2011 (7) TMI 1023 - AT - Income Tax

Summary

Issues:
1. Treatment of advance collection of storage fee by the assessee for blood stem cells.
2. Validity of the revision order passed by the Commissioner of Income-tax under section 263.

Analysis:
1. Treatment of Advance Collection of Storage Fee:
The assessee, engaged in preserving and storing blood stem cells, collected fees from clients for enrolment, processing, and storage. The dispute arose regarding the treatment of the storage fee collected in advance. While enrolment and processing fees were treated as revenue receipts in the year of receipt, the storage fee collected in advance was subject to debate. The Commissioner of Income-tax questioned the assessing authority's failure to investigate the deferral of revenue receipts related to the lump sum storage fee collection. However, the ITAT Chennai found that the lump sum collection for storage fee should be spread over the 21-year period for which the blood stem cells are stored. This treatment was deemed appropriate as it aligned with the matching principle of income and expenditure. The ITAT upheld the assessing authority's decision on this matter, ruling that the Commissioner's revision order was unjustified.

2. Validity of Revision Order under Section 263:
The ITAT Chennai further analyzed the validity of the revision order under section 263. It highlighted that the Commissioner's reasoning for invoking section 263 was based on the assessing authority's alleged failure to thoroughly examine the issue of advance storage fee collection. However, the ITAT clarified that even if alternative views were possible, the assessing authority had followed a legally acceptable approach. Therefore, the Commissioner's revision order was deemed unsustainable. The ITAT emphasized that the assessing authority had considered the details of the collections made by the assessee, even though the issue was not extensively discussed in the assessment order. Ultimately, the ITAT concluded that the revision order by the Commissioner was not legally tenable, leading to the vacating of the revision order.

In conclusion, the ITAT Chennai allowed the appeal filed by the assessee, emphasizing the correct accounting treatment of the advance storage fee collection and the legal insufficiency of the revision order passed by the Commissioner of Income-tax under section 263.