed that there was no profit element in the electricity bills submitted by KCT which were reimbursed on an actual basis. Therefore, there is no question of attracting the provisions of section 194C of the Act.
4.4. However, the Assessing Officer disagreed with the contention of the assessee and accordingly held that these reimbursements of electricity expenses were paid in pursuance to the contract. Therefore, the assessee was liable for the deduction of TDS u/s 194C of the Act. Accordingly, the Assessing Officer disallowed the same and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that there is no obligation on the assessee to deduct TDS on reimbursement of expenses.
5.1. However, the Ld. CIT-A found that the bills filed by KCT are of the address bearing “318/2/9, Pahel Gaum, B/h Premchand Nagar, Satyagrah Chhavni Road, Ahmedabad” whereas the address of KCT is “19, Shital Plaza, Near Lad Society, Satellite, Ahmedabad”. Therefore, the Ld. CIT(A) concluded that these electricity bills are of personal
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 4 - nature which has not been incurred wholly and exclusively for the business. Accordingly, the Ld. CIT(A) confirmed the disallowance by observing that the electricity expenses were not incurred wholly and exclusively for the business.
. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The Ld.AR before us submitted that all the electricity bills were submitted before the authorities below and these expenses were incurred in pursuance to the contract with the KCT. As such, M/s. KCT was also operating from the premises bearing No. 318/2/9, Patel Gaum, B/h. Premchand Nagar, Satyagrah Chhavni Road, Ahmedabad, whereas its registered office was located at a different address. However, in the agreement between the assessee KCT, the address of KCT was mentioned “19, Shital Plaza, Near Lad Society, Satellite, Ahmedabad”. But simply non-mentioning of the address in the agreement cannot be the reason for making such disallowance.
On the other hand, the Ld. DR submitted that the electricity bills bearing the address as stated above was of the residential premises. Therefore, it cannot be believed that M/s.KCT was operating from such premises. The Ld. DR vehemently supported the orders of the authorities below.
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 5 - 9. We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant materials available on record. In the instant case, the assessee has claimed electricity expenses amounting to Rs. 6,75,488/- which was treated for non-business purposes. Therefore, the disallowance was made u/s 37(1) of the Act.
9.1. From the preceding discussion, we note that the assessee before the Ld. CIT(A) has filed the bills raised by M/s. KCT for the reimbursement of electricity expenses. Had there been any doubt, then the Ld. CIT(A) was at liberty to have taken the confirmation from the party. But the Ld. CIT(A) has not exercised his power u/s 133(6)/131 of the Act.
9.2. We also note that the assessee has also filed the copy of the agreement with KCT dated 01/04/2009 where the address of 19, Shital Plaza, Near Lad Society, Satellite, Ahmedabad was mentioned. This agreement was made to outsource the work by the assessee to KCT. But no defect was pointed out by the authorities below in respect of the impugned agreement.
We also note that the Assessing Officer has given very clear-cut finding in his assessment order that the assessee made the payment to KCT for the work executed by it.
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 6 - 9.3. We also note that the disallowance was made by the Assessing Officer on account of non-deduction of TDS, whereas the Ld. CIT(A) has made the disallowance on a different ground, i.e., the expenses were not incurred in connection with the business as mandated u/s. 37(1) of the Act. From the above, we note that the Ld. CIT(A) has taken a different stand by confirming the disallowance of the electricity expenses which amounts to the enhancement of the assessment. But we note that no notice as mandated u/s 251(2) of the Act was issued by the Ld. CIT(A) before enhancing the assessment.
9.4. In view of the above, we are not inclined to sustain the addition as made by the lower authorities. Thus, we reverse the orders of authorities below. Accordingly, we direct the Assessing Officer to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.
The second issue raised by the assessee is that the Ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer for Rs. 9,69,213/- on account of prior period expenses.
