TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 42
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....audited by the statutory auditors, filed the revised return of income. During the assessment proceedings under section 143(3) of the Act, the Assessing Officer observed that the statutory auditors have commented on schedule 17 i.e., "Accounting policies and notes on accounts" that the property "Balayogi Paryatak Bhavan" was given on lease to "Lakshmi Gayatri Hotels (P.) Ltd." (lessee) and the assessee has not recognised the lease rentals on accrual basis but that it has offered the lease amount on receipt basis. The Assessing Officer observed that the assessee is following the mercantile system of accounting and therefore, the assessee ought to have offered the income on the mercantile system of accounting. He considered the assessee's contention that the lessee had disputed the actual plinth area which was given on lease and the area handed over to it and also as to the fulfilment of certain conditions of the agreement such as erection of lift, faulty working of ACs etc. The Assessing Officer observed that the lessee continued to remain in the premises till March 2010 and there was no stay on collection of rent by any of the courts. Therefore, he was of the opinion that the en....
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....; as there is a long drawn litigation based on various judicial pronouncement. But the hon'ble apex court in the case of Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) held that income will accrue when it has become due to the assessee and that postponement of payment date does not affect the accrual of income and the fact that subsequent non-receipt of income does not the accrual of income. 5. Any other ground that may be urged at the time of hearing." 3. As regards Ground No. 4, the learned Departmental representative, supported the orders of the Assessing Officer while the learned counsel for the assessee supported the orders of the Commissioner of Income-tax (Appeals). We find that the Commissioner of Income-tax (Appeals) has reproduced the relevant facts in paragraph 7.2 of her order. From the above facts, it is clear that though the assessee has received the lease rentals as agreed to in the lease agreement till March, 2008, the lessee has refused to pay the lease rental thereafter in accordance with the agreement and has in fact asked the assessee to adjust the excess lease rentals paid by it till March, 2008 towards the other months. It is also noticed that the ....
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....ng principles for recognition of income : "(1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the asses see is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee. After debi....
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....ected to go through the accounts of the assessee-company from year to year and to report to the Government about the actual position about the reasonable returns earned by the assessee-company. On May 16, 1969 another repre sentive suit (Suit No. 118 of 1969) was filed by the consumers wherein interim injunction was granted by the court and which was finally decreed in favour of the consumers on June 23, 1974. It would thus appear that after the decision was taken by the assessee-com pany to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of the consumers and during the pendency of the subsequent suit the management of the undertaking of the assessee-company was taken over by the Government of Gujarat under the Defence of India Rules, 1971, and the undertaking was subsequently transferred to the Gujarat State Electricity Board. It is no doubt true that the letter addressed by the Under Secretary to the Government of Gujarat to the assessee-company had no legally binding effect but one has....
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....eration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income- tax Officer did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal". 7. The decisions relied upon by the learned Commissioner of Income-tax (Appeals) at paragraph 4.5 of her order, also clearly establish that where there is a dispute, the income would accrue and would not crystallise till the dispute is settled and therefore, the same cannot be brought to tax even under the mercantile system of accounting. In our opinion, the decisions relied upon by the learned Commissioner of Income-tax (Appeals) are clearly applicable to the facts of the case before us. In view of the same, we see no reason to interfere with the order of the Commissioner of Income- tax (Appeals) on this issu....