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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- 3, Mumbai, dated 25-10-2011, for the assessment year 2008-09, in the matter of order passed u/s.143(3) of the I.T.Act, on the following grounds:- “
1. The Learned Commissioner of Income Tax (Appeals) erred in upholding the action of Assessing Officer in treating advance of Rs.26,50,000/- as income exigible to tax based on a belief that under cash system of accounting, income is assessable the moment it is received and ignored the fact that the advance received was not in nature of real income.
2. The learned Commissioner of Income tax (Appeals) erred in upholding the order of assessing officer whereby software expenses Rs.3,12,000/- were treated as capital expenditure.”
2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is an artist engaged in his professional 2 capacity working as an actor, director in the production of cinematograph, tele-serials, stage shown produced or organized by any other person or any other production company. During the course of scrutiny assessment, the AO noted that the assessee has shown Rs.26,50,000 as advances from various persons under the head current liabilities in the balance sheet as on 31/3/08. Therefore, the assessee was asked to explain as to why said advance amount which has been received during the year has not been considered as income in spite of the fact that the assessee follows cash system of accounting.
3. It was submitted by the assessee that assessee was offering advance received as income in the subsequent year on the circumstances of each case. However, the AO did not agree with assessee’s contention and added the amount in assessee’s income on the plea that assessee was following cash system of accounting. By the impugned order the CIT(A) confirmed the action of the AO.
4. It was also argued by ld. AR that amount so received was purely in the nature of advance and the assessee has to render service in respect of amount so received. She relied on the decision in the case of Nana G. Patekar 27 SOT 8 and S. Priyadarsan,73 TTJ 738 in support of the proposition that advance received by the assessee, a film director from two producers for directing their prospective films, could not be treated as income as no work was done by the assessee for these two producers and the assessee has shown amount in list of sundry creditors in the balance sheet.
Our attention was also invited to the list of advance received by the assessee in different years, which were either returned or offered as income.
On the other hand, ld. DR relied on the order of lower authorities. 7. We have considered rival contentions and found that assessee was following cash system of accounting. The judicial pronouncement referred by ld. AR are distinguishable on facts insofar as there is no finding with regard to method of accounting i.e. cash or mercantile being followed by those assessee. In the instant case advance of Rs.26.50 lakhs was received during the year, which was shown as advance and in the liability side shown as creditor. However, it is not brought on record as to in which year services were rendered by assessee and the advance was offered for tax nor it was brought on record as to when the advance was returned. Income received in advance cannot be brought to tax net if the same is refunded. Rendering of services for which advance is received is also important guiding factor for taxing the same as income. In the interest of justice, we restore this issue back to the file of AO for deciding afresh after finding out the year in which corresponding services for such advance was rendered and also fact that if this advance was repaid in subsequent year and also the fact as to when this advance was offered in subsequent as income in subsequent year. The AO is to decide the issue afresh after giving due opportunity of hearing to the assessee. 8. The assessee is also aggrieved for not allowing software expenses of Rs.3,12,000/-. The issue is squarely covered in favour of assessee by 4 ITA No.141/12 the decision of Hon’ble Delhi High Court in the case of G.E.Capital Services Ltd.300 ITR 420, wherein it was held that software expenses are revenue in nature. Respectfully following the decision of Hon’ble Delhi High Court, we direct the AO to allow assessee’s claim of software expenses as revenue expenses. 9. In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this 28/03/2016.