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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI ASHWANI TANEJA (ACOUNTANT MEMBER)
O R D E R Per ASHWANI TANEJA, AM
This appeal has been filed against the order of the Commissioner of Income-tax (Appeals)-18,l Mumbai [hereinafter called Ld.CIT(A|)] dated 15-09- 2014 passed against assessment order u/s 143(3) DT 18-03-2012 for A.Y. 2010- 11 on the following grounds:- “(1)On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.51,19,950/- on the alleged plea that this income is pertains to the A.Y.2010-11, without considering the fact and circumstances of the case.
2. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that out of the above income, the income amounting to Rs.37,12,500/- pertains to the A.Y. 2011'12,which was already offered by the appellant in the next year and making an addition again will tantamount to double addition which is not acceptable as per the Income Tax Act, 1961.
3. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not accepting the business income offered by the appellant and by rejecting all the expenses, without considering the facts and circumstances of the case. 4.On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.1,54,00,000I- u/s.69A of the Income Tax Act' 1961 as alleged Unexplained income received from M/s. Sovereign Safe ship Management Ltd, without considering the facts circumstances of the case.”
During the course of hearing, arguments were made by Shri Rishabh Shah, CA and Shri Srikant Namdeo, JCIT, Sr .DR.
Grounds 1 & 2: These grounds pertain to solitary issue, wherein the assessee has challenged the action of lower authorities in bringing to tax the entire amount of Rs.52,29,950 as income of the impugned assessment year whereas as per the assessee, a part of a this amount i.e. a sum of Rs.37,12,500 pertained to the subsequent assessment year i.e. A.Y. 2011-12.
The brief facts are that during the impugned assessment year assessee raised invoices upon one of its group companies, viz. M/s Sovereign Safe Ship Management Pvt Ltd (hereinafter called SSSMPL) on account of software licence and its annual maintenance services for the period January, 2010 to December, 2010 for an aggregate amount of Rs.51,19,950. Out of the said period, 3 months period i.e. January, 2010 to March, 2010 fell in the impugned financial year, and therefore, the assessee credited proportionate amount of Rs 12,27,500 to its Profit & Loss Account as income of the impugned financial year. But, the Assessing Officer was of the view that since invoices have been raised for the full amount, total amount of Rs.51,19,950 should be treated as income of the impugned year. Being aggrieved, the assessee filed appeal before the Ld. CIT(A), wherein order of AO was confirmed. Being aggrieved, the assessee filed appeal before the Tribunal.
During the course of hearing it has been brought to our notice by ld. Counsel of the assessee that assessee is following mercantile system of accounting. Thus, income accrued and earned for the year under consideration was on account of ‘3 months’ period amounting to Rs.12,37,500 and accordingly assessee rightly credited only this amount to its P & L Account. It was further submitted that in any case, the remaining amount has been included in the income of the subsequent year and has been accepted by the AO in the subsequent year, i.e. A.Y. 2011-12. He relied upon the judgement of Hon’ble Bombay High Court in the case of CIT vs Nagri Mills Co Ltd 33 ITR 681 (Bom) wherein the High Court has suggested the department to take liberal view in such issues.
Per contra, the Ld. DR supported the orders of the lower authorities.
It is noted by us that the assessee had raised invoices on account of licence fee and annual maintenance charges for the calendar year January, 2010 to December, 2010. Apparently, only 3 months fell in the impugned financial year i.e. A.Y. 2009-10 ending 31-3-2010. The invoice was raised for full 12 months period. Thus, the income that accrued to the assessee during the year before us pertained to ‘3 months’ period only. Thus, in our view, the assessee has rightly shown the income for ‘3 months’ period only. It is further noted that in any case, the balance amount has been included by the assessee in its income for the subsequent year i.e. A.Y. 2011-12 and has been accepted as such by the AO. Under these circumstances, we do not find that the approach of the revenue was justified in following such a hyper-technical approach. We find that the Hon’ble Bombay High Court had given clear guidance for deciding such matters in the case of CIT vs Nagri Mills Co Ltd (supra) by observing as follows: “3.We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952- 53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.”
