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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal has been preferred by the assessee against order dated 2.11.2011 passed by the Ld. CIT(A)-XVIII, New Delhi and pertains to assessment year 2008-09. The assessee has raised as many as five grounds of appeal
. The only issue in dispute is the addition of Rs.16,19,80,000/- to the income of the assessee company by treating the amount as rent receivable from the Railways for use of STM
4. Bandwidth on accrual basis.
2. It is seen from the records that the Assessing Officer had made the impugned addition on the basis that income had accrued to the assessee company from Railways for use of STM 4 Bandwidth which had not been included by the assessee in its total income. While making the addition, the Assessing Officer relied on the comments of the auditor in the audit report that “no income had been booked for Rs.1619.80 lacs for the year and for Rs.3630.07 lacs for earlier years on account of lease rent payable/claimed by the Railways for the use of STM 4 Bandwidth.” The Assessing Officer refused to accept the assessee’s contention that the approval of the Railways for the payment was received only on 19.12.2008 and therefore the revenue was to be recognized only in financial year 2008-09. The Assessing Officer was also of the opinion that since the assessee company maintained its books of account on mercantile basis, the amount was includible on accrual basis. The Assessing Officer also referred to the fact that the agreement between the assessee company and the Railways was dated 21.09.2006 and, therefore, the effective date for accounting on accrual basis commenced on 21.09.2006 and the contention of the assessee that the Financial Advisor of the Railways had not vetted the payment during the year under consideration was only a pretext to shift the year of chargeability.
3. On appeal before the First Appellate Authority, the addition was confirmed. The issue has been discussed by the Ld. CIT (A) in paras 4.3 and 4.4 of the impugned order which are being reproduced hereunder for ready reference:-
“4.3 The Auditor’s note 3(vii) of the Audit Report of the appellant company clearly states that no income has been booked for Rs. 1619.80 lac for the year and for Rs. 3630.07 lacs for earlier years on account of leased rent payable by/claimed by railway for use of STM 4 Bandwidth. The appellant company was asked to explain the basis on which the auditor has arrived at the figures mentioned by him in the audit report when as per the appellant company no income was accountable for the relevant period. The appellant company vide its letter dated 17.10.2011 submitted as under (relevant portion reproduced):
Calculation of alleged income reported by Auditor’s note 3(vii) of his Audit Report appearing that page No. 7 of paper book dated 17.02.2011 is being filed at page. 1....
In response to the letter of Ministry of Railway dated 30.01.2008 appearing at page 39 of my paper book dated 17.02.2011, a letter dated 23.05.2008 was written by Director/N.P.M. of the appellant Company, which contain a list of approx date of handed over of STM 4 bandwidth to Railway (the same is further enclosed herewith for your kind perusal at page 2 to 5), the Auditors calculated the income of earlier years by his own assumptions that the Routes which have been handed over on 01.04.2004 thus lease charges is also recoverable from Railway from that date. He lost his sight that the lease changes form 3
Railway is enforceable as w.e.f. 21.09.2006 per agreement dated 21.09.2006 para No. 3.1.11 and not earlier.
The company has neither raised the bill prior to dated 21.09.2006 nor it was enforceable for any payment. With reference to para no. 6(b) of letter dated 23.05.2008 of company, "list of sections where S.T.M 4 bandwidth has shown handed over to the Railway was only the information to the Railway.
As per page 1 of this letter the computation of 3630 lacs has been done as under:
The total kilometers handed over are 5409 and the date of handing over is 01.04.2004. Further, as per pages 4 to 5b of this letter 22438 RKM have been handed over in F.Y. 2005-06 and another 22438 RKM in F.Y. 2006-07. The valuation of RKM has been done @7219 per RKM. On this basis the computation of income not reported by the appellant company has been done by the Auditor and is as under:-
Value @7219 per RKM Approx RKM handed over during 2004-055409 39047571 Approx RKM handed over during 2005-0622438 161979922
Approx RKM handed over during 2006-0722438 161979922
363007415 Income for A.Y. 2008-09 reported by Auditor 1619 lacs”
4.4 Thus the RKM handed over during the relevant assessment year is 22438 and the same has been valued at Rs. 1619.80 lacs. The appellant company in its submission has mainly relied upon letter dated 30.06.2008 as per which the lease charges are payable from the date on which the actual route handing over of the STM 4 capacity takes place. The auditor of the appellant company for computation of income and for purpose of comments in notes of accounts on income not shown has relied upon letter dated 23.05.2008. This letter dated 23.05.2008 has been written by the Director/NPM of the appellant company specifying the date on which actual handing over has taken place. As per the annexures to this letter, written to the Secretary, Ministry of Railways, on the subject of payment of STM 4 lease charges by the railways, for the purpose of verification of STM 4 bandwidth which has already been provided to the railways, the approximate date of handing over ranges from 01.04.2004 to 01.04.2005. The letter is clearly communication between competent authorities in both the organizations; the contents of the letter are therefore reliable. The contents of the letter cannot be disputed. The rate adopted for calculation is the same as adopted by the appellant company and is not under dispute. The only cause for dispute is the date on which the RKM have been handed over by the appellant company to the railways. The date of handing over has been clearly depicted in this communication and as already discussed there is no reason to doubt the dates mentioned by a competent officer of the appellant company itself especially when dates of individual handing over of each route has been mentioned. It is not a case of typing error or clerical mistake. The auditor has thus rightly placed reliance on the letter and its annexure and has computed the lease rent basing his calculation by taking the date of handing over as mentioned in the letter. As already mentioned there is no difference in the rate at which the lease rent is to be charged. Further, as the appellant company is maintaining its books of account on mercantile basis this income should have been accounted for by the appellant in the year under consideration. Thus the addition of Rs. 1619.80 lacs made by the AO is confirmed.”
Aggrieved, the assessee is now in appeal before us. The Ld. AR submitted that the assessee company had entered into an agreement with the Railways and the former had to receive lease charges on the basis of this agreement. It was submitted that as
per letter dated 30.6.2008, lease charges per payable to the assessee @Rs. 7219 per km per annum. It was further submitted that the lease charges were payable by the Zonal Railways based on the actual route km of STM 4 capacity handed over to them by the assessee and the date from which the handing over had taken place. It was submitted that the assessee was required to obtain the satisfaction report of the route in use and since there was an uncertainty in realization of the consideration, the income was not booked as per Accounting Standard-9(AS-9) issued by the Institute of Chartered Accountants of India. The Ld. AR emphasized that the income had not accrued to the assessee during the year under appeal but had accrued in subsequent years upon happening of certain event. It was emphasized that the assessee had not acquired the right to receive the income because the right was subject to the satisfaction of the Zonal Railway authorities which did not happen till the conclusion of the year under appeal. The Ld. AR also referred to and drew the attention of the Bench to the following evidences/documents in the paper book:-
PB 73-114 is agreement between the appellant and railways in which at PB 81, as per Clause 3.1.11, it has been mentioned that lease charges as mutually decided shall be payable on creation of STM 4 network.
PB 82 contains clause 3.2.8 which mentions that till such time that STM 4 network is setup , no charges shall be payable by railways to the appellant
PB 37-38 is AS—9 which, provides that recognition of income may be deferred in case of uncertainty.
PB— 39 is letter dated 30.01.2008 from Indian Railways intimating to the assessee that lease charges will be Rs. 7219 per K.M. to be paid by Zonal Railways based on actual route KMs of STM 4 capacity handed over to them and the date from which handover has taken place.
PB 40-41 is letter from the assessee to railways dated 23.05.2008 intimating the list of sections along with the date of handing over for STM 4 Bandwidth.
PB-42 is letter dated 26.05.2008 from railways to Telecom Engineers of Indian Railways seeking handing over the STM 4 Bandwidth to Zonal Railways by the assessee.
PB— 43 is letter dated 12.11.2008 from railways to the assessee about the payment.
PB—44 is letter dated 28.11.2008 from the assessee to regional general manager of the assessee only sending the details of STM 4 Bandwidth commission / provided for railways.
Assessment Year 2008-09 PB —45 is letter dated 19.12.2008 from railways. PB— 46 is letter dated 12.03.2009 from the assessee to railways informing creation of STM 4 Bandwidth and requesting for the payment as per annexure.
PB —47 is annexure dated 12.03.2009 showing the lease charges receivable by the assessee.
PB -48 is letter dated 17.03.2009 from the assessee to regional general manager of the assessee.
PB 49-50 is letter dated 11.06.2009 from railway to railway board seeking clarification for the resolution of the matter.
PB 53-54 is letter from railways dated 13.08.2009 advising to release payment wherever the same has been provision.
PB —59 is physical verification of STM 4 Bandwidth provided by assessee for railways dated 28.03.2009.”
The Ld. AR further submitted that accrual of income is governed by the agreement and, therefore, the various clauses of the agreement cannot be ignored. It was submitted that plain reading of the various clauses of the agreement makes it amply clear that income would accrue only when STM 4 bandwidth is set up to the satisfaction of Zonal authorities and the correspondence between the assessee and the Railways establishes the fact that STM 4 bandwidth was not completed to the satisfaction of the Zonal Railway authorities till the end of the year under appeal. He submitted that even if STM 4 had been set up but the satisfaction of the Zonal authorities was not received, no income could be said to accrue to the assessee and therefore, the addition deserves to be deleted.
The Ld. AR also submitted that since the tax rates applicable to the company both in assessment year 2008-09 (i.e. the year under appeal) and assessment year 2009-10 (i.e. the year in which the company had included the impugned amount in its income) were the same, the adjustment made by the Department was revenue neutral. He relied on the decisions of the Hon'ble Delhi High Court in the case of CIT vs Vishnu Industrial Gases (ITR No. 229/1988) and CIT vs Dinesh Kumar Goel 331 ITR 10 (Del) for the proposition that the question as to the year in which an income is chargeable may be material when the rate of tax chargeable on the assessee in two different years is different but in the case of income of company, tax is attracted at a uniform rate, and, therefore, the year of chargeability of income should be of no consequence to the Department. The Ld. AR also placed reliance on the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT vs Vee Gee Industrial Enterprises (I.T.A. No. 187 of 2014) for the same proposition and submitted that in light of these judgements, the addition ought to be deleted.
The Ld. DR submitted that when the basis of accounting is mercantile, the receipts should be taxable on accrual basis only and, therefore, the action of the Assessing Officer was justified.
He strongly supported the orders of the authorities below and submitted that the same should be upheld.
We have heard the rival contentions and perused the material on record. For the purpose of this appeal, we will not be adjudicating on the issue of the year of accrual of income vis- a-vis the year of taxability of the income (i.e. the impugned addition) as it would make no difference in view of the judgements of the Hon'ble Apex Court, the Hon'ble Bombay High, the Hon’ble Punjab and Haryana High Court and the Hon'ble Delhi High Court. In CIT, Delhi, Ajmer, Rajasthan and Madhya Bharat v. Nagri Mills Co. Ltd. (1958) ITR 681, the Hon’ble Bombay High Court has held, “We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income- Tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. ” This judgment was followed by the Hon’ble Delhi High Court in Commissioner of Income-Tax and Another v. Diniesh Kumar Goel (2011) 333 ITR 10 (Delhi). The Hon’ble Delhi High Court, after quoting the above observations, observed as under:-
“26. Though our discussion on the issue is complete the parting comments need to be made. The receipts relate to the unexecuted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year. Still issues are raised and much outcry is made for nothing. ”
XXX XXX XXX XXX XXX XXX XX
In this Court, in its decision dt. 6h May, 2008 in IT Ref. No. 229 of 1988 entitled CIT vs. Vishnu Industrial Gases (P) Ltd. had quoted the aforesaid passage and thereafter remarked that the situation does not seem to have changed over the last fifty years and the Revenue continues to agitate the question whether tax is leviable in a particular year or in some other year. Alas! The aforesaid words of wisdom of Bombay High Coud reminded to the Revenue authorities more than two years ago again have not made any dent on the psyche of the Revenue.”
The matter, in any event, stands concluded by the judgment of the Hon’ble Supreme Court in Commissioner of Income Tax v.
Excel Industries Limited (2013) 358 ITR 295 (SC). The Hon'ble Supreme Court has held:-
“32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the 12
Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. ”
Respectfully following the ratio laid down by the above judgments, we delete the impugned addition.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 29th April, 2016.