DCIT Vs Johnson Lifts Private Limited (ITAT Chennai)
SEO Title: ITAT Restores Section 69A Addition for Fresh Adjudication After Company Confirmation
SEO Description: ITAT restores a Rs.4.17 crore Section 69A addition to the AO for fresh adjudication after company confirmation of bank transactions.
Shri Anumandan Perumal Vs Commissioner of Income Tax (Appeals), NFAC
Summary: The appeal was filed by Shri Anumandan Perumal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), dated 23.04.2026. The supplied material relates to Assessment Year 2020-21. The assessee, an individual, had challenged an assessment order passed by the Assessing Officer under Sections 147 read with 144 of the Income-tax Act, 1961, dated 30.03.2025. During the appellate proceedings, the assessee could not comply with the notices issued by the CIT(A), resulting in dismissal of the appeal.
Before the Tribunal, the assessee challenged the addition of Rs.4,17,68,156/- under Section 69A. The Assessing Officer had noticed transactions aggregating to that amount in bank accounts standing in the assessee’s name. The assessee explained that the accounts had been opened for the business purposes of M/s. Yak Granite Industries Private Limited, where he was employed as a Quarry Manager, and that the transactions belonged to the company. The Ld. AR pointed out that the AO had issued a notice under Section 133(6) to the company and that the company had categorically confirmed that the transactions in the bank accounts pertained to it. The assessee nevertheless acknowledged that he could not effectively prosecute the appeal before the CIT(A) and sought another opportunity to substantiate the explanation with relevant evidence before the AO. The Ld. DR had no serious objection to restoration of the matter.
The Tribunal examined the confirmation reproduced in paragraph 6 of the assessment order. M/s. Yak Granite Industries Private Limited confirmed that the assessee was employed as its Quarry Manager and that the bank transactions in his name for FY 2019-20 (AY 2020-21) pertained to the company. The company also stated that its policy was to open bank accounts in the names of respective Quarry Managers for administration of the quarry, with funds transferred to those accounts for operational purposes.
The Tribunal observed that prima facie material existed supporting the assessee’s explanation that the bank accounts were being operated for the company’s business purposes. However, as the assessee had not effectively pursued the appellate proceedings before the CIT(A), the relevant facts and evidence had not been examined in detail. Considering the company’s categorical confirmation and the assessee’s willingness to produce the relevant evidence, the Tribunal set aside the impugned order on the issue and restored the matter to the AO for fresh adjudication. The AO was directed to examine the claim afresh in accordance with law and provide the assessee adequate opportunity of being heard. Consequently, the appeal was allowed for statistical purposes. The order was pronounced in the Open Court on 21st August, 2026.
List of Cases Discussed / Relied Upon
- None were discussed or relied upon in the supplied material.
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Chennai ITAT: Advance AMC Receipts Taxable Over Service Period Under Section 43CB; ₹7.65 Crore Additions Deleted
DCIT v. Johnson Lifts Pvt. Ltd., ITA Nos. 3401 & 3460/Chny/2025 (AYs 2020-21 & 2018-19), order dated 20.08.2026, the Chennai ITAT decided whether Annual Maintenance Contract (AMC) charges received in advance should be taxed entirely in the year of receipt or recognised proportionately over the period during which maintenance services are rendered.
Johnson Lifts Pvt. Ltd., engaged in manufacture, sale and maintenance of lifts and escalators, collected AMC consideration generally in advance for a 12-month contract period. Since contracts often extended over two financial years, the company recognised only the proportion attributable to services rendered during the relevant year and carried forward the balance as deferred income. The AO rejected this method and added ₹5.08 crore for AY 2018-19 and ₹2.56 crore for AY 2020-21, holding that the entire amount accrued upon receipt.
The Revenue relied significantly on the Madras High Court’s judgment in the assessee’s own case for AY 2009-10, which had held that the entire AMC consideration was taxable in the year in which the contract was entered into. The assessee, however, pointed out that the legal position had materially changed because Section 43CB was subsequently inserted by the Finance Act, 2018 with retrospective effect from 01.04.2017.
The Tribunal accepted this crucial distinction. Under Section 43CB, a service contract “involving indeterminate number of acts over a specific period of time” is required to recognise income on the straight-line method. An AMC precisely fits this description because the number of maintenance/service calls cannot be predetermined, although the contractual period is fixed. Therefore, AMC revenue must be recognised over the contract period rather than wholly upfront.
