AKER POWERGAS P. LTD, MUMBAI V. DCIT 10(1), MUMBAI

CO 79/MUM/2014

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0183 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 09-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Reopening of assessment; Earning of tax free income; Question of law; Tangible material; Difference of opinion; Change of opinion
• Section: 147

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ITA N O. 1346 / MUM/20 1 3 ( ASSESSMENT YEAR : 20 08 - 09 ) DCIT - 10(1), MUMBAI - 20 VS. M/S AKER POWERGAS PVT. LTD., POWERGAS HOUSE, 83, I THINK TECHNO CAMPUS, KANJURMARG (E), MUMBAI - 400 042 PAN/GIR NO. : A A ACD 1981 E ( APPELLANT ) .. ( RESPONDENT ) ITA NO. 1359 / MUM/20 13 ( ASSESSMENT YEAR :200 4 - 0 5 ) DCIT - 10(1), MUMBAI - 20 VS. M/S AKER POWERGAS PVT. LTD., POWERGAS HOUSE, 83, I THINK TECHNO CAMPUS, KANJURMARG (E), MUMBAI - 400 042 PAN/GIR NO. : A AACD 1981 E ( APPELLANT ) .. ( RESPONDENT ) NO. 79 /MUM/20 1 4 (ARISING OUT OF ITA NO. 1359 /MUM/201 3 ) ( ASSESSMENT YEAR : 2004 - 05 ) M/S AKER POWERGAS P VT. LTD., POWERGAS HOUSE, 83, I THINK TECHNO CAMPUS, KANJURMARG (E), MUMBAI - 400 042 VS. DCIT - 10(1), MUMBAI - 20 PAN/GIR NO. : A AACD 1981 E ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : S HRI ASGHAR ZAIN /ASSESSEE BY : SHRI GIRISH DAVE DATE OF HEARING : 1 ST DECEMBER , 201 4 DATE OF PRONOUNCEMENT 19 TH DECEMBER , 201 4 ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 2 O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEA LS FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 20 - 11 - 2012 FOR THE ASSESSMENT YEAR 2004 - 05 & 2008 - 09 , IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) OF THE I.T. ACT . 2. IN APPEAL FOR A.Y.2004 - 05, THE REVENUE HA S TAKEN FOLLOWING GROUNDS : - 1 . 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A)'S ERRED IN DELETIN G THE ADDITION OF RS.19,83,872/ - BASED ON INFORMATION RECEIVED REGARDING THE COLLATION AND DISSEMINATION OF INFORMATION FROM FORE IGN TAX AUTHORITIES(U.S. TAX AUTHORITIES) TOWARDS TRANSACTION CARRIED OUT WITH BRIDGEWATER, NEW JERSEY, USA AMOUNTING TO US$ 43592.' 2. 'ON THE FACTS AND IN 'THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)'S ERRED IN NOT VERIFYING THE SPECIFIC TRANS ACTION BY THE ASSESSEE MENTIONED AT GROUND NO.1 ABOVE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A)'S ON THE ABOVE GROUND BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE ASSESSEE HAS ALSO TAKEN FOLLOWING GROUNDS IN ITS CROSS OBJE CTIONS : - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE RE - OPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. 2. THE CIT(A) ERRED IN OBSERVING THAT THE ASSES SING OFFICER HAD RECEIVED FRESH TANGIBLE MATERIAL TO RE - OPEN THE ASSESSMENT. 