2015 (10) TMI 1469 - AT - Income Tax

Addition made towards unearned income - assessee used to raise invoices against services to be rendered - CIT(A) deleted the addition - Held that - Consedring the contention of AR hat the deferred income in this assessment year was carried forward and duly taken into account in the next assessment year and offered for taxation the Bench put a question to the ld. AR to show how it was offered for taxation in respect of each assessment year. The ld. AR of the assessee was not able to point out the exact amount offered for taxation in subsequent assessment years. Being so, we feel it appropriate to remit the entire issue to the file of the AO to examine, whether the assessee has offered the deferred income of each assessment year in subsequent assessment years for taxation and if it is actually offered for taxation by the assessee in the subsequent assessment years, the addition is unwarranted. With these observations, we remit the entire issue to the file of the AO for fresh consideration. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
Deletion of addition made towards unearned income in assessment years 2001-02, 2002-03, 2004-05, and 2005-06.

Analysis:
The primary issue in this case revolves around the treatment of deferred (unearned) income declared by the assessee in the balance sheet without crediting it to the profit and loss account. The Assessing Officer contended that such income is taxable, alleging that the assessee used a tactic to defer income for tax purposes while crediting the same amount in the previous year. The Commissioner of Income-tax(Appeals) examined the case and noted that the mere act of raising invoices does not equate to earning income. The Commissioner emphasized that income is earned only when services are actually rendered, not when invoices are issued. The Commissioner referred to previous tribunal decisions favoring the assessee and directed the deletion of the addition in all assessment years under review.

The argument put forth by the Revenue was based on the assertion that once invoices are raised against services to be rendered, it constitutes a sale that should be recognized for taxation under the mercantile system of accounting. The Revenue cited legal precedents to support their stance, including decisions by the Kerala High Court and the Supreme Court. The Revenue also highlighted that a previous ITAT decision in the assessee's case had not been accepted by the department and was under further appeal. Consequently, the Revenue urged for the restoration of the Assessing Officer's decision.

In response, the assessee's representative relied on tribunal orders from previous assessment years where similar issues were decided in favor of the assessee. The Tribunal had previously ruled that the assessee correctly recognized income and allowed their claim. However, during the current proceedings, the Bench sought clarification on how the deferred income was offered for taxation in subsequent assessment years. As the assessee's representative could not provide specific details on the amounts offered for taxation in subsequent years, the Tribunal decided to remit the entire issue back to the Assessing Officer for a fresh examination.

Ultimately, the Tribunal allowed the Revenue's appeals for statistical purposes, indicating a procedural victory without delving into the substantive merits of the case. The decision was pronounced in Chennai on August 21, 2015.