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TMI Blog2010 (9) TMI 1252X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 was issued and served upon the assessee. In response to the notice of hearing, Shri SP Jain, FCA and Shri Learned CIT(Appeals) Gupta, Senior partners of the assessee firm attended the proceedings from time to time and submitted the necessary details. 3. On scrutiny of accounts submitted by the assessee, it revealed to the Assessing Officer that in the tax audit report furnished by the assessee firm, the auditor has reported that assessee is following hybrid system of accounting i.e. expenditure on accrual basis and professional fee on receipt basis. Assessing Officer issued a show-cause notice to the assessee inviting its explanation as to why its books of account should not be rejected as they are not following either mercantile system or cash system of accounting as required under sec. 145(1) of the Act. The assessee has submitted a reply which has been reproduced by the Assessing Officer. On an analysis of section 145 in the light of assessee's reply, he observed that method of accounting for determining the income of the assessee is to be taken as cash basis. He passed the assessment under sec. 143(3) and determined the taxable income of ₹ 10,42,985 on such method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) and the Assessing Officer did not disturb the method of accounting followed by the assessee. All the professional bills raised during the particular year are realized by the assessee within that year itself and have accounted for as income by the assessee. During the present year also, the assessee firm had realized all the professional bills raised by it in the year itself and the amounts have been duly accounted for in the professional receipts declared in the P & L account. It was further contended that assessee firm is engaged mainly in auditing services and all the bills for audit and certification work have been raised by it during the instant year itself and have also been realized by it during the instant year itself. There is neither any outstanding fee nor there is any such service rendered during the year for which bill has been raised but has not been realized till the close of the year. To buttress this contention, assessee has filed copies of all the bills and other relevant material. 7. In order to explain the merit, it was contended that out of the total amount worked out by the Assessing Officer at ₹ 5,74,087, ₹ 1,59,871 represent the travelling adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of printing And stationery charges Job Work 48,000 Stationery 1,32,000 1,80,000 Add: Amount received from M/s. Dass Gupta Management Services (P) Ltd. 25,000.00 4,60,586.80 Less: Amount paid i) As per copy of account Enclosed (1) 47,000 ii) As per separate account Debited in Loan & Advances (II) 50,000 97,000.00 3,63,586.80 Balance as per Account (1) = ₹ 4,13,586.80 cr. Balance as per Account (ii) = Rs.50,000.00 Dr. Rs.3,63,586.80 The learned Assessing Officer has added the whole amount of ₹ 4,13,586 as income of the assessee on the ground that this balance is in the nature of Revenue account and since the assessee is following cash method of accounting therefore the amount cannot be allowed to the assessee during the instant year as it has not paid the amount and the amount is shown as payable. It is respectfully submitted that the perusal of the copy of account as well as the aforesaid summary of account would show that the amount of ₹ 2,55,586.80 was the balance brought forward from earlier years and cannot be said to be revenue in nature as the assessee has not claimed any expenses against this amount during the instant ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dass Gupta Management Services (P) Ltd. This amount does not represent any expenditure claimed by the assessee during the year which has not been paid by the assessee hence according to the Learned CIT(Appeals) it cannot be added during the year consideration. 9. Before us, learned counsel for the assessee reiterated the stand taken before the Learned CIT(Appeals) whereas Learned DR relied upon the orders of the Revenue Authorities Below. 10. We have duly considered the rival contentions and gone through the record carefully. In the scheme of Income-tax Act, 1961, section 4 has been incorporated in the Act as charging section. It provides that tax shall be charged for any assessment year at rates provided in any Central Act in respect of the total income of the previous year of every person. Section 5 deals with the 'scope of total income', which is defined in respect of any previous year in terms of accrual, deemed accrual, receipt and demand receipt etc. Section 145 of the Income-tax Act, 1961 provides the method of accountancy in respect of profit and gains of business or profession or income from other sources. A conjoint reading of all these three provisions would reveal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. In fact, it is following mercantile system of accountancy. 12. Apart from the above conclusion, we have examined the issue with the other angle also. Hon'ble Supreme Court in the case of Shoorji Ballabhdass has pointed out that the Income-tax Act, 1961 takes into account two points of time on which the liability to tax is attracted, namely, No.1 accrual of income or receipt of income. It is further mentioned that the substance of the matter is 'income'. It may be emphasized that it is accrual of income or receipt of income that can become the subject matter of tax and it is the income which has to be recorded as per system of accounting followed by the assessee in view of section 145 of the Act, because the substance of the matter is income. The amounts received by the assessee as travelling advance cannot be shown as income even under cash system of accounting. The ITAT has examined this aspect in the case of KK Bhullar who is an advocate and who was following cash system of accountancy. He had received retainership fee for rendering services but did not account the total amount as income on the ground that right to receive the total income has not accrued. The ITAT while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assessee is entitled for deduction of that amount, since the services have already been availed from M/s. M/s. Dass Gupta Management Services (P) Ltd., in this accounting year. 14. In the next ground of appeal, the grievance of assessee is that Assessing Officer has erred in making addition of ₹ 1,80,000 with the help of section 40(a)(ia) of the Act. 15. With the assistance of learned representatives, we have gone through the record carefully. We have already discussed the facts in detail while considering ground No.1 of the assessee. This disallowance was made by the Assessing Officer on the ground that assessee failed to deduct the TDS while making payment of ₹ 1,80,000 to M/s. Dass Gupta Management Services (P) Ltd. We find that Assessing Officer has recorded contradictory finding. On the one hand, he included this amount in the sum of ₹ 4,13,586 discussed in ground No.1 on the ground that assessee has not paid this amount and it is following cash system of accountancy, therefore, its deduction cannot be allowed. On the other hand, he disallowed this amount on the ground that while making the payment assessee failed to deduct the TDS. On going through the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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