The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the ruling of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted a ₹2 crore addition to the income of the Tourism Corporation of Gujarat Ltd. (TCGL) for the assessment year ( AY ) 2012-13.
The Revenue filed an appeal against the CIT(A)’s order dated 18-03-2019 for the Assessment Year 2012-13.In this case,Tourism Corporation of Gujarat Ltd.,the respondent-assessee,engaged in promoting and developing tourism in Gujarat,was initially assessed at Rs. 36,70,08,460/- under section 143(3) on 31/12/2014. The assessment was reopened under section 147 due to discrepancies, and a notice under section 148 was issued on 22/09/2016, with the return filed on 28/12/2016.
During the assessment proceedings, the AO noted that the assessee consistently recognized 15% of grants from the Government of Gujarat(GOG) as income for administrative overheads. However, for the year in question, Rs. 13,39,91,645/- paid to District Collectors and other agencies was excluded from the calculation, leading to an understatement of income by Rs. 2,00,98,747/-.
The AO issued a notice asking why this amount should not be added to the income. The assessee argued that TCGL acted as a nodal agency and the funds were pass-through, not actual income, relying on the concept of real income and citing legal precedents.
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The AO rejected the explanation, pointing to consistent past practices of recognizing 15% of grants as income, and added Rs. 2,00,98,747/- to the total income, stating that the method should not be altered without evidence.The AO observed a delay in employees’ Employees Provident Fund(EPF) contributions, paid well after the due date. Consequently, the late payment of Rs. 7,39,238/- was added to the income.
The assessee appealed to the CIT(A), who partly granted the appeal and directed the AO to remove the Rs. 2,00,98,747/- addition. The CIT(A) confirmed that the assessee’s income recognition policy was consistent, justifying the exclusion of the amount from taxable income.
During the hearing, the Departmental Representative (DR) referenced the AO’s order, noting the assessee’s consistent recognition of 15% of grants as income, per a Government of Gujarat Resolution. The DR stated that the statutory auditor pointed out that the assessee excluded Rs. 13,39,91,645/- passed to District Collectors and agencies, leading to an understatement of income by Rs. 2,00,98,747/- (15% of that amount).
The tribunal determined that the AO failed to perform independent verification regarding the grants passed through TCGL from the GOG. The AO’s reliance solely on the statutory auditor’s remarks, without conducting factual inquiries or obtaining corroborative evidence from the GOG, weakened the basis for the addition.
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The assessee submitted evidence, including the GOG resolution and audited financial statements, demonstrating that the 15% charge applied only to grants actually utilized. The decentralized grants totaling Rs. 13,39,91,645/- were managed by other agencies and did not impact TCGL’s finances.
The CIT(A) conducted a comprehensive review and noted that the AO’s addition was based on assumptions and lacked substantive evidence. The CIT(A) affirmed that only real income, not hypothetical income, was subject to tax. The claimed income of Rs. 2,00,98,747/- did not accrue to TCGL since it was merely transferred to other agencies. Thus, the addition contradicted fundamental principles of income tax law.
The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) dismissed the Revenue’s appeal and upheld the CIT(A)’s order, finding no grounds to alter the well-reasoned decision.
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