Income Tax Appellate Tribunal - Delhi
Eicher Goodearth Ltd., New Delhi vs Assessee on 30 January, 2015
ITA 4555, 4457/D/2011, ITA 4149/D/11
AYs: 2003-04, 2004-05
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES 'B' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER
ITA NO. 4555/DEL/2011
ASSTT.YEAR: 2004-05
ITA NO. 4457/DEL/2011
ASSTT.YEAR: 2003-04
Dy.Director of Income Tax, vs Eicher Goodearth Investment Ltd.,
Circle-11(1), 12, Commercial Complex,
New Delhi. Greater Kailash-II, New Delhi-110048
(PAN: AAACE0052D)
ITA NO. 4149/DEL/2011
ASSTT.YEAR: 2003-04
Eicher Goodearth Investment Ltd., vs Dy.Director of Income Tax,
New Delhi. New Delhi.
(Appellant) (Respondent)
Appellant by: Smt. Parwinder Kaur, Sr. DR
Respondent by: Shri Ajay Vohra, Senior Advocate
O R D E R
PER CHANDRAMOHAN GARG, J.M.
ITA No. 4149/Del/2011 of the assessee and ITA No. 4457/Del/2011 of
the revenue have been preferred against the order of the CIT(A)-V, New Delhi dated 3.8.2011 in Appeal No. 55/10-11 for AY 2003-04. ITA No. 4555/D/2011 1 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 has been preferred by the revenue against the order of the CIT(A)-V, New Delhi dated 04.08.2011 in Appeal No. 58/10-11 for AY 2004-05. Appeal No. 4149/D/11 of the assessee (AY 2003-04)
2. First of all, the arguments of both the sides were heard on the application of the assessee filed on 1.10.2013 under Rule 11 of the Income Tax (Appellate Tribunal) Rules 1963. The assessee appellant prayed for admission of additional grounds of appeal which read as under:-
"1. That the CIT(A) erred on facts and in law in not holding that the re- assessment order dated 30.10.2008 passed by the assessing officer under section 147 was beyond jurisdiction, bad in law and void ab initio, being premised on mere change of opinion formed at the time of original assessment under section 143(3) of the Income Tax Act, 1961 ("the Act").
1.1 That the CIT(A) erred on facts and in law in holding that no opinion had been formed by the assessing officer qua the issues, subject matter of addition, in the reassessment order, at the time of original assessment under section 143(3) of the Act."
3. On the issue of admissibility of aforementioned additional ground, ld. Senior counsel appearing for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of NTPC Ltd. vs CIT (1958) 229 ITR 383 (SC) and submitted that there are no fetters on the right of appellant to raise additional ground of appeal before the Tribunal on a question of law for which facts are already on record. Replying to the above, ld. DR pointed out that in the original appeal, the assessee raised only one ground pertaining to the impugned order of the CIT(A) with regard to confirming the disallowance of 2 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 discount on assignment of debt of Rs.48.50 lakh and there was no ground pertaining to the initiation of proceedings u/s 147/148 of the Act. Subsequently, ld. DR fairly submitted that if it is found just and proper to admit additional grounds on legal issues raised by the assessee, the department has no serious objection to that.
4. On careful consideration of above submissions and perusal of the impugned order, we note that the assessee raised ground no. 1 before the CIT(A) challenging the assessment order dated 30.10.2008 passed u/s 143(3)/147 of the Act alleging the same as invalid and void ab initio and based on change of opinion. The additional grounds as reproduced hereinabove are related to same allegation and objection of the assessee. Although the assessee did not raise these grounds while filing original appeal but as these are legal grounds on a question of law for which facts are already on record, therefore, respectfully following the decision of Hon'ble Apex Court in the case of NTPC Ltd. vs CIT (supra), additional ground raised by the assessee for AY 2003-04 are admitted for adjudication.
