KAVITA SINGH,MUMBAI vs. DCIT 7(3)(ERSTWHILE DCIT CC 42), MUMBAI

In this appeal, assessee has raised the following Grounds of appeal :-

The Learned Commissioner of Income Tax (Appeal) - 49 erred in not considering that Rs. 2,03,789/- is already offered, addition will leads to double taxation.

Although the assessee has raised multiple Grounds, but the sum and substance of the dispute is with regard to an addition of Rs.2,03,789/- made to the returned income.

Briefly put, the relevant facts are that the Assessing Officer reopened the assessment earlier finalised u/s 143(3) r.w.s. 153A of the Act dated 30.12.2009 by issuing a notice u/s 148 of the Act dated 28.03.2012. In the ensuing assessment, the Assessing Officer, inter-alia, made an addition of Rs.2,03,789/- which according to him represented an understatement of income. Pertinently, the assessee is an individual engaged in the business of interior designing, trading in paintings and artefacts and manufacture of furniture. As per the Assessing Officer, the amount of Professional fee credited in the Profit & Loss Account was Rs.44,20,441/-, whereas as per the TDS Certificates, it was Rs.46,24,200/- thereby reflecting a differential of Rs.2,03,789/-. This amount has been added to the total income, which has also been sustained by the CIT(A).

The stand of the assessee before the lower authorities was to the effect that the difference is primarily on account of treatment of service tax element. As per the assessee, the Professional fee was credited in the Profit & Loss Account net of service tax element, whereas the amount reflected in the TDS Certificates was the gross amount as the payer had deducted the TDS on the gross amount. At the time of hearing, the learned representative for the assessee referred to a detailed reconciliation in this regard, a copy of which has been placed at page 12 of the Paper Book. The reconciliation worked out by the assessee, which was very much before the lower authorities, clearly brings out that once the service tax element is accounted for, there doesn’t remain any difference between the income reflected in the Profit & Loss Account and that reflected in the TDS Certificates. In this context, the learned representative also referred to the remand report furnished by the Assessing Officer before the CIT(A), wherein such assertions of the assessee have been found to be correct. A copy of such remand report dated 02.02.2015 is placed at page 37 and 38 of the Paper Book and the relevant observation of the Assessing Officer reads as under :-

In this background, the learned representative pointed out that the CIT(A) ought not to have upheld the addition. In any case, it is contended that if the element of service tax is to be taxed as an income of the assessee, the payment thereof ought to be allowed as expenditure. The CIT(A), in para 10.1 of his order, has upheld the addition primarily on the ground that there was no proof evidencing the payment of service tax to the exchequer. The CIT(A) further noted that assessee would be entitled to claim the deduction in the year in which the service tax is actually paid in terms of Sec. 43B of the Act.

On this aspect, the learned representative referred to pages 33 to 36 of the Paper Book wherein is placed copy of the TR-6 challans evidencing payment of requisite service tax during the previous year relevant to the assessment year under consideration. It was also pointed out that the aforesaid material was very much before the Assessing Officer as well as before the CIT(A), and that even on this score, the CIT(A) erred in sustaining the impugned addition.

The ld. DR appearing for the Revenue has merely relied upon the order of the authorities below.

In view of the aforesaid discussion, in our view, there is hardly any reason to sustain the impugned addition. Firstly, the Assessing Officer himself affirms in the remand proceedings that the difference in the amount of Professional fee reflected in the Profit & Loss Account and as per the TDS Certificates was on account of service tax component payable. Admittedly, the Professional fee credited in the Profit & Loss Account is net of service tax payable. Secondly, the payment of service tax component during the year under consideration is very much reflected by TR-6 challans which are on record. It has also been explained before us that assessee has not earned any other income except Professional fee and, therefore, the only probability of service tax paid is towards such Professional fee received. Thus, the service tax paid is liable to be allowed as a deduction even if one was to consider that the service tax component is to be taken as income of the assessee. Be that as it may, under these circumstances, there is no justification to uphold the addition of Rs.2,03,789/- made by the Assessing Officer, which is hereby directed to be deleted.

Since the assessee has succeeded on merit of the issue, the other Grounds raised with regard to validity of the proceedings initiated under Sections 147/148 of the Act is rendered academic and is not adjudicated at present.

In the result, appeal of the assessee is allowed to the above extent.