The Tax Publishers

Accrual Basis Accounting--Income/Receipts of Related Period to be Accounted for in the Captioned Financial Year

Akhilesh Kumar Sah

In the case of ACIT v. Noida Toll Bridge Co. Ltd. & vice versa ITA Nos 5246, 5247, 5248 and 5249, 5286/Del/2012, dt. 10-4-2017 (Del-Trib) [ 2017 TaxPub(DT) 1274 (Del-Trib)] the assessee recognised total revenue on accrual basis and treated advances received but not utilised as liability. The assessing officer sought to tax the advance received as income of the year. The ITAT held that the assessee rightly mercantile system of accounting and recognized total income correctly.

Mercantile based accounting requires income and expenditure of a financial year has to be taken in account in the same, concerned year. In ACIT v. Noida Toll Bridge Co. Ltd. & vice versa ITA Nos 5246, 5247, 5248 and 5249, 5286/Del/2012, dt. 10-4-2017 (Del-Trib) [ 2017 TaxPub(DT) 1274 (Del-Trib)] the brief facts of the case (relating to above-mentioned topic) as emanating from the order of the assessing officer were as follows :

'12. On perusal of the balance sheet, it is seen that assessee has shown a sum of Rs. 2,00,57,868 as advance payment and unexpired discounts shown under the head current liability. Accordingly, assessee was asked to explain the nature of this unexpired discounts shown under the head liability. In response to the query, assessee has stated that this pertains to the toll receipts, which the customer has not used during the year under consideration. Assessee was further asked to explain as to why the receipts received from the customer have been kept aside in the balance sheet. In response assessee stated that customer purchases card of tolls which is consumed on to and fro basis, and when the customer utilized full to and fro the receipts is taken into consideration. The assessee has also submitted the copy of refund being made by the company to the customer. The submission of the assessee is not tenable and convincing because the assessee received the tolls through electronic cards as revenue receipt and thereafter treatment thereof as ITAs No. 5246, 5247, 5248, 5249, 5286/Del/2012-15 liability is clear deferment of tax incidence on the ground of unutilization of to and from and other submission of refund to be made to customer in case the customer intends to take refund. The other submission is not acceptable because if a customer intends to take refund, which can be adjusted against the concerned year's receipt and after adjusting refund, net revenue toll receipts will be taxable. Thus the entire submission of the assessee is not tenable, but is a clear cut avoidance of tax incidence. Accordingly, a sum of Rs. 2,00,57,868 is added to the income of assessee, for which penalty proceedings under Section 271(1)(c) are being initiated separately.'

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