ACIT Corporate Circle 2, Coimbatore V. TNSTC Coimbatore Ltd., Coimbatore

ITA 1897/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6655 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: K RAGHU
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, CHENNAI . . . , , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NOS.1897 & 1898/CHNY/2018 ( [ [ / ASSESSMENT YEARS: 2009-10 & 2014-15) THE ACIT, CIRCLE -2, COIMBATORE. VS M/S. TNSTC COIMBATORE LTD., 37, METTUPALAYAM ROAD, COIMBATORE 641 043. PAN: AAACC 9092M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI A. SUNDARARAJAN, ADDL. CIT / RESPONDENT BY : SHRI K. RAGHU, CA /DATE OF HEARING : 03.10.2019 /DATE OF PRONOUNCEMENT : 15.10.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS AGAINST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IN APPEAL NO.101/16-17 AND 224/16-17, BOTH DATED 27.03.2019 FOR THE ASSESSMENT YEARS 2009-10 & 2014-15 RESPECTIVELY. 2 ITA NOS.1897 & 1898/CHNY/2018 2. M/S. TAMIL NADU STATE TRANSPORT CORPORATION (COIMBATORE) LTD., IS A STATE OWNED PUBLIC SECTOR COMPANY ENGAGED IN THE BUSINESS OF TRANSPORT OF PASSENGERS. WHILE MAKING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2009-10, THE AO FOUND THE FOLLOWING NOTES FORMING PART OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2009-10:- THE CORPORATION HAS ISSUED 100% AND 50% CONCESSIONAL PASSES TO THE STUDENTS DURING THE YEAR 2008-09 HAVING FACE VALUE OF RS.8207.84 LAKHS. THE GOVERNMENT HAS EVALUATED THE FORMULA TO DETERMINE THE REIMBURSEMENT OF SUBSIDY FROM THE GOVERNMENT VIDE G.O. MS.NO.135, TRANSPORT (BI) DEPARTMENT DATED 20.05.2004. ACCORDINGLY, THE AMOUNT ADMISSIBLE BY THE GOVERNMENT IS RS.4405.78 LAKH AND SOCIAL COST BORNE BY THE CORPORATION IS RS.1101.45 LAKH. THIS AMOUNT IS NOT REFLECTED IN THE FINANCIAL STATEMENT AND SUCH NON-REFLECTION HAS NO IMPACT ON THE PROFIT OF THE YEAR. THEREFORE, THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE TRANSACTION. THE ASSESSEE EXPLAINED THAT A SUM OF RS.44.06 CRORE RECEIVABLE FROM THE STATE GOVERNMENT AS PER THE G.O. MS NO.135 FOR THE 100% AND 50% CONCESSIONAL PASSES ISSUED TO THE STUDENTS DURING THE YEAR 2008- 09 WAS RECOGNIZED IN THE P&L A/C FOR THE YEAR ENDED 31.03.2009, UNDER THE HEAD OPERATIONAL INCOME REIMBURSEMENT OF STUDENTS CONCESSIONAL TICKET. HOWEVER, THE SOCIAL COST TO THE TUNE OF 11.01 CRORE TO BE BORNE BY THE ASSESSEE COMPANY AND THE OPERATION INCOME 3 ITA NOS.1897 & 1898/CHNY/2018 (FACE VALUE OF THE BUS PASSES ISSUED DURING 2008-09 VIZ RS.82.08 CRORE) ETC WERE NOT REFLECTED IN THE P&L A/C. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEES STAND AND HELD THAT AS PER THE ACCOUNTING PRINCIPLES, AS SOON AS THE BUS PASSES ARE ISSUED TO THE STUDENTS, THE FACE VALUE OF THE PASSES SHALL BE TAKEN AS OPERATING INCOME AND A DEBIT ENTRY NEED TO BE BOOKED AGAINST THE GOVERNMENT A/C TO THE TUNE OF FACE VALUE OF BUS PASSES ISSUED MINUS THE AMOUNT COLLECTED FROM THE COLLEGE STUDENTS. AFTER ADJUSTING THE GOVERNMENT GRANT RECEIVED / RECEIVABLE, THE BALANCE UNREALIZED DEBITS TO BE TREATED AS REVENUE FOREGONE AND WRITTEN OFF AS PER THE COMMERCIAL ACCOUNTING PRINCIPLES. THEREFORE, THE AO HELD THAT THE REVENUE FOREGONE BY THE ASSESSEE COMPANY WITHOUT FOLLOWING THE COMMERCIAL ACCOUNTING PRINCIPLES HAS RESULTED IN UNDER ASSESSMENT OF INCOME TO THE TUNE OF RS.35.64 CRORE AND HENCE ADDED THE SAME TO THE RETURNED INCOME AND COMPLETED THE ASSESSMENT. ON SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2014-15, HE MADE AN ADDITION OF RS.81,07,13,482/- AND COMPLETED THE ASSESSMENT. AGGRIEVED AGAINST THOSE ORDERS, THE ASSESSEE FILED APPEALS BEFORE THE CIT(A). THE LD.CIT(A) ALLOWED THE APPEALS. AGGRIEVED AGAINST THOSE ORDERS, THE