M/s Prakash Asphalting & Toll Highways (I) Ltd., Indore V. The ACIT 5(1), Indore

ITA 580/IND/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4868 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 19-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRIDULA BAJPAI
• Keywords: Business income; Depreciation; Earning of tax free income; Non compliance; Commercial expediency
• Section: 143(3); 14A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCP0398N I.T.A.NO. 580 /IND/201 2 A.Y. : 2008-09 M/S. PRAKASH ASPHALTING & TOLL HIGHWAYS (I) LIMITED, 76, MALL ROAD, MHOW, VS. ACIT, 5(1), INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ANIL KAMAL GARG, C. A. RESPONDENT BY : S MT. MRIDULA BAJPAI , CIT DR DATE OF HEARING : 03 . 0 9 .201 3 DATE OF PRONOUNCEMENT : 30 . 0 9 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 04.09.2012 FOR THE ASSE SSMENT YEAR 2008-09 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - -: 2: - 2 1. THAT, THE LD. CIT(A) GROSSLY ERRED, BOTH ON FA CTS AND IN LAW, IN UPHOLDING THE ADDITION OF RS. 1,76,38,51 7/- MADE BY THE LD. ASSESSING OFFICER, BY MAKING DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961, I N RESPECT OF INTEREST ATTRIBUTABLE TO THE INVESTMENT MADE BY THE APPELLANT IN SHARES OF SPV COMPANIES WITHOUT CONSIDERING THE MATERIAL FACT THAT THE INVESTMENTS IN SPV COMPANIES WERE MADE BY THE APPELLANT ONLY FOR THE PURPOSE OF ITS BUSINESS EXPEDIENCY AND, THEREFORE, THE PROVISIONS OF SECTION 14A WERE NOT APPLICABLE IN RE SPECT OF SUCH INVESTMENTS SPECIALLY IN A CIRCUMSTANCE WHE N THE INCOME FROM SUCH INVESTMENTS RESULTED IN TAXABLE IN COME IN THE HANDS OF THE APPELLANT IN SUBSEQUENT YEARS. 2. THAT, THE LD. CIT(A) GROSSLY ERRED, BOTH ON FAC TS AND IN LAW, IN CONFIRMING THE ACTION OF THE LD. ASSESSI NG OFFICER IN NOT GRANTING CREDIT FOR TDS OF A SUM OF RS. 52,54,091/-, WHICH WAS NOT ONLY ERRONEOUSLY DEDUCTE D BUT WAS ALSO PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT, ON BEHALF OF THE APPELLANT, BY THE DEDU CTORS. -: 3: - 3 3(A) THAT, THE LD. CIT(A) GROSSLY ERRED IN INVOKI NG THE PROVISIONS OF SECTION 251(1) READ WITH SS. 251( 2) & 250(4) OF THE INCOME-TAX ACT, 1961, IN THE APPELLAN TS CASE WHICH HAS RESULTED IN DISCOVERY OF A NEW SOURC E OF INCOME WHICH WAS NEVER A SUBJECT MATTER OF THE APPE AL BEFORE HIM. (B) THAT, WITHOUT PREJUDICE TO THE ABOVE, THE DIRE CTION GIVEN BY THE LD. CIT(A) FOR MAKING ENHANCEMENT OF I NCOME OF THE APPELLANT BY A SUM OF RS. 6,84,24,000/- IS UNJUSTIFIED, UNWARRANTED, ARBITRARY, EXCESSIVE AND BAD IN LAW. (C) THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEA RNED CIT(A) GROSSLY ERRED, BOTH ON FACTS AND IN LAW, IN DIRECTING ENHANCEMENT OF INCOME OF THE APPELLANT BY A SUM OF RS. 6,84,24,000/- BY ASSUMING A HIGHER CONTRACT RECEIPT S THAN SHOWN BY THE APPELLANT COMPANY IN ITS AUDITED FINANCIAL STATEMENTS WITHOUT CONSIDERING THE MATERI AL FACT THAT THE APPELLANT WAS MAINTAINING REGULAR BOOKS OF ACCOUNT BY EMPLOYING MERCANTILE SYSTEM OF ACCOUNTIN G AND THEREFORE, IN ABSENCE OF REJECTION OF SUCH BOOK S OF -: 4: - 4 ACCOUNT UNDER THE PROVISIONS OF SECTION 145(3) OF T HE ACT, THE BUSINESS INCOME OF THE APPELLANT WAS COMPULSORI LY REQUIRED TO BE COMPUTED ONLY ON THE BASIS OF ITS BO OKS OF ACCOUNT IN VIEW OF THE PROVISIONS OF SECTION 145(1) OF THE INCOME-TAX ACT,1961. (D) THAT, WITHOUT PREJUDICE TO TH E ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN NOT CONSIDERING THE MATERIA L FACT THAT THE INCOME OF RS. 6,84,24,000/- TO WHICH DIREC TION OF ENHANCEMENT PERTAINS, WAS NOT THE REAL INCOME OF TH E APPELLANT AND SUCH INCOME HAD NEITHER ACCRUED TO TH E APPELLANT NOR IT HAD ACTUALLY BEEN RECEIVED BY THE APPELLANT, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. (E) THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN NOT CONSIDERING THE MATERIA L FACT THAT THE CLAIM MADE BY THE APPELLANT TO ITS PRINCI PAL IN RESPECT OF THE IMPUGNED SUM OF RS. 6,84,24,000/- O N ACCOUNT OF CERTAIN ADDITIONAL WORK AS WELL AS ESCAL ATION OF PRICE, WAS NOT ACKNOWLEDGED BY THE PRINCIPAL COMPAN Y NAMELY PATH ORIENTAL HIGHWAYS LIMITED AND FURTHER THE -: 5: - 5 PRINCIPAL COMPANY WAS UNDER NO CONTRACTUAL OBLIGATI ON TO ACKNOWLEDGE THE CLAIM SO RAISED BY THE APPELLANT. (F) THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) GROSSLY ERRED IN NOT CONSIDERING THE MATERIA L FACT THAT THE ADDITIONAL WORK IN RESPECT OF WHICH THE CL AIM WAS RAISED BY THE APPELLANT WAS PERFORMED BY THE APPELLANT COMPANY IN EARLIER YEARS ONLY AND THEREFO RE, EVEN ON THE PRINCIPAL OF ACCRUAL, THE SUBJECT SUM OF RS. 6,84,24,000/- COULD NOT HAVE BEEN SAID TO HAVE ACCR UED TO THE APPELLANT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND CONSEQUENTL Y, ANY ENHANCEMENT OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WOULD BE UNJUSTIFIED, UNWARRANT ED , ARBITRARY AND AGAINST THE SETTLED POSITION OF LAW. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE ASSESSEE COMPANY IS ENGAGED IN BUSINES S OF CONSTRUCTION/OPERATION AND MAINTENANCE OF INFRASTRU CTURE PROJECT OF ROADS AND BRIDGE UNDER B.O. T. SCHEME. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSES SING OFFICER FOUND THAT ASSESSEE HAD MADE INVESTMENT IN EQUITY CAPITALS -: 6: - 6 OF GROUP COMPANIES AS WELL AS IN THE MUTUAL FUNDS. HE FURTHER NOTED THAT DURING THE YEAR THERE IS FRESH INVESTMEN T OF RS. 7.87 CRORES. ACCORDINGLY, BY INVOKING PROVISIONS OF SECT ION 14A, HE WORKED OUT INTEREST OF RS. 1,76,38,517/- AS DISALLO WABLE. THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE AT PAGE 3 TO 7 OF THE ORDER. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIR MED THE ACTION OF ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. SHRI ANIL KAMAL GARG, C. A., APPEARED ON BEHALF OF ASSESSEE AND CONTENDED THAT ENTIRE NEW INVESTMENT W AS MADE BY THE ASSESSEE COMPANY OUT OF INTEREST FREE FUNDS BEI NG CASH ACCRUAL OF THE YEAR, THEREFORE, THERE IS NO JUSTIFICATION T O INVOKE THE PROVISIONS OF SECTION 14A FOR MAKING DISALLOWANCE O F INTEREST U/S 14A. THE LD. AUTHORIZED REPRESENTATIVE FURTHER CON TENDED THAT THE PROVISIONS OF SUB-SECTION (2) OF SECTION 14A OF THE ACT, WOULD COME INTO OPERATION ONLY IN A SITUATION WHERE BOTH THE B ASIC CONDITIONS VIZ.(I) THE ASSESSEE HAS INCURRED CERTAIN EXPENDITU RE AND (II) SUCH EXPENDITURE HAVE BEEN INCURRED IN RELATION TO THE I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, AS ENJOINED UNDER THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A; GET F ULFILLED AND FURTHER -: 7: - 7 BOTH THE CONDITIONS HAVE TO BE FULFILLED CUMULATIVE LY AND IF ANY ONE OF THESE CONDITIONS ARE NOT MET OUT THEN CASE OF AN ASSESSEE WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECT ION 14A OF THE ACT. IT IS ONLY WHEN THE CASE OF AN ASSESSEE FALLS UNDER SUB-SECTION (1) OF SECTION 14A OF THE ACT, THE COMPUTATION MACHINERY A S SET OUT IN SUB SECTION (2) OF SECTION 14A WOULD COME INTO MOTI ON AND THEN & THEREAFTER ONLY AN ASSESSING OFFICER , AFTER GIVING A FINDING TO THIS EFFECT, CAN DETERMINE THE AMOUNT OF DISALLOWANCE IN ACCORDANCE WITH THE METHOD PRESCRIBED I.E. IN ACCORDANCE WITH THE RULE 8D OF THE INCOME TAX RULES, 1962. HOWEVER, IN THE CASE OF THE ASSESSEE, THE LD. ASSESSING OFFICER HAS MADE THE IMPUGNED DIS ALLOWANCE BY INVOKING THE PROVISIONS OF SUB SECTION (2) OF SECTI ON 14A R/W RULE 8D OF THE IT RULES, 1962, WITHOUT FIRST GIVING A FI NDING TO THE EFFECT THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING ANY EXEMPT INCOME WHICH IS NOT PERMISSIBLE IN THE LOWER AUTHORITIES. FOR SUCH PROPOSITION, RELIANCE IS PLACED ON THE DEC ISION OF THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASES OF CIT VS. AVON CYCLES LIMITED,(2012) 81 CCH 188 ( P & H ) PAG E NO.1 & 2] AND CIT VS. HERO CYCLES LIMITED, (2010) 323 ITR 518 ( P & H ) [KINDLY REFER PAGE NO. 160 TO 162 OF JCB]. IN VIEW OF SUCH FACTS, THE -: 8: - 8 ACTION OF THE LD. ASSESSING OFFICER AND ITS APPROVA L BY THE LD. CIT(A) DESERVE TO BE KNOCKED-DOWN ON THIS COUNT ALONE. 6. WITHOUT PREJUDICE TO THE ABOVE IT WAS SUBMITTED BY LD. AUTHORIZED REPRESENTATIVE THAT IN THE INSTANT CASE, THE ENTIRE INVESTMENTS IN SHARES OF THE GROUP COMPANIES HAVE B EEN MADE BY THE ASSESSEE COMPANY ONLY OUT OF THE INTEREST FREE FUNDS BEING INTERNAL ACCRUALS FOR THE CURRENT YEAR AND, THEREFO RE, THERE WAS NO JUSTIFICATION FOR INVOKING PROVISIONS OF SECTION. 1 4A OF THE ACT IN RESPECT OF INTEREST EXPENSES CLAIMED BY THE ASSESSE E IN ITS BOOKS OF ACCOUNTS. FOR OUR SUCH ASSERTION, ATTENTION WAS INV ITED TO SCHEDULE -6 OF THE AUDITED FINANCIAL STATEMENTS OF THE ASSES SEE COMPANY AS PLACED AT PAGE NO. 61 OF THE COMPILATION, WHICH IND ICATE THAT THE ASSESSEE COMPANY WAS HAVING OPENING INVESTMENTS AMO UNTING TO RS. 34,66,13,178/- AND THE CLOSING INVESTMENTS AMOU NTING TO RS. 42,43,50,000/- THEREBY REGISTERING A NET INCREASE I N THE INVESTMENT BY A SUM OF RS. 7,77,36,822/- ONLY. IF TO SUCH NET INVESTMENT OF RS. 7,77,36,822/-, AMOUNT OF DISINVESTMENT IN QUOTED SH ARES OF NON- GROUP COMPANIES AT RS. 9,50,678/- IS ADDED, THE AMO UNT OF FRESH INVESTMENT IN COMPANIES WOULD WORK OUT AT RS. 7,86, 87,500/- ONLY. FURTHER, AS PER AUDITED PROFIT AND LOSS ACCOUNT OF THE ASSESSEE -: 9: - 9 COMPANY FOR THE RELEVANT PREVIOUS YEAR, AS PLACED A T PAGE NO.56 OF THE PAPER BOOK, THE NET PROFIT OF THE COMPANY AFTE R DEPRECIATION AND TAX HAS BEEN SHOWN AT RS.8,39,12,704/- AND AFTE R MAKING ADJUSTMENTS FOR NON-CASH ITEMS BEING DEPRECIATION A ND REVERSAL OF EXCESS PROVISION OF TAX FOR EARLIER YEARS AT RS.4,8 8,81,353/- AND RS.2,36,037/- RESPECTIVELY THE NET CASH PROFIT OF T HE ASSESSEE COMPANY, FOR THE PREVIOUS YEAR UNDER CONSIDERATION, WORKS OUT TO BE AT RS.13,25,58,020/-. THUS, IN VIEW OF THE ABOVE FACTS, IT WAS SUBMITTED THAT THE AUTHORITIES BELOW GROSSLY ERRED IN COMPLETELY BRUSHING ASIDE THE EXPLANATION OF THE ASSESSEE TO T HE EFFECT THAT THE ENTIRE INVESTMENTS IN SHARES OF THE GROUP COMPANIES HAVE BEEN MADE BY THE ASSESSEE COMPANY ONLY OUT OF THE INTERE ST-FREE FUNDS BEING INTERNAL ACCRUALS FOR THE CURRENT YEAR. IT IS SUBMITTED THAT ONCE THE INVESTMENTS HAVING BEEN MADE OUT OF THE IN TERNAL ACCRUALS WITHOUT MAKING ANY BORROWING FOR SUCH INVESTMENTS, THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF S. 14A OF THE ACT QUA THE AMOUNT OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE . FOR SUCH PROPOSITION, RELIANCE IS PLACED ON FOLLOWING JUDICI AL PRONOUNCEMENTS: -: 10: - 10 I) J.K. INDUSTRIES LTD. VS. CIT (2011) 61 DTR (CAL) 153 [JCB PAGE NO. 3 TO 9] II) CIT VS. MOTOR SALES LTD. (2008) 304 ITR 123 (AL L) [JCB PAGE NO. 10 & 11] III) CIT VS. H.B. STOCK HOLDINGS LTD. (2010) 325 IT R 316 (DEL) [JCB PAGE NO. 12 TO 15]. AS PER LD. AUTHORIZED REPRESENTATIVE , THE INCOME FROM THE INVESTMENTS IN GROUP COMPANIES IS NOT ONLY TAXABLE BUT THE ASSESSEE