9911796707
TMI Blog2002 (10) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... to this assessee's representative Sri Srinath, CA appeared from time to time and furnished details called for. He was heard. Written and oral submissions made by the assessee and his representations were carefully considered. One of the main issues which came up for consideration during this proceedings related to a receipt of Rs. 27,89,216 from abroad in foreign exchange for professional services rendered by the assessee outside India to M/s. Ham, Dredging Rivium, Rotterdam, Netherlands during the previous year 1996-97. The bills in respect of the services rendered were slated to be raised on 11-2-1997 relevant for assessment year 1997-98. However, the assessee received the fees in respect of this bill in two instalments as under:-- 5-4-1997 Rs. 13,98,434 15-9-1997 Rs.13,90,782 Total Rs.27,89,216 The receipts are received during the previous year 1997-98 relevant to assessment year 1998-99. The short question for consideration is in which year this income is taxable, taking into consideration the method of accounting followed by the assessee. For the assessment year 1997-98, the assessee filed his return of income on 29-10-1997 admitting a total income of Rs. 3,96,160. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1998-99 and the assessee was following cash system of accounting. The assessee in his letter dated 19-12-2000 stated that he had changed the method of accounting from the assessment year 1997-98 to mercantile system instead of cash system followed earlier. He also filed revised reports under section 44AB from his auditor wherein against column 11(a) of Form 3CD the auditor stated that the assessee was following mercantile system of accounting during the previous year relevant to assessment years 1997-98 and 1998-99. 3.3 The Assessing Officer asked the assessee to produce the books of account which the assessee's representative did on 29-12-2000. In the course of hearing, it was pointed out by the Assessing Officer to the representative that as on 31-3-1997, the amount of Rs. 28 Lakhs being the fees due from abroad should have appeared as "receivable" if the assessee was following mercantile system of accounting. As per the Balance Sheet filed, this is not shown as a receivable which clearly shows the fact that the claim made by the assessee that he was following mercantile system of accounting is not tenable. The books produced were for the period 1-41997 to 31-3-1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98, since the income has never accrued to the assessee. The bill dated 11-2-1997 is at the best an advance and not a final bill. When the assessee received short payment from the said sum of Rs. 28.00 Lakhs a reminder was sent to the client of the assessee asking for the payment as per the bills sent earlier. The CIT(A), asked for the copy of such bills for short payment which was not furnished by the assessee and hence an adverse inference was drawn. He therefore, concluded that the income, even on mercantile system of accounting is taxable in assessment year 1998-99 only. The assessee is therefore, in appeal before us. 4.1 The learned counsel for the assessee Mr. Khincha, argued that the original return for the assessment year 1997-98 was filed on 29-10-1997. Thereafter, a revised return was filed for the assessment year 1997-98 on 18-3-1998, which is within the time limit prescribed under section 139(5). The said revised return was filed due to change in method of accounting in respect of professional services rendered by the assessee in his individual capacity. Since the assessee changed his method of accounting from cash system to mercantile system, a change was necessitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcantile system of account in respect of his professional income. 4.3 One more argument was placed before us for the proposition that section 80-O itself pre-supposes mercantile system of accounting. It was submitted that the income accrued needs to be brought into India in convertible foreign exchange within six months from the end of relevant previous year. Therefore, if the income was brought within the stipulated period, the benefit under section 80-O is still available irrespective of method of accounting employed by the assessee. As regards the mistake in mentioning the cash system of accounting in audit report, it was submitted that the same is inadvertent mistake on the part of the auditor concerned. What is to be seen is the correct fact and not what is inadvertently mentioned by the auditor. He also drew our attention to the letter of auditor addressed to the Assessing Officer stating that there was an inadvertent mistake in mentioning the method of accounting as cash system for the assessment year 1997-98 and subsequent years. To sum up the argument, it was mentioned that the professional income of Rs. 28.00 Lakhs which accrued to the assessee as per his bill dated 11- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income and even paying the self assessment tax to last rupee ignoring the professional income accruing to him. Even in the return of income in the relevant column of method of accounting the word "NA" is mentioned and not the word "mercantile". The assessee has filed the revised return on 16-12-1997 for claiming a rebate under section 80-CCC even for a small sum of Rs. 10,000. In the said return also the income which accrued to the assessee based on the mercantile system of accounting was not disclosed. Even as per the tax audit report dated 25-10-2000, the method of accounting shown by the assessee is cash system. The said tax audited report is also countersigned by the assessee. The learned Departmental Representative submitted that the copy of the bill dated 11-2-1997 was not furnished before the Assessing Officer. The letter from the client of assessee from whom the payment is received also shows that the letter was issued as requested by the assessee. It was therefore, argued that no weightage should be given for the proposition that the income accrued to the assessee based on the bills raised. The learned Departmental Representative relied upon the decision in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editing the remuneration to partners accounts it can be said that same is 'paid' to claim it as an expenditure as per cash system followed, it can be therefore concluded that same is received by assessee partner so as to tax the same as per cash system of accounting in the hands of partner. Thus, there is a conclusive proof to say that the income by way of remuneration from firm has been all along been offered for taxation on accrual basis. 6.3 For the first time during the previous year relevant to the assessment year 1997-98, the assessee rendered the services in his individual capacity hence, this was the first year to choose his method of accounting in respect of such income. The assessee filed original return of income without disclosing the accrued income of Rs. 28.00 Lakhs. He also filed a revised return for claiming deduction under section 80-CCC wherein also the accrued income was not offered for taxation. It is only in the second revised return filed on 18-3-1998, the assessee offered the income accrued to it and claimed deduction under section 80-O. As per the accounts filed with the return of income, the amount receivable was not shown as asset in the balance sheet, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are also to examine whether the change is bona fide. Universally almost all the professionals are following cash system of accounting in respect of professional income. The assessee was also following cash system of accounting till filing of the revised return on 18-3-1998. What prompted the assessee to change his method of accounting is required to be examined. The Assessing Officer has held that since after introduction of Finance Bill, 1998 an amendment was proposed withdrawing the deduction under section 80-O which the assessee could have otherwise obtained if this amendment was not proposed effective from assessment year 1998-99 also. The assessee has not included the accrued income even during the first revised return filed in December, 1997. It is the Finance Act, 1997 which amended section 80-O with effect from 1-4-1998 and not through the Finance Bill, 1998. The amendment to section 80-O was explained by CBDT in its Circular No. 763 dated 18-2-1998. As per which the assessee was no longer eligible for benefit under section 80-O with effect from assessment year 1998-99. This shows that the change in method of accounting is just an afterthought to simply avail benefit. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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