Importantly, the ITAT held that the Madras High Court ruling for AY 2009-10 did not govern the later years, because that decision concerned a period before Section 43CB became operative. The Tribunal observed that each assessment year is a separate unit of assessment, and consistency cannot compel application of an earlier legal position when Parliament has subsequently enacted a specific provision governing the issue. Further, once Section 43CB applies, the presence or absence of a refund clause in the AMC becomes immaterial to the statutory method of revenue recognition.
Accordingly, the ITAT upheld the CIT(A)’s deletion of ₹5,08,23,286 for AY 2018-19 and ₹2,56,34,992 for AY 2020-21, aggregating to about ₹7.65 crore, and dismissed both Revenue appeals.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These two appeals have been preferred by the Revenue against the orders dated 11.09.2025 for the Assessment year (A.Y.) 2020-21 and 10.09.2025 for the A.Y. 2018-19 both passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], arising from the assessment order passed u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) dated 26.09.2022 and 24.09.2021 for the A.Y.2020-21 and 2018-19 respectively by Assessment Unit, NFAC, Delhi. [hereinafter referred to as “the AO”].
2. Since the issue involved in both appeals is identical and arises out of substantially similar facts, both appeals were heard together and are being disposed of by this common order for the sake of convenience. The solitary controversy before us relates to the taxability of Annual Maintenance Contract (“AMC”) charges received in advance and, more particularly, whether the entire AMC consideration is liable to be recognised as income in the year of receipt or whether the income is required to be recognised proportionately over the period during which the corresponding maintenance services are rendered.
3. The brief facts of the case emanating from the records are that for A.Y.2018-19, the assessee company filed its return of income on 19.11.2018 admitting total income of Rs.217,63,07,410/-. The case was selected for scrutiny under CASS and statutory notices u/s.143(2) and 142(1) of the Act were issued. After considering the submissions of the assessee, the AO completed the assessment u/s.143(3) of the Act vide order dated 24.09.2021. Among other adjustments, the AO made an addition of Rs.5,08,23,286/- representing that portion of AMC charges received by the assessee which had been carried forward as deferred income on the ground that the corresponding services were yet to be rendered.
4. Aggrieved, the assessee preferred an appeal before the ld.CIT(A). The ld.CIT(A), vide order dated 10.09.2025, accepted the contention of the assessee and deleted the addition. The Revenue is, therefore, in appeal before us in ITA No.3460/Chny/2025.
5. Similarly, for A.Y. 2020-21 also, the assessment was completed u/s.143(3) of the Act vide order dated 24.12.2021, wherein the AO, inter alia, made an addition of Rs.2,56,34,992/- being the portion of AMC charges received by the assessee but deferred in its books on the ground that the corresponding maintenance services were yet to be performed.
6. The ld.CIT(A), vide order dated 11.09.2025, deleted the said addition. The Revenue has challenged the said deletion before us in ITA No.3401/Chny/2025.
7. The assessee is a company engaged in the business of manufacture and sale of lifts and escalators. As an integral part of its business operations, the assessee also undertakes servicing and maintenance of such equipment and, for this purpose, enters into Annual Maintenance Contracts with its customers. Under the AMC arrangement, customers ordinarily pay a lump-sum consideration at or around the commencement of the contract in consideration of the assessee undertaking to provide maintenance services throughout the stipulated contract period, generally twelve months. Since the AMC period does not necessarily coincide with the financial year, a particular contract may extend over portions of two financial years.
8. The assessee recognises as income only that proportion of the AMC consideration which relates to the period falling within the relevant previous year. The balance consideration relatable to the unexpired portion of the AMC is carried forward as deferred income and is offered to tax in the subsequent year when the corresponding services are rendered.
9. The AO rejected this method and held that the entire AMC consideration received during the year accrued to the assessee immediately and was therefore liable to tax in the year of receipt. On this reasoning, additions of Rs.5,08,23,286/- for AY 2018-19 and Rs.2,56,34,992/- for AY 2020-21 were made.
10. In making the additions, the AO placed reliance upon the decision rendered in the assessee’s own case for AY 2009-10 and upon the decision of the jurisdictional High Court in CIT v. G.S.R. Krishnamurthy (2003) 262 ITR 393. The view taken was essentially that, in the absence of any clause requiring refund of the AMC consideration in the event of premature termination, the amount stood irrevocably accrued to the assessee upon receipt. The decision of the Hon’ble Madras High Court in Coral Electronics (P.) Ltd. (274 ITR 336), wherein AMC income was permitted to be spread over the contract period, was distinguished on the basis of the terms governing refund of the unexpired portion of the contract.
