TaxTMI 
TaxTMI 
2023 (10) TMI 617
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....anufacturing and sale of iron-ore. The company also owns wind mills generating power. During the year, the company has not carried out mining activities since the mining came to be suspended by the order of Hon'ble Apex Court from the year, 2010 onwards, vide order in Writ Petition filed by the Samaj Parivathana Samudaya in WP No. 562 of 2009. The mines of the assessee are situated in Bellary district of Karnataka, but bordering the neighbouring State of Andhra Pradesh. The CBI, Hyderabad, filed a charge-sheet before the Hon'ble Court of Special Judge for CBI, Hyderabad under section 173 of CRPC against Shri. B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited and others for illegal mining, encroachment of reserved forest area, falsification of documents, conspiracy etc. The Hon'ble CBI Court, Hyderabad has placed prohibitory orders on the following fixed deposits vide orders u/s 102 of CRPC vide letter dated, 11-10-2009 and 13-10-2009 in case No.R.C.1)M)2009: SI. No.' Name of the Bank Amount of Fixed Deposit (In Rs. ) 1. SBI, Kudithini Branch, Bellary. 122,55,75,375/- 2. SBI, Kudithini Branch, Bellary.....
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..... The learned AO has based his decision on the following grounds: (i). The assessee company has been maintaining its accounts under the mercantile system of accounting regularly and the income has been offered to tax on accrual basis up to the AY; 2013-14, whereas the Hon'ble CBI Court had placed the prohibitory order in AY; 2010-11 itself. Hence consistent with the method of accounting followed in the earlier assessment years up to 2013-14, the assessee, should have accounted the interest income and declared it to tax in the subject assessment year also. (ii). The prohibitory order of the Hon'ble Court only restrains the assessee from operating the accounts, but the assessee continues to hold the right over the contents of the account. Hence the interest income has accrued to the assessee in the subject assessment year itself and accordingly it is assessable to tax. (iii). The bank has made TDS and the TDS is made or credited to the account of the deductee concerned only when the interest has accrued. Hence the entire interest, on which TDS is made, has accrued to the assessee in the subject assessment year and the same cannot be deferred. PRO....
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....if there is significant uncertainty as to its receipt. The source of interest income are the fixed deposits and the fixed deposits itself are placed under attachment. When the source itself is attached and liable to be recovered by the orders of the Court, there is no certainty of accrual of interest income emanating from the source i.e., the fixed deposits. It is settled law that the revenue recognition is to be postponed if there is uncertainty of receipt. The Hon'ble Hyderabad Tribunal in ACIT vs. Hill County Properties Limited in ITA No.1644/HYD/2014 (URO) cited in ACIT vs. Medravathi Agro Farms (P.) Ltd. [2015] 63 taxmann.com 274 (Hyderabad - Trib.) referred to AS-9 and held that: "where the ability of the assessee for ultimate collection with reasonable certainty is lacking at the time of raising any claim, revenue recognition is postponed to the extent of uncertainty involved.........it is also provided that when the recognition of the revenue is postponed due to the effect of uncertainties, it is considered revenue of the period in which it is properly recognised." 4.2 The following clauses in Accounting Standard-9 (AS-9) dealing with the revenue recognition may....
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....me Court in SLP and the same came to be dismissed vide SLP (Civil) No.2806 of 1981. 4.4 He referred to the decision of the Hon'ble High Court of Allahabad in the case Rani Bhawani Devi vs. CIT [1962] 46 ITR 973 (ALL.). The Hon'ble High Court agreed with the view of the assessing officer that the interest on the fixed deposits was assessable only in the assessment year, 1948-49 where the dispute regarding the title on succession of the deceased person was settled by compromise decree. 4.5 He submitted that the Larger Bench of the Hon'ble Supreme Court explained the basic concept of income in its landmark decision, way-back in 1954, reported in E.D. Sassoon & Co. [1954] 26 ITR 27 (SC). In summary, it held as under: "It is clear therefore that income may accrue to the assessee without the actual receipt of the same. If the assessee acquires the right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody." (Emphasis added) 4.6 He submitted that the said decision of the Ho....
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....cision in the Court, there is no accrual of income. If at all the assessee acquires the right to receive the interest income in any particular assessment year, the assessee would duly recognise it in the books of account and declare it to tax. This would ensure that the income is taxed and the Revenue would receive its legitimate taxes in that year of accrual, where right to receive the income would get vested in the assessee. On the other hand, if the interest income is taxed in the subject assessment year in spite of the significant uncertainty of its accrual and receipt, the assessee would be prejudiced and put to irretrievable loss. 4.10 In the above-mentioned case i.e., Balbir Singh Maini (Supra), the Hon'ble Supreme Court observed that the above passage from the decision in Shoorji Vallabhdas & Co. (Supra) was cited with approval in Morvi Industries Limited (Supra). The observation of the Hon'ble Supreme Court in paras 15 & 16 (Balbir Singh Maini) are as under: "15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered t....
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....rs what is 'due and payable' to the assessee by debtor/bank towards the existing liability. Reference is invited to decision of the Hon'ble Supreme Court in the case of Administrator, UTI vs. B.M. Malani (2007) 164 Taxman 463 (SC)/(2008) 296 ITR 31 (SC), wherein it was held that the assessing officer is entitled to recover only the amount which the assessee was otherwise entitled to receive. 4.12 As submitted earlier, the learned assessing officer has also relied on the decision in Morvi Industries Limited (Supra), but arrived at a different conclusion that interest income had accrued to the assessee, who holds right over the asset even though the FDs are under the prohibitory orders, as long as it is not appropriated otherwise in pursuance of order of the Court - Para 5.4 of page 9 of the impugned assessment order (AY 2014-15). 4.13 In fact the learned AO has extracted the relevant portion from the decision in Morvi Industries Limited (supra) relied upon by him in para 5.3 of pages 8 & 9 of his order. The same is as under: "......The dictionary meaning of the word "accrue" is "to come as an accession, increment, or produce: to fall to one by way of advantage: to fal....
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....). the income had accrued to the assessee in spite of the restraint order of the Court, and; (b). the assessee itself had accounted the income in its books of account and was also admitted as income in the return of income filed. 4.16 On appeal, the Appellate Commissioner upheld the addition. But on further appeal the Tribunal held that because of the restraint order of the Court, there was no right accruing to the assessee to receive the income and accordingly the amount could not be treated as its income for the assessment year under consideration. On further appeal by the Revenue, the Hon'ble Court held (para 5): "Admittedly, the assessee had purchased the shares concerned from Jaipuria Brothers Limited and the restraint order was passed in an execution instituted by the receiver of the Estate of Sara Bhai Jai Singh Bhai against Jaipuria Brothers Limited and the court by an interim order dated September 29, 1967, had restrained Swadeshi Cotton Mills Ltd. from paying dividends on the said shares to any one till further orders. The restraint order continued till May 26, 1972. Thus, during the year under consideration, i.e., the accounting year ending June 30, ....
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.... itself had accounted for the charges in its books of account, even though litigation was pending. The Hon'ble Court vide para 14 of its order held: "14. The question whether there was real accrual of income to the assessee- company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO 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 ITO 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 ....
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....e IDENTICAL facts, it is submitted that there is no accrual of income and the mercantile system of accounting followed by the assessee does not mandate to recognise such income. 4.23 In view of the above, the ld. A.R. for the assessee submitted that the addition of interest as income accruing is against the concept of income and the principles of accrual of income and therefore, liable to be deleted. 5. The ld. D.R. submitted that there is no doubt that the interest income accrued in the case of assessee. That means as per the provisions of section 5 of the Act interest accrued is the income of the assessee in the year in which it is accrued. Further the deposits in the bank accounts of the assessee are placed under Prohibitory Order. But it had not affected accruing interest. It is also clear from the submissions of the assessee that the 5 years period of prohibitory order is also completed. The said deposits continue to exist in the name of the assessee and are earning interest normally as any other deposit. Further, there is no acceptable reason as to why after offering interest income to tax in earlier year, the assessee should suddenly stop this year. The amount deposite....
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....ed but not accrued it is not taxable. In other words, though there is actually or constructively received but accrued then it is deemed to be received by the assessee. Receipt or accrual itself is not sufficient to bring a receipt within the clutches of taxation. In order to bring a receipt into taxation, it should be income and it ought to have been accrued to the assessee in the relevant assessment year. The question as to when exactly an assessee is said to have received the income or profits has to be largely determined with reference to the system of accounting employed by him. Where according to the method followed by the assessee, the same was accrued during the year of account, and it seems, that it would be brought into account of the income as soon as right to receive is accrued to assessee. In these circumstances, on actual accrual should be considered only on the basis of right to receive the same. Thus, it is clear, that income accrued to the assessee, without the actual right to receive the same, cannot be brought to tax. If the assessee acquires the right to receive the income, the income can be said to have accrued to him, though it may be received later on its bein....
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....gations of the parties flowing therefrom unguided by the nomenclature of the transaction. For this purpose, rely on the judgement of Hon'ble Supreme Court in the case of National Cement Mines Industries Ltd. Vs. CIT (42 ITR 69) (SC). 6.3 While determining the nature of the receipt as being a trading receipt taxable as income from business or profession or otherwise, one should be guided by the terms of the agreement entered into between the parties. Revenue authorities cannot ignore the genuine agreement between the assessee and the concerned parties from whom the said amount has been received. In the absence of any situation or allegation or collusion, the revenue cannot resort to any attempt to rewrite the agreement with a view to impose the levy of tax shall be when the transaction between the parties are at arm's length For this proposition we rely on the judgement of Hon'ble Delhi High Court in the case of D.S. Bist & Sons (149 ITR 276), wherein held that "The Act does not clothe the taxing authorities that any power or jurisdiction rewrite terms of agreement entered into, particularly in view of the finding of the Tribunal that "there is nothing to suggest the parties were....
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....ssociated Cables Pvt. Ltd.(286 ITR 596) the Bombay High Court held that-- "The question of law sought to be raised in this appeal is as to whether the retention money could be considered to be the income of the assessee in the year in which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgement of the Tribunal in Associated Cables P. Ltd. V. Deputy CIT (1994) 206 ITR (AT) 48 (Bom). Mr. Sathe appearing for the respondent has, however, drawn our attention to two judgements, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High court judgement is reported in CIT Vs. Simplex Concrete Piles (India) P. Ltd. (1989) 179 ITR 8. A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the yar in which the amount is retained. The other judgement relied upon is in the case of CIT Vs. Ignifluid Boilers (I) Ltd.....
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....ssessment years 1965-66 and 1966-67 - Assessee- Company was carrying on construction business and followed mercantile system of accounting - As per terms of contracts entered into with various parties assessee was entitled to get 90 per cent of payment in first instance when work was done and remaining 10 or 5 per cent, as case may be, was to be paid later on after submitting certificates from architects/engineers, removal of defects, payment of damages, etc. - Assessee was crediting 100 per cent of job value in past years but from assessment year 1965-66, it had started practice of crediting only 90 per cent value for work done after deducting retention money -Whether it could be said that on date of submission of bills assessee had no right to receive entire amount on completion of work and retention money did not accrue to it on such date but on later date in accordance with terms of contracts and ITO would be unjustified in making any addition by treating entire contract amount as accrued on submission of bills on completion of work - Held, yes" 5. The decision of the ITAT Mumbai 'H' Bench of the Tribunal in the case of Emerson Network Power India (P.) Ltd. v. ....
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.... booked in the account and hence, revised return was filed on 17.03.2016 claiming deduction of the retention money debited by the parties during the year amounting to Rs. 142,53,74,710/-. It was also brought to the notice of the AO that as per the contract between the parties certain percentage of the bills raised as per agreement can be retained by the contractee party as retention money which would be payable only after successful completion of the entire contract after it being certified by the party and after fulfilment of certain pre-determined conditions mentioned in the contract. Thus, it was explained to the AO that as per the accounting practise followed by the party though a part of the bill amount was retained by the contractee party and would be paid afterwards on agreed conditions, the assessee in its books of account has booked the entire revenue as and when the bills were actually raised and hence, the entire amount was reflected in the revenue from the operations in the P&L Account. It was brought to the notice of the AO that due to the said practice profit before tax as per P& L Account for the year ended on 31.03.2014 is Rs. 204,38,30,030/- and the said profit was....
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....here were clauses in the contract that the contractee shall retain specified percentage of the billed amount till successful completion of the entire project. The ld. AR drew our attention to the contract with M/s. Power Grid Corporation of India Ltd. wherein it is stipulated that the balance 10% of the erection process component (excluding processed component) for survey shall be paid after successful commissioning of the transmission line and issuance of taking over certificate. So, the final payment would be given as per the contract after the successful commissioning of the transmission line and issuance of taking over certificate by the Power Grid meaning the retention money would be given only after successful commissioning and after issuance of the taking over certificate. According to the assessee, as per such duly executed contract entered into between the parties, the contractee had retained specified percentage of the bills amount as retention money and in this assessment year these parties have retained a sum of Rs. 142,53,74,710/- as retention money on the bills raised during the year. In the light of the said fact, according to assessee, it was neither entitled nor it....
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....tions of the contract. We also note that the AO has not disputed the amount which has been retained by the contractees. In such a scenario, merely because the assessee had booked the income in this year without actual receipt of it, cannot be chargeable to tax as per the Act. The reasons given by the AO to disallow the claim of the assessee cannot be sustained and was rightly repelled by the Ld. CIT(A) whose view to accept the claim of assessee is based on the accepted judicial precedents laid down by the Hon'ble jurisdictional High Court in CIT Vs. Simplex Concrete Piles (supra); Hon'ble Gujarat High Court in Anup Engineering Ltd. (supra); Hon'ble Bombay High court in CIT Vs. Associated Cables P. Ld. (supra) and Hon'ble Madras High Court in CIT Vs. Ignifluid Boilers (I) Ltd. (2006) 283 ITR 295 (Mad). We hold that in the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. We hold that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the....
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....u undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (1) or clause (b) of Sections 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.- For the purpose of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this s....
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....ny other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 18. In terms of Section 194A of the Act, the petitioner would, in the normal course, be obliged to deduct tax at source in respect of any credit or payment of interest on deposits made with it. However, in the present case, the question that needs to be addressed is whether Section 194A of the Act contemplates deduction of tax in a situation where the assessee is not ascertainable and the person in whose name the interest is credited is also, admittedly, not a person liable to pay tax under the Act. 19. The Registrar General of this Court is, clearly, not the recipient of the income represented by interest that accrues on the deposits made in his/her name. The Registrar General is also not an assessee in respect of the deposits made with the petitioner bank pursuant to the orders of this Court. The deposits kept with the petitioner bank under the orders of this Court are, essentially, funds which are custodia legis, that is, funds in the cu....
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....e assessee the machinery of recovering tax by deduction of tax at source breaks down because it does not aid the charge of tax under Section 4 of the Act but takes a form of a separate levy, independent of other provisions of the Act. This is, clearly, impermissible. 22. The impugned circular proceeds on an assumption that the litigant depositing the money is the account holder with the petitioner bank and/or is the recipient of the income represented by the interest accruing thereon. This assumption is fundamentally erroneous as the litigant who is asked to deposit the money in Court ceases to have any control or proprietary right over those funds. The amount deposited vests with the Court and the depositor ceases to exercise any dominion over those funds. It is also not necessary that the litigant who deposits the money would be the ultimate recipient of those funds. As indicated earlier, the person who is ultimately granted the funds would be determined by orders that may be passed subsequently. And at that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. However, the litigant who deposits the funds cannot be stated to ....
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....treated as absolving petitioner of its liability to pay tax on the interest accruing on the FD if the petitioner becomes entitled to the same after conclusion of the Court proceedings. 12. In the result, I pass the following: ORDER The petition is hereby allowed. ii. The respondent Nos.3 to 5/Banks are directed not to deduct the TDS in respect of the interest arising/accruing on FDs of the petitioner lying with the respondent Nos.3 to 5/Banks till conclusion of the proceedings initiated by the 6th respondent-CBI against the petitioner. iii. It is however made clear that the alleged liability of the petitioner, if any, to pay taxes in respect of the interest accruing on the said FDs shall a rise after conclusion of the said proceedings. iv. It is made clear that the present order passed will not affect any TDS already deducted by the respondent Nos.3 to 5/Banks prior to interim order dated 09.09.2019 passed by this Court." 7. Thus, as seen from the above order of the jurisdictional High Court on the issue of deduction of TDS u/s 194A of the Act, it has been held by Hon'ble Court that "the entitlement of interest accruing on the FDs ....