HAS ALSO OFFERED INCOME FROM SUCH INVESTME NTS IN ITS RETURN OF INCOME FOR SUBSEQUENT YEARS. OUR ATTENTION WAS ALSO INVITED TO THE COMPUTATION O F INTEREST UNDER RULE 8D, AS MADE BY THE ASSESSING OFFICER AND IT WA S POINTED OUT THAT THE LEARNED ASSESSING OFFICER HAS TAKEN THE AM OUNT OF INVESTMENT ON FIRST DAY OF THE RELEVANT PREVIOUS YE AR AT RS. 34,66,13,178/- WHICH GETS COMPLETELY TALLIES WITH T HE AMOUNT OF INVESTMENT SHOWN IN THE AUDITED FINANCIAL STATEMENT S UNDER THE COLUMN OF PREVIOUS YEAR I.E. AS AT 31-03-2007 [KIND LY REFER PB PAGE NO. 61]. LIKEWISE, THE LEARNED ASSESSING OFFICER HA S TAKEN THE AMOUNT OF INVESTMENT ON LAST DAY OF THE RELEVANT PR EVIOUS YEAR AT RS. 42,43,50,000/- WHICH ALSO GETS FULLY TALLIED WI TH THE AMOUNT OF -: 11: - 11 INVESTMENTS SHOWN IN THE AUDITED BALANCE-SHEET AS O F 31-03-2008. AS PER DETAILS OF INVESTMENTS, ON BOTH THE DATES, I .E. 31-03-2007 AND 31-03-2008, THE ASSESSEE WAS HAVING INVESTMENT IN SHARES/ SHARE APPLICATION MONEY OF ORIENTAL PATHWAYS (AGRA) PVT. LTD. AND ORIENTAL PATHWAYS (INDORE) PVT. LTD. RESPECTIVELY A T RS.5,04,90,000/- AND RS. 11,70,00,000/-. AS PER LD. AUTHORIZED REPRESENTATIVE , THE ASSESSING OFFICER HAS MADE TH E IMPUGNED DISALLOWANCE QUA THESE INVESTMENTS BY IMPLIEDLY HOL DING THAT INCOME FROM SUCH INVESTMENTS DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 7. OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT DUR ING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2010-11, A SUBSTANTIAL INCOME AMOUNTING TO RS.20,40,60,000/- FROM SALE OF INVESTMENT IN SHARES OF THE ABOVE NAMED TWO COMPANIES WAS NOT ONL Y SHOWN BY THE APPELLANT COMPANY IN ITS AUDITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED AS ON 31-03-2010 BUT THE SAME WAS ALSO O FFERED BY IT IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-1 1 AS TAXABLE LONG-TERM/SHORT-TERM CAPITAL GAIN. AS PER AUDITED F INANCIAL STATEMENTS OF THE ASSESSEE COMPANY FOR THE FINANCIA L YEAR ENDED 2009-10, AS PLACED AT PAGE NO.94 TO 115 OF THE PAPE R BOOK, IT IS -: 12: - 12 CLEAR THAT THE ASSESSEE COMPANY HAS SHOWN INCOME AM OUNTING TO RS. 20,40,60,000/- AS PROFIT ON SALE OF SHARES UNDE R SCHEDULE 12 OF OTHER INCOME. FURTHER, THE VERACITY OF THE CLAIM AS REGARD TO DERIVING OF PROFIT ON SALE OF SHARES OF THE GROUP C OMPANIES CAN ALSO BE VERIFIED FROM SCHEDULE 06 OF INVESTMENTS AS PLAC ED AT PAGE NO. 104 OF THE PAPER BOOK. FROM THE COMPUTATION OF TAXA BLE INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 AS PLACED AT PAGE NO. 91 OF THE PAPER BOOK, IT CAN FURTHER BE GATHERED THAT THE ASSESSEE COMPANY HAS DULY SHOWN INCOME AMOUNTING TO RS. 15,8 3,27,550/- AND RS. 2,06,96,882/- RESPECTIVELY AS LONG-TERM CAP ITAL GAIN FROM SALE OF SHARES N ORIENTAL PATHWAYS (INDORE) PVT. LT D. AND SHORT-TERM CAPITAL GAIN FROM SALE OF SHARES IN ORIENTAL PATHWA YS (AGRA) PVT. LTD. IN NUTSHELL, THE CLAIM OF THE ASSESSEE TO THE EFFECT THAT INCOME FROM INVESTMENTS IN GROUP COMPANIES IS NOT EXEMPTED GETS FULLY FORTIFIED BY THE DOCUMENTARY EVIDENCES AND THE RETU RN OF INCOME WHICH WERE ALSO PLACED ON THE LEARNED ASSESSING OFF ICER WHILE FRAMING THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. 8. AS PER LD. AUTHORIZED REPRESENTATIVE ANY INVESTMENT IN SHARES OF A CLOSELY HELD COMPANY IS CAPABLE OF YIEL DING BASICALLY TWO -: 13: - 13 TYPES OF INCOME VIZ.(I) DIVIDEND INCOME AND (II) RE ALIZATION OF THE GAIN ON SALE OF SUCH SHARES. ALTHOUGH, THE INCOME F ROM DIVIDEND IS OUT OF THE PURVIEW OF THE TOTAL INCOME IN VIEW OF T HE PROVISIONS OF S. 10(34) OF THE ACT BUT GAIN ON SALE OF SUCH SHARES I S NOT SO. IT IS SUBMITTED THAT SALE OF SHARES IN A CLOSELY HELD COM PANY IS NOT SUBJECTED TO SECURITIES TRANSACTION TAX AND THEREFO RE, ANY INCOME ARISING FROM TRANSFER OF SHARES IN SUCH COMPANIES I S NOT EXEMPTED UNDER S.10(38) OF THE ACT. AS PER LD. AUTHORIZED RE PRESENTATIVE MERELY BECAUSE THE INCOME FROM DIVIDEND EARNED ON I NVESTMENTS IN SHARES OF GROUP COMPANIES IS EXEMPTED, IT CANNOT BE SAID THAT INCOME FROM MAKING SUCH INVESTMENTS IS COMPLETELY E XEMPT SO AS TO BRING THE PROVISIONS OF SUB-SECTION (1) OF SECTI ON 14A INTO OPERATION. ON THE CONTRARY, THE ASSESSEE HAS SHOWN A SIZEABLE AMOUNT OF INCOME IN SUBSEQUENT YEARS FROM MAKING TH E SUBJECT INVESTMENTS AND AMOUNT OF INCOME IS QUITE HIGHER EV EN AFTER TAKING INTO CONSIDERATION ANY HYPOTHETICAL AMOUNT OF INTER EST ATTRIBUTABLE TO SUCH INVESTMENTS. INVESTMENT IN GROUP COMPANIES HAVE BEEN MADE AS BUSINESS PRUDENCE AND COMMERCIAL NECESSITIE S, THEREFORE, EVEN IF TESTED FROM THE VIEW POINT OF PROVISIONS OF SECTION 36(1)(III) OF -: 14: - 14 THE INCOME-TAX ACT, 1961, NO DISALLOWANCE OF INTERE ST EXPENDITURE CAN BE MADE. 9. ON THE OTHER HAND, THE LD. CIT DR RELIED ON THE ORD ER OF LOWER AUTHORITIES AND CONTENDED THAT THE ASSESSEE H AD DIVERTED INTEREST BEARING FUND FOR NON-BUSINESS PURPOSES, TH EREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING THE PRO VISIONS OF SECTION 14A FOR DISALLOWANCE OF INTEREST EXPENDITURE INCURR ED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND FROM RECORD THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF GROUP COMPANIES AS A MATTER OF COMMERCIAL EXPEDIENCY. WE ALSO FOUND THAT THE ASSESSEE WAS HAVING HUGE RESERVE AS WELL A S SURPLUS FUNDS AVAILABLE OUT OF ITS PROFIT. HOWEVER, TO SHOW THAT INVESTMENT IN SHARES OF ASSOCIATE CONCERNS HAVE BEEN MADE OUT OF NON INTEREST BEARING FUNDS, IS ON THE ASSESSEE AND BURDEN LIES O N HIM TO DEMONSTRATE BEFORE THE DEPARTMENTAL AUTHORITIES THA T NO INTEREST BEARING FUND HAS BEEN USED. IT IS ALSO A MATTER OF RECORD THAT SINCE INVESTMENT HAS BEEN MADE UNDER COMMERCIAL NECESSITI ES, THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF -: 15: - 15 S. A. BUILDERS LIMITED, 288 ITR 1, IS REQUIRED TO B E CONSIDERED BEFORE DISALLOWING INTEREST EXPENDITURE HAVING BEEN INCURRED ON THE FUNDS BORROWED FOR THE PURPOSE OF BUSINESS. WE ALSO FOUND THAT INVESTMENT IN GROUP COMPANIES WERE HAVING TAXABLE INCOME AND ASSESSEE HAS OFFERED SUBSTANTIAL LONG TERM AND SHOR T TERM CAPITAL GAINS IN THE RETURNS OF SUBSEQUENT YEARS. KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR DECIDING AFRESH I N TERMS OF OUR ABOVE OBSERVATIONS AND THE JUDICIAL PRONOUNCEMENTS CITED BY THE LD. AUTHORIZED REPRESENTATIVE , AS DISCUSSED HEREINABOV E. WE DIRECT ACCORDINGLY. 11. NEXT GRIEVANCE OF ASSESSEE RELATES TO NON-GRANT OF CREDIT FOR TDS WAS RS. 52,54,091/-. THE ASSESSEE IS ALSO A GGRIEVED FOR ENHANCEMENT OF INCOME BY THE CIT(A) AMOUNTING TO RS . 6,84,24,000/-. 12. WITH REGARD TO DISALLOWANCE OF CREDIT FOR TDS RELEV ANT OBSERVATION OF THE ASSESSING OFFICER WAS AS UNDER : - ON THE PERUSAL OF TDS CERTIFICATES IT IS NOTICED THAT TDS HAS BEEN DEDUCTED BY MPRDC FOR PAYMENT RS. 22,49,23,793/-, WHILE THE ASSESSEE HAS DECLARED REC EIPTS OF -: 16: - 16 RS. 6,14,81,445/- ONLY. THE ASSESSEE WAS ASKED TO E XPLAIN THE REASONS FOR THIS DIFFERENCE. IN THE REPLY THE A SSESSEE PRODUCED THE COPY OF BILLS MAINTAINED IN THE OFFICE OF MPRDC AND CLAIMED THAT THE AMOUNT OF THE BILLS SUBM ITTED AND PASSED ARE ONLY FOR RS. 6,14,81,445/- AND THE BALANCE AMOUNT IS MOBILIZATION ADVANCE AND ADVANCE AGAINST MATERIAL. IT IS STATED THAT AS PER TDS PROVISIONS T HE TDS HAS BEEN DEDUCTED BUT AS THE BILLS HAVE NOT BEEN RAISED AS SUCH THE SAME ARE NOT INCLUDED IN GROSS RECEIPTS. IT IS CLAIMED THAT THE ASSESSEE HAS SHOWN THE EXACT DIFFERENCE AMOUNT OF RS. 16,34,42,348/- AS MOBILIZATION AND MATERIAL ADVANCE UNDER THE HEAD ADVANCES FROM CUSTOMERS. SIMILARLY, IT IS ALSO FOUND THAT TDS HAS BEEN DE DUCTED BY PATH ORIENTAL HIGHWAY LIMITED ON 9,05,15,830/- WHIL E THE ASSESSEE HAS DECLARED THE INCOME OF RS. 2,21,87,295 /- ONLY. IT IS STATED THAT THE AMOUNT 6,84,24,000 BELO NGED TO CLAIM OF ESCALATION IN PRICE ETC WHICH WAS NOT ACCE PTED BY THE GOVERNMENT AS SUCH NO PAYMENT WAS RECEIVED BY THE ASSESSEE FROM PATH ORIENTAL HIGHWAY LIMITED, HOWEVE R -: 17: - 17 THE COMPANY HAS WRONGLY ISSUED TDS TO THE COMPANY. THE ASSESSEE HAS SUBMITTED A CERTIFICATE FROM PATH ORIENTAL HIGHWAY LIMITED IN THIS REGARDS. 13. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER FOR DISALLOWANCE OF ASSESSEES CLAIM OF T. D. S. OF RS. 52,54,091/-. THE LD. CIT(A) ALSO GAVE A NOTI CE FOR ENHANCEMENT BY OBSERVING THAT THE ASSESSEE HAS RAIS ED PROFORMA INVOICE TO POHL FOR ADDITIONAL WORK/ESCALATION COST . AS PER CIT(A) AS SOON THE ASSESSEE HAS RAISED BILL ON POHL REGARD ING ESCALATION OF PRICE, THE SAME SHOULD BE TREATED AS INCOME LIAB LE TO TAX IN THE ASSESSMENT YEAR UNDER CONSIDERATION, AS THE ASSESSE E WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LD. CIT(A) ALS O OBSERVED THAT POHL HAS DEDUCTED TAX ON THE AMOUNT OF PROFORMA INV OICE, THEREFORE, THE INCOME AROSE IN THE HANDS OF THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ALSO STATE D THAT THE ASSESSEE HAS SUBMITTED DETAILED AND ELABORATED SUBM ISSION WITH REGARD TO TERMS AND CONDITIONS OF THE CONTRACT EXEC UTED BY THE ASSESSEE, ACCORDING TO WHICH NO INCOME ACCRUE IN TH E HANDS OF THE ASSESSEE. AS PER CIT(A) POHL HAS RAISED A FURTHER C LAIM ON THE BASIS OF SUCH BILL WITH MINISTRY OF SURFACE AND ROA D TRANSPORT. -: 18: - 18 14. IN VIEW OF THE ABOVE DISCUSSION, THE LD. CIT(A) HAS ENHANCED THE ASSESSMENT. 15. THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS AS UNDER :- 2.1 IT IS FURTHER SUBMITTED THAT SINCE THE APPELL ANT COMPANY HAS MAINTAINED REGULAR BOOKS OF ACCOUNT IN ITS ORDINARY COURSE OF BUSINESS BY EMPLOYING MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, UNDER THE PROVISIONS OF SUB-SECTION (1) OF S.145 OF THE OF THE INCOME-TAX ACT, 1961, ITS INCOME IS REQUIRED TO BE COMPUTED ONLY ON THE BASIS OF ITS REGULAR BOOKS OF ACCOUNT. IT IS SUBMITTED THAT THE APPELLANT COMPANY HAS NOT ONLY MAINTAINED REGULAR BOOKS OF ACCOUNT BU T IT HAS ALSO GOT SUCH BOOKS OF ACCOUNT DULY AUDITED BY A FIRM OF QUALIFIED CHARTERED ACCOUNTANTS BOTH UNDE R THE COMPANIES ACT, 1956 AS WELL AS UNDER THE PROVISIONS OF S. 44AB OF THE INCOME-TAX ACT, 1961. IT SHALL BE APPRECIATED BY YOUR HONOURS THAT THE LEARNED ASSESSING OFFICER, AFTER EXAMINING THE BOOK S OF ACCOUNT, HAS FOUND THE SAME AS CORRECT AND -: 19: - 19 COMPLETE AND AS ALSO IN ACCORDANCE WITH THE NOTIFIE D ACCOUNTING STANDARDS AND IT WAS, THEREFORE, HE DID NOT REJECT THE BOOKS OF ACCOUNT OF THE APPELLANT COMPANY BY INVOKING THE PROVISIONS OF SUB-SECTION ( 3) OF S.145 OF THE INCOME-TAX ACT. IT IS A SETTLED LAW THAT UNLESS AND UNTIL BOOKS OF ACCOUNT, REGULARLY MAINTAINED BY AN ASSESSEE ARE REJECTED UNDER THE PROVISIONS OF S.145(3), TRADING RESULTS DEPICTED FR OM SUCH BOOKS CANNOT BE DISTURBED. 2.2 WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT UNDER THE PROVISIONS OF S.4 OF THE INCOME-TAX ACT, INCOME-TAX IS CHARGED FOR ANY ASSESSMENT YEAR IN RESPECT OF TOTAL INCOME OF ANY PERSON FOR A PREVIOU S YEAR AND SUCH INCOME-TAX IS CHARGED ON THE TOTAL INCOME AS CONTEMPLATED UNDER THE PROVISIONS OF S. 5 OF THE INCOME-TAX ACT, 1961. UNDER THE PROVISIONS O F S. 5 OF THE INCOME-TAX ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH IS EITHER RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUES OR -: 20: - 20 ARISES OR DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING THE RELEVANT PREVIOUS YEAR. IT WOULD THUS BE APPRECIATED BY YOUR HONOURS THAT RECEIPT/ACCRUAL/EVENT OF ARISING OF INCOME IN THE HANDS OF THE PERSON IN THE RELEVANT PREVIOUS YEAR I S A SINE QUA NON FOR BRINGING THE INCOME TO CHARGE WITH IN THE AMBIT OF THE PROVISIONS OF S. 4 OF THE INCOME-T AX ACT, 1961. IN A CASE WHERE NO INCOME HAS EITHER BEE N RECEIVED OR ACCRUED TO AN ASSESSEE IN A PREVIOUS YEAR, THE QUESTION OF LEVYING OF ANY INCOME-TAX WOU LD NOT ARISE AT ALL. IN THE INSTANT CASE, THE ALLEGED AMOUNT OF RS. 6,84,24,000/- HAS NEITHER BEEN RECEIVED NOR GOT ACCRUED TO THE APPELLANT DURING TH E RELEVANT PREVIOUS YEAR AND, THEREFORE, ANY ENHANCEMENT ON THIS COUNT WAS NEITHER JUSTIFIED NOR WARRANTED. 2.3 YOUR HONOURS, IT IS AN ADMITTED AND UNDISPUTED FACT THAT THE IMPUGNED SUM OF RS. 684,24,000/- WAS NOT RECEIVED BY THE APPELLANT FROM M/S. PATH ORIENTAL HIGHWAY LTD. [IN SHORT, PHOL] DURING THE -: 21: - 21 RELEVANT PREVIOUS YEAR. IT SHALL BE PERTINENT TO NO TE THAT NOT A SINGLE PENNY HAS EVER BEEN RECEIVED BY APPELLANT OUT OF THE IMPUGNED SUM EVEN TILL TODAY. 2.4 NOW, BEFORE EXAMINING THE ISSUE OF ACCRUAL OF ALLEGED INCOME OF RS. 6,84,24,000/- IN THE HANDS OF THE APPELLANT COMPANY ON ACCOUNT OF CONTRACT RECEIPTS FROM PHOL, IT SHALL BE APPROPRIATE TO HAVE A LOOK AT THE NATURE OF CONTRACT ENTERED INTO BY THE APPELLANT COMPANY WITH POHL. YOUR HONOURS, THE APPELLANT COMPANY ENTERED INTO ONE EPC CONTRACT ON 26 TH JULY, 2005 WITH POHL FOR EXECUTING THE PROJECT OF CONSTRUCTION AND OPERATION & MAINTENANCE OF REWA BY-PASS ON NH-7 FROM KM229/2 TO 243/6 NEAR REWA IN THE STATE OF MADHYA PRADESH ON BOT BASIS WHICH WAS AWARDED TO POHL BY MINISTRY OF SURFACE ROAD TRANSPORT & HIGHWAYS [IN SHORT,MORT&H] UNDER AN AGREEMENT DATED 23-06- 2005 ENTERED INTO BETWEEN MORT&H AND POHL. A COPY OF THE EPC CONTRACT, AS ENTERED INTO BY THE APPELLANT WITH POHL, IS PLACED AT PAGE NO. 139 TO -: 22: - 22 206 OF OUR PAPER BOOK. ON A PERUSAL OF THE CONTRACT , SOME OF THE TERMS RELEVANT FOR THE ISSUE IN HAND CA N BE NOTED AS UNDER: (A) DEFINITION [PLEASE REFER CLAUSE 1.1 AT INTERNAL PAGE NO.3] CONTRACT PRICE MEANS THE SUM STATED IN APPENDIX 1, BEING THE TOTAL CONSIDERATION FOR FULFILLING THE CO NTRACTORS OBLIGATION UNDER THE CONTRACT. CONTRACTOR MEANS PRAKASH ASPHALTING & TOLL HIGH WAYS (INDIA) LTD. OWNER MEANS THE PATH ORIENTAL HIGHWAYS PVT. LTD. (B) GENERAL OBLIGATION OF THE CONTRACTOR [PLEASE REFER CLAUSE 4.1 AT INTERNAL PAGE NO.16 & 17] 'THE CONTRACTOR SHALL CARRY TO THE WORK AS SET OUT IN APPENDIX 1 OF THIS AGREEMENT READ WITH SCHEDULE A T O U OF THE CONSTRUCTION AGREEMENT AND INCLUDING WITHOUT LIMITA TION. (C) SHALL CARRY OUT THE WORKS SO THAT THE FACILITY MAY BE FULLY, EFFICIENTLY, ECONOMICALLY AND SAFELY USED, OPERATED AND MAINTAINED WITH THE MINIMUM INTERRUPTION FOR MAINTENANCE AND R EPAIR AND OTHERWISE FOR THE PURPOSES SPECIFIED OR REFERRED TO IN THE CONTRACT -: 23: - 23 (AND THE DOCUMENTS REFERRED, TO IN IT); (D) SHALL CARRY OUT THE WORKS SO THAT THE REPLACEME NT OF THE FACILITY SYSTEM COMPONENTS AND EQUIPMENT WILL BE AT REASONAB LE COST AND CAPABLE OF COMPLETION WITHIN A REASONABLE PERIOD AN D SO THAT THE OWNER WILL BE ABLE TO REALIZE THE BENEFITS OF UPGRA DES TO MANUFACTURED PLANT AND TO COMPUTER HARDWARE AND SOF TWARE; (E) SHALL EXERCISE THE SKILL, CARE AND DILIGENCE IN PROVIDING THE WORKS TO BE EXPECTED OF A FULLY QUALIFIED, COMPETENT AND FIRST CLASS CONTRACTOR EXPERIENCED IN PROVIDING ON A TURNKEY BA SIS, WORKS AND SERVICES SIMILAR IN NATURE AND EXTENT TO THE WORKS: ' [EMPHASIS SUPPLIED] (F) SHALL PROVIDE THE WORKS SO THAT THE FACILITY WILL BE FIT FOR THE PURPOSE INTENDED AND CAN BE OPERATED IN ACCORDANCE WITH APPLICABLE LAWS IN FORCE. [EMPHASIS SUPPLIED] (G) SHALL PROVIDE THE WORKS IN ACCORDANCE WITH (AND SO THAT THE FACILITY WILL MEET ALL APPLICABLE REQUIREMENTS OF) THE PROJECT CONTRACTS AND THE DOCUMENTS REFERRED TO IN THEM; (C) MATTERS AFFECTING THE EXECUTION OF THE WORKS [PLEASE REFER CLAUSE 4.14 AT INTERNAL PAGE NO. 23] -: 24: - 24 'THE CONTRACTOR SHALL BE DEEMED TO HAVE SATISFIED A S TO THE CORRECTNESS AND SUFFICIENCY IF THE CONTRACT PRICE. UNLESS OTHERWISE SPECIFICALLY STATED IN THE CONTRACT, THE CONTRACT P RICE SHALL COVER ALL ITS OBLIGATIONS UNDER THE CONTRACT AND ALL THINGS N ECESSARY FOR THE PROVISION OF THE WORKS.' [EMPHASIS SUPPLIED] CONTRACT PRICE, PAYMENT AND CLAIMS [PLEASE REFER CLAUSE 12 AT INTERNAL PAGE NO. 41] '12.1 THE CONTRACT PRICE THE CONTRACT PRICE IS THE TOTAL FIXED, LUMP SUM, TU RNKEY PRICE PAYABLE TO THE CONTRACTOR FOR THE CONSTRUCTION, OPE RATION AND MAINTENANCE WORKS AND ITS OBLIGATION UNDER THE CONT RACT. THE PAYMENT SHALL BE MADE IN THE NAME OF CONTRACTOR AND SUCH PAYMENTS WOULD CONSTITUTE VALID DISCHARGE TO THE OW NER ON BEHALF OF THE CONTRACTOR. THE CONTRACT PRICE CANNOT BE INCREASED AND THE CONTRACTOR IS NOT ENTITLED TO ADDITIONAL PA YMENT EXCEPT AS SPECIFIED IN THE CONTRACT. PAYMENT OF THE CONTRA CT PRICE WILL BE MADE IN THE MANNER SPECIFIED IN APPENDIX 1 OF THIS CONTRACT AGREEMENT. HOWEVER FOR ANY EXTENSION GRANTED TO THE OWNER BY THE STEERING GROUP THE CONTRACTOR SHALL BE ENTITLED TO THE BENEFIT -: 25: - 25 AND THE SAME WILL BE PAID TO THE CONTRACTOR WITHIN 30 DAYS OF RECEIPT OF LETTER FROM THE STEERING GROUP AND AFTER DUE SCRUTINY BY OWNER. ' [EMPHASIS SUPPLIED] (E) CHANGES IN COST [PLEASE REFER CLAUSE 12.2 AT INTERNAL PAGE NO.4L] 12.2 CHANGES IN COST IF THE COST TO THE CONTRACTOR OF PERFORMING ITS OBL IGATIONS UNDER THE CONTRACT IS VARIED AS A RESULT OF; (A) VARIATIONS (EXCEPT A VARIATION IN RESPECT OF W HICH AN INCREASE IN THE CONTRACT PRICE HAS BEEN AGREED OR DETERMINED UN DER CLAUSE 13); (B) ANY EVENT GIVING RISE TO AN EXPRESS ENTITLEMENT TO AN ADDITION/DELETION TO THE CONTRACT PRICE UNDER ANY O F CLAUSE OF THIS CONTRACT, PROVIDED THAT THE CONTRACTOR IS NOT IN BR EACH THEREOF; (C) BREACH OF THE OWNER. (D) ANY CHANGE IN LAW AFTER THE BASE DATE HAVING A MATERIAL ADVERSE EFFECT ON THE WORKS OR THE WORKING PRACTICE S OF THE CONTRACTOR FOR CARRYING OUT THE WORKS. -: 26: - 26 (E) DELAY IN THE COMMENCEMENT DATE BEYOND 120 DAYS THEN EXCEPT TO THE EXTENT THAT THE DELAY IS CAUSED OR CONTRIBUT ED TO BY ANY ACT OR OMISSION OF THE CONTRACTOR AN ESCALATION AS PER ACT UAL DAYS OF DELAY INFLATION AT THE RATE OF THE CURRENT CPI FOR THE PE RIOD OF SUCH DELAY SHALL BE APPLIED. (F) PROLONGED SUSPENSIONS PROVIDED FOR UNDER CLAU SE 8.8 HEREOF. (G) EXTENSION OF TIME FOR COMPLETION IN ACCORDANCE WITH THE CLAUSE 8, 3 1) THE CONTRACTOR WILL, SUBJECT TO THE FOLLOWING PROVISION OF THIS CLAUSE 12, BE ENTITLED TO AN INCREASE IN THE CONTRA CT PRICE. HOWEVER THE CONTRACTOR SHALL BE RESPONSIBLE FOR GET TING THE VARIATION ORDER, ESCALATION AND THE OTHER CLAIMS AP PROVED FROM MORT&H. IN CASE SOME OF THE VARIATIONS