2022 (4) TMI 1459 - AT - Income Tax

Accrual of income - advance received from customers - CIT(A) confirming the action of the AO in treating the advance received from customers as income of the previous year relevant to this assessment year - HELD THAT - As exactly identical issue is covered in assessee s favour in assessee s own case for assessment year 2007-08 2018 (10) TMI 1973 - ITAT CHENNAI there is no dispute that the amount received by the assessee pertains to the services to be rendered in the immediate succeeding assessment year. Hence the assessee has rightly recognized its revenue in the succeeding assessment year. Therefore the addition made by the Ld.AO which is further sustained by the CIT(A) by treating the fees received in advance for the succeeding assessment year as the income of the assessee for the relevant assessment year is erroneous. Thus taking a consistent view we direct the AO to delete the addition and this ground of assessee s appeal is allowed. Non granting brought forward losses from the previous years for set off against the income computed under the normal provisions of the Act - HELD THAT - After hearing rival contentions and going through the facts of the case we noted that the CIT(A) has not at all considered this issue and hence the matter is remanded back to the file of the CIT(A) for fresh adjudication on this very issue. Disallowance u/s 14A r.w.r. 8D - disallowing expenses relatable to exempt income - HELD THAT - DR has not disputed that assessee has no dividend income. As the issue is covered by the Hon ble Supreme Court s decision in the case of CIT v. Chettinad Logistics (P.) Ltd. 2018 (7) TMI 567 - SC ORDER wherein it was held that once there is no exempt income no disallowance can be made by invoking the provisions of section 14A r.w.rule 8D of the Rules. As the issue is covered we direct the AO to delete the disallowance made. Hence this issue of the assessee s appeals is allowed. Treatment of prior period income - - HELD THAT - We noted that in case the prior period income has already been offered in assessment year 201213 the same should not be assessed in this year. The assessee will file these details before AO and will explain to the AO how the assessee has included this income in assessment year 2012-13 relevant to financial year 2011-12. The AO will verify and accordingly decide the claim of assessee. In case there is duplicity of addition the AO will remove the addition in this year. This issue of assessee s appeal is set aside and allowed for statistical purposes. TDS u/s 195 - disallowance of advertisement expenses for non-deduction of TDS u/s.195 - payment made to nonresident by invoking the provisions of section 40(a)(i) - HELD THAT - We noted that the ITAT Bangalore in the case of Urban Ladder Home D cor Solutions Pvt. Ltd. 2021 (8) TMI 927 - ITAT BANGALORE considered the decision of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT held that there is no requirement to deduct tax at source from the advertisement payments made for using the information technology facility u/s.195 - Thus we delete the disallowance and allow this issue of assessee s appeals.

Issues Involved:
1. Treatment of advance received from customers as income.
2. Non-grant of brought forward losses for set-off.
3. Disallowance of expenses related to exempt income under Section 14A.
4. Treatment of prior period revenue as income.
5. Disallowance of advertisement expenses for non-deduction of TDS under Section 195.

Issue-wise Detailed Analysis:

1. Treatment of Advance Received from Customers as Income:
The first issue concerns the CIT(A) confirming the AO's action of treating the advance received from customers as income for the relevant assessment year without considering that it did not accrue to the assessee during the year. The assessee argued that the revenue recognition was made according to Accounting Standard 9 and the method regularly employed. The CIT(A) allowed 90% of the amount claimed as received in advance to be taxed in the next year but taxed Rs.32,46,007/- as income for the assessment year 2012-13. The Tribunal found the issue covered by its earlier decision in the assessee's favor for assessment year 2007-08 and directed the AO to delete the addition, thus allowing the assessee's appeal on this ground.

2. Non-Grant of Brought Forward Losses for Set-off:
The second issue pertains to the lower authorities not granting brought forward losses from previous years for set-off against the income computed under the normal provisions of the Act. The assessee raised this issue before the CIT(A), but it was not adjudicated. The Tribunal remanded the matter back to the CIT(A) for fresh adjudication, acknowledging that the issue was not considered by the CIT(A).

3. Disallowance of Expenses Related to Exempt Income under Section 14A:
The third issue involves the disallowance of expenses related to exempt income by invoking Section 14A read with Rule 8D. The assessee argued that no exempt income was earned during the year, making the provisions of Section 14A inapplicable. The Tribunal noted that the assessee had no dividend income and, following the Supreme Court's decision in CIT v. Chettinad Logistics, directed the AO to delete the disallowance, thereby allowing the assessee's appeals on this issue.

4. Treatment of Prior Period Revenue as Income:
The fourth issue concerns the CIT(A) confirming the AO's action of treating prior period revenue amounting to Rs.7,01,42,914/- as income for the relevant assessment year, despite the assessee's claim that it was already offered in the previous year, leading to double taxation. The Tribunal remanded the matter to the AO to verify the assessee's claim that the income was already included in the previous year's assessment. If verified, the AO was directed to avoid double taxation, thus setting aside the issue for statistical purposes.

5. Disallowance of Advertisement Expenses for Non-Deduction of TDS under Section 195:
The fifth issue involves the disallowance of advertisement expenses paid to Facebook Ireland Limited for non-deduction of TDS under Section 195. The CIT(A) upheld the disallowance relying on the ITAT Bangalore decision in Google India Pvt. Ltd. The Tribunal, however, referred to the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that there is no requirement to deduct tax at source from payments made for using information technology facilities. Following this precedent, the Tribunal directed the AO to delete the disallowance, thereby allowing the assessee's appeals on this issue.

Conclusion:
The Tribunal allowed the appeals on the issues of advance received from customers, disallowance under Section 14A, and advertisement expenses. The issue of brought forward losses was remanded for fresh adjudication, and the issue of prior period revenue was set aside for verification, ensuring no double taxation.

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