Case Law Details
Dhruv Sachdeva Vs ACIT (ITAT Delhi)
Conclusion: Where assessee had erroneously taken credit for prepaid taxes on account of gross professional receipts as per Form 26AS ; then having regard to Rule 37BA, Revenue would be justified in denying credit for such amount of prepaid taxes which were not assessable during the year on the basis of regular method of accounting followed by the assessee. However, Revenue could not, merely because credit for tax deducted at source had been erroneously claimed by assessee, bring corresponding professional receipts to tax, if such receipts were otherwise not asses sable as income in accordance with law.
Held: AO made addition because of mismatch between gross professional receipts as per Form 26AS and the receipts shown by assessee in the return of income. Assessee explained to us that because of cash system of accounting, which was being followed by assessee regularly, part of the professional income had been disclosed in subsequent year(s); in the year in which the corresponding amounts of professional receipts were actually received by assessee. Thus, although certain amounts appeared in form 26AS for this year because tax was deducted at source, the income was shown in a subsequent year, based on cash system of accounting regularly followed by assessee. It was noted provisions under Rule 37BA of I.T. Rules do not authorize Revenue to bring such amounts to tax which are not assessable during the year on the basis of regular method of accounting followed by assessee. Section 145(1) of I.T. Act makes it abundantly clear that income chargeable under the head of “Profit and Gain of business or profession” shall be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. If assessee had erroneously taken credit for prepaid taxes on account of tax deducted at source; then having regard to Rule 37BA, Revenue would be justified in denying credit for such amount of prepaid taxes on account of tax deducted at source. However, Revenue could not, merely because credit for tax deducted at source had been erroneously claimed by assessee, bring corresponding professional receipts to tax, if such receipts were otherwise not assessable as income in accordance with law. Thus, assessee distorted the law by wrongly claiming credit for prepaid taxes on account of tax deducted at source; even though corresponding amounts were not offered as income, and thus the approach of assessee was to distort law. On the other side, the approach of Revenue was to wrongly invert the law by erroneously charging such amounts to tax which were not assessable as Assessee’s income of this year under cash system of accounting regularly followed by assessee. It is not permitted for anyone to either distort or to invert law. Therefore, the matter was restored to the file of AO to re-compute the income of assessee in accordance with cash system of accounting and to give credit for prepaid taxes on account of tax deducted at source, as per law, having regard to section 199 of I.T. Act r.w.r. 37BA of Income Tax Rules.
FULL TEXT OF THE ITAT JUDGMENT
Assessee filed return of income declaring total income of Rs. 49,91,720/-. This was initially processed U/s 143(1) of Income Tax Act, 1961 (“I.T. Act”, for short) wherein returned income was accepted. Subsequently, proceedings U/s 147 r.w.s. 148 of I.T. Act were initiated vide notice dated 28.03.2013. Assessment order u/s 143(3) of the Act, dated 27/03/2014 was passed wherein total income was determined at Rs. 1,01,74,431/- as against returned income of Rs. 49,91,720/-. The Assessing Officer made following additions in the Assessment Order:
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