2013 (4) TMI 842 - AT - Income Tax

Addition of professional receipts - Held that - the assessee had raised an invoice on 30.7.2010 and accounted the receipt as income in its books of account for the previous year 2010-11 - to support this audit report and invoice was furnished - on the principles of natural justice and fairness the issue is remitted back to the file of the AO Unpaid Service tax - Held that - The moment the service tax is realised it becomes payable to the Govt. account and if it is not paid it partakes the character of income of the assessee since the assessee could utilise this amount in any manner whatsoever there is no restriction placed on its utilisation - Since service tax realised is included in the total income the same is to be allowed as a deduction in the year it is paid to the Government account - Decided against the assessee

Summary

Issues Involved:
1. Addition of professional receipt of Rs. 4,85,320/- to the returned income.
2. Treatment of service liability of Rs. 29,00,660/- as income of the assessee for the current year.

Issue-wise Detailed Analysis:

1. Addition of Professional Receipt of Rs. 4,85,320/-:

The assessee firm, engaged in chartered accountancy, filed its return of income for AY 2009-10. The AO added Rs. 4,85,320/- to the returned income based on AIR information, asserting that the amount should be taxed in the year it was received, i.e., FY 2008-09. The assessee argued that the amount was offered to tax in AY 2011-12, following their regular accounting system. The CIT(A) upheld the AO's decision, noting that the assessee had received the amount on 31/3/2009 and had agreed to the addition during the assessment proceedings. However, the assessee denied this consent and provided supporting documents, including an affidavit and audit reports, indicating that the invoice was raised only on 30/7/2010. The Tribunal remitted the issue back to the AO for fresh consideration, directing to afford a reasonable opportunity to the assessee to present its case.

2. Treatment of Unpaid Service Tax Liability of Rs. 29,00,660/-:

The AO observed that the assessee collected but did not pay service tax of Rs. 29,00,660/-, showing it as an outstanding liability. The AO added this amount to the income, reasoning that it should be included in gross receipts as per section 43B of the IT Act. The CIT(A) upheld this view, distinguishing service tax from sales tax but treating both similarly for tax purposes. The assessee contended that section 43B applies only if a deduction is claimed, which was not the case here. The Tribunal noted that service tax collected but not paid to the government should be treated as income, as it is part of business receipts and appears in TDS certificates. The Tribunal upheld the CIT(A)'s decision, allowing deduction of service tax in the year it is paid to the government.

Conclusion:

The Tribunal partly allowed the appeal for statistical purposes, remitting the issue of professional receipt back to the AO for fresh consideration and upholding the addition of unpaid service tax liability to the income. The order was pronounced in the open court on 12th April 2013.