THE COMMISSIONER OF INCOME T vs. M/S.ARJUN TECHNOLOGIES LTD

TCA/103/2021HC Madras02 February 2021Bench: Hon`ble Mr Justice T. S. SIVAGNANAM6 pages

AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the Revenue. The dismissal was based on the submission made by the Revenue's learned Senior Standing Counsel that the appeals were not being pursued due to low tax effect, in terms of CBDT Circular No.17/2019, which increased the monetary limit for filing appeals before the High Court to Rs.1 Crore. The Court noted that the tax effect in these cases was below this threshold. Consequently, the appeals were dismissed on this ground. The substantial questions of law framed by the Revenue were left open. Liberty was granted to the Revenue to file a petition to restore the appeals if the tax effect was found to be above the threshold limit fixed in the circular, for them to be heard and decided on merits. No costs were awarded. The connected miscellaneous petitions were also closed.

What were the facts?

The appeals were filed by the Revenue (Commissioner of Income Tax, Chennai) against the orders of the Income Tax Appellate Tribunal (ITAT), Madras 'A' Bench, Chennai. The respondent is M/s. Arjun Technologies Ltd. The appeals pertain to assessment years 2006-07, 2007-08, and 2008-09. The ITAT's orders being challenged were dated 07.02.2017, 13.10.2017, and 13.02.2017 respectively. The core dispute revolved around the taxability of retention money withheld by the customer, specifically whether it should be taxed on an accrual basis or receipt basis, given the assessee's mercantile system of accounting.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in remitting the issue back to the Assessing Officer (AO) regarding retention money withheld by the customer, with a direction to include only such part of the retention money as was actually received by the Assessee during the relevant assessment year, without appreciating that the assessee followed the mercantile system of accounting and the amount had accrued and was liable to be taxed? 2. Whether the Tribunal's finding directing the AO to include the actual sum received from the customer on retention money on a receipt basis, instead of including the retention money withheld by the customer on an accrual basis, was proper, and if such a direction would amount to following both the cash and mercantile system for a given assessment year? Assessee's Contention: The assessee followed the mercantile system of accounting, and therefore, the retention money had accrued and was liable to be taxed in the relevant assessment year. Revenue's Contention: The Revenue argued that the Tribunal erred in directing taxation on a receipt basis for retention money, which should have been taxed on an accrual basis as per the mercantile system followed by the assessee. The Tribunal's direction was also questioned for potentially mixing cash and mercantile systems.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

TCA.Nos.103, 107 & 108 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 02.02.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Ms.Justice R.N.MANJULA Tax Case Appeal Nos.103, 107 & 108 of 2021 and C.M.P.Nos.1786 & 1787 of 2021 The Commissioner of Income Tax, Chennai. ...Appellant in all cases Vs M/s.Arjun Technologies Ltd., Park View, II Floor, 94(85), G.N.Chetty Road, T.Nagar, Chennai - 600 017. PAN: AAACA930C ...Respondent in all cases COMMON PRAYER: Appeals under Section 260A of the Income Tax Act, 1961 against the order dated 07.02.2017 made in ITA.No.1573/Mds/2014 for the assessment year 2007-08, ITA.No.1382/Mds/2013 for the assessment year 2008-09 and ITA.No.1381/Mds/2013 for the assessment year 2006-07 on the file of the Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai. 1/6 https://www.mhc.tn.gov.in/judis/ TCA.Nos.103, 107 & 108 of 2021 (in all cases) For Appellant: Mr.T.Ravikumar Senior Standing Counsel For Respondent: Mr.Md.Shaffiq COMMON JUDGMENT (Delivered by

T.S.Sivagnanam,J

) These appeals, filed by the Revenue, are directed against the order dated 13.10.2017 made in ITA.No.1573/Mds/2014 for the assessment year 2007-08, ITA.No.1382/Mds/2013 for the assessment year 2008-09 and ITA.No.1381/Mds/2013 for the assessment year 2006-07 on the file of the Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai ('The Tribunal' for brevity). 2. The appellant-Revenue in all these appeals has raised the following substantial questions of law for consideration: "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in remitting the issue back to the file of AO in respect of retention money withheld by the customer with a direction to include only such 2/6 https://www.mhc.tn.gov.in/judis/ TCA.Nos.103, 107 & 108 of 2021 part of the retention money which was actually received by the Assessee during the relevant assessment year without appreciating the fact that the assessee has been following Mercantile system of accounting and the same has already accrued to the assessee and therefore liable to be taxed? 2. Whether the finding of the Tribunal is proper by directing the AO to include the actual sum that were received from the Customer on retention money on receipt basis instead of including the retention money withheld by the customer on accrual basis and the said direction of the Tribunal would amount to cash system as well as mercantile system method to be followed for a given assessment year which is not proper?" 3. We have heard Mr.T.Ravikumar, learned Senior Standing Counsel for the appellant-Revenue and Mr.Mohamed Shaffiq, learned counsel for the respondent. 4. The learned Senior Standing Counsel appearing for the appellant submits that the above appeals are not pursued by the Revenue on 3/6 https://www.mhc.tn.gov.in/judis/ TCA.Nos.103, 107 & 108 of 2021 account of the low tax effect in terms of Circular No.17/2019 dated 08.08.2019 issued by the Central Board of Direct Taxes. By the said Circular, the monetary limit for filing or pursuing an appeal before the High Court has been increased to Rs.1 Crore. It is further submitted that the tax effect in this case is less than the threshold limit. 5. In the light of the said submissions, the above tax case appeals are dismissed on account of the low tax effect. The substantial question of law framed is left open. In the event the tax effect is above the threshold limit fixed in the said circular, liberty is granted to the Revenue to file a petition before this Court to restore the appeals to be heard and decided on merits. No costs. Consequently, connected miscellaneous petitions are closed. (T.S.S.,J.) (R.N.M.,J.) 02.02.2021 Index: Yes/No Internet:Yes/No Speaking Judgment/Non speaking Judgment hvk 4/6 https://www.mhc.tn.gov.in/judis/ TCA.Nos.103, 107 & 108 of 2021 To 1. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai. 2. The Commissioner of Income Tax, Chennai. 5/6 https://www.mhc.tn.gov.in/judis/ TCA.Nos.103, 107 & 108 of 2021 T.S.SIVAGNANAM,J AND R.N.MANJULA,J hvk T.C.A.Nos.103, 107 & 108 of 2021 and C.M.P.Nos.1786 & 1787 of 2021 02.02.2021 6/6 https://www.mhc.tn.gov.in/judis/

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