TaxTMI 
TaxTMI 
2020 (11) TMI 180
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.... vide order dated 17.07.2013 on the following substantial question of law: (i) Whether the tribunal was correct in holding that, in view of the uncertainty of recovering the transmission charges (wheeling charges), though it is accrued the same is not liable to tax in the current Assessment Year without taking into consideration the mercantile system of accounting being followed by the assessee and recorded a perverse finding? (ii) Whether the tribunal committed an error in not taking into consideration that in mercantile system of accounting on accrual, income is liable to tax irrespective of the cash being received? 2. Facts leading to filing of this appeal briefly stated are that the assessee is a Karnataka State Gov....
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....having followed the accrual system of accounting i.e., the mercantile system cannot pick and choose other system of accounting to suit it needs and the wheeling charges became due to the assessee once electricity supply is made available to other agencies since, inherent expenditure towards transportation / wheeling expenditure has been debited to the books of accounts of the assessee and since, the assessee has utilized the amount as revenue, it cannot refuse to treat the same as income and cannot be permitted not to offer the same to tax merely on the ground that the aforesaid revenue was not realized in the relevant financial year. In the result, an amount of Rs. 52.89 Crores was added as wheeling charges to the income of the assessee. ....
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....laced on record the orders of assessment for the subsequent years i.e., 2003-04 and 2004-05, which were completed by the authorities without making any addition on account of wheeling charges. It was further held that revenue having accepted the assessee's method of accounting for the Assessment Year 2003-04 and 2004-05 cannot take a different stand only for the assessment year 2001-02. Thus, it was held that the assessee has not deviated from its method of accounting but has only recognized the revenue earned by it during the relevant Assessment Year and there is no infirmity in the method of accounting. In the result, the appeal preferred by the assessee was partly allowed. In the aforesaid factual background, the revenue is in appeal....
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....inted out that notification dated 29.09.2016 issued by Central Board of Direct Taxes (CBDT) applies to the assessee's who follow the mercantile system of accounting and as per the Annexure annexed to the aforesaid notification, accrual refers to assumption that revenues and costs are accrued that is recognized that they are earned or incurred and recorded in the Previous Year to which they relate. Our attention has also been invited to the annexure to the aforesaid notification and it has been contended that the revenue shall be recognized when there is a reasonable certainty of its ultimate collection, It is also urged that object sought to be achieved by accounting standards, which is mandatory is to see that accounting income i....
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....t Taxes (CBDT), which applies to the assessee's following the mercantile system of accounting also provides that the expression 'accrual' refers to the assumption that revenue and costs are accrued that is recognized as they are earned or incurred and recorded in the Previous Year, to which they relate. The Supreme Court in Bokaro Steels Ltd. supra has held that entry in a book which was made about a hypothetical income which did not materialize cannot be subjected to tax as the entry reflects hypothetical income and only real income can be brought to tax. 7. Now we may advert to the facts of the case in hand. The Southern Regional grid in South India comprises Karnataka, Andhra Pradesh, Tamil Nadu, Kerala and Pondicherry. Th....