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Facts
The assessee, a company involved in entertainment slot inventory, filed its return for AY 2019-20. Subsequently, it was discovered that an amount of Rs. 9,07,48,926 was inadvertently offered to tax twice due to an accounting error related to unbilled revenue and invoicing.
Held
The Tribunal held that the assessee had indeed offered the income of Rs. 9,07,48,926 to tax twice, once as unbilled revenue in earlier years and again upon raising invoices in the year under consideration. Therefore, the assessee was entitled to a reduction of this amount.
Key Issues
Whether the assessee is entitled to a reduction in taxable income for an amount that was inadvertently offered to tax twice due to accounting errors.
Sections Cited
154, 143(1), 244A
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM &
: Shri Nikhil Tiwari, AR Appellant /Assessee by Revenue / Respondent by : Shri R.R. Makwana, Addl. CIT Date of Hearing : 18.02.2025 Date of Pronouncement : 27.02.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [for short 'the CIT(A)] dated 22.10.2024 for the AY 2019-20. The assessee raised the following ground of appeal:-
Matrix Publicities and Media India Pvt. Ltd. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) - NFAC has General grounds 1. erred in determining the total income of the Appellant at Rs 66,36,26,680 as against revised total income of Rs 57,28,77,760 offered by the Appellant during the rectification proceedings under Section 154 of Act. Income wrongly offered to tax twice of Rs 9,07,48,926 is required to be reduced from total income 2. erred in rejecting the Appellant's claim that Rs 9,07,48,926 was inadvertently offered to tax twice which was intimated to the Learned Assessing officer during the rectification proceedings under Section 154 of Act.
3. Without prejudice to Ground 2 above, erred in rejecting the fresh and additional claim submitted by the Appellant during the course of the appellate proceedings on the ground that the same does not form part of the rectification application. 4. erred in not allowing reduction of Rs 9,07,48,926 from taxable income without appreciating the fact that the same has been inadvertently offered to tax by the Appellant twice i.e. once in the year of accrual of income and again in the year of raising invoice leading to double taxation of the same income and thereby leading to violating the principles of natural justice.”
The assessee is a company and has acquired the exclusive rights for entertainment slot inventory on Broadcast TV Channel and sales the same to advertisers, music companies, film producers, home video company etc. The assessee filed the return of income for AY 2019-20 on 30.11.2019 declaring a total income of Rs. 66,36,26,680/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (the Act) accepting the income returned by the assessee. There were certain errors noticed by the assessee while granting refund in the intimation under section 143(1) of the Act. The assessee filed a petition under section 154 to rectify the mistakes and the AO passed the rectification order accordingly. The assessee filed an appeal before the CIT(A) contending the short grant of interest under section 244A of the Act given in the order under section 154 of the Act. Before the CIT(A), the assessee made a fresh claim stating that an Matrix Publicities and Media India Pvt. Ltd. amount of Rs. 9,07,48,926/- has been inadvertently offered to tax while computing the taxable income for the AY under consideration. The assessee made the following submissions before the CIT(A) with regard to inadvertent offering of excess income – "The appellant prays that income of Rs 9,07,48,926 (which has been inadvertently offered to tax twice) ought to be allowed as deduction while computing business income of the subject AY. The appellant in it's submissions stated that income of Rs 9,07,48,926 has been inadvertently offered to tax twice. The appellant submitted that in respect of unbilled revenue recorded in the books of accounts that it follows a mercantile method of accounting for the purpose of maintaining its books of accounts and hence on a year on year basis, the Appellant accrues unbilled revenue with respect of the contracts with its customers in line with Income Computation and Disclosure Standards ('ICDS') IV - 'Revenue recognition'. In this regard, we wish to submit that in case of one of the Appellant's clients, namely - Hindustan Thompson Pvt. Ltd. ('HTPL'), the Appellant had accrued the following revenue by crediting the same to the profit and loss account of AY 2017-18, 2018-19 and 2019-20:
FY in which revenue was Amount of revenue Offered to tax in accrued accrued (in Rs) respective FY 2016 7,27,30,790 Yes 2017 41,89,092 Yes 2018 2,23,46,370 Yes Total 9,92,66,252 In this regard, the appellant further iterated as under:
"During the year under consideration, Appellant raised invoices on HTPL for Rs 9,07,48,926 against the above accrued unbilled revenue. Typically, since the amount has already been accounted as revenue at the time of accruing, the invoice raised is adjusted against such accrued revenue. However, inadvertently, the assessee missed to reverse the accrued revenue (i.e. entry no. 3 of the illustration) recorded in the books of accounts for FY 2018-19 and the invoice amount of Rs 9,07,48,926 was recorded as revenue in the profit and loss account for FY 2018-19, thereby leading to the following:
Overstating the gross revenue of FY 2018-19 by Rs 9,07,48,926.
Matrix Publicities and Media India Pvt. Ltd. Inadvertently missed providing the impact in the tax return of FY 2018-19- The assessee had inadvertently missed to give any impact in the computation of income for FY 2018-19 thereby offering the same income to tax twice i.e. one at the time of accrual in the respective years as specified at point 15 and second time at the time of raising the invoice i.e. FY 2018- 19.
Given the above, your goodself would appreciate that once an income has been taxed on accrual basis, it should not be once again taxed at the time raising the invoice. Reversal of accrued revenue in FY 2019-20 (AY 2020-21) 19. We wish to inform to your goodself that the said error was identified at the time of preparation of books of accounts for FY 2019-20. Further, since the statutory accounts of FY 2018-19 were already closed, the amount of Rs 9,07,48,926 was reversed from the revenue of FY 2019-20 i.e. the year in which such error was discovered.
