2018 (9) TMI 1160 - AT - Income Tax

Addition made on account of difference in credit of income as per 26AS statement and income credited in Income and Expenditure accounts - Held that - We note that these timing differences in recognition of revenue with corresponding TDS, will get adjusted in future years and hence there is no tax evasion on the part of the assessee. Moreover, the details of the impugned addition at ₹ 1,93,02,985/- made by the AO is not available, that is, on what basis he worked out the addition at ₹ 1,93,02,985/-, therefore, we do not agree with the addition made by assessing officer. CIT(A) has rightly deleted the impugned addition. - Decided against revenue Provision made on accrual basis for future expense - Held that - We note that the amount represents entitlements due to the respective Chapters computed on the basis of collections from membership subscription under the control, and that these amounts should be applied by the respective Chapters. Therefore, it is an ascertained expenditure which obviously must be applied by the Chapters. As far as the Head Office is concerned, obviously in the Consolidated Income and Expenditure Account this is styled as Provision , but in effect it is not so, and for the application of the expenditure is done by the respective Chapters. Also, as seen in the Consolidated Income and Expenditure Account, this item of expenditure/style of narration has also been there in earlier years. So it has been a regular feature, being expenditure applied by the Chapters and hence it is not a provision . - Decided against revenue Depreciation claimed without appreciating the fact that the cost of acquisition earlier years thereby reducing written down value to nil - Held that - We are of the view that the depreciation needs to be allowed. This is a primary accepted principle of accounting. The assets obviously undergo wear and tear/diminution in value and therefore the decline in value has to be accounted for on a systematic way. Be as it may, there has been an insertion in the Act vide Finance (No. 2) Act, 2014, w.e.f. 01.04.2015, being sub-section (6) to section 11 whereby the provisions of section 11 shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset. This insertion is w.e.f. 01.04.2015, and therefore is not applicable to the AY 2010-11 to the assessee under consideration. - Decided against revenue

Issues Involved:
1. Addition of ?1,93,02,985/- due to difference in credit of income as per 26AS statement and income credited in Income and Expenditure accounts.
2. Consideration of provisions of Rule 37BA(3) in light of the mercantile system of accounting.
3. Claim of TDS of ?4,94,685/- without crediting the corresponding income in the I/E accounts.
4. Provision made on accrual basis for future expense by chapters.
5. Relief on account of depreciation claimed without appreciating the cost of acquisition in earlier years.

Issue-wise Detailed Analysis:

1. Addition of ?1,93,02,985/- due to difference in credit of income as per 26AS statement and income credited in Income and Expenditure accounts:
The Assessing Officer (AO) noted a discrepancy between the income as per Form 26AS and the income credited in the Income and Expenditure accounts, resulting in an addition of ?1,93,02,985/-. The AO rejected the books of accounts under Section 145(3) due to the failure to submit details of contractual receipts. However, the CIT(A) deleted the addition, noting that the difference was due to timing issues in recognition of receipts/income. The Tribunal upheld the CIT(A)'s decision, emphasizing that Form 26AS is a statement of tax deducted during the financial year and may not exactly match with the income accounted due to timing differences. The Tribunal cited Section 199 and Rule 37BA(3) of the Act, which require reconciliation efforts, and noted that the TDS details were voluminous, making minor differences expected and not a cause for concern.

2. Consideration of provisions of Rule 37BA(3) in light of the mercantile system of accounting:
The Tribunal noted that Rule 37BA(3) requires credit for tax deducted at source to be given for the assessment year in which such income is assessable. The Tribunal found that the assessee adhered to the rule by recognizing income and TDS proportionately. The Tribunal emphasized that timing differences in recognition of revenue with corresponding TDS would adjust in future years, and there was no tax evasion on the part of the assessee.

3. Claim of TDS of ?4,94,685/- without crediting the corresponding income in the I/E accounts:
The Tribunal found that the difference in TDS claimed and income credited was due to timing differences and not an attempt at tax evasion. The Tribunal relied on a previous judgment in the case of B.S. Consultancy Services Vs. ITO, which held that discrepancies between Form 26AS and the books of account should not automatically lead to additions without giving the assessee an opportunity to reconcile the differences.

4. Provision made on accrual basis for future expense by chapters:
The AO disallowed a provision of ?23,71,990/- for entitlement, arguing that it was not an actual application of funds. However, the CIT(A) allowed the provision, noting that it represented entitlements due to respective chapters based on collections from membership subscriptions. The Tribunal upheld the CIT(A)'s decision, stating that the provision was an ascertained expenditure and had been a regular feature in the assessee's accounts.

5. Relief on account of depreciation claimed without appreciating the cost of acquisition in earlier years:
The AO did not allow depreciation on capital assets, but the CIT(A) allowed it. The Tribunal upheld the CIT(A)'s decision, emphasizing that depreciation is a necessary deduction for computing income to preserve the corpus of the trust. The Tribunal cited the Supreme Court's judgment in CIT vs. Rajasthan and Gujarati Charitable Foundation Poorna, which held that depreciation should be allowed even if the full capital expenditure was allowed in the year of acquisition.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decisions on all grounds. The Tribunal emphasized the importance of timing differences in accounting and the necessity of depreciation for maintaining the corpus of the trust. The Tribunal's decision was pronounced in the open court on 12/09/2018.

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