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TMI Blog2013 (2) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... me for the year under consideration declaring a total income of Rs. 43,92,330/-, which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and the assessment was completed vide order u/s 143(3) of the Act dated 24/12/2010, determining the total income at Rs. 1,39,32,330/-, which included an addition of Rs. 95,40,000/-, made on account of amount receivable from M/s Varam Power Projects Ltd., which was not recognized as income by the assessee company as per the Accounting Standard (AS-9), in view of the uncertainty with regard to its ultimate collectability. 3. On verification of the record, the AO asked the assessee to furnish the details of the revenue receivable from M/s Varam Power Projects Pvt. Ltd., in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 95,40,000/- which is due from M/s Varam Power Projects Pvt. Ltd. as the income of the assessee company and added to the income returned. 5. Aggrieved, the assessee carried the matter in appeal before the CIT(A) and AR of the assessee submitted before the CIT(A) that the revenue recognition policy followed by the assessee was in line with AS-9, which is mandatory. He averred that the fact that the right to receive was in dispute was not controverted by the AO. The AR argued that it is not the hypothetical accrual of income based on the mercantile system of accounting that has to be taken into account, but what is to be considered is whether the income had really materialized. He maintained that the question whether real income has to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been raised only to keep the issue alive by raising a claim against the other party within the period of limitation, so as to get an enforceable right for recovery of the amount as and when it succeeds in litigation. He averred that on similar set of facts, non recognition of revenue, whose ultimate collectability was in doubt, in terms of AS-9, was upheld by the jurisdictional bench of ITAT in the case of M/s Sri Balaji Bio Mass Power P. Ltd. in ITA No. 1748/Hyd/08, dt. 31/01/2011. 8. Without prejudice to the above, the AR of the assessee contended that even if the impugned amount has to be treated as income at the time of raising invoice, there would be no income chargeable to tax for the relevant assessment year from the said transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoices had been raised so as to be in a position to recover the fees at a later date and to safeguard their claims for getting time barred. Notwithstanding the fact of raising of such invoices, it remains a fact that such income had neither been received nor was receivable during the previous year concerned. Besides, no corresponding debt in respect of such fees would have been made by M/s Varam Power Projects Ltd. also, as they had refused to agree to the terms of the agreement. 7.1 In this regard, it is relevant to refer to the provisions of AS-9 of Institute of Chartered Accounts of India, which deals with 'recognition of revenue'. As per the same, unless and until the receipt of revenue is certain, as on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncertain in the relevant financial year, could not have been brought to tax in the assessment year 2008-09. Deleting the said addition, therefore, the grounds raised in this appeal are decided in favour of the appellant." 10. Aggrieved by the order of the CIT(A), the revenue is in appeal before us raising the following grounds of appeal:- "1) The order of CIT(A) is erroneous since the same is contrary to law and facts of the case. 2) The learned CIT(A) ought to have recognized that the assessee is following mercantile system and as such should recognize the income on accrual basis. 3) The learned CIT(A) should have appreciated that the accounting standards cannot override provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted, would be a good guide to the determination of commercial profits. However, though accounting standards and practices are relevant, they cannot override specific provisions of the Act. The Supreme Court in Challapali Sugars Ltd. V. CIT, 98 ITR 167 (SC) had laid down that pronouncements of accounting bodies are relevant in determining commercial profits. In Tuticorin Alkali Chemicals & Fertilizers Ld., V. CIT, [1997] 227 ITR 172 (SC), it was held that : 'The argument based on accountancy practice has little merit if such practice cannot be justified by any provision of the Statute or is contrary to it'. CIT Vs. Bokaro Steel Ltd., [1999] 236 ITR 315 (SC) he subsequent decision in case of reiterated the same principle. 15. The case of H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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