Loading judgment…
Facts
The assessee, Hooghly Dock & Port Engineers Limited, received Rs. 1.33 crore from the Government of India for Voluntary Retirement Scheme (VRS) expenses for Assessment Year 2015-16. The assessee treated the unspent portion as a liability in its balance sheet, following AS-12. However, the Assessing Officer and CIT(A) contended that the entire grant should have been routed through the Profit & Loss Account, made an addition of Rs. 35.97 lakhs (unutilised amount), and relied on Ind AS-20 and a previous judgment concerning Steel Authority of India.
Held
The ITAT held that Ind AS-20 was not applicable for AY 2015-16, being effective only from AY 2016-17, and the assessee's accounting treatment under AS-12 was correct. The tribunal distinguished the cited Steel Authority of India case, noting that the funds in the present case were specifically 'tied' to VRS liability, unlike the generic funds in the precedent. Consequently, the addition made by the AO was deleted, and the assessee's appeal was allowed.
Key Issues
The key legal issues were the correct accounting treatment of a government grant for VRS expenses (income vs. liability), the applicability of Ind AS-20 versus AS-12 for the relevant assessment year, and the validity of the notice issued under Section 148 of the Income Tax Act.
Sections Cited
250, 148, 145(1), 28(iv), 151A, 144B
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Date of concluding the hearing : 12.02.2025 Date of pronouncing the order : 03.03.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order passed u/s 250 of the Income Tax Act, 1961 [hereafter ‘the Act] by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)], vide order dated 16.08.2024.
1.1 In this case, the assessee had filed its return of income on 27.03.2017 declaring total income of Rs. 35,77,05,680/-. Eventually, a notice u/s 148 of the Act was issued on 26.06.2021. The moot point was the amount of Rs. 1,33,00,000/- received from Govt. of India for meeting the expenses of employees opting for VRS. The debatable issue as per the Ld. AO was that this amount should have been routed through Profit & Loss (P & L) Account Hooghly Dock & Port Engineers Limited and not through the balance sheet, where the unspent amount was shown as a liability. The Ld. AO relied on the Accounting Standards, specially Ind AS-20. The Ld. AO also relied on the case of CIT Vs. Steel Authority of India reported in 263 ITR 211 (Delhi).
1.2 Aggrieved with the addition of Rs. 35,97,000/-, being the unutilised amount remaining during the course of relevant assessment year, the assessee approached the Ld. CIT(A), who also relied on the case of Steel Authority of India (supra) and Ind AS-20 to hold that the assessee should have routed the entire grant through the P&L Account and not through the balance sheet.
1.3 Further aggrieved with this action, the assessee has approached the ITAT through the several grounds of appeal as per Form
36. However, at the stage of hearing, the revised grounds were filed with a request to adjudicate the issues as per these grounds. Revised grounds of appeal are as under:
1. Ld. CIT (A) erred on facts in not appreciating that the accounting treatment accorded by assessee for the Govt grant is correct as per section 145(1): Recognizing the VRS grant as income to the extent of the expenditure incurred and treating the unspent amount as liability is in conformity with system of accounting regularly employed by the assessee as required u/s 145(1) dully disclosed in its accounting policies. Ld. AO has not disputed this fact reported in the tax audit report in Form 3CD, which in its Serial No.13(d), which has reported NO" for the question of "Details of deviation, if any n the method accounting employed in the previous year from the accounting standards prescribed under section 145 and the effect thereof on the profit or loss". The Copies of relevant page of Form 3CD, Significant Accounting Policies, Balance Sheet, P&L Account and relevant schedules and of the assessee are furnished vide additional submissions on 24.12.2024.
2. Ld CIT (A) erred in law since this grant is received "in cash" and therefore does not fall within the description contained in section 28(iv) and therefore not taxable u/s 28(iv) as held in Price Waterhouse Coopers P Ltd v ACIT [2021] 127 taxmann.com 825 (Kol Trib). Subject cash receipt is made taxable on receipt w.e.f. AY 2024-25 by amendment made by Finance Act 2023.
3. Ld CIT (A) erred in law in treating the receipt of Govt grant as income u/s 28(iv), since this grant "has not arisen from business", for the trivial reason that no business has ever been done by the appellant with the Govt of India, the Grantor.
4. Ld CIT (A) erred in confirming the addition by following Ind AS 20, which came into being only from a later year of AY 2016-17, which is also not applicable to the assessee.
Hooghly Dock & Port Engineers Limited 5.Ld CIT (A) erred in confirming the addition by relying on the decision of Steel Authority of India pertaining to AY 1973-74, which is not applicable to this case since it has not dealt with the method of accounting regularly employed by SAIL as required under the provisions of section 145(1).
Ld CIT (A) has erred in not considering the Rule 230(8) of General Financial Rules of Govt of India, according to which the assessee is required to refund the unspent/advance of VRS grant to the Consolidated Fund of India; and therefore, the impugned addition is indeed is a liability of the assessee and not income. 7. 148 notice dt. 31.07.2022 is defective and therefore the consequential assessment order is liable to be quashed for the following reasons- a) 148 Notice dt. 31.07.2022 is not digitally signed, but only manually signed by Pg. 11 of JAO and therefore opposed to the provisions of section 151A r.w. Para No.4.2 of Instruction No.01 dt. 12.02.2018 on "Conduct of Assessment Proceedings in scrutiny cases electronically", which states that 4.2 Use of digital signature by Assessing Officer All departmental orders/communications/notices being issued to the assessee through the 'e- proceeding' facility are to be signed digitally by the Assessing Officer" b) 148 notice dt. 31.07.2022 is issued not-in-a-faceless manner, (namely by Pg. 11 of FAO), but issued by JAO, namely DCIT, Circle 1(1), Kolkata which is opposed to Para No.3.(b) of "e-assessment of Income Escaping Assessment Scheme 2022" notified under Notn. No.S.O. 1466E dt. 29.03.2022 u/s 151A(1) and 151A(2), which is extracted below. "For the purposes of this Scheme, issuance of notice u/s 148 of the Act shall be through automatic allocation, in accordance with the risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner to the extent provided in section 144B.” 2.1 Before us, the Ld. AR filed a paper book comprising of written submissions and extracts from the audited accounts filed before the Ld. AO.
2.2 Before us, the Ld. AR argued on two counts. On the one hand he challenged the action of Ld. AO with respect to the reopening proceedings and vehemently argued that the same were initiated on the basis of allegedly distinctive notices since the proceedings were initiated otherwise than through faceless mode. However, it was on account of the treatment in the accounts of the grant received from the Govt. of India that the Ld. AR submitted that the assessee was following the AS-12 in depicting the said amount. He took us through the extracts from the audited accounts filed in the paper book and pointed out that the treatment was clearly mentioned in Note-7 of the balance sheet. The Ld. AR also pointed out that Hooghly Dock & Port Engineers Limited the Ind AS-20 was made applicable under Companies (Indian Accounting Standards) Rules 2015 w.e.f. 01.04.2015. The Ld. AR vehemently argued that Ind AS-20 was applicable only from AY 2016-17 and not AY 2015-16 (being the year under consideration). He took us through the relevant notification dated 16.02.2015 [GSR II (E) F.No. 01/01/2009/CL-V(PART]. The Ld. AR distinguished the case of Steel Authority of India Ltd. (supra) by showing that the said case pertains to AY 1973-1974 and the same has not dealt with provisions of Section 145(1) of the Act. He also pointed that the Steel Authority of India case (supra) dealt with grant made by the Govt. of India for its functioning. Thus, the funds given to that entity were not “tied” funds as have been given to the present assessee. He pointed out that the assessee has no option but to spend the amounts received from the Govt. of India on meeting the VRS liability. In this manner, he stated that the case of Steel Authority of India (supra) was very much distinguishable from the case at hand.
2.3 The Ld. DR, on the other hand, read out from the relevant portions of the orders of authorities below and relied on the case of Steel Authority of India (supra).
We have carefully considered the rival submissions and also gone through the records and documents. There is considerable merit in the Ld. AR’s assertion that Ind AS-20 was applicable from AY 2016-17 only and did not apply to the year under consideration. Furthermore, the case of Steel Authority of India Ltd. (supra) is clearly distinguishable on facts since the funds under consideration there were of a generic nature whereas, the funds here are absolutely tied to meet the VRS liability. Also, the assessee has duly made a correct and true disclosure in the accounts with respect to the treatment given to the said funds and has also mentioned that they have relied on AS-12 in their accounting process. It is understood that AS- 12 also deals with Government grants but is different in several important respects from Ind AS-20. Accordingly, there is no hesitation in holding that Hooghly Dock & Port Engineers Limited the assessee’s claim deserves to be upheld and the Ld. AO’s addition deserves to be deleted. 3.1 Regarding the arguments pertaining to alleged irregular assumption of jurisdiction by the Ld. AO and the grounds of appeal thereon, it is held that since the assessee has succeeded on the issue pertaining to the primary addition, hence these grounds are not being adjudicated specifically.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 03.03.2025