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2016 (9) TMI 807 - AT - Income TaxNature of income - receipt basis OR accrual basis - amounts received by assessee in respective assessment years - Held that:- The amount can not be brought to tax on receipt basis unless the same has accrued to assessee as income. In view of the facts of the case as well as law on the subject, we are in agreement with the order of the CIT(A) in AY. 2006-07, wherein he has correctly analysed the legal and factual position and deleted the amount in that year. Further, as seen from the order of the CIT(A) in AY. 2010-11, it is very clear that Ld. CIT(A) misunderstood the entire scheme. First of all, the fee was not collected from ‘gullible’ students by assessee, as the admission was taken in the ICFAI in the distinct learning programme. As a part of the curriculum services of placement were also offered, which is optional. Therefore, there is no compulsion on the part of the student to avail the placement services. Secondly, the mechanism to collect fee from ‘gullible’ students at the time of admission does not arise, as the student were given an option which they may or may not avail. There is also no false hope of providing employment, as the services for employment were rendered with a minimum guarantee of salary, which the students may avail or may not avail. Terms of agreement are very clear as most of the options are given to the student itself and the obligation to render services ends at the end of fourth year or accepting the placement by the student. CIT(A) in AY. 2010-11 did not even make any comment why it has to be deferred from the earlier order and why a different stand is taken on the same set of facts. Further, there is also a factual error in the finding of the CIT(A) that ‘no services were rendered and no refund was ever given by assessee’. These two findings were also not correct as assessee was rendering services from AY. 2008-09 to 2012-13 and there was refund in AY. 2013-14, since these facts even though placed before the Ld. CIT(A), were not correctly appreciated, we are not in a position to approve the order of CIT(A) in AY. 2010-11. We are of the firm opinion that assessee has correctly accounted the incomes in the third and fourth years on accrual basis and as seen from the table of amounts received and amounts offered for tax in respective years, it is the department which is not consistent in its assessment procedure. As can be seen, Revenue has accepted higher amounts offered than the receipts (advances) in the interregnum period without disturbing in AYs 2007-08, 2008-09 and 2009-10 and also accepting offered incomes in AY. 2011-12 and 2012-13. Assessee’s method of accounting is according to the prescribed method of accounting of ICAI and method of accounting even though not notified, is binding following the principles laid down by the Hon'ble AP High Court in the case of CIT Vs. Pact Securities & Financial Services Ltd., & Others [2015 (8) TMI 471 - ANDHRA PRADESH HIGH COURT ]. In view of the facts stated above and the law on the subject, we are of the opinion that assessee has correctly accounted the incomes in third and fourth year on accrual basis and the amounts cannot be brought to tax on receipt basis, as these are only advances without any obligation to service in the year of receipt. Accordingly, the Revenue’s appeal in AY. 2006-07 is dismissed upholding the order of CIT(A) and assessee’s appeal in AY. 2010-11 is allowed setting aside the order of CIT(A) in that year on the issue. Addition made towards excess provision of gratuity and EL encashment - Held that:- As seen from the assessment order, there is no discussion while making these additions, whether assessee has added them in the computation suo motto is also not clear. Before the Ld. CIT(A), assessee submitted that there is no such debit to P&L A/c and no details were called for by the AO in the course of assessment proceedings. It was also further submitted that there is no indication as to the reasons why the additions were made. In spite of that, the Ld. CIT(A) dismissed the grounds stating that no submissions were made. We are also unable to verify on what basis these two additions were made by the AO. In the computation statement, assessee itself has added an amount of ₹ 4,02,029/- and returned income at ₹ 59,36,876/- was taken as basis for making the addition. Therefore, further addition of ₹ 1,56,231/- seems to be without any basis. Likewise, EL encashment of ₹ 1,41,271/-. We are not sure whether any audit report has quantified the above amounts. Since the AO’s order is silent and CIT(A) order is also cryptic, we have no option than to set aside these two additions to the file of AO to examine and decided the issue afresh. If these amounts were brought to tax by mistake, AO is directed to delete the same. With these directions, the grounds pertaining to these additions are restored to the file of AO for examination of record and deciding afresh. Grounds are allowed for statistical purposes.
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