CONALD J. BAPTIST,MUMBAI vs. DCIT CIR 6(2), MUMBAI

This is an appeal filed by the assessee against the order dated 15.11.2013 passed by the ld.CIT(A)-12 Mumbai and it relates to the assessment year 2010-11.

The only issue raised by the assessee in the grounds of appeal is against the confirmation of addition of Rs.54,32,279/- by the ld. CIT(A) as made by the AO on the basis of form No. 26AS of the assessee which showed the gross hire charges from Punj Lloyd Ltd of Rs.6,10,41,854/- whereas as per the books of accounts of the assessee the amount was Rs.5,56,09,575/-.

Brief facts of the case are that the assessee filed his return of income on 29.9.2010 declaring total income at Rs.55,85,540-/. Initially the return was processed under section 143(1) of the Income Tax Act, 1961 (the Act) and thereafter the case was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) was issued and served upon the assessee. The assessee an individual, while having salary income from Falcon Cargo Services India Pvt Ltd and Falcon Offshore Services India Pvt Ltd. amounting to Rs.42,00,000/-, was also proprietor of M/S Uxmal Merrine Services engaged in the business of chartering of ships and barges and was receiving hire charges. During the course of scrutiny proceedings, the AO noticed from the form No 26AS that the gross hire charges received by the assessee from M/s Punj Lloyd Ltd was Rs.6,10,41,854/-, whereas as per the books of account the hire charges from M/s Punj Lloyd Ltd were to the tune of Rs.5,56,09,575/- only and thus the assessee has shown less receipt by Rs.54,32,279/-. Accordingly, the AO called for the explanation from the assessee as to why this amount should not be treated as concealed income and added to the total income of the assessee. In reply, the assessee vide his letter dated 17.1.2013 contended and submitted that the difference of Rs.54,32,279/- was accounted for in the next financial year as bills raising hire charges upon M/s Punj Lloyd Ltd were issued in the next year, whereas the party M/s Punj Lloyd Ltd to whom the services were rendered accounted for the expenditure of hire charges in the financial year 2009-10 relevant to the assessment year 2010-11 and deducted TDS thereon accordingly. The reply of the assessee has been incorporated at page 2 of the assessment order. The AO not satisfied with the reasoning of the assessee added the Rs.54,32,279/- being the difference between the hire charges as per form 26AS and as per books of the assessee to the total income of the assessee on the ground that the assessee was following mercantile system of accounting and therefore, the income which accrued during the particular year should have been accounted for accordingly regardless of the fact, whether the bills raised or not. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority, who also confirmed the action of the AO by considering and rejecting the submissions of the assessee. The observations of the ld.CIT(A) as has been incorporated in his order at para 3.1 to 4 are reproduced below: “3.1 I have carefully considered the facts stated in the assessment order as well as oral and written submissions of the Ld. Authorized Representative. It is undisputed that assessee's books of account are based on mercantile system of accounting. Similarly books of accounts of Punj Lloyd Ltd. would be based on mercantile system of accounting being a corporate entity. Thus method of accounting in the case of Punj Lloyd Ltd. and the instant assessee would be the same. If the method of accounting is the same, there should be consistency in respect of corresponding entries which may be expenditure in the case of Punj Lloyd Ltd. and would be income in the case of instant assessee. It is also undisputed that assessee had claimed TDS on impugned receipts which is not offered for taxation in the instant year. With a view to appreciate the claim of the assessee whether the said receipts pertains to instant year or subsequent year, the sale invoices were examined during the course of appellate proceedings. On perusal of said invoices, it immensely transpires-that the assessee had rendered services during the instant year only. As an example invoice dt.18.3.201O representing amount of Rs.20,68,125/- clearly shows that period of hire is from 11.3.2010 to 25.3.2010. Thus in this instance, date of invoice as well as period of hire both falls in the instant year. Another invoice dated 1.4.2010 representing amount of Rs.5,51,500/- shows the period of hire from 26.3.2010 to 30.3.2010. Thus the services rendered by way of providing vessels falls in the instant year itself. Third invoice dated 31.5.2010 clearly shows the period of hire from 18.9.2009 to 27.9.2009 and represents an amount of Rs.14,33,900/- . Thus period of hiring of vessel by Punj Lloyd Ltd. and providing consequent services falls in first half year of instant A.Y. although invoice is dt.31.5.201O. It is very much surprising that inspite of hiring period for the month of September 2009, the assessee had made invoice dt.31.5.201O. Similarly last invoice dt.2.4.201O represents period of hire from 26.3.2010 to 9.4.2010 and is represented by an amount of Rs.20,68,125/-. These facts clearly shows that inspite of providing services in the instant year, the assessee had prepared invoice as per its convenience and not accordance with principles of accounting and therefore contention of the assessee cannot be accepted. On perusal of copy of TDS certificate issued by Punj Lloyd Ltd. is enclosed with Form. No.35 shows that Punj Lloyd Ltd. had made payments from 31.12.2009 to 28.2.2010 which invariably falls within the instant year. The assessee had taken another plea that corresponding expenditure were incurred In subsequent year and therefore the same should be considered in subsequent year. This argument is not tenable in the eyes of law as well facts for the reason that if the assessee had provided vessels to Punj Lloyd Ltd. in the instant year, how it is possible for assessee to hire vessels in the subsequent year to provide services (i.e. vessels) to Punj Lloyd Ltd. The claim is contradictory perse. This fact neither matches with the principles of accounting i.e. to say matching of expenses with revenue nor logically possible (i.e hiring vessels) incurring of expenses subsequent to the event of providing services of vessels to Punj Lloyd Ltd. Moreover the assessee had claimed TDS for impugned amount in the instant year itself. Had the claim of assessee was genuine as to accounting of the said receipts in subsequent year, it should have claimed corresponding TDS credit for the subsequent year as per Rule 37BA. Be that as it may, fact of rendering services in the extant year itself establishes that said receipts are taxable in the instant year and more so the said fact is revealed from the sale invoices and also TDS certificate issued by Punj Lloyd Ltd. In this regard decision of Hon'ble High Court of Karnataka in the case of Smt. J.Rama V. CIT (Kar.)[201O] 194 Taxman 37(KAR.) supports the action taken by the A.O. For ease of reference, relevant caption note of said decision is reproduced herewith as under :- "Section 28{i}, read with section 145 of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 2005-06 - Assessee was deriving income from hiring of vehicles - During assessment proceedings, Assessing Officer noticed that amount of TDS certificates enclosed with return was more than receipts disclosed in income and expenditure account - Assessee explained that a portion of said TDS deductions was claimed in subsequent year and excess amount was also received by her in subsequent year and excess amount was also received by her in subsequent year - Assessing Officer held that since assessee was following mercantile system of accounting, said excess amount was to be assessed in relevant assessment year - Whether addition made by -. Assessing Officer was justified - Held, yes. “ 4. In view of legal position and facts as discussed herein above, action of the A.O. is correct and therefore requires no interference. In other words, disallowance made by the A.O. is upheld in toto”

Aggrieved by the order of the ld.CIT(A), the assessee preferred an appeal before us.

The ld. AR of the assessee has submitted before us that the assessee was providing services of chartering of vessels and bardges under his proprietary concern to M/S Punj Lloyd Ltd and was charging hire charges in lieu of these services for which the bills were used to be raised regularly . During the year, the assessee accounted for hire charges from M/s Punj Lloyd of Rs. Rs.5,56,09,575/- whereas the said company booked hire charges at Rs.6,10,41,854/- and deducted TDS accordingly and hence there was a difference of Rs.54,32,279/-. The ld., AR submitted that there was no difference at all as the so called difference of Rs. 54,32,279/- was accounted for in the subsequent year as bills were raised for the supplying services in the subsequent year after completion of shipment of the goods which extended to the next year i.e the service of the hiring the ships spanned and overlapped till the beginning the next year and also corresponding bills of expenditure were accounted for in that year. The ld. AR also argued that had the bills of hire charges accounted for in the current year, credit of service tax on the said hire charges would not have been available to the assessee. The ld. AR finally submitted that if both the years were taken together i.e. assessment years 2010-11 and 2011-2012, the whole exercise of the department is rendered futile and waste of time as it became tax neutral for the reason that the assessee had paid the income tax in the next financial year which was not in dispute and virtually and factually there was hardly any difference in the gross receipt of hire charges as mentioned in the form no.26A and accounted for by the assessee. The ld counsel submitted that the AO , by going into the technicalities of the issue without appreciating the fact that the whole exercise has become tax neutral, wrongly added the same in the current year resulting into double taxation of the same income. Finally, the ld.AR prayed that the addition made by the AO and sustained by the ld.CIT(A) deserved to be deleted otherwise it would have the effect of taxing the same receipt twice which is against the provisions of Income Tax Law.

On the other hand, the ld.DR relied on the orders of authorities below and submitted that the assessee has not followed the system of accounting in true and correct spirit and therefore the addition made by the ld.AO and sustained by the ld.CIT(A) be upheld as these authorities have justified the addition as per system of accounting and as per law.

We have carefully considered the rival submissions and perused the relevant material placed before us including the orders of authorities below. We find that as per the form 26AS, the gross hire charges on which the TDS were deducted by the recipient of service i.e. M/s Punj Lloyd Ltd amounted to Rs.6,10,41,854/- whereas undisputedly, the assessee accounted only Rs.5,56,09,575/- thereby resulting into short accounting of the said income to the tune of Rs.54,32,279/-. The said difference was explained by the assessee to be on account of the reasons that the bills for hire charges were raised in the next year 2010-11 relevant to the AY 20011-12 whereas M/s Punj Lloyd Ltd accounted the expenditure in the current year i.e F.Y. 2009-10 relevant to AY 2010-11 and also deducted TDS thereon. We find merit in the arguments of the ld AR and also note that the whole exercise by the AO is neutral tax unit as the assessee had duly accounted for the difference of Rs.54,32,279/- in the next financial year and also booked the corresponding expenditure in that year and the return of income was filed accordingly and was also accepted by the AO. We also find merits in the arguments of the ld. AR that the credit of service tax on the hire charges would not be available to the assessee had he booked the said hire charges under the current financial year. Looking to the totality of facts of the case , we are of he opinion that since the assessee has booked the full amount of hire charges as per Form No.26AS into two years and offered the same for taxation though the claim of TDS on the entire hire charges was made in the assessment year 2010-11. In any case, if the hire charges as mentioned in form No.26AS are to be considered in the current year then the corresponding income as shown in the next year with the relevant expenditure are to be deleted from the next year which seems to be meaningless and un-productive at this stage. Even worth noting is fact that the income has been accepted by the department in the subsequent year. We, therefore, are of the considered opinion that since the full amount of hire charges stood offered to tax by the assessee in two years , addition of Rs.54,32,279/- can not be sustained as it will result in double taxation of the same income. Accordingly, we set aside the order of ld.CIT(A) and direct the AO to delete the addition of Rs. 54,32,279/-.

In the result, the appeal of the assessee is allowed.