2024 (6) TMI 1138 - AT - Income Tax

Addition of income - difference between the turnover/receipts as per the Income-tax return ITR Form/ Financial Statements and service tax/ GST return - Assessee submitted that it follows cash system of accounting and therefore only the fees which is received during the year can be considered as income whereas service tax as well as GST are based on invoices issued and not on the basis of fees collected which gives rise to a difference - HELD THAT - We note that in the assessment order itself ld. Assessing Officer has stated that submission of the assessee is found satisfactory. He has also stated that assessee has explained the difference. Assessee has furnished the details with explanations and documentary evidence to reconcile the difference alleged by the ld. AO. Assessee had also moved an application u/s. 154 to rectify the mistake on a premise that ld. Assessing Officer had made the addition under a mistaken notion which is pending for disposal. From the details furnished and extracted above we note that there are out of pocket expenses which has been subjected to service tax/GST there are intra firm invoices which are disclosed in service tax returns and forms part of the aggregate turn over as per Service Tax law. However in financials these intra-firm invoices are both income and expenses and are netted off in profit and loss account since it is income and expense pertaining to same assessee firm. Assessee follows cash method of accounting and only the fees which is received during the year is considered as income whereas for the purpose of service tax and GST the gross receipts/turnover is based on invoices issued and not on the basis of fees collected. Considering all these facts on record supported by documentary evidences we find the reconciliation furnished by the assessee is justified. Accordingly the difference between the gross receipts/turnover as per the ITR and service tax added by the ld. Assessing Officer is deleted. Ground no.1 alongwith with its sub grounds are allowed. Addition made for payments made to retired partners - HELD THAT - The undisputed facts are that assessee firm made payment to retired partners in terms of its partnership deed where in the basis is that partner would have rendered their professional services during his tenure as a partner but could not enjoy the fruits thereof on account of work having remained incomplete and the concerned client could not be billed for the work already done. Considering all we delete the addition made in this respect by the ld. Assessing Officer. Also with this finding of ours the alternate plea taken by the assessee of allowing the claim u/s. 37(1) of the Act is rendered infructuous. Accordingly grounds raised by the assessee in this respect are allowed. Short credit of TDS - CIT(A) has directed the ld. Assessing Officer to verify the records and allow the credits subject to verification - HELD THAT - We concur with the directions given by the ld. CIT(A) and accordingly remit this matter to the file of ld. Assessing Officer in terms of the directions so given. Accordingly ground allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of Rs. 147,22,44,468/- due to alleged difference between turnover/receipts as per ITR and service tax/GST returns.
2. Payments made to retired partners amounting to Rs. 11,49,40,775/-.
3. Short credit for tax deducted at source (TDS) amounting to Rs. 18,62,08,841/-.
4. Levy of interest under Section 234A of the Income-tax Act, 1961.
5. Levy of interest under Section 234C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 147,22,44,468/- due to alleged difference between turnover/receipts as per ITR and service tax/GST returns:

The assessee, a limited liability partnership firm providing professional services, filed its return of income for AY 2018-19. During assessment, a difference of Rs. 2294,40,98,802/- was noted between the turnover/receipts as per the ITR and the service tax return. The assessee explained this difference by stating that it follows the cash system of accounting, where only the fees received during the year are considered as income, while service tax and GST are based on invoices issued. The reconciliation provided by the assessee included out-of-pocket expenses, invoices rendered but not paid, and intra-firm invoices. The Assessing Officer initially accepted the explanation and reduced the difference to Rs. 147,22,44,468/-. However, the NFAC/CIT(A) confirmed the addition without properly considering the reconciliation and explanations provided by the assessee. The Tribunal found the reconciliation justified and deleted the addition, allowing the assessee's grounds on this issue.

2. Payments made to retired partners amounting to Rs. 11,49,40,775/-:

The assessee reduced Rs. 11,49,40,775/- from its gross receipts, which was paid to retired partners as per the partnership deed. The assessee argued that these payments were diverted by overriding title and should not be considered as income. Alternatively, the assessee claimed that these payments should be allowed as a deduction under Section 37(1) of the Act. The NFAC/CIT(A) and the Assessing Officer did not accept these arguments and added the amount to the assessee's income. The Tribunal, after considering the partnership deed and judicial precedents, concluded that the payments to retired partners were indeed diverted by overriding title and should not be considered as income of the assessee. Consequently, the addition was deleted, and the alternate plea for deduction under Section 37(1) was rendered infructuous.

3. Short credit for tax deducted at source (TDS) amounting to Rs. 18,62,08,841/-:

The assessee claimed a TDS credit of Rs. 82,84,20,418/- in its return of income, but the Assessing Officer restricted the credit to Rs. 64,22,11,577/-, resulting in a short credit of Rs. 18,62,08,841/-. The NFAC/CIT(A) directed the Assessing Officer to verify Form No. 26AS and other challan details and allow the credit accordingly. The Tribunal concurred with this direction and remitted the matter to the Assessing Officer for verification and appropriate action.

4. Levy of interest under Section 234A of the Income-tax Act, 1961:

The NFAC/CIT(A) confirmed the levy of interest under Section 234A, which the assessee contested, arguing that the return of income was filed within the due date. The Tribunal did not specifically address this issue, as it was consequential to the main issues decided.

5. Levy of interest under Section 234C of the Income-tax Act, 1961:

Similar to the issue under Section 234A, the NFAC/CIT(A) confirmed the levy of interest under Section 234C. The assessee argued that the interest should be levied on the returned income. The Tribunal did not specifically address this issue, as it was also consequential to the main issues decided.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the additions made on account of the difference in turnover/receipts and payments to retired partners. The issue of short credit for TDS was remitted to the Assessing Officer for verification. The issues related to the levy of interest under Sections 234A and 234C were not specifically adjudicated, as they were consequential in nature. The order was pronounced in the open court on 21 June 2024.