9911796707
TMI Blog2023 (10) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... also owns wind mills generating power. During the year, the company has not carried out mining activities since the mining came to be suspended by the order of Hon'ble Apex Court from the year, 2010 onwards, vide order in Writ Petition filed by the Samaj Parivathana Samudaya in WP No. 562 of 2009. The mines of the assessee are situated in Bellary district of Karnataka, but bordering the neighbouring State of Andhra Pradesh. The CBI, Hyderabad, filed a charge-sheet before the Hon'ble Court of Special Judge for CBI, Hyderabad under section 173 of CRPC against Shri. B. V. Sreenivasa Reddy, Managing Director of M/s. Obulapuram Mining Company Private Limited and others for illegal mining, encroachment of reserved forest area, falsification of documents, conspiracy etc. The Hon'ble CBI Court, Hyderabad has placed prohibitory orders on the following fixed deposits vide orders u/s 102 of CRPC vide letter dated, 11-10-2009 and 13-10-2009 in case No.R.C.1)M)2009: SI. No.' Name of the Bank Amount of Fixed Deposit (In Rs. ) 1. SBI, Kudithini Branch, Bellary. 122,55,75,375/- 2. SBI, Kudithini Branch, Bellary. 80,71,509/- 3. ING Vysya Bank, Bellary. 2,31,63,856/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts under the mercantile system of accounting regularly and the income has been offered to tax on accrual basis up to the AY; 2013-14, whereas the Hon'ble CBI Court had placed the prohibitory order in AY; 2010-11 itself. Hence consistent with the method of accounting followed in the earlier assessment years up to 2013-14, the assessee, should have accounted the interest income and declared it to tax in the subject assessment year also. (ii). The prohibitory order of the Hon'ble Court only restrains the assessee from operating the accounts, but the assessee continues to hold the right over the contents of the account. Hence the interest income has accrued to the assessee in the subject assessment year itself and accordingly it is assessable to tax. (iii). The bank has made TDS and the TDS is made or credited to the account of the deductee concerned only when the interest has accrued. Hence the entire interest, on which TDS is made, has accrued to the assessee in the subject assessment year and the same cannot be deferred. PROCEEDINGS BEFORE THE LD. CIT(A). 3.4. The learned CIT(A) has referred to section .2(24), section 2(45), section 4 & section 5 of the Act and upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself is attached and liable to be recovered by the orders of the Court, there is no certainty of accrual of interest income emanating from the source i.e., the fixed deposits. It is settled law that the revenue recognition is to be postponed if there is uncertainty of receipt. The Hon'ble Hyderabad Tribunal in ACIT vs. Hill County Properties Limited in ITA No.1644/HYD/2014 (URO) cited in ACIT vs. Medravathi Agro Farms (P.) Ltd. [2015] 63 taxmann.com 274 (Hyderabad - Trib.) referred to AS-9 and held that: "where the ability of the assessee for ultimate collection with reasonable certainty is lacking at the time of raising any claim, revenue recognition is postponed to the extent of uncertainty involved.........it is also provided that when the recognition of the revenue is postponed due to the effect of uncertainties, it is considered revenue of the period in which it is properly recognised." 4.2 The following clauses in Accounting Standard-9 (AS-9) dealing with the revenue recognition may be referred to: "9.1. Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court agreed with the view of the assessing officer that the interest on the fixed deposits was assessable only in the assessment year, 1948-49 where the dispute regarding the title on succession of the deceased person was settled by compromise decree. 4.5 He submitted that the Larger Bench of the Hon'ble Supreme Court explained the basic concept of income in its landmark decision, way-back in 1954, reported in E.D. Sassoon & Co. [1954] 26 ITR 27 (SC). In summary, it held as under: "It is clear therefore that income may accrue to the assessee without the actual receipt of the same. If the assessee acquires the right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody." (Emphasis added) 4.6 He submitted that the said decision of the Hon'ble Supreme Court is followed consistently over the years in order to resolve the disputes arising as to whether a particular item was taxable or not applying the concept of income. 4.7 He submitted that the Hon'ble Supreme Court as recen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure that the income is taxed and the Revenue would receive its legitimate taxes in that year of accrual, where right to receive the income would get vested in the assessee. On the other hand, if the interest income is taxed in the subject assessment year in spite of the significant uncertainty of its accrual and receipt, the assessee would be prejudiced and put to irretrievable loss. 4.10 In the above-mentioned case i.e., Balbir Singh Maini (Supra), the Hon'ble Supreme Court observed that the above passage from the decision in Shoorji Vallabhdas & Co. (Supra) was cited with approval in Morvi Industries Limited (Supra). The observation of the Hon'ble Supreme Court in paras 15 & 16 (Balbir Singh Maini) are as under: "15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) "11. ... the date of payment ... does not affect the accrual of income. The moment the income accrues, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer is entitled to recover only the amount which the assessee was otherwise entitled to receive. 4.12 As submitted earlier, the learned assessing officer has also relied on the decision in Morvi Industries Limited (Supra), but arrived at a different conclusion that interest income had accrued to the assessee, who holds right over the asset even though the FDs are under the prohibitory orders, as long as it is not appropriated otherwise in pursuance of order of the Court - Para 5.4 of page 9 of the impugned assessment order (AY 2014-15). 4.13 In fact the learned AO has extracted the relevant portion from the decision in Morvi Industries Limited (supra) relied upon by him in para 5.3 of pages 8 & 9 of his order. The same is as under: "......The dictionary meaning of the word "accrue" is "to come as an accession, increment, or produce: to fall to one by way of advantage: to fall due". The income can thus be said to accrue when it becomes due. The postponement of the date of payment has a bearing only in so far as the time of payment is concerned, but it does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal the Tribunal held that because of the restraint order of the Court, there was no right accruing to the assessee to receive the income and accordingly the amount could not be treated as its income for the assessment year under consideration. On further appeal by the Revenue, the Hon'ble Court held (para 5): "Admittedly, the assessee had purchased the shares concerned from Jaipuria Brothers Limited and the restraint order was passed in an execution instituted by the receiver of the Estate of Sara Bhai Jai Singh Bhai against Jaipuria Brothers Limited and the court by an interim order dated September 29, 1967, had restrained Swadeshi Cotton Mills Ltd. from paying dividends on the said shares to any one till further orders. The restraint order continued till May 26, 1972. Thus, during the year under consideration, i.e., the accounting year ending June 30, 1970, the petitioner's right to receive dividends was under suspension because of the restraint order passed by the court. In such circumstances, the dividend declared by the company could not be said to have accrued to the assessee because neither could the company pay the same to the assessee nor could the assessee recover it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee- company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal." 4.20 He further submitted that the enhanced charges for supply of electricity were collected by the said company and the Hon'ble Supreme Court held that there was no accrual of income in view of the letter of the Government of Uttar Pradesh directing the assessee to maintain the status quo. The fact that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crual of income and therefore, liable to be deleted. 5. The ld. D.R. submitted that there is no doubt that the interest income accrued in the case of assessee. That means as per the provisions of section 5 of the Act interest accrued is the income of the assessee in the year in which it is accrued. Further the deposits in the bank accounts of the assessee are placed under Prohibitory Order. But it had not affected accruing interest. It is also clear from the submissions of the assessee that the 5 years period of prohibitory order is also completed. The said deposits continue to exist in the name of the assessee and are earning interest normally as any other deposit. Further, there is no acceptable reason as to why after offering interest income to tax in earlier year, the assessee should suddenly stop this year. The amount deposited is certainly the positive income of the assessee. Hence the income accrued is the income of the assessee in the year it is accrued. Further the assessee is following the mercantile system of accounting. Thus, the assessee has to offer the accrued interest as income in the year it is accrued. 5.1 Further, he submitted that income has been accrued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee in the relevant assessment year. The question as to when exactly an assessee is said to have received the income or profits has to be largely determined with reference to the system of accounting employed by him. Where according to the method followed by the assessee, the same was accrued during the year of account, and it seems, that it would be brought into account of the income as soon as right to receive is accrued to assessee. In these circumstances, on actual accrual should be considered only on the basis of right to receive the same. Thus, it is clear, that income accrued to the assessee, without the actual right to receive the same, cannot be brought to tax. If the assessee acquires the right to receive the income, the income can be said to have