Income Tax Appellate Tribunal - Indore
M/S Ayush Ajay Construction Pvt. Ltd. , ... vs The Dcit Central-(1), Indore on 12 January, 2024
आयकर अपील य अ धकरण,इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND
SHRI B.M. BIYANI, ACCOUNTANT MEMBER
ITA No.174/Ind/2023
Assessment Year: 2018-19
Ayushajay Construction Pr.CIT-1,
Private Limited, Indore.
3/3, South Tukoganj, बनाम/
Indore Vs.
(Assessee / Appellant) (Revenue / Respondent)
PAN: AACCA 5523 B
Assessee by Shri Prakash Jain and Ms. Shreya Jain, CAs
Revenue by Ms. Simran Bhullar, CIT DR
Date of Hearing 22.11.2023
Date of Pronouncement 12.01.2024
आदे श/O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by revision-order dated 29.03.2023 passed by learned Pr. Commissioner of Income-Tax, Indore ["PCIT"] u/s 263 of Income-tax Act, 1961 ["the Act"], which in turn arises out of assessment-order dated 26.02.2021 passed by ACIT, Central Circle-1, Indore ["AO"], the assessee has filed this appeal on following grounds:
(1) That on the facts and in the circumstances of the case and in law the ld.
Pr. CIT erred in initiating revision proceedings u/s 263 of the Act by ignoring the fact that during the assessment proceedings the Ld. AO made the specific query regarding the year of taxability of award and after satisfying with the reply and evidence filed by the company accepted that award is not taxable in the assessment year in question, thus, according to explanation - 2 of section 263 the PCIT can't invoke section 263. Page 1 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 (2) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in treating the order dated 26.02.2021 passed u/s 143(3) of the Act by the National Faceless Assessment Centre, Delhi for A.Y. 2018-19 as erroneous and prejudicial to the interests of revenue. (3) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in concluding that the ld. AO has neither made any inquiry nor the assessee company filed any reply and evidence regarding the taxability of the award shown in Note No. 7 of the audited balance sheet of Rs. 29.03 crores and Rs. 3.52 crores termed as Nardana Claim-1 and Nardana Claim-1 and Nardana Claim - 2.
(4) That on the facts and in the circumstances of the case and in law the ld. Pr. CIT erred in not relying on the decision of Hon'ble Apex Court, various High Courts and Tribunals including jurisdictional tribunal wherein it was held that as per explanation 2 section 263 order cannot be revised where the order is passed by the ld. AO after making proper enquiry. (5) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT failed to appreciate the facts that the award passed by the arbitral which is challenged before the Court shall be accrued and liable to tax only in the year when the final order is passed by the Court.
(6) That on the facts and in the circumstances of the case and in law the Ld. Pr. CIT erred in not giving any finding on the issue that the company included the income under award in issue that the company included the income under award in total income of A.Y. 2019-20 when the final order of Court is pronounced and in case if the award is taxed in the A.Y. 2018-19, in that case appropriate direction be given to the Ld. AO that same should be subtracted from the total income of A.Y. 2019-20 as it is settled law that same income cannot be taxed twicely.
2. The background facts leading to present appeal are such that the assessee-company, engaged in the business of construction, operation and maintenance of infrastructure projects under Govt. schemes, filed its return of income of relevant AY 2018-19 on 24.10.2018 which was subjected to scrutiny-assessment and the AO completed assessment u/s 143(3) after making certain additions. Subsequently, Ld. PCIT examined the record of assessment-proceeding and viewed that the assessment-order passed by AO is erroneous in so far it is prejudicial to the interest of revenue which Page 2 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 attracts revisionary-jurisdiction u/s 263. Accordingly, the PCIT issued show-cause notice dated 14.03.2023, para 4 of the same is re-produced below:
"4. On perusal of assessment records, it is found that you have submitted that liability shown in Note no. 7 of the Audited balance sheet of Rs. 29.03 crores and Rs.
3.52 crores termed as Nardana claim-1 and Nardana claim-2 was under protest against the bank guarantee but the same is sub judicial as Govt. has filed suit against company in Dhule District Court. You have further submitted that the arbitral award was finalized in favour of the company on 26.09.2016 for award of Rs. 38,70,34,948/- including interest. That out of the said amount Rs. 29,02,76,211/- was received in A.Y. 18-19 against 100% Bank Guarantee on 100% margin since Government of India and Government of Maharashtra had not accepted the arbitral award. Since, the arbitration amount was received against 100% bank guarantee; therefore, the same was shown as liability in the balance sheet. You have further submitted that income of Rs. 29,02,76,211/- has been offered to tax in AY 19-20 after the order of Dhule Court vide order dated 15.10.2018 which is a matter of verification. Since, the liability created by you in the books of accounts for Nardana claim-1 and Nardana claim-2 is contingent in nature as it is dependent upon outcome of the Hon'ble Court, such liability as per ICDS cannot be recognized and, therefore, the amount received on arbitral award is taxable during the year of receipt as business income. However, the same was not offered to tax in A.Y. 2018-19 on account of income received as arbitral award under the head Profits and Gains of Business and Profession."
3. By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response thereto, the assessee filed a detailed reply, running over 14 pages, to PCIT which is re- produced by PCIT in Para No. 2 / Page No. 4 to 17 of revision-order. The assessee submitted to PCIT that the issue raised by him had been duly examined by AO during assessment-proceeding through notices u/s 142(1) and after considering replies filed by him, the AO was fully satisfied. The assessee also made a categorical submission to PCIT "On the issue raised in the show-cause notice, it is submitted that your honour has not verified complete assessment record. If your honour will go through the assessment record, you will find that the Ld. AO has raised the detailed query in this Page 3 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 regard and company filed detailed submission/explanation with legal evidence which will be clear from the followings...". With such submission, the assessee requested the PCIT to drop the proceedings u/s 263. However, the reply submitted by assessee did not convince Ld. PCIT who went on concluding that the AO had completed assessment without making necessary investigation on the issue raised by him. Ld. PCIT also observed that the section 263 has been amended and Explanation 2, as reproduced below, had been introduced therein, therefore the assessment-order is deemed to be erroneous-cum-prejudicial to the interest of revenue if the same had been passed without inquiries or verification which should have been made:
"Explanation 2 - "For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the Principal Commissioner or Commissioner -
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into the claim;
(c) ....
(d) ..."
Finally, Ld. PCIT passed revision-order terming the assessment-order as erroneous-cum-prejudicial to the interest of revenue and setting aside the same alongwith directing the AO to re-frame assessment after examining the issue raised by him. Aggrieved by such revision-order, the assessee has filed this appeal.
Page 4 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
4. At the outset, we may mention here that the show-cause notice talks of 'Nardana Claim-1' of Rs. 29.03 Crore (exact amount - Rs. 29,02,76,211/-) and 'Nardana Claim-2' of Rs. 3.52 Crore (exact amount - Rs. 3,52,21,375/-) but ultimately identified only 'Nardana Claim-1' of Rs. 29,02,76,211/- as the item of income escaping assessment rendering the assessment-order as erroneous-cum-prejudicial to the interest of revenue. Thereafter, in Para No. 3.2 of revision-order, the PCIT has concluded that 'Nardana Claim-1' of Rs. 29,02,76,211/- should be considered as revenue for AY 2018-19 and should be added to total income. But, thereafter, in subsequent para 3.2 and 3.3, the PCIT has talked of 'Nardana Claim-1' and 'Nardana Claim-2'. Therefore, the revision-order passed by PCIT is clumsy and not very clear as to whether the PCIT intended to revise assessment-order qua 'Nardana Claim-1' only or both 'Nardana Claim-1' and 'Nardana Claim-2'. But during proceeding before PCIT, the assessee made a detailed submission on 'Nardana Claim-1' as well as 'Nardana Claim-2'. Further, in Ground No. (3), as re-produced above, the assessee is talking of 'Narmada Claim-1' as well as 'Nardana Claim-2'. Furthermore, during hearing before us, there were submissions on both items. Hence, we proceed to make adjudication in subsequent discussions taking into account both items.
5. Ld. AR straightaway carried us to a Paper-Book filed by assessee and submitted that during the course of assessment-proceeding, the AO has made specific queries to assessee qua the issue raised by PCIT and the assessee has also filed enough details/documents in response thereto, which Page 5 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 is very much evident from the following details/documents forming part of the assessment-record available with department:
(i) Paper Book Page No. 99 to 102:
Vide Point No. 7 of the notice dated 13.01.2021 u/s 142(1), the AO raised following query to assessee:
"7. Please explain liabilities shown in the name Nardana Claim-1 & 2 for an amount of Rs. 29.03 crore and Rs. 3.52 crore and adduce evidences for the same."
(ii) Paper Book Page No. 105:
The assessee filed reply-letter dated 19.01.2021 making following submission:Page 6 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 7 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 8 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 9 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
(iii) Paper Book Page No. 140-141:
The AO perused assessee's aforesaid reply dated 19.01.2021 and on perusal, issued follow-up notice dated 05.02.2021 u/s 142(1) enquiring about status of 'Nardana Claim-1' and 'Nardana Claim-2' and also asking the assessee to explain how income incidence is taken in books of account? The query raised by AO is re-produced below:
"Your submission dated 19.01.2021 uploaded in response to notice u/s 142(1) dated 13.01.2021 is perused and as per para-7 of your reply regarding liability of Rs. 29.02 crores and Rs. 3.52 crores shown as Nardana claim-2 please state present status of such claims and explain how income incidence of these taken in your regular books of accounts with necessary evidences."
(iv) Paper Book Page No. 142-147:
In response, the assessee again filed a detailed reply dated 09.02.2021 re-produced below:Page 10 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 11 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 12 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 13 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 14 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 15 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Page 16 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
6. Clearly therefore, Ld. AR very forcefully contended, the AO has made vehement enquiries and the assessee has filed concrete replies with complete details, documents and explanation. Therefore, it is not at all a case of 'no enquiry' or 'lack of enquiry'; Ld. PCIT has made a wrong/baseless allegation without examining the documents held in assessment-record.
7. Having submitted thus, Ld. AR proceeded to explain the factual matrix of 'Nardana Claim-1'. He submitted that the assessee-company is engaged in the business of construction, operation and maintenance of infrastructure projects under Govt. scheme and with respect to certain projects, there arose a dispute between assessee and Govt. Therefore, the assessee filed an arbitration against Govt. of India, Ministry of Road Transport & Highway, Public Works Department (PWD) on 13.01.2015 whereupon an arbitral-award dated 26.09.2016 came to be decided in favour of assessee and in terms of Para-11 and Para-12 thereof, the assessee became entitled to award of Rs. 38,70,34,948/- (including interest). However, the Govt. did not accept arbitral-award and filed a Misc. Civil Application No. 18/2017 in Dhule District Court. During pendency of matter before Dhule District Court, the Govt. released 75% portion of the award amounting to Rs. 29,02,76,211/- through an Escrow A/c with ICICI Bank in financial year 2017-18 relevant to AY 2018-19 under consideration on furnishing of 100% bank guarantee by assessee to Govt. The copies of order of Dhule District Court, Govt.'s order of release through Escrow A/c and the evidences of bank guarantee were filed to AO during assessment- Page 17 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 proceeding as well as to PCIT during revision-proceeding; the same are also filed in Paper-Book at Page No. 77 to 94. Since the dispute between assessee and Govt. subsisted before Dhule District Court, there was no finality of the dispute and the receipt of Rs. 29,02,76,211/- against 100% bank guarantee was a mere conditional and contingent receipt. Therefore, the assessee could not treat it as its own revenue and had to declare as a liability in books of account. This is for the reason that if the dispute is ultimately decided in favour of Govt., the assessee would have to refund/return back to Govt. the amount received by it through Escrow A/c against 100% bank guarantee. Subsequently, when Dhule District Court rejected Govt.'s Civil Misc. Application vide order dated 15.10.2018 falling within next financial year 2018-19 relevant to AY 2019-20, the assessee immediately offered the income of Rs. 29,02,76,211/- in AY 2019-20 with following disclosure in Note No. 16 of the audited P&L A/c of AY 2019-20, copy of audited P&L A/c is filed at Page No. 227 of Paper-Book:
"Note-16 Operational Income Toll collection contracts receipts 3,80,37,67,242.00 75,33,82,086.28 Claims for Naradana Project (Note 16.1) 29,02,76,211.00 - Management Consultancy fees 7,20,000.00 7,20,000.00 Total 4,09,47,63,453.00 75,41,02,086.28 Note 16.1 - The company had received 75% of the claim passed by Arbitrator for the losses due to force measure etc. against Naradana Project, in the year 2017-18 against the Naradana Overbridge BOT Project whose concession period completed in F.Y. 2014-15, however, it was not recognised as income in the year 2017-18, since Public Works Department, Maharashtra (P.W.D.) had filed appeal in High Court against the Page 18 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Arbitration Award. However, High Court has rejected the appeal filed by PWD in 2018- 19 and, therefore, the claim amount is now recognised as income to the extent of amount realised i.e. 75% of Claim awarded."
Thus, according to Ld. AR, the assessee immediately offered the impugned receipt as income in AY 2019-20 immediately on finalisation of dispute by Dhule District Court.
7.1 The Ld. AR further went on explaining about the remaining portion of award. He submitted that the assessee subsequently received a further sum of Rs. 15,64,89,533/- towards remaining amount of award (including interest) after order dated 20.02.2020 of Delhi High Court falling within next financial year 2019-20 relevant to AY 2020-21. Again, the assessee instantly offered the said sum of Rs. 15,64,89,533/- in AY 2020-21 without any hesitation or reservation.
7.2 While explaining above facts, Ld. AR carried us to the aforesaid Order dated 15.10.2018 of Dhule District Court at Page 178-182 of Paper-Book and Order dated 20.02.2020 of Delhi High Court at Page 183-189 of Paper- Book. In conclusion, Ld. AR submitted that though the assessee received a part sum of Rs. 29,02,76,211/- during AY 2018-19 involved in present appeal but the receipt itself was not a final money of assessee as the dispute between assessee and Govt. subsisted before Dhule District Court and whatever the assessee received was against 100% bank guarantee. Ld. AR submitted that as soon as the Govt.'s Misc. Application was disposed of by Dhule District Court vide order dated 15.10.2018, the assessee took no further time in offering the same as revenue.
Page 19 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
8. Then, Ld. AR proceeded to explain the factual matrix of 'Nardana Claim-2'. Basically, he re-iterated the same submission as made by assessee to PCIT (noted by PCIT on Page No. 7 of revision-order) that in terms of agreement with Govt., the assessee-company was entitled to collect toll charges till 18.11.2014. Thereafter, further extension from 19.11.2014 onwards was allowed by Ministry of Road & Transport vide letter dated 18.11.2014 on condition No. (ii) mentioned in the said letter specifying that the entire amount of toll collection from 19.11.2014 would be deposited in a Joint Escrow A/c with Govt. in a nationalized bank and the assessee shall not be entitled to withdraw any amount from such Escrow A/c except that a sum of Rs. 26,000/- per day for expenses on day to day running of toll plaza would be allowed to assessee. The assessee submitted copy of aforesaid letter dated 18.11.2014 issued by Govt. alongwith minutes of meeting held by Govt. to the AO as well as PCIT and also filed at Page No. 95-98 of the Paper-Book. Pursuant to such direction of Govt., the assessee collected a total sum of Rs. 3,82,11,375/- by way of toll charges and after deducting a sum of Rs. 29,90,000/- towards expenses (calculated @ Rs. 26,000/- per day) deposited the remaining amount of Rs. 3,52,21,375/- in Escrow A/c with Dena Bank, Sirpur on regular basis. The assessee declared this amount of Rs. 3,52,21,375/- as liability in books as on 31.03.2018 because it did not belong to assessee. Ultimately, this amount became Rs. 4,48,31,611/- due to addition of bank interest when the matter was finally settled by Delhi High Court in the very same Order dated 20.02.2020 of Page 20 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 'Nardana Claim-1'. The High Court in its order (Page No. 188-189 of Paper- Book) adjusted the sum of Rs. 4,48,31,611/- against assessee's all claims. Accordingly, the assessee became rightful owner of Rs. 3,52,21,375/- on the basis of Order dated 20.02.2020 of High Court and therefore declared income of Rs. 3,52,21,375/- in financial year 2019-20 relevant to AY 2020- 21 alongwith remaining claim of Rs. 15,64,89,533/- relating to "Nardana Claim-1".
9. With aforesaid vehement submissions, Ld. AR summed up his arguments. Firstly, he contended that during assessment-proceeding, the AO has raised sufficient queries to assessee and the assessee has filed full details with complete documentary evidences. Thus, it is quite clear that neither there is any lack of enquiry on the part of AO nor any lack on the part of assessee in making submission. When it is so, as per decided cases, the PCIT cannot undertake revisionary-action. Secondly, he contended that although the assessee received a part of the award amounting to Rs. 29,02,76,211/- during financial year 2017-18 relevant to AY 2018-19 under consideration but it was not assessee's own money because of pendency of matter before Dhule District Court. Ultimately, when Dhule District Court dismissed/disposed of Govt's Misc. Application on 15.10.2018, the assessee became rightful owner of the amount and immediately declared income in AY 2019-20. Same is the case of toll collection charges of Rs. 3,52,21,375/- which became assessee's money only in the year 2019-20 relevant to AY 2020-21 upon final decision by Delhi High Court. Ld. AR submitted that the Page 21 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 approach of assessee of declaring income upon final adjudication by Dhule District Court / Delhi High Court is very much correct and fully supported by (i) CIT Vs. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524 (SC), (ii) CIT Vs. L. Sambashiva Reddy (2015) 234 Taxman 775 (Karnataka HC), and (iii) ITO Vs. Shri Chandi Ram ITA No. 11/JP/15 order dated 28.02.2017 of ITAT, Jaipur. Thirdly, Ld. AR submitted that even if we assume that there are two possible views qua the year of taxability of the impugned amounts and the AO accepted one of the possible views, then also the assessment-order cannot be said to be erroneous as per landmark judgement of Hon'ble Supreme Court in Malabar Industries Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). Fourthly, he submitted that in any case, there is no loss of revenue to Govt. because the assessee has offered income in subsequent year.
10. Ld. AR made one more important submission. He carried us to the contents of show-cause notice issued by PCIT wherein the PCIT has initiated revisionary action on the reasoning that the liability of 'Nardana Claim-1' and 'Nardana Claim-2' cannot be recognized as per ICDS (Income Computation and Disclosure Standards). Further, in Para No. 3 and 3.2 of revision-order, the PCIT has again stated that as per ICDS-VII relating to 'Govt. grant' and ICDS-X relating to 'Provisions, Contingent liability and Contingent assets', the liability created by assessee cannot be recognised. Ld. AR submitted that the case of assessee concerns 'recognition of income', it is not understandable as to how the ICDS-VII and ICDS-X relied upon by Page 22 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Ld. PCIT are relevant? Ld. AR submitted that the PCIT is wrong in making revision on the alleged violation of ICDS-VII and ICDS-X; therefore also the revision-order is patently wrong and unsustainable.
11. Per contra, Ld. DR for revenue supported the revision-order. She submitted that even if the AO has raised queries and received replies from assessee, mere raising queries and keeping response in the departmental file cannot be treated as conduct of enquiries by AO. According to Ld. DR, had the AO analysed the replies of assessee, he would have certainly made a detailed noting in assessment-order but the assessment-order is silent on the issue raised by Ld. PCIT which clearly demonstrates that the AO has not made enquiries as required. Hence, Ld. PCIT was constrained to conduct revision-proceeding. Ld. DR also re-iterated and emphasized the notings made by PCIT in Para No. 3 and 3.2 of revision-order. With these submissions, Ld. DR argued that the action of PCIT is very much in accordance with section 263 and must be upheld.
12. In re-joinder, Ld. AR for assessee submitted that there are numerous judicial rulings holding that if the AO has made sufficient enquiries during assessment proceeding, mere non discussion in assessment-order does not render the assessment-order as erroneous-cum-prejudicial to the interest of revenue. Ld. AR submitted that revision u/s. 263 cannot be made merely because the PCIT wants to replace AO's adjudication by his own thinking or understanding.
Page 23 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
13. We have heard the rival contentions and perused the impugned revision-order passed by Ld. PCIT as also the material placed in the Paper- Book to which our attention has been drawn. On a careful consideration, we find that during the course of assessment-proceeding, there were specific queries raised by AO with regard to the issues contemplated by Ld. PCIT and the assessee made detailed replies/submissions. It is on record that vide statutory notice dated 13.01.2021 issued u/s 142(1), the AO made specific queries qua 'Nardana Claim-1' and 'Nardana Claim-2' to assessee and in response, the assessee filed a cogent reply dated 19.01.2021. Then, vide notice dated 05.02.2021 issued again u/s 142(1), the AO referred assessee's previous reply dated 19.01.2021 and raised follow-up queries qua not only the present status of 'Nardana Claim-1' and "Nardana Claim-2' but also how the assessee has taken 'income incidence' in his regular books of account. In reply thereto, the assessee filed a vehement and detailed reply dated 09.02.2021. Therefore, there can hardly be any dispute or controversy by revenue that the AO has not investigated the issues of 'Nardana Claim-1' and 'Nardana Claim-2'. The 'follow-up' query by AO itself negates the revenue's stand that the AO has merely kept assessee's reply in departmental file and not applied any mind. Therefore, even if the AO has not discussed the issues in assessment-order it cannot be said that the AO has not examined the assessee. This proposition, as contended by Ld. AR, is well settled in several judicial rulings including ITAT, Mumbai in Reliance Page 24 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Payment Solutions Ltd. Vs. Pr. CIT (2022) 136 taxmann.com 277 holding following proposition:
"9. Clearly, therefore, as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or because he did not write specific reasons of accepting the explanation. As for learned PCIT's observations regarding accepting the explanation "without appropriate evidence", there is nothing to question the bonafides of the Assessing Officer or to elaborate as to what should have been 'appropriate' evidence. The fact remains that the specific issue raised, in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the Assessing Officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order "erroneous and prejudicial to the interest of the revenue".
[Emphasis supplied] Therefore, the PCIT is wrong in terming AO's order as erroneous-cum- prejudicial on the basis that the AO has not made investigation.
14. Now, what remains to be checked is a limited point i.e. whether the AO's approach in accepting the explanation furnished by assessee to him, could be said to be an unsustainable view? We find that the assessee has given substantial evidences to prove that the impugned liabilities of 'Nardana Claim-1' and 'Nardana Claim-2' could not have been recognized as income in AY 2018-19 under consideration because of the reason that the matters were disputed and pending for adjudication before courts. But as soon as the matters attained finality by court orders, the assessee transferred those liabilities to P&L A/c by passing necessary reversal entries and offered them as income. The approach of assessee cannot be said to be Page 25 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 faulty and in fact it is very much supported by decision of Hon'ble Supreme Court in CIT Vs. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524 (SC), the order of Hon'ble Supreme Court is re- produced below in entirety for full clarity:
"This appeal by certificate granted by the High Court is directed against the judgment of the Calcutta High Court answering the following question in the negative :
"Whether, on the facts and in the circumstances of the case, the extra amount of compensation amounting to Rs. 7,24,914 was income arising or accruing to the assessee during the previous year relevant to the assessment year 1956-57 ?"
2. The assessee, who is the respondent before us, is a limited company dealing in land. It maintains its accounts on the mercantile system. By an order dated 21-6-1946 under rule 75A(1) of the Defence of India Rules, read with section 19 of the Defence of India Act, 1939, certain plots of land measuring about 19.17 acres in village Kankulia in the district of 24 Parganas and belonging to the assessee, were requ isitioned by the Government of West Bengal. Subsequently, the land was acquired permanently by the State Government under section 5, Requisition of Land (Continuance of Powers) Act, 1951, by a notice of acquisition dated 27-12-1952 published in the Gazette dated 8-1-1953. The LAO awarded a sum of Rs. 24,97,249 as compensation payable to the assessee. The assessee was not satisfied with the amount of compensation, and preferred an appeal before the arbitrator, 24 Parganas, Calcutta. The arbitrator made an award dated 29-7-1955 whereby he fixed the amount of compensation at Rs. 30,10,873 on account of the permanent acquisition of the land, thus, enhancing the original amount of compensation by Rs. 5,13,624 on which he directed interest at 5 per cent per annum from 8- 1-1953, the date of acquisition, to the date of payment. The arbitrator also directed that further recurring compensation at Rs. 6,272-10-4 per mensem should be paid to the assessee from the date of the requisition till the date of the acquisition.
