2014 (1) TMI 1485 - AT - Income Tax

Depreciation on books and periodicals - Held that - The computation of depreciation on books and publications has to be made in accordance with the provisions of the Act using the correct WDV - As the assessee has produced complete and correct WDV there is no reason to disbelieve calculation done by assessee in respect of depreciation - The issue has been restored for fresh adjudication. Payments made to Advocates - Held that - The assessee is an Advocate and in the course of his profession assessee received advances from his clients and in turn hired Advocates for dealing the cases assigned to the assessee by his clients Decision in Sharma Kajaria & Co. Vs. DCIT 2012 (4) TMI 495 - ITAT KOLKATA followed Disallowance under section 40(a)(ia) can be made only in respect of an amount which is sought to be deducted under section 30 to 38 and not in respect of reimbursement simplicitor which is profit neutral and routed through the Profit & Loss Account - The amounts paid by assessee to the lawyers without deducting tax at source u/s. 194J were reimbursed by its clients - The amounts paid to the lawyers were never claimed as deduction - The issue has been restored for fresh adjudication. Addition on account of advances received in cash - Held that - The assessee is an advocate who maintains cash system of accounting and has received advances from clients - Advances received from clients do not become his income unless assessee renders his professional services and bills for the same are raised - Merely that the assessee followed cash system of accounting does not mean that any sum received as advance for his future use becomes his income Decision in CIT Vs. Sandersons & Morgans 1968 (4) TMI 17 - CALCUTTA High Court followed - When a solicitor receives money from his clients he does not to do so a trading receipt but he receives the money of the principal in his capacity as an agent and that too in a fiduciary capacity - The money thus received does not have any profit making quality about it when received - It remains money received by a solicitor as clients s money for being employed in the clients cause The addition made by CIT(A) deleted - The solicitor remains liable to account for this money to his client Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of credit of TDS and car maintenance expenses and depreciation.
2. Allowance of depreciation on books and periodicals.
3. Disallowance of payments made to advocates by invoking Section 40(a)(ia) for non-deduction of TDS.
4. Disallowance of telephone charges and depreciation on motor car.
5. Treatment of advances received from clients as income.

Detailed Analysis:

1. Disallowance of Credit of TDS and Car Maintenance Expenses and Depreciation:
The assessee raised issues regarding disallowance of TDS credit and car maintenance expenses and depreciation. However, during the hearing, the assessee chose not to pursue these issues, and the revenue did not object. Consequently, these issues were dismissed as not pressed.

2. Allowance of Depreciation on Books and Periodicals:
The issue pertained to the allowance of depreciation on books and periodicals amounting to Rs. 1,07,428/-. The AO had disallowed Rs. 1,42,416/- as the cost of books and periodicals and allowed Rs. 95,617/- as depreciation. The assessee argued that there was an error in computing the Written Down Value (WDV) carried forward from the previous assessment year. The Tribunal found the assessee's computation of WDV to be correct and set aside the issue to the AO for verification, directing the AO to allow the claim if verified correctly.

3. Disallowance of Payments Made to Advocates by Invoking Section 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed Rs. 19,20,785/- paid to advocates, invoking Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) confirmed the disallowance, stating that the payments were made by the assessee in his professional capacity and not on behalf of clients. The Tribunal referred to a similar case, Sharma Kajaria & Co. Vs. DCIT, where disallowance under Section 40(a)(ia) was not applicable to reimbursements that were profit-neutral. The Tribunal set aside the issue to the AO for re-examination in light of this precedent, allowing the assessee's appeal for statistical purposes.

4. Disallowance of Telephone Charges and Depreciation on Motor Car:
The AO and CIT(A) disallowed 10% of telephone expenses (Rs. 11,160/-) and depreciation on the motor car (Rs. 25,268/-) on an estimated basis, considering personal use. The Tribunal found the disallowance reasonable and confirmed the CIT(A)'s order, dismissing the assessee's appeal on these issues.

5. Treatment of Advances Received from Clients as Income:
The AO treated advances of Rs. 1,25,62,006/- received from clients as income, as the assessee followed a cash system of accounting. The CIT(A) restricted the addition to 10% of the advances, i.e., Rs. 12,56,200/-. Both the assessee and revenue appealed. The Tribunal noted that advances received do not automatically become income unless services are rendered and bills are raised. It referred to the Supreme Court's decision in CIT Vs. Sandersons & Morgans, which supported this view. The Tribunal found no basis for the 10% addition and deleted the entire addition, allowing the assessee's appeal and dismissing the revenue's appeal.

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, and the revenue's appeal was dismissed. The Tribunal directed the AO to verify specific issues and decide in accordance with the law and precedents.