TMI Blog2005 (9) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... n March 1997 will have to be necessarily billed after the close of the month which falls outside the accounting year under consideration and, in fact, the assessee has billed the same immediately after the close of the accounting year, in the month of April 1997 which is subsequent to the previous year for the year under consideration and has treated the same as part of business receipts for the next assessment year. I do not think that there is any flaw in this method of accounting regularly employed by the assessee and accepted by the department from year to year in the past. After all, the TDS certificates which are again dated and received in the months subsequent to the accounting year cannot be accounted in the assessment year under consideration, which has already been closed. It is not necessary for the assessee to account those receipts by re-opening the books of account of the earlier year because the assessee himself has raised the bills in the subsequent month after the close of the accounting year in question. Therefore, it is incorrect on the part of the revenue to workout any addition, on the basis of the bills subsequently raised, in the accounting year which has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting year in question due to the method of accounting employed by her. But over the years, the effect on the Profit Loss Account gets neutralized. Sections 198 and 199, it may again be stressed, do not in any way determine the year of assessability of profits and gains of business. They only deal with the year in which the TDS Certificates have to be given credit to. In my humble opinion, the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. [ 1997 (7) TMI 4 - SUPREME COURT] relied upon by the learned Judicial Member, does not in any way alter the year of assessability of income, which is governed under sections 28, 29 and 145 as has been interpreted by the Apex Court and as discussed. Thus, I am in agreement with the view expressed by the learned Accountant Member. The matter will now be placed before the regular Bench to dispose of the appeal in accordance with the opinion of the majority. The Hon'ble President has nominated Shri G.E. Veerabhadrappa, Vice-President (Mumbai Benches) as a Third Member to resolve the controversy. Shri G.E. Veerabhadrappa, Vice President, has since vide his Order dated 27-9-2005, has agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had raised bill only in the succeeding month April 1997. The assessee explained that the said amount accounted in the month April 1997 has been included in the total receipts furnished for the assessment year 1998-99. He submitted that this is according to the consistent practice of accounting followed by the assessee-company. 4. The assessing authority, on the other hand, held that the assessee should have credited the amount of Rs. 2,46,268 due for the month March 1997, in the relevant previous year itself as the assessee was following Mercantile System of Accounting. Therefore, he made addition of Rs. 2,96,460.92 in this regard to the returned income of the assessee. This addition has been confirmed in first appeal. Therefore, the second appeal before us. 5. The contentions raised by the assessee in this appeal read as below: 1. The addition of Rs. 2,96,460.92 made to the gross total income may please be deleted. 2. The interest charged under section 234B may please be revised and the same should be charged to the date of filing of return, i.e., up to October 1997. 6. Shri Shailesh Doshi, the learned Chartered Accountant appearing for the assessee, argued the case in detail. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has credited the same in his books of account, irrespective of its actual receipt. This accrual of income is something different from raising bills against the services rendered by the assessee from month to month. The question of following either Accrual System of Accounting or Cash System of Accounting arises only when the income is recognized. In the method of billing employed by the assessee, income is recognized only on raising of bills. The assessee raised the bills after the expiry of the month in which the services are rendered. In one way that alone is possible. The assessee can raise bills for the services rendered in March only in the month of April because the assessee has to wait till the end of the month of March. As far as the assessee is concerned, the income is to be recognized on issue of bills for services rendered. For the services rendered by the assessee in the month of March 1997, he has raised the bills in the succeeding month, i.e., April 1997. Therefore, the income could be recognized only in the month of April 1997 and not in the month of March 1997. Once the bill has been raised in the month of April 1997, the assessee has to credit bill amount as hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, as such, UTI, RCF HDFC, etc. The assessee claimed TDS amounting to Rs. 5,929 in respect of three TDS certificates issued by RCF, Chembur pertaining to the period 1-4-1996 to 31-3-1997 as under: Date of credit Amount credited Tax deducted at source 9-4-1997 2,46,268.00 4,925 3-4-1997 8,954.25 179 21-4-1997 41,238.67 825 15. All the aforesaid three amounts were not included by the assessee in his income for the assessment year 1997-98, though the assessee was maintaining accounts on mercantile basis and claimed credit for TDS amounting to Rs. 5,929. The Assessing Officer allowed the credit for TDS amounting to Rs. 5,929 and also taxed the corresponding income. 16. The assessee carried the matter in appeal and ld. CIT(A), in the impugned order, upheld the action of the Assessing Officer with the following observation: 23 The submission made have been carefully considered. From 1-4-1997, the system of accounting has to be either in cash or mercantile alone and no mixed system of accounting or a system of accounting regularly followed can be accepted under section 145 of the Income-tax Act. In views of it, the sum of Rs. 4,96,460 pertaining to the period 1-4-1996 to 31-3-1997 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year in which the income relating thereto is assessable. It is undisputed position in the case under consideration that the assessee has claimed and Assessing Officer has allowed the credit for tax deducted at source in assessment year 1997-98 and hence, it is equally undisputable that income relating thereto has to be brought to tax in the said assessment year alone and in no other assessment year. This view is quite apparent and clear, as stated above, on bare perusal of the provisions of section 199. 18. The undisputed position that emerges is that credit for tax deducted at source and the assessment of income relating thereto have to go together in the same assessment year and that they cannot be divorced from each other. Section 199 prohibits the credit for TDS to be given in an assessment year different from the one in which the income relating thereto is assessable. It was the case of the assessee before the departmental authorities that credit for tax deducted at source should be given to him in the assessment year under consideration and hence the departmental authorities were justified in treating the income relating thereto also as his assessable income for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997-98. The Department thus altered its position on the basis of declaration made by the assessee, which was also in conformity with the provisions of section 199 of the Income-tax Act. The Department acting on the said declaration, did not charge interest under section 234A/234B/234C, which would have been chargeable if the credit for TDS had not been claimed by the assessee and allowed by the department. On these facts, the assessee cannot be heard at this stage to say that its income in respect of which credit for tax deducted at source has been obtained by him in assessment year 1997-98 should be assessed in assessment year 1998-99. If the assessee felt that its income was assessable in assessment year 1998-99, he should have shown the income in assessment year 1998-99 and also claimed the credit for TDS accordingly in assessment year 1998-99. The assessee did not do so. Having claimed and obtained the credit for TDS in assessment year 1997-98, the assessee should have also shown the corresponding income in assessment year 1997-98 as required under section 199. Besides, the learned Accountant Member has also proposed in the draft order (para 11) that the income to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of 3 TDS certificates pertaining to the period 1-4-1996 to 31-3-1997 issued to the assessee by RCF? 2. The facts in brief are the assessee, an individual, was carrying on the business of providing security and housekeeping services to different clientele. The assessment year involved is 1997-98. There is no dispute that the assessee was following mercantile system of accounting for reporting the income for the purpose of assessment. 3. During the assessment proceedings the Assessing Officer found that the business receipts, as per the TDS certificates submitted by the assessee along with his return of income, was to the extent of Rs. 1,06,15,995 whereas the receipts credited to the Profit Loss Account was only to the extent of Rs. 95,19,657. The assessee was asked to explain the difference. The assessee explained the difference by providing a reconciliation statement, except in respect of three TDS certificates received for the services rendered to Rashtriya Chemicals Fertilizers (RCF for short), Chembur. The details of the certificates as also the amounts credited are as under: Date of credit Amount credited TDS 9-4-1997 2,46,268 4,925 3-4-1997 8,954 179 21-4-1997 41,239 825 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the certificate furnished under section 203 of the Act in the assessment made under this Act for the assessment year for which such income is assessable. According to him, a bare perusal of section 199 of the Act shows that credit for tax deducted as source is required to be given in the assessment in which the income relating thereto is assessable. The Assessing Officer having allowed credit for tax deducted at source in the assessment year 1997-98, it is undisputable that the income referable to that credit should also be brought to tax in the same assessment year and in no other assessment year. According to the learned Judicial Member, section 199 of the Act prohibits the credit for tax deducted at source to be given in an assessment year different from the one in which the income relating thereto is assessable. The learned Judicial Member further opined that the system of accounting cannot defeat the express provisions of law contained in section 199 of the Act, which mandate that credit for tax deducted at source shall be given for the assessment year in which the income relating thereto is assessable. According to him, the Hon'ble Supreme Court in Tuticorin Alkali Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty or of unit holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the asset made under this Act for the assessment year for which such income is assessable: Provided that: (i) in a case where such person or owner or depositor or unit holder or shareholder is a person, whose income is included under the provisions of section 60, section 61, section 64, section 93 or section 94 in the total income of another person, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person; (ii) in any other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed: Provided further that where any property, deposit, security, unit or share is owned jointly by two or more persons not constituting a partnership, the payment shall be deemed to have been made on behalf of, and credit shall be given to each such person in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercantile system of accounting. All expenses, to which liability is accrued in the accounting year, are deductible as business expenditure. In the same manner all business receipts will have to be determined on the basis of method of accounting employed by the assessee. Unless the assessee renders services for the entire month, it is not open to him to raise the bill upon his clientele. In other words, some of the services rendered in March 1997 will have to be necessarily billed after the close of the month which falls outside the accounting year under consideration and, in fact, the assessee has billed the same immediately after the close of the accounting year, in the month of April 1997 which is subsequent to the previous year for the year under consideration and has treated the same as part of business receipts for the next assessment year. I do not think that there is any flaw in this method of accounting regularly employed by the assessee and accepted by the department from year to year in the past. After all, the TDS certificates which are again dated and received in the months subsequent to the accounting year cannot be accounted in the assessment year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer is required to verify whether the assessee has offered the income pertained to the certificate before giving credit. If he finds that the income of the certificate is not shown, the Assessing Officer has only not to give the credit for TDS in that assessment year and has to defer the credit being given to the year in which the income is to be assessee. At the cost of repetition, it may be mentioned that sections 198 and 199 do not in any way change the year of assessability of income, which depends upon the method of accounting regularly employed by the assessee. They only deal with the year in which the credit has to be given by the Assessing Officer. It cannot be disputed that according to the method of accounting employed by the assessee the income in respect of the three TDS Certificates, which are mentioned in paragraph 3 above, does not pertain to the assessment year in question, but it pertains to the next assessment year and, in fact, in that year the assessee has offered the same to tax. Therefore, the credit in respect of these three TDS Certificates shall not be given in the assessment year under consideration, but the credit for the same shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular Bench to dispose of the appeal in accordance with the opinion of the majority. ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 Per Dr. O.K. Narayanan, Accountant Member. - There having been a difference of opinion between the Members who originally heard this appeal, the following question was referred under section 255(4) to the Hon'ble President for nominating a Third Member to resolve the controversy therein: 1. Whether, in the facts and circumstances of the case, the learned CIT(A) is justified in confirming the addition of Rs. 2,96,460.92 ps. made by the Assessing Officer in respect of 3 TDS certificates pertaining to the period 1-4-1996 to 31-3-1997 issued to the assessee by RCF? 2. The Hon'ble President has nominated Shri G.E. Veerabhadrappa, Vice-President (Mumbai Benches) as a Third Member to resolve the controversy. Shri G.E. Veerabhadrappa, Vice President, has since vide his Order dated 27-9-2005, has agreed with the view expressed by the learned Accountant Member, in his proposed order on this issue. Accordingly, inconformity with the majority view, we hold that the addition of Rs. 2,96,460.92 ps. is deleted and it is further held that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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