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TMI Blog2019 (7) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) in holding that the amount accrued to the Appellant as income for the year under appeal and was also received. - Decided against assessee. - ITA No. 1097/MUM/2016 - - - Dated:- 26-6-2019 - Shri Saktijit Dey (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the Assessee : Mr. Anant Pai, AR For the Revenue : Mr. Rajeev Gubgotra Mr. Ganesh Barc, DRs ORDER PER N.K. PRADHAN, AM The Background Facts The background facts in this case are to be narrated. The assessee filed its return of income for the assessment year (AY) 2011-12 on 30.09.2011 along with the Income Expenditure Account, Balance Sheet and Audit Report in Form No. 10B declaring income at Rs. Nil. 2. The Assessing Officer (AO) completed the assessment u/s 143 (3) on 25.03.2014 on a total income of ₹ 2,03,37,630/-. In appeal, the Ld. Commissioner of Income Tax (Appeals)-1, Mumbai [ in short CIT (A) ] confirmed the assessment made by the AO. Aggrieved by the order of the Ld. CIT (A), the assessee filed an appeal before the Tribunal. The ITAT F Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission, while disposing of the Rectification Application. 7. In the above view, the impugned order dated 16th January, 2018 is quashed and set aside. The Rectification Application filed by the petitioner is restored to the Tribunal for fresh disposal in accordance with the decision of this Court in Safari Mercantile Pvt. Ltd. (supra) and Gyan Constructions (supra). 8. The petition is disposed of in the above terms. 4. By following the above order of the Hon ble Bombay High Court, the ITAT F Bench, Mumbai vide order dated 24.08.2018 recalled the original order dated 25.05.2017 and directed the Registry to fix the appeal before the Regular Bench for fresh hearing. The fresh hearing took place before F Bench of the Tribunal. The Appeal 5. As mentioned earlier, the primary grievance of the assessee in the Writ Petition filed before the Hon ble High Court was that the Tribunal did not consider in its order dated 25.05.2017 the claim u/s 11(1) Explanation-2 of the Act to hold on merits that it is not entitled to the benefit of Section 11(1) of the Act. We may me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish a school. It has entered into the Lease Agreement with M/s Kabra Associates dated 27th January 2009 (Photocopy of Lease Deed Enclosed) in which the lessor has agreed to grant to the lessee, lease of the said property for the purpose of establishing a school. The lessee has acquired the said property for the lease term of 96 years. 3. Immediately upon the signing of this lease deed, the lessee at its own cost and expense has obtained the permission from the required Authorities for establishing and running a school upto primary school for Academic Year 2009-2010. The lessee was entitled to construct structure on the said property that would make it fit for carrying out the activities of the lessee. 4. But the lessee was unable to erect the structure as required for running the schools; hence it has assigned the right, in the property to M/s Super Value Properties Pvt. Ltd. 5. The Universal Education Foundation has entered into the Deed of Assignment with M/s Super Value Properties dated 19.01.2011 (Photocopy of the Deed of Assignment is enclosed). The said deed of Assignment was agreed between the parties (1- Universal Edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should have unequivocal legal right enforceable in law against the party for coining to a conclusion that any sum has accrued. This will be determined by the terms and conditions of the agreement between the parties. Clauses 3(d) of the amendment clearly provides that the agreement of assignment shall be terminated without any further notice to Assignee in case of any further delay in making the payment. 10. It is submitted that accrual is depended upon happening or non happening of future event which may or may not happen and hence is contingent which cannot be the basis of accrual or taxability. It is submitted that since in the assessment year 2011-12, this eventuality has not happened no right accrues in favour of the assessee to any consideration and hence since there is no accrual in the year under consideration no capital gain is chargeable for the assessment year 2011-12. 11. Hence, since the payment as mentioned in the assignment deed was not received by M/s. Universal Education Foundation and there was no surety of the receipt of the same in future it was not reflected in Balance Sheet and not taxed during the year. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence the assessee has not taxed the same in AY 2011-12 but will offer the same for taxation in the year of receipt. 7. However, the AO was not convinced with the above explanation of the assessee for the reason that (i) the assessee s statement that it has forgone the consideration of ₹ 3,55,45,600/- is not acceptable because nobody can give its right, title and interest in such a precious property to anyone without consideration, (ii) the assessee could not explain as to what profit will M/s Super Value Properties Pvt. Ltd. get by constructing the infrastructure on the said land, (iii) when the assessee did not get any consideration from M/s Super Value Properties Pvt. Ltd., the said property belong to the assessee only and in that case why the assessee will pay any rent to M/s Super Value Properties Pvt. Ltd. on his own property. As the assessee failed to explain properly the queries on the above, the AO rejected the claim of the assessee that it has not received the consideration of ₹ 3,55,45,600/- from M/s Super Value Properties Pvt. Ltd. and thus brought to tax the above amount. The order of the CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his addendum is not proved by the assessee and hence no cognizance of this document can be taken. Relying of the judgment of the Hon ble Supreme Court in Sumati