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Facts
The Revenue appealed against an order that partly allowed the assessee's appeal against a reassessment order. The reassessment proceedings were initiated under Section 147 of the Income Tax Act. The original assessment order for AY 2012-13 added Rs.9,82,46,000/-, and the reassessment order added Rs.16,61,00,000/-, Rs.26,43,16,000/-, and Rs.10,21,94,31,300/-.
Held
The Tribunal held that the addition of Rs.16,61,00,000/- made by the AO on account of receipts from NHPC and THDC in FY 2011-12 was wrongly made and directed its deletion. The Tribunal agreed with the CIT(A) that revenue recognition could be postponed under certain conditions, including receipt uncertainty as per AS-9.
Key Issues
Whether the revenue recognition for receipts from NHPC and THDC, which were subject to uncertainty and credit notes, should be postponed to the year of actual receipt, or taxed on an accrual basis in AY 2012-13.
Sections Cited
147, 148, 143(3), 143(1), 115JB, 142(1), 143(2), 4, 145
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
ORDER
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal of Revenue is against order dated 01.02.2024 of Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (NFAC), Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of re- assessment order dated 23.12.2019 of the Learned Deputy Commissioner of Income Tax, Circle 7(1), Delhi (hereinafter referred as “the Ld. AO”) under Sections 143(3)/147 of the Act in pursuant to assessment order dated 23.03.2015 for assessment year 2012-13.
Brief facts of the case are that the assessee company e-filed its return of income on 28.09.2012 declaring nil income. The assessee had declared book profit under Section 115 JB of the Act at Rs.10,05,33,31,299/- for MAT purposes. The assessee has declared income from business and profession at Rs.9,47,85,45,001/- for the year. The return was processed under Section 143(1) at the returned book profit under Section 115JB. The case was selected for scrutiny under CASS. Notice u/s 143(2) was issued on 07.08.2013. Questionnaire under Section 142(1) of the Act was issued on 18.07.2014. In response, Sh. Surender Babbar, GM(F) and Sh. Vishal Garg, AM(F) attended the proceedings and filed details. On completion of proceedings, vide order dated 23.03.2015, Ld. AO made addition of Rs.9,82,46,000/-.
Reassessment proceedings under Section 147 of the Act were initiated by recording reasons and necessary approval from competent authority. Notice under Section 148 of the Act on 31.3.2019 was issued. In response to notice under Section 148 of the Act, assessee company vide letter dated 02.04.2019 submitted that the original return file for the assessment year 2012-13 may be deemed as return filed. Notices under Section 143(2) of the Act were issued. Further Notices under Section 142(1) of the Act were also issued. The assessee filed necessary details. On completion of reassessment proceedings, Ld. AO vide order dated 23.12.2019 made additions of Rs.16,61,00,000/-, Rs.26,43,16,000/- and Rs.10,21,94,31,300/-.
Against reassessment order dated 23.12.2019, assessee preferred appeal before Ld. CIT(A) which was partly allowed vide order dated 01.02.2024.
Being aggrieved, the appellant/revenue preferred present appeal.
Learned Authorized Representative for Revenue submitted that Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the Ld. AO amounting to Rs.16.61,00,000/- on account of receipts from National Hydroelectric Power Corporation (NHPC) and THDC & Tehri Hydro Development Corporation Ltd. (THDC) in financial year 2011-12 relevant to assessment year 2012-13 stating that the assessee has accounted the said income on receipt basis in assessment year 2018-19, ignoring that the assessee is following mercantile system of accounting and has to follow consistency in method of accounting. Further, Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the Ld. AO amounting to Rs.16,61,00,000/- on account of receipts from NHPC and THDC in financial year 2011-12 relevant to assessment year 2012-13, ignoring that the assessee is following mercantile system of accounting in general but with respect to income from NHPC and THDC, the assessee has accounted the same on receipt basis. It was further argued that Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the Ld. AO amounting to Rs. 16,61,00,000/-on account of receipts from NHPC and THDC in financial year 2011-12 relevant to assessment year 2012-13, ignoring that the Ld. CIT(A) vide order dated 18.02.2019 for assessment year 2015-16 categorically directed that the receipts of Rs.16.38 lacs & Rs.23 lacs from NHPC and THDC respectively, have accrued in assessment year 2012-13 and needs to be taxed accordingly as the assessee was following mercantile system of accounting whereas in the instant year Ld. CIT(A) has given its finding that the income of Rs.16,61,00,000/- received from NHPC and THDC has to be taxed on receipt basis and both the view of Ld. CIT(A) is contradictory to each other.
Learned Authorized Representative for the respondent/assessee submitted that assessee is a Government Company with 93.42% of its share capital being held by the Government of National Capital Territory of Delhi. On an appeal before the Ld. CIT(A), it was held that the aforesaid total amount of INR 16.61 crores shall not be considered as an income accrued in assessment year 2012-13 as the accounting for the same has been postponed by the virtue of the provisions of AS-( (Revenue Recognition) and the same shall be offered to tax in the year of receivable of such amount.
From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO mentioned reasons for reopening of assessment as under:
“From perusal of assessment record for assessment years 2012-13 (F.Y. 2011-12) and observation made by the Ld. CIT(A) for assessment year 2015-16, it was found that the accrued income from NHPC Rs.1638 lacs and THDC Rs. 23 lacs (Total of Rs.16.61 crores) chargeable to tax has escaped assessment for this year by the reasons of failure on the part of the assessee to disclose fully and truly all material facts, therefore, it is a fit case for the issuance of notice under Section 148 of the Act for the financial year 2011-12 relevant to assessment year 2012-13. So, I have reason to believe that this income has escaped assessment for assessment year 2012-13 and hence it is proposed to reassess such income and also any other income which comes to my notice subsequently in the course of the proceedings under Section 147 of the I.T. Act, 1961.
8.1 The assessee made submissions which are on page nos. 242 to 247 of the paper books. 8.2 Ld. AO in its reassessment, proposed addition of Rs.16.61 crores on account of credit bills received from NHPC/THDC. 8.3 Ld. CIT(A) in para nos. 5.4.1 to 5.4.4 held as under: “5.4.1 Therefore what really needs to be decided is whether the condition mentioned in AS-9 is applicable to the facts of this case. The appellant has quoted a plethora of cases as quoted above where revenue recognition is postponed to a later date even though books of account are maintained on accrual basis. After going through the case laws and AS-9 I am of the opinion that it is possible to postpone revenue recognition under certain conditions which includes receipt uncertainty. This will not be in violation of section 145 of the IT Act 1961. What needs to be decided next is whether the conditions mentioned by the assessee qualifies for postponement of revenue recognition. It is a fact that credit notes were issued in FY 2011-12 ie AY 2012-13. It is also a fact that a part of it ie Rs 23 lacs was received in FY 2017-18 and the balance Rs 16.35 Crores is yet to be received. It has been more than ten years and this amount is yet to be realised. These credit notes pertain to a period before 2007 specifically 2003 to 2006. Though there is no dispute about the quantum, payment of Rs.16.35 cr is yet to be made nor is there any certainty about its payment. Under these circumstances I am of the opinion that revenue recognition can be postponed and income be offered on receipt basis.
5.4.2 The appellant in the submission both before the AO during assessment proceedings and also before the undersigned during the appellate proceedings had given an elaborate submission regarding nature of the bills raised and further on the fact that there was certain company namely DTL, DIL, had been incorporated under the companies Act, 1956 and also the Scheme relating to reorganisation of electricity business in Delhi of resale DVM which after winding up resulted into creation of various successor Undertakings in terms of Delhi Electricity Reforms (Transfer Scheme) Rules, 2001 framed under the said Act and its continuation of the business of sale and purchase of power from 01.04.2007 etc. etc. The appellant also contended that though there was discontinuation, the company was receiving credit/debit bills in respect of the power purchase transactions before 31.03.2007 though credit bills of NHPC was related to the years 2003 to 2006 raised in FY 2011-12 and therefore the same was not taxable in the case of the appellant in the said year. I am in agreement with the contention of the assessee also because the nature of business changed post 31/03/2007. Revenue (in terms of credit bills) pertains to a stream of business which is no longer there. It is precisely because of this that uncertainty has crept in about its realization. In the assessment order AO has failed to address the applicability of AS-9 to the facts of the case. In fact there is no mention of it in the assessment order. Assessment order is passed in the belief that all revenue is to be recognized on accrual basis, AS-9 notwithstanding. This clearly is not acceptable as there are conditions specified in AS-9 which permits revenue recognition on receipt basis. For the reasons mentioned above I hold that conditions mentioned in AS-9 are satisfied in the case of the assessee in so far as credit notes received from NHPC and THDC are concerned. 5.4.3 The appellant further in the grounds as well as in the submission stated that the amount of Rs. 23,00,000/- receivable from THDC had been received in FY 2018-19 and the same had been disclosed by the appellant as income in the said year. I agree with the appellant's contention for not taxing the said amount in AY 2012-13 because of the provisions of chargeability of tax of Section 4 of the Income Tax Act, 1961. The claim of the appellant that the amount of Rs. 23,00,000/- had already been offered in FY 2018-19 on receipt basis and therefore could not be taxed in FY 2011-12 is correct. 5.4.4 I therefore hold that the Ld. AO had wrongly made addition of Rs. 16,61,00,000/- in re-assessment order passed u/s. 143(3) r.w.s. 147 of the Act dated 23.12.2019 and is therefore directed to delete it. The addition made by the AO of Rs. 16,61,00,000/- is hereby deleted. Ground No. 3 raised by the appellant is accordingly allowed.”