2016 (1) TMI 720 - AT - Income Tax

TDS Credit - Accrual of income against advance received - method of accounting - project completion of method - Postponement of income received as remuneration for profession/technical services rendered - whether claim of the TDS was liable to be disallowed - it was submitted that when the assessee has not offered the corresponding tax in the year under consideration, then the claim of the TDS was liable to be disallowed. Held that - The amount paid to the assessee has not been claimed by the M/s. A.A. Estate Pvt. Ltd. as expenditure but has only been shown as work in progress. So there was a consistency in the accounts of both the payer and the payee. The services rendered by the assessee were also relating to the activities of the builders and developers and as per the MOU, the quantification of the remuneration of the assessee was dependant on the completion of the project and under such circumstances, the assessee was justified to follow the project completion method of accounting. On the completion of the project, the amount quantified as the remuneration of the assessee was offered by the assessee for taxation and the same was accordingly claimed as expenditure by the builder. Till the completion of the project, the amount was not claimed by the builder as expenditure. The Ld. CIT(A) has also taken into consideration the accounting method in relation to different projects and it was found that wherein there was a resultant loss, no income was offered by the assessee; and where there was a profit, the assessee had shown income being the remuneration received by him on certain fixed percentage out of the profits of the project. There was no discrepancy either in the accounts of the assessee nor of the builder. The Ld. CIT(A) therefore after proper appreciation of the evidence on the file has concluded that the amount received by the assessee during the year was an advance and the actual remuneration was to be quantified at the completion of the project. The assessee therefore was justified in not offering the said amount as income for the year. He therefore upheld the additions so made by the AO. We do not find any infirmity in the above well reasoned order of the Ld. CIT(A) and the same is accordingly upheld - Decided in favour of assessee.

Summary

Issues involved:
Postponement of income received as remuneration for professional/technical services rendered.

Analysis:
The judgment pertains to four appeals by the Revenue against different orders of the Commissioner of Income Tax (Appeals) for assessment years 2006-07, 2007-08, 2008-09, and 2009-10. The key issue in all four appeals is the postponement of income received as remuneration for professional/technical services rendered, with the facts and issues being identical across the appeals. The Revenue contended that the assessee, a service provider company, should have recognized the income received as professional fees and disallowed the claimed expenses. The Revenue also challenged the deletion of additions made by the Assessing Officer regarding payments received by the assessee from M/s. A.A. Estate Pvt. Ltd. as advances for professional services. The Revenue argued that the assessee should not have adopted the project completion method of accounting and that the MOU between the parties was a sham transaction.

The Assessing Officer observed that the assessee had not shown the income received as professional fees in its accounts despite TDS deductions. The assessee explained that the amount received was an advance under an MOU with M/s. A.A. Estate Pvt. Ltd., where the actual remuneration was to be determined upon project completion. The CIT(A) held that the amount received was indeed an advance, to be adjusted upon project completion, and deleted the additions made by the AO. The Revenue challenged this decision before the ITAT.

During the appeal, the Revenue argued that the payments to the assessee exceeded the agreed amounts, and the nature of services provided went beyond consultancy, suggesting the MOU was a sham transaction. The Revenue also contended that since the assessee did not offer corresponding tax on the income, the TDS claim should be disallowed. The assessee, on the other hand, maintained that the advance received was for professional/technical services, and the project completion method of accounting was consistently followed, with profits or losses determined upon project completion.

After considering the contentions and evidence, the ITAT upheld the CIT(A)'s decision, emphasizing the consistency in accounts between the payer and payee, the nature of services provided, and the justification for following the project completion method of accounting. The ITAT found no discrepancy in the accounts of the assessee or the builder, concluding that the amount received was an advance pending project completion and not taxable income for the year. Therefore, the ITAT dismissed the Revenue's appeal, stating that the issue was identical across all appeals and upheld the CIT(A)'s decision in all cases.

In conclusion, the ITAT ruled in favor of the assessee, affirming the postponement of income received as remuneration for professional/technical services rendered, based on the terms of the MOU and the project completion method of accounting followed by the assessee.