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TMI Blog2013 (4) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the amount in question has been treated as expenses incurred by them during the year. Hence, the plea of the assessee to treat the amount received as advance is not very cogent. However,as found that there is considerable cogency in the assessee's submissions that proper credit of pass through cost should be taken, if the amount is being treated as revenue receipt. Since first issue in this case is remitted to the file of the AO, this issue is also remitted to the his file to examine the assessee's submission in this regard regarding the pass through cost in this case - in favour of assessee for statistical purposes. - ITA NO. 5890/Del/2012 - - - Dated:- 15-2-2013 - Shri R. P. Tolani And Shri Shamim Yahya,JJ. Sh. Salil Kapoor, Adv. Dr. Sudha Kumari, C.I.T. (D.R.) ORDER This appeal by the Assessee is directed against the order of the Assessing Officer passed u/s. 143(3)/144 of the I.T. Act and pertains to Asstt. year 2008-09. 2. The grounds raised read as under:- On the facts and circumstances of the case and in law, the Deputy Commissioner of Income-tax, Circle-3(1), New Delhi ('learned AO') has erred in passing the assessment order under section 143(3) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the principles of natural justice and consequential impugned addition to that extent deserves to be rejected. 4. Without prejudice to the above, learned AO and learned DRP have erred in disallowing the claim of Appellant in respect of amount which has been confirmed by vendors. In some cases, even learned AO has himself acknowledged that there is no difference in the amount confirmed by the vendors and amount claimed by the Appellant. 5. Without prejudice to the above, learned AO and learned DRP acted in complete disregard to principles of natural justice in alleging that vendor payments made by the Appellant are unacceptable, inspite of confirmations received from certain vendors in response to notices issued to said vendors by the learned AO himself. In response to said notices, various parties confirmed that payments were made by the Appellant during the subject year though amounts confirmed did not necessarily match due to difference in accounting treatment adopted by the Appellant and the vendors. 6. Without prejudice to the above, material collected by the learned AO and used against the Appellant and the remand report submitted by learned AO before the learned DRP wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and facts and circumstances of the case. 3. Apropos addition of Rs. 1,581,163,105/- Cheil India is wholly owned subsidiary of Cheil Communications Inc. The company was incorporated on 08.7.2003 and is engaged in the business of creative advertising, outdoor and exhibition business for related Samsung Group and unrelated customers. Assessing Officer noted that while examining TDS certificates that total receipts as per these certificates during the year are Rs. 179,79,77,515/-. But the receipts shown by assessee is only Rs. 20,01,15,050/-. Accordingly, he asked assessee to file explanation for the difference and reconciliations, if any. A reconciliation statement was filed by assessee as under:- Reconciliation Amount (Rs.) Gross amount received/ receivable from clients as 1,797,977,515 per TDS certificates. Less: Advances received from the clients as on 16,699,360 March 31, 2008. Balance 1,781,278,155 Less: Amount / payable to third party vendors 1,581,163,105 Revenue (Income from advertising services) as per 200,115,050 profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the appointment and spends on account of renting advertisement space from third party vendors, the assessee operates as an agent of its client and such cost is recognized as a pass through cost. It was therefore submitted that the amount paid / payable to the above vendors has been reduced from the corresponding amount received from the clients and therefore such receipts do not form part of revenue from advertising services credited to the P L account. 5. Upon assessee's objections raised in this regard, the DRP observed that assessee was having the modus operandi for accounting the commission income only and treating the balance amount as pass through cost. It agreed with the assessee to the extent that Assessing Officer should not have proposed to make addition as deemed income. Rather he should make addition on account of unverifiable pass through cost. But at the same time it was found that approach of Assessing Officer is also correct to verify the genuineness of the claim of assessee of pass through cost. The Assessing Officer was found to be well within his right to verify the genuineness of the claim of pass through cost. If the recipients of such pass through cost eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of Rs. 89,39,92,188/-, on account of the alleged short receipts declared in the profit and loss account. Now, this is entirely in violation of the natural justice principles of audi alterem parterm. Nobody can be condemned in hearing. Addition herein having been made at the back of the assessee without confronting the same to the assessee much less allowing the assessee any opportunity to rebut it, this addition, as it stands, is not sustainable in the eye of law. Accordingly, this issue is remitted to the file of the Assessing Officer, to be decided afresh in accordance with law, on providing due and adequate opportunity to the assessee to rebut the evidence collected by the Assessing Officer at the back of the assessee. 22. In this regard, a perusal of the relevant portion of the DRP's order, as reproduced herein above, shows that the assessee has produced confirmations from 45 vendors before the DRP, and the DRP had forwarded the same to the Assessing Officer for verification. The Assessing Officer had requested for more time to make the verification. The DRP, however, directed the Assessing Officer to verify the evidence and if the Assessing Officer were satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions before the DRP was as under:- "It is the submission of the assessee that it follows mercantile method of accounting and recognizes the income in the year in which services is rendered. As per the revenue recognition policy adopted by the assessee cited as Note 1(f) of the notes to accounts detailed at Schedule 15 of the Audited financials, receipts from commission income in respect of advertisement placed with media, by the company, on behalf of its clients is recognised as income in the period during which the advertisement is published or aired. Further, with respect to fees and income in respect of production jobs and other non media related services, the same is recognized on the completion of jobs and the provision of services, respectively. Ld. ARO has not appreciated facts of the case and merely on the basis of the treatment given by payer has proper to add such receipts as taxable income of the assessee." 11. Considering the above, DRP stated that the amount under reference has been received by the assessee. The payer has already treated this amount as expenditure during the year. If the revenue is recognized in the case of the assessee during this year itse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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