IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.02.2015 CORAM: HONOURABLE MR.JUSTICE R.SUDHAKAR and HONOURABLE MR.JUSTICE R.KARUPPIAH Tax Case (Appeal) No.582 of 2007 M/s.Kody Elcot Ltd. Type 11/7, 10th Street, Dr.V.S.I. Estate, Thiruvanmiyur, Chennai - 600 041.Appellant versus Joint Commissioner of Income Tax Special Range XI, Chennai.Respondent PRAYER: Tax Case Appeal filed under Section 260A of Income Tax Act, 1961 as against order dated 07.11.2005 made in I.T.A.No.1286/Mds/1999 on file of Income Tax Appellate Tribunal, Madras 'A' Bench for assessment year 1996-97.For appellant: Mr.C.V.Rajan For respondent: Mr.T.R.Senthilkumar Standing Counsel for Income Tax 2 JUDGMENT (Judgment of Court was delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) filed by Revenue as against order of Income Tax Appellate Tribunal was admitted by this Court on following substantial questions of law: "i. Whether on fact and in circumstances of case Tribunal was right in holding that entire service charges on installation and commencing of equipments would accrue to Appellant immediately after completion of installation and commission without appreciating that Appellant had corresponding obligation to provide services during period of warranty ? ii. Whether on fact and in circumstances of case Tribunal was right in holding that once addition under Section 69C has to be confirmed without appreciating that First Appellate Authority has merely given direction to Assessing Officer to verify probable expenditure that would have been incurred for earning unexplained investment ? 2. second substantial question of law admitted by this Court in relation to Section 69C - unexplained expenditure was not issue before Assessing Officer nor before Tribunal. Hence, 3 second substantial question of law admitted by this Court stands deleted. 3. In course of hearing before this Court, learned Counsel appearing for assessee sought permission to raise additional questions of law. Hence, after hearing learned standing counsel appearing for Revenue, who had no serious objection for raising additional questions, further substantial questions of law which are required to be considered, in addition to above-said substantial question of law, are as follows: "a) Whether on fact and in circumstances of case, Tribunal was right in reversing order of Commissioner of Income Tax (Appeals) who has held that income would accrue only on completion of project? b) Whether Tribunal was justified in setting aside order of Commissioner of Income Tax (Appeals), who while accepting case of Department in relation to unexplained income, remanded matter to determine unexplained expenses?" 4. Heard learned counsel appearing for assessee and learned Standing Counsel appearing for Revenue and perused materials placed before this Court. 4 5. brief facts of case are as follows: assessment in this case relates to assessment year 1996-97. appellant/assessee is public limited company dealing in medical equipments. It is joint venture company with Electronics Corporation of Tamil Nadu Limited ( in short, ELCOT) holding shares in appellant company. assessee filed return of income on 22.10.1996 declaring total income of Rs.30,50,272/-. assessee also filed revised return of income on 12.1.1999 declaring income of Rs.34,95,540/-. Assessing Officer completed assessment and made following three additions:"i) Income of Electro Medical Maintenance Centre- Rs.4,61,642/-;ii) Service Charges-Rs.24,08,748/- and iii) Bank deposit in current account - Rs.7,44,340/-." 6. While completing assessment, with regard to addition made under head 'income of Electro Medical Maintenance Centre', Assessing Officer found that after adjustment of service charges and expenses incurred, net income comes to Rs.4,61,642/-, which has not been included in books of accounts. Before Assessing Officer, Authorised Representative agreed to add this amount 5 towards income. Hence, Assessing Officer made addition of Rs.4,61,642/-. 7. With regard to addition made under head 'service charges received', assessee contended before Assessing Officer that advances received from customers as service charges could not be assessed in current assessment year before expiry of warranty period, since income from advances could not be correctly ascertained. However, Assessing Officer took view that service charges already received from customers should be added as income in assessment year in question.8. With regard to addition made in respect of deposits in current account in Indian Overseas Bank at Rs.7,44,340/-, Assessing Officer recorded submissions of Authorised Representative of assessee and added said sum to total income. For better clarity, relevant portion of order of Assessing Officer reads as follows: authorised representative Shri Vaidynathan was requested to explain whether amount deposited in current account has been reflected in regular books of accounts and trading receipts has been offered as 6 income or not. Xerox copy of bank statement was handed over to authorised representative. On 19.03.99, Shri R.Sundararaman, F.C.A., and Shri Ramachandran, Director of company attended with books of accounts, ie.,ledger and bank book. Both of them confirmed that above deposits in current account with I.O.B. has not been recorded in trading receipts. They offered Rs.7,44,340 as income for A.Y.1996-97. Shri Ramachandran, Director submitted letter dated 19.03.99 written in his own handwriting. This account has been operated by all three whole time directors. above facts are confirmed by authorised representative and Director confirmed that income of Rs.7,44,340 has not been offered in original return as well as return filed on 21st Jan.1999. same is added to total income. 9. Aggrieved by above-said three additions, assessee filed appeal before Commissioner of Income Tax (Appeals). contention of assessee before Commissioner of Income Tax (Appeals) was that only after completion of warranty period and after ascertaining quantum of expenditure, actual income could be determined. It was stated that assessee had offered this amount as income for assessment year 1998-99. After considering submissions made by assessee, Commissioner of Income 7 Tax (Appeals) deleted addition of Rs.4,61,642/- holding that profit from project could be ascertained correctly and finally only on conclusion/completion of project. Commissioner of Income Tax (Appeals) directed Assessing Officer to ensure that entire income arising out of project is brought to tax appropriately. 10. With regard to advances received from customers at Rs.24,08,748/- representing service charges, assessee contended before Commissioner of Income Tax (Appeals) that from date of installation/commissioning customers are entitled to one year warranty period and hence, income could not be correctly ascertained from advances unless expenses are properly taken into account. Commissioner of Income Tax (Appeals) accepted contention of assessee and deleted addition of Rs.24,08,748/- and directed Assessing Officer to ensure that said sum was properly accounted for in assessment year 1997-98. 11. With regard to last addition made towards deposits in current account at Rs.7,44,340/-, submission of assessee before Commissioner of Income Tax (Appeals) was that assessee had no objection in treating deposits in current 8 account of IOB as unexplained, same should be allowed as deduction towards unexplained expenses incurred assessee. Commissioner of Income Tax (Appeals) held that this plea was not taken by assessee before Assessing Officer. Hence Commissioner of Income Tax (Appeals) remitted matter to Assessing Officer for determining quantum of unexplained expenses related to earning unexplained deposit of Rs.7,44,340/-. 12. Aggrieved by order of Commissioner of Income Tax (Appeals), Revenue filed appeal before Income Tax Appellate Tribunal. 13. With regard to first issue on deletion of addition of Rs.4,61,642/- being net income from Electro Medical Maintenance Centre, Tribunal, after considering submissions made on both sides, held that since authorised representative of assessee had agreed for including income, order of Commissioner of Income Tax (Appeals) has to be set aside and accordingly restored addition made by Assessing Officer at Rs.4,61,642/-. 9 14. With regard to second issue on deletion of addition of Rs.24,08,748/- being service charges receipts, by Commissioner of Income Tax (Appeals), Tribunal held that once assessee is following mercantile system of accounting, service charges having accrued and received by assessee in present assessment year is relevant. Hence, Tribunal set aside order of Commissioner of Income Tax (Appeal) on this ground. 15. With regard to third issue on deletion of addition of Rs.7,44,340/- under head 'deposit in current account' considered as unexplained, Tribunal held that said income had not been offered as income in original return as well as in revised return filed on 26.01.1997. Hence, Tribunal set aside order of Commissioner of Income Tax (Appeals) on this issue also. 16. Aggrieved by order of Tribunal upholding order of Assessing Officer, assessee is before this Court. 17. It is seen from order of Tribunal that Assessing Officer had made three additions to income of assessee, which was confirmed by Tribunal. On first issue, namely, addition of 10 Rs.4,61,642/-, Tribunal upheld order of Assessing Officer primarily on plea that Authorised Representative of assessee had agreed for inclusion of income and therefore, Commissioner of Income Tax (Appeals) was not correct in deleting addition. 18. On next issue relating to service charges of Rs.24,08,748/-, assessee claimed that they have received this amount from three customers representing service charges. Their plea was that warranty condition was not terminated and therefore, it cannot be offered as income for that year and Assessing Officer, however, took view that on installation and commission of equipment, service charges become due and has to be therefore brought to income for assessment year 1996-97. On appeal by assessee, Commissioner of Income Tax (Appeals) deleted addition. Tribunal reversed order of Commissioner of Income Tax (Appeals) on ground that assessee was following mercantile system of accounting and service charges that had accrued and received by assessee for relevant year should be added to income. 11 19. On third issue relating to unexplained deposit of Rs.7,44,340/- in current account, Tribunal came to hold that once it is accepted as unexplained income and it is not in relation to trading receipt and offered as income for assessment year 1996- 97 coupled with statement of Directors of company, who agreed for this, there was nothing illegal in order of Assessing Officer and Commissioner of Income Tax (Appeals) was not correct in ordering remand to exclude unexplained expenses. 20. On first issue, we find that assessee has now produced assessment order for assessment year 1998-99 wherein assessee had offered amount of Rs.4,61,642/- as income and was assessed accordingly. 21. Insofar as second issue, sum of Rs.29,39,092/-, which is part of Rs.24,08,748/-, which was omitted to be included in return of income dated 16.11.1997, was offered as income in assessment year 1997-98 by assessee. 22. In such view of matter, first and second issues are remanded back to Assessing Officer to verify and pass appropriate 12 orders. 23. On third issue relating to addition of Rs.7,44,340/-, as has been clearly recorded by Assessing Officer that this amount does not reflect as trading receipt, but only as unexplained deposit coupled with statement of Directors in presence of Chartered Accountant that it was not offered as income of said year, Tribunal was justified in upholding order of Assessing Officer. Commissioner of Income Tax (Appeals) was not correct in ordering remand for considering issue, since it was neither canvassed by assessee nor was issue before Commissioner of Income Tax (Appeals). reasoning of Tribunal which is based on material, which Assessing Officer found on verification of bank statement and other records for relevant assessment year, is correct. Tribunal has also found that income has not been offered in original return as well as in revised return filed on 26.01.1997. Therefore, Commissioner of Income Tax (Appeals) has no reason to order remand. 24. We find that order of Tribunal is justified and same is confirmed on this issue. Accordingly, third issue is 13 answered against assessee and in favour of Revenue. 25. For foregoing reasons, we pass following order: (i) with regard to addition made by Assessing Officer and confirmed by Tribunal under head 'Income of Electro Medical Maintenance Centre' at Rs.4,61,642/- and 'Service Charges' at Rs.24,08,748/-, matter stands remanded back to Assessing Officer for passing appropriate orders after verifying assessment order passed subsequently and; ii) with regard to addition under head 'Bank deposit in current account' at Rs.7,44,340/- issue stands answered against assessee and in favour of Revenue. In result, this Tax Case (Appeal) stands disposed of. No costs. Index: Yes/No (R.S.,J.)(R.K.,J.) Internet:Yes/No 10.02.2015 R.SUDHAKAR,J. AND R.KARUPPIAH,J.To Income Tax Appellate Tribunal, Madras 'A' Bench. Tax Case (Appeal) No.582 of 2007 10.02.2015. M/s.Kody Elcot Ltd. v. Joint Commissioner of Income-tax Special Range XI, Chennai