ACIT CIR. - 23(1), MUMBAI V. M/s. NATHPA JHAKRI JOINT VENTURE, MUMBAI

ITA 4582/MUM/2006

• Counselvise Citation: 458219914 RSA 2006
• Duration Of Justice: 8 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 11-08-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR DANIAL
• Assessee Lawyers: H P MAHAJANI
• Keywords: Depreciation; Revised return
• Section: 43B

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH. , ! '# , ' ! BEFORE S/SH. JOGINDER SINGH, JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.4582/MUM/2006 , ,, , & & & & ASSESSMENT YEAR2002-03 ACIT-23(1) BKC,BANDRA(E)MUMBAI-51 VS. NAPTHA JHAKARI JOINT VENTURE, HINCON HOUSE,LBS MARG, VIKHROLI,MUMBAI-400083 PAN:AAAAN1127C ( '( / APPELLANT) ( )*'( / RESPONDENT) )* +' )* +' )* +' )* +' CO/MUM/405/2006 & & & & ASSESSMENT YEAR2002-03 NAPTHA JHAKARI JOINT VENTURE, HINCON HOUSE,LBS MARG, VIKHROLI,MUMBAI-400083 VS. ACIT-23(1) BKC,BANDRA(E)MUMBAI-51 ,- ,- ,- ,- . . . . ' '' ' / ASSESSEE BY : : SHRI H.P. MAHAJANI ! / . ' / REVENUE BY : DR. DANIAL / // / - 0 - 0 - 0 - 0 / DATE OF HEARING : 10-09-2014 1& / - 0 / DATE OF PRONOUNCEMENT : 12-09-2014 , 1961 / // / 254(1) ' '' ' - - - -- -- - '2 '2 '2 '2 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ' ' ' ' ! ! ! ! '# '# '# '# ' '' ' : CHALLENGING THE ORDER 29.09.2010 OF THE CIT(A)-7, M UMBAI, ASSESSING OFFICER (AO) HAS FILED FOLLOWING GROUNDS OF APPEAL: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN GIVING RELIEF WHICH HAS GOT THE EFFECT OF REDUCING THE ASSESSED INCOME TO 'LOWER THAN THE RETURNED INCOME BY ACCEPTING CLAIMS , WHICH ARE MADE DURING ASSESSMENT PROCEEDINGS, WITH RETURN NOT HAVING BEEN REVISED AN D WHICH REMAINED UNSUBSTANTIATED AND HENCE NOT ALLOWED BY THE ASSESSING OFFICER. 2) ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS ERRED IN ADMITTING THE ASSESSEE'S CLAIM FOR DEDUCTION OF AMOUNT OF RS.53,86,00,00/- FROM THE TAXABLE INCOME ALLEGING THAT THE SAME RE R ESENTS DISPUTED AMOUNT. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE ITSELF HAD N OT RAISED SUCH CLAIM IN THE RETURN OF INCOME FILED BUT WAS RAISED SUBSEQUENTLY AT THE TIME OF ASSESSME NT PROCEEDINGS (WITHOUT HAVING FILED REVISED RETURN) THAT TOO WITHOUT SUBSTANTIATING THE CLAIM I N ASSESSMENT PROCEEDINGS. NO OPPORTUNITY OF HEARING WAS GIVEN TO THE ASSESSING OFFICER BY THE C IT(A) DURING APPEAL PROCEEDINGS. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX APPEALS) ERRED IN DIRECTING TO DELETE AN AMOUNT RS. 36,01,792/- REPRESENTING PRIOR PERIOD INTEREST EXPENDITURE AND AN AMOUNT RS. 44,47,098/- REPRESENT ING PRIOR PERIOD INSURANCE CLAIM AGAINST THE TAXABLE INCOME. THE LEARNED CIT(A) FAILED TO APPREC IATE THAT THESE EXPENDITURE CONSTITUTE PRIOR PERIOD EXPENDITURE AND THE ASSESSEE FAILED TO PRODU CE ANY DETAIL EVIDENCE BEFORE THE ASSESSING OFFICER TO THE EFFECT SUCH LIABILITIES WERE INCURRE D DURING THE YEAR IN QUESTION. NO OPPORTUNITY OF HEARING WAS GIVEN TO THE ASSESSING OFFICER BY THE C IT(A) DURING APPEAL PROCEEDINGS. 4) N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIRECTING TO EXCLUDE AN AMOUNT O F RS.71,40,60,021/- PERTAINING TO RETENTION MONEY TOWARDS EXECUTION OF PROJECT WORK, FROM THE T OTAL INCOME, AS PER CLAIM MADE BY THE 2 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT SUCH A CLAIM WAS MADE BY THE ASSESSEE WITHOUT SUBSTANTIATING THE SAME. NO OPPORTUNITY OF HEARING WAS GIVEN TO THE ASSESSING OFFICER BY THE C IT( ) DURING APPEAL PROCEEDINGS. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIRECTING TO EXCLUDING INSURANCE REIMBURSEMENTS OF RS.2,20,13,896/- IN RESPECT OF ASSETS ALLEGEDLY DESTROYED IN FLOOD FROM THE TOT AL INCOME, WHICH FACT IF IS SO, WAS NOT ARGUED AND NOT PROVED BEFORE THE ASSESSING OFFICER. THE LEARNE D CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE ITSELF HAD FOR A.YS.1999-2000 & 2001-02 TR EATED THE SAME AS INCOME FROM OTHER SOURCES. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIRECTING TO DELETE AN AMOUNT OF RS.4,57,912/-AND RS.8,11,794/-BEING P.F. CONTRIBUTION ADDED U/S. 43B. THE LEARNED CIT(A) FAI LED TO APPRECIATE THAT THESE PAYMENTS WERE DEPOSITED BY THE ASSESSEE BEYOND THE TIME PRESCRIBE D UNDER THE RELEVANT ACT. 7) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) ERRED IN DELETING THE CONTRIBUTION TO SUPERANNUATION FUND OF RS.99,013/- ON THE BASIS OF THE APPROVAL GRANTED BY THE CIT TO HCC SUPERANNU ATION FUND, IF ANY, FOR ITS EMPLOYEES, AS THE PAYMENTS WERE NOT MADE TO THE RECOGNIZED SUPERANNUA TION FUND. 8) THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, ALT ER, SUBSTITUTE OR MODIFY ANY OF THE ABOVE GROUND OR ADD A FRESH GROUND AS AND WHEN FOUND NECESSARY E ITHER BEFORE OR AT THE TIME OF HEARING. GROUNDS OF APPEAL OF CROSS OBJECTION FILED BY THE A SSESSEE READS AS UNDER: 1. THE LEARNED AO HAS ERRED IN CHALLENGING THE ORDE R OF THE LEARNED CIT(A) ON THE PLEA THAT CERTAIN CLAIMS WERE MADE BY THE RESPONDENT DURING A SSESSMENT PROCEEDINGS WITHOUT FILING A REVISED RETURN AND FURTHER THAT THEY REMAINED UNSUB STANTIATED. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECI ATE THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THESE CLAIMS (DEALT WITH IN GROUND NOS. 2 AND 4 OF THE DEPARTMENT'S APPEAL) COULD HAVE BEEN MADE DURING THE COURSE OF A SSESSMENT PROCEEDINGS WITHOUT FILING A REVISED RETURN, AND WERE ALSO DULY SUBSTANTIATED AN D CONSIDERED ON MERITS BY THE LEARNED ASSESSING OFFICER AND REJECTED BY HIM ON MERITS ALO NE. 2. THE LEARNED AO HAS ALSO ERRED IN CHALLENGING THE ORDER OF THE LEARNED CIT(A) ON THE PLEA THAT THE LEARNED ASSESSING OFFICER WAS NOT GIVEN AN OPPO RTUNITY OF BEING HEARD DURING THE COURSE OF APPELLATE PROCEEDINGS. 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A), IF AT ALL, WITH A VIEW TO SATISFY PROCEDURAL COMPLIANCES, OUGHT TO HAVE DIRECTED THE RESPONDENT TO RAISE ADDITIONAL GROUNDS OF APPEAL IN RESPECT OF THE CAPTIONED CLAIMS FOR WHICH ALL THE RELEVANT MATERIAL WAS AVAILABLE ON THE RECORDS OF THE ASSESSING OFFICER. 4. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE RESPONDENTS CLAIM FOR DEDUCTION FROM/NON-INCLUSION IN INCOME OF THE RESPONDENT RS. 53.86 CRORES BEING CLAIMS DISPUTED BY THE PROJECT AUTHORITIES BE DECIDED ON MERITS. 5. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE RESPONDENTS CLAIM FOR DEDUCTION FROM/NON-INCLUSION IN INCOME OF THE RESPONDENT RS. 71.40 CRORES BEING RETENTION MONIES WITHHELD BY THE PROJECT AUTH ORITIES BE DECIDED ON MERITS. THE RESPONDENT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR DELETE THE ABOVE CROSS- OBJECTIONS. ASSESSEE-AOP,FILED ITS RETURN OF INCOME ON 31.10.20 02 DECLARING TOTAL INCOME AT RS. 63,89,37, 100/-.THE AO FINALISED THE ASSESSMENT ON 31.01.2005 DETERMINING THE INCOME OF THE ASSESSEE AT RS.69,44,75,460/-.BEFORE US,DURING THE COURSE OF HE ARING,THE DEPARMENTAL REPRESENTATIVE(DR) STATED THAT GROUND NO.1 WAS OF GENERAL NATURE.HENCE ,SAME IS NOT BEING ADJUDICATED. 