Appeal details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 0169 (ITAT-LUCKNOW)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 7 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-12-2021
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
SMC
Assessment Year
2007-2008
Appeal Filed On
08-05-2017
Judgement Text
ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW “SMC” BENCH, LUCKNOW (Virtual Hearing) BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. No. 311 & 312/LKW/2017 Assessment Year: 2007-08 & 2009-10 A.K. Cold Storage Pvt. Ltd. 457, Vasundhara Complex, 80, Feet Road, Kanpur [PAN: AADCA1924D] vs. Income Tax Officer-6(1), Kanpur (Appellant ) (Respondent) Appellant by Shri Swaran Singh, CA Respondent by Shri Ajay Kumar,Sr. DR Date of hearing 26/11/2021 Date of pronouncement 24/12/2021 ORDER Per Sanjay Arora, AM: This is a set of two Appeals by the Assessee, i.e., for assessment years (AYs.) 2007-08 and 2009-10 arising out of separate orders of even date, i.e., 01/02/2017, by the Commissioner of Income Tax (Appeals)-II, Kanpur (‘CIT(A)’ for short), dismissing the assessee’s appeals contesting its’ assessments for the relevant years. The Issue 2. The issue arising in these appeals is the correct determination of income, being the profits & gains of the assessee’s cold storage business, i.e., in the facts and circumstances of the case, including the keeping of the accounts of the said business by it on mercantile basis. ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 2 | P a g e The Arguments 3.1 Opening the arguments for and on behalf of the assessee, it was submitted by its’ learned counsel, Shri Singh, that the assessee’s case, though covered against it by the Tribunal’s order in its’ own case for assessment year 2005-06 (in ITA No. 228/Lkw/2010, dated 09/9/2010/PB pages 75-91), it was so only on account of non- appreciation of the facts of it’s case. In fact, there had been no adjustment to the assessee’s income, i.e., as has been sought to be made by the Revenue for the said year, up to assessment year 2004-05, whereafter only the Tribunal, following the order by it in another case (M.B. Cold Storage Pvt. Ltd., in ITA No.680/Lkw/2009, dated 19/5/2010), confirmed the adjustment to the assessee’s income, violating the principle of consistency. He was, however, on inquiry, unable to show the Revenue having, on examining the issue under reference, issued a finding upholding the basis of the recognition of income, i.e., without any adjustment either for revenue or expenditure, for any other year. The ‘assessment’ for AY 2008-09, as also for AY 2006-07, it was on inquiry clarified by him, to be not regular assessments, but only processing of the returns of income u/s. 143(1), and which explains the non-appeal for these intervening years. On the Bench further stating that it was, nevertheless, bound by the decision by the Division Bench (DB), he would submit that he shall demonstrate (or attempt to) that the only issue involved in the instant appeals is the application of the well-settled (by a series of decisions by the Apex Court) law, to the undisputed facts of the case and, further, which, despite being relied upon before it, were not considered by the Tribunal. It was under these circumstances that the hearing was proceeded with in the instant case; it being made clear to him that a consideration on merits would require the stated non-consideration being shown. 3.2 The assessee’s business model, as indeed of cold storages storing agricultural produce, he would explain, is that its’ business is in sync with the production and ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 3 | P a g e marketing of the relevant agricultural produce, being potatoes, as was also the case in M.B. Cold Storage (supra). The receipt of ‘potato’ begins around February (of the year) and continues up to March-end. Uplifting (removal) of the potato by the farmer is during October-November, continuing up to November 30. The assessee accordingly contracts for the retention of the potatoes for the period February 1 to November 30 (the ‘rent period’), only whereafter, or the removal of goods (potatoes), where earlier, does it receive the ‘rent’ or the cold storage charges. This is not in dispute, but the Revenue, nevertheless, seeks to spread the receipt, arising to it only on the removal of potatoes, which is generally October 15 onwards, uniformly over the said period of time, the rent period. As there is no receipt during the first quarter of the year (January to March), even as expenditure, both direct and indirect, continues to be incurred during the said period, causing thus a mismatch between the two, i.e., the revenue and the expenditure streams, with the expenditure for the first quarter being claimed on the basis of the same having been incurred, it seeks to bring the revenue corresponding to the first quarter (estimated at ¼ of the total revenue booked for the following year) to tax in the current year. A deduction for ¼ of the revenue of the preceding year, having been accounted for during the current year, is allowed to be set off by the Tribunal, on the same basis, marginalizing the tax impact. The issue, however, is one of principle, for which the assessee has in fact moved the Hon'ble jurisdictional High Court under its’ appellate jurisdiction, which though is unheard. 3.3 Continuing further, he would submit that what, thus, has been lost sight of by the Revenue, and ‘accepted’ by the Tribunal, is that the receipt inures to the assessee only after November 30, i.e., on December 1, or the removal of the produce, if earlier. The assessee is constrained both by custom as well as the terms of the contract, as indeed by the directions of the State Government and the District Authorities in the matter, which decide not only the ‘rent’ period, but also the rate/s as well as the time ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 4 | P a g e of the receipt aforesaid, and for which he would take the Bench to the documents substantiating the same, being the receipt issued by the assessee (PB pg. 58); the order dated 27/1/2009 by the Pr. Secretary, State Government (PB pg. 56); and the reply dated 22/6/2010 by the Potato Development Officer, Farukhabad to the assessee’s letter of even date clarifying that cold storage charges are not recovered in advance (PB pg. 59). The directions by the Administration are principally to protect the interest of the small farmers, i.e., vis-à-vis the cold storages, apprehending their dominant status qua the farmer-customer. It is, therefore, only on the conclusion of the contract period, which is generally from October 15 to November 30, that the cold storages, as the assessee, are, subject to the non-removal of the goods earlier, entitled to receive the cold storage charges, which cannot be equated with rent inasmuch as the same entails provision of services as well, even as explained in detail – in a different context though, by the Tribunal in ITO vs. Ambika Sheet Grah Pvt. Ltd. [2008] 8 DTR 610 (Agra)(PB pgs. 124-135). Even the Board has, albeit in the context of TDS, clarified (per Circular 01/2009, dated 10.01.2008) the same to be subject to tax deduction u/s. 194C, which provision is qua contractual payments, and not u/s. 194-I, i.e., that for rent (PB pg. 57). The assessee also does not, and neither is it obliged to, reduce the charges upon an earlier removal of goods (potatoes), i.e., before November 30. Section 37 of the Indian Contract Act, 1872, reading as under (PB pg. 61), makes it clear that it is only on the performance of his part of the contract, being the rendering of services up to November 30 in the instant case, that the assessee is entitled to receive a consideration therefor and, accordingly, the right to receive it, being contractual, vests in him: CHAPTER IV OF THE PERFORMANCE OF CONTRACTS Contracts which must be performed ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 5 | P a g e 37. Obligation of parties to contracts.—The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract. There is, accordingly, no scope for apportionment of the revenue on the basis of broken period, i.e., up to March 31, as the Revenue seeks to do, even as explained by the Apex Court in E.D. Sassoon & Co. Ltd. vs. CIT [1954] 26 ITR 27 (SC), which can be said to be the mother law in the matter, the relevant part of which, including the factual background under which the said decision was rendered, was read out by him. The principle elucidated, i.e., that accrual is signified by the vesting of the right to receive, is well-settled and, in fact, continues to hold the field, having been followed, and continues to be so to date, by the Apex Court as well as by the Courts and Tribunals across the country. The decision in Keshav Mills Ltd. vs. CIT [1963] 23 ITR 230 (SC), apparently applied by the Tribunal, he would continue, adverting to the relevant part thereof, in fact also holds like-wise, i.e., that the accrual of income is on the basis of the amount becoming due. The Tribunal, however, has omitted to consider that it is only on being ‘legally due’, as stated therein, that the right to receive inures, and proceeds to determine accrual of income on the basis that the assessee is following mercantile method of accounting, as was the case in M.B. Cold Storage (supra). The same is not to be confused, he would explain, with the due date of recovery of a debt, the right to receive which, even if at a later date, has already vested, as in the case of sale of goods on credit basis. In that case there is a transfer of property on the delivery of goods, resulting in accrual of the right to receive, which is though kept in abeyance for the period of the credit. It is, in that case, a subsequent discharge of an existing debt. In the instant case, on the other hand, the contract is incomplete as on March 31, and the assessee has not performed its’ part of the contract, i.e., keeping the potatoes in a good, marketable condition up to November 30 ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 6 | P a g e or, at the option of the farmer, up to the removal of goods at an earlier date. It is not the case that the assessee has not accounted for income on the removal of goods, which would give rise to a debt, even if not liquidated by the date of making the accounts, i.e., March 31. Section 36 of the Transfer of Property Act, 1882, which sanctions the apportionment of property on the basis of broken period in the case of determination of interest as between the transferor and transferee, also relied upon, is subject to, as stated therein, contract or local usage to the contrary, so that the same would come into play only in the absence of these two elements, as again clarified in E.D. Sassoon & Co. Ltd. (supra), with both elements being prevalent in the instant case; the said section, also read out during hearing, reading as under: Chapter II Apportionment 36. Apportionment of periodical payments on determination of interest of person entitled.—In the absence of a contract or local usage to the contrary, all rents, annuities, pensions, dividends and other periodical payments in the nature of income shall, upon the transfer of the interest of the person entitled to receive such payments, be deemed, as between the transferor and the transferee, to accrue due from day to day, and to be apportionable accordingly, but to be payable on the days appointed for the payment thereof . 3.4 At this stage, it was enquired by the Bench from Shri Singh that even assuming, though not admitting, that what he states is correct, and that the income by way of cold storage/hire charges accrues only on the completion of the contract on November 30 of the year (or the removal of goods, where earlier), as no removal takes place beyond December, the expenditure for the period following, particularly from February 01 to March 31, and, more so, the direct expenditure, which is stated to be on labour, fuel and power, would have to be, following the matching principle, kept in abeyance, i.e., for being set off against the corresponding income, stated to accrue or arise only in the following financial year. Examples of the decisions in Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC); Rotork ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 7 | P a g e Controls (India) (P.) Ltd. v. CIT [2009] 314 ITR 62 (SC), Bharat Earthmovers v. CIT [2000] 245 ITR 428 (SC); and Calcutta Co. Ltd. vs. CIT [1959] 37 ITR 1 (SC) were cited out of memory, i.e., to impress the principle that expenditure, irrespective of being legally due or not, having been incurred, a provision in its respect is, in view of the matching principle, admissible. This is as the concept of income itself signifies only net income, i.e., net of expenditure there-against. That, in fact, it was added, is the whole basis of the concept and accounting for closing stock (as at the year-end). Shri Singh would, upon seeking time, respond by relying on the decision in Taparia Tools Ltd. vs. Jt. CIT [2015] 372 ITR 605 (SC), reading out the relevant part thereof, wherein the Apex Court, after considering and distinguishing the decision by it in Madras Indl. Inv. Corp. Ltd. (supra), held that an expenditure stands to be deducted on incurring the liability in its respect irrespective of any other consideration, including therefore the accrual or otherwise of the corresponding revenue, or the period of utilization of the resource in respect of, or the service against, which it is incurred. Though rendered in the context of interest expenditure, the same would be valid for any other expenditure. 3.5 The ld. Sr. DR, Shri Kumar, would, after obtaining time to respond, submit that the facts of the case at hand are identical to that for A.Y. 2005-06, for which year the Tribunal, per its Division Bench order dated 09.9.2010 (supra) in the assessee’s own case, has taken a particular view, which is binding on the Single Member Constitution (SMC) Bench of the Tribunal and, rather, even on its’ Division Bench (DB), unless of course some distinguishing facts are shown, the onus of which is on the person claiming so. No distinguishing facts for the years under reference have been stated or brought on record by the assessee, and which in fact forms the basis of the impugned orders by the first appellate authority. Rather, the assessee has carried the matter (for AY 2005-06) to the Hon'ble High Court, before which it is pending to date, ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 8 | P a g e considering which the matter may be kept in abeyance, i.e., till the disposal of the assessee’s appeal by the Hon'ble Court. The case law being relied on by the assessee, who has in fact pressed into service before the Tribunal the same paper-book as it did for AY 2005-06, are the same as for that year. The same, thus, stand already considered by the Tribunal. On merits, he would argue, as the assessee admittedly follows mercantile system of accounting, rent for the period January to March (of the financial year) cannot be allowed to be deferred for recognition of income to the following financial year – which is by law the previous year. This is particularly so when the expenditure for the entire current year, including the said period, being the fourth quarter thereof, has been, and not incorrectly so, accounted for and claimed by the assessee on accrual basis. This forms the basis or the premise of the decision by the Tribunal in the assessee’s case, as indeed in M.B. Cold Storage (supra), the operative part of which order, which is for AY 2006-07, stands reproduced by the Tribunal in its’ order, which was then read out by him. 3.6 In rejoinder, Shri Singh would reiterate that there has been in fact, while adjudicating the assessee’s appeal for AY 2005-06, no consideration by the Tribunal of the decisions cited by the assessee before it. The Tribunal, as apparent from a reading of its’ order, merely proceeded to, in view of a perceived identity of facts, follow it’s order in M.B. Cold Storage (supra). There has, consequently, been no consideration by the Tribunal either of the facts of the assessee’s case or of the case law relied upon before it, with there being, again, nothing to show of any consideration of the case law relied upon before it by the Tribunal in M.B. Cold Storage (supra). The said orders by it are thus sub silentio qua the said decisions; rather, even the issue at hand, i.e., whether any part of the income by way of cold storage charges for the contract period ending November 30 (of the following year) accrues to the cold storage during the (relevant) previous year ending March 31 in the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 9 | P a g e facts and circumstances of the case? As explained in State of UP vs. Synthetic and Chemicals Ltd. [1991] Scale (2) 110 [SCC(4) 139] (PB pgs. 45-68), a decision which is not express and is not founded on reasons nor it proceeds on a consideration of the issue, cannot be deemed to be the law decided so as to have a binding effect. 3.7 The hearing was closed at this stage, rejecting Sh. Kumar’s feeble plea seeking time for answering the argument as to sub silentio by Sh. Singh, as without merit. As explained thereat, the non-binding effect of the earlier orders by the Tribunal in it’s facts and circumstances, and the law in the matter, is basic to the assessee’s case, the onus to show which is on it, so that nothing turns on the said argument. 4. I have heard the parties, and perused the material on record. Preliminary Objections 5.1 I shall begin by addressing the preliminary objections raised by Shri Kumar, first, i.e., the appeals having been heard by the Tribunal initially (in ITA Nos. 405 & 406/Lkw/2014, dated 14.10.2015) by a Division Bench, ought to be heard by a Division Bench of the Tribunal. The objection is without merit on facts as well as in law. The Tribunal had in the first instance set aside the appeals to the file of the first appellate authority, who had decided the appeals ex-parte qua the assessee, i.e., without considering the assessee’s objection/s, with a view to observe natural justice. That is, the appeals were to be decided afresh by the first appellate authority after hearing the assessee. The instant appeals by the assessee are, accordingly, fresh appeals, which have been fixed by the Registry of the Tribunal keeping in view the extant monetary limit u/s. 255(3) in respect of the jurisdiction of a SMC Bench of the Appellate Tribunal. The instant appeals fall within the prescribed limit, since increased, and listed for being heard by a SMC Bench following due process. The said objection is thus not maintainable. ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 10 | P a g e 5.2 The second preliminary objection raised by Sh. Kumar was that the appeals ought to be kept in abeyance as the assessee is already in appeal before the Hon'ble jurisdictional High Court for AY 2005-06. This, again, furnishes no ground for not deciding the appeals pending disposal before it by the Tribunal. In fact, the law specifically provides (per s.158A) for a procedure where the assessee claims that an identical question of law is pending before the High Court or Supreme Court. The assessee having not opted for the said procedure, it would be therefore obliged to carry these appeals, were it to choose to contest this order by the Tribunal, to the Hon'ble High Court. A Court or Tribunal is not obliged to keep a matter in abeyance for the reason that one of the parties before it is in appeal on the same issue for another year or in another case, a situation which stands rather contemplated and provided for by the statute for matters before the higher courts whose jurisdiction lies only in respect of matters of law; the findings of fact may not be finalized earlier and, in any case, liable to be challenged before the Tribunal. It is not for this Tribunal to insist either party for an early disposal of the matter by the Hon’ble High Court which, though in the interest of all concerned, is for the parties to decide. For the lower Court, which would, rather, ordinarily follow its’ earlier decision, maintaining thus a status quo, it would suffice that the matter is pending adjudication by the higher Court, which was confirmed as so by Sh. Singh and, rather, is the basis of the argument by Sh. Kumar. The proposition is well-settled, and for which I draw support from the decision in K.N. Agarwal v. CIT [1991] 189 ITR 769 (All). Why, Sh. Kumar, as clarified from his answers to the queries by the Bench, had no objection to the appeals being heard were the earlier order by the Tribunal, upholding the Revenue’s case, to be followed, and which could certainly not be pronounced upfront, but only upon a careful consideration of the case of either party before it, including of course as to the law of precedence. ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 11 | P a g e The earlier orders by the Tribunal 6.1 Next, I may consider the matter from the standpoint of the rule of precedence, a decision by a larger Bench being binding on a Bench of a lower strength; rather, indeed on a coordinate bench, so that where not in agreement, or where the subsequent Bench is of the opinion that the view already taken may not be the correct view, the proper course for it to follow is to refer the matter to a larger Bench. This is, however, subject to there being no difference on facts, while, as explained in Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC), even one different or additional fact, or circumstantial flexibility, can make a world of difference. What, again, is equally well-settled is that it is the ratio of a decision that has precedential value, and is binding. It would accordingly be relevant to reproduce the Tribunal’s order in the assessee’s case which, as afore-noted, bears the operative part of the order by the Tribunal in M.B. Cold Storage (supra): ‘ 11. We have considered the submissions of both the parties and gone through the material available on the record. It is noticed that the facts of the present case are identical to the facts involved in the case of M/s. M.B. Cold Storage P. Ltd. vs. ITO, Kanpur in I.T.A.No.680(Luc.)