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TMI Blog2024 (2) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... s acted in violation of the CBDT's Instruction. The additions made by the AO in his assessment order were part of the investigation out of the issue on which the case was selected for limited scrutiny under CASS. The liability of advance fees was forfeited by the company which formed part of sales of the company. Since the amount of Rs. 5,12,68,594/- was part of the sales and case was picked on the reasons Sales Turnover Mismatch, the A.O. was well within the bounds of Limited Scrutiny to make the said additions. Similarly the other expenses of Rs. 23,54,033/- were added only after scrutinizing the accounts on the basis of reasons of selection of Large Other Expenses through CASS. These were the part of other expenses debited by the assessee in P&L A/c and diverted the sale in Balance Sheet as liability. 2. The Ld. CIT(Appeals) has erred in law and on facts while allowing the relief to the assessee on account of the advance fees. 3. The Ld. CIT(Appeals) has erred in law and on facts while allowing the relief to the assessee on account of other balance under the head left student credit balance (Old Students). 4. The order of the Ld. CIT(A) be set-aside and that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation policy with supporting evidences. Perusal of the assessment records reveals that before expanding the scope of enquiry into complete scrutiny in this mariner, the AO neither wrote to the Pr. CIT to seek his permission in terms of instruction no. 20/2015 nor that the Pr. CIT communicated his approval in writing to the expansion of the scope of scrutiny to items mentioned in the liability side of balance sheet. It is also not evident from the assessment record that the case was officially monitored by the Range head in accordance with the said instruction. Thus, it appears that the AO expanded the scope of the limited scrutiny from "large other expenses claimed in the P&L A/c" to liabilities in the balance sheet without following the due procedure and in contravention of the Board's instruction no. 20/2015 dated 29.12.2015. The Honorable ITAT has had occasion to consider a similar matter ie, extending the area of scrutiny beyond the items mentioned in the annual information return (AIR) without taking the approval of the Administrative Commissioner in this regard. In the case of M/s Nitin Killawala & Associates vs. ITO in ITA no. 1611/M/2013 for the assessment year 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrued to the assessee as income in the year in which they are received because they stand qualified and are not subject to refund on account of any subsequent event such as performance of or otherwise. In this context, it is observed from the assessment records that the AO has never actually asked the assessee to submit any details of advance fees refunded to students during the F.Y. 2013-14. Accordingly, the assessee was asked to clarify the same during the course of appeal and to reconcile the advance fees with the revenue from operations declared in P&L A/c. It is observed from this reconciliation statement that the amount of Rs. 8,34,464/- was refunded by the school out of advance fees calculated for the FY 2013-14. It is also observed from the perusal of the fee structure submitted to the AO, that the security deposit made as part of the advance fee, is refundable to the students. Thus, his comment that the revenue is not conditioned by any future event is clearly incorrect. In any case irrespective of what assessee may write in its fee rules, if it fails to render the services which it has promised the guardians of the students, it would be contractually liable to refund the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving retainership fees which was shown as advance in his books of account Since he was maintaining other accounts on a cash basis, the AO proposed to tax that amount as income in the year in which it was received. On the other hand, the advance retainership fee received by the assessee were co-related to the services rendered by the assessee in the subsequent year. The Hon'ble ITAT after considering the matter placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Shoorji Vallabh Das & Co. (1962) 46 ITR 144 which deals with the mercantile system of accounting and its import. The Hon'ble Supreme Court pointed out that Income-tax was a levy on income. The Act takes into account Iwo points of time at which the liability to tax is attracted, namely the accrual of the income or its receipt. However, the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialize. Where income has, in fact, been received and is subsequently given up, it remains the income of the recipient, even though given up, the tax m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same year is violative to the principle of consistency laid down by the Hon'ble Courts and therefore also deserves to be quashed. I have considered the matter. It is observed that if, for argument sake, it were to be accepted that the AO is correct in bringing the advance fees of Rs 5,12,68,594/- to tax in this year, then by his own logic he was also obliged to grant the deduction of advance fee of Rs. 4,62,91,527/- which was collected as advance fees before 01.04.2013 and credited to the income of this year. This he has not done. Thus, two years advance fees have been added back in the one year which is clearly not permissible. Furthermore, the sum of Rs. 5,12,68,594/- has already been offered to lax in A.Y. 2015-16 Were the AO's view to be accepted, relief would also have to be granted to the assessee in respect of this amount in A.Y. 2015-16. In short, the entire account of the assessee w.e.f. 2008-09 would have to be recast causing considerable inconvenience to the assessee and work for the Department without resulting in any corresponding gain to the Department in the medium term as the said advance fees, which have already been offered to tax in a subsequent year woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crutiny and because the AO did not follow the proper procedure in expanding the scope of inquiry to include this amount in contravention to CBDT's instruction, the addition made in this regard is not legally sustainable. However, even on merits, it is observed that no case has been made out by the AO for making the addition. It is observed that during the course of assessment proceedings, the assessee had quite clearly submitted that, as per its fee policy, the hostel has policy of treating such balances as liability for a period of 3 years. If the said amount is claimed within the 3 years, it is returned back. If the said amount is not claimed within 3 years, it is credited to the P&L A/c. I have perused the left student account submitted by the assessee during the assessment proceedings. It does not reflect the year in which the concerned students have left the It is observed that the AO has not asked the assessee to submit these details before him even though there were atleast 23 days left for the limitation to expire in the case. Thus, before determining that any of the student had left the institution more than 3 years back, the AO was not justified in adding the entire a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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