M/S AYUSH AJAY CONSTRUCTION PVT. LTD. ,INDORE vs. THE DCIT CENTRAL-(1), INDORE

आदेश/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

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(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.

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

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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.”

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

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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.

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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.

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

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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:

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(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:

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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.

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-

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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

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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.

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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

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‘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”.

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

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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.

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

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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.

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.

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.

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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

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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.

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

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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 ?"

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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.

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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

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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.

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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).

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.

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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

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