Dayal vs. CIT 214 ITR 801 (SC), the Ld. CIT (A) held that as specifically mentioned in the original deed dated 19.01.2011, the consideration of ₹ 3,55,45,600/- had accrued to the assessee in AY 2011-12 itself and was also received. Also the assessee argued before the Ld. CIT (A) that as per the Explanation to section 11(1), since it has not received the consideration, the same was not to be treated as income and applied towards the objects of the trust. The Ld. CIT (A) noted that in the provisions itself, it is clearly mentioned that if there is such possibility, the assessee is required to intimate the AO before the date of filing of return u/s 139 (1) of the Act. No such document was filed before him indicating any such intimation given to the AO. Thus, he rejected the above contention of the assessee. In view of the above facts and position of law, the Ld. CIT (A) dismissed the appeal filed by the assessee. Contentions of the Assessee 9. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived. 10. The Ld. counsel files a copy and refers to the decision in CIT vs. Shivanand Electronics (1994) 75 TAXMANN 93 (Bom), CIT vs. Smt. Archana R. Dhanwatey (1981) 7 Taxman 121 (Bom), Balmukund Acharya vs. DCIT (2009) 176 TAXMAN 316 (Bom), CIT vs. Ziarat Mir Syed Ali Hamdani (2001) 248 ITR 769 (J K), CIT vs. G.M. Knitting Industries (P.) Ltd. (2016) 71 taxman.com 36 (SC) and the order of the Tribunal dated 30.11.2016 in M/s Whistling Woods International Ltd. vs. ITO (ITA No. 556/Mum/2015 for AY 2004-05). Further reference is made by him to the Circular No. 14 (XI-35) of 1955, dated 11.04.1955. Contentions of the Revenue 11. On the other hand, the Ld. DR submits that as per the original deed of assignment dated 19.01.2011, the amount of ₹ 3,55,45,600/- is stated to have been paid by the assignee to the assignor, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Ziarat Mir Syed Ali Hamdani (supra), in the context of exercise of option to utilise income in following year under clause (2) of Explanation to Section 11(1) of the Act, it is held that even assuming there was delay the requirement of exercising the option within the specified time is directory and the assessing authority has the power to condone the delay in exercise of the option, if he is satisfied about the sufficiency of the cause shown for the delay. The Tribunal was satisfied that there was sufficient cause for the delay in exercising the option by the assessee. Therefore, the exercise of the option by the assessee was valid. In G.M. Knitting Industries (P.) Ltd. (supra), it is held that even if form 3AA was not filed along with return of income but same was filed during assessment proceedings before final order of assessment was made, the assessee was entitled for additional depreciation. Also it is held therein that even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before the final order of the assessment was made, the assessee was entitled to claim deduction u/s 80IB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessee on whom it is imposed by the law, officers should: (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other. (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs . In the instant case, the assessee has received ₹ 3,55,45,600/- during the financial year 2010-11 relevant to the impugned assessment year. The assessee has not exercised the option under clause (2) of the Explanation to section 11(1) of the Act. In the present case, the AO has not taken any undue advantage of any ignorance of the assessee. Therefore, we find that the instant case is distinguishable from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,55,45,600/- was drawn by cheque No. 889388 dated 18.01.2011 on UBI, Juhu Tara Road. 15. As per Schedules to the Accounts for the year ended 31.03.2011 , we are informed the following: Basis of Accounting All the Income and Expenditure items having a method bearing on the financial statement are recognized on accrual basis. Revenue Recognition The income is recognized on accrual basis The assessee in the present case follows mercantile system of accounting .The Hon ble Bombay High Court in the case of Taparia Tools Ltd. v. JCIT [2003] 260 ITR 102 has described the mercantile system of accounting, which reads as follows: The mercantile system of accounting is based on accrual. Basically, it is a Double Entry System of accounting. Under the mercantile system of accounting, profits arising or accruing at the date of the transaction are liable to be taxed notwithstanding the fact that they are not actually received or deemed to be received under the Act. Under the mercantile system of accounting, therefore, book profits are liable to be taxed. The profits earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deficiency could be made up in the year in which the balance of income is received or in the previous year next following. For availing of the benefit of the extended time beyond the relevant previous year, the trust or institution will, in either case, have to exercise an option in writing under clause (2) of the Explanation to section 11(1) within the time allowed under subsection (1) of section 139 for furnishing the return of income. Income applied to such purposes shall be deemed to have been applied to such purposes during the previous year to which it was derived. 17. In the instant case, the assessee has received ₹ 3,55,45,600/- during the financial year 2010-11 relevant to the impugned assessment year. This is crystal clear from the (i) Deed of Assignment dated 19.01.2011 and the Schedule (ii)Receipt of ₹ 3,55,45,600/- by the assessee through cheque No. 889388 dated 18.01.2011 drawn on UBI, Juhu, Tara Road and (iii) The Basis of Accounting Revenue Recognition followed by the assessee during the present assessment year. In the written submission dated 18.03.2014 filed before the AO, the assessee s main contention is Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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