2016 (6) TMI 119 - AT - Income Tax

Addition on difference in freight charges - difference in disclosure by the assessee in its return of income vis- -vis TDS Certificate - CIT(A) accepted assessee s contention that this receipt was not disclosed in the return, because the exact amount was spent by the assessee and no profit was earned on this receipt - Held that - We do not find any merit in this observation of CIT(A) insofar as even if the assessee had incurred expenditure equal to the amount of receipt, both receipt and expenditure are required to be shown in the audited profit and loss account as income and expenditure respectively along with supporting evidence of expenditure so incurred for earning the concerned revenue. Accordingly, the addition deleted by the CIT(A) has no legs to stand. In the interest of justice, we restore this matter to the file of AO for deciding afresh after verifying assessee s contention that it has incurred equal amount of expenditure with regard to labour charges received so as to reach to the conclusion that no income has been generated out of it. The AO is also directed to verify whether in the audited P&L account the assessee has included both income and expenditure and to decide the issue afresh. - Decided in favour of revenue for statistical purposes. Accrual of income - Income accounted for in the next financial year - Held that - The amount of ₹ 4,11,234/- was deleted by CIT(A) on the plea that this income pertains to the bills raised by the assessee in the month of March, which has been taken by the assessee as its income in its account in the month of April, 2008. However, nothing was placed on record by the assessee to justify CIT(A) s conclusion that this income was accounted for in the next financial year. In the interest of justice, we restore this amount of ₹ 4,11,234/- to the file of AO to verify as to whether the assessee has accounted for this income in the subsequent year, so as to justify its of not including the same in the year under consideration. Decided in favour of revenue for statistical purposes.

Issues Involved:

1. Acceptance of the reconciliation statement by the CIT(A).
2. Direction to AO not to disturb the method of accounting and deletion of the addition of ?53,26,762/-.
3. Relief of ?53,26,762/- without appreciating the AO's addition based on the difference between Gross Receipts as per Form 16A and P&L account.

Detailed Analysis:

Issue 1: Acceptance of the Reconciliation Statement by the CIT(A)

The CIT(A) accepted the reconciliation statement provided by the assessee, which explained the discrepancy between the gross receipts as per Form 16A and the P&L account. The assessee, a labour contractor, had received payments for labour charges and productivity allowance from two companies. These payments were not shown in the P&L account as they were contra entries, meaning the amounts received were paid back completely. The CIT(A) observed that the assessee had properly accounted for these transactions in the books of accounts, supported by invoices, bank statements, and ledger extracts.

Issue 2: Direction to AO Not to Disturb the Method of Accounting and Deletion of Addition of ?53,26,762/-

The CIT(A) directed the AO not to disturb the method of accounting followed by the assessee, which was on a mercantile basis. The CIT(A) noted that the assessee had shown the income related to the transactions in the form of service charges and that the profit earned was offered to tax. The CIT(A) cited previous ITAT decisions to support the view that only the income element should be taxed, not the gross receipts. The CIT(A) concluded that the AO had no justification for adding the gross amount as income since the receipts and payments were contra entries and the income had already been admitted.

Issue 3: Relief of ?53,26,762/- Without Appreciating AO's Addition Based on Difference Between Gross Receipts as per Form 16A and P&L Account

The CIT(A) granted relief of ?53,26,762/- to the assessee, noting that the difference between the gross receipts as per Form 16A and the P&L account was due to the method of accounting followed by the assessee. The CIT(A) found that the assessee had consistently raised bills for March in April of the subsequent financial year, and this method had been consistently followed. The CIT(A) directed the AO not to disturb this method and deleted the addition of ?4,11,234/- made by the AO, explaining that the difference was due to timing differences in accounting for receipts.

Separate Judgments Delivered by the Judges:

The ITAT Mumbai, after considering the rival contentions and the orders of the authorities below, found that the CIT(A)'s deletion of the addition of ?48,71,530/- was not justified as the receipts and expenditures should have been shown in the audited profit and loss account. The ITAT restored this matter to the AO for fresh verification. Similarly, the ITAT restored the amount of ?4,11,234/- to the AO to verify if the income was accounted for in the subsequent year. The appeal of the revenue was allowed for statistical purposes, with the AO directed to verify the assessee’s contentions and decide the issues afresh.

Conclusion:

The ITAT Mumbai concluded that the CIT(A)'s deletions were not fully justified and restored the matters to the AO for fresh verification, thereby allowing the revenue's appeal for statistical purposes. The AO was directed to verify the assessee's contentions regarding the incurred expenditures and the accounting of income in the subsequent year.

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