BINA POWER SUPPLY CO. LTD, MUMBAI V. ITO 3(1)(3), MUMBAI

ITA 6777/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62519 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 24-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: RONAK G DOSHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI G.E.VEERABHADRAPPA, PRESIDENT & SHRI I.P.BANSAL (J.M) ITA NO. 6777/MUM/2010(A.Y. 2006-07) BINA POWER SUPPLY CO. LIMITED, 106, MAKER CHAMBER VI, NARIMAN POINT, MUMBAI 400 028 PAN: AAACB 8397C (APPELLANT) VS. INCOME TAX OFFICER 3(1)(3), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI RONAK G. DOSHI RESPONDENT BY : SHRI PRAVIN VARMA DATE OF HEARING : 30/05/2012 DATE OF PRONOUNCEMENT : 0 6/06/2012 ORDER PER I.P.BANSAL, J.M THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST THE ORDER PASSED BY CIT(A)-7, MUMBAI DATED 16/4/2010 FOR ASS ESSMENT YEAR 2006-07. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS REG ARDING ADDITION OF RS.4,70,16,000/- ADDED TO THE INCOME OF THE ASSESSE E AS INTEREST ACCRUED ON SECURITY DEPOSIT PLACED WITH MPEB. 2. THE ASSESSEE COMPANY, SET UP WITH AN OBJECT TO C ARRY ON THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. THE PROMOT ERS OF THE ASSESSEE COMPANY ENTERED INTO A MEMORANDUM OF UNDERTAKING WI TH THE MADHYA PRADESH STATE GOVERNMENT IN THE YEAR 1994, UNDER WH ICH THE M.P.STATE GOVERNMENT AGREED INTO A POWER PURCHASE AGREEMENT( PPA) WITH THE SEPARATE COMPANY, TO BE PROMOTED BY THE SAID PROMOTERS. SUB SEQUENTLY, THE PROMOTERS FORMED AND REGISTERED THE ASSESSEE COMPANY IN THE Y EAR 1995; (II) IN THE YEAR 1996, PPA WAS ENTERED INTO BETWEEN THE ASSESSEE AND MPEB. THE AGREEMENT ITA NO. 6777/MUM/2010(A.Y. 2006-07) 2 PROVIDED, INTER-ALIA, THE METHOD OF TARIFF CALCULAT ION, THE PAYMENT OF SECURITY, THE MODES OF PAYMENT AND OTHER OBLIGATION OF THE PA RTIES; (III) IN THE YEAR 1998, PRIORITIZATION OF INDEPENDENT POWER PROJECTS WAS DO NE. THE PRODUCERS WHO WOULD BID FOR THE LEAST TARIFF, WOULD BE PRIORITIZE D. THE ASSESSEE QUALIFIED. MPEB, VIDE LETTER DATED 24TH JULY 1998, DEMANDED A SECURITY DEPOSIT OF 2% OF THE PROJECT COST TOWARDS THE ASSESSEE'S COMMITMENT TO ACHIEVE FINANCIAL CLOSURE. THE FINANCIAL CLOSURE WAS TO BE ACHIEVED W ITHIN A PERIOD OF TWO MONTHS FROM THE DATE OF ESCROW AGREEMENT. THE ESCROW AGREE MENT WOULD PROVIDE A CHARGE ON RECOVERABLE OF MPEB TO THE POWER PRODUCER S. 2.1 THE FINANCIAL CLOSURES WERE TO BE ACHIEVED WITH IN TWO MONTHS OF MPEB PROVIDING A BANKABLE ESCROW AGREEMENT. ON ACHIEVING FINANCIAL CLOSURE WITHIN TWO MONTHS OF PROVIDING A BANKABLE ESCROW AGREEMENT BY MPEB, THE SECURITY DEPOSIT WAS TO BE RETURNED WITH INTEREST. IN CASE, FINANCIAL CLOSURE WAS NOT ACHIEVED WITHIN TWO MONTHS DESPITE PROVIDING OF BAN KABLE ESCROW AGREEMENT BY MPEB, SECURITY DEPOSIT WAS TO BE FORFEITED. 2.2 THE ASSESSEE FURNISHED A SECURITY DEPOSIT OF RS. 52,24,00,000, BEING 2% OF THE PROJECT COST TO MPEB ON 14TH AUGUST 1998. TH E DRAFT ESCROW AGREEMENT PROVIDED BY MPEB WAS NOT ACCEPTABLE TO THE FINANCIA L INSTITUTIONS. THEREFORE, THE BANKABLE ESCROW AGREEMENT WAS NEVER ENTERED INT O BY MPEB. AS THE FINANCIAL CLOSURE WAS TO BE COMPLETED BY THE ASSESS EE WITHIN TWO MONTHS OF ENTERING INTO BANKABLE ESCROW AGREEMENT, THE SAME W AS NOT POSSIBLE. 2.3 THE ASSESSEE REQUESTED MPEB TO REFUND THE DEP OSIT WITH INTEREST AS MPEB FAILED TO PROVIDE THE BANKABLE ESCROW AGREEMEN T. IT WAS THE CASE OF THE ASSESSEE COMPANY THAT FINANCIAL CLOSURE OF THE PROJ ECT COULD NOT BE REACHED AS THE ARRANGEMENT OF ESCROW WAS NOT SATISFACTORILY RE SOLVED. THE MPEB, VIDE LETTER DATED 17TH JANUARY 2002, TOOK A STAND THAT T HERE IS NO SUCH CONDITION TO EXECUTE AN ESCROW AGREEMENT, PRIOR TO FINANCIAL CLOSURE. IT STATED THAT ESCROW ITA NO. 6777/MUM/2010(A.Y. 2006-07) 3 WILL BE PROVIDED AT THE TIME OF COMMERCIAL OPERATIO NS. IT FURTHER GAVE NOTICE THAT THE SECURITY DEPOSIT WILL BE FORFEITED, IF FIN ANCIAL CLOSURE IS NOT BE ACHIEVED BY THE ASSESSEE COMPANY, WITHIN TWO MONTHS OF PROVI DING BANKABLE ESCROW AGREEMENT FORM. 2.4 MPEB, ON 13TH JULY 2002, PASSED AN ORDER FOR FEITING THE SECURITY DEPOSIT OF RS.52,24,00,000. 