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TMI Blog2021 (10) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee that material was partly lifted In FY : 2013-14 and partly in FY : 2014-15, for which required documentary evidence was not filed before the AO to proves the same. As such, it is reasonable to conclude that the AOs decision in considering the entire amount of Rs. 12,83,60,000/- as sales during the year FY: 2013-14, is not appreciated by the CIT(A). 3. The Ld. CIT(A) erred to place reliance on decision of ITAT in case of M/s. M Hanumantha Rao as much as the order of ITAT was not on account of correct facts to hold that receipts/income arising from sale of e-auctioned iron ore is not liable to tax in AY: 2012-13, when, M/s. M Hanumantha Rao(firm) itself had offered such receipts for taxation on accrual basis by filing a revised return of income for AY: 2012-13." 3. The facts of the case are that the respondent-assessee had filed the return for AY 2014-15 on 22/11/2014 declaring a total income of Rs. 3,97,55,770. During the course of assessment proceedings u/s. 143(3) of the Income-tax Act, 1961 [the Act] the AO added a sum of Rs. 10,91,75,982 as unaccounted sale proceeds of E-Auctioned Iron ore by Monitoring Committee, even though the said the sales were acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one by the Monitoring Committee only during FY 2014-15 by the purchasers and the same is reversed by the assessee in Journal entry. The assessee had furnished confirmation letters from various purchasers/bidders for having bid the material in previous year 2013-14 but sales and lifting of the entire quantity was done during the months of April and May 2014, (AY 2015-16) which was noted in detail by the AO vide para 5.3 of his order. 7. The CIT(Appeals) allowed the appeal considering the ITAT order. It is therefore submitted that it is a covered case in favour of the Assessee and accordingly the appeal of the Revenue is to be dismissed. 8. We have heard both the parties and perused the material on record. We come across the order of this Tribunal in the case of M/s. Veerabhadrappa Sangappa & Sons in ITA No. 1054/Bang/2019 dated 8.12.2020 wherein it was held as under:- "6.1. Ground No. 2.1 & 2.2 These grounds raised by assessee are against addition of sale proceeds of declared stock amounting to Rs. 25,59,99,429/- and undeclared stock amounting to Rs. 24,64,49,021/-. Ld. AO observed that, sum of Rs. 50,24,48,441/- (Rs. 25,59,99,429/- + Rs. 24,64,49,021/-), (being sale proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have any control over the value and time of receipt of sale proceeds. It was thus contended before Ld. AO that, the amount of Rs. 25,52,89,418/- did not accrue to assessee, and therefore the same was not offered to tax during the year under consideration. 6.3.1. Assessee also submitted before Ld. AO that sum of Rs. 25,52,89,418/- was received by assessee in subsequent years, and assessee offered the same to tax in assessment years being 2014-15 and 2016-17. Assessee also placed before Ld. AO, return of income and statement of computation of income for assessment years 2014-15 and 2015-16. Ld. AO observed that assessee was maintaining accounts on Mercantile system and hence the above said amount of Rs. 25,52,89,418/-, should have been recognised as income by assessee for year under consideration. The Ld. AO noticed that Hon'ble Supreme Court directed CEC to sell the stock on behalf of assessee and to retain the sale proceeds on account of assessee/leaseholder. CEC was authorised to deduct towards SPV contribution, estimated cost for R&R plans and compensation for illegal mining and illegal dumping and to return the balance sale proceeds to assessee. 6.3.2. Ld. AO accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as per mercantile system of accounting, right to receive such amount accrued to assessee during the year under consideration which, cannot be diverted to subsequent assessment years. Ld. AO observed that, details of Eauction sale by MC, was in the knowledge of assessee, and assessee was well aware of receipt of sale proceeds, which should have been accounted in books of account, in the year of sale itself(year under consideration), without postponing it till date of actual receipt of proceeds. Ld. AO thus held that, assessee acquired right to receive sale proceeds during the year under consideration, and therefore has to be considered as income for year under consideration. 6.6. Ld. AO thus observed and held as under: "4.1. UNACCOUNTED SALE PROCEEDS OF - i) DECLARED STOCKS - Rs. 25,59,99,429/- & ii) UNDECLARED STOCKS - Rs. 24,64,49,012/- On going through the above table of this order, at Sl. No. 1 & 2 of the said table it is noticed that the assessee firm has debited an amount of Rs. 25,59,99,429/- under the head Sale proceeds of declared stocks received in subsequent assessment years offered to tax and Rs. 24,64,49,012/- under the head Sale proceeds of un-declare stocks - y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised." 4) A reference may also be made to Income Computation and Disclosure Standards (JCDS) - IV notified by the Central Government for the purposes of computation of income chargeable to income-tax under the head "Profit and gains of business or profession ". The relevant extract of ICDS -IV reads as under: "4. Revenue shall be recognised when there is reasonable certainty of its ultimate collection. 5. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim for escalation of price and export incentives, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile system of account is, the chances or probabilities of realisation in a realistic manner to hold that there was a real accrual of income to the assessee company." 10) In the case of CIT v. Annamalai Finance Ltd. [2009] 319 ITR 1961 : [2010] 186 Taxman 296 (Mad.), the Honourable Madras High Court has held as under: "5. The recognition of revenue on accrual basis presupposes the satisfaction of two conditions viz., the revenue is measurable and that the revenue is collectable without any uncertainty. 11) Without prejudice to the above, it is submitted that amount of Rs. 28,55,04,732/- has been received by the Assessee in the subsequent years and the Assessee has accordingly offered the same to tax in the subsequent assessment years 2014-2015 & 2015-2016. Copy of the return of income and statement of computation of total income of the assessment years 2014-2015 & 2015-2016 is enclosed herewith as Annexure 1. Therefore, the question of taxing the some in impugned assessment year does not arise." 4.1.b. From the above submission it is evident and fact that, the Monitoring Committee has sold the iron ore of the assessee firm through e-auction to the extent of Rs. 50,24,48,441/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held on his account is not sufficient to cover the aforesaid three heads, he must pay the deficit within two months from today. 4.1.d. It is clear from the plain reading of the said order that there is nowhere suspense or uncertainty of Sales Proceeds of the said EAuctioned Iron-ore from the Monitoring Committee, whereas, in all the above judicial decisions relied on by the assessee firm, there was uncertainty of receipt of money, hence, the said cases relied on by the assessee firm cannot be accepted as the facts of cases differ from the instant case. Hence, the assessee's implicit plea that, even though sales had occurred in the relevant years, no income can be said to have accrued to the firm in the relevant year and/or since, the sales proceeds are retained by the CEC and therefore, the said sales proceeds will be offered to tax in the year of realisation also cannot be accepted. As there are only two recognized methods of accounting namely the Cash Method of Accounting and the Mercantile Method of Accounting. In Mercantile method of accounting, entries are posted in the books of account on the date of transaction when the rights accrue or liabilities are incurred, irres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to e-auction sale proceeds accrued/arised to the assessee for the financial year ending 31/03/2013 should be assessed in the relevant assessment year which is under consideration Hence, the entire E-auction sales proceeds of Rs. 50,24,48,441/- (Rs. 25,59,99,429/- + Rs. 24,64,49,012/-) claimed as expenditure/deduction are added back to the income returned and brought to tax. Ld. AO thus added sale proceeds amounting to Rs. 50,24,48,441/- in the hands of assessee for year under consideration. Aggrieved by order of Ld. AO, assessee preferred appeal before Ld. CIT(A). 6.7. Ld. CIT(A) observed and held as under: 3.1.) The assessee submitted that though it followed Mercantile system of accounting it did not offer the above amount of Rs. 50,24,48,441/- as receipt of the same was highly uncertain and recognition of income was to be done only on receipt basis and relied on Accounting Standard-9 that is revenue recognition. It was submitted that as per Accounting Standard-9 (A S9) issued by ICAI, where there is an uncertainty about the collection of income/revenue, recognition of such income/revenue is to be postponed to the extent of uncertainty involved, which is also in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock, received by assessee in subsequent assessment years; and B. Addition of sale proceeds of undeclared stock in the hands of assessee, which was not disbursed by MC. A. Recognition of sale proceeds from declared stock received by assessee Ld. Counsel impugned sale proceeds from sale of declared stock were accounted by assessee in subsequent assessment years, when it was received. He submitted that, Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) authorised MC to take control of stock, and sell the same through E-auction, depending on demand in the market. Subsequently, sale proceeds received by MC are to be deposited in nationalised bank account, after adjusting towards royalty, taxes and expenditure. Ld. Counsel submitted that, in instant case, right and control over stock was with MC, and till such time MC parts with sale proceeds, assessee had no right to receive the same. He submitted that, sale of stock by MC cannot be regarded as sale of stock by assessee. He submitted that assessee thus accounted the sale proceeds from declared stock in subsequent assessment year, when it was actually received. A.1. Ld. Counsel submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. He submitted that, revenue from sale of declared stock therefore was uncertain. A.4. Ld. Counsel thus contended that, assessee had not acquire any right to receive income, in as much as, such right was dependent on MC disbursing such payments. He thus submitted that, sale proceeds therefore, had not received, or even deemed to have been received or accrued or arisen, or deemed to have arisen to assessee. It has been contended by Ld. Counsel that, necessary requirement under Section 5 of the Act, stands unsatisfied for recognising sale proceeds during year under consideration. A.5. In support of his contentions he placed reliance upon following decisions: * ED.Sasoon & CO Ltd. vs CIT reported in (1954) 26 ITR 27 (SC) * CIT vs Balbir Singh Maini reported in (2017) 398 ITR 531 (SC) * CIT vs Excel industries Ltd. reported in (2013) 358 ITR 295 * Prakashan leasing Ltd. vs DCIT reported in (2012) 208 Taxmann 464 (Kar) A.6. Ld. Counsel also relied on CBDT Notification No. 9949 (F. No. 132/7/95-TPL)/SO 69(E) :, Dated 25/01/1996, superseded by Notification No. 32/2015 (F.N.134/48/2010-TPL)/SO 892 (E), Dated 31/03/2015, regarding AS-I, relating to disclosure of accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes Rs. 25,59,99,429/- being sale proceeds from declared stock considered by Ld. AO as income of assessee for year under consideration. Taking support from assessment order, referring to para 4.1.b., Ld. Counsel submitted that, Ld. AO himself records that, sum of Rs. 25,59,99,429/- received in subsequent assessment years being assessment years 2014-15 and 2015-16, was offered to tax, during relevant assessment year. He submitted that having noted the fact that revenue received from declared stock has been offered to tax in subsequent years, making addition during the year under consideration would amount to double taxation in the hands of assessee. It has been submitted by Ld. Counsel that, right to receive sale proceeds, accrued to assessee by virtue of directions of Hon'ble Supreme Court by order dated 18/04/2013 (supra), which was in succeeding financial year, relevant to year under consideration, and has also been offered to tax on receipt basis. A.10. Alternatively, Ld. Counsel submitted that, entire exercise is revenue neutral as assessee is assessed at uniform rate of tax over the years. A.10.1 Ld. Counsel submitted that, principle of matching between revenue recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee claimed Rs. 50,24,48,441/- as expenditure being total of declared and undeclared stock in IBM returns, which in any event assessee could not do, had the sale not taken place. He submitted that, sale of stock was effectuated during the year under consideration, and entire sale proceeds were received by MC during financial year relevant to assessment year under consideration. Ld. CIT.DR submitted that, assessee had given undertaking for deducting Royalty and other expenses payable to MC from such sale proceeds and the net amount that was payable to assessee by MC, which was very well ascertainable during financial year relevant to year under consideration. He thus submitted that, assessee was well within the knowledge of amount that accrued from sale of stock. Ld. CIT.DR thus submitted that, assessee was required to reflect these sales as trading receipts in the books of account in view of mercantile system consistently followed for disclosing income. Referring to observations of Ld. AO in para 4.1.d to 4.1.f, Ld. CIT.DR submitted that, auction of declared stock took place during the year under consideration, and assessee had right to receive 80% of total sale proceeds as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of time at which liability to tax is attracted, i.e.; accrual of income or its receipt. Hon'ble Supreme Court in case of CIT vs Shoorji Vallabhdas & Co reported in (1962) 46 ITR 144 held that: "............. If income does not result at all, there cannot be a tax, even though in book keeping and entries made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of the income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." A.13.4. In CIT vs Kerala State Drugs & Pharmaceuticals Ltd., reported in (1991) 192 ITR 1, Hon'ble Kerala High Court observed and held as under: "In order to tax on income, one has to see whether it is the real income or whether the income has materialised. What is necessary to be considered is the true nature of the transaction and whether in fact the transaction has resulted in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, accrual of income must be judged, depending facts and circumstances of each case. A.13.6. It has been vehemently contended by Ld. Counsel that, assessee did not have right to accrue such income, since its receipt was hypothetical in the year of sale. And, though assessee followed mercantile system of accounting, it had to postponed its accrual to subsequent years, when sale proceed were actually received. It was submitted by assessee that, income did not materialise during the year under consideration. It was contended that in view of uncertainty, assessee need not account for the same even under mercantile system of accounting. It was submitted that sales revenue accrued to assessee only in the year in which payment advice was issued by MC. A.13.7. The present facts of the case, we note that, 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) approved sale of iron ore through e-auction conducted by MC. It is also observed that Hon'ble Court directed that, the quantity to be put for e-auction, its grade, lot sizes, its base/flow price and the period of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not affect the accrual of income. The moment income accrues, assessee gets vested with the right to claim it, even though it may not be made immediately. Hence, receipt of the sale consideration on a later date would not postpone the accrual of income. Under Sale of Goods Act, 1930, a key criterion for determining when to recognise revenue from a transaction involving the sale of goods is that the seller has transferred the property in the goods to the buyer for a consideration. The transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. Also as per ICDS-IV relating to revenue recognition, sale is completed when property in the goods transferred from the buyer to the seller for a price and further the seller retains no effective control of the goods so transferred. In present facts, iron ore stood transferred to the buyers as on the date of sale through E auction by MC. We note that assessee was aware about the amount to be received as sale consideration and the details regarding deduction is towards SPV as per the directions of Hon'ble Supreme Court. A.13.11. We therefore do no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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