2023 (7) TMI 847 - AT - Income Tax

Revision u/s 263 by CIT(A) - accrual of income - service charges receivable from the State Government were not accounted for in its returned income - HELD THAT - Admittedly, it is a settled position of law that as per the real income theory, it is the real income alone which is liable to be brought to tax in the hands of the assessee and no taxes can be levied on a hypothetical income, but we are unable to persuade ourselves to subscribe to the contention of the Ld. AR that the said theory would apply to the facts involved in the present case before us. We, say so, with all the conviction for the reason that there is no denying of the fact as had been reported by the assessee's CA in his audit report that income in the form of service charges had accrued to the assessee bank during the year under consideration for the services which were rendered by it to various co-operative societies for purchase of paddy. Now when the aforesaid income had accrued to the assessee in definite terms, therefore, there was no justification for it to have kept the recognizing of the same in abeyance. One can well understand that in case if the loss in question was inextricably interlinked or interwoven with the event leading to generation of the income that had accrued in the hands of the assessee bank, i.e. service charges on procurement of paddy by the assessee on behalf of various co-operative societies and the liability for the same had arisen during the year under consideration, then, the same had to be considered in light of the real income theory as had been propounded by the various Courts, but we are afraid that the facts involved in the present case do not fall within the scope and gamut of any such situation. Once it is established that the commissions were receivable to the bank, then, we are unable to fathom any basis for the assessee bank to claim that the said income was not liable to be brought to tax in its hands during the year in which the same had accrued. We, thus, considering the facts involved in the case before us are unable to persuade ourselves to subscribe to the view taken by the CIT(A), who had dislodged the well-reasoned order of the AO and thus, set-aside his order and uphold the addition that was made by the A.O while framing the assessment vide his order passed u/s.143(3) r.w.s.263. Appeal filed by the revenue is allowed.

Issues Involved:

1. Deletion of addition on account of service charges receivable from the State Government.
2. Adjustment of service charges against excess payments for procurement of paddy.
3. Entitlement to receive service charges as per agreement with the Government.
4. Reliance on distinguishable case decisions for deletion of addition.
5. Adjustment of service charges by State Marketing Federation.
6. Erroneous order of CIT(A) in law and facts.
7. Permission to raise additional grounds during the hearing.

Summary:

Issue 1: Deletion of Addition on Account of Service Charges Receivable from the State Government

The revenue challenged the deletion of Rs.6,40,16,164/- on account of service charges receivable from the State Government. The Pr. CIT observed that the assessee bank had understated its income by not accounting for these service charges. The A.O., following the Pr. CIT's directive, added the amount to the assessee's income. The assessee contended that the final figure for paddy procurement was available only in December 2012, and the service charges were adjusted against losses caused by the bank. However, the ITAT concluded that the service charges had accrued during the year under consideration and should have been recognized as income.

Issue 2: Adjustment of Service Charges Against Excess Payments for Procurement of Paddy

The revenue argued that the CIT(A) erred in allowing relief despite specific mention of service charges being adjusted against excess payments for paddy procurement. The ITAT found that the service charges accrued to the assessee during the year and should have been accounted for, irrespective of subsequent adjustments.

Issue 3: Entitlement to Receive Service Charges as per Agreement with the Government

The revenue contended that the assessee was entitled to receive service charges for paddy procurement as per the agreement with the Government. The ITAT held that the service charges accrued during the year and should have been recognized as income, dismissing the assessee's argument that no income had accrued due to adjustments against losses.

Issue 4: Reliance on Distinguishable Case Decisions for Deletion of Addition

The revenue argued that the CIT(A) relied on case decisions distinguishable from the assessee's case to delete the addition. The ITAT agreed, stating that the facts of the cited cases did not apply to the present case, where the service charges had accrued and should have been recognized as income.

Issue 5: Adjustment of Service Charges by State Marketing Federation

The revenue challenged the deletion of additions when the State Marketing Federation adjusted the service charges against dues from cooperative societies. The ITAT held that the service charges had accrued during the year and should have been accounted for, regardless of subsequent adjustments.

Issue 6: Erroneous Order of CIT(A) in Law and Facts

The revenue claimed that the CIT(A)'s order was erroneous in law and facts. The ITAT agreed, setting aside the CIT(A)'s order and upholding the A.O.'s addition of Rs.6,40,16,164/-.

Issue 7: Permission to Raise Additional Grounds During the Hearing

The appellant sought permission to raise additional grounds during the hearing. The ITAT allowed the revenue's appeal, emphasizing that the service charges had accrued during the year and should have been recognized as income.

Conclusion:

The ITAT allowed the revenue's appeal, concluding that the service charges of Rs.6,40,16,164/- had accrued to the assessee during the year under consideration and should have been recognized as income. The order of the CIT(A) was set aside, and the A.O.'s addition was upheld.

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