2.5 THE ASSESSEE FILED WRIT PETITION BEFORE THE H ON'BLE HIGH COURT OF M.P., JABALPUR BENCH, AND THE HON'BLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON 13TH MAY 2003. THE HON'BLE HIGH COURT Q UASHED THE ORDER PASSED BY MPEB FORFEITING THE SECURITY DEPOSIT AND DIRECTE D THE MPEB TO PROVIDE BANKABLE ESCROW AGREEMENT TO THE ASSESSEE COMPANY I N ITS TRUE SPIRIT AS ENVISAGED IN ITS LETTERS DATED 24TH JULY, 4TH SEPTE MBER 1998 AND THAT THE SAME SHOULD BE DONE WITHIN TWO MONTHS FROM THE DATE OF T HE ORDER OF THE COURT. THE HON'BLE HIGH COURT FURTHER ORDERED THAT, IN CASE, T HE ARRANGEMENT DOES NOT MATERIALIZE, MPEB SHOULD REFUND THE AMOUNT OF SECUR ITY DEPOSIT ALONG WITH ACCRUED INTEREST. LATER, THE PERIOD WAS EXTENDED UP TO 31ST MARCH 2004, BY AN ORDER DATED 20TH FEBRUARY 2004 PASSED BY THE HON'BL E HIGH COURT. THEREAFTER, MPEB CARRIED THE MATTER IN APPEAL BEFORE THE DIVISI ON BENCH OF THE HON'BLE M.P. HIGH COURT AND THE DIVISION BENCH PASSED AN IN TERIM ORDER DIRECTING THE MPEB TO DEPOSIT RS. 25,00,00,000 WITH THE COURT @ R S. 5,00,00,000 PER MONTH COMMENCING FROM 1ST SEPTEMBER 2004 AND GAVE THE ASS ESSEE COMPANY LIBERTY TO WITHDRAW THE AMOUNT DEPOSITED BY FURNISHING UNCO NDITIONAL BANK GUARANTEE OF A NATIONAL BANK. MPEB WAS ALSO DIRECTED TO FURNI SH AN UNCONDITIONAL BANK GUARANTEE OF NATIONALIZED BANK FOR RS.50,00,00,000. THE ASSESSEE COMPANY WAS ALLOWED TO WITHDRAW THE ABOVE AMOUNT WITHOUT PR EJUDICE AND SUBJECT TO FINAL ORDER OF THE HON'BLE COURT IN LETTERS PATENT APPEAL. ITA NO. 6777/MUM/2010(A.Y. 2006-07) 4 2.6 ON 24TH OCTOBER 2005, THE DIVISION BENCH OF THE HON'BLE HIGH 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 5TH AUGUST 2004, AND THE ARRANGEMENTS MADE PURSUANT THERETO, WILL CONTINUE TO BE IN FORCE SUBJECT TO ANY ORDER THAT MAY BE PAS SED BY THE HON'BLE SUPREME COURT IN THE PROPOSED SPECIAL LEAVE PETITION. THE M PEB FILED AN APPEAL BEFORE THE HON'BLE SUPREME COURT AND THE COURT, VIDE ORDER DATED 10TH FEBRUARY 2006, DIRECTED THAT THE INTERIM ORDER PASSED BY THE HIGH COURT WOULD CONTINUE UNTIL FURTHER ORDERS. MEANWHILE, THERE WAS A CHANGE IN THE MANAGEMENT OF THE ASSESSEE COMPANY. THE COMPANY WAS TAKEN OVER BY M/S . JAIPRAKASH POWERS VENTURES LTD. ON 15TH MAY 2008. THE NEW MANAGEMENT OF THE ASSESSEE COMPANY ACCEPTED THE FORFEITURE OF THE SECURITY DEP OSIT, VIDE MINUTES OF THE MEETING DATED 17TH JUNE 2008 HELD WITH MPEB. IN OTH ER WORDS, THE ASSESSEE COMPANY AGREED TO FORGO THE DEPOSIT OF RS.52,24,00, 000 WITH MPEB AND INTEREST THEREON FOR VARIOUS BUSINESS AND COMMERCIA L REASONS. CONSEQUENTLY, JOINT PETITIONS WERE FILED BEFORE THE HON'BLE SUPRE ME COURT AND WITHDRAWN ALL THE CASES FROM M.P. HIGH COURT. 3. ON THESE FACTS AND CIRCUMSTANCES TAKING CLUE FRO M A.Y 2005-06 WHERE A SUM OF RS. 4,70,16,000/- WAS TAXED, THE AO ASSESSE D A SUM OF RS. 4,70,16,000/- UNDER THE HEAD INCOME FROM OTHER SOUR CES. HOWEVER, HE HAS HELD THAT THE INTEREST WOULD BE ALLOWED TO BE REDUC ED FROM THE CAPITAL WORK-IN- PROGRESS . HE FOUND THAT THE CAPITAL WORK-IN-PROGR ESS SHOWN IN THE BALANCE SHEET WAS A SUM OF RS.7,19,08,783/-, WHICH HE HAS O RDERED TO BE REDUCED BY A SUM OF RS. 4,70,16,000/-. AGGRIEVED, ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A). THE CIT(A) FOUND THAT THE ISSUE RAISED BY THE AO WAS SIMILAR TO EARLIER YEARS AND REFERENCE WAS MADE TO THE SIMILAR ISSUE RAISED BY THE ASSESSEE IN A.Y 1999-2000 TO 2002-03, WHEREIN SIMILAR ISSUE WAS DECIDED BY THE CIT(A) VIDE HIS ORDER DATED 31/3/2010 AFTER REPRODUCING THE AFOREMENTIONED ORDER. IN THIS MANNER CIT(A) HAS DISMISSED THE APPEAL FILE D BY THE ASSESSEE. ITA NO. 6777/MUM/2010(A.Y. 2006-07) 5 4. BEFORE US THE CONTENTION OF THE ASSESSEE IS THAT IN EARLIER ASSESSMENT YEARS I.E. 1999-2000 TO 2002-03 AND ASSESSMENT YEAR 