DCIT Vs Tourism Corporation of Gujarat Ltd (ITAT Ahmedabad)
ITAT Ahmedabad held that taxation must be based on income that has actually accrued or arisen. Thus, addition towards decentralized grants merely routed assessee and simply transferred to other government agencies as per GOG’s directions is unsustainable.
Facts- The assessee, M/s Tourism Corporation of Gujarat Ltd. (TCGL), engaged in the promotion and development of tourism in Gujarat. During the course of assessment proceedings, the AO observed that the statutory auditors highlighted that the company consistently recognizes 15% of the grants received from the Government of Gujarat as income for administrative overheads, as authorized by Government Resolution. The amount paid to District Collectors and other implementing agencies (Rs.13,39,91,645/-) was not considered while calculating the grant utilization, leading to an understatement of income by Rs.2,00,98,747/-. AO concluded that there was no tangible reason to exclude the Rs.13,39,91,645/- paid to District Collectors from the calculation of utilized grants. Therefore, the AO added Rs.2,00,98,747/- to the total income, asserting that the consistent recognition method should not be changed arbitrarily without evidence.
CIT(A) deleted the addition. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that CIT(A) rightly observed that the AO’s addition was based on assumptions and conjecture, without any substantive evidence to support the contention that TCGL was obligated to charge 15% of the decentralized grants as income. The CIT(A)’s findings are well-reasoned and supported by the consistent policy followed by the assessee in recognizing income. The principle that only real income can be taxed, and not notional or hypothetical income, is well-settled in law. The alleged income of Rs.2,00,98,747/- was never accrued to TCGL, nor did it represent real income as the funds were never utilized by TCGL but were simply transferred to other government agencies as per GOG’s directions. The addition made by the AO goes against the basic tenet of income tax law, which mandates that taxation must be based on income that has actually accrued or arisen.
