Service Charges accrued but not received cannot be Treated as Assessee’s Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT)“B” Bench, Mumbai, has, recently, in an appeal filed before it by the assessee, held that service charges accrued but not received, cannot be treated as the assessee’s income.

The aforesaid observation was made by the Tribunal when the assessee, a Government of India undertaking, popularly called as “NABARD”, preferred an appeal before it with regard to the issue of treating service charges not accrued, as the income of the assessee.

The assessee having been following consistent policy of accounting service charges on loans out of Micro Finance Development and Equity Fund, Watershed Development Fundon receipt basis, the AO has called for the details of ‘Service charges accrued but not received’, amounting to Rs.4,92,922.

The AO assessing the same as income of the assessee, followed bythe CIT(A)’s confirmation and direction to exclude  service charges which have been offered to tax on‘ receipt basis’,for avoiding double taxation of same income, the Tribunal observed as follows, allowing the assesee’s appeal in part:

“There is no dispute with regard to the fact that the assessee has been following consistent accounting policy to recognize income by way of Service charges on receipt basis. The assessee submitted that there was uncertainty in recovering service charges. There should not be any dispute that an income can be recognized under mercantile system of accounting also, only if there is certainty of its recovery. Considering the past consistent practice followed by the assessee, we are of the view that this addition is not justified. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition.”

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