3. EACH ONE OF THE ABOVE GROUNDS OF CROSS - OBJECTIONS IS WITHOUT PREJUDICE TO THE OTHER. 3. IN THE APPEAL FOR A.Y.2004 - 05, THE REVENUE IS AGGRIEVED FOR DELETION OF ADDITION OF RS . 19,83, 972/ - . THE ASSESSEE HAS FILED CROSS OBJECTION ALLEGING REOPENING OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. 4. WE HAVE HEARD RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT THE ASSESSEE IS SUBSIDIARY OF AKER SOLUTIONS, NORWAY WHICH IS MULTINATIONAL ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 3 COMPANY. THE ASSESSEE IS ENGAGED IN PROVIDING SOLUTION IN ENGINEERING DESIGNS AND SUPERVISING FOR MAINLY OIL & GAS SECTORS AND OTHER SECTORS WHICH ARE RELATED TO OIL & GAS. IT IS PROVIDING SERVICES IN INDIA AND ALSO IN OTHER COUNTRIES. DURING THE YEAR THE AO RECEIVED AN INFORMATION FROM US TAX AUTHORITIES STATING THAT ASSESSEE HAS RECEIVED USD 43,592 FROM BRIDGEWATER, NEW JERSEY, USA. THE ASSESSEES ASSESSMENT WAS COMPLETED U/S.143(3) FOUR YEARS BACK. HOWEVER, A .O.ON RECEIPT OF THE ABOVE INFORMATION REOPENED THE ASSESSMENT U/S.148 AFTER RECORDING THE REASONS. AFTER REOPENING THE AO MADE AN ADDITION OF RS. 19,83, 872/ - , WHICH WAS ALLEGED TO BE RECEIVED BY THE ASSESSEE FROM BRIDGEWATER NEW JERSEY. 5. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE REOPENING OF ASSESSMENT U/S. 147. HOWEVER, THE ADDITION SO MADE WAS DELETED BY CIT(A) AFTER HAVING THE FOLLOWING OBSERVATIONS : - 4.3 I H AVE CONSIDERED THE FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. ACCORDING TO ME APPELL ANT IN ITS SUBMISSIONS STATED THAT BRIDGEWATER, NEW JERSEY IS A LOCATION IN USA AND NOT A NAME OF THE PARTY AS STATED BY THE US TAX AUTHORITIES IN THE INFO R MATION FURNISHED TO THE A.O. THEY FURTHER STATED THAT THEY HAVE A GROUP COMPANY IN BRIDGEWATER, NEW .JE R SEY, USA I.E. AKER KVAERNER PHARMACEUTICALS FOR WHOM THEY ARE PROVIDING ENGINEERING DESIGN SERVICES. AGGREGATE TRANSACTION VALUE OF DESIGN SERVICES PROVIDED TO THE GROUP COMPANY ARE USD 221,223 AND THEY HAVE SUBMITTED THE DETAILED ACCOUNT COPIES OF BRE AK - UP OF THE REVENUE RECEIVED FROM VARIOUS COMPANIES IN INDIA AND ALSO FROM OTHER COUNTRIES . THE A.O. HAS NOT ACCEPTED THE SUBMISSIONS OF THE APPELLANT WITHOUT ASSIGNING ANY REASON. HERE IT IS PERTINENT TO MENTION THAT A.O. HAS ALSO NOT BROUGHT ANY MATERIA L ON THE RECORD TO CONTRAVENE WITH THE ABOVE SUBMISSIONS OF THE APPELLANT. THE APPELLANT FURTHER ASKED THE A.O. TO PROVIDE IT THE NAME OF THE PARTY AND ALSO DATE OF TRANSACTIONS, NATURE OF TRANSACTION. THE A.O. COULD NOT PROVIDE THE APPELLANT ANY OF THE AB OVE INFORMATION NEITHER HE COULD PROVE THAT THIS TRANSACTION IS NOT PART OF THE TRANSACTION WHICH IS SHOWN BY THE APPELLANT AS REVENUE WHICH WAS BILLED TO THE AKER KVAERNER PHARMACEUTICALS WHICH WAS ON THE SAME ADDRESS