ITO, Ward-3(2), Hyderabad V. Zenith Energy Services p. Ltd, Hyderabad

ITA 1862/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66506 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: P VINOD
• Keywords: Period of limitation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1862/HYD/2011 ASSESSMENT YEARS: 2008-09 INCOME TAX OFFICER, ... APPELLANT WARD 3(2), HYDERABAD VS. ZENITH ENERGY SERVICES (P) LTD., RESPONDENT HYDERABAD (PAN AAACZ0661K) APPELLANT BY : SMT. AMISHA S. GUPT RESPONDENT BY : SHRI P. VINOD DATE OF HEARING : 28/09/2012 DATE OF PRONOUNCEMENT : 23/1 1/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD, DATED 26/08/2011 FOR T HE ASSESSMENT YEAR 2008-09. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FINANCIAL SERVICES, BIOM ASS SURVEY CONSULTANCY SERVICES AND GENERATION OF POWER. THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS. 43,92,330/-, WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSME NT WAS COMPLETED VIDE ORDER U/S 143(3) OF THE ACT DATED 24/12/2010, DETERMINING THE TOTAL INCOME AT RS. 1,39,32,330/-, WHICH INCLUDED AN ADDI TION OF RS. 95,40,000/-, MADE ON ACCOUNT OF AMOUNT RECEIVABLE F ROM M/S VARAM POWER PROJECTS LTD., WHICH WAS NOT RECOGNIZED AS IN COME BY THE ASSESSEE 2 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. COMPANY AS PER THE ACCOUNTING STANDARD (AS-9), IN V IEW OF THE UNCERTAINTY WITH REGARD TO ITS ULTIMATE COLLECTABIL ITY. 3. ON VERIFICATION OF THE RECORD, THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF THE REVENUE RECEIVABLE FROM M/S VARA M POWER PROJECTS PVT. LTD., IN REPLY, THE ASSESSEE SUBMITTED THAT IT HAD ENTERED INTO AN AGREEMENT WITH M/S VARAM POWER PROJECTS PVT. LTD., FOR DEVELOPMENT OF 6MW BIOMASS BASED POWER PROJECT UNDER CLEAN DEVELOP MENT MECHANISM ON MUTUALLY AGREED TERMS DURING 25 TH JUNE, 2005. IT WAS FURTHER SUBMITTED THAT SUBSEQUENTLY THE PROJECT GOT REGISTE RED ON 21/03/2007 WITH CDM EXECUTIVE BOARD AND M/S VARAM POWER PROJEC T PVT. LTD. SOLD THE CERTIFIED EMISSION REDUCTIONS (CERS) ON 08/10/2 007. IT WAS SUBMITTED THAT AS CONSULTANT FOR THE TOTAL PROJECT, THE ASSESSEE COMPANY HAS TO RECEIVE A FEE ON THE TRANSACTION, BUT, M/S V ARAM POWER PROJECTS PVT. LTD. DENIED TO PAY THE FEE AS PER THE TERMS OF THE AGREEMENT. THE ASSESSEE RELIED UPON THE DECISION OF THE APEX COURT IN THE CASE OF THE CIT VS. HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LT D., [1986] 161 ITR 524(SC). 4. THE SUBMISSIONS OF THE ASSESSEE WERE NOT ACCEPTE D BY THE AO AND HELD THAT IN THE MERCANTILE SYSTEM OF ACCOUNTING, THE INCOME HAS TO BE RECOGNISED AS AND WHEN IT WAS ACCRUED AND THE ACCOU NTING STANDARDS CANNOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX AC T. THE AO FURTHER HELD THAT IN THE CASE OF HINDUSTAN HOUSING AND LAND DEVE LOPMENT TRUST LTD. (SUPRA) THE DECISION HAS BEEN RENDERED IN THE CONTE XT OF ASSESSMENT OF ADDITIONAL COMPENSATION UNDER CAPITAL GAINS WHEREAS THE PRESENT CASE IS THE INCOME UNDER THE HEAD BUSINESS OR PROFESSION, THEREFORE, THE DECISION IS NOT ACCEPTABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. HE, THEREFORE, TREATED THE AMOUNT OF RS. 95,40,000/ - WHICH IS DUE FROM M/S VARAM POWER PROJECTS PVT. LTD. AS THE INCOME OF THE ASSESSEE COMPANY AND ADDED TO THE INCOME RETURNED. 3 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) AND AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE REVENUE RECOGNITION POLICY FOLLOWED BY THE ASSESSEE WAS IN LINE WITH AS-9, WHICH IS MANDATORY. HE AVERRED THAT THE FACT THAT T HE RIGHT TO RECEIVE WAS IN DISPUTE WAS NOT CONTROVERTED BY THE AO. THE AR ARGUED THAT IT IS NOT THE HYPOTHETICAL ACCRUAL OF INCOME BASED ON THE MER CANTILE SYSTEM OF ACCOUNTING THAT HAS TO BE TAKEN INTO ACCOUNT, BUT W HAT IS TO BE CONSIDERED IS WHETHER THE INCOME HAD REALLY MATERIALIZED. HE M AINTAINED THAT THE QUESTION WHETHER REAL INCOME HAS TO BE MATERIALIZE D HAS TO BE CONSIDERED WITH REFERENCE TO COMMERCIAL AND BUSINES S REALITIES OF THE SITUATION AND NOT MERELY WITH REFERENCE TO THE SYST EM OF ACCOUNTING FOLLOWED BY AN ASSESSEE. 6. THE LEARNED AR RELIED UPON VARIOUS CASE LAWS AND IN ORDER TO SUBSTANTIATE HIS CONTENTION THAT THERE EXISTED A DISPUTE REGARDING THE FEE, FILED A COPY OF AFFIDAVIT FILED BY THE ASSESSE E BEFORE THE CHIEF JUDGE, CITY CIVIL COURT, HYDERABAD IN ARBITRATION OP NO. 0 3/2008 DATED 19/05/2008, ALONG WITH ENCLOSURES THEREOF. COPIES O F THE INJUNCTION ORDER DATED 19/05/2008, DECREETAL ORDER AND ARBITRATION O RDER DATED 30/05/2008 WERE ALSO FILED. A COPY OF THE COUNTER A FFIDAVITS BY THE RESPONDENT, M/S VARAM POWER PROJECTS LTD., BEFORE T HE HONBLE HIGH COURT OF ANDHRA PRADESH WAS ALSO FILED ALONG WITH T HE ORDER OF THE HONBLE HIGH COURT DATED 17/09/2008 IN RESPECT OF ARBITRATI ON APPLICATION NO. 74/2008. IN ADDITION TO THE ABOVE, THE LEARNED AR ALSO FILED A COPY OF THE STATEMENT OF CLAIM MADE BY THE CLAIMANT, I.E. THE P RESENT ASSESSEE BEFORE THE HONBLE ARBITRAL TRIBUNAL. FINALLY, THE AR OF T HE ASSESSEE FILED A COPY OF THE JOINT MEMO FILED BY BOTH THE PARTIES BEFORE THE HONBLE ARBITRAL TRIBUNAL ON 19/08/2009, ALONG WITH THE COPY OF THE PROCEEDINGS OF THE HONBLE ARBITRAL TRIBUNAL DTD. 09/09/2009. 7. FURTHER, THE LEARNED AR SUBMITTED THAT THE DISPU TE WAS SETTLED IN 4 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. THE PREVIOUS YEAR RELEVANT TO THE AY 2010-11 AND AC CORDINGLY, THE INCOME WAS OFFERED TO TAX IN THE SAID YEAR. HE MAINTAINED THAT THE INVOICE HAD BEEN RAISED ONLY TO KEEP THE ISSUE ALIVE BY RAISING A CLAIM AGAINST THE OTHER PARTY WITHIN THE PERIOD OF LIMITATION, SO AS TO GET AN ENFORCEABLE RIGHT FOR RECOVERY OF THE AMOUNT AS AND WHEN IT SUC CEEDS IN LITIGATION. HE AVERRED THAT ON SIMILAR SET OF FACTS, NON RECOGNITI ON OF REVENUE, WHOSE ULTIMATE COLLECTABILITY WAS IN DOUBT, IN TERMS OF A S-9, WAS UPHELD BY THE JURISDICTIONAL BENCH OF ITAT IN THE CASE OF M/S SRI BALAJI BIO MASS POWER P. LTD. IN ITA NO. 1748/HYD/08, DT. 31/01/2011. 8. WITHOUT PREJUDICE TO THE ABOVE, THE AR OF THE AS SESSEE CONTENDED THAT EVEN IF THE IMPUGNED AMOUNT HAS TO BE TREATED AS INCOME AT THE TIME OF RAISING INVOICE, THERE WOULD BE NO INCOME CHARGE ABLE TO TAX FOR THE RELEVANT ASSESSMENT YEAR FROM THE SAID TRANSACTION, IF SUCH AMOUNT IS WRITTEN OFF SUBSEQUENTLY AS BAD DEBT, SINCE THE COL LECTABILITY OF THE SAME HAS BECOME DOUBTFUL. CITING THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF LTD., 323 ITR 397, THE LEARNED AR MAINTAINED THAT IT IS NOT NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT THE DEB T HAD BECOME IRRECOVERABLE AND IT IS ENOUGH IF THE BAD DEBT IS W RITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS. THE LEARNED AR SUBMI TTED THAT THERE IS NO BAR ON WRITING OF THE AMOUNT IN THE YEAR IN WHICH I T IS ACCOUNTED FOR AS A RECEIPT, WHICH CAN BE DONE ONLY BY ONE SET OF CONTR A ENTRIES FOR FIRST RECOGNISING THE INCOME AND THEN WRITING IT OFF AS B AD DEBT. 9. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) HELD AS FOLLOWS:- 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. IT IS CLEAR THAT THE ISSUE OF REC EIPT OF FEE FOR THE SERVICE RENDERED BY THE APPELLANT COMPANY WAS UNDER DISPUTE IN THE YEAR UNDER CONSIDERATION. THE FACT OF DISPUTE IS SU FFICIENTLY ESTABLISHED BY THE LITIGATION DOCUMENTS SUBMITTED B Y THE APPELLANT. IN FACT, THE AO HAS NOT DISPUTED THIS FACT IN THE A SSESSMENT YEAR. HE, HOWEVER, FELT THAT DESPITE SUCH DISPUTE, THE FE E RECEIVABLE BY 5 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. THE APPELLANT IN VIEW OF THE AGREEMENT DTD. 25/06/2 005, SHOULD HAVE BEEN OFFERED AS INCOME ON ACCRUAL BASIS, EVE N IF THE SAME WAS NOT PHYSICALLY AND ACTUALLY RECEIVED BY THE APP ELLANT. HOWEVER, I AM OF THE VIEW THAT EVEN IF THE APPELLANT HAD RAI SED INVOICES FOR SUCH FEE, THE INVOICES HAD BEEN RAISED SO AS TO BE IN A POSITION TO RECOVER THE FEES AT A LATER DATE AND TO SAFEGUARD T HEIR CLAIMS FOR GETTING TIME BARRED. NOTWITHSTANDING THE FACT OF RA ISING OF SUCH INVOICES, IT REMAINS A FACT THAT SUCH INCOME HAD NE ITHER BEEN RECEIVED NOR WAS RECEIVABLE DURING THE PREVIOUS YEA R CONCERNED. BESIDES, NO CORRESPONDING DEBT IN RESPECT OF SUCH F EES WOULD HAVE BEEN MADE BY M/S VARAM POWER PROJECTS LTD. ALSO, AS THEY HAD REFUSED TO AGREE TO THE TERMS OF THE AGREEMENT. 7.1 IN THIS REGARD, IT IS RELEVANT TO REFER TO THE PROVISIONS OF AS-9 OF INSTITUTE OF CHARTERED ACCOUNTS OF INDIA, WHICH DEALS WITH RECOGNITION OF REVENUE. AS PER THE SAME, UNLESS A ND UNTIL THE RECEIPT OF REVENUE IS CERTAIN, AS ON THE DATE OF TH E BALANCE SHEET, IT CANNOT BE INCLUDED IN THE REVENUE. THE FACT THAT TH E MATTER WAS UNDER DISPUTE UNTIL THE HONBLE ARBITRAL TRIBUNAL A ND THE HONBLE HIGH COURT OF ANDHRA PRADESH CLEARLY SHOWS THAT THE MATTER BEING UNDER LITIGATION, THERE WAS INDEED SUBSTANTIAL UNCE RTAINTY REGARDING RECEIPT OF FEES CLAIMED BY THE APPELLANT IN THE INV OICES. SINCE THE APPELLANT FOLLOWED THE AS-9, IT COULD NOT HAVE INCL UDED THE INCOME UNDER CONSIDERATION, AS IT COULD NOT HAVE BEEN SAID TO HAVE ACCRUED ONLY ON THE BASIS OF A CLAIM MADE IN SUCH LITIGATIO NS. THE TREATMENT GIVEN BY THE APPELLANT TO THESE TRANSACTIONS IS SUP PORTED BY THE DECISIONS IN THE CASES OF CIT S. HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD. [161 ITR 524)(SC), AS ALSO C IT VS. NANDALAL MOHANLAL [191 TAXMAN 152]. 7.2 FURTHER, IN VIEW OF THE DECISIONS OF THE HONBL E ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOVIND PRASAD [171 ITR 417] AND THAT OF THE HONBLE SUPREME COURT IN THE CASE OF ED SASO ON & CO., VS. CIT [26 ITR 27], NO INCOME CAN BE SAID TO HAVE ACCR UED IN THE APPELLANTS CASE, AS NO ENFORCEABLE DEBTS WERE CREA TED IN FAVOUR OF THE APPELLANT, NOR THE APPELLANT ACQUIRED ANY RIGHT TO RECEIVE SUCH INCOME, MERELY ON THE BASIS OF THE BILLS RAISED FOR THE FEES. A SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SARVANTRA ROAD RUNNERS P. LTD. [301 ITR 443] ALSO. ACCORDINGLY, I AM OF THE VIEW THAT THE AMOUNT OF RS. 95,40,000/-, WHOSE ULTIMATE REALIZATION WAS UNCERTA IN IN THE RELEVANT FINANCIAL YEAR, COULD NOT HAVE BEEN BROUGH T TO TAX IN THE ASSESSMENT YEAR 2008-09. DELETING THE SAID ADDITION , THEREFORE, THE GROUNDS RAISED IN THIS APPEAL ARE DECIDED IN FAVOUR OF THE APPELLANT. 6 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL:- 1) THE ORDER OF CIT(A) IS ERRONEOUS SINCE THE SAME IS CONTRARY TO LAW AND FACTS OF THE CASE. 2) THE LEARNED CIT(A) OUGHT TO HAVE RECOGNIZED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM AND AS SUCH SHOULD RECO GNIZE THE INCOME ON ACCRUAL BASIS. 3) THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE ACCOUNTING STANDARDS CANNOT OVERRIDE PROVISIONS OF INCOME TAX ACT. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW. THE CIT(A) ANALYSING THE ISSUE WITH CASE LAWS AND REFER RING TO THE PROVISIONS OF ACCOUNTING STANDARD-9 OF ICAI, WHICH DEALS WITH RECOGNITION OF REVENUE THAT UNLESS AND UNTIL THE RECEIPT OF REVENUE IS CER TAIN, AS ON THE DATE OF THE BALANCE SHEET, IT CANNOT BE INCLUDED IN THE REV ENUE, DELETED THE ADDITION OF RS. 95,40,000/- MADE BY THE AO. THE ASS ESSEE SUBMITTED THAT THE DISPUTE WAS SETTLED IN THE PREVIOUS YEAR RELEVA NT TO AY 2010-11 AND ACCORDINGLY THE INCOME WAS OFFERED TO TAX IN THE SA ID YEAR. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI VINOD CANVASSED THAT UNDER SIMILAR SET OF FACTS, NON-RECOGNITION OF REVE NUE, WHOSE ULTIMATE COLLECTABILITY WAS IN DOUBT, IN TERMS OF AS-9, WAS UPHELD BY THE JURISDICTIONAL BENCH OF ITAT IN THE CASE OF M/S SRI BALAJI BIO MASS POWER P. LTD. IN ITA NO. 1748/HYD/08, DT. 31/01/2011. 13. THE ASSESSING OFFICER HELD THAT IN THE MERCANTI LE SYSTEM OF ACCOUNTING THE INCOME HAS TO BE RECOGNISED AS AND W HEN IT IS ACCRUED AND THE ACCOUNTING STANDARDS CANNOT OVERRIDE THE PROVIS IONS OF THE INCOME- TAX ACT . WE ARE INCLINED TO SUBSCRIBE TO THE VIEW OF THE ASSESSING OFFICER. 14. WE ARE OF THE VIEW THAT PROFITS FOR THE PURPOS E OF TAXATION HAVE TO BE DETERMINED AS PER COMMERCIAL PRINCIPLES, SUBJECT TO SPECIFIC PROVISIONS 7 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. OF THE ACT. ACCOUNTING PRACTICES AND STANDARDS, WHI CH ARE WIDELY ACCEPTED AND ADOPTED, WOULD BE A GOOD GUIDE TO THE DETERMINA TION OF COMMERCIAL PROFITS. HOWEVER, THOUGH ACCOUNTING STANDARDS AND P RACTICES ARE RELEVANT, THEY CANNOT OVERRIDE SPECIFIC PROVISIONS OF THE ACT . THE SUPREME COURT IN CHALLAPALI SUGARS LTD. V. CIT, 98 ITR 167 (SC) HAD LAID DOWN THAT PRONOUNCEMENTS OF ACCOUNTING BODIES ARE RELEVANT IN DETERMINING COMMERCIAL PROFITS. IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LD., V. CIT, [1997] 227 ITR 172 (SC), IT WAS HELD THAT : THE AR GUMENT BASED ON ACCOUNTANCY PRACTICE HAS LITTLE MERIT IF SUCH PRACT ICE CANNOT BE JUSTIFIED BY ANY PROVISION OF THE STATUTE OR IS CONTRARY TO IT. THE SUBSEQUENT DECISION IN CASE OF CIT VS. BOKARO STEEL LTD., [1999] 236 IT R 315 (SC) REITERATED THE SAME PRINCIPLE. 15. THE CASE OF HINDUSTAN HOUSING AND LAND DEVELOPM ENT TRUST LTD. (SUPRA) HAS BEEN DISTINGUISHED BY THE HONBLE AP HI GH COURT IN THE CASE OF CIT VS. KCP LTD., 216 ITR 602 WHEREIN IT WAS HEL D THAT THE ASSESSEES COLLECTION WAS ACCEPTABLE AS A TRADING RECEIPT IN T HE RELEVANT YEAR. THE HONBLE SUPREME COURT AT 245 ITR 421 AFFIRMED THE D ECISION OF THE AP HIGH COURT REPORTED AT 216 ITR 602. THEREFORE, THE AMOUNT OF RS. 95,40,000/- WHICH IS DUE FROM M/S PARAM POWER PROJE CTS PVT. LTD. IS TO BE TREATED AS INCOME OF THE ASSESSEE COMPANY. 16. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 23 RD NOVEMBER, 2012. KV 8 ITA NO. 1862/ HYD/12 ZENITH ENERGY SERVICES P. LTD. COPY TO:- 1) ITO, WARD 3(2), ROOM NO. 726, 7 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD 500 004. 2) ZENITH ENERGY SERVICES PVT. LTD., FLAT NO. 103, H.NO. 10-5- 6/B, MY HOME PLAZAQ, MASAB TANK, HYDERABAD 500 02 8. 3) THE CIT (A)-IV, HYDERABAD 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.