M/s. T.G.D. & Sons Engineering Contractors Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

CO 169/CHNY/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7606 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PHILIP GEORGE ITA NO M DS
• Section: 37(1); 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER --------- ITA NO. 1867/MDS/2011 ASSESSMENT YEAR : 2004-05 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), CHENNAI. V. M/S. TGD & SONS ENGINEERING CONTRACTORS P. LTD., PLOT NO. 68, 8 TH STREET, 2 ND SECTOR, K.K. NAGAR, CHENNAI-600 078. (PAN :AABCT3090K) (APPELLANT) (RESPONDENT) A N D C.O. NO. 169/MDS/2011 (IN ITA NO. 1867/MDS/2011) ASSESSMENT YEAR 2004-05 M/S. TGD & SONS V. THE ASST. COMMISSIONER OF ENGINEERING CONTRACTORS INCOME TAX , P. LTD., C OMPANY CIRCLE-III(2), PLOT NO. 68, 8 TH STREET, CHENNAI. 2 ND SECTOR, K.K. NAGAR, CHENNAI-600 078. (CROSS OBJECTOR) ( RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL.CIT ASSESSEE BY : SHRI PHILIP GEORGE, ADVOCATE ITA NO.1867/M DS/2011 & CO 169/M DS/2011 2 DATE OF HEARING : 10.09.2012 DATE OF PRONOUNCEMENT : 17.09.2012 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI DA TED 29- 08-2011 FOR THE ASSESSMENT YEAR 2004-05. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS CAR RYING ON THE PROPRIETARY BUSINESS OF ENGINEERING CONTRACTS I N THE NAME AND STYLE OF TG DEIVASIGAMANI ENGINEERING CONTRACT . THE ASSESSEE FILED A RETURN OF INCOME DECLARING TOTAL I NCOME OF ` 5,15,820/-. SUBSEQUENTLY A NOTICE U/S 148 WAS ISSU ED AN THE ASSESSMENT WAS COMPLETED BY TAXING AN AMOUNT OF ` 4,83,17,099/- AS INCOME BY WAY OF ARBITRATION AWARD TOGETHER WITH INTEREST OF @ 18% FROM 09-04-2003 TILL 31-03-2 004. 3. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE CIT(A). IT WAS SUBMITTED BEFORE THE LEA RNED CIT(APPEALS) THAT THE ASSESSEE UNDERTOOK A CONSTRUC TION WORK FROM SUPERINTENDING ENGINEER, HIGHWAYS DEPARTMENT A ND THE ITA NO.1867/M DS/2011 & CO 169/M DS/2011 3 ASSESSEE HAD NOT RECEIVED THE FINAL BILL. THE ASSE SSEE WENT FOR ARBITRATION. THE ARBITRATOR GAVE AN AWARD IN FAVOU R OF THE ASSESSEE. THE SUPERINTENDING ENGINEER, HIGHWAYS DEPARTMENT, CHENNAI & VILLUPURAM WENT TO THE HIGH C OURT. THE HONBLE MADRAS HIGH COURT (SINGLE JUDGE) SET AS IDE THE AWARD PASSED BY THE ARBITRATOR. THE ASSESSEE CARRI ED THE MATTER BEFORE THE DIVISION BENCH. THE DIVISION BENC H OF THE VERY SAME HONBLE MADRAS HIGH COURT RESTORED THE AW ARD PASSED BY THE ARBITRATOR BY SETTING ASIDE THE HONB LE SINGLE JUDGE ORDER. AGAINST THE ORDER OF THE DIVISION BENC H OF THE HONBLE HIGH COURT, THE HIGHWAYS DEPARTMENT WENT I N APPEAL BEFORE THE HON'BLE SUPREME COURT. THE HON'BLE SUPR EME COURT GRANTED STAY IN FAVOUR OF THE DEPARTMENT. T HE ASSESSEE EXPLAINED THAT UNDER THOSE CIRCUMSTANCES T HE ASSESSEE HAS NOT RECEIVED A SINGLE PIE FROM THE HIG HWAY DEPARTMENT AND THEREFORE TAXING THE AWARD AMOUNT OF ` 4.11 CRORES IS NOT PERMISSIBLE UNDER LAW. THE LEARNED C IT(APPEALS) OBSERVED AS UNDER : 14. IN MY VIEW, THE FACTS OF THE CASE OF THE APP ELLANT FALL RIGHT INTO THE CATEGORY OF WHERE THE RIGHT TO RECEIVE ITA NO.1867/M DS/2011 & CO 169/M DS/2011 4 PAYMENT IS IN DISPUTE AND IT IS NOT A QUESTION OF M ERELY QUANTIFYING THE AMOUNT TO BE RECEIVED. THERE IS N O CERTAINTY OF THE RECEIPT OF THE AWARD AMOUNT IN THE CASE OF THE APPELLANT IN THE RELEVANT A.Y. AS THE HIGHWA YS DEPARTMENT FILED AN APPEAL BEFORE THE SUPREME COURT AND THE APPEAL HAS BEEN ADMITTED. THOUGH THE CLAIM OF AWARD AMOUNT IN THIS CASE HAS NOT REACHED FINALITY, THE NATURE OF AWARD AMOUNT IS NOT AN ISOLATED CASE OF C LAIM OF ENHANCEMENT OF RENT OR ENHANCEMENT OF COMPENSATI ON FOR COMPULSORY ACQUISITION OF ASSET BY GOVERNMENT B UT CLAIM FOR HAVING CARRIED OUTWORK FOR WHICH CLAIM IS MADE. FACTS OF THE CASE OF THE APPELLANT ARE DISTINGUISHA BLE FROM THE FACTS OF THE CASES CITED IN 315 ITR 1(SC) AND 1 61 ITR 524 (SC) AS THE CLAIM OF THE APPELLANT RELATE TO BU SINESS RECEIPT. THEREFORE THIS CLAIM IS REQUIRED TO BE EX AMINED IN THE CONTEXT OF MATCHING CONCEPT OF ACCOUNTING AS PER WHICH THE EXPENDITURE RELATING TO THE WORK IS TO BE ALLOWED AGAINST THE INCOME RELATING THERETO. THIS IS FURTHER INCONSISTENT WITH THE PROVISION OF SECTION 37(1) WHERE IT IS EXPENDITURE RELATING TO INCOME RECEIVED FOR TAX ALONE ARE ALLOWED TO BE GIVEN AS DEDUCTION AND EXPENDITURE RELATING TO INCOME NOT OFFERED FOR TAX ARE TO BE APPORTIONED TO INVENTORY/W.I.P./F.S. AND ALLOWED IN THE YEAR INCOME IS OFFERED FOR TAX. 4. THE LEARNED CIT(APPEALS) AFTER THE ABOVE OBSERVA TION CALLED FOR THE DETAILED EXPENDITURE INCURRED BY THE ASSESSEE. ITA NO.1867/M DS/2011 & CO 169/M DS/2011 5 AFTER GOING THROUGH THE DETAILS SUBMITTED BY THE AS SESSEE, THE LEARNED CIT(APPEALS) WAS OF THE OPINION THAT THE AS SESSEE HAS INCURRED DIRECT EXPENSES OF ` 1,36,38,901/- AND DELETED THE AMOUNT OF ` 3,46,78,198/- ( 4,83,17,904 1,36,38,901/-). 5. AGAINST THE ORDER OF THE LEARNED CIT(APPEALS), T HE REVENUE HAS FILED THE PRESENT APPEAL. THE ASSESSEE HAS FILED CROSS OBJECTION TO THE EXTENT OF THE ADDITION CONFI RMED BY THE LEARNED CIT(APPEALS). 6. THE LEARNED DR SUBMITTED THAT ONCE AN AWARD IS P ASSED IN FAVOUR OF THE ASSESSEE, THE INCOME IS DEEMED TO ACCRUE TO THE ASSESSEE BECAUSE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. HE RELIED ON THE DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. HIGHWAY CONSTRUCTI ON CO. (P.) LTD. (NO.1) (223 ITR 32) (GAUHATI) AND SUBMITTED TH AT INCOME ACCRUES IN THE YEAR IN WHICH THE ARBITRATOR PASSED AN AWARD. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE VERY ARBITRATION CLAIM ITSELF IS IN DISPUTE AND UNTIL AND UNLESS THE AWARD PASSED BY THE ARBITRATOR IS FINAL, NO AMOUNT IS TAXABLE. THE ASSESSEE HAS NOT RECEIVED A NY SINGLE PIE AND THE JURISDICTION OF THE ARBITRATOR ITSELF I S IN DISPUTE ITA NO.1867/M DS/2011 & CO 169/M DS/2011 6 BEFORE THE HON'BLE SUPREME COURT. THEREFORE, THE A SSESSEE IS NOT LIABLE TO PAY ANY TAX. 8. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE COMPANY UNDERTOOK A MAJOR CONSTRUCTION WOR K FROM THE SUPERINTENDING ENGINEER, HIGHWAYS DEPARTMENT, C HENNAI AND THE ASSESSEE COMPANY DID NOT RECEIVE THE FINAL BILL. THE COMPANY WENT FOR ARBITRATION AND THE ARBITRATOR GAV E AWARD IN FAVOUR OF THE ASSESSEE TO THE TUNE OF ` 4.11 CRORES DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2004 -05. THE SUPERINTENDING ENGINEER, HIGHWAYS DEPARTMENT QUESTI ONED THE VERY SAME AWARD BEFORE THE HONBLE MADRAS HIGH COURT AND THE HONBLE SINGLE JUDGE VIDE O.P. NO. 780/2003 SET ASIDE THE ARBITRATION AWARD. AGGRIEVED THE ASSESSEE SENT IN APPEAL BEFORE THE DIVISION BENCH OF THE HONBLE HIGH COURT OF MADRAS. THE DIVISION BENCH OF THE HONBLE MADRAS HIGH COURT RESTORED THE ORIGINAL ORDER PASSED BY THE ARBITRATOR. THERE AFTER, THE SUPERINTENDING ENGINEER, HIGHWAYS DEPARTMENT CARRIE D THE MATTER BEFORE THE HON'BLE SUPREME COURT. THE HON'B LE SUPREME COURT IN SPECIAL LEAVE TO APPEAL (CIVIL) NO . 12090/2009 DATED 06-07-2009 GRANTED INTERIM STAY AN D THE ITA NO.1867/M DS/2011 & CO 169/M DS/2011 7 APPEAL IS PENDING BEFORE THE HON'BLE SUPREME COURT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT RECEIVED A SINGLE PIE FROM THE HIGHWAYS DEP ARTMENT AND THE VERY JURISDICTION OF THE ARBITRATOR WAS QUE STIONED BEFORE THE HON'BLE SUPREME COURT AND THAT WHETHER T HE ASSESSEE RECEIVES THE AMOUNT OR NOT IS DOUBTFUL. H E THEREFORE SUBMITTED THAT ONCE THE HON'BLE SUPREME COURT DISPO SES OF THE APPEAL AND IF THE ASSESSEE RECEIVES THE AMOUNT THEN ONLY THE ASSESSEE CAN PAY THE TAX. WE FIND THAT THE ASS ESSEE HAS NOT RECOGNIZED THE INCOME. EVEN THOUGH THE ASSESSE E WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT, IT HAS NOT RECOGNIZED THE INCOME. THEREFORE, IT CANNOT BE SAI D THAT INCOME HAS ACCRUED TO THE ASSESSEE. 9. IN THE CASE LAW RELIED ON BY THE LEARNED DR IN THE CASE OF CIT V. HIGHWAY CONSTRUCTION CO. (P.) LTD. (SUPRA ), THE HONBLE GAUHATI HIGH COURT HAS HELD THAT THE ASSESS EE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE COM PENSATION WAS AWARDED BY THE HIGH COURT BY DECREE DATED 30.03 .1979 IN RESPECT OF SOME CONTRACT WORK. THE ACTUAL PAYMENT RECEIVED BY THE ASSESSEE WAS ON 14.09.1979. THE COMPENSATIO N AMOUNT ACCRUED TO THE ASSESSEE ON 30-03-1979 AND NO T ON ITA NO.1867/M DS/2011 & CO 169/M DS/2011 8 14-09-1979. IN OUR OPINION, THIS DECISION HAS NO A PPLICATION TO THE FACTS OF THE PRESENT CASE FOR THE SIMPLE REASON THAT THE VERY BASIS OF THE JURISDICTION OF THE ARBITRATOR WA S CHALLENGED BEFORE THE HON'BLE SUPREME COURT. UNLESS AND UNTIL THE ASSESSEE RECEIVES THE ARBITRATION AWARD, IT CANNOT BE SAID THAT THE INCOME HAS ACCRUED TO THE ASSESSEE. WE THEREFO RE DISMISS THE REVENUES APPEAL. 10. INSOFAR AS THE CROSS OBJECTION FILED BY THE ASS ESSEE IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT T HE LEARNED CIT(APPEALS) WRONGLY DIRECTED THE ASSESSEE TO PAY ` 1,36,38,901/- WITHOUT RECEIVING ANY AMOUNT FROM THE HIGHWAYS DEPARTMENT. IT IS A FACT THAT THE ASSESSEE HAS NOT RECEIVED A SINGLE PIE AND THE VERY ARBITRATION AWAR D ITSELF IS IN DISPUTE BEFORE THE HON'BLE SUPREME COURT. THEREFOR E, WE FIND THAT THE LEARNED CIT(APPEALS) WAS NOT CORRECT IN SA YING THAT THE ASSESSEE IS LIABLE TO PAY ` 1,36,38,901/- AS TAX. THE ORDER OF THE LEARNED CIT(APPEALS) IS MODIFIED ACCORDINGLY AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWE D. ITA NO.1867/M DS/2011 & CO 169/M DS/2011 9 ORDER PRONOUNCED ON MONDAY, THE 17 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ( V.DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 17 TH SEPTEMBER, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE