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2016 (8) TMI 361 - ITAT DELHI

2016 (8) TMI 361 - ITAT DELHI - TMI - Disallowance of the provisions directly debited in the balance sheet - method of accounting adopted - CIT(A) allowed the claim - Held that:- It is notable that the ld. CIT(A) after considering the recognized system of accounting followed consistently by the assessee and accepted by department in previous years and keeping in view the rule of consistency as envisaged by Hon’ble Apex Court in the case of CIT vs. Realest Builder & Services Ltd., (2008 (5) TMI 6 .....

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to accounting of income and expenses from the business of Fleet Management Services is in accordance with the accepted accounting method as laid down in AS-9 issued by the Institute of Chartered Accountants of India. The ld. DR could not rebut the contention of the assessee that the buffer account created is in the nature of amount received on account of services to be rendered over the period of lease in respect of the leased cars and any income or loss in this regard arises only at the time o .....

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Respondent : Sh. Ajay Vohra, Sr. Advocate and Sh. Aditya Vohra, Advocate ORDER Per L.P. Sahu, Accountant Member: This is an appeal by the Revenue against the order of ld. CIT(A)-VII, New Delhi dated 25.08.2010 for the assessment year 2007-08 on the following grounds : 1. The order of the learned IT(A) is erroneous & contrary to facts and Law. 2. On the fact and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of ₹ 3,00,88,607/- m .....

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ome of ₹ 35,01,314/-. The assessment was completed u/s. 143(3) of the IT Act at an income of ₹ 3,35,89,921/- and the AO made the addition of ₹ 3,00,88,607/- on account of provision created by the assessee out of the income. The AO made this addition on the ground that this amount was appearing during the year in the buffer account as current liabilities and no explanation was furnished by the assessee with regard to the query raised by AO in this regard and the assessee did not .....

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this is equivalent to creating a provision against future liabilities related to maintenance expenses, damage costs, replacement costs and risk associated costs which did not crystallize during the year. To be more clear, the Assessing Officer made this addition of ₹ 3,00,88,607/- on account of amount received during the year towards repairs and maintenance and other incidental services provided by the assessee to its customers in respect of cars leased, after reducing the actual expenses .....

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pellant, the findings of the Assessing Officer and the facts on record. I have also perused the case laws relied upon by the Assessing Officer as well as by the appellant. The Assessing officer has made an addition of ₹ 3,00,88,607/- which is the amount appearing during the year in the buffer account as current liabilities on the ground that no explanation was furnished by the appellant with regard to the query raised in this regard. There is no dispute over the fact that the assessee is f .....

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llowed by the assessee has been accepted. These assessments have become final and method followed by the assessee in these years stands accepted by the department. However, in the year under consideration, the Assessing officer has tried to assess the income on a different basis according to which the income has to be assessed on accrual basis during the year. The case of the Assessing officer is that the balance in buffer accounts are shown as current liabilities due to which a part of income f .....

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In the opinion of the A.O. , if the transaction would have been routed through the profit and loss account, the amount transferred to the balance sheet as buffer would have been shown as below:- Income accrued from customers Income accrued from customers Rs.25,06,58,510 Less: Actual expenses incurred Rs.(21,35,34,129) Less: Provision for maintenance & other expenses Rs.(3,00,88,607) Income from services Rs.70,35,774 4.2 It is established legal position that an assessee can follow any recogn .....

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to the Profit & Loss Account at that stage. Hence, incomes and expenses are allocated for over the period of the contract in this regard. The Assessing Officer cannot reject the method and apply a different method of accounting in a subsequent year unless he is able to demonstrate that there is under-estimation of profits by giving facts and figures in that regard. It was observed by the Hon'ble Supreme Court in CIT vs. Realest Builder & Services Ltd. [2008J 307 ITR 202 (SC) as under .....

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t regard and demonstrate to the Court that the impugned method of accounting adopted by the assessee results in under-estimation of profits and is, therefore, rejected. Otherwise, the presumption would be that the entire exercise is revenue neutral. In this case, that exercise has never been undertaken. The Assessing Officer was required to demonstrate both the methods, one adopted by the assessee and the other by the Department. In the circumstances, we see no reason to interfere with the concl .....

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s held that the addition of ₹ 3,00,88,607/- on account of provision created out of income cannot be sustained and accordingly, the same is directed to be deleted. As a result, Grounds of appeal No. 1 to 2.2 are allowed. 3. The ld. DR relying upon the assessment order, submitted that the ld. CIT(A) was not justified in deleting the addition and the transactions reflected in the buffer account were not routed through the profit and loss account in order to reduce the tax liability. It was al .....

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the contentions of the ld. DR, submitted that the assessee has been following the buffer accounting method of determining profit and loss in respect of the aforesaid transactions at the end of the lease term since inception of its business and this method of accounting is one of the recognized system of accounting as Completed Service Method as provided in the AS-9. The department has also been accepting this method of accounting in the past and therefore, there is no reason to change the syste .....

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