5. Apropos aforementioned additional grounds of the assessee, we have heard arguments of both the sides and carefully perused the relevant material placed on record, inter alia, ratio of the decisions as relied by both the parties. Ld. Sr. Counsel also contended that the action of the AO initiating assessment proceedings u/s 147 of the Act with respect to the original assessment 3 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 completed u/s 143(3) of the Act was based on mere change of opinion formed at the time of original assessment and the reassessment order passed in pursuance of proceedings u/s 147/148 of the Act and was illegal and bad in law. Ld. Senior Counsel vehemently contended that the reassessment proceedings deserve to be quashed because the CIT(A) grossly erred in holding that the AO has not at all considered the issue of subscription and even the facts given in the Note on discount of assignment of receivables submitted before the AO were insufficient for the AO to have formed an opinion on the issue. Ld. Senior counsel further contended that the CIT(A) was further wrong in holding that when the AO has not considered the issue and not formed any opinion at all, it cannot be said to be change of opinion.
6. Ld. Senior counsel placed his reliance on the decision of Hon'ble Supreme Court of India in the case of CIT vs Kelvinator of India Ltd. (2010) 320 ITR 561(SC) and another decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Eicher Ltd. 294 ITR 310 (Del). Ld. Counsel of the assessee has further drawn our attention towards paper book page no. 29 where the reasons recorded by the AO for initiation of proceedings u/s 147 of the Act have found place. Ld. Counsel has further drawn our attention towards paper book page no. 2, 18 and 21 and submitted that Schedule 'L' to notes on account for the year ended on 31.3.2003 explain the issue of brand equity and business promotion agreement which was placed before the AO during original assessment proceedings along with return of income. Ld. 4 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 Sr. Counsel has further drawn our attention towards page no. 8 of the Paper Book and submitted that Schedule 'J' of the final statement of accounts submitted before the AO clearly explain the amount of Rs.48.50 lakh pertaining to discount on assignment on receivables and the same was also before the AO. Ld. Senior counsel further submitted that the AO in the reasons recorded (Paper Book page 29) has raised only these two issues and in the reassessment order passed u/s 144(3) r/w section 147 of the Act, the AO has not made any disallowance or addition in regard to discount of Rs.48.5 lakh. Ld. Senior counsel further submitted that without prejudice to the above legal contention of the assessee, on merits also the AO has not made any disallowance or addition pertaining to issue no. 1 of discount of Rs.48.5 lakh and additions made by the AO during reassessment proceedings in regard to subscription fee did not survive at the level of CIT(A), therefore, all exercise conducted by the revenue authorities for initiation of reassessment proceedings and all subsequent proceedings in pursuance thereto became futile.
7. Ld. Senior counsel finally concluded the arguments on the legal issue and submitted that in similar set of facts and circumstances, 'H' Bench of ITAT, New Delhi, in the case of DCIT vs Volvoline Cummins Ltd. in ITA No.902/Del/2013 for AY 2006-07 dated 29.11.2013 has quashed the notice u/s 148 of the Act and all subsequent proceedings.
5 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05
8. Replying to the above, ld. DR submitted that after completion of original assessment from the verification of case records, it was observed that the assessee had given advance to Doorvani Cables (P) Ltd. amounting to Rs. 348.50 lakh which has been realised at a discount of Rs.48.50 lakh. The DR further submitted that since the advance was given for a capital asset i.e. for development of real estate, it was capital in nature but it has not been disallowed by the AO. Ld. DR further contended that it was also observed that the assessee has subscription fee receivable amounting to Rs.363.07 lakh but it has not been accounted for although the assessee was following mercantile system of accounting and, therefore, the same was required to be credited to the Profit & loss account. Ld. DR vehemently contended that in the aforementioned situation, the initiation of reassessment proceedings u/s 147/148 of the Act cannot be alleged as change of opinion on the same material.
9. On careful consideration of above rival contentions and arguments of both the parties and careful perusal of the citations and legal proposition relied by the parties, at the outset, we observe that admittedly original assessment was completed u/s 143(3) of the Act for AY 2003-04 on 27.1.2006. Subsequently, reassessment proceedings u/s 147 of the Act were initiated vide notice u/s 148 of the Act issued on 31.3.2008. First of all, for the sake of clarity and transparency in our conclusion, we find it appropriate to reproduce reasons recorded by the AO for initiation of reassessment proceedings which read as under:-
6
ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 "From the verification of case records, it has been observed that the assessee had given advance to Doorvani Cables Pvt. Ltd., amounting to RS.348.5 lacs which has been realized at a discount of Rs.48.5 lacs. Since, the advance was given for a capital assets, i.e. for development of real estate, it is capital in nature but it has not been disallowed.
Further, it has been observed that the assessee has subscription fees receivable amounting to Rs.363.07 lacs but it has not been accounted for although the assessee is following mercantile system of accounting. The amount was therefore, required to be credited to Profit & Loss A/c."
10. The main legal contention of the assessee is that the opinion and reason to believe that income has escaped assessment on account of discount of Rs.48.5 lakh to Doorvani Cables (P) Ltd. and on account of subscription fee receivable amounting to Rs. 363.07 lakh could not be validly formed as the assessee placed all details on these issues before the AO during original assessment proceedings which were concluded u/s 143(3) of the Act. In the case of CIT vs Kelvinator of India (supra), Hon'ble Apex Court categorically held that for initiation of reassessment u/s 147 of the Act, opinion and reason to believe that income has escaped assessment has to be recorded in writing and for that reason to believe, there must be some tangible material for formation of such belief. In the present case, the AO has initiated reassessment proceedings u/s 147 of the Act by recording reasons as reproduced hereinabove. From Schedule 'L' pertaining to the year ended on 31.3.2003 available on Paper Book page 18, we note that the assessee has clearly mentioned the amount of Rs.48.5 lakh pertaining to discount on assignment of receivables. From Paper Book page no.2 & 21 we also note that in Schedule 'L' to the accounts, para 4 expresses all the facts 7 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 pertaining to the subscription fee income and at the end of para 4, it has been clearly mentioned that the company has been legally advised that the above accounting treatment of the subscription fee income in its account is in accordance with the said agreements and the relevant Accounting Standard of the Institute of Chartered Accountants of India.
11. From Paper Book page no. 24 & 25, we also note that during the original assessment proceedings, the assessee submitted detailed reply dated 20.1.2006 and in para 7, the issue of Note on Account of assignment of receivables has been explained which reads as under:-
"07. Note on discount on assignment of receivables During the previous year assessee company has claimed deduction of Rs.48.50 lacs on account of discount on assignment of receivables.
The assessee had granted advance of Rs.383 lacs to M/s Doorvani Cables Pvt. Ltd. For development of real estate on the property situated at 11, Dyavansandra Ind. Estate, Mahadevapura, Bangalore- 560048. Due to the depressed market in the real estate business the project could not be commenced. Doorvani is waiting for the right opportunity to commence the project. The said property was hypothecated by way of a mortgage by deposit of original title deeds in favour of the assessee.
Doorvani has already repaid an amount of Rs.34.50 lacs to the assessee out of the total advance of Rs.383 lacs.
The assessee was in need of money and approached Eicher International Limited (EIL) for further assignment of the balance amount of Rs.348.50 lacs to be recovered from Doorvani against consideration of Rs.300 lacs with full authority and power to realise the sum of Rs.348.50 lacs from Doorvani.8
ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 On the assignment of above debts of Rs.348.50 lacs to EIL, the assessee company has given a discount of Rs.48.50 lacs, which has been claimed as expenditure. It is submitted that advance to Doorvani was given for the purpose of business of the assessee. The discount given on assignment of such debts for realising the money, which was needed for the purpose of business of the assessee is an expenditure incurred wholly and exclusively for the purpose of business of the assessee."
12. At this point, we also respectfully take cognizance of the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Usha International Ltd. wherein it has been held that the assessment cannot be validly reopened u/s 147 of the Act, even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment if the original assessment was made u/s 143(3) of the Act. In this decision, their lordships further held that so long as the assessee had furnished full particulars of the alleged income as mentioned in the reasons recorded by the AO, during the original assessment proceedings as the assessment order passed us/ 143(3) of the Act, it matters little that the AO did not ask any question with respect to one entry or note but had raised queries and questions on the other aspects. In this decision, speaking for the full bench of Hon'ble High Court of Delhi, their lordships held that section 114(e) of the Evidence Act can be applied to assessment order framed u/s 143(3) of the Act provided there has been a full and true disclosure of all material and primary fact at the time of original assessment. In such a case, if the assessment is 9 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 reopened in respect of a matter covered by the said disclosure, it would certainly amount to change of opinion.
13. Turning to the factual matrix of the present case, we have noted above that the original assessment was completed u/s 143(3) of the Act on 31.10.2006. Reason no.1 for reopening of assessment recorded in the reasons, as reproduced hereinabove, in regard to discount of Rs.48.5 lakh was from sale mentioned in Schedule 'J' (paper book page 18) to statement of account of the assessee filed along with return of income. Issue no. 2 in the reasons recorded in regard to subscription fee was explained in Schedule 'L' para 4 (PB page 21) and assessee during original assessment proceedings vide reply dated 20.1.2006 (paper book pages 24-25 Para 7) has also explained. During the argument, ld. Senior counsel has also drawn our attention towards PB page no. 116 and submitted that the subscription fee received during AY 2003-04, 2004-05 and 2005-06 has been offered to tax and therefore, it cannot be said that the income pertaining to subscription fee has escaped assessment. Ld. DR has not disputed this contention made on behalf of the assessee.
14. In view of above, we are inclined to hold that the action of the AO in initiating proceedings u/s 147 and 148 of the Act was based on change of opinion without any new tangible material. We also observe that no reason to believe was available with the AO at the time of initiation of reassessment proceedings u/s 147 and 148 of the Act. Under aforementioned facts and 10 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 circumstances of the present case, we are unable to support the findings and conclusion of the CIT(A) in the impugned order that the facts given in the audit report were insufficient for the AO to have formed an opinion on both the issues and when the AO has not considered the issue and not formed any opinion at all, it cannot be said to be change of opinion.
15. Our view is also supported by the decision of Coordinate Bench of Delhi ITAT in the case of DCIT vs. Volvoline Commins Ltd. in ITA No. 902/Del/2013 dated 29.11.2013 wherein it was held thus:
"8. The main legal contention of the assessee is that the opinion and reason to believe that income has escaped assessment should be recorded in writing and there must be some tangible material for the formation of the belief. In the case of Commissioner of Income Tax vs Kelvinator of India Ltd.(supra), the Hon'ble Apex Court categorically held that for initiation of reassessment u/s 147 of the Act, the opinion and reason to believe that income has escaped assessment has to be recorded in writing and for that reason to believe, there must be some tangible material for the formation of belief. In the present case, the Assessing Officer has initiated reassessment proceedings u/s 147 of the Act by recording reasons as reproduced hereinabove which clearly show that the Assessing Officer formed reason to believe on the same material which was submitted before him during the original assessment proceedings which concluded u/s 143(3) of the Act. We are unable to see from the reasons recorded by the Assessing Officer any tangible material or formation of belief except factual mentioning of the details submitted by the assessee during the original assessment proceedings. The concept of "change of opinion" on the part of Assessing Officer to reopen an assessment does not obliterate after substitution of section 147 of the Act by Direct Tax Laws (Amendment) Acts 1987 and 1989. The position is very clear after the amendment that the Assessing Officer has to have reason to believe that income has escaped assessment but this 11 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 does not imply that the Assessing Officer can reopen an assessment on mere change of opinion on the same material. From the statutory provisions of the Act, the concept of "change of opinion" must be treated as an inbuilt test to check the abuse of power by the revenue authorities. Thus, after 1st April, 1989, the Assessing Officer has power to reopen the assessment provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. It is also pertinent to mention that reason must have a link with the formation of belief. At this point, we also respectfully take cognizance of the decision of Full Bench of Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Usha International Ltd. wherein it has been held that the assessments cannot be validly reopened u/s 147 of the Act even within four years if an assessee had furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3) of the Act. In this decision their lordships further held that so long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed u/s 143(3) of the Act, it matters little that the Assessing Officer did not ask any question or query with respect to one entry or note but had raised queries and questions on the other aspects. In this decision, the Hon'ble Full Bench has held that Section 114(e) of the Evidence Act, 1981 can be applied to an assessment order framed u/s 143(3) of the Act provided there has been a full and true disclosure of all material and primary facts at the time of original assessment. Further in such a case, if the assessment is reopened, in respect of a matter covered by the disclosure, it would amount to change of opinion.
9. In the case in hand, we have no hesitation to hold that there was no tangible material before the Assessing Officer to form a reason to believe that the income has escaped assessment. Admittedly, all books of account, three CD reports and Schedule annexed to the final accounts were submitted before the Assessing Officer. As per balance sheet (PB page No. 15), Schedule No. 13 pertaining to purchase (PB page No. 23), Schedule to the accounts explaining details of saving accounts (PB page No. 25) and details of provisions made during the year (PB page no. 71) and details of TDS 12 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 deductible and not deducted at all (PB page No. 131), we clearly observe that the assessee company has made certain provisions which reflect in Schedule No. 13 of the accounts and Note No. 2 attached to provisions of expenses show that the provision of Rs.1,53,57,778/- has been made during the year. From the details available on page no. 71 of the Paper Book pertaining to the provisions made during the year, we observe that the assessee has made certain provisions under the sales promotion schemes and provision made for ORC Commission has been made as per agreement entered with overwriting commission agents which has already been added in the original return and assessment.
10. In view of above, we are inclined to hold that the action of the Assessing Officer in initiating proceedings u/s 147 and 148 of the Act was based on change of opinion without any new tangible material. We also observe that no reason to believe was available with the Assessing Officer at the time of initiation of reassessment proceedings u/s 147 and 148 of the Act. Under these circumstances, we are unable to support the findings of the Commissioner of Income Tax(A) in the impugned order that the assessee has failed to show that there was true and full disclosure and there was not a case of change of opinion. On the basis of discussions made hereinabove, we hold that the Commissioner of Income Tax(A) was not justified in upholding the action of the Assessing Officer in reopening of the assessment. Accordingly, CO of the assessee is allowed and initiation of reassessment proceedings and reassessment orders passed in reassessment proceedings are quashed."
16. Hence, in the extant case, we are inclined to hold that both the issues which were picked up by the AO in recording reason for initiation of reassessment proceedings u/s 147 of the Act very well found place in the audit report and the statement of accounts submitted along with the original return of income and at the same time, we also note that the issue of discount of Rs.48.5 lakh was also raised by the AO which was explained by the assessee through its 13 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 reply dated 20.1.2006 as reproduced hereinabove. In this situation, we further follow the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Usha International (supra) that if the assessment is reopened in respect of a matter covered by disclosure of the assessee during original assessment proceedings that it would amount to change of opinion which is not permissible for initiation of proceedings u/s 147 and 148 of the Act.
17. In the result, on the basis of foregoing discussion, we reach to a conclusion that the CIT(A) erred in upholding the action of the AO for initiation of proceedings for reopening of assessment u/s 147 of the Act and for issuance of notice u/s 148 of the Act. We are of the considered opinion that the initiation of reassessment proceedings u/s 147 of the Act was on the basis of invalid jurisdiction which was obviously bad in law and void ab initio, therefore, notice issued therein u/s 148 of the Act is not sustainable and deserved to be quashed and we quash the same. Accordingly, additional ground no. 1 and 1.1 of the assessee are hereby allowed.
Revenue's appeal - ITA No. 4457/D/2011 for AY 2003-04
18. Since by earlier part of this order, we have quashed notice u/s 148 of the Act dated 31.3.2008 issued for opening of assessment for AY 2003-04, therefore, appeal of the revenue alleging the deletion of addition of Rs.363.07 lakh on account of subscription fee receivable does not survive for adjudication 14 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 on merits and we dismiss the same without any detailed deliberations and on merits.
Revenue's appeal - ITA No. 4555/D/2011 for AY 2004-05
19. The revenue has raised sole ground in this appeal which reads as under:-
"1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.2,44,61,000/- lacs on account of subscription fees receivable."
20. Apropos aforementioned ground, we have heard the argument of both the sides and carefully perused the relevant material placed on record. Ld. DR supporting the assessment order submitted that the assessee is following mercantile system of accounting and subscription fee receivable has been determined and note to this regard has been placed in the accounts, therefore, it cannot be said that the income has not arisen to the assessee. Ld. DR further contended that the AO was not justified in making addition in this regard as the subscription fee receivable of Rs.244.61 lakh was income of the assessee pertaining to FY 2003-04 relevant to AY 2004-05. Ld. DR alleging the impugned order submitted that the impugned order may be set aside by restoring that of the AO.
21. Replying to the above, supporting the impugned order, ld. Counsel of the assessee has drawn our attention towards operative part of the impugned order on the issue and submitted that the liability to pay subscription fee to the 15 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 assessee gets fastened on to the subscriber company only after adoption of accounts of the subscriber companies by the shareholders of those companies in their Annual General Meeting on which date the profitability/turnover of the subscriber companies is known/finalized/ascertained. Ld. senior counsel further contended that the CIT(A) rightly noted that in the event of non-profitability, no subscription fees would be payable to the assessee. Ld. Senior counsel has also drawn our attention toward the fact that since the accounts of the subscriber companies were adopted by the shareholder in the immediately succeeding year and considering that the subscription fee would become payable upon finalisation/determination of the profits of such company, the subscription fees can be said to have accrued in the hands of the assessee in that year. Ld. Counsel has further drawn our attention towards Paper Book page 116 of AY 2003-04 and submitted that the entire amount of subscription fee was offered to tax when it was actually accrued to the assessee.
22. On careful consideration of above rival submissions, we observe that the CIT(A) decided the issue in favour of the assessee with following observations and conclusion:-
" It follows on perusal of the aforesaid judgement that in order that income can be said to have accrued, a debt should become due to the assessee, even though the same may be payable at a later date in terms of the agreement between the parties. If an income has become due during the previous year, the accrual of the same will not get postponed to the subsequent year merely because the amount is payable in the subsequent year. Therefore, what is important to determine is 16 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 the point of time at which income becomes due to the assessee in terms of the agreement between the parties. I also find that the ratio of the decision in the case of Shrivastava (J.P) and sons (Bhopal) Pvt. Ltd. v/s CIT in 57 ITR 624 is applicable to the case of the appellant.
In the present case also, the liability to pay subscription fees to the appellant get fastened on to the subscriber companies only after adoption of their accounts by the shareholders in the annual general meeting on which date the profitability/turnover of the subscriber companies is known/finalized/ascertained. In the event of non-profitability, no subscription fees would be payable to appellant. Where the subscriber companies are profitable, the amount of subscription fees payable with reference to 0.5% of turnover and subject to ceiling of 10% of profit can only be computed on finalization of profits of subscriber companies after adoption of accounts by shareholders in AGM. The corresponding right to receive the fees also vested in the appellant at such time. The income by way of subscription fees, therefore, accrued in the subsequent year in which accounts were adopted.
It is also seen from the provisions of Sec 220(2) of the companies act that, it is only once the accounts are adopted by the shareholders in the AGM meeting that they are required to be filed before the registrar within 30 days of adoption of account. In the case of the appellant, since accounts of the subscriber companies were adopted by the shareholder in the immediately succeeding year and considering that the subscription agreement provided that the subscription fees would become payable upon the finalization/determination of the profits of such co, the subscription fees can be said to have accrued in the hands of the appellant in that year. I also find that the appellant co is a profit making co and in both the years the tax rate remains the same and is being taxed at the same slab.
In view of the reasons given above, the addition made by the A.O is directed to be deleted."
23. At the very outset, we observe that the ld. DR has not disputed the fact that the assessee offered subscription fee for tax as per chart available on page 17 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05 116 for AY 2003-04. Ld. DR has also not disputed this legal proposition that in the provisions of section 220(2) of the Companies Act, it is only once the accounts are adopted by the shareholders in the AGM that they are required to be filed before the Registrar within 30 days of adoption of accounts. In the extant case, the accounts of the subscriber companies were adopted by the shareholders of the assessee company in the immediately succeeding year considering that the subscription agreement provided that subscription fee would become payable upon finalisation of accounts and determination of profits of such company. Hence we are in agreement with the conclusion of the CIT(A) that the subscription fees can be said to have accrued in the hands of the assessee in that year only when the accounts of the subscriber companies were adopted by the shareholders of the assessee company. In the light of fact and circumstances as noted above, we are unable to see any perversity, ambiguity or any other valid reason to interfere with the impugned order which deleted the addition pertaining to the subscription fee receivable by the assessee. Hence, we are of the considered opinion that the AO was not justified in making the addition in this regard during reassessment proceedings and the CIT(A) had a very cogent and justified reason to delete the same, therefore, the conclusion of the CIT(A) is confirmed and sole ground of the revenue being devoid of merits is dismissed.
18 ITA 4555, 4457/D/2011, ITA 4149/D/11 AYs: 2003-04, 2004-05
24. In the result, appeal of the assessee in ITA No. 4149/Del/2011 for AY 2003-04 is allowed, appeals of the revenue in ITA 4457/D/2011 for AY 2003- 04 and ITA 4555/D/2011 for AY 2004-05 are dismissed.
Order pronounced in the open court on 30/01/2015
Sd/- Sd/-
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 30th January, 2015
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR
By Order
Asstt. Registrar
19