M/S. AVRORA (INDIA) MARINE SYSTEMS PVT.LTD., NAVI MUMBAI V. ITO., CIR.-10(3)(4), MUMBAI

ITA 3459/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9196 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: M N NANDGAONKAR
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE D.T. GARASIA, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.3459/M/2011 ASSESSMENT YEARS: 2007-08 M/S. AVRORA (INDIA) MARINE SYSTEMS PVT. LTD. 1201/1202, GREAT EASTERN SUMMIT, BWING, PLOT NO.66, SECTOR-15, CBD BELAPUR, MUMBAI 400614 PAN: AADCA1502D VS. THE INCOME TAX OFFICER, CIRCLE 10(3)(4) AAYAKAR BHAVAN, MAHARSHI KARVE MARG, CHURCHGATE, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY :, SHRI M. N. NANDGAONKAR A.R. REVENUE BY : SHRI SAURABH DESHPANDE, D.R. DATE OF HEARING : 22.08.2017 DATE OF PRONOUNCEMENT : 04.10.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE ABOVE TITLED APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 18.02.2011 OF THE COMMISSIONER OF INCOM E TAX (APPEALS) 22, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELE VANT TO ASSESSMENT YEAR 2007-08. 2. THE EFFECTIVE GROUND NO.1 & 2 OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN C ONFIRMING THE ADDITION OF RS.25,75,357/- MADE IN THE ASSESSMENT ORDER. HE OUGHT NOT TO HAVE DONE SO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF RS.65,08,171/- MADE IN THE ASSESSME NT ORDER. HE OUGHT NOT TO HAVE DONE SO. ITA NO.3459/M/2011 A.Y.2007-08 2 GROUND OF APPEAL NO.1 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN BUSINESS OF PROVIDING MARINE SERVICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER [AO] NOTED THAT ASSESSEE HAD CONTRACT WITH M/S. VELJAN HYDRAIR PVT. LTD. (VELJAN) WHICH HAS A CONTRACT WITH MAZGAON DOCK LTD. (MDL) FOR SUPPLYING CERTAIN EQUIPMENTS US ED TO BUILD A WARSHIP. A.O. FURTHER NOTED THAT AS PER TERMS OF CONTRACT, F ULL PRICE OF THE EQUIPMENT IS NOT RELEASED BY THE CLIENT, BUT 10% THEREOF IS RETA INED AND PAID AFTER A PERIOD OF TIME DEPENDING UPON SATISFACTORY PERFORMANCE AND CO MPANY ACCOUNTS FOR ONLY 90% OF THE INVOICE VALUE AS SALES INCOME AND BALANC E RECEIPT IS ACCOUNTED ON ACTUAL RECEIPTS ONLY. A.O. ASKED THE ASSESSEE AS T O WHY THE RETENTION MONEY SHOULD NOT BE BROUGHT TO TAX, IN RESPONSE TO WHICH THE ASSESSEE FILED LETTER DATED 15.12.2009 WHICH HAS BEEN REPRODUCED IN THE A SSESSMENT ORDER IN PARA 4, PAGE 2,3 & 4 STATING THAT DUE TO EXISTENCE OF SIGNI FICANT UNCERTAINTIES AS TO TOTAL VALUE THAT CUSTOMERS MAY PAY, IT WAS THOUGHT PROPER TO RECOGNIZE REVENUE ONLY TO THE EXTENT OF FORMAL CUSTOMER ACCEPTANCE OF VALU E DUE AND PAYABLE OR ACTUAL COLLECTIONS AND HENCE 10% OF ORDER VALUE WAS DEDUCT ED IN BILL. ASSESSEE ALSO STATED BEFORE A.O. THAT AS PER ACCOUNTING STANDARD- 9 WHERE UNCERTAINTIES EXIST, INCOME DOES NOT ACCRUE. ON CONSIDERATION OF ASSESS EES EXPLANATION A.O. NOTED THAT RISK AND REWARD WERE TRANSFERRED TO THE BUYER I.E. VELJAN, WHO IN TURN HAS TRANSFERRED THE SAME TO MDL. FURTHER, ANOTHER C ONDITION VIZ. SIGINIFICANT CERTAINTY OF REVENUE WAS ALSO FULFILLED SINCE RUSSI AN SUPPLIER HAD GIVEN WARRANTY FOR EQUIPMENTS SUPPLIED. A.O. ALSO QUOTED THE QUALITY AND GUARANTEE OBLIGATIONS. A.O. ALSO REFERRED TO ACCOUNTING STAN DARD -9 AND CONCLUDED THAT THE KEY CRITERIA FOR DETERMINING WHEN TO RECOGNIZE REVENUE FROM A TRANSACTION INVOLVING THE SALE OF GOODS WAS SATISFIED IN THE PR ESENT CASE. A.O. HELD THAT ASSESSEE HAS TRANSFERRED THE RISK AND REWARD OF THE VALUE OF WORK DONE AND THERE WAS NO UNCERTAINTY AS TO RECOVERY OF 10% OF R ETENTION AMOUNT AND THE ITA NO.3459/M/2011 A.Y.2007-08 3 ASSESSEE HAD NOT MADE ANY SCIENTIFIC PROVISION FOR THE WARRANTY PERIOD AND IN THEREFORE, 10% RETENTION MONEY WAS TAXABLE ON ACCRU AL BASIS. 4. MATTER CARRIED TO CIT(A) AND CIT(A) HAS DISMISSE D THE APPEAL OF THE ASSESSEE. LEARNED AR SUBMITTED THAT ASSESSEE COMPA NY IS AN INDO RUSSIAN JOINT VENTURE BETWEEN AVRORA CORPORATION SCIENCE AN D PRODUCTION. ASSESSEE SUBMITTED THAT ASSESSEE HAS BILLED TO ITS CUSTOMER 90% OF ORDER VALUE OF EACH SHIP-SET. THE PURCHASE ORDER PLACED BY ITS CUSTOME R M/S. VELJAN AS PER THE TERMS AGREED WITH IT CLEARLY SPECIFIES THAT 10% OF ADVANCE PAYMENT WILL BE MADE ON SUBMISSION OF INVOICE WITH EQUIPMENT PERFOR MANCE BANK GUARANTEE FOR 10% OF ORDER VALUE WHICH WILL REMAIN VALID FOR EXTENDED GUARANTEE PERIOD. ASSESSEE HAD NO RIGHT TO BILL THE CUSTOMERS FOR THE JOBS WHICH HAVE NEVER CARRIED OUT AND CONDITION WHICH WERE REMAINING TO B E COMPLIED WITH. THE ASSESSEE REFERRED ACCOUNTING STANDARD -9 AND STATED THAT REVENUE NORMALLY NOT TO BE RECOGNIZED UNTIL THE CUSTOMER ACCEPTS DELIVER Y AND INSTALLATION AND INSPECTION ARE COMPLETE. THE ASSESSEE HAS SUBMITTE D THE COPY OF SALE BILL RAISED AND COPY OF PAYMENT ADVICE RECEIVED FROM VEL JAN. THESE ALL DOCUMENTARY EVIDENCE REVEAL THAT ASSESSEE HAS NOT R ECEIVED 10% OF THE BILL AMOUNT AND IT HAS RECEIVED THE BALANCE 10% AMOUNT S UBSEQUENTLY AND HAS OFFERED THE SAME TO TAXATION IN A.Y.2011-12. LD. A R RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT IN CASE FOR COMMISSION ER OF INCOME TAX VS. ASSOCIATED CABLES 286 ITR 596 (BOM) AND VARIOUS DEC ISIONS OF THE TRIBUNAL. 5. ON THE OTHER HAND LEARNED AR SUBMITTED THAT AS P ER CLAUSE 6.3 OF THE CONTRACT, THE SUPPLIER HAS GUARANTEED THE QUALITY O F PRODUCTS SUPPLIED AND THERE WAS NO LIABILITY OF THE ASSESSEE IN CASE ANY DEFECT WAS NOTED. HENCE, THERE WAS NO UNCERTAINTY IN RESPECT OF RECEIPT OF BALANCE 10% OF RETENTION MONEY. EVEN AS PER ACCOUNTING STANDARD -9, ASSESSEE WAS REQUIRE D TO OFFER 100% AMOUNT AS REVENUE ON ACCRUAL BASIS IN PROFIT & LOSS ACCOUNT S INCE NO UNCERTAINTY EXISTED AS TO QUANTUM OF REVENUE AND RISK AND REWARD HAD AL READY BEEN TRANSFERRED TO THE BUYER COMPANY. ITA NO.3459/M/2011 A.Y.2007-08 4 6. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ASSESSE E IS SUPPLIER OF EQUIPMENT GOODS USED IN BUILDING WARSHIP WHICH IS M ANUFACTURED BY MAZGAON DOCK LTD., THROUGH VELJAN. AS PER THE TERMS OF CON TRACT FULL PRICE OF EQUIPMENT IS NOT RELEASED BY VELJAN BUT 10% IS KEPT AS RETENTION AND RELEASED UPON SATISFACTORY PERFORMANCE OF EQUIPMENT. WE HAV E GONE THROUGH THE INVOICES, WE HAVE VERIFIED THE SALE BILL AND WE FIN D THAT 10% OF THE SALE BILL IS RETAINED BY THE PURCHASER, WHICH IS RELEASED AFTER SATISFACTORY PERFORMANCE. THE SAME WAS AS PER CONTRACTUAL TERM AND THE RETENT ION MONEY COULD NOT BE RECEIVED BY THE ASSESSEE BEFORE SATISFACTORY PERFOR MANCE. WE FIND THAT THE ASSESSEE HAS OFFERED THE RETENTION MONEY WHENEVER R ECEIVED BY HIM. THEREFORE, IN OUR OPINION, AS HELD BY OUR JURISDICT IONAL HIGH COURT IN CASE OF CIT VS. ASSOCIATE CABLES 286 ITR 596 (BOM), WE ARE OF THE VIEW THAT ASSESSEE HAD NO RIGHT TO RECEIVE THE RETENTION MONEY AND THE REFORE, IT CANNOT BE TAXED IN THE YEAR UNDER CONSIDERATION. THE HONBLE HIGH COU RT HAS DECIDED BY OBSERVING AS UNDER:- THE QUESTION OF LAW SOUGHT TO BE RAISED IN THIS AP PEAL IS AS TO WHETHER THE RETENTION MONEY COULD BE CONSIDERED TO BE THE INCOME OF THE A SSESSEE IN THE YEAR IN WHICH THE AMOUNT WAS RETAINED. THE TRIBUNAL HAS REFERRED TO A JUDGMENT OF THE TRIBUNAL IN ASSOCIATE CABLES (P) LTD. VS DY.CIT (1994) 49 TTJ ( BOM) TM 191 : (1994) 206 ITR 48 (BOM)TM(AT). MR. SATHE APPEARING FOR THE RE SPONDENT HAS, HOWEVER, DRAWN OUR ATTENTION TO TWO JUDGMENT IS REPORTED IN THE CASE OF CIT VS. SIMPLEX CONCRETE PILES (INDIA) P. LTD. (1989) 79 CTR (CAL) 71 : (1989) 179 ITR 8 (CAL.) A DIVISION BENCH OF THE CALCUTTA HIGH COURT IN THE MA TTER HAS HELD THAT THE PAYMENT OF RETENTION MONEY IN THE CASE OF CONTRACT IS DEFFERED AND IS CONTINGENT ON SATISFACTORY COMPLETION OF CONTRACT WORK. RIGHT TO RECEIVE THE RETENTION MONEY IS ACCRUED ONLY AFTER THE OBLIGATIONS UNDER THE CONTRACT ARE FULFIL LED AND, THEREFORE, IT WOULD NOT AMOUNT TO AN INCOME OF THE ASSESSEE IN THE YEAR IN WHICH THE AMOUNT IS RETAINED. THE OTHER JUDGMENT RELIED UPON IS IN THE CASE OF CI T VS. IGNIFIED BOILERS (I) LTD. (2006) 203 CTR (MAD) 458 : (2006) 283 ITR 295 (MAD. ). IN THAT JUDGMENT ALSO, A DIVISION BENCH OF THE MADRAS HIGH COURT HAS HELD TH AT THE AMOUNT RETAINED DOES NOT ACCRUE TO THE ASSESSEE AND, THEREFORE, THE ASSESSEE WOULD NOT BE LIABLE RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, WE ALLOW THIS GROUND OF THE ASSESSEES APPEAL. GROUND OF APPEAL NO.2 ITA NO.3459/M/2011 A.Y.2007-08 5 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. OBSERVED THAT ASSESSEE HAS CLAIMED REBATE TO CUSTOMERS WHICH INCL UDES FREIGHT CHARGES, CLEARANCE CHARGES, BANK CHARGES, CUSTOM DUTY AND DE MAND DRAFT COMMISSION CHARGES. A.O. NOTED THAT THESE TRANSACTIONS ARE DIR ECTLY RELATED TO THE TRANSACTION INVOLVING HIGH SEA SALES ENTERED INTO B ETWEEN THE ASSESSEE AND M/S.VELJAN. A.O. FURTHER NOTED THAT AS PER COPY OF HIGH SEAS SALES AGREEMENT, ALL RISK AND REWARD WERE TRANSFERRED TO M/S. VELJAN AND VELJAN WAS TO BEAR THE COST OF CLEARANCE OF SUCH GOODS AND ALL COST RELATI NG THE SAID EQUIPMENT WAS THE LIABILITY OF VELJAN. HENCE, A.O. PROPOSED TO DISALL OW THE CHARGES OTHER THAN LIQUIDATED CHARGES. IN RESPONSE, ASSESSEE DID NOT M AKE ANY SUBMISSIONS. ACCORDINGLY, A.O. DISALLOWED AN AMOUNT OF RS.65,08, 171/- UNDER THE HEAD REBATE TO CUSTOMER. 8. MATTER CARRIED TO CIT(A) AND CIT(A) HAS DISMISSE D THE APPEAL OF THE ASSESSEE. 9. DURING THE COURSE OF HEARING LEARNED AR PLEADED FOR OPPORTUNITY TO ADDUCE EVIDENCES TO SUBSTANTIATE THIS CLAIM BEFORE LD. AO. LEARNED DR RAISED NO SERIOUS OBJECTIONS AGAINST THE SAME. 10. HAVING HEARD BOTH THE PARTIES, WE FIND THAT ASS ESSEE DID NOT PRODUCE ANY EVIDENCE BEFORE AO AND CIT(A) TO PROVE HIS CLAIM. T HEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. ACCORDINGLY, THIS GROUND STANDS ALLOWED FOR STATIST ICAL PURPOSES. 11. IN THE RESULT, APPEAL OF ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 04.10.2017. * MP . ITA NO.3459/M/2011 A.Y.2007-08 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI