Madura Micro Finance Ltd., CHENNAI V. ACIT, CHENNAI

ITA 724/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8573 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHADEVANJCIT
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Diversion of income; Period of limitation; Deemed to accrue or arise in india; Bad and doubtful debts; Time period of passing order; Revised return
• Section: 143(3); 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , # BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.724/MDS/2016 ( / ASSESSMENT YEAR: 2007-08) M/S. MADURA MICRO FINANCE LTD., 36, 2 ND MAIN ROAD, KASTURBA NAGAR, ADYAR, CHENNAI-20. VS ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(1), CHENNAI - 34. PAN: AAECM4849A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. V.S.JAYAKUMAR, ADVOCATE /RESPONDENT BY : MR. SAHADEVAN,JCIT /DATE OF HEARING : 6 TH JUNE, 2016 /DATE OF PRONOUNCEMENT : 15 TH SEPTEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- V, CHENNAI DATED 31.01.2012 IN ITA NO.CIT (A)-V/231 /2009- 10 PASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THIS APPEAL IS FILED BY THE ASSESSEE WITH THE DE LAY OF 1431 DAYS. THE WHOLE-TIME DIRECTOR OF THE ASSESSEE COMPANY HAS FILED AN AFFIDAVIT BEFORE US DATED 06.0 6.2016. THE RELEVANT PORTION OF THE AFFIDAVIT IS REPRODUCED HEREIN BELOW FOR REFERENCE: 2 ITA NO.724/MDS/2016 1. THE APPELLANT, MADURA MICRO FINANCE LIMITED, IS A PUBLIC LIMITED COMPANY. THE COMPANY CARRIES ON MICR O FINANCE BUSINESS. I AM THE DIRECTOR OF THE APPELLAN T COMPANY AND I AM WELL ACQUAINTED WITH THE FACTS OF THE CASE RELATING TO THE BELATED FILING OF THE INCOME T AX APPEAL FILED BEFORE THIS HON'BLE TRIBUNAL FOR THE ASSESSME NT YEAR 2007-08. 2. THE APPELLANT COMPANY FILED THE APPEAL BEFORE TH E ITAT ON 24TH MARCH 2016 AGAINST THE ORDER OF THE CI T (A) IN ITA NO.231/2009-10 DATED 31.01.2012 AND THE APPE AL WAS BELATEDLY FILED BY 1431 DAYS. THE IMPUGNED ORDE R OF THE CIT (A) IN ITA NO.231/2009-10 WAS COLLECTED BY THE CHARTERED ACCOUNTANT, MR. S.NAGARAJAN FROM THE OFFI CE OF THE CIT (A) ON 23-02-2012 AND IT WAS HANDED OVER TO MR. M. CHOCKALINGAM, ACCOUNTANT OF THE APPELLANT COMPAN Y, WHO IS THE ONLY AUTHORISED PERSON TO COLLECT THE TA PALS, COMMUNICATIONS, ORDERS, ETC., FROM VARIOUS STATUTOR Y AND NON-STATUTORY BODIES INCLUDING THAT OF THE INCOME T AX DEPARTMENT, APART FROM PROVIDENT FUND, ESI, SERVICE TAX AUTHORITIES, AMONGST OTHERS. 3. FOR THE ASSESSMENT YEAR 2007-08, THE APPELLANT COMPANY FILED ITS RETURN OF INCOME ON 29-10-2007. T HE APPELLANT COMPANY FILED A REVISED RETURN OF INCOME ON 17-10-2008. THE AO ISSUED A NOTICE UNDER SECTION 14 3(2) ON 05-08-2008. THE APPELLANT COMPANY MADE A CLAIM THAT A SUM OF RS.2,10,99,000/-(WRONGLY MENTIONED AS RS. 2,05,99,000/- BEFORE THE AO) REPRESENTING THE AMOUN T HELD IN CASH COLLATERAL BY ICICI BANK, IN RESPECT O F THE LOANS SOLD BY THE APPELLANT COMPANY TO THE SAID ICI CI BANK, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, WAS NOT ITS INCOME. 4. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3 ) ON 30-11-2009 BY THE AO REJECTING THE SAID CLAIM AN D ADDING RS.2,10,99,000/- AS INCOME IN THE HANDS OF T HE APPELLANT COMPANY. 5. THE APPELLANT COMPANY FILED AN APPEAL AGAINST TH E AO'S ORDER BEFORE THE CIT (A). THE CIT(A) DID NOT A CCEPT THE PLEA OF THE APPELLANT COMPANY. THE APPELLANT CO MPANY IS NOW IN APPEAL AGAINST THE CIT (A)'S ORDER BEFORE HIS HON'BLE TRIBUNAL AGAINST THE QUANTUM ORDER PASSED U NDER SEE 143(3) OF THE ACT WHICH WAS CONFIRMED BY THE CI T(A). 3 ITA NO.724/MDS/2016 6. THE APPELLANT COMPANY'S CHARTERED ACCOUNTANT, MR . S. NAGARAJAN, RECEIVED THE IMPUGNED ORDER OF THE CIT ( A) IN ITA NO.231/2009-10 DATED 31.01.2012 ON 23.02.2012 A S STATED IN PARA 2 ABOVE. THE SAME WAS HANDED OVER TO MR. M. CHOCKALINGAM, THE ACCOUNTANT OF THE APPELLANT COMPANY. MR. M. CHOCKALINGAM, WHO AFTER RECEIVING T HE IMPUGNED ORDER HAD MISPLACED IT AMONG THE OTHER REC ORDS OF THE COMPANY BY OVERSIGHT AND THE SAME WAS IRRETRIEVABLY LOST. THE RECEIPT OF THE ORDER WAS NO T BROUGHT TO THE KNOWLEDGE OF THE APPELLANT COMPANY. THE APPE LLANT COMPANY WAS UNDER THE BONA FIDE IMPRESSION THAT SUI TABLE ACTION HAD BEEN TAKEN ON THIS APPELLATE ORDER. APPA RENTLY, WHEN ALL RECORDS WERE SORTED OUT ON 22 ND MARCH, 2016, DUE TO RE-ARRANGING THE CUPBOARDS AND SHELVES, AS T HE COMPANY WAS ASKED TO VACATE THE OFFICE FROM THE EXI STING PREMISES AT 36, ' MAIN ROAD, KASTURBA NAGAR, ADYAR, CHENNAI 600020 TO THE NEW RENTED PREMISES AT 6 TH FLOOR, KARUMUTTU CENTRE, NANDANAM, CHENNAI 600035, THE IMPUGNED ORDER WAS FOUND/LOCATED AMONGST THE OTHER RECORDS RELATING TO THE APPELLANT COMPANY. IMMEDIAT ELY, THE APPELLANT COMPANY SOUGHT ADVICE OF ITS COUNSEL AS TO WHAT ACTION SHOULD BE TAKEN. 7. ACCORDINGLY, THE APPELLANT WAS ADVISED TO FIL E A BELATED APPEAL BEFORE THIS HON'BLE TRIBUNAL AGAI NST THE IMPUGNED ORDER OF THE CIT (A) WHO HAD CONFIRMED THE ADDITION MADE BY THE AO IN HIS ORDER PASSED UNDER S EE 143(3). THE APPEAL PAPERS WERE HANDED OVER TO OUR COUNSEL ON 22.03.2016 FOR PREPARING THE GROUNDS AND THE SAME WAS PREPARED AND SENT FOR THE SIGNATURE OF THE DIRECTOR. THE ITAT APPEAL FEES WAS ALSO PAID BY WAY OF A CHALLAN ON 22.03.2016. THE PAPERS WERE DULY SIGNED AND THE APPEAL WAS PRESENTED BEFORE THE REGISTRY, ITAT ON 24.03.2016. 8. I SUBMIT THAT MR.CHOCKALINGAM OF THE APPEL LANT COMPANY WAS APPOINTED AS AN ACCOUNTANT DURING SEPTEMBER 2007. HE WAS IN-CHARGE OF COLLECTING RECO RDS AND CORRESPONDENCES FROM ALL, INCLUDING STATUTORY AUTHORITIES LIKE, INCOME TAX, SERVICE TAX AND OTHER S AND TO MAINTAIN RECORDS. AS STATED EARLIER, HE HAD MISPLAC ED THE IMPUGNED ORDER OF THE CIT (A) IN WHICH THE CIT (A) HAS SUSTAINED THE ADDITION MADE BY THE AO U/S 143(3) AN D THE SAME WAS IRRETRIEVABLY LOST. THE SAID ORDER WAS MIX ED UP AMONGST OTHER RECORDS MAINTAINED BY HIM BELONGING T O THE APPELLANT COMPANY. HIS LAPSE IN HIS REGULAR RESPONSIBILITIES WERE NOTICED WHEN SOME OF THE PAPE RS, 4 ITA NO.724/MDS/2016 TAPALS, AND OTHER ORIGINAL PAPERS FROM VARIOUS STAT UTORY AUTHORITIES WERE FOUND MISSING AS STATED AT PARA 6 ABOVE. 9. I SUBMIT THAT A DOMESTIC ENQUIRY WAS CONDUCTED O N MR. M.CHOCKALINGAM ON 22/03/2016 AND SUITABLE ACTION WA S TAKEN. THEREAFTER, MR. M. CHOCKALINGAM HIMSELF RESI GNED FROM THE APPELLANT COMPANY ON 31 ST MARCH 2016. ONE SUCH ORIGINAL ORDER THAT WAS MISSING WAS THAT OF TH E IMPUGNED ORDER OF THE CIT (A). FOR THE BEST REASONS KNOWN TO MR. M CHOCKALINGAM, HE WAS FOUND TO HAVE K EPT THOSE ORIGINAL PAPERS OUT OF REACH AND THE ATTENTIO N OF THE HIGHER UP IN THE APPELLANT COMPANY WAS NOT DRAWN BY HIM. THIS IMPUGNED ORDER OF THE CIT (A) WAS LOCATED ON 22 ND MARCH 2016 AS STATED ABOVE. IN VIEW OF THESE CIRCUMSTANCES THE DELAY IN THE FILING OF THE PRESEN T APPEAL HAS ARISEN. 10. THE APPELLANT COMPANY WAS ALSO ADVISED THAT THE ISSUE ON HAND HAS RELEVANCY TO THE SUBSEQUENT ASSES SMENT PROCEEDINGS FOR AY 2012-13. IN AY 2012-13, THE APPE LLANT COMPANY HAD WRITTEN OFF IN ITS BOOKS OF ACCOUNTS AS 'BAD DEBTS' IN RESPECT OF THE VERY SAME AMOUNT TAXED IN THE YEAR 2007-08. THE APPELLANT COMPANY IS FILING THIS BELAT ED APPEAL BEFORE THIS HON'BLE TRIBUNAL, IN ORDER TO RE ITERATE THE CRUCIAL FACT WHICH IS ALREADY BROUGHT ON RECORD. TH ERE IS NO LOSS OF REVENUE IN RESPECT OF THE ADDITION MADE IN THE YEAR OF ACCOUNT, SINCE THE ENTRY RELATING TO THE ADJUSTM ENT OF CASH COLLATERAL TREATED AS BAD DEBT IN THE ASSESSM ENT YEAR 2012-13 AS THE SAME HAS ALREADY BEEN ASSESSED IN TH E ASSESSMENT YEAR 2007-08. THE PLEA OF THE APPELLANT COMPANY HAD ALWAYS BEEN THAT THE AMOUNT IN QUESTION IS A CONTINGENT OR A HYPOTHETICAL ONE, THE REALISATION O F WHICH WAS DOUBTFUL AND HENCE CANNOT BE TAXED AS INCOME. T HE APPELLANT COMPANY SUBMITS THAT THE ACCOUNTS OF THE SUBSEQUENT ASSESSMENT YEARS, WHICH WAS HIGHLIGHTED EARLIER, AND NOW BROUGHT ON RECORD, AS A MATTER OF ABUNDANT CAUTION, WOULD CONCLUSIVELY PROVE THAT THE SAID AMO UNT IN QUESTION IF TREATED AS INCOME IN THE YEAR OF ACCOUN T IS CONSIDERED AS DOUBTFUL RECOVERY IN THE LATER YEAR A ND HENCE TAKEN UNDER THE HEAD 'BAD DEBT' IN THE ASSESSMENT Y EAR 2012-13. THE SAID CLAIM OF BAD DEBTS WAS ALLOWED IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2012-13 IT SELF IN THE SCRUTINY PROCEEDINGS VIDE ORDER OF AO U/S 143(3 ) DATED 29.03.2015. 11. THE APPELLANT SUBMITS THAT THE AO INITIATED PEN ALTY 5 ITA NO.724/MDS/2016 PROCEEDINGS FOR THE VERY SAME ASSESSMENT YEAR 2007- 08 ON 30-11-2009. HE THEREAFTER LEVIED THE PENALTY UND ER SECTION 271(1) (C) ON 12-10-2012. THE SAID AO'S PEN ALTY ORDER WAS SERVED ON THE APPELLANT COMPANY ON 20-10- 2012. AGAINST THE LEVY OF PENALTY, THE APPELLANT CO MPANY FILED AN APPEAL BEFORE THE CIT (A) ON 16-11-2012. 12. THE CIT (A), DELETED THE PENALTY VIDE HIS ORDER IN ITA NO.414/13-14 DATED 21-8-2014. THE ORIGINAL ORDER OF THE CIT (A) IN THE ABOVE APPEAL WAS RECEIVED BY THE CHA RTERED ACCOUNTANT ON 24.09.2014, WHO AS PER USUAL PRACTICE HANDED IT OVER TO MR. M. CHOCKALINGAM FOR FURTHER A CTION. THIS ORDER WAS ALSO MISPLACED BY HIM. 13. I SUBMIT THAT AGAINST THE CANCELLATION OF THE P ENALTY BY CIT (A), THE DEPARTMENT FILED AN APPEAL BEFORE THE ITAT, CHENNAI. THE DATE OF FILING OF THE APPEAL BY THE DE PARTMENT AS PER FORM 36 WAS 20-11-2014. THIS FORM 36 ALONG W ITH THE ITAT HEARING NOTICE WAS SERVED ON THE COMPANY A ND WAS ALSO RECEIVED BY THE ACCOUNTANT MR.M.CHOCKALING AM. THIS PAPER WAS ALSO MISPLACED BY THE SAID ACCOUNTAN T, MR. M. CHOCKALINGAM. 14. I SUBMIT THAT THE HON'BLE ITAT, CHENNAI VIDE IT S ORDER DATED 28.01.2016 IN THE APPEAL FILED BY THE DEPARTM ENT AGAINST CANCELLATION OF PENALTY BY THE CIT (A) HAD REVERSED THE ORDER OF THE CIT (A) AND RESTORED THE LEVY OF T HE PENALTY BY THE AO IN THE ORDER DATED 12- 10-2012. THIS ORDER OF THE ITAT CONFIRMING THE LEVY OF PENALTY WAS SERV ED ON THE ADVOCATE OF THE APPELLANT COMPANY ON 23-02-2016 AND THE SAME WAS HANDED OVER TO ITS COMPANY SECRETARY, MR. SANIN PANICKER, BY THE SAID ADVOCATE ON RECORD. 15. I HUMBLY SUBMIT THAT FROM 23/02/2012 TO 24/09/2014, THE APPELLANT COMPANY WAS UNAWARE OF THE LOSS OF THE ORDER/MISPLACING THE ORDER. ON 24/09/2014, WHEN THE CHARTERED ACCOUNTANT OF THE APPELLANT COMPANY RECEIVED THE CIT (A) ORDER IN THE PENALTY PROCEEDINGS, THE APPELLANT COMPANY WAS UNDE R THE BONA FIDE IMPRESSION THAT THERE IS NO NEED TO FILE ANY APPEAL BEFORE THE ITAT IN THE QUANTUM PROCEEDINGS, IN WHIC H THE ADDITION WAS CONFIRMED BY CIT (A). 16. IT IS MOST RESPECTFULLY SUBMITTED THAT THE DATE OF PASSING THE ENTRY AS 'BAD DEBT' IN THE AY 2012-13, LATER TO THE ASSESSMENT YEAR IN QUESTION, WOULD JUSTIFY T HE INTENTION OF THE APPELLANT COMPANY TO AWAIT THE FIN AL 6 ITA NO.724/MDS/2016 OUTCOME OR DECISION OF THE TAX DEPARTMENT IN RESPEC T OF THOSE TWO ASSESSMENT YEARS, IN ORDER TO TAKE FURTHE R STEPS IF AGGRIEVED. 17. I HUMBLY SUBMIT THAT IT IS WELL KNOWN PRINCIPLE OF LAW THAT THERE CANNOT BE ANY DOUBLE TAXATION IN RESPECT OF THE SAME INCOME. IT IS SUBMITTED THAT THE AMOUNT OFFERE D BY THE APPELLANT COMPANY IN ITS INCOME TAX RETURN FOR THE AY 2007-08 SHOWS THE GROSS AMOUNT OF THE INCOME AND THE APPELLANT HAS ALSO TAKEN THE 2% OF THE GROSS AM OUNT AS NOT REALISABLE, AND TAKEN THE NET REAL INCOME. T HIS WORKING HAD BEEN CLEARLY FURNISHED AND HAS ALSO BEE N REPRODUCED IN THE ASSESSMENT ORDER FOR THE ASSESSME NT YEAR 2007-08. THE RECOVERY OF THE GROSS AMOUNT WAS A CONTINGENT ONE AND BASED ON THE MARKET CONDITION OF MICRO FINANCE COMPANIES. HENCE, THE SAME CANNOT BE TAXED IN AY 07-08, BASED ON REAL INCOME THEORY. 18. THE APPELLANT COMPANY AS A MATTER OF ABUNDANT CAUTION, FILED, BASED ON PROFESSIONAL ADVICE, A BEL ATED APPEAL IN THE QUANTUM PROCEEDINGS BEFORE THE ITAT O N 24 TH MARCH 2016. IN THE MATTER OF PENALTY PROCEEDINGS AG AINST THE ORDER OF THE ITAT CONFIRMING THE LEVY OF THE PE NALTY, THE APPELLANT COMPANY HAD PRESENTED AN INCOMPLETE SET O F PAPERS IN THE HON'BLE HIGH COURT OF JUDICATURE AT M ADRAS BEARING SR.NO.SJ29189(TCA) ON 13 TH APRIL 2016 TO COMPLY WITH THE LIMITATION PERIOD. LATER ON, THE SAID SR.NO.SJ29189(TCA)WAS CONVERTED INTO TC(A) 305 OF 2016. THE CASE WAS ADMITTED ON 22.04.2016. IN THE PROCESS, BEING PRE-OCCUPIED WITH THE FURTHER PROCES SING OF THE APPEALS BEFORE THE HIGH COURT AND THE ITAT, THE APPELLANT COMPANY COULD NOT SPECIFICALLY MENTION IN THE PLEADINGS BEFORE THE HIGH COURT THAT THE APPELLANT COMPANY WAS CONTEMPLATING/HAS FILED AN APPEAL BEFOR E THE ITAT AGAINST THE IMPUGNED ORDER OF THE CIT (A) IN T HE CURRENT PROCEEDINGS. 19. THE APPELLANT COMPANY WAS ADVISED TO FILE THIS APPEAL BEFORE THIS HON'BLE ITAT, IMMEDIATELY WITHOUT ANY F URTHER DELAY. ACCORDINGLY, THE APPEAL WAS FILED ON 24TH MA RCH 2016. I SUBMIT THAT THE DELAY IN FILING THIS APPEAL IS NEITHER WANTON NOR DELIBERATE AND IS UNINTENTIONAL WHICH IS BEYOND ITS CONTROL AND DUE TO CIRCUMSTANCES MENTIONED ABOV E. 19. FILING THIS APPEAL BEFORE THIS HON'BLE TRIBUNAL AGAINST THE ORDER OF THE CIT (A) IN ITA IT IS PRAYED THAT THIS HON'BLE ITAT MAY BE PLEASED TO CONDONE THE DELAY OF 1431 DAYS IN 7 ITA NO.724/MDS/2016 NO.231/2009-10 DATED 31-01-2012 AND RENDER JUSTICE. 3. FROM THE ABOVE AFFIDAVIT, IT IS APPARENT THAT T HE ASSESSEE COULD NOT PURSUE ITS CASE BEFORE THE TRIBU NAL BECAUSE OF THE FAULT OF THE EMPLOYEE OF THE ASSESSE E COMPANY. FURTHER ON PERUSING THE MERITS OF THE CASE , IT PRIMA-FACIE APPEARS THAT THE ADDITIONS MADE BY THE REVENUE CANNOT BE SUSTAINED. THEREFORE, WE ARE OF THE VIEW THAT WHEN TECHNICALITIES WITH RESPECT TO DELAY IN FILING THE APPEAL IS PITTED AGAINST THE MERIT OF THE CASE, THEN THE MERITS OF T HE CASE SHOULD SUPERSEDE AND HAS TO BE GIVEN UTMOST IMPORTA NCE IN THE LARGER INTEREST OF THE JUSTICE, MORE SO WHEN TH E ASSESSEE IS ENDANGERED BY THE PENAL PROVISIONS OF PENALTY AN D PROSECUTION. WE PLACE STRONG RELIANCE IN THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE COLLECTOR, LAND ACQUISITION VS. MST. KATIJI & ORS., REPORTED IN 167 ITR 471 WHILE ARRIVING AT THIS CONCLUSION. IN THAT CASE THE HONABLE APPEX COURT HAD HELD THAT WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE C AUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED, FOR THE OTHER SID E CANNOT CLAIM TO HAVE A VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE 8 ITA NO.724/MDS/2016 DELAY. FURTHER THE HON'BLE SUPREME COURT IN CASE OF VEDABHAI V/S SANTARAM, 253 ITR 798 HAD OBSERVED THAT INORDINATE DELAY CALLS FOR CAUTIONS APPROACH. THIS MEANS THERE SHOULD BE NO MALAFIDE OR DILATORY TACTICS. 'S UFFICIENT CAUSE' SHOULD RECEIVE LIBERAL CONSTRUCTION TO ADVAN CE SUBSTANTIAL JUSTICE. IN THE CASE OF THE ASSESSEE TH E DELEY HAD OCCURRED DUE TO THE NEGLIGENCE OF THE ACCOUNTANT OF THE ASSESSEE AND THE DELAY IS NOT WILLFUL. ACCORDINGLY, IN THE INTEREST OF JUSTICE, WE HEREBY CONDONE THE DELAY OF 1431 DAYS AND PROCEED TO DISPOSE OF THE APPEAL ON MERITS. 4. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS.2,10,99,000/- MADE BY THE LEARNED ASSESSING OFFICER BEING INCOME FROM BUY-OUT LOANS OF THE PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2007- 08. 5. BRIEF FACTS OF THE CASE ARE THAT THAT THE ASSESS EE IS A NON-BANKING FINANCIAL COMPANY ENGAGED IN THE BUSINE SS OF MONEY LENDING TO SELF-HELP GROUPS (MICRO FINANCE) FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 9 ITA NO.724/MDS/2016 29.10.2007 ADMITTING INCOME OF `5,19,73,900/-, WHI CH WAS REVISED SUBSEQUENTLY ON 17.10.2008 DECLARING INCOME OF `5,75,22,740/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS COMPLETED BY THE LEAR NED ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT O N 30.11.2009 WHEREIN THE LEARNED ASSESSING OFFICER MA DE ADDITION TOWARDS LIABILITY TOWARDS CREDIT DEFAULT OF RS.2,10,99,000/- AND DISALLOWANCE UNDER SECTION 14A OF THE ACT FOR `1,18,765/- . 6.1 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER WITH RESPECT TO THE ADDITION MADE FOR RS.2, 10,99,000/- AGGRIEVED BY WHICH THE ASSESSEE IS NOW IN APPEAL BE FORE US. 6.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD CREDITED AN AMOUNT OF RS.7,70,99,863/- TOWARDS INCOME FROM BUY OUT OF LOANS. THE DETAILS OF WHICH ARE AS FOLLOWS:- TRANCHE I GROSS CONSIDERATION 40,77,83,271 10 ITA NO.724/MDS/2016 LESS:BOOK VALUE OF LOANS 35,55,31,021 5,22,52,250 LESS: LIABILITY TOWARDS CREDIT DEFAULT 82,00, 000 4,40,52,250 LESS: PAYABLE TO ICICI BANK 18,05,794 4,22,46,456 TRANCHE II GROSS CONSIDERATION 33,81,65,584 LESS:BOOK VALUE OF LOANS 29,81,46,413 4,00,19,171 LESS: LIABILITY TOWARDS CREDIT DEFAULT 67,64, 000 3,32,55,171 LESS: PAYABLE TO ICICI BANK 20,22,975 3 ,12,32,196 TRANCHE III GROSS CONSIDERATION 30,67,34,611 LESS:BOOK VALUE OF LOANS 27,35,22,174 3,32,21,437 LESS: LIABILITY TOWARDS CREDIT DEFAULT 61,35, 000 2,70,77,437 LESS: PAYABLE TO ICICI BANK 2,70,77,437 10,05,56,089 LESS: EXPENSES RELATING TO BUY OUT REPAYMENT LOSS : 2,34,56,226 INCOME OFFERED FROM BUY-OUT OF LOANS : 7,70,99,863 11 ITA NO.724/MDS/2016 6.3. IN THE COMPUTATION AS STATED HEREINABOVE, THE LIABILITY TOWARDS CREDIT DEFAULT IS REDUCED FROM EACH TRANCHE AS PER THE AGREEMENT AS FOLLOWS:- DETAILS AMOUNT RS. CASH COLLATERAL FOR TRANCHE I 82,00,000 CASH COLLATERAL FOR TRANCHE II 67,64,000 CASH COLLATERAL FOR TRANCHE III 61,35,000 TOTAL CASH COLLATERAL PROVIDED 2,05,99,000 SIC 2,10,99,000 6.4. THE ASSESSEE HAD EXPLAINED THAT AS PER THE TER MS OF SANCTION OF THE SAID SELL OUT OF LOANS GRANTED TO S ELF HELP GROUPS, ICICI BANK LTD. HAS STIPULATED THAT THE ASS ESSEE SHALL PROVIDE A CASH COLLATERAL FOR AN AMOUNT EQUIVALENT TO A MINIMUM OF 2% OF THE PURCHASE CONSIDERATION IN THE FORM OF A BANK DEPOSIT IN AN ACCOUNT WITH THE BANK. AS PER TH E TERMS OF SANCTION, THE AMOUNT IN THE CASH COLLATERAL ACCOUNT SHALL NOT BE RELEASED TO THE ASSESSEE IN THE FOLLOWING CIRCUM STANCES:- I) ANY AMOUNT DUE TO THE ICICI BANK REMAINING OUTSTANDING; & II) EVENT OF DEFAULT UNDER ANY OF THE TRANSACTION CONDITIONS. BASED ON THE ABOVE TERMS OF SANCTION, THE ASSESSEE COMPANY HAS PROVIDED CASH COLLATERAL ON THE THREE T RANCHES 12 ITA NO.724/MDS/2016 AS MENTIONED HEREINABOVE. IT WAS FURTHER EXPLAINED BY THE ASSESSEE AS FOLLOWS:- THE ABOVE AMOUNT OF CASH COLLATERAL IS WITHHELD BY THE BANK TOWARDS POSSIBLE DEFAULT IN THE LOANS AND THE ASSESSEE DOES NOT HAVE ANY IMMEDIATE RIGHT OVER THE SAID AMOUNT HELD IN A SEPARATE DEPOSIT WITH ICICI BANK. AS PER THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE, WHICH IS FURNISHED IN THE NOTES FORMING PART OF THE AUDITED ACCOUNTS ALONG WITH THE RETURN OF INCOME, THE PROFIT / LOSS ON SALE OF LOANS IS ACCOUNTED FOR NET OF THE AMOUNT OF CASH COLLATERAL PROVIDED. SINCE THE ASSESSEE DOES NOT HAVE ANY RIGHT OVER THE CASH COLLATERAL UNLESS AND UNTIL ALL THE AMOUNTS DUE TO ICICI BANK ARE SETTLED IN RESPECT OF THE LOANS SOLD TO THEM, THE SAME DOES NOT PARTAKE THE CHARACTER OF INCOME AT THE POINT OF SALE OF THE LOANS AND IT CAN BE TREATED AS INCOME OF THE ASSESSEE ONLY WHEN IT FULFILS ALL THE CONDITIONS OF THE TERMS OF THE BUYOUT OF LOANS BY ICICI BANK. HENCE, IT IS SUBMITTED THAT THE SAID AMOUNT OF CASH COLLATERAL WHICH IS HELD IN SUNDRY CREDITORS CANNOT BE TREATED AS INCOME FOR THE ASSESSMENT YEAR 2007-08. 6.5 HOWEVER, THE LEARNED ASSESSING OFFICER REJECTED THE SUBMISSION OF THE LEARNED AUTHORIZED REPRESENTATIVE AND MADE ADDITION OF `2,10,99,000/- BY HOLDING AS UNDER :- THE AMOUNT CLAIMED IS NOT AN ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE INCOME. TH E AMOUNT IS KEPT WITH THE ICICI BANK AS CASH COLLATER AL FOR AN AMOUNT EQUIVALENT TO A MINIMUM OF 2% OF THE PURC HASE CONSIDERATION IN THE FORM OF BANK DEPOSIT IN AN ACC OUNT WITH THE BANK. THUS IT IS VERY CLEAR THAT IT IS A M ERE 13 ITA NO.724/MDS/2016 DIVERSION OF INCOME BY OVERRIDING TITLE. WHERE AN A SSESSEE APPLIED THE INCOME TO DISCHARGE AN OBLIGATION AFTER THE INCOME REACHES THE HANDS OF THE ASSESSEE, IT WOULD BE AN APPLICATION OF INCOME AND THIS WILL RESULT IN TAXAT ION OF SUCH INCOME IN THE HANDS OF THE ASSESSEE. AN OBLIGA TION TO APPLY THE INCOME IN A PARTICULAR WAY BEFORE IT I S RECEIVED BY THE ASESSEE OR BEFORE IT HAS ACCRUED OR ARISEN TO THE ASSESSEE RESULTS IN DIVERSION OF INCOME. ON THE OTHER HAND, AN OBLIGATION TO APPLY INCOME WHICH HAS ACCRUED OR ARISEN OR HAS BEEN ARRIVED, AMOUNTS MERE LY TO APPORTIONMENT OF THE INCOME, NOT TO ITS DIVERSION, AS DECIDED IN RAJA BEJOY DUDHURIA VS CIT (1933) 1 ITR 135 (PC). IN THIS CONNECTION RELIANCE IS PLACED ON THE FOLLO WING DECISIONS OF SUPREME COURT. CIT VS. DALMIA CEMENTS LIMITED (237 ITR 617 (SC) AND CIT VS. SITALDAS TIRA THDAS (41 ITR 367). IN BOTH THE CASES, THE MEANING OF 'DI VERSION OF INCOME BY OVERRIDING TITLE' HAS BEEN