2017 (7) TMI 1221 - HC - Income Tax

High Court Upholds Tribunal Decision on Tax Liability Appeal for Shortfall in Quantities

The High Court upheld the Tribunal's decision in an appeal against the ITAT judgment on tax liability for a shortfall in quantities under a 'take or pay ... Accrual of income - Charges for shortfall in quantities for non-use under the “take or pay agreement” clause - assessment of income - Tribunal allowed the assessee's appeal on the ground that the income had not accrued - Held that:- As Revenue vehementally contended that the agreement was cancelled in September 2005 and that therefore, can have no effect on the assessee's tax liability for the assessment year 2003-04 corresponding to the financial year 2002-03 since the assessee followed the mercantile system accounting but had this been the sole ground for the Revenue to delete the addition, we would have examined the issue further. Focus of the Tribunal was not on the subsequent cancellation of the agreement obliging the purchaser to lift the minimum quantity of material or pay the amount on the fact that the purchaser had disputed the very liability. That being the position, we do not find that the Tribunal committed any error. No question of law arises Issues:Appeal against ITAT judgment on tax liability for shortfall in quantities under 'take or pay agreement' for AY 2003-04.Analysis:The case involved an appeal by the Revenue against a judgment of the Income Tax Appellate Tribunal (ITAT) concerning the tax liability of an assessee for a shortfall in quantities under a 'take or pay agreement' for the assessment year 2003-04. The assessee, a public sector undertaking, claimed that a certain sum should not be considered as part of its income due to disputes with purchasers and the subsequent cancellation of the agreement. The Assessing Officer added the sum to the assessee's income, citing the mercantile system of accounting and previous acceptance of similar amounts for the assessment years 2001-02 and 2002-03.The Tribunal allowed the assessee's appeal, ruling that the income had not accrued. The Revenue challenged this decision, arguing that the cancellation of the agreement in 2005 should not affect the tax liability for the assessment year 2003-04, as the assessee followed the mercantile system of accounting. However, the High Court noted that the Tribunal's focus was not on the cancellation of the agreement or the disputed liability by the purchaser. As a result, the Court found no error in the Tribunal's decision and dismissed the Tax Appeal, stating that no question of law arose from the case.