3. The State Government now appealed to the High Court and during the pendency of the appeal on 25-4-1956 it deposited Rs. 7,36,691, which the assessee was permitted to withdraw on 9-5-1956 on furnishing security. On receipt of the amount, the assessee credited it in its suspense account on the same date.
4. During the assessment proceedings for the assessment year 956-57, the relevant accounting period being the year ended 31-3-1956, the ITO brought to Page 26 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 tax a sum of Rs. 7,24,914 in the assessee's business income. This represented the difference between the sum of Rs. 7,37,190 payable to the assessee in terms of the award dated 29-7-1955 of the arbitrator and a sum of Rs. 12,276 out of that amount which had already been assessed to tax. The ITO treated the sum as liable to income-tax during that year on the basis that the income accrued to the assessee on the date of the award. The assessment was confirmed by the AAC on first appeal. In second appeal by the assessee before the Tribunal, two contentions were raised by it. It was urged that the amount of compensation received by the assessee was not a receipt of a revenue nature. It was also contended that in any event the amount did not accrue to the assessee as its income during the relevant previous year ended 31-3- 1956. The Tribunal rejected the first contention and held that the compensation received by the assessee related to the acquisition of land which was the stock-in-trade of the assessee, and was, therefore, a trading receipt of the business carried on by the assessee and, therefore, a receipt of a revenue nature liable to tax. The Tribunal, however, accepted the other contention that the sum of Rs. 7,24,914 was not taxable in the assessment year 1956-57. It allowed the appeal accordingly by its order dated 22-2-1964. At the instance of the revenue, the Tribunal referred the question of law set out earlier to the Calcutta High Court for its opinion, and by its judgment dated 9-1-1973 the High Court answered the question in favour of the assessee and against the revenue.
5. The question raised in this appeal is limited to the point whether on the facts and in the circumstances of the case, the revenue can claim that the sum of Rs. 7,24,914 payable to the assessee as compensation can be said to have accrued to it as income during the previous year ended 31-3-1956 relevant to the assessment year 1956-57. Now as long ago as E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27, this Court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income-tax Act, 1922. In the majority judgment delivered by N.H. Bhagwati, J. it was explained that the words 'arising or accruing' describe a right to receive profits, and that there must be a debt owed by somebody. 'Unless and until there is created in favour of the assessee a debt due by somebody', it was observed 'it cannot be said that he has acquired a right to receive the income or the income has accrued to him'. In the present case, although the award was made by the arbitrator on 29-7-1955 enhancing the amount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by the Court as real and substantial, because the assessee was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on 25-4-1956 without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety the right to payment of the enhanced compensation would have fallen altogether. This is a case which must be distinguished from that decided by this Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 where the liability to sales tax arose immediately on a dealer affecting sales which were subject to sales tax and what remained to be done was a mere quantification of that liability. The case compares rather with CIT v. Jai Page 27 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 Prakash Om Parkash Co. Ltd. [1961] 41 ITR 718 (Punj.). The very foundation of the claim made by the assessee was in serious jeopardy and nothing would be due if the appeal was decided against the assessee. Our attention has been drawn by the revenue to Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad.). That case, however, proceeded on the basis that excise duty was payable and its quantification alone remained to be decided in the appeal. We may point out that the Andhra Pradesh High Court, dealing with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 held that when land was taken over by the Government the right of the owner to compensation was an inchoate right until the compensation had been actually determined and had become payable. It was observed that the enhanced compensation accrued to an assessee only when the Court accepted the claim and not when the land was taken over by the Government. Examining the question whether income could be said to have accrued to the assessee on the date when possession of the land was taken by the Government for the purpose of assessment to tax in the year of assessment, P. Jaganmohan Reddy, CJ., speaking for the Court, said :
". . . If the actual amount of compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking of possession, at a particular rate or for a certain sum is the compensation. It is the amount actually awarded by the Collector or subsequently decreed by the Court which accrues to him, and the respective amounts, whether awarded by the Collector or the Court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation ; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued.. . .
. . . On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)( i), could it be said that the right to enhance compensation, which has not yet been accepted by the proper forum, namely, the Court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the Court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a Court has awarded enhanced compensation there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest Court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income- tax Act, to reopen the assessment in which he had included the initial Page 28 of 31 Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19 compensation awarded by the Collector and recompute the entire income on the basis of the final compensation ? We do not think there can be any justification for such proposition. On a proper construction of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law." (pp. 657-58) The legal position was explained in further detail by the Gujarat High Court in Topandas Kundanmal v. CIT [1978] 114 ITR 237 . The High Court was called upon to decide whether the right to receive the enhanced compensation under the Land Acquisition Act, 1897, accrued or arose to the assessee when he sought a reference under section 18 of the said Act or when the award was made by the Civil Judge although an appeal was pending against that award. The learned Judges referred to the nature of an award made by the Collector, and adverting to the opinion of this Court in Raja Harish Chandra Raj Singh v. Dy. LAO [1962] 1 SCR 676 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 observed :
''. . . the legal position which emerges is that there is no liability in praesenti to pay an enhanced compensation till it is judicially determined by the final Court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation 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 amount of compensation arises. The offer made by the Land Acquisition Officer, by his award, if not accepted by a claimant, would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay compensation as offered by the Land Acquisition Officer. But that is far from saying that that liability is a liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mere fact that the payment is postponed to future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt. . . ." (p. 247) Khan Bahadur Ahmed Alladin & Sons' case (supra) and Topandas Kundanmal's case (supra) were relied on by the Gujarat High Court in Addl. CIT v. New Jehangir Vakil Mills Co. Ltd. [1979] 117 ITR 849 for reaffirming that it was on the final determination of the amount of compensation that the right to such income in the nature of compensation would arise or accrue and till then there was no liability in praesenti in respect of the additional amount of compensation claimed by the owner of the land.Page 29 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
6. It is unnecessary to refer to all the cases cited before us. It is sufficient to point out that there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. We are of the opinion that the High Court is right in the view taken by it and, therefore, this appeal must be dismissed.
7. The appeal is dismissed. There is no order as to costs." Thus, the Hon'ble Supreme Court has dealt a similar controversy as involved in present case. The decision by Hon'ble Court is a clearly pointer to hold the proposition that as long as there remains a dispute/litigation, the income cannot be said to have 'accrued' or 'arisen' to assessee. Therefore, we do not find any fallacy in the approach adopted by assessee. That apart, even assuming that there could be two views with regard to the taxability year of the impugned amounts, if the AO has followed a view which is favourable to assessee, the order of AO cannot be termed as erroneous-cum-prejudicial to the interest of revenue as held by Hon'ble Apex Court in Malabar Industries Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC).
15. We also find a substance in the submission of Ld. AR that the PCIT has basically made revision on the basis that there was violation of ICDS-VII and ICDS-X whereas the case of assessee concerns with 'recognition of revenue' and how the ICDSs referred by PCIT were violated? During hearing, we questioned Ld. DR about this aspect but the Ld. DR could not give any reply except dutifully relying on the observation made by Ld. PCIT. Page 30 of 31
Ayushajay Construction Private Ltd., Indore ITA No.174/Ind/2023 - AY 2018-19
16. In view of above discussion and for the reasons stated therein, we are of the considered view that the revision-order passed by Ld. PCIT in the present case is not sustainable. Hence we are inclined to quash the revision- order passed by PCIT and restore the assessment-order passed by AO. Ordered accordingly.
17. Resultantly, this appeal is allowed.
Order pronounced in the open court on 12.01.2024
Sd/- Sd/-
(VIJAY PAL RAO) (B.M. BIYANI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore
दनांक/Dated : 12.01.2024
CPU/Sr. PS
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal, Indore
Indore Bench, Indore
Page 31 of 31