TMI Blog2021 (12) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... income, under such a method of accounting is required to be recognized on accrual basis - when the assessee following mercantile system of accounting and right to receive such an income is accrued, then it is chargeable to tax and receipt of such amount, whether before or after accrual is of no consequences. In the similar way, some amount has been received, which does not represent income accrued for the year, it shall not be charged to tax and will assume the nature of liability till the time of its accrual. Only when such amount accrues as income, the earlier liability will get converted into income. Till that time, it will continue as liability, despite the fact that it was received. Thus, receipts relevant to tax under mercantile system of accounting are the fact of accrual of income during the financial year and actual receipt of income is irrelevant. The explanation of assessee is that it has not received that income. The explanation offered by the assessee has been perused and found against the facts of the case. As per Clause-K, SMEORE is agreeable to pay to SMPPL a conversion fee to be determined in two parts, namely, fixed cost per month to meet manpower, administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive it, if it is not actually received, which cannot go out of the total income of the assessee to say that it is not accrued to the assessee. The said amount has been accrued to the assessee under the mercantile system of accounting as per the provisions of sec. 145(2) of the Income-tax Act and the same has to be brought to tax. The other contention of the assessee is that there was revised agreement dated 24/4/2013 with retrospective effect on 1/10/2012, which cannot be given any importance which is entered after the end of financial year 31/3/2013 and it is only self serving document so as to facilitate to tax payable by the assessee. - Decided against assessee. - ITA No. 2181/Bang/2017 - - - Dated:- 29-11-2021 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ANDSHRI GEORGE GEORGE K, JUDICIAL MEMBER Revenue by : Smt. Priyadarshini Besaganni, JCIT (DR) Assessee by : Smt. Prathibha, Advocate ORDER Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of CIT(A), Gulbarga dated 28/9/2017. This appeal by the assessee is directed against the order of CIT(A), Gulbarga dated 28/9/2017. 2. The assessee has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,88,041. The Assessee had entered into an agreement with M/s Sandur Manganese Iron Ores Ltd., (hereinafter referred to as SMIORE) vide agreement dated 29.09.2010 which was named as Conversion Agreement for conversion of manganese ore to silicomanganese and ferromanganese at the assessee's ferroalloys plant for SMIORE on account of furnace owned by the assessee which had captive power facility to produce the required products. SMIORE has agreed to provide the required quantity of manganese ore, reductants and electrode paste at the Assessee's plant free of cost for conversion. The Assessee has agreed to produce and supply the entire silicomanganese or any other ferroalloy product so produced. The conversion fee was to be determined in two parts viz., fixed cost per month to meet manpower, administration, finance cost etc and variable cost per tonne of ferroalloy produced. As agreed to the conversion cost was split into two viz., fixed cost and variable cost which was to be based on production of silicomanganese which has been clearly agreed to in Clause 8 of the agreement for which necessary bills have to be raised by the Assessee. On account of increased expenditure, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The AO also failed to consider that conversion charges declared by the Assessee, strictly in accordance with both the agreements and there was no omission of any income by the Assessee. Further, while doing so by resorting to estimate the income as per the old agreement, the AO accepted the revised tariff for the period from 01.10.2012 to 31.03.2013, ignored the tariff for that period as per the old agreement whereby the enhanced rates as recorded in the agreement dated 24.04.2013 was also brought to tax, causing double addition. Accordingly, the loss declared by the Assessee was reduced by ₹ 4 crores by the AO without appreciating the submission of the Assessee. 7. The ld.DR submitted that the assessee entered into conversion agreement dated 29/9/2010, as per which, the assessee had done processing/production for the month of April 2012 and September 2012 to March 2013 in all 8 months. In this circumstance, the assessee failed to explain why fixed conversion fee at least for 8 months, which was not disclosed in the books of account of the assessee. Similarly, revised conversion agreement entered on 24/4/2013 i.e after the end of relevant previous year with retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily and exclusively for the performance of the duties of an office or employment of profit; (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;] (iv) the value of any benefit or perquisite 44, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid; [(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the beneficiary ) and any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of this clause , the expression Keyman insurance policy shall have the meaning assigned to it in the Explanation to clause (JOD) of section 10;] [(xii) any sum referred to in 59[clause (Va)] of section 28;] Following sub-clause (xiia) shall be inserted after sub-clause (xii) of clause (24) of section 2 by the Finance Act, 2018, w.e.f. 1-4- 2019: (xiia) the fair market value of inventory referred to in clause (via) of section 28; [(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;] 61[(xiv) any sum referred to in clause (vi) of subsection (2) of section 56;] [(xv) any sum of money or value of property referred to in clause (viz) [or clause (viia)] of sub-section (2) of section 56;] [(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of section 56;] [(xviz) any sum of money referred to in clause (ix) of sub-section (2) of section 56;] [(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;] Following sub-clause (xviib) shall be inserted after sub-clause (xviia) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 10. Further, section 145 is always relevant with regard to method of accounting as sub section (1) to section 145 states that - income chargeable under the head profits and gains of business and profession or income from other sources shall, subject to the provisions of sub sec.(2), be computed in accordance with cash or mercantile system of accounting regularly employed by the assessee. Therefore, to bring the receipt of conversion charges to be income as mentioned in sec.2(24) of the Income-tax Act, it is necessary that it should be computed in accordance with method of accounting regularly employed by the assessee. In the present case, the assessee, admittedly following the mercantile system of accounting and in such a method, deduction for expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of ONE PART AND Star Metallics and Power Limited a company incorporated and registered under the provisions of the Companies Act, 1956 having its Registered Office at Metal and Ferroalloys Plant, Vyasankere, Hospet - 583 222, Bellary District, Karnataka. hereinafter referred as SMPPL (which expression shall, unless repugnant to the meaning and context thereof, be deemed to include all of its Sucessors-in-interest, permitted assigns and authorized representatives) represented by S.H Mohan - Wholetime Director of the OTHER PART; Clause.J WHEREAS SMPPL is agreeable to produce and supply to SMIORE the entire SiMn (or any other ferroalloy to be produced. The norms of consumption of Mn ore, coke, electrode paste, power etc., will depend on grade and type of ferroalloy to be produced, and will be mutually discussed and arrived at on a quarterly basis; Clause.K WHEREAS SMIORE is agreeable to pay to SMPPL a conversion fee to be produced. Conversion costs payable as determined on the date of execution of this agreement is at ₹ 40 lakh per month towards fixed costs and ₹ 20.000 per tonne towards variable costs for Silicomanganese which shall be rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the accounts are correct and complete but the method employed is such that in the opinion of the AO the income cannot properly be deduced there from, computation shall be made upon such basis and in such manner as the AO may determine. 'Chargeable income is as per accrual of income. Therefore, the AO can, by applying s. 5 of the Income-tax Act, in the background of proviso to sub-s. (1) of s. 145 of the IT Act, compute income on accrual basis. The statute must be read as a whole and one provision thereof should be construed with reference to another provision, so as to make a consistent enactment of the whole statute. It is a rule now firmly established that intention of the legislature must be found by reading the statute as a whole. If the interpretation suggested by the counsel for the assessee is accepted, the very charging section would be rendered inoperative and ineffective, which is impossible to be done. The machinery provisions cannot be interpreted as to restrict the scope of the charging section. As a matter of fact, authorities are expected to construe the machinery provisions in such a manner that a charge to tax is not defeated. The CIT(A) was therefore co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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