2013 (11) TMI 12 - AT - Income Tax

Advance payment received of Business receipts Accrual of income - Addition on the ground that TDS has been deducted and assessee is claiming credit of TDS on certain portion of said advance - Held that - the assessee relying on the decision of Hon ble Delhi High Court in case of CIT Vs. Dinesh Kumar Goel, 2010 (10) TMI 287 - Delhi High Court submitted that revenue is recognized only when the services are actually rendered. This principle will apply to the facts of the case under consideration as there is no evidence that the amount was received by the assessee for any particular services rendered so as to treat it as accrued income. As considered by the Coordinate bench of ITAT, Mumbai Bench in case of Smt. Varsha G. Salunke Vs. DCIT, 2005 (9) TMI 226 - ITAT BOMBAY-F , just because the amount was covered by the TDS as per the provisions of section 194C of the Act, the same cannot be considered as income. However, as per the provisions of section 199, the credit for the TDS can be given in the assessment year in which the income is shown to have been offered for assessment. Therefore, to the extent of giving credit for the amount of TDS claimed, the AO is free to examine and allow the credit in the year in which the advance got adjusted in the bills and necessary credit can be given in that year as per the provisions of the Act

Summary

Issues:
- Whether the amount of receipt of Rs.1,50,00,000/- should be treated as an advance receipt or total business receipts.
- Whether the TDS credit claimed by the assessee on the alleged advance should be considered as income.

Analysis:
1. The Revenue appealed against the CIT(A)'s order for the assessment year 2009-10, challenging the deletion of Rs.1.50 crores as an advance receipt. The AO contended that the amount was received for a specific service, thus should be treated as income. However, the assessee argued that it was an advance payment not included in the receipts of the year. The AO also noted that the assessee claimed TDS credit on this amount, suggesting it should be considered as income. The assessee provided a detailed reconciliation of gross receipts, TDS, and income to support their position.

2. The CIT(A) relied on a previous decision and an ITAT order, concluding that the advance amount should not be treated as income. The Tribunal upheld this decision, emphasizing that the advance did not accrue as income since no services were rendered related to that payment. It was established that the assessee received advances as part of services provided, which were adjusted when bills were raised. The Tribunal highlighted that TDS deduction does not automatically classify an advance as income and that the advance amounts were adjusted in subsequent bills each year.

3. The Tribunal further referenced a Delhi High Court case and an ITAT Mumbai Bench case, supporting the principle that revenue is recognized only when services are actually rendered. It was clarified that TDS compliance does not equate to income recognition. The Tribunal allowed the AO to examine and grant TDS credit in the year when the advance was adjusted in the bills. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order and emphasizing that the grounds raised by the Revenue lacked merit on the addition made.

4. The Tribunal's decision highlighted that the advance payments received by the assessee were not to be treated as income until services were rendered, in line with established legal principles. The Tribunal emphasized the importance of actual service provision for revenue recognition, disregarding the mere receipt of advance payments. The decision underscored the necessity for a clear nexus between income recognition and service provision, dismissing the Revenue's appeal and upholding the CIT(A)'s order.