2017 (8) TMI 734 - HC - Income Tax

Enhanced license fee treated as accrued liability, reopening assessments invalid.

Jagdish Prasad Gupta Versus Commissioner of Income Tax

Jagdish Prasad Gupta Versus Commissioner of Income Tax - [2017] 397 ITR 578 Issues Involved:1. Accrued Liability vs. Contingent Liability2. Validity of Reopening of Assessments under Section 147 of the Income Tax Act3. Consistency of ITAT Orders with High Court's Remand Directions4. Allowability of Deduction for Enhanced Licence FeeDetailed Analysis:1. Accrued Liability vs. Contingent Liability:The central question was whether the enhanced licence fee payable by the Assessee to the Northern Railway was an accrued liability or a contingent liability. The Assessee argued that since it follows the mercantile system of accounting, the enhanced licence fee is an accrued liability. The Revenue contended that it was a contingent liability as the Assessee had contested the enhanced fee. The Court held that the liability to pay the enhanced licence fee is an accrued liability, which arose in the year the demand was raised. The Court noted that the Assessee’s liability to pay the enhanced fee was continuously enforced by the Northern Railway through repeated demands and arbitration proceedings, thus making it an accrued liability.2. Validity of Reopening of Assessments under Section 147 of the Income Tax Act:The validity of the assumption of jurisdiction under Section 147 was examined. The reopening of assessments was based on the alleged failure of the Assessee to disclose the Estate Officer's (EO) order dated 28th March 2000. The Court found that there was no fresh tangible material that came to light for the first time for the AO to form reasons to believe that income had escaped assessment. The Court concluded that the assumption of jurisdiction under Section 147 was not legally sustainable.3. Consistency of ITAT Orders with High Court's Remand Directions:The Court evaluated whether the ITAT's order dated 31st July 2009 was in conformity with the High Court's remand directions dated 11th December 2008. The Court found that the ITAT did not decide all aspects/issues remitted to it, specifically the validity of the assumption of jurisdiction under Section 147. However, the Court decided not to remand the matters again to the ITAT and addressed the issue itself.4. Allowability of Deduction for Enhanced Licence Fee:The Court examined whether the enhanced licence fee payable to the Northern Railway was an allowable deduction. It was held that the enhanced licence fee was an accrued liability, and the Assessee was justified in claiming it as a deduction in the year in which such liability arose. The Court noted that the Assessee’s liability to pay the enhanced fee was subject to arbitration proceedings, and the mere characterisation of the amount as 'damages' by the Northern Railway did not make it any less an accrued liability.Conclusion:The Court concluded that the enhanced licence fee payable by the Assessee was an accrued liability and not a contingent liability. The assumption of jurisdiction under Section 147 for reopening assessments was not valid. The ITAT's order dated 31st July 2009 did not fully comply with the High Court's remand directions. The enhanced licence fee was an allowable deduction in the year in which the liability arose. Consequently, the appeals filed by the Revenue were dismissed, and the corresponding cross-objections/appeals by the Assessee were disposed of in favor of the Assessee.