I.E. BRIDGEWATER, NEW JERSEY, USA. HE NCE; THE A.O.'S ADDITION WITHOUT STATING ANY REASON ARE NOT BRINGING ANY MATERIAL ON THE RECORD TO SHOW HAT ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 4 APPELLANT'S SUBMISSIONS ARE NOT CORRECT. HENCE ADDITION ON THIS ISSUE CANNOT BE SUSTAINED AND APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED . AGAINS T THE ABOVE ORDER OF CIT(A), BEFORE US, THE REVENUE IS IN APPEAL S AND THE ASSESSEE HAS FILED CROSS OBJECTION CHALLENGING THE VALIDITY OF REOPENING. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUN D FROM THE RECORD THAT ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) ON 30 - 11 - 2006. THEREAFTER NOTICE WAS ISSUED U/S.147 ON 29 - 3 - 2011 , AFTER OBTAINING ADMINISTRATIVE PERMISSION OF CIT - 10 . SINCE THE AOS REOPENING WAS BASED ON TANGIBLE MATERIAL RECEIVED BY A O FROM US TAX AUTHORITIES, IT CANNOT BE SAID THAT THERE WAS MERE CHANGE OF OPINION. AFTER APPLYING THE PROPOSITION OF LAW LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD., 180 TAXMANN KELVINATOR INDIA LTD., 180 TAXMANN 312 . THE C IT(A) UPHELD THE REOPENING OF ASSESSMENT. WE ALSO FOUND THAT AFTER RECEIPT OF INFORMATION FROM US TAX AUTHORITIES, THE AO COMPARED THE INFORMATION WHICH HE HAD IN THE RECORD AND INFORMED SOME RECEIPTS FROM US AUTHORITIES, WHICH WERE NOT MATCHING WITH REGAR D TO THE NAMES AND ACCOUNT OF TRANSACTION. THUS, IT CANNOT ALSO BE SAID THAT THERE WAS TRUE AND CORRECT DISCLOSURE BY THE ASSESSEE IN THE RETURN OF INCOME. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE REOPENING OF THE ASSESSMENT U/S.147. 7. WITH REGARD TO THE MERIT OF THE ADDITION, WE FOUND THAT AGGREGATE TRANSACTION VALUE OF DESIGN SERVICES PROVIDED TO THE GROUP COMPANY WERE USD 221,223, ACCOUNT COPIES OF BREAK UP OF THE REVENUE RECEIVED FROM ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 5 VARIOUS COUNTRIES IN INDIA AND ALSO FROM OTHER COUNTRIES WER E FURNISHED BEFORE THE AO. WHILE MAKING ADDITION, THE AO COULD NOT PROVE THAT THIS TRANSACTION IS NOT PART OF THE TRANSACTIONS WHICH IS SHOWN BY THE ASSESSEE AS REVENUE WHICH WAS BUILT TO AKER KVAERNER PHARMACEUTICALS WHICH WAS ON THE SAME ADDRESS I.E. BRI DGEWATER, NEW JERSEY, USA. WE ALSO FOUND THAT THE AGGREGATE TRANSACTION VALUE OF USD 221,223 WITH ITS GROUP COMPANY AKER KVAERNER PHARMACEUTICALS FOR THE YEAR REFLECTED IN CONTRACT REVENUE AND OFFERED TO TAX WAS MUCH HIGHER THAN THE AMOUNT OF USD 43,592 IN DICATED IN THE NOTICE. THUS, T HE AGGREGATE CONTRACT REVENUE REFLECTED BY THE ASSESSEE IN ITS BOOKS AND ALREADY OFFERED TO TAX IS MORE THAN THE TRANSACTION VALUE PROVID ED. ACCORDINGLY, THE ADDITION OF USD 43,592 MADE BY THE AO IS TANTAMOUNT TO DOUBLE TAXATI ON OF THE VERY SAME INCOME. THE DETAILED FINDING RECORDED BY THE CIT(A) AT PARA 4.3 HAS NOT BEEN CONTROVERTED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION OF USD 43,592. 8. IN THE APPEAL FOR ASSESSM ENT YEAR 2008 - 09, THE REVENUE IS AGGRIEVED FOR RESTRICTING DISALLOWANCE U/S.14A TO RS. 1,47,887/ - AND DELETING DISALLOWANCE OF RS. 1,87,65,694/ - . THE PRECISE GROUNDS RAISED BY THE REVENUE IS AS UNDER : - 1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A)'S ERRED IN DIRECTING THE AO TO EXCLUDE THE PART OF INVESTMENT BY ASSESSEE IN GROWTH FUND OPTION OF MUTUAL FUND WHICH OTHERWISE WAS CONSIDERED BY AO FOR WORKING OF DISALLOWANCE AS IT WAS THE SUBSTANTIAL EVIDENCE/PROOF THEREOF BEFORE THE AO/CIT(A),S. IT IS PLEADED THAT THE ISSUE BE SET - ASIDE TO AO FOR VERIFICATION THAT ASSESSEE HAS ACTUALLY INVESTED IN THE GROWTH FUND OPTION OF MUTUAL FUND.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A)'S ERRED IN DEL ETING THE DISALLOWANCE OF RS.1,87,65,694/ - BEING STATED BY ASSESSEE TO BE REVERSAL OF INCOME OF ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 6 RS.82,90,255/ - OF EARLIER YEAR/S AND THE EXPENSES OF RS 1 ,05,35,440/ - OF THE EARLIER YEAR/SO THIS DISALLOWANCE WAS MADE BY AO SINCE THE ASSESSEE IS FOLLOWING ME RCANTILE SYSTEM OF ACCOUNTING. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFER BE RESTORED. 9. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS SUBSIDIARY OF MULTINATIONAL COMPANY. IT IS ENGAGED IN PROVIDING ENGINEERING , DESIGNS AND EXECUTION SERVICES IN VARIOUS SECTORS. DURING THE ASSESSMENT YEAR, THE ASSESSEE HAS INVESTED IN INVESTMENT WHICH ARE EXEMPT FROM TAX AND RECEIVED DIVID END OF RS. 1,52,60,049/ - . THE ASSESSEE HIMSELF DISALLOWED RS. 1 0,13,002/ - FOR EXPENDITURE RELATING TO ADMINISTRATIVE AND MANAGERIAL EXPENDITURE. THESE INVESTMENT WERE ONLY THROUGH OWN INTERNAL ACCRUALS AND NO AMOUNT WAS BORROWED DURING THE YEAR. HOWEVER, AO APPLIED RULE 8D OF SEC.14A AND DISALLOWED AN AMOUNT OF RS. 22,76,773/ - AS EXPENDITURE INCURRED BY THE ASSESSEE FOR ADMINISTRATIVE AND MANAGERIAL EXPENSES I.E. 0.5% OF THE TOTAL EXPENSES. 10. BY THE IMPUGNED ORDER, THE CIT(A), RESTRICTED THE DISALLOWANCE TO RS. 1,47,887/ - , AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FOUND THAT THE CIT(A) WHILE DEALING WITH THE ISSUE HAS OBSERVED THAT ASSESSEE INVESTED AN AMOUNT OF RS.23,19,77,841/ - FOR E ARNING THE EXEMPT INCOME AND INVESTED RS.22,33,76,732/ - IN GROWTH FUNDS OF MUTUAL FUNDS. GROW FUNDS OF THE MUTUAL FUNDS ARE TAXABLE UNDER THE ACT. THE ASSESSEE RECEIVES THE INCOME IN THE SHORT TERM OR LONG TERM CAPITAL GAINS BASED ON THE TIME THE ASSESSEE KEEPS ITS INVESTMENTS. HENCE, INVESTMENT ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 7 UNDER GROWTH SCHEME CANNOT BE CONSIDERED AS INVESTMENT IN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, AS THIS INCOME IS TAXABLE, THE EXPENDITURE INCURRED FOR IT CANNOT BE DISALLOWED AS THIS WILL NOT COME UN DER PURVIEW OF SEC.14A. THEREFORE, THE CIT(A) DIRECTED THE AO TO EXCLUDE THE INVESTMENT FROM THE GROWTH FUND WHILE APPLYING THE RULE 8D AND RESTRICTED THE DISALLOWANCE TO RS. 1,47,887/ - . FROM THE OBSERVATION OF THE CIT(A), WE FOUND THAT THE INVESTMENTS IN M UTUAL FUND WITH GROWTH SCHEME HAVE NOT GENERATED ANY TAX - FREE DIVIDEND INCOME , THEREFORE, THE CIT(A) HAS RIGHTLY EXCLUDED THE SAME FROM THE TOTAL VALUE OF INVESTMENTS. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) AND THE S AME IS HEREBY UPHELD. 12. THE NEXT GROUND RAISED BY THE REVENUE WITH REGARD TO DELETION OF DISALLOWANCE OF RS.1,87,65,694/ - BEING STATED BY ASSESSEE TO BE REVERSAL OF INCOME OF RS. 82,90,255/ - OF EARLIER YEARS AND THE EXPENSES OF RS.1,05 ,35,440/ - OF THE EAR LIER YEARS. 13. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FOUND THAT THE ASSESSEE HAD SHOWN NEGATIVE MARGIN OF RS. 1,87,65,694/ - IN RELATION TO CONTRACTS COMPLETED PRIOR TO F.Y.2007 - 08. IN ADDITION THE ASSESSEE HAD ALSO SHOWN POSITIVE CONT RACT MARGIN OF RS. 2,17,74,095/ - FOR THE CONTRACTS COMPLETED PRIOR TO F.Y.2007 - 08 RESULTING IN NET POSITIVE MARGIN OF RS. 30,08,401/ - . THE AO TAXED THE POSITIVE CONTRACT MARGIN AND DISALLOWED CLAIM OF NEGATIVE CONTRACT MARGIN. IN APPEAL BEFORE THE CIT(A), TH E CIT(A) OBSERVED THAT THE ASSESSEE CLAIMED THIS NEGATIVE CONTRACT INCOME IN TWO FORMS, ONE IS REVERSAL OF THE INCOME AND SECOND IS EXPENDITURE INCURRED DURING THE YEAR. FURTHER THE CIT(A) OBSERVED THAT ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 8 O NCE PRIOR PERIOD INCOME IS TAXED , DISALLOW ANCE OF PR IOR PER IOD EXPENSES IS NOT CALLED FOR AND ALLOWED THE GROUND RAISED BY THE ASSESSEE AFTER HAVING FOLLOWING OBSERVATIONS : - 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS OF THE APPELLANT AND CASE LAWS RELIED BY THE APPELLANT. THE APPELLANT RECEIV ES INCOME FOR PROVIDING DESIGN ENGINEERING SERVICES AND ALSO ASSISTING IN CONSTRUCTION AND COMMISSIONING OF INDUSTRIAL UNDERTAKING. THE APPELLANT APPOINTS BRANCH MANAGER FOR EACH WORK ASSIGNED TO THEM. THE PROJECT MANAGER DIRECTLY INVOLVES IN THE DESIGN EX ECUTING, COMMISSIONING AND BILLING TO THE CUSTOMERS. AT THE END OF EVERY YEAR THE APPELLANT OBTAINS ESTIMATED CONTRACT VALUE COMPLETED BY THE PROJECT MANAGER BASED ON THE INVOICES SUBMITTED BY THEM. THE APPELLANT BILLS THE CUSTOMERS BASED ON THE ESTIMATED CONTRACT VALUE AS ESTIMATED BY THE PROJECT MANAGER. THIS INCOME IS TAKEN INTO CONSIDERATION FOR INCLUDING THE REVENUE IN THE YEAR. THIS INCOME IS OFFERED FOR TAX. AT MOST TIMES CUSTOMERS FIND ERRORS IN THEIR CLAIMS AND MINOR DISPUTE MAY BE RAISED ON THE BI LLING AMOUNT, CUSTOMERS WILL REDUCE THE AMOUNT TO BE PAID TO THE COMPANY. IN ORDER TO HAVE GOODWILL OF THE CUSTOMERS AND FOR COMMERCIAL CONSIDERATION APPELLANT ACCEPT REDUCED BILLING. THE APPELLANT GENERALLY ACCEPTS THE CALCULATION APPROVED BY THE CUSTOMER ON THE INVOICES RAISED BY THEM. THE APPELLANT IS REVERSING ITS INCOME WHICH WAS NOT RECEIVED BY THE APPELLANT FROM ITS CUSTOMERS AND CLAIM AS EXPENSES BY REVERSING THIS AMOUNT. THE TOTAL PERCENTAGE REDUCED BY THIS PROCESS IS 0.32% OF THE TOTAL INCOME OF T HE APPELLANT. THIS EXCESS INCOME REVERSED BY THE APPELLANT WAS DISALLOWED BY THE A.O. HERE IT IS SIGNIFICANT TO CONSIDER THAT THOUGH INCOME IS ACCRUED TO THE APPELLANT, THE APPELLANT HAS NOT REDUCED THIS INCOME SO THIS INCOME IS IN THE FORM OF HYPOTHETICA L INCOME OR NOTIONAL INCOME WHICH APPELLANT HAS NOT RECEIVED AT ALL. INCOME - TAX IS A TAX ON INCOME BUT IT IS TAX ON THE REAL INCOME. IN THIS CASE THOUGH APPELLANT HAS RAISED THE BILL TO CUSTOMERS LATER IT RECEIVED LESSER AMOUNT THAN THE BILLED AMOUNT, HE NCE THE APPELLANT HAS NOT RECEIVED THE INCOME IT HAS OFFERED FOR TAX. THE INCOME WHICH IS NOT RECEIVED THOUGH OFFERED TO TAX HAD BECOME A HYPOTHETICAL INCOME WHICH CANNOT BE CALLED AS REAL INCOME AND CAN BE TAXED AS INCOME ACCRUED TO THE APPELLANT. IN TH E CASE OF GOAHRA ELECTRICITY CO. LTD. V. CIT (225 ITR 746) THE HON'BLE SUPREME COURT HAS HELD AS UNDER: ' ... THE QUESTION WHETHER THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE- COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY HAD TO BE CONSIDERED BY TAKING THE PROBABILITY OR IMPROBABILITY OF REALIZATION IN A REALISTIC MANNER. IF THE MATTER WAS CONSIDERED IN THIS LIGHT IT WAS NOT POSSIBLE TO HOLD THAT THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE- COMPANY IN RESPECT OF THE ENHANC ED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WERE ADDED ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 9 BY THE AO WHILE PASSING THE ASSESSMENT ORDERS IN RESPECT OF THE ASSESSMENT YEARS UNDER CONSIDERATION. THE 'TRIBUNAL, THEREFORE, HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASS ESSEE- COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX BY THE' ASSESSING OFFICER DID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE - COMPANY DURING THE RELEVANT PREVIOUS YEARS ... ' IN THE CASE OF HINDUSTAN THOMPSON ASSOCIATES (P;) LTD. V. ACIT MUMBAI TRIBUNAL HAS HELD AS UNDER: 'THE CUSTOMER, WHILE PASSING THE BILL, MAY DISALLOW CERTAIN PORTIONS FOR REASONS SPECIFIED. IN OTHER WORDS, THE BILLS RAI SED BY THE A SSESSEE . ARE PASSED FOR LESSER AMOUNT. THE ASSESSEE, OUT OF COMMERCIAL CONSIDERATION AND WITH A VIEW TO MAINTAIN CUSTOMER RELATIONSHIP AND NOT TO LOSE VALUABLE CUSTOMERS SUCH AS BHARATI CELL ULAR LTD., NESTLE LTD. HINDUSTAN L E VER LIMITED, ETC. GOES FOR A NEGOTIATED SETTLEMENT OF CLAIMS AND ACCEPTS SHORT PAYMENTS. A PERUSAL C,F' THE QUANTUM OF BILLING AND THE AMOUNT OF SHORT PAYMENT DEMONSTRATE THAT THE DISALLOWANCE IS MINIMAL. FOR EXAMPLE THE BILL RAISED ON 12TH JANUARY 2006, ON BLACK BOX RESEAR CH WAS INR 5,31,720, AND THE AMOUNT DISALLOWED WHICH IS ULTIMATELY WRITTEN OFF WAS INR 2,554. IN THE CASE OF HERO HONDA MOTORS LTD. (SIC), THE BILLING WAS OF INR 96,00,000 AND THE AMOUNT WRITTEN OFF WAS INR 8.444. IN THE CASE OF GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. V. ASSTT. CIT [2007 ] 112. TTJ 94 (CHD.) (SUPRA), THE BILLING WAS OF INR 21,25,000 AND THE AMOUNT WRITTEN - OFF WAS INR 3,13,430. SIMILAR IS THE FIGURES IN OTHER CASES. THUS, ON THESE FACTS, WE ARE UNABLE TO AGREE WITH THE FINDINGS OF THE REVE NUE AUTHORITIES THAT THE WRITE - OFF IN QUESTION WAS NOT BONAFIDE. IT IS BORNE OUT OF A COMMERCIAL CONSIDERATION AND CANNOT BE TERMED AS ARBITRARY OR IRRATIONAL. IN FACT, IT IS A REVERSAL OF INCOME WHICH WAS BOOKED IN EXCESS. THE JUDGMENT OF HON'BLE SUPREME COURT IN T.R.F. LTD. (SUPRA), SQUARELY APPLIES. THUS, WE ALLOW THIS GROUND ON THE SIMILAR ISSUE BY THE ASSESSEE ' FOLLOWING THE ABOVE DECISIONS AND THE FACTS OF THE CASE REVEALS THAT THE APPELLANT HAS NOT RECEIVED THIS INCOME AS CUSTOMERS HAS NEVER PAID I T. HENCE CONSIDERING THE ABOVE DECISIONS, ONLY REAL INCOME CAN BE TAXED IN INCOME - TAX ACT AND NOT HYPOTHETICAL OR NOTIONAL INCOME WHICH APPELLANT HAS NOT RECEIVED AT ALL. IN VIEW OF THE AFORESAID REASONS, I ALLOW APPELLANT'S APPEAL FOR THE REVERSAL OF INCO ME FOR RS.82,30,255/ - AS THIS NEGATIVE INCOME HAS TO BE ALLOWED TO THE APPELLANT. SECOND COMPONENT M THE NEGATIVE CONTRACT MARGIN EXPENSES INCURRED OF RS.L,05,35,440/ - . IN THE APPELLANT'S BUSINESS THEY HAVE TO PROVIDE SOME SERVICES AND/ OR INCUR CERTAIN E XPENSES EVEN AFTER COMPLETION OF THE PROJECTS. THESE EXPENSES ARE IN RELATION TO MAN - HOUR C1.15T, MATERIAL SUPPLY, INSPECTION, IT EXPENSES, TRAVEL EXPENSES AND BANK CHARGES. THE APPELLANT ON THE EXPENDITURE ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 10 WHICH IT INCURRED HAD ALREADY OFFERED THIS INCOME FOR TAX IN THE PREVIOUS YEARS. AS THESE EXPENDITURE IS INCURRED BY THE APPELLANT FOR COMPLETION OF THE PROJECTS ON WHICH APPELLANT HAS ALREADY OFFERED THE INCOME, IT SHOWS THAT APPELLANT'S EXPENDITURE IS ONLY CRYSTALLIZED DURING THE YEAR NOT EARLIER, THOU GH INCOME WAS OFFERED TO TAX EARLIER. THE EXPENDITURE CAN BE CLAIMED BY THE APPELLANT ON ESTIMATED BASIS OR ON THE ACTUAL CRYSTALLIZING OF THE EXPENDITURE. APPELLANT'S CLAIM IS FOR THE EXPENDITURE INCURRED FOR COMPLETING THE PROJECTS ON WHICH EARLIER APPEL LANT HAD OFFERED THE INCOME. SIMILAR ISSUE HAS ARISEN IN NON SUCH TEA ESTATE LTD. VS. CIT 98 ITR 189 (SC) WHEREIN IN IT WAS HELD THAT 'AS PER ASSESSEE'S ACCOUNTS, THERE WAS NOT REASON WHY PRIOR PERIOD EXPENSES CA N NOT HAVE BEEN ALLOWED.' SIMILARLY IN CIT VS . EXXON MOBIL LUBRICANTS (P.) LTD. (DEL), :THE HON'B L E DELHI HIGH COURT HAS HELD AS UNDER: . THE ASSESSEE'S LIABILITY UNDER THE AGREEMENT HAD ARISEN AND ACCRUED IN AUGUST, 2002, WHEN THE AGREEMENT WAS EXECUTED AND, THEREFORE, ITS LIABILITY TO PAY FOR PE RIOD JANUARY, 2002 TO MARCH, 2002 A ROSE AND CRYSTALLIZED IN AUGUST, 2002. IT IS PERTINENT TO MENTION THAT THE COMMISSIONER (APPEALS) HAD OBSERVED THAT THE ASSESSEE HAD SHOWN PRIOR PERIOD EXPENSE OF INR 1.34 CRORES AGAINST WHICH THE PRIOR PERIOD INCOME WAS SHOWN AS INR 83.21 LAKHS AND THE NET AMOUNT OF INR 51.13 LAKHS HAD BEEN SHOWN AS EXPENDITURE IN THE ACCOUNT. THE COMMISSIONER (APPEALS) HELD THAT IF THE ASSESSEE HAD SHOWN PRIOR PERIOD INCOME AND THE ASSESSING OFFICER HAD NOT EXCLUDED IT WHILE WORKING OUT THE RELEVANT CURRENT YEAR'S TAXABLE INCOME THEN THERE WAS NO REASON ON' THE PART OF THE ASSESSING OFFICER TO DISALLOW ONLY ONE PART OF THE PRIOR PERIOD ADJUSTMENTS, I.E., THE PRIOR PERIOD EXPENDITURE. CONSEQUENTLY, THE ADDITION MADE BY THE ASSESSING OFFIC ER COULD NOT BE SUSTAINED. IN ANY EVENT, IN VIEW OF THE SETTLED LEGAL POSITION, NO SUBSTA NTIAL QUESTION OF LAW ARISES IN THE PRESENT PROCEEDINGS . HENCE, THE PRESENT APPEAL, BEING BEREFT OF MERIT, IS DISMISSED BUT WITH NO ORDER AS TO COSTS. ON PERUSAL OF T HE ABOVE DECISIONS, IT IS CLEAR THAT PRIOR PERIOD INCOME WAS OFFERED, PRIOR PERIOD EXPENSES THOUGH CLAIMED I N THE LATER YEAR HAS TO BE ALLOWED. HENCE, A.O IS DIRECTED TO ALLOW THE PRIOR PERIOD EXPENSES INCURRED BY THE APPELLANT DURING THE YEAR. THE APPEL LANT HAD CLAIMED THIS NEGATIVE CONTRACT INCOME IN TWO FORMS, ONE IS REVERSAL OF THE INCOME AND SECOND IS EXPENDITURE INCURRED DURING THE YEAR. THOUGH A.O. DISALLOWED THIS EXPENDITURE BUT A. O . HAD TAXED THE PRIOR PERIOD INCOME RECEIVED BY THE APPELLANT. ONC E PRIOR PERIOD INCOME IS TAXED BY DISALLOWED PRIOR PERIOD EXPENSES IS NOT CALLED FOR. HENCE IN TOTO THIS GROUND OF APPEAL IS ALLOWED. 14. WE HAVE CONSIDERED RIVAL CONTENTIONS AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF CIT(A) INSOFAR AS HE HAS BROUGHT TO TAX INCOME OF THE PRIOR YEAR AND AT THE VERY SAME TIME DIRECTED THE AO TO ALLOW EXPENDITURE OF PRIOR PERIOD. THE ITA NO. 1346 &1359 / 1 3 & CO NO. 79/14 11 DETAILED FINDING RECORDED BY CIT(A) HAS NOT BEEN CONTROVERTED. ACCORDINGLY, WE DO N OT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 15 . IN THE RESULT, BOTH APPEAL S OF THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19/12 / 201 4 . 19/12 / 2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTA NT MEMBER MUMBAI ; DATED 19/12 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//