TMI Blog2015 (12) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... then it would not have received even ₹ 7,30 crores, which is merely 8.58 percent of total claim after a long legal fight. The fact that (i) the Assessee recovered only 8.58% of the total claim, and that too after a period of 4 years and that (ii) the addition confirmed by CIT(A) in this year had been allowed as a deduction by the AO in AY 2006-07 clearly shows that the said amount could not be said to have accrued in favour of assessee in the relevant assessment year under consideration. However, the AO is directed to bring to tax net the amount received in future in the year of actual receipt.- Decided partly in favour of assessee - ITA No. 39/Mum/2007, ITA No.650/Mum/2007, Cross Objection No.122/Mum/2007 - - - Dated:- 30-10-2015 - R. C. Sharma, AM And Sanjay Garg, JM For the Appellant : Shri Sunil M Lala Shri Varun Sankhesara For the Respondent : Ms Vandana Sagar ORDER Per R C Sharma, ( A. M. ) These are the appeals filed by the assessee and revenue as well as the cross objection by the assessee against the order of CIT(A), Mumbai, for the assessment year 2002-03. 2. Rival contentions have been heard and record perused. Facts in brief are that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of mobilization in winding up of site operation on the plea that invoice in this respect was never accepted by the DPC consequently same amount never accrued to the assessee. Against the above order of CIT(A) both the assessee and revenue are in appeal each before us. The assessee has also filed cross objection. 5. It was contended by ld. AR that a sum of ₹ 26.47 crores did not accrue during the year on account of uncertainty of its ultimate collection. He further submitted that sympathizing with the plight of all the asses sees affected by ENRON bankruptcy, the Government of India came out with the Deed of Release dated 12 July 2005. In accordance with this deed, no claims / demands for taxes or tax assessments relating to the DPC in excess of USD 3 million including amounts already paid, can be made upon any assessee. As per ld. AR in line with the Deed of Release issued by the Government of India, the demand raised by the AO is contrary to the Deed of Release issued by Government of India. It was the contention of ld. AR that even though the right to receive is important pre-requisite for taxing particular income, the same is not enough to decide whether the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. With regard to amount of ₹ 59.51 crores on account of mobilization and winding up of site operation bill, the contention of ld. AR was that the bills raised were never accepted by the DPC, therefore, the amount did not accrue nor any right to receive was in favour of the assessee. 7. On the other hand, it was contended by ld. DR that the contract is continuing from 1998 till 17-6-2001. The method of accounting followed by assessee is mercantile under which the accounting the receipts or raising the invoices for the work done had been uniformly followed by assessee and honoured by DPC as per the terms of the contract. Thus, as per the accepted practice between assessee and DPC, the right to receive accrues when the assessee performs the work, though the bills are raised in time bound manner as per the agreement after certification of work done and actual payment may be made at later date i.e. within 30 days of the certification of the work.. Reliance was placed on the decision of Honble Bombay High Court in the case of Navin Kamani, 185 ITR 408, wherein it was observed that the concept of real income cannot be employed so as to defeat the provisions of the Act. She fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This has resulted in precarious financial position of DPC resulting in continuous payment defaults to contractor parties including the assessee. Due to continuous default in payment by DPC, after giving its intention to terminate the contract, vide letter dated 17 April 2001 (i.e. in the beginning of the previous year), the assessee eventually terminated its contract on 17 June 2001. The assessee is one of the victims of the Enron debacle which occurred in India almost about 15 years back. As a consequence, the assessee incurred huge losses due to non-receipt of ₹ 85.99 crs from Dabhol Power Company ('DPC'), an Enron company which had entered into a contract with the assessee with regard to construction of power plant in Ratnagiri, Maharashtra. Out of the said claim of ₹ 85.99 crs, the assessee realized only ₹ 7.30 cr i.e. 8.58 percent of the total claim and that was after four years of legal fight and this fact has been duly accepted by the AO. The case of the department is that the assessee should pay tax on the aforesaid amount of ₹ 85.99 crs in AY 2002-03 which admittedly has not been realized by the assessee. From the record we found that becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued to the assessee. In light of findings given by CIT(A) on page no 17-21, there is no reason to accept the contention of ld. DR that income had accrued to assessee even though invoice was not accepted by DPC. It cannot be said that income has accrued merely on the ground that the assessee had been following mercantile system. It has to be considered whether there has been real income to the assessee taking into consideration the commercial and business realities of the case, for e.g. precarious financial condition, suits/disputes between parties. No real income can be said to have accrued during the pendency of suit/dispute. 10. Honble Supreme Court in the case of CIT Vs. Excel industries Ltd. 358 ITR 295, had laid down three tests to determine when income can be said to have accrued. : (a) Whether the income is real or hypothetical; (b) Whether there is a corresponding liability of the other party to pay the amount to the assessee; (c) the probability or improbability of realisation of the income by the assessee has to be considered from a realistic and practical point of view. Thus, probability or improbability of realization of the income has to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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