2018 (3) TMI 1574 - AT - Income Tax

Claim of TDS credit - assessee following cash accounting method - TDS certificates shows higher gross receipts then what is shown in the return of income and profit and loss account. - Held that - Assessee has already offered the income on gross turnover of ₹ 14.76 crores following cash system of accounting. According to the method of accounting if the tax deduction at source has been made by the client on or before 31st March but payment is not received till that date, tax deducted at source is included in the income by the assessee. Therefore, according to the method of accounting followed by the assessee, no infirmity in the order of the ld CT (A) in deleting the addition. Hence, the addition made by the AO of ₹ 3.78 crores is under the accounting treatment incorrect understood by the AO. In view of this the ground No. 1 and 2 of the appeal of revenue are dismissed. Addition on account of rental receipts under the head income from house property - Held that - Gross rent received from the tenant includes the service tax payable on the rent realized by the appellant. AO has erred in working out the Annual Value of the house property after excluding the service tax payable thereon for computing income from the house property. This finding also finds support from the fact the AO has accepted net annual value after excluding the service tax out of the gross rent receipt for computing the income from the house property in the subsequent AY. Accordingly, the service tax paid and refund of one month rent has to be deducted out of the gross Rent received from M/s with ICICI Prudential Life Insurance Co. Ltd., to arrive the Annual Value of the property. Consequentially, the addition made under the head income from the house property is deleted. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition of ?3,57,87,719/- on account of professional receipts.
2. Deletion of addition of ?18,09,631/- on account of rental receipts under the head income from House Property.

Detailed Analysis:

1. Deletion of Addition of ?3,57,87,719/- on Account of Professional Receipts:

The primary contention raised by the revenue was whether the CIT (Appeals) correctly deleted the addition of ?3,57,87,719/- due to the discrepancy between professional receipts as per TDS certificates and those shown in the books of accounts. The appellant, a senior advocate, filed a return of income showing professional receipts of ?14,76,70,759/-. However, the Assessing Officer (AO) noted discrepancies in the TDS certificates, leading to an addition of ?3,57,87,719/-.

The CIT (A) deleted the addition, noting the appellant follows a cash system of accounting, and the AO's approach of computing income based on TDS claims was not justified. The CIT (A) emphasized that the appellant's books of accounts were not rejected under section 145, and the AO had accepted the cash system of accounting in preceding and subsequent years. The CIT (A) also highlighted that the appellant had offered the income for tax on a cash basis and any alteration would lead to double taxation.

The tribunal upheld the CIT (A)’s decision, agreeing that the AO misunderstood the accounting treatment and incorrectly added ?3.78 crores. The tribunal found no infirmity in the CIT (A)’s order and dismissed the revenue’s grounds of appeal.

2. Deletion of Addition of ?18,09,631/- on Account of Rental Receipts:

The second issue was the addition of ?18,09,631/- made by the AO on account of rental receipts. The appellant had leased a property to ICICI Prudential Life Insurance Co. Ltd. and received rental income. The AO added ?18,09,631/- based on discrepancies between the rental income shown by the appellant and the amount reflected in Form 26AS.

The CIT (A) deleted the addition, noting that the difference was due to service tax and rent refunded to the tenant. The CIT (A) accepted the appellant’s explanation that the property was unfit for occupation for a month, leading to a refund of ?24,54,545/- to the tenant. The CIT (A) also noted that service tax should not be included in the annual letting value of the property.

The tribunal upheld the CIT (A)’s decision, agreeing that the rent refund and service tax were valid reasons for the discrepancy. The tribunal found no infirmity in the CIT (A)’s order and dismissed the revenue’s grounds of appeal related to the rental receipts.

Conclusion:

The tribunal dismissed the revenue’s appeal, upholding the CIT (A)’s deletion of additions on both professional and rental receipts. The tribunal found the CIT (A)’s reasoning and application of accounting principles and tax provisions to be correct. The order was pronounced in the open court on 26.03.2018.