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TaxTMI 
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TaxTMI 
2016 (2) TMI 76
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.... by the AO. 4. The assessee has filed the appeal before this Tribunal and raised the following grounds: 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in sustaining the disallowance of Rs. 4,47,45,000/- towards prior period expenses under the facts and in the circumstances of the appellant's case. 3[A]. The learned CIT[A] is not justified in sustaining the disallowance of a sum of Rs. 8,70,000/- being the upfront premium paid by UPCL under the facts and in the circumstances of the appellant's case. 3[B]. The learned CIT[A] is not justified in sustaining the disallowance of a sum of Rs. 5,61,71,744/- being the upfront premium paid by M/s.ABG Infralogistics Limited under the facts and in the circumstances of the appellant's case. 3[C]. The learned CIT[A] is not justified in sustaining the disallowance of a sum of Rs. 9,99,69,073/- being the upfront premium paid by M/s.Ambuja Cements Ltd., under the facts and in the circumstances of the appellant's case. 4. The learned CIT[A] is not ju....
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....was given by the AO as well as the CIT(A), the assessee failed to prove that the expenditure pertains to the year under consideration. Therefore, the assessee has failed to discharge its onus to prove the claim of allowability of the said expenditure. He has relied upon the orders of the authorities below. 8. We have considered the rival submissions as well as the relevant material on record. From the details filed by the assessee, it appears that some of the expenditure pertains to the salary revision of the employees. The assessee has claimed that due to revision of salary, the liability on account of enhanced salary has been crystallized only during the year under consideration. Since the details of expenditure filed by the assessee do not throw much light on this fact that the expenditure pertaining to enhanced liability towards pay to the employees on account of revised salary were finalized and crystallized only during the year under consideration, accordingly, in the facts and circumstances of the case, as well as in the interest of justice, we remand this issue to the record of the AO with a direction to the assessee to furnish better particulars for examination of the AO ....
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....ease. Therefore, the logical inference is that upfront premium paid is for the use of the facility for a period of 30 years under the said agreement and only that part of the premium that relates to the year under consideration can be described as income of the year. It was also contended that the assessee is subject to audit by the Controller & Auditor General (C&AG). The C&AG had clearly indicated that upfront premium cannot be entirely recognized as income for the year in which the agreement was signed. Thus it was submitted that in accordance with the advice of the C&AG, the assessee has recognized 1/30th of the upfront premium as income. The assessee has also supported its claim by referring to the accounting standard 19 issued by the ICAI. The CIT(A) did not accept the contention of the assessee and held that upfront premium is a one-time amount received by the assessee without any thing to do for the period of lease. This is not a refundable amount even if the lease is cancelled for any reason. Thus, the CIT(A) has held that one-time payment received by the assessee is income in the year of receipt. 9.2 Before us, learned AR of the assessee submitted that the license fee/up....
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....ed to clause 10.1 of the agreement as per which the parties agreed for handing over of the land back to the assessee on expiry or termination of lease. The learned AR of the assessee has placed heavy reliance on the decision of the Chennai Special bench of this Tribunal in the case of ACIT vs. Mahendra Holidays & Resorts (India) Ltd. (131 TTJ 1) and submitted that the income must be recognized on the basis of matching concept of each year. 9.3 On the other hand, learned departmental representative has submitted that that there is no provision in the Income-tax Act to spread over the income in future period of time. The assessee has not shown the amount in question as advance and recognized the receipt as income. Therefore, income received by the assessee during the year without any corresponding obligation to be discharged by the assessee in the future years the entire income is assessable in the year under consideration. She has also relied upon the orders of the AO and the CIT(A). 9.4 We have considered the rival submissions as well as the relevant material on record. There is not dispute that the assessee has granted lease for 30 years in respect of the port land to three comp....
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....owed the accrual basis of accounting and recognizing the income on accrual basis then this very fact of recognizing the entire upfront premium as income in the books of account shows that the entire receipt accrued during the year under consideration. Though the C&AG has raised some objections in his Audit report in respect of recognizing the entire income as income of the year under consideration and recommended only proportionate amount of upfront premium to be considered as income of the year under consideration, however, the said remarks of the C&AG would not change the character or the incidence of accrual of the income. The learned AR of the assessee has heavily relied upon the decision of the Chennai Special bench of the Tribunal in the case of Mahendra Holidays (supra) wherein it has been observed by the Special bench in paras.23 to 28 and 31 as under: "23. We have duly considered the rival contentions and the material on record. Thousands of litres of ink have been consumed lavishly over the past more than hundred years in discussing the concept of accrual and yet there is no end to it, and rightly so as it indicates the ever changing dynamics of business and commerce. H....
