TaxTMI 
TaxTMI 
2024 (10) TMI 868
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....n the monthly summary. B. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble ITAT is justified in dismissing the appeal of the Revenue and confirming the decision of the Ld. CIT(A) on the issues of trade discount allowed ignoring the fact that as per normal accounting policy, once the goods are delivered, the sale should have been accounted for the year and in case the amount could not be recovered from the buyer, the same should have been accounted for as "bad debts" and not as "discount". C. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble ITAT is justified in dismissing the appeal of the Revenue and confirming the decision of the Ld. CIT(A) on the issues of shortage of closing stock ignoring the fact that any shortage which has not been accounted in the books, cannot be allowed merely because it is normal and the tax auditor has disclosed the alleged shortfall. D. Whether the impugned order passed by the Hon'ble ITAT is perverse both in facts and law." 2. On a reading of the decision ultimately rendered by the ITAT, we find that insofar as the proposed questions A and C are conce....
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....n Housing and Urban Development Corporation Ltd. v. Additional CIT [2020 SCC OnLine Del 1772] and relevant parts whereof are extracted here in below: "29. The Supreme Court has held that accounting process is to ensure the real income from the transactions in the form of revenue receipts is accounted for the purpose of Income-tax. The application of accounting standard is to show fair and real income which is liable to tax under the Act. The accounting standards of the Institute of Chartered Accountants of India lays down that when uncertainties exist regarding determination of the amount in its collectability, the revenue shall not be treated as accrued and shall not be recognized until collection. It would be apposite to extract the relevant portion of the AS-9, issued by the Institute of Chartered Accountants of India with regard to the effect of uncertainties on revenue recognition. The same reads as under: "9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is....
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...., does not lead to the "certainty" of income accruing to the appellant, so as to bring it within the ambit of "income". Here, the addition has resulted on account of change in accounting policy by recognizing the realised revenue, instead of the assumed revenue on the date of signing of loan agreement. The tax authorities fell in error by laying emphasis on the impressibility of change in accounting in the context of section 145 of the Act. The conspectus of the case law cited by both parties is that, even for an income to be recognized under mercantile law, it is necessary that income should have accrued with certainty. It is trite law that there can be no liability to pay Income-tax on hypothetical income. The regular method of accounting determines only the mode of computing the taxable income and the particular stage at which the tax liability arises. If there is no income, then merely because the assessee had followed the mercantile system of accounting and has in his books of account reflected certain receipt or credits or debits in a particular way, it cannot be said that income has accrued. The position of law on "accrual of income" is well settled. Income accrues only when....
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...., there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 19. In Godhra Electricity Co. Ltd. v. CIT [Godhra Electricity Co. Ltd. v. CIT, (1997) 4 SCC 530 : (1997) 225 ITR 746] this Court Reiterated the view taken in Shoorji Vallabhdas [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] and Morvi Industries [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835]. 20. Godhra Electricity [Godhra Electricity Co. Ltd. v. CIT, (1997) 4 SCC 530 : (1997) 225 ITR 746] is rather instructive. In that case, it was noted that the High Court held that the assessee would be obliged to pay tax when the profit became actually due and that income could not be said to have accrued when it is based on a mere claim not backed by any legal or contractual right to receive the amount at a subsequent date. The High Court however held on the facts of the case that the assess....
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....as to look at things from a practical point of view". (See R.B. Jodha Mal Kuthiala v. CIT [(1971) 3 SCC 369 : (1971) 82 ITR 570] .) This Court took the view that the probability or improbability of realisation has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 23. Applying the three tests laid down by various decisions of this Court, namely: (i) whether the income accrued to the assessee is real or hypothetical; (ii) whether there is a corresponding liability of the other party to pass on the benefits of duty-free import to the assessee even without any imports having been made; and (iii) the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the assess....
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....ata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 17. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter and if there was no change it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken." 27. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue can....
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....e financial statements are approved. Ordinary fluctuations in market values do not normally relate to the condition of the investments at the balance sheet date, but reflect circumstances which have occurred in the following period. 8.4 Events occurring after the balance sheet date which do not affect the figures stated in the financial statements would not normally require disclosure in the financial statements although they may be of such significance that they may require a disclosure in the report of the approving authority to enable users of financial statements to make proper evaluations and decisions. 8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes. 8.6 Events occurring after the balance sheet date....