DCIT, CENTRAL CIRCLE - 2 (1), CHENNAI vs. M/S. TRENDS IN VOGUE PVT. LTD., CHENNAI

This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-18 Chennai in I.T.A.

The only issue in this appeal of the Revenue is that the reconciliation filed by the Assessee in regard to the franchise receipts that were not confronted by the Assessing Officer and accordingly there is a violation of Rule 46A of the Income Tax Rules, 1962. For this, the Revenue has raised the following Ground Nos.2 & 3, reproduced as under.

The brief facts of the case are that the Assessee Company is a domestic company engaged in the business of providing styling and beauty solutions through its chain of saloons. A search was conducted u/s.132 of the Act at the :: 3 :: I.T.A No.:2338/CHNY/2019 business premises of the Assessee on 18.11.2015 and consequent to the search, notice u/s.153A of the Act was issued and the assessment was framed u/s.143(3) r.w.s.153A of the Act vide order dated 30.12.2016. During the course of the assessment proceedings, the Assessing Officer noted and concluded that the Assessee ought to have treated the franchisee fee received as income in the year of receipt.

The Commissioner of Income Tax (Appeals) after taking the reconciliation split the sum of Rs.2,57,40,726/- into two parts. The first part, a sum of Rs.1,10,01,729/- was refunded in :: 4 :: I.T.A No.:2338/CHNY/2019 the relevant Assessment Year itself and the Assessing Officer has not allowed any deduction for this refund of Rs.1,10,01,730/-. Secondly, the difference of franchisee fee received during the year was a sum of Rs.1,47,50,000/- which is treated as an advance and deferred the recognition of revenue to the subsequent Assessment Years. But the Assessing Officer had treated the income of Rs.1,47,50,000/- as income of the relevant Assessment Year, holding that the amounts were actually received during the previous year relevant to the Assessment Year under consideration.

The Assessee before the Commissioner of Income Tax (Appeals) had filed a reconciliation statement as is observed in paragraph No.10.11.5, reproduced as under:

Now, the Revenue has disputed only this item of Rs.1,47,50,000/-. The learned Senior Departmental Representative argued that he has no issue with the order of the Commissioner of Income Tax (Appeals) but the reconciliation has not been confronted with the Assessing Officer for verification purpose and as to whether the Assessee has disclosed this income of Rs.1,47,50,000/- in the subsequent Assessment Years, i.e, A.Ys 2014 – 2015 and 2015 – 2016.

On this, the learned Counsel for the Assessee fairly agreed that the matter can be set aside to the file of the Assessing Officer with a limited purpose of verification of the fact as to whether this income was offered in the subsequent years for the Assessment Years 2014 – 2015 and 2015 – 2016 and is the same income which has been received by the Assessee in the relevant Assessment Years 2013 – 2014.

We noted that the plea of the learned Senior Departmental Representative is reasonable because the Commissioner of Income Tax (Appeals) has taken the reconciliation at the back of the Assessing Officer. Hence, we remand this issue back to the file of the Assessing Officer for limited purpose of verification.

In the result, the appeal of the Revenue in I.T.A No.:2338/CHNY/2019 is allowed for statistical purposes.