AJR Oil And Gas Engineering Services Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Summary: The Mumbai ITAT considered whether professional income of ₹1,05,00,000/- could be taxed in AY 2017-18 merely because the payer, DAS Offshore Ltd., had accounted for the expenditure and deducted TDS under section 194J during that year. The assessee-company was incorporated on 28.02.2017 and had entered into a consultancy agreement with DAS Offshore Ltd. on the same date. It maintained that no consultancy services were rendered, no invoice was raised and no payment became due up to 31.03.2017. The services were rendered subsequently and the first invoice was raised on 03.04.2017, with the corresponding income recognised and offered to tax in AY 2018-19. The Tribunal also noted that reconciliation of the audited books with Form 26AS for three years showed aggregate receipts of ₹15.72 crore matching in both records, demonstrating that the differences were timing differences rather than suppression of income.
The Tribunal held that under the mercantile system of accounting, income accrues only when an enforceable right to receive it crystallises. Mere expectation of income, unilateral accounting treatment by the payer or deduction of TDS cannot determine the year of taxability in the recipient’s hands. The Revenue had produced no correspondence, work-completion certificate, invoice, contractual milestone or other evidence showing that services had been rendered or that the assessee had acquired a vested and enforceable right to receive the consideration before 31.03.2017. Relying on the principles discussed in CIT v. Dinesh Kumar Goel and E.D. Sassoon & Co. Ltd., the Tribunal observed that the right to receive consideration must arise from rendering the services and that no enforceable debt had arisen by 31.03.2017. It further applied Accounting Standard-9, noting that revenue from services is recognised when services are actually rendered.