2005-06 AND ASSESSMENT YEAR 2007-08 THIS ISSUE WAS CONSIDERED B Y THE TRIBUNAL VIDE ORDER DATED 24/6/2011 IN ITA NOS.5552/MUM/2009(A.Y.2005-0 6), ITA NOS. 4835, 4836, 4837,4838,& 7269/M/2010 AND IT WAS HELD THAT NO INCOME HAD ACCRUED TO THE ASSESSEE BY WAY OF INTEREST ON SECURITY DEPO SIT WITH MPEB IN ALL THE YEARS UNDER CONSIDERATION. A COPY OF THE SAID ORDE R WAS ALSO GIVEN TO LD. D.R. THUS IT WAS CLAIMED BY THE ASSESSEE THAT THE ISSUE RAISED BY THE AO AND DECIDED BY THE CIT(A) IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFOREMENTIONED ORDER OF ITAT. FOR THE SAKE OF CON VENIENCE THE RELEVANT FINDINGS OF THE TRIBUNAL ARE REPRODUCED AS UNDER: 24. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CON SIDERATION 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 R IGHT TO RECEIVE INTEREST, THEN, IT CANNOT BE HELD THAT THE INTEREST HAS ACCRU ED. THIS PRINCIPLE IS WELL SETTLED BY A NUMBER OF JUDGMENTS, SOME OF WHIC H 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, 19 49. AFTER THE CLOSE OF THE YEAR THE ASSESSEE REPRESENTED TO GOVER NMENT THAT HE HAD INCURRED LOSS. THE GOVERNMENT PAID COMPENSATION FOR THE LOSS WHICH WAS RECEIVED DURING ACCOUNTING YEAR 1950-51 R ELEVANT TO ASST. YR. 1951- 52. IT WAS HELD THAT THE SAID PROFI T IS TO BE INCLUDED IN ASST. YR. 1951- 52 AND COULD NOT BE RELATED BACK TO EARLIER YEAR DURING WHICH THE ASSESSEE ACTUALLY SUPPLIED THE BRE AD. IT WAS ALSO HELD THAT IF THE ASSESSEE FOLLOWED MERCANTILE SYSTE M OF ACCOUNTING IT IS TO BE SEEN AS TO WHEN THE RIGHT TO RECEIVE, A CCRUED. THE INCOME IS ASSESSABLE IN THE YEAR IN WHICH THE RIGHT TO REC EIVE 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 ITA NO. 6777/MUM/2010(A.Y. 2006-07) 6 IT REACHES THE ASSESSEE; WHEN RIGHT TO RECEIVE THE INCOME BECOMES VESTED IN THE ASSESSEE, IT IS SAID TO ACCRUE OR ARI SE. INCOME BECOMES TAXABLE ON ACCRUAL ONLY AFTER THE RIGHT OF THE ASSESSEE TO THE INCOME ACCRUES OR ARISES AND IN THE CASE OF AN AGREEMENT WHICH MAKES PROFITS RECEIVABLE AT OR ON THE HAPPENI NG OF A CONTINGENCY, THE INCOME WOULD ACCRUE ONLY AFTER THE EVENT OF THE CONTINGENCY TAKES PLACE. 3. SETH PUSHALAL MANSINGHKA (P) LTD. VS. CIT, 66 ITR 159 (SC) - THE WORDS 'ACCRUE' AND 'ARISE' DO NOT MEAN ACTUAL R ECEIPT OF THE PROFITS. BOTH THESE WORDS ARE USED IN CONTRA-DISTIN CTION 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 ACCRUE TO HIM, THOUGH IT MAY BE RECEIVED LATER ON ITS BEING A SCERTAINED.' 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/99 5, DATED 24TH JULY 1998, VIDE PARA-3, STATED AS FOLLOWS:- 'THE IPPS WILL ALSO BE REQUIRED TO PAY ALONG WITH T HE 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 ACC OUNTS OFFICER (CAU), MPEB, JABALPUR. NO BANK GUARANTEE SHALL BE A CCEPTED. THIS AMOUNT SHALL BE KEPT AS A FIXED DEPOSIT INITIALLY F OR A PERIOD OF SIX MONTHS AS A SECURITY TOWARDS ACHIEVING FINANCIAL CL OSURE. THIS SECURITY DEPOSIT IS BEING TAKEN AS A COMMITMENT FRO M IPPS TO ACHIEVE FINANCIAL CLOSURE WITHIN TWO MONTHS OF PROV IDING A BANKABLE ESCROW AGREEMENT FORM TO BE EXECUTED BY TH E IPPS, FAILING WHICH THE SECURITY DEPOSIT WILL BE FORFEITED. ON AC HIEVING FINANCIAL CLOSURE, WITHIN THE ABOVE MENTIONED PERIOD, THE SEC URITY DEPOSIT WILL BE RELEASED TO THE IPPS ALONG WITH INTEREST AC CRUED. THE INTEREST RATE SHALL BE COMPUTED AS PER RATE GIVEN B Y SBI FOR FIXED DEPOSITS FOR THE CONCERNED MATURITY PERIOD.' [EMPHA SIS OWN] IV) TO MAKE THINGS MORE CLEAR, AT PAGE-191 OF THE A SSESSEE'S PAPER BOOK, MPEB, VIDE ITS LETTER NO.07-11/IPC-GEN./ESCROW-1215 DATED 4TH SEPTEMBER 1998, STATES AS FOLLOWS:- ITA NO. 6777/MUM/2010(A.Y. 2006-07) 7 (1) FINANCIAL CLOSURE HAS TO BE ACHIEVED BY YOU WIT HIN 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 REFERENCE WILL B E FORFEITED AND THE ALLOTMENT OF ESCROW PROTECTION WILL STAND CANCE LLED. V) FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE WO ULD HAVE A RIGHT TO RECEIVE THE DEPOSIT ALONG WITH INTEREST ONLY ON ACH IEVING FINANCIAL CLOSURE. IN OTHER WORDS, IF FINANCIAL CLOSURE IS NO T ACHIEVED, THE ASSESSEE HAS NO RIGHT TO RECEIVE BACK THE SECURITY DEPOSIT, LET ALONE THE INTEREST THEREON. VI) WE HAVE TO ALSO SEE THE MANNER IN WHICH THE MPE B UNDERSTOOD THEIR COMMITMENT TO RETURN THE DEPOSIT ALONG WITH THE INT EREST. AT PAGE-237 OF THE PAPER BOOK, MPEB, VIDE LETTER DATED 22ND SEPTEM BER 1999, HAS INFORMED THE ASSESSEE COMPANY THAT IT IS NOT POSSIB LE TO RETURN THE SECURITY DEPOSIT. AT PAGE-243 OF THE PAPER BOOK, VI DE LETTER DATED 8TH APRIL 2000, MPEB STATES THAT ESCROW AGREEMENT FOR T HE PROJECT WILL BE EXECUTED ONLY AFTER ACHIEVING FINANCIAL CLOSURE BY THE ASSESSEE. THE ASSESSEE ALSO FILED COPY OF LETTERS FROM ITS BANKER S TO DEMONSTRATE THAT THEY WERE DEMANDING BANKABLE ESCROW AGREEMENT. AT P AGE-252 OF THE PAPER BOOK, IS A LEGAL NOTICE ISSUED BY THE ADVOCAT ES OF THE ASSESSEE COMPANY M/S. AMARCHAND MANGALDAS, ON 29TH OCTOBER 2 001, CALLING UPON MPEB TO IMMEDIATELY RETURN THE SECURITY DEPOSI T ALONG WITH INTEREST FOR THE REASON THAT MPEB HAS FAILED TO EXE CUTE THE BANKABLE ESCROW AGREEMENT DESPITE REPEATED REQUESTS AND EFFO RTS OF THE ASSESSEE. IN RESPONSE TO THE NOTICE ISSUED BY THE ASSESSEE CO MPANY'S ADVOCATES, MPEB, VIDE LETTER DATED 17TH JANUARY 2002, REPLIED AS FOLLOWS:- '........ YOU WILL APPRECIATE THAT IN OUR LETTER DA TED 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 PROVIDING ESCROW AGREEMENT FORM THEY COULD NOT ACHI EVE FINANCIAL CLOSURE 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 ITA NO. 6777/MUM/2010(A.Y. 2006-07) 8 FAILED TO ACHIEVE FINANCIAL CLOSURE TILL DATE. THIS HAS CAUSED AN ACUTE SHORTAGE OF POWER IN THE STATE. THE SECURITY DEPOSIT OF ` 52.24 CRORES WAS OBTAINED BY WAY OF FIRM COMMITMENT TO ACHIEVE FINANCIAL CLOSURE BY M/S. BPSCL WITHIN 2 MONTHS OF PROVIDING BANKABLE ESCROW AGREEMENT FORM. THE CONDITIONS OF L ETTER DATED 24.7.98 HAVE ALREADY BEEN FULFILLED BY MPEB AND IT IS FAILURE ON THE PART OF YOUR CLIENT TO ACHIEVE FINANCIAL CLOSURE TI LL DATE. THUS, THE CLAIM OF M/S. BPSCL FOR REFUND OF SECURITY DEPOSIT AT THIS STAGE IS NOT IN ORDER. WHEN YOUR PROJECT HAS ALREADY GOT PRI ORITY 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 ACHIEVE FINANCIA L CLOSURE AS PER LETTER DATED 24.7.98 IMMEDIATELY WITHIN 30 DAYS FRO M THE DATE OF THIS LETTER OTHERWISE 2% SECURITY DEPOSIT WILL BE F ORFEITED. PUBLIC IS SUFFERING BADLY DUE TO NON-ADDITION OF POWER GENERA TING CAPACITY IN THE STATE FOR WHICH YOUR CLIENT IS EQUALLY RESPONSI BLE.' V) MPEB, VIDE THEIR LETTER DATED 13TH JULY 2002, FO RFEITED 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 START BUT THERE WAS NO POSITIVE RESPONSE OF BINA POWER ON ANY OF THE ALTERNATIVES. IT APPEARS THAT BINA POWER ARE NOT IN TERESTED IN EXECUTION OF PROJECT AND ARE ONLY INTERESTED IN REF UND OF THEIR S.D. WHICH IS NOT AS PER CONTRACT HENCE THERE IS NO OPTI ON LEFT WITH MPEB EXCEPT TO PASS THIS ORDER TO FORFEIT S.D. OF M /S. BINA POWER.' THUS, MPEB WAS OF THE OPINION THAT THE ASSESSEE HAS NO RIGHT TO RECEIVE EITHER THE SECURITY DEPOSIT OR THE INTEREST THEREON . VI) THE ASSESSEE CHALLENGED THE FORFEITURE IN A WRI T PETITION FILED BEFORE THE M.P. HIGH COURT, WHEREIN THE COURT, VIDE ORDER DATED 13TH MAY 2003, HELD AS FOLLOWS:- '19. IN THE RESULT, THIS PETITION IS ALLOWED. THE O RDER OF THE RESPONDENT M.P. ELECTRICITY BOARD (OR THE M.P. STAT E ELECTRICITY BOARD) DATED 13TH JULY 2002, FORFEITING THE SECURIT Y DEPOSIT OF RS.52.24 CRORES OF THE PETITIONER IS QUASHED. THE B OARD IS DIRECTED TO PROVIDE 'BANKABLE ESCROW AGREEMENT' TO THE PETIT IONER COMPANY IN ITS TRUE SPIRIT AS ENVISAGED IN ITS LETTERS DATE D 24TH JULY 1998 AND 4TH SEPTEMBER 1998. THIS WILL BE DONE WITHIN TW O MONTHS OF ITA NO. 6777/MUM/2010(A.Y. 2006-07) 9 THE DATE OF THIS ORDER. THE BOARD WILL GET THIS AGR EEMENT APPROVED BY THE STATE BANK OF INDIA. THE BOARD WILL MADE ALL POSSIBLE EFFORTS WITH THE ASSISTANCE OF THE STATE GOVERNMENT TO OBTA IN THE CLEARANCES OF THE STATE BANK OF INDIA, FOR THIS PRO JECT. ON FURNISHING OF THE'BANKABLE ESCROW AGREEMENT', BY TH E BOARD WITH THE CLEARANCE OF THE STATE BANK OF INDIA, WITHIN TW O MONTHS OF THE DATE OF THIS ORDER TO THE PETITIONER COMPANY, THE P ETITIONER COMPANY WILL OBTAIN THE FINANCIAL CLOSURE FROM ITS BANKER OR FINANCIAL INSTITUTION WITHIN THE NEXT TWO MONTHS. I T IS FURTHER DIRECTED THAT IF FOR ANY REASON THIS ARRANGEMENT DO ES NOT MATERIALISE THE RESPONDENTS NO.2 AND 3 WILL REFUND THE AMOUNT OF SECURITY DEPOSIT OF RS.52.24 CRORES TO THE PETITION ER COMPANY WITH ACCRUED INTEREST. THE RESPONDENTS NO.4 AND 5 HAVE B EEN IMPLEDED BUT NO RELIEF HAS BEEN CLAIMED AGAINST THEM AND THE Y HAVE NO LIABILITY IN THE PRESENT CASE AND, THEREFORE, THEY ARE DISCHARGED.' VII) THEREAFTER, ON 20TH FEBRUARY 2004, THE TIME ME NTIONED IN PARA-19 ABOVE, WAS EXTENDED UP TO 31ST MARCH 2004 BY THE HO N'BLE HIGH COURT. THUS, UP TO 31ST MARCH 2004, THE ASSESSEE HAD NO R IGHT TO RECEIVE BACK THE SECURITY DEPOSIT OR THE INTEREST THEREON AS IT WAS THE DECISION 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 JURI SDICTION AND THE MATTER WAS FINALLY PENDING BEFORE THE HON'BLE SUPRE ME COURT. THE DIVISION BENCH OF THE HON'BLE HIGH COURT HAD GIVEN THE FOLLOWING INTERIM DIRECTIONS IN ITS ORDER DATED 5TH AUGUST 2004, WHEN THE MATTER WAS PENDING BEFORE IT. 'IN THE BACKGROUND OF THE FACTS OF THIS CASE AND RI VAL CONTENTIONS AND TO SAFEGUARD THE INTEREST OF BOTH THE PARTIES, WE CONSIDER THIS A FIT CASE FOR STAYING THE FINAL ORDER OF THE LEARNED SINGLE JUDGE, BUT SUBJECT TO FOLLOWING TERMS: A) THE APPELLANT SHALL DEPOSIT IN ALL A SUM OF RS .25 CRORES (RUPEES TWENTY FIVE CRORES) WITH THE REGISTRAR (JUD ICIAL) OF THIS COURT AT THE RATE OF RS. 5.00 CRORES (RUPEES FIVE C RORES) 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 W ITHDRAW 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 ITA NO. 6777/MUM/2010(A.Y. 2006-07) 10 (REPRESENTED BY REGISTRAR GENERAL) OF THIS COURT) F OR REPAYMENT IN THE EVENT OF APPELLANT'S SUCCESS IN THE APPEAL. C) IN ADDITION TO THE DEPOSIT OF ` 25 CRORES, A S AFORESAID, THE APPELLANT BOARD SHALL FURNISH AN UNCONDITIONAL BANK GUARANTEE OF A NATIONALISED BANK FOR ` 50 CRORES (RUPEES FIFTY C RORES) IN FAVOUR OF THE COURT (REPRESENTED BY REGISTRAR GENERAL) WIT HIN 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 TERM S OF THIS 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 FORCE SUBJECT TO ANY ORDER THAT MAY BE PASSED BY THE HON'BLE SUPREME COU RT IN THE PROPOSED SPECIAL LEAVE PETITION AS THE HON'BLE HIGH COURT HA D DISMISSED THE WIRT APPEAL ON THE GROUND THAT IT IS NOT MAINTAINABLE. T HE HON'BLE SUPREME COURT HELD THAT THE INTERIM ORDER GRANTED BY THE HI GH COURT, AS EXTRACTED ABOVE, WOULD CONTINUE UP TILL FURTHER ORDER, VIDE I TS JUDGMENT DATED 10TH FEBRUARY 2006. THEREAFTER, DUE TO CHANGE IN THE MAN AGEMENT OF THE ASSESSEE COMPANY, THERE WERE FRESH NEGOTIATIONS AND IN THE MINUTES OF THE FIRST MEETING HELD ON 17TH JUNE 2008, BETWEEN T HE GOVT. OF MADHYA PRADESH, MPEB, AND THE ASSESSEE COMPANY, IT WAS DEC IDED AS FOLLOWS:- 'III) COMPANY AGREED TO SETTLE ALL THE PENDING COUR T 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 RS. 52.24 CRORES WHICH WAS LY ING DEPOSITED IN THE STATE ELECTRICITY BOARD AS SECURITY AMOUNT, SHALL BE FORFEITED BY THE STATE ELECTRICITY BOARD AND THEREAFTER THERE WILL BE NO LIABILITY OF ANY TYPE ON THE STATE ELECTRICITY BOAR D. IT WAS FURTHER AGREED THAT A SUM OF RS. 25 CRORES WHICH WAS WITHDR AWN BY BEENA POWER SUPPLY COMPANY IN COMPLIANCE TO THE ORDER OF THE HON'BLE HGIH COURT OF MADHYA PRADESH AT JABALPUR, WILL NOW BE REFUNDED TO THE STATE ELECTRICITY BOARD. IT WAS FURTHER AGRE ED THAT A SUM OF `RS. 50 CRORES WHICH HAS BEEN DEPOSITED BY STATE EL ECTRICITY BOARD, IN THE HON'BLE HIGYH COURT OF MADHYA PRADESH AT JAB ALPUR, AS BANK GUARANTEE, WILL NOW BE WITHDRAWN 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 PROCEEDINGS WILL BE INITIATED BY THE PARTIES TO WIT HDRAW ALL THE ITA NO. 6777/MUM/2010(A.Y. 2006-07) 11 CASES PENDING IN THE COURTS AND RECOMMENDATIONS WIL L ALSO BE MADE BY THE STATE GOVT. TO ALLOT COAL TO THE COMPAN Y. IX) FROM THE ABOVE, IT IS VERY CLEAR THAT THOUGH TH E COMPANY 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 JUDGMENT OF THE HON'BLE M.P. HIGH COURT IN THE WRIT PETITION WAS ST AYED BY THE HON'BLE SUPREME COURT. PARTIAL WITHDRAWAL ALLOWED BY THE CO URT AGAINST FURNISHING OF BANK GUARANTEE IS AN INTERIM RELIEF A ND 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 CLEARLY COVERED IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F GODHRA ELECTRICITY CO. LTD. (SUPRA). IN THIS CASE, THE ASSESSEE COMPA NY WHICH HAD A LICENSE TO GENERATE AND SUPPLY ELECTRICITY, ENHANCED THE CH ARGES FOR ELECTRICITY. THIS ENHANCEMENT WAS CHALLENGED IN THE COURTS AND U LTIMATELY, THE HON'BLE SUPREME COURT UPHELD THE ENHANCEMENT. THE A SSESSEE HAD PASSED ENTRIES IN ITS BOOKS OF ACCOUNT TREATING THE INCREASED CHARGES AS ITS INCOME. SHORTLY THEREAFTER, THE UNDER SECRETARY TO THE GOVT. OF GUJARAT WROTE A LETTER TO THE COMPANY ADVISING IT T O MAINTAIN STATUS QUO FOR THE RATES TO THE CONSUMERS. WHILE DOING SO, THE CONSUMERS ALSO FILED A REPRESENTATIVE SUIT WHEREIN AN INTERIM INJUNCTION W AS GRANTED AND, THEREAFTER, FINALLY, DECREED IN FAVOUR OF THE CONSU MERS BY THE LOWER COURT. ON THESE FACTS, THE HON'BLE SUPREME COURT HELD THAT SINCE THE ASSESSEE WAS NOT ABLE TO COLLECT ENHANCED CHARGES, NECESSARY ENTRIES MADE IN ITS BOOKS OF ACCOUNT REPRESENTED ONLY HYPOTHETICAL INCO ME 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 MERC ANTILE SYSTEM OF ACCOUNTING. AT PARA-12, THE HON'BLE SUPREME COURT N OTED THAT THE LETTERS ADDRESSED TO THE UNDER SECRETARY TO THE GOVT. OF GU JARAT, HAD NO LEGAL BINDING EFFECT. IT HELD THAT ONE HAS TO LOOK AT THI NGS 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 COU RT 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 R ESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WE RE ADDED BY THE ITO WHILE PASSING THE ASSESSMENT ORDERS IN RESPECT OF THE ASSESSMENT YEARS UNDER CONSIDERATION. THE AAC WAS R IGHT IN DELETING THE SAID ADDITION MADE BY THE ITO AND THE TRIBUNAL HAD ITA NO. 6777/MUM/2010(A.Y. 2006-07) 12 RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASSESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY EN TRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AND THE I MPUGNED AMOUNTS AS BROUGHT TO TAX BY THE ITO DID NOT REPRES ENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE- COMPANY D URING THE RELEVANT PREVIOUS YEARS. THE HIGH COURT, IN OUR OPI NION WAS IN ERROR IN UPSETTING THE SAID VIEW OF THE TRIBUNAL.' X) APPLYING THE PRINCIPLES TO THE CASE ON HAND, MPE B AND M.P. STATE GOVT. WERE FIRMLY OF THE VIEW THAT THE ASSESSEE WAS NOT ENTITLED TO REFUND OF THE SECURITY DEPOSIT. WHILE SO, TO HOLD THAT REA L INCOME HAS ACCRUED TO THE ASSESSEE BY WAY OF INTEREST ON THE SECURITY DEP OSIT, WOULD NOT BE CORRECT. XI) HON'BLE SUPREME COURT E.D. SASSOON & COMPANY LT D. (SUPRA), HAD LAID DOWN THAT INCOME WOULD ACCRUE OR ARISE ONLY IF THE ASSESSEE ACQUIRED THE RIGHT TO RECEIVE INCOME. THE HON'BLE J URISDICTIONAL HIGH COURT IN FGP LIMITED (SUPRA), WAS CONSIDERING THE C ASE WHERE CERTAIN AMOUNTS WERE PAYABLE TO THE ASSESSEE UNDER A ROYALT Y AGREEMENT. NO AMOUNT WAS RECEIVED BY THE ASSESSEE TILL DATE, PURS UANT TO ROYALTY AGREEMENT AS THERE WAS A DISPUTE BETWEEN THE PARTIE S AND ARBITRATION PROCEEDINGS ARE BEING PROCEEDED WITH. UNDER THESE C IRCUMSTANCES, THE HON'BLE JURISDICTIONAL HIGH COURT APPLIED THE DECIS ION OF HON'BLE SUPREME COURT IN GODHRA ELECTRICITY CO. LTD. (SUPRA ) AND HELD THAT IN THE INSTANCE CASE, THERE IS NO REAL ACCRUAL OF INCO ME AS THERE IS A DISPUTE BETWEEN THE PARTIES IN THE RELEVANT ASSESSMENT YEAR AND THAT THE INCOME RECEIVED BY THE ASSESSEE WILL BE LIABLE TO BE ASSES SED 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, THERE WAS NO ACCRUAL OF INCOME. THE FACT REMAINS THAT, AT NO POINT OF TI ME, MPEB OR M.P. STATE GOVT. HAVE AGREED WITH THE DEMAND OF THE ASSESSEE F OR RETURN OF THE DEPOSIT WITH INTEREST. THE CASES WERE WITHDRAWN FRO M THE SUPREME COURT ONLY BECAUSE THE FORFEITURE WAS ACCEPTED BY THE ASS ESSEE. THE VIEW OF THE ASSESSING OFFICER THAT THE FORFEITURE WAS ACCEPTED ON DIFFERENT 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 HON'BL E M.P. HIGH COURT WAS STAYED, HENCE, THERE WAS NO ENFORCEABLE RIGHT TO TH E ASSESSEE FOR ALL THESE YEARS. ITA NO. 6777/MUM/2010(A.Y. 2006-07) 13 XIII) HON'BLE SUPREME COURT IN HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD. (SUPRA), WAS CONSIDERING THE CASE WHERE CERTAIN LAND BELONGING TO THE ASSESSEE COMPANY WAS ACQUIRED BY THE GOVT. A ND COMPENSATION AWARDED. THE QUANTUM OF COMPENSATION WAS UNDER DISP UTE. THE HIGH COURT DIRECTED THE GOVT. TO DEPOSIT CERTAIN AMOUNTS DURING THE PENDENCY OF THE DISPUTE AND THE ASSESSEE WAS ALLOWED TO WITH DRAW THE SAME BY FURNISHING SECURITY. THE HON'BLE SUPREME COURT HELD THAT SINCE THE AMOUNT WAS IN DISPUTE, THE AMOUNT OF ENHANCED COMPE NSATION 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 CO MPENSATION UNDER THE LAND ACQUISITION ACT ACCRUED OR AROSE TO THE ASSESSEE WHEN HE SOUGHT A REFERENCE UNDER S. 18 OF THE ACT O R WHEN THE AWARD WAS MADE BY THE CIVIL JUDGE ALTHOUGH AN APPEA L WAS PENDING AGAINST THAT AWARD. THE LEARNED JUDGES REFE RRED TO THE NATURE OF AN AWARD MADE BY THE COLLECTOR, AND ADVER TING TO THE OPINION OF THIS COURT IN RAJA HARISH CHANDRA RAJ SINGH VS. DEPUTY LAND ACQUISITION OFFICER (1962) 1 SCR 676 : AIR 1961 SC 1500, THAT THE AWARD MADE BY THE COLLECTOR WAS MERELY AN OFFER OR TENDER OF THE COMPENSATION DETERMINED BY THE COLLECTOR TO THE OWNER OF THE PROPERTY ON THE ACQUISITION, THE HIGH COURT OBS ERVED : '........THE LEGAL POSITION WHICH EMERGES IS THAT T HERE IS NO LIABILITY IN PRAESENTI TO PAY AN ENHANCED COMPENSATION TILL I T IS 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 ADDIT IONAL COMPENSATION AND IF YES, AT WHAT RATE IS IN FLUX TI LL THE QUESTION IS SET AT REST FINALLY, WE DO NOT THINK THAT ANY ENFOR CEABLE RIGHT TO A PARTICULAR AMOUNT OF COMPENSATION ARISES. THE OFFER MADE BY THE LAND ACQUISITION OFFICER, BY HIS AWARD, IF NOT ACCE PTED BY A CLAIMANT WOULD NOT RESULT AUTOMATICALLY IN A LIABIL ITY TO PAY ADDITIONAL COMPENSATION AS CLAIMED BY A PARTY AGGRI EVED. THERE IS NO DOUBT A LIABILITY TO PAY A COMPENSATION AS OFFER ED BY THE LAND ACQUISITION OFFICER. BUT THAT IS FAR FROM SAYING TH AT THAT LIABILITY IS A LIABILITY TO PAY ADDITIONAL COMPENSATION OR ENHAN CED COMPENSATION AS CLAIMED BY A PARTY AGGRIEVED. IF TH ERE IS AN EXISTING LIABILITY, THE MERE FACT THAT THE PAYMENT IS POSTPONED TO THE FUTURE WOULD NOT DETRACT THAT LIABILITY FROM B ECOMING A DEBT BUT THE LIABILITY TO PAY UNLIQUIDATED DAMAGES OR AD DITIONAL ITA NO. 6777/MUM/2010(A.Y. 2006-07) 14 COMPENSATION WHICH ARE INCHOATE OR CONTINGENT WOULD NOT CREATE A DEBT.' XIV) THIS JUDGMENT ALSO APPLIES ON ALL FOURS TO T HE FACTS OF THE CASE. FOR ALL THE ASSESSMENT YEARS IN QUESTION, THE ISSUE WAS BEFORE THE HON'BLE SUPREME COURT AND WAS SUBJUDICE. UNDER THESE CIRCUM STANCES, IT CANNOT BE SAID THAT THERE WAS A FINAL DETERMINATION OF THE RIGHTS. IN SUCH A SITUATION, THE DISPUTED INCOME CANNOT BE BROUGHT TO TAX ON THE GROUND THAT THERE IS ACCRUAL OF INCOME. XV) NOW, WE CONSIDER THE CASE LAWS RELIED UPON BY T HE LEARNED DEPARTMENTAL REPRESENTATIVE. XVI) THE HON'BLE SUPREME COURT IN TOSHOKU LTD. (SUP RA), WAS CONSIDERING THE CASE WHERE THE DEALERS IN TOBACCO IN INDIA EXPO RTED TO JAPAN AND FRANCE THROUGH A NONRESIDENT SALES AGENT. THE EXCLU SIVE SALES AGENT WAS ENTITLED TO A COMMISSION OF 3% OF INVOICE AMOUNT. T HE INVOICE AMOUNT WAS REMITTED TO INDIA AND THE INDIAN DEALER DEBITED HIS COMMISSION ACCOUNT AND CREDITED THE AMOUNT OF COMMISSION PAYAB LE TO JAPANESE COMPANY WHICH IS THE SALES AGENT. IN HIS ACCOUNT BO OK AND LATER REMITTED THE AMOUNT TO THE JAPANESE COMPANY. THE QU ESTION WAS, WHETHER THE COMMISSION EARNED BY THE NONRESIDENT SA LES 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 CONST RUCTIVE, BY THE NON- RESIDENT SALES AGENTS AS THE AMOUNTS SO CREDIT ED IN THEIR FAVOUR WERE NOT AT THEIR DISPOSAL OR CONTROL; THEY COULD NOT, THEREFORE, BE CHARGED TO TAX ON THE BASIS OF RECEIP T OF INCOME, ACTUAL OR CONSTRUCTIVE, IN THE TAXABLE TERRITORIES. ' IN OUR VIEW, THIS CASE IS, IN FACT, IN FAVOUR OF TH E ASSESSEE FOR THE REASON THAT THE ASSESSEE DID NOT HAVE THE SECURITY DEPOSIT OR INTEREST THEREON, AT ITS DISPOSAL AND AS MPEB HAS REJECTED THE CLAIMS OF THE ASSESSEE. XVII) HON'BLE ALLAHABAD HIGH COURT IN GOVIND PRASAD PRABHUNATH (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 INCO ME. 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. ITA NO. 6777/MUM/2010(A.Y. 2006-07) 15 XVIII) HON'BLE MADRAS HIGH COURT IN ANNAPURANI VEER APPAN (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 LEGAL LY PAYABLE TO THE ASSESSEE UNLESS IT ACHIEVES FINANCIAL CLOSURES. THU S, 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 ACCRUED OR ARE UNDER THE ACT DEEMED TO HAVE ARISEN OR ACCRUED TO T HE ASSESSEE IN THE ACCOUNTING YEAR JUST AS MUCH AS IF THEY HAD BEE N RECEIVED 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 W OULD HAVE MORE REGARD TO THE REALITY OF THE SITUATION RATHER THAN THE PURELY THEORETICAL ASPECT OF IT AND GREATER EMPHASIS WILL BE LAID ON THE BUSINESS ASPECT OF THE MATTER VIEWED AS A WHOLE WHE N THAT CAN BE DONE WITHOUT DISREGARDING THE STATUTORY LANGUAGE.' THIS JUDGMENT, IN FACT, HELPS THE CASE OF THE ASSES SEE FOR THE REASON THAT THE REALITY OF THE SITUATION IS THAT THE ASSESSEE W AS 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 AS SESSEE BY VIRTUE OF A RESOLUTION PASSED BY THE COMPANY. THE COURT HELD TH AT THE RIGHT TO RECEIVE 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 DOES NOT HAVE RIGHT TO RECEIVE EITHER THE SECURITY DEPOSIT OR THE INTEREST THEREON. XXI) COMING TO THE LETTER DATED 26TH APRIL 1999, AT PAGE-235 OF ASSESSEE'S 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 EARNED BY MPEB AND NOT THE ASSESSEE. THE ASSESSEE WAS KEPT INFORME D OF THIS. THIS DOES NOT GIVE A RIGHT TO THE ASSESSEE TO RECEIVE INTERES T. ITA NO. 6777/MUM/2010(A.Y. 2006-07) 16 XXII) SIMILARLY, THE LETTERS DATED 27TH SEPTEMBER A ND 24TH OCTOBER 1998, ARE OF NO CONSEQUENCE AS THE COURT HAD TO FINALLY A DJUDICATE THE ISSUE. 25. IN VIEW OF THE ABOVE DISCUSSIONS AND THE LEGAL POSITION 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 ASSES SEE IN ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. GROUND NO.1 I S, THUS, ALLOWED. 26. AS WE HAVE ALLOWED GROUND NO.1, IT IS NOT NECES SARY TO ADJUDICATE THE ALTERNATIVE GROUND I.E., GROUND NO.2, AS IT WOULD B E AN ACADEMIC EXERCISE. 5. ON THE OTHER HAND, LD. D.R COULD NOT CONTROVERT THE ASSERTION OF LD. A.R THAT THE FACTS AND CIRCUMSTANCES ARE SIMILAR TO THE EARLIER YEARS WHICH HAVE BEEN DECIDED BY THE TRIBUNAL BY THE AFOREMENTIONED ORDER. 6. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES WE HOLD THAT THE ISSUE RAISED BY THE ASSESSEE IN THE PRESENT APP EAL IS COVERED IN FAVOUR OF THE ASSESSEE. THE ASSESSEE HAS ALSO TAKEN ALTERNAT IVE GROUNDS AND AS THE PRINCIPAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE, FOLLOWING THE AFOREMENTIONED DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE ITSELF, ALTERNATIVE GROUNDS OF THE ASSESSEE HAVE B ECOME ACADEMIC AND NEED NOT TO BE ADJUDICATED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH DAY OF JUNE 2012 SD/- SD/- ( G.E.VEERABHADRAPPA ) (I.P.BANSAL) PRESIDENT JUDICIAL MEMBER MUMBAI, DATED 6 TH JUNE 2012 ITA NO. 6777/MUM/2010(A.Y. 2006-07) 17 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.