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2019 (2) TMI 1465 - AT - Income TaxDeferred revenue income - Capital Contribution from the members for setting of effluent - spread the capital contribution received over a period of five years beginning from the year in which such contributions were received initially - HELD THAT - We set aside the issue as far as determination of taxability of the receipts received in this year to the file of the AO. AO shall re-work the amount out of the contribution received in this year on the basis of the Tribunal s findings in the Asst.Year 2001-02 - the receipt received by the assessee during the accounting period relevant for this assessment year is also to be spread over, over a period of five years. The total receipt cannot be assessed in this year. As far as the enhancement made by the CIT(A) is concerned, we do not find any error in the order of the ld.CIT(A), because, the assessee ought to have shown that the amount as income on the basis of claim made in earlier years, i.e. whatever amount representing the alleged 1/5th ought to be offered for taxation in this year. FAA has rightly made the enhancement. See EFFLUENT CHANNEL PROJECTS LTD., VADODARA AND OTHERS VERSUS DCIT, CIR. 1 (2) , VADODARA AND OTHERS 2015 (7) TMI 932 - ITAT AHMEDABAD - decided against revenue.
Issues Involved:
1. Taxability of capital contributions received by the assessee. 2. Treatment of deferred revenue income. 3. Penalty proceedings for concealment of income. Issue-wise Detailed Analysis: 1. Taxability of Capital Contributions Received by the Assessee: The primary issue revolves around whether the capital contributions received by the assessee from its members should be taxed in the year of receipt or can be spread over five years. The assessee, engaged in the business of conveyance of industrial effluent and maintenance of a channel, received contributions from its members. It treated these contributions as revenue receipts but recognized only 1/5th of the income each year, deferring the rest over five years. The Assessing Officer (AO) contended that these receipts should be taxed entirely in the year of receipt, as had been done since AY 2001-02. However, the CIT(A) allowed the assessee to spread the taxability of these receipts over five years, following the precedent set in earlier years and upheld by the ITAT. 2. Treatment of Deferred Revenue Income: The CIT(A) enhanced the assessee's income by the amount of ?1,70,25,850/- for AY 2012-13, which represented 1/5th of the contributions received during AY 2008-09 to AY 2011-12 that had not been offered for tax. The CIT(A) noted that the assessee had accepted this method of spreading the income over five years and had failed to disclose this amount in the current year's return. The ITAT, in its order, upheld the CIT(A)'s decision, stating that the assessee should have offered the deferred income for taxation as per the method followed in earlier years. 3. Penalty Proceedings for Concealment of Income: The CIT(A) initiated penalty proceedings under section 271(1)(c) for concealment of income, as the assessee had not disclosed ?1,70,25,850/- as its income for AY 2012-13. The ITAT did not find any error in the CIT(A)'s order regarding the enhancement of income and the initiation of penalty proceedings, as the assessee had failed to disclose the deferred income as required. Conclusion: The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the assessee to spread the taxability of capital contributions over five years. The ITAT also upheld the enhancement of income by ?1,70,25,850/- for AY 2012-13 and the initiation of penalty proceedings for concealment of income. The ITAT's decision was based on the consistency of the method followed in earlier years and the precedent set by the ITAT and the Special Bench in similar cases.
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