REVENUE FILED THESE APPEALS ON 4 ITA NOS.1897 & 1898/CHNY/2018 SIMILAR GROUNDS. THEREFORE, THE GROUNDS RELATED TO ASSESSMENT YEAR 2009-10 IS EXTRACTED AS UNDER:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE IS AGAINST FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O ON ACCOUNT OF REVENUE FOREGONE BY THE ASSESSEE AMOUNTING TO RS. 35,63,79,855/- AND HELD THAT THE GRANT BECOMES PAYABLE ONLY WHEN THE GOVT. ORDER IS PASSED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE HAS ERRED IN ALLOWING THE ASSESSEE COMPANY TO COMPUTE THE NOTIONAL LOSS AND TREATING THE STUDENT'S SUBSIDY AS INCOME AND WRITING OFF AS BAD DEBTS IN THE BOOKS WHEN THE EXPENDITURE INCURRED BY THE ASSESSEE IS TREATED AS SOCIAL COST AS PER GOVT. ORDER. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE CONSIDERED THAT AS PER ACCOUNTING STANDARD 12, GOVERNMENT GRANTS THAT ARE RECEIVABLE AS COMPENSATION FOR EXPENSES OR LOSSES INCURRED IN A PREVIOUS ACCOUNTING PERIOD OR FOR THE PURPOSE OF GIVING IMMEDIATE FINANCIAL SUPPORT TO THE ENTERPRISE WITH NO FURTHER RELATED COSTS, SHOULD BE RECOGNIZED AND DISCLOSED IN THE PROFIT AND LOSS STATEMENT OF THE PERIOD IN WHICH THEY ARE RECEIVABLE, AS AN EXTRAORDINARY ITEM. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE CONSIDERED THAT AS PER THE ACCOUNTING PRINCIPLES, AFTER ADJUSTING THE GOVERNMENT GRANT RECEIVED/RECEIVABLE, BALANCE UNREALIZED DEBITS ARE TO BE TREATED AS REVENUE FOREGONE & WRITTEN OFF. 6.FOR THESE AND OTHER GROUNDS THAT THEY MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER RESTORED. 5 ITA NOS.1897 & 1898/CHNY/2018 3. THE LD.DR PRESENTED THE CASES AND ARGUED ON THE LINES OF GROUNDS OF APPEAL. PER CONTRA, THE LD.AR RELIED ON THE PORTION OF THE ORDER OF THE LD.CIT(A) AND HENCE PLEADED TO ALLOW THE APPEALS. 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. SINCE, THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A), THE RELEVANT PORTION OF THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2009-10 IS EXTRACTED AS UNDER:- THERE IS NO DISPUTE BETWEEN AO AND THE APPELLANT THAT THE INCOME HAS TO BE RECOGNIZED IN THE YEAR WHEN THEY BECOME RECEIVABLE. ACCOUNTING STANDARD 12 ALSO STIPULATES THE SAME ABOUT GOVT. GRANTS THAT ARE RECEIVABLE. HENCE, THE ISSUE TO BE DECIDED IS WHEN THE GOVT. GRANTS BECOME RECEIVABLE. IN THE INSTANT CASE, THE GRANT BECOMES PAYABLE ONLY WHEN THE GOVT. ORDER IS PASSED. THE GRANT BECOMES RECEIVED / RECEIVABLE ONLY WHEN THE GRANT IS SANCTIONED. IT IS UNREALISTIC TO COMPUTE THE NOTIONAL LOSS IN SUCH CASES. NO USEFUL PURPOSE WILL BE SERVED BY TREATING THE STUDENTS SUBSIDY AS INCOME AND WRITING OFF AS BAD DEBTS IN THE BOOKS WHEN THE EXPENDITURE INCURRED BY THE CORPORATION IS TREATED AS SOCIAL COST AS PER GOVT. ORDER. HENCE, I FIND THAT THE ADDITION OF RS.35,6,79,855/- AS REVENUE FOREGONE IS NOTIONAL AND UNREALISTIC AND HENCE DELETED. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS FOREGONE THE ENTIRE AMOUNT FALLING UNDER THE HEAD SOCIAL COST FOR THE RESPECTIVE ASSESSMENT YEAR. THEREFORE, AS HELD BY THE LD.CIT(A), NO USEFUL PURPOSE WILL BE SERVED BY TREATING THE STUDENTS SUBSIDY AS INCOME AND WRITING OFF AS BAD DEBTS IN THE BOOKS WHEN THE ASSESSEE HAS ALREADY 6 ITA NOS.1897 & 1898/CHNY/2018 INCURRED THE IMPUGNED EXPENDITURE KONWING THAT IT SHOULD NOT BE COLLECTED FROM THE STUDENTS AS PER GOVERNMENT ORDER. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LD.CIT(A) AND HENCE THE REVENUES APPEALS ARE DISMISSED. 5. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 15 TH OCTOBER, 2019 AT CHENNAI. SD/- SD/- /CHENNAI, /DATED 15 TH OCTOBER, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. [ /GF ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER