Sri Hari Packaging, CHENNAI V. ACIT, CHENNAI

ITA 1090/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8792 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 22-04-2016
• Court: TRIBUNAL
• Department Lawyers: SAHADEVAN
• Assessee Lawyers: S SRIDHAR
• Section: 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.840/MDS/2016 / ASSESSMENT YEAR : 2006-07 M/S S.V CONTRACTORS NO.25, IV FLOOR LANCO HOME G.N. CHETTY ROAD T. NAGAR, CHENNAI 600 017 VS. THE D Y. COMMISSIONER OF INCOME TAX BUSINESS CIRCLE II CHENNAI [PAN AAXFS 2938 L] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI SAHADEVAN, JC IT / DATE OF HEARING : 06 - 06 - 2016 ! / DATE OF PRONOUNCEMENT : 05 - 08 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, CHENNA I, DATED 29.2.2016 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ADDITION OF ` 49,36,008/- BEING THE AMOUNT WITHDRAWN BY THE ASSE SSEE PENDING APPEAL BEFORE THE HIGH COURT AGAINST THE ARBITRATIO N AWARD. ITA NO.840/16 :- 2 -: 3. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE IS A CIVIL CONTRACTOR. DURING THE CO URSE OF ITS BUSINESS ACTIVITY, THE ASSESSEE ENTERED INTO AN AGREEMENT W ITH GOVERNMENT OF ANDHRA PRADESH FOR EXECUTION OF CIVIL WORK. THE ASSESSEE HAS CLAIMED ADDITIONAL COMPENSATION DUE TO ESCALATION O F PRICES. IN FACT, THE ARBITRATOR AWARDED ADDITIONAL COMPENSATION IN T HE ARBITRATION PROCEEDINGS. THE GOVERNMENT HAS FILED AN APPEAL BEFORE THE ANDHRA PRADESH HIGH COURT. DURING THE PENDENCY OF THE APPEAL BEFORE TH E HIGH COURT, THE ASSESSEE WAS ALLOWED TO WITHDRAW A SUM OF ` 49,36,008/-. IN FACT, THE AMOUNT WAS WITHDRAWN ON 27.2.2006. ACCORDING TO TH E LD. COUNSEL, THE ASSESSEE WAS REGULARLY FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE BY INTERIM ORDER OF THE HIGH COURT CANNOT BE TREATED A S INCOME OF THE ASSESSEE. ACCORDING TO THE LD. COUNSEL, THE ASSES SEE HAS LIABILITY TO PAY THE AMOUNT SUBJECT TO RESULT OF THE APPEAL PEND ING BEFORE THE HIGH COURT. IN FACT, THE AMOUNT WITHDRAWN BY THE ASSESSEE WAS DISCLOSED ON THE LIABILITY SIDE OF THE BALANCE SHEE T. SINCE THE MATTER WAS PENDING, ACCORDING TO THE LD. COUNSEL, THE CIT( A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER TO THE EXTENT OF ` 49,36,008/-. THE LD. COUNSEL PLACED HIS RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN BECHTEL INTERN ATIONAL INC. VS DDIT, INTERNATIONAL TAXATION 3(2) IN I.T.A.NO.39/MU M/2007, DATED ITA NO.840/16 :- 3 -: 30.10.2015. THE LD. COUNSEL SUBMITTED THAT WHEN TH E ASSESSEE WAS MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM, THE AMOU NT WITHDRAWN CONSEQUENT TO THE INTERIM ORDER PASSED BY THE HIGH COURT CANNOT BE TAKEN AS INCOME OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI SAHADEVAN, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS E NTRUSTED WITH THE CONSTRUCTION OF BANAKACHERIA REGULATOR COMPLEX BY GOVERNMENT OF ANDHRA PRADESH BY AN AGREEMENT DATED 14.9.1988. TH E ASSESSEE FILED A SUIT BEFORE THE ADDITIONAL JUDGE, CITY CIVI L COURT, HYDERABAD, CLAIMING ADDITIONAL AMOUNT TOWARDS ESCALATION OF TH E PRICES. THE ADDITIONAL JUDGE, CITY CIVIL COURT, HYDERABAD, ALLO WED THE CLAIM OF THE ASSESSEE PARTLY TOGETHER WITH INTEREST @ 12% PER AN NUM. AGGRIEVED BY THE ORDER OF THE CITY CIVIL COURT, HYDERABAD, TH E ASSESSEE FILED AN APPEAL BEFORE THE HIGH COURT. THE HIGH COURT STAYE D THE ORDER OF THE ADDITIONAL JUDGE, CITY CIVIL COURT, HYDERABAD AND A LSO DIRECTED THE GOVERNMENT TO DEPOSIT 50% OF THE AMOUNT D ECREED BY THE CITY CIVIL COURT. ON THE BASIS OF THE DIRECTION OF THE HIGH COURT, THE ANDHRA PRADESH GOVERNMENT DEPOSITED A SU M OF ` 95,31,059/- BEFORE THE CITY CIVIL COURT, HYDERABAD. ON APPLICATION FILED BY THE ASSESSEE, THE ANDHRA PRADESH HIGH COU RT PERMITTED THE ASSESSEE TO WITHDRAW ` 49,36,008/-. EVEN THOUGH THE APPEAL FILED BY ITA NO.840/16 :- 4 -: THE ANDHRA PRADESH GOVERNMENT WAS PENDING BEFORE TH E HIGH COURT, ACCORDING TO THE LD. DR, THE ASSESSEE, IN FACT, RE CEIVED A SUM OF ` 49,36,008/- ON 27.2.2006. THEREFORE, THE ASSESSING OFFICER BY PLACING RELIANCE ON THE JUDGMENT OF THE APEX COURT IN CIT VS UNITED PROVINCES ELECTRIC SUPPLY COMPANY LTD., FOUND THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE DURING THE PENDENCY OF T HE APPEAL WAS ACCRUED TO THE ASSESSEE, THEREFORE, IT HAS TO BE T REATED AS INCOME OF THE ASSESSEE. SINCE THE AMOUNT WAS RECEIVED BY TH E ASSESSEE ON 27.2.2006, ACCORDING TO THE LD. DR, THE CIT(A) HAS RIGHTLY FOUND THAT THE AMOUNT RECEIVED BY THE ASSESSEE HAS TO BE ASSE SSED DURING THE YEAR UNDER CONSIDERATION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSEE IS A CIVIL CONTRACTOR AND THE ANDHRA PRADE SH GOVERNMENT ENTRUSTED THE CIVIL WORK TO THE ASSESSEE. FROM TH E MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT THE ASSESSEE FILED A CI VIL SUIT BEFORE THE CITY CIVIL COURT, HYDERABAD IN O.S.NO.370 OF 1995 CLAIMI NG ADDITIONAL COMPENSATION. THE CITY CIVIL COURT, IN FACT, DIREC TED THE GOVERNMENT OF ANDHRA PRADESH TO PAY A SUM OF ` 90,63,645/-. BEING AGGRIEVED BY THE JUDGMENT AND DECREE OF THE CIVIL COURT IN O.S.N O.370 OF 1995, THE ANDHRA PRADESH GOVERNMENT FILED AN APPEAL BEFORE TH E ANDHRA ITA NO.840/16 :- 5 -: PRADESH HIGH COURT IN C.C.C.A.NO.145 OF 2005. THE HIGH COURT BY WAY OF AN INTERIM ORDER DIRECTED THE ANDHRA PRADESH GOV ERNMENT TO DEPOSIT THE DECRETAL AMOUNT ON 15.7.2005. BY WAY O F FINAL ORDER, IT APPEARS THAT THE ANDHRA PRADESH HIGH COURT BY JUDGM ENT DATED 7.3.2011 DIRECTED THE ASSESSEE TO APPROACH THE PRI NCIPAL SECRETARY TO THE GOVERNMENT OF ANDHRA PRADESH BY WAY OF AN APPRO PRIATE APPLICATION WITHIN A PERIOD OF THREE WEEKS FROM 7.3 .2011. THE HIGH COURT FURTHER DIRECTED TO THE PRINCIPAL SECRETARY, GOVERNMENT OF ANDHRA PRADESH TO REFER THE MATTER TO THE CONCILIAT ION COMMITTEE CONSTITUTED BY GOVERNMENT ORDER DATED 4.12.2014. AFTER EXAMINATION OF THE REPORT SUBMITTED BY THE CONCILIATION COMMITT EE, THE GOVERNMENT OF ANDHRA PRADESH ACCEPTED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF ` 91,71,369/-. THIS IS APPARENT FROM THE ORDER OF T HE GOVERNMENT OF ANDHRA PRADESH IN G.O.MS.NO.91 OF WAT ER RESOURCES (ARB) DEPARTMENT DATED 3.9.2015. THEREFORE, THE AM OUNT RECEIVED BY THE ASSESSEE HAS TO BE TREATED AS INCOME OF THE A SSESSEE. 6. ADMITTEDLY, THE CITY CIVIL COURT DIRECTED THE GOVER NMENT TO PAY ` 90,63,645/- AND THE SAME WAS DEPOSITED BY THE GOVE RNMENT BEFORE THE CITY CIVIL COURT ON 15.7.2005. THE ANDH RA PRADESH HIGH COURT BY AN INTERIM ORDER PERMITTED THE ASSESSEE T O WITHDRAW THE AMOUNT OF ` 49,36,008/-. IN FACT, THE ASSESSEE WITHDRAWN THE AMOUNT ITA NO.840/16 :- 6 -: OF ` 49,36,008/- ON 27.2.2006. NOW THE GOVERNMENT BY G. O NO.91 DATED 3.9.2015 ACCEPTED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF ` 91,71,369/-. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE ON 27.2.2006 BY WAY OF INTERIM ORDER NEED NOT BE REPAI D TO THE GOVERNMENT. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE ASSESSEE HAS WITHDRAWN THE AMOUNT DURING THE PENDEN CY OF APPEAL BEFORE THE HIGH COURT WHETHER THE ASSESSEE HAS RIG HT TO RETAIN THE SAME AS ITS INCOME? THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT AS RIGHTLY FOUND BY BOTH THE AUTHORITIES BELOW THAT ME RE PENDENCY OF APPEAL BEFORE THE HIGH COURT CANNOT BE A REASON FOR NOT TREATING THE AMOUNT RECEIVED BY THE ASSESSEE AS INCOME. AT THE BEST, THE ASSESSEE CAN CLAIM DEDUCTION IN CASE IT FAILS IN TH E LEGAL PROCEEDINGS. IN THIS CASE, ADMITTEDLY, THE ASSESSEE SUCCEEDED I N THE LEGAL PROCEEDINGS AND EVEN THE GOVERNMENT ACCEPTED THE CL AIM OF THE ASSESSEE TO THE EXTENT OF ` 91,71,369/-. THEREFORE, THE AMOUNT WITHDRAWN BY THE ASSESSEE TO THE EXTENT OF ` 49,36,008/- ACCRUED TO THE ASSESSEE ON 27.2.2006 EVEN THOUGH THE APPEAL W AS PENDING BEFORE THE HIGH COURT. THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO.840/16 :- 7 -: 7. WE HAVE ALSO GONE THROUGH THE DECISION OF THE MUMBA I BENCH OF THIS TRIBUNAL IN THE CASE OF BECHTEL INTER NATIONAL INC.(SUPRA). IN THE CASE BEFORE THE MUMBAI BENCH, THE ASSESSEE-C OMPANY ENTERED INTO AN AGREEMENT FOR CONSTRUCTION OF POWER PROJECT . THE CONTRACT WAS IN TWO PHASES. THE FIRST PHASE WAS COMPLETED IN MAY 1999. THE SECOND PHASE WAS ENTERED INTO ON 30.11.1998 FOR CO NSTRUCTION OF 1444MW GAS TURBINE POWER PLANT. THE SECOND PHASE OF THE CONTRACT ENTERED INTO BY THE ASSESSEE-COMPANY ON 30.11.1998 WAS TERMINATED BY THE ASSESSEE ON 17.6.2001 ON ACCOUNT OF NON-PAY MENT OF BILL. THE ASSESSEE CLAIMED US $ 17.73 MILLION TOWARDS THE CO NTRACTUAL WORK PERFORMED TILL THE TERMINATION OF THE CONTRACT AND FOR DEMOLITION IN WINDING UP OF SITE OPERATIONS. THE CLAIM MADE BY T HE ASSESSEE WAS NOT TAKEN AS INCOME IN THE COMPUTATION. THE CLAIM BEFORE THE ASSESSING OFFICER WAS THAT THERE WAS AN UNCERTAINTY IN THE COLLECTION OF THE AMOUNT, THEREFORE, IT CANNOT BE CONSTRUED AS IN COME OF THE ASSESSEE. THE TRIBUNAL FOUND THAT THE ASSESSEE WA S ONE OF THE VICTIMS OF THE ENRON DEBACLE WHICH OCCURRED IN INDI A ALMOST ABOUT 15 YEARS BACK AND THE ASSESSEE HAS SUFFERED LOSSES DU E TO NON-RECEIPT OF CONTRACTUAL AMOUNT. THE BILLS TO THE EXTENT OF ` 59.51 CRORES WERE NOT ACCEPTED BY THE CONTRACTOR, THEREFORE, THE ASSESSE E HAS NO RIGHT TO RECEIVE THE AMOUNT. THE TRIBUNAL ULTIMATELY FOUND THAT SINCE THE CLAIM OF THE ASSESSEE WAS REJECTED TO THE EXTENT OF ` 59.51 CRORES, THE RIGHT ITA NO.840/16 :- 8 -: TO RECEIVE THE AMOUNT NEVER ACCRUED TO THE ASSESSE E. SINCE THE NON- ACCEPTANCE OF THE INVOICES BY DPC WAS NOT DISPUTED BY THE REVENUE, THE TRIBUNAL FOUND THAT THE CIT(A) HAS RIGHTLY DELE TED THE ADDITION. IN THE CASE BEFORE US, THOUGH IN THE EARLIER YEARS THE RE WAS A DISPUTE, ULTIMATELY, THE ASSESSEE FILED A CIVIL SUIT BEFO RE THE CITY CIVIL COURT, HYDERABAD AND THE CITY CIVIL COURT, IN FACT, DECREE D THE CLAIM MADE BY THE ASSESSEE. ON APPEAL BY THE GOVERNMENT OF ANDH RA PRADESH, THE HIGH COURT DIRECTED THE GOVERNMENT TO DEPOSIT THE A MOUNT BEFORE THE CITY CIVIL COURT. ACCORDINGLY, THE ANDHRA PRADESH GOVERNMENT, IN FACT, DEPOSITED THE AMOUNT BEFORE THE CITY CIVIL COURT. THE ASSESSEE HAS ALSO ADMITTEDLY WITHDRAWN A SUM OF ` 49,36,008/- BY WAY OF AN INTERIM ORDER OF THE HIGH COURT. THIS WAS SUBSEQUENTLY CON FIRMED BY THE CONCILIATION COMMITTEE CONSTITUTED BY THE GOVERNMEN T AND THE GOVERNMENT ALSO ACCEPTED THE SAME. SINCE THE ASSE SSEE HAS ACTUALLY RECEIVED ` 49,36,008/- DURING THE PENDENCY OF THE APPEAL BEFO RE THE HIGH COURT, THIS TRIBUNAL IS OF THE CONSIDERED OPI NION THAT THE AMOUNT RECEIVED BY THE ASSESSEE HAS TO BE TREATED AS INCO ME OF THE ASSESSEE. AS DISCUSSED EARLIER, IN CASE THE ASSES SEE FAILS IN THE LEGAL PROCEEDINGS BEFORE THE HIGH COURT, THE SAME CAN BE CLAIMED AS DEDUCTION IN THE YEAR IN WHICH THE APPEAL OF THE GO VERNMENT WAS FINALLY DISPOSED OF. IN THE CASE BEFORE US, THE A SSESSEE SUCCEEDED IN THE LEGAL PROCEEDINGS. WHEN THE HIGH COURT REFERRE D THE MATTER TO THE ITA NO.840/16 :- 9 -: CONCILIATION COMMITTEE, THE CONCILIATION COMMITTEE RECOMMENDED THE CASE OF THE ASSESSEE TO THE GOVERNMENT AND THE GOV ERNMENT HAS ALSO ACCEPTED THE CLAIM OF THE ASSESSEE. IN THOSE CIRC UMSTANCES, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 5 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF