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Income Tax Appellate Tribunal, DELHI BENCHES : “B” NEW DELHI
Cross Objection No. 198/Del/2012 (In ITA No: 602/Del/2011) AY : - 2006-07 Delhi Integrated MMTS Ltd. vs. ACIT, Circle 10(1) New Delhi New Delhi (Appellant) (Respondent) Appellant by : Shri Atul Kumar Sharma, Sr.D.R. Respondent by: Shri Rupesh Jain, Adv. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue against the order of the Ld.CIT(A), New Delhi dated 4.10.2010 pertaining to the Assessment Year (AY) 2007-08 on the following grounds.
1. On facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made by the AO on account of consultancy income. 2. The appellant craves to leave, add, alter or amend any ground of appeal raised above at the time of the hearing.
The assessee is a company. It was set up as a special purpose vehicle to implement the integrated multi model transit net work in Delhi by the Government of Delhi. The issue before us is recognition of consultancy income.
2.1. The Assessing Officer (A.O.) during the course of scrutiny proceedings recorded that, the revenue in respect of consultancy income of Rs.5,31,98,469/- being 1% of the project direct expenditure incurred and consultancy income of Rs.27,27,944/- on account of feasibility study report for 6 projects undertaken during the year has been postponed by the assessee company on account of pending the resolution of significant uncertainty in the shape of sanction from Government of NCT of Delhi. It was further notice that recognition of expenses to the extent of Rs.23,35,539/- incurred on various projects undertaken by the company in the Profit and Loss a/c against which the income has been postponed.
2.2. On a query the assessee submitted that revenue is recognised from consultancy on accrual basis, only when sanction is received in writing from the government. He first pointed out that revenue cannot be recognised on the basis of a Board decision as it was only a proposal. It was also pleaded that the government had sanctioned fee of Rs.1.95 crores in the next Financial Year and corresponding income was recognised as revenue in that year in which the sanction was received. It was also contended that recognition of income in the accounts is also in conformity with A.S. 9 issued by the ICAI. It was further stated that CAG audit team had endorsed this view.
2.3. The A.O. did not agree with this reply of the assessee and calculated consultancy income at 1% of the project direct expenditure incurred and consultancy income of Rs.27,27,00,944/- on account of feasibility study report for six projects undertaken.
2.4. On appeal the First Appellate Authority agreed with the contention of the assessee and held that approval of government was a sine qua non for the accrual of income. The addition was deleted. Aggrieved the revenue is in appeal before us.
After hearing rival contentions we find that the assessee had declared consultancy income of Rs.38,77,586/-. The A.O. has made an addition of Rs.5,31,98,469/- by relying on the statutory auditors report which suggest accrual of income on the basis of a board resolution. An addition of Rs.27.28 lakhs was made on account of feasibility studies undertaken by the assessee. This amount was received after approval of the government in the subsequent years only to the extent of Rs.12.8 lakhs. The same was offered to tax in that year. The Board of Directors of the assessee company proposed a fee of 1% of estimated project cost subject to approval of government. Admittedly the government has not approved the same. The actual fee billed and received by the company was Rs.1,18,77,000/- exclusive of service tax of Rs.14,59,685/- for the entire Previous Year 2007- 08 pertaining to the A.Y. 2008-09. Under these circumstances, in our view, the First Appellate Authority was right in deleting this addition of Rs.5,31,98,470/-, which was made purely on the basis of assumptions. The Hon’ble Supreme Court in the case of CIT vs. Excel Industries 358 ITR 295 (S.C.) reiterated the real income theory. Hypothetical income cannot be brought to tax. Thus we uphold the order of the first appellate authority and dismiss this appeal of the Revenue.
Cross Objection 198/Del/12:- The assessee has filed this C.O. There is a delay of 436 days in filing this Cross Objection. The assessee filed an applicjation for condonation of delay. It was submitted that the erstwhile tax consultants of the assessee company M/s S.Ramchandani did not properly guide the assessee company and it was because of wrong advise that there was a delay in filing of this C.O. This submission is not supported by any evidence. We are not convinced with the explanation given by the assessee for delay in filing the C.O. Hence we dismiss this C.O. on the ground of delay.
In the result assessee’s Cross Objection is dismissed.
In the result Revenue’s appeal as well as assessee’s C.O. both stand dismissed. Order pronounced in the Open Court on 24th January, 2017.