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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश आदेश /O R D E R आदेश आदेश
PER MAHAVIR SINGH, VP:
This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-18 Chennai in I.T.A.
No.611/17-18; order dated 06.05.2019. The Assessment was framed by the Assistant Commissioner of Income Tax, Central Circle – 2(1), Chennai for the Assessment Year 2013 – 2014 u/s.143(3) r.w.s.153A of the Income Tax Act, 1961 (hereinafter “the Act”) vide order dated 30.12.2016.
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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.
“2. The learned CIT(A) failed to note the fact that the reconciliation wherein it has been substantiated the reasons for the difference in franchisee receipts was not produced at the time of assessment proceedings before the Assessing Officer.
3. The learned CIT(A) failed to consider the study made during the assessment proceedings, of another company involved in the similar nature of business namely M/s. Groom India Private Limited (in the brand name of “Naturals”) which shows that they recognize the franchisee fee as income in the year of receipt. This franchise fee is received by the company at the time of entering the agreement with franchisees which is similar to the case of M/s. Trends in Vogue Private Limited.”
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.
According to him, the Assessee has postponed the recognition of revenue in the guise of accounting standards as per AS-9, which has been admitted by the Assessee and is being worked out, as under:
Particulars of Revenue F.Y : 2012-13 Franchisee start up fee received 5,52,37,180 during the year
Total Franchisee start up fee 2,94,85,454 recognized as Revenue
Less: Franchisee start up fee refunded 11,00,000 Difference 2,57,40,726
Aggrieved, the Assessee is in appeal before the Commissioner of Income Tax (Appeals).
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:
“10.11.5 The Appellant has offered reconciliation with reference to the total franchisee fee received, the income impregnated in such fee for different years on the basis of recognition of revenue in the year in which the franchisee has commenced business on a consistent regular basis which fact has not been repudiated by the Assessing Officer.
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Year Wise Franchisee Fee Details for TIVPL
F.Y 2008-09 2009- 2010-11 2011-12 2012-13 2013-14 10 F.Y 2009-10 2010- 2011-12 2012-13 2013-14 2014-15 11 Franchisee Stamp Fee - - received 18,00,000 165,00,000 424,35,454 496,18,850 during the year Add – Revenue - - - - 29,00,000 142,50,000 recognized as per AS 9 B/F Less – Revenue - - - 29,00,000 142,50,000 70,00,000 recognized as per AS 9 C/F Less – Revenue - - - - 5,00,000 recognized as per AS 9 C/F 014-15 Less – Franchisee - - - - 11,00,000 44,85,000 Startup Fee refunded Total 18,00,000 136,00,000 294,85,454 523,83,850 Franchisee revenue Royalty Revenue 712,000 57,13,200 273,37,546 687,14,150 - - Net Franchisee - - 25,12,000 193,13,200 568,23,000 12,10,98,000 Revenue Franchisee Revenue as 25,12,000 193,13,200 568,23,000 12,10,98,000 per Financials (schedule)
Difference - - - - - -
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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.
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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.