TaxTMI 
TaxTMI 
2026 (7) TMI 1024
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..... 3,03,96,760/-. The return was processed under section 143(1) of the Act. The case was selected for scrutiny assessment under CASS and notice under section 143(2) dated 02.09.2014 was issued and served upon the assessee. Thereafter, notice under section 142(1) read with section 129 of the Act along with questionnaire, was issued due to change in incumbency and for calling for necessary details. In response, the assessee furnished the details called for. 3. In the assessment order, the Assessing Officer computed the income of the assessee by taking income as per statement at Rs. 3,16,39,696/-, making addition of Rs. 3,97,000/- towards disallowance of expenses and Rs. 2,50,00,000/- towards undisclosed income, and after allowing adjustment of brought forward business loss of Rs. 12,20,214/- and brought forward unabsorbed depreciation of Rs. 22,723/-, assessed total income at Rs. 5,57,93,759/-, rounded off under section 288A to Rs. 5,57,93,760/-. 4. The principal dispute in Ground Nos. 1 to 5 of the Revenue's appeal relates to deletion by the learned CIT(A) of addition of Rs. 2,50,00,000/- made by the Assessing Officer on account of alleged undisclosed income arising from Deed o....
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.... that the auditors of the company were of the view that the same should be offered for taxation only when it was reasonably certain that the sum would be received. The assessee also stated that the income would be offered for tax once the same was received and that even till the date of the said letter, after a lapse of three years, the payment had not been received. 7. The Assessing Officer did not accept the explanation of the assessee. He held that the assessee had not furnished any reasonable cause to show that there was uncertainty regarding receivability of the amount and had not submitted any communication from the assignee explaining the reason for non-payment of the balance amount. The Assessing Officer also held that the explanation based on the auditor's view appeared to be an afterthought. According to the Assessing Officer, the assessee was following mercantile system of accounting and, as per the Deed of Assignment, the amount had become due to be received. The Assessing Officer further observed that the assessee's other concern, M/s. Neev Infrastructure Pvt. Ltd., had offered the entire receivable amount of Rs. 72,50,00,000/- for taxation in A.Y. 2013-14. He, ther....
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....emaining amount continued to be disputed. The assessee also referred to subsequent Consent Terms dated 30.05.2025 approved by the Hon'ble Bombay High Court on 02.06.2025 in Arbitration Application (L) No.38847 of 2022 and submitted that the said development showed that the entire amount of Rs. 2,50,00,000/- had not accrued in A.Y. 2013-14. 10. The learned CIT(A) called for remand report from the Assessing Officer on the admissibility of additional evidences and on the merits of the additions made. The Assessing Officer, in the remand proceedings, accepted that the additional evidences were relevant and essential to decide the grounds before the learned CIT(A) and stated that the same may be admitted. On merits, however, the Assessing Officer maintained that the Deed of Assignment gave rise to enforceable right to receive the amount and that the assessee, following mercantile system of accounting, was required to offer Rs. 2,50,00,000/- in A.Y. 2013-14. 11. After considering the assessment order, submissions of the assessee, additional evidences, remand report and rejoinder, the learned CIT(A) deleted the addition of Rs. 2,50,00,000/-. The learned CIT(A) observed that, althoug....
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....s. 3,97,000/- and added the same to the total income of the assessee. Penalty proceedings under section 271(1)(c) of the Act were also initiated separately on this issue. 14. Before the learned CIT(A), the assessee submitted that the expenditure was genuine and was incurred for business purposes. It was explained that Rs. 2,47,000/- represented MCGM property tax paid by demand draft No.698265 and debited from the assessee's current account with Vijaya Bank on 11.12.2009; Rs. 1,00,000/- represented advertisement expenses paid to M/s. Pudhari Publications Pvt. Ltd. for creative advertisement relating to the Kamgar real estate project, paid vide cheque No.227483 on 14.08.2010 from the current account with Vijaya Bank; and Rs. 50,000/- represented advertisement expenses paid to M/s. Ni Sa Entertainments vide cheque No.227470 on 04.05.2010 from the current account with Vijaya Bank for Kamgar Property. The assessee further submitted that it followed percentage completion method of accounting; that these expenses related to F.Y. 2009-10, relevant to A.Y. 2010-11, and were then transferred to work-in-progress; and that A.Y. 2013-14 was the year in which the assessee first recognised rev....
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....upon additional evidences filed under Rule 46A which were created after the completion of assessment and which did not alter the factual position regarding accrual of income. 6. On facts and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 3,97,000/- made by the Assessing Officer under section 37(1), without appreciating that certain bills were not in the assessee's name, some were in the name of 'Neev Group,' and one advertisement bill of Rs. 50,000/- was unsupported by any evidence. 7. On facts and in law, the learned CIT(A) failed to appreciate that the Assessing Officer had rightly disallowed the aforesaid expenditure after proper verification during assessment proceedings and that the assessee failed to substantiate the genuineness of the claim with proper documentary evidence. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be. The appellant, therefore, prays that on the ground stated above, the order of the Ld. CIT (A)-52, Mumbai, may be set aside and that of the Assessing Officer restored. 17. The learned Authorised Representative (AR), during the course of hear....
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....dition of Rs. 2,50,00,000/- calls for no interference and the grounds raised by the Revenue on this issue deserve to be dismissed. 20. The learned Departmental Representative (DR), per contra, strongly relied upon the assessment order as well as the remand report submitted by the Assessing Officer during the appellate proceedings before the learned CIT(A). He submitted that though the Assessing Officer, in the remand report, had stated that the additional evidences produced by the assessee may be admitted, the Assessing Officer had categorically objected to the claim of the assessee on merits. It was submitted that the learned CIT(A) erred in deleting the addition of Rs. 2,50,00,000/- without properly appreciating the detailed factual findings recorded by the Assessing Officer in the remand report. 21. We have considered the rival submissions and perused the material available on record, including the assessment order, the order of the learned CIT(A), the remand report of the Assessing Officer, the Deed of Assignment dated 19.03.2013, the subsequent correspondence, the civil proceedings and the Consent Terms dated 30.05.2025 approved by the Hon'ble Bombay High Court on 02.06.....
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....orrectly noticed that though the assessee follows mercantile system of accounting, revenue recognition under Accounting Standard-9 is governed by the principle of reasonable certainty of ultimate collection. The concept of "reasonable certainty" is not alien to the mercantile system. It operates at the stage of determining whether income has, in fact, accrued as real income. Where the receipt is contingent upon performance of conditions and is subject to adjustment or reduction, the mere mention of a figure in the deed does not automatically result in taxable accrual. 25. The remand report itself records that the payment of Rs. 2,50,00,000/- to the assessee was linked with fulfilment of the condition stated in clause 4(i)(b) of the Deed of Assignment. The report further records that, under clause 4(ii), if the assignors failed to comply with or fulfil the conditions set out in clause 4(i)(b), the assignee was entitled to undertake or perform such obligations and deduct the cost from the second tranche balance consideration payable to the assignors. Thus, the remand report, while arguing against the assessee, itself brings out that the amount was not simpliciter payable without r....
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....Similarly, a claim for interest in legal proceedings is a litigation claim and cannot conclusively determine the year of accrual of principal income for the purpose of the Act. The fact that the assessee was required to issue notices in 2018 and thereafter institute proceedings itself indicates that the receipt was not certain in A.Y. 2013-14. 29. The Consent Terms dated 30.05.2025 approved by the Hon'ble Bombay High Court on 02.06.2025 have also been considered by the learned CIT(A). The said Consent Terms are subsequent in point of time, but they are relevant evidentiary material for examining whether the assessee's stand regarding uncertainty of receipt was bona fide and supported by subsequent developments. The learned CIT(A) has not treated the Consent Terms as the source of non-taxability. Rather, he has considered them as corroborative material demonstrating that the receipt of the third tranche was conditional, disputed and not reasonably certain. This approach, in our view, is legally sustainable. Subsequent events may be looked into when they throw light on the true nature of the right claimed in the earlier year, particularly where the issue is whether there was reaso....
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....he time of the third tranche, such right being conditional. The learned CIT(A) also took note of the Consent Terms approved by the Hon'ble Bombay High Court and the judicial principles relied upon before him and held that the assessee had rightly not offered Rs. 2,50,00,000/- in A.Y. 2013-14. 33. We find no infirmity in the aforesaid findings of the learned CIT(A). The learned CIT(A) has not deleted the addition merely on sympathetic consideration or merely on the basis of subsequent settlement. The deletion is founded on the central fact that the balance amount of Rs. 2,50,00,000/- was conditional, disputed, not reasonably certain of collection, and not crystallised as an enforceable income during the previous year relevant to A.Y. 2013-14. The remand report, when read as a whole, does not dislodge this conclusion. On the contrary, the remand report confirms that the payment was linked with clause 4(i)(b) and subject to the mechanism of clause 4(ii). These very features support the view that revenue recognition in A.Y. 2013-14 was not warranted in respect of the disputed balance amount. 34. In view of the above discussion, we uphold the order of the learned CIT(A) deleting t....