ITO, Sawai Madhopur V. MITTAL BROTHERS & CO., KARAULI

ITA 579/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54278 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI

Judgement Text

1 ITA 579-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 579/JP/2010 ASSTT. YEAR : 2007-08. THE INCOME-TAX OFFICER, VS. M/S. MITTAL BROTHERS & CO., WARD-3, 72-73, CHITRAKOOTH NAGAR, KARAULI. SAWAI MADHOPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI MANISH AGARWAL DATE OF HEARING : 14.11.2011 DATE OF PRONOUNCEMENT : 22.11.2011. ORDER DATED : 22/11/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. 2. GROUND NO. 1 IS AGAINST DELETING THE TRADING ADD ITION OF RS. 2,47,680/- AND GROUND NO. 2 RELATES TO DELETING THE ADDITION OF RS . 60,24,042/-. 3. THE RETURN OF INCOME DECLARING RS. 20,240/- WAS FILED AGAINST WHICH THE ASSESSMENT WAS COMPLETED ON AN INCOME OF RS. 62,91, 960/-. THE AO MADE A TRADING ADDITION OF RS. 2,47,680/- ON CONTRACT RECEIPTS OF RS. 30,96,012/- BY APPLYING NP RATE OF 8% AS PER COURT ORDER IGNORING THAT NO WORK WAS EXE CUTED DURING THE YEAR AND THE 2 CLAIMED RECEIPT RELATE TO WORK EXECUTED DURING THE ASSESSMENT YEAR 1981-82. IT WAS SUBMITTED THAT AO ERRED IN LAW IN NOT ALLOWING DEDU CTION OF RS. 15,73,251/- BEING THE DIFFERENCE FOR AMOUNT RECEIVABLE AT RS. 46,69,263/- AND THAT AWARDED RS. 30,96,012/-. 3.1. REGARDING SECOND ISSUE, AS PER AWARD BY DISTRI CT COURT, AN AMOUNT OF RS. 60,24,042/- WAS RECEIVED BY ASSESSEE ON ACCOUNT OF INTEREST ON THE ABOVE AMOUNT OF RS. 30,96,012/- IN RESPECT OF THE CONTRACT RECEIPT AWAR DED BY THE COURT. THE AO TREATED THE CONTRACT AWARD AS TRADE RECEIPT AND BY APPLYING 8% NP RATE, THE PROFIT WAS COMPUTED AT RS. 2,47,680/- AND AMOUNT OF RS. 60,24,042/- WAS AD DED AS INCOME UNDER THE HEAD INTEREST INCOME. THE EXPLANATION OF THE ASSESSEE WA S NOT ACCEPTED THAT THE AWARD OF DISTRICT COURT HAS BEEN CHALLENGED BY THE RAJASTHAN GOVERNMENT BEFORE THE HONBLE HIGH COURT AND ACCORDINGLY THIS ADDITION WAS MADE. 4. ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO AFTER CONSIDERING THE ASSESSMENT ORDER AS WELL AS THE REPLY HELD THAT ADD ITION MADE ON ACCOUNT OF TRADING ON ACCOUNT OF INTEREST IS NOT SUSTAINABLE EITHER IN TH E EYES OF LAW OR OF THE SECTION OF THE PRESENT CASE. ACCORDINGLY HE DELETED THE ENTIRE AD DITION. FINDING OF LD. CIT (A) WHICH INCLUDES FACTS OF THE CASE HAS BEEN RECORDED AT PAG ES 3 TO 6 ARE AS UNDER :- I HAVE PERUSED THE ASSESSMENT ORDER, CONSIDERED SUBMISSIONS OF THE APPELLANT AND CAREFULLY STUDIED VARIOUS DECISIO NS MENTIONED BEFORE ME. IN THE COMPUTATION OF INCOME FURNISHED ALONG WITH T HE RETURN OF INCOME, THE APPELLANT INCORPORATED THE FOLLOWING NO TE : DURING THE YEAR THE ASSESSEE HAS RECEIVED CLAIM O F RS. 91,20,054/- (INCLUDING INTEREST OF RS. 60,24,042/-) FROM IRRIGATION DEPTT. DAUSA IN LIEU OF THE AWARD PASSED BY THE COU RT OF LAW. SINCE THE DEPTT. HAS GONE INTO APPEAL BEFORE THE HO NBLE RAJASTHAN HIGH COURT AND THE MATTER IS SUB JUDICE, THE AMOUNT OF INTEREST HAS NOT BEEN TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FOLLOWING THE DECISION OF HONBLE SUP REME COURT IN 3 THE CASE OF CIT VS. HINDUSTAN HOUSING & LAND DEVELO PMENT TRUST LTD. (1986) 58 CTR (SC) 179. THE SAID CLAIM CAN BE REFUNDED IF THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT CO MES AGAINST THE ASSESSEE. THE ASSESSING OFFICER OPINED THAT SINCE THE RECEIPT OF RS. 91,20,054/- (RS. 30,46,914/- FOR THE WORK PLUS INTE REST OF RS. 60,24,042/-) HAD BEEN QUANTIFIED WITH CERTAINTY, UNDER ACCRU AL OR METHOD OF ACCOUNTING; SUCH RECEIPTS SHOULD BE CONSIDERED IN C OMPUTING TOTAL INCOME FOR THE CURRENT YEAR. HE ALSO HELD THE VIEW THAT PR INCIPLES OF REASONABLENESS AND PRACTICAL CONSIDERATION DEMA NDED THAT PAYMENT OF TAX ON THE SAID RECEIPTS SHOULD NOT BE POSTPONED AN Y FURTHER AS THE APPELLANT COULD CLAIM APPROPRIATE RELIEF UNDER THE INCOME TAX LAW IF AND WHEN AN ADVERSE DECISION IS GIVEN BY THE HIGHER COU RTS. IN THIS BACKDROP AND AFTER CONSIDERING REPLY OF THE APPELLANT, THE ASSIGN OFFICER APPLIED NP OF 8% TO RECEIPTS AGAINST VALUE OF WORK OF RS. 30,96,012/- TO ARRIVE AT THE ADDITION OF RS. 2,47,6 80/- TO THE TOTAL INCOME. HE ALSO TREATED RECEIPT OF INTEREST OF RS. 60,24,04 2/- AS INCOME FROM OTHER SOURCES. UNDISPUTED FACTS NARRATED BY THE APPELLANT ARE THAT IT WAS ENGAGED IN CIVIL CONSTRUCTION WORKS AND A WORK OF CONSTRUC TION OF RARIYA IRRIGATION PROJECT FOR RS. 22,02,654/- WAS AWARDE D TO THE ASSESSEE FIRM ON 05.04.1980 BY THE IRRIGATION DEPARTMENT OF GOVER NMENT OF RAJASTHAN. THE SAID WORK WAS TO BE COMPLETED BY THE ASSESSEE F IRM UP TO 04.04.1981. HOWEVER, DUE TO CHANGE IN DESIGN, DRAWINGS AND ITEM S WITH QUANTITIES BY THE IRRIGATION DEPARTMENT, THE WORK COULD NOT BE EX ECUTED WITHIN STIPULATED TIME AND, THEREFORE, A DISPUTE AROSE BET WEEN THE ASSESSEE FIRM AND THE IRRIGATION DEPARTMENT. THE COST OF THE WORK EXECUTED BY THE ASSESSEE TILL 01.07.1981 AMOUNTED TO RS. 60,48,691/ - OUT OF WHICH RS. 14,31,728/- WAS RECEIVED AND BALANCE RS. 46,16,763/ - REMAINED UNPAID, THE PAYMENT OF WHICH WAS NOT MADE BY THE IRRIGATION DEPARTMENT DUE TO 4 SAID DISPUTE. THE DEPARTMENT ALSO WITHHELD THE SEC URITY DEPOSIT OF RS. 82,500/- (INCLUDING FDR OF RS. 30,000/- PLEDGED WIT H THE DEPTT.). IT WAS FURTHER EXPLAINED THAT ON A REQUEST OF THE A PPELLANT, ON 21.08.1998 THE LEARNED D & S J. JAIPUR CITY APPOINT ED SHRI ADI ANKLESARIYA (A RETIRED CHIEF ENGINEER) AS A SOLE AR BITRATOR, WHO IN TURN PASSED AN AWARD DATED 23.12.2001 REDUCING THE CL AIM TO RS. 1,36,57,808/-. IN DUE COURSE, ON APPLICATION OF T HE STATE GOVERNMENT, AND BY ORDER DATED 26.10.05, THE LEARNED D & S J, J AIPUR CITY FURTHER REDUCED THE CLAIM TO RS. 91,20,054/- (RS. 30,46,914 /- AGAINST VALUE OF WORK EXECUTED OF RS. 46,16,763/-, RS. 79,098/- AGAI NST SECURITY DEPOSIT OF RS. 82,500/- (INCLUDING PRINCIPAL AMOUNT OF RDR OF RS. 30,000/-) AND RS. 60,24,042/- TOWARDS INTEREST CLAIMED). THE APPELLA NT AVERRED THAT THE STATE GOVERNMENT DID NOT ACCEPT THE ORDER DATED 26.10.05 AND ITS APPEAL IS PENDING FOR DISPOSAL BEFORE THE HONBLE RAJASTHAN H IGH COURT. THE APPELLANT ASSERTED, DURING THE YEAR NO CONTRAC T WORK WAS CARRIED OUT (AND THAT) THE WORK WAS CARRIED OUT UP TO 1.07.1981 )AGAINST) EXPENDITURE OF RS. 60,48,691/- ON THE WO RK UP TO 01-07-1981 IT RECEIVED PAYMENT OF RS. 14,31,728/- AND RS. 46 ,16,763/- WAS OUTSTANDING UP TO 01-07-1981. THUS AGAINST TOTAL EXPENDITURE INCURRED AT RS. 61,01,191/- (14,31,928/- + 46,16,763/- + 52,500 /-) ASSESSEE WAS PAID RS. 45,27,940/- (14,31,928/- + 30,46,914/- + 49,098 /- INCURRING A LOSS OF RS. 15,73,251/- IN THIS CONTRACT. HENCE, QUESTION O F ESTIMATING ANY INCOME IN THIS CONTRACT DO NOT ARISE. RATHER ASSESSEE INC URRED LOSS OF RS. 1`5,73,251/- ON THIS CONTRACT, WHICH IS TO BE ALLOW ED AS DEDUCTION IN COMPUTING INCOME OF THE ASSESSEE. THIS LOSS IS TO BE ALLOWED DURING THE YEAR U/S 28, SINCE THE SAME HAS CRYSTALLIZED DURING THE YEAR. THE APPELLANT ARGUED FURTHER, WITHOUT PREJUDICE TO THE ABOVE, SINCE THE ENTIRE AWARD IS CHALLENGED THE DEPARTMENT IN HIGH COURT, N O INCOME CAN BE ASSESSED IN THE YEAR UNDER CONSIDERATION. FURTHER WHEN THE WORK IS ALREADY EXECUTED BY ASSESSEE UP TO 01.07.1981, QUES TION OF ASSESSING ANY INCOME IN THE YEAR UNDER CONSIDERATION DOES NOT ARI SE AND THE ADDITION 5 MADE BY THE LD. AO ON ACCOUNT OF INCOME OF RS. 2,47 ,680/- BE DELETED AND HE BE DIRECTED TO ALLOW THE LOSS OF RS. 15,73,251/- . THE APPELLANT POINTED OUT THAT LEARNED D & S J PAS SED THE ORDER ON 26.10.2005. THIS ORDER IS CHALLENGED BY THE DEPA RTMENT IN THE HIGH COURT ON 26.03.2006. BOTH THESE DATES FALL IN A.Y. 2006-607. THE D & S J MADE A DECREE FOR THE AMOUNT AWARDED BY IT AND, THE REFORE, DEPARTMENT HAD NO OPTION BUT TO PAY THE AMOUNT WITH INTEREST W HICH WAS RECEIVED ON 4.08.2006 FALLING IN A.Y. 2007-08. THUS, EVEN IF ST ANDS OF THE LD. AO IS TO BE ACCEPTED, THE ACCRUAL OF INTEREST IS IN A.Y. 200 6-07 WHEN D & S J MADE THE AWARD AND MADE THE DECREE AND NOT IN A.Y. 2007- 08 WHEN THE AMOUNT IS RECEIVED. HENCE ASSESSING THE INTEREST IN THE YE AR UNDER CONSIDERATION IS NOT LEGALLY SUSTAINABLE. THE APPELLANT CLAIMED, THE FACT ARBITRATOR HAS AW ARDED HIGHER INTEREST BUT IT WAS REDUCED BY D & S J (AND SINCE) DEPARTMENT HAS FILED AN APPEAL IN THE HIGH COURT, THERE IS AN UNCE RTAINTY ON THE ULTIMATE REALISABILITY OF THE INTEREST AND, THEREFORE, INTER EST CAN NOT BE BROUGHT TO TAX SIMPLY BECAUSE IT HAS BEEN RECEIVED. IT CAN BE TAXE D ONLY WHEN DISPUTE IS FINALLY SETTLED. IN SUPPORT, THE APPELLANT REFERRED TO VARIOUS DECIS IONS, INCLUDING DECISION OF THE APEX COURT IN CASE OF HINDUSTAN HOU SING AND LAND DEVELOPMENT TRUST LTD. (161 ITR 524 (SC), WHEREIN I T WAS HELD ALTHOUGH THE AWARD WAS MADE BY THE ARBITRATOR ON JULY 29, 19 95, ENHANCING THE AMOUNT OF COMPENSATION PAYABLE TO THE RESPONDENT, T HE ENTIRE AMOUNT WAS IN DISPUTE IN APPEAL FILED BY THE STATE GOVERNMENT THERE WAS NO ABSOLUTE RIGHT TO RECEIVE THE AMOUNT AT THAT STAGE. IF THE APPEAL WERE ALLOWED IN ITS ENTIRETY, THE RIGHT TO PAYMENT OF EN HANCED COMPENSATION WOULD HAVE FALLEN ALTOGETHER. THE EXTRA AMOUNT OF COMPENSATION OF RS. 7,24,914/- WAS NOT INCOME ARISING OR ACCRUING TO TH E RESPONDENT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1956- 57. IT WAS FURTHER HELD THAT THERE IS A CLEAR DISTINCTION BETWEEN CASES SUC H AS THE PRESENT ONE, WHERE THE RIGHT TO RECEIVE PAYMENT IS IN DISPUTE AN D IT IS NOT A QUESTION OF 6 MERELY QUANTIFYING THE AMOUNT TO BE RECEIVED, AND C ASES WHERE THE RIGHT TO RECEIVE PAYMENT IS ADMITTED AND THE QUANTIFICATION ONLY OF THE AMOUNT PAYEE IS LEFT TO BE DETERMINED IN ACCORDANCE WITH S ETTLED OR ACCEPTED PRINCIPLES. THE APPELLANT ALSO RELIED ON DECISION IN CASE OF TO PANDAS KUNDAN MAL (114 ITR 237 (GUJ.) WHEREIN IT WAS DECIDED, CO PMPENSATION AWARDED BY LAND ACQUISITION OFFICER IS ONLY AN OFFE R. WHEN APPEAL AGAINST ORDER IS FILED, INCOME ON ACCOUNT OF ADDITI ONAL COMPENSATION AND INTEREST THEREON AWARDED ARISES ONLY WHEN COMPENSAT ION IS FINALLY DETERMINED BY COURT AND INTEREST AWARDED. RELEVANT FACTS OF THIS CASE ARE THAT THE AWARD OF R S. 91,20,054/- WAS GIVEN BY THE LEARNED DISTRICT & SESSION JUDGE, JAIPUR ON 26.10.05 AND PURSUANT TO A DECREE BY THE LEARNED DISTRICT & SESS ION JUDGE, JAIPUR, THE APPELLANT WAS PAID RS. 91,50,054/- ON 04.08.06. TH E STATE GOVERNMENT CHALLENGED THIS ORDER BEFORE THE HIGH COURT ON 26.0 3.06. SO LONG AS THE AWARD WAS UNDER DISPUTE, IN MY OPINI ON, THE RECEIPT OF RS. 91,20,054/- BY THE APPELLANT WAS NEITHER CE RTAIN NOR HAD IT BEEN QUANTIFIED, THE VERY BASIS ON WHICH THE ASSESSING OFFICER PROCEEDED TO CONSIDER THE SAID AMOUNT IN COMPUTING THE TOTAL INC OME OF THE APPELLANT FOR AY 07-08. THIS VIEW IS SUPPORTED BY THE DECISIO NS MENTIONED ABOVE. ALL THE OTHER ISSUES SUCH AS YEAR OF TAXABILITY AND APPROPRIATE PERCENTAGE OF NP ARE REDUNDANT FOR THE MOMENT. FURTHER, I AM NOT AWARE OF PRINCIPLES OF REASONABLENESS AND PRACTICAL CON SIDERATIONS, BUT IN GIVEN FACTS AND CIRCUMSTANCES, IT IS MY CONSIDERED VIEW T HAT BECAUSE UNDER INCOME TAX LAW, IN TERMS OF MERCANTILE OR ACCRUAL S YSTEM, IT IS NOT CORRECT TO CONCLUDE THAT THE AMOUNT OF RS. 91,20,054/- RECE IVED BY THE APPELLANT UNDER THE SAID AWARD HAD BECOME CERTAIN OR HAD BE EN QUANTIFIED, THE ADDITIONS BASED ON THIS PREMISE ARE NOT SUSTAINABLE . ADDITIONS OF RS. 2,47,680/- AND RS. 60,24,042/- ARE NOT CONFIRMED. G ROUNDS 1 AND 2 OF THE APPEAL ARE ACCEPTED. 7 5. THE LD. D/R PLACED RELIANCE STRONGLY ON THE ORDE R OF THE AO. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 7. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. C IT (A) WE FIND THAT LD. CIT (A) HAS RIGHTLY DELETED BOTH THE ADDITIONS. AS PER DIS TRICT COURT ORDER, AWARD WAS GIVEN IN FAVOUR OF THE ASSESSEE FOR RS. 91,20,054/-. THIS A WARD CONTAINS TWO ITEMS I.E. RS. 30,46,914/- FOR WORK + RS. 60,24,042/- FOR INTEREST . IT IS A MATTER OF FACT THAT THIS AWARD WAS AWARDED BY DISTRICT COURT FOR A DISPUTE OF CONT RACT WORK WHICH WAS RELATED TO ASSESSMENT YEAR 1981-82. THE ENTIRE ORDER OF THE D ISTRICT COURT IS CHALLENGED BEFORE THE HONBLE HIGH COURT. COPY OF THE AWARD GIVEN BY DIST RICT COURT AS WELL AS COPY OF PETITION FILED BY THE RAJASTHAN GOVERNMENT BEFORE T HE HONBLE HIGH COURT ARE PLACED ON RECORD. WE FURTHER NOTED THAT EVEN THE AO HIMSELF ADMITTED AT PAGE 4 OF HIS ORDER THAT THE DISPUTE IS BEFORE HONBLE HIGH COURT AND IT HAS BEEN OBSERVED BY AO THAT IT WILL TAKE YEARS TOGETHER AND FOR THIS REASON THIS INCOME CANN OT BE SAID THAT IS NOT ASSESSABLE IN THE YEAR UNDER CONSIDERATION. IT HAS BEEN FURTHER MENT IONED BY AO HIMSELF THAT IF THE HONBLE HIGH COURT DECIDED THE ISSUE AGAINST THE AS SESSEE, THEN THE ASSESSEE CAN SEEK RELIEF IN THE YEAR OF DECISION. ALL THESE FACTS AR E MENTIONED IN THE ORDER OF THE AO AT PAGE 4 AS MENTIONED ABOVE. THIS IS UNDISPUTED FACT THAT ENTIRE AWARD GIVEN BY DISTRICT COURT HAS BEEN CHALLENGED BEFORE HONBLE RAJASTHAN HIGH C OURT WHICH IS PENDING AND THE LD. CIT (A) HAS EXAMINED THIS FACT EXTENSIVELY AND THEN ONLY HAS HELD THAT NEITHER ANY TRADING ADDITION CAN BE MADE NOR ANY ADDITION CAN B E MADE ON ACCOUNT OF INTEREST. FOR THIS PURPOSE RELIANCE IS PLACED ON THE DECISION OF HONBLE APEX COURT IN CASE OF 8 HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD., 161 ITR 524 (SC). FOR THE SAKE OF FURTHER CLARIFICATION, THE INTEREST COMPONENT IS NOT THAT ASSESSEE HAS EARNED ANY INTEREST INCOME ON ACCOUNT OF PRINCIPAL AWARD RECEIVED BY AS SESSEE WHICH WAS DEPOSITED IN THE BANK AND INTEREST INCOME HAS ACCRUED TO THE ASSESSE E. IN FACT, THE DISTRICT COURT AWARD WAS FOR RS. 91 LACS OR ODD WHICH INCLUDED THE INTER EST ON THE PRINCIPAL AND THIS ENTIRE AWARD HAS BEEN CHALLENGED BY THE RAJASTHAN GOVERNME NT BEFORE THE HONBLE RAJASTHAN HIGH COURT. THEREFORE, THE MATTER IS UNDER DISPUTE . SINCE THE MATTER IS UNDER DISPUTE, NO ADDITION CAN BE MADE IN THE YEAR UNDER CONSIDERATIO N IN THE HANDS OF THE ASSESSEE AS HELD BY HONBLE APEX COURT (SUPRA). IN VIEW OF THESE FA CTS AND CIRCUMSTANCES AND IN VIEW OF THE DETAILED REASONING GIVEN BY LD. CIT (A), WE CON FIRM HIS ORDER. 8. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED. 9. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 .11.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- THE ITO WARD 3, SAWAI MADHOPUR. M/S. MITTAL BROTHERS & CO., KARAULI. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 579/JP/2011) BY ORDER, AR ITAT JAIPUR.