ACIT, NEW DELHI V. M/S. ZOOM COMMUNICATION LTD., NEW DELHI

ITA 6210/DEL/2016

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 22887 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYA CHOUDHARY
• Assessee Lawyers: SASHI KAPILA
• Keywords: Business expenditure; Depreciation; Gift; Period of limitation; TDS; Double taxation relief; Right to appeal
• Section: 143(3); 142(1); 143(2); 195; 192; 22; 133(6); 113; 13; 73; 37; 43D; 20

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI BEFORE SHRU M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI SUDHIR KUMAR, JUDICIAL MEMBER ITA No.6210/Del/2016 Assessment Year: 2011-12 ACIT Central Circle – 17 New Delhi Vs. M/s. Zoom Communication Ltd. B-10, Greater Kailash, Enclave-I, New Delhi- 110048 PAN No.AAACZ0080E (APPELLANT) (RESPONDENT) Appellant by Ms. Jaya Choudhary, CIT(DR) Respondent by Ms. Sashi Kapila, Advocate Sh. Sushil Kumar, Advocate Sh. Parvesh Sharma, Advocate Date of hearing: 15/10/2024 Date of Pronouncement: 31/12/2024 ORDER PER SUDHIR KUMAR: JUDICIAL MEMBER: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-27, New Delhi [hereinafter referred to as “CIT(A)”] vide order dated14.09.2016 pertaining to 2 assessment year 2011-12arises out of the assessment order dated31.03.2014 under Section 143(3)of the Income Tax Act 1961 [hereinafter referred as ‘the Act’]. 2. The assessee has raised the following grounds of appeal:- 1. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made on account of disallowance of Employee Remuneration at Rs.1,63,22,729/- made by the AO without appreciating the facts that the assessee has not proved the identity of the employees on the remuneration paid to them. 2. On the facts and under the circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition made on account of Amount accrued but not received from M/s. SIS Live U/s. 5 (1)(b) at Rs.63,41,25,805/- without appreciating the facts that since the assessee company follow the accrual method of accounting and is bound and is bound to include the revenue accrued during the year of business. 3. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made on account of disallowance of Professional Fees at Rs.9,30,97,866/- made by the AO without appreciating the facts that none of the recipients has confirmed the receipts as claimed by the assessee company and in majority of cases TDS u/s. 195 were not deducted by the assessee before making payment. 3. The brief facts of the case are that the assessee company is engaged in providing video production services and during the relevant 3 assessment year had undertaken contract with SIS Live for production and coverage facilities and services under SIS assignment for Commonwealth Games 2010. The assessee company had filed its return of income for A.Y.2011-12 on 30.09.2011 declaring total income at Rs.15,63,41,130/-. The case of assessee was taken up for scrutiny. A notice u/s 143(2) of the Act was issued on 11-12-2012. Again notice u/s 142(1) of the Act along with questionnaire was issued. The assessing officer has completed the assessment and made the following additions as under: 1. Disallowance of expenses u/s 40A(1) Rs 3215614 2. Disallowance on account of gain/loss on sale of fixed assets Rs 2376618 3. Disallowance u/s 37 in respect of depreciation on lease hold building Rs 956000 4. Disallowance on account of interest on delayed payments Rs 2429232 5. Disallowance for balances written off Rs 8975200 6. Disallowance for employee remuneration stating the same to be unverifiable expenses Rs 16322729 7. Disallowance for professional fees stating the same to be unverifiable expenses Rs 93097866 8.Addition on account of alleged Unexplained liability Rs 321420 9. Disallowance stating the same to be difference between directors remuneration and salary details Rs11143600 10. Disallowance of expenditure on freight & cottage and Freight on carnet stating the same for employee remuneration stating the same to be capital expenses Rs 47094226 4 11. Disallowance u/s 37 for expenditure on business promotion Rs357700 12. Addition u/s 5(1)(b) Rs 634115805 Total Additions Rs 82,04,06,010 4. Aggrieved by the impugned order, the assessee Company has filed the appeal before the Ld CIT(A), who vide his order 14-09-2016 partly allowed the appeal and additions made by assessing in serial Number 1,2,3,6,7,9,10,12 shown in the above table were deleted and serial number 5,8, and 11 were confirmed. 5. Aggrieved the order of the Ld CIT(A) the revenue is in appeal before the Tribunal. 6. Ld. D.R. vehemently supported the order of the assessing officer. He has submitted that the assessee company follows the accrual method of accounting and is bound to include the revenues accrued during the year of business, irrespective of the fact whether the income has actually been received or not. He has also submitted that Common Wealth Games 2010,New Delhi were covered by the assessee company the assessee company has shown the profit in its books of account after deducting the expenses for the year under consideration. Reliance has placed the 5 judgment of the Commissioner of Income-tax vs. Hindustan Motors Ltd [1994] 73 taxman 543 Calcutta. 7. Ld.counsel for the assessee has submitted that assessee has completed the sub-contract amounting 1,607,452,250/-. The assessee received the amount of Rs 973,296,445/-and balance amount Rs 634155805/ not received till date. She has submitted that Computer Auditor General made the enquiries regarding allotment and execution of the contract. Consequently, Doordarshan ceased making further payments to SIS Live, which in turn has declined to make payment to the assessee. She has further submitted that various litigations are pending between the parties there was no realistic chance of the recovery of that amount. She also submitted that under mercantile system of accounting it is only the accrual of real income which is chargeable to tax and the income should be real income not be hypothetical income. 8. Ld. A R has filed the written submission which is as under: “1. The brief facts of the case are that Zoom Communications Ltd., the assessee company is engaged in providing video production services. 6 2. The assessee company had filed its return of income for Assessment Year 2011-12 on 30.09.2011 declaring total income at Rs.15,63,41,130/-. The Assessing Officer assessed the income at Rs.97,67,47,140/- by making various additions & dis-allowances vide his order u/s 143(3) dated 31.03.2014. 3. The Assessee being aggrieved by the aforesaid assessment order, appealed before the CIT(A). The Ld. CIT(A) vide order dated 14.9.2016 deleted most of the additions. 4. Now the Revenue is in appeal before the Income Tax Appellate Tribunal (ITAT) against the CIT(A)'s order on the following grounds: i) Disallowance of Employee Remuneration at Rs. 1,63,22,729/-. ii) Addition of income not received from M/s SIS Live u/s 5(1)(b) at Rs.63,41,25,805/-. iii) Disallowance of Professional Fees at Rs.9,30,97,866/-. These are dealt with as under: Ground 1- Disallowance of employees, remuneration Rs.1,63,22,729/- AO- Para 9 Pg. 124 to 136 (internal Page 7 to 19) CIT(A) See page 35 to 37-Finding on Pg. 37 Assessee's Submission: See Vol-III -Pages 236 to 253- Evidence filed before AO & CIT(Appeal), 7 i) Vide order Sheet entry dt. 21.1.2014, the AO notes that the assessee submitted the details of various expenses made etc. [AO's page 10 see running page 127]. ii) The AO records that \"on 21.1.2014 the AR of the assesse has submitted details of various expenses made for Employees Remuneration, Professional Fee,....\" iii) It must be appreciated that all payments were through banking channels. Admittedly during the hearing on 21.1.2014 the assessee furnished the names, addresses, salaries, remuneration paid to employees engaged for implementation of the project of Common Wealth Games, 2010 (Pg. 10 to 19 of AO order). iv) The AO issued \"summons\" u/s 131(1) of the Income Tax Act on 22.1.2014 (Pg. 10-18 of AO Order) running pages 127 onwards. v) Date of receipt by Post Office Not known vi) Date of return of notice and Postal comment - Not known vii) In the case of CIT vs. Mundra Port & Sez. Ltd. [See pg. 1025 of Decision Paper Book Vol. II. The Gujarat High Court held that payments made through banking channels and tax deducted at source and consultants not related to assesse was allowable business expenses. viii) CIT(A)'s findings: Nothing has been brought out by the Assessing Officer to show that the expenditure has not been incurred by the appellant or that it is not a bona fide expenditure not have been incurred for carrying on its business, complete details of remuneration paid to employees containing name of employee, address, remuneration paid, PAN of employee, wherever available, having been furnished during the 8 course of assessment proceedings. The assessee having discharged its initial burden, the assessee fulfilled its duties.\" (Pg. 37/CIT(A) order) ix) Hence it is submitted that the said expenditure which is admitted incurred for the business of the assessee is legitimately allowable business expenditure. Ground No. 3- Disallowances of Professional fees paid to non- residents of Rs. 9,30,97,866 AO-Pg. 19 to 35 Para 10 Summons were issued on 28.02.2014. [Running Page 136-152]. CIT(A)-37-40. Assessee's Submissions: The following detailed evidences were filed before AO & CIT(A) are in. Vol.-I & Vol-IV. Sec Volume-III Provides the details submitted before AO & CIT(A). See Vol.-IV provides individual party wise details of professional fees paid to non-resident & TDS deducted. Copies of invoices along with CA certificates in Form 15CB for effecting remittance through banking channels. The CA certificates provides details of Tax Deducted at source or the relevant section of the Income Tax Act, or Double Taxation Avoidance Agreement under which the tax is to be deducted at source and paid to the Govt. i) Full details of Name, address, bank, CA Certificate permitting remittance to foreign technicians after TDS as per Income Tax Act/ DTAA was provided to AO (See. Vol.-IV), and assessment order from pages 19 to 45. 9 ii) Thereafter the AO issued summons under sec. 133(6) to the non- residents for attendance on 282.2014. 122 notices u/s 133(6) dt. 28.2.2014 were issued by Regd. Post as per AO. (See Pg. 19 to 45) iii) Date of issuance of receipt by the Post Office - Not known iv) Evidence for the registered Post' notice to a foreign country- Not known v) Whether AO considered the voluminous evidence including CA Certificate in Form 15CB issued to the Bank for remittance.- No vi) Whether, the issuance of notice u/s 133(6) by AO is illegal - Yes vii) Without jurisdiction (Ref. Circular no. 8 of May 13, 1958. The notices have not been issued under DTAA) viii) CBDT Circular No. 2 dt. 22.5.2012 (343 ITR 157) (Pg. 1051 Vol.-II of Decision Paper Book) with respect to enforcing attendance under sec. 133(6) production of books of a/c must go through proper channels. The AO simply issued summons at the end of accounting period and made additions when no reply received. There is an impossibility attached to attending on summons being issued at short notice by non-resident parties overseas. ix) AO disregarded the entire voluminous information provided, CA certificates etc. x) Did not confront assessee with these summons no show cause notice. xi) (Pg. 1054 DPB- Vol.