2018 (12) TMI 646 - HC - Income Tax

Accrual of income - Surcharge levied but not realized - Surcharge for delayed payment contemplated in the bills raised by the assessee and its accounts - whether it would invite payment of tax dehors recovery/payment/receipt of surcharge? - assessee following the mercantile system of accounting - Held that - This Court in a similar matter in The Commissioner of Income Tax, Hisar v. Dakshin Haryana Bijli Vitran Nigam Ltd. Hisar 2014 (11) TMI 58 - PUNJAB HARYANA HIGH COURT while dismissing the appeal of the revenue had recorded that as and when the assessee receives payment of surcharge, it would be obliged to pay tax on such amount. In view of the above, no illegality or perversity could be pointed out by the learned counsel for the appellant in the aforesaid findings recorded by the CIT(A) and the Tribunal which may warrant interference by this Court. However, it is recorded that as and when the assessee receives payment of surcharge, it would be obliged to pay tax on such amount. - decided against revenue

Issues:
1. Dismissal of Revenue's appeal by ITAT regarding addition of surcharge on electricity bills.
2. Right to receive surcharge matured even though consumers did not challenge it.
3. Decision based on High Court's ruling in Assessee's own case.
4. Whether surcharge for delayed payment attracts tax before recovery.
5. Disallowance of accrued but not realized income by Assessing Officer.
6. CIT(A) allowed appeal, citing accounting policy change by the assessee.
7. Tribunal affirmed CIT(A)'s decision based on previous rulings in Assessee's favor.
8. Dismissal of Revenue's appeal by Tribunal and rejection of Assessee's cross objections.

Analysis:
1. The appeal by the revenue challenged the ITAT's dismissal of the addition of surcharge on electricity bills. The issue was whether the surcharge, though not realized, should be included in the total income of the Assessee following the mercantile system of accounting.

2. The ITAT upheld the CIT(A)'s decision based on the Assessee's right to receive the surcharge, even though consumers did not contest it. The Tribunal considered the High Court's ruling in the Assessee's favor in their own case, emphasizing the issue's similarity and the lack of finality in the matter pending before the Supreme Court.

3. The main question was whether the surcharge for delayed payment should attract tax before recovery. The Assessing Officer disallowed the accrued but not realized income of the Assessee, citing the mercantile system of accounting and the right to receive the surcharge.

4. The CIT(A) allowed the appeal, highlighting the Assessee's accounting policy change following the auditors' objection to recognizing income from surcharge on delayed payments. The Tribunal affirmed this decision, considering the Assessee's consistent approach and previous favorable rulings.

5. The Tribunal dismissed the Revenue's appeal and rejected the Assessee's cross objections, noting the lack of new grounds raised during the appellate proceedings. The decision was based on the previous rulings in the Assessee's favor and the consistency in accounting practices.

6. The Court upheld the Tribunal's decision, emphasizing that the Assessee would be liable to pay tax on the surcharge once received. No substantial question of law was found, leading to the dismissal of the appeal due to the lack of merit.

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