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2017 (2) TMI 1535 - AT - Income TaxAccrual of income - Arbitration receipts - assessee has shown arbitration receipts in his books of accounts under the head “Current liabilities” and has not credited the same in the profit/loss account - As per AO arbitration receipts cannot be treated as liability till the order of Supreme Court is received against the assessee and the same receipts was accordingly treated as income of the assessee and brought to tax - HELD THAT:- Where the challenge to the arbitral award ends in favour of the assessee, the Revenue would be entitled to bring the same to tax. Conversely, where the challenge to the arbitral award ends against the assessee, the State of Rajasthan would be entitled to encash the bank guarantee and recover the amount paid to the assessee. As in the instant case, the amount received by the assessee cannot be regarded as income which has accrued unless and until the proceedings relating to arbitral award attains finality. Besides that, even from well-established accounting principles and accrual system of accounting as followed by the assessee, where the probability of receipts in favour of the assessee is contingent on final outcome of Court’s proceedings, such contingent receipts have rightly been shown as liability and not reflected as taxable receipts in the profit/loss account. Similar issue was involved in AY 2004-05 wherein as held such interim arbitration receipts pending final outcome as not taxable - Decided against revenue. Accrued interest on FDRs not declared as income by the assessee - assessee has not shown the interest accrual on FDRs made for giving bank guarantee in his return of income for the year under consideration - AO computed interest @ 7% and brought the same to tax in addition to arbitration receipts - CIT-A deleted the addition - HELD THAT:- CIT(A) has given a finding that the assessee has shown net interest in his profit/loss account which comprises of gross interest received including interest on FDRs and interest paid to Bank. The said finding has not been controverted before us. No infirmity in the order of ld CIT(A) in deleting the addition. Decided against revenue.
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