ACIT, CIRCLE-61(1), NEW DELHI vs. OM PRAKASH KHAITAN, NEW DELHI

Since common grievance is involved in both these appeals, they were heard together and were disposed of by this common order for the sake of convenience and brevity. The common grievance in both these appeals relates to (i) deletion of the addition on account of credit balances in assessee’s client accounts and (ii) part deletion of the addition on account of disallowance u/s 14A of the Act.

At the very outset, the Counsel for the assessee stated that both the issues raised by the Revenue have been decided by this Tribunal in assessee’s own case in favour of the Assessee and against the Revenue since AYs 2001-02 to 2009-10. The Counsel further pointed out that the order of the Tribunal in AY 2009-10 was affirmed by the Hon’ble Delhi High Court. Though the DR could not bring any distinguish decision in favour of the assessee but strongly relied upon the assessment order.

We have carefully perused the orders of the authorities below and have duly considered the decision of the coordinate bench. We find that the quarrel relating to the addition on account of credit balances in assessee’s client accounts is concerned it is coming from AY 2001-02 and thereafter in AYs 2003-04 and 2009-10. This Tribunal in for AY 2009-10 has considered the similar grievance and has decided as under: -

We have heard both the parties and have perused the material on record. Undisputedly, the assessee has been consistently following the cash system of accounting for the firm of Solicitors and Advocates. The firm received advances from its clients against various legal matters for meeting out of pocket payments towards expenses of various kinds. Such advance receipts were kept in a separate ledger account in the name of the clients. All the expenses were debited therein from time to time. At the year end, credit balances in the accounts where the matters stood completed or settled, were transferred to the Profit & Loss Account. Where the matter was pending, the credit balances were carried forward to the next year and shown as sundry creditors. Additions similar to the one presently before us were made in the assessee's case for AY 2001-02 and 2003-04 also. The matter travelled upto the Tribunal. The Tribunal, vide its aforesaid order dated 23.5,08, confirmed the CIT (A)'s action in deleting the additions for both the years. While doing so, the Tribunal order dated 3.2.06, rendered in in the case of 'Jitender Sharma vs. DCIT' and that dated 25.8.06 in 1TA No.3820/Del/2004, in the case of 'M/s Anand & Anand', were followed to hold that even if the assessee was following the cash system of accounting, every receipt cannot be considered as income; that the receipt will be income, provided the assessee has a right to receive the same on his own account; and that so long as the assessee is answerable to the clients for receipt of advance and in respect of which the work of the client has not been completed, the receipt cannot be branded as income even where the assessee is following the cash system of accounting. In the case of ‘Jitender Sharma' (supra), as noted by the Tribunal in the assessee's case for AYs 2001-02 and 2003-04, it was held as follows:- "On due consideration of the matter, we delete the entire addition for the reasons that follow. It is true that the assessee is following cash system of accounting. Under this system, the assessee has to account for all the incomes received during the year irrespective of the fact whether they have accrued to the assessee or not. However, it is equally true that every receipt is not an income. A receipt to be accounted as an income must bare the character of an income and then only it can be treated as such in the year of receipt under the cash 3

Respectfully following the decision of the coordinate bench viz-a- viz the decision of the Hon’ble Delhi High Court ground no. 1 is dismissed.

In so far the second grievance relating to the disallowance u/s 14A is concerned the same has also been considered by the Hon’ble High Court of Delhi in wherein the Hon’ble High Court has held as under: - “9. As regards the second issue concerning the disallowance under Section 14A of the Act, the ITAT noticed the decision of its co-ordinate Bench in Justice Sam P. Bharucha v. Addl, Commissioner of Income Tax, Mumbai 25 Taxmann.com 381 (Mum)and observed that in the present case, the AO had not recorded any finding that any expenditure incurred by the Assessee was attributable for earning the exempt income. In order to disallow the expenditure there must be a nexus between the expenditure incurred and the income not forming part of the total income. Consequently, the disallowance under Section 14A of the Act was rightly deleted by the CIT (A) and affirmed by the ITAT.

The Court finds that no substantial question of law arises for determination by the Court from the impugned order of the ITAT.”

In the result, both the appeals by the Revenue are dismissed.