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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D. BATTULL
आयकर अपीलीय न्यायाधिकरण, रायपुर न्यायपीठ, रायपुर में। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR (Through Virtual Court at Raipur) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D. BATTULL, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 177/RPR/2016 धििाारण वर्ा / Assessment Year : 2012-2013 Atharva Rainbow Infratech 22, Babla Complex, GE Road, Raipur, (C.G.) PAN : AATFA 2344 L .……अपीलार्थी / Appellant
बिाम / V/s. Dy. Commissioner of Income Tax-1(1) Civil Lines Raipur, (C.G.) .…… प्रत्यर्थी / Respondent Appearances Assessee by : Shri R. B. Doshi Revenue by : Shri G. N. Singh सुनवाई की तारीख / Date of conclusive Hearing : 03/02/2022 घोषणा की तारीख / Date of Pronouncement : 01/04/2022 आदेश / ORDER PER JAMLAPPA D. BATTULL, AM; This is an appeal of the assessee filed against the order of first appellate authority Commissioner of Income Tax – Appeals-1, Raipur [for short “CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [for short “the Act”] vide order dt 19/05/2016, which unfolded out of an assessment order [for short “Ao”] dt 30/03/2015 passed by the Assessing Officer [for short “Ld AO”] u/s 143(3) of the Act for assessment year [for short “AY”] 2012-2013.
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ITA No. 177/RPR/2016 AY 2012-2013 2. The interesting issue involved in this appeal is, whether or not an amount of tax deducted at source [for short “TDS”] on advance revenue receipts exigible to tax as “Income”, of the year of deduction, where the assessee follows mercantile system of accounting?
Before evolving the matter on facts for adjudication, it is necessary to reproduce the grounds challenged by the appellant as under; “(1)In the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition made by AO of ₹ 5,85,803/-, explained to be of TDS on Advance received for contract work. “Ld. CIT(A) was not justified in confirming the additions made by the AO“ (Empasis supplied) 4. The facts of the case culled out from the records pithily are; 4.1 The assessee is a registered partnership firm, engaged in Civil & Road Construction business and for the AY 2012-2013 maintained its books of account on mercantile (accrual) basis which were subjected to audit u/s 44AB of the Act [for short “Tax Audit”]. For the year under consideration, the appellant firm has filed its return of income [for short “ITR/ROI”] on 30/08/2012 declaring the total income of ₹15,18,085/-. The case of the appellant firm was subjected to scrutiny through CASS and the assessment was concluded u/s 143(3) of the Act, assessing the total income at ₹21,03,890/- with a sole addition of ₹5,85,803/- by holding the amount of TDS deducted on advance contact receipts as the income chargeable to tax of the year in which credit of TDS is claimed.
4.2 Ld CIT(A) in an appeal before him, in the absence of factual reconciliation with that of financial statements, coincided with the views of his sub-ordinate officer and confirmed the taxability. Aggrieved and dissatisfied by the order of CIT(A), the
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ITA No. 177/RPR/2016 AY 2012-2013 taxpayer firm filed the present appeal before the Income Tax Appellate Tribunal [for short “Tribunal”] with the ground/s of appeal set herein before at Para 3.
After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant as well the respondent.
During the course of hearing before the Tribunal it has emerged that; 6.1 The Ld AO after considering the written submissions and verification audit reports and books of accounts placed before him, notifying the difference of ₹2,93,45,917/- in the turnover / total contract receipts from the business as per the Profit and Loss Account [for short “P&L”] with that of Form No 26AS, sought detailed clarification qua reconciliation from the appellant, and in reply thereof, the assessee substantiated the difference with reconciliation statements, establishing on record that the difference was on account of advance contract receipts from one of its debtor M/s Korba West Power Company Limited.
6.2 In support of aforesaid contention, the appellant brought to the notice of Ld AO that, the assessee for the purpose of its business, maintains its books of accounts following mercantile (accrual) system of accounting regularly, which were duly audited u/s 44AB of the Act and inveterated that, the advance receipt is accounted as liability and shall be appropriated as income, as and when same matures or accrues to the firm. To concretise its claim, the assessee further placed on records the copies of accounts and confirmation letters from M/s Korba West Power Company Limited, which were considered and admitted as such during the assessment proceedings and remain undoubted.
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ITA No. 177/RPR/2016 AY 2012-2013 6.3 Persuaded by the aforesaid facts & proposition, the Ld AO jumped on the bandwagon by bringing to tax, the amount of TDS of ₹5,85,803/- on aforesaid advance contract receipts as deducted by M/s Korba West Power Company Limited, on the premise that, such TDS credit partaken the charter of Income upon its utilization by the appellant in discharge of its tax liability for the year under consideration i.e. AY 2012-2013.
6.4 In an appeal before first appellate forum, the assessee recapitulated its idem submission vis-à-vis contention, however it did not impress the mind of Ld CIT(A), consequently echoing the reasons spelt out by the AO, the amount of TDS deducted on advance contract receipts were treated as Income of the firm upon its utilization turning a blind eye to method of accounting regularly employed.
Ex post, in order to answer the vexed question framed in para 2 hereof, we shall essentially have to resort to provision of section 145 of the Act, which is reproduced herein below for ready reference; 7.1 “145 Method of accounting. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.”
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ITA No. 177/RPR/2016 AY 2012-2013 7.2 The unadorned reading of aforesaid provision suggests that, income chargeable to tax under chapter IV-D of the Act i.e. under the head Profits & Gains of Business or Profession u/s 28 of the Act, shall always be subjected to method of accounting regularly employed by the assessee and adherence to applicable accounting standards etc., Where the assessee employs mercantile (accrual) system of accounting, the income is and shall be accounted on accrual basis irrespective of its year of receipt unlike in cash system of accounting, where the income is brought / charged to tax on the basis of receipts irrespective of its year of accrual.
7.3 It is also apropos to note that, in case where Ld AO is not unsatisfied with the correctness and completeness of accounts, the sub-section 3 of section 145 empowers the assessment to the best of his judgement.
7.4 In the instant case, albeit there has neither been any whisper of unsatisfaction so far as correctness and completeness of accounts is concern, nor any undertone of provision pursuant to which the impugned order was passed vis-à-vis confirmed by Ld CIT(A). Nevertheless it is inferred from the records that, the lower tax authorities in terms of section 198 of the Act, have brought the amount of TDS to tax in the year in which credit thereof is claimed by the assessees firm, hence it is indispensable for our adjudication to reproduce the provision of section 198 as under; “198 Tax deducted is income received All sums deducted in accordance with the foregoing provisions of this Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received : Provided that the sum being the tax paid, under sub-section (1A) of section 192 for the purpose of computing the income of an assessee, shall not be deemed to be income received: (Empasis supplied)
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ITA No. 177/RPR/2016 AY 2012-2013 7.5 Before we proceed further in analysis, it must be born in mind that, the aforementioned section 198 falls in Chapter XVII of the Act, the title of which reads as “Collection and Recovery of Taxes”, wherein this chapter has been evidently used as machinery provision in collecting the taxes due under the Act. Now therefore, this provision of section 198 needs to be read in conjunction with the other sections of this chapter, peculiarly section 190, which not only introduces but abundantly clarifies the intent of this chapter, which reads as under; “190 Deduction at source and advance payment. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.” 7.6 Intra legem, sub-section 2 of section 190, is on one hand, does not allow the provisions of this chapter XVII to supersede the charging mechanism as contemplated in section 4 r.w.s. 28, at the same time adequately shields from any intrusion therein. And on the other hand, it also extincts out the ambiguity (if any) in the provision of section 198, may the reading thereof in isolation lead to an unintended absurd conclusions.
7.7 To Break the ice, upon careful reconciliation of provisions discussed hitherto, we opine that, section 198 r.w.s. 190, is an anti-tax evasion mechanism provided by the legislature to safeguard against the probable claim of non-receipt or non- materialisation of income when accounted in accordance with the method of accounting regularly employed as per section 145(1) of the Act and by no means the
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ITA No. 177/RPR/2016 AY 2012-2013 provisions of chapter XVII were intend to create any deeming fiction for the chargeability of income overriding the provisions of section 4 r.w.s. 28 of the Act.
In the light of aforesaid discussion, we do not hesitate to hold that, by no stretch of imagination, an amount of TDS as appearing in the Form No 26AS shall be brought to tax as “Income” under the head Profits and Gains of business or profession applying the provisions of section 198, without reference to the method of accounting regularly employed by the assessee in relation to such business in question. In this context, we now quote that, a similar view has been appreciated by the Co-ordinate benches of the Tribunal in bunch of cases, in re; Lloyd Insulation (India) Ltd Vs DCIT (ITA No 2400/Del/2011), Smt Varsha G. Salunke Vs DCIT reported at 98 ITD 147 (Mumbai), ACIT Vs Smt Reeta Loiya (ITA No 208/BLPR/2010), wherein the action of taxing the amount of TDS as income without reference to the method of accounting regularly employed by the assessee were held as contra legem.
Au contraire, the Ld DR could not controvert the facts and reasoning postulated during the course of hearing, however heavily relied on authorities below.
Considering the entire conspectus of case, we do not subscribe the views of lower tax authorities in holding that, the amount of TDS credit as appearing in Form No 26AS can be brought to tax on the sole basis of its utilization against the present tax liability, without first disputing the method of accounting regularly employed by the assessee firm or correctness & completeness of accounts in terms of section 145 of the Act. Since the income u/s 28 is to be computed with reference to section 145 of the Act, we find no merits in the impugned assessment order, ergo we set aside the orders of the authorities below and decide the issue in favour of the assessee.
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ITA No. 177/RPR/2016 AY 2012-2013
Resultantly, the appeal of the assessee stands allowed, with no order as to cost. Order pronounced on this Friday 1st day of April, 2022.
Sd/- Sd/- RAVISH SOOD JAMLAPPA D. BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर / RAIPUR ; दिनाांक / Dated : 01st April, 2022 आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A)-1, Raipur(C.G) 4. The Pr. CIT, Raipur (C.G) 5. दवभागीय प्रदतदनदि, आयकर अपीलीय न्यायादिकरण, रायपुर बेंच, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गार्डफ़ाइल / Guard File. आिेशानुसार / BY ORDER, दनजीसदचव / Private Secretary आयकर अपीलीय न्यायादिकरण, रायपुर / ITAT, Raipur.
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