2017 (8) TMI 920 - AT - Income Tax

Accrual of income - subscription income received in advance - consultancy services and publishing of magazine - assessee is following mercantile system of accounting - selection of assessment year - Held that - Admittedly, the assessee received ₹ 8.83 lac as advance subscription. It can be seen from the Table given on page 5 of the impugned order that there was opening advance receipt of subscription to the tune of ₹ 8,55,689/- which has been offered to tax by the assessee in the current year. Similarly, the amount received as advance subscription during the instant year has been offered to tax in the succeeding year as has been recorded in para B on page 2 of the assessment order. Under such circumstances, it becomes patent that the amount of advance subscription cannot be subjected to tax in the year of receipt. We, therefore, overturn the impugned order on this issue and order for the deletion of addition. Addition of professional fees paid by the assessee to Mr. Sagnik Goswami - CIT(A) invoked the provisions of section 40A(2)(b) for sustaining disallowance at 50% of the amount paid to Mr. Sagnik Goswami - Held that - How the disallowance has been sustained by the ld. CIT(A) at 50% is not understandable. It can be seen from the impugned order that Mr. Sagnik Goswami earlier worked with companies like GTC Industries, American Express Bank, Lord Krishna Bank, AMROP India and CHR Global before joining the assessee. It is further relevant to note that he was paid ₹ 25.30 lac in the year under consideration which is equal to the payments to other professionals, namely, Vishal More and Arindam Mukherjee, employed by the assessee. These two professionals are M.A. (Economics), whereas Shri Sagnik Goswami is a qualified Chartered Accountant. It is further pertinent to note that the assessee earned ₹ 73.76 lac from the assignments handled by Shri Sagnik Goswami for which he was paid a sum of ₹ 25.30 lac. Under these circumstances, we are satisfied that there is no reason for sustaining even partial disallowance Assessee appeal allowed.

Summary

Issues:
1. Addition of subscription income received in advance
2. Disallowance of professional fees paid to Mr. Sagnik Goswami

Analysis:
1. The first issue pertains to the addition of advance subscription income. The assessee, engaged in consultancy services and publishing, received advance subscription income of &8377; 8,83,208. The Assessing Officer added this amount to taxable income despite the assessee following the mercantile system of accounting. However, the ITAT Delhi noted that under the mercantile system, income accrues when the right to receive it is acquired. The advance subscription was to be adjusted against income in the subsequent year, thus not taxable in the year of receipt. The ITAT overturned the addition, ordering its deletion.

2. The second issue involves the disallowance of &8377; 12 lac out of total &8377; 24 lac professional fees paid to Mr. Sagnik Goswami. The Assessing Officer made the disallowance based on previous year's addition, which was later restored by the Tribunal for reconsideration. The ITAT observed that the Department accepted the genuineness of payment to Mr. Sagnik Goswami in preceding years. The CIT(A) invoked section 40A(2)(b) to sustain a 50% disallowance, which the ITAT found unjustified. Mr. Sagnik Goswami's qualifications and earnings for the assessee were comparable to other professionals, warranting no disallowance. Consequently, the ITAT ordered the deletion of the disallowance.

In conclusion, the ITAT allowed the appeal of the assessee, overturning the addition of subscription income received in advance and the disallowance of professional fees paid to Mr. Sagnik Goswami.