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Income Tax Appellate Tribunal, SMC “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV
Date of hearing : 30.06.2016 Date of Pronouncement : 19.08.2016 O R D E R This appeal is preferred by the assessee against the order dated 05.12.2014 of the CIT(Appeals), Mysuru for the assessment year 2006-07 inter alia on the following grounds:-
“1. The order of the learned Commissioner of Income-tax (Appeals), Mysuru is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellants case.
2. The learned CIT(A) failed to appreciate that the assessment is bad in law as the mandatory conditions to assume jurisdiction under section 148 does not exist and consequently the assessment made is bad in law. The reason as recorded by the learned assessing officer is not germane to the facts and circumstances of the case and the reasons recorded by the learned assessing officer amount to reason to suspect and do not amount to reason to believe. Thus the order passed by the learned CIT(A) is bad in law.
Without prejudice the Appellant denies itself liable to be assessment on a total income of Rs.6,09,490/- as against the returned income by the appellant of Rs.91,540/- under the facts and circumstances of the case.
4. The learned CIT(A) failed to appreciate the fact that the appellant has filed its return of income as per the Form 16A issued by the authorities under the facts and circumstances of the case.
5. The CIT(A) failed to appreciate the fact that the said amount of Rs.5,17,950/- has been duly accounted and offered for tax in the assessment year 2007-08 and necessary taxes have been duly paid. The learned CIT(A) ought to have appreciated that the income has already suffered tax and thus, taxing the same would amount to double taxation one in assessment year 2006-07 and once again in the assessment year 2007-08 under the facts and circumstances of the case 6. The CIT(A)· ought to have appreciated that the income has already been offered to tax and the same need not be taxed as there is no loss of revenue and the same will be in the nature of revenue neutral as there is no loss of income to the exchequer under the facts and circumstances of the case.
7. Without prejudice the CIT(A) ought to have rectified the order of assessment for the assessment year 2007-08 by reducing the income which has been taxed by the learned assessing officer for the assessment year 2006-07 under the facts and circumstances of the case.
8. The Appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal
urged above.
9. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.”
During the course of hearing, my attention was invited to the fact that the appeal was filed late by 192 days, for which the assessee has filed application for condonation of delay explaining the reasons for delay in filing of the appeal. Finding force therein, I condone the delay and admit the appeal for hearing.
3. Though various grounds are raised, but they all relate to addition of Rs.5,17,950. According to the assessee, this amount was offered to tax in the AY 2007-08 and necessary taxes have been paid thereon. Therefore, the said amount cannot be taxed in AY 2006-07. If it is done, it would amount to double taxation. But, according to the revenue, the assessee is following completed contract method and has raised two bills for Rs.18,000 and Rs.4,99,950 totalling to Rs.5,17,950 on 16.03.2006. Since the assessee has been following mercantile system of accounting, this amount should have been accounted in the previous year relevant to AY 2006-07 as bills receivable. The AO accordingly made an addition of this amount of Rs.5,17,950 in AY 2006-07.
An appeal was preferred before the CIT(Appeals) with the submission that for the current AY, there was a closing stock of Rs.9,56,715 and if the abovementioned two bills are considered, then the closing stock will automatically come down and based on mercantile system of accounting, the gross profit will come down by Rs.5,17,950, as the entries would be revenue neutral. It was further contended that in any case payment was received on 8.5.2006 and on its receipt, the assessee offered it to tax. Therefore, no purpose would be served by making addition in the impugned A.Y. as it would amount to double taxation.
The CIT(Appeals) re-examined the issue, but was not convinced with the arguments of the assessee and he confirmed the addition. The relevant observations are extracted hereunder for the sake of reference:-
“8. I have considered the rival contentions carefully. On the legal issue of reopening I find that the AO has duly followed all the legal formalities. Further, the AO had reason to believe with clear documentary evidence and not just reason to suspect as argued by the appellant. Hence I do not find merit in the argument of the appellant. Further even if the income is admitted in the subsequent year, if the income has to be taxed in the particular year, the same has to be taxed in that year alone. Hence on the argument that the income admitted in subsequent year cannot be reason for reopening do not have merit. Hence these arguments are not acceptable. On merits, it is clear that the bills are raised on 16.3.2006 which is also acknowledged by the CESC Ltd, in their statement. There is no basis for the argument of the appellant that the bills were despatched belatedly and no evidence is adduced for this. Apparently, the expenses are all booked in the previous year and the work is also completed. Hence the argument of admitting income on complete contract method also goes against the appellant. I also do not find strength in the argument of the appellant that the issue is revenue neutral because the interest liability would still be there and the appellant is also contesting charging of interest u/s 234B which is mandatory as held by the Hon'ble Karnataka High court in the case of Union Home Products Ltd vs. Union of India and another 215 ITR 758(Ktk). However since the income is assessed for the current year, the appellant can claim credit for the same in the next year as per law. Since this issue is not a matter of appeal before me, no specific direction is given regarding A.Y.2007-08.”
Aggrieved, the assessee has preferred an appeal before the Tribunal and reiterated its contentions. Whereas the ld. DR, on the other hand, has submitted that income has to be assessed in the right assessment year. Since the assessee has been following mercantile system of accounting, the bill receivable should have been accounted for in the previous year relevant to impugned assessment year. The assessee cannot be allowed to adopt mixed system of accounting. Moreover, the CIT(Appeals) has already observed that since the income is assessed for the current year, the assessee can claim credit for the same in the next year as per law. However, the CIT(Appeals) did not issue necessary instructions in this regard.
Having carefully examined the orders of lower authorities in the light of rival submissions, I find that undisputedly assessee has been following mercantile system of accounting, therefore, the bill receivable should have been accounted for during the impugned assessment year. The CIT(Appeals) has already observed that since the income is assessed for the current year, the assessee can claim credit for the same in the next year as per law. In order to avoid double taxation, the CIT(Appeals) should have directed the AO to allow credit for the same in the next year, because there should not be any double taxation in different assessment years.
Since I do not find any infirmity in the finding of the CIT(Appeals), I confirm the same. However, I direct the AO to allow credit of the same in the subsequent assessment year i.e., AY 2007-08 in which the assessee has offered this amount to tax, after making necessary verification.
In the result, the appeal of the assessee is dismissed.
Pronounced in the open court on this 19th day of August, 2016.