2019 (4) TMI 965 - HC - Income Tax

Deduction u/s 37 or 35 - accrual of liability - weighted deduction for contributions made to the Institute of Road Transport u/s 35(1)(ii) was available - partly paid during year and partly in subsequent year - HELD THAT - Though the payments to the extent of ₹ 13,53,000/- was made by the Assessee before the end of the previous year i.e, on 31.03.1992 relevant to the Assessment year 1992-1993 and ₹ 20,00,000/- on four different dates in the next financial year 1992-1993, but the Assessee has not even claimed weighted deduction under Section 35 (1)(ii) . Though the said provisions have been referred to in the Assessment Order, and the claim of the Assessee was made in that provision, but since the Assessee has not claimed weighted deduction of one and half times but only on the actual total expenditure incurred by the Assessee in this year on accrual basis, since the direction of the State Government for the payment of ₹ 20,00,000/- came just before the end of the financial year, therefore, in our opinion, the entire expenditure in this regard ie., ₹ 33,55,400/-, deserves to be allowed in the hands of the Assessee under Section 37 for A.Y.1992-1993 in the present case. Therefore, both the authorities below have rightly allowed the same under Section 37 of the Act and the question of applying Section 35 (1)(ii) of the Act to the said contributions did not arise, since the Assessee has not claimed weighted deduction for one and half times of actual expenses in this regard. Therefore, the first question deserves to be answered against the Revenue and in favour of the Assessee. Reimbursement of the amount on account of Students' Concession Passes given by the Assessee which itself is a State Government Undertaking and was bound by the directions of the State Government - cash basis for accounting adoption - year of assessment - whether reimbursement received from the State Government should be taxed in the year in which such reimbursement was actually made by the State Government and not on accrual basis in A.Y.1992-1993? - HELD THAT - There is no statutory compulsion on the part of the Assessee to account for all its income on accrual basis only, but even a mixed or a hybrid system of accounting can be adopted by the Assessee. The only thing is that such method of accounting should be consistently adopted by the Assessee. Since, the reimbursement of Students' Concession Passes, was the issue arising in this year for the first time only, the assessee cannot be faulted in adopting cash basis for accounting for such reimbursement from the State Government in its Profit and Loss Accounts on cash basis. Since the reimbursement by the State for these Assessment Years admittedly were not received during these Assessment years, the same cannot be taxed in these years. Tribunal as well as the CIT (A) in our opinion rightly allowed this practice to be adopted by the Assessee on account of reimbursement only for cash basis. Therefore, the Second Question of Law also deserves to be answered as against the Revenue and in favour of the Assessee.

Summary

Issues involved:
1. Deduction claimed for contributions to Institute of Road Transport not actually paid during the relevant previous year.
2. Entitlement to accounting reimbursement claims for student concession passes on a cash basis while following a mercantile system of accounting.
3. Levying additional tax under Section 143(1A) in the case of reduction of loss without applying the provisions of Section 143(1A)(B).

Analysis:
1. The Revenue filed two Appeals challenging the Tribunal's order for the Assessment Years 1991-1992 and 1992-1993 regarding the deduction claimed for contributions to the Institute of Road Transport. The first issue was whether the deduction should be allowed for contributions not actually paid during the relevant previous year. The Assessee argued that the contributions were made under the directions of the State Government, with part of the sum paid after the financial year but the liability incurred during the relevant year. The court found that since the Assessee did not claim weighted deduction under Section 35(1)(ii) but only the actual expenditure, the entire amount deserved to be allowed under Section 37 of the Act for the relevant Assessment Year.

2. The second issue involved the reimbursement of amounts for student concession passes given by the Assessee on a cash basis despite following a mercantile system of accounting. The State Government reimbursed the Assessee with delays in later years. The court noted that the Assessee, as a Government Corporation, adopted cash basis for accounting for such reimbursements due to delays. It was held that there was no statutory compulsion to account for all income on accrual basis, and a hybrid system could be adopted consistently. Since the reimbursement was received in later years and not during the relevant Assessment Years, the court upheld the Assessee's practice of accounting for such reimbursements on a cash basis.

3. The third issue was whether additional tax could be levied under Section 143(1A) in the case of loss reduction without applying the relevant provisions introduced with retrospective effect. The court did not find merit in the Revenue's Appeals and dismissed them, ruling in favor of the Assessee on both issues.