-II) Relevant DTAA Act 28(4) provided machineryfor seeking information. 10 xii) The AO in the chart of professional fees paid made on pages 19 to 35 of the Assessment Order and to whom notice under section 133(6) was issued records in column 5 & 6 of the Assessment Order amount of TDS deducted on the payments and the section under which such deduction was made in the assessment order from pages 19 to 35. It is respectfully submitted that if the TDS is accepted as genuine then the payment made should be accepted as genuine. xiii) AO does not bring any evidence on record that the expenditure was not genuine or not bona-fide. Whereas Assessee has fully provided evidence of genuineness of expenditure. xiv) Assessee discharged its burden. Reliance is placed on: a) CIT Vs. Mundra Port Sez. Ltd. (Pg. 1025 Decision Paper Book- II).Where in the court held that non-reply to notice/ summon issued at short notice will not make the expenditure dis-allowable when there is substantial material evidence to prove its genuineness. b) Recent Insurance Service VS. DCIT (Pg. 1032 Decision Paper Book-II xv) CIT(A) findings are on page 40, where CIT(Appeal) has accepted genuineness and legitimacy of business expenses. xvi) Hence it is submitted that these expenditure is fully allowable. Ground No. 2- Monies not received from SIS of Rs. 63,41,15,805 AO-Pg. 46-58 Para 14 ([Running Page 163-175]. CIT(A)-56-101 (Background facts see Pg. 89 to 96. Pg. 97 findings of CIT(A) 1. Evidences Filed/ Materials on Record: 11 i) See Vol.-1 Pg. 10(a) Revenue recognition See Pg.13 Disclosure made in Notes to Account attached to return. On monies to be received from SIS Vol-1 Pg. 10, 13- \"accrual\" Vol-1 Pg. 79 Vol-1 Pg. 81 Vol-1- Contract Vol.-I Pg. 85-161 Vol-1 Pg. 85-contract with SIS UK Vol-1 Pg. 104, 105 & 108 Vol.-1 Pg. 113 & 114- Schedule of Payments Pg. 155. ii) Full facts provided in Supplementary PB. Vol-II-submission before CIT(A)- Pg.207-215 iv) Vol-II-Order of CBI dated 16.5.2014 where CBI Closure Report on each allegation made is provided see Pg. 234. See Pages 216-235]. v) Supplementary Paper Book-Pg. 2 Breakup of consideration amount not received. vi) Delhi High Court orders dismissing petitions for injunctions against Doordarshan encashing performance guarantees by Doordarshan and SIS Live. See supplementary Paper Book. [Pg. 11 to 22). vii) Circular no. 2 dt. 22.5.2013 343 ITR 157 (St.)-Decision Paper Book- Vol- viii) AO states on Pg. 57 & 58 that the amount has accrued but admits that this has not been received. Thus there is no dispute that NO monies have been received by the Assessee till date. ix) As per latest status of Arbitration proceedings, no monies have been received by the Assessee till date. And as per standard accountancyprocedure, when this money is received and how much is received it will automatically be offered to tax. II. Background facts: i) On March 5, 2010, the assessee company Zoom Communication entered into a contract with Satellite Information System (SIS Live) a UK partnership firm for production and coverage of Common Wealth Games Delhi 2010 for a contract value of Rs. 1,607,452,250 (excluding service tax). Principal Contract for this production and coverage facilities was 12 awarded to SIS Live by Doordarshan (Prasar Bharti) which was the Host Broadcaster. ii) SIS in turn sub-contracted these services to the assessee Zoom Communications. As per the sub-contract, the consideration for these services was to be released to the assessee, i.e. ZOOM by SIS Live as per the work related milestones/ specified dates, in accordance with Table 1 of the contract within three working days of the receipt of payment by SIS from Doordarshan. Further clause 6.3 of the Contract stipulates that SIS is liable to make payments to the assesses company only after receipt of payments from the Host Broadcaster. (Sce copy of Contract Vol-1-Pg. 85 to 161). (See Pg. 92, 93, 105- Para 6.3. Pg. 108). iii) As per the terms of the Contract, SIS was liable to pay to the assessee only after the receipt of payment from Doordarshan. [See Pg. 105 para 6.3] iv) Having completed the contracted services, the asssessee had initially recognized the entire revenue from the sub-contract amounting to Rs. 1,607,452,250 (excluding service tax). However the assessee received monies of only Rs. 973,296,445. There has been no receipt till date of the balance sum of Rs. 63,41,55,805/-. This was because huge controversies and disputes erupted regarding the Common Wealth Games. Several inquiries and investigations were initiated by regulatory authorities. The Comptroller Auditor General (CAG) made serious enquiries regarding allotment and execution of the contract. Consequently Doordarshan ceased making any further payments to SIS, which in turn has declined to make payment to the assessee. SIS in turn has not recognized the debt due to assessee amounting to Rs. 63,41,55,805. v) In the High Level Committee Report on Host Broadcasting, allegations were made of collusion between CEO Prasar Bharti Director General and the service providers, i.e SIS Live and Zoom 13 Communications. FIRs were lodged against SIS Live and assessee. Matter was handed over to CBI for investigations. vi) Thereafter the Bank Guarantee provided by SIS Live to Dordarshan was encashed by Doordarshan. (Please see Delhi High Court order dated 31.3.2011 on page 14 of Supplementary Paper Book). Consequently SIS Live encashed the Bank Guarantee by Zoom to SIS Live. (Please sec Delhi High Court order dated 2.4.2011 on page 15 of the Supplementary Paper Book). vii) Thereafter SIS Live initiated Arbitration