M/s Amarnath Kashiram Construction P.Ltd., V. The DCIT, Range - 1(1),

ITA 469/IND/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1517 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-09-2009
• Assessment Year: misc
• Appeal Filed On: 23-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K KARAN
• Assessee Lawyers: S S DESHPANDE
• Keywords: TDS
• Section: 143(1); 148

Judgement Text

PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. :AABCA 4861-D I.T.A.NO. 469/IND/2006 A.Y.: 2002-03 M/S.AMAR NATH KASHIRAM CONSTRUCTION PRIVATE LIMITED, DY. CIT, 507, CHETAK CENTRE, RANGE 1(1), 12/2, R.N.T.MARG, INDORE. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S.S.DESHPANDE, C. A. RESPONDENT BY : SHRI V.K.KARAN, ADDL. CIT DR O R D E R PER GUPTA, A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORD ER OF THE LD. CIT(A) DATED 18.4.2006, FOR THE ASSESSMENT YEAR 2002-03. PAGE 2 OF 10 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL ON RECORD. 3. GROUND NO. 1 BEING OF ARGUMENTATIVE NATURE WAS NOT PRESSED, HENCE, THE SAME IS DISMISSED. 4. IN THIS APPEAL, THE ONLY ISSUE WHICH REQUIRES OUR A DJUDICATION IS REGARDING THE DECISION OF LD. CIT(A) IN SUSTAINING THE ADDITION OF RS. 5,65,599/- ON ACCOUNT OF DIFFERENCE BETWEEN THE INC OME AS PER TDS CERTIFICATE AND PROFIT AND LOSS ACCOUNT. 5. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAG ED IN CONSTRUCTION ACTIVITIES AS CONTRACTOR. THE ASSESSMENT COMPLETED U/S 143(1) WAS REOPENED BY ISSUING NOTICE U/S 148 ON 2.3.2005 FOR THE REASO N THAT AS PER TDS CERTIFICATES ENCLOSED WITH THE RETURN, THE GROSS RE CEIPTS WERE RS. 1,16,02,224/-, WHEREAS IN THE PROFIT AND LOSS ACCOU NT GROSS RECEIPTS WERE SHOWN AT RS. 1,10,36,625/-, HENCE, THERE WAS A DIFF ERENCE OF RS. 5,65,599/-, WHICH IN THE OPINION OF THE A.O., WAS REQUIRED TO BE ASSESSED AS INCOME. THE ASSESSEE, ON ENQUIRY BY THE ASSESSING OFFICER, SUBMITTED THAT IT WAS MAINTAINING BOOKS OF ACCOUNT ON THE BASIS OF MERCAN TILE METHOD OF ACCOUNTING AND IN SOME CASES CONTRACTS WERE SPREAD OVER MORE THAN ONE PAGE 3 OF 10 ACCOUNTING YEAR. HENCE, THE INCOME WAS RECOGNIZED B Y THE ASSESSEE ON THE BASIS OF WORK COMPLETED DURING A PARTICULAR YEAR, W HEREAS THE PAYERS HAD DEDUCTED THE TAX IN ACCORDANCE WITH RELEVANT PROVIS IONS, WHICH RESULTED INTO SUCH DIFFERENCE. HOWEVER, IF THE TOTAL PERIOD OF A PARTICULAR CONTRACT WAS TAKEN INTO CONSIDERATION, THEN, THERE WAS NO RECEIP T WHICH HAD NOT BEEN ACCOUNTED FOR AS INCOME. THE ASSESSEE ALSO EXPLAINE D THAT IN SOME CASES, THE CLIENT SUPPLIED SOME MATERIAL FOR WHICH THE AMOUNT WAS DEDUCTED BY SUCH CLIENT WHILE MAKING THE PAYMENT AND SUCH AMOUNT WAS NEITHER CLAIMED AS EXPENDITURE NOR INCLUDED IN INCOME IN THE PROFIT AN D LOSS ACCOUNT AS THERE WAS NO PROFIT ELEMENT INVOLVED IN THE MATERIAL SO S UPPLIED BY THE CLIENT OF THE ASSESSEE COMPANY, BUT THE CLIENT DEDUCTED TAX A T SOURCE. THE ASSESSEE ALSO ENCLOSED COPY OF BILLS RAISED BY IT ON THE CLI ENT TO SUBSTANTIATE ITS SUCH CLAIM. IT WAS ALSO CONTENDED THAT WHEN THE CLIENT O F THE ASSESSEE GAVE THE ADVANCE, THE CLIENT DEDUCTED TAX AT SOURCE THEREON AND AS AND WHEN THE ASSESSEE COMPANY RENDERED SERVICES, THE PORTION OF SUCH ADVANCE ADJUSTED OUT OF ITS RUNNING BILL WAS TAKEN INTO CONSIDERATIO N BY THE ASSESSEE COMPANY AS INCOME AND, THEREFORE, THE AMOUNT PAID BY THE CL IENT OF THE ASSESSEE AS ADVANCE COULD NOT BE PROPER BASIS FOR COMPUTING THE INCOME OF THE ASSESSEE. PAGE 4 OF 10 THE A.O., HOWEVER, RELYING ON THE PROVISIONS OF SEC TION 194-C, 198 & 199 AND AFTER PERUSING THE BILLS, RAISED BY THE ASSESSE E COMPANY, HELD THAT WHEN THE CLIENT COMPANIES HAD DEDUCTED THE TAX ON THE AM OUNT GIVEN BY THEM TO THE ASSESSEE COMPANY EITHER BY WAY OF ADVANCE OR OT HERWISE, THE ASSESSEE COMPANY SHOULD HAVE CREDITED THESE AMOUNTS IN THE P ROFIT AND LOSS ACCOUNT, WHICH THE ASSESSEE COMPANY HAD NOT DONE, HENCE, HE ADDED SUCH DIFFERENCE TO THE TOTAL INCOME OF THE ASSESSEE. THE A.O. ALSO HELD THAT NO EXPENSES WERE ALLOWABLE FROM THIS AMOUNT, AS ALL THE EXPENSES HAD ALREADY BEEN RECORDED IN THE BOOKS OF ACCOUNT. AGGRIEVED BY THIS, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS CONTENDED THA T THE DIFFERENCE WAS DUE TO TIMING DIFFERENCE IN ACCOUNTING AND DEDUCTION OF TAX EVEN IN CASE OF ADVANCE PAYMENT. THE ASSESSEE ALSO EXPLAINED THAT T HE DIFFERENCE IN THE INCOME SHOWN IN RESPECT OF WORKS OF M/S. RAMA PHOSP HATE LIMITED AND ORIENTAL STRUCTURAL ENGINEERING LIMITED WAS DUE TO THE CEMENT/OTHER MATERIAL SUPPLIED BY THEM, WHERE ON TAX AT SOURCE H AD BEEN DEDUCTED. THE ASSESSEE ALSO RELIED ON VARIOUS JUDICIAL DECISIONS IN RESPECT OF ITS CLAIM THAT TDS PROVISIONS WERE INDEPENDENT OF COMPUTATION OF I NCOME, WHICH WAS TO BE COMPUTED AS PER THE PRINCIPLES OF COMMERCIAL ACC OUNTING. THE LD. PAGE 5 OF 10 CIT(A), HOWEVER, RELYING ON THE EXPLANATION II TO S ECTION 194-C UPHELD THE ACTION OF THE A.O. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS, REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND DREW OUR ATTENTION TO PAGE 26, 29, 44, 45, 46 OF THE PAPER BOOK TO SUB STANTIATE ITS CLAIM IN REGARD TO DIFFERENCE BETWEEN THE TWO FIGURES. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CONTENDED THAT EXPLANATION II TO SECT ION 194-C WAS NOT AT ALL APPLICABLE. HE ALSO CONTENDED ON THE AMOUNT OF ADVA NCE THE TAX AT SOURCE HAD BEEN DEDUCTED, HOWEVER, SUCH ADVANCE HAD TO BE TAKEN INTO CONSIDERATION AS INCOME ONLY TO THE EXTENT OF SERVI CES BEING RENDERED AND THE SAME BEING ADJUSTED, OUT OF RUNNING BILLS ON THE BA SIS OF WORKS CERTIFIED BY THE CLIENT COMPANIES. HE ALSO RELIED ON THE CIRCUL AR NO. 5/2001 DATED 2 ND MARCH, 2001, WHEREIN IT HAD BEEN CLARIFIED BY THE C. B. D. T. THAT THE RENT RECEIVED IN ADVANCE HAD TO BE OFFERED IN THE RESPEC TIVE YEARS AS INCOME AND CREDIT OF SUCH TDS HAD TO BE GIVEN ON THE BASIS OF INCOME OFFERED IN SUCH MANNER. HENCE, MERELY BECAUSE TAX AT SOURCE HAD BEE N DEDUCTED ON A PARTICULAR PAYMENT, THE SAME COULD NOT AUTOMATICALL Y BE TREATED AS INCOME. ON A SPECIFIC QUERY FROM THE BENCH, THE ASSESSEES COUNSEL SUBMITTED THAT IN PAGE 6 OF 10 CASE OF TRANSACTIONS WITH ORIENTAL STRUCTURAL ENGIN EERING LIMITED AND RAMA PHOSPHATE LIMITED, THE DIFFERENCE WAS ONLY ON ACCOU NT OF MATERIAL SUPPLIED BY THEM, WHICH WAS NEITHER ADDED TO THE GROSS RECEI PTS NOR CLAIMED AS EXPENDITURE CORRESPONDINGLY. HENCE, IF THE ASSESSIN G AUTHORITIES WERE OF THE VIEW TO INCLUDE THE SAME IN GROSS RECEIPTS, THEN, T HE CORRESPONDING DEDUCTION HAD TO BE GIVEN TO THE ASSESSEE. SIMILARLY, IN RESP ECT OF TRANSACTION WITH RUCHI SOYA INDUSTRIES LIMITED, HE CLARIFIED THAT TH E ASSESSEE COMPANY RECEIVED AN ADVANCE IN LUMP SUM, WHICH WAS ADJUSTED OVER DIFFERENT PERIODS ON THE BASIS OF PROGRESS OF WORK AND ULTIMATELY THE SAME HAD BEEN OFFERED AS INCOME ON THAT BASIS. HENCE, THE SAME COULD ALSO NO T BE TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF HON'BLE SUP REME COURT AS REPORTED IN 115 ITR 524, TO CONTEND THAT MATERIAL SUPPLIED BY A CONTRACTEE REMAINED ITS PROPERTY, HENCE, THE COST OF THE SAME COULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, CONTENDED THAT INCOME HAD TO BE ASSESSED AS PER PROVISIONS OF LAW AND NOT AS PER THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. HE F URTHER ADDED THAT THERE PAGE 7 OF 10 WAS A MIS-MATCH BETWEEN THE FIGURES OF GROSS RECEI PTS AS PER BOOKS OF ACCOUNT AND AS PER TDS CERTIFICATES AND AS PER THE PROVISIONS OF LAW, THE GROSS RECEIPTS AS PER TDS CERTIFICATES HAD TO BE AD OPTED FOR COMPUTING INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. HE ALSO SUBMITTED THAT THE WORKINGS AT PAGES 44, 45 & 46 WERE NOT VER IFIABLE. THE LEARNED COUNSEL, IN THE REJOINDER, AGAIN DREW OUR ATTENTION TO PAGE NOS. 44, 45, & 46 OF THE PAPER BOOK AND CONTENDED THAT GROSS RECEIPTS AS WELL AS DEDUCTION MADE THERE FROM WERE RECONCILABLE AND VERIFIABLE. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE SIDE S, MATERIAL ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. IT I S NOTED THAT THE ASSESSEE HAS SHOWN GROSS RECEIPTS IN THE BOOKS OF ACCOUNT AT RS. 1,10,36,625/-, WHEREAS AS PER TDS CERTIFICATE ISSUED BY RESPECTIVE CLIENT, THE SAME STAND AT RS. 1,16,02,224/-. THIS DIFFERENCE IS ON ACCOUNT OF COS T OF MATERIAL SUPPLIED BY RESPECTIVE CLIENTS AND TAX DEDUCTED BY ONE CLIENT O N ADVANCE GIVEN TO THE ASSESSEE, WHICH HAS BEEN ADJUSTED IN PROPORTIONATE MANNER, OUT OF RUNNING BILLS RAISED BY THE ASSESSEE COMPANY. AS REGARDS TH E COST OF MATERIAL IS CONCERNED, IT IS NOTED THAT BEFORE THE A.O. AS WELL AS LD. CIT(A), THE ASSESSEE PLEADED THAT THE AMOUNT REPRESENTED BY SUC H COST OF MATERIAL HAD PAGE 8 OF 10 NEITHER BEEN TAKEN IN RECORDING GROSS RECEIPTS NOR IT WAS RECORDED AS EXPENDITURE. WE HAVE PERUSED THE RELEVANT BILLS PRO DUCED BY THE ASSESSEE COMPANY BEFORE US AND ON THAT BASIS THIS CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT. CONSEQUENTLY, WE HOLD THAT IF THE CO ST OF SUCH MATERIAL IS ADDED TO THE GROSS RECEIPT, THEN AN EQUIVALENT AMOU NT SHOULD BE ALLOWED AS DEDUCTION AND, THEREFORE, THERE WILL NOT BE ANY IMP ACT ON THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION. THE A.O. H AS HELD THAT THE ASSESSEE HAD BOOKED ALL THE EXPENSES, BUT HAS NOT GIVEN ANY SPECIFIC FINDING ON THIS ASPECT. HENCE, SUCH OBSERVATIONS OF THE A.O. APPEAR TO BE OUT OF CONTEXT. AS REGARDS DEDUCTION OF TAX AT SOURCE ON ADVANCE GIVEN BY ONE OF THE PARTIES, IT IS NOTED THAT A PART OF SUCH ADVANCE HAS BEEN SHOWN AS INCOME AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT ON COMPLETION OF THE WORK IN A PROGRESSIVE MANNER AND OVER THE TOTAL PERIOD OF CON TRACT, THE TOTAL AMOUNT OF ADVANCE WHERE ON THE TAX AT SOURCE HAS BEEN DEDUCTE D HAS BEEN SHOWN AS INCOME. IN THIS REGARD, WE ARE FURTHER OF THE VIEW THAT TAX AT SOURCE IS TO BE DEDUCTED ON THE AMOUNT, WHICH IS CHARGEABLE TO TAX AS INCOME IN A PARTICULAR YEAR AS PER PROVISIONS OF SECTION 4(2) OF THE ACT, HOWEVER, THE PAYERS DEDUCT THE TAX EVEN ON PAYMENT OF ADVANCE AS A MATTER OF A BUNDANT PRECAUTION, PAGE 9 OF 10 HENCE, AMOUNT OF ADVANCE RECEIVED BY AN ASSESSEE CA NNOT BE TREATED AS INCOME OF THE YEAR OF RECEIPT WITHOUT RENDERING OF SERVICES BECAUSE ONLY AFTER THAT ASSESSEE IS VESTED WITH LEGAL RIGHT TO R ECEIVE THE INCOME CAUSING ACCRUAL OF INCOME IN THE HANDS OF THE ASSESSEE. WE ARE FURTHER OF THE VIEW THAT THE INCOME HAS TO BE COMPUTED AS PER COMMERCIA L PRINCIPLES AND METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE SUBJECT TO SPECIFIC OVER-RIDING PROVISIONS OF THE ACT AND, THEREFORE, M ERELY BECAUSE ON SUCH PAYMENT, TAX AT SOURCE HAS BEEN DEDUCTED, THE SAME DOES NOT BECOME THE INCOME OF THE ASSESSEE OF THAT YEAR. THIS ASPECT HA S BEEN RECOGNIZED STATUTORILY IN SECTION 199 OF THE ACT AS WELL AS BY THE C.B.D.T. IN CIRCULAR NO. 5 OF 2001 DATED 2 ND MARCH, 2001.IN THE PRESENT CASE, THERE IS NO DISPU TE THAT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO RECOGNIZE REVENUE IS NOT AN ACCEPTED ACCOUNTING METHOD OR IT IS IN CONTR ADICTION TO ANY SPECIFIC PROVISION OF LAW. HENCE, WE DO NOT FIND ANY MERIT I N THE CONTENTION OF THE REVENUE THAT GROSS RECEIPT SHOULD BE ADOPTED AS PER THE TDS CERTIFICATES. IN THIS VIEW OF MATTER, IN OUR OPINION, THE ORDER OF T HE LD. CIT(A) IS NOT CORRECT IN LAW AND, THEREFORE, WE REVERSE THE SAME AND DIRE CT THE A.O. TO DELETE THE PAGE 10 OF 10 IMPUGNED AMOUNT FROM THE GROSS RECEIPTS. THUS, GRO UND NO. 2 OF ASSESSEE STANDS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :9 TH OCTOBER, 2009. 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