TaxTMI 
TaxTMI 
2014 (11) TMI 601
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....82,60,380/- added as license fees/service charges which has accrued to the assessee, in spite of the clear finding by the assessing officer that the assessee was consistently following the mercantile system of accounting and that following this system income had accrued to the assessee." 3. Brief facts of the case are that, the assessee company is engaged in the business of quality control, inspection, technical testings, survey etc. all relating to agricultural products. The assessee is having income from "service charges" and license fee. During the course of the original assessment proceedings, the assessing officer noted that the assessee, "under the head" 'current liabilities' had shown an amount of Rs. 82,60,380/- as income billed but not due. This was on account of license fee earned by the assessee. So far as "service charges" are concerned, the same were accounted on the basis of completion of services and on financial year basis. As regards "license fees", they were accounted on calendar year basis. Since the assessee is maintaining its books of account on financial year basis, that is, from 1st April to 31st March, the assessee had to make adjustment in respect of t....
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....der of the Ld.CIT(A) as quoted by the appellant. From the facts on record, the amount of Rs. 82,60,380/- are the licence fees received in separate division known as M/s. Skul International from January to December basis while the appellant maintains its books of account from April to March i.e. F.Y. Therefore, the licence fees receipts are accounted on April to March basis and the balance is shown under the head current liabilities. This system is consistently followed by the appellant. The amount of Rs. 82,60,380/- has been accounted in the F.Y. April, 2004 to March, 2005 and this method of accounting its consistently followed by the appellant which is also supported by the fact that as on 31.03.2003, the amount shown as liability was Rs. 71,26,099/- as income billed but not due and this amount of Rs. 71,26,099/- was accounted as income in the F.Y. 2003-04. Hence, there is merit in the contention of the appellant that the licence fees of Rs. 82,60,380/- which is not due and accrued should not have been added as income on the basis of rule of consistency. Since there is no change in the facts and circumstances of this year, it is held that there is no justification in bringing to t....
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....sessing Officer that the assessee was consistently following the mercantile system of accounting and that following this system income had accrued to the assessee in A.Y. 2006-07." This ground is similar to ground no. 1 as raised by the department in A.Y. 2004-05, therefore, finding given in the said appeal will apply mutatis mutandis in this also and accordingly ground no. 1 as raised by the department is treated as dismissed. 8. Ground No. 2 relates to disallowance of administrative expenses @ 10%, as against 20% made by the AO. Before us, it has been submitted by the learned counsel that, in A.Y. 2004-05 the assessee has accepted the disallowance of 20%, which was sustained by the Ld.CIT(A). Therefore in this year also, the said disallowance of 20% can be confirmed. Accordingly, in view of the admission of the learned counsel for the assessee, we confirm the disallowance of 20% on account of administrative expenses and in the result ground no. 2 as raised by the department is treated as allowed. 9. In A.Y. 2008-09, i.e. in ITAT No. 3525/Mum/2012 following grounds have been raised by the department which read as under:- "On the facts and in the circumstances of the case and i....
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....he disallowance u/s 40(a)(ia). The Ld.CIT(A), following the earlier year orders of the CIT(A) confirmed the said disallowance. 15. Before us the learned counsel for the assessee submitted that, this issue had come up for consideration before the Tribunal in A.Y. 2006-07, wherein the Tribunal has deleted the said disallowance. The Ld. DR also admitted that this issue had been decided in favour of the assessee by the Tribunal in the earlier years. 16. After considering the relevant finding given by the AO as well as Ld.CIT(A) and also the order of the Tribunal of the earlier years we find that this issue has been decided in favour of the assessee after detail discussion. The relevant finding and the observations of the Tribunal as given in ITA No. 577/Mum/2011 for the A.Y. 2006-07 reads as under:- "After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee entered into an agreement with its holding company towards incurring of such expenses. Vide Agreement dated 5th June, 2005, a copy of which has been placed on record;' the holding company agreed to incur various costs for and on behalf of the assessee and other grou....
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....f the amount paid by the assessee is, not taxable in the hands of the recipient, there can be no question of making any disallowance under this provision. A conjoint reading of 'sections 195 and 40(a)(ia) 'brings to the fore that the disallowance can be made' only if the amount paid is chargeable to tax in the hands of the recipient. In other words, if the amount is not chargeable to tax in hands of the recipient, there cannot be any scope for 'deduction of tax at source. There is no dearth of judgments and Tribunal orders to the effect that the reimbursement of expenses without any profit element cannot be charged to tax in the hands of the recipient. If such an amount is not chargeable to tax there cannot be any scope for' deduction of tax at source from such payment. Once no deduction of tax at source is contemplated, the natural corollary which manifestly follows is that the provisions of section 40(a)(ia) cannot be triggered. We, therefore, do not see any reason for sustaining the disallowance confirmed by the learned CIT(A). 5. Before parting with this issue, we would like to record that the learned Departmental Representative referred to certain observat....