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....on to the members remain spread over the period of membership and therefore, part of the fees are recognized as income in the subsequent years. There is no basis for recognizing the income in the ratio of 40 : 60 and it is stated to be as per industry norms. The basis for the ratio of 60 : 40 is stated to be that with experience, the assessee has become wiser. The case of the Revenue is that having received the income in the first year itself, the same should be recognized as income in that year only. So far as maintenance of resorts and other utilities are concerned, they, according to the learned Departmental Representative, are being taken care of by the AMC/ASF etc. We proceed to resolve this dispute. 25. It is not in dispute that the assessee follows mercantile system of accounting. Sec. 5(1) of the Act defines the scope of total income in case of a resident and includes all income which- (a) Is received or is deemed to be received in India in such year by or on behalf of such person; or (b) Accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) Accrues or arises to him outside India during such year. As per s. 29 of the Act, the p....
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....hand, it was urged on behalf of the transferees that though under the deed of assignment, they were paid the whole of the commission, they had merely earned the commission for the period of actual services rendered by them to the company. Even though the ascertainment and the payment came later it made no difference to the accrual of income which could be referred back to the period during which the income was earned and accordingly whatever amount was earned by the Sassoons during the respective periods that they had acted as agents, had accrued to them during those periods. The Court by majority decision held that no income accrued to the Sassoons. 27. Now let us examine the principles laid down in the case of Sassoons and try to apply them to the facts of the present case. One of the important observations the Court made is at p. 52 ITR 26. It observed that the Sassoons had no doubt rendered services as managing agents of the companies for the broken periods. But unless and until they completed their performance, viz., the completion of the definite period of service of a year which was a condition precedent to their being entitled to receive the remuneration or commission sti....
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....i) it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, and (ii) a debt must have come into existence and he must have acquired a right to receive the payment. In the present case, a debt is created in favour of the assessee immediately on execution of the agreement. However, it cannot be said that the assessee has fully contributed to its accruing by rendering services. The assessee is bound to provide accommodation to the members for one week every year till the currency of the membership. Till the assessee fulfils its promise, the parenthood cannot be traced to it. In this connection, certain clauses in the membership rules need to be examined. The reservation for holiday can be done 90 days to 1 day before the commencement of holiday but the same is subject to availability. In other words, if the resort requested for is not available, the member would be deprived of the holiday. If the assessee confirms the reservation but is not able to provide the allotted or the alternate accommodation, assessee is liable to pay liquidated damages to the member. It is worth noting that the assessee is liable to pay liquidated ....
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....lity of the assessee in the present case. In the case of life insurance, the premium is computed on actuarial basis only for the life assured whose longevity can be reasonably estimated. In the case of encashment of leave, despite the change in the number of employees, reasonable number of retirements every year can be estimated and hence the provision thereof is not rendered that difficult. However, in the case before us, the membership is ever increasing and in which year how many contingencies of non-availability of accommodation can arise, can be anybody's guess. At this juncture we may clarify the use of the word "contingencies". It is not used in the sense that the event of non-availability of accommodation is wholly uncertain. The event is certain, only how many such events can occur is uncertain. As a matter of fact, the Supreme Court has also used the words "contingent liability" for warranty expense and allowed deduction in the case of Rotork Controls India (P) Ltd. vs. CIT (2009) 223 CTR (SC) 425 : (2009) 23 DTR (SC) 79 : (2009) 314 ITR 62 (SC) at 75. Therefore, coming back to the point of making provision, even if the assessee had chosen to provide for the liability in ....
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....is this distortion we have talked about in the earlier part of this para. The only difference is that in the case of Madras Industrial Investment Corporation (supra), the distortion was supposed to be on account of expenditure, in the present case the distortion is on account of the entire income being accounted in the year of receipt. Earlier, we have also discussed as to how difficult it is to estimate the liability which is likely to be incurred in future, more so in the absence of any scientific basis or historical data. Therefore, the only way to minimise the distortion is to spread over a part of the income over the ensuing years. At this juncture, we may deal with one of the arguments made on behalf of the assessee and the intervener. It was argued that accounting for the whole of the income in one year would give a distorted view of the profits of the company which will be against the true and fair principle required for the annual accounts. Well, the distortion the learned counsel talked about was vis-a-vis the presentation of published accounts whereas the distortion the Supreme Court talked about and which we are inclined to follow, is vis-a-vis the real taxable income f....
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....missed being not pressed. 11. Ground No.5 is regarding disallowance of Rs. 27,60,000/- on account of provision for accounting and auditing. The AO noted that in the P&L Account under Management and General Administration Expenses, the assessee has debited an amount of Rs. 301.16 lakhs including the expenses towards accounting and auditing. The AO asked the assessee to provide details of the expenditure likely to be met out of the above amount. The AO found that the assessee could not prove existence of liability of Rs. 27,60,000/- out of the total amount debited to the P&L Account and accordingly disallowed the said amount. 11.1 On appeal before the CIT(A), the assessee submitted that the accounts of the assessee are subject to audit by the C&AG and the expenditure incurred on accounting and auditing is reckoned having regard to the amount payable for such audit. A sum of Rs. 27,00,000/- is provision relating to C&AG audit and balance of Rs. 60,000/- is provision for accounting. Thus the assessee submitted that this provision has been spent in the subsequent year and the payment has been made. The CIT(A) did not agree with the contention of the assessee and confirmed the disallow....