accrued to him, though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by the parties concerned with whom the assessee made deposits for interest. Unless and until there is a creation of right in favour of the assessee, debt due by somebody it cannot be said that he had acquired a right to receive the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise, one should be guided by the terms of the agreement entered into between the parties. Revenue authorities cannot ignore the genuine agreement between the assessee and the concerned parties from whom the said amount has been received. In the absence of any situation or allegation or collusion, the revenue cannot resort to any attempt to rewrite the agreement with a view to impose the levy of tax shall be when the transaction between the parties are at arm's length For this proposition we rely on the judgement of Hon'ble Delhi High Court in the case of D.S. Bist & Sons (149 ITR 276), wherein held that "The Act does not clothe the taxing authorities that any power or jurisdiction rewrite terms of agreement entered into, particularly in view of the finding of the Tribunal that "there is nothing to suggest the parties were not belong with each other at arm's length and there is no situation of any collusion, commercial expediency of the contract is to be adjusted by the contracting parties as to its terms. It was further made clear that under the taxing system it is up to the assessee to conduct his business in his wisdom. The assessee may enter into commercial transaction with oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. V. Deputy CIT (1994) 206 ITR (AT) 48 (Bom). Mr. Sathe appearing for the respondent has, however, drawn our attention to two judgements, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High court judgement is reported in CIT Vs. Simplex Concrete Piles (India) P. Ltd. (1989) 179 ITR 8. A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the yar in which the amount is retained. The other judgement relied upon is in the case of CIT Vs. Ignifluid Boilers (I) Ltd. reported in (2006) 283 ITR 295 (Mad). In that judgement also, a Division Bench of the Madras High Court has held that the amount retained does not accrue to the assessee and, therefore, the assessee would not be liable." 6.5 Further, Madras High Court in the case of CIT Vs. East Cost Construction and Ind Ltd. (283 ITR 297), wherein held that "the assessee was entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom architects/engineers, removal of defects, payment of damages, etc. - Assessee was crediting 100 per cent of job value in past years but from assessment year 1965-66, it had started practice of crediting only 90 per cent value for work done after deducting retention money -Whether it could be said that on date of submission of bills assessee had no right to receive entire amount on completion of work and retention money did not accrue to it on such date but on later date in accordance with terms of contracts and ITO would be unjustified in making any addition by treating entire contract amount as accrued on submission of bills on completion of work - Held, yes" 5. The decision of the ITAT Mumbai 'H' Bench of the Tribunal in the case of Emerson Network Power India (P.) Ltd. v. Assistant Commissioner of Income-tax [2009] 27 SOT 593 (MUM.) relied upon by the Id. D/R is not applicable to the facts of the case, for the reason that, what was considered by the Bench was performance bank guarantee and not retention money as in the case of the assessee company. Even otherwise, we are bound by the judgment of the Hon'ble Jurisdictional High Court in the case of Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essful completion of the entire contract after it being certified by the party and after fulfilment of certain pre-determined conditions mentioned in the contract. Thus, it was explained to the AO that as per the accounting practise followed by the party though a part of the bill amount was retained by the contractee party and would be paid afterwards on agreed conditions, the assessee in its books of account has booked the entire revenue as and when the bills were actually raised and hence, the entire amount was reflected in the revenue from the operations in the P&L Account. It was brought to the notice of the AO that due to the said practice profit before tax as per P& L Account for the year ended on 31.03.2014 is Rs. 204,38,30,030/- and the said profit was arrived after taking into account entire bills raised on parties for contract work including the retention money. It was explained further that thereafter, sales was credited and the party was debited with the entire bill amount and on that basis assessee had filed the original return on 29.11.2014 without considering the actual deduction made by the parties on account of the retention money and had shown total income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsmission line and issuance of taking over certificate. So, the final payment would be given as per the contract after the successful commissioning of the transmission line and issuance of taking over certificate by the Power Grid meaning the retention money would be given only after successful commissioning and after issuance of the taking over certificate. According to the assessee, as per such duly executed contract entered into between the parties, the contractee had retained specified percentage of the bills amount as retention money and in this assessment year these parties have retained a sum of Rs. 142,53,74,710/- as retention money on the bills raised during the year. In the light of the said fact, according to assessee, it was neither entitled nor it could have claimed the retention money as income accrued till the entire project was commissioned. And since the projects were not completed during the year under consideration, the retention money has not accrued as income of the assessee and, therefore, assessee claimed deduction of the same. It was also brought to our notice that retention money would be included in the respective years when the project will be completed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of assessee is based on the accepted judicial precedents laid down by the Hon'ble jurisdictional High Court in CIT Vs. Simplex Concrete Piles (supra); Hon'ble Gujarat High Court in Anup Engineering Ltd. (supra); Hon'ble Bombay High court in CIT Vs. Associated Cables P. Ld. (supra) and Hon'ble Madras High Court in CIT Vs. Ignifluid Boilers (I) Ltd. (2006) 283 ITR 295 (Mad). We hold that in the factual circumstances especially as per the terms of contract between the assessee and the contractee, the retention money retained by the contractee is deferred payment and is contingent upon satisfactory completion of contract work. We hold that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled and the assessee had no vested right to receive the same in this assessment year, therefore, it would not amount to an income of the assessee in the year in which it is retained. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and so, we confirm it and dismiss the appeal of the Revenue." 6.8 Further Accounting Standard (AS-9) with respect of revenue recognition clearly provides as under: "Revenue from sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (1) or clause (b) of Sections 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.- For the purpose of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 8. A plain reading of the said provision will indicate that tax deduction at source is permissible only if the income is credited to the account of the petitioner, in the instant case, in view of the freezing/attachment of the said FDs of petitioner, it cannot be said that the petitioner is receiving income by way of interest from the said FDs for the present and entitlement or otherwise of the petitioner qua the said FDs or interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 194A of the Act contemplates deduction of tax in a situation where the assessee is not ascertainable and the person in whose name the interest is credited is also, admittedly, not a person liable to pay tax under the Act. 19. The Registrar General of this Court is, clearly, not the recipient of the income represented by interest that accrues on the deposits made in his/her name. The Registrar General is also not an assessee in respect of the deposits made with the petitioner bank pursuant to the orders of this Court. The deposits kept with the petitioner bank under the orders of this Court are, essentially, funds which are custodia legis, that is, funds in the custody of this Court. The interest on that account - although credited in the name of the Registrar General - are also funds that remain under the custody of this Court. The credit of interest to such account is, thus, not a credit to an account of a person who is liable to be assessed to tax. In this view, the petitioner would have no obligation to deduct tax, because at the time of credit there is no person assessable in respect of that income which may be represented by the interest accrued/paid in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the litigant who is asked to deposit the money in Court ceases to have any control or proprietary right over those funds. The amount deposited vests with the Court and the depositor ceases to exercise any dominion over those funds. It is also not necessary that the litigant who deposits the money would be the ultimate recipient of those funds. As indicated earlier, the person who is ultimately granted the funds would be determined by orders that may be passed subsequently. And at that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. However, the litigant who deposits the funds cannot be stated to be the recipient of income for the reasons stated above. 23. Deducting tax in the name of the litigant who deposits the funds with this Court would also create another anomaly because the amount deducted would necessarily lie to his credit with the income tax authorities. In other words, the tax deducted at source would reflect as a tax paid by that litigant/depositor. He, thus, would be entitled to claim credit in his return of income. The implications of this are that whereas this Court had removed the funds from the custody of a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made clear that the alleged liability of the petitioner, if any, to pay taxes in respect of the interest accruing on the said FDs shall a rise after conclusion of the said proceedings. iv. It is made clear that the present order passed will not affect any TDS already deducted by the respondent Nos.3 to 5/Banks prior to interim order dated 09.09.2019 passed by this Court." 7. Thus, as seen from the above order of the jurisdictional High Court on the issue of deduction of TDS u/s 194A of the Act, it has been held by Hon'ble Court that "the entitlement of interest accruing on the FDs to the assessee would be dependent on the result of the pending Court/CBI proceedings and consequently, till the conclusion of the said court proceedings, the interest accruing on the FD cannot be considered as income for the purpose of deduction of TDS u/s 194A of the Act and directed the bank not to deduct TDS on the interest of FDs. However, it cannot be treated as absolving the assessee of its liability to pay tax on the interest accruing on the FD if the petitioner becomes entitled to the same after conclusion of the court proceedings." It is also brought on record by assessee that first appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt income applying section 14A r.w. Rule 8D without considering that the assessee had sufficient reserves & surpluses and there was no investment cost by way of interest. It was further contended that the investments in sister concerns are made for strategic purposes only and consequently, section 14A had no application. SURPLUS FUNDS. 9.2 He submitted that the learned AO has disallowed an amount of Rs. 62,19,040/- as expenditure related to exempt income applying section 14A r.w. Rule 8D without considering that the appellant had sufficient reserves & surpluses and there was no investment cost by way of interest. It was further contended that the investments in sister concerns are made for strategic purposes only and consequently, section 14A had no application. 9.3 He submitted that the learned AO has upheld the disallowance citing the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC). It is submitted that the ground of the assessee, that the investments were made out of surplus funds, was not considered in proper perspective either by the learned AO or by the learned Appellate Commissioner. It is submitted that the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,64,48,347/- was exempted. The assessee has received exempted income of Rs. 94,12,976/- during the previous year, therefore, the ld. AO invoked the provisions of section 14A r.w.s. 80D of the I.T. Rules. The ld. AO after considering the working of disallowance u/s 14A of the Act pointed out that while computing the disallowance, the investments in unquoted equity shares were not considered. Hence, the ld. AO redetermined the disallowance u/s 14A of the Act at Rs. 62,19,040/- and the same to be considered. 11. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the ld. AO while computing the disallowance u/s 14A r.w. Rule 8D of the IT. Rules has considered certain investments though it was not exempted income yielding investment. If there is any mistake on this count, same to be rectified by ld. AO while passing the fresh order on this issue. Further, the total disallowance u/s 14A r.w. Rule 8D shall not exceed the exempted income earned by the assessee. This view of ours is fortified by the order of the Tribunal in the case of GMR Enterprises in ITA No.2310/Bang/2019 dated 28.10.2021 for the AY 2015-16 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs. 41,042/- and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs. 2,38,575/- , which was increased to Rs. 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs. 8,50,000/-, which was increased to Rs. 2,61,96,790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue is restored to the file of ld. AO for fresh consideration. This ground of assessee is partly allowed for statistical purposes. 12. Next ground in ITA No.15/Bang/2019 in assessment year 2015-16 is with regard to computation of income u/s 115JB of the Act. 13. The ld. A.R. submitted that the Ground of appeal on this issue was not taken before the learned CIT(A), and it is a legal ground arising on the same set of facts already on record and therefore, the same may be considered and adjudicated on merits. He submitted that the learned AO has also computed the liability to tax under MAT i.e., Section 115JB by adding the above said additions/disallowances to the net loss of Rs. 1,98,61,008/-. The said amount of Rs. 10,32,94,857/- representing interest on the said fixed deposits, which are under the prohibitory order of the Court is also added to the MAT income, without appreciating that section 115JB is a self-contained code and no addition or reduction of items not expressly provided under the section itself is permissible. Reference is invited to the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. [2002] 122 Taxman 562 (SC) / [2002] 255 ITR 273 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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