EXPLAINED B Y THE HEN' BLE SUPREME COURT WHICH IS STATED AS BELOW' 'IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTION IN TRUTH, NEVER REACHED THE ASSESSEE AS HIS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONE'S OWN INCOME, WHICH HAS BEEN RECEIVED AND IS SINCE APPLIED' RELIANCE IS ALSO PLACED ON THE SUPREME COURT'S DECI SION IN THE CASE OF CIT VS. TRAVANCORE SUGARS & CHEMICALS PVT. LTD. (88 ITR 1), WHEREIN THE APEX COURT HAS OB SERVED 14 ITA NO.724/MDS/2016 THAT: 'IT IS THUS CLEAR THAT WHEREBY THE OBLIGATION INCOM E IS DIVERTED BEFORE IT REACHES THE ASSESSEE IT IS DEDUC TIBLE. BUT, WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES T HE ASSESSEE, IT IS MERELY A CASE OF APPLICATION' OF IN COME TO SATISFY AN OBLIGATION OF PAYMENTS AND IS THEREFORE NOT DEDUCTIBLE' FOR THE ABOVE STATED REASONS AND ALSO THE CITED CAS E LAWS WHICH HAVE CLEARLY DEFINED WHAT IS THE INCOME TO BE ASSESSED IN THE HANDS OF THE ASSESSEE, THE AMOUNT O F RS. 2,10,99,000/- CLAIMED BY THE ASSESSEE COMPANY TOWARDS THE 'LIABILITY TOWARDS CREDIT DEFAULT' IS A SSESSABLE IN THE HANDS OF THE ASSESSEE COMPANY. ACCORDINGLY T HE AMOUNT OF RS. 2,10,99,000/- IS ADDED TO THE TOTAL I NCOME OF THE ASSESSEE COMPANY. 6.6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THE ISSUE AGAINST THE ASSESSEE BY OB SERVING AS UNDER:- 6.1.2.1 IT IS CL EAR FROM THE FACTS THAT THE ENTIRE SALE CONSIDERATION HAS NOT ONLY ACCRUED TO THE: APPELLANT BUT HAS ALSO BEEN RECEIVED BY IT. THEREFORE A PART OF THE SALE CONSIDERATION, THAT HAS ALRE ADY BEEN RECEIVED, KEPT. IN THE F.D WITH THE BUYER I.E.) ICICI AS SECURITY FOR LIABILITY TOWARDS CREDIT DEFAULT CANNOT BE SAID TO HAVE NOT ACCRUED AS INCOME TO THE APPELLANT. APART FROM THE ABOVE SAID REASON GIVEN BY THE AO FOR NOT ALLOWING THE SAID AMOUNT AND BRINGING THAT TO TAX, IT IS STATED EXPENDITURE THAT IS ALLOWABLE IS THE ONE WHICH ACTUALLY EXISTS DURING THE PREVIOUS YEAR. BUT MAKING PROVISION FOR AN EXPENDITURE WHICH DEPENDS UPON HAPPENING OF AN EVENT IS NOT AN ALLOWABLE EXPENDITURE. SINCE THE LIABILITY IS NOT CAPABLE OF BEING CONSTRUED .IN DEFINITE TERMS AND SINCE THE 15 ITA NO.724/MDS/2016 LIABILITY HAS NOT ARISEN DURING THE ACCOUNTING YEAR IT IS A CONTINGENT LIABILITY. CONTINGENT LIABILITY DOES NOT CONSTITUTE EXPENDITURE AND CANNOT BE THE SUBJECT MATTER OF DEDUCTION EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSES IS TOWARDS LIABILITY ACTUALLY EXISTING AT THE TIME. SETTING APART MONEY WHICH MIGHT BECOME EXPENDITURE ON HAPPENING OF AN EVENT IS NOT ALLOWABLE EXPENDITURE. RELIANCE FOR THIS VIEW IS PLACED ON THE FOLLOWING DECISIONS: (I) SHREE SAJJEN MILLS LTD. VS. CIT 156 ITR 585 (SC) (:II) MAHADEO GANGAPRASAD V. 2 ND LTO, 61 ITR 384 [BOM] AND (III) INDIAN MOLASSES COMPANY LTD. VS. CIT 37 LTR 66 (SC). IT MAY FURTHER BE STATED THAT WHERE A LIABILITY ARISING OUT OF A CONTRACTUAL OBLIGAT ION IS DISPUTED, THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION IN THAT BEHALF IN THE A SSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE DISPUTE IS FINALLY SETTLED. THE HONBLE SUPR EME COURT IN THE CASE OF CIT V. GEMINI CASHEW SALES CORPORATION, 65 ITR 643 HELD THAT W HERE THE OBLIGATION ITSELF IS PURELY CONTINGENT THE QUESTION OF ESTIMATING ITS PRESENT VALUE WILL NOT ARISE. AN ESTIMATED INCOME OR IIABILITY WHICH IS YET TO CRYSTALLIZE, CAN ONLY BE ADJUSTED AS CONTINGENT ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR (SAURASTRA CEMENT AND CHEMICAL INDUSTRIES LTD V. CIT, 213 ITR 523 (GUJ). SINCE THERE IS NO OBLIGATION CAPABLE OF COMMERCIAL VALUATION, THE CLAIM OF THE ASSESSEE @ 2 PERCENT OF THE INCOME FROM BUY OUT OF LOANS IS NO PERM ISSIBLE. FURTHER THE DECISION OF THE I TAT MADRAS BENCH IN THE CASE OF INCOME-TAX OFFICER VS SERVAL ENGG. WORKS (P.) LTD [35 ITD 482 IS ALSO RELEVANT ON THE ISSUE. RELEVANT EXTRACT OF THE SAID DECISION IS REPRODUCED AS UNDER: 'THE CARDINAL FACT OF THE INSTANT CASE WAS THAT THE ASSESSEE HAD RECEIVED IN FULL CONTRACTED PRICE FOR THE MACHINERIES SUPPLIED BY IT TO THE 16 ITA NO.724/MDS/2016 PARTIES. NOW UNDER THE SCHEME OF THE ACT, THE AMBIT OF TAXATION VARIES 'WITH THE FACTOR OF RESIDENCE IN THE PREVIOUS YEAR. IN RESPECT O F RESIDENTS - AND THE ASSESSEE WAS A RESIDENT) THE CHARGE IS ON I) INCOME RECEIVED OR DEEMED TO BE RECEIVED IN INDIA. IN THE YEAR OF ACCOUNT, THE DATE OR PLACE OF ITS ACCRUAL BEING IMMATERIAL SECTION 5(1)(A) (II} INCOME WHICH. ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA DURING THE ACCOUNTING YEAR, THE DATE OR PLACE OF ITS RECEIPT BEING IMMATERIAL SECTION 5{ 1)( B) , AND (III ) INCOME WHICH ACCRUES. OR ARISES OUTSIDE INDIA (DURING THE ACCOUNTING YEAR, EVEN IF IT. IS NOT RECEIVED IN OR BROUGHT INTO INDIA SECTION 5(1)(C)] SECONDLY, IT IS WELL SETTLED THAT WHENEVER THE RIGHT TO RECEIVE MONEY IN THE COURSE OF TRADING TRANSACTIONS ACCRUES OR CRISES OR THE MONEY IS REALIZED , THE PROFIT OR THE INCOME EMBEDDED IN THE RECEIPT AL SO ARISES OR A CCRUES OR IS RECEIVED. FOR A . FACT, EVEN WHEN THE SALE CONSIDERATION IS RECEIVED NOT IN MONEY BUT IN MONEYS WORTH, THAT IS TO SAY EVEN IN CASES OF EXCHANGE THE ABOVE PRINCIPLE APPLIES: IN THE INSTANT CASE , THE ASSESSEE HAD RECEIVED THE SALE CONSIDERATION IN FULL. HENCE, THE PROFIT EMBEDDED IN THE SALE CONSIDERATION WAS SIMULTANEOUSLY REALISED OR RECEIVED BY THE ASSESSEE. WITH THE RESULT, SECTION. 5(1)(A) WOULD GET ACTIVATED TO BRING ON RECEIPT BASIS, THE, ENTIRE PROFIT ARISING OUT OF THE SAID TRANSACTION. THE ORDER OF THE COMMISSIONER IN ALLOWING THE ASSESSEE'S CLAIM. WAS TO BE SET ASIDE. FURTHER IN CASES WHERE A CLAIM FOR REVENUE DEDUCTION IS MADE ON THE BASIS. OF 17 ITA NO.724/MDS/2016 A PROVISION MADE AS RESPECTS A LEGALLY ENFORCEABLE [ARID NOT A MERE CONTINGENT) LIABILITY, THE MATTER IS ALWAYS E XAMINED IN. THE CONTEXT OF SECTION 37(1) AND EVEN SECTION 28. AS IT WAS FOUND EARLIER THAT. THE PROVISION IN RESPECT OF THE SAID SUM RELATED TO A CONTINGENT LIABILITY IT WAS NOT DEDUCTIBLE.' IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSIDERED VIEW THAT SINCE IN THE FACTS OF THE CASE, THERE IS NO OBLIGATION CAPABLE OF COMMERCIAL VALUATION, THE CLAIM OF THE APPELLANT @ ABOUT 2% OF THE INCOME FROM BUY OUT OF LOANS IS NOT PERMISSIBLE. ALSO THE CLAIM OF THE APPELLANT THAT THE SAID AMOUNT, KEPT IN THE FIXED DEPOSITS WILL ACCRUE ON THE SATISFACTORY DISCHARGE OF LOANS BY THE BORROWERS IS NOT TENABLE. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN BRINGING TO TAX THE AMOUNT WHICH HAS NOT ONLY ACCRUED BUT ALSO HAS BEEN RECEIVED IS UPHELD AND THE GROUNDS OF APPEAL RELATING TO THIS ISSUE ARE DISMISSED. 7. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES ON THE EARLIER OCCASIONS AND PRAYED THA T THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER WHI CH WAS FURTHER CONFIRMED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) MAY BE DELETED. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, VEHEMENTLY ARGUED IN THE SUPPORT OF THE ORDER S OF THE REVENUE. 18 ITA NO.724/MDS/2016 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ORDER OF THE LEARNED ASSESSING OFFICER IT IS EVIDENT THAT HE HAS MADE THE ADDITION BECAUSE OF THE FOLLOWING REASONS:- I) THE AMOUNT OF DEDUCTION OF ` 2,10,99,000/- CLAIM ED BY THE ASSESSEE IS NOT THE ACTUAL EXPENDITURE INCUR RED FOR EARNING THE INCOME. II) THE CLAIM OF THE ASSESSEE IS NOTHING BUT MERE DIVERSION OF INCOME BY OVERRIDING TITLE / APPLICATI ON OF INCOME TO DISCHARGE AN OBLIGATION AFTER THE INCOME REACHES THE HANDS OF THE ASSESSEE WHICH IS A TAXABL E INCOME. FURTHER ON PERUSING THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) IT IS APPARENT THAT HE HAS SUS TAINED THE ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE OF T HE FOLLOWING REASONS:- I) THE ENTIRE SALE CONSIDERATION HAS NOT ONLY ACCRU ED TO THE APPELLANT BUT IT HAS ALSO BEEN RECEIVED BY THE APPELLANT AND KEPT IN FD WITH THE BUYER VIZ. ICICI BANK AS SECURITY FOR LIABILITY TOWARDS CREDIT DEFAULT. 19 ITA NO.724/MDS/2016 II) THE DEDUCTION CLAIMED BY THE ASSESSEE IS NOTHIN G IN THE NATURE OF PROVISION FOR EXPENDITURE WHICH IS CONTINGENT IN NATURE. III) LIABILITY ARISING ON CONTRACTUAL OBLIGATION CA N BE CLAIMED AS DEDUCTION ONLY WHEN THE DISPUTE IS FINAL LY SETTLED. IV) THE OBLIGATION OF THE ASSESSEE CANNOT BE COMMERCIALLY VALUED. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) PL ACED RELIANCE ON VARIOUS DECISIONS CITED IN HIS ORDER WH ILE CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFIC ER FOR THE ABOVE STATED REASONS. 10. PERUSING THE FACTS OF THE CASE, WE DO NOT SUBSC RIBE TO THE VIEWS OF THE REVENUE AUTHORITIES. AT THE INITIA L STAGE, THE LEARNED ASSESSING OFFICER HAS MISCONSTRUED THE ISSU E BY RELYING ON THE PRINCIPLES OF DIVERSION OF INCOME BY OVERRIDING TITLE. FURTHER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO MISCONSTRUED THE ISSUE BECAUSE H E WAS OF THE VIEW THAT THE ASSESSEE HAS RECEIVED THE INCO ME AND 20 ITA NO.724/MDS/2016 DEDUCTION CLAIMED BY THE ASSESSEE IS ONLY IN THE NA TURE OF CONTINGENT LIABILITY. IT IS WORTHWHILE TO MENTION T HAT THOUGH TECHNICALLY ASSESSEE HAS NOT RECEIVED THE MONEY IT WAS WITHHELD BY M/S. ICICI BANK, AND IT IS BEYOND THE S COPE OF THE ASSESSEE TO HAVE A CONTROL OVER IT. HOWEVER, THIS IS A CASE WHERE THE ASSESSEE HAS RECEIVED CERTAIN INCOME FROM M/S. ICICI BANK TOWARDS SELL OUT OF ITS LOAN, OUT OF WHI CH `2,10,99,000/- IS WITHHELD BY M/S. ICICI BANK BY PL ACING IT IN THE NAME OF THE ASSESSEE AS FIXED DEPOSITS WHICH IS TO BE RELEASED TO THE ASSESSEE ONLY ON THE RECOVERY OF TH E ENTIRE DEBTS. IN THE EVENT THERE IS A DEFAULT IN RECOVERY TO THE EXTENT OF SUCH DEFAULT, THE AMOUNT WILL BE APPROPRIATED BY M/S. ICICI BANK FROM THE FIXED DEPOSIT ACCOUNT OF THE ASSESSEE . THUS, THERE IS A PREDOMINANT ELEMENT OF UNCERTAINTY HOVER ING OVER THE FIXED DEPOSIT MAINTAINED BY THE ASSESSEE WITH M /S. ICICI BANK. ACCOUNTING STANDARD AS-9 WITH RESPECT TO REVE NUE RECOGNITION CLEARLY PROVIDES AS UNDER:- TIMING OF REVENUE RECOGNITION : REVENUE FROM SALE OF RENDERING SERVICES SHOULD BE RECOGNIZED AT THE TIME OF THE SALE OR RENDERING OF SERVICES. HOWEVER, IF AT THE TIME OF RENDERING O F 21 ITA NO.724/MDS/2016 SERVICES OR SALE THERE IS SIGNIFICANT UNCERTAINTY I N ULTIMATE COLLECTION OF THE REVENUE, THEN THE REVENUE RECOGNITION IS POSTPONED AND IN SUCH CASES REVENUE SHOULD BE RECOGNIZED ONLY WHEN IT BECOMES REASONABLY CERTAIN THAT ULTIMATE COLLECTION WILL BE MADE. IT ALSO APPLIES TO THE REVENUE ARISING OUT OF ESCALATION OF PRICE; EXPORT INCENTIVE, INTEREST, ETC. 11. FROM THE ABOVE, IT IS APPARENT THAT THE ASSESSE E HAS BEEN RIGHTLY ADVISED BY ITS CHARTERED ACCOUNTANT NO T TO TREAT THE AMOUNT OF `2,10,99,000/- WITHHELD BY M/S. ICICI BANK IN THE FORM OF FIXED DEPOSITS IN THE NAME OF THE ASSES SEE AS THE INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR BECAUSE THERE IS A SIGNIFICANT UNCERTAINTY IN THE U LTIMATE REALIZATION OF THE FIXED DEPOSITS. IT IS PERTINENT TO MENTION HERE THAT ADHERENCE OF ACCOUNTING STANDARD IS MANDATORY WITH RESPECT TO LIMITED COMPANIES. FURTHER, THE POLICY O F THE ASSESSEE COMPANY IS ALSO IN PARITY WITH THE ACCOUNT ING STANDARDS (AS-9). THEREFORE, IN THESE CIRCUMSTANCES , THE ASSESSEE IS LEFT OUT WITH NO OTHER OPTION OTHER THA N TO DISREGARD THE AMOUNT RETAINED BY M/S. ICICI BANK AS ITS INCOME FOR THE RELEVANT ASSESSMENT YEAR AND TO DECL ARE THE 22 ITA NO.724/MDS/2016 SAME ONLY IN THE ASSESSMENT YEAR WHEN SUCH UNCERTAI NTY PERISHES. HENCE, WE DO NOT FIND IT PROPER ON THE PA RT OF THE LEARNED ASSESSING OFFICER TO MAKE ADDITION OF `2,10 ,99,000/- BY HOLDING IT TO BE APPLICATION OF INCOME TO DISCHA RGE AN OBLIGATION AFTER THE INCOME REACHES IN THE HANDS OF THE ASSESSEE. WE ALSO FIND IT DO NOT PROPER ON THE PAR T OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO HO LD IT AS CONTINGENT LIABILITY AND THEREFORE NOT ALLOWABLE AS DEDUCTION . FOR THE ABOVE STATED REASONS, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION OF `2,10,9 9,000/- BEING THE FIXED DEPOSIT RETAINED BY M/S. ICICI BANK TOWARDS SECURITY FOR DEFAULT OF LOANS SOLD OUT. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH SEPTEMBER, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ! # /JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, % /DATED 15 TH SEPTEMBER, 2016 SOMU '( )( /COPY TO: 1. APPELLANT 2. RESPONDENT 3. * ( ) /CIT(A) 4. * /CIT 5. ( - /DR 6. /GF .