The Pr. Commissioner Of Income Tax I vs. Ayushajay Construction Private Limited

PDF · subscribers
ITA/152/2024HC Madhya Pradesh18 October 2024Bench: HON'BLE SHRI JUSTICE VIVEK RUSIA5 pages
For Petitioner: Veena Mandlik
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT was justified in setting aside the revisional order. The ITAT had found that the statutory notice under Section 142(1) was issued by the AO with a specific query about the Nardana Claims, and the assessee provided a cogent reply. The AO's acceptance of the assessee's explanation was not an unsustainable view, as the liability could have been recognized as income in AY 2018-19. The amount received against a 100% bank guarantee was correctly shown as a liability. The income was offered in the subsequent year after the court's favorable order. The Court relied on the Apex Court's decision in CIT v/s Hindustan Housing & Land Development Trust Limited, which states that income cannot be said to have accrued or arisen as long as there is a dispute or litigation. Therefore, the approach of the assessee and the AO was not erroneous-cum-prejudicial to the interest of revenue. The proposed questions of law were not substantial questions of law, and there was no ground to interfere with the ITAT's order.

What were the facts?

The Principal Commissioner of Income Tax (PCIT) appealed against an ITAT order that set aside a revisional order passed under Section 263. The assessee, Ayushjay Construction Private Limited, filed its return for AY 2018-19 declaring income of Rs.7,92,32,830. The Assessing Officer (AO) assessed total income at Rs.7,93,26,310. The PCIT initiated proceedings under Section 263, alleging the assessment order was erroneous and prejudicial to revenue. The issue concerned a liability of Rs.29.03 crore and Rs.3.52 crore shown as 'Nardana Claim - 1' and 'Nardana Claim - 2' in the balance sheet. This liability was under protest against a bank guarantee, pending litigation. An arbitral award of Rs.38,70,34,948 was in favour of the company, and Rs.29,02,76,211 was received in AY 2018-19 against a 100% bank guarantee. The PCIT believed this amount was taxable in AY 2018-19 as business income, as the liability was contingent.

What were the issues?

1. Whether the ITAT was justified in law in allowing the assessee's appeal without appreciating the findings of the PCIT in his Section 263 order? 2. Whether the ITAT was justified in law in not considering judgments relied upon in the Section 263 order and clarifying the Commissioner's power under Section 263 regarding inadequate enquiry or wrong conclusions? 3. Whether the ITAT was justified in law in ignoring that ICDS VII, relating to Government Grant, stipulates that grants receivable as compensation for expenses/losses or for immediate financial support should be recognized as income when receivable? Assessee's Contention (Implicit from ITAT's reasoning): The AO's assessment order was not erroneous or prejudicial to revenue. The amount received against a 100% bank guarantee was rightly shown as a liability in the balance sheet. The income was offered in the subsequent assessment year (2019-20) after the District Court's order. The AO conducted adequate enquiry and accepted the assessee's explanation. Revenue's Contention (Implicit from PCIT's order and appeal grounds): The assessment order was erroneous and prejudicial to revenue. The liability shown was contingent and not recognizable as income under ICDS. The amount received by way of award was taxable during the year of receipt as business income.

Which sections of the Income-tax Act were involved?

Section 260A,Section 263,Section 143(3),Section 142(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF MADHYA PRADESH AT INDORE BEFORE HON'BLE SHRI JUSTICE VIVEK RUSIA & HON'BLE SHRI JUSTICE GAJENDRA SINGH ON THE 18th OF OCTOBER, 2024 INCOME TAX APPEAL No. 152 of 2024 THE PR. COMMISSIONER OF INCOME TAX I Versus AYUSHAJAY CONSTRUCTION PRIVATE LIMITED Appearance: Ms. Veena Mandlik, learned counsel for the appellant. ORDER Per: Justice Vivek Rusia Heard on the question of admission. Appellant / Principal Commissioner of Income Tax - I has filed the present appeal under Section 260A of the Income Tax Act, 1961 being aggrieved by the order dated 12.01.2024 passed by the Income Tax Appellate Tribunal (ITAT) Bench Indore in ITA No.174/Ind/2023 for the Assessment Year - 2018 - 19, whereby the revisional order dated 29.03.2023 passed by the Principal Commissioner of Income Tax, Indore (PCIT) under Section 263 of the Income Tax Act has been set aside. 02. Facts of the case in short are as under:- 2.1. The respondent is a income tax assessee engaged in the business of construction, operation and maintenance of infrastructure projects under the Government Schemes. The respondent filed its Income Tax Return for 1 ITA-152-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30369 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

the Assessment Year - 2018 - 19 on 24.10.2018 declaring total income of Rs.7,92,32,830/-. The case was selected for scrutiny through CASS, and thereafter, the Assessing Officer passed an order of assessment under Section 143(3) of the Income Tax Act on 26.02.2021, wherein total income of Rs.7,93,26,310/- was assessed. 2.2. Thereafter, learned PCIT examined the record of the assessment proceedings and viewed that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue and took up the matter under the revisional jurisdiction under Section 263 of the Income Tax Act by issuing a show-cause notice dated 14.03.2023. In the show-cause notice it is mentioned that the liability shown in Note No.7 of the Audited balance-sheet of Rs.29.03 crore & Rs.3.52 crore termed as Nardana Claim - 1 and Nardana Claim - 2 was under protest against the bank guarantee, but the same is sub judice as the Government has filed a suit against the company in District Court, Dhule. The arbitral award was finalized in favour of the company on 26.09.2016 awarding an amount of Rs.38,70,34,948/- including interest. Out of the aforesaid awarded amount, an amount of Rs.29,02,76,211/- was received in the Assessment Year - 2018 - 19 against 100% bank guarantee. The aforesaid award was not accepted by the Government of India & Government of Maharashtra. Since the arbitration amount was received against the 100% bank guarantee, therefore, same was shown as liability in the balance-sheet. However, the respondent / assessee submitted income of Rs.29,02,76,211/- in the Assessment Year - 2019 - 20 after the order passed by the District Court, Dhule on 15.10.2018. 2 ITA-152-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30369 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

2.3. The revisional authority was of the opinion that the liability created by the respondent in the books of account for Nardana Claim - 1 & Nardana Claim - 2 is contingent in nature as it is dependent upon the outcome of the order of the Court, such liability as per ICDS cannot be recognized, therefore, the said amount received by way of award is taxable during the year of the receipt as business income. 2.4. The show-cause notice was replied by the respondent and the same was not found satisfactory, therefore, the revisional authority passed an order dated 29.03.2023 by holding that the assessment order dated 26.02.2021 for the Assessment Year - 2018 - 19 is erroneous and set aside the same and remanded by the matter to the Assessing Officer for re- examination. 2.5. Being aggrieved by the aforesaid order, the respondent / assessee preferred an appeal before the ITAT, Indore Bench i.e. ITA No.174/Ind/2023. Vide order dated 12.01.2024, the learned ITAT has set aside the revisional order. Hence, the present appeal is before this Court proposing following substantial questions of law:- (1) Whether, the ITAT was justified in law in allowing appeal of the assessee without appreciating the findings of the Pr. CIT in his Order U/s 263 ?

(2) Whether, the ITAT was justified in law in not considering various judgments relied in the Order U/s 263 and clarifying the utilization of power of Commissioner for Revision U/s 263 in situations such as complete failure to conduct relevant enquiry, conducting enquiry but not taking it to its logical conclusion and 3 ITA-152-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30369 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

conducting enquiry but drawing the wrong conclusion ?

(3) Whether, the ITAT was justified in law in ignoring the fact that ICDS VII relating to Government Grant clearly stipulates that the Government Grant that is receivable as compensation for expenses or losses incurred in a previous financial year or for the purpose of giving immediate financial support to the person with no further related costs, shall be recognized as income for the period in which it is receivable ? 03. We have heard Ms. Veena Mandlik, learned counsel for the appellant and perused the record. 04. Learned ITAT has recorded the finding that the statutory notice dated 13.01.2021 was issued under Section 142(1) of the Income Tax Act by the Assessing Officer with a specific query about the Nardana Claim - 1 & Nardana Claim - 2. In response to the said notice, the assessee filed a cogent reply. The Assessing Officer's approach in accepting the explanation furnished by the assessee to him was not found unsustainable view as the liability of Nardana Claim - I & Nardana Claim - 2 could have been recognized as income in the Assessment Year - 2018 - 19. The amount of Rs.29,02,76,211/- was paid to the assessee in the Assessment Year - 2018 - 19 after furnishing 100% bank guarantee on 100% margin, therefore, same was rightly shown as liability in the balance-sheet. It is not a case that the assessee has concealed the income of receipt by way of award. After the order passed by the Dhule Court in favour of the assessee on 15.10.2018, the income was shown in the next assessment year i.e. 2019 - 20. 05. The learned ITAT did not find any fault in the approach of 4 ITA-152-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30369 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

(VIVEK RUSIA) JUDGE (GAJENDRA SINGH) JUDGE assessee, in view of the law laid down by the Apex Court in the case of CIT v/s Hindustan Housing & Land Development Trust Limited reported in (1986) 161 ITR 524 (SC), in which the Apex Court has held that as long as there remains a dispute / litigation, the income cannot be said to have 'accrued' or 'arisen' to the assessee. The approach of the assessee as well as the view taken by the Assessing Officer is his favour cannot be termed as erroneous-cum-prejudicial to the interest of revenue. The question of law proposed by the revenue are not the substantial question of law, therefore, we do not find any ground to interfere with the order passed by the learned ITAT. 05. In view of the above, Income Tax Appeal stands dismissed. Ravi

5 ITA-152-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30369 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

More judgments on Section 263

All 13,616 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →