The Delhi ITAT, in the case of I-Process Services India Pvt Ltd v. DCIT held that addition cannot be made when the assessee has not earned real income through a void contract.
The Assessee is a company engaged in providing business auxiliary services to ICICI Bank Ltd. During the year under consideration, the contract entered into between the assessee and the bank became void and consequently, the transaction of income was reversed by the assessee as there was no legally enforceable right to such income under a void contract. The AO disallowed the amount claimed by the asssee.
On appeal, the first appellate authority held in favour of the Revenue. Aggrieved by the order, the assessee preferred an appeal before the ITAT.
The bench observed the specific finding made by the CIT(A) that “the contracts entered without obtaining the consent of the Board are to be termed as “voidable at the option of the Board” in the case of the Companies having share capital below 1 crore, but there is no corresponding or analogous provision in the Companies Act for a similar situation in case of Companies having share capital above Rs. 1 crore.”
“In this case, the assessee alleges that on the contract becoming void ab initio, the transaction of income from ICICI Home Financing Co. Ltd. was reversed by the assessee since there was no legally enforceable right to such income on the contract being declared as void ab initio. On this aspect there is no denial of fact by the Revenue. In the circumstances, we are of the considered opinion that no real income had accrued to the assessee under a void contract as such the addition made on the ITA No.3015/Del/2013 basis of the income under a void contract and that too which was reversed subsequently, is unsustainable. Hence, the grounds of appeal are allowed”, the Tribunal said.
The Tribunal also held that, “on the contract becoming void ab initio, the transaction of income from ICICI Home Financing Co. Ltd. was reversed by the assessee since there was no legally enforceable right to such income on the contract being declared as void ab initio. On this aspect there is no denial of fact by the Revenue. In the circumstances, we are of the considered opinion that no real income had accrued to the assessee under a void contract as such the addition made on the ITA No.3015/Del/2013 basis of the income under a void contract and that too which was reversed subsequently, is unsustainable. Hence, the grounds of appeal are allowed”.
Read the full text of the Order below.
