Advance Receivables Qualify as Application of Income u/s 11(2): ITAT directs AO to accept Claim [Read Order]

The Chandigarh Bench of Income Tax Appellate Tribunal ( ITAT )directed the Assessing Officer (AO) to accept the claim that advance receivables qualify as an application of income under Section 11(2) of Income Tax Act,1961.

Lala Gauri Mal Butail Trust, appellant-assessee, filed Form No. 10B claiming accumulation of income under section 11(2) for ₹5.14 lakhs. The AO found a shortfall of ₹56,947 in the application of income and added it to the total income. The Tribunal, vide order dated 19-11-2020, remanded the matter to the AO to recompute the shortfall after verifying receipts and payments.

In the fresh proceedings, the assessee reported total receipts of ₹53.09 lakhs, requiring application of ₹45.13 lakhs, but showed application of only ₹40 lakhs, including ₹59,483 as advance receivables. The AO rejected the claim relating to advance receivables and determined the shortfall at ₹56,947.

The Commissioner of Income Tax (Appeals)[CIT(A)] confirmed the addition, stating that the assessee failed to provide evidence supporting the advance receivables. The assessee, aggrieved by this, filed the present appeal before the tribunal.

The two member bench comprising Laliet Kumar (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) noted that the AO had never disputed the evidence regarding the increase in advance receivables claimed towards the application of income.

It held that the AO was required to recompute the application based on the receipts and payments account as per the tribunal’s earlier directions. The CIT(A)’s decision was found to be based on incorrect reasoning.

Accordingly, the tribunal accepted the assessee’s claim and deleted the assessed income of ₹56,947, directing the AO to give effect to the same. The appeal was allowed.

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