proceeding against Doordarshan as every payment was stopped to SIS. Consequently SIS suspended all payments to Zoom Communication. Till date no monies have been received by the assessee at all. The attachment of Bank Guarantees and the on-going Arbitration proceedings between SIS Live and Prasar Bharti highlight the disputes and the controversies and confirm the position that no monies/income is likely to be received until the disputes were reported. It is an accepted fact that no monies have been received by assessee till date. This fact is accepted by the Assessing Officer on pages 57 & 58 of the Assessment Order. Despite knowing this he has made this un-justified addition. viii) The withholding of payments due by Prasar Bharti to SIS Live alleging fraud and misrepresentation and non-performance in the on- going Arbitration proceedings between the two clearly evidence an improbable chance of realization of payments due to SIS Live by Prasar Bharti. SIS in turn is liable to make payments to the assessee company only after receipt of payments from the Host Broadcaster in accordance with clause 6.3 of the Contract. The recovery of the income by the assessee from SIS Live in terms of the contract is contingent on the recovery of payment by SIS form Prasar Bharti. Thus probability of the assessee company realizing the related income from SIS Live is extremely low in the period relevant to A.Y. 2011-12. As the liability to pay this disputed income has not been recognized by M/s SIS Live, no tax has been deducted at source. 14 ix) In view of the controversy, dispute, allegations, enquiries and on- going arbitration proceedings there was no realistic chance of being receipt or recovery. Under these circumstances no income has neither accrued nor arisen nor been received the assessee company in the relevant assessment year. SIS Live is not acknowledging the debt due to the assessee company in respect of the said amount by contending that it is 'liable' to make payment to Zoom Communication only after release of payment from HB. The liability of SIS Live, depending upon a contingency is thus not a debt in present or in future till the contingency happens, the contingency being receipt of payment by SIS Live from the Host Broadcaster. [See Pg. 63/CIT(A)] x) Therefore in accordance Accounting policy Para 9.2 of AS-9, which provides that where the ability to assess the ultimate collection with reasonable certainty is lacking, it is appropriate to recognize the revenue only when it is reasonably certain that the ultimate collection will occur and be made. Thus the uncertain and unrealized revenue of Rs. 634,155,805 cannot be treated as income chargeable to tax doing the period under consideration. However if and when any monies are received they offered to tax in the year where they are received. xi) Read Pages 89 to 96 of CIT(A)'s order records the factual background. And on page 97 onwards are the CIT(A)'s findings. III. Assessee's Submission: Accounting Principles must represent true and correct financial picture- Refer Decision Paper Book Volume - 1. • Accounting Standard - 1 See Page 646, 647 • Accounting Standard-9 Revenue Recognition See Page 654 15 i) Attention is drawn to page 13 of Paper Book-Vol-1 of the Audited Financial Statement for A.Y. 2011-12 where full disclosure is made of the un-certainty of collection of Rs. 63,41,55,805. Also see Pg. 23 of the Tax Audit Report. Under mercantile system of accounting it is only the accrual of real income which is chargeable to tax. The income should not be hypothetical income but real income. When income has not resulted at all and there is no certainty of monies being received then there is neither accrual nor arising nor receipt of income. [Pg. 67/CIT(A)] ii) Attention is drawn to Vol-1 of Decision Paper Book where Accounting Standard 1 and Accounting Standard 9 are provided page 646 & 654 Para 9 regarding effect of un-certainty on revenue recognition where ability to assess the ultimate collection with reasonable certainty is lacking....\" IV. Position in law- as per Judicial Decisions: a) The courts of law have repeatedly clarified the law on the subject. That in order to be taxable the income should accrue or arise to the assesse during the previous year. It must be real income and not hypothetical or notional income. These decisions are provided in the Decision Paper Book filed by the Assessee. b) Unless and until there is a right created in favour of an assessee and a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. A mere claim of income without an enforceable right thereto cannot be regarded as accrued income for the purposes of the Income Tax Act-CIT Vs. Govind Prasad Prabhu Nath [1988] 171 ITR 417 Pg. 70/CIT(A) c) See Decision Paper Book Vol.-1 See Head Notes Pg. 661, 662, 671 & 675. In the case of Commissioner of Income-tax Vs. Dinesh Kumar Gocl [2011] 331 ITR 10 the Delhi High Court ruled that: 16 \"Under section 5(1)(b) of the Income-tax Act, 1961 when the income accrues or arises or is deemed to accrue or arise to assessee in India during the previous year, is to be taxed in that year. It is important, therefore, that the receipt of a particular amount in the relevant year should be an \"income\" under the provision. The relevant yardstick is the time of accrual or arisal for the purposes of taxations, viz, in order to be chargeable, the income should accrue or arise to the assessee during the previous year. There must be a \"right to receive the income\" on a particular date, so as to bring about a creditor and debtor relationship on the relevant date\". Pg. 86 & 87/CIT(A) See Head Notes 661 & 662, 671 & 675 d) In CIT VS. Hindustan Housing & Land Development Trust (1986) 27 Taxman 450A(SC) the Supreme Court has ruled that income would accrue only when the person has acquired an indefensible right to receive the monies. (See Decision Paper Book - Vol-III) c) \"Acerues\" means a right to receive - See Volume 1 Decision Paper Book E.D. Sassoon & Co. Ltd. v. CIT 26 ITR 27 (SC) See Pg. 705, 706 & 710. 1) It is to be noted that Section 43D the Income Tax Act, 1961 relating to sticky loans recognized the concept of offering to tax income on receipt basis only when recovery is doubtful. A. Refer Decision Paper Book-Vol-1-Pages 642 to 793 • Accounting Standard-1 See Pg. 646, 647 & 654 • Accounting Standard-9 See Pg. 649-660. 17 • CIT Vs. Dinesh Kumar Goel 331 ITR 10(Del.) (H.C.) - See Pg. 706, 707,710 & 734. • E. D. Sassoon & Co. Ltd. Vs. CIT 26 ITR 27 (SC). See Pg. 706, 707, 710 & 734. • CIT v. Shoorji Vallabhdas and Co. 46 ITR 144(S.C) see Pg. 735 Head Note & 739. • CIT v. Ashokbhai Chimanbhai 56 ITR 42 (SC) See Pg. 747 & 749 • CIT v. Kerla State Drugs & Pharmaceuticals 192 ITR 1 (Ker). (H C.) See Page 767, 773 & 774 • CIT v. Jai Hindi Travels (P.) Ltd 243 ITR 451 (Ker.) (HC) See Page 775 & 776 • CIT v. Motor Credit Co. (P) Ltd. 127 ITR 572 (Mad.) See Page 782 • Bechtel International Inc. v. Dy Director of Income tax [2016] 71 taxmann.com 62 (Mumbai-Trib.) See Page 791 & 792 B. See Decision Paper Book Vol-II-Pages 794 to 1054 Case laws on Accounting Principles • CIT v. Virtual Soft Systems Ltd. 341 ITR 593 (Del.) (H.C.) CA Guidance note- mandatory in nature. See Pg. 795 & 804 & 805. • CIT v Woodward Governor India (P) Ltd. 312 ITR 254 (5.C) See Pg. 811, • J. K. Industries Ltd. V. UOI 297 ITR 176 (S.C)Sce Pg. 830. 18 • Seth Madan Lal Modi v. CIT 261 ITR 49(Del.) (H.C) See Pg. 953 & 954. • CIT v. Shanker Construction 371 ITR 320 (A.P and Telangana) (H.C) [See Pg. 967, 971(Para 13) & 972] • Ria Holding Ltd. ITA No. 1119 to 1124 /Mum/ 2011 Α.Υ. 2001- 02 to 2006-07 (Mum.) (Trib.) order dated 27.07.2012. [See Pg. 974, 979, 981, 983, 986 read 987, 988 & 989. • Western Maharashtra Development Corpn. Ltd. V. Dy CIT 22 SOT 13 (Pune). [See Pg. 993 & 997, 998, 999 & 1000] • CIT v. Excel Industries 358 ITR 295 (S.C). [See Pg 1002, 1008]. See Decision Paper Book Vol. III- See Pg. 1079-1084 Income Accrues when assessee acquires on indefeasible and absolute right to receive the same. Not when receipt of income is in dispute. • CIT Vs. Hindustan Housing & Land Development Trust 161 ITR 524 (SC) followed ED Sasoon Vs. CIT (relied on) (26 ITR 27) (SC) see Pg. 1079-1084 9. We have heard the parties and perused the material available on record. 10. Ground no.1: The revenue has raised the ground that disallowances of employee Remuneration at RS 1,63,22729/- made by AO was deleted without 19 appreciating the fact that the assessee has not proved the identity of the employee. In the order, the Ld. CIT (A) has held that: 11.3 1 have considered the facts of the case, findings of the Assessing Officer in the assessment order and the written submissions of the appellant. I have also perused the case laws relied upon by the appellant in the written submissions. The expenditure does not warrant disallowance by treating the same to be an unverifiable expense only on account of non-receipt of confirmations or compliances of Summon, Notices, the appellant not even having been confronted with the non receipt of the confirmations or compliances. Nothing has been brought out by the Assessing Officer to show that the expenditure has not been incurred by the appellant or that it is not a bona fide expenditure not have been incurred for carrying on its business, complete details of remuneration paid to employees containing name of employee, address, remuneration paid, PAN of employee, wherever available, having been furnished during the course of assessment proceedings. The assessee having discharged its initial burden, the assessee fulfilled its duties. Considering the facts and circumstances of the case and respectfully following the case laws cited by the appellant, I hold that the expenditure is an allowable expenditure. Accordingly, the addition of Rs.1,63,22,729/ made by the Assessing Officer is deleted. The ground of appeal is allowed. 11. The assessee company has provided the complete details of the employees with name, address & PAN to whom the remuneration paid. In the case of CIT vs Mundra Port & Sez. Ltd. the Hon’ble Gujarat High Court held that payments made through banking channels and tax 20 deducted at source and consultants not related to assessee was allowable expenses. The assessee has discharged its burden by providing the details of the employees. Ld CIT(A) has rightly deleted the addition made by assessing officer. Ground No.1 is decided in favour of the assessee. 12. Ground No 3: The revenue raised the issue that the disallowance of Professional fees at RS 9,30,97,866/- made by assessing officer has wrongly deleted by the Ld CIT(A).The, Ld. CIT(A) has held as under: 12.3 I have considered the facts of the case, findings of the Assessing Officer in the assessment order and the written submissions of the appellant. I have also perused the case laws relied upon by the appellant in the written submissions. The expenditure does not warrant disallowance by treating the same to be unverifiable expense only on account of non-receipt of confirmations. The details of the expenditure, along with copies of bills of the foreign technicians/ professionals and copies of CA certificates in Form No. 15CB having been furnished during assessment proceedings during the assessment proceedings, and the payments having been made to proper banking channels, the expenditure does not warrant disallowance, further there is nothing on record to prove otherwise. The assessee having discharged its initial burden, the assessee discharged its duties. Moreover, the appellant has never been confronted with the non-receipt of the confirmations. Considering the facts and circumstances of the case and respectfully following the case laws cited by the appellant, I hold that the expenditure is an allowable expenditure. Accordingly, the addition of Rs.9,30,97,866/ made by the Assessing Officer is deleted. The ground of appeal is allowed. 21 13. The assessing officer has made the addition on the basis that the confirmation of the professional fees paid to the non-resident were not received. The assessee company has provided the complete details with CA certificates in Form NO.15CB and the payment made through the banking channels. The Assessing officer does not bring any evidence on record that the expenditure was not genuine. The assessee company has discharged its burden. The addition made by the assessing officer was rightly deleted by the Ld CIT(A). Ground NO 3 is decided in favour of the assessee. 14. Ground NO 2: The revenue has raised the issue that Ld CIT(A) erred in law deleting the addition made on account accrued but not received from M/s SIS live u/s 5(1)(b) at Rs 634125805/-. Ld counsel for the assessee has submitted that the assessee has received of Rs 973,296445/-. He has not received the balance amount of Rs 634155805/- in this regard litigation is pending. Ld. CIT(A) has observed in his order as under: 17.4 I have considered the facts of the case, findings of the Assessing Officer in the assessment order and the written submissions of the appellant. I have also perused the case 22 laws relied upon by the appellant in support of its case. The principles emerging from the various judicial pronouncements cited by the appellate with regard to accrual of income, and their applicability on the facts and circumstances of the present, case are enumerated as below: i. The regular method of accounting determines only the mode of computing the taxable income and the point of time at which rate tax liability is attracted. Where no income has resulted, it cannot be said the income has accrued merely on the ground that the assessee has been following a mercantile/ accrual system of accounting. The Real Income of the Assessee is to be taxed. If no income has materialized, there can be no liability to tax a hypothetical income. The question whether real income has materialized to the assessee has to be considered with reference to the commercial realities of the situation. What has really accrued to the assessee has to be found and what Zoom Communication Limited has accrued must be considered from the point of view of real income taking the probability or improbability of realization in a realistic manner. Considering the facts of the case and extent of disputes and controversies involved as highlighted by the appellant in its detailed note furnished along with submission dated 18.03.2015, it is quite evident that the assessee company cannot be said to have been certain of the realization of this revenue, which is even more so confirmed by the fact that the assessee company has received no further payments till date. As brought out by the appellant in the detailed note furnished along with submission dated 18.03.2015, giving the facts and chronology of events, the entire contract relating to broadcasting of the Commonwealth Games has been shrouded in controversy and disputes, and enquiries and investigations have been conducted in the said matter. The conclusion of the High level Committee report on Host Broadcasting alleging collusion between CEO Prasar Bharti Director General and the service providers, ie SIS Live/ appellant 23 Communications, the subsequent FIR being registered against SIS Live and appellant, the attachment of Bank Guarantees and the on- going arbitration proceedings between SIS Live and Prasar Bharti highlight the disputes and the controversies. The withholding of payments due by Prasar Bharti to SIS Live alleging fraud and misrepresentation and non- performance in the on-going Arbitration proceedings between the two clearly evidence an improbable chance of realization of payments due by SIS Live from Prasar Bharti, and SIS being liable as per the terms of the contract to make payments to the appellant company only after receipt of payments from the Host Broadcaster in accordance with terms of Article 6.3 of the contract, the probability of the appellant company to realize the related income from SIS Live is extremely low, the requests for payments by the appellant company to M/s SIS Live always having been met with response quoting Article 6.3 of the contract which specifically provides that SIS Live shall be liable to make payment to ZOOM only after release of payment from HB. In view of these facts, and based upon the various judicial pronouncements relied upon in the assessee's submission, the income, being income in dispute and uncertain ofZoom Communication Limitedultimate collection, cannot be said to accrue or arise to the assessee company in the relevant assessment year, and can be brought to tax only in the year when certainty of realization can be established or the said income is finally received. The position is also well in confirmation with the mandatory Accounting Standard (A8) and also Income Computing Disclosure Standards (ICDS) notified in March 2015 by the CBDT. As per A8-9, ie revenue recognition, if there is uncertainty with regard to collection of amount then recognition of said amount should be deferred in books. As per ICDS-III and IV also, ultimate recovery of amount is important criteria for the amount to be held as accrued during the year. In view of the above, no real income could have been said to have accrued to the appellant in respect of the amount of Rs.63,41,55,805/- which is disputed, the ultimate collection of it being uncertain due to on- going disputes and controversies. 24 ii. Income would stand to accrue only when the right to receive the said income gets vested with the assessee, and the right to receive payment gets vested with an assessee only there is created in favour of an assessee, a debt due by somebody. Income accrues when there arises a corresponding liability of the other party from whom the income becomes due to pay that amount. In order for income to accrue on a particular date, there must be a right to receive the income on a particular date, so as to bring about a creditor and debtor relationship on the relevant date. In order for income to accrue to a person it is necessary that he must have acquired a right to receive the income, and that a mere claim to income without an enforceable right thereto cannot be regarded as accrued income for the purpose of levy of tax under this Act. Considering the facts of the present case, there being no acceptance of a debt regarding the disputed amount by SIS Live so as to create a creditor and debtor relationship between SIS live and the appellant, no income out of the disputed amount stands to accrue arise to the appellant company in the relevant assessment year. III. A liability depending upon a contingency is not a debt in present or in future till the contingency happens. In view of the well established and accepted principles of taxation of Income, no Income stands to accrue to the appellant company during the relevant assessment year, as no right to receive any amount from SIS has got vested in the appellant since the payment has not been received by SIS from Prasar Bharti on account of disputes and controversies, and as per the terms of the contract, SIS is liable to make payment only after its receipt from Prasar Bharti. Thus, no income has ACCRUED to the appellant. Further, the accrual or arising of the right to receive an amount under contracts is dependent upon the terms of the contract. In regard to the facts of the present case, as per terms of the contract, the right of the appellant to receive payment stands to accrue only after SIS has 25 received payment from Prasar Bharti. SIS not having received corresponding payment from Prasar Bharti, the right to receive the disputed amount does get vested with the appellant, thereby not giving rise to any accrual of income to the appellant. IV. There is a clear distinction between cases where the right to receive payment is in dispute and cases where right to receive payment is admitted and quantification only of the amount payable is left to be determined in accordance with the settled or accepted principles. In the former case, there is no accrual of income till the dispute is finally settled. In the latter case, there is accrual of income even though its quantification is to be made. Considering the facts of the present case, it is evident that it is not the case where the right to receive the payment itself is admitted and only quantification is to be established, rather it is a case where the right to receive the income itself is disputed, in view of which it cannot be said that the said income has ACCRUED to the assessee company Therefore, considering the facts and the circumstances of the case and respectfully following the various case laws relied upon by the appellant, I hold Zoom Communication Limited that no income out of the disputed amount is accruing to the assessee in the relevant assessment year, and that the same would be taxable in the year of realization of the same or in the year in which the debt relating to this is recognized by SIS Live. The Assessing Officer has not fully appreciated the complete facts and circumstances of the case and the legal position correctly, and made the impugned addition by simply stating that income is bound to be included only for the reason that the assessee is following accrual method of accounting. Nothing has been brought out by the Assessing Officer to demonstrate that Real Income has accrued to the appellant. The addition of 26 Rs.63,41,15,805/- made by the Assessing Officer is thus to be deleted. This ground of appeal is allowed.” 15. Ld. AO made the addition of Rs 63,41,15,805/- which amount has been accrued but has not received to the assessee. It is not disputed that the SIS Live has not paid the balance amount of the contract than that amount cannot be said to be the actual income. The income may accrue to an assessee without the actual receipt of the same. The income tax is levied on the real income and not the hypothetical income. The ld AR has submitted in the written submission that if and when any monies will received, they offered to tax in the year where they received. In the case of CIT vs. Shoorji Vallabhdas and Co. 46 ITR 144 (SC) Hon’ble Supreme held that: “No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. (the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a \"hypothetical income\".) which does not materialize.) Where income has, in fact, been received and is 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 income, even though an entry to that effect might, in certain 27 circumstances, have been made in the books of account. This is exactly what has happened in this case, as it happened in the Bombay case, which was approved by this court. Here too, the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account. A mere book-keeping entry cannot be income, unless income has actually resulted, and in the present case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long- term managing agency arrangement for the two companies which it had floated”. 16. In the case of Commissioner of Income-tax West Bengal -IIvs. Hindustan Housing and Land Development Trust Ltd [1986] 161 ITR 524(S.C.) Hon’ble Supreme Court Held that: “The question raised in this appeal is limited to the point whether, on the facts circumstances of the case, the Revenue can claim that the sum of Rs. 7,24,914 payable to the assessee as compensation can be said to have accrued to it as income during the previous year ended March 31, 1956, relevant to the assessment year 1956-57. As long ago as E.D. Sassoon & amp;amp; Co. v. CIT (1954) 26 ITR 27 (SC), this court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income-tax Act. In the majority judgment delivered by N. H. Bhagwati J., it was explained that the words arising or accruing describe a right to receive profits, and that there must be a debt owed by somebody. Unless and until there is created in favour of the assessee a debt due by somebody\", it was observed, 28 \"it cannot be said that he has acquired a right to receive the income or the come has accrued to him. In the present case, although the award was made by the arbitrator on July 20, 1955, enhancing the amount of 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 a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety, the right to payment of the enhanced compensation would have fallen altogether This is a case which must be distinguished from that decided by this court in Kedarffath Jute Mfg. Co. Ltd. v. C (1971) 82 ITR 363 (SC), where the liability to sales tax arose immediately on a dealer effecting sales which weresubject to sales tax and what remained to be done was a mere quantification of that liability. The case compares rather with CIT v. Jai Prakash Om Parkash Co. Ltd. [1961] 41 ITR 7:8 (Punj). 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. Our attention has been drawn by the Revenue to Pope The King Match Factory v. CIT [1963] 50 ITR 495 (Mad). That case, however, proceeded on the basis that excise duty was payable and its quantification alone remained to be decided in the appeal. We may point out that the Andhra Pradesh High Court, dealing with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 (AP), held that when land was taken over by the Government, the right of the owner to compensation was an inchoate right until the compensation had been actually determined and had become payable. It was observed that the enhanced compensation accrued to an assessee only when the court accepted the claim and not when the land was taken over by the Government. Examining the question whether income could be said to have 29 accrued to the assessee on the date when possession of the land was taken by the Government for the purpose of assessment to tax in the year of assessment, P. Jaganmohan Reddy C.J., speaking for the court, said (pp. 657, 658): \"If the actual amount of compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking of possession, at a particular rate or for a certain sum is the compensation. It is the amount actually awarded by the collector or subsequently decreed by the court which accrues to him, and the respective amounts, whether awarded by the collector or the court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued On the date when the collector awarded the compensation, it is only that amount which had accrued or was deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable i.e., when the court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either 30 disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and re-compute the entire income on the basis of the final compensation? We do not think there can be any justification for such a a proper construction proposition. On of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the Revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law.\" 17. In the instant case no income out of disputed amount is accruingto the assessee company during the relevant assessment year. A CBI enquiry was ordered by the High-Level Committee against the CEO Prasar Bharti. Thus, SIS live has not paid remaining amount to the assessee company. As per status of litigation filed by assessee company, arbitration proceedings are pending. It has been stated that closure report has been submitted in the matter which has been accepted by the concerned court. Criminal proceedings, do not affect the assessment of 31 income and income tax proceedings cannot be put to end on the basis of the closure report filed by CBI. Income tax does not become due merely on the basis of accrual of income. In the present matter, assessee has not received the amount on the basis of contract. Hence the amount cannot be computed as income for purpose of income tax. Income tax assessment cannot be assessed on the basis of hypothetical income. Following the principles enumerated in various of judgments of Hon’ble Supreme Court the Ld. CIT(A) has not accepted the income as actual income. Ld. CIT(A) has examined the issue in the correct prospective and rightly deleted the addition made by Ld. Assessing officer.The appeal of the revenue is liable to be dismissed. 18. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 31.12.2024. Sd/- Sd/- (M. BALAGANESH) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *Mohan Lal* Date: 31.12.2024 32 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "