BINA POWER SUPPLY COMPANY, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 4837/MUM/2010

• Counselvise Citation: 483719914 RSA 2010
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-03-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 10-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: S E DASTUR AW MR NIRAJ SHETH
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 5452/MUM./2009 (ASSESSMENT YEAR : 2005-2006 ) ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 (A.YS : 1999-2000, 2000-2001, 2001-02, 2002-03 & 20 07-08 ) DATE OF HEARING: 13.6.2011 M/S. BINA POWER SUPPLY CO. LTD. 106, MAKER CHAMBER-VI NARIMAN POINT, MUMBAI 400 028 PAN AAACB8397C .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-3(1), MUMBAI .... RESPONDENT ASSESSEE BY : MR. S.E. DASTUR A/W MR. NIRAJ SHETH REVENUE BY : MR. SUBACHAN RAM O R D E R PER J. SUDHAKAR REDDY, A.M. ALL THE APPEALS ARE FILED BY THE ASSESSEE. 2. APPEAL IN ITA NO.4835 TO 4838/MUM./2010, ARE DIRECT ED AGAINST THE IMPUGNED COMMON ORDER DATED 31 ST MARCH 2010, PASSED BY THE M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 2 COMMISSIONER (APPEALS)-VII, MUMBAI, FOR ASSESSMENT YEARS 1999-2000, 2000-01, 2001-02 AND 2002-03 RESPECTIVELY. 3. APPEAL IN ITA NO.5452/MUM./2009, IS DIRECTED AGAINS T THE IMPUGNED ORDER DATED 26 TH DECEMBER 2008, PASSED BY COMMISSIONER (APPEALS)-XX VII, MUMBAI, FOR ASSESSMENT YEAR 2005-06; AND 4. APPEAL IN ITA NO.7269/MUM./2010, IS DIRECTED AGAINS T THE IMPUGNED ORDER DATED 26 TH MAY 2010, PASSED BY THE COMMISSIONER (APPEALS)-VII , MUMBAI, FOR ASSESSMENT YEAR 2007-08. 5. AS THE ISSUES ARISING FROM ALL THE ABOVE APPEALS AR E COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND AR E BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 6. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A COMPANY, SET-UP WITH AN OBJECT TO CARRY BUSINESS OF GENERATION AND DISTR IBUTION OF POWER. THE ASSESSING OFFICER HAD PASSED ORDER UNDER SECTION 14 3(3) R/W 254 OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) CONSEQUENT TO THE TRIBUNAL RESTORING THE MATTER TO THE FILE OF ASSESSING OFFIC ER BY ITS ORDER DATED 6 TH MARCH 2006, AS NOTHING TURNS ON THESE PROCEEDINGS, WE DIRECTLY REFER TO THE FACTS OF THE ISSUE BEFORE US. 7. THE SOLE ISSUE IN THIS APPEAL IS THE TAXABILITY OF INTEREST ON SECURITY DEPOSIT. THIS BENCH HAS TO ADJUDICATE AS TO WHETHER THERE WAS ACCRUAL OF INCOME BY WAY OF INTEREST ON SECURITY DEPOSIT PLACE D BY THE ASSESSEE COMPANY WITH MADHYA PRADESH ELECTRICITY BOARD (FOR SHORT MPEB ). 8. THE PROMOTERS OF THE ASSESSEE COMPANY ENTERED INTO A MEMORANDUM OF UNDERTAKING WITH THE MADHYA PRADESH STATE GOVT. IN THE YEAR 1994, UNDER WHICH THE M.P. STATE GOVT. AGREED TO ENTER INTO A P OWER PURCHASE AGREEMENT (FOR SHORT PPA ) WITH THE SEPARATE COMPANY, TO BE PROMOTED BY THE SAID PROMOTERS. SUBSEQUENTLY, THE PROMOTERS FORMED AND R EGISTERED THE ASSESSEE M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 3 COMPANY IN THE YEAR 1995; (II) IN THE YEAR 1996, PP A WAS ENTERED INTO BETWEEN THE ASSESSEE AND MPEB. THE AGREEMENT PROVID ED, INTER-ALIA, THE METHOD OF TARIFF CALCULATION, THE PAYMENT OF SECURI TY, THE MODES OF PAYMENT AND OTHER OBLIGATION OF THE PARTIES; (III) IN THE Y EAR 1998, PRIORITIZATION OF INDEPENDENT POWER PROJECTS WAS DONE. THE PRODUCERS WHO WOULD BID FOR THE LEAST TARIFF, WOULD BE PRIORITIZED. THE ASSESSEE QU ALIFIED. MPEB, VIDE LETTER DATED 24 TH JULY 1998, DEMAND A SECURITY DEPOSIT OF 2% OF THE PROJECT COST TOWARDS THE ASSESSEES COMMITMENT TO ACHIEVE FINANC IAL CLOSURE. THE FINANCIAL CLOSURE WAS TO BE ACHIEVED WITHIN A PERIO D OF TWO MONTHS FROM THE DATE OF ESCROW AGREEMENT. THE ESCROW AGREEMENT WOUL D PROVIDE A CHARGE ON RECOVERABLE OF MPEB TO THE POWER PRODUCERS. 9. THE FINANCIAL CLOSURES WERE TO BE ACHIEVED WITHIN T WO MONTHS OF MPEB PROVIDING A BANKABLE ESCROW AGREEMENT. ON ACHIEVING FINANCIAL CLOSURE WITHIN TWO MONTHS OF PROVIDING A BANKABLE ESCROW AG REEMENT BY MPEB, THE SECURITY DEPOSIT WAS TO BE RETURNED WITH INTEREST. IN CASE, FINANCIAL CLOSURE WAS NOT ACHIEVED WITHIN TWO MONTHS DESPITE PROVIDIN G OF BANKABLE ESCROW AGREEMENT BY MPEB, SECURITY DEPOSIT WAS TO BE FORFE ITED. 10. THE ASSESSEE FURNISHED A SECURITY DEPOSIT OF ` 52,24,00,000, BEING 2% OF THE PROJECT COST TO MPEB ON 14 TH AUGUST 1998. THE DRAFT ESCROW AGREEMENT PROVIDED BY MPEB WAS NOT ACCEPTABLE TO TH E FINANCIAL INSTITUTIONS. THEREFORE, THE BANKABLE ESCROW AGREEMENT WAS NEVER ENTERED INTO BY MPEB. AS THE FINANCIAL CLOSURE WAS TO BE COMPLETED BY THE ASSESSEE WITHIN TWO MONTHS OF ENTERING INTO BANKABLE ESCROW AGREEMENT, THE SAME WAS NOT POSSIBLE. 11. THE ASSESSEE REQUESTED MPEB TO REFUND THE DEPOSIT W ITH INTEREST AS MPEB FAILED TO PROVIDE THE BANKABLE ESCROW AGREEMEN T. IT WAS THE CASE OF THE ASSESSEE COMPANY THAT FINANCIAL CLOSURE OF THE PROJECT COULD NOT BE REACHED AS THE ARRANGEMENT OF ESCROW WAS NOT SATISF ACTORILY RESOLVED. THE MPEB, VIDE LETTER DATED 17 TH JANUARY 2002, TOOK A STAND THAT THERE IS NO SUCH M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 4 CONDITION TO EXECUTE AN ESCROW AGREEMENT, PRIOR TO FINANCIAL CLOSURE. IT STATED THAT ESCROW WILL BE PROVIDED AT THE TIME OF COMMERCIAL OPERATIONS. IT FURTHER GAVE NOTICE THAT THE SECURITY DEPOSIT WILL BE FORFEITED, IF FINANCIAL CLOSURE IS NOT BE ACHIEVED BY THE ASSESSEE COMPANY, WITHIN TWO MONTHS OF PROVIDING BANKABLE ESCROW AGREEMENT FORM. 12. MPEB, ON 13 TH JULY 2002, PASSED AN ORDER FORFEITING THE SECURITY DEPOSIT OF ` 52,24,00,000. 13. THE ASSESSEE FILED WRIT PETITION BEFORE THE HONBLE HIGH COURT OF M.P., JABALPUR BENCH, AND THE HONBLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON 13 TH MAY 2003. THE HONBLE HIGH COURT QUASHED THE ORDER PASSED BY MPEB FORFEITING THE SECURITY DEPOSIT AND DIRECTED THE MPEB TO PROVIDE BANKABLE ESCROW AGREEMENT TO THE ASSESSEE C OMPANY IN ITS TRUE SPIRIT AS ENVISAGED IN ITS LETTERS DATED 24 TH JULY, 4 TH SEPTEMBER 1998 AND THAT THE SAME SHOULD BE DONE WITHIN TWO MONTHS FROM THE DATE OF THE ORDER OF THE COURT. THE HONBLE HIGH COURT FURTHER ORDERED T HAT, IN CASE, THE ARRANGEMENT DOES NOT MATERIALIZE, MPEB SHOULD REFUN D THE AMOUNT OF SECURITY DEPOSIT ALONG WITH ACCRUED INTEREST. LATER , THE PERIOD WAS EXTENDED UP TO 31 ST MARCH 2004, BY AN ORDER DATED 20 TH FEBRUARY 2004 PASSED BY THE HONBLE HIGH COURT. THEREAFTER, MPEB CARRIED THE MA TTER IN APPEAL BEFORE THE DIVISION BENCH OF THE HONBLE M.P. HIGH COURT AND T HE DIVISION BENCH PASSED AN INTERIM ORDER DIRECTING THE MPEB TO DEPOSIT ` 25,00,00,000 WITH THE COURT @ ` 5,00,00,000 PER MONTH COMMENCING FROM 1 ST SEPTEMBER 2004 AND GAVE THE ASSESSEE COMPANY LIBERTY TO WITHDRAW THE AMOUNT DEPOSITED BY FURNISHING UNCONDITIONAL BANK GUARANTEE OF A NATION AL BANK. MPEB WAS ALSO DIRECTED TO FURNISH AN UNCONDITIONAL BANK GUARANTEE OF NATIONALIZED BANK FOR ` 50,00,00,000. THE ASSESSEE COMPANY WAS ALLOWED TO WITHDRAW THE ABOVE AMOUNT WITHOUT PREJUDICE AND SUBJECT TO FINAL ORDER OF THE HONBLE COURT IN LETTERS PATENT APPEAL. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 5 14. ON 24 TH OCTOBER 2005, THE DIVISION BENCH OF THE HONBLE HI GH COURT DISMISSED THE APPEAL OF THE MPEB ON THE GROUND THAT THE APPEAL IS NOT MAINTAINABLE. IT FURTHER ORDERED THAT THE INTERIM O RDER PASSED BY THE COURT ON 5 TH AUGUST 2004, AND THE ARRANGEMENTS MADE PURSUANT TH ERETO, WILL CONTINUE TO BE IN FORCE SUBJECT TO ANY ORDER THAT M AY BE PASSED BY THE HON'BLE SUPREME COURT IN THE PROPOSED SPECIAL LEAVE PETITION. THE MPEB FILED AN APPEAL BEFORE THE HON'BLE SUPREME COURT AN D THE COURT, VIDE ORDER DATED 10 TH FEBRUARY 2006, DIRECTED THAT THE INTERIM ORDER PAS SED BY THE HIGH COURT WOULD CONTINUE UNTIL FURTHER ORDERS. MEANWHIL E, THERE WAS A CHANGE IN THE MANAGEMENT OF THE ASSESSEE COMPANY. THE COMPANY WAS TAKEN OVER BY M/S. JAIPRAKASH POWERS VENTURES LTD. ON 15 TH MAY 2008. THE NEW MANAGEMENT OF THE ASSESSEE COMPANY ACCEPTED THE FOR FEITURE OF THE SECURITY DEPOSIT, VIDE MINUTES OF THE MEETING DATED 17 TH JUNE 2008 HELD WITH MPEB. IN OTHER WORDS, THE ASSESSEE COMPANY AGREED TO FORG O THE DEPOSIT OF ` 52,24,00,000 WITH MPEB AND INTEREST THEREON FOR VAR IOUS BUSINESS AND COMMERCIAL REASONS. CONSEQUENTLY, JOINT PETITIONS W ERE FILED BEFORE THE HON'BLE SUPREME COURT AND WITHDRAWN ALL THE CASES F ROM M.P. HIGH COURT. 15. ON THESE FACTS AND CIRCUMSTANCES, THE ISSUE TO BE A DJUDICATED BY US IS, WHETHER INTEREST HAS ACCRUED TO THE ASSESSEE ON THE SECURITY DEPOSIT OF ` 52,24,00,000 PLACED WITH THE MPEB. THE ASSESSING OF FICER WAS OF THE VIEW THAT THE INCOME HAS ACCRUED TO THE ASSESSEE FOR THE REASON THAT MPEB HAS NOT RECOVERED ANY AMOUNT FROM THE ASSESSEE COMPANY AND IT IS THE ASSESSEE COMPANY WHICH VOLUNTARILY RETURNED BACK THE DEPOSIT IN QUESTION. HE HELD THAT BEFORE THE SLP WAS WITHDRAWN, THE DECISION OF HIGH COURT DIRECTING THE MPEB TO REFUND SECURITY DEPOSIT ALONG WITH ACCRUED INTEREST REMAINED IN FORCE. HE HELD THAT THE DECISION TO FORGO THE CLAIM OF SECURITY DEPOSIT OF ` 52,25,00,000 BY THE ASSESSEE IN FAVOUR OF MPEB WAS A COMMERCIAL DECISION AND THIS DOES NOT DILUTE THE ASSESSEES RIGHT TO RE TAIN THE AMOUNT. HE HELD THAT INTEREST INCOME ON SECURITY DEPOSIT WAS ACCRUI NG TO THE ASSESSEE COMPANY ON A YEARLY BASIS AS THE ASSESSEE COMPANY W AS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HE HELD THAT THE A GREEMENT BETWEEN MPEB M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 6 AND THE ASSESSEE COMPANY, AS MENTIONED IN THE MINUT ES OF THE MEETING DATED 17 TH JUNE 2008, HAS NOTHING TO DO WITH THE RIGHTS OF TH E ASSESSEE COMPANY TO RECEIVE NOT ONLY THE SECURITY DEPOSIT BU T ALSO THE INTEREST THEREON AND THAT THE FORGOING OF THE DEPOSIT AND TH E RETURN OF THE MONEY WAS ENTIRELY FOR DIFFERENT COMMERCIAL CONSIDERATION S. HE HELD THAT THE INTEREST IS ACCRUED @ 9% ON THE SECURITY DEPOSIT. H E REJECTED THE ALTERNATIVE CONTENTIONS OF THE ASSESSEE THAT THE INTEREST INCOM E SHOULD BE ADJUSTED AGAINST THE COST OF THE PROJECT BY RELYING ON THE O BSERVATIONS MADE IN THE ORDER OF THE TRIBUNAL IN THE FIRST ROUND OF LITIGAT ION. IT WOULD BE RELEVANT TO MENTION THAT THE ASSESSING OFFICER HAD ACCEPTED THI S ALTERNATIVE CONTENTION OF THE ASSESSEE IN ASSESSMENT YEAR 2006-07. 16. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L, WHEREIN THE FIRST APPELLATE AUTHORITY, IN ITS COMMON ORDER FOR ASSESS MENT YEARS 1999-2000 TO 2002-03, HELD THAT THE ONLY EVENT THAT HAS TAKEN PL ACE BETWEEN THE YEARS 1999-2000 TO 2002-03, IS PRIORITIZATION OF IPP FOR ESCROW ACCOUNT AND SUBSEQUENT PAYMENT OF DEPOSIT OF ` 52,24,00,000 BY THE ASSESSEE TO MPEB. HE HELD THAT IN TERMS OF AGREEMENT, INTEREST WOULD BE ACCRUING ON THE DEPOSIT. HE POINTED OUT THAT THE DEPOSIT WAS FORFEI TED ON 13 TH JULY 2002, WHICH FALLS IN ASSESSMENT YEAR 2003-04 AND THAT THE ASSESSMENT YEAR 1999- 2000 TO 2002-2003, DEPOSIT HAD NOT BEEN FORFEITED. HE REJECTED THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE ORDER OF THE ASSESSING OFFICER. 17. ON THE ALTERNATIVE CONTENTION THAT THE INTEREST INC OME SHOULD BE SET-OFF AGAINST COST OF CONSIDERATION, THE COMMISSIONER (AP PEALS) RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN BONGAIGAON REFINERY & PETROCHEMICALS LTD. V/S CIT, (2001), 251 ITR 329 (S C), AND HELD THAT THERE IS NO DIRECT LINK BETWEEN THE INTEREST INCOME AND T HE EXPENDITURE ON CONSTRUCTION AND, HENCE, THE SET-OFF CANNOT BE ALLO WED. HE ALSO POINTED OUT THAT THE SECURITY DEPOSIT HAS BEEN GIVEN MUCH BEFOR E THE AWARDING OF THE PROJECT. FOR THE ASSESSMENT YEAR 2005-06, THE FIRST APPELLATE AUTHORITY SIMPLY FOLLOWED THE ORDER OF THE LEARNED CIT(A) FOR THE EARLIER ASSESSMENT M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 7 YEARS. SIMILARLY, FOR THE ASSESSMENT YEAR 2007-08, THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS WAS FOLLOWED. AGGRIEVED, THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING FOLLOWING GROUNDS:- GROUND NO.I : ADDITION ON ACCOUNT OF NOTIONAL INTEREST ON SECU RITY DEPOSIT PLACED WITH MPEB; GROUND NO.II : WITHOUT PREJUDICE TO ABOVE, EVEN IF INTEREST HAD ACCRUED TO THE APPELLANT, THE SAME OUGHT TO HAVE BE EN REDUCED FROM PREOPERATIVE EXPENDITURE. GROUND NO.III : WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C IT(A) ERRED IN CONFIRMING THE ACTION OF THE ITO IN PRESUMING INTER EST RATE OF 9% ON THE SECURITY DEPOSIT. 18. BEFORE US, MR. S.E. DASTUR, SR. ADVOCATE, APPEARING ON BEHALF OF THE ASSESSEE ALONG WITH MR. NEERAJ SHETH, TOOK US THROU GH THE FACTS OF THE CASE. THEY HAD FILED THREE PAPER BOOKS AND OUR ATTENTION WAS DRAWN TO THE MOU DATED 29 TH OCTOBER 1994, PPA DATED 12 TH FEBRUARY 1996, VARIOUS MINUTES OF MEETING WITH MPEB, CORRESPONDENCE BY GOVT. OF M.P., LETTERS FROM THE FINANCIAL INSTITUTIONS, ETC. LEARNED SR. COUNSEL SU BMITS THAT THE SECURITY DEPOSIT WAS TO BE RETURNED TO THE ASSESSEE WITH INT EREST ONLY ON COMPLETION OF FINANCIAL CLOSURE WITHIN TWO MONTHS FROM MPEB FU RNISHING A BANKABLE ESCROW AGREEMENT, AND OTHERWISE THE SECURITY DEPOSI T WOULD BE FORFEITED. HE SUBMITS THAT THE ASSESSEE WOULD HAVE RIGHT TO RECEI VE THE FIXED DEPOSIT AS WELL AS THE INTEREST THEREON, ONLY ON THE HAPPENING OF AN EVENT I.E., ON ACHIEVING FINANCIAL CLOSURE. HE POINTED OUT THAT, I N THIS CASE, FINANCIAL CLOSURE WAS NEVER ACHIEVED FOR THE REASON THAT MPEB FAILED TO PROVIDE A BANKABLE ESCROW AGREEMENT, EVEN AFTER SPECIFIC DIRECTIONS OF THE M.P. HIGH COURT. UNDER THESE CIRCUMSTANCES, THE LEARNED SR. COUNSEL SUBMITS THAT THE QUESTION OF ACCRUAL ON INCOME DOES NOT ARISE. EVEN OTHERWISE, HE SUBMITS THAT THE STAND OF MPEB IS THAT THE ASSESSEE HAS FAI LED TO ACHIEVE FINANCIAL CLOSURE AS STIPULATED IN THE AGREEMENT AND, HENCE, IT FORFEITED THE SECURITY DEPOSIT AND EVEN IN SUCH CIRCUMSTANCES, THERE IS NO ACCRUAL OF INCOME. HE RELIED ON THE REAL INCOME THEORY AND ARGUED THAT TH ERE IS NO INCOME AT ALL. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 8 HE VEHEMENTLY CONTENDED THAT THE REVENUE AUTHORITIE S HAVE NOT POINTED OUT, THE TIME AT WHICH THE ASSESSEE HAS GOT A RIGHT TO R ECEIVE INTEREST ON SECURITY DEPOSIT. HE POINTED OUT TO VARIOUS CORRESPONDENCES, AGREEMENTS AND COURT ORDERS AND SUBMITS THAT THE ENTIRE ISSUE IS IN DISP UTE AND IT WAS THE CASE OF MPEB THAT NO INTEREST ACCRUED ON SECURITY DEPOSIT A ND, IN FACT, THAT THE SECURITY DEPOSIT ITSELF HAS TO BE FORFEITED, DUE TO FAILURE ON THE PART OF THE ASSESSEE COMPANY. HE REFERRED TO THE ORDER DATED 13 TH MAY 2003 PASSED BY THE HONBLE HIGH COURT AND SUBMITS THAT EVEN IN TER MS OF THE HIGH COURT ORDER, THE ASSESSEES RIGHT, IF ANY, WOULD ACCRUE O NLY AFTER 31 ST MARCH 2004, AS THE HIGH COURT HAS HELD THAT IF MPEB FAILED TO P ROVIDE A BANKABLE ESCROW AGREEMENT BEFORE 31 ST MARCH 2004, THEN ONLY THE ASSESSEE SHOULD BE REPAI D THE DEPOSIT WITH INTEREST. THIS ORDER ALSO WAS MODI FIED IN APPEAL AND WAS SUBJUDICE. HE SUBMITS THAT, AT LEAST, UPTO THAT POI NT OF TIME, THERE IS NO ACCRUAL OF INCOME. HE FURTHER POINTS OUT THAT LATER FOR WHATEVER THE REASONS, THE DECISION OF MPEB TO FORFEIT THE SECURITY DEPOSI T WAS ACCEPTED BY THE ASSESSEE COMPANY AND IN THOSE CIRCUMSTANCES ALSO, T HERE IS NO ACCRUAL OF INCOME. HE SUBMITS THAT UNDER THE REAL INCOME THEOR Y OR ON FACTS, THE ASSESSEE HAD NEVER THE RIGHT TO RECEIVE THE INCOME TILL DATE OF FORFEITURE AND, HENCE, NO INCOME ACCRUED TO THE ASSESSEE. ON THE IN TERIM ORDER PASSED BY THE DIVISION BENCH OF THE HONBLE HIGH COURT DIRECT ING THE MPEB TO DEPOSIT ` 25,00,00,000 AND ALLOWING THE ASSESSEE TO WITHDRAW ` 25,00,00,000 ON FURNISHING A BANK GUARANTEE, THE LEARNED SR. COUNSE L SUBMITS THAT, FIRSTLY, ` 25,00,00,000 PERTAINS TO THE PRINCIPAL AMOUNT OF TH E FIXED DEPOSIT AND NOT TO THE INTEREST PART AND SECONDLY IT IS AN INTERIM ORD ER AND IS NOT TAXABLE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN CIT V/S HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD. (1986) 161 ITR 524 (SC) . 19. FOR THE PROPOSITION THAT NO INCOME HAS ACCRUED, THE LEARNED SR. COUNSEL RELIED ON THE FOLLOWING CASE LAWS:- I) E.D. SASSOON & COMPANY LTD. V/S CIT, (1954) 26 I TR 27 (SC); II) GODHRA ELECTRICITY CO. LTD. V/S CIT, (1997) 225 ITR 746 (SC) ; AND M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 9 III) FGP LIMITED V/S CIT, (2010) 326 ITR 444 (BOM.) ; 20. ALTERNATIVELY, LEARNED SR. COUNSEL SUBMITS THAT IF THE ARGUMENT THAT INTEREST INCOME HAS NOT ACCRUED IS NOT ACCEPTED, TH EN, WITHOUT PREJUDICE, HE SUBMITS THAT THE INTEREST GOES TO SET-OFF AND TO RE DUCE TO THE COST OF PLANT. HE RELIED ON THE FOLLOWING CASE LAWS:- I) CIT V/S BOKARO STEEL LTD., (1999) 102 TAXMAN 94 (SC); II) CIT V/S KARNAL CO-OP. SUGAR MILLS LTD. (2001) 1 18 TAXMAN 489 (SC); III) ITO V/S M/S. VEMAGIRI GENERATION LTD., ITA NO. 6352/MUM./2005, ORDER DATED 26 TH MAY 2008; 21. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SUBACHAN R AM, ON THE OTHER HAND, OPPOSED THE CONTENTION OF THE LEARNED S R. COUNSEL AND SUBMITS THAT THERE ARE TWO DISTINCT SET OF FACTS IN THIS CA SE AND THE LEARNED SR. COUNSEL HAS INTER-MIXED THESE FACTS AND THAT HE WOU LD LIKE TO PLACE THE FACTS IN THEIR PERSPECTIVE. HE SUBMITS THAT THERE IS NO D ISPUTE ON THE RECEIVABILITY OF THE INTEREST. HE CONTENDS THAT THE M.P. GOVERNME NT AND MPEB HAD GRANTED FULL GUARANTEE TO THE ASSESSEE COMPANY AND ITS FINANCIAL INSTITUTION AND IT IS WRONG ON THE PART OF THE LEARNED SR. COUN SEL TO STATE THAT THERE WAS NO SECURITY IN THIS CASE. HE SUBMITS THAT IT WAS TH E ASSESSEE WHO HAD DISPUTED THE WORDING IN THE BANKABLE ESCROW AGREEME NT AND IT HAS NOTHING TO DO WITH THE ACCRUAL OF INTEREST ON SECURITY DEPO SIT. HE DREW THE ATTENTION OF THE BENCH TO PAGE-235 OF THE ASSESSEES PAPER BO OK WHICH IS THE LETTER WRITTEN BY MPEB TO THE ASSESSEE COMPANY ON 26 TH APRIL 1999, WHEREIN IT IS STATED THAT THE MATURED AMOUNT HAS BEEN REINVESTED FOR A FURTHER PERIOD OF SIX MONTHS AND THAT THE INTEREST EARNED IS @ 9%. HE SUBMITS THAT THIS LETTER CLEARLY PROVES THAT THE ASSESSEE HAS RECEIVED INTER EST INCOME AND THAT INTEREST INCOME HAS ACCRUED TO THE ASSESSEE. ACCORD ING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THIS LETTER IS PROOF E NOUGH TO DISMISS THE CLAIM OF THE ASSESSEE THAT THERE IS NO ACCRUAL OF INCOME. FURTHER, HE REFERRED TO PAGE-222 OF THE ASSESSEES PAPER BOOK WHICH IS A LE TTER DATED 24 TH SEPTEMBER 1998, WRITTEN BY THE ASSESSEE TO THE CHAI RMAN, MPEB, TO POINT M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 10 OUT THAT IT WAS THE ASSESSEE WHO DISPUTED THE TERMS AND CONDITIONS OF THE ESCROW AGREEMENT. HE FURTHER RELIED ON PAGE-226 OF THE ASSESSEES PAPER BOOK WHICH IS THE LETTER DATED 24 TH OCTOBER 1998, WRITTEN BY THE ASSESSEE TO MPEB AGAIN TO DEMONSTRATE THAT THE DISPUTE ON ESCRO W ACCOUNT WAS BECAUSE OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIV E REFERRED TO THE ORDER OF THE ASSESSING OFFICER AND SUBMITS THAT THE DECIS ION OF THE HIGH COURT WERE IN FAVOUR OF THE ASSESSEE AND THIS WAS NOT VACATED AND THAT BY VIRTUE OF THESE JUDGMENTS, INTEREST HAS ACCRUED TO THE ASSESS EE. HE ARGUED THAT FORGOING OF THE DEPOSIT BY THE ASSESSEE COMPANY WAS ONLY A COMMERCIAL DECISION AND GIVING UP DEPOSIT AT A LATER DATE, IN NO WAY EFFECTS THE EARLIER ACCRUAL OF INCOME. HE RELIED ON THE FOLLOWING CASE LAWS:- I) CIT V/S TOSHOKU LTD. (1980) 125 ITR 525 (SC); II) CIT V/S GOVIND PRASAD PRABHUNATH, (1988) 171 IT R 417 (ALL.); III) CIT V/S ANNAPURANI VEERAPPAN, (1994) 193 ITR 4 26 (MAD.) IV) CIT V/S CONFINANCE LTD., (1973) 89 ITR 292 (BOM .); AND V) BABULAL NAROTTAMDAS & ORS. V/S CIT, (1991) 187 I TR 473 (SC) 22. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE ALTERNA TIVE CONTENTIONS MADE BY THE LEARNED SR. COUNSEL, SUBMITS THAT THERE IS NO NEXUS BETWEEN THE INTEREST INCOME EARNED AND THE EXPENDITURE INCU RRED FOR THE COST OF CONSTRUCTION. HE RELIED ON THE ORDER OF THE COMMISS IONER (APPEALS) AND POINTS OUT THAT THE SECURITY DEPOSIT WAS PLACED MUC H BEFORE THE COMMENCEMENT OF CONSTRUCTION AND UNDER THESE CIRCUM STANCES, NO SET-OFF AS CLAIMED CAN BE GIVEN. 23. IN REPLY, THE LEARNED SR. COUNSEL, SUBMITS THAT THE LETTER DATED 26 TH APRIL 1999, SIMPLY STANDS THAT THE FIXED DEPOSIT AM OUNT OF MPEB HAS BEEN REINVESTED ON MATURITY AND THAT NOTHING TURNS ON TH IS ISSUE. SIMILARLY, HE SUBMITS THAT LETTERS DATED 24 TH SEPTEMBER AND 24 TH OCTOBER 1998, DO NOT HELP THE CASE OF THE REVENUE, AS THEY RELATE TO NEG OTIATION ON CERTAIN M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 11 CONDITIONS IN THE ESCROW AGREEMENT. HE DISTINGUISHE D THE CASE LAWS CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. 24. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS F OLLOWS:- I) THE SOLE ISSUE THAT ARISES FOR OUR ADJUDICATION IS, WHETHER OR NOT THE ASSESSEE HAD A RIGHT TO RECEIVE INTEREST UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. IF THE ASSESSEE HAS NO RIGHT TO RECEIVE I NTEREST, THEN, IT CANNOT BE HELD THAT THE INTEREST HAS ACCRUED. THIS PRINCIPLE IS WELL SETTLED BY A NUMBER OF JUDGMENTS, SOME OF WHICH ARE GIVEN BELOW:- '1. CIT VS. A. GAJAPATHY NAIDU, 58 ITR 114 (SC) (PA GE-1 OF D) - IN THIS CASE THE ASSESSEE SUPPLIED BREAD TO A GOVERNME NT HOSPITAL DURING THE PERIOD 1ST APRIL, 1948 TO 31ST MARCH, 1949. AFT ER THE CLOSE OF THE YEAR THE ASSESSEE REPRESENTED TO GOVERNMENT THAT HE HAD INCURRED LOSS. THE GOVERNMENT PAID COMPENSATION FOR THE LOSS WHICH WAS RECEIVED DURING ACCOUNTING YEAR 1950-51 RELEVANT TO ASST. YR. 1951- 52. IT WAS HELD THAT THE SAID PROFIT IS TO BE INCLU DED IN ASST. YR. 1951- 52 AND COULD NOT BE RELATED BACK TO EARLIER YEAR DU RING WHICH THE ASSESSEE ACTUALLY SUPPLIED THE BREAD. IT WAS ALSO H ELD THAT IF THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING I T IS TO BE SEEN AS TO WHEN THE RIGHT TO RECEIVE, ACCRUED. THE INCOME I S ASSESSABLE IN THE YEAR IN WHICH THE RIGHT TO RECEIVE ACCRUED. 2. CIT VS. ASHOKBHAI CHIMANBHAI, 56 ITR 42 (SC) (PA GE-10 OF D) IT WAS HELD THAT THE WORDS 'ACCRUE' AND 'ARISE' ARE US ED TO CONTRA- DISTINGUISH THE WORD 'RECEIVE'. INCOME IS SAID TO B E RECEIVED WHEN IT REACHES THE ASSESSEE; WHEN RIGHT TO RECEIVE THE INC OME BECOMES VESTED IN THE ASSESSEE, IT IS SAID TO ACCRUE OR ARI SE. INCOME BECOMES TAXABLE ON ACCRUAL ONLY AFTER THE RIGHT OF THE ASSE SSEE TO THE INCOME ACCRUES OR ARISES AND IN THE CASE OF AN AGREEMENT W HICH MAKES PROFITS RECEIVABLE AT OR ON THE HAPPENING OF A CONTINGENCY, THE INCOME WOULD ACCRUE ONLY AFTER THE EVENT OF THE CONTINGENCY TAKE S PLACE. 3. SETH PUSHALAL MANSINGHKA (P) LTD. VS. CIT, 66 IT R 159 (SC) - THE WORDS 'ACCRUE' AND 'ARISE' DO NOT MEAN ACTUAL RECEI PT OF THE PROFITS. BOTH THESE WORDS ARE USED IN CONTRA-DISTINCTION TO THE WORD 'RECEIVE' AND INDICATE A 'RIGHT TO RECEIVE'. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THE INCOME CAN BE SAID TO ACCRU E TO HIM, THOUGH IT MAY BE RECEIVED LATER ON ITS BEING ASCERTAINED. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 12 II) TO COME TO THE CONCLUSION WHETHER THE ASSESSEE HAS A RIGHT TO RECEIVE INTEREST OR NOT, WE HAVE TO EXAMINE THE FACTS, TERM S AND THE DISPUTE BETWEEN THE ASSESSEE AND MPEB. III) THE MPEB IN ITS LETTER BEARING NO.07-11/IPC/995, DA TED 24 TH JULY 1998, VIDE PARA-3, STATED AS FOLLOWS:- THE IPPS WILL ALSO BE REQUIRED TO PAY ALONG WITH TH E ABOVE OFFER A SECURITY DEPOSIT EQUAL TO AN AMOUNT OF 2% OF THE PR OJECT COST AS APPROVED IN THE TEC, WHICH IN THE CASE OF YOUR PROJ ECT COMES TO ` 26,12,044 CRORES, THROUGH A DEMAND DRAFT DRAWN ON A NY SCHEDULED COMMERCIAL BANK IN FAVOUR OF REGIONAL ACCOUNTS OFFI CER (CAU), MPEB, JABALPUR. NO BANK GUARANTEE SHALL BE ACCEPTED. THIS AMOUNT SHALL BE KEPT AS A FIXED DEPOSIT INITIALLY FOR A PERIOD OF S IX MONTHS AS A SECURITY TOWARDS ACHIEVING FINANCIAL CLOSURE. THIS SECURITY DEPOSIT IS BEING TAKEN AS A COMMITMENT FROM IPPS TO ACHIEVE FINANCIAL CLOS URE WITHIN TWO MONTHS OF PROVIDING A BANKABLE ESCROW AGREEMENT FOR M TO BE EXECUTED BY THE IPPS, FAILING WHICH THE SECURITY DEPOSIT WIL L BE FORFEITED. ON ACHIEVING FINANCIAL CLOSURE, WITHIN THE ABOVE MENTI ONED PERIOD, THE SECURITY DEPOSIT WILL BE RELEASED TO THE IPPS ALONG WITH INTEREST ACCRUED . THE INTEREST RATE SHALL BE COMPUTED AS PER RATE GIV EN BY SBI FOR FIXED DEPOSITS FOR THE CONCERNED MATURITY PERIOD. [EMPH ASIS OWN] IV) TO MAKE THINGS MORE CLEAR, AT PAGE-191 OF THE ASSES SEES PAPER BOOK, MPEB, VIDE ITS LETTER NO.07-11/IPC-GEN./ESCROW-1215 DATED 4 TH SEPTEMBER 1998, STATES AS FOLLOWS:- (1) FINANCIAL CLOSURE HAS TO BE ACHIEVED BY YOU WITHIN TWO (2) MONTHS FROM THE DATE OF PROVIDING A BANKABLE DRAFT ESCROW AGREEMENT. (2) IN CASE OF FINANCIAL CLOSURE IS NOT ACHIEVED BY YOU WITHIN THE SPECIFIED PERIOD OF 2 MONTHS, THEN THE SECURITY AMO UNT DEPOSITED BY YOU ALONG WITH YOUR OFFER UNDER REFERE NCE WILL BE FORFEITED AND THE ALLOTMENT OF ESCROW PROTECTION WI LL STAND CANCELLED. V) FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE WOULD HAVE A RIGHT TO RECEIVE THE DEPOSIT ALONG WITH INTEREST ONLY ON ACH IEVING FINANCIAL CLOSURE. IN OTHER WORDS, IF FINANCIAL CLOSURE IS NOT ACHIEVED, THE ASSESSEE HAS NO RIGHT TO RECEIVE BACK THE SECURITY DEPOSIT, LET ALONE THE IN TEREST THEREON. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 13 VI) WE HAVE TO ALSO SEE THE MANNER IN WHICH THE MPEB UN DERSTOOD THEIR COMMITMENT TO RETURN THE DEPOSIT ALONG WITH THE INT EREST. AT PAGE-237 OF THE PAPER BOOK, MPEB, VIDE LETTER DATED 22 ND SEPTEMBER 1999, HAS INFORMED THE ASSESSEE COMPANY THAT IT IS NOT POSSIBLE TO RETURN THE SECURITY DEPOSIT. AT PAGE-243 OF THE PAPER BOOK, VIDE LETTER DATED 8 TH APRIL 2000, MPEB STATES THAT ESCROW AGREEMENT FOR THE PROJECT WILL BE EXECU TED ONLY AFTER ACHIEVING FINANCIAL CLOSURE BY THE ASSESSEE. THE ASSESSEE ALS O FILED COPY OF LETTERS FROM ITS BANKERS TO DEMONSTRATE THAT THEY WERE DEMANDING BANKABLE ESCROW AGREEMENT. AT PAGE-252 OF THE PAPER BOOK, IS A LEGA L NOTICE ISSUED BY THE ADVOCATES OF THE ASSESSEE COMPANY M/S. AMARCHAND MA NGALDAS, ON 29 TH OCTOBER 2001, CALLING UPON MPEB TO IMMEDIATELY RETU RN THE SECURITY DEPOSIT ALONG WITH INTEREST FOR THE REASON THAT MPEB HAS FA ILED TO EXECUTE THE BANKABLE ESCROW AGREEMENT DESPITE REPEATED REQUESTS AND EFFORTS OF THE ASSESSEE. IN RESPONSE TO THE NOTICE ISSUED BY THE A SSESSEE COMPANYS ADVOCATES, MPEB, VIDE LETTER DATED 17 TH JANUARY 2002, REPLIED AS FOLLOWS:- .. YOU WILL APPRECIATE THAT IN OUR LETTER DATED 2 .4.98, THERE WAS NO SUCH CONDITION TO EXECUTE ESCROW AGREEMENT PRIOR TO FINANCIAL CLOSURE. IT IS EVIDENT FROM THE ABOVE THAT IT WAS A FAILURE ON THE PART OF YOUR CLAINET THAT EVEN AFTER SELECTION FOR ESCROW AND PR OVIDING ESCROW AGREEMENT FORM THEY COULD NOT ACHIEVE FINANCIAL CLO SURE TILL DATE. AS MAY BE SEEN FROM THE ABOVE MPEB HAS EXTENDED ALL POSSIBLE HELP TO M/S. BPSCL FOR ACHIEVING FINANCIAL CLOSURE. HOWEVER , EVEN AFTER FULFILLING THE REQUIREMENT OF LETTER DATED 24.7.98, YOUR CLIENT FAILED TO ACHIEVE FINANCIAL CLOSURE TILL DATE. THIS HAS CAUSE D AN ACUTE SHORTAGE OF POWER IN THE STATE. THE SECURITY DEPOSIT OF ` 52.24 CRORES WAS OBTAINED BY WAY OF FIRM COMMITMENT TO ACHIEVE FINAN CIAL CLOSURE BY M/S. BPSCL WITHIN 2 MONTHS OF PROVIDING BANKABLE ES CROW AGREEMENT FORM. THE CONDITIONS OF LETTER DATED 24.7.98 HAVE A LREADY BEEN FULFILLED BY MPEB AND IT IS FAILURE ON THE PART OF YOUR CLIEN T TO ACHIEVE FINANCIAL CLOSURE TILL DATE. THUS, THE CLAIM OF M/S. BPSCL FO R REFUND OF SECURITY DEPOSIT AT THIS STAGE IS NOT IN ORDER. WHEN YOUR PR OJECT HAS ALREADY GOT PRIORITY FOR ESCROW COMFORT AS PER PPA HENCE ASKING FOR REFUND OF SD AT THIS STAGE MAY DEFEAT PURPOSE OF GRANT OF PRIORITY TO YOUR PROJECT. IT IS, THEREFORE, REQUESTED TO ADVISE YOUR CLIENT TO ACHIE VE FINANCIAL CLOSURE AS PER LETTER DATED 24.7.98 IMMEDIATELY WITHIN 30 D AYS FROM THE DATE OF THIS LETTER OTHERWISE 2% SECURITY DEPOSIT WILL B E FORFEITED. PUBLIC IS SUFFERING BADLY DUE TO NON-ADDITION OF POWER GENERA TING CAPACITY IN THE STATE FOR WHICH YOUR CLIENT IS EQUALLY RESPONSIBLE. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 14 V) MPEB, VIDE THEIR LETTER DATED 13 TH JULY 2002, FORFEITED THE SECURITY DEPOSITS. IT CONCLUDED AS FOLLOWS:- MPEB OFFERED VARIOUS WORKABLE ALTERNATIVES TO BINA POWER TO RESOLVE THE ISSUE SO THAT THE WORK ON POWER PROJECT MAY STA RT BUT THERE WAS NO POSITIVE RESPONSE OF BINA POWER ON ANY OF THE AL TERNATIVES. IT APPEARS THAT BINA POWER ARE NOT INTERESTED IN EXECU TION OF PROJECT AND ARE ONLY INTERESTED IN REFUND OF THEIR S.D. WHICH I S NOT AS PER CONTRACT HENCE THERE IS NO OPTION LEFT WITH MPEB EXCEPT TO P ASS THIS ORDER TO FORFEIT S.D. OF M/S. BINA POWER. THUS, MPEB WAS OF THE OPINION THAT THE ASSESSEE HA S NO RIGHT TO RECEIVE EITHER THE SECURITY DEPOSIT OR THE INTEREST THEREON. VI) THE ASSESSEE CHALLENGED THE FORFEITURE IN A WRIT PE TITION FILED BEFORE THE M.P. HIGH COURT, WHEREIN THE COURT, VIDE ORDER DATED 13 TH MAY 2003, HELD AS FOLLOWS:- 19. IN THE RESULT, THIS PETITION IS ALLOWED. THE OR DER OF THE RESPONDENT M.P. ELECTRICITY BOARD (OR THE M.P. STAT E ELECTRICITY BOARD) DATED 13 TH JULY 2002, FORFEITING THE SECURITY DEPOSIT OF ` 52.24 CRORES OF THE PETITIONER IS QUASHED. THE BOARD IS DIRECTED TO PROVIDE BANKABLE ESCROW AGREEMENT TO THE PETITIONER COMPA NY IN ITS TRUE SPIRIT AS ENVISAGED IN ITS LETTERS DATED 24 TH JULY 1998 AND 4 TH SEPTEMBER 1998. THIS WILL BE DONE WITHIN TWO MONTHS OF THE DATE OF THIS ORDER. THE BOARD WILL GET THIS AGREEMENT APPRO VED BY THE STATE BANK OF INDIA. THE BOARD WILL MADE ALL POSSIBLE EFF ORTS WITH THE ASSISTANCE OF THE STATE GOVERNMENT TO OBTAIN THE CL EARANCES OF THE STATE BANK OF INDIA, FOR THIS PROJECT. ON FURNISHIN G OF THEBANKABLE ESCROW AGREEMENT, BY THE BOARD WITH THE CLEARANCE OF THE STATE BANK OF INDIA, WITHIN TWO MONTHS OF THE DATE OF THIS ORD ER TO THE PETITIONER COMPANY, THE PETITIONER COMPANY WILL OBTAIN THE FIN ANCIAL CLOSURE FROM ITS BANKER OR FINANCIAL INSTITUTION WITHIN THE NEXT TWO MONTHS. IT IS FURTHER DIRECTED THAT IF FOR ANY REASON THIS ARRANG EMENT DOES NOT MATERIALISE THE RESPONDENTS NO.2 AND 3 WILL REFUND THE AMOUNT OF SECURITY DEPOSIT OF ` 52..24 CRORES TO THE PETITIONER COMPANY WITH ACCRUED INTEREST. THE RESPONDENTS NO.4 AND 5 HAVE B EEN IMPLEDED BUT NO RELIEF HAS BEEN CLAIMED AGAINST THEM AND THEY HA VE NO LIABILITY IN THE PRESENT CASE AND, THEREFORE, THEY ARE DISCHARGE D. VII) THEREAFTER, ON 20 TH FEBRUARY 2004, THE TIME MENTIONED IN PARA-19 ABOVE, WAS EXTENDED UP TO 31 ST MARCH 2004 BY THE HONBLE HIGH COURT. THUS, M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 15 UP TO 31 ST MARCH 2004, THE ASSESSEE HAD NO RIGHT TO RECEIVE B ACK THE SECURITY DEPOSIT OR THE INTEREST THEREON AS IT WAS THE DECIS ION OF MPEB THAT THE ASSESSEE IS NOT ENTITLED TO THE SAME FOR THE REASON THAT, IT HAS NOT ACHIEVED FINANCIAL CLOSURE. THEREAFTER, THE WRIT APPEAL WAS FILED WHICH WAS ULTIMATELY DISMISSED ON THE ISSUE OF JURISDICTION AND THE MATT ER WAS FINALLY PENDING BEFORE THE HON'BLE SUPREME COURT. THE DIVISION BENC H OF THE HONBLE HIGH COURT HAD GIVEN THE FOLLOWING INTERIM DIRECTIONS IN ITS ORDER DATED 5 TH AUGUST 2004, WHEN THE MATTER WAS PENDING BEFORE IT. IN THE BACKGROUND OF THE FACTS OF THIS CASE AND RIV AL CONTENTIONS AND TO SAFEGUARD THE INTEREST OF BOTH THE PARTIES, WE C ONSIDER THIS A FIT CASE FOR STAYING THE FINAL ORDER OF THE LEARNED SINGLE J UDGE , BUT SUBJECT TO FOLLOWING TERMS: A) THE APPELLANT SHALL DEPOSIT IN ALL A SUM OF ` 25 CRORES (RUPEES TWENTY FIVE CRORES) WITH THE REGISTRAR (JUDICIAL) O F THIS COURT AT THE RATE OF ` 5.00 CRORES (RUPEES FIVE CRORES) PER MONTH COMMENCING FROM 1.9.2004. THIS DEPOSIT SHOULD BE MA DE UNDER THE NOTICE OF THE FIRST RESPONDENT. B) THE FIRST RESPONDENT WIL LBE AT LIBERTY TO WITHDRAW THE AMOUNT DEPOSITED BY THE APPELLANT AS PER CLAUSE (A) ABOVE AS AND WHEN DEPOSITED BY THE APPELLANT, BY FURNISHING AN UNCOND ITIONAL BANK GUARANTEE OF THE NATIONALISED BANK IN FAVOUR OF THE COURT (REPRESENTED BY REGISTRAR GENERAL) OF THIS COURT) F OR REPAYMENT IN THE EVENT OF APPELLANTS SUCCESS IN THE APPEAL. C) IN ADDITION TO THE DEPOSIT OF ` 25 CRORES, AS AFORESAID, THE APPELLANT BOARD SHALL FURNISH AN UNCONDITIONAL BANK GUARANTEE OF A NATIONALISED BANK FOR ` 50 CRORES (RUPEES FIFTY CRORES) IN FAVOUR OF THE COURT (REPRESENTED BY REGISTRAR GENER AL) WITHIN A PERIOD OF TWO MONTHS FROM TODAY. D) THE DEPOSIT BY THE APPELLANT AND WITHDRAWAL THEREOF BY THE FIRST RESPONDENT AND COMPLIANCE WITH THE OTHER TERMS OF T HIS ORDER, WILL BE WITHOUT PREJUDICE AND SUBJECT TO FINAL ORDE RS OF THIS COURT IN THE LETTERS PATENT APPEAL. LIST THE MATTER ON 17.8.2004, AT REQUEST. [EMPHASI S OWN] VIII) THESE INTERIM DIRECTIONS WERE DIRECTED TO BE IN FOR CE SUBJECT TO ANY ORDER THAT MAY BE PASSED BY THE HON'BLE SUPREME COU RT IN THE PROPOSED SPECIAL LEAVE PETITION AS THE HONBLE HIGH COURT HA D DISMISSED THE WIRT M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 16 APPEAL ON THE GROUND THAT IT IS NOT MAINTAINABLE. T HE HON'BLE SUPREME COURT HELD THAT THE INTERIM ORDER GRANTED BY THE HIGH COU RT, AS EXTRACTED ABOVE, WOULD CONTINUE UP TILL FURTHER ORDER, VIDE ITS JUDG MENT DATED 10 TH FEBRUARY 2006. THEREAFTER, DUE TO CHANGE IN THE MANAGEMENT O F THE ASSESSEE COMPANY, THERE WERE FRESH NEGOTIATIONS AND IN THE M INUTES OF THE FIRST MEETING HELD ON 17 TH JUNE 2008, BETWEEN THE GOVT. OF MADHYA PRADESH, MPEB, AND THE ASSESSEE COMPANY, IT WAS DECIDED AS F OLLOWS:- III) COMPANY AGREED TO SETTLE ALL THE PENDING COURT DISPUTES BETWEEN BEENA POWER SUPPLY COMPANY AND MADHYA PRADE SH STATE ELECTRICITY BOARD, BY ARRIVING AT AN OUT-OF-COURT S ETTLEMENT AND FOR THIS PURPOSE A SUM OF ` 52.24 CRORES WHICH WAS LYING DEPOSITED IN THE STATE ELECTRICITY BOARD AS SECURITY AMOUNT, SHALL B E FORFEITED BY THE STATE ELECTRICITY BOARD AND THEREAFTER THERE WILL B E NO LIABILITY OF ANY TYPE ON THE STATE ELECTRICITY BOARD . IT WAS FURTHER AGREED THAT A SUM OF ` 25 CRORES WHICH WAS WITHDRAWN BY BEENA POWER SUPPL Y COMPANY IN COMPLIANCE TO THE ORDER OF THE HONBLE HGIH COURT O F MADHYA PRADESH AT JABALPUR, WILL NOW BE REFUNDED TO THE STATE ELEC TRICITY BOARD. IT WAS FURTHER AGREED THAT A SUM OF ` 50 CRORES WHICH HAS BEEN DEPOSITED BY STATE ELECTRICITY BOARD, IN THE HONBLE HIGYH COURT OF MADHYA PRADESH AT JABALPUR, AS BANK GUARANTEE, WILL NOW BE WITHDRA WN IN FAVOUR OF THE BOARD. [EMPHASIS OWN] AFTER ALL THE AMOUNTS MENTIONED HEREIN ABOVE ARE RE FUNDED BY BEENA POWER SUPPLY COMPANY TO THE MPEB, NECESSARY PROCEED INGS WILL BE INITIATED BY THE PARTIES TO WITHDRAW ALL THE CASES PENDING IN THE COURTS AND RECOMMENDATIONS WILL ALSO BE MADE BY THE STATE GOVT. TO ALLOT COAL TO THE COMPANY. IX) FROM THE ABOVE, IT IS VERY CLEAR THAT THOUGH THE CO MPANY HAD MADE CLAIMS FOR REFUND OF SECURITY DEPOSIT WITH INTEREST , MPEB HAS NOT AGREED WITH THE VIEW AND THE MATTER WAS BEFORE THE COURT. THE J UDGMENT OF THE HONBLE M.P. HIGH COURT IN THE WRIT PETITION WAS STAYED BY THE HON'BLE SUPREME COURT. PARTIAL WITHDRAWAL ALLOWED BY THE COURT AGAI NST FURNISHING OF BANK GUARANTEE IS AN INTERIM RELIEF AND INCOME CANNOT BE SAID TO HAVE ACCRUED. THE ASSESSEE HAD NO RIGHT TO RECEIVE THE INTEREST. THERE IS NO REAL INCOME. IN OUR CONSIDERED OPINION, THE ISSUE IN THIS CASE IS C LEARLY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. (S UPRA). IN THIS CASE, THE M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 17 ASSESSEE COMPANY WHICH HAD A LICENSE TO GENERATE AN D SUPPLY ELECTRICITY, ENHANCED THE CHARGES FOR ELECTRICITY. THIS ENHANCEM ENT WAS CHALLENGED IN THE COURTS AND ULTIMATELY, THE HON'BLE SUPREME COUR T UPHELD THE ENHANCEMENT. THE ASSESSEE HAD PASSED ENTRIES IN ITS BOOKS OF ACCOUNT TREATING THE INCREASED CHARGES AS ITS INCOME. SHORT LY THEREAFTER, THE UNDER SECRETARY TO THE GOVT. OF GUJARAT WROTE A LETTER TO THE COMPANY ADVISING IT TO MAINTAIN STATUS QUO FOR THE RATES TO THE CONSUMERS. WHILE DOING SO, THE CONSUMERS ALSO FILED A REPRESENTATIVE SUIT WHEREIN AN INTERIM INJUNCTION WAS GRANTED AND, THEREAFTER, FINALLY, DECREED IN FAVOUR OF THE CONSUMERS BY THE LOWER COURT. ON THESE FACTS, THE HON'BLE SUPREME CO URT HELD THAT SINCE THE ASSESSEE WAS NOT ABLE TO COLLECT ENHANCED CHARGES, NECESSARY ENTRIES MADE IN ITS BOOKS OF ACCOUNT REPRESENTED ONLY HYPOTHETIC AL INCOME AND IT COULD NOT BE BROUGHT TO TAX AS IT DID NOT REPRESENT INCOME WH ICH HAD REALLY ACCRUED EVEN THOUGH THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING. AT PARA-12, THE HON'BLE SUPREME COURT NOTED THAT THE L ETTERS ADDRESSED TO THE UNDER SECRETARY TO THE GOVT. OF GUJARAT, HAD NO LEG AL BINDING EFFECT. IT HELD THAT ONE HAS TO LOOK AT THINGS FROM PRACTICAL POINT OF VIEW AND THE DIRECTIONS OF THE STATE GOVT. WHICH IS COUCHED IN THE FORM OF AN ADVICE CANNOT BE IGNORED. AT PARA-14, THE COURT HELD AS FOLLOWS:- 9. THE QUESTION WHETHER THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY HAS TO BE CONSIDERED BY TAKING THE PROB ABILITY OR IMPROBABILITY OF REALISATION IN A REALISTIC MANNER. IF THE MATTER IS CONSIDERED IN THIS LIGHT, IT IS NOT POSSIBLE TO HOL D THAT THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPEC T OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WERE ADDED BY THE ITO WHILE PASSING THE ASSESSMENT ORDERS IN RESPECT OF THE ASS ESSMENT YEARS UNDER CONSIDERATION. THE AAC WAS RIGHT IN DELETING THE SAID ADDITION MADE BY THE ITO AND THE TRIBUNAL HAD RIGHTLY HELD T HAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASSESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX B Y THE ITO DID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED T O THE ASSESSEE- COMPANY DURING THE RELEVANT PREVIOUS YEARS. THE HIG H COURT, IN OUR OPINION WAS IN ERROR IN UPSETTING THE SAID VIEW OF THE TRIBUNAL. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 18 X) APPLYING THE PRINCIPLES TO THE CASE ON HAND, MPEB A ND M.P. STATE GOVT. WERE FIRMLY OF THE VIEW THAT THE ASSESSEE WAS NOT E NTITLED TO REFUND OF THE SECURITY DEPOSIT. WHILE SO, TO HOLD THAT REAL INCOM E HAS ACCRUED TO THE ASSESSEE BY WAY OF INTEREST ON THE SECURITY DEPOSIT , WOULD NOT BE CORRECT. XI) HON'BLE SUPREME COURT E.D. SASSOON & COMPANY LTD. ( SUPRA), HAD LAID DOWN THAT INCOME WOULD ACCRUE OR ARISE ONLY IF THE ASSESSEE ACQUIRED THE RIGHT TO RECEIVE INCOME. THE HON'BLE JURISDICTIONAL HIGH COURT IN FGP LIMITED (SUPRA), WAS CONSIDERING THE CASE WHERE CERTAIN AMO UNTS WERE PAYABLE TO THE ASSESSEE UNDER A ROYALTY AGREEMENT. NO AMOUNT W AS RECEIVED BY THE ASSESSEE TILL DATE, PURSUANT TO ROYALTY AGREEMENT A S THERE WAS A DISPUTE BETWEEN THE PARTIES AND ARBITRATION PROCEEDINGS ARE BEING PROCEEDED WITH. UNDER THESE CIRCUMSTANCES, THE HON'BLE JURISDICTION AL HIGH COURT APPLIED THE DECISION OF HON'BLE SUPREME COURT IN GODHRA ELECTRI CITY CO. LTD. (SUPRA) AND HELD THAT IN THE INSTANCE CASE, THERE IS NO REAL AC CRUAL OF INCOME AS THERE IS A DISPUTE BETWEEN THE PARTIES IN THE RELEVANT ASSESSM ENT YEAR AND THAT THE INCOME RECEIVED BY THE ASSESSEE WILL BE LIABLE TO B E ASSESSED ONLY WHEN THE ARBITRAL PROCEEDINGS COME TO AN END. XII) APPLYING THESE PRINCIPLES TO THE FACTS OF THE CASE, WE HAVE TO HOLD THAT AS THERE WAS A DISPUTE BETWEEN THE PARTIES, AND AS THE MATTER WAS IN THE SUPREME COURT, NO REAL INCOME ACCRUED TO THE ASSESS EE. FINALLY ALSO, AS THE DEPOSIT HAS BEEN FORFEITED FOR WHATEVER REASON, THE RE WAS NO ACCRUAL OF INCOME. THE FACT REMAINS THAT, AT NO POINT OF TIME, MPEB OR M.P. STATE GOVT. HAVE AGREED WITH THE DEMAND OF THE ASSESSEE FOR RET URN OF THE DEPOSIT WITH INTEREST. THE CASES WERE WITHDRAWN FROM THE SUPREME COURT ONLY BECAUSE THE FORFEITURE WAS ACCEPTED BY THE ASSESSEE. THE VI EW OF THE ASSESSING OFFICER THAT THE FORFEITURE WAS ACCEPTED ON DIFFERE NT COMMERCIAL CONSIDERATION AND HENCE, THERE IS AN ACCRUAL OF INC OME PRIOR TO SUCH ACCEPTANCE, IN OUR VIEW, IS INCORRECT AS THE DISPUT E WAS PENDING IN THE COURTS. THE ORDER OF THE SINGLE JUDGE OF THE HONBL E M.P. HIGH COURT WAS M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 19 STAYED, HENCE, THERE WAS NO ENFORCEABLE RIGHT TO TH E ASSESSEE FOR ALL THESE YEARS. XIII) HON'BLE SUPREME COURT IN HINDUSTAN HOUSING & LAND D EVELOPMENT TRUST LTD. (SUPRA), WAS CONSIDERING THE CASE WHERE CERTAIN LAND BELONGING TO THE ASSESSEE COMPANY WAS ACQUIRED BY THE GOVT. AND COMPENSATION AWARDED. THE QUANTUM OF COMPENSATION WAS UNDER DISP UTE. THE HIGH COURT DIRECTED THE GOVT. TO DEPOSIT CERTAIN AMOUNTS DURIN G THE PENDENCY OF THE DISPUTE AND THE ASSESSEE WAS ALLOWED TO WITHDRAW TH E SAME BY FURNISHING SECURITY. THE HON'BLE SUPREME COURT HELD THAT SINCE THE AMOUNT WAS IN DISPUTE, THE AMOUNT OF ENHANCED COMPENSATION CANNOT BE BROUGHT TO TAX. AT PARA-6 OF THE ORDER, IT HELD AS FOLLOWS:- 6. THE LEGAL POSITION WAS EXPLAINED IN FURTHER DET AIL BY THE GUJARAT HIGH COURT IN TOPANDAS KUNDANMAL VS. CIT 1976 CTR ( GUJ) 507 : (1978) 114 ITR 237 (GUJ). THE HIGH COURT WAS CALLED UPON TO DECIDE WHETHER THE RIGHT TO RECEIVE THE ENHANCED COMPENSAT ION UNDER THE LAND ACQUISITION ACT ACCRUED OR AROSE TO THE ASSESS EE WHEN HE SOUGHT A REFERENCE UNDER S. 18 OF THE ACT OR WHEN THE AWAR D WAS MADE BY THE CIVIL JUDGE ALTHOUGH AN APPEAL WAS PENDING AGAINST THAT AWARD. THE LEARNED JUDGES REFERRED TO THE NATURE OF AN AWARD M ADE BY THE COLLECTOR, AND ADVERTING TO THE OPINION OF THIS COU RT IN RAJA HARISH CHANDRA RAJ SINGH VS. DEPUTY LAND ACQUISITION OFFIC ER (1962) 1 SCR 676 : AIR 1961 SC 1500, THAT THE AWARD MADE BY THE COLLECTOR WAS MERELY AN OFFER OR TENDER OF THE COMPENSATION DETER MINED BY THE COLLECTOR TO THE OWNER OF THE PROPERTY ON THE ACQUI SITION, THE HIGH COURT OBSERVED : '........THE LEGAL POSITION WHICH EMERGES IS THAT T HERE IS NO LIABILITY IN PRAESENTI TO PAY AN ENHANCED COMPENSATION TILL IT I S JUDICIALLY DETERMINED BY THE FINAL COURT SINCE THE ENTIRE QUES TION, NAMELY, WHETHER THE OFFER MADE BY THE LAND ACQUISITION OFFI CER IS INADEQUATE AND THE CLAIMANT IS ENTITLED TO AN ADDITIONAL COMPE NSATION AND IF YES, AT WHAT RATE IS IN FLUX TILL THE QUESTION IS SET AT REST FINALLY, WE DO NOT THINK THAT ANY ENFORCEABLE RIGHT TO A PARTICULAR AM OUNT OF COMPENSATION ARISES. THE OFFER MADE BY THE LAND ACQ UISITION OFFICER, BY HIS AWARD, IF NOT ACCEPTED BY A CLAIMANT WOULD N OT RESULT AUTOMATICALLY IN A LIABILITY TO PAY ADDITIONAL COMP ENSATION AS CLAIMED BY A PARTY AGGRIEVED. THERE IS NO DOUBT A LIABILITY TO PAY A COMPENSATION AS OFFERED BY THE LAND ACQUISITION OFF ICER. BUT THAT IS FAR FROM SAYING THAT THAT LIABILITY IS A LIABILITY TO P AY ADDITIONAL COMPENSATION OR ENHANCED COMPENSATION AS CLAIMED BY A PARTY AGGRIEVED. IF THERE IS AN EXISTING LIABILITY, THE M ERE FACT THAT THE PAYMENT IS POSTPONED TO THE FUTURE WOULD NOT DETRAC T THAT LIABILITY M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 20 FROM BECOMING A DEBT BUT THE LIABILITY TO PAY UNLIQ UIDATED DAMAGES OR ADDITIONAL COMPENSATION WHICH ARE INCHOATE OR CONTI NGENT WOULD NOT CREATE A DEBT.' XIV) THIS JUDGMENT ALSO APPLIES ON ALL FOURS TO THE FACT S OF THE CASE. FOR ALL THE ASSESSMENT YEARS IN QUESTION, THE ISSUE WAS BEF ORE THE HON'BLE SUPREME COURT AND WAS SUBJUDICE. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE WAS A FINAL DETERMINATION OF THE RIGHTS. IN S UCH A SITUATION, THE DISPUTED INCOME CANNOT BE BROUGHT TO TAX ON THE GRO UND THAT THERE IS ACCRUAL OF INCOME. XV) NOW, WE CONSIDER THE CASE LAWS RELIED UPON BY THE L EARNED DEPARTMENTAL REPRESENTATIVE. XVI) THE HON'BLE SUPREME COURT IN TOSHOKU LTD. (SUPRA), WAS CONSIDERING THE CASE WHERE THE DEALERS IN TOBACCO IN INDIA EXPO RTED TO JAPAN AND FRANCE THROUGH A NONRESIDENT SALES AGENT. THE EXCLUSIVE SA LES AGENT WAS ENTITLED TO A COMMISSION OF 3% OF INVOICE AMOUNT. THE INVOICE A MOUNT WAS REMITTED TO INDIA AND THE INDIAN DEALER DEBITED HIS COMMISSION ACCOUNT AND CREDITED THE AMOUNT OF COMMISSION PAYABLE TO JAPANESE COMPANY WH ICH IS THE SALES AGENT. IN HIS ACCOUNT BOOK AND LATER REMITTED THE A MOUNT TO THE JAPANESE COMPANY. THE QUESTION WAS, WHETHER THE COMMISSION E ARNED BY THE NONRESIDENT SALES AGENT CAN BE BROUGHT TO TAX. THE COURT HELD AS FOLLOWS:- HELD: (I) THAT IT COULD NOT BE SAID THAT THE MAKIN G OF THE ENTRIES IN THE BOOKS OF B AMOUNTED TO RECEIPT, ACTUAL OR CONSTRUCT IVE, BY THE NON- RESIDENT SALES AGENTS AS THE AMOUNTS SO CREDITED IN THEIR FAVOUR WERE NOT AT THEIR DISPOSAL OR CONTROL; THEY COULD NOT, T HEREFORE, BE CHARGED TO TAX ON THE BASIS OF RECEIPT OF INCOME, ACTUAL OR CONSTRUCTIVE, IN THE TAXABLE TERRITORIES. IN OUR VIEW, THIS CASE IS, IN FACT, IN FAVOUR OF T HE ASSESSEE FOR THE REASON THAT THE ASSESSEE DID NOT HAVE THE SECURITY DEPOSIT OR INTEREST THEREON, AT ITS DISPOSAL AND AS MPEB HAS REJECTED T HE CLAIMS OF THE ASSESSEE. M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 21 XVII) HONBLE ALLAHABAD HIGH COURT IN GOVIND PRASAD PRABH UNATH (SUPRA) HELD THAT INCOME MAY ACCRUE TO THE ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SALE. IT FURTHER HELD THAT THE INCOME CAN BE RE CEIVED LATER, PROVIDED THE ASSESSEE GOT THE RIGHT TO RECEIVE THE SAID INCOME. IN THE CASE IN HAND, WE HAVE ALREADY HELD THAT THE RIGHT OF THE ASSESSEE TO RECEIVE INCOME IS IN DISPUTE AND, HENCE, THIS CASE DOES NOT HELP THE REV ENUE. XVIII) HONBLE MADRAS HIGH COURT IN ANNAPURANI VEERAPPAN ( SUPRA), WAS CONSIDERING THE CASE WHERE INTEREST ON MORTGAGE LOA NS BECOME LEGALLY PAYABLE THOUGH NOT ACTUALLY RECEIVED. IN THE CASE O N HAND, WE HAVE CLEARLY BROUGHT OUT THAT THE INTEREST WAS NOT LEGALLY PAYAB LE TO THE ASSESSEE UNLESS IT ACHIEVES FINANCIAL CLOSURES. THUS, THIS DECISION DOES NOT APPLY. XIX) HON'BLE BOMBAY HIGH COURT IN CONFINANCE LTD. (SUPRA ), OBSERVED AS FOLLOWS:- THEY ARE ASSESSABLE IF THEY HAVE ARISEN OR ACCR UED OR ARE UNDER THE ACT DEEMED TO HAVE ARISEN OR ACCRUED TO THE ASS ESSEE IN THE ACCOUNTING YEAR JUST AS MUCH AS IF THEY HAD BEEN RE CEIVED OR WERE DEEMED TO HAVE BEEN RECEIVED IN THAT YEAR. THIS PRINCIPLE WOULD BE ATTRACTED EVEN IN CASES WHE RE AN ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. HOWEVE R, IN EXAMINING ANY TRANSACTION OR SITUATION, THE COURT WOULD HAVE MORE REGARD TO THE REALITY OF THE SITUATION RATHER THAN THE PURELY THE ORETICAL ASPECT OF IT AND GREATER EMPHASIS WILL BE LAID ON THE BUSINESS A SPECT OF THE MATTER VIEWED AS A WHOLE WHEN THAT CAN BE DONE WITHOUT DIS REGARDING THE STATUTORY LANGUAGE. THIS JUDGMENT, IN FACT, HELPS THE CASE OF THE ASSE SSEE FOR THE REASON THAT THE REALITY OF THE SITUATION IS THAT THE ASSES SEE WAS NOT IN A POSITION TO REALISE THE SECURITY DEPOSIT OR INTEREST THEREON. XX) COMING TO THE JUDGMENT OF HON'BLE SUPREME COURT IN BABULAL NAROTTAMDAS & ORS (SUPRA), THE HON'BLE SUPREME COUR T WAS CONSIDERING THE CASE WHERE INCOME WAS ACTUALLY EARNED BY THE ASSESS EE BY VIRTUE OF A RESOLUTION PASSED BY THE COMPANY. THE COURT HELD TH AT THE RIGHT TO RECEIVE M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 22 ADDITIONAL REMUNERATION AROSE ONLY ON THE BASIS OF RESOLUTION AND PAYMENT WAS DEFERRED ON ACCOUNT OF LITIGATION. UNDER THESE CIRCUMSTANCES, IT HELD THAT INCOME ACCRUED. IN THE CASE ON HAND, THE ASSESSEE D OES NOT HAVE RIGHT TO RECEIVE EITHER THE SECURITY DEPOSIT OR THE INTEREST THEREON. XXI) COMING TO THE LETTER DATED 26 TH APRIL 1999, AT PAGE-235 OF ASSESSEES PAPER BOOK, RELIED ON BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE, IT IS NOT OF MUCH HELP, AS THE FIXED DEPOSIT IN QUESTION WAS MADE BY MPEB IN ITS OWN NAME WITH STATE BANK OF INDIA AND INTEREST WAS EARN ED BY MPEB AND NOT THE ASSESSEE. THE ASSESSEE WAS KEPT INFORMED OF THIS. T HIS DOES NOT GIVE A RIGHT TO THE ASSESSEE TO RECEIVE INTEREST. XXII) SIMILARLY, THE LETTERS DATED 27 TH SEPTEMBER AND 24 TH OCTOBER 1998, ARE OF NO CONSEQUENCE AS THE COURT HAD TO FINALLY ADJUD ICATE THE ISSUE. 25. IN VIEW OF THE ABOVE DISCUSSIONS AND THE LEGAL POSI TION AS APPLIED TO THE FACTS OF THE CASE, WE HOLD THAT NO INCOME BY WA Y OF INTEREST ON SECURITY DEPOSIT WITH MPEB, AS ACCRUED TO THE ASSESSEE IN AL L THE ASSESSMENT YEARS UNDER CONSIDERATION. GROUND NO.1 IS, THUS, ALLOWED. 26. AS WE HAVE ALLOWED GROUND NO.1, IT IS NOT NECESSARY TO ADJUDICATE THE ALTERNATIVE GROUND I.E., GROUND NO.2, AS IT WOULD B E AN ACADEMIC EXERCISE. 27. IN THE RESULT, ALL THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE 2011 SD/- D. MANMOHAN VICE PRESIDENT SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH JUNE 2011 M/S. BINA POWER SUPPLY CO. LTD. ITA NO. 4835, 4836, 4837, 4838 & 7269/MUM./2010 23 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, B BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 13-15.6.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 16.6.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 20.6.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 20.6.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 21.6.2011 SR.PS/PS 6. DATE OF PRONOUNCEMENT 24.6.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 24.6.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER