2016 (6) TMI 796 - AT - Income Tax

Tribunal Rules in Favor of Assessee, Stressing Uniform Tax Rate

The Tribunal allowed the assessee's appeal, deleting the addition of Rs. 16,19,80,000 to the income. The Tribunal emphasized the uniform tax rate and ... Accrual of income - Addition to rent receivable from the Railways for use of STM 4 Bandwidth on accrual basis - the income was not booked as per Accounting Standard-9(AS-9) issued by the ICAI - Assessee submitted that since the tax rates applicable to the company both in assessment year 2008-09 (i.e. the year under appeal) and assessment year 2009-10 (i.e. the year in which the company had included the impugned amount in its income) were the same, the adjustment made by the Department was revenue neutral. Held that:- In CIT, Delhi, Ajmer, Rajasthan and Madhya Bharat v. Nagri Mills Co. Ltd. (1957 (9) TMI 30 - Bombay High Court ) the Hon’ble Bombay High Court has held, “We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income- Tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. ” In the result, the appeal of the assessee is allowed. Issues Involved:1. Addition of Rs. 16,19,80,000/- to the income of the assessee company by treating the amount as rent receivable from the Railways for use of STM 4 Bandwidth on an accrual basis.Issue-wise Detailed Analysis:1. Addition of Rs. 16,19,80,000/- to the Income of the Assessee:The Assessing Officer (AO) made the impugned addition based on the auditor's comments in the audit report, which stated that no income had been booked for Rs. 1619.80 lacs for the year and Rs. 3630.07 lacs for earlier years on account of lease rent payable by/claimed by Railways for the use of STM 4 Bandwidth. The AO refused to accept the assessee's contention that the approval of the Railways for the payment was received only on 19.12.2008 and therefore the revenue was to be recognized only in the financial year 2008-09. The AO also noted that the agreement between the assessee company and the Railways was dated 21.09.2006, thus the effective date for accounting on an accrual basis commenced on 21.09.2006.2. Confirmation of Addition by the First Appellate Authority:The CIT (A) confirmed the addition, referencing the auditor's note in the audit report and the letter dated 23.05.2008 from the Director/NPM of the appellant company, which listed the approximate dates of handing over of STM 4 bandwidth to Railways. The CIT (A) concluded that the auditor had rightly placed reliance on the letter and its annexure, and computed the lease rent based on the date of handing over mentioned in the letter. Since the appellant company maintained its books of account on a mercantile basis, the income should have been accounted for in the year under consideration.3. Assessee's Appeal and Arguments:The assessee argued that the income had not accrued during the year under appeal but in subsequent years upon the satisfaction of certain conditions. The assessee emphasized that the right to receive the income was subject to the satisfaction of the Zonal Railway authorities, which did not happen until the conclusion of the year under appeal. The assessee also highlighted that the tax rates applicable to the company in both assessment years 2008-09 and 2009-10 were the same, making the adjustment revenue neutral.4. Revenue's Argument:The Revenue argued that since the basis of accounting was mercantile, the receipts should be taxable on an accrual basis, supporting the action of the AO.5. Tribunal's Decision:The Tribunal, referencing several judgments, including those of the Hon'ble Supreme Court and various High Courts, concluded that the year of accrual of income vis-a-vis the year of taxability of the income would make no difference due to the uniform tax rate applicable to companies. The Tribunal cited the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax v. Excel Industries Limited (2013) 358 ITR 295 (SC), which emphasized that the real question is the year in which the assessee is required to pay tax, and if the rate of tax remains the same, the dispute is academic. Consequently, the Tribunal deleted the impugned addition and allowed the appeal of the assessee.Conclusion:The appeal of the assessee was allowed, and the addition of Rs. 16,19,80,000/- was deleted, with the Tribunal emphasizing the uniform tax rate and the academic nature of the dispute regarding the year of accrual of income.