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TMI Blog2023 (7) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) was justified in deleting the additions when the State Marketing Federation adjusted the Service Charges against the due from the village level cooperative societies on the one hand and again adjusting the Service Charges of Bilaspur Central Cooperative Bank Limited on the other hand while this District bank has no direct role in paddy procurement except disbursing the finance of primary village level cooperative societies? 6. The order of the Ld. CIT(A) is erroneous both in law and on facts. 7. The appellant craves permission to raise the additional ground or grounds at the time of hearing of the appeal. 2. Succinctly stated, the assessee which is a co-operative society, engaged in the business of banking had filed its return of income for A.Y. 2012-13 on 29.09.2012, declaring an income of Rs.11,17,03,900/-. Original assessment was framed by the A.O vide his order passed u/s.143(3) of the Act dated 31.01.2015, determining the income of the assessee society at Rs.11,28,58,550/-. 3. The Pr. Commissioner of Income Tax (for short 'Pr. CIT), Bilaspur after culmination of the assessment proceedings called for the assessment records of the assessee society. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the case is decided on merits. b) The service charges originate via tripartite agreement which specifically mentions 0.4% service charges payable to the assessee bank upon performance of specific duties subject to terms of contract. During F.Y 2011-12, the assessee bank acquired 1,47,56,017.94 quintals of paddy amounting to Rs. 1,60,040.41 lakhs on behalf of various co-operative societies, and on the same, the assessee bank was eligible for 0.40% of service7 charges receivable from the State Government amounting to Rs. 60.16 lakhs. The Auditor in his Audit Certificate dated 21.09.2012, has reported that no entries of the amount receivable from the State Government have been made by the bank and thus, the profit of the bank has been understated by Rs. 640.16 lakhs. c) In the submission of the assessee bank, it has been claimed that the Auditor clearly failed to understand the true nature of transactions and came to a conclusion that the income in the form of service charges accrues to bank and neglected the terms and conditions of the contract under which bank performs. It has also been claimed that the Auditor failed to appreciate the policy and procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been adjusted with the loss caused by the assessee bank. It is only present status of the assessee's claim of dues. Therefore, it cannot be said that the service charge was not payable to the assessee as on 31.03.2012. It is seen from the documents enclosed that the assessee could deposit paddy of 1,43,53,809.78 quintals to the Govt. instead of paddy of 1,47,56,017.94 quintals, but received payment. Due to short deposit of 4,02,208.16 quintals, the Govt. has adjusted the service charge amount with the loss to the Govt. caused by the assessee bank. As per mercantile system of accounting, the income accrued during the year should be recognized as income in the year in which it was accrued even though it was received or not. If any reconciliation of any contingent income/liabilities arises before the completion of audit and after the date of Balance Sheet i.e. on 31.03.2012, the same must be reported in the financial statement. Therefore, the submission of the assessee in this regard is not accepted. f) The assessee has claimed that re-assessment proceedings based on audit objection is invalid if Assessing Officer is not satisfied. The assessee has cited case decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made in this regard in the show-cause letter dated 20.09.2017. The assessee is silent in this regard in their reply submitted on 26.10.2017. However a copy of the said agreement has been procured from Chhattisgarh Rajya Sahkari Bipanan sangh Maryadit. This agreement says about payment of service charge @ 0.4% to the assessee on paddy procurement. There is no mention about non-payment of service charge for short procurement. Therefore on procurement of paddy, service charge is accrued to the assessee. i) The assessee has referred the comments of the auditor for the next year i.e. F.Y-2012-13. However in the said comments, the auditor is not certifying that service charge was not accrued to the assessee in F.Y.2011-12. He has only stated that he is unable to comment how the responsibility of the bank is fixed and deductions are being made on the commissions receivable to the bank. If deductions are made from the service charge on account of loss in paddy procurement, it does not imply the service charge did not accrue to the assessee. j) It is not acceptable that the actual figure of paddy procurement was not available before Dec., 2012. If the auditor could compute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. 6. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 7. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 8. Admittedly, it is a matter of fact borne from record that the CA of the assessee bank in his audit certificate dated 21.09.2012 had reported that the assessee bank had understated its profit by not accounting for the service charges of Rs.640.16 lacs (0.40% of Rs.160,040.41 lacs) that was receivable by it from State Government for procuring 14756017.94 quintals of paddy. For the sake of clarity the observation of the CA in his audit report dated 21.09.2012 is culled out as under: The bank is providing services to various Co-operative Societies for purchase of paddy. During the Kharif Season 2011-12 the bank has acquired 14756017.94 quintals of paddy amounting to Rs.1,60,040.41 lakhs on behalf of various co-operative societies. Bank is eligible for 0.40% as service charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, as per the real income theory, in absence of any income, the aforesaid amount of Rs.640.16 lacs (supra) could not have been brought to tax in its hands. The Ld. AR in order to support his aforesaid contention that income tax could not be levied on hypothetical income had relied on a host of judicial pronouncements, as under: (i) CIT Vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC) (ii) P.G And W. Sawoo Pvt. Ltd. Vs. CIT (2016) 385 ITR 60 (SC) (iii) Morvi Industries Ltd. Vs. CIT (1971) 82 ITR 835 (SC) (iv) CIT Vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC) (v) E.D. Sasson Company Ltd. Vs. CIT (1954) 26 ITR 27 (SC) (vi) Godhra Electricity Co. Ltd. Vs. CIT (1997) 225 ITR 746 (SC) (vii) CIT Vs. Birla Gwalior (P) Ltd. (1973) 89 ITR 266 (SC) (viii) CIT Vs. Suman Dhamija (2016) 382 ITR 343 (SC) (ix) CIT Vs. Bechtel International Inc. (2019) 414 ITR 558 (Bom. HC) (x) CIT Vs. Asea Brown Boveri Ltd. (2020) 427 ITR 166 ( Kar.HC) (xi) CIT Vs. Mahalaxmi Textile Mill Ltd. (1967) 66 ITR 710 (SC) (xii) Wipro Finance Ltd. Vs. CIT (2022) 443 ITR 250 (SC) Our attention was specifically drawn by the Ld. AR to the judgment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete details for recognizing the said income was at the relevant point of time very much available with the assessee. In sum and substance, the aforesaid claim of the assessee that in absence of the requisite details as regards the service charges that were receivable by the assessee bank from the State Government, there was no occasion for it to have recognized the same as its income for the year under consideration clearly militates as against the factual position which can safely be gathered from the reporting of the assessee's auditor in his audit certificate dated 21.09.2012. As observed by the A.O, and, rightly so, if the details as regards the value of paddy procured by the assessee bank on which it was entitled for service charges @ 0.4% was not available before December, 2012, then, it is beyond comprehension as to how the auditor had recorded the said figure in his certificate dated 21.09.2012. 12. Apropos the claim of the assessee that no income in the form of service charges had accrued in its favour, for the reason that the letter of Chhattisgarh Rajya Sahkari Bipanan Sangh, Maryadit dated 18.01.2017 clearly states that the same had been adjusted against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce derived which.... (b) if such person is resident in the taxable territories during such year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. We are not concerned in this case with the expression deemed to accrue or arise to him , as that expression refers to cases set out in the statute itself introducing a fiction in respect of certain incomes. In regard to the question when and whether an income accrues or arises within the meaning of the first part of the said clause, we have a decision of this Court which has clearly enunciated the principles underlying the said expression: that is the decision in E. D. Sassoon and Company, Ltd., v. The Commissioner of Income-tax, Bombay City(1). In that decision this Court accepted the definition given to the words accrue and arise by Mukerji, J., in Rogers Pyatt Shellack Co. v. Secretary of State for India(2), which is as follows: ........ both the words are used in contradistinction to the word receive and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that amount accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the Act, to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction. In so far the claim of the assessee that its aforesaid income of Rs.640.16 lacs (supra) had thereafter been adjusted by Chhattisgarh Rajya Sahkari Bipanan Sangh, Maryadit as against the loss that was caused by the assessee bank to the State government because of short deposit of 4,02,208.16 quintals of paddy, the same in our considered view not being in the nature of an event either relatable to the year under consideration; or the date of audit report i.e. on 21.09.2012 of the assessee's CA, thus, would by no stretch of imagination germane to the non-accounting of its income of Rs.640.16 lac (supra) which had clearly accrued to it during the year under consideration. In case the assessee bank was called upon to make good a loss tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for commission @ 0.4%. To sum up, we have perused the aforesaid agreement dated 29.02.2012 and are unable to trace any restriction on the entitlement of the assessee bank for service charges in case of any short procurement of paddy. 15. Be that as it may, we may once again reiterate that if in case in the subsequent year the State government had held the assessee bank as responsible for causing certain loss to it and had sought adjustment of the same as against the outstanding service charges that were payable to the assessee bank, then, the same in no way would justify non-accounting of the said service charges as income by the assessee during the year under consideration, i.e. A.Y.2012-13 in which, the same had accrued to it. We are of a strong conviction that the CIT(Appeals) had misconceived the real income theory, as the fact as it so remains is that income in the form of service charges of Rs.640.16 lacs (supra) as certified by the assessee's CA had accrued to the assessee bank during the year under consideration. Once again, we may herein reiterate that in case the assessee society had suffered some loss during the period falling subsequent thereto, then, it was ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. Thus, we are unable to comment whether the policy adopted by the bank is correct or not. The vague reporting by the assessee's auditor in the immediately succeeding year i.e. A.Y.2013-14 does not inspire any confidence. Apart from that, a careful perusal of the aforesaid observation of the auditor further fortifies the claim of the department that income in the form of service charges had actually accrued to the assessee bank during the year under consideration. We, say so, for the reason that the auditor in the succeeding year i.e. A.Y.2013-14, had reported, viz. ......deductions are being made from the commission receivable to the bank . 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. 18. 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(Appeals), who had dislodged the well-reasoned order of the A.O and thus, set-aside his order and uphold the addition of Rs.640.16 lac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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