ACIT 25(2), MUMBAI V. RAJIV R AHUJA, MUMBAI

ITA 4963/MUM/2010

• Counselvise Citation: 496319914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 15-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4963/MUM/2010 (ASSESSMENT YEAR: 2006-07) A C I T - 25(2) SHRI RAJIV RATTANLAL AHUJA C-11, PRATYAKSHKAR BHAVAN 302, DORA ROSE, I.C. COLO NY BANDRA KURLA COMPLEX VS. BORIVALI (W), MUMBAI 400013 BANDRA (E), MUMBAI 400051 PAN - AADPA 6445 J APPELLANT RESPONDENT APPELLANT BY: SHRI C.G.K. NAIR RESPONDENT BY: NONE DATE OF HEARING: 24.08.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXV, MUMBAI DATED 17.03.2010. 2. THE ISSUE CONTESTED BY REVENUE IN THIS APPEAL IS WI TH REFERENCE TO THE ADDITION MADE OF ` 77,22,207/- BY THE A.O. ON ACCOUNT OF OUTSTANDING MOBILIZATION ADVANCES TREATED AS CLOSING STOCK AND WORK-IN-PROGRESS, WHICH WAS DELETED BY THE CIT(A). 3. THE FACTS LEADING TO THE ISSUE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND PROPRIETOR OF M/S. M.S. ENGINEERS ENGAGED IN TH E BUSINESS OF CIVIL CONSTRUCTION. THE A.O. NOTICED FROM THE BALANCE SHE ET THAT ASSESSEE RECEIVED MOBILISATION ADVANCES TO THE TUNE OF ` 2,99,62,471/- WHEREAS THE CLOSING STOCK/WORK-IN-PROGRESS WERE SHOWN AT ` 2,22,40,264/-. ASSESSEE WAS ASKED TO EXPLAIN THE MOBILISATION ADVANCES RECEIVED AND THE ASSESSEE EXPLAINED THE NATURE OF MOBILISATION ADVANCES TO TH E A.O. VIDE LETTER DATED ITA NO. 4963/MUM/2010 SHRI RAJIV RATTANLAL AHUJA 2 05.12.2009 AND ALSO ENCLOSED COPY OF BANK GUARANTEE AND LEDGER ACCOUNT OF THE PARTIES TO JUSTIFY THAT THE MOBILISATION ADVANC ES WERE RECEIVED BEFORE THE WORK HAS STARTED AND THEY ARE ACCOUNTING THE ADJUST MENTS FROM MOBILISATION ADVANCES AS AND WHEN THE BILLS ARE RAI SED. THE A.O., HOWEVER, WITHOUT GIVING ANY FURTHER OPPORTUNITY MADE AN ADDI TION OF ` 77,22,207/-, I.E. THE DIFFERENCE BETWEEN THE ADVANCES RECEIVED A ND THE WORK-IN-PROGRESS SHOWN BY ASSESSEE ON THE REASON THAT ASSESSEE START S THE WORK ON RECEIPT OF MOBILISATION ADVANCES IN THE NORMAL COURSE OF BUSIN ESS AND THE EXPENSES ARE DEBITED TO P & L ACCOUNT BUT THE CORRESPONDING CREDIT OR RECEIPT ENTRIES ARE NOT PASSED SO AS TO RAISE CONTRACT RECEIPT/CLOS ING STOCK/WORK-IN- PROGRESS. THEREFORE HE HELD THAT CLOSING STOCK/WORK -IN-PROGRESS HAS TO BE EQUAL OR MORE THAN THE OUTSTANDING MOBILISATION ADV ANCES. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE T HE CIT(A) DELETED THE ADDITION VIDE PARA 4.3, WHICH IS AS UNDER: - 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRE SENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, AS PER BALA NCE SHEET A SUM OF RS.2,99,62,471/- WAS OUTSTANDING AS MOBILIZATION ADVANCES RECEIVED BY THE APPELLANT. THE A.O. ADDED THE OUTST ANDING MOBILIZATION ADVANCES IN EXCESS OF CLOSING STOCK/WI P ON THE ASSUMPTION THAT THE CLOSING STOCK/WIP SHOULD BE EQU AL OR MORE THAN THE OUTSTANDING MOBILIZATION ADVANCES. THE A.O. HAS NOT POINTED OUT THAT ON WHAT BASIS HE CAME TO THIS CONCLUSION. IT I S SEEN THAT THE A.O. HAS NOT REALLY UNDERSTOOD THE METHOD OF ACCOUNTING FOLLOWED IN RESPECT OF CONTRACT WORK. THE APPELLANT HAS ALREADY FILED THE NATURE OF MOBILIZATION ADVANCES RECEIVED BY HIM BY HIS LETTER DT. 15.12.2008 IN WHICH HE HAS SUBMITTED THAT 10% CONTRACT VALUE WAS RECEIVED AS MOBILIZATION ADVANCES. AS THE VERY NAME MOBILIZATIO N ADVANCES SUGGEST, IT WAS RECEIVED BEFORE EXECUTING ANY WORK WHICH MEANS THAT BEFORE DEBITING ANY EXPENSES IN THE P & L ACCOUNT. IT REPRESENTS THE LIABILITY OF THE APPELLANT WHICH WOULD BE ADJUSTED IN DIFFERENT BILLS TO BE RAISED BY THE APPELLANT IN FUTURE AS PER AGREEME NT WITH THE CONTRACTEES. WHATEVER THE EXPENDITURE DEBITED TO TH E P & L ACCOUNT IS CORRESPONDINGLY MATCHED WITH THE CREDIT ENTRY OF CO NTRACT RECEIPTS FOR WHICH THE BILLS WERE RAISED BY THE APPELLANT DURING THE YEAR AND FOR THE REMAINING WORK FOR WHICH THE BILLS ARE TO BE RA ISED THE SAME IS ADMITTED AS CLOSING STOCK. THUS, AS CONTENDED BY TH E REPRESENTATIVE, THERE IS NO RELATION BETWEEN THE MOBILIZATION ADVAN CES TO THE CONTRACT RECEIPTS DURING THE YEAR AND FURTHER RECEIVED MOBIL IZATION ADVANCES DURING THIS YEAR AND IN THE NEXT YEAR SOME PORTION OF MOBILIZATION ITA NO. 4963/MUM/2010 SHRI RAJIV RATTANLAL AHUJA 3 ADVANCES RECEIVED DURING THIS YEAR AND EARLIER YEAR S ARE TRANSFERRED TO THE CONTRACT RECEIPT AND THE SAME IS ADJUSTED IN THE BILLS RAISED BY THE APPELLANT. THE MOBILIZATION ADVANCES REPRESENTS ONLY ADVANCES RECEIVED BY THE APPELLANT WHICH WOULD BE ADJUSTED A GAINST THE FUTURE BILLS TO BE RAISED BY THE APPELLANT AND AT THAT POI NT OF TIME THE ADJUSTED MOBILIZATION ADVANCE IS TRANSFERRED TO THE CONTRACT RECEIPT. THE A.O. WITHOUT GIVING OPPORTUNITY TO THE APPELLAN T ON HIS OWN WRONGLY ASSUMED THAT THE MOBILIZATION ADVANCES SHOU LD BE EQUAL O MORE THAN THE CLOSING STOCK/WIP AND MADE THIS ADDIT ION. I FIND THAT THE ADDITION IS NOT JUSTIFIED AND THE SAME IS DELET ED. HOWEVER IT IS SEEN THAT THE APPELLANT HAS CLAIMED CREDIT FOR TDS CERTIFICATES. THE TDS WAS DEDUCTED ON MOBILIZATION ADVANCES AS THE LI ABILITY IS TO DEDUCT TAX AROSE AT THE TIME OF PAYMENT OR AT THE T IME OF CREDIT WHICHEVER IS EARLIER. IN THE CIRCUMSTANCES, THE A.O . SHALL ALLOW CREDIT ONLY FOR TDS CERTIFICATES IN RESPECT OF WHICH THE C ORRESPONDING CONTRACT RECEIPTS ARE OFFERED FOR TAXATION IN THIS YEAR. SUBJECT TO THE ABOVE, THE ADDITION OF RS.77,22,207/- IS DELETED. 5. ASSESSEE WAS NOT REPRESENTED. SO THE CASE WAS DECID ED EXPARTE RESPONDENT AFTER HEARING THE LEARNED D.R. 6. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE CIT(A) WHICH IS WELL REASONED. THE A.O. HAS NOT MADE OUT A NY CASE THAT THE MOBILISATION ADVANCES OUTSTANDING IN THE BOOKS OF A CCOUNT CAN BE TREATED AS CLOSING STOCK OR WORK-IN-PROGRESS. THE A.O. NOT ONL Y MISTOOK THE ACCOUNTING POLICY FOLLOWED IN THIS REGARD BUT ALSO PRESUMED TH AT THE CLOSING STOCK/WORK-IN-PROGRESS SHOULD BE MORE THAN THE MOBI LIZATION ADVANCES IGNORING THE EXPLANATION GIVEN BY THE ASSESSEE THAT MOBILIZATION ADVANCES ARE RECEIVED AT THE TIME OF ENTERING INTO THE CONTR ACT AND BEFORE START OF THE WORK. IT IS ALSO THE EXPLANATION OF THE ASSESSEE TH AT THESE ADVANCES ARE PERIODICALLY ADJUSTED AS AND WHEN CORRESPONDING BIL LS ARE RAISED. THE A.O. DID NOT DISCUSS ANYTHING ABOUT THE ACCOUNTING PRINC IPLES BEING FOLLOWED BY THE ASSESSEE AND THE BOOKS OF ACCOUNT ARE NOT REJ ECTED. FOR THESE REASONS WE DO NOT SEE ANY MERIT IN THE GROUNDS RAISED BY RE VENUE. IN FACT EVEN THE GROUNDS RAISED DOES NOT INDICATE HOW THE OUTSTANDIN G MOBILIZATION ADVANCES SHOULD BE CONSIDERED AS CLOSING STOCK OR WORK-IN-PR OGRESS. THE CIT(A) HAS CORRECTLY ANALYSED THE ACCOUNTING PRINCIPLES, METHO DOLOGY ADOPTED BY THE ASSESSEE AND DELETED THE ADDITION. NOT ONLY THAT, H E ALSO DIRECTED THE A.O. TO WITHDRAW THE TDS CLAIMED ON MOBILISATION ADVANCES, THE ISSUE OF WHICH HAS ITA NO. 4963/MUM/2010 SHRI RAJIV RATTANLAL AHUJA 4 NOT BEEN CONSIDERED BY THE A.O. AT THE TIME OF ASSE SSMENT. WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS RAISED B Y REVENUE 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXV, MUMBAI 4. THE CIT XXV, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.