11. The ld.CIT(A), however, accepted the assessee’s method of revenue recognition. The ld.CIT(A) relied upon the Special Bench decision in ACIT v. Mahindra Holidays & Resorts India Ltd. [2010] 39 SOT 438 (Chennai)(SB), wherein, in the context of membership fees received in advance, it was held that consideration attributable to services or privileges extending over a period could not necessarily be taxed entirely in the year of receipt.
12. Applying the aforesaid principle, the ld.CIT(A) held that the method adopted by the assessee of recognising AMC income proportionately over the period of the contract correctly reflected the income accruing for the relevant year. The ld.CIT(A) further distinguished G.S.R. Krishnamurthy on facts. Accordingly, the additions of Rs.5,08,23,286/- and Rs.2,56,34,992/- were deleted for AYs 2018-19 and 2020-21 respectively.
13. The learned Departmental Representative (“ld.DR”) strongly supported the assessment orders and submitted that the ld.CIT(A) was not justified in deleting the additions. The ld.DR submitted that the assessee follows the mercantile system of accounting and receives the AMC consideration in advance. The contracts did not contain any clause requiring refund of the amount received. Therefore, according to the Revenue, the right to receive and retain the AMC consideration became absolute during the year itself and there was no justification for postponing recognition of a portion thereof to the subsequent year.
14. It was further contended that the duration of the AMC was only one year and that the assessee could not treat part of the consideration already received as a liability merely because some of the maintenance obligations would be performed subsequently. The Revenue’s grounds therefore seek restoration of the additions made by the AO.
15. The ld.DR further brought to our notice an important subsequent development. It was submitted that the controversy relating to AMC income for AY 2009-10 in the assessee’s own case had travelled to the Hon’ble Madras High Court and that, in T.C.A. No.54 of 2015 dated 29.10.2024, the Hon’ble jurisdictional High Court had held that the entire AMC consideration received by the assessee was taxable in the year in which the contract was entered into and could not be spread over the contract period.
16. The ld.DR therefore contended that the decision of the jurisdictional High Court, being in the assessee’s own case and concerning the same issue, squarely governed the present appeals. According to him, the ld.CIT(A) was not justified in taking a contrary view and the orders of the ld.CIT(A) deserved to be reversed.
17. Per contra, the learned Authorised Representative (“ld.AR”) supported the orders of the ld.CIT(A). The ld.AR fairly did not dispute that the Hon’ble Madras High Court, in the assessee’s own case for AY 2009-10, had taken the view relied upon by the Revenue. It was, however, submitted that the assessee has preferred an appeal against the said judgment before the Hon’ble Supreme Court and the same is pending. More importantly, the ld.AR submitted that the statutory framework applicable to the assessment years presently under consideration is materially different from the law applicable to AY 2009-10.
18. The ld.AR invited our attention to section 43CB of the Act, inserted by the Finance Act, 2018 with effect from 01.04.2017. According to the ld.AR, section 43CB specifically governs determination of profits and gains arising from contracts for providing services and mandates recognition of income in accordance with the prescribed methods. It was submitted that an AMC involves rendering an indeterminate number of maintenance services over a specified period. Consequently, such contracts fall within the statutory framework requiring recognition of income on a straight-line basis over the contract period. The ld.AR further submitted that, after the insertion of section 43CB, the existence or otherwise of a contractual refund clause is not determinative of the manner in which income from such service contracts is to be recognised. The assessee’s method of proportionately recognising the AMC income over the relevant service period is, therefore, in accordance with the statutory mandate. Accordingly, it was submitted that although the ld.CIT(A) had not expressly founded his decision upon section 43CB, the ultimate conclusion reached by the ld.CIT(A) was legally correct and required no interference.
19. We have heard the rival submissions perused the material available on record and gone through the orders of the authorities along with judicial precedents relied on. The short question which arises for our consideration is whether, for AYs 2018-19 and 2020-21, the entire AMC consideration received by the assessee is liable to be recognised as income in the year of receipt or whether the consideration relatable to the unexpired portion of the AMC period can be recognised over the corresponding service period.
20. At the outset, we notice that the controversy is no longer res integra insofar as the assessee itself is concerned. An identical issue came up for consideration before a coordinate bench of this Tribunal in the assessee’s own case for AY 2022-23 in ITA No.3499/Chny/2025 dated 09.03.2026. The coordinate bench specifically considered both the judgment of the Hon’ble Madras High Court concerning AY 2009-10 and the effect of the subsequent insertion of section 43CB of the Act.
