M/s. Joint Stock Companies Foreign Economic Association, New Delhi V. DCIT (International Taxation), New Delhi

ITA 259/DEL/2017

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 116227 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-11-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 15-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Permanent establishment; TDS
• Section: 271(1)(c); 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SH. SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.259/DEL/2017 (Assessment Year : 2013-14) M/s. Joint Stock Companies Foreign Economic Association, Plot EP-15, Dr Jose Rizal Marg, Chanakya Puri, New Delhi – 110 021 PAN No. AAACF 7011 K Vs. DCIT Circle – 2(1)(2), International Taxation, New Delhi (APPELLANT) (RESPONDENT) Assessee by -None Revenue by Shri Vijay B. Vasanta, CIT-D.R. Date of hearing: 08.11.2023 Date of Pronouncement: 10.11.2023 PER SHAMIM YAHYA, AM : This appeal filed by the assessee is challenging the final assessment order dated 06.12.2016 passed under section 144C(13) read with section 143(3) of the Income-tax Act, 1961 pertaining to Assessment Year 2013-14, in pursuance to the directions of learned Dispute Resolution Panel (DRP). 2. The grounds of appeal filed by assessee, which reads as under: “1. That the order passed by learned A.O. u/s 144C (13) r.w.s. 143(3) of the Act is bad in law and wrong on facts of the case. 2. That the Assessing Officer as well as DRP erred in making addition to the total revenue of the assessee to the tune of Rs.19,90,31,355/- on the basis of the cost already incurred in proportion to the original cost without considering the facts of the case. ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 2 3. That the Assessing Officer has also erred in determining the tax payable of Rs.7,46,91,126/- without considering the fact that the income of the assessee as been determined at NIL. 4. That the Assessing Officer has also erred in not giving TDS credit amounting Rs.1,30,64,593/- which has become refundable to the assesse after the above assessment. 5. That the Assessing Officer also erred in initiating penalty proceedings u/s 271(1)(c) of the Act without appreciating that the provisions of above section are not applicable as neither there was any concealment of income nor furnishing of inaccurate particulars and accordingly, DRP also erred in not directing the Assessing Officer to drop the proceedings. 6. That the Appellant crave to leave to amend, withdraw or modify any of the grounds hereinabove or raise any further ground as may be necessary at any time hereinafter.” 3. The brief facts of the case are as under: “The Assessee company was a foreign company having its head office in Moscow, Russia. The Assessee had three contracts with Indian customers for three projects and has permanent establishment in India in the form of project office. The Assessee filed its return of income for A/Y 2013-14 on 30/09/2013. The case was selected for scrutiny and an order u/s 144(c) r.w.s. 143(3) and the following disallowance was proposed against which the Assessee preferred to file an objection before the Hon'ble panel. a) Recognition of additional revenue Rs. 19,90,31,355/- Rs. 19,90,31,355/- Against the above proposed addition it was represented by the Assessee before the AO that as per the provisions of Companies Act, it was mandatory on the part of the Assessee to make its financial accounts by complying with the various accounting standards issued (AS-7 on construction contracts applicable in this case) by institute of chartered accountants of India which was done by it. It was argued by the Assessee that it complied with the accounting standard 7(AS 7), about the construction contract and recognized the revenue on percentage of completion basis after considering the cost overrun in the initial project ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 3 cost due to substantial delay of over 4 years in the execution of the project. The Assessee recorded the revenue as below:- Particulars Amount(Rs.) Cost incurred till date (A) 161,24,92,284/- Total estimated revised project cost (B) 418,74,85,864/- Percentage of completion [C=(A/B)] 38.51% Total contract value (D) 2,86,22,59,647/- Revenue to be recognized till date 110,21,82,012/- Revenue recognized until A.Y. 2012-13 67,25,35,028/- Revenue recognized in A.Y. 2013-14 42,96,46,984/- 4. However, the AO disagreed with the above calculation of increase in initial cost of the project of Rs.2,86,22,59,647/- to Rs.418,74,85,864/- and accordingly recognized additional revenue of Rs.19,90,31,355/- by considering the original project cost of Rs.2,86,22,59,647/- by holding that revenue was understated as delineated below:- Particulars Amount(Rs.) Cost incurred till date (A) (which is 56.34% of contract value Rs. 2,86,22,59,647) 161,24,92,284/- Total original contract value (B) 2,86,22,59,647/- Percentage of completion [C=(A/B)] 56.34% Revenue to be recognized till date 161,25,97,085 Revenue recognized till AY 2013-14 by Income tax authorities 141,35,65,730/- (67,25,35,028 + 42,96,46,948 + 31,13,83,718 {additional revenue recognised by the AO in A.Y. 2012-13}) Difference added back in revenue 19,90,31,355/- 4. Against the above order of Assessing Officer, assessee appealed before DRP. The DRP by elaborate order dealt with all the issues raised by the assessee. The order of DRP in this regard can be gainfully referred to as under: “Resisting the draft assessment order in question passed u/s 144C(1) of the Act, the applicant has approached the Dispute Resolution Panel, for the settlement of its various grievances stating the following grounds which are simultaneously disposed of by us as under: 1. That the draft order passed by the Ld. ACIT is biased, erroneous and bad in law and fact of the case. ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 4 Findings:- The above ground is of general nature. Hence the same is dismissed. 2. On the facts and circumstances of the case, the LD AO has erred in law and on facts by adding back Rs.19,90,31,355/- for under estimation of revenue by considering the original project cost of Rs.286,22,59,647/- without considering the fact that the above original project cost has already substantially increased to Rs.418,74,85,865/- due to substantial delay of more than 4 years In the execution of the above project. Findings:- The above objection of the Assessee was considered by us with circumspection. The Annexure IV specially forming a part of the compendium of form 35A filed by the Assessee before us was minutely gone through and analysed by us. The page no. 7 of the synopsis dated 27.10.2016 was also carefully considered. The relevant portion of the assessment order figuring at page 10 of the aforesaid paper book was also perused by us. For the sake of convenience the relevant para of the AO's draft order is reproduced below:- "It would be worthwhile to mention here that in Assessee’s own case for A.Y 2012-13, the original cost of the project was considered amounting to Rs.286,22,59,647/- as the final cost of the project, which was duly confirmed by the DRP. The Assessee has failed to submit basis of the revised cost of Rs.418,74,85,864/- during the year under consideration. It is also noted that the Assessee has not brought anything new on record to justify/explain the overall increase in the cost of the project. Hence, the revenue needs to be recognized for this project on the basis of the percentage of completion method on the basis of the current cost already incurred in proportion to the original cost of Rs.286,22,59,647/- of the above project." Having regard to the above the assessee was directed in the course of DRP proceeding to produce the details of revised cost of Rs.418,74,85,864/- before us. The same was done by the Assessee vide letter dtd. 27.10.2016. The Assessee contended that the project was terminated by the client in respect of Barh project by letter dtd. 14.01.2015 on the grounds of non-improvement in the performance of the Assessee in the execution of the project. It was also canvassed by the Assessee that inflation also contributed to the prices escalation. Taking the above factor into account the Assessee submitted a table reflecting the basis of working out the revised cost of the original project at ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 5 Rs.418,74,85,864/-. The same is reproduced below for the sake of facility of reference:- Contrary to the claim of the assessee the paper book page no 299 & 300 revealed that the above details were not submitted before the AO by the Assessee in the course of assessment proceedings nonetheless we went through the above chart depicting the computation of revised cost of Rs.401,45,78,09,636/- on the basis of which projected loss of Rs.132,52,26,21,656/- was claimed by the Assessee in its return of income. The basis of the metrics/parameters applied by the Assessee like excluding and including profit of 5% on the present prices in the aforesaid table was not satisfactorily explained to us by the Assessee. It merely harped on the AS-7 percentage of completion method. The above contentions of the Assessee were deeply examined by us. The stand of the Assessee appears to be self contradictory in as much as it has presumed before hand the non payment of the contract costs already incurred by it towards the projects undertaken by it in India by its client. Since the case of the Assessee's projected loss is based on prognostication the same is held to be without any substance and force of law. To crown it all the AS-7 clearly lays down that the When the outcome of a construction contract cannot be estimated reliably (which is applicable to the Assessee's case) revenue should be recognised only to the extent of contract costs incurred of which recovery is probable. Thus it was the burden of proof of the Assessee to demonstrate how the inference of outcome of the construction contract in its case could not be reliably estimated and that a certain amount of contract costs incurred by it on its ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 6 contracts were irrecoverable by the theory of probability was drawn by it. The same not having been done before us on the strength of reliable documentary evidence the claim of the A' has no leg to stand on. As the erstwhile DRP which was seized of the same issue in the preceding F.Y. having the same facts we do not wish to make a departure from the stand taken by them for the same reasons as applied by them. Accordingly the above ground of the Assessee is dismissed. 3. On the facts and circumstances of the case, the LD AO has erred in law and on facts by ignoring the fact and this project has already been taken over by the NTPC due to delay and non- performance and there is NIL probability to recover even a single penny against the above additional revenue of Rs.19,90,31,355/- and this revenue recognition by AO is totally against the established AS7 issued by the ICAI which clearly says that no revenue can be recognized if there is no probability to recover it.. Findings: The above objection was duly considered by us. On a perusal of the paper books submitted to us by the Assessee specially page no. 3 of form 35A compendium and the annexure IV. pages 17 to 34 of the paper books furnished by the Assessee, it was noticed by us that the AO did not ignore the fact of termination of the contract of the Assessee with its client for the Barh, Bihar project while holding the above amount to be the revenue required to be recognised by the Assessee as per the AS-7 method prescribed by the Institute of Charted Accounts of India i.e. the percentage of completion method. In the aforesaid fact the above ground of the Assessee is dismissed. 5. Against the above order, assessee is in appeal before us. Despite several notices, none appeared on behalf of the assessee. Hence, we proceed to adjudicate the issue by hearing the learned DR and perusing the records. We find that authorities below have passed a reasonable order. Learned DRP has dealt with each and every objection of the assessee and has cogently rebutted the same. Accordingly, we do not find any infirmity in the well reasoned order of the authorities below. ITA No.259/Del/2017 Joint Stock Companies Techoprom Export. vs. DCIT 7 6. In the result, assessee’s appeal stands dismissed. Order pronounced in the open court on 10.11.2023 Sd/- Sd/- (KUL BHARAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 10.11.2023 Priti Yadav, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI