Real income and reassessment limits: disputed receipts and mere TDS shortfall could not support tax additions or reopening.

Income does not accrue where disputed power-purchase receipts remain unaccepted, contested, and subject to arbitration, because Accounting Standard 9 recognises revenue only when realisation is reasonably certain; the disputed differential energy charges and tax reimbursement claims were therefore not taxable for the year and the related additions were deleted. Reassessment under section 147 cannot be sustained merely on a short deduction of tax at source on dividend payments, since TDS shortfall is addressed under the TDS machinery and does not by itself establish escapement of income; the reopening and consequential demand were accordingly invalid.

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Issues: (i) Whether disputed amounts billed under the power purchase arrangement, including differential energy charges and tax reimbursement claims, had accrued as income despite non-acceptance by the purchaser and pending dispute; (ii) Whether reassessment under section 147 of the Income-tax Act, 1961, could be sustained on the ground of short deduction of tax at source on dividend payments, and whether the consequential demand was valid.

Issue (i): Whether disputed amounts billed under the power purchase arrangement, including differential energy charges and tax reimbursement claims, had accrued as income despite non-acceptance by the purchaser and pending dispute.

Analysis: The disputed receipts were not finally admitted by the purchaser and remained subject to contest and arbitration proceedings. The assessee had recognised only the amounts actually received in its books. On these facts, revenue recognition was governed by the principle that income accrues only when there is reasonable certainty of realisation. Accounting Standard 9 was applied to hold that where collection is uncertain, recognition is postponed until the uncertainty is resolved. The amounts under dispute were therefore treated as hypothetical and not as real income for the year in question.

Conclusion: The disputed amounts did not accrue as income in the relevant year and the additions were deleted in favour of the assessee.

Issue (ii): Whether reassessment under section 147 of the Income-tax Act, 1961, could be sustained on the ground of short deduction of tax at source on dividend payments, and whether the consequential demand was valid.

Analysis: Reassessment under section 147 requires escapement of income chargeable to tax. A mere short deduction of tax at source does not amount to escapement of income of the assessee. The statute provides separate machinery under the TDS provisions for addressing any short deduction or default. On facts also, the dividend recipients held the requisite shareholding for the lower treaty rate to apply, so the basis for reopening was not sustained.

Conclusion: The reopening and the consequential demand were invalid and the Revenue's challenge failed.

Final Conclusion: The disputed income additions were largely deleted, the reassessment-based TDS demand was set aside, and the appeals were disposed of with relief substantially in favour of the assessee.

Ratio Decidendi: Income is taxable only on real accrual, and where receipt is uncertain and the claim remains under genuine dispute, mere billing does not create taxable income; reassessment cannot be used merely to enforce TDS shortfall in the absence of escapement of income.

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