ACIT Cicle-37 (1), New Delhi V. Sarat Chandra Nanda, New Delhi

ITA 2678/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5700 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D . RANJAN, AM I. T. APPEAL NO. 2678 (DEL) OF 2008. ASSESSMENT YEAR : 2005-06. ASSTT. COMMISSIONER OF INCOME-TAX, SHRI SARAT CHANDRA NANDA, PROP. S. C. NANDA & COMPANY, C I R C L E : 37 (1), VS. 305, NILGIR I APARTMENT, 9, BARAKHAMBA ROAD, N E W D E L H I. NEW DELHI 110 001. P A N / G I R NO. AAD PN 9425 D. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SATYEN SETHI, ADV.; DEPARTMENT BY : MS. BANITA DEVI NAOREM, SR. D.R .; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2005 -06 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-XXVIII, NEW DELHI. 2. THE GROUNDS OF APPEAL, RAISED BY THE REVENUE, AR E REPRODUCED AS UNDER :- 1. THE LD. CIT (APPEALS) HAS ERRED IN LAW AN D FACTS WHILE DELETING THE ADDITION OF RS.7,00,000/- IGNORING THE FACT THAT TH E ASSESSEE HAS HIMSELF ADMITTED 2 I. T. APPEAL NO. 2678 (DEL) OF 2008. THAT HE HAS PURCHASED A GOVT. OF INDIA 8 PER CENT SAVING BONDS 2003 OUT OF THIS MONEY, WHICH MAKES IT A CASE WHERE THE ASSESSEE HAS NOT MAINTAINED THE CLIENTS ADVANCE IN SEPARATE IDENTIFIABLE ACCOUNT FROM WHERE THE MONEY CAN BE WITHDRAWN AT EASE AND GIVEN BACK TO THE CLIENTS WHEN DEMANDED ; 2. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS WHILE DELETING THE ADDITION OF RS.3,09,999/- BECAUSE OF THE FACT THAT ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND OUT OF THE SAID SUM OF RS.3,09,999/- ON CHEQUE OF RS.83,629/- PERTAINS TO F.Y. 2003-04 WHILE WAS NOT CLEARED EVEN UPTO 31/03/2005. SIMILARLY, THE CHEQUE FOR BALANCE AMOUNT OF RS.2,26,370/- WAS NOT CLEARED DURING THE YEAR. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.7,00,000/- ON ACCOUNT OF ADVANCE RECEIVED BY THE ASSESSEE. THE F ACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS AN ADVOCATE AND HAS SHOWN INCOME FROM P ROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS RECEIVED ADVANCE OF RS.7,00,000/- FROM HIS CLIENTS NAMELY, MR. PREET DAVAR, (RS.1,00,000/-) ; MAHARANI KAM SUNDARI (RS.1,25,000 /-) AND MRS. ASHA BHATIA (RS.4,75,000/-). THE ASSESSING OFFICER NOTED THAT ASSESSEE WAS MAINT AINING BOOKS OF ACCOUNTS ON CASH BASIS. HE WAS OF THE OPINION THAT THE ADVANCE OF RS.7,00,000/ - SHOULD HAVE BEEN TAKEN AS INCOME OF THE YEAR. HE ACCORDINGLY ISSUED SHOW CAUSE NOTICE TO T HE ASSESSEE. IN RESPONSE THERETO IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT WAS KEPT IN SEPARATE BANK ACCOUNT BY WAY OF 8 PER CENT SAVING BONDS, WHICH WAS DUE FOR PAYMENT ON 24/ 11/2010. THUS, IT WAS NOT A CASE WHERE ASSESSEE KEPT CLIENTS ADVANCE IN SEPARATE IDENTIFIA BLE ACCOUNT FROM WHERE MONEY COULD BE TAKEN BACK AT EASE AND GIVEN TO THE CLIENTS AS AND WHEN D EMANDED. BUT IN THE CASE OF THE ASSESSEE THE AMOUNT WAS KEPT AT A PLACE FROM WHERE IT COULD NOT BE TAKEN BACK BEFORE 24/11/2010 I.E. BEFORE THE DATE OF MATURITY, IF THE CLIENTS DEMANDED THEIR MONEY BACK. THE AO ACCORDINGLY TREATED THE AMOUNT OF RS.7,00,000/- AS INCOME FOR THE YEAR UNDE R CONSIDERATION. 3 I. T. APPEAL NO. 2678 (DEL) OF 2008. 4. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED RS.7,00,000/- AS ADVANCE FROM HIS CLIENTS ON ACCOUNT OF EXPENSES WHICH THE ASSESS EE HAS TO INCUR ON THEIR BEHALF. THE COMPLETE DETAILS OF PAYMENT WERE SUBMITTED BY THE A SSESSEE TO THE ASSESSING OFFICER. THE LD. CIT (APPEALS) ON THE BASIS OF MATERIAL PLACED ON RECORD WAS OF THE OPINION THAT AMOUNT OF RS.7,00,000/- WAS SHOWN AS LIABILITY IN THE BALANCE SHEET. THE AMOUNT COULD NOT BE TREATED AS INCOME OF THE ASSESSEE UNLESS AND UNTIL THE ASSESSE E GETS A VESTED RIGHT OVER THE ADVANCE BY RENDERING THE NECESSARY SERVICES. TILL THE SERVICE S WERE RENDERED AND FEE FOR THE ASSESSEE WAS SETTLED, THE AMOUNT OF ADVANCE REMAINED AS LIABILIT Y AS FAR AS THE ASSESSEE WAS CONCERNED. HE WAS, THEREFORE, OF THE VIEW THAT LIABILITY OF RS.7, 00,000/- COULD NOT BE GOT CONVERTED AS INCOME MERELY BECAUSE THE ASSESSEE WAS MAINTAINING BOOKS O F ACCOUNTS ON CASH BASIS. 5. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER BY STATING THAT THE AMOUNT INVESTED IN FDRS. / BONDS WAS TO BE TREATED AS INCOME OF THE ASSESSEE AS THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD RECEIVED AMOUNT OF RS.7,00,000/- FROM THREE PARTIES. FROM THE ASSESSMENT ORDER IT IS NOT CLEAR AS TO WHEN THE AMOUNTS WERE RECEIVED B Y THE ASSESSEE. THE ASSESSEE HAD MADE A FIXED DEPOSIT BY WAY OF 8 PER CENT SAVING BONDS WHI CH IS MATURING ON 24/11/2010. IT IS NOT UNDERSTOOD AS TO HOW THE ASSESSEE WILL INCUR THE EX PENDITURE ON BEHALF OF HIS CLIENTS WHEN THE AMOUNT STANDS INVESTED IN THE BONDS. THE ASSESSEE H AD NOT FILED ANY CONFIRMATION FROM THESE PARTIES TO THE EFFECT THAT THE AMOUNTS WERE GIVEN B Y THEM AS ADVANCE FOR MEETING THE EXPENSES. IT IS ALSO NOT CLEAR FROM THE MATERIAL AVAILABLE ON RE CORD WHETHER THE ASSESSEE HAD RENDERED SERVICES TO THEM OR NOT. IN THE ABSENCE OF SUCH DETAILS IT IS NOT POSSIBLE FOR US TO DECIDE THE NATURE OF THE ADVANCE. THEREFORE, IN OUR CONSIDERED OPINION THE MATTER SHOULD GO BACK TO THE ASSESSING OFFICER, WHO WILL EXAMINE THE NATURE OF THE AMOUNT RECEIVED. THE ASSESSEE WILL FILE NECESSARY EVIDENCE IN RESPECT OF AMOUNT RECEIVED AS ADVANCE. THE ASSE SSEE WILL ALSO FILE NECESSARY EVIDENCE IN 4 I. T. APPEAL NO. 2678 (DEL) OF 2008. REGARD TO THE DATE / TIME WHEN SERVICES WERE RENDER ED TO THESE PARTIES. THE ASSESSING OFFICER WILL DECIDE THE NATURE OF AMOUNT AFTER CONSIDERING ALL T HE EVIDENCES WHICH THE ASSESSEE WOULD LIKE TO PLACE ON RECORD OR THE ASSESSING OFFICER WOULD GATH ER DURING THE COURSE OF INVESTIGATION. WE ORDER ACCORDINGLY. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE AMOUNT OF RS.3,09,999/-. THE ASSESSING OFFICER FROM THE LIST OF SUNDRY CREDITORS NOTED THAT THE ASSESSEE HAD BROUGHT FORWARD AMOUNT OF RS.83,629/- AND CHEQUES FOR CURRENT YEAR ISSUED AMOUNTING TO RS.2,26,370/-. IT WAS EXPLAINED BY THE ASSESSEE THAT CHEQUES WERE ISSUED. HOWEVER, THE DATE OF CLEARING ALONG WITH NECESSARY EVIDENCE WAS NOT GIVEN BY THE ASSESSEE. FROM THESE FACTS THE ASSESSING OFFICER CONCLUDED THAT LAST YEARS CHEQUE FOR RS.83,629/- WE RE NOT CLEARED TILL 31 ST MARCH, 2005. HE WAS OF THE OPINION THAT CURRENT YEARS AMOUNT OF RS.2,26 ,370/- MAY NOT RELATE TO THE YEAR. HE, THEREFORE, ADDED THE AMOUNT AS THE ACCOUNTS WERE MA INTAINED ON CASH BASIS. ON APPEAL, THE LD. CIT (APPEALS) DELETED THE ADDITION ON THE GROUN D THAT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON THE BASIS OF CONJECTURES AND S URMISES. 8. BEFORE US, THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL CAREFULLY. IT IS A CASE WHERE ASSESSEE HAD MAINTAINED BOOKS OF ACCOUNTS ON CASH BASIS. UNDER CASH SYSTEM OF ACCOUNTING, THE INCOME IS ACCRUED WHEN THE AMOUNT I S RECEIVED ON RENDERING OF SERVICES AND THE EXPENDITURE IS RECOGNIZED WHEN IT IS ACTUALLY PAID. IN CASE OF PAYMENT AND EXPENDITURE INCURRED BY WAY OF BANKING CHANNELS, THE EXPENDITURE AND INC OME IS RECOGNIZED ON THE DATES OF THE CHEQUES RECEIVED OR DELIVERED FOR EXPENSES. IN THE CASE BEFORE US THE AMOUNT OF RS.83,629/- REPRESENTS THE CHEQUES ISSUED IN LAST YEAR WHICH HA VE NOT BEEN CLEARED TILL 31 ST MARCH, 2005. THE CHEQUES BECOME STALE ON EXPIRY OF PERIOD OF S IX MONTHS FROM THE DATE OF ISSUE. HENCE THE 5 I. T. APPEAL NO. 2678 (DEL) OF 2008. VALUE OF ORIGINAL CHEQUES MUST HAVE BECOME ZERO LAT EST BY 30TH OF SEPTEMBER, 2004. THERE IS NOTHING ON RECORDS TO SUGGEST AS TO WHETHER THOSE C HEQUES WERE REVALIDATED. LIKEWISE, THE ASSESSEE HAD NOT GIVEN THE DATES OF CLEARANCE OF CH EQUES AMOUNTING TO RS.2,26,370/-. IT IS NOT ALSO KNOWN WHETHER THE ASSESSEE HAD INCURRED THESE EXPENSES IN THE YEAR ITSELF. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE SHOUL D ALSO GO BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE CASE AS T O WHY THE CHEQUES FOR RS.83,629/- WERE NOT ENCASHED TILL 30 TH SEPTEMBER, 2004. SIMILARLY, THE ASSESSING OFFIC ER WILL CARRY OUT NECESSARY VERIFICATION WITH REFERENCE TO THE DATE OF ENCASHME NT OF THE CHEQUES FOR EXPENSES OF RS.2,26,370/- AND DECIDE THE MATTER AS PER LAW. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED, FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 12 TH MARCH, 2010. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12 TH MARCH, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 6 I. T. APPEAL NO. 2678 (DEL) OF 2008. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 7 I. T. APPEAL NO. 2678 (DEL) OF 2008.