The Commissioner of Income-tax-IV V. M/s.Lanco Kondapalli Power (P) Ltd.,

ITTA/62/2013

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The case involves an appeal by the Commissioner of Income Tax-IV Hyderabad against the decision of the Income Tax Appellate Tribunal, which had deleted certain additions to the income of M/s. Lanco Kondapalli Power (P) Ltd. for the assessment year 2004-05. The disputed amounts included Rs.2,55,60,283 and Rs.5,90,71,000, which were related to receipts and tax reimbursements from A.P. TRANSCO, respectively. The Tribunal found that since the amounts were disputed and pending arbitration, they did not qualify as income under the mercantile system of accounting until they were accepted and paid by the debtor. The High Court agreed with the Tribunal's application of the law, referencing the Supreme Court's decision in Godhra Electricity Company Ltd. v. C.I.T., which emphasized that income tax is levied on actual income, not hypothetical or disputed amounts.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 679572 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-07-2013
• Assessment Year: misc
• Other Referred Cases: Godhra Electricity Company Ltd. v. C.I.T.
• Laws Referred To: Income Tax Act, Accounting Standard-9
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: J V PRASAD
• Keywords: Accrual of income; Arbitration; Disputed Income; Income Tax; Mercantile system of accounting
• Section: 225 ITR 746

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU INCOME TAX APPELLATE TRIBUNAL APPEAL NO.62 OF 2013 DATED:23.7.2013 Between: The Commissioner of Income Tax-IV Hyderabad … Appellant And M/s. Lanco Kondapalli Power (P) Ltd., Plot No.4, Software Units Layout Hi-tech City, Madhapur Hyderabad … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A. NO.62 OF 2013 JUDGMENT: (per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is preferred against the judgment and order of the learned Tribunal, dt.18.5.2012, in relation to assessment year 2004-05 and is sought to be admitted on the following suggested questions of law. 1. “Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in deleting the addition of Rs.2,55,60,283/-, the difference in receipts from A.P. TRANSCO? 2. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in deleting the addition of Rs.5,90,71,000/- being the tax paid by the assessee and reimbursable by the A.P. TRANSCO? 3. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in deleting the addition of Rs.5,90,71,000/- on the ground that amount is disputed and the dispute is yet to be resolved by the Arbitrator? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in relying on the Accounting Standard-9 issued by the ICAI, which has not been approved by the Central Government?” After hearing the learned counsel for the appellant, Mr. J.V. Prasad, and after going through the impugned judgment and order of the learned Tribunal, it appears that certain amount payable by the A.P. TRANSCO to the respondent - assessee is in dispute and such dispute is yet to be resolved by arbitration. Merely because the assessee has raised a bill for recovery of certain amount, it does not partake the character of ‘income’. If the amount is disputed and the same is pending adjudication in arbitration, there is no crystallization and quantification of the amount due and payable by the debtor. Unless the debtor accepts the amount due and paid, the question of accrual of income even in mercantile system of accounting does not and cannot arise. The learned Tribunal has followed the principle of law laid down by the Supreme Court in Godhra Electricity Company Ltd. v. C.I.T.[1]. The said decision has stated the law as follows. “Income tax is a levy on income. No doubt, the Income Tax Act take into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt. But the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income which does not materialize.” The aforesaid ratio is systematically followed by all concerned and relying on the same, the learned Tribunal has deleted the said income and we think that it has correctly done so. Under the circumstances, we do not find any merit in this appeal and the same is accordingly dismissed. No order as to costs. ________________________ K.J. SENGUPTA, CJ ______________________ K.C. BHANU, J 23.7.2013 bnr [1] 225 ITR 746 "