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2016 (7) TMI 964 - GUJARAT HIGH COURT

2016 (7) TMI 964 - GUJARAT HIGH COURT - TMI - Accrual of income - outstanding amount of commission receivable - cash basis of system of accounting - ITAT allowed the claim - Held that:- In the absence of any perversity in the findings of fact recorded by the Tribunal, the impugned order does not give rise to any question of law, much less, a substantial question of law, so as to warrant interference - Decided in favour of assessee - TAX APPEAL NO. 73 of 2007 With TAX APPEAL NO. 2148 of 2009 With .....

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th 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. Gujarat Apollo Industries Ltd. [2015] 55 taxmann.com 158 (Gujarat) and has placed reliance upon the followi .....

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se of Anup Engineering Ltd. Commissioner of Income-tax reported in 247 ITR 457. 7. In the said case the agreement that the assessee entered into for execution of a contract for supply and erection of plant specified that full amount would not be paid if the plant was defective. The assessee had debited the sum of ₹ 3 lakhs by crediting the same to the warranty account as some dispute had arisen with respect to the execution of the contract. In such background, the Court considered whether .....

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l 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 th .....

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annot be said that the assessee has acquired a right to receive the income or that the income has accrued to him. A debt must have come into existence and the assessee must have acquired a right to receive the payment. In the instant case, the assessee did not get any right to receive a sum of ₹ 4 lacs which could have been retained by Godrej in pursuance of clause No. 14 of the contract. One has to look at the contract and not at the entries made in the books of account. If, upon construc .....

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felt that quality of the plant was not up to the mark and, therefore, believing that Godrej might ultimately retain ₹ 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. .....

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Ltd., 179 ITR 8, (Cal.). Having regard to the facts and circumstances of the case, it was held in that case that, when there is a clause with regard to retention money, the assessee gets no right to claim any part of the retention money till the verification of satisfactory execution of the contract is concluded and, therefore, if there is no immediate right to receive the retention money, the said amount cannot be said to have accrued to the assessee. Even in the instant case, so far as retenti .....

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specific terms and conditions for final payment mentioned in the customer purchase order. It was further held that the assessee company had been following this system of accounting for the last several years and was accepted by the department. The Commissioner (Appeals) further examined as to whether the assessee had made any deviation from the usual 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 a .....

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e facts and contentions noted hereinabove, it is amply clear that the controversy involved in this case stands concluded in favour of the assessee and against the revenue by the above decision of this court. Under the circumstances, no question of law can be stated to arise as proposed. This ground of appeal is, therefore, dismissed. 7. Insofar as the second question which relates to addition of ₹ 28,36,668/- under section 14A of the Act on account of interest and administrative expenses i .....

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e was having sufficient surplus funds at its disposal for making any investment in share and for business purposes and therefore, no nexus could be established with the expenditure incurred by the assessee for earning the exempt income. There was no increase in borrowing rather there was reduction in total debts. Having regard to the above findings recorded by the Commissioner (Appeals), the Tribunal observed that it is now well settled that no disallowance under section 14A of the Act can be ma .....

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