2017 (8) TMI 411 - AT - Income Tax

Tribunal rules in favor of assessee on tax treatment of accrued income, interest & municipal taxes

The Tribunal ruled in favor of the assessee in all aspects of the case. The additions of accrued income and interest were deemed taxable in the year of ... Accrual of income - Addition on additional consideration as accrued income during the year alongwith accrued interest - scope of the agreement - postponement of revenue - year of assessment - Held that:- In the year under appeal there was order of the Revenue Minister. But,order of the Minister was not one of the conditions of the agreement. The assessee had challenged the valuation adopted by the Revenue authorities and as per the provisions of law the assessee had challenged the valuation. In our opinion, the order of the Revenue Minister cannot be the deciding factor for determining the year of assessment in which disputed amount could be taxed. Therefore,we hold that the FAA was not justified in taxing the additional consideration of ₹ 25 crores in the year under consideration. Reversing his order,we decide the first part of the first ground of appeal in favour of the assessee. As far as interest portion we find that the assessee was consistently following a particular method of accounting and same had not been rejected by the AO. It has shown the interest income in the year of receipt. Here,we would like to mention that the ‘computation of total income’,u/s.5 of the Act has to made of real income and not of any hypothetical income. No real income had accrued to the assessee during the year under appeal under the head ‘interest income’ considering the method of accounting adopted by it.The assessee had offered the entire interest income in AY.2012-13 i.e. the year of actual receipt. Decided in favour of the assessee. Carry-forward and set off of unabsorbed depreciation - Held that:- As decided in case of General Motors India Pvt. Ltd.[2012 (8) TMI 714 - GUJARAT HIGH COURT] unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - Decided in favour of assessee. Addition made under the head payment of municipal taxes - Held that:- It was the duty of the developer to clear the municipal dues and it paid the disputed amount in subsequent year.The assessee had no role in the entire transaction-it had to receive the money from the developer and had to pay to municipal authorities.It is not denied by the department that it was a case of double addition.Considering the peculiar facts and circumstances of the case we are of the opinion that the FAA was not justified in confirming the addition when the assessee had not received the disputed amount during the year under appeal - Decided in favour of assessee. Issues Involved:1. Addition of Rs. 25 crores as accrued income and Rs. 1.82 crores as accrued interest.2. Carry-forward and set-off of unabsorbed depreciation amounting to Rs. 5.32 crores.3. Addition of Rs. 4.69 crores as accrued interest.4. Addition of Rs. 55.74 lakhs under the head payment of municipal taxes.Issue-Wise Detailed Analysis:1. Addition of Rs. 25 Crores as Accrued Income and Rs. 1.82 Crores as Accrued Interest:The assessee challenged the addition of Rs. 25 crores received towards additional consideration and Rs. 1.82 crores as accrued interest for AY 2009-10. The AO argued that the revenue had accrued during the year under appeal based on a development agreement and subsequent supplementary agreement, which stipulated the payment upon the occurrence of certain events. The AO held that the conditions for revenue recognition were met and added the amounts to the total income. The First Appellate Authority (FAA) upheld the AO's decision, stating that the right to receive the amount existed and the decree of the court only postponed the receipt of income. The assessee contended that due to ongoing litigation, the amount did not accrue during the year under appeal and was only resolved in AY 2012-13. The Tribunal found that the income should be taxed in AY 2012-13 when the actual receipt occurred, reversing the FAA's order and deciding in favor of the assessee. For the interest portion, the Tribunal noted that the assessee consistently followed a particular accounting method and offered the interest income in AY 2012-13, thus deciding this part of the appeal in favor of the assessee as well.2. Carry-Forward and Set-Off of Unabsorbed Depreciation Amounting to Rs. 5.32 Crores:The AO disallowed the carry-forward and set-off of unabsorbed depreciation of Rs. 5.32 crores available on 01.04.2001, referring to the case of Times Guarantee Ltd. The FAA, however, relied on the judgment of the Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd., which allowed the unabsorbed depreciation to be carried forward indefinitely as per the amended provisions of section 32(2) by the Finance Act, 2001. The Tribunal upheld the FAA's decision, dismissing the AO's ground of appeal.3. Addition of Rs. 4.69 Crores as Accrued Interest:For AY 2010-11, the AO added Rs. 4.69 crores to the total income of the assessee, considering it as accrued interest from GNRC. Following the reasoning in the earlier year’s decision (paragraph 5.2.), the Tribunal decided this ground of appeal in favor of the assessee, noting that the interest income should be taxed in the year of actual receipt.4. Addition of Rs. 55.74 Lakhs Under the Head Payment of Municipal Taxes:The AO added Rs. 55.74 lakhs to the total income of the assessee under the head payment of municipal taxes, based on the auditor's comments and the fact that the corresponding sum was not shown as received/receivable from the developer. The FAA confirmed the AO's decision. The assessee argued that it had not received the municipal taxes during the year under consideration and that the amount was shown in the return filed for the next AY. The Tribunal found that the assessee had debited the municipal taxes payable and credited the amount receivable from the developer, but the balance amount was not accounted for as income due to ongoing disputes. Since the developer paid the taxes in the subsequent year, the Tribunal concluded that the FAA was not justified in confirming the addition and decided this ground of appeal in favor of the assessee.Conclusion:The appeals filed by the assessee were allowed, and the appeals of the Assessing Officers were dismissed. The order was pronounced in the open court on 23rd June 2017.