2013 (10) TMI 1071 - AT - Income Tax

Tribunal upholds income recognition based on services rendered, rejecting tax deferral argument.

The Tribunal dismissed the Revenue's appeal against the deletion of the addition made by the Assessing Officer, affirming the CIT(A)'s decision. The ... Accrual of income - Addition on account of advance received from the patients by the doctor-assessee - The facts of the case are that the assessee is a doctor by profession. He is a surgeon specialized in liver transplant. In the case of a liver transplant patient, regular consultancy and check up for several years is required. During the year under consideration, the assessee has received the sum of Rs. 69,29,500/- from patients which was accounted for as advance from patients – Held that:- The scheme of life time consultancy has been perused in detail. The name is only life time, whereas services are meant for a period of 48 months post surgery with a period of 12 months immediately after the surgery as free of charge, meaning there by the amount of advance would have to be exhausted with in a period of three years from surgery or else would have to be returned in case of non utilization of the same or in case of death of the patient. The appellant has done exactly the same. The appellant has accounted the said advances as and when realized. The same are accounted in the years of realization. Sufficient proof in the name of balance sheet and P & L account and Form 3CD to support the case of the appellant has been filed, which is enough proof to accept that what has been received as advance under the life time consultancy fee is only to be taxed as income when services to that effect are offered. Till then the amount remains a liability in the books of the appellant. Considering the details filed it is found that the advance need not be booked at the time of receipt nor it is a registration charge. The appellant has strictly followed the principles of mercantile system of accounting. Appellant has correctly followed the principles of mercantile system of accounting and the amount of advance received during the year cannot be booked as income – Decided against the Revenue. Issues:Appeal against deletion of addition made by AO on account of advance received from patients as 'Lifetime Consultancy Charges' for AY 2009-10.Analysis:1. Ground 1:The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 69,29,500/- as 'Lifetime Consultancy Charges' due to lack of proper justification or documentary evidence. The Revenue argued that the scheme presented by the assessee was an after-thought, deferring tax payment. The Revenue sought restoration of the AO's order.2. Ground 2:The Revenue further argued that the assessee failed to explain how the income was offered for taxation in subsequent years, questioning the nature of the charges as taxable registration fees.3. Ground 3:The Revenue maintained that the amounts received were taxable registration charges, disputing the deletion of the addition by the CIT(A).4. The Revenue reserved the right to amend the grounds of appeal and challenged the CIT(A)'s order as contrary to facts and legal principles.5. During the hearing, the Revenue highlighted the assessee's profession as a doctor and the advance liability shown in the assessment. The CIT(A) forwarded the scheme to the AO, who considered it an after-thought. The Revenue urged for reversal of the CIT(A)'s order based on the AO's remand report.6. The assessee's counsel argued that the scheme was genuine, with advances adjusted against services rendered in subsequent years. The assessee followed the mercantile system of accounting, stating that income accrues only when services are provided, not at the receipt of advances.7. The Tribunal reviewed the scheme, noting that no income accrued in the first 12 months as per the scheme's terms. The advance received was adjustable against future consultancy charges, with income recognized in subsequent years when services were rendered. The Tribunal found the scheme valid, rejecting the AO's claim of it being an after-thought.8. The CIT(A) allowed the appeal, considering the assessee's adherence to the mercantile system of accounting and proper documentation of income realization in subsequent years. The Tribunal upheld the CIT(A)'s decision, finding no fault in the assessment of income as per the scheme's terms.9. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order, and pronounced the decision on 20th September 2013.