TMI Blog2024 (2) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... could not bring any contrary material to this argument. We find that CIT(A) had elaborately dealt with the issues in dispute and had granted relief to the assessee both on legal issue as well as on merits. As per the scheme of the Act, AO if he desires to convert limited scrutiny into complete scrutiny, he has to obtain prior permission from the competent authority to do so and only then could assume jurisdiction to examine other issues. In the instant case, the same was admittedly not done by the AO. CIT(A) was duly justified in quashing the additions made by the ld. AO on this ground. CIT(A) had elaborately given a categorical finding that the income had been properly accounted and offered by the assessee in accordance with the provisions of the Act and there is no scope for making any addition even on merits. Appeal of the revenue is dismissed. - SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER For the Appellant : Shri Salil Kapoor, Adv, Shri Sumit Lalchandani, Adv and Shri Tarun Chanana, Adv For the Respondent : Shri A. S. Rana, Sr. DR ORDER PER M. BALAGANESH, A. M.: 1. The appeal in ITA No. 7214/Del/2017 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in audit report and ITR 4. The ld. AO duly examined the same and was totally convinced with the explanations given by the assessee. The ld. AO during the course of assessment proceedings apart from examining the aforesaid items also proceeded to examine the advance fees of Rs 5,12,68,594/- shown as liability and deposits received from old students of Rs. 23,54,033/- shown in liability. The explanations given by the assessee were not accepted by the ld. AO and the ld. AO completed the assessment u/s 143(3) of the Act dated 19.12.2016 making addition towards advance fees of Rs 5,12,68,594/- and deposits from old students of Rs 23,54,033/- as income of the assessee. 5. The assessee raised objection before the ld. CIT(A) that the ld. AO had considered beyond the issues that were subject matter of consideration in the Limited Scrutiny and that in order to stretch beyond the issues stated in Limited Scrutiny, the ld. AO should have obtained prior permission from the competent authority to convert the Limited Scrutiny into Complete Scrutiny case , which admittedly was not done in the instant case. Accordingly, the assessee pleaded that the entire additions made by the ld. AO are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in dealing with the similar matter held that Income Tax Authorities are bound to perform and follow the instruction of the Board in view of it clearly being written in the said section that the Income Tax Authorities shall observe and follow such orders instructions and directions of the Board It has also been pointed out that various judicial decisions have recognized this position. In view of the same, the Honorable ITAT held, So the proper course for the AO before making this additional enquiry would have been to take approval from the administrative commissioner to widened this scrutiny. This however was not done and therefore the action of the AO is violative of the CBDT's instruction . The Honorable ITAT went on to hold, It is held that since the assessment order passed ex-parte by the AO was in violation of the specific CBDT's instruction, the same is legally not sustainable. The same is accordingly reversed. 15. In view of these clear cut pronouncements which reiterated the fact that the Income Tax Authorities are bound to follow CBDT's instruction issued by the Board in accordance with the power vested in it under the Income Tax Act, 1961 and in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective of services to be rendered in future. Moreover, as pointed out by the assessee, it has been specified in AS-1 that revenue and cost are accrued as they are earned or incurred (and not as the money is received or paid) and recorded in the financial statement of the parties to which they relate. In AS-9, it has clearly been pointed out that the revenue or income from services is recognized on the basis of services actually rendered to the receiver. The matching principle is one of the basic guidelines in accounting. It states that all the expenses must be matched in the same accounting period as the revenue which they were spent to earn. In the matching principle expenses are recorded as they are incurred and set off against the revenue which is recognized when its accrues, no matter when the cash is received. Applying the matching principle, it is quite clear that, the services for which the receipts have been obtained in advance, are rendered in F.Y. 2014-15 and the expenditure on providing these services has been incurred by the assessee in the F.Y 2014-15. Merely because the assessee collets the fees in advance, does not mean that the same is assessable as income at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d certain amount for services to be performed over a period of time and an relatable to services rendered in the year under consideration were shown as income on account of the fact that the assessee become entitled to receive that amount from the client in respect of services rendered. The ITAT held that extent of amount pertaining to services rendered only got vested to the assessee. The rest of the amount was taken as liability to be adjusted in subsequent year as and when the services was rendered. The ITAT held that it was clear that the excess amount would have to be returned in case the services were not performed in subsequent year and therefore in respect of such amount, no right came into existence in favour of the assessee. Therefore this amount did not become the income of the assessee. Applying this judgment to the facts of the assessee's case, it is quite clear that as the services in respect of such amount was performed in the subsequent year, no rights came into existence in favour of the assessee in the year under consideration. Accordingly, the advance fee of Rs. 5,12,68,594/- remained a liability and could not be brought to tax in this year. 18. There is anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs Excel Industries Ltd (2013) 358 ITR 295 (SC) wherein the lordship observed as under, Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax whether the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or have a minor tax effect. There was, therefore, no need for the revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added much to the public coffers . Previously, the Hon'ble Bombay High Court in the case of CIT Vs. Nagri Mills Co. Ltd. 33 ITR 661 has also come to a similar conclusion and the same was further reiterated by the Hon'ble Delhi High Court in the case of CIT vs. Shri Ram Pistons Rings Ltd 220 CTR 404. In the circumstances, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that similar accounting treatment of advance fees and deposits from old students done by the assessee was duly accepted by the revenue in the earlier years even in scrutiny assessment proceedings and that there was no change in factual matrix during the year when compared to earlier years. Even in Asst Year 2015-16, the treatment of the same in the books of accounts was accepted by the ld. AO u/s 143(3) proceedings dated 18.12.2017. In any event, he also stated that the entire issue is revenue neutral as assessee has been consistently following the practice of offering the earlier advance fees to income and whatever fee that is received for the period beyond the financial year is treated as advance fees, which would become income in the succeeding year. The ld. DR could not bring any contrary material to this argument. We find that the ld. CIT(A) had elaborately dealt with the issues in dispute which had been reproduced supra and had granted relief to the assessee both on legal issue as well as on merits. As per the scheme of the Act, the ld. AO if he desires to convert limited scrutiny into complete scrutiny, he has to obtain prior permission from the competent authority to do so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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