Unless the services are offered advances cannot change the nature from ‘advance’ to that of the ‘receipt’

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DCIT Vs. Shri Arvinder Singh Soin (ITAT Delhi) , ITA No. 738/Del/2013 Date of Decision: 20.09.2013

The appellant is a doctor, surgeon specializing in liver transplant. It is a fact that the appellant is following mercantile system of accounting on a regular basis. The appellant has received life time consultancy fees which is accounted as advance from patients as per the principles of mercantile system of accounting.This is nothing but advance from patients to be utilized in due course as per the scheme.

On verification of the evidence given during appeal proceedings which was given to Assessing Officer also for his comments, it is found that the appellant has not utilized the amount during the year. This was booked only at the time of actual consultations with  the doctor in due course. The appellant has given ample proof in order to prove his contentions. Copy of balance sheet, P & L account and Form 3CD for financial years 2009-10 & 2010-11 also are evidence that the appellant has accounted the said evidences in the subsequent years on realization of the same. The appellant has received the amount as advance in contemplation of the services to be offered in future. Unless the services are offered the said advances cannot change the nature from ‘advance’ to that of the ‘receipt’. Once the services have been offered, the appellant has brought the amounts to his income at that time. The scheme of life time consultancy has been perused in detail. The name is only life time, whereas services are meant for a period of 48 months post surgery with a period of 12 months immediately after the surgery as free of charge, meaning there by the amount of advance would have to be exhausted with in a period of three years from surgery or else would have to be returned in case of non utilization of the same or in case of death of the patient. The appellant has done exactly the same. The appellant has accounted the said advances as and when realized. The same are accounted in the years of realization. Sufficient proof in the name of balance sheet and P & L account and Form 3CD to support the case ofthe appellant has been filed, which is enough proof to accept that what has been received as advance under the life time consultancy fee is only to be taxed as income when services to that effect are offered. Till then the amount remains a liability in the books of the appellant. Considering the details filed it is found that the advance need not be booked at the time of receipt nor it is a registration charge. The appellant has strictly followed the principles of mercantile system of accounting. Accordingly, I hold that the appellant has correctly followed the principles of mercantile system of accounting and the amount of advance received during the year cannot be booked as income. The disallowance to that effect is directed to be deleted.