Winners Business Link Pvt.Ltd.,, ... vs Department Of Income Tax

सुनवाई क तार ख/ Date of Hea ring : 2 3/04/2015 घोषणा क तार ख /Date of P ronouncement: 30 /04 /20 15

आदेश /O R D E R

PER SHRI S.S. GODARA, JUDICIAL MEMBER

This Revenue's appeal for A.Y.2008-09, arises from order of the CIT(A)-XIV Ahmedabad dated 27.05.2011 passed in case no.CIT(A)-XIV/AC.Cir.8/97/2010-11 deleting addition of Rs.1,40,97,580 /- made by the Assessing Officer after rejecting its accounting policy, in proceedings u/s.143(3) of the Income Tax Act in short 'the Act'.

ITA No. 1860/Ahd/2011 Winners Business Link Pvt. Ltd.

For A.Y. 2008-09 -2-

2. The Revenue seeks to restore the impugned addition by reiterating the findings contained in assessment order dated 18.11.2010. Nobody has come to represent assessee. The registry has sent an RPAD. The same has been received back unserved. The assessee is proceeded ex-parte accordingly.

3. The assessee-company provides discount cards ranging for a period of 1 to 30 years to its members in insurance business. It charges membership fees. The assessee was formed in the year 1979. It follows mercantile system of accounting. The assessee splits up its membership fee receipts as per accounting standards 9 and 1. Its receipts in the impugned assessment year read Rs.148,16,23,699/- including 'other' income. It filed its return on 27.9.2008 declaring Nil income after setting off brought forward losses of the previous assessment years. The assessee had shown its income to be Rs.1,48,16,776/-. The same was processed.

4. The assessing Officer took up scrutiny. He rejected the assessee's accounting policy postponing its recognition of its income by following consistent accounting practice adopted in the past and observed that once it is not liable to return the impugned membership fees in any circumstances, the entire sum has to be taxed in the year of receipt i.e. the impugned assessment year. He acted accordingly and assessed the entire membership receipt amount.

ITA No. 1860/Ahd/2011 Winners Business Link Pvt. Ltd.

For A.Y. 2008-09 -3-

5. The assessee preferred an appeal. The CIT(A) has deleted the impugned addition by observing as under:

"3.1 The Assessing Officer has discussed the method of accounting followed by the appellant in detail in the assessment order from page no.2 to 10. The main finding given by the Assessing Officer in the assessment order, is reproduced as under:

"In view of the facts and discussion, the accounting policy followed by assessee is incorrect because as per the principle income and expenses should be shown/claimed in the same manner. It is a matter of fact that after receipts of membership fee, the assessee is not required to render any services to the members and it is also not liable to return the membership fee in any circumstance. Thus, membership fee has accrued to the assessee on receipt of it and is liable to be taxed in the year of receipt. Alternatively, all the expenses can be allowed to the extent of 1.57% only in the year. Thus, it is clearly established that system of accounting followed by assessee is such that the correct profit cannot be defined from it. Therefore, the system of accounting of assessee is hereby rejected and entire membership receipt is taxed in this year itself. The taxable income of the assessee is accordingly worked out as under:

Net Profit as per P&LA/c. Rs. 1,48,16,77 6/- Add: Commission Rs. 8,97,87,964/- Insurance Rs. 3,54,86,403/-

Total Rs.l 4,00,91,143/- Less : Membership fees Rs. 4,02,12,432/- Commission(As per P & L A/c) Rs. 7,09,64,355/-

Total Income Rs. 2,89,14,356/-

3.2. The AR of the appellant has submitted his written submission, which is reproduced as under:

"l)The assessment order for the block period 1989-90 to 1998-99 and up to 17-3-99 was passed by the AO on 28/11/2001 where in the method of accounting adopted was accepted by the AO, after applying his mind to the contentions raised by the assessee.

2) The appeal filed against this order has been decided by the CIT(A) on 28-6-02. This order has not been-challenged before Tribunal. Therefore, the said order of CIT(A) has become final.

3) Considering the complexities of the accounting system's of the assessee company, its accounts got audited u/s. 142(2A) of the Act.

The Auditors gave their report on 16-7-01 on the basis of which ITA No. 1860/Ahd/2011 Winners Business Link Pvt. Ltd.

For A.Y. 2008-09 -4-

addition has been made by the AO. The Auditor has accepted the method of 'accounting followed by the assessee.

4) The Block assessment has been passed on 28-11-01 and appeal against this order was decided by CIT(A) on 28/06/2002, thereby the order of the AO merged with the order of C1T(A). The CIT passed the order u/s. 263 on 3-2-03. But, on the day, there was- no order of the AO because of the doctrine of merger. Hence, the CIT had no power to invoke section 263 against the order of the CIT(A). The appellant followed same method of accounting in the asst. years 1998-99, 1999-2000, 2000-01 & 2001-02 which has been followed by it in the Asst. Year 2008-09 and, therefore, the CIT(A) rightly upheld it for all these years.

6) In paras 28 & 29, the Hon'ble IT AT has recorded the fact that the Departmental Representative tried to distinguish the case of Unique Mercantile Services (P) Ltd. From that of the appellant company. After discussing the issue in Para 30 and 31, the Hon. Tribunal found the facts of the case of Unique Mercantile Services (P) Ltd. To be identical with those of the appellant and consequently, the Hon. IT AT did not accept the DR's submissions and allowed the appeals of the appellant for years involved and dismissed the Revenue's appeals. While doing so, the Hon. Tribunal referred to the jurisdictional Gujarat High Court's decision in the case of Sayaji Iron & Engg. Co. Vs. CIT in 253 ITR 749 (Guj) to hold that on similar facts, the earlier decision of the Tribunal is necessarily to be followed. The Hon. Tribunal, accordingly directed that the Method of Accounting of the appellant is to be accepted.

7) It may be mentioned that the appellant's method of accounting has been upheld by the CIT(A) in the subsequent years as well, in appeal No. CIT(A)-I/CC.I(3)/49/05-06 dated 24-3-06 for Asst Year 2003-04 and of CIT(A)-I's order dated 10-12-07 for A.Y. 2004-05. The latter decisions, having been decided after the judgment of Hon. IT AT referred to supra, also make a mention of the same.

8) Copy of appeal order for the Asst. Year 2007-08 is attached herewith.

From the above facts I hereby request your honor to accept the accounting policy and delete the addition of Rs. 1,40,97,580/-.

3.3 Decision:

I have carefully perused the assessment order and the written submission filed by the Id.AR of the appellant. In this case the appellant is recognising the revenue received on insurance premiums after spreading it over to the number of years for which the insurance was available. The expenses like commission, etc. are spread over 30 years, that is the assumed life of the member.

ITA No. 1860/Ahd/2011 Winners Business Link Pvt. Ltd.

For A.Y. 2008-09 -5-

The Department for A.Y. 1997-1988 had rejected method of accounting during the course of scrutiny of the case. Thereafter, there was a search and seizure operation on the assessee and in the block assessment the AO accepted the method of postponement of receipt by the assessee. However the assessment was set aside by CIT Central-1 u/s 263. The assessments were accordingly completed after rejecting the policy adopted by the appellant. The appeal filed by the assessee was allowed by CIT(A) for that year and subsequent years in which the Department has rejected the accounting policy of the appellant. The appeal filed by the Department in the ITAT had also been dismissed and the policy of the appellant has been accepted by the Tribunal also. Accordingly the assessments from assessment years from 1998-99 to 2007-08 have been set aside and the matter was decided in favour of the assessee. In the ITAT the cases upto assessment year 2002-03 have been decided in favour of the appellant. The appellant has submitted that since the appeal for assessment year 2007 -08 and earlier years have been decided in favour of the appellant on this issue, following the principles of res judicata the issue should be decided in favour of the appellant this year also. I have carefully perused the facts of the case, the orders for earlier years and the order of honourable ITAT for assessment year 2002-03. Respectfully following the decision of CIT(A) for assessment year 2007-08 and the order of the honourable ITAT Ahmedabad bench, in appellant's own case, the grounds of appeal no.l and 2 are allowed in so far as the addition of Rs. 1,40,97,5807- is concerned. To maintain the consistency; these grounds of appeal are accordingly allowed."

This leaves the Revenue aggrieved.

6. We have heard the Revenue and gone through the relevant findings. It is evident that the present is not first round of litigation between the parties on the issue of recognition of income qua the very membership fee receipts valid for a time span of 1 to 30 years.

The case file reveals that the department had referred the assessee's accounting practice for a special audit wherein the same was upheld. The CIT(A)'s order reads that the tribunal has already deleted identical additions in preceding assessment years. The Revenue does ITA No. 1860/Ahd/2011 Winners Business Link Pvt. Ltd.

For A.Y. 2008-09 -6-

not point out any distinction on facts and law to the contrary. In these circumstances, we uphold the CIT(A) findings deleting the impugned addition of Rs.1,40,97,580/- made by the Assessing Officer by rejecting assessee's accounting policy postponing recognition of income arising from membership fees. The Revenue's grounds fail.

7. The Revenue's appeal is dismissed.

Order pronounced in the Court on this day, the 30th April, 2015 at Ahmedabad.

Sd/- Sd/- (PRAMOD KUMAR) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/04/2015 Prabhat Kr. Kesarwani, Sr. P.S. आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad