TMI Blog2016 (7) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... VOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) All these three appeals are admitted on the following question of law: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the system of accounting as adopted by the respondent was in accordance with the established norms and thereby deleting the disallowance made by the Assessing Officer, despite the fact that the assessee had debited the amount of commission receivable, in his books of account? 2. Learned Counsel for the assessee has submitted that the issue involved in these appeals is identical to one which has been decided by this Court in case of Commissioner of IncometaxII v. Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee maintains his accounts, it may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements, or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse or pay. However, in both cases, unless there is real income, there cannot be any income tax. In the instant case also, there is no real income so far as ₹ 3 lacs are concerned because no debt has been created in favour of the assessee by virtue of clause No. 14 of the contract and as the assessee did not get any right to receive the said amount during the previous year in question, it cannot be said that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3 lacs or under the warranty clause the assessee might have to pay ₹ 3 lacs, the assessee made a provision for ₹ 3 lacs by deducting the said amount from the sales account. In fact, in the previous year in question, the assessee had no vested right to receive ₹ 4 lacs and therefore it cannot be said that income to that extent had accrued to the assessee. We can test the above conclusion in a different manner too. Whether Godrej was liable to pay ₹ 4 lacs to the assessee in spite of the fact that quality of the plant was admittedly not up to the mark? Did the assessee get a vested right to get the said amount? Answer to these questions would be in negative and, therefore, as observed hereinabove, it cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice followed by it in the earlier years with an intention to evade tax and found that there was no such change during the year under appeal and whatever retention money had not been shown in that year and realized in the subsequent year had been shown as sale proceeds in that year and offered for tax. It is in these circumstances that the Commissioner (Appeals) was of the view that there was no need to disturb the method of accounting followed by the assessee company and also found no discrepancy in terms and conditions of purchase orders. The Tribunal has concurred with the findings recorded by the Commissioner (Appeals). 6. From the facts and contentions noted hereinabove, it is amply clear that the controversy involved in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed by assessee to earn exempt income. It is in these circumstances, that the Tribunal did not find any infirmity in the order passed by the Commissioner (Appeals) in deleting the addition made by the Assessing Officer out of interest payment under section 14A of the Act. 8. From the facts noted hereinabove, it is apparent that the Commissioner (Appeals) has, after analyzing the material on record, found as a matter of fact that the assessee had sufficient surplus funds at its disposal for making any investment in share and for business purpose and therefore, there was no nexus that could be established with the expenditure incurred by the assessee for earning the exempt income. Thus, the conclusion arrived at by the Tribunal is based up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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