It is further noted by us that Hon’ble Supreme Court has also recently suggested the revenue to take liberal approach in such issues, in the case of CIT vs Excel Industries Ltd 358 ITR 295 (SC) with the following observations: “32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.”
It is further brought to our notice that tax rates in both the years are reported to be same. Under these circumstances, we find no justification to sustain the addition made by the AO and, therefore, the same is directed to be deleted and grounds 1 & 2 are allowed.
Ground 3: In this ground, the assessee has challenged the action of the AO in not accepting the business income offered by the assessee company and by rejecting all expenses.
During the course of hearing, Ld. Counsel drew our attention on the assessment order wherein the AO did not grant benefit of expenses without giving any reasoning and without making any discussion at all. It was submitted that the approach followed by the AO was highly unfair and unjustified.
On the other hand, the Ld. DR could not give any reasoning for the approach followed by the AO.
We have gone through the paper book filed before us as well as the orders of lower authorities. It is noted that complete details and documentary evidences have been filed before the lower authorities. This fact has not been controverted by the Ld. DR. There was no justification for not treating the income under the head ‘income from business’. Similarly, there is no justification for not allowing the expenses claimed by the assessee. Under these circumstances, we direct the AO to treat the income shown by the assessee under the head ‘Income from business’. With regard to the expenses, the issue is sent back to the file of the AO for allowing adequate opportunity to the assessee to file requisite details and evidences. The AO shall consider the entire material on objective basis and shall allow the expenses accordingly. No expenses should be disallowed without confronting the doubts to the assessee. This ground may be treated as allowed, for statistical purpose.
Ground 4: In this ground, the assessee has challenged the action of the AO in making addition of Rs.1.50 crores u/s 69A of the Act as alleged unexplained income received from SSSMPL.
The brief background of this issue is that it was noted by the AO from the balanced-sheet of SSSMPL that it had given advance of Rs.1.50 crores to the assessee through its director, but since the assessee has not shown the receipt of such advances in its books of account, therefore, the aforesaid sum became unexplained income of the assessee in the views of the AO and accordingly the he made addition of the same u/s 69A of the Act. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) and made detailed submissions that the impugned addition is beyond the provisions of law as well as contrary to facts, but the Ld CIT (A) was not satisfied with the arguments of the assessee and confirmed the addition made by the AO.
Before us, the Ld. Counsel made submissions and arguments to assail the addition made by the AO. Ld. DR relied upon the orders of the lower authorities.
It is noted from the last page of balance-sheet of SSSMPL that a note has 17. been given by the said company wherein it was mentioned that SSSMPL had given an advance of Rs.1.50 crores to the assessee company through the director of SSSMPL. In support of its contention, it has been demonstrated by the assessee from its bank account for the entire year as well as the complete books of accounts that impugned has never been received by the assessee company. In addition to that the assessee also submitted copy of confirmation from the director of the said company wherein the said director had acknowledged the factum of receiving of advance from SSSMPL by the said director in its bank account. It was demonstrated that all these documents were available on the record of the lower authorities also. Thus, the undisputed facts on record are that the assessee did not receive any such amount from SSSMPL. The impugned amount might have been received by the director in the bank account of the director himself, but definitely not by the assessee company. These facts were not controverted by the Ld. DR during the course of hearing before us. Under these circumstances, the addition in the hands of the assessee was not permissible under the law. The addition has been made without verifying the facts and without referring to the provisions of law. In any case, if the AO had some doubts, then the requisite enquiries should have been made in the hands of the said director or in the hands of SSSMPL. Unless the amount is received by the assessee company, the assessee is not obliged under the law to disclose the same in its books of account. Thus, the impugned addition being purely illegal and contrary to facts and thus the same is directed to be deleted. This ground is allowed.
As a result, appeal of the assessee is partly allowed.
Order pronounced in court on this 13th _day of July, 2016.