10.1. The assessee in the year under consideration has shown prior period income of Rs. 16,67,228/- which was adjusted against the prior period expenses of Rs. 10,61,413/ only. Thus, in effect, the assessee has shown prior period income for Rs. 6,05,815/- only. However, the Assessing Officer was of the view that there is no provision under the
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 7 - Act for allowing the prior period expenses as claimed by the assessee. Accordingly, a clarification was sought by the Assessing Officer from the assessee vide letter dated 05/02/2013.
10.2. The assessee in compliance to it, vide letter dated 19.2.2013 submitted that these prior period expenses/income were crystallized in the year under consideration. Therefore, the same was claimed against the prior period income.
10.3. The assessee also claimed that if the prior period expense is to be disallowed, then corresponding prior period income should also be reduced from the total income.
10.4. However, the Assessing Officer disagreed with the submission of the assessee by observing that the prior period expenses were not crystallized in the year under consideration. Therefore, he disallowed the same and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that had these expenses been claimed in the relevant assessment year, then these should have been allowed. As there is no change in the rate of tax in the earlier as well as in the year under consideration, therefore there is no loss to the Revenue. The assessee in support of his claim relied on several judgments before the Ld.CIT(A).
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
11.1. However, the Ld. CIT(A) observed that the prior period expenses were not crystallized in the year under consideration. Therefore the same cannot be allowed. Similarly, the Ld. CIT(A) also observed that the prior period income received in the year under consideration has to be taxed as per the provisions of law.
11.2. The assessee has not brought anything on record suggesting that the rate of tax was the same for the years to which the expenses pertain viz-a-viz to the year under consideration. In view of the above, the Ld. CIT(A) confirmed the order of the Assessing Officer.
Being aggrieved by the order of the Ld. CIT(A), now the assessee is in appeal before us.
The Ld. AR before us submitted that the prior period expenses need to be allowed as the prior period income has been offered to tax.
On the other hand, the Ld. DR supported the orders of the authorities below.
We have heard the rival contentions. We have perused the relevant materials available on record. From the preceding discussion, we note that the assessee has offered prior period income as well as claimed prior period expenses. However, prior period income has been admitted
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 9 - without adjusting with the prior period expenses. In this regard, we note that the courts have held that once prior period income has been credited, then the corresponding expenses are also be allowed against such income. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Limited Vs. CIT reported in 213 ITR 523 wherein it was held as under: “Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis, it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that accounts are maintained on mercantile basis and that it relates to a transaction of the previous year. The true profit and gain of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallizing the expenditure is not in existence in respect of which such income or expenses relates, the mercantile system does not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallized is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallized, can only be adjusted as contingency item but not as an accrued income or liability of that year. Thus, the Tribunal was not justified in holding that the impugned expenditure was not allowable in the relevant previous year on the ground that the liability had arisen in the earlier years.”
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
15.1. We also draw support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT Vs. Excel Industries Limited reported in 358 ITR 295 wherein it was held as under: “32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty 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 the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. 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 coffers.”
15.2. We also find force in the contention of the Ld.AR that there was no change in the rate of tax. Accordingly, there was no loss to the Revenue if prior period expenses claimed in the year under consideration. In this regard, we find support and guidance from the judgment of Hon’ble Bombay High Court in the case of CIT vs. Nagri Mills Co.Ltd. reported in 33 ITR 681 (Bom) wherein it was held as under:
“We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible 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 rate 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 assessment year 1952- 53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
- 11 - consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of the character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.”
15.3. In view of the above, we hold that the assessee is entitled to the prior period expenses against the prior period income as discussed above. Accordingly, we reverse the order of the authorities below. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 21/01/2019
Sd/- Sd/- ( JUSTICE P.P. BHATT ) ( WASEEM AHMED ) PRESIDENT ACCOUNTANT MEMBER
Ahmedabad; Dated 21 /01/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.1163/Ahd/2015 Audience Measurement and Analytics Pvt.Ltd. vs. DCIT Asst.Year - 2010-11
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation 9.1.2019(dictation pad 27- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 10.1.20 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….25.1.2019 7. Date on which the file goes to the Bench Clerk…………………25.1.2019 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………