- (1.) THE present appeal is filed by the Department under Section 260A of the Income Tax Act, 1961, against the impugned order dated 07.10.1999 passed by Income Tax Appellate Tribunal, Delhi in I.T.A. No. 388(Del)/93 for the assessment year 1985 -86.
(2.) ON 22.11.2006, a coordinate Bench has admitted the appeal on the following substantial questions of law : (a) Whether upon the facts and in the circumstances of the case, the Ld. ITAT was legaly justified in holding that service charges realised cannot be deemed as the income of th eyear under consideration and to assess the same in subsequent years when the actual services are to be rendered under contract, whereas the A.O. has rightly taxed the same in the year of receipts in absence of any such specific contracts? (b) Whether on the facts and in the circumstances of the case, the Ld. ITAT was legally justified in deleting the addition of Rs. 26,750/ - holding that the service charges received during the accounting period do not form part of the trading receipts of the year under consideration?
(3.) THE brief facts of the case are that the assessee is a private limited company. During the assessment year under consideration, it was engaged in the business of manufacture and sale of television sets. During the assessment year under consideration, the assessee has shown a sum of Rs. 9,28,424/ - as prepaid warranty service charges in the books of account. The A.O. treated it as an income and made the addition, which was deleted by the First Appellate Authority and the same was confirmed by the Tribunal vide its impugned order. Being aggrieved, the Department has filed the present appeal. With this background, Shri Shambhu Chopra, learned counsel for the Department submitted that unaccrued service charges were received in advance by the assessee from its dealers on the basis of the service agreement. The assessee has shown as service charges, but the dealer has shown it as a part of the cost of the T.V. sets and without any mention in the bills as service charges for the second year. No warranty cards were issued. He also submitted that the assessee simply diverted its profits in the name of service charges without providing any such service. At the strength of written submission, the learned counsel has justified the order passed by the A.O.;