Case Law Details
DCIT Vs M/s Delhi Tourism Transportation Corporation Ltd. (ITAT Delhi)
The addition was made by the AO on the ground that although the assessee had claimed credit for Tax Deducted at Source (“TDS”, for short) on the interest income from the bank, corresponding interest income was not offered to tax by the assessee during the year. The Ld. CIT(A) confirmed this addition on the ground that the assessee had failed to file any evidence to reconcile the amount of Rs.61,81,344/-. At the time of hearing before us, the Ld. AR of the Assessee submitted that this amount refers to interest accruing to the assessee during the year on fixed deposits in the bank. He further stated that although this interest income has not been offered to tax during the year by the assessee, credit for TDS made by the bank was claimed by the assessee because the assessee was facing liquidity crunch. He further submitted that the assessee being a public sector undertaking, lenient view may be taken specially because of the liquidity crunch faced by the Assessee. He further also submitted that claim for TDS may be disallowed to the extent it pertains to corresponding income not offered to tax by the assessee during the year; but the addition to income may be deleted. Further, in this regard, he also submitted that the AO failed to appreciate that interest income due on the fixed deposits kept with the banks accrued to the customers on 31st March each year although the same had not become due for payment; but the TDS entries are booked on the closing date of the Financial Year i.e. on 31st March each year on provisional basis to comply with the provisions of the Accounting Standards. He also submitted that the interest income on Fixed Deposits was offered to tax in subsequent year(s), following cash system of accounting; in the year in which the was towards actually received by the Assessee. He relied on order of Co-ordinate Bench of ITAT, Delhi in the case of DCIT vs. Lloyd Insulation (India) Ltd. in ITA No. 2400/Del/2011 for the preposition that: “Income of a taxpayer is not required to be computed merely with reference to the TDS certificate, but assessment of an income is altogether an independent exercise.” However, the Ld. AR of the Assessee fairly conceded that the regular method of accounting being followed by the assessee is the mercantile system of accounting.
Income of a taxpayer is not required to be computed merely with reference to the TDS Certificate, but assessment of an income is an altogether independent exercise. We wish to add that income of an Assessee under the head “Profits and Gains of Business or Profession” and “Income from other sources” is to be determined regardless of whether tax was deducted at source in respect of amounts received or accrued to the assessee. What is relevant is the system of accounting regularly employed by the assessee – whether it is cash system or mercantile system. The assessee is not permitted to use mixed or hybrid system of accounting under which some items of income / expenditure are accounted for under cash system and the remaining items of income / expenditure are accounted for under mercantile.
It is obvious from the perusal of the aforesaid Provisions U/s 145(1) of I.T. Act that it is not open for the Assessee to follow cash system of accounting for some of the items and mercantile system of accounting for the remaining items. Mixed or hybrid system of accounting has lost statutory mandate w.e.f. 01.04.1997, pursuant to amendment of Section 145 of I.T. Act by the Finance Act, 1995. Income of an Assessee under the head of “Profits and Gains of Business or Profession” and under the head of “Income from Other Sources” is to be computed in accordance either with cash system of accounting regularly employed by the assessee or with mercantile system of accounting regularly employed by the assessee. Undisputedly, the regular system of accounting employed by the assessee is Mercantile System. Under Mercantile System of accounting items of income and expenditure are accounted for on accrual basis; and the actual dates of payments / receipts for various items of income and expenditure, are irrelevant. On the other hand, under cash system of accounting, various items of income and expenditure are accounted for on the basis of actual dates of receipts and payments; and whether the same actually accrued during the year is irrelevant. Once the assessee has opted to follow Mercantile System as its regular system of accounting, it is not open for the assessee to account for certain income (Interest Income from Fixed Deposits in the Bank, as in this case) under cash system of accounting. It is not the case of the assessee that interest income of the assessee from Fixed Deposits in Bank is exempt and thus, undisputedly the income is taxable. Undisputedly again, the regular system of accounting followed by the assessee is mercantile system of accounting. Undisputedly also, Interest Income from Fixed Deposits in Bank has accrued to the assessee during the year but was not offered as income on accrual basis under mercantile system of accounting. As income from Fixed Deposits in Bank has accrued to the assessee in accordance with system of accounting regularly employed (mercantile system, in this case), the income has to be assessed during the year. It is irrelevant whether the assessee is a public sector undertaking. Unless specifically provided under law or intended by necessary implication under specific provisions of law, or held in binding judicial precedents; a public sector undertaking cannot legitimately claim a preferential treatment in determination of its tax liabilities. Therefore, we hold that the facts that assessee is a public sector undertaking is irrelevant. It is also immaterial whether the assessee was facing liquidity crunch. When the income has to be assessed during the year and when tax is to be paid in accordance with law on such income, the assessee cannot postpone the year in which the income will be offered to tax merely because the assessee has a liquidity crunch. Requirement of liquid funds by an assessee, howsoever genuine the requirement may be, cannot be accepted as a legitimate justification for postponement of the year in which income will be offered by the assessee. Therefore, in the facts of the case before us, the exercise of determining assessee’s income lead us to the conclusion that the aforesaid income amounting to Rs. 61,81,344/- by way of interest on Fixed Deposits in Bank is to be assessed during the year. Accordingly, we confirm the addition of aforesaid amount of Rs. 61,81,344/-; and dismiss Ground no. 7 in assessee’s appeal for A.Y. 2010-11.
FULL TEXT OF THE ITAT JUDGEMENT
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