TMI Blog2017 (2) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, where the probability of receipts in favour of the assessee is contingent on final outcome of Court s proceedings, such contingent receipts have rightly been shown as liability and not reflected as taxable receipts in the profit/loss account. Similar issue was involved in AY 2004-05 wherein as held such interim arbitration receipts pending final outcome as not taxable - Decided against revenue. Accrued interest on FDRs not declared as income by the assessee - assessee has not shown the interest accrual on FDRs made for giving bank guarantee in his return of income for the year under consideration - AO computed interest @ 7% and brought the same to tax in addition to arbitration receipts - CIT-A deleted the addition - HELD THAT:- CIT(A) has given a finding that the assessee has shown net interest in his profit/loss account which comprises of gross interest received including interest on FDRs and interest paid to Bank. The said finding has not been controverted before us. No infirmity in the order of ld CIT(A) in deleting the addition. Decided against revenue. - ITA No. 11/JP/2015 - - - Dated:- 28-2-2017 - Shri Kul Bharat, JM And Shri Vikram Singh Yadav, AM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then these receipts can be termed as provision for contingent liability and the provision of contingent liability is also not allowable as per Income Tax Act. Therefore, considering all the facts and circumstances of the case, the contract receipts of Rs. 91,59,305/- received through arbitration was treated as income of the assessee and brought to tax. 2.2 Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A). The ld CIT(A) held that the facts in the instant case are identical to the facts before the Coordinate Bench in AY 2004-05 and following the judgement of Coordinate Bench, he held that the amount was not under the absolute ownership of the assessee and AO was not justified in treating the same as income. The AO was therefore directed to delete the addition of Rs. 91,59,305/-. The Revenue is in appeal against the said order of ld CIT(A) before us. 2.3 We now refer to the decision of the Coordinate Bench in ITA No. 1003/JP/2007 dated 31.03.2008 for AY 2004-05 in assessee s own case which has been relied upon by the ld CIT(A), the operative part thereof reads as under: Considering the above submissions in view of the decision relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleased to hold that in the present case, although the award was made by the arbitrator on 29.07.1955, enhancing the amount compensation payable to the assessee the entire amount was in dispute in the appeal filed by the State Government. Indeed the dispute was regarded by the Court as real and substantial because the assessee was not permitted to withdraw the sum of Rs. 7,36,691/- deposited by the State Government on April 25, 1956 without furnishing security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive at that stage. If the appeal was allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether, held Hon ble Supreme Court. It was further held that the very foundation of the claim made by the assessee was in serious jeopardy and nothing would be due if the appeal was decided against the assessee. The enhanced compensation accrued to an assessee only when the court accepted claim and not when the land was taken over by the government, it was held. The facts in the case of Hindustan Housing and land Development Trust ltd. (supra) are almost same as in the case of present assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 35,83,978/- shown as current liability by the assessee is accordingly directed to be deleted. This ground of appeal is accordingly allowed. 2.4 The ld. AR submitted that the Hon ble ITAT in assessee s own case in ITA no. 1003/JP/2007 vide order dated 31.03.2008 for the assessment year 2004-05 under similar identical facts and circumstances wherein also the assessee had received Rs. 3,583,978/- with a condition of furnishing of equivalent value of Bank Guarantee towards Arbitration Award had deleted the addition made in a detailed order. The ld AR further submitted that the Hon ble Rajasthan High Court had permitted the assessee respondent to withdraw the amount with a condition of furnishing of the bank guarantee of equal amount. If the interim order were to be ultimately upset by the Hon ble Court, the State Government would become entitled to encash the bank guarantee and recover back the amount paid to the assessee respondent with interest. Thus the assessee respondent submits that the said receipts are not taxable in the year of receipt since the same did not accrue to the assessee as income. It was an ad-hoc and interim payment, pending final adjudication o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reasons best known to him chose not to inquire and ignored the same. It was further submitted that the assessee had requested the ld. Assessing Officer to let him know under which provision of law will the assessee be eligible to get refund of the tax sought to be charged on such receipts if subsequently in the instant case on merits ultimately the Hon ble Rajasthan High Court decides the arbitral award against the assessee and the amount is recovered back from the assessee. The ld. Assessing Officer for the reasons best known to him chose to ignore and did not reply towards the same. By passing such order for release of funds subject to furnishing of Bank Guarantee, the Hon ble Rajasthan High Court has simply ensured release of 50% of the arbitration amount to the assessee respondent and at the same time protected the interest of State of Rajasthan so as to avoid future recovery issues, in case, the State of Rajasthan succeeds on merits. As submitted hereinabove, a Bank Guarantee is a non-fund based limit sanctioned by the Bank; however no accounting entry is passed for Bank Guarantee obtained from the bank. Bank Guarantee has been issued by the assessee against su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3.2 on page 8 of this assessment order and he raised the issue that the expenses relevant to arbitration contract receipts have already been claimed by the assessee in earlier years by treating them as crystallised in those years while arbitration contract receipts were not shown in those relevant years as his income in the P L account against the expense but same is treated contingent liability as shown in the balance sheet. The method applied by the assessee is completely wrong and not permissibly under the provisions of law and therefore, AO treated those disputed receipts as assessee s income for the A.Y. 2008-09 on actual receipt basis. Those facts and issues were not before Hon ble ITAT Jaipur in A.Y. 2004-05. Therefore the ITAT decision in the assessee s case for A.Y. 2004-05 is completely on different footings and assessee s reliance upon the said decision of ITAT, Jaipur is completely misplaced. In view of these facts assessee s plea cannot be accepted. 2.5 The Hon ble Supreme Court in case of case of Hindustan Housing and Land Development Trust Ltd held as under (Head notes): It is well settled that it is on the final determination of the amount of compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be offered to tax in the previous year of the date of payment. Merely because by virtue of an interim order with or without conditions, some payment is made for the purpose of the Act, it would not constitute income and, therefore, there is no liability to pay tax on the day such interim payment is received. Therefore, in present case, assessee is liable to pay tax on amount in question, only after final conclusion of dispute before High Court. 2.7 Similarly, the Hon ble Delhi High Court in case of Sarvatra Roadrunners (P) ltd has held as under (Head notes): On a reading of the interim order passed by the High Court, it was quite clear that the assessee had no right to receive the money in the sense that no right had accrued or vested in the assessee in that regard. In the event of the company succeeding in the appeal filed by it, the assessee was obliged to return the amount by way of restitution under section 144 of the Code of Civil Procedure, 1908. In view of the above, both the Commissioner (Appeals) as well as the Tribunal were correct in deleting the addition made by the Assessing Officer. 2.8 In the present case, the Hon ble Rajasthan High Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore dismissed. 3. In respect of ground No.2, the Assessing officer observed that the assessee has not shown the interest accrual on FDRs made for giving bank guarantee in his return of income for the year under consideration. The Assessing officer accordingly computed interest @ 7% on Rs 91,59,305 and brought the same to tax in addition to arbitration receipts. 3.1 The ld. AR of the assessee submitted that on perusal of the Audited Profit and Loss account, your honour shall notice that Net Interest of Rs. 6,23,298/- has been shown. During the course of assessment proceedings u/s 143(3) the ld. AO raised a specific query with regards to treatment of such interest income and vide letter dated 11.05.2010 it was submitted before the ld. AO vide para 4 That during the year under consideration your assessee showing net interest profit in P L account Rs. 623,298/-. This amount represents interest on FDR made for the purpose of bank guarantee to receive the payment from Arbitration award hence this is purely a business income and not for investment and hence this income may be treated as business income . The details of net interest of Rs. 6,23,298/- was also submitted wherein gross ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