/2009 for the assessment year 2006-07. In the present case also, the AO made the addition on account of 1/4 th rental income from potato bags loaded in January and upliftment of which was over in the month of December. The loading also started in the month of January which continued upto March. The assessee had shown the income at the time of upliftment of the potato bags but claimed the expenditure for the period starting from January to March, 2005 without showing the corresponding income. Therefore, the facts are identical the only difference is in the quantity of potato bags and the amount of expenditure as well as the rental income; otherwise the facts are similar. We, therefore, are of the confirmed view that this issue is squarely covered vide order dated 19.5.2010 passed in I.T.A. No. 680(Luc.)/2009 in the case of M/s. M.B. Cold Storage Pvt. Ltd., Kanpur (supra). The relevant findings given in the said order read as under: ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 12 | P a g e “8. We have considered the rival submissions and carefully gone through the material available on record. In the instant case it is noticed that the assessee is engaged in the business of running a cold storage which is a cyclic industry and the cycle starts with the storing of potatoes and ends with the return of stored potatoes. For storing the potatoes the assessee is charging rent. However, the rental income is accounted for at the time of uplifting of potatoes by the farmers. The cycle starts from the loading of the potatoes in the month of January to March. Thereafter, potatoes are stored for the month of April to September and lifting takes place from October to December. In the Income Tax matters, an income pertaining to a previous year is taxed in the assessment year, the previous year is defined in section 3 of the I.T. Act, 1961 which means the financial year immediately preceding the assessment year. In the present case, the assessment year is 2006-2007 which starts from 1 April 2006 and ends on 31 March 2007. The previous year, therefore, starts from 1 April 2005 and ends on 31st March, 2006. So in the instant case the taxable profit earned by the assessee from 1 April, 2005 to 31 March, 2006 is chargeable to tax in the assessment year 2006-2007, however, for charging the profit to tax, a method of accounting followed by the assessee is to be kept in mind, the method of accounting to be followed has been prescribed in section 145 of the IT. Act, 1961 and sub section (1) of section 145 reads as under: "(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee." 8.1 From the above provisions, it is crystal clear that an assessee can either adopt a cash system of accounting or mercantile system of accounting and the said method of accounting is to be followed regularly. The cash system is that system in which the income earned is taken into account on receipt basis and similarly the expenditure incurred are considered on payment basis in the period falling in the previous year. However, in the mercantile system of accounting the income as well as expenditure are considered on accrual basis. In this type of accounting system, it is immaterial whether actual receipt of income is there or actual payment of expenses is there. Under the mercantile system entries are made in the account books on the dates when the monies fall due, and not on the dates when they are paid or received. Thus, if goods are sold, the seller would credit himself with the sale proceeds in his books on the date of the sale, though he has received no money, making a corresponding debit entry immediately against the purchaser. If a principal has contracted to pay commission to his agent, at a certain percentage for the work to be done by him (agent) during the accounting year, on an appointed date or dates during or after the expiry of the accounting year, he would debit himself in his books with the amount of the commission as agreed upon on the appointed date or dates and likewise credit the agent with an identical ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 13 | P a g e sum on the appointed date or dates, though the principal in fact has made no payment. If interest is payable by a merchant to his creditors on a certain date, the merchant would debit himself on that date in his accounts, though, in fact, he made no payment and would make a corresponding credit entry in his books in favour of the creditor the same day. That is to say, the assessee would credit himself with the monies as soon as he became entitled to demand payment, though he has not in fact received them, and likewise, he would debit himself with the monies as soon as he became liable to pay, though he has made no payment then. The profit thus computed is, obviously, the profit earned, not realized, and similarly, the loss computed is the loss sustained not paid. 8.2 The Hon'ble Supreme Court in the case of Keshav Mills Ltd. vs. CIT (1953] 23 ITR 230 observed that the mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system bring into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure in respect of which a legal liability has been incurred before it is actually disbursed. The profits or gains of the business which are thus credited are not realized but having been earned are treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are book profits. Receipt being not the sole test of chargeability and profit and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax the assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen. 8.3 The Hon'ble Supreme Court in the aforesaid case has held that "Mercantile system brings into credit what is due, immediately it becomes due and before it is actually received, and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. 8.4 The claim of the assessee in the instant case is that mercantile system of accounting is followed, therefore, the income earned by the assessee which has accrued for the period starting from 1 April 2005 and ending on 31 st March 2006 is to be considered and same is the position for the expenses. As regards to the incurring of expenditure is concerned there is no dispute that the assessee had entered and accounted for in the books of accounts all the expenditure incurred/accrued from 1 April 2005 to 31st March 2006, those expenses had been considered as genuine and no disallowance has been made. In the present case the only dispute relates to the earning of the assessee is claiming that income is accounted for at the time of uplifting of the potatoes. In this manner the income earned upto December 2005 has been accounted for and no income for the period 1st January 2006 to 31st March 2006 is accounted for. As we have already pointed out that in the mercantile system of accounting the income is accounted for on the basis of accrual and since the assessee earned the rent for storing potatoes from January to March 2006 also but the said income had been considered and accounted for at the time of uplifting of potatoes which got over in December of the relevant year, i.e., December, 2006. Therefore, we are of the view that the assessee should have shown the proportionate rental income for the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 14 | P a g e period January to March 2006 also in the assessment year under consideration. At the same time the income of the preceding year, i.e., from January, 2005 to March, 2005 had been accounted for by the assessee since there was uplifting of 40,829 bags upto December, 2005, but no income related to 49,577 bags which got loaded from January, 2006 to March, 2006 had been shown. We are of the view that the Assessing Officer was fully justified in working out the income of Rs.11,15,482/- which is required to be considered for year under consideration. At the same time, the assessee is entitled to the set off of the income which had already been included in this year, i.e., income from January to March, 2005. We, therefore, direct the Assessing Officer that the benefit of the aforesaid set off of the income is to be allowed against the addition made by him. Since the assessee had realized rent of Rs.36,74,610/- for the potatoes uplifted in the financial year 2005-2006 which also included the period of 1 January, 2005 to 31 March, 2005, therefore, the assessee is entitled to the set off of Rs.9,18,652/- (1/4 th of Rs.36,74,610/-) against the addition of Rs.11,15,482/- (1/4 th of Rs.44,61,930/-) which has been worked out by the Assessing Officer out of rent realized at Rs 44,61,930 for 49,577 bags loaded in the financial year 2006-2007. The said income of Rs 11,15,482 is not to be considered in the subsequent year since it has been considered in the present assessment year i.e., assessment year 2006-2007. In this manner, an addition of Rs.1,96,830/- (Rs.11,15,482 - Rs 9,18,652) is sustained. As regards to the contention of the learned counsel for the assessee that the tax rates are not slab-wise and also there is no change in the rates year after year, as such exercise will be a revenue neutral if the income shown in the succeeding year is considered in this year. We are of the view that the said exercise even if it is revenue neutral has to be done because true and correct taxable income of the previous year is to be shown in the assessment year since each year is separate and independent. We, therefore, in view of the aforesaid discussion, hold that since the assessee is following mercantile system of accounting, the income for the period starting from 1 January, 2006 to 31 March, 2006 is to be accounted for on accrual basis for taxing the income in assessment year 2006-2007 but the assessee is entitled to set off of the income relating to the period 1 January, 2005 to 31 March, 2005 which had been received in the financial year 2005- 2006 and included in the taxable income, considering that the mercantile system of accounting has been adopted by the assessee.” 12. We, therefore, respectfully following the aforesaid referred to order passed by this Bench of the Tribunal, hold that since the assessee is following mercantile system of accounting, the income for the period starting from 1 st January, 2005 to 31 st March, 2005 shall be accounted for on accrual basis for taxing the income in assessment year 2005-06, but the assessee is entitled to set off the income relating to the period 1 st January, 2004 to 31 st March, 2004, which had been received in the financial year 2004-05 and included in the taxable income considering that the mercantile system of accounting has been adopted by the assessee.’ ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 15 | P a g e Copy of the Order in M.B. Cold Storage (supra), being the parent order, having not been brought on record by either party, its certified copy was sought from the Registry of the Tribunal, and is placed on record. At para 6 (pg. 17), the Tribunal extracts the following, forming part of the submissions by the ld. Departmental Representative before it, as under: “Cold storage business is in the same nature as warehousing, where the main essence of the transaction is letting out of storage space having appropriate facilities for preservation of goods. The income from cold storage is in the nature of rental income and should be accounted during the currency of the period for which goods are agreed to be stored therein. This is not only in accordance with the accrual system of accounting but also the 'matching concept' which requires that costs should be accounted for in such quantum and period which is directly related to be income for which they are being incurred. The reverse also holds true. Therefore, since the costs are being incurred on the cold storage facility throughout the currency of the period for which it is let, the total rental received for the same should also be accounted for as income on a period on proportionate basis. In the case of the assessee company, the income of cold storage rent is charged for one complete cycle irrespective of the period for which the potato was kept in the cold storage. Thus, as the rent is directly related to the complete cycle period or say season the income should be proportionately apportioned on the basis of the period of completed cycle." (emphasis, supplied) The same passage in fact also appears, as part of the AO’s reasoning, reproduced at para 5 (pgs. 4-8), of the Tribunal’s order for AY 2005-06 (at pg. 6). 6.2 There is, as apparent, no discussion of any of the facts emphasized upon by Sh. Singh during hearing with reference to the material on record (refer para 3.3 of this order) in the Tribunal’s order in M.B. Cold Storage (supra) or, following the same, in the assessee’s case for AY 2005-06, and which clearly have a material bearing on the rights and obligations of the parties inter se. And, consequently, no consideration thereof; its’ orders being sans any finding qua the same. The whole purport of the assessee’s arguments (recorded at para 3.3), and which represent the gist of it’s case, is that it is, in view of the said incidents, entitled to the cold storage charges only on the completion of the business cycle, i.e., on fulfilling its’ part of the contract, which thus is the material date for reckoning the vesting therein of the right to receive the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 16 | P a g e said charges. This stand of the assessee, though brought forth on earlier occasions as well, as apparent from the submissions by the ld. DR before the Tribunal in M.B. Cold Storage (supra), reproduced hereinbefore (para 6.1), as well as in the assessment order for AY 2005-06 in the assessee’s case, duly noted by the Tribunal, also afore-referred, even as before me (para 3.3), however, finds no mention either while discussing its’ case nor in its’ findings. There is, accordingly, an absence of any finding as to when, in its’ opinion, the right to receive accrues to or vests in the assessee. Clearly, therefore, there is, with respect, an absence of consideration of the assessee’s case, which is also its’ grievance, even as I observe no dispute qua the primary facts. Even presuming that the assessee did not substantiate it's case, as it does now, the Tribunal ought to have said so, in which case the matter stands decided by it on earlier occasions, in the manner it was, on account of the facts being not proved, of which there is though no whisper in its’ orders. Where so decided, it would make the instant case distinguishable inasmuch as it is clearly within the rights of the assessee to prove the facts of its’ case for another assessment year and, thus, its’ case, which remains the same. Further, even as there is again no finding by the Tribunal qua the same, as it appears from the Revenue's case before it, the cold storage charges being an income in the nature of rent weighed with the Tribunal in deciding in the manner it does. In which case, the issue arising for it's consideration would be as to whether an income in the nature of rent (on which there is it is emphasized no finding by the Tribunal), i.e., a period income, would accrue over time, independent and irrespective of the contract between the parties. And which bring us back to the terms of said contract, conspicuous by any reference in it's orders by the tribunal, as indeed the delineation of issue afore-stated. Viewed from any angle, thus, its’ orders are distinguishable, and cannot per se be regarded as binding precedents; rather, a binding president inasmuch as the latter order merely follows the earlier one. Further still, there is also no consideration of the case law relied upon by the assessee before the Tribunal, ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 17 | P a g e which has been aplenty, for which reference is drawn to para 10 (pg. 12) and para 5 (pg. 14) of its’ orders in the assessee’s case for AY 2005-06 and in M.B. Cold Storage (supra) respectively; the principal case law cited in the former being also E.D. Sassoon & Co. (P.) Ltd. (supra); CIT v. Gajapathy Naidu A. [1964] 53 ITR 114 (SC); CIT v. Kalicharan Jagannath, 41 ITR 40 (All). I shall, accordingly, proceed to discuss the issue on merits, also noticing along with the Tribunals’ orders, i.e., for what stands stated therein qua the questions deemed as arising for consideration in adjudication thereof. This would enable meeting the same, on which the Revenue places total reliance and, at the same time, exhibit, with respect, an absence a ratio decidendi, so that the two aspects, in fact, proceed in parallel. Besides, this has the advantage of also bringing forth both the points of convergence or diversion between its’ earlier orders and the instant order, which apparently decide the same issue, though bears material differences, as shall be apparent from the forgoing and the ensuing part of this order. Discussion/Findings 7.1 A reading of the Tribunals’ orders, also reproduced hereinbefore in material part, makes it clear that the hire charged by the cold storage has been regarded by the Tribunal as ‘rent’, i.e., an income which inures with time. Subject, therefore, to any uncertainty in its realization, which, where shown – and which is nobody’s case (with in fact the cold storage having potatoes (agriculture produce) as a security, i.e., in case of non-performance of the contract by the farmer), would operate to exclude an income otherwise accrued, the cold storage charges inure with the lapse of time, as in the case of interest, and for that matter other incomes/expenses which inure or arise with the passage of time. This also appears to be the rationale of the Tribunal’s decision inasmuch as the income for the period January to March, i.e., the fourth quarter of the financial year, being the previous year, stands recognized as income by the assessee-cold storage only in the following previous year. This, then, is the basis ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 18 | P a g e of the decision by the Tribunal, which also draws on the fact that the expenditure for the fourth quarter stands claimed by the assessee (as a deductible expense) for the current year, resulting in a mismatch between the income (revenue) and the expense streams as the revenue corresponding to the said quarter is not taken into account. This fact stands also dwelled upon at length by the AO, being supportive of his case, even as the primary reason for making an adjustment (to the assessee’s returned income) in assessment is the non-accounting of the rent income ‘accrued’ during the year, i.e., to the proportionate extent. In sum, therefore, the decision by the Tribunal is predicated on the hire charged by the assessee, or the cold storages in general, as qualifying to be in the nature of rental income, which is charged per unit of time or, being charged for a period of time, could be so imputed, so that, either way, it inures or arises proportionately, i.e., in the proportion of time and, accordingly, is liable to be accounted for or recognized as income on time basis. This is as in such a case ‘time’ becomes the basis, the essential ingredient, for which the charge is made, as for ten months, beginning February 01, up to November 30, of the current year in the instant case, which though happens to fall in two previous years corresponding to two consecutive assessment years, resulting in the controversy over the year in which the income of the fourth quarter of the financial (previous) year is to be assessed to tax. The first question that therefore arises is if it is indeed in the nature of rent, as regarded by the Tribunal in the assessee’s own case for AY 2005-06 and in M.B. Cold Storage (supra). I raise this question even as the Tribunal has clearly regarded it as so, as there is no deliberation/consideration by it in the said orders, even though this aspect was contested before it, as apparent from a reading of the order by the Tribunal in M.B. Cold Storage (supra), which records the rival contentions in considerable detail, as indeed by the AO in the assessment order for AY 2005-06 in the assessee’s case, duly noted by the Tribunal in its’ order. Nor, consequently, any finding qua the same by it. This question assumes relevance in view of the various arguments to the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 19 | P a g e contrary advanced on the assessee’s behalf before me, as was the case before the Tribunal on the earlier occasions, as also, as afore-noted, as it forms the basis of it’s orders. 7.2 There is no finding by the Tribunal – either in the assessee’s case or in M.B. Cold Storage (supra), to the effect that the customer (farmer) is on removing the goods before the expiry of the contract period obliged to pay the entire rent charged/chargeable for the contract period. The delivery in respect of Receipt dated 16.2.2010 (PB pg. 58) is on 21.6.2010, i.e., prior to November 30, or even October 15. Yet, the customer is charged the full amount contracted for the period February- November, @ rs. 125 per quintal. This aspect, though, does not appear to be disputed; rather, stands admitted by the Revenue before the Tribunal, both in the assessee’s case as well as in M.B. Cold Storage (supra)(see para 6.1). In my considered view, even so, the contract – which is essentially a contract of bailment, gives rise to a receipt which is a period receipt, i.e., in the nature of rent. The farmer requires the goods (potatoe) only at the beginning of the season, which explains the uniform period of the contract across all the farmers, and what the assessee (cold storage) is required to do is to preserve them in a good condition till the end of this period – nothing more and nothing less, to entitle it to receive the charge, raised in lump-sum, and for that reason, for the said period. Surely it cannot be said to be rent in the strict sense of the term, which denotes a passive income arising on the letting of or making available one’s resource, as house property (say), to another, inasmuch as cold storage involves preservation of the goods stored, entailing processes alongside and in addition to storing the goods and, thus, use of house property to that extent. However, the said processes, as refrigeration, or labour for maintenance or other minor processes that may be required, though essential, being only toward the said preservation, are again incurred in relation to time, or principally so. Why, even in case of rental income, the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 20 | P a g e owner may be obliged to carry out repairs to, or otherwise incur expenditure for the upkeep of, the house property let – and which are, rather, not linearly related to time, so that the said income may also not be wholly passive in nature, but principally so. In fine, the income under reference has all the incidents of a period income, even if payable (or receivable) at the end of the period. No wonder the hire charge is raised for a defined period per unit (of quantity), as per bag (of potatoes) inasmuch as the same consumes a definite space. Both the elements of rent, i.e., making available a resource, and for a definite period of time, are thus present. There being no separate consideration of or finding by the Tribunal in the matter, as the same forms the basis of its’ orders, even if by way of an obiter dicta, this Bench considers it incumbent to record its agreement with the decision by the Tribunal vide its’ orders relied upon by the Revenue. The charge thus inures over time; the processes, entailing cost, being only toward and for preserving the potato over time, i.e., for the period for which it is contracted to be. Could income, therefore, i.e., for that reason, be said to have accrued to the cold storage as on March 31 to the proportionate extent, is the next question. 7.3 The Tribunal, next, proceeds to conclude that as the assessee-cold storage follows mercantile system of accounting, income arises to it to the proportionate extent. Though it does not explicitly state, much less discuss, the nature of the income, it is apparent that the same forms the premise of its’ order; it, as afore-stated, regarding cold storage charges to be in the nature of rent, i.e., a period income, and with which i finds myself to be in full agreement. In terms of its’ orders, that being the case, with the assessee following accrual method of accounting, the accrual of income over time follows in consequence, i.e., as a corollary. And, as income of one quarter (i.e., January to March) stands recognized only on the completion of the business cycle in November-December and, thus, in the following previous year, it confirms ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 21 | P a g e the adjustment by way of an addition of one-fourth of the income (gross revenue) of the said year and, simultaneously, directs reduction of one-fourth of the revenue of the current year, as the same, and for the same reason, is to be regarded as the income of the immediately preceding year. There is, again, as would be apparent from its’ orders, operative part of which stands reproduced hereinbefore, no discussion therein as to whether, under the terms of the contract, income arises on the part performance of the contract, i.e., proportionately (or even otherwise), or only on the completion of the contract, which thus represent the controversy or the issue at hand, nor, consequently, there is any finding by it in the matter. There is thus no delineation of the issue, perceived as arising for adjudication by this Tribunal, nor followed, consequently, by an analysis of the relevant facts, i.e., discerned as material for its determination, preceded by their statement, much less, therefore, a finding in the matter, explaining the rationale of its’ decision, that would throw light on the principle/s applied and, further, constitute the ratio decidendi of its’ decision, attracting the doctrine of precedence. This is the subject matter of well-settled law, explained once again in the context of a case under the Act by the Apex Court in Mavilayi Service Cooperative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC), to which therefore reference is drawn. While holding that it is only the ratio decidendi of a judgment that is binding as a precedent, it explains that it is the statement of the principles of law applicable to the legal problem disclosed by the facts that alone is the binding ratio of a case. And that the judgment itself, based on the combined effect of the statement of the principles of law applicable to the material facts of the case cannot be described as the ratio decidendi of the judgment. Nor can, it further explains, it be said that it (ratio decidendi), which alone has to be given effect, would follow logically therefrom. With respect, i find myself unable to discern the ratio decidendi, as explained by the Apex Court, of the said orders by the Tribunal for being adopted following the rule of precedence; its’ orders being sans even the statement of ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 22 | P a g e the issue arising, with in fact there being, as shown by Sh. Singh with reference to its’ orders, no consideration by the Tribunal of the abundant case law cited by the assessee before it, nor indeed in M.B. Cold Storage (supra), so that it was, and for that reason, incumbent on the Tribunal in the assessee’s case for AY 2005-06 to consider the same. The least, therefore, this Tribunal is required to do is to consider the said decisions in deciding the issue before it, which would be thus so for the first time by the Tribunal. No doubt, the Tribunal, as afore-stated, in arriving at its’ decision with regard to the accrual of income, does advance the argument of mercantile system of accounting, giving examples of the sale of goods on credit; commission on work done, and the like, to clarify the concept of accrual/mercantile system of accounting, in contradistinction to the cash system, also adverting to the decision in Keshav Mills Ltd. (supra) for the same. However, that by itself is neither here nor there and, rather, explains the observation made hereinbefore that in terms of its’ orders accrual of income follows in consequence of the assessee’s method of accounting. That the assessee is following mercantile system of accounting is rather a common/admitted ground, so that nothing turns thereon. Even as clarified by the AO himself, with the Revenue relying on CIT vs. British Paints India Ltd. [1991] 188 ITR 44 (SC) for the purpose, that he is not changing the assessee’s method of accounting, and the issue is its correct application in the facts and circumstances of the case, which brings us back to the question as to whether income to the proportionate (or even disproportionate) extent has, in the given facts and circumstances, accrued to the assessee in respect of the business cycle commencing January (of the relevant previous year), i.e., up to March 31, or not. If it has, irrespective of the assessee not accounting for the same, it following accrual method, income to that extent shall have to be taken into account, and it would be no argument that the same, faulty method stands regularly followed; each year being a separate unit of assessment and, further, income of a particular year is liable to be taxed in that year. It is not the method of accounting, nor indeed the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 23 | P a g e passing or non-passing of the accounting entries, that determines whether an income has accrued or not, which depends on the satisfaction or otherwise of the test of accrual in the given facts and circumstances, requiring, thus, the delineation, followed by consideration, of the material facts. As explained per its’ several decision by the Apex Court, rather than being determinative of the fact of accrual, once an income has accrued, necessary accounting entry is to be passed in the books of account, booking the said income, where the method of accounting is mercantile (viz. CIT v. Chuni Lal Mehta [1971] 82 ITR 54 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 835 (SC); CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC); Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC); Taparia Tools Ltd. (supra)). As such, rather than being the ‘cause’, an accounting entry booking income in accounts is the ‘effect’ of the accrual of income, which is largely a question of fact, i.e., in view of the clear, settled law of it being signified by the vesting or even the accrual of the right to receive, and toward which, therefore, reference to some decisions by the Apex Court would be in order, viz. E.D. Sassoon & Co. (P.) Ltd. (supra); CIT v. Chamanlal Mangaldas & Co. [1960] 39 ITR 8 (SC); Gajapathy Naidu A. (supra); Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC). Merely, therefore, because the assessee follows mercantile system of accounting, it does not follow in consequence to the hire income being in the nature of rent, that income accrues to the assessee over time. The same, as afore-noted, would require answering the controversy or the issue arising, delineated hereinbefore, i.e., with reference to the nature and the terms of the contract, and cannot be regarded as automatic. No doubt, it makes a passing reference to the term ‘legally due’ when it refers to Keshav Mills Ltd. (supra), which, as would be apparent from its’ order, is only in the context of explaining the mercantile system of accounting vis-a-vis the cash system; it being not followed by an examination or dilation on the said concept (i.e., ‘legally due’), nor whether the same stands satisfied in the facts and ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 24 | P a g e circumstances of the case. There is, consequently, in effect and substance, no ratio decidendi, which gets, thus, or can be said to be, precedentially protected. 7.4 I may, next, proceed to discuss the principal issue, i.e., whether, in the facts and circumstances of the case, income for the business cycle February to November accrues to the assessee to any extent during the period February-March, so that income to that extent be recognized for year ending March inasmuch as the previous year is statutorily prescribed to be the financial year preceding the assessment year? The assessee-cold storage being obliged to preserve the goods (potato) for ten months, can surely claim to have part performed the contract, which it does from day to day, when it preserves the potatoes up to March 31, whereat it has to by law necessarily close its’ accounts. There could surely be an accrual of the right to receive, were it to be purely a rent agreement inasmuch as services to the proportionate extent stand provided and availed. Examples being letting of house property, possession of which is thus enjoyed by the tenant from day to day, or letting of machinery, which is thus at the disposal of the recipient of the services. That is, no right to user arises to the customer, which is fundamental to ‘rent’. This aspect stands also considered by the Board in regarding cold storage charges as not ‘rent’, i.e., for the purposes of TDS, as no right to use any specific portion of the cold storage arises to the customer, who therefore cannot be regarded as ‘tenant’. In the instant case, on the other hand, services, which include, besides storage, refrigeration and, as explained by Shri Singh during hearing, manual reshuffling of the potatoes from time to time, though required to be and, thus, carried out and, further, only evenly over time, cannot be said to be ‘availed of’ or ‘received’ by the farmer, who has only contracted to receive the goods (potato) at the beginning of the marketing season in October-November, so that his potato is to be necessarily preserved by the cold storage up to that time, i.e., as clarified, latest by November 30. It is therefore only on the preservation of potatoes, ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 25 | P a g e i.e., in good, marketable condition, up to that time, that assessee has made good his promise. And is, accordingly, entitled, in terms of both, its’ contract as well as custom, to receive the cold storage charges. Further, even as the same entails making available a resource (cold storage) and undertaking activities over a period of time, the significance of the same lies only in the assessee proceeding toward the completion of its’ part of the contract, and is of no particular value for the customer (farmer) inasmuch as it yields no deliverable to him. No value accrues or passes to the farmer, for whom all that matters is the delivery of potatoes – in good, marketable condition, at the time of the sale season, i.e., the onset of winter. The position may be compared to or is akin to a contract for delivery of manufactured goods (say). Even as an assessee-manufacturer may for the purpose purchase raw material and subject it to processing, essential for the goods to be manufactured, it is only on the completion of the process/es yielding manufactured goods in a deliverable state, that he can be said to have performed its’ part of contract and, accordingly, as entitled to consideration. The goods lying with him (as at the year-end) in a raw or semi-finished state have no particular significance for the buyer. Similarly, it is only on the goods (potato) delivered, or deliverable, by the assessee in a good condition at the time required that is material or relevant for the farmer (customer), irrespective of the length of time for which it stood preserved prior thereto, which incident, on account of incurring cost, may though have significance as far as the quantum of charges raised or contracted is concerned. Even if therefore preserved up to, say, a few day prior to the appointed date, the same may be of little or no value to him if not in good condition at the time of delivery. The example cited, being non-linear as to time - as opposed to a linear one in the instant case, which is thus amenable to being apportioned on time basis inasmuch as the same corresponds to value, may not for that reason appear very apt. This dissimilarity, however, dissolves when considered in light of the fact that the accumulation of value, which is evenly over time in the present case, while not so in ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 26 | P a g e the example cited, where it is with reference to the manufacturing processes being carried out, is of no particular value or significance as far as the ‘buyer’ (customer) is concerned inasmuch as there is no deliverable to him at any time anterior to the completion of the contract by the ‘seller’ (vendor). Income, it may be appreciated, can only flow from another and, accordingly, requires for its accrual, incurring corresponding liability by him. Reference here may be made to the decision in CIT vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC), wherein the Apex Court referred to its decisions in Birla Gwalior (P.) Ltd. (supra); CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC); Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC); Jodha Mal Kuthiala (R.B.) v. CIT [1971] 82 ITR 570 (SC), among others, to hold as under: ‘ It is well-settled that income-tax cannot be levied on hypothetical income. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee.’ 7.5 It could, I am conscious, be argued that the goods (potato) lying with the assessee-cold storage, inasmuch as the assessee acquires a lien over it, i.e., qua, and to the extent of, the cold storage charges, the same is (or can be considered as) a consideration for the said charges by the farmer, ‘paid’ or ‘deposited’ upfront, so that what the latter does at the time of taking delivery thereof is to discharge the said lien. That is, the income accrues with time and, correspondingly, the lien increases in value uniformly over the period of the contract, i.e., proportionately with time. There is, to begin with, nothing on record to so suggest, and which is clearly a matter of fact. The argument is, besides being fundamentally opposed to the contract of bailment, obliging the bailee to return the goods to the bailer at the end of the period (for which reference may be made to ss. 148, 160, 170 & 171 of the Contract Act), also incongruent with the factual matrix of the case. The lien can be exercised by the assessee only in case of non-discharge of the debt, so that the occasion to do so would ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 27 | P a g e arise only subsequent to the crystallization of the debt in its’ favour and, further, on its non-discharge by the farmer. A debt in its’ favour, as afore-noted, would arise only on performing its’ part of the contract by the cold storage. The basis and the premise of the contract is that the farmer wants to sell the potatoes only during the later part of the year, i.e., October-November and onwards, and which is understandably for the reason that the same fetches him a higher return for his produce. The preservation of the potatoe is the sole purpose of the contract, which, a chattel, thus, cannot by itself, in the given factual matrix, constitute the consideration. Again, it seriously undermines the right of the farmer to sell his produce at the time and place of his choosing. The argument is also inconsistent with the fact that the potatoe - the object matter of the contract, has been agreed, at the time of its acceptance, to be stored for the period of the business cycle. That is, the argument is legally untenable and suffers from both factual and conceptual flaws. There is, as such, no question of the potato itself forming the consideration for the cold storage charges, so that the same can be regarded as ‘received’ to the extent of the charges ‘accrued’, i.e., from day to day. The only merit of the argument is that the cold storage is assured of the realization of the debt qua cold storage charges at all times, but that by itself is no reason to prepone the accrual of income. I say ‘at all times’ as no one would, at least ordinarily, incur more cost on storage than the value of the goods stored, more so where the same are perishable in nature. 7.6 There is, as such, in the given facts and circumstances, i.e., the nature and peculiarities of the contract, including the essence of time, no accrual of income (cold storage charges) over time, and no right to receive the same accrues, much less vests in the assessee on the part performance of the contract. Answering thus the issue arising (refer para 7.4), i.e., in the negative. No adjustment qua any part of the gross revenue for the business cycle/contract period (February-November) is to be made for ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 28 | P a g e the year ending March. No corresponding adjustment, consequently, is to be made for the preceding business cycle. Of course, I may hasten to add that it is equally permissible for the parties to agree differently, in which case the same would prevail. Here it may be relevant to refer to Calcutta Co. Ltd. (supra). In the facts of that case, the assessee, a land developer, accepted part payment from the buyers of the plots of land, crediting, however, the full amount of sale in its’ books; the sale deeds bearing the details of the work to be undertaken, even as little work by way of land development had been undertaken by it as at the year-end. The Hon'ble Court found that time being not of essence, income had accrued, and had been for that reason rightly returned and assessed to tax in the year of the sale; the assessee following mercantile method of accounting. So, however, it went on to state that it is only on deducting the estimated expenditure on land development that income – which is the subject matter of tax, can be ascertained and, accordingly, is to be deducted even though no/little work toward land development had been done by the year-end. That is, implicit in the notion of income is the deduction of the expenditure incurred for the purpose of earning the income that stands accrued and, accordingly, is liable to tax for the relevant year. The said decision, to my mind, is a classical example of the application of section 37 of the Contract Act, to which attention was drawn by Sh. Singh during hearing inasmuch as the assessee in that case unconditionally undertook to develop the land. That is, the performance of a promise under a contract is, legally speaking, at par with the offer to perform it, even as suggested by s.37. Two, a liability toward the estimated cost of performance stands incurred where the offer (undertaking) to perform is unconditional, so that the same imported a liability toward the same on the date of sale itself. Coming back to the facts of the instant case, the foregoing explanation (para 7.4) of the manner of accrual is only on the basis of the facts and circumstances as ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 29 | P a g e gathered from the record, and as explained during hearing, including the conduct of the parties, i.e., in the absence of a written contract. There is as such nothing sacrosanct about accrual, principally a question of fact, to be determined on the basis of, as afore-stated, the contract/agreement between the parties. I may also refer to the decision in Keshav Mills Ltd. (supra), ostensibly followed by the Tribunal on earlier occasions. The controversy in that case was the charge to tax of the profit received by the accessee, a non-resident, in British India, i.e., in the taxable territory. The significance of the said decision in-so-far as the present decision is concerned is where the Apex Court explains the accrual system of accounting, contrasting it with the cash system. In its words: (pg. 239) ‘That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed.’ This, however, is not in issue in the instant case, being rather a part of the well-settled law and, in fact, representing a common ground between the parties. That apart, the Tribunal does not, with respect, state as to when, therefore, the cold storage charges become legally due to the assessee in the facts and circumstances of the case, which, where so, would have in all probability; the facts being not disputed, led it to an acceptance of the assesses's case. 7.7 The question that arises next is if any adjustment qua expenditure, primarily direct expenditure, being, as explained by Shri Singh during hearing, as principally on labour, fuel and power, incurred during the period February-March is to be made with a view to determine correctly the profits and gains of the cold storage business for the year ending March. Shri Singh would, on this question being posed by the Bench during hearing, object, stating that the same is not in issue. Even as explained during hearing, the issue under reference is the correct determination of income in the given facts and circumstances of the case, and which necessarily includes the quantum of ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 30 | P a g e income which, by definition, is after deduction of expenditure in relation thereto. As afore-noted with reference to the decision in Calcutta Co. Ltd. (supra), deduction of concomitant expenditure that stands, or is likely to be, incurred is essential to income determination. In the facts of the instant case, it was rather only on observing the claim for expenditure for the period January to March, even as there was no corresponding revenue generation during the said months, that the AO proceeded to examine the matter, i.e., as to whether income had been properly accounted for and returned by the assessee, as indeed was the case in its’ assessment for AY 2005-06. And came to the conclusion that even as the expenditure had been rightly claimed on the basis of the liability in its respect having been incurred, income (gross revenue) arising during the said period, even though accrued, had been omitted to be so recognized in accounts and, accordingly, was under-reported, a view upheld by the Tribunal in further appeal (refer para 3.2). Reference here may also be drawn to the revenue's case before the Tribunal in M. B. Cold Storage (supra), wherein, relying on British Paints India Ltd. (supra), the matching concept was emphasized upon; the submission of the ld. DR, duly reproduced by the Tribunal at para 6.1 of its order, being as under: “Matching concept is based on the accounting period concept. The paramount object of running a business is to earn profit. In order to ascertain the profit made by the business during a period, it is necessary that ‘revenues’ of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only when the revenue earned during a period is compared with the expenditure incurred for earning that revenue. Admittedly however in cases of mergers and acquisitions, companies sometime undertake to defer revenue expenditure over future years which brings in the concept of deferred tax accounting. In such context only it cannot be said that the concept of accrual is limited to one year. The matching concept is a principle for recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. The object of another accounting standard, viz. AS 22 is to reconcile the matching principle with the fair valuation principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by the ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 31 | P a g e provisions of the Companies Act. The concept of timing difference introduced by AS 22 is of no help to the assessee here. This has to be read with the concept of deferred revenue expenditure and is a subject matter of different contemplation altogether. The provisions of s. 154(1A) and other appellate effect provisions are sufficient to rectify the apparent distortions of subsequent years and create a true picture of profits of the assessee.” It is therefore incorrect to say that the question raised (by the Bench) is not germane or does not arise for consideration, being, rather, intrinsic to the determination of income, implying net of expenditure there-against, with the said expenditure in fact constituting, and admittedly so, the direct input cost of the services being provided by the cold storage. Shri Singh, on being cited some decisions during hearing, would in response rely on the subsequent decision by the Apex Court in Taparia Tools Ltd. (supra), wherein, noticing the decision in Madras Indl. Inv. Corp. Ltd. (supra), it held that expenditure on interest, contracted to be paid upfront for the entire term of the loan, was liable to be deducted u/s. 36(1)(iii) inasmuch as liability in its respect had been incurred by the assessee-borrower. In a given case, it added, an assessee may, at its’ option, spread the interest expenditure over the said period, i.e., following the matching principle, essentially an accounting concept, which would normally yield to the principle of accrual, implying incurring of liability, which was in the said case, contractual and, thus, a legally enforceable liability. The argument, valid in principle, is, with respect, misconceived in the facts and circumstances of the case. The issue is not, as incorrectly understood, and as explained during hearing, as to whether the expenditure claimed had in fact been incurred, which it surely has, perhaps even paid by March 31 – though that is irrelevant in view of s. 43(2), but whether any adjustment in its respect, i.e., qua which liability has been incurred by March-end, is warranted considering that the corresponding income, toward which the same stands incurred, has admittedly not accrued up to March 31. And which brings us to the concept of accounting for closing stock as at the end of the accounting period. It is only because expenditure stands incurred and, thus, is eligible to be, and indeed ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 32 | P a g e claimed, following mercantile method of accounting, forming thus part of cost of the unsold goods as at the year-end, that an adjustment in its respect is required to be made on the closing of accounts for the correct determination of income. Could, one may ask, expenditure not incurred and, thus, not liable to be claimed as deduction in computing business income for the relevant period, possibly form part of the cost of the goods traded in and, thus, liable to be adjusted where the goods remain unsold, i.e., in stock, as at the year-end? It is incorrect to say, the Apex Court explained in Chainrup Sampatram vs. CIT [1953] 24 ITR 481 (SC), that the closing stock itself is a source of profit or income. It is only on properly accounting therefor that the correct profit or, as the case may be, loss of the business for the accounting period can be determined, as only the cost in respect of goods sold, i.e., income qua which only had accrued, could be properly setoff there-against to ascertain the income on the sales during the accounting period. The concept of stock accounting is independent of the method of accounting, as explained by the Apex Court in CIT vs. Krishnaswami Mudaliar A. [1964] 53 ITR 122 (SC), also referred to by the Bench during hearing, which was a case where cash system of accounting was being followed by the assessee. In its’ words: ‘ Whichever method of book-keeping is adopted, in the case of a trading venture, for computing the true profits of the year the stock-in-trade must be taken into account. If the value of the stock-in-trade is not taken into account, in the ultimate result the profit or loss resulting from trading is bound to get absorbed or reflected in the stock-in-trade unless the value of stock-in-trade remains unchanged at the commencement of the year and the end of the year .’ Representing a well-settled legal proposition, case law in the matter is legion, In British Paints India Ltd. (supra), the Apex Court emphasized the need for correct valuation of the closing stock, irrespective of the period over which it had not been so in the past, to determine the correct profit or loss; each year being a separate unit of assessment, income of which is liable to be assessed in that year only. Not so doing ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 33 | P a g e would, it may be appreciated, amount to transferring the income of one year to another (through the under-valuation or over-valuation of the closing stock, even as observed by the Apex Court in Krishnaswami Mudaliar A. (supra)), which is essentially the issue that arises for determination in the instant case. The proposition is equally applicable to ‘services’, i.e., as it is to ‘goods’, the same only representing the form in which the revenue generating exercise/activity manifests itself, and which has been found in the instant case not to yield any income unless the services for the entire period of the contract stand performed. The principle in this regard is, again, well-settled. And therefore even as every expenditure of the business can, broadly speaking, be said to be the ‘cost’ of the goods/services, it is only that which results in bringing the same to the state and location at which they are (as at the year-end) that can be said to comprise the cost of goods and, thus, eligible for being valued and, so to speak, set aside for being set off in the period when income in respect of the corresponding goods inures to the business. Reference in this regard may be profitably made to Accounting Standard (AS) 2 issued by the Institute of Chartered Accountants of India, as well as to British Paints India Ltd. (supra). It is again for this reason that reference in this order has been made to direct expenditure, forming part of the input cost of the services. As regards indirect cost, no such set-aside or abeyance is required as the same are essentially period costs and, thus, eligible for being charged to the operating income statement of the period in which these stand incurred. This would also explain the apparent dichotomy between the Taparia Tools Ltd. (supra) and Madras Indl. Inv. Corp. Ltd. (supra). The expenditure liable to be claimed as deduction is in the period when it is incurred and not the period to which it relates, even as clarified in Calcutta Co. Ltd. (supra). This also agrees with the concept of conservatism, a fundamental accounting assumption. Future being uncertain, such expenditure is ordinarily not carried forward, and it is only in exceptional circumstances, as where there is no ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 34 | P a g e relation between the expenditure and the income for the relevant period, causing a material mismatch, that the said expenditure is deferred in accounts, the prime example being advertisement expenditure. One may not, if only to eschew digressing from the issue at hand, dwell further in the matter. Suffice to state that accounts being prepared on a ‘going concern’ basis, expenditure on an activity or provision of resource would be sought to be correlated, to the extent possible, for being charged to the operating statement of the period to which the revenue from the said activity or the corresponding utilization of the resource is recognized in accounts, so as to enable ascertaining the correct operating results for a given accounting period. Here, again, conservatism being a paramount consideration in accountancy, this proposition would be subject to the benefit arising from the activity or the utilization of the resource being definite and measurable, and which was also the underlying premise of the decision in Madras Indl. Inv. Corp. Ltd. (supra). Where not, future being uncertain, expenditure is written off in accounts in the period in which it is incurred irrespective of whether it has future implications, as where it results in spending a lesser amount in the subsequent periods. It is only in extreme cases, as in the example cited, viz, advertisement expenditure, that it is spread in accounts, only with a view not to distort the operating results of any one period; heavy expenditure having been incurred with the long term prospective, with though no tax implications inasmuch as there is, it is well-settled, no concept of deferred revenue expenditure under the Act. As regards interest expenditure, no Accounting Standard, as in respect of ‘Borrowing Cost’ by ICAI, has yet been issued by CBDT u/s. 145 of the Act, so that unless the same is done, all that is required to be seen, where a claim of interest expense is being examined, is if it is in terms of s. 36(1)(iii) in the facts and circumstances of the case. In fact, in Taparia Tools Ltd. (supra) the Apex Court itself states of this (interest expenditure) being the only area where it observed a divergence in judicial opinion resulting in an option to the assessee as to ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 35 | P a g e the period of claim of the expenditure. The foregoing, I must admit, is not germane to the issue at hand, which concerns the concept of ‘closing stock’, though has, to the extent it is, discussed with a view to meet the reliance by Shri Singh on the decision in Taparia Tools Ltd. (supra), as well as for the sake of completeness of this order. Clearly, therefore, all the costs that go to form the direct, input cost of the provision of cold storage charges, to the extent they relate to the provision of the services for the months of February and March, are to be kept in abeyance under an accounting head, as ‘Prepaid expenses’, for being claimed in the following year, i.e., against the revenue for the said period, which includes that corresponding to these two months. Needless to add, surely, such expenditure for the immediately preceding year 7.8 I decide accordingly. In sum 8.1 The instant case raises a very interesting question for the consideration of this Tribunal, i.e., whether income in the nature of interest, rent, etc., i.e., period income, which is principally a function of time and, thus, inures with it, would accrue to the service provider with the lapse of time or only in terms of the underlying contract. Accrual of income being, it being well-settled, on the accrual or the vesting of the right to receive it, it is opined that it would be so only on the basis of the contract defining the rights and obligations of the parties inter se, so that the principle of accrual would apply to a period income as well. The matter is found to be governed by, inter alia, the decision in E.D. Sassoon & Co. Ltd. (supra), wherein the terms ‘accrue’ and ‘arise’ stand explained to indicate, in contradistinction to ‘receive’, as the ‘right to receive’. Further, in the context of the facts of that case, the Hon’ble Court held that on a true construction of the managing agency agreement, also referring to sec. 219 of the Contract Act, the contract of service between the managed company and the managing agents was entire and undivisible. The remuneration or commission ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 36 | P a g e became due from the company to the managing agents only on the completion of a definite period of service and at stated periods and it was a condition precedent to the recovery of any wages or salary in respect thereof that the service or duty should be completely performed. Such remuneration constituted a debt only at the end of each such period of service and no remuneration or commission was payable to the managing agents for the broken period. The question in the instant case arising in the context of cold storage charges, which are essentially charges for storing goods (agriculture produce) under defined (controlled) conditions, as to temperature, etc., the contours of the contract, largely oral, as well as the conduct of the parties, which were in agreement, were examined to find that the right to receive the charges, and thus the accrual of income in its respect, is only on the cold storage fully performing its’ part of the contract, i.e., where it delivers, or is in a position to deliver the agriculture produce (potatoes) stored to the farmer in a good, marketable condition at the end of the period for which it is contracted to be stored. Of course, it stands clarified that this does not give rise to any general proposition, being essentially a question of fact as to the accrual or the vesting of the right to receive in the given, undisputed facts and circumstances, and it was well open to the parties to, independent of the time set for the payment of charges, agree differently on the terms of the accrual or the vesting of the right to receive. It stands accordingly held that in the given facts and circumstances of the case no part of the cold storage charges for the business cycle Feb. – Nov. accrues on the part performance of the contract by the cold storage upto March-end. Further, that being the case, the direct, input cost on the said part performance of the contract for the months of February & March shall be set aside as ‘closing stock’ for being adjusted on the accrual of the corresponding income, with a similar adjustment being made for the opening stock, and for the same reason, altering thus the returned income to the extent of a difference between the two. Not so doing, it ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 37 | P a g e is explained, would result in the profit of one period being transferred to another; that being the premise of stock accounting for a going concern. Further, the matter having been subject to the orders by the Tribunal on earlier occasions, including in the assessee’s own case for an earlier year, which were by its’ Division Bench, the same were relied upon and pleaded for being followed, being, as argued, binding on a SMC Bench. It was, however, found that there had been no statement of the general principle/s of law nor indeed of the issue or the legal problem arising, with even the relevant facts, material to the decision, being not as presented before the Tribunal – which can only decide on the basis of the facts brought forth based on the material on record, on the earlier occasions, which orders were thus sub silentio the relevant aspects/issues. Why, even in the instant appeals, the appellant’s case, as presented, was not with reference to the accrual or otherwise of rental income in the given facts and circumstances of the case, i.e., as presently discerned by the Tribunal, resulting, consequently, in the statement of a different issue or legal problem arising for adjudication, i.e., from that presented before it. In fact, as found, the issue arises; the law being well-settled, only in view of the income under reference being a period income. It was under these circumstances; it being well-settled that the principle of res judicata is not applicable to the proceedings under the Act (New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC)), that it proceeded to examine the issue arising, delineating the same by regarding the nature of income as, as found, a period income, even as, it was observed, to be underlying premise of the Tribunal on the earlier occasions, which was accordingly regarded as an obiter dicta by it. There was, thus, no ratio decidendi of the said decisions by the Tribunal for being followed. Even as the law in this regard is well-settled, reliance is placed on the decisions in Padmasundara Rao (supra) and Mavilayi Service Cooperative Bank Ltd. (supra) for the purpose. (also see para 8.2) ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 38 | P a g e 8.2 I consider it incumbent to, before parting with this order, state as to what stands in effect held by way of its’ ratio. Applying the settled law on the accrual of income as being the accrual or the vesting of the right to receive, it was held, upon an analysis of the contract, based largely on the conduct of the parties inasmuch as the contract is principally oral, comprising also the material facts, that there is no accrual of income over time, which arises only on the performance of its’ part of the contract by the cold storage, and which therefore is the decision per this order which, as explained by the Apex Court in Mavilayi Service Cooperative Bank Ltd. (supra), is of significance only for the parties. The ratio of the decision, thus, would be that, irrespective of the nature of the income, i.e., period or activity based, or predominantly so, the vesting or the accrual of the right to receive would require being ascertained with reference to underlying contract between the parties, and cannot be inferred only on the basis of the nature of income, i.e., period or activity based. That is, the nature of the income shall by itself be not determinative of the fact of its accrual, which shall in each case have to be determined with reference to the agreement between the parties inasmuch as income, by its very nature, can flow to one only from another and, therefore, cannot based on a unilateral attribute thereof. The ratio qua the secondary issue is that it is the profit of the business that is relevant from the standpoint of income determination, and which therefore would require the application of concept of closing stock (as also opening stock) in respect of the concomitant expenditure, i.e., even where the revenue generating activity is principally in the nature of services. The legal principle at work here is that it is the income of the relevant year alone that is to be ascertained and brought to tax for that year, and which is necessarily requires application of the concept of closing stock, and its non-application or undervaluation of closing stock (or overvaluation) would lead to transfer of profit/loss of one period to another. Reliance is principally placed inter alia, on Chainrup Sampatram (supra); Calcutta Co. Ltd. (supra); and British Paints India Ltd. (supra). ITA Nos. 311 & 312/Lkw/2017 (AYs. 2007-08 & 2009-10) A.K. Cold Storage P. Ltd. v. ITO 39 | P a g e 8.3 Each of the several decisions by the Apex Court referred to in this order is only to bring forth the well-settled principle/s of law explained and elucidated by it in fact per, rather, a series of decisions, so that they comprise the law of the land and, in fact, stand followed by the Hon'ble High Courts across the country. This reference to the decisions by the Apex Court, it is clarified, only toward establishing the authenticity of what is being stated in this order inasmuch as adjudication necessarily implies applying the law as laid down and clarified by the higher courts of law to the facts as determined. 9. In the result, the assessee’s appeals are allowed on the afore-said terms. Order pronounced in the open Court on December 24, 2021 Sd/- (Sanjay Arora) Accountant Member Dated: 24/12/2021 * Singh/Aks Copy of the order forwarded to: (1) The Appellant (2) The Respondent (3) Pr. CIT/CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar // True Copy //