21. Section 43CB was inserted by the Finance Act, 2018 with retrospective effect from 01.04.2017. In substance, the provision requires profits and gains arising from construction contracts or contracts for providing services to be determined in accordance with the percentage-of-completion method, subject to the exceptions expressly provided therein. Of particular relevance is the proviso governing service contracts involving an indeterminate number of acts over a specified period, for which the statute provides recognition on the straight-line method.
22. The coordinate bench, while examining the legislative object behind section 43CB, noticed that the provision was introduced to give statutory recognition to the notified Income Computation and Disclosure Standards and to regulate computation of income from construction and service contracts.
23. In our considered view, the nature of the assessee’s AMC squarely answers the description considered by the coordinate bench. Under an AMC, the assessee undertakes to render maintenance services throughout the contract period. The exact number of occasions on which maintenance or service may be required cannot ordinarily be predetermined. The obligation therefore consists of an indeterminate number of acts extending over a clearly identified contractual period. The coordinate bench, on identical facts, held that such AMC services involve an indeterminate number of acts over a specified period and consequently the AMC revenue is required, in terms of section 43CB, to be recognised over the contract period on a straight-line basis. Therefore, we find no reason to take a different view for the assessment years before us.
24. We have carefully considered the contention of the learned DR based upon the judgment of the Hon’ble Madras High Court in the assessee’s own case for AY 2009-10. There can be no dispute regarding the binding nature of a judgment of the jurisdictional High Court. However, the material question is whether the statutory regime governing AY 2009-10 continues to govern the assessment years presently before us. In this regard, section 43CB assumes decisive significance.
25. The assessment years presently before us are AYs 2018-19 and 2020-21. Both fall after 01.04.2017 and are consequently governed by section 43CB.
The earlier decision concerning AY 2009-10 necessarily arose in the context of the statutory provisions then prevailing and before section 43CB became operative.
26. Therefore, the distinction is not merely factual; it arises because of a material change in the governing statutory framework.
27. The coordinate bench has already considered precisely this question and held that the applicability of section 43CB materially distinguishes the post- 01.04.2017 assessment years from AY 2009-10. It is settled that each assessment year constitutes a separate unit of assessment. While the principle of consistency undoubtedly has persuasive value, it cannot compel an authority to apply the legal position prevailing in an earlier year when Parliament has subsequently enacted a specific provision governing the subject matter.
28. Thus, the treatment accorded to AMC receipts for AY 2009-10 cannot automatically determine their tax treatment for AYs 2018-19 and 2020-21 without examining the effect of section 43CB. Once section 43CB applies, the recognition of revenue from the service contract has necessarily to be determined in accordance with the method prescribed therein. The existence or absence of a refund clause cannot by itself override the statutory method of computation applicable to the relevant assessment year.
29. The coordinate bench in ITA No.3499/Chny/2025 dated 09.03.2026, after considering the identical issue in the assessee’s own case for AY 2022-23, held that section 43CB squarely governed AMC revenue and directed deletion of the addition made in respect of AMC charges received in advance by holding as under:
“7. We have heard rival submissions, gone through the orders of the authorities below and perused the paper book filed before us. It is an admitted fact that the assessee filed its return and subsequently its case was selected under CASS. Thereafter, the Assessing Officer passed the assessment order u/s.143(3) of the Act wherein he added a sum of Rs.4,26,66,144/- on account of charges received towards AMC. The ld.CIT(A), NFAC sustained the order of the Assessing Officer by relying on the decision of the Jurisdictional High Court in the assessee’s own case (supra).
8. It seems appropriate to first delve into Section 43CB of the Act since the ld.AR for the assessee argues that the said provisions is applicable in this instant case. The Income-tax Act has undergone a significant amendment by insertion of section 43CB by the Finance Act, 2018 with retrospective effect from 01.04.2017 to give statutory authority to ICDS IV, in view of some court decisions not accepting ICDS. Section 43CB reads as under:
43CB. (1) The profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards (ICDS) notified under sub-section
(2) of section 145: Provided that profits and gains arising from a contract for providing services,—
(i) with duration of not more than ninety days shall be determined on the basis of project completion method;
(ii) involving indeterminate number of acts over a specific period of time shall be determined on the basis of straight line method.
(2) For the purposes of percentage of completion method, project completion method or straight line method referred to in sub-section (1)—
(i) the contract revenue shall include retention money;
(ii) the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains.”
9. From the explanatory notes regarding this section, it can be seen that the intention of legislature in introducing this provision to legitimatise the notified IDCS and to regularise the compliance of such notified ICDS, since many taxpayers have complied with provision of ICDS for computing income for the Assessment Year 2017-18 and hence this amendment was taken effect retrospectively from 01.04.2017. The notes also state that: “The new section 43CB has been inserted in the Income-tax Act to provide that profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method except for certain service contracts, and that the contract revenue shall include retention money, and contract cost shall not be reduced by incidental interest, dividend and capital gains”.
10. In the assessee’s case, the AMC involves rendering of maintenance services through an indeterminate number of acts, as the number of service calls during the contract period is uncertain and cannot be predetermined. At the same time, the services are rendered over a clearly defined period, namely the tenure of the AMC. Accordingly, in terms of the statutory mandate of section 43CB, which is applicable to the impugned Assessment Year, recognition of AMC revenue over the period of the contract on a straight-line basis is legally correct.
11. Moreover, the said provision came into effect from 01.04.2017 and the assessment year under consideration is 2022-23. Therefore, irrespective of any debate concerning retrospective operation, it remains an undisputed position that Section 43CB of the Act squarely governs the assessee’s case for the impugned assessment year. In such circumstances, the authorities below erred in law and on facts, in merely relying upon the earlier judicial decision rendered in the assessee’s own case for Assessment Year 2009-10, without undertaking an independent examination of the statutory framework applicable to the present year.
12. While the principle of consistency has persuasive value in income-tax proceedings, it is trite law that such principle cannot override or dilute the binding force of a statutory provision that is operative for the relevant assessment year. Each assessment year constitutes a separate unit of assessment and the rights and liabilities of the parties must necessarily be determined in accordance with the law as it stands during that assessment year. Where the legislature has introduced a specific provision governing the field, adjudicatory authorities are duty-bound to apply the same, even if the earlier assessment years were decided under a different legal regime or in the absence of such provision.
13. Accordingly, the authorities below ought to have appreciated that the existence and applicability of Section 43CB for A.Y.2022-23 materially distinguishes the present proceedings from those relating to A.Y.2009-10. By mechanically treating the issue as concluded solely on the basis of the earlier decision, without analysing the impact of the subsequently operative statutory provision, the Revenue authorities failed to exercise jurisdiction in the manner required by law. The impugned order, therefore warrants interference. We, accordingly allow the present appeal and direct the Assessing Officer to delete the addition made towards the issue on advance received for AMC charges.”
30. The assessment years presently before us, namely AYs 2018-19 and 2020-21, also fall within the period governed by section 43CB. The nature of the assessee’s business, the character of the AMC contracts, the method of accounting and the controversy raised by the Revenue are materially identical.
31. Nothing has been brought before us by the Revenue to demonstrate any distinguishing feature in the facts of the present assessment years. Nor has it been shown that the aforesaid decision of the coordinate bench has been stayed, reversed or set aside by any higher judicial forum. Judicial discipline therefore requires us to follow the decision of the coordinate bench rendered in the assessee’s own case on the identical issue.
32. In view of the foregoing discussion, we hold that for the assessment years under consideration, the taxability of AMC receipts has to be determined having regard to section 43CB of the Act. Since the AMC undertaken by the assessee involves rendering an indeterminate number of maintenance services over a specified contractual period, recognition of revenue over the contract period on a straight-line basis is consistent with the statutory framework applicable to these years.
33. Consequently, the earlier decision relating to AY 2009-10, which pertains to a period prior to the applicability of section 43CB, cannot be mechanically applied to the assessment years presently before us without giving effect to the subsequent statutory provision.
34. We, therefore, respectfully follow the decision of the coordinate bench in the assessee’s own case in ITA No.3499/Chny/2025 dated 09.03.2026 and find no infirmity in the ultimate conclusion reached by the ld.CIT(A), in deleting the additions on account of deferred AMC income.
35. Accordingly, the order of the ld.CIT(A), deleting the addition of Rs.5,08,23,286/- for AY 2018-19 is confirmed and the grounds raised by the Revenue for the said assessment year are dismissed. Likewise, the order of the ld.CIT(A), NFAC deleting the addition of Rs.2,56,34,992/- for AY 2020-21 is confirmed and the grounds raised by the Revenue for the said assessment year are dismissed.
36. In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 20th August, 2026 at Chennai.
