ACIT Circle-9 (1), New Delhi v. Sunrise Management & Estates Pvt. Ltd, New Delhi

ITA 3073/DEL/2008 | 2004-2005
Pronouncement Date: 15-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 307320114 RSA 2008
Assessee PAN AACCS0456R
Bench Delhi
Appeal Number ITA 3073/DEL/2008
Duration Of Justice 1 year(s) 3 month(s) 8 day(s)
Appellant ACIT Circle-9 (1), New Delhi
Respondent Sunrise Management & Estates Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 15-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 15-01-2010
Date Of Final Hearing 04-01-2010
Next Hearing Date 04-01-2010
Assessment Year 2004-2005
Appeal Filed On 07-10-2008
Judgment Text
ITA NO. 3073/DEL/08 A.Y. 2004-05 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 3073/DEL/2008 A.Y. : 2004-05 ASSTT. COMMISSIONER OF INCOME TAX VS. M/S SUNRIS E MANAGEMENT & ESTATES CIRCLE-9(1) NEW DELHI PVT. LTD. 110 INDRA P RAKASH BUILDING 21 BARAKHAMBA ROAD NEW DELHI [PAN: AACCS0456R] (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI AJAY VOHRA ADV. & GAURAV J AIN & A. BANSAL CAS DEPARTMENT BY : SHRI GAJANAND MEENA CIT(DR) O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDERS OF THE LD. CIT(A) DATED 4.7.2008 PERTAINING TO ASSESSMENT YEAR 2004-0 5. 2. THE FIRST ISSUE RAISED IS THAT LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 3 13 68 250/- MADE BY THE AO ON ACCOUNT COMMON MAINTENANCE CHARGE SINCE THE ASSESSEE COMPANY IS NO T MAINTAINING ACCOUNTS ON MERCANTILE /ACCRUAL BASIS WHICH IS MANDATORY FOR THE CORPORATE ASSESSEE AS PER PROVISIONS OF SECTION 145 OF THE IT ACT 1961. 3. IN THIS CASE THE ASSESSEE COMPANY IS A REAL ESTA TE MANAGEMENT COMPANY PURSUANT TO WHICH HIGH-RISING/ MULTISTORIED BUILDIN GS (BOTH RESIDENTIAL AND COMMERCIAL) ARE BEING MAINTAINED BY IT AS BEING PRI MARY OBJECTIVE. THE MAINTENANCE OF BUILDINGS INCLUDE REPAIR AND MAINTEN ANCE OF IMMOVABLE PROPERTIES INVOLVING BUILDINGS HFTS WATER SUPPLY ELECTRICAL AC SYSTEMS ITA NO. 3073/DEL/08 A.Y. 2004-05 2 KITCHEN EXHAUST SYSTEMS FIRE FIGHTING AND RO PLANT ETC. INSTALLED IN VARIOUS HIGHRISING BUILDINGS OWNED AND CONSTRUCTED BY M/S ANSAL HOUSING & CONSTRUCTIONS LTD. 3.1 DURING THE COURSE OF ASSESSMENT AO PROCEEDED TO VERIFY THE COMMON MAINTENANCE CHARGES ACCOUNT FOR. AO EXAMINED THE ASSESSEES RECONCILIATION STATEMENT SUBMITTED IN RESPECT OF 5 PROJECTS OUT OF 33 PROJECTS. AO FOUND THAT IN SOME CASE THE BILLING HAS NOT BEEN DONE. HOWEV ER THERE WERE RECEIPTS FOR SUBSTANTIAL AMOUNT DURING THE YEAR AND THE CLOSING BALANCE WAS SHOWN AS LIABILITIES. HE FURTHER NOTED THAT CERTAIN REBATE S HAVE BEEN ALLOWED WITHOUT ANY BASIS. 3.2 FROM HIS ANALYSIS IN RESPECT OF 5 PROJECTS AND THE DISCREPANCY NOTED THE AO OPINED AS UNDER:- FROM THE ABOVE MENTIONED FACTS IN RESPECT OF FIVE PROJECTS AND THE DISCREPANCIES POINTED OUT IT IS CLEARLY EVIDENT TH AT ASSESSEE COMPANY IS NOT MAINTAINING ACCOUNTS ON MERCANTILE/ACCRUAL BASI S WHICH IS MANDATORY FOR A CORPORATE ASSESSEE AS PER PROVISION S OF SECTION 145 OF THE IT ACT 1961 READ WITH SECTION 209 OF THE COMPA NIES ACT 1956. THE DETAILS OF FIVE PROJECTS OUT OF 33 PROJECTS FURNIS HED BY THE ASSESSEE COMPANY EXTRACTS OF PARTS OF WHICH ARE REPRODUCED HEREINABOVE SHOWS THAT THE ASSESSEE COMPANY IS FOLLOWING HYBRID SYST EM OF ACCOUNTING I.E. CASH AND ACCRUAL AT ITS OWN CONVENIENCE WHICH IS NO T PERMISSIBLE FOR A CORPORATE ASSESSEE. THE AR OF THE ASSESSEE COMPANY FURNISHED INCOMPLET E DETAILS OF RECEIPTS OF CMC CHARGES IN THE SHAPE OF DEBTORS REC ONCILIATION STATEMENTS OF FIVE PROJECTS OUT OF 33 PROJECTS INST EAD OF LEDGER ACCOUNTS OF ALL THE HEADS OF RECEIPTS OF COMMON MAINTENANCE CHARGES. FROM THE DETAILS FURNISHED AS DISCUSSED HEREINBEFORE IT IS N OT AT ALL POSSIBLE TO COMPUTE AND VERIFY THE TRUE INCOME OF THE ASSESSEE COMPANY SHOWN ITA NO. 3073/DEL/08 A.Y. 2004-05 3 UNDER VARIOUS HEADS EVEN ON THE TEST CHECK BASIS AT RANDOMLY. KEEPING IN VIEW THE MANNERS IN WHICH ACCOUNTS ARE MAINTAINE D AND THE DISCREPANCIES POINTED OUT THEREIN THERE IS THEREF ORE NO ALTERNATIVE BUT TO COMPUTLATE THE TOTAL COMMON MAINTENANCE CHARGES . ACCORDINGLY THE COMMON MAINTENANCE CHARGES ARE L OGICALLY AND REASONABLY COMPUTED AS FOLLOWS: TOTAL NO. OF BILLING UNITS OF ALL THE PROJECTS AS PER DETAILS FILED ALONGWITH LETTER DATED 16.12.2006 AND REPRODUCED HEREINABOVE. 15503 MINIMUM PER UNIT AVERAGE COMMON MAINTENANCE CHARGES ON ESTIMATE @ RS. 400/- PER MONTH I.E. RS. 4800/- PER ANNUM. TOTAL COMMON MAINTENANCE CHARGES OF ALL THE 15 503 BILLING UNITS RS. 4800 X 15503 I.E. RS. 7 44 14 400/-. IN VIEW OF THE ABOVE RECEIPTS OF COMMON MAINTENANCE CHARGES ARE COMPUTATED AND TAKEN AT RS. 7 44 14 400 /- AS AGAINST AS RS. 4 30 46 150/- CREDITED TO THE PROFIT AND LOS S ACCOUNT AS PER SCHEDULE 10 TO THE BALANCE SHEET. AN ADDITION O F RS. 3 13 68 250/- IS ACCORDINGLY MADE TO THE INCOME OF THE ASSESSEE COMPANY ON THIS ACCOUNT. 3.3 UPON ASSESSEES APPEAL LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTION THAT NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE WITH REGAR D TO PROPER EXPLANATION FOR MERCANTILE SYSTEM OF ACCOUNTING VIS--VIS PRUDENT A CCOUNTING STANDARD 9 FOLLOWED BY THE ASSESSEE. LD. CIT(A) NOTED THE C ONTENTION THAT IF AN INCOME IS NEITHER ACCRUED NOR RECEIVED WITHIN THE MEANING OF SECTION 5 WHATEVER SECTION 145 MAY SAY SUCH AN INCOME COULD NOT BE CHARGED TO TAX REGARDLESS OF ENTRIES ITA NO. 3073/DEL/08 A.Y. 2004-05 4 MADE IN THE BOOKS OF ACCOUNT OR NOT. IN THIS REGAR D LD. CIT(A) FURTHER NOTED THE DECISION OF THE HONBLE APEX COURT IN GODHRA EL ECTRICITY CO. LTD. AS UNDER:- EVEN THOUGH THE ASSESSEE COMPANY WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND HAD MADE ENTRIES IN THE BOOKS R EGARDING ENHANCED CHARGES FOR THE SUPPLY MADE TO THE CONSUMERS NO RE AL INCOME HAD ACCRUED TO THE ASSESSEE COMPANY IN RESPECT OF THOSE ENHANCED CHARGES. THE TRIBUNAL HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASSESSEE COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AN D THE AMOUNTS IN QUESTION BROUGHT TO TAX BY THE INCOME TAX OFFICER DID NOT REPRESENT INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE CO MPANY DURING THE RELEVANT PREVIOUS YEARS. 3.4 FURTHER LD. CIT(A) NOTED THAT INCOME ON CERTAI N PRODUCTS WAS NOT RECOGNIZED DUE TO VARIOUS LITIGATIONS PENDING AT V ARIOUS FORUMS NAMELY CONSUMER COURTS CIVIL SUITS FILED BY THE INDEPENDE NT RESIDENT WELFARE ASSOCIATION MRTP COMMISSION AT STATE LEVEL CASE ET C. LD. CIT(A) FURTHER NOTED THE CONTENTION THAT THERE WERE CERTAIN PROJECTS WH ICH WERE NOT IN EXISTENCE DURING THE FINANCIAL YEAR 2003-04 BUT THE AO HAS A SSUMED INCOME ON NOTIONAL BASIS FOR ALL THOSE PROJECTS WHICH HAD NOT COME INT O BEING DURING THE YEAR UNDER CONSIDERATION. CIT(A) ALSO NOTED THAT IN SOM E CASES PAYMENTS FOR SERVICES RENDERED WAS SUBJECT TO FULFILLMENT OF CER TAIN TERMS AND CONDITIONS. UNDER SUCH CIRCUMSTANCES LD. CIT(A) OBSERVED THAT THERE WERE REVENUE RECOGNITION IS PRESCRIBED TO BE DETERMINED THROUGH ACCOUNTING STANDARD AS-9 LAID DOWN BY ICAI. HE NOTED THAT THERE IS NO WISDO M IN CREATION OF DEBTS UNILATERALLY AND SUBSEQUENTLY WRITING OFF SUCH DEBT S AS BAD DEBTS. LD. CIT(A) FURTHER REFERRED TO ITAT PUNE DECISION IN THE CASE OF WESTERN MAHARASTRA DEVELOPMENT CORPORATION VS. DCIT 22 SOT 13. LD. C IT(A) OBSERVED THAT THE JUDGEMENT IN THE CASE WAS FITTING TO THE FACTS OF T HE ASSESSEES CASE PURSUANT TO WHICH REVENUE RECOGNITION HAS BEEN BASED ON ACCOUNT ING STANDARD AS-9 DUE ITA NO. 3073/DEL/08 A.Y. 2004-05 5 TO CERTAIN UNCERTAINTY INVOLVED ON ACCOUNT OF VARIO US FACTORS/ ISSUES INVOLVED IN WHICH INCOME IS NOT RECOGNISED BUT POSTPONED T O BE RECOGNIZED ON RECEIPT BASIS DUE TO VARIOUS INNUMERABLE UNCERTAINTIES INVO LVED. LD. CIT(A) FURTHER FOUND THAT AO HAS NOT MADE ANY REFERENCE TO THE PAS T HISTORY OF THE CASE OR CITED ANY COMPARABLE CASES OF SIMILAR IN NATURE. I N THIS REGARD LD. CIT(A) REFERRED TO APEX COURT DECISION IN THE CIT VS. REAL EST BUILDERS & SERVICES LTD. 216 CTR 345 WHEREIN IT WAS HELD THAT IF THE AO COM ES TO THE CONCLUSION THAT THERE IS UNDER ESTIMATION OF PROFITS ON ACCOUNT OF ONE REASON OR THE OTHER HE MUST GIVE RELEVANT FACTS AND FIGURES IN THAT REGARD BASED ON PAST HISTORY OF THE CASE AND DEMONSTRATE THE METHOD OF ACCOUNTING ADOP TED BY THE ASSESSEE RESULTS IN UNDER-ESTIMATION OF PROFITS. LD. CIT(A ) CONCLUDED AS UNDER:- 4.5 FURTHERMORE I AM ALSO OF THE VIEW THAT ACCOUN TING STANDARDS AS- 9 SUPERSEDING MERCANTILE SYSTEM OF ACCOUNTING COULD NOT BE BRUSHED ASIDE WITHOUT ANY COGENT MATERIAL IN THE C USTODY OF THE DEPARTMENT AND HAVING DISREGARD TO THE PAST HISTORY OF THE CASE AND WITHOUT GIVING ANY COMPARABLE CASE OF SIMILAR TRADE IN THE SERVICE SECTOR /INDUSTRY. I HAD PURSED THE SUBMISS ION MADE BY THE APPELLANT WITH THE COPIES OF THE LETTERS ADDRES SED TO THE LD. AO FILED BEFORE ME AND HAD FORWARDED TO ME IN TWO VOL UMINOUS FILES ADDRESSED TO THE LD. ASSESSING OFFICER FILED AT THE TIME OF APPEAL AND THE SAME WERE FURNISHED FOR SEEKING REMAND REPO RT. DESPITE VARIOUS OPPORTUNITIES GIVEN OVER A PERIOD OF ONE A ND HALF YEAR TO PRODUCE ASSESSMENT RECORDS WITH THE ORDERS SHEET RE CORDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE SAME HAVE NOT BEEN PRODUCED BEFORE ME AND / OR MADE AVAILABLE TO ME AN D HENCE I AM LEFT WITH NO OTHER ALTERNATIVE BUT TO ACCEPT THE CO NTENTION OF THE LD. COUNSEL WHO HAVING PLACED RELIANCE IN THE PAPER BOO KS FILED BEFORE ME. THE ACKNOWLEDGED LETTERS FILED BEFORE THE LD. AO SUPPLY COPIES OF ORDERS SHEETS WERE PLACED ON RECORD BEFORE ME BU T COULD NOT BE COMPLIED WITH DUE TO ASSESSMENT RECORDS AS STATED A BOVE HAVING ITA NO. 3073/DEL/08 A.Y. 2004-05 6 NOT BEEN TRACEABLE. THUS THE REMAND REPORT GIVING GENERALIZED COMMENTS BY THE PRESENT DY. CIT ;CAN PROVE TO BE NO HELP AND HENCE CANNOT BE RELIED UPON SO AS TO ACCEPT THE AD VERSE COMMENTS AGAINST THE APPELLANT BASED ON MERE CONJEC TURES AND SURMISES ASSUMPTION AND PRESUMPTIONS WITHOUT ANY C OGENT MATERIAL SO AS TO SUPPORT THE ADDITION SUSTAINED. NEITHER ANY PAST HISTORY OF THE CASE NOR ANY COMPARABLE CASES IN THE SIMILAR TRADE AND INDUSTRY IN THE SERVICE SECTOR WERE CITED AND R ELIED UPON BY THE LD. ASSESSING OFFICER SO AS TO JUSTIFY SUCH AN ADDITION MADE. THE ACCOUNTING METHOD CONSISTENTLY EMPLOYED BY THE ASSESSEE OVER THE YEARS CANNOT BE DISTURBED WITHOUT ANY DISTORTIO NS TO THE RESULTS DECLARED AND ASSESSED IN THE SUBSEQUENT YEA RS. I AM APPRISED BY THE LD. COUNSEL THAT NO SUCH ADDITION H AS BEEN MADE IN THE ASSESSMENT YEAR 2005-06 AS THE CASE WAS NOT PICKED UP FOR THE SCRUTINY ASSESSMENT BY THE LEARNED ASSESSING OF FICER. 4.6 IN VIEW OF THE ABOVE I FIND THAT THERE IS SUFF ICIENT FORCE IN THE ARGUMENT OF LD. COUNSEL THAT MANDATORILY LAID OUT A CCOUNTING STANDARD AS-9 APPLICABLE FOR RECOGNIZING REVENUE HA S BEEN FOLLOWED FOR THE RESULTS DECLARED. BASED ON THE AB OVE ARGUMENTS AND FACTUAL POSITION STATED I HOLD THAT THE CONTEN TION OF THE ASSESSEE IS CONVINCING AND THEREFORE THE ADDITION OF RS. 3 13 68 250/- STANDS HEREBY DELETED. 3.5 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 4. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BE EN FOLLOWING THE CONSISTENT METHOD OF ACCOUNTING AND THERE WERE UNCERTAINTIES I N CASE OF RECOVERY OF CERTAIN CASES. ASSESSEE HAS FOLLOWED ACCOUNTING ST ANDARD-9 ISSUED BY THE ICAI. THERE WERE CERTAIN UNCERTAINTIES IN CASE OF RECOVERY IN SOME CASES. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS MAINTAINED DET AILED CHART IN THIS REGARD. NON-RECOGNITION OF COMMON MAINTENANCE CHARGES IN SO ME CASES WERE DUE TO ITA NO. 3073/DEL/08 A.Y. 2004-05 7 THE FACT THAT THE CUSTOMERS HAD NOT TAKEN THE POSSE SSION OF THE FLATS. IN SOME CASES THERE WERE DISPUTES PENDING AT VARIOUS FORUMS . HE SHOWED THAT IN SOME CASES THE MAINTENANCE CHARGES HAVE BEEN RECEIVED AL OGNWITH THE ARREAR WHICH WAS DULY CREDITED IN THE INDIVIDUAL ACCOUNT. LD COUNSEL CONTENDED THAT AO HAS TOTALLY ERRED IN UNDERSTANDING THE ACCOUNTS MAI NTAINED BY THE ASSESSEE AND MADE THE ADDITION SIMPLY ON GUESS WORK. HENCE HE SUBMITTED THAT ORDER OF THE LD. CIT(A) BE SUSTAINED. 4.1 LD. DR ON THE OTHER HAND PLACED RELIANCE UPON T HE ORDERS OF AO. 4.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT AS PER ASSESSEES SUBMISSION ACCOUNTING FOR RECOGNITION OF INCOME OF COMMON MAINTENANCE CHARGES IS DONE ON THE FOLLOWING BASIS CONSISTENTLY. I) REGULAR CUSTOMERS 100% INCOME HAS BEEN RECOGNIZ ED. II) ARREARS RECOVERED RECOGNIZED AS ADDITIONAL IN COME IN CURRENT YEAR. III) DEFAULTERS WHOSE INCOME HAS BEEN BOOKED TO THE EXTENT OF AMOUNT AS PER PARA 9 OF AS-9. IV) CHRONIC DEFAULTERS WHOSE INCOME HAVE NOT BEEN B OOKED BECAUSE OF UNCERTAINTIES INVOLVED. 4.3 ACCOUNTING STANDARD-9 ISSUED BY THE ICAI PERTAI NING TO REVENUE RECOGNITION IN THIS REGARD MENTIONS FOLLOWING UNDER PARA 9 WHICH IS AS UNDER:- 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITIO N 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDERING OF THE SE RVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESSEE THE ULTIMATE COLL ECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM E.G. FOR ESCALATION OF PRICE EXPORT INCENTIVES I NTEREST ETC. REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAIN TY INVOLVED. IN SUCH CASES IT MAY BE APPROPRIATE TO RECOGNIZE REV ENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTI ON WILL BE MADE. ITA NO. 3073/DEL/08 A.Y. 2004-05 8 WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLEC TION REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERV ICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE I T IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLEC T THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINA LLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS THE RENDERING OF SERVICES OR FROM THE USE BY OTHERS OF ENTERPRISE RE SOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION I S NOT DETERMINABLE WITHIN REASONABLE LIMITS THE RECOGNIT ION OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES IT IS CONSIDERED AS REVENUE OF THE PE RIOD IN WHICH IT IS PROPERLY RECOGNIZED. 4.4 THE ABOVE ACCOUNTING STANDARD MAKES IT CLEAR T HAT WHEN REALIZATION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAIN TY INVOLVED. IN SUCH CASES IT HAD BEEN MENTIONED THAT IT MAY BE APPROPRIATE TO R ECOGNIZE THE REVENUE ONLY WHEN IT IS REASONABLE CERTAINTY THAT THE ULTIMATE CONCLUSION WILL BE MADE. 4.5 THE SAID ACCOUNTING STANDARD IS QUITE IN CONFOR MITY WITH THE HONBLE APEX COURT DECISION IN THE CASE OF GODHRA ELECTRIC ITY CITED ABOVE. MOREOVER ACCEPTABILITY OF ACCOUNTS PREPARED AS PER ACCOUN TING STANDARD PROVIDED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA (ICAI) HAS BEEN HELD TO BE APPROPRIATE BY THE COURTS IN CATENA OF CASES INCL UDING THE FOLLOWING DECISIONS:- I) CIT VS. INDO NIPPON CHEMICALS LTD. 261 ITR 275 (SC) AND ITA NO. 3073/DEL/08 A.Y. 2004-05 9 II) CIT VS. WOODWARD GOVERNOR INDIA P LTD. 294 ITR 451 (JURISDICTIONAL HIGH COURT). 4.6 IN THE BACKGROUND OF THE AFORESAID DISCUSSION A ND PRECEDENT WE ARE IN AGREEMENT WITH THE COGENCY OF METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. AO HAS NOT PROPERLY APPRECIATED THE METHOD OF ACCOU NTING BEING FOLLOWED BY THE ASSESSEE. HE HAS ESTIMATED INCOME EVEN IN PROJ ECTS WHICH HAVE NOT BEEN COMPLETED. MOREOVER AS NOTED BY THE LD. CIT(A) HE HAS NEITHER REFERRED TO THE PAST HISTORY OF THE ASSESSEE NOR COMPARATIVE CASES. WE ALSO NOTE THAT THIS IS THE FIRST YEAR IN WHICH ASSESSEES METHOD OF COUNTI NG OF COMMON MAINTENANCE CHARGES HAS BEEN OVER TURNED. IN THIS REGARD HO NBLE APEX COURT DECISION IN THE CASE OF CIT REALEST BUILDERS AND SERVICES LTD. 216 ITR 345 CITED ABOVE IS ALSO RELEVANT. IN THIS CASE IT WAS HELD THAT IN C ASE WHERE DEPARTMENT WANTS TO TAX THE ASSESSEE ON THE GROUND OF LIABILITY ARISI NG IN A PARTICULAR YEAR IT SHOULD ALWAYS ASCERTAINED METHOD OF ACCOUNTING FOLL OWED BY THE ASSESSEE IN THE PAST AND WHETHER CHANGE IN METHOD OF ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFITS ARE BEING UNDER ESTIMATED UNDER IMPUGNED METHOD OF ACCOUNTING AND IF AO COMES TO THE CONCLUSION THAT T HERE IS UNDER ESTIMATION OF PROFITS HE MUST GIVE FACTS AND FIGURES IN THAT REGA RD. EXAMINING THE PRESENT CASE ON THE TOUCHSTONE OF ABOVE WE FIND THAT AO HA S NOT AT ALL EXAMINED OR APPRECIATED THE METHOD OF ACCOUNTING OF ASSESSEE I N THE ACCOUNTING OF COMMON MAINTENANCE CHARGES. HIS ESTIMATE IN THI S REGARD IS NOT BASED UPON FACTS AND FIGURES BUT IS A MERE CONJECTURE. ON THE OTHER HAND LD. CIT(A) HAS ELABORATELY DEALT WITH AND APPRECIATED THE METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND FOUND THAT NO INTERFERENCE I N THE SAME IS CALLED. OUR EXAMINATION OF RECORDS IN THIS REGARD IS ALSO IN CO NFORMITY WITH THE FINDING OF THE LD. CIT(A). 4.7 THUS WE AGREE WITH THE LD. CIT(A) THAT THERE IS NO REASON TO DISTURB THE METHOD OF ACCOUNTING BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE. ITA NO. 3073/DEL/08 A.Y. 2004-05 10 4.8 UNDER THE CIRCUMSTANCES WE DID NOT FIND ANY IN FIRMITY OR ILLEGALITY IN THE ORDERS OF THE LD. CIT(A). ACCORDINGLY WE UPHOLD THE SAME. 5. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 32 61 811/- MADE BY TH E AO ON ACCOUNT OF TRANSFER OF 25% RECEIPT OF COMMON MAINTENANCE CHARGE TO COM MON ASSETS REPLACEMENT FUND SINCE THE ASSESSEE COMPANY HAD NOT BEEN FOLLOWING THE ACCOUNTING PRACTICE AND POLICIES CONSTANTLY. 5.1 ON THIS ISSUE AO ENQUIRED ABOUT THE LIABILITY R EFLECTED IN THE ASSESSEES BALANCE-SHEET NAMED AS COMMON ASSET REPLACEMENT FU ND. HE ALSO REFERRED TO NOTE-2 SCHEDULE14 OF ACCOUNTING POLICES WHICH RE ADS AS UNDER:- IN CASE OF NO SEPARATE RECOVERY BEING MADE FROM TH E CUSTOMER IN RESPECT OF COMMON ASSET REPLACEMENT FUND WHERE RA TE OF COMMON MAINTENANCE CHARGE INCLUDES COMMON ASSET REPLACEMENT FUND. 5.2 AO WAS OF THE OPINION THAT ASSESSEES COMPANY H AS TRANSFERRED THE COMMON MAINTENANCE CHARGES (INCOME) AMOUNTING TO RS. 3261811/- TO THE PROVISION OF UNCERTAINTY AND INDEFINITE FUTURE EXPE NDITURE CAMOUFLAGED UNDER LIABILITY IN THE NAME OF ASSETS REPLACEMENT FUNDS WITHOUT ANY BASIS OR AGREEMENT WITH THE CONCERNED PARTIES. HENCE HE TREA TED THE AMOUNT OF RS. 32 61 811/- AS INCOME OF THE ASSESSEE. 5.3 AGAINST THIS ORDER THE ASSESSEE APPEALED BEFOR E THE LD. CIT(A). IT WAS EXPLAINED THAT BASED ON THE CONTRACTUAL AGREEMENT E NTERED INTO BY THE COMPANY AND ITS ALLOTTEES 25% OF COMMON MAINTENANC E CHARGES OF CERTAIN PROJECT IS TRANSFERRED FROM COMMON MAINTENANCE CHAR GES ACCOUNT TO THE COMMON ASSET REPLACEMENT FUND. IT WAS STATED THA T THE BASIS OF THIS WITH THE PAST EXPERIENCE OF THE COMPANY ACCORDING TO WHICH I NITIALLY WHEN THE ASSET IS INSTALLED AND PREDOMINATELY PUT TO USE IT DOES NO T REQUIRE ANY MAINTENANCE AS THE MAINTENANCE WORK COMMENCES ONLY AFTER THE N ORMAL WEAR AND TEAR. ITA NO. 3073/DEL/08 A.Y. 2004-05 11 THE COMMON ASSET REPLACEMENT FUND IS COLLECTE D FROM THE CUSTOMERS FOR MAINTENANCE AND UPKEEP OF MAJOR REPAIRS IN RESPECT OF AIR CONDITIONERS GENERATOR SETS WATER PUMP ROS TRANSFORMERS AND LIFTS ETC. THESE EQUIPMENTS ARE REQUIRED TO MAINTAIN BY THE COMPANY FOR A PERIOD OF 10-15 YEARS IN TERMS OF THE AGREEMENT AND THESE MAINTENAN CE CHARGES ARE POOLED TOGETHER TO BE ACCUMULATED IN A MANNER THAT THE REQ UISITE REPLACEMENT FUND SHOULD BE AVAILABLE WITH THE COMPANY TO REPLACE THE SE ASSETS AT CURRENT PREVALENT MARKET PRICE IN A CASE WHERE THE MAINTEN ANCE IS TAKEN OVER BY ANOTHER ASSOCIATION CREATED BY RESIDENTS/ INHABITA NTS OF THE HOUSING PROJECT THE COMMON ASSETS REPLACEMENT FUNDS GETS AUTOMATIC ALLY TRANSFERRED TO THE NEW MUTUAL ASSOCIATIONS/ENTITIES/ ENTERPRISES IN A MANNER THAT COMMON ASSETS REPLACEMENT FUND WILL PROVIDE ADEQUATE MAINT ENANCE OF MULTISTORIED BUILDINGS FOR THE BENEFITS OF THE BENEFICIARIES OCC UPYING THE PREMISES /FLATS/ UNITS. 5.4 IN THIS REGARD FOLLOWING CASE LAWS WERE REFERR ED :- - 109 TTJ 593 (PUNE) 105 ITD 485 PUNE 283 ITR 295 MADRAS AND 297 MAD 286 ITR 586 (BOMBAY) - DY. CIT VS. SPIRAX MARSHALL LTD. [2007] 109 TTJ ( PUNE) 593 - NATIONAL HEAVY ENGG. CO-OPERATIVE LTD. VS. DY. CI T [2007] 105 ITD 485 (PUNE). - CIT VS. SHREE PANCHAGANA SAHAKARI SAKHAR KARKHANA LTD. [2002] 254 ITR 572 575 575-76 (BOM). - CIT VS. SHRI SATPUDA TAPI PARISAR SAHAKARI SAKHAR KARKHANA LTD. : SANGAMMER BHAG SAHKARI SAKHAR KARKHANA LTD. [2002 ] 255 ITR 568 572 (BOM). - CIT VS. MALEGAON SSK LTD. [2003] 174 TAXATION 19 20 (BOM). 5.5 CONSIDERING THE ABOVE LD. CIT(A) HELD AS UNDER: - ITA NO. 3073/DEL/08 A.Y. 2004-05 12 IN VIEW OF THE ABOVE SUBMISSIONS AND DECISION ON SIMILAR AND IDENTICAL ISSUE AND FACT I FIND THE PRESENT GROUND HAVE BEEN DULY COVERED IN FAVOUR OF THE APPELLANTS CONTENTION. RESPECTFUL LY FOLLOWING THE STATED DECISION I HAVE TO HOLD AND SUSTAIN THE VIEW THAT MAINTENANCE SECURITY DEPOSIT REFUNDABLE TO THE CUSTOMERS AND FLAT OWNER S COMMON ASSETS REPLACEMENT FUND ARE NOT TRADING RECEIPTS AND THERE FORE NOT SUBJECT TO TAX IN THE RELEVANT YEAR IN WHICH THE FUNDS ARE DEP OSITED FOR FULFILLMENT OF FUTURE OBLIGATION. THEREFORE I FIND THE ADDITION OF RS. 32 61 811/- IS NOT BASED ON SUSTAINABLE MATERIAL GROUND IN VIEW OF THE FACTS INVOLVED AND THE STATED DECISIONS AND ACCORDINGLY THE SAID ADDI TION IS DIRECTED TO BE DELETED. THE AO IS DIRECTED ACCORDINGLY AS INDICA TED ABOVE. 5.6 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 5.7 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE CONTENDED THAT IT HAS BEEN THE CLEA R ACCOUNTING POLICY OF THE ASSESSEE AND IT HAS BEEN CONSISTENTLY FOLLOWED THA T WHERE NO SEPARATE AMOUNT IS COLLECTED FOR COMMON ASSET REPLACEMENT FUND 25% OF THE COMMON MAINTENANCE CHARGES RECEIVED IS TRANSFERRED TO THE COMMON ASSETS REPLACEMENT FUND. HENCE LD. COUNSEL PLEADED THAT LD. CIT(A) S ORDER IS JUSTIFIED AND SHOULD BE SUSTAINED. 5.8 LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AO. 5.9 WE FIND THAT IT HAS BEEN A CONSISTENT POLICY OF THE ASSESSEE COMPANY TO TRANSFER 25% OF THE COMMONS MAINTENANCE CHARGES TO THE COMMON ASSET REPLACEMENT FUND. THE RATIONALE FOR THE SAME IS T HAT NEWLY INSTALLED ASSETS REQUIRE REPLACEMENT AND MAINTENANCE AFTER CERTAIN T IME LAG OF THEIR INSTALLATION. IT IS ALSO NOTED THAT WHEN THE MAINT ENANCE WORK IS TAKEN OVER BY THE RESIDENT WELFARE ASSOCIATION OR INHABITANTS THE MSELVES THE ENTIRE BALANCE IN COMMON ASSETS REPLACEMENT FUND IS TRANSFERRED. MOREOVER IN ASSESSES GROUP COMPANY CASE IN ITA NO. 6928/DEL/95 FOR THE A SSESSMENT YEAR 1992-93 ITA NO. 3073/DEL/08 A.Y. 2004-05 13 AND 93-94 IN THE CASE OF M/S STAR ESTATES MANAGEMEN T P LTD. VS. DCIT . THE TRIBUNAL VIDE ORDER DATED 11.2.2003 HAS HELD THAT T HE AMOUNT LYING IN COMMON ASSET REPLACEMENT FUND CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE. UNDER THE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A). HENCE WE AFFIRM THE SAME. 6. THE LAST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 8 59 085/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OUT OF COMMON MAINTENANCE CHARGES SINC E THE ASSESSEE COMPANY HAD NOT BEEN FOLLOWING PROPER SYSTEM OF ACC OUNTING AND NOT PRODUCED THE RELEVANT BILLS/ VOUCHERS. 6.1 ON THIS ISSUE THE AO NOTED THAT AR OF THE ASSES SEE COMPANY WAS ASKED TO PRODUCE BILLS AND VOUCHERS AS PER THE SPECIFI C DETAILS MENTIONED. HOWEVER OUT OF THE BILLS AND VOUCHERS MENTIONED BY THE AO ASSESSEE COULD NOT PRODUCE CERTAIN BILLS. HENCE AO OPINED THAT T HE TOTAL AMOUNT OF RS. 859085/- IN RESPECT OF THOSE BILLS AND VOUCHERS NOT PRODUCED AS MENTIONED ABOVE IS DISALLOWED FROM THE EXPENSES CLA IMED ON ACCOUNT OF COMMON MAINTENANCE EXPENSES AND ADDED TO THE INCOME OF THE ASSESSEE. 6.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT AO HAS PASSED THE ORDER SHEET DATED 18.12.2006 TO PRODUCE THE VARIOUS BILLS / VOUCHERS OUT OF WHICH MAJOR VOUCHERS/BILLS WERE FURNISHED AND THE AO WAS THOROUGHLY SATISFIED BY SIMPLE SCRUTINY. IT WAS FURTHER MENTIONED THAT WIT H THE PAUCITY OF TIME CERTAIN VOUCHERS COULD NOT BE FURNISHED. 6.3 CONSIDERING THE ABOVE LD. CIT(A) CONCLUDED AS UNDER:- IT APPEARS THAT THERE IS NO DISCUSSION AS CONTENDE D BY THE ASSESSEE COMPANY IN THE ORDER SHEET OF 26 TH DECEMBER 2006 JUSTIFYING SUCH AN ADDITION OF RS. 8 59 085/-. SINCE THE ASSESSMENT R ECORDS HAVE NOT BEEN PRODUCED DURING APPEAL PROCEEDINGS NOR COPIES OF OR DER SHEETS HAVE BEEN ITA NO. 3073/DEL/08 A.Y. 2004-05 14 SUPPLIED DURING APPEAL DURING APPEAL PROCEEDINGS AP PARENTLY NOR TO THE ASSESSEE COMPANY THE LEARNED ASSESSING OFFICER COU LD NOT MATERIALLY AS APPARENT FROM THE ORDER FIND ANY FAULT IN THE VOUC HERS AND DOCUMENTS FURNISHED BEFORE HIM SO AS TO ENABLE HIM TO JUSTIFY TO MAKE SUCH AN ADDITION. ON THE CONTRARY IT COULD BE SAFELY PRES UMED THAT THE COPY OF INVOICES/ BOOKS NOT PRODUCED EARLIER HAVE BEEN GIVE N IN THE PAPER BOOK COPIES OF WHICH ARE ALSO FORWARDED TO THE AO FOR SP ECIFIC COMMENTS WITHIN THE GIVEN TIME FRAME AND ALSO THE EXTENDED P ERIOD THEREAFTER ARE FOUND TO BE SATISFACTORY AND HENCE THE ADDITION MAD E OF RS. 8 59 085/- FOR WANT OF EVIDENCE IS BEING DELETED AS NO COMMENT S IN THIS REGARD ARE AVAILABLE IN THE REMAND REPORT. 6.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. WE FIND THAT IN THE LD. CIT(A) ORDER IT HAS BEEN NOTED THA T THERE WAS SOME PAUCITY OF TIME AND CERTAIN VOUCHERS COULD NOT BE GONE THROUGH BY THE AO. AO HAS CLEARLY MENTIONED IN HIS ORDER THAT CERTAIN VOUCHER S WERE REQUIRED AND WERE NOT PRODUCED. IT IS ALSO NOT THE CASE THAT LD. C IT(A) HAS EXAMINED THE SAID VOUCHERS. LD. CIT(A) HAS ONLY MENTIONED THAT IT COULD BE SAFELY PRESUMED THAT COPY OF INVOICES/ BOOKS NOT PRODUCED EARLIER HAVE BEEN GIVEN IN THE PAPER BOOK. IN THIS REGARD WE DRAW SUPPORT FROM THE APEX COU RT DECISION IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT 131 ITR 451 HAS HELD THAT THE APPELLATE AUTHORITY HAS JURISDICTION AS WELL AS THE DUTY TO C ORRECT THE ERRORS IN THE PROCEEDINGS UNDER APPEAL. ACCORDINGLY WE REMIT THI S ISSUE TO THE FILES OF THE ITA NO. 3073/DEL/08 A.Y. 2004-05 15 AO TO EXAMINE THE ISSUE AFRESH AFTER GIVING THE AS SESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 7. IN THE RESULT THE REVENUES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15/01/2010. SD/- SD/- [RAJPAL YADAV) [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 15/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES