TaxTMI 
TaxTMI 
2026 (4) TMI 1391
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....ed that under the head "any other amount allowable as deduction" in the return of income filed, assessee has claimed deduction of INR 8,62,75,515/- and from the details of the same as called for, it is observed that this amount includes adjustment of income from Government grant of INR 6,04,72,932/-. The assessee claimed that accounting treatment was carried out in terms of Ind-AS adjustment and the income was already offered in this account. However, the AO has not accepted the contention of the assessee and made addition of the amount of Government grant of INR 6,04,72,932/- and total income was computed at a loss of INR 1,10,48,77,356/-. 3. Against the said order, the assessee filed an appeal before Ld. CIT(A) who deleted the addition made by the AO therefore, the revenue is in appeal before the Tribunal. 4. All the Grounds of appeal raised by the Revenue are with respect to the deletion of addition made towards the Government grant. 5. In one of the Grounds of appeal, the Revenue has challenged the action of AO/CIT(A) in admitting the additional evidences filed by the assessee without confronting the same to the AO. 6. In support of the Grounds of appeal taken, befo....
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....essed as under: Particulars Amount (INR) Income/ (loss) assessed under section 143(1) (1,16,53,50,288) Add: Addition on account of Government Grant 6,04,72,932 Assessed Income/(Loss) (1,10,48,77,356) Aggrieved by the impugned assessment order, the Assessee filed the appeal before the CIT (A) disputing the erroneous additions made by the Ld. AO. Our Submission During the year under consideration, the Assessee had prepared its financial statements in accordance and compliance with the Indian Accounting Standards ('Ind-AS') as notified by Ministry of Corporate Affairs ('MCA'). The Assessee had prepared and filed its Income-tax return for AY 2018-19 as per the provisions of the Act read with applicable Income Computation and Disclosure Standard ('ICDS'). In earlier years, the Assessee had imported certain equipment required for its hotel project under the Export Promotion Capital Goods Scheme ('EPCG') license obtained from the Customs Department. Under the said EPCG License, the customs duty on all the imported equipment was leviable at a concessional rate and the Assessee in turn, had an obliga....
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....resulting in increase in Total loss amount considered as per Income tax Act. Our submission Re: Treatment of government grant in the books of accounts (a) As Per I-GAAP The Assessee had prepared its financial statements in accordance with Ind-AS (which follows real time/ fair value accounting basis), for the first time, in FY 2016-17. Till 31 March 2016, the Assessee had recorded the government grant as per the provisions of Indian GAAP (which follows historical cost convention). Under the Indian GAAP, Property Plant and Equipment ('PPE') are recorded net of custom duty saved under the EPCG i.e., the customs duty or any part of the cost met by the government/ any other party (not borne by the Assessee) is not to be capitalized with the value of PPE. (b) As per Ind-AS 20 Presentation of grant in Balance Sheet as per Ind AS-20 In the instant case, grant (i.e., the custom duty savings) relates to the fixed assets imported by the Assessee and hence it is pertinent to note the relevant paras (i.e., Para 24 to 27) of Ind AS-20 dealing with presentation of government grant, reproduced as under: "24. G....
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.... in its books: Particulars Amount (INR) Government Grant (liabilities) A/c Dr. 6,04,72,932 To Government grant (Statement of Profit and loss) Cr 6,04,72,932 Please refer page 233 of the paperbook, wherein the Assessee has furnished detail of EPCG licence wise custom duty saved till 31 March 2018 along with the related export obligations to be fulfilled. From the working, your goodself would note that for complete waiver of custom duty amounting to INR 44,82,08,431, the Assessee has to make export sales of INR 322,01,85,104. During the year under consideration, the Assessee had made export sales of INR 43,45,44,958 being 13.49% of total export obligations. Therefore, the Assessee had recorded only 13.49% of total custom duty saved (i.e., INR 44,82,08,431) amounting to INR 6,04,72,932 in its books of accounts. The details of export sales made (i.e., the export obligation met) during the year, based on Foreign Inward Remittance Certificate ('FIRC') are placed on sample basis at pages 234 of paper book. Further, the copies of EPCG licences on sample basis are placed at page 240 of the paper book. The Assessee on year-on-year ba....
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....n already reduced value of the fixed assets and no separate reduction of custom duty from gross value of fixed assets was required. In this regard, the working/reconciliation of the value of fixed assets capitalised in the financial statements drawn in compliance of Ind AS provisions and as capitalised in the tax audit report in compliance of the provisions of the Act is placed at pages 323 of Paper Book. From the perusal of reconciliation, it may clearly be noted that while the custom duty saved (government grant) capitalised in the books of accounts, the same was not included in the cost of fixed assets as reflected in the tax audit report. Thus, it is evident that the Assessee adopted the lower value of fixed assets for tax purposes and claimed depreciation on the lower value of fixed assets. Further, during the AY 2018-19, while computing the taxable income under the head 'profits from business or profession', concession on custom duty amounting to INR 6,04,72,932 recorded as income in compliance of the provisions of Ind- AS (which is merely presentational requirement for fair value disclosure) has been reduced in the computation of income as per the i....
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....e case of Godhra Electricity Co. Ltd. v. CIT: 225 ITR 746. In the case of Shoorji Vallabhdas & Co. (supra), the assessee was entitled to commission at a certain rate under a managing agency agreement. An entry for the amount of commission was made in the books of account. However, subsequently, the rate of commission was reduced but by that time the accounting year had come to an end. The Hon'ble Supreme Court held on a consideration of relevant facts that the commission at the reduced rate could only be treated as real income accrued to the assessee and liable to income-tax. In the opinion of Hon'ble Supreme Court the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of accounts. In the case of Godhra Electricity (supra), the assessee, an electricity supply company unilaterally enhanced the rates of electricity from a certain date which was challenged by the consumers before trial court. Though Trial Court decided in favour of the consumers, the High Court reversed the decision in favour of the assessee company and held that the....
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..... Ltd. v. CIT [1965] 57 ITR 521, this court has said "Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act." In that case the court has approved the following principle laid down by the Bombay High Court in H. M. Kashiparekh and Co. Ltd. v. CIT [1960] 39 ITR 706, 707 : "The principle of real income is not to be so subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language." (emphasis supplied) Ultimately, on the aforesaid facts, the question regarding accrual of income qua the enhanced char....
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.... not determinative for computing tax liability under the provisions of the Act. If an item of income/expenditure is taxable/deductible, the same must be taken into account as per the provisions of the Act and not as per the book entries. Reliance in this regard shall be placed on the judgement of Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT: 116 ITR 1 wherein the court held that it is now well settled that the way in which entries are made by an assessee in his books of accounts is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper principles of accountancy, conceal profit or show loss and entries made by him cannot, therefore, be regarded as conclusive one way or the other. In the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT: 82 ITR 363, the Supreme Court held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his right, nor can the existence or absence of entries in his books of account be decisive....
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....le of depreciation of tax audit report. In this regard, it is respectfully submitted that the Ld. AO has grossly failed to appreciate the correct facts in respect of transaction under consideration. The Ld. AO has failed to understand how the value of concession is derived and how the same is being accounted for in books of account in compliance of Ind-AS 20 provisions. The custom duty saved amounting to INR 6,04,72,932 recorded in statement of profit and loss is not the value of concessional custom duty on the assets imported during the year under consideration. Instead, the aforesaid figure is the proportional income derived based on ratio of export obligations fulfilled/ met by the Assessee during the year under consideration, as credited to the statement of profit and loss in compliance of the provisions of Ind-AS 20. The Assessee had never added (or not included, as also provided by explanation 10 to section 43(1) of the Act) the amount of custom duty saved as a part of cost of depreciable assets for the purpose of computing the depreciation under the provisions of section 32 of the Act. In other words, the depreciable value of fixed assets was alrea....
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....ory auditor has explained that in case of the assets imported under EPCG scheme, concessional custom duty is levied subject to fulfilment of prescribed export obligations. Further, in line with the provisions of Para 12 of Ind AS-20, the aforesaid government grants (custom duty saved) shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate. However, the Ld. AO misinterpreted the note given by statutory auditor and alleged the grant as revenue in nature (which essentially is the Ind-AS 20 treatment of government grant). The Ld. AO failed to appreciate that custom duty, that has been saved by the Assessee, was leviable on the import of capital assets. However, the customs duty was not paid merely because on such imports benefit . was available to the Assessee under the EPCG scheme. Thus, the savings in custom duty cost on imports of fixed assets by the Assessee cannot be said to be in the nature of revenue grant by any stretch of imagination. The Assessee only had to record the income in the statement of profit and loss in compliance of the treatm....
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....s up the custom duty saved and record it as a part of the cost of assets. However, there has not been any change in the tax law and the cost of assets adopted for the purpose of block of assets still remains same (i.e., amount exclusive of custom duty saved). Thus, the Assessee has claimed depreciation on reduced value of assets only to extent of custom duty saved. Thus, the same shall not taxed separately on recording it in statement of profit and loss on account of adoption of Ind AS-20. 8. In the last, Ld.AR for the assessee submits that Ld.CIT(A) after appreciating the facts and by following the judgments of Hon'ble Supreme Court and Hon'ble High Court deleted the additions and requested for the confirmation of the order of ld. CIT(A)s. 9. Heard the contentions of both the parties at length and perused the material available on record. From the perusal of order of Ld. CIT(A), it is observed that assessee has filed the documents with respect to EPCG License granted and the copies of the computation etc., all the documents were forming part of the submissions made before the lower authorities. This fact is verifiable from the assessment order wherein assess....