Tribunal Reverses Tax Decision: INR 69,84,169 Exclusion Upheld, Assessee's Accrual Accounting Validated for 2021-22.

The Tribunal allowed the appeal, reversing the decision of the Commissioner of Income Tax (Appeals) and deleting the addition of INR 69,84,169 made by the Assessing Officer. It concluded that the assessee correctly followed the accrual basis of accounting, recognizing income systematically over the grant period. The unspent grant was appropriately carried forward as a liability, justifying the exclusion of the disputed amount from the appellant's income for the assessment year 2021-22. The Tribunal's decision was pronounced on 29th August 2024.

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Issues:
1. Discrepancy in treatment of foreign contribution income by the assessee.
2. Application of accounting principles in recognizing income.
3. Validity of addition made by the Assessing Officer.

Analysis:
1. The appeal was filed against the order of the National Faceless Appeal Centre for Assessment Year 2021-22, regarding the treatment of foreign contribution income by the assessee. The appellant contended that the Commissioner of Income Tax (Appeals) erred in considering the income based on the cash basis method instead of the accrual basis method, resulting in an increase of income by INR 69,84,169. The appellant also challenged the addition made in the intimation order and rectification order under different accounting principles. The appellant argued that the income should be recognized systematically over the grant period to match related costs.

2. The Commissioner of Income Tax (Appeals) dismissed the appeal, stating that the appellant failed to provide sufficient evidence to support the treatment of funds received through Foreign Contribution Regulation Act (FCRA) as revenue receipts. The Commissioner noted that the appellant did not file a balance sheet or profit & loss account along with the return of income, and there was no proof that unspent FCRA receipts were carried forward or utilized in the subsequent year. The Commissioner concluded that the FCRA receipts were for the year under consideration, and the unspent amount was not included in the appellant's income.

3. The Tribunal heard both parties and observed that the assessee followed the accrual basis of accounting. The assessee recognized income for the year and carried forward the unspent grant as a liability in the balance sheet. Detailed workings were presented to show that the unspent grant income for the previous year was recognized in the subsequent year. The Tribunal found no justification for the addition made by the Assessing Officer and deleted the amount of INR 69,84,169 from the appellant's income. The appeal filed by the assessee was allowed, and the order was pronounced on 29th August 2024.

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