14. [2008] 304 ITR (AT) 295 (Delhi)
K. K. Khullar vs. Dy. CIT
A.Y. : 2002-03 Dated : 18.01.2008
Whether fee received from clients in advance by advocate following a cash method is income of the year in which it is received, Held : No. Whether a mistake in one assessment year should be carried over to the assessment proceedings of the next assessment year, Held : No i.e., it is not compulsory for the A.O. to carry forward the interpretations and findings of the earlier orders without application of mind.
The assessee, an Advocate, recovered fees from his clients in advance. The proportionate fees relating to the work performed and the balance of fees is shown as advance received from clients. The Assessing Officer made an addition of the advance fees to the income of the year in which it was received in view of Section 145 of Income-tax Act, 1961, stating that there are only two methods of accounting viz., Cash and Accrual. As per cash system of accounting, the amount of fess received should be liable to tax in the year of receipt itself. Also the CIT(A) was of the opinion that since the assessee was a professional, the method of accounting followed should be in consortium with other professionals i.e., cash basis.
On further appeal to the Tribunal, it was held as follows :
1. Income only to the extent of the amount pertaining to services rendered vested in the assessee. The rest of the amount was taken as liability to be vested in subsequent years as and when the services were rendered.
2. The excess amount would have to be returned in case the service was not performed in subsequent years and therefore, in respect of such amount, no debt came into existence in favour of the assessee.
3. The levy of Income-tax is a levy on income. The Act takes into account two points of time at which the liability to tax is attracted, namely, the accrual of income and its receipt. However the substance of the matter is ‘Income’.
4. The findings of the CIT(A) that the assessee was following a hybrid system of accounting on the ground that the whole of the amount received from clients as retainer fees was not declared as income in the year of receipt of the amount was not correct.
5. A wrong decision rendered by the Assessing Officer in one year or in number of years would not bind the Assessing Officer in the assessment of a subsequent year as there could not be any estoppel against law. The principle of res judicata does not apply to Income-tax proceeding as each assessment year is a separate unit.
On the above reasoning, the ITAT deleted the addition made by the Assessing Officer.
Cases Relied upon :
1. CIT vs. M/s. Shoorji Vallabhdas & Co., [1962] 46 ITR 144(SC)
2. Radhasoami Satsang vs. CIT, [1992] 193 ITR 321 (SC).
