2019 (11) TMI 544 - AT - Income Tax

Addition being a difference in the total receipt of the assessee as per TDS certificate and return of income filed - assessee has been consistently following mercantile method of accounting - HELD THAT - When the assessee has been consistently following the mercantile system of accounting which has been accepted by the Revenue, converse view cannot be taken by the Revenue as the Revenue is required to follow the rule of consistency as has been held by the Hon ble Apex Court in the case of Radhasoami Satsang vs. CIT 1991 (11) TMI 2 - SUPREME COURT . Moreover, the entire exercise is revenue neutral because the assessee has paid the tax in 2007-08 when the income was actually accrued to him. AO to verify the facts inter alia that the assessee has offered the amount of tax qua the commission received during the year under assessment, when the income was accrued and has paid income-tax thereon in AY 2007-08, qua the same amount of which TDS was deducted in 2006-07; that no loss has been accrued to the Revenue because the assessee had paid the dummy tax during the year under assessment and paid actual tax on receipt of actual payment; that each payee of the commission had deducted TDS on the amounts paid/discharged as service-tax by the assessee and as such assessee is entitled to the benefit of TDS deducted on that account to the tune of ₹ 1,64,564/-. If the aforesaid facts are verified to be correct then addition made by the AO is not sustainable and is required to be deleted. Consequently, Grounds No.B, C, D E are determined in favour of the assessee in the above terms.

Summary

Issues:
1. Re-opening of assessment under section 147/148 of the Income-tax Act.
2. Tax liability imputed by the Assessing Officer and Commissioner of Income-tax (Appeals).
3. Computation of total receipts based on TDS certificates.
4. Accrual of commission in the business of the appellant.
5. Acceptance of accounting system by the Department.

Analysis:

Issue 1: Re-opening of assessment under section 147/148
The appellant challenged the re-opening of the assessment under section 147/148 of the Act, arguing that assessment under section 143(3) had already been conducted. The Tribunal noted that the Assessing Officer (AO) observed a discrepancy in the total receipts of the assessee as per Tax Deducted at Source (TDS) certificate and the return of income for the assessment year 2009-10, leading to the re-assessment. The Tribunal held that the AO had valid reasons for initiating proceedings under section 147, and the re-opening was deemed legal.

Issue 2: Tax liability imputed by the authorities
The appellant contested the tax liability imposed by the AO and Commissioner of Income-tax (Appeals), claiming that the appropriate tax had already been paid in subsequent assessment years. The Tribunal examined the appellant's accounting method and found that income accrued to the appellant when payments were received, following the mercantile system of accounting. The Tribunal concluded that the appellant had accounted for all income received during the relevant year and had paid the tax in the subsequent year, resulting in a revenue-neutral situation.

Issue 3: Computation of total receipts based on TDS certificates
The AO made an addition to the appellant's income based on the difference between total receipts as per TDS certificates and the return of income for the assessment year 2009-10. The Tribunal analyzed the appellant's submissions, highlighting that the tax liability had been discharged, and the appellant was entitled to the benefit of TDS deducted. The Tribunal emphasized that the revenue was not at a loss as the tax had been paid when the income was accrued, in line with the mercantile system of accounting.

Issue 4: Accrual of commission in the appellant's business
The appellant argued that commission accrued at the time of payment receipt from the builder, which occurred in subsequent years, and appropriate tax was paid accordingly. The Tribunal reviewed the appellant's case, emphasizing that income accrued when payments were released by the builder, and the commission was subject to conditions related to the purchaser's installment payments. The Tribunal found in favor of the appellant, highlighting the revenue-neutral nature of the transactions.

Issue 5: Acceptance of accounting system by the Department
The appellant contended that the Department had accepted the mercantile system of accounting followed consistently by the appellant. The Tribunal supported the appellant's position, citing the rule of consistency upheld by the Supreme Court. The Tribunal concluded that the AO should verify the facts related to tax payment and TDS deductions, potentially leading to the deletion of the addition made by the AO.

In conclusion, the Tribunal partly allowed the appeal, subject to verification by the AO, emphasizing the importance of following the mercantile system of accounting and ensuring tax payments aligned with income accrual. The judgment highlighted the need for consistency in tax assessments and the importance of verifying facts to prevent revenue loss.