2016 (8) TMI 771 - AT - Income Tax

Appeal success: Income accrual hinges on due date, liability.

The Assessee's appeal for the assessment year 2002-03 was dismissed. However, the appeal for the assessment year 2003-04 was partly allowed, specifically ... Disallowance of expenses relating to Right to use of land and plantation and horticultural expenses - Held that:- AR has submitted that the expenses have not been incurred during the year, but have been incurred in earlier years and the amortised portion of expenses has been claimed. Before us, ld.AR has not placed any order in support of its claim that though the expenses have not been incurred during the year but since the amount has been amortized, the expenditure is allowable. Further, ld.AR also could not controvert the findings of AO and ld.CIT(A). In view of the aforesaid facts, we see no reason to interfere with the order of ld.CIT(A) and thus this ground of Assessee is dismissed. Disallowance of amortization of lease charges - Held that:- We find that the ld.CIT(A) while upholding the order of AO has noted that the lease-deed nowhere indicated that the payment made was in the nature of rent and, on the contrary, the payment was termed as cost of land and further the amount was non-refundable. He has further given a finding that the claim of the assessee was in respect of amount paid towards purchase of land and not towards lease-rent. Before us, ld.AR has not placed any material on record to controvert the findings of ld.CIT(A). Further, the expenses have not been incurred during the year but were incurred in past. In view of the aforesaid facts, we see no reason to interfere with the order of ld.CIT(A) and thus this ground of Assessee is dismissed Accrual of income - Non-consideration of the shortfall in the minimum quantity amount as income of the assessee - Held that:- It is a fact that assessee is following mercantile system of accounting, but income can be said to accrue only when it becomes due and must be accompanied by corresponding liability of the other party to pay the amount and only then it can be said that for the purpose of income-tax that the income has accrued to the assessee and for this proposition, we rely on the decision of Hon’ble Apex Court in the case of CIT vs. Excel Industries Ltd. reported in (2013 (10) TMI 324 - SUPREME COURT ). Before us, Revenue has not placed any material on record to demonstrate that against the amount which is due is Assessee’s hand there is a corresponding liability of the payer, to pay the amount to the Assessee. In view of the aforesaid facts and in the absence of any contrary binding decision in favour of the Revenue, we are of the view that no income can be said to have accrued to the assessee and therefore the amount of shortfall in the minimum guaranteed quantity amount cannot be brought to tax. Thus this ground assessee’s appeal is allowed. Issues Involved:1. Disallowance of expenses relating to the right to use land and plantation and horticultural expenses.2. Disallowance of amortization of lease charges.3. Addition of income for shortfall in quantities under the 'take or pay agreement.'Issue-wise Detailed Analysis:1. Disallowance of Expenses Relating to Right to Use Land and Plantation and Horticultural Expenses:The Assessee claimed expenses for the right to use land (Rs. 1,74,032) and plantation and horticultural expenses (Rs. 17,33,458). The AO disallowed these expenses, treating them as capital expenditure, providing enduring benefit. The CIT(A) upheld this view, noting that the expenses were for land improvement, resulting in lasting benefits. The Tribunal found no reason to interfere with the CIT(A)'s order, as the Assessee could not provide evidence supporting the claim that these were revenue expenses. The Tribunal dismissed this ground of the Assessee's appeal.2. Disallowance of Amortization of Lease Charges:The Assessee claimed amortization of lease-hold land expenses (Rs. 21,42,722) for land leased for 99 years. The AO treated this as capital expenditure, providing an enduring benefit. The CIT(A) upheld the AO's decision, referencing the lease deed, which termed the payment as the cost of land, not rent, and noted it was non-refundable. The Tribunal agreed with the CIT(A), noting the Assessee failed to provide evidence to support the claim that the payment was in the nature of rent. This ground of the Assessee's appeal was also dismissed.3. Addition of Income for Shortfall in Quantities under the 'Take or Pay Agreement':For AY 2003-04, the AO added Rs. 46,31,47,609 as income, considering charges for shortfall in quantities under the 'take or pay agreement.' The Assessee argued that the amount was disputed by PSUs and not recognized as revenue due to uncertainty in realization. The CIT(A) dismissed the Assessee's claim, noting the agreement was in force, and similar income was recognized in AY 2002-03. The Tribunal, however, found merit in the Assessee's argument, noting that income accrues only when it becomes due and is accompanied by the corresponding liability of the other party to pay. The Tribunal relied on the Supreme Court's decision in CIT vs. Excel Industries Ltd., concluding that no income accrued to the Assessee in this case. This ground of the Assessee's appeal was allowed.Conclusion:- The Assessee's appeal for AY 2002-03 was dismissed.- The Assessee's appeal for AY 2003-04 was partly allowed, specifically the ground concerning the addition of income for shortfall in quantities under the 'take or pay agreement.'Order Pronounced in Open Court on 19/07/2016.