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TMI Blog2024 (10) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement agreement came to be executed after the drawing up of the balance sheet. It was the aforenoted agreement which had acknowledged the substance of the contract having disintegrated in part and as a consequence of which the assessee had lost the right to receive the full transaction value. To deal with contingencies which occur after the balance sheet date, we take into consideration the following relevant provisions which are made in Accounting Standard (AS) 4 and Accounting Standard (AS) 9. We find that the ITAT has committed no manifest error in holding in favour of the assessee. Consequently, we see no reason to interfere with the ITAT s impugned judgment - HON'BLE MR. JUSTICE YASHWANT VARMA AND HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Appellant: Mr. Shlok Chandra, Sr.SC with Ms. Priya Sarkar and Ms. Madhavi Shukla, Jr.SCs along with Mr. Ujjawal Jain, Adv For the Respondent: Mr.Ved Jain, Mr. Nischay Kantoor and Ms. Soniya Dodeja, Advs ORDER 1. The appellant Principal Commissioner of Income Tax [ PCIT ] impugns the judgment rendered by the Income Tax Appellate Tribunal [ ITAT ] dated 28 March 2019 and has proposed the following questions of law for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consequently arisen between the assessee and the Dubai based importer and which ultimately culminated in settlement terms being struck on 20 April 2010. In terms of that settlement agreement, the parties appear to have agreed that part payment is to be released and that a payment of USD 16,22,000 is to be foregone by the respondent-assessee. 6. According to Mr. Chandra, learned counsel appearing for the appellant, since the respondent-assessee followed the mercantile system of accounting, the contracts were liable to be accounted for on an accrual basis and are thus required to be taken into consideration in the same year itself. It was his submission that a subsequent agreement which came to be entered into between the parties would not detract from the obligation of the respondent-assessee to have accounted for the aforesaid transactions in AY 2010-11 itself. 7. It was the additional submission of Mr. Chandra that the aspect of a part of the consideration becoming irrecoverable was neither conceived of nor known on the date when the income from the export contracts came to accrue. In view of the above, it was his submission that the write-off, if at all, could have been claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable with in reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised. (emphasis supplied) 30. Let us now advert to the facts of the case, before we express our views. The appellant's income on account of the fees did not accrue with certainty on the date of signing of the loan agreement. The income fell due only when the loan was disbursed, as the fee was to be collected at that stage. It cannot be said that on the date of signing, the income accrued in conformity with the mercantile system and AS-9 adopted by the appellant. The contention of the appellant is in line with the settled position of law as laid down by the Supreme Court and other High Courts as well as the AS- 9. There was no reasonable certainty of the realization of the amount of Rs. 1.28 crores, and that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as to whether the income has indeed accrued, having regard to the test as discussed hereinabove. The question whether real income has materialized or not, has to be scrutinized, having regard to the commercial and business certainties and realities of the situation in which the assessee is positioned, and not with reference to the system of accounting. The answer to such decision would then relate to the chargeable accounting year in which such profits actually arose and the assessee would be liable to tax accordingly. Applying this yardstick, we do not find that any income accrued at the point of mere execution of the agreement and, thus, the income did not accrue in the relevant assessment year. The financial impact has since been factored in the subsequent year. 9. Of equal significance is the decision of the Supreme Court in Commissioner of Income Tax v. Excel Industries Ltd. [2013 SCC OnLine SC 929]. Laying emphasis on income tax being levied on real income as opposed to hypothetical income, the Supreme Court explained when income could be said to have accrued in the following terms: 17. It follows from these decisions that income accrues when it becomes due but it must a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. CIT, (1997) 4 SCC 530 : (1997) 225 ITR 746] a reference was made to State Bank of Travancore v. CIT [(1986) 2 SCC 11 : 1986 SCC (Tax) 289 : (1986) 158 ITR 102] wherein the majority view was that accrual of income must be real, taking into account the actuality of the situation; whether the accrual had taken place or not must, in appropriate cases, be judged on the principles of real income theory. The majority opinion went on to say: (State Bank of Travancore case [(1986) 2 SCC 11 : 1986 SCC (Tax) 289 : (1986) 158 ITR 102], SCC p. 66, para 67) 67. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made no income . 22. This Court then considered the facts of the case and came to the conclusion (in Godhra Electricity case [Godhra Electricity Co. Ltd. v. CIT, (1997) 4 SCC 530 : (1997) 225 ITR 746] ) that no real income had accrued to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this conclusion, this Court referred to an interesting passage from Hoystead v. Taxation Commr. [1926 AC 155 : 1925 All ER Rep 56 (PC)], wherein it was said: (Radhasoami Satsang case [(1992) 1 SCC 659 : (1992) 193 ITR 321], SCC pp. 665-66, para 14) 14. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. (Hoystead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After the Balance Sheet Date (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. This Standard deals with the treatment in financial statements of (a) contingencies, and (b) events occurring after the balance sheet date. Xxxx xxxx xxxx 8. Events Occurring after the Balance Sheet Date 8.1 Events which occur between the balance sheet date and the date on which the financial statements are approved, may indicate the need for adjustments to assets and liabilities as at the balance sheet date or may require disclosure . 8.2 Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. For example, an adjustment may be made for a loss on a trade receivable account which is confirmed by the insolvency of a customer which occurs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e., the continuance of existence or substratum of the enterprise) is not appropriate . Xxxx xxxx xxxx 15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise. 12. The relevant portions of Accounting Standard 9 are set out here in below: Accounting Standard (AS) 9 Revenue Recognition (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. This Standard deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from the sale of goods, the rendering of services, and the use by others of enterprise resources yielding interest, royalties and dividends. Xxxx xxxx xxxx 9. Effect of Un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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