The Commissioner Of Income Tax, Hisar v. Dakshin Haryana Byli Vitran Nigam Ltd., Hisar

ITA,209a2014 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA,209a2014 (O&M)Date of decision: 01.10.2014The Commissioner of Income Tax, Hisar .-. Appellant The Commissioner of Income Tax, Hisar .-. Appellant VERSUS Dakshin Haryana Byli Vitran Nigam Ltd., Hisar .. Respondent CORAMHON7BLE MR. JUSTICEK RAJIVE BHALLHON7BLE MR. JUSTICE AMIT RAWAL Present'Mr.Tejender K.Joshi, Advocate, for the appellant, KOK oK RAJIVE BHALLA, J. (ORAL);;aCM14606CII2014 Prayer in this application is to condone delay of 666 daysin refiling the appeal. We have heard counsel for the applicant/appellant and inview of averments in the application duly supported by an affidavitfiled by Mr.T.K.Joshi, Advocate, allow the application and condonedelay of 666 days in refiling the appeal. ITA;209;2014 The revenue is before us challenging order dated30.11.2011, passed by the Income Tax Appellate Tribunal, DelhiBench 'B' New Delhi, (hereinafter referred to as the 'ITAT')dismissing an appeal filed by the revenue, thereby confirming orderdated 06.11.2009, passed by the Commissioner of Income Tax! ITA,209a2014 | 2 | (Appeals), Rohtak (hereinafter referred to as the 'CIT(Appeals)’. Counsel for the revenue submits that as the assesseemaintains a mercantile system of accounting, the mere fact thatreceipts may have not been realised, does not absolve the assessee ofits liability to pay tax on surcharge levied for delayed payment andreflected in the bills raised by the assessee. It is further submittedthat the mere fact that the assessee is a Government entity or thatSurcharge is debatable or may not eventually be paid or may bewaived, cannot be a ground to set aside the order passed by theAssessing Officer. The ITAT and the CIT(Appeals) have, therefore,erred in deleting the addition made by the Assessing Officer. We have heard counsel for the revenue, appraised theimpugned order as well as orders passed by the CIT(Appeals),Rohtak and the Assessing Officer, Hisar. The question that calls for an answer, in the facts of thiscase, 1S whether surcharge for delayed payment reflected in the billsraised by the assessee and its accounts, would invite payment of a taxdehors recovery/payment/receipt of surcharge. The AssessingOfficer, took a view that as surcharge levied upon delayed paymentsof bills is reflected in the bills and the accounts of the assessee, thefact that the surcharge may or may not be paid or recovered or mayeventually be waived, is entirely irrelevant as the assessee maintainsa mercantile system of accounting. ITA,209a2014 13] Aggrieved by the aforesaid finding, the assessee filed anappeal. The CIT(Appeals) vide order dated 06.11.2009, set aside theaddition made by the Assessing Officer by holding as follows: - The question that calls for an answer, in the facts of thiscase, 1S whether surcharge for delayed payment reflected in the billsraised by the assessee and its accounts, would invite payment of a taxdehors recovery/payment/receipt of surcharge. The AssessingOfficer, took a view that as surcharge levied upon delayed paymentsof bills is reflected in the bills and the accounts of the assessee, thefact that the surcharge may or may not be paid or recovered or mayeventually be waived, is entirely irrelevant as the assessee maintainsa mercantile system of accounting. ITA,209a2014 13] Aggrieved by the aforesaid finding, the assessee filed anappeal. The CIT(Appeals) vide order dated 06.11.2009, set aside theaddition made by the Assessing Officer by holding as follows: - “The issue involved and the submissions made by theappellant have been considered. It 1s undisputed that theappellant is following mercantile system of accounting; itis levying surcharge on delayed payment of bills by theconsumers; the surcharge is taken as income as and when itis collected; however a provision for charge is made asnoted above under the head ‘provision of surcharge notrealized’. This method has been regularly followed by theappellant. During appeal proceedings before theundersigned the appellant has produced bills pertaining toas many as 50 parties of various places and has shown thatthe bills are accepted even without payment of surchargeby the consumers and that surcharge is shown in the booksas income as and when it is collected/received. It is settledlaw that, “Income-tax is a levy on income. No doubt, theIncome-tax Act takes into account two points of time atwhich the liability to tax is attracted, viz., the accrual of theincome or its receipt; but the substance of the matter is theincome. If income does not result at all, there cannot be atax, even though in book keeping an entry is made about a‘hypothetical income”. Which does not materialize. Whereincome has, in fact, been received and is subsequentlygiven up, in such circumstances that it remains the incomeof the recipient, even though given up, the tax may bepayable. Where, however, the income can be said not tohave resulted at all, there is obviously neither accrual norreceipt of income, even though an entry to that effect ITA,209a2014 | 4 | might, in certain circumstances, have been made in thebooks of account’. In view of the aforesaid and theAccounting Standard (AS)-I and Accounting Standard(AS)-9, issued by the institute of Chartered Accountant ofIndia the addition made by the Assessing Officer isdeleted.” The revenue thereafter filed an appeal before the ITAT,which affirmed the order passed by the CIT (Appeals) and dismissedthe appeal. A relevant extract from the order passed by the ITAT isas follows: - “In our considered opinion, all the above judgmentclearly favour the stand taken by the assessee. We mayhasten to mention that looking at the intricacies the factsmay vary, therefore, basic principles of accrual ofmercantile system as laid down by various authorities are tobe applied in a careful manner. The assessee being a satePSU; the sur-charge on delayed payment being disputableitem; was not mandatorily payable at the time of paymentof electricity consumption bill; was not an accrued receiptin view of the accounting policy accepted by the revenue.Therefore, such amount of surcharge cannot be held to betaxable as it is not the real income of the assessee and ishypothetical by nature in given facts and circumstances. In view of the foregoing, we are of the view that theamount of surcharge not realized by the assessee, does notamount to accrued of receipt taxable as income, CIT(A) hasrightly deleted the addition, which we uphold.” ITA,209a2014 15| In view of the foregoing, we are of the view that theamount of surcharge not realized by the assessee, does notamount to accrued of receipt taxable as income, CIT(A) hasrightly deleted the addition, which we uphold.” ITA,209a2014 15| We have duly considered the arguments but are unable toaccept the contentions advanced by counsel for the appellant.Admittedly, Rs.2,25,18,23,535/- was added by the assessing officeras reflecting levy of surcharge on delayed payment of bills.Admittedly, this amount has neither been paid nor recovered by theassessee. Admittedly, the surcharge is a disputable item and may atany time be reduced or waived and, therefore, despite the tact that theassessee maintains a mercantile system of accounting, the ITAT andthe CIT (Appeals) have rightly set aside the order passed by theassessing officer adding surcharge to the income of the assessee. Itwould be appropriate to point out that income tax is fundamentally alevy on income and though the Act may prescribe different points intime at which lability to taxation enures still remains a tax on receiptof income. A hypothetical income that may or may not materialiseshould not be made subject matter of tax merely because of an entryin the accounts books maintained by an assessee. A reference in thisregard may be made to a judgment of the Hon'ble Supreme Court in ;?aCommissioner of Incometax Vs. Shoorji Vallabhdas and Co 11962| 046 ITR 0144, wherein it has held as follows: - “Income-tax is a levy on income. Though the Income-taxAct takes into account two points of time at which theliability to tax is attracted, viz., the accrual of the income orits receipt, yet the substance of the matter is the income. Ifincome does not result at all, there cannot be a tax, eventhough in book-keeping, an entry is made about a ITA,209a2014 | 6 | “hypothetical income’, which does not materialise. Whereincome has, in fact, been received and is subsequentlygiven up in such circumstances that it remains the incomeof the recipient, even though given up, the tax may bepayable. Where, however, the income can be said not tohave resulted at all, there is obviously neither accrual norreceipt of income, even though an entry to that effectmight, in certain circumstances, have been made in thebooks of account.” In view of what has been recorded hereinabove, we findno error in the impugned orders and while dismissing the appealrecord that as and when the assessee receives payment of surcharge,it would be obliged to pay tax on such amount, | RAJIVE BHALLA |JUDGE 01.10.2014Shamsher S.Sabharwal |} AMIT RAWAL JUDGE