TMI Blog2021 (10) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year under consideration. CIT(Appeals) has not examined these two ingredients. With these observations, we set aside the order of CIT(Appeals) and remit the issue back to the file of the Assessing Officer to examine these two ingredients and decide the issue afresh in the light of the above order of the Tribunal. Revenue's appeal is partly allowed for statistical purposes. - ITA No. 1545/Bang/2018 - - - Dated:- 5-10-2021 - Chandra Poojari, Member (A) And George George K., Member (J) For the Appellant : B.S. Balachandran, Advocate For the Respondents : B.K. Singh, CIT (DR) ORDER Per Chandra Poojari , Accountant Member This appeal by the revenue is directed against the order dated 28.02.2018 of the CIT(Appeals), Gulbarga for the assessment year 2014-15. 2. The revenue has raised the following grounds:- 1. The Order of learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case. 2. In the facts and circumstances of the case, CIT(A) failed to appreciate that though as per the e-auction conducted by MC/CEC, the amounts have become receivable by the assessee notwithstanding the claim of the assessee that ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on the issue of year of accounting of e-auction sale in the case and pertains to the same jurisdiction, wherein the facts and circumstances of present case is exactly similar to the case decided by the ITAT. 6. The issue in this appeal is the sales of ₹ 10,91,75,982 which assessee has declared in assessment year 2015-16, but the AO has assessed it for AY 2014-15 on Income accrual basis since only the bidding/E-auction has taken place during the FY 2013-2014 by the monitoring committee even though the sales has taken place by the monitoring committee during April and May 2014 for which the proof of sales done by monitoring committee, the details of which are filed at page 10 to 29 of the PB. The assessee has filed Financial statements for AY 2015-16 for having accounted the sales of ₹ 10,91,75,982 vide sales ledger at pages 8 and 9 of the PB and confirmation letters from parties for having received Iron ore from the assessee through the Monitoring Committee for which party ledger accounts for the period 01/04/2014 to 31/03/2015. Total sales of ₹ 10,91,75,982/- are all done during the FY 2014-15 (AY 2015-16) only. Even the VAT at 5.5% and royalty is paid for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , did not offer said sum, since receipt of the same was highly uncertain. Assessee submitted that, revenue was recognised by assessee only on receipt basis, as per AS-9 issued by ICAI. It was submitted that, since there was uncertainty about collection of said revenue, recognition of such revenue was postponed to the extent of uncertainty involved, which was in accordance with theory of taxing only real income. It was submitted that, essential criteria for recognition of revenue is, consideration receivable from sale of goods should be reasonably determined, and since the consideration was not determinable within reasonable limits, recognition of revenue was postponed. Assessee, referred to ICDS-IV notified by Central Government for purpose of computation of income chargeable to Income tax under the head profits and gains of business or profession . It was submitted that, MC had complete control and command over declared stock. It was also submitted that MC had sole discretion to sell the stock. It was submitted that sale proceeds were to be received by MC from the buyers. Assessee submitted that, MC after making necessary deductions would disburse balance sale proceeds to assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the sale proceeds arising from sale of such stock does not belong to assessee. Assessee submitted that sale proceeds were never transferred to assessee of such undeclared stock, and the same was contributed to SPV. 6.4.1. Ld. AO therefore treated sale proceeds from such undeclared stock as income in the hands of assessee for year under consideration. 6.5. Revenue Recognition: Ld. AO observed that MC sold iron ore of assessee by E auction to the extent of ₹ 50,24,48,441/- during financial year relevant to assessment year under consideration. The Ld. AO noted that, in profit and loss account, assessee claimed sum of ₹ 50,24,48,441/- as expenditure. Ld. AO rejected recognition of revenue on receipt basis, as assessee followed mercantile system of accounting. Ld. AO referred to para 9 of decision of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) wherein Hon'ble Court directed CEC/MC to pay to concerned leaseholder balance amount after adjusting contributions under various heads towards SPV for implementation of R R plan etc. Ld. AO was of the opinion that, there was no uncertainty and nowhere there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be charged on accrual basis. Income is said to be accrued when there is a reasonable certainty of receiving such income. When the same cannot be determined with reasonable certainty, the recognition of such income should be postponed. 3) In this regard a reference may be made to Accounting Standard - 9 i.e. Revenue Recognition. The relevant extract of the same reads as under.' 9. Effect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and ₹ 24,64,49,012/-, did not accrue to the Assessee, there is no question of any liability of the same to tax during the impugned assessment years. 8) In the case of in State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 (SC), the Honourable Supreme Court held as under: In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has accrued cannot be made 'no income' 9) In the case of United Nilagiri Tea Estates Co. v. Dy. CIT [2012] 210 Taxman 62 (Madras), the Honourable Madras High Court has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated: 18/04/2014 in WRIT PETITION (CIVIL) No. 562 of 2009, referred above (in para. 9) - Order that, the CEC was allowed to sell the stock on behalf of the assessee and to retain the sales proceeds on account of the assessee/leaseholder and the CEC was authorized to deduct the assessee's compensatory and penal liabilities out of such sales proceeds and to return the balance proceeds to the assessee - Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the lease holders, including the 63 leaseholds being the subject of this order. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorization and undertaking, the CEC shall retain the amounts covering the aforesaid three heads and pay to the concerned leaseholder the balance amount, if any. It is expected that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income filed for the A.Y- 2013-14 being the Asst. Year under question without claiming the said amount as deduction in the P L A/c. 4.1.f Further, the details of e-auction sale are available on public domain hoisted/posted by Monitoring Committee. Similarly, the Monitoring Committee also e-auctioned material with the consent of the Mine Owners and issued a sale order for lifting the material from the mines of concerned Mine Owner. From this, it is evident that the assessee was well aware of the e-auction sales and should have accounted the same in its books of accounts in the year of sale itself without postponing the same till the date of receipt of proceeds. Income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later, on its being ascertained -CIT v. Shri Goverdhan Ltd. (1968) 69 ITR 675 (SC)/CIT v. Nandram Hunatram (1976) 103 ITR 433 (On). Receipt is not the only test of chargeability to tax, if income arises or accrues, it may become liable to tax - CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC)/CIT v. A.B.V Gowda (1986) 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of any leaseholder is sufficient to cover the payments under the 3 heads, the lease holder may, in writing, authorise the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid 3 heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorisation and undertaking, the CEC shall retain the amounts covering the aforesaid 3 heads and pay to the concerned leaseholder the balance amount, if any. It is expected that the balance amount, after making the adjustment as indicated here, would be paid to the concerned leaseholder is within one month from the date of submission of the authorisation and the undertaking. In the case of any leaseholder, if the money held on this account is not sufficient to cover the aforesaid 3 heads, he must pay the deficit within 2 months from today . Thus, as could be seen from the above, no where there is either suspense or uncertainty of receipt of sale proceeds of the said E-auctioned Iron Ore from the Monitoring Committee. As the assessee was maintaining mercantile system of accounting, it is bound to offer the same in the year of a curable. As the same has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and ingredient part of the contract. A.2. Ld. Counsel argued that, revenue from declared stock was not recognised during the year under consideration due to existence of uncertainty in realisation of said amount. It has been submitted that, Section 5 of the Act, manifests that, an income can be said to have accrued, only when a person has legal right to receive such income, and its recognition is on such accrual, which is tempered by section 145 read with AS-9 of ICAI. Ld. Counsel submitted that, in order to charge an income to tax, it is necessary that such income should fall within the scope of total income, as defined under section 2(45) of the Act, and that, such income shall be charged to tax under section 5, if such income shall be received or deemed to have been received or accrue or arises or deemed to accrue or arise to a person in India, during the previous year. Ld. Counsel, thus submitted that, assessee had not derived any legal right to receive sale proceeds during previous year relevant to assessment year under consideration, and therefore, the sale proceeds cannot be construed as income in the hands of assessee for year under consideration. A.3. Ld. Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h revenue, only when it is reasonably certain that ultimate collection will be made. He referred to decision of Hon'ble Supreme Court in case of CIT vs Woodward Governor India Pvt. Ltd., reported in (2009) 312 ITR 254, wherein, Hon'ble Court held that, profits and gains of previous year are required to be computed in accordance with relevant accounting standard. Referring to decision of Hon'ble Supreme Court in case of JK industries Ltd. vs UOI, reported in (2008) 297 ITR 176, Ld. Counsel submitted that, rules by which inventories are to be valued are laid down in accounting standards, and are to be followed in determination of accounting income mandatorily. He submitted that Hon'ble Court also held that; 8. Finally, adoption of accounting standards and of accounting income as 'taxable income' would avoid distortion of accounting income which is the real income. A.8. He thus submitted that it is therefore appropriate to recognise revenue only when there is a reasonable certainty, that, ultimate realisation will be made. Ld. Counsel submitted that, there is no denial by authorities below that sale proceeds were received by assessee in subsequent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. 83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act. A.10.2 Ld. Counsel submitted that, Ld. AO in subsequent year has not undone levy of tax of such sale proceeds. It was also been submitted that entire exercise is revenue neutral as applicable rate of tax remain the same in the relevant year and the subsequent years. A.11. On the contrary, Ld. CIT. DR submitted that, assessee follows mercantile system of accounting. He submitted that as per mercantile system, income accrued to assessee in the year of sale. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c manner. He also submitted that, merely because receipt takes place of such accrued income by conduct of parties in subsequent year, income which has accrued for year under consideration, cannot be made as 'no income'. A.12. Ld. CIT.DR emphasised that, admittedly, in subsequent years, assessee received 80% of total sale proceeds from E auction carried out by MC. It has been contended that income has arisen/accrued to assessee during the year under consideration, and therefore has been rightly taxed in the hands of assessee for year under consideration. A.13. We have perused submissions advanced by both sides in light of records placed before us. We also have perused various decisions relied upon by Ld. Counsel referred to herein above, as well as in the paper book filed before. A.13.1. The issue that arises before us, is in respect of accrual of sale proceeds from declared stock, during the year under consideration. Following is the summary of what has been proposed by Ld. Counsel. A.13.2. Ld. Counsel opposed for treatment of sale proceeds from disclosed stock as income in the hands of assessee for year under consideration on the ground that, it never h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee or not. Mere effort on the part of the assessee to realise the amount by sending a bill or making a claim or filing a suit for recovery would not in law make it an income which has accrued in the year in question. The transfer of the amount to the profit and loss account is bereft of any significance. A.13.5. We also refer to decision by Hon'ble Bombay High Court on concept of real income, emphasised in case of Kashiparekh and Co Ltd. (HM) vs. CIT, reported in (1960) 39 ITR 706. Hon'ble Court held that, surrender of income even after closure of accounting year may make no difference to the concept of real income. Hon'ble Bombay High Court, relied on view expressed by Hon'ble Supreme Court in case of CIT vs Birla Gwalior (P) Ltd. reported in (1973) 89 ITR 266 as under: The principle of real income is not to be subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place sometime after the close of an accounting year. In examining any transaction and situation of this natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Under such circumstances, assessee cannot escape from incident of accrual of such income during financial year relevant to assessment year under consideration. A.13.9. There is no dispute with regard to the fact that, declared stock belongs to assessee and assessee has to recognise revenue arising on sale of such stock. We have already noted that the role of MC was to carry out the e-auction of the stock and sell the stock on behalf of assessee as per the directions of total sale proceeds as on the date of sale by virtue of directions of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra). Therefore, the risk in such stock stood transferred from assessee to the buyer as on the date of sale. Further, assessee was vested with legal right to receive sale proceeds from stocks sold by MC. Therefore, income became due to assessee as on date of sale of stock, and it became due to assessee, when sale proceeds were received by MC. We also note that under VAT, the sales have been recognised for year under consideration by assessee which further strengthens our view. In our opinion, under such circumstances, date of payment does not affect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered for determining income under the head 'profits and gains from business for year under consideration. We have already noted that assessee has offered the above sale consideration on subsequent assessment years, and income tax act does not permit to assess same income twice. Hence in our view assessee may move appropriate petition before the authorities below for exclusion of above sale proceeds from declared stock in the relevant assessment year. Ld. AO is directed to consider such application liberally by granting proper opportunity of being heard to assessee. 9. In view of the above order of the Tribunal, it is very necessary to examine, whether the quantity of goods sold was identified on the date of e-auction, and whether sale proceeds to be received during the assessment year under consideration are quantified by the M.C. If these two ingredients were verifiable on the date of e-auction, then only the assessee is required to recognize the income as deemed income accrued in the assessment year under consideration. Otherwise, the assessee is not required to recognize income in the assessment year under consideration. The CIT(Appeals) has not examined these two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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