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....to be taxed in assessment year when it was actually received by the assessee or right to receive accrued to the assessee. In other words, the assessee has to pay the tax on the same on actual accrual of right to receive this impugned interest by the assessee in any assessment year and not in these assessment years. Accordingly, this ground of appeal of the assessee is partly allowed. 9. Next ground in ITA No.15/Bang/2019 in assessment year 2015-16 is with regard to disallowance u/s 14A of the Act. 9.1 The ld. A.R. submitted that the learned AO has disallowed an amount of Rs. 62,19,040/- as expenditure related to exempt income applying section 14A r.w. Rule 8D without considering that the assessee had sufficient reserves & surpluses and there was no investment cost by way of interest. It was further contended that the investments in sister concerns are made for strategic purposes only and consequently, section 14A had no application. SURPLUS FUNDS. 9.2 He submitted that the learned AO has disallowed an amount of Rs. 62,19,040/- as expenditure related to exempt income applying section 14A r.w. Rule 8D without considering that the appellant had sufficient reserves & surplu....
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.... said section 14 and Rule 8D as is seen from the impugned assessment order. (b). The investment is strategic and beyond the scope of section 14A, and; (c). On merits, the investment is made out of surplus funds and there is no cost involved. 10. The ld. D.R. submitted that as long as an exempted income earned, the expenditure incurred was attributable to earning such exempted income had to be disallowed u/s 14A of the Act. According to the ld. D.R., assessee had made various investments in various Government Securities, Mutual Funds, Equity investments and other Bonds to the extent of Rs. 128,11,67,076/- out of which income earned on investment at Rs. 120,64,48,347/- was exempted. The assessee has received exempted income of Rs. 94,12,976/- during the previous year, therefore, the ld. AO invoked the provisions of section 14A r.w.s. 80D of the I.T. Rules. The ld. AO after considering the working of disallowance u/s 14A of the Act pointed out that while computing the disallowance, the investments in unquoted equity shares were not considered. Hence, the ld. AO redetermined the disallowance u/s 14A of the Act at Rs. 62,19,040/- and the same to be considered. 11....
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....gment dated 30.09.2020). The Hon'ble Madras High Court followed the judgment of the Hon'ble Karnataka High Court in the case of Pargathi Krishna Gramin Bank v. JCIT[(2018) 95 taxman.com 41 (Kar.)]. In the case considered by the Hon'ble Madras High Court, the assessee therein had made voluntarily disallowance u/s 14A of the I.T.Act more than the dividend income earned and the Tribunal confirmed the disallowance made u/s 14A of the I.T.Act. However, the Hon'ble Madras High Court held that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year. The relevant finding of the Hon'ble Madras High Court reads as follow:- "20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs. 41,042/- and the Assessee himself computed disallowance under Rule 8D of the Rule....
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....adras High Court in the case of M/s.Marg Limited v. CIT (supra), it is clear that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s 14A of the I.T.Act while filing the return of income. Therefore, the AO is directed to restrict the disallowance u/s 14A of the I.T.Act to Rs. 27,37,47,187. 3.8 In the result, ground No.II raised by the assessee is allowed." 11.1 In view of the above discussion, we hold that disallowance should be restricted to the amount of exempted income earned by the assessee after considering only the exempted income yielding investments, so as to apply the formula contained in Rule 8D. Accordingly, the issue is restored to the file of ld. AO for fresh consideration. This ground of assessee is partly allowed for statistical purposes. 12. Next ground in ITA No.15/Bang/2019 in assessment year 2015-16 is with regard to computation of income u/s 115JB of the Act. 13. The ld. A.R. submitted that the Ground of appeal on this issue was not taken before the learned CIT(A), and it is a legal ground arising on the same set ....