Case Law Details
Kritija Construction Vs ITO (ITAT Pune)
The issue in the present appeal relates to the taxability of difference of amounts shown in the Form No. 26AS and reflected in the Profit & Loss Account. It is an admitted fact that in the present case the appellant firm had received advance of Rs.38,88,745/- from one Siddhashila Developers on which TDS had been deducted. The appellant had claimed the credit for TDS on such receipt, however, had not offered advance money to tax. Admittedly, the appellant firm had been following the cash system of accounting. Even in the cash system of accounting, every receipt cannot be taxed unless the receipt is of money is on account of accrual of income. Admittedly, in the present case, the contention of the appellant that work in respect of which the advance money was received, was not executed remains un-rebutted by the Department. Therefore, it cannot be said that the income had accrued and the right to receive money had not come into existence before actual receipt of the money takes place and, therefore, such sum cannot be taxed. Therefore, we are of the considered opinion that difference between the amounts shown in the Form No.26AS and reflected in the Profit & Loss Account, cannot be brought to tax.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-6, Pune [‘the CIT(A)’] dated 22.09.2020 for the assessment year 2016-17.
2. Briefly, the facts of the case are that the appellant is a partnership firm engaged in the business of execution of contract works. The Return of Income for the assessment year 2016-17 was filed on 15.02.2017 declaring total income of Rs.3,24,930/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-9(2), Pune (‘the Assessing Officer’) vide order dated 27.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.42,13,675/-. While doing so, the Assessing Officer brought to tax the difference of gross receipts in Form No.26AS and the total receipts reflected in the Profit & Loss Account of Rs.38,88,745/-. The factual background of the case is as under :-
During the course of assessment proceedings, the Assessing Officer observed that there are discrepancies of amount between the gross receipts shown in the Form No.26AS and gross receipts reflected in the Profit & Loss Account. Accordingly, the appellant firm was called upon to explain the said discrepancies. In response, it was submitted that the difference is on account of fact that the appellant had received advance from Siddhashila Developers of Rs.38,88,745/- on which TDS had been deducted. However, the work was not executed by the appellant firm, therefore, the question of recognition any income in respect of such advance does not arise. It is further submitted that the assessee was following cash accounting, as he was following cash accounting, the question of recognition the income unless and until the work is executed does not arise. However, the Assessing Officer had brought to tax the same by observing that under the cash system accounting, whatever payment of receipt recorded during the period, they have actually received or actually paid, therefore, the gross receipts of Rs.33,88,745/- was held to be taxable.
3. Being aggrieved, an appeal was filed before the ld. CIT(A) who vide impugned order confirmed the action of the Assessing The ld. CIT(A) also rejected the alternate contention of the appellant that the entire gross receipts cannot be brought to tax only profit element embedded should be brought to tax by holding that the ratio of the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Hema Mahendra Pachchigar, 2018 TaxPub (DT) 0218 (Guj-HC) is not applicable, as the entire expenditure was already accounted in the books of account of the appellant firm.
4. Being aggrieved, the appellant is in appeal before us in the present appeal.
5. It is submitted before us that mere difference between the gross receipts shown in the Form No.26AS and gross receipts reflected in the Profit & Loss Account, cannot be brought to tax without examining the accrual of income.
6. On the other hand, ld. Sr. DR supporting the orders of the lower authorities submits that when the assessee had followed cash system of accounting, every receipt of income is taxable on receipt basis and, therefore, no interference is called for.
7. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the taxability of difference of amounts shown in the Form No.26AS and reflected in the Profit & Loss Account. It is an admitted fact that in the present case the appellant firm had received advance of Rs.38,88,745/- from one Siddhashila Developers on which TDS had been deducted. The appellant had claimed the credit for TDS on such receipt, however, had not offered advance money to tax. Admittedly, the appellant firm had been following the cash system of accounting. Even in the cash system of accounting, every receipt cannot be taxed unless the receipt is of money is on account of accrual of income. Admittedly, in the present case, the contention of the appellant that work in respect of which the advance money was received, was not executed remains un-rebutted by the Department. Therefore, it cannot be said that the income had accrued and the right to receive money had not come into existence before actual receipt of the money takes place and, therefore, such sum cannot be taxed. Therefore, we are of the considered opinion that difference between the amounts shown in the Form No.26AS and reflected in the Profit & Loss Account, cannot be brought to tax. Accordingly, the ground of appeal filed by the assessee stands allowed.
8. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 31st day of January, 2023.
