AI Drafter 
TaxTMI 
TaxTMI 
2025 (6) TMI 646
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....iated that as per the Accounting Standard 9- Revenue Recognition, recognition of revenue shall be postponed when there is uncertainty in ultimate collection of the same. 1.3. The learned CIT(A) and the learned AO ought to have appreciated that the Appellant did not recognize the royalty income since there was no certainty regarding ultimate collection of the same. 1.4 The learned CIT(A) and the learned AO ought to have appreciated that the customer had not paid the royalty to the Appellant for past years as well as current year and hence, it was not reasonably certain that the ultimate collection would be made. 1.5 The learned CIT(A) erred in not considering the documentary evidences furnished by the Appellant which clearly demonstrated that subsequently the Appellant was failed to collect the royalty and has actually written-off the same as amount no longer receivable. 1.6 The learned CIT(A) and AO erred in making the addition stating that there is no uncertainty about collectability of revenue as the customer is depositing the TDS. 1.7 The learned CIT(A) and learned AO ought to have appreciated that deposit of TDS to government by the ....
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....pellant in the course of the assessment proceedings only when the AO directed the Appellant to furnish the reconciliation for TDS as per ITR and Form 26AS. The appellant had claimed credit of TDS being fully conversant of the fact that the said income had accrued to it and the same was appearing in its Form 26AS. 4.4 Further, the claim of the appellant company that the TDS credit was inadvertently claimed is a vague & lame excuse. The assessee company had deposited "self Assessment Tax after reducing the credit of alleged TDS from the tax liability computed. In case the same would have been inadvertently claimed in ITR, the assessee company would have paid Self Assessment Tax excluding the alleged TDS and would have claimed refund to that extent. However, it is not the fact of the case. 4.5 From the above stated facts of the case it is evident that the appellant company had willfully avoided to include the alleged amount of professional income in its return of income. Accordingly, the claim of the Appellant is not admissible since it has claimed credit of TDS on royalty income. Hence, i find no infirmity in the order of the AO and therefore, this ground of appeal ....
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....ot been offered to tax. Further, it was held that when the concerned party is deposition TDS on behalf of the Appellant then there appears no question about collectability of such income. 2.3.2. Such findings of the AO were upheld by the CIT(A), without appreciating/ considering the submissions made by the Appellant, by stating the Appellant had willfully avoided to include the alleged amount of professional income in its return of income. Accordingly, the claim of the Appellant is not admissible since it has claimed credit of TDS on the royalty income. Appellant's submissions: Brief Facts 2.3.3. It is respectfully submitted that during the course of its business, the Appellant entered into a sublicense agreement with The Indure Limited ('TIL' whereby TIL was granted the right to manufacture and sell a restricted range of Warman Pumps and parts. Pursuant to this agreement, in consideration of grant of a non-exclusive license by the Appellant, TIL was required to pay royalty to Appellant for use of the brand name. Copy of sub-license agreement entered between the Appellant with TIL is at pages 120 to 147 of the paper-book. 2.3....
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....rual of an income takes place but its realization becomes impossible, such hypothetical income cannot be charged to tax. In the case of mercantile system of accounting, an accruing income can be charged to tax only when it is likely to be received under the given circumstances. In a case where receipt of income, after its accrual, is marred with complete uncertainty as to its realization, such an accrual gets deferred to the point of clearing of the clouds of uncertainty over it. 2.3.11 It is well settled principle by the Apex court in various judgements that "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a Hypothetical income, which does not materialize". 2.3.12. Further, it is submitted that the income can be brought to tax only when the Appellant has actually received or likely to receive or certainty of receiving the income in the near future. Income cannot be reco....
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....e-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income" which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. This was exactly what had happened in instant case. Here the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account. A mere book-keeping entry cannot be income, unless income has actually resulted, and in the instant case, by the change of the terms the in....
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....t is fact on the record. This alone cannot be the reason to sustain the rental income. As discussed in the earlier para, it is fact on record that assessee has no certainty of receiving any rent. Therefore, we reject the contention of Ld. CIT(A). However, we notice that assessee has taken the TDS credit to the extent of Rs. 38.58 lakhs. The AO can treat the amount of Rs. 38.58 lakhs as the income from head "Income from House Property". * Essar Steel Metal Trading Limited v. DCIT: I.T.A. No. 140/Mum/2023 * ACIT v. Shri Rajeev Tandon ITA No. 461/LKW/2013 2.3.20 Based on above, it is submitted that the AO as well CIT(A) has erred in concluding the royalty arising out of sublicense agreement is the undisclosed professional income, ignoring the fact that such amount was never recognised by the Appellant in its books of accounts and thus it was not the real income of the Appellant. Mere deduction of the TDS on such amount by TIL would, in any manner, not lead to the conclusion that such income to be taxed in hands of Appellant. 2.4 Re: Ground of appeal no.2: Consequential." 7. The ld. AR relied upon the above written submission as submitted that the....
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....s beyond doubt that there was no ultimate collection of the sum; in fact, it is the assessee had recognised the income in the subsequent Financial Year 2012-13. Thus, it cannot be the case that the income has already escaped from the exchequer because at the most there is timing difference in the accounting of the income and the tax rates were uniform for both years. In fact, invoices were also raised in the subsequent financial year. The payee company on the other hand may have deducted tax at source but ipso facto it does not tantamount to have crystallized the income in the hand of the appellant company in view of the fact that the ultimate collection with reasonable certainty was lacking and the revenue recognition was postponed to the extent of certainty involved. In the accounting standards prescribed by the Institute of the Chartered Accountant of India are binding upon the preparation of financial statements u/s 211 of the Companies Act 1956. The relevant portion of AS9 is extracted below:- 8. The Use by Others of Enterprise Resources Yielding Interest, Royalties and Dividends 8.1 The use by others of such enterprise resources gives rise to: (i) i....