TMI Blog2023 (7) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of expenses - Udyog Sahayak Expenses - revenue or capital expenditure - one of the contributories (PSIDC) of the Udyog Sahayak Expenses had admitted that some of the expenses were of capital in nature - HELD THAT:- The Udyog Sahayak is admittedly a body constituted by PSIDC, the respondent assessee and some other corporations to facilitate the promotion of industries. It is not in dispute that the contributions made to these funds are utilized for purchase of capital items, renovation, furnishing etc. of office bearers. As such, the expenses incurred on this account cannot be treated as business expenditure and are revenue expenses and, therefore, the findings by the authorities below on this point also do not deserve to be disturbed. - Income Tax Appeal No.398 of 2009 (O&M) Income Tax Appeal No.399 of 2009 (O&M) Income Tax Appeal No.292 of 2010 (O&M) Income Tax Appeal No.293 of 2010 (O&M) Income Tax Appeal No.279 of 2011 (O&M) - - - Dated:- 18-1-2023 - HON'BLE MS. JUSTICE RITU BAHRI And HON'BLE MRS. JUSTICE MANISHA BATRA Ms. Gauri Neo Rampal , Senior Standing Counsel , for the Income Tax-appellant Mr. Pankaj Jain , Senior Advocate, with Mr. Sachi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng etc. of office bearers of the Committee. Those expenses not being revenue expenses were disallowed. The income of the respondent-assessee was re-computed and penalty proceedings under Section 271 (1) (c) of the Income Tax Act, 1961 (for short 'the Act') were ordered to be initiated separately against it. 3. Feeling aggrieved against the order of assessment dated 20.12.2005, the respondent-assessee had filed appeal under Section 143 (3) of the Act before the Commissioner of Income Tax (Appeals), Chandigarh (for short CIT (A) ) who vide order dated 09.11.2006, allowed the appeal of the assessee and deleted the disallowances so made. It was now the turn of the revenue to feel aggrieved by the order of CIT (A) who filed appeal before the Tribunal challenging the deletion of disallowances/additions made by the assessing officer. The revenue, however, remained unsuccessful before the Tribunal who while affirming the order of CIT (A) dismissed the appeal of the revenue. Still not satisfied, the revenue has approached this Court by filing the instant appeal. The appellant-revenue has raised the following substantial questions of law for consideration:- i) Whether on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices against the said advances were yet to be provided which could be rendered by the assessee only in the subsequent years and as such, the income qua those receipts would accrue only in those years. 6. Learned counsel for the respondent further emphasized that the amounts deposited with the assessee were only receipts and the taxable income would be only after deduction of expenses, which were to be incurred by it in the succeeding years. He, therefore, urged that the observations made by the authorities below that the additions as made by the assessing officer were not in accordance with method of accounting followed by the assessee which was consistent and the amount of expenditure treated by the assessing officer as of capital nature was liable to be disallowed and these observations did not deserve to be interfered with. To fortify his arguments, learned counsel for the respondent-assessee has placed reliance upon the authorities cited as Principal of Commissioner of Income Tax v. Salarpuria Simplex Dwelling LLP, (2022) 216 DTR Judgments; Commissioner of Income Tax Chennai v. Bilahari Investment (P) Ltd., (2008) 4 Supreme Court Cases 232; Calcutta Company Ltd. v. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the companies reflecting income under the head business or profession are required to follow the Accounting Standards prescribed. The Government of India has notified the Accounting Standards by way of publication of notifications. Accounting Standards-1 as notified in a notification issued in exercise of powers under Section 145 (2) of the Act on 29.05.1996, relates to disclosure of accounting policy. It puts an obligation on the assessee to disclose all significant accounting policies adopted in the preparation and presentation of financial stages. As per this standard the term Accrual refers to the assumption that revenues and costs are accrued i.e. recognized as they are earned or incurred and not as money is received or paid and recorded in the financial statements of the period to which they relate. As such the term accrual relates to revenue earned or cost incurred meaning thereby that unless the expenses are incurred, cost in respect thereof cannot be treated as accrued and unless the revenue is earned, it is not accrued. Reference in this regard can be made to Dinesh Kumar Goel's case (Supra), wherein the High Court of Delhi was dealing with the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see; and in Salarpuria Simplex Dwelling LLP's case (Supra) wherein the assessee was engaged in the business of development of property and entered into a development agreement whereby as a developer, it had started construction and developed a residential plot. With regard to the tax, it had been following the projection completion method . While framing assessment, it was held that the assessee was a mere contractor and it ought to have adopted percentage completion method. The findings as given by the assessing officer were reversed by the Tribunal by holding that the method of accounting, namely, the project completion method that was followed by the assessee and had been accepted by the department, was the well recognized method. By applying the principle of consistency, the appeal of the revenue had been dismissed; and in Rakesh Shantilal Mardia's case (Supra), wherein the issue was as to whether interest income should be taxed on accrual basis in year of allotment of debenture itself and whether it could be taxed on spread over basis. The Hon'ble Supreme Court observed that the interest income having arisen on difference between purchase price of debentures and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of the contract. The profit and loss is established in the last accounting period and transferred to P L account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of the contract. The Apex Court had affirmed the decision of the Tribunal by observing that no finding was recorded by the assessing officer that completed the contract method distorted the profit of a particular year. Rather it was observed that the entire exercise was revenue neutral and, therefore, it was held that it was only in those cases where the department recorded a finding that the method adopted by the assessee resulted in distortion of profits, that the revenue could compel substitution of some ..... X X X X Extracts X X X X X X X X Extracts X X X X
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