2024 (10) TMI 1287 - HC - Income Tax

Court Upholds ITAT Decision: Clarifies Section 263, Supports Respondent on Contingent Liabilities and Arbitral Award Income.

The HC upheld the ITAT's decision, dismissing the Income Tax Appeal. It clarified the interpretation of Section 263 of the Income Tax Act, supporting the ... Revision u/s 263 - case was selected for scrutiny through CASS, and AO passed an order of assessment u/s 143(3) - income recognition - Treatment of income received from an arbitral award in the assessment year - HELD THAT:- ITAT has recorded the finding that the statutory notice was issued u/s 142(1) of the Income Tax Act by the AO with a specific query about the Nardana Claim - 1 & Nardana Claim - 2. In response to the said notice, the assessee filed a cogent reply. AO's approach in accepting the explanation furnished by the assessee to him was not found unsustainable view as the liability of Nardana Claim - I & Nardana Claim - 2 could have been recognized as income in the AY 2018 -19. The amount was paid to the assessee in the Assessment Year - 2018 - 19 after furnishing 100% bank guarantee on 100% margin, therefore, same was rightly shown as liability in the balance-sheet. It is not a case that the assessee has concealed the income of receipt by way of award. After the order passed by the Dhule Court in favour of the assessee on 15.10.2018, the income was shown in the next assessment year i.e. 2019 - 20. ITAT did not find any fault in the approach of assessee, in view of the law laid down in the case of Hindustan Housing & Land Development Trust Limited [1986 (7) TMI 10 - SUPREME COURT] in which as held that as long as there remains a dispute / litigation, the income cannot be said to have 'accrued' or 'arisen' to the assessee. Approach of the assessee as well as the view taken by the AO is his favour cannot be termed as erroneous-cum-prejudicial to the interest of revenue. No substantial question of law. Issues:1. Interpretation of Section 263 of the Income Tax Act regarding revisional jurisdiction.2. Recognition of contingent liabilities in the balance sheet.3. Treatment of income received from an arbitral award in the assessment year.4. Applicability of ICDS VII relating to Government Grant in income recognition.5. Justifiability of the ITAT's decision in setting aside the revisional order.Analysis:1. The High Court addressed the interpretation of Section 263 of the Income Tax Act concerning revisional jurisdiction. The Principal Commissioner of Income Tax invoked this provision to challenge the assessment order passed by the Assessing Officer. The revisional authority contended that the liability shown by the respondent for Nardana Claim - 1 & Nardana Claim - 2 was contingent and should not have been recognized in the balance sheet. The revisional order set aside the original assessment and remanded the matter for re-examination.2. The Court examined the recognition of contingent liabilities in the balance sheet and the treatment of income received from an arbitral award. The revisional authority argued that the liability created by the respondent was contingent on the outcome of a court order and, as per ICDS, should not have been recognized. The respondent had received an amount against a bank guarantee, which was shown as a liability. However, the Court found that the approach of the respondent and the Assessing Officer was in line with legal principles, citing the case law of CIT v/s Hindustan Housing & Land Development Trust Limited.3. The judgment also delved into the applicability of ICDS VII relating to Government Grant in income recognition. The revisional authority contended that the Government Grant received should have been recognized as income in the year of receipt. However, the Court did not find fault with the respondent's approach, as the income was shown in the subsequent assessment year following a court order in their favor.4. The Court considered the ITAT's decision to set aside the revisional order. The ITAT found no fault with the respondent's actions and upheld the approach taken by the Assessing Officer. The Court agreed with the ITAT's reasoning, stating that the questions of law proposed by the revenue were not substantial, leading to the dismissal of the Income Tax Appeal.Overall, the High Court's judgment clarified the interpretation of Section 263, the treatment of contingent liabilities, income recognition from arbitral awards, and the applicability of ICDS VII in income recognition, ultimately upholding the ITAT's decision to set aside the revisional order.