2014 (5) TMI 442 - HC - Income Tax

Accrual of income - Treatment of income based on TDS deducted - It was submitted that the amount continued to be treated as an advance and were appropriated towards the expenses actually incurred - Whether the Tribunal fell into error in holding that the sum had to be treated as income and brought to tax Held that - The DRP and the Tribunal appear to have accepted the merit of the assessee s contention, they have not fully endorsed the position, consistently projected by it, that the amounts received were not in the nature of income - As to the exact arrangement that existed between the assessee and its customers who used to remit the amounts towards the expenditure to be incurred by them, has not been discussed - the 18 invoices raised and the net income reported - in the absence of any investigation as to the contractual arrangement that existed between the assessee and its customers, the AO had to necessarily carry out the necessary enquiry or investigation to see the amounts received and how they were expended the matter is remitted to AO for fresh consideration Decided in favour of Assessee.

Summary

Issues:
- Whether the Tribunal erred in treating a sum as income and bringing it to tax.

Analysis:
1. The appellant received a sum of Rs.1,66,99,360 from two parties during the relevant assessment year. The appellant claimed that the amount was treated as an advance due to its business nature of booking and publishing advertisements for clients. The Dispute Resolution Panel (DRP) upheld the AO's decision to treat the amount as income, stating that the payer had already treated it as an expenditure. The appellant appealed to the ITAT.

2. The ITAT remitted the issue to the Assessing Officer, emphasizing the need to consider the proper credit of pass-through costs if the amount is treated as a revenue receipt. The ITAT directed the AO to examine the submissions regarding pass-through costs. The appellant relied on Accounting Standard No.9, arguing that revenue recognition should align with completed services. The appellant's books consistently treated the amounts as advances, with actual expenses appropriated when incurred.

3. The High Court noted that while the DRP and ITAT acknowledged the merit of the appellant's contention, they did not fully endorse that the amounts were not income. The exact contractual arrangement between the appellant and the parties remitting the amounts was not discussed. The Court held that the AO needed to investigate the nature of the amounts received and how they were expended. The matter was remitted to the AO for a comprehensive review, including all aspects beyond the Tribunal's specific questions.

4. The Court partially allowed the appeal, remitting the case to the AO for a detailed examination. If the amount is deemed income, the appellant should receive consequential benefits for subsequent years. All pending applications were disposed of as per the judgment.