2013 (8) TMI 980 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, rejects revenue appeals on income treatment, advances, interest, and TDS provisions.

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on all issues. The treatment of advances received for production of ... - Issues Involved:1. Treatment of advances received for production of advertisement films as income.2. Charging of interest on advances made to Directors.3. Applicability of provisions of section 40(a)(ia) regarding TDS remittance.Summary:Issue 1: Treatment of Advances Received for Production of Advertisement Films as IncomeThe Revenue contended that advances received for production of advertisement films should be treated as income in the years they were received. The Assessing Officer (AO) added Rs. 76 lakhs and Rs. 2,28,62,500/- to the income of the assessee for assessment years 2008-09 and 2009-10 respectively, arguing that once a bill is raised, the amount received gains the character of income. The AO also noted that TDS was deducted on these advances.The CIT(A) deleted these additions, observing that the assessee followed the project completion method of accounting, where income is recognized upon completion of the project. The CIT(A) found no infirmity in this method as the expenses related to incomplete projects were carried forward and claimed in the year the income was offered for tax.The Tribunal upheld the CIT(A)'s decision, noting that the project completion method is a recognized method of accounting. The Tribunal emphasized that merely raising an invoice for receiving advance does not conclude that the advance is income for that year. The Tribunal also referenced decisions from the Delhi and Mumbai Benches of the Tribunal supporting the assessee's method of accounting.Issue 2: Charging of Interest on Advances Made to DirectorsThe AO observed that the assessee had given advances to Directors and should have charged interest on these advances, estimating interest at 18% per annum. The AO disallowed the interest expenditure claimed by the assessee on vehicle loans.The CIT(A) deleted the disallowance, stating that the advances to Directors were not out of borrowed funds and that charging interest was a business decision. The Tribunal confirmed the CIT(A)'s order, noting that the interest expenditure was incurred on borrowed funds used for business purposes, and no interest-bearing funds were utilized for advances to Directors.Issue 3: Applicability of Provisions of Section 40(a)(ia) Regarding TDS RemittanceThe AO disallowed Rs. 1,42,24,749/- of expenditure for assessment year 2009-10, as TDS on this amount was remitted beyond 31.3.2009 but before the due date for filing the return of income.The CIT(A) vacated the disallowance, following the decision of the Hon'ble Calcutta High Court in CIT vs Virgin Creations, which held that the amendment to section 40(a)(ia) by the Finance Act, 2010, allowing no disallowance if TDS is remitted before the due date of filing the return, is retrospective.The Tribunal upheld the CIT(A)'s decision, noting that the TDS was deposited within the due date of filing the return of income, and thus, no disallowance u/s 40(a)(ia) was warranted.Conclusion:Both appeals of the Revenue were dismissed, and the Tribunal confirmed the orders of the CIT(A) on all issues.