TMI Blog2024 (6) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has taken income incidence in his regular books of account. Assessee filed a vehement and detailed reply dated 09.02.2021. Therefore, there can hardly be any dispute or controversy by revenue that the AO has not investigated the issues of Nardana Claim-1 and Nardana Claim-2 . The follow-up query by AO itself negates the revenue s stand that the AO has merely kept assessee s reply in departmental file and not applied any mind. Even if the AO has not discussed the issues in assessment-order it cannot be said that the AO has not examined the assessee. PCIT is wrong in terming AO s order as erroneous-cum-prejudicial on the basis that the AO has not made investigation. Whether the AO s approach in accepting the explanation furnished by assessee to him, could be said to be an unsustainable view? - We find that the assessee has given substantial evidences to prove that the impugned liabilities of Nardana Claim-1 and Nardana Claim-2 could not have been recognized as income in AY 2018-19 under consideration because of the reason that the matters were disputed and pending for adjudication before courts. But as soon as the matters attained finality by court orders, the assessee tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PCIT can t invoke section 263. (2) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in treating the order dated 26.02.2021 passed u/s 143(3) of the Act by the National Faceless Assessment Centre, Delhi for A.Y. 2018-19 as erroneous and prejudicial to the interests of revenue. (3) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in concluding that the ld. AO has neither made any inquiry nor the assessee company filed any reply and evidence regarding the taxability of the award shown in Note No. 7 of the audited balance sheet of Rs. 29.03 crores and Rs. 3.52 crores termed as Nardana Claim-1 and Nardana Claim-1 and Nardana Claim 2. (4) That on the facts and in the circumstances of the case and in law the ld. Pr. CIT erred in not relying on the decision of Hon'ble Apex Court, various High Courts and Tribunals including jurisdictional tribunal wherein it was held that as per explanation 2 section 263 order cannot be revised where the order is passed by the ld. AO after making proper enquiry. (5) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT failed to appreciate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to tax in AY 19-20 after the order of Dhule Court vide order dated 15.10.2018 which is a matter of verification. Since, the liability created by you in the books of accounts for Nardana claim-1 and Nardana claim-2 is contingent in nature as it is dependent upon outcome of the Hon'ble Court, such liability as per ICDS cannot be recognized and, therefore, the amount received on arbitral award is taxable during the year of receipt as business income. However, the same was not offered to tax in A.Y. 2018-19 on account of income received as arbitral award under the head Profits and Gains of Business and Profession. 3. By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response thereto, the assessee filed a detailed reply, running over 14 pages, to PCIT which is reproduced by PCIT in Para No. 2 / Page No. 4 to 17 of revision-order. The assessee submitted to PCIT that the issue raised by him had been duly examined by AO during assessment-proceeding through notices u/s 142(1) and after considering replies filed by him, the AO was fully satisfied. The assessee also made a categorical submission to PCIT On the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s talked of Nardana Claim-1 and Nardana Claim-2 . Therefore, the revision-order passed by PCIT is clumsy and not very clear as to whether the PCIT intended to revise assessment-order qua Nardana Claim-1 only or both Nardana Claim-1 and Nardana Claim-2 . But during proceeding before PCIT, the assessee made a detailed submission on Nardana Claim-1 as well as Nardana Claim-2 . Further, in Ground No. (3), as re-produced above, the assessee is talking of Narmada Claim-1 as well as Nardana Claim-2 . Furthermore, during hearing before us, there were submissions on both items. Hence, we proceed to make adjudication in subsequent discussions taking into account both items. 5. Ld. AR straightaway carried us to a Paper-Book filed by assessee and submitted that during the course of assessment-proceeding, the AO has made specific queries to assessee qua the issue raised by PCIT and the assessee has also filed enough details/documents in response thereto, which is very much evident from the following details/documents forming part of the assessment-record available with department: (i) Paper Book Page No. 99 to 102: Vide Point No. 7 of the notice dated 13.01.2021 u/s 142(1), the AO raised follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of the award amounting to Rs. 29,02,76,211/- through an Escrow A/c with ICICI Bank in financial year 2017-18 relevant to AY 2018-19 under consideration on furnishing of 100% bank guarantee by assessee to Govt. The copies of order of Dhule District Court, Govt. s order of release through Escrow A/c and the evidences of bank guarantee were filed to AO during assessment proceeding as well as to PCIT during revision-proceeding; the same are also filed in Paper-Book at Page No. 77 to 94. Since the dispute between assessee and Govt. subsisted before Dhule District Court, there was no finality of the dispute and the receipt of Rs. 29,02,76,211/- against 100% bank guarantee was a mere conditional and contingent receipt. Therefore, the assessee could not treat it as its own revenue and had to declare as a liability in books of account. This is for the reason that if the dispute is ultimately decided in favour of Govt., the assessee would have to refund/return back to Govt. the amount received by it through Escrow A/c against 100% bank guarantee. Subsequently, when Dhule District Court rejected Govt. s Civil Misc. Application vide order dated 15.10.2018 falling within next financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as disposed of by Dhule District Court vide order dated 15.10.2018, the assessee took no further time in offering the same as revenue. 8. Then, Ld. AR proceeded to explain the factual matrix of Nardana Claim-2 . Basically, he re-iterated the same submission as made by assessee to PCIT (noted by PCIT on Page No. 7 of revision-order) that in terms of agreement with Govt., the assessee-company was entitled to collect toll charges till 18.11.2014. Thereafter, further extension from 19.11.2014 onwards was allowed by Ministry of Road Transport vide letter dated 18.11.2014 on condition No. (ii) mentioned in the said letter specifying that the entire amount of toll collection from 19.11.2014 would be deposited in a Joint Escrow A/c with Govt. in a nationalized bank and the assessee shall not be entitled to withdraw any amount from such Escrow A/c except that a sum of Rs. 26,000/- per day for expenses on day to day running of toll plaza would be allowed to assessee. The assessee submitted copy of aforesaid letter dated 18.11.2014 issued by Govt. alongwith minutes of meeting held by Govt. to the AO as well as PCIT and also filed at Page No. 95-98 of the Paper-Book. Pursuant to such direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousing Land Development Trust Ltd. (1986) 161 ITR 524 (SC), (ii) CIT Vs. L. Sambashiva Reddy (2015) 234 Taxman 775 (Karnataka HC), and (iii) ITO Vs. Shri Chandi Ram ITA No. 11/JP/15 order dated 28.02.2017 of ITAT, Jaipur. Thirdly, Ld. AR submitted that even if we assume that there are two possible views qua the year of taxability of the impugned amounts and the AO accepted one of the possible views, then also the assessment-order cannot be said to be erroneous as per landmark judgement of Hon ble Supreme Court in Malabar Industries Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). Fourthly, he submitted that in any case, there is no loss of revenue to Govt. because the assessee has offered income in subsequent year. 10. Ld. AR made one more important submission. He carried us to the contents of show-cause notice issued by PCIT wherein the PCIT has initiated revisionary action on the reasoning that the liability of Nardana Claim-1 and Nardana Claim-2 cannot be recognized as per ICDS (Income Computation and Disclosure Standards). Further, in Para No. 3 and 3.2 of revision-order, the PCIT has again stated that as per ICDS-VII relating to Govt. grant and ICDS-X relating to Provisions, Contingen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice dated 05.02.2021 issued again u/s 142(1), the AO referred assessee s previous reply dated 19.01.2021 and raised follow-up queries qua not only the present status of Nardana Claim-1 and Nardana Claim-2 but also how the assessee has taken income incidence in his regular books of account. In reply thereto, the assessee filed a vehement and detailed reply dated 09.02.2021. Therefore, there can hardly be any dispute or controversy by revenue that the AO has not investigated the issues of Nardana Claim-1 and Nardana Claim-2 . The follow-up query by AO itself negates the revenue s stand that the AO has merely kept assessee s reply in departmental file and not applied any mind. Therefore, even if the AO has not discussed the issues in assessment-order it cannot be said that the AO has not examined the assessee. This proposition, as contended by Ld. AR, is well settled in several judicial rulings including ITAT, Mumbai in Reliance Payment Solutions Ltd. Vs. Pr. CIT (2022) 136 taxmann.com 277 holding following proposition: 9. Clearly, therefore, as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to the assessment year 1956-57? 2. The assessee, who is the respondent before us, is a limited company dealing in land. It maintains its accounts on the mercantile system. By an order dated 21-6-1946 under rule 75A(1) of the Defence of India Rules, read with section 19 of the Defence of India Act, 1939, certain plots of land measuring about 19.17 acres in village Kankulia in the district of 24 Parganas and belonging to the assessee, were requ isitioned by the Government of West Bengal. Subsequently, the land was acquired permanently by the State Government under section 5, Requisition of Land (Continuance of Powers) Act, 1951, by a notice of acquisition dated 27-12-1952 published in the Gazette dated 8-1-1953. The LAO awarded a sum of Rs. 24,97,249 as compensation payable to the assessee. The assessee was not satisfied with the amount of compensation, and preferred an appeal before the arbitrator, 24 Parganas, Calcutta. The arbitrator made an award dated 29-7-1955 whereby he fixed the amount of compensation at Rs. 30,10,873 on account of the permanent acquisition of the land, thus, enhancing the original amount of compensation by Rs. 5,13,624 on which he directed interest at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point whether on the facts and in the circumstances of the case, the revenue can claim that the sum of Rs. 7,24,914 payable to the assessee as compensation can be said to have accrued to it as income during the previous year ended 31-3-1956 relevant to the assessment year 1956-57. Now as long ago as E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27, this Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income-tax Act, 1922. In the majority judgment delivered by N.H. Bhagwati, J. it was explained that the words 'arising or accruing' describe a right to receive profits, and that there must be a debt owed by somebody. 'Unless and until there is created in favour of the assessee a debt due by somebody', it was observed 'it cannot be said that he has acquired a right to receive the income or the income has accrued to him'. In the present case, although the award was made by the arbitrator on 29-7-1955 enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Court which accrues to him, and the respective amounts, whether awarded by the Collector or the Court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued.. . . . . . On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)(i), could it be said that the right to enhance compensation, which has not yet been accepted by the proper forum, namely, the Court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the Court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by the Land Acquisition Officer, by his award, if not accepted by a claimant, would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay compensation as offered by the Land Acquisition Officer. But that is far from saying that that liability is a liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mere fact that the payment is postponed to future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt. . . . (p. 247) Khan Bahadur Ahmed Alladin Sons' case (supra) and Topandas Kundanmal's case (supra) were relied on by the Gujarat High Court in Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. [1979] 117 ITR 849 for reaffirming that it was on the final determination of the amount of compensation that the right to such income in the nature of compensation would ari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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