2018 (4) TMI 995 - AT - Income Tax

Tribunal rules in favor of assessee, removes added income, directs AO on TDS credit

The Tribunal allowed the appeal, ruling in favor of the assessee. The addition of Rs. 3,12,13,269/- was deleted, and the AO was directed not to withdraw ... TDS credit - unadmitted accrued income from the scheme - reopening of assessment - method of accounting followed - expenditure claim corresponding to the receipt - Held that:- Assessee has corresponding expenditure on the scheme, which was claimed in the respective assessment years. In case the receipts accounted by assessee in AY. 2006-07 is to be shifted to AY. 2004-05 (impugned assessment year), then the corresponding expenditure has to be correspondingly shifted to AY. 2004-05. Without doing so, it is not correct on the part of the AO to bring gross receipts to tax just because assessee has claimed the TDS on the amounts. Since there is no escapement of any receipts or income over a period of three years and as there is no dispute with reference to the amounts claimed to have been paid to the dealers in the schemes, we cannot appreciate the action of the AO, as confirmed by the Ld.CIT(A), in bringing to tax the gross receipts in this year, without giving benefit of corresponding expenditure. Since assessee has accounted for the amounts over a period of three years on the method of accounting consistently being followed by her, we are of the opinion that there is no need to disturb the P&L A/c. The expenditure claim corresponding to this receipt was more than the income brought to tax, which may result in reducing the originally declared income. Therefore, we are of the opinion that the addition per se is not required to be made - Decided in favour of assessee. Issues Involved:1. Taxability of an amount of Rs. 3,12,13,269/- in the assessment year under consideration.2. Whether the reopening of the assessment was justified.3. Appropriateness of the accounting method followed by the assessee.4. Entitlement of TDS credit in the year of deduction.Detailed Analysis:1. Taxability of Rs. 3,12,13,269/-:The primary issue in this appeal is whether an amount of Rs. 3,12,13,269/- brought to tax during the year is taxable in the assessment year under consideration. The assessee, a dealer in IMFL for M/s. Shaw Wallace Distilleries Ltd. (SWDL), received various cash benefits under schemes floated by SWDL, which were reflected in the Profit & Loss Account. The Assessing Officer (AO) considered the difference of Rs. 3,12,13,269/- as unadmitted accrued income and brought it to tax, as the assessee claimed TDS on the gross amount of Rs. 8,22,90,113/- but did not reflect corresponding receipts from SWDL.2. Reopening of the Assessment:The assessee challenged the reopening of the assessment, contending that there was no escapement of income and that the receipts had been duly accounted for over three assessment years. The AO initiated proceedings under Section 147, which was contested by the assessee. However, during the appeal, the assessee did not press for the issue of reopening.3. Accounting Method:The assessee claimed that they followed the receipt basis of accounting and had accounted for the entire amount of Rs. 16,98,83,820/- over three years, with corresponding expenditure of Rs. 16,66,55,777/-. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was following the Mercantile System of Accounting and was duty-bound to declare all credits as per this system. The CIT(A) upheld the AO's addition, stating that the mixed system of accounting is not allowed and that the assessee must declare all credits under the mercantile system.4. TDS Credit:The assessee argued that TDS credit should be given in the year of deduction to avoid complications, citing the Co-ordinate Bench decision in the case of M/s. Zelan Projects P. Ltd. The Tribunal held that once TDS was deducted and paid to the Central Government, credit should be given in the year of deduction to avoid complications.Tribunal's Decision:The Tribunal considered the rival contentions and concluded that the entire receipts from SWDL had been accounted for over three years, with corresponding expenditure duly claimed. The Tribunal found no escapement of income and noted that the AO had initiated proceedings under Section 147 despite the CIT dropping proceedings under Section 263. The Tribunal held that if receipts are to be shifted to the assessment year under consideration, the corresponding expenditure should also be shifted. The Tribunal deleted the addition made by the AO, stating that the expenditure claim corresponding to the receipt was more than the income brought to tax. The Tribunal directed the AO not to withdraw the credit of tax given in the assessment order and allowed the appeal of the assessee.Conclusion:The Tribunal allowed the appeal, holding that there was no need to disturb the Profit & Loss Account as the assessee had consistently followed their method of accounting. The addition of Rs. 3,12,13,269/- was deleted, and the AO was directed not to withdraw the TDS credit. The appeal was pronounced in favor of the assessee on 18th April 2018.