2017 (1) TMI 1260 - HC - Income Tax

Premium received on sale of assets - Addition on account of Revenue recognition of the premium received on allotment of plots - Held that - Assessee was following cash method of accountancy and upto the preceding year of assessment, the income of the assessee was exempted under Section 10 (20A) of the Income Tax Act being the local authority. The year under consideration was the first year after the exemption period was over. Therefore, the learned Tribunal has rightly held that, no addition was called for on account of Revenue recognition of the premium received on allotment of plots by way of spreading the revenue for a period of 10/20/25 years on the basis of AG (Audit) Report. No substantial question of law. Appeal is ADMITTED to consider the following substantial question of law (B) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in confirming the decision of CIT (A) and deleting addition of ₹ 20,68,73,968/on account of depreciation, when the assessee is assessed u/s. 11 (1) of the Act?

Summary

Issues:
1. Revenue recognition of premium received on sale of assets
2. Addition of depreciation in assessment under section 11(1) of the Income Tax Act

Analysis:

Issue 1: Revenue recognition of premium received on sale of assets

The appeal raised the question of whether the assessee was obligated to provide details of the premium received on the sale of assets, and if the Assessing Officer was justified in calculating the revenue recognized when no such details were furnished. The Tribunal noted that the assessee followed the cash method of accountancy and had previously been exempt under Section 10(20A) of the Income Tax Act as a local authority. In the year under consideration, the exemption period had ended. The Tribunal held that no addition was necessary for revenue recognition of the premium received on allotment of plots, as suggested by the AG (Audit) report, for a period of 10/20/25 years. The Tribunal emphasized that the premium was not specific to one year but covered multiple years, and the amount should be accounted for based on the lease period. It was also highlighted that the assessee was engaged in charitable activities related to public utility services, specifically maintaining ports in Gujarat. The Tribunal concluded that no addition was warranted for revenue recognition, as the accounts were maintained on a cash basis, and the income received in a year had to be accounted for without apportioning any advance premium received.

The High Court concurred with the Tribunal's findings, dismissing the appeal as no substantial question of law arose from the issue.

Issue 2: Addition of depreciation in assessment under section 11(1) of the Income Tax Act

Regarding the second issue, the Tribunal confirmed the decision of the CIT (A) to delete the addition of a significant amount on account of depreciation. The Tribunal's decision was challenged in the present appeal. However, the High Court admitted the appeal to consider the substantial question of law related to the correctness of confirming the decision to delete the depreciation addition in the assessment under section 11(1) of the Income Tax Act. This issue was scheduled to be heard along with another tax appeal involving the same question of law.

In summary, the judgment addressed two primary issues related to revenue recognition and depreciation addition in assessments under the Income Tax Act. The Tribunal's decisions were upheld in the first issue, while the second issue was admitted for further consideration by the High Court.