GL LITMUS EVENTS PVT. LTD.,NEW DELHI vs. ACIT, CENTRAL CIRCLE-17, NEW DELHI

Brief facts of the case relevant for the disposal of this appeal are that the assessee filed return of income for the assessment year 2013-14 declaring an income of Rs. 2,84,22,950/-, under the head income from business and profession. By order dated 18/3/2016 passed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”), the income of the assessee was assessed at Rs. 3,07,80,614/-. Learned Assessing Officer rejected the books of accounts of the assessee which were maintained on cash basis. Learned Assessing Officer rejected the expenses claimed by the assessee to the extent of Rs. 5,24,742/-, depreciation to the tune of Rs. 5,25,034/-and the unabsorbed depreciation of Rs. 13,07,888/-.

Aggrieved by such an action of the learned Assessing Officer assessee preferred appeal before the Ld. CIT(A) and argued that all the expenses that have been disallowed by the learned Assessing Officer and the same were incurred in the ordinary course of activities being carried out by the assessee and no cogent reasons for disallowance of such amounts were given by the learned Assessing Officer. Ld. CIT(A), however, observed that the issue relating to the method of accounting was continuing from earlier years on identical facts and during the appellate proceedings for the assessment year 2012-13 also, on identical facts his predecessor had taken the view that inasmuch as the Ld. DRP had rejected the accounting system on cash basis followed by the assessee for 2011-12 and directed the assessee to follow the accrual basis of accounting system,while respectfully following the same for this year also the disallowance made by the learned Assessing Officer was to be confirmed. On this premise Ld. CIT(A) affirmed the assessment order with all its additions and dismissed the appeal.

Assessee is, therefore, aggrieved and preferred this appeal stating that as rightly observed by the Ld. CIT(A) facts involved in this case are similar to the facts involved for the earlier assessment years 2011-12 and 2012-13; that a coordinate Bench of this Tribunal for the assessment year 2011-12 returned a finding that the cash method of accounting which is followed by the assessee for the impugned assessment year as well as subsequently, cannot be rejected and income of the assessee should not be computed on mercantile method of accounting. Ld. AR further submitted that this view taken by the Tribunal for the assessment year 2011-12 is followed by the Tribunal in assessee’s own case for the assessment year 2012-13 also since there is no change in facts or in law, the consistent view taken by the Tribunal in assessee’s own case for the earlier assessment years may be followed and the additions made on the premise of the method of accounting has to be deleted. Copies of the orders for the earlier assessment years are filed and form part of record.

Per contra, Ld. DR placed heavy reliance on the orders of the authorities below and submitted that there are no valid grounds to interfere with the orders of the authorities below.

We have gone through the record in the light of the submissions made on either side. In assessee’s own case for the assessment year 2011-12 in a coordinate Bench of this Tribunal dealt with the issue of method of accounting in detail, and in conclusion held that,-

real income, there from cannot be deduced. Therefore, if an assessing officer desires to reject the method of accounting regularly employed by the assessee, he must give a cogent reason, which clearly shows that profits of the business cannot be correctly deduced from the method of accounting employed by the assessee. In the present case, the learned assessing officer has not shown any reason for which if an assessee follows cash basis of accounting, the profits cannot be deduced correctly. Even otherwise, the real income of the assessee is required to be taxed. In the present case assessee itself has shown that though it has raised the bills but some of the bills have not been received till now because of protracted litigation which itself proves that even in the mercantile system of accounting such income has not accrued. Nothing more could have been shown as an income then what is received by the assessee. It is not the case of the revenue that assessee has not shown income what has been received by it. It is also not the case of the revenue that expenditure claimed by the assessee has not been paid. In view of this, both receipts and outflow of cash are undisputed. In view of this, we are of the view that the cash method of accounting, which is followed by the assessee for the impugned assessment year as well as subsequently, cannot be rejected and the income of the assessee should not be computed on mercantile method of accounting.

In view of the above, cash method of accounting, which is followed by the assessee consistently and also for the impugned assessment year, cannot be rejected and the income of the assessee should not be computed on mercantile method of accounting.

Assessee has placed on record following chart explaining the additions/disallowances made by the Assessing Officer :

It is, therefore, clear that out of the total expense of Rs. 21,91,440/-debited by the assessee in its cash P&L Account, the assessee suo moto added back a sum of Rs. 16,59,948/-. In view of the finding of the Tribunal for the earlier assessment years of 2011-12 and 2012-13, we are of the considered opinion that the addition made on account of the method of accounting and the specific addition of Rs. 5,24,742/- on account of expenses and Rs. 5,25,034/-on account of depreciation as per the I.T. Act cannot be sustained. The assessee is also entitled to claim the unabsorbed depreciation of Rs. 13,07,888/-from the assessment year 2012-13. We therefore, direct the learned Assessing Officer to delete the addition of Rs. 23, 57, 664/-.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 19th day of July, 2021