Further, the said error was also discussed and highlighted to the statutory auditor, post which a separate note detailing the accounting impact given was included in the financial statements for FY 2019-20. Extract of Note 22 of the financial statement is provided as under: -------- 21. As you would note from the above, the reversal impact was provided in the revenue for FY 2019-20, thereby leading to understatement of the income of Matrix for FY 2019-20. However, given the matching concept of income and expense, i.e, income and expense must be recognized in the period to which they relate.
Thus, at the time of preparation of computation of income for FY 2019-20, the assessee has added back such reversal of Rs 9,07,48,926 in its computation of income.
Given the above, the Appellant wishes to file an additional ground/ claim before Your Honour to claim deduction/ withdrawal of income of Rs 9,07,48,926 which has been erroneously offered to tax twice.”
The CIT(A) rejected the submission of the assessee for the reason that the assessee has not substantiated the claim and that the application for submission of Matrix Publicities and Media India Pvt. Ltd. ITR manually cannot be entertained. The assessee is in appeal before the Tribunal against the order of the CIT(A).
The ld. AR submitted that at the time of finalizing the accounts for the year ended 31.03.2020 the statutory Auditors noticed that the assessee failed to reverse the unbilled revenue on receipt of invoices during the Financial Year (FY) 2018-19 and accordingly reduced the revenue to the tune of Rs. 9,07,48,926/- (page 55 of PB) from the revenue of FY 2019-20. The ld. AR further submitted that the amount thus reduced is added to the income in the statement of computation and accordingly offered to tax for AY 2020-21. The ld. AR in this regard drew our attention to the computation of total income in page 43 of PB. The ld. AR accordingly submitted that the revenue offered to tax in AY 2019-20 i.e. the year under consideration excess stated to the tune of Rs.9,07,48,926 since the assessee failed to reverse the unbilled revenue once the invoice is raised on the party. Therefore, the ld. AR submitted that the amount of Rs. 9,07,48,926/- has been taxed twice once in the respective years as unbilled revenue and also in AY 2019- 20 based on invoices raised. Accordingly, the ld. AR sought for relief towards the income erroneously offered to tax in the year under consideration. The ld AR submitted a detailed note along with the documentary evidences to substantiate the facts pertaining to the issue under consideration.
We heard the parties and perused the material on record. The assessee has follows mercantile system of accounting and accordingly has accrued revenue including unbilled revenue. The assessee has accrued the unbilled revenue of one customer viz., Hindustan Thompson Pvt. Ltd. as below – Matrix Publicities and Media India Pvt. Ltd. Financial Year Amount - INR Paper Book Reference (‘FY’) 2016-17 7,27,30,790 Page 156 and 171 of paper book 2017-18 41,89,092 Page 161 and 175 of paper book 2018-19 2,23,46,370 Page 165 and 181 of paper book Total 9,92,66,252
The assessee during the financial year relevant to the year under consideration raised invoice on the customer to the tune of Rs. 9,07,48,926/- and as per the accounting practise should have reversed the unbilled revenue to this account to nullify the impact on the income in FY 2018-19 since the income is already accounted in the respective FYs. However, the assessee has failed to do so and he ld. AR also drew our attention to ledger accounts of "other receivables" and "other income" to substantiate the claim (page 152 to 165 of paper book and page 166 to 182 of paper book). It is submitted that this error is noticed while finalising the accounts for the subsequent FY i.e. year ending 31.03.2020. The relevant observations of the auditors in this regard is extracted below - “Note 22: Unbilled revenue written off The Company had accounted for the unbilled revenue in respect of the contract with the customer viz., Hindustan Thompson Pvt. Ltd. (‘HTPL’) as follows:
Financial Year (‘FY’) to which accrued Amount INR revenue relates 2016-17 7,27,30,790 2017-18 41,89,092 2018-19 2,23,46,370 Total 9,92,66,252 Against the aforesaid unbilled revenue, the Company raised invoices on HTPL, amounting to INR 9,07,48,926/-in the FY 2018-19. However, on raising the invoices, the entries towards unbilled revenue in earlier years amounting to INR 9.07,48,926/- were not reversed in FY 2018-19. Accordingly, during 2019-20, the Company has reversed unbilled revenue of BNR 9,07,48,926. Due to this, the revenue in profit & loss account and unbilled revenue for FY 2019-20 have been understated by INR 9,07,48.926/-
We also notice that the amount of Rs. 9,07,48,926/- which is reduced from the revenue for FY 2019-20 is added back in the statement of computation (Page 43 of PB) and the return of income filed for AY 2020-21 (page 28 to 42 of PB) also substantiates this fact. We have also perused the updated computation of income of the assessee (page 83 of paper book) and the copy of the revised return for AY 2019-20 (page 84 to 144 of paper book). On the combined perusal of all the above stated facts along with the documentary evidences, we are convinced of the fact that the income of Rs. 9,07,48,926/- has been offered to tax twice once in the respective FYs as unbilled revenue and also in the year under consideration upon raising invoices. Accordingly we see merit in the submission of the ld AR that for the year under consideration the income to the tune of Rs. 9,07,48,926/- has been excess stated. Therefore we direct the AO to reduce the income of the assessee to the extent of Rs. 9,07,48,926/- which has been excess offered to tax erroneously by the assessee. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.
In result, the appeal of the assessee is allowed.