2. SECOND GROUND OF APPEAL IS ABOUT DEDUCTION OF RS.53 .86 CRORES.DURING THE ASSESSMENT PROCEEDINGS,THE ASSESSEE MADE AN ADDITIONAL CLAIM F OR EXCLUSION OF A SUM OF RS.53.86 CRORES FROM THE TOTAL INCOME ON THE GROUND THAT THE RECEIPT HAD BEEN DISPUTED BY THE PROJECT AUTHORITIES.AS PER THE ASSESSEE CLAIM MADE BY IT CONSISTED OF CLAIM FO R EXTENSION OF TIME(RS.35.98 CRORES),CLAIM CONTESTED IN COURT OF LAW(RS.6.27 CRORES),CLAIM REG ARDING OPERATION OF DG SET(RS.3.08 CRORES), CLAIM REGARDING EXCAVATION WORK(8.53CRORES).THE AO CALLED FOR DETAILS IN THIS REGARD.THE 3 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . ASSESSEE STATED THAT THE CONTRACTEE HAD NOT CONFIRM ED OR ACCEPTED THE CLAIMS MADE BY IT,THOUGH IT HAD CONSIDERED THE WORK BILL RECEIPT IN THE BOOKS O F ACCOUNTS.AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE THE AO HELD THAT DISPUTED CLAIMS PARTA KE NATURE OF INCOME,THAT IT HAD TREATED THE AMOUNT IN QUESTION AS WORK BILL RECEIPT,THAT TREATM ENT GIVEN IN THE BOOKS OF ACCOUNTS OF THE CONTRACTEE DID NOT AFFECT THE TAXABILITY OF THE ASS ESSEE.FINALLY,HE MADE AN ADDITION OF RS.53.86 CRORES. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ASSESSMENT ORDER,HE HELD THAT THE ASSESSEES VIEWPOINT HAD TO UPHELD ON MERI TS OF THE ISSUE INVOLVED,THAT THE FACTS OF THE CASE WERE QUITE CLEAR,THAT HE AO HAD NOT ESTABLISHE D ON THE BASIS OF CONTRARY EVIDENCE THAT THE CLAIMS WORTH RS.53,83 CRORES PREFERRED BY THE ASSES SEE WERE INDEED NOT DISPUTED BY THE CONTRACTEE WHO MERELY RELEASED ADVANCE PAYMENTS ON THE ADHOC B ASIS,THAT THE CONTRACTEE SHOWED THOSE DISPUTED CLAIMS IN ITS BOOKS AS ADVANCES,THAT IT PE RIODICALLY ASKED THE ASSESSEE TO CONFIRM THE SAME AS SUCH,THAT THE EVIDENCES PRODUCED BEFORE THE AO CLEARLY SHOWED THAT THE CONTRACTEE HAD EVERY INTENTION NOT ONLY TO SERIOUSLY DISPUTE THE A BOVE CLAIMS BUT ALSO TO RECOVER THE AMOUNTS IN QUESTION RATHER SPEEDILY,THAT VARIOUS LETTERS PRODU CED BY THE ASSESSEE INDICATED THAT THE CONTRACTEE HAD NOT ACCEPTED A NUMBER OF CLAIMS OF THE ASSESSEE TO WHOM ADVANCES WERE RELEASED ON ADHOC BASIS TOWARDS THOSE CLAIMS BY THE CONTRACTEE,THAT T HE ASSESSEE WAS FACING THE ATTEMPTS OF THE CONTRACTEE TO RECOVER THE DISPUTED AMOUNTS IN QUESTION,THAT EN TRIES IN THE BOOKS OF ACCOUNTS COULD NOT ALTER OR AFFECT THE NATURE OR QUALITY OF THE TR ANSACTION.RELYING UPON THE CASE OF HINDUSTAN LAND DEVELOPMENT & HOUSING TRUST LTD.(161 ITR 524),HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) ARGUED TH AT THE ASSESSEE HAD SHOWN THE DISPUTED AMOUNT AS RECEIVABLE IN THE BOOKS OF ACCOUNTS,THAT DISPUTES DO NOT CHANGE THE TAXABILITY OF THE ACCRUED INCOME.AUTHORISED REPRESENTATIVE(AR)SUPPORT ED THE ORDER OF THE FAA.ON A SPECIFIC QUERY BY THE BENCH IT WAS STATED BY HIM THAT IN THE YEAR 2009 AND 2010 THE ASSESSEE AND THE CONTRACTEE HAD SETTLED THE ISSUE VIDE SETTLEMENT AG REEMENTS DATED 11.11.2009 AND AGREEMENT 10.11.2010 (PAGE NO 41-51 OF THE PAPER BOOK). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT AO AND THE FAA DID NOT HAVE BENEFIT OF THE EVENTS T HAT TOOK PLACE IN THE SUBSEQUENT YEARS,BUT WITHOUT CONSIDERING THOSE DEVELOPMENTS THE ISSUE BE FORE US CANNOT BE ADJUDICATED.IT IS FACT THAT LOT OF LITIGATION WAS GOING ON AND FINALLY THE MATTER W AS RESOLVED BY TWO SETTLEMENT AGREEMENTS I.E. AGREEMENT DATED 11.11.2009 AND AGREEMENT 10.11.2010 .IN OUR OPINION,BEFORE DETERMINING THE TAX LIABILITY OF THE ASSESSEE FOR THE YEAR UNDER CO NSIDERATION BOTH THE AGREEMENTS HAVE TO BE TAKEN IN TO CONSIDERATION.THEREFORE,IN THE INTEREST OF JU STICE,WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION WITH A LIMITED PUR POSE OF DECIDING THE YEAR OF TAXATION AND AMOUNT TO BE TAXED IN THE RESPECTIVE YEAR/YEARS AFT ER CONSIDERING THE ABOVE REFERRED TWO AGREEMENTS.THE AO IS DIRECTED TO DECIDE BOTH THE IS SUES ONLY AFTER HEARING THE ASSESSEE.WITH THESE OBSERVATIONS,GROUND NO.2 IS ALLOWED IN FAVOUR OF THE AO,IN PART. 3. NEXT GROUND OF APPEAL IS ABOUT PRIOR PERIOD EXPENSE S OF RS.90.02 LAKHS. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT IN THE TAX AUDIT REPO RT ANNEXURE IX, THE AUDITOR HAD REPORTED CERTAIN EXPENDITURE DEBITED TO THE PROFIT & LOSS AC COUNT AS PRIOR PERIOD EXPENDITURE,THAT IT INCLUDED INTEREST CHARGES(RS.36,01,792/-),INSURANCE EXPENSES,RS.44,47, 098/-,HIRING OF CRANE & CRUSHER PAID TO NJPC(RS.7,01,450/-),PARTNER EXPENSE S(RS.17,95,95,228/-AND SUNDRY EXPENSES (RS. 25,22,581/-). HE DIRECTED THE ASSESSEE TO SUBMIT THE DETAILS OF A BOVE EXPENSES.IT WAS CONTENDED BY THE ASSESSEE THAT ALL THE ABOVE STATED EXPENSES HAD CRYSTALLISED DURING THE CURRENT FINANCIAL YEAR,THAT SAME WERE CHARGED AND RECOVERED BY THE CONCERNED PAYEE DURING THE YEAR,THAT THOSE EXPENDITURE COULD NOT BE CALLED PRIOR PERIOD EXPENSES.IN ITS SUPPORT THE ASS ESSEE SUBMITTED COPIES OF WORK BILLS FROM WHICH NJPC HAS RECOVERED THE INTEREST DURING THE YEAR.IT WAS CONTENDED THAT THE ASSESSEE WAS FOLLOWING THE COMPLETED CONTRACT METHOD OF REVENUE RECOGNITIO N AND THE PROFIT & LOSS ACCOUNT HAD BEEN 4 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . DRAWN UP FIRST TIME IN THE FINANCIAL YEAR 2001-2002 ,THAT ALL EXPENSES INCURRED UPTO 31.03.2001 WERE CARRIED FORWARD UNDER WORK IN PROGRESS AND DEB ITED TO THE PROFIT & LOSS ACCOUNT ALONG WITH THE CURRENT YEARS EXPENSES,THAT ALL THE ABOVE EXPE NSES SHOULD BE ALLOWED AS PART OF OPENING WORK IN PROGRESS.AO DID NOT AGREE WITH THE ASSESSEE AND HELD THAT THE PAYMENT TO PARTNER HAD ALREADY DISALLOWED,THAT OTHER EXPENSES WERE ALSO STATED BY THE AUDITOR AS PRIOR PERIOD EXPENSES,THAT SAME COULD NOT BE TREATED AS EXPENSES OF THE YEAR.FINALL Y HE MADE DISALLOWANCE OF RS.90,02,598/-(RS. 36,01,792/-INTEREST CHARGES + INSURANCE EXPENSES,RS .44,47, 098/-). 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA. BEFORE HIM THE ASSESSEE CONCEDED THAT IT WAS NOT PRESSING FOR THE ALLOWANCE OF EXPENDITURE INCURRED ON HIRING OF CRANE/CRUSHER PAID TO NJPC AND SUNDRY EXP ENSES.HOWEVER, INSURANCE AND INTEREST CHARGES WERE VEHEMENTLY CONTENDED.ACCORDINGLY,HE UP HELD THE DISALLOWANCE IN RESPECT OF EXPENDITURE INCURRED ON HIRING OF CRANE/CRUSHER AND SUNDRY EXPENSES. ABOUT THE REMAINING TWO ITEMS HE HELD THE DETAILS OF INTEREST-EXPENDITURE A ND INSURANCE EXPENDITURE WERE SUBMITTED TO THE AO,THAT THE BILLS OF WORK APPROVED BY NJPC HAD BEEN FURNISHED IN THE ASSESSMENT PROCEEDINGS WHICH INDICATED THAT THE EXPENDITURES IN QUESTION O N INTERST AND INSURANCE HAD ARISEN ONLY BY WAY OF THEIR REFLECTION IN THE SAID BILLS,THAT THOSE LI ABILITIES HAD ARISEN FOR THE FIRST TIME IN THE CURR ENT YEAR THE ASSESSEE WAS QUITE CORRECT IN MAINTAINING THAT THE EXPENDITURES IN RESPECT OF THOSE TWO ITEMS HAD CRYSTALLISED DURING THE CURRENT FINANCIAL YEAR ONLY,THAT THE COPY OF LETTER DT.21-2-2002 FROM THE CONTRACTEE ALSO SUPPORTED THE CONTENTION O F THE ASSESSEE,THAT WHERE AN ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING IT WAS ENTITLED TO DEDUCT FROM THE PROFITS AND GAINS OF HIS BUSINESS SUCH LIABILITY WHICH HAD ACCRUED DURING TH E PERIOD FOR WHICH THE PROFITS AND GAINS ARE BEING COMPUTED,THAT IN THE INSTANT CASE THE ASSESSE E HAD BEEN ABLE TO SHOW THAT THE EXPENDITURE IN RESPECT OF INTEREST AND INSURANCE INCURRED HAD ARIS EN IN THE CURRENT YEAR,THAT DISALLOWANCE IN RESPECT OF THESE TWO ITEMS HAD TO BE DELETED. 3.2. BEFORE US,DR ARGUED THE AUDITOR HAD MENTIONED THE T WO DISPUTED AMOUNTS AS PRIOR PERIOD EXPENSES,THAT EXPENDITURE WERE NOT OF THE CURRENT Y EAR.AR CONTENDED ALL THE EXPENSES HAD CRYSTALLISED DURING THE CURRENT YEAR ONLY,THAT SAME WERE CHARGED AND RECOVERED BY THE CONCERNED PAYEE DURING THE YEAR,THAT SUCH EXPENDITURES COULD NOT BE TERMED AS PRIOR PERIOD EXPENDITURE,THAT THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHO D OF REVENUE RECOGNITION AND THE P & L A/C WAS DRAWN UP FOR THE FIRST TIME IN FY 2001-02 AND T HAT ALL EXPENSES INCURRED UPTO MARCH 2001 WERE CARRIED FORWARD UNDER WORK-IN-PROGRESS AND DEB ITED TO THE P & L A/C ALONGWITH THE CURRENT YEARS EXPENSES. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT WH ILE DECIDING THE ISSUE THE AO HAD NOT CONSIDERED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE.IT IS A FACT THAT THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD AND RECONGINSIN G THE REVENUE IN A PARTICULAR MANNER.IT WAS SHOWING ALL THE EXPENDITURE IN THE WORK IN PROGRESS TILL IT GOT THE BILLS FROM CONTRACTEE IN THE YEAR UNDER APPEAL.THE ASSESSEE HAD SHOWN THAT BOTH THE E XPENDITURE HAD ARISEN DURING THE YEAR ONLY.CONSIDERING THE ABOVE,WE ARE OF THE OPINION TH AT THE FAA WAS JUSTIFIED IN DELETING ADDITION OF RS.90.02 LAKHS.SO, UPHOLDING HIS ORDER WE DECIDE GROUND NO. 3 AGAINST THE AO. 4. GROUND NO.4 DEALS WITH RETENTION MONEY,AMOUNTING TO RS.71,40,60,021/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED A LE TTER,DATED 31.12. 2004, STATING THAT THE SUM OF RS. 1,07,10,90,021/-, BEING RETENTION MONEY RETAINE D BY THE PROJECT AUTHORITY SHOULD BE EXCLUDED FROM THE INCOME. IT ALSO SUBMITTED DETAILS OF RETEN TION MONEY COLLECTED BY IT BY PROVIDING BANK GUARANTEE TO THE CONTRACTOR. IT ALSO FILED JUSTIFIC ATION FOR THE REQUEST MADE BY IT.AFTER CONSIDERING THE LETTER, THE AO HELD THAT ENTIRE WORK BILL AMOUN T HAD BEEN RECEIVED BY IT, THAT THE STATEMENT SHOWED THE DETAILS OF BANK GUARANTEE FURNISHED FOR RELEASE OF RETENTION MONEY, DETAILS OF ACTUAL RETENTION MONEY WAS AVAILABLE THAT IT WAS THE AMOUN T OF BANK GUARANTEE VALUED THAT WAS RETAINED BY PROJECT AUTHORITIES AGAINST ANY POSSIBLE OBLIGAT ION ON ACCOUNT OF DEFECTS DURING THE WARRANTEE PERIOD, THAT DETAILS OF ANY DEFECT OR ANY OTHER BAS IS FOR THE CLAIM MADE BY IT HAD BEEN FILED. REJECTING THE SUBMISSION OF THE ASSESSEE, THE AO DI SALLOWED THE ENTIRE CLAIM I.E.RS.107.10 CRORES. 5 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . 4.1. IN THE APPELLATE PROCEEDINGS BEFORE THE FAA, THE AS SESSEE STATED THAT RETENTION MONEY RETAINED YEAR AFTER YEAR DID NOT BECOME INCOME OF T HE ASSESSEE UNLESS AND UNTIL SAME WERE RELEASED BY THE PROJECT AUTHORITIES, THAT THE CONTR ACTEE FOR THE NATHPA JHAKRI HYDRO ELECTRIC PROJECT INCLUDED CERTAIN AMOUNTS AS PER CLAUSE NO.60, THAT AS PER THE CONTRACT ASSESSEE WAS PERMITTED TO CONVERSE THE RETENTION MONEY IN QUESTION RECOVERED FROM HIS INTERIM PAYMENT CERTIFICATES I.E. WORK BILLS ACCOUNTED BY IT INTO EITHER BANK DEPOSIT S OR BANK GUARANTEES, IT WAS ENTITLED TO CONVERSE THE RETENTION MONEY WITHHELD BY THE PROJECT AUTHORI TY FOR THE PURPOSE OF IMPROVING THE CASH FLOW POSITION, THAT SUCH A FACILITY GRANTED TO IT BY THE CONTRACTEE COULD NOT AUTOMATICALLY RENDERED THE RETENTION MONEY AS INCOME OF THE ASSESSEE,THAT THE TERMS OF CONTRACT PROVIDED THAT RETENTION MONEY HAD TO BE CERTIFIED DUE FOR PAYMENT AFTER EXP IRY OF THE MAINTENANCE PERIOD, THE RETENTION MONEY WOULD BECOME THE INCOME OF THE ONLY IN THE YE AR IN WHICH THE STIPULATED MAINTENANCE PERIOD WAS OVER AND WHEN THE RETENTION MONEY WAS CE RTIFIED DUE FOR PAYMENT BY THE PROJECT AUTHORITY, THAT CASH FLOW AND INCOME WERE TOO DIFFE RENT THINGS AND COULD NOT BE EQUATED, THAT THE AMOUNT RETRIEVED THROUGH THE PROVISION OF A SECURIT Y COULD NEVER BE INCOME, THAT THE INCOME INDICATED ABSOLUTE RIGHT OF DISPOSITION, THAT THE A O WAS NOT JUSTIFIED IN TAXING THE SAME PRIOR TO THE COMPLETION OF STIPULATED PERIOD.REFERRING TO THE DE CISION OF MUMBAI ITAT IN THE CASE OF HINDUSTAN CONSTRUCTION COMPANY (ITA NO. 6474/M/1996 ),HE HELD THAT AO HAD ERRONEOUSLY REFUSED TO EXCLUDE THE AMOUNT OF RETENTION MONEYHE FURTHER HELD THAT THE ASSESSEE WOULD NOT BE GIVEN THE RELIEF TO THE EXTENT OF RS. 107.10 CRORES , THAT THE IMPUGNED SUM CONSTITUTED TWO COMPONENTS I.E. RS. 70.40 CRORES (RETENTION MONEY T OWARDS EXECUTION OF PROJECT WORK) AND RS. 35.70 CRORES(RETENTION TOWARDS SECURITY OF PERFORMA NCE). BEFORE HIM ASSESSEE HAD CONCEDED SECOND COMPONENTS HAD ALREADY BEEN RECOVERED UNDER THE DISPUTED CLAIM ITSELF. FINALLY,THE FAA ALLOWED THE EXCLUSION OF RETENTION MONEY TO THE EXT ENT OF RS. 71.40 CRORES ONLY. 4.2. BEFORE US,DR ARGUED THAT THE ASSESSEE HAD RECEIVED THE RETENTION MONEY.AR STATED THAT RETENTION MONEY HAD DIRECT RELATION WITH THE AGREEM ENT ENTERED IN TO BY THE ASSESSEE WITH CONTRACTEE ON 11.11.2009,THAT PURSUANT TO THE SAID AGREEMENT RETENTION MONEY RELATED BANK GUARANTEES WERE RELEASED IN AY.2010-11 ONLY,THAT RE TENTION MONEY ACCRUED TO THE ASSESSEE IN THE AY.2010-11,THAT AMOUNT IN QUESTION COULD NOT BE TAX ED IN THE YEAR UNDER APPEAL. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE DISPUTED AMOUNT HAS DIRECT NEXUS WITH THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE CONTRACTEE,THAT AT THE TIME OF PASSING THE ASSESSME NT ORDER THE AO THE AGREEMENT WAS NOT IN EXISTENCE.WE ARE OF THE OPINION THAT WITHOUT CONSID ERING THE SAME PROPER TAXABILITY OF THE ASSESSEE CANNOT BE DETERMINED.THEREFORE,IN THE INTE REST OF JUSTICE MATTER IS BEING RESTORED BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE IN LIGHT OF THE AGREEMENT DATED 11.11.2009.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO TH E ASSESSEE BEFORE DECIDING THE ASSESSMENT-YEAR IN WHICH THE INCOME HAS TO BE TAXED.GROUND NO.4 IS ALLOWED IN FAVOUR OF THE AO,IN PART. 5. NEXT GROUND PERTAINS TO INSURANCE REIMBURSEMENT OF RS.2.20 CRORES IN RESPECT OF ASSETS DESTROYED IN FLOOD.DURING THE ASSESSMENT PROCEEDING S,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED A SUM OF RS.6.61 CRORES THAT WAS SHOWN UND ER THE HEAD INCOME FROM OTHER SOURCES,THAT THE ASSESSEE HAD CLAIMED THAT RS.2.20 CRORES REPRES ENTED REIMBURSEMENT OF THE VALUE OF ASSETS DESTROYED IN FLOOD. THE AO HELD THAT RS.2.20 CRORES WERE TO BE TAXED AS INCOME FROM OTHER SOURCES,THAT IN THE EARLIER YEARS THE ASSESSEE HAD SHOWN SIMILAR INCOME U/S.56 OF THE ACT. 5.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSION S OF THE ASSESSEE,HE HELD THAT ENTRIES IN THE BOOKS OF ACCOUNTS COULD NOT DECIDE THE NATURE OF IN COME OR CREATE LEGALLY ENFORCEABLE RIGHTS PER SE.HE FURTHER HELD THAT THE REFUSAL OF CLAIM OF THE ASSESSEE OF EXCLUSION OF INSURANCE REIMBURSEMENT BY THE AO WAS NOT CORRECT,THAT THE AO WAS ENTITLED TO VERIFY THE FACTS WHETHER THE IMPUGNED AMOUNT HAD INDEED BEEN REIMBURSED BY INSUR ANCE COMPANY TOWARDS THE VALUE OF ASSETS DESTROYED IN FLOODS AND WHETHER THE WAS INDEED REDU CED FROM THE BLOCK OF ASSETS FOR COMPUTING DEPRECIATION UNDER THE ACT.HE DIRECTED THE AO TO AL LOW THE CLAIM OF THE ASSESSEE AFTER MAKING VERIFICATION. 6 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . 5.2. BEFORE US,DR ARGUED THAT THE ORDER OF THE AO WAS BA SED ON THE BOOKS OF ACCOUNTS OF THE ASSESSEE,THAT IT WAS GIVING THE SAME TREATMENT TO T HE INCOME IN THE EARLIER YEARS.AR STATED THAT CLAIM MADE BY THE ASSESSEE WAS ABOUT THE MACHINERY DESTROYED BY FLOODS,THAT BALANCE AMOUNT WAS SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES,THAT VALUE OF THE ASSETS WAS REDUCED FROM BLOCK OF ASSETS. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E FAA HAD DIRECTED THE AO TO VERIFY TWO FACTS ABOUT THE CLAIM MADE BY THE ASSESSEE,BEFORE T AKING FINAL DECISION.WE FIND THAT WHILE GIVING EFFECT TO THE ORDER OF THE FAA,THE AO HAD ALLOWED R ELIEF AFTER VERIFICATION.IF THE AO WAS NOT CONVINCED HE WOULD HAVE NOT ALLOWED THE RELIEF TO T HE ASSESSEE.THE FAA HAD ONLY INDICATED THE PRINCIPLES THAT WERE TO BE FOLLOWED FOR DECIDING TH E ISSUE,BUT FACTS WERE TO BE VERIFIED BY THE AO.CONSIDERING THESE DEVELOPMENTS,WE ARE OF THE OPI NION THAT THE GROUND NO.5 HAS BECOME INFRUCTOUS AND NEEDS ON ADJUDICATION. 6. GROUND NO.6 IS ABOUT DIRECTION GIVEN BY THE FAA FOR DELETING AN AMOUNT OF RS.4.57 LAKHS AND 8.11 LAKHS,BEING PF CONTRIBUTION.DURING THE ASSESSM ENT PROCEEDINGS THE AO ADDED THE ABOVE TWO AMOUNTS TO THE TOTAL INCOME OF THE ASSESSEE BY INVO KING THE PROVISIONS OF SECTION 43B OF THE ACT.HE WAS OF THE OPINION THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE DEDUCTION AS IT HAD DEPOSITED THE CONTRIBUTIONS BEYOND THE TIME PRESCRI BED UNDER THE RELEVANT ACT. 6.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ASSESSEE HAD PAID THE CONTRIBUTIONS IN THE MONTH OF APRIL,THAT FOLLOWING THE DECISION OF JURIS DICTIONAL TRIBUNAL THE AO SHOULD ALLOW THE CLAIM MADE BY THE ASSESSEE. 6.2. BEFORE US,THE DR STATED THAT THE ISSUE COULD BE DEC IDED ON MERITS.AR ARGUED THAT ALL THE PAYMENTS WERE MADE WELL BEFORE THE DUE DATE OF FILI NG OF RETURN OF INCOME.HE REFERRED TO THE PAGE NO OF THE PAPER BOOK.WE HAVE HEARD THE RIVAL SUBMIS SIONS.IT IS FOUND THAT THE ASSESSEE HAD PAID THE DISPUTED SUMS BEFORE THE DUE DATE OF FILING OF RETURN AS ENVISAGED BY THE PROVISIONS OF SECTION 139(1)OF THE ACT.THEREFORE,CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.6 AGAINST THE AO. 7. LAST GROUND OF APPEAL IS ABOUT CONTRIBUTION TO SUP ERANNUATION FUND (SF),AMOUNTING TO RS.99, 013/-.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUN D THAT THE ASSESSEE HAD MADE PAYMENT TO THE ASSESSEE HAD MADE PAYMENT TO SF OF HINDUSTAN CONSTR UCTION COMPANY(HCC),THE PARENT GROUP COMPANY.HE HELD THAT THE CONTRIBUTION MADE BY THE A SSESSEE WAS NOT TOWARDS SF OF THE ASSESSEE AND HENCE AS PER THE PROVISIONS OF SECTION 40(A)(9) OF THE ACT,CLAIM MADE BY IT HAD TO BE DISALLOWED. 7.1. FAA,AFTER CONSIDERING THE MATERIAL BEFORE HIM,HELD THAT THAT THE CONTRIBUTION MADE BY THE ASSESSEE TOWARDS THE APPROVED SF ESTABLISHED BY ONE OF THE CONSTITUENTS OF THE ASSESSEE-AOP I.E. HCC WAS ALLOWABLE EXPENDITURE IN THE HANDS OF THE A SSESSEE,THAT EXPENDITURE WAS INCURRED FOR THE BUSINESS PURPOSES BY IT,THAT EXPENDITURE WAS INCURR ED AS PER THE TERMS AND CONDITIONS OF SERVICE AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH HCC,TH AT EMPLOYEES HAD COME ON DEPUTATION,THAT AS PER THE AGREEMENT ALL THE BENEFITS SUCH AS PF,GRATU ITY,PF WERE TO BE PROTECTED IN RESPECT OF THE EMPLOYEES WHO HAD COME FROM HCC FOR THE PERIOD TILL THEY WERE WITH THE AOP,THAT PROVISIONS OF SECTION 40A(9)TALKED ABOUT SF,THAT HCC SF WAS RECOG NISED BY APPROPRIATE AUTHORITY.HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 7.2. BEFORE US,THE DR ARGUED THAT CONTRIBUTION WAS MADE TO HCC SF,THAT THE ASSESSEE HAD NOT MADE PAYMENT TO SF OF ITS OWN.AR SUPPORTED THE ORD ER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL.WE FIND THAT T HE AO HAD NOT GIVEN ANY REASON FOR REJECTING THE CLAIM MADE BY THE ASSESSEE EXCEPT REFERRING TO THE AUDIT REPORT.HE DID NOT CALL FOR ANY EXPLANATION FROM THE ASSESSEE IN THIS REGARD.THE FA A WHILE DECIDING THE APPEAL HAS CONSIDERED ALL THE FACTS THAT WERE NECESSARY TO ADJUDICATE THE ISS UE.IT IS A FACT THAT ASSESSEE IS AN AOP AND EMPLOYEES FROM HCC HAD JOINED IT TILL THE COMPLETIO N OF THE JV PROJECT.AS PER THE SERVICE AGREEMENTS CONTRIBUTION HAD TO BE MADE TO SF AND TH E ASSESSEE MADE PAYMENT TO HCC SF.IN THESE 7 ITA NO. 4582/M/2006 & C.O. 405/M/2006 NAPTHA JHAKAR I JOINT VENTURE . CIRCUMSTANCES,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIRMING HIS ORDER WE DECIDE GROUND NO. 7 AGAINST THE AO. APPEAL FILED BY THE AO IS ALLOWED IN PART. CO /MUM/405/2011-AY.2002-03: WE FIND THAT THE GROUNDS TAKEN BY THE ASSESSEE IN T HE CO HAVE BECOME ACADEMIC IN NATURE BECAUSE OF DISCUSSION HELD IN EARLIER PARAGRAPHS.TH EREFORE,SAME IS ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE AO STAND PARTLY ALL OWE AND THE CO OF ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 3-4 3-4 3-4 3-4 ,- ,- ,- ,- 0 / 2-4 5 / - 6 7 ,- )* +' 89/ :;'<= ' 0 / 2-4 5 / - 6 7 ,- )* +' 89/ :;'<= ' 0 / 2-4 5 / - 6 7 ,- )* +' 89/ :;'<= ' 0 / 2-4 5 / - 6 7 ,- )* +' 89/ :;'<= ' !>- !>- !>- !>- ? ?? ? - - - - 6 66 6 . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH ,SEPTEMBER,2014 . '2 '2 '2 '2 / // / 1& 1& 1& 1& ' ' ' ' @ @@ @ ? ? ? ? 12 , -A -A -A -A , 201 4 / // / B BB B SD/- SD/- ( / JOGINDER SINGH) ( '# '# '# '# / RAJENDRA) ! / JUDICIAL MEMBER ' ' ' ' ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, ? /DATE: 12.09.2014. SK '2 '2 '2 '2 / // / )-C )-C )-C )-C D'C&- D'C&- D'C&- D'C&- / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '( 2. RESPONDENT / )*'( 3. THE CONCERNED CIT(A)/ E F , 4. THE CONCERNED CIT / E F 5. DR A BENCH, ITAT, MUMBAI / CG )- , , . . . 6. GUARD FILE/ 3 * C- * C- * C- * C- )- )-)- )- //TRUE COPY// '2 / BY ORDER, : / DY./ASST. REGISTRAR , /ITAT, MUMBAI