2022 (7) TMI 273 - AT - Income Tax

Provision for interest on unutilized fund in its P L account - AO observed that provision of interest is not an allowable expenditure under the Income Tax Act as the assessee did not actually pay this amount of interest and yet debited it to its P L account - HELD THAT - U.P. Government vide G.O. No.B-1/564/10- 7/97 dated 02.03.1998 specifically mentioned that whatever interest income accrues on the advances from the bank would be remitted to the Government by the assessee. The assessee is a Government Company. It has been declared as a construction agency for Government works. It gets advance for execution of construction projects on behalf of the U.P. State Government. These funds are used by the assessee company for meeting the construction cost of the projects. The unutilized funds deposited in banks generate interest income which as per the aforesaid Government Order is to be treated as the income of the Government and is required to be deposited in the Government Treasury. The assessee as such is under legal obligation to pay interest on the unutilized funds to the respective Government Departments and not only this the U.P. Government vide order dated 12.12.2014 has classified the accounting head for the deposit of interest in the Government Treasury. Hon ble Gujarat High Court in the case of CIT vs. SAR Infracon (P) Ltd. 2014 (3) TMI 728 - GUJARAT HIGH COURT while considering a similar stipulation of the Central Government while sanctioning the grant in favour of that assessee stipulated that interest earned on the Central Grant already utilized would form part of the Central Grant limit held that the Tribunal was right in holding that the interest earned on the Central Grant already released could not be said to be the income of the assessee. This decision was followed by the ld. CIT(A) in the earlier years (supra) in the assessee s own case and it has been held by the Tribunal to have been rightly so followed. The fact-situation during the year has admittedly remained unchanged. Addition of bad debts - CIT-A deleted the addition - DR has contended that the ld. CIT(A) failed to consider that the bad debts were never included by the assessee in the debtors and that this is against the requirement of Section 36(2)(i) - HELD THAT - As the amount out of the bad debts was the service tax component. This became unrealizable because of the objection raised by the CAG. It was therefore that the same was reduced from the income of the assessee and was treated as bad debt. As such we do not find any error in the action of ld. CIT(A) in deleting the addition. It has not been shown as to how the assessee a Government Company was not bound by the objections raised by the CAG which rendered the amount in question claimed as bad debts as unrealizable service tax payable. It was due to the CAG s objection that no service tax was payable on Government contract that the amount was treated as bad debts and reduced from the income of the assessee. Accordingly Ground No.3 is also found to be shorn of merit and the same is rejected. Revenue recognition - assessee was deducting profit from work-in-progress and was crediting it to Retention Reserve; that the assessee was required to prepare its profit and loss account as per AS-7 (Revised); that the assessee was not following AS-7 (Revised) and Revenue recognition was not as per AS-7(Revised) - HELD THAT - Issue decided in favour of assessee as relying on own case 2019 (3) TMI 560 - ITAT LUCKNOW