DCIT, New Delhi V. M/s Five Star Construction P. Ltd., New Delhi

ITA 1861/DEL/2011

• Counselvise Citation: 186120114 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SEHGAL
• Assessee Lawyers: LALITHA KRISHNAMOORTHY
• Keywords: Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI B.R. JAIN, ACCOUNTANT MEMBER ITA NO.1861/DEL/2011 ASSESSMENT YEAR : 2007-08 DCIT, CIRCLE 11 (1), ROOM NO.312, CR BUILDING, NEW DELHI. VS. FIVE STAR CONSTRUCTION P. LTD., FLAT NO.8, FIRST FLOOR, NEW RAJINDER NAGAR, NEW DELHI. PAN : AAACF2332H (APPELLANT) (RESPONDENT) ASSESSEE BY : MS LALITHA KRISHNAMOORTHY, CA REVENUE BY : SHRI DEEPAK SEHGAL, SR.DR ORDER PER B.R. JAIN, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2007-08 AGAINST THE ORDER DATED 15.02.2011 PASSED BY LD. CIT (A)-XIII , NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 37,29,738/- ON ACCOUNT OF MOBILIZATION ADVANCE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.14,2 9,256/- ON ACCOUNT OF TERMS OF SECTION 41 (1) OF THE IT ACT. 2. BRIEFLY, THE FATS ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF CONSTRUCTION ACTIVITIES. IT HAS DECLARED INCOME OF ` 32,41,870/- FROM THE SAID BUSINESS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED MO BILIZATION ITA NO.1861/DEL/2011 2 ADVANCES TO THE EXTENT OF ` 37,29,738/- FROM M/S MATRIX BUILDWELL PRIVATE LIMITED. EVEN TDS HAS BEEN DEDUCTED ON THESE RECEIPTS. AS THE ASSESSEE DID NOT DISCLOSE THESE RECEIPTS AS HIS INCOME F OR THE YEAR UNDER CONSIDERATION, HE REQUIRED THE ASSESSEE TO JUSTIFY AND EXPLAIN THE SAID RECEIPT. THE ASSESSEE FURNISHED WRITTEN SUBMISSIO NS WHICH WERE DULY CONSIDERED. THE ASSESSING OFFICER, THEREAFTER , BEING NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, PROCEEDED TO TREAT THE RECEIPT OF ` 37,29,738/- AS ASSESSEES INCOME FROM BUSINESS AND BROUGHT THE SAME TO TAXATION. 3. BEFORE THE LD. CIT (A), THE ASSESSEE RELIED ON THE SAME SUBMISSIONS AS WERE PRODUCED BEFORE THE ASSESSING OFFICER WH EREIN IT WAS STATED THAT THE ASSESSEE HAD RAISED THE BILL ON M/S MAT RIX BUILDWELL PRIVATE LIMITED FOR THE WORK DONE BY THE ASSESSEE COMPA NY. THE IMPUGNED AMOUNT IS THE CLOSING BALANCE APPEARING IN M OBILIZATION ADVANCE ACCOUNT WHICH THE ASSESSEE CONTRACTOR RECEIVED FROM THE DEVELOPER M/S MATRIX BUILDWELL PRIVATE LIMITED FOR M OBILIZING RESOURCES AND RECOVERED ON PRORATA BASIS FROM PAYMENT DUE TO TH E CONTRACTOR FROM SUCH RUNNING BILLS OF THE CONTRACTOR AND THE SAM E IS SUBJECT TO ADJUSTMENT IN THE FINAL BILL. IT WAS ALSO SUBMITTED TH AT THE MOBILIZATION ADVANCE CANNOT AT ANY RATE BE THE INCOME OF THE APP ELLANT COMPANY AS THE AMOUNT OF RUNNING BILLS HAS ALREADY BEEN TAKEN IN TO ACCOUNT AS ASSESSEES INCOME FOR THE YEAR UNDER CONSIDERATION UNDER THE HEAD WORK CERTIFIED. IT HAS ALSO EXPLAINED THE NATURE OF MOBILIZATION ADVANCE ACCOUNT AS UNDER:- NATURE OF MOBILISATION ADVANCE:- THAT THE MOBILISATION ADVANCE IS AN ADVANCE AMOUNT WHIC H IS GIVEN BY CONTRACTEE TO HIS CONTRACTOR ACCORDING TO LETTE R OF INTENT MADE BETWEEN CONTRACTOR AND CONTRACTEE TOWARDS CONSTRUCTION OF PROJECT BEFORE COMMENCING THE CONSTRUCTI ON AT SPECIFIC SITE/PROJECT. ITA NO.1861/DEL/2011 3 MOBILISATION PAYMENTS ARE PAYMENTS OF FUNDS TO A SUPP LIER OR CONTRACTOR BEFORE IN ANTICIPATION OF AND FOR THE PURPOSE OF PERFORMANCE UNDER THE CONTRACT IN CONNECTION WITH THE STRUCTURE. SINCE THESE PAYMENTS ARE NOT MEASURED BY CONTR ACT PERFORMANCE, THEY DIFFER FROM PARTIAL PAYMENTS WHICH A RE BASED ON ACTUAL PERFORMANCE OF TASKS IN FURTHERANCE OF THE CO NTRACT. ADVANCE PAYMENT MAY, FOR EXAMPLE, BE ADVISABLE TO COV ER THE INITIAL MOBILIZATION EXPENSES FOR LARGE CIVIL WORKS OR CUSTOM MADE GOODS. ANY ADVANCE PAYMENTS ARE TO BE LIQUIDATED FROM PAYMENTS MADE TO THE SUPPLIER OR CONTRACTOR DURING PERFORMANCE OF THE CONTRACT, USUALLY BY DEDUCTING A PER CENTAGE FROM EACH SCHEDULED PAYMENT FOR PERFORMANCE. THE BASIC PURPOSE OF MOBILISATION ADVANCE WHICH IS INITIALLY RELEASED AGAINST BANK GUARANTEE IS TO EXTEND FINANCIAL ASSISTANCE WITHIN THE TERMS OF CONTRACT TO THE CONTRACTOR T O MOBILIZE THE MAN AND MATERIAL RESOURCE FOR TIMELY AND SMOOTH TAKE OFF OF THE PROJECT OR PROCUREMENT OF EQUIPMENT, MA TERIAL OR OTHER SERVICES CONTRACT. 4. THE LD. CIT (A) REQUIRED THE ASSESSEE TO SUBSTANTIATE FURTHER FROM PRODUCTION OF DOCUMENTS/EVIDENCE OR LETTER OF I NTENT ISSUED BY M/S MATRIX BUILDWELL PRIVATE LIMITED THAT THE MOBILI ZATION ADVANCE WAS IN THE NATURE OF ADVANCE AND WAS NOT RELATED TO ITS I NCOME/SALE/WORK RECEIPTS. THE ASSESSEE COMPANY WAS ALSO ASKED TO GIVE THE BASIS ON WHICH THE MOBILIZATION ADVANCE WAS GIVE BY M/S MATRI X BUILDWELL PRIVATE LIMITED TO THE APPELLANT CONTRACTOR. THE A SSESSEE VIDE ITS LETTER DATED 11.02.2011 ENCLOSED THE LETTER OF INTENT DATED 09.22.1006 AND RELEASE OF MOBILIZATION AMOUNT LETTER DATED 15.12.20 06 GIVEN BY THE AFORESAID BUILDER TO THE ASSESSEE COMPANY, RUNNING ACCOU NT OF M/S MATRIX BUILDWELL PRIVATE LIMITED., WORK CERTIFICATE ACCOUNT FOR FINANCIAL YEAR 2006-07 AND MOBILIZATION ADVANCE ACCOUNT TILL DATE AS APPEARING IN ITS BOOKS OF ACCOUNT. THE LETTER ISSUED BY M/S MATRI X BUILDWELL PRIVATE LIMITED AT THE TIME OF RELEASING THE MOBILIZ ATION ADVANCE AND FIRST RUNNING ACCOUNT BILL ISSUED BY THE ASSESSEE COMPANY ON THE BUILDERS WERE ALSO PRODUCED BEFORE THE LD. CIT (A) AN D IT WAS EXPLAINED THAT PART OF THE MOBILIZATION AMOUNT IS BEING ADJUSTE D IN THE RUNNING BILLS RAISED BY THE ASSESSEE WHICH ARE SUBJECT TO ADJUSTME NT IN THE FINAL ITA NO.1861/DEL/2011 4 BILL THAT WOULD BE ISSUED BY THE ASSESSEE CONTRACTOR TO T HE BUILDER M/S MATRIX BUILDWELL PRIVATE LIMITED, AFTER THE COMPLET ION OF THE PROJECT. SINCE THE GROSS AMOUNT OF RUNNING BILLS HAS TAKEN PART OF THE ASSESSEES INCOME, THE MOBILIZATION ADVANCE AMOUNT SO REC EIVED AS ADVANCE CANNOT BE TREATED AS INCOME OF THE ASSESSEE. 5. THE LD. CIT (A), AFTER CONSIDERING THE ENTIRE DET AILS AS WERE LAID BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO THOSE AS WERE CALLED FOR BY VIRTUE OF THE POWERS VESTED IN HIM, FOUND THAT THE LETTER OF INTENT ITSELF STIPULATES THAT THE MOBILIZATION ADVANCE SHALL BE RECOVERED FROM RUNNING BILLS ON PRORATA BASIS SUBJECT TO ADJUSTMENT IN PRE FINAL BILL FOR COMPL ETE RECOVERY. THE TOTAL CONTRACT VALUE WAS FOR ` 5,24,56,297/- AND 7 % THEREOF AS MOBILIZATION ADVANCE COMES TO ` 39,29,884/- AS IS ALSO REVEALED FROM THE COPY OF WORK ORDER DATED 15.12.2006 LAID ON REC ORD. FROM THE COPY OF ACCOUNT OF M/S MATRIX BUILDWELL PRIVATE LIMI TED MOBILIZATION ADVANCE ACCOUNT IN THE ASSESSEES BOOKS AND FROM THE COPY OF FIRST RUNNING BILL FOR THE WORK DONE FOR ` 26,68,618/- WHICH AFTER ADDING SERVICE TAX IN THE INVOICE VALUE COMES TO ` 27,76,409/-, THE ASSESSEE IS FOUND TO HAVE ADJUSTED ` 2,00,146/- ON ACCOUNT OF MOBILIZATION ADVANCE AND, THUS, THE BALANCE OF ` 37,29,738/- HAS BEEN SHOWN IN THE BALANCE SHEET, AS A CURRENT LIABILITY UNDER THE HEAD MOBILISATION ADVANCE AS ON 31.3.2007. THE LD. CIT (A) ALSO FOUND THAT THE FIRST RUNNING BILL FOR ` 26,68,618/- RAISED AGAINST THE IMPUGNED WORK CONTRACT FORMS PART OF THE TOTAL WORK CERTIFIED ACCO UNT OF THE APPELLANT AND IS TAKEN AS INCOME OF THE YEAR UNDER CONSIDERATION . SINCE THE WORK CERTIFIED FORMS PART OF THE INCOME OF THE YEAR UNDER CONSIDERATION AND THE ADDITIONAL AMOUNT RECEIVED AS MOBILIZATION ADVANCE REQUIRED TO BE ADJUSTED ON PRORATA BASIS AGAINST WORK CERTIFIED , THEREFORE, WAS HELD TO BE AN ADVANCE AND NOT A CONTRACT RECEIPT. HE, THEREFORE, FOUND NO JUSTIFICATION IN BRINGING TO TAX THE OUTSTANDING A MOUNT OF ITA NO.1861/DEL/2011 5 MOBILIZATION ADVANCE FOR ` 37,29,738/- AS INCOME OF THE ASSESSEE FOR TAXATION FOR THE YEAR UNDER CONSIDERATION. 6. THE LD. DR CONTENDS THAT THE LD. CIT (A) HAS ERRED IN SETTING ASIDE THE ADDITION AS THE AMOUNT OF MOBILIZATION ADVA NCE OUTSTANDING AT ` 37,29,738/- IS NOT AN AMOUNT OF ADVANCE ONLY BUT A CONTRACT RECEIPT LIABLE FOR TAXATION AS INCOME IN THE YEAR UN DER CONSIDERATION ON WHICH TAX AT SOURCE WAS ALSO BEEN DEDUCTED. IT IS FURT HER STATED THAT BEFORE THE TRIBUNAL, THE ASSESSEE HAS LAID COPY OF MOBI LIZATION AMOUNT AT PAPER BOOK PAGE 8 WHICH DOES NOT TALLY WITH THE C OPY OF THIS ACCOUNT PRODUCED BEFORE THE ASSESSING AUTHORITY AND THIS FACT IS VERIFIABLE FROM THE ASSESSMENT RECORD PRODUCED BEFORE THE TRIBUNAL. HE , THEREFORE, REQUESTED TO IGNORE THIS DOCUMENT FOR COMING TO THE C ONCLUSION IN ACCORDANCE WITH THE LAW. 7. ON THE OTHER HAND,, THE ASSESSEES COUNSEL RELYING ON THE ORDER OF THE LD. CIT (A) CONTENTS THAT THERE IS NO MATERIAL DIFFERENCE IN THE COPY OF ACCOUNT AS LAID BEFORE THE APPELLATE TRIBUN AL AND THAT LAID BEFORE THE ASSESSING AUTHORITY INASMUCH AS ALL THE DATES OF THE ENTRIES, NARRATIONS AND AMOUNTS CONTAINED IN BOTH THE ACCOUNTS ARE MATERIALLY THE SAME. IT IS ONLY BECAUSE OF THE TALLY PROGRAMME IN THE COMPUTER THE LAST ENTRY APPEARING ON 31.03.2007 REFLECTS COMPL ETE DETAILS OF FIRST RUNNING BILL WHICH THOUGH WAS AVAILABLE IN THE VOUCH ER PRODUCED BEFORE THE ASSESSING AUTHORITY, WAS NOT REFLECTED DUE TO COMPUT ER PROGRAMMING IN THE COPY LAID BEFORE THE ASSESSING AUTHO RITY. NO ADVERSE VIEW OF SUCH NARRATIONS WHICH ARE FACTUALLY A PART OF RECORD NEEDS TO BE TAKEN. IT HAS THEREFORE, BEEN CONTENDED THAT THE MOBILIZATION ADVANCE BEING NOT PART OF CONTRACT REC EIPTS TAKEN AS CERTIFIED WORK HAS JUSTIFIABLY BEEN TREATED AS ADVANCE RECEIVED AND, THUS, NOT LIABLE TO TAX AS INCOME OF YEAR UNDER CONSID ERATION. ITA NO.1861/DEL/2011 6 8. WE HAVE HEARD PARTIES WITH REFERENCE TO THE MATER IAL ON RECORD. THE ASSESSEE IS FOUND TO HAVE MAINTAINED TWO ACCOUNTS IN THE NAME OF BUILDERS IN THE BOOKS OF ACCOUNT MAINTAINED BY IT IN THE REGULAR COURSE OF ITS BUSINESS. THE FIRST ACCOUNT IS UNDER THE TITLE M OBILISATION ADVANCE ACCOUNT IN WHICH THE ADVANCES RECEIVED AND REQUIRED TO BE ADJUSTED AGAINST THE RUNNING BILLS HAVE BEEN CREDITED AND STAND ADJUSTED FROM TIME TO TIME. THE SECOND ACCOUNT IS IN THE NAME OF M/S MATRIX BUILDWELL PRIVATE LIMITED AS A RUNNING ACCOUN T IN WHICH THE ASSESSEE HAS RECEIVED PAYMENTS IN ADVANCE TOWARDS CONTRACT S AND RAISED DEBITS FOR THE CERTIFIED WORK BY RAISING RUNNIN G BILLS. WE HAVE ALSO PERUSED THE RUNNING BILL LAID AT THE ASSESSEES PAPE R BOOK AT PAGE 38. THIS BILL REVEALS THAT THE ASSESSEE HAS ADJUSTED AN AM OUNT OF ` 2,00,146/- OUT OF MOBILIZATION ADVANCE AMOUNT AND T HE BALANCE OF THE RUNNING BILL AMOUNT HAS BEEN ROUTED THROUGH THE RUNN ING ACCOUNT OF THE BUILDER CLIENT. THE AMOUNT RECEIVED AS MOBILIZA TION ADVANCE IS NOT TOWARDS A CONTRACT RECEIPT, BUT IS MERELY AN ADVANCE FOR MOBILIZING RESOURCES BY THE ASSESSEE FOR CARRYING OUT THE WORK OF IT S CUSTOMER/CLIENT. THIS AMOUNT IS REQUIRED TO BE ADJUSTE D PROPORTIONATELY AGAINST THE RUNNING BILLS FOR THE WO RK CERTIFIED. THE AMOUNT OF MOBILIZATION ACCOUNT THAT HAS BEEN ADJUSTED DURING THE YEAR UNDER CONSIDERATION HAS BEEN INCLUDED AS ASSESSEES INCOME WHEREAS THE BALANCE OUTSTANDING REMAINS AS A CURRENT LIABILITY FOR THE YEAR. THE SAME IS LIABLE TO BE ADJUSTED AGAINST THE FUTURE RUNNI NG BILLS IN THE SUBSEQUENT YEAR. ESSENTIAL THIS RECEIPT WAS NOT IN THE N ATURE OF INCOME. MERELY BECAUSE TAX AT SOURCE HAS BEEN DEDUCTE D BY THE BUILDER, THE RECEIPT OF MOBILIZATION MONEY CANNOT B E DEEMED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION . WE, THEREFORE, DO NOT FIND ANY ERROR IN THE DECISION REA CHED BY THE LD. CIT (A) IN DELETING THE ADDITION ON THIS COUNT. FINDING NO MERIT IN THIS GROUND RAISED BY THE REVENUE, THE SAME STANDS REJECTED. ITA NO.1861/DEL/2011 7 10. THE FACTS RELATING TO THE GROUND NO.2 ARE THAT T HE ASSESSING OFFICER TREATED THE OUTSTANDING LIABILITY OF ` 14,29,256/- AS CEASED LIABILITY BY APPLICATION OF PROVISIONS OF SECTION 41 (1) OF THE ACT. THE LD. CIT (A) DELETED THE ADDITION AS THERE WAS NO MATE RIAL ON RECORD OF THE ASSESSING OFFICER TO SAY THAT SUCH LIABILITY HAS CEASED TO EXIST, PARTICULARLY WHEN THE ASSESSEE WAS DECLARING THE SAID AMO UNT AS PAYABLE IN ITS ACCOUNTS. HE HAS PLACED RELIANCE ON T HE JUDGEMENTS OF HONBLE SUPREME COURT IN CIT VS. KESARIA TEA CO. LTD . 254 ITR 434 (SC) AND IN CIT VS. SUGAULI SUGAR WORKS (P) LTD., 236 ITR 518 (SC). 11. WE HAVE HEARD THE PARTIES WITH REFERENCE TO THE MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSEE HAS NOT WRITTEN BACK T HE CREDIT BALANCE IN ITS ACCOUNTS. THIS IS A CASE OF A PRIVATE L IMITED COMPANY WHEREIN THE LIABILITIES ARE APPEARING IN ITS BOOKS OF ACCOUNT. THE BALANCE SHEET BEING A PUBLIC DOCUMENT, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT ACKNOWLEDGED THE DEBT TOWARDS ITS CREDITO RS. THE LIABILITY UNDER THE CIRCUMSTANCES CANNOT BE TAKEN TO BE A CEASED LIABILITY. THE LD. CIT (A), THEREFORE, CANNOT BE SAI D TO HAVE ERRED IN DELETING THE ADDITION. AS PROVISIONS OF SECTION 41 (1 ) OF THE ACT ARE NOT APPLICABLE TO A CASE LIKE THIS AND FINDING NO MERIT IN THIS GROUND, THE SAME IS ALSO REJECTED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 02.11.20 12. SD/- SD/- [B.R. MITTAL] [B.R. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 02.11.2012. DK ITA NO.1861/DEL/2011 8 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES