ASST CIT CIR 17(1), MUMBAI V. HARSHITA ASHVIN NARWEKAR, MUMBAI

ITA 5407/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9799 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 5407/ MUM/20 1 6 ( ASSESSMENT YEAR : 2011 - 12 ) ASST. CIT CIR 17(1) R.NO.117, 1 ST FLOOR AAYAKAR BHAVAN, MUMBAI 400 020 VS. SMT. HARSHIT A ASHWIN NARWEKAR, B/7 BRADYS FLATS, SORAB BHARUCH ROAD, COLABA MUMBAI 400 005 PAN/GIR NO. AFE P R5176H ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI MADHUSUDAN ASSESSEE BY SHRI RAKESH MOHAN DATE OF HEARING 25 / 10 /201 8 DATE OF PRONOUNCEMENT 11 / 12 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) 28, MUMBAI DATED 07/06/2016 FOR A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. FOLLOWING GROUNDS HAV E BEEN TAKEN BY THE REVENUE: - ASSESSMENT FOR THE ASSESSMENT YEAR 2011 - 12 IN THE ABOVE CASE ON THE FOLLOWING GROUNDS : - 1 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS. 10,12,50,000/ - AS UNDISCLOSED PROFITS FROM THE PAYMENTS RECEIVED FROM HPC, WITHOUT APPRECIATING THE FACTS THAT - ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 2 (I) THE LD. CIT(A) WHILE ADJUDICATING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS RELIED UPON THE SUO MOTO SUBMISSIONS AND SELF GENERATED DOCUMENTS SUBMITTED BY THE ASSESSEE, WITHOUT INVESTIGATING AND ASCERTAINING THE VERACITY AND PROPRIETY OF THE SAME, AND WITHOUT AFFORDING THE AO AN OPPORTUNITY TO DO SO. HENCE, THE ACTION OF THE LD. CIT(A) IS IN VIOLATION OF RULE 46A OF THE I.T. RULES 1962 . (II) IN RESPONSE TO ISSUE OF LETTER DATED 03.03.2014 TO HPC SEEKING DETAILS OF THE SAID TRANSACTION DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAID PARTY VIDE ITS LETTER DATED 16.03.2014 HAS UNAMBIGUOUSLY MENTIONED THAT THE AMOUNT HAS BEEN TREATED AS CWIP IN THEIR BOOKS, AND NOT AN ADVANCE AS CLAIMED BY THE ASSESSEE. FURTHER PERUSAL OF ITS BALANCE SHEET REVEALED THAT ITS LOANS AND ADVANCES AS ON 31.03.2011 STOOD AT RS. 45,75,024/ - ONLY. (III) IF THE SUM OF RS. 11.25 CRORES RECEIVED BY THE ASSESSEE FROM HPC HAD IN ACTUAL FACT BEEN AN ADVANCE, AS CLAIMED BY THE ASSESSEE, IPSO FACTO HPC WOULD NOT HAVE SUBJECTED THE SAME TO TDS AS PER CHAPTER XVII OF THE ACT. (IV ) THE ASSESSEE HAD DULY PERFORMED THE FUNCTIONS ASSIGNED TO HER VIDE THE MOA DATED 07.03. 2011 TO THE SATISFACTION OF HPC FOR WHICH IT HAD RECEIVED THE LUMP SUM PAYMENT OF RS. 11.25 CRORES, AND THE SAID FACT IS ACKNOWLEDGED IN THE MOA ITSELF. (V) THE CLAIM OF THE ASSESSEE THAT THE PROJECT WAS SCUTTLED AND HENCE, SHE WAS LIABLE TO REFUND THE EN TIRE AMOUNT OF RS. 11.25 CRORES TO HPC IN ALL CERTITUDE IS IMPLAUSIBLE PER SE, AS LOSS IF ANY, IN SUCH AN EVENTUALITY IS ALWAYS BORNE BY THE CONTRACTEE, AND THE CONTRACTOR IS NEVER CALLED UPON TO REFUND THE FEES, THAT TOO WHEN THE SERVICES HAVE ALREADY REN DERED BY THE CONTRACTOR. THE ASSESSEE'S CLAIM IN THIS REGARD IS PRETERNATURAL AND DEFIES ALL SENSE OF LOGIC. (VI) THE LD. CIT(A)'S RELIANCE ON THE REVISED MOA DATED 15.03.2012 IS CLEARLY MISPLACED, AS THE ASSESSEE HAD NEVER FURNISHED THE SAME DURING THE A SSESSMENT PROCEEDINGS. HAD THERE BEEN ANY SUCH AGREEMENT THE ASSESSEE WAS NOT PRECLUDED FROM FURNISHING THE SAME DURING THE ASSESSMENT PROCEEDINGS, AS THE SO CALLED AGREEMENT IS DATED 15.03.2012 AND THE ASSESSMENT ORDER WAS PASSED ON 21.03.20 14. THE ASSESSEE HAS PLANTED THE SAID BACK DATED AGREEMENT DURING THE APPELLATE PROCEEDINGS TO DEFRAUD THE REVENUE AND DEPRIVE IT OF ITS RIGHTFUL SHARE OF TAXES.' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE A.O. SHOULD BE RESTORED AND ORDER OF TH E CIT(A) SHOULD BE SET ASIDE.' 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 3 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS AN INDIVIDUAL CA RRYING ON HER PROPRIETORSHIP BUSINESS UNDER NAME AND STYLE OF HAN REALTY & INFRASTRUCTURE (HAN). IT WAS IN THE BUSI NESS OF ELECTRICAL CONTRACTOR. ASSESSEE HAD TAKEN CONTRACT FROM DIGHI PORTS LTD., CONTAINING EXCAVATION AND LEVELING OF LAND. ASSESSEE ALSO E NTERED INTO MOU WITH HARI HARESHWAR POWER CO PVT. LTD., FOR ASSISTING THEM IN ACQUISITION OF LAND. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 24/09/2011 DECLARING A TOTAL INCOME OF RS.49,19,355. DURING THE YEAR THE ASSESSEE HAD SHOWN INCOME FROM BUSIN ESS OF EXCAVATION AND LEVELING OF LAND IN THE NAME OF PROPRIETORY CONCERN HAN REALTY & INFRASTRUCTURE (HAN). ASSESSEE HAD ALSO RECEIVED AN AMOUNT OF RS. 1 1.25 CRORES FROM HARI HARESHWAR POWER C O PVT LTD (HPC) ON WHICH TDS WAS DEDUCTED U/S.194J, HOWEVER THE SAME WAS NOT ACCOUNTED FOR IN THE PROFIT AND LOSS A/C. BUT REFLECTED ON THE LIABILITIES SIDE OF THE BALANCE SHEET AS ON 31/03/2011 AS ADVANCE PAYMENT . AS PER THE COPY OF THE MEMORANDUM OF AGREEMENT DTD.07/03/2011 SIGNED WITH HPC IT WAS SEEN THAT THE AMOUN T OF RS. 11.25 CRORES HAS BEEN PAID TO THE ASSESSEE FOR WHICH SERVICES WAS TO BE PROVIDED TO HPC. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAID AMOUNT SHOULD NOT BE TREATED AS CURRENT YEAR'S INCOME AND WAS ALSO ASKED TO GIVE DETAILS OF SETTLEMENT OF THE S AID AMOUNT OF RS. 1 1.25 CRORES SHOWN AS LIABILITY IN THE BALANCE SHEET AS ON 31/03/2011. THE ASSESSEE SUBMITTED A LETTER FROM HPC CONFIRMING THAT THEY HAVE GIVEN ADVANCE OF RS. 1 1.25 ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 4 CRORES TO H AN REALTY & INFRASTRUCTURE WHICH IS STILL RECEIVABLE BY THEM DUE TO DELAY IN COMPLETION OF PROJECT. FURTHER HPC VIDE LETTER DTD. 16/03/2014 I NTIMATED THAT THE AMOUNT OF RS.1 1.25 CRORES GIVEN TO HAN HAS BEEN TREATED AS CWIP IN THEIR BOOKS OF ACCOUNTS. HOWEVER, THE BALANCE SHEET OF HPC SHOWED THE LOANS AND ADVANCES AS ON 31/03/2011 AT RS.4575024 ONLY. THE AO FOUND THAT THE ASSESSEE FIRM (HAN) HAD ALREADY PROVIDED CERTAIN SERVICES TO HPC FOR WHICH HPC HAD PAID RS. 11.25 CRORES. AO ALSO OBSERVED THAT THE MOA CLEARLY SAYS THAT HPC SHALL NOT HAVE ANY RIGHTS FOR ANY REASON TO CLAIM ANY REFUND. IT WAS ALSO OBSERVED THAT HPC IN ITS BALANCE SHEET AS ON 31/03/2011 HAS ALREADY ACCOUNTED FOR THE AMOUNT OF RS. 1 1.25 CRORES IN ITS WORK IN PROGRESS. HAD THE AMOUNT BEEN GIVEN TO THE ASSESSEE FIRM AS AN ADVANCE, THE SAME SHOULD NOT HAVE BE EN INCLUDED IN THE LOAN AND ADVANCES BY HPC AS ON 31/03/2011. ACCORDINGLY BY TAKING THE EXPENDITURE INVOLVED AT 10% OF TOTAL RECEIPTS I.E. RS. 11.25 CRORES, THE AO ADDED BACK THE BALANCE AMOUNT OF RS.101250000 TO THE TOTAL INCOME OF THE ASSESSEE AS UNDISCL OSED PROFITS FROM BUSINESS. 5. BY THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - 5. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, GROUNDS OF APPEAL AND WRITTEN SUBMISSIONS MADE BEFORE ME. 5.1. GROUND 1: T HIS IS AGAINST THE ACTION OF THE AO IN ASSESSING RS 10,12,50,000 AS UNDISCLOSED PROFITS FROM THE PAYMENTS RECEIVED FROM HPC. THE CASE OF THE AO IS THAT THE PAYMENT MADE BY HPC ON THE STRENGTH OF THE MEMORANDUM OF AGREEMENT PROVES THAT INCOME HAS ACCRUED TO THE APPELLANT. ON THE OTHER HAND, THE CASE OF THE APPELLANT IS THAT NO INCOME HAS ACCRUED TO HER FROM THIS PAYMENT AS THE SAME IS A MERE ADVANCE RECEIVED TOWARDS THE PROPOSED POWER PROJECT TO BE SET UP ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 5 BY HPC IN MAHARASHTRA. I HAVE PERUSED THE AO'S ORDER AND HIS REASONING FOR ADJUDICATING THE AMOUNT AS INCOME. THE AOS CONTENTIONS IN MAKING THE ABOVE ADDITION ARE TWO FOLD AS UNDER: - 1. NON - REFUNDABLE CLAUSE IN THE MOA: THE AO HEAVILY RELIES ON THE CLAUSE 8 OF THE MOA SIGNED BY THE APPELLANT AND THE HPC. THE SAID CLAUSE STATES THAT THE APPELLANT HAS RECEIVED AN AMOUNT IN CONSIDERATION OF THE APPELLANT'S PAST PERFORMANCES AS WELL AS FUTURE PERFORMANCES OF THE SPECIFIED SERVICES FOR HPC AND THAT THE AMOUNT IS NOT REFUNDABLE UNDER THE MO A. IT IS THE CASE OF THE AO THAT THE SERVICES, FOR WHICH THE AMOUNT OF RS. 11.25 CRORES WAS RECEIVED, HAVE ALREADY BEEN PROVIDED BY THE APPELLANT AND HENCE THE SAID RECEIPT IS IN THE NATURE OF INCOME AND SHOULD HAVE BEEN INCLUDED IN THE APPELLANT'S TOTAL INCOME DURING THE YEA R, IL ADVANCE GIVEN TREATED UNDER CAPITAL WIP: IN THE REPLY TO NOTICE U/S 133(6), HPC VIDE ITS LETTER DATED 16.03.2016 HAS INTIMATED THAT THE AMOUNT OF RS. 11.25 CRORES GIVEN TO HAN HAS BEEN TREATED AS CAPITAL WIP IN THEIR BOOKS OF ACCOUNTS. BASED ON THE SAID REPLY RECEIVED FROM HPC, THE AO TREATED THE AMOUNT SO RECEIVED FROM HPC AS THE BUSINESS INCOME OF THE APPELLANT. ON THE OTHER HAND, THE CASE OF THE APPELLANT IS THAT THE APPELLANT TREATS THE PERFORMANCE OF PAST SERVICES UNDER THE MOA SUCH AS IDENTIFICATION AND EVALUATION OF LAND AND OBTAINING STATUTORY PERMISSION FROM DC AS HAVING A DIRECT NEXUS TO THE FUTURE PERFORMANCES TO BE CARRIED OUT SUCH AS ASSISTANCE IN ACQUISITION OF LAND. THE APPELLANT SUBMITS THAT THE IN THE EVENTUALITY THAT APPELLA NT FAILS TO PERFORM THE FUTURE SERVICES WITH RESPECT TO ACQUIRING LAND, CONDUCTING A LAND SURVEY AND PROVIDING TITLE CERTIFICATE' ALL THE SERVICES PERFORMED IN THE PAST WOULD BE RENDERED FUTILE AND THE APPELLANT WOULD BE REQUIRED TO REFUND THE ADVANCE RECE IVED OWING TO ITS INABILITY TO PROVIDE THE SERVICES AGREED UPON. THE APPELLANT STRESSES UPON THE POINT THAT THE OBJECTIVE OF THE HPC IN ENTERING INTO MOA WAS 'ACQUISITION OF LAND' FOR THE PURPOSES OF BUILDING POWER PLANT. THE APPELLANT ARGUES THAT SINCE HP C COULDN'T ACQUIRE THE LAND AND THE VERY OBJECTIVE OF THE TRANSACTION CEASED TO EXIST, THERE IS NO QUESTION OF INCOME ACCRUING TO THE APPELLANT OUT OF THIS TRANSACTION. THE APPELLANT DID NOT RECOGNIZE THE CONSIDERATION RECEIVED AS REVENUE SINCE ALL THE ACT S RELATING TO THE SAID TRANSACTION WERE NOT COMPLETED. FOR INCOME TO ACCRUE TO THE APPELLANT, THE TRANSACTION SHOULD HAVE BEEN MATERIALIZED. SINCE, THERE IS NO ACCRUAL THE CONSIDERATION RECEIVED SHALL BE TREATED AS ADVANCE AND NOT AS AN INCOME ITEM. THE AP PELLANT THEREAFTER ALSO SUBMITS THAT THE CORRECT VIEW OF THE TRANSACTION WAS ACCURATELY CAPTURED IN THE AMENDMENT TO ORIGINAL MOA IN TERMS OF NEW DEED OF AMENDMENT DATED 15.03.2012. THE APPELLANT CONTENDS THAT THE TERMS OF SAID AMENDED MOA ESTABLISHES IN CLEAR AND UNAMBIGUOUS TERMS THAT THE AMOUNT RECEIVED ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 6 BY THE APPELLANT WAS AS 'ADVANCE' AND WAS REFUNDABLE IN CASE THE OBJECTIVES WERE NOT MET. 5.1.1 THE APPELLANT CONTENDS THAT THE ACTION OF REFUNDING THE AMOUNT OF 5.13 CRORES TO HPC CLEARLY ILLUSTRATES TH E FACT THAT THE AMOUNT WAS AN 'ADVANCE' LIABLE TO BE REFUNDABLE IN EVENT OF CERTAIN CIRCUMSTANCES. RELYING ON THE SAME, APPELLANT ARGUES THAT THE TREATING THE SAME AS INCOME BY THE AO IS WRONG AND UNJUST ON THE APPELLANT. AS REGARDS THE AOS ASSERTION OF TH E ACCOUNTING TREATMENT GIVEN BY HPC, THE APPELLANT VEHEMENTLY STATED THAT THE ABOVE RELIANCE ON THE ACCOUNTING TREATMENT BY THE CORRESPONDING PARTY IS COMPLETELY ERRONEOUS. THE APPELLANT DRAWS ATTENTION TO THE WELL - ESTABLISHED LEGAL POSITION IN RESPECT OF TAXATION THAT CHARACTER OF RECEIPT DOESN'T DEPEND UPON THE ACCOUNTING TREATMENT USED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. THE APPELLANT PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN KEDARNATH JUTE MFG CO. LTD V. CIT [1911] 82 ITR 563/[TS - 7 - SC - 1971]AS WELL AS STATED THAT THE SAID AMOUNT HAS NOT BEEN CLAIMED NOR HAS BEEN ALLOWED AS EXPENDITURE TO HPC. THE APPELLANT POINTS OUT THAT THIS HAS RESULTED IN DOUBLE TAXATION OF SAME AMOUNT. 5.1.2 THE FACTS AND THE RELEVANT DOCUMENTS HAVE BEEN PERUS ED BY ME. AS FAR AS THE FACTS ARE CONCERNED, THE SAME ARE UNDISPUTED. THE ORIGINAL MOA AS WELL AS AMENDED MOA RELATING TO THE CONCERNED TRANSACTION BETWEEN APPELLANT AND HPC ARE ON RECORD. THE APPELLANT CONFIRMS THE RECEIPT OF THE AMOUNT FROM HPC AND TREAT ING THE SAME AS 'ADVANCE'. THERE IS ALSO NO DISPUTE REGARDING STIFF OPPOSITION FROM LOCAL PEOPLE WHICH SCUTTLED THE ENTIRE PLANS TO CONSTRUCT THE POWER PLANT. THE MOOT ISSUE ARISING IN THE ABOVE GROUND IS THE TREATMENT OF THE ADVANCE RECEIVED AS 'LIABILITY ' BY THE APPELLANT AND THE 'INCOME' BY THE AO. TO DECIDE ON THE SAID ASPECT, IN MY VIEW IT IS IMPORTANT TO DISCUSS THE DEFINITION OF THE ABOVE TERMS AND WHETHER THE APPELLANTS PRACTICE OF ACCOUNTING THE SAID AMOUNT AS 'LIABILITY' WAS PROPER? 5.1.3 IN THIS REGARD THE DEFINITION OF LIABILITY AS PER ACCOUNTING STANDARD 29 ON 'PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS THROWS LIGHT. THE SAME IS 'A PRESENT OBLIGATION OF THE ENTERPRISE ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED T O RESULT IN AN OUTFLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS'. THE KEY ASPECT IN THE ABOVE DEFINITION IS THAT THERE SHOULD BE A 'PRESENT OBLIGATION' AS ON THE DATE OF THE BALANCE SHEET WHICH CAN RESULT INTO THE OUTFLOW FOR THE APPELL ANT. TO DETERMINE THE SAID OBLIGATION, I HAVE PERUSED THE MOA ENTERED INTO BY THE APPELLANT AND ALSO CONSIDERED THE SUBSEQUENT EVENTS TO DETERMINE WHETHER THE AMOUNT WAS 'LIABILITY' INDEED. 5.1.4 THE FEE CLAUSE IN THE MOA DATED 07.03.2011 STATED THAT THE AMOUNT WAS RECEIVABLE FOR THE PAST SERVICES RENDERED BY APPELLANT AS WELL AS FUTURE SERVICES TO BE RENDERED AS ON THE DATE OF MOA. IT IS AN ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 7 ADMITTED FACT BY APPELLANT AS WELL AS THE AO THAT THE PP . SERVICES WERE DULY PERFORMED BUT THE PROVISION OF FUTURE SERVICES WAS HAMPERED BY EXTRANEOUS FACTORS. THE POSSIBILITY OF THE EXTRANEOUS FACTORS IS ALSO PLACED IN THE MOA DATED 07.03,2011. THE CLAUSE 1 OF THE MOA RECOGNIZES THE SAID FACTORS AND MENTIONS AS UNDER - 'HOWEVER, HANS OBLIGATION IS SUBJECT TO THE LOCAL VILLAGERS AND EXISTING OWNERS OF THE SAID LAND HAVING NO OBJECTION TO THE SALE IF THE SAID LAND TO HPC DUE TO POLLUTION RELATED CONCERNS.' IN FACT THE CLAUSE 2 MENTIONS THAT HAN HAS REPRESENTED THAT THE SAID LAND WAS AVAILABLE FOR BONAFIDE INDUSTRIAL USE . LOOKING INTO THE ABOVE CLAUSES, IT IS EVIDENT THAT THE 'ACQUISITION OF LAND' WAS THE ESSENCE OF THE AGREEMENT ENTERED INTO AS MOA. ONCE THE SAME IS ESTABLISHED, IT FLOWS THAT THE AMOUNT RECEIVED CANNOT BE BIFURCATED BETWEEN THE 'PAST SERVICES' AND 'FUTUR E SERVICES'. THE LAND AS ENVISAGED AS AVAILABLE BY BOTH THE PARTIES TO MOA NEVER BECAME AVAILABLE DUE TO THE STIFF OPPOSITION TO THE PROPOSED POWER PLANT. TO CONFIRM THE POSITION FROM THE PERSPECTIVE OF OPPOSITE PARTY HPC, A CONFIRMATION WAS RECEIVED FROM THE SAID PARTY. THE SAID CONFIRMATION ALSO SUPPORTS THE POSITION THAT THE MOA WAS ENTERED WITH THE OBJECTIVE OF LAND ACQUISITION WHICH NEVER MATERIALIZED. THE PORTION OF THE SAID LETTER IS REPRODUCED FOR READY REFERENCE - ' WE ARE ENGAGED IN THE BUSINESS O F ELECTRICITY GENERATION AND WERE DESIROUS OF SETTING UP AN IMPORTED COAL BASED POWER PLANT IN RATNAGIRI DISTRICT, MAHARASHTRA. TO ACHIEVE ACQUISITION OF LAND FOR THE PROJECT, A MEMORANDUM OF AGREEMENT ('MOA') WAS ENTERED INTO WITH HAN ON 07.03.2011, WHERE IN HAN HAD AGREED TO UNDERTAKE VARIOUS ACTIVITIES VIZ. IDENTIFICATION OF LAND PARCEL, OBTAINING THE PERMISSION FROM DEVELOPMENT COMMISSIONER (INDUSTRIES) FOR BONAFIDE INDUSTRIAL USE, SURVEYING THE LAND, ACQUIRING LAND TITLES ETC. HAN HAD RECEIVED A 'REFUN DABLE FEE' OF RS. 11,25,00,000 AS PER THE TERMS OF MOA CLAUSE 8 OF THE MOA STATED THAT THE SAID AMOUNT IS IN CONSIDERATION OF THE HANS PAST PERFORMANCES AS WELL AS FUTURE PERFORMANCES. THE KEY PAST PERFORMANCE OF H AN INCLUDED 'IDENTIFICATION AND EVALUATIO N OF THE LAND' ON WHICH THE POWER PLANT WAS TO BE ERECTED. THE ENTIRE ESSENCE OF THE AGREEMENT WAS 'ACQUISITION OF LAND' AND THE AGREEMENT PROCEEDED ON THE UNDERSTANDING THAT THE IDENTIFIED LAND IS AVAILABLE FOR FURTHER EXPLOITATION. HOWEVER DUE TO VARIOUS FACTORS INCLUDING OPPOSITION OF VILLAGERS THE PROJECT, HAN WAS NOT ABLE TO ASSIST IN ACQUISITION OF LAND FOR THE PROJECT AND THEREFORE THE IDENTIFIED LAND COULD NOT BE ACQUIRED. HAN HAD ASSURED US THAT OWNER OF THE IDENTIFIED LAND WERE WILLING TO SELL THE LAND FOR THE PROJECT. HOWEVER, ON GROUND THE ACQUISITION OF IDENTIFIED LAND BY HAN NEVER TOOK OFF AND THE ENTIRE MOA INCLUDING THE 'PAST PERFORMANCES' UNDERTAKEN BY HAN WERE OF NO VALUE FOR THE PROJECT AND THEREFORE INCONSEQUENTIAL. ' ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 8 THE ABOVE HIGHLIGHTED PORTION ESTABLISHES THE FACT THAT THE BOTH THE PARTIES WERE IN AGREEMENT ON THE POSITION THAT THE 'PAST PERFORMANCE' DESCRIBED IN THE MOA WERE NOT OF CONSEQUENCE. IN THE ABOVE BACKDROP, IT IS ALSO IMPORTANT TO NOTE AS TO WHETHER THE HAN HAD PERFORMED THE OBLIGATIONS UNDER THE MOA. IT IS CARDINAL PRINCIPLE OF CONTRACT THAT A CONTRACT IS SAID TO BE DISCHARGED BY PERFORMANCE WHEN BOTH THE PARTIES PERFORM ALL THE PRIMARY OBLIGATIONS BOTH EXPRESS AND IMPLIED WHICH ARE SET OUT UNDER THE CONTRACT. THE ABOVE DIS CUSSION ILLUSTRATES IN CLEAR TERMS THAT BOTH THE PARTIES ARE IN AGREEMENT THAT THE CONTRACT WAS NOT PERFORMED. FINAL SUBSTANTIATION OF THE POSITION COMES FROM THE FACT THAT THE APPELLANT HAS REFUNDED A SUM OF RS.5.13 CRORES TO HPC. IN MY OPINION, ALL THE ABOVE FACTORS POINT OUT THE FACT THAT THE ACCOUNTING OF AMOUNT RECEIVED BY APPELLANT OF RS. 11,25,00,000 AS 'LIABILITY' ON THE BALANCE SHEET DATE WAS PROPER AND THE SAME CANNOT BE CONSIDERED AS INCOME OF THE APPELLANT. I HOLD ACCORDINGLY. I THEREFORE DELET E THE ADDITION OF RS 10,12,50,000 MADE BY THE AO ON THIS COUNT. GROUND 1 IS ALLOWED. 6. AGAINST ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. 8. FROM THE R ECORD WE FOUND THAT ASSESSEE WAS IN RESPECT OF ADVANCE DURING THE YEAR FROM HPC WITH RESPECT TO LAND PROPOSED TO BE ACQUIRED WITH THE HELP OF ASSESSEE. SINCE THE ASSESSEE COULD NOT ACQUIRE THE LAND AND THE SUBSEQUENT ACT REGARDING TAKING CLEARANCE FROM GOV ERNMENT AUTHORITIES ALSO COULD NOT ARISE, THE ADVANCE SO PAID WAS REFUNDED SUBSEQUENTLY. HOWEVER, AO DID NOT AGREE WITH ASSESSEES CONTENTION AND ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 9 AFTER ESTIMATING EXPENDITURE OF 10% ON THE TOTAL RECEIPTS, BROUGHT THE BALANCE AMOUNT OF ADVANCE RECEIPT AS IN COME OF ASSESSEE. WE HAD CAREFULLY GONE THROUGH THE MEMORANDUM OF AGREEMENT ENTERED BY ASSESSEE WITH HPC DATED 07/03/2011 AS WELL AS NEW DEED OF AMENDMENT DATED 15/03/2012 . THE ADVANCE RECEIVED WAS REFUNDABLE AS PER CLAUSE 8 OF THE MOA. THE ASSESSEE REFLEC TED THE ADVANCE IN ITS BALANCE SHEET UNDER THE HEAD LIABILITIES. THE BALANCE SHEET WAS SENT DIRECTLY BY HPC TO THE ID.AO. HPC CONFIRMED TO THE LD.AO VIDE LETTER DTD.28/12/2014 THAT THE ADVANCE IS GIVEN TO THE ASSESSEE. ASSESSEE HAS REFUNDED PART OF THE AD VANCE TO THE TUNE OF RS.5,13,00,000 TO HPC IN F.Y. 2014 - 15. COPY OF THE LEDGER A/C. DULY CERTIFIED BY HPC WAS PLACED BEFORE AO. HPC DID NOT DEBIT THIS ADVANCE TO P & L A/C. BUT SHOWED ON BALANCE SHEET AS CAPITAL WIP. THE ASSESSEE DO NOT HAVE ANY CONTROL O N ACCOUNTING SYSTEM OF THIRD PARTY. HOWEVER HPC NEVER DEBITED THE ADVANCE TO P & L A/C. 9. AS PER THE PROVISIONS OF S.5 OF I T ACT, 1961 CHARGES TO TAX INCOME RECEIVED BY OR ACCRUING OR ARISING TO ANY PERSON. THEREFORE, BEFORE ANY AMOUNT IS CHARGED TO TA X, IT MUST EITHER BE INCOME RECEIVED OR ACCRUED OR ARISEN. IN THIS REGARD RELIANCE MAY BE PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - SUPREME COURT DECISION IN E D SASSOON'S CASE, 26 ITR 27(SC) CIT VS. ASHOKBHAI CHIMANBHAI, 46 1TR 42 (SC) GODHRA EL ECTRICITY CO LTD., 225 ITR 746 (SC) HOPE (INDIA) LTD., 238 ITR 740 (CAL.) 10. C LAUSE 8 OF MOA DATED 07/03/2011 READS AS FOLLOWS: - ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 10 'IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES THAT HPC SHALL PAY A LUMP SUM REFUNDABLE FEE OF RS. 11,25,00,000 (RUPEES ELEVEN CRORE AND TWENTY FIVE LACS ONLY) TO HAN IN CONSIDERATION OF HAN'S PAST PERFORMANCES AS WELL AS, FUTURE PERFORMANCES OF THE SPECIFIED SERVICES FOR HPC, PAYABLE TO HAN UPON THE EXECUTION OF THIS MOA.' 11. IT IS CLEAR THAT THE CONSIDERATION RECEIVED B Y THE ASSESSEE IS REFUNDABLE. WHEN WILL BE THE CONSIDERATION REFUNDABLE? IT IS CARDINAL RULE OF CONTRACTS, THAT IN THE EVENT OF FAILURE OF FULFILLING ANY OF THE OBLIGATIONS, THE RECEIVER OF CONSIDERATION WILL HAVE TO REFUND THE CONSIDERATION. 1 2 . IN THE A SSESSMENT ORDER, THE AO CONTENDS THAT THE SAID FEE IS NONREFUNDABLE RELYING ON ANOTHER PART OF THE CLAUSE 8 OF THE MOA . ON CAREFUL READING OF THE SAID CLAUSE . WE OBSERVE THAT THE SAID CLAUSE IS A GENERIC CLAUSE PREVENTING HPC FROM CLAIMING ANY REFUND / DAM AGES RELATING TO PAST PERFORMANCE ACTIVITY OF HAN AND IS NOT REPR ESENTATIVE OF THE 'CONSIDERATION CLAUSE. 1 3 . THE LANGUAGE OF THE MOA CLEARLY STIPULATES THAT THE AMOUNT RECEIVED IS IN CONSIDERATION FOR BOTH PAST AS WELL AS FUTURE PERFORMANCES OF THE ASSES SEE AS STATED IN THE MOA. HEREIN IT IS IMPORTANT TO NOTE THAT THE VERY RELEVANCE OF THE PAST PERFORMANCES IS DEPENDENT ON THE SUCCESSFUL COMPLETION OF THE FUTURE PERFORMANCE OF THE ASSESSEE I.E. WHETHER THE SERVICES SUCH AS SEEKING PERMISSION FROM THE DC, EVALUATION OF LAND, ETC. ARE OF ANY IMPORTANCE WHATSOEVER WOULD DEPEND UPON WHETHER THE ASSESSEE IS ABLE TO ACQUIRE THE LAND FOR HPC. ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 11 14 . VARIOUS CLAUSES AS PER THE NEW DEED OF AMENDMENT DATED 15.03.2012, READS AS UNDER: - CLAUSE 1 OF THE AMENDED MOA STATE D THAT THE MAN SHALL IDENTIFY AND HELP IN ACQUIRING FRESH PIECE OF 1000 ACRE OF LAND AND SHALL FURTHER PERFORM ALL THE OBLIGATIONS AFRESH/AGAIN (PAST PERFORMANCES AS WELL AS FUTURE PERFORMANCES) AS STIPULATED IN THE MOA DATED 7 TH MARCH 2011. UNDER CLAUSE 4 OF THE MOA, IT WAS AGREED BETWEEN THE PARTIES THAT THAT HAN SHALL PERFORM ALL THE OBLIGATIONS UNDER THE AMENDED MOA WITHIN 30 MONTHS FROM THE EXECUTION OF THIS DEED OF AMENDMENT. FURTHER, CLAUSE 5 OF THE MOA STATED THAT THE AMOUNT PAID BY THE HPC TO HAN U NDER THE MOA DATED 07.03.2011 SHALL BE TREATED AS CONSIDERATION TO HAN FOR ALL THE OBLIGATIONS TO BE PERFORMED BY HAN UNDER THE DEED OF AMENDMENT. IT WAS FURTHER STATED THAT THE SAID AMOUNT RECEIVED SHALL BE REFUNDABLE IN ITS ENTIRETY IN CASE HAN FAILS TO PERFORM ITS OBLIGATIONS. RELEVANT EXTRACT IS REPRODUCED FOR THE READY REFERENCE: 1 5 . IT IS PERTINENT TO MENTION HERE THAT ABOVE AMENDED DEED DATED 15/03/2012 WAS ALSO BEFORE AO BEFORE HE PASSED THE ORDER ON 21/03/2014. THERE IS NO SUBSTANCE IN DEPARTMENT S CONTENTION THAT AMENDED DEED WAS NOT BEFORE AO. IN THE EVENT HAN FAILS TO PERFORM ALL THE OBLIGATIONS WITHIN THE TIME FRAME MENTIONED IN CLAUSE 5 ABOVE, HAN ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 12 SHALL REFUND THE ENTIRE SUM OF RS, 11,25,00,000 (ELEVEN CRORE TWENTY FIVE LACS ONLY) TO HPC IRRES PECTIVE OF WHATEVER IS STATED IN THE MOA DATED 7 TH MARCH 2011.' 16 . FROM THE ABOVE IT BECOMES CRYSTAL CLEAR THAT THE ADVANCE AMOUNT SO RECEIVED BY HAN FROM HPC WAS TO BE REFUNDED IN CASE THE LAND ACQUISITION DOESN'T MATERIALIZE IN TIME BOUND MANNER. 17 . P O ST THE EXECUTION OF THE ABOVE AMENDED MOA, THE VERY PREMISE OF THE AO I.E THE AMOUNT RECEIVED IS NON - REFUNDABLE HAS CEASED TO EXIST. FURTHER PROOF FOR THE ABOVE COMES IN THE FUTURE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH HPC. THE ASSESSEE HAS ALREAD Y REFUNDED AN AMOUNT OF RS. 5.13 CRORES TO HPC AS ON DATE. THE SAME HAS BEEN VERIFIED BY THE LEDGER ACCOUNT OF HPC IN THE BOOKS OF THE ASSESSEE AND THE CONFIRMATION GIVEN BY HDFC BANK WHICH REFLECTS THE PAYMENTS MADE BY THE ASSESSEE TO HPC. ON THE BASIS O F ABOVE, THE QUESTION OF REFUNDABILITY OR OTHERWISE BECOMES IMMATERIAL AND THE SAID ADVANCE CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE. 1 8 . IN VIEW OF THE ABOVE, IN THE EVENTUALITY THAT ASSESSEE FAILS TO PERFORM THE FUTURE SERVICES WITH RESP ECT TO ACQUIRING LAND, CONDUCTING A LAND SURVEY AND PROVIDING TITLE CERTIFICATE' ALL THE SERVICES PERFORMED IN THE PAST WOULD BE RENDERED FUTILE AND THE ASSESSEE WOULD BE REQUIRED TO REFUND THE ADVANCE RECEIVED OWING TO ITS INABILITY TO PROVIDE THE SERVICE S AGREED UPON. WE ALSO OBSERVE THAT THE OBJECTIVE OF THE HPC IN ENTERING INTO MOA WAS 'ACQUISITION OF LAND' FOR THE ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 13 PURPOSES OF BUILDING POWER PLANT. S INCE HPC COULDN'T ACQUIRE THE LAND AND THE VERY OBJECTIVE OF THE TRANSACTION CEASED TO EXIST, THERE IS NO QUESTION OF INCOME ACCRUING TO THE ASSESSEE OUT OF THIS TRANSACTION. THE ASSESSEE DID NOT RECOGNIZE THE CONSIDERATION RECEIVED AS REVENUE SINCE ALL THE ACTS RELATING TO THE SAID TRANSACTION WERE NOT COMPLETED. FOR INCOME TO ACCRUE TO THE ASSESSEE , THE TRA NSACTION SHOULD HAVE BEEN MATERIALIZED. SINCE, THERE IS NO ACCRUAL THE CONSIDERATION RECEIVED SHALL BE TREATED AS ADVANCE AND NOT AS AN INCOME ITEM. THUS, THE ORIGINAL MEMORANDUM OF AGREEMENT ALONGWITH NEW DEED OF AMENDMENT DATED 15/03/2012 ESTABLISHES IN CLEAR AND UNAMBIGUOUS TERMS THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS AS 'ADVANCE' AND WAS REFUNDABLE IN CASE THE OBJECTIVES WERE NOT MET. 19 . FURTHER AS PER CLAUSE 2 OF MOA, IT IS EVIDENT THAT THE 'ACQUISITION OF LAND' WAS THE ESSENCE OF THE AGREEMENT ENTERED INTO AS MOA. ONCE THE SAME IS ESTABLISHED, IT FLOWS THAT THE AMOUNT RECEIVED CANNOT BE BIFURCATED BETWEEN THE 'PAST SERVICES' AND 'FUTURE SERVICES'. THE LAND AS ENVISAGED AS AVAILABLE BY BOTH THE PARTIES TO MOA NEVER BECAME AVAILABLE DUE TO THE ST IFF OPPOSITION TO THE PROPOSED POWER PLANT. TO CONFIRM THE POSITION FROM THE PERSPECTIVE OF OPPOSITE PARTY HPC, A CONFIRMATION WAS RECEIVED FROM THE SAID PARTY. THE SAID CONFIRMATION ALSO SUPPORTS THE POSITION THAT THE MOA WAS ENTERED WITH THE OBJECTIVE OF LAND ACQUISITION WHICH NEVER MATERIALIZED. THE PORTION OF THE SAID LETTER IS AS UNDER: - ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 14 ' WE ARE ENGAGED IN THE BUSINESS OF ELECTRICITY GENERATION AND WERE DESIROUS OF SETTING UP AN IMPORTED COAL BASED POWER PLANT IN RATNAGIRI DISTRICT, MAHARASHTRA. TO AC HIEVE ACQUISITION OF LAND FOR THE PROJECT, A MEMORANDUM OF AGREEMENT ('MOA') WAS ENTERED INTO WITH HAN ON 07.03.2011, WHERE IN HAN HAD AGREED TO UNDERTAKE VARIOUS ACTIVITIES VIZ. IDENTIFICATION OF LAND PARCEL, OBTAINING THE PERMISSION FROM DEVELOPMENT COMM ISSIONER (INDUSTRIES) FOR BONAFIDE INDUSTRIAL USE, SURVEYING THE LAND, ACQUIRING LAND TITLES ETC. HAN HAD RECEIVED A 'REFUNDABLE FEE' OF RS. 11,25,00,000 AS PER THE TERMS OF MOA CLAUSE 8 OF THE MOA STATED THAT THE SAID AMOUNT IS IN CONSIDERATION OF THE HA NS PAST PERFORMANCES AS WELL AS FUTURE PERFORMANCES. THE KEY PAST PERFORMANCE OF HAN INCLUDED 'IDENTIFICATION AND EVALUATION OF THE LAND' ON WHICH THE POWER PLANT WAS TO BE ERECTED. THE ENTIRE ESSENCE OF THE AGREEMENT WAS 'ACQUISITION OF LAND' AND THE AGR EEMENT PROCEEDED ON THE UNDERSTANDING THAT THE IDENTIFIED LAND IS AVAILABLE FOR FURTHER EXPLOITATION. HOWEVER DUE TO VARIOUS FACTORS INCLUDING OPPOSITION OF VILLAGERS THE PROJECT, HAN WAS NOT ABLE TO ASSIST IN ACQUISITION OF LAND FOR THE PROJECT AND THEREF ORE THE IDENTIFIED LAND COULD NOT BE ACQUIRED. HAN HAD ASSURED US THAT OWNER OF THE IDENTIFIED LAND WERE WILLING TO SELL THE LAND FOR THE PROJECT. HOWEVER, ON GROUND THE ACQUISITION OF IDENTIFIED LAND BY HAN NEVER TOOK OFF AND THE ENTIRE MOA INCLUDING THE 'PAST PERFORMANCES' UNDERTAKEN BY HAN WERE OF NO VALUE FOR THE PROJECT AND THEREFORE INCONSEQUENTIAL. ' 20 . THE CIT(A) HAS DEALT WITH THE ISSUE THREADBARE AFTER MEETING WITH ALL THE OBSERVATION OF THE AO WITH REGARD TO THE NATURE OF ADVANCE AND AFTER RECO RDING DETAILED FINDING REACHED TO THE CONCLUSION THAT AMOUNT SO RECEIVED WAS IN THE NATURE OF ADVANCE NOT LIABLE TO TAX DURING THE YEAR UNDER CONSIDERATION. THE DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD. LEARNED DR COULD NOT CONT ROVERT THE FINDING SO RECORDED BY CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING SO RECORDED BY CIT(A). ITA NO. 5407/MUM/2016 SMT . HARSHITA ASHWIN NARWEKAR 15 21. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 / 12 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 11 / 12 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//