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TMI Blog2016 (1) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... ter furnishing security and also on personal guarantee of the Directors of the company, cannot be treated as income of the assessee on receipt basis in the year of receipt. On going through the facts of the present case, we noticed that issue is not yet final. The Hon'ble A.P. High court, finally dismissed the review petition filed by the DGNP on 18.6.2014 and upheld the arbitration award. Therefore, in our opinion, the assessee has got absolute right to receive the amount, when the Hon'ble A.P. High Court finally upheld the arbitration award and not in the impugned assessment years. Under these circumstances, interim amount received by the assessee cannot be brought to tax as income of the assesse for the assessment years 2005-06 & 2008-09. - Decided in favour of assessee - ITA Nos. 256 & 257/Vizag/2012 - - - Dated:- 4-12-2015 - V. Durga Rao, JM And G. Manjunatha, AM For the Appellant : Shri G V N Hari, AR For the Respondent : Shri G Guruswamy, DR ORDER Per G. Manjunatha, Accountant Member These appeals filed by the assessee are directed against the common order of CIT(A), Visakhapatnam dated 28.3.2012 for the assessment years 2005-06 2008-09. Since, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Andhra Pradesh High Court finally confirmed the order of the District Court, Visakhapatnam to the extent of arbitration amount but, modified the award to the extent of interest, wherein the interest rate was brought down from 17.5.% to 12% per annum. 3. The DGNP, aggrieved by the order of the Hon'ble A.P. High Court, filed a special leave petition before the Hon'ble Supreme Court. The Hon'ble Supreme Court allowed the DGNP to withdrawn the SLP with a liberty to file review petition before the Hon'ble Andhra Pradesh High court, seeking clarification on the issue raised before the Supreme Court. The DGNP filed a review petition and requested the Hon'ble A.P. High Court to review its order dated 1.4.2009 along with a stay petition praying for stay of all further proceedings till disposal of the review petition by the High Court. Both these petitions are pending before High Court and Hon'ble High Court neither passed any interim order nor stayed the proceedings. 4. The assessing officer, based on the information that the assessee company has received interim award amount of ₹ 3 crores each in assessment year 2005-06 2008-09, had reasons to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court judgement in the case of Hindustan Housing and Land Developers Trust Vs. CIT 161 ITR 524 and also placed its reliance on Hon'ble A.P. High court in the case of CIT Vs. Devta Chandra Roy sons 154 ITR 893. The assessing officer, however, did not convinced with the reply filed by the assessee held that even though, the issue is pending before the court of law, the interim receipts will be assessed in the hands of the assessee in the year of receipt, therefore, made an addition of ₹ 3 crores each for the assessment year 2005-06 2008-09. To justify his stand, the A.O. relied upon judgement of Hon'ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) 315 ITR 1 and also AP High Court judgement in the case of CIT Vs. M. Sarojini Devi 250 ITR 759. 5. Aggrieved by the assessment order, the assesse, preferred an appeal before the CIT(A). Before CIT(A), the assessee reiterated the submissions made before the assessing officer. The assessee further contended that the AO's action of reopening the assessment is invalid, as the AO did not have material evidence before him to come to the conclusion that income had escaped assessment. However, the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative of the assesse, submitted that the arbitration award is not reached finality, as the principals have challenged the arbitration award before the Hon'ble Andhra Pradesh High court. The A.R. further submitted that the Hon'ble High Court of Andhra Pradesh allowed the assessee to withdraw the interim amount by furnishing adequate security and also taking personal guarantee of the Directors of the company, therefore in the event of the Hon'ble High Court reverse the order of arbitration, then, the assessee have to refund the entire amount to the principals. Hence, until the arbitration award reaches finality, the interim amount cannot be considered as an income of assessee on receipt basis. The A.R. further submitted that the assessee has received these amounts in the financial year relevant to the assessment year 2005-06 2008-09 and during that period the matter was pending before the Hon'ble A.P. High Court. The Hon'ble A.P. High court vide its order dated 1.4.2009 confirmed the order of district court in respect of principal amount, however, modified the interest payable from 17.5% to 12% per annum. The A.R. further submitted that the DGNP filed further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first issue came up for our consideration is, whether the A.O. is right in reopening the assessment. In this case, the A.O. has reopened the assessment based on the information that the assessee has received ₹ 3 crores each in assessment year 2005-06 2008-09 towards interim amount, in view of the directions of the Hon'ble A.P. High Court. The A.O. noticed that the assessee had not offered the said amount for taxation, therefore, the income chargeable to tax has been escaped for the assessment years under consideration, hence, issued notice u/s 148 of the Act. From the facts, it is clear that the A.O. has issued notices u/s 148 of the Act, for both the assessment years, which are within the time prescribed under the provisions of the Act. Further, it is also clear that the A.O. has material evidence before him to form a belief that the income chargeable to tax has escaped assessment. Under the provisions of section 147 of the Act, the assessing officer is authorized to assess or reassess income chargeable to tax, if he has a reason to believe that the income for any assessment year has escaped assessment. The primary requirement of section 147 of the Act, is that there s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the requisite security got an amount of ₹ 3 crores each in the assessment year 2005-06 2008-09. The assessing officer brought to tax the above said amounts in the assessment year 2005-06 2008-09. The assessee's contention was that the matter is still pending before the Hon'ble A.P. High Court, therefore, until the matter reaches finality, the interim amount received by it cannot be taxed in the year under consideration. 10. The issue before us is whether the matter attain finality or not and the interim amount received by the assessee is taxable on receipt basis for the year under consideration needs to be examined in the light of the facts of the present case. The subject matter of work started in the year 1991 and because of disputes between the assessee company and the principals the matter went to arbitration. Though the arbitration award was passed in the year 2010, the principals have challenged the arbitration award before the district court. The district court vide its order dated 22.10.2002 have dismissed the appeal filed by the principals. The DGNP further preferred an appeal before the Hon'ble A.P. High Court and the matter is still pending at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to the conclusion that the said receipts are construed as income accrued to the assesse for the year under consideration. 12. The arbitration proceeding is still under challenge before the Hon'ble A.P. High Court. Therefore, the amount received by the assessee on furnishing security, cannot be at any stretch of imagination treated as income of the assessee on receipt basis for the year under consideration, because of the reason that the principals have challenged the very basic applicability of arbitration act before the Supreme Court. Though the Supreme Court did not give any finding on the issue raised by the DGNP, it allowed the DGNP to withdraw its appeal, with a right to seek clarification from the Hon'ble A.P. High Court on the applicability of the provisions of arbitration act. In the event, the Hon'ble A.P. High court reviewed its order and decided the issue in favour of DGNP, then, the whole amount including the amount received by the assessee is to be refunded to the principals. Therefore, in our opinion, the ad-hoc amount received by the assessee, after furnishing security cannot be considered as income of the assessee on receipt basis. On perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the cases, we are of the view that the judgement referred by the A.O. in the case of CIT Vs. Ghansham (HUF)(supra) is delivered under different context, i.e. keeping in view of the provisions of section 45(5) of the Act, wherein the statute itself provides for taxation of enhanced compensation received on account of compulsory acquisition of land in the year of receipt. The Hon'ble Supreme Court, after referring the provisions of section 45 and conditions for the chargeability of the amount under the head capital gains, the court stated that the capital gain is an artificial income. From this scheme of section 45, it is clear that the capital gain is not an income which accrues from day to day during the specific period, but it arises at a fixed point of time namely on the date of transfer. According to the Hon'ble Supreme court section 45 defines capital gains, it makes them chargeable to tax and it allots an appropriate year for such charge and section 45 lays down the mode of computation after capital gain and deductions therein. Therefore, in our considered opinion the case law relied upon by the revenue is not at all applicable to the facts of the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court, in the case of DSL Enterprises Pvt. Ltd. Vs. Mrs. N.C. Chandratre ITO others (2013) 84 DTR 451 (Bom), under similar circumstances held as under: Held The facts would indicate that the challenge to the arbitral award is pending appeal and (he award is yet to attain finality. There can be no manner of dispute even as a matter of first principle, about the fact that the amount of ₹ 65 crores which was permitted to be withdrawn against a bank guarantee for an equivalent amount does not represent income which has accrued to the assessee. So long as the challenge to the arbitral award is alive and is pending, and the legality of the arbitral award has not attained finality, the amount which has been awarded does not represent income which has accrued. Upon the withdrawal of the amount by the assessee, the amount has been invested in a fixed deposit of bank which has marked a lien to the extent of ₹ 65 crores; this corresponds to the amount of the bank guarantee which it has furnished. The interest which has accrued on the amount of the fixed deposit cannot be regarded at this stage as income which has accrued to the assessee. (Para 10) The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent is directed to issue a certificate under s.197 for financial year 2012-13. 17. In yet another case, the Hon'ble High court of Delhi, in the case of CIT Vs. Sarvatra Road Runners Pvt. Ltd. (2008) 301 ITR 443, while dealing with similar issue held as under: On a reading of the interim orders passed by the Madhya Pradesh High Court on 14th Oct., 1996 and 13th Dec., 1996, it is quite clear that the assessee had no right to receive the money in the sense that no right had accrued or vested in the assessee in this regard. In the event SECL succeeded in the appeal filed by it, the assessee was obliged to return the amount by way of restitution under s. 144 of the CPC. In view of the above, we are of the opinion that both the CIT(A) as well as the Tribunal were correct in law in deleting the addition of ₹ 3,28,65,728 made by the Assessing Officer. No substantial question of law arises for consideration. The appeal is dismissed. 18.The Hon'ble Delhi High Court, in the case of Paragon Constructions (I) Pvt. Ltd. Vs. CIT ANR (2005) 274 ITR 413 (Del) held as under: In the instant case it is very clear that it was only in view of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional demand. It was also noticed that repeated rectifications of assessment on account of enhancement of compensation by different Courts often resulted in mistakes in computation of tax. Therefore, with a view to remove these difficulties, the Finance Act, 1987 inserted s. 45(5) to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. (Para 16 18) Interest under s. 28 of Land Acquisition Act, 1894, unlike interest under s. 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under s. 34. So also additional amount under s. 23(1A) and solatium under s. 23 (2) form part of enhanced compensation under s. 45(5)(b). Contention that s. 45(5)(b) deals only with reworking, its object is not to convert the amount of enhanced compensation into deemed income on receipt is not sustainable. The scheme of 5. 45(5) was inserted w.e.f. 1st April, 1988 as an overriding provision. As stated above, compensation under the L.A. Act, 1894, arises and is payable in multiple stages which does not happen in cases of transfers by sale etc. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1969-70 relevant to the asst. yr. 1970-71. In the two expressions payable and due there is difference only of degree and time. The money is payable immediately on the date of acquisition or sale under the Act, but it becomes due for payment at some future date, if there is a dispute about the price. In the event of dispute about the price, quantification of the price is done only through the award of the arbitrator. In the particular facts and circumstances of this case, on acquisition of the plant and the machinery of the assessee, its price under s. 7A of the Electricity Act had become payable on the date of the acquisition and it was quantified when the umpire resolved the dispute between the parties and made the award, but it became due only when the decree in terms of the award was passed by the Civil Court under s. 17 of the Arbitration Act. When an award is passed and is filed in the Court, the award as such is not enforceable and the amount awarded therein does not become recoverable till the Civil Court puts its seal on it and makes a rule by passing a decree in terms thereof. The award when filed in the Court is liable to be confirmed, remitted for reconsideration no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation award after furnishing security and also on personal guarantee of the Directors of the company, cannot be treated as income of the assessee on receipt basis in the year of receipt. On going through the facts of the present case, we noticed that issue is not yet final. The Hon'ble A.P. High court, finally dismissed the review petition filed by the DGNP on 18.6.2014 and upheld the arbitration award. Therefore, in our opinion, the assessee has got absolute right to receive the amount, when the Hon'ble A.P. High Court finally upheld the arbitration award and not in the impugned assessment years. Under these circumstances, interim amount received by the assessee cannot be brought to tax as income of the assesse for the assessment years 2005-06 2008-09. Therefore, we direct the A.O. to delete the additions of ₹ 3 crore each made for the A.Y. 2005-06 and 2008-09. 23. The next issue came up for our consideration, is the taxability of a waiver of bank loan amounting to ₹ 1,27,00,603/-. During the course of hearing, the A.R. of the assessee did not press the ground. Therefore, we dismiss the ground raised by the assessee as not pressed. 24. The next issue ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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