2015 (8) TMI 657 - HC - Income Tax

Accrual of income - Treatment of the reversing of the lease rentals of the machinery in the books of accounts of the Respondent Assessee - treatment of the unrecovered advance to purchase the machinery - Held that - The monies advanced to the two entities for the purposes of their purchasing machinery in the name of the Assessee did not fructify in the actual purchase of machinery. The Assessee filed a suit against one of the entities for recovery of the monies. When the Assessee learnt that no machinery was actually purchased, a revised return was filed. It is stated that the lease rental income was reversed and tax of the said amount was paid during the Assessment Year ( AY ) 1995-96. For the year 1996-97, the lease rental was credited to the Profit & Loss Account and was treated as income. In 1997-98, the Assessee stopped crediting lease rental and, therefore, did not show it in the accounts. Therefore, in the facts and circumstances, with the Assessee not having claimed the benefit of Section 32AB of the Act, the question of treating lease rental as income on accrual basis did not arise. - Decided against revenue.

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal for Assessment Years 1996-97, 1997-98, and 1995-96.
2. Treatment of reversing lease rentals of machinery in the books of accounts.
3. Treatment of unrecovered advance for machinery purchase.

Analysis:
1. The judgment pertains to appeals under Section 260A of the Income Tax Act, 1961, challenging the ITAT's order for the Assessment Years 1996-97, 1997-98, and 1995-96. The Respondent was asked to address queries regarding the treatment of reversing lease rentals of machinery in the books of accounts and the unrecovered advance for machinery purchase during the hearing.

2. It was revealed that monies advanced for purchasing machinery did not result in actual purchases, leading the Assessee to file a suit for recovery. Subsequently, a revised return was filed, reversing lease rental income and paying tax for the amount during the Assessment Year 1995-96. In 1996-97, lease rental was credited to the Profit & Loss Account and treated as income. However, for 1997-98, the Assessee ceased crediting lease rental and omitted it from the accounts.

3. The judgment concluded that since the Assessee did not claim the benefit of Section 32AB of the Act, the question of treating lease rental as income on an accrual basis did not arise. Consequently, the Revenue's query regarding this matter was deemed irrelevant, leading to the dismissal of the appeals.