S.M. KAPOOR & CO. & MEHRA KHANNA & CO., MUMBAI V. ASST CIT RG 11(3), MUMBAI

ITA 7389/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6650 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Section: 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 7389 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 07 0 8 ) M/S. S.M. KAPOOR & CO. & MEHRA KHANNA & CO. 3 RD FLOOR, NANABHAI MANSION SIR P.M. ROAD, FORT, MUMBAI 400 001 .. / APPELLANT V/S A SSTT . COMMISSIONER OF INCOME TAX RANGE 11 ( 3 ), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER A ACFS4278E / ASSESSEE BY : MR. SHEKHAR GUPTA / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 2 7 . 0 3 .201 4 / DATE OF ORDER 11.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PR EFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 7 TH SEPTEMBER 2011 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) II, MUMBAI, FOR THE ASSESSMENT M/S. S.M. KAPOOR & CO. & MEHRA KHANNA & CO. 2 YEAR 2007 08 . THE SOLE DISPUTE IN THIS APPEAL IS THAT THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DISALLOWING ` 1,09,184 ON ACCOUNT OF SERVICE TAX WRITTEN OFF DURING THE YEAR. 2 . FACTS IN BRIEF : T HE ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS AND THE ONLY SOURCE OF INCOME CONSISTS OF INCOME FROM PROFESSION. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS WRITTEN OFF SERVICE TAX IN THE PROFIT & LOSS ACCOUNT . IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE SERVICE TAX WAS PAYABLE BY THE FIRM WHIC H WAS RECOVERABLE FROM THE CLIENTS. THE AMOUNT OF SERVICE TAX WHICH HAS BEEN DEPOSITED BY IT, COULD NOT BE RECOVERED FROM SOME OF THE CLIENTS AND, THEREFORE, THE SAME WAS WRITTEN OFF DURING THE YEAR. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR WRITE OFF IN THE ABSENCE OF ANY CORRESPONDENCE TO SHOW THAT THE ASSESSEE HAS MADE ANY EFFORTS TO RECOVER THE CLAIMS FROM THE CLIENTS. ACCORDINGLY, HE DISALLOWED THE CLAIM OF ` 1,09,184. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS S UBMITTED THAT THE ASSESSEE HAS BEEN BILLING ITS CLIENTS TOWARDS PROFESSIONAL FEES RELATING TO AUDITS AND ALSO DEBITING THEM WITH SERVICE TAX LEVIABLE ON THE SAID FEES. SOME OF THE CLIENTS DID NOT MAKE THE PAYMENT OF SERVICE TAX BUT HAD ONLY PAID THE AUDIT FEES, WHEREAS THE ASSESSEE HAS PAID THE SERVICE TAX TO THE GOVERNMENT ACCOUNT ON GROSS FEES RECEIVABLE. THE AMOUNT OF ` 1,09,184 REMAINED OUTSTANDING ON ACCOUNT OF SERVICE TAX FROM ITS CLIENT , WHICH WAS WRITTEN OFF DURING THE YEAR AND, HENCE, THE SAME SHOU LD BE ALLOWED AS BAD DEBT. EVEN THOUGH THE ASSESSEE HAS BEEN FOLLOWING CASH SYSTEM OF ACCOUNTING, THE AMOUNT OF FEES M/S. S.M. KAPOOR & CO. & MEHRA KHANNA & CO. 3 RECEIVED INCLUD ED THE SERVICE TAX RECEIVABLE WHICH HAS BEEN TAKEN AS INCOME OF THE ASSESSEE . THEREFORE, ANY UNREALIZED AMOUNT ON WHICH THE ASSESSEE HAS ALREADY PAID TAX, THE SAME SHOULD BE ALLOWED AS DEDUCTION. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) HAS NOT ACCEPTED THE ASSESSEES CONTENTION ON THE GROUND THAT THE ASSESSEE FIRM HAS NOT WRITTEN OFF THESE AMOUNTS IN THE ACCOUNT OF THE RESP ECTIVE CLIENTS AND, THEREFORE, THE SAME CANNOT BE ALLOWED AS BAD DEBT. FURTHER, THE AMOUNT IS STILL RECEIVABLE FROM THE CLIENTS WHICH CAN BE RECEIVED IN THE SUBSEQUENT YEARS AND THEN IT WILL FORM PART OF INCOME OF THAT ASSESSMENT YEAR IN WHICH IT IS RECEIV ED BECAUSE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. THUS, HE CONFIRMED THE SAID ADDITION. 4 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BEEN BILLING ITS CLIENTS ON AUDIT FEES PLUS SERVICE CHARGES AND THE GROSS AMOUNT HAS BEEN SHOWN AS INCOME. THIS SERVICE TAX IS RECOVERABLE FROM THE CLIENTS AND WHEN THE SAME COULD NOT BE RECOVERED, TH E ASSESSEE CLAIMED DEDUCTION ON THE GROUND THAT IT HAD ALREADY PAID THE SERVICE TAX TO THE GOVERNMENT ACCOUNT, WHICH COULD NOT BE RECOVERED. THUS, THE SAID UNRECOVERED AMOUNT ON ACCOUNT OF SERVICE TAX HAS BEEN WRITTEN OFF AND THE SAME HAS BEEN CLAIMED AS DEDUCTION. THEREFORE, IT HAS TO BE ALLOWED IN THIS YEAR ONLY , BECAUSE THE ASSESSEE HAD ALREADY DEBITED THE AMOUNT OF SERVICE TAX I N ITS PROFIT & LOSS ACCOUNT EARLIER. 5 . LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). M/S. S.M. KAPOOR & CO. & MEHRA KHANNA & CO. 4 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS ). IN THIS CASE, IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE HAS BEEN BILLING ITS CLIENT TOWARDS PROFESSIONAL FEES WHICH ALSO INCLUDES SERVICE TAX LEVIABLE ON THE ABOVE FEE. IT IS THE LIABILITY OF THE ASSESSEE TO DEPOSIT THE SERVICE TAX WHICH IS TO BE COLLE CTED FROM THE CLIENTS. IF ANY OF THE CLIENT HAS NOT PAID THE SERVICE TAX AND THE ASSESSEE HAD ALREADY TAKEN INTO CONSIDERATION THE SERVICE TAX IN ITS GROSS RECEIPT AND ALSO PAID THE SAID SERVICE TAX TO THE GOVERNMENT ACCOUNT, THEN THE ASSESSEE HAS TO RECOV ER IT FROM THE CLIENT. IF FOR SOME REASON, THE ASSESSEE IS UNABLE TO RECOVER THE SERVICE TAX, THEN, EITHER IT CAN WRITE OFF IN THIS YEAR OR CAN CLAIM AS LOSS BY SUCH AN AMOUNT. EVEN UNDER THE CASH SYSTEM OF ACCOUNTING, THE FEES WHICH HAS BEEN RECEIVED INCL UDING SERVICE TAX , THE SAME HAS TO BE TAKEN AS RECEIPTS OF THE YEAR. IF THERE IS ANY UNREALIZED AMOUNT ON ACCOUNT OF SERVICE TAX ALREADY TAKEN AS PART OF RECEIPTS , THE SAME CAN BE CLAIMED AS LOSS IN THIS YEAR. IN CASE, IF THE UNREALIZED AMOUNT IS RECEIVED LATER, THE SAME WOULD BECOME TAXABLE IN THE YEAR OF RECEIPT AND IN SUCH SITUATION ALSO, IT CANNOT BE DISALLOWED OR ADDED IN THIS YEAR. THUS, THE FINDING OF THE LEARNED COMMISSIONER (APPEALS) CANNOT BE UPHELD AS THE AMOUNT WHICH HAS BEEN WRITTEN OFF ON ACCO UNT OF SERVICE TAX IS ALLOWABLE BECAUSE IT HAS ALREADY FORMED PART OF INCOME AND ONLY THE UNREALIZED AMOUNT HAS BEEN WRITTEN OFF , WHICH HAS TO BE ALLOWED AS DEDUCTION , WHILE COMPUTING THE INCOME FROM PROFESSION UNDER SECTION 28 . ACCORDINGLY, WE SET ASIDE T HE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND ALLOW THE CLAIM OF THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. M/S. S.M. KAPOOR & CO. & MEHRA KHANNA & CO. 5 7 . 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 11 TH APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL 2014 SD / - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI , DATED : 11 TH APRIL 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI