2005 (2) TMI 21

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....ome-tax Appellate Tribunal was right in law in deleting the addition of Rs. 12,43,913 which was made by disallowing a reimbursable expenditure of the like amount, incurred by the assessee on behalf of its principal, the Government of India even though the said expenditure was not the assessee's liability?" The assessee-company is a wholesale nominee for the distribution of levy sugar and other food grains on behalf of the Government at the notified rates under the scheme introduced by the Government. Under this scheme, the company was required to take delivery of levy sugar from the mill owners and despatch the same to the depot holders. The sugar was to be purchased by the company from designated factories at notified ex-factory price p....

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.... to which it was informed vide letter dated August 31, 1976, that the matter was under consideration. The assessing authority inferred from the above facts that the assessee was not required to bear any loss on account of business of distribution of sugar. The loss, if any, was to be borne by the Government of India. He further observed that an equal amount was due to the assessee from the Government of India and, therefore, there was no liability to be borne by the assessee in this behalf. Accordingly, the assessing authority made the addition of Rs. 12,43,912.80 to the returned income of the assessee. This action of the Assessing Officer was upheld in appeal by the Commissioner of Income-tax (Appeals). On further appeal, the Tribuna....

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....on accrual basis and partly on cash basis. We find that the subsidy receivable from the Central Government whether on account of original notification or on account of subsequent notification revising the price or as a result of the order of the High Court is being accounted for on receipt basis consistently for all subsequent years. This has not been controverted on behalf of the Revenue. There is no finding also by the Revenue that from this method followed by the assessee true profits cannot be deduced. That being the position we hold that since the assessee is following a hybrid method of accounting, it is open to the assessee to account for the subsidy on receipt basis. On the basis of the method of accounting followed by the assessee ....