TMI Blog2021 (6) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... find that policy of accounting for grant on receipt in current liability has been accepted by the Revenue in the earlier year. The utilisation of the same is duly accounted for. The unutilised grant is accepted in liability. Having accepted the above policy earlier the Assessing Officer is taking a different view in the current year. We agree with learned CIT(A) that on the principle of consistency the Assessing Officer s action is not justified without pointing out why contrary view from earlier year is being taken. Hence, we uphold the order of learned CIT(A). - Revenue appeal dismissed. - I.T.A. No. 6423, 6424/Mum/2017, I.T.A. No. 6439/Mum/2017, I.T.A. No. 6431/Mum/2017 - - - Dated:- 1-6-2021 - Shri Shamim Yahya (AM) And Shri Ramlal Negi (JM) For the Assessee : Shri Anil Sathe For the Department : Shri Surendra Kumar ORDER PER SHAMIM YAHYA (AM) :- These are appeals by the Revenue against respective orders of learned CIT(A). Some issues are common and connected these are being consolidated and disposed of by this common order. ITA Nos. 6423, 6324 6439/Mum/2017 2. In these appeals common grounds are raised. For the sake of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06/12/2006 was issued by the Central Government according to which such interest on FDs made out of unutilised grants-in-aid was to be utilized only for the purpose for which the grants were given. Further, it was clarified that, in case the interest could not be so utilized, the same was liable to be returned to the Government. The appellant contends that due to this changed direction from the Government, interest earned on the FDs acquired essentially the character of the Grant itself. Accordingly, for AY 2007-08, such interest was credited by the appellant company to the Grants-in-aid account instead of crediting the same to Profit Loss account. In September 2011, a similar Office Memorandum was issued by the State Government as well, requiring a strict compliance thereof. Further, in January 2014, another Office Memorandum was issued by the State Government clarifying that such interest should be treated as part of the principal Grant itself and should be characterized as such for all purposes. It is noteworthy that the said OM, in conclusion, stated, This direction is to be applied for all grants sanctioned/spurts by the State Government whether disbursed before or after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1.7 By categorising the interest as part of the grant itself, the State Govt. has assumed overriding title on the amount. The impugned FDs are made out of unutilised grants hence the principal amount in the FDs are part of the grant itself. By virtue of the above mentioned OM, even the interest earned on FDs are subsumed in the principal amount and hence become part of the grant. These facts were not before Hon'ble ITAT Mumbai in earlier years because the clarification regarding strict directions on utilisation of interest on FD was first issued by the State Govt. only in FY 2006-07 relevant to instant AY 2007-08. The question whether income stood diverted by overriding title was not considered in any earlier year. 5.1.8 The concept of 'diversion of income' as against 'application of income' has been subject to judicial debate. It is settled law that income when diverted before reaching/accruing to the assessee is called as diversion of income, whereas when the income is applied after it accrues/reaches the assessee, either due to contractual obligation or exercise of discretion, it is called as application of income. The essential aspects of the concept o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt, the Income tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipts; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize. 5.1.11 In the instant case, the appellant cannot be said to be recipient of income in form of interest on FD, in as much as it stands diverted at source to form part of government grant. Therefore, in view of the above decision, the impugned amount cannot be taxed as income of the appellant. Before the above mentioned directions of the State Government, the appellant was itself offering the interest as income. The dispute was only limited to whether it should be treated as business income or income from other sources. However, in the instant assessment year, the factual matrix of the issue has completely changed in view of directions of the government and the question that now needs to be decided is whether such interest can be considered income of the appellant at all or whether the sum stood diverted at source and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilized grants. However, it is the contention of the assessee that once it is accepted that the interest partakes the same character of the principal grant, the interest should also be recognized in the same manner as the principal grant. A copy of AS - 12 is annexed herewith for reference. Similarly, ICDS - VII relating to government grants also does not prescribe any particular method for recognition of interest on unutilized grants. A copy of ICDS VII is already included in the factual paper-book. (Please refer page no. 114 to 116 of the factual paper-book) . 9. He has further relied upon following case laws :- Over-riding title of the Government CIT VS Sitaldas Tirathdas (41 ITR 367) Interest being characterized in the nature of grant CIT vs. SAR Infracon (P) Ltd. (Guj) 42 taxmann.com 405 CIT vs. Karnataka State Agricultural Produce Processing Export Corporation Ltd. (Kar) 57 taxmann.com 349 CIT Anr. Vs. Karnataka Urban Infrastructure Development Finance Corporation (Kar) 203 CTR 422 Gujarat Municipal Finance Board vs. Dy. CIT (Guj) 221 ITR 317 ITO v. Harijan Evam Nirbal Varg Avas Nigam Ltd. (Allahab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the grant. As per the accounting policy followed by the appellant company, the Revenue grants are credited to Current Liabilities when received and subsequently, are credited to Profit Loss account to the extent of corresponding expenditure met out of the said grant. This accounting policy is followed by the appellant company consistently for a number of years and the same has been accepted by the department in the past. 5.2.3 Although principles of res judicata do not apply to Income Tax assessments, it is settled law that to differ from stand taken/accepted in earlier years, the Assessing Officer must have some substantial material and there should be substantial difference in facts. In the case of Radhasoami Satsang Vs C.I.T, 193 I.T.R; p.321(SC) it was held that in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, it is not permissible to take different and contradictory stand in a subsequent year with regard to the exemption earlier granted. In the instant case, there are no differences in facts w.r. to this issue from earlier years. 5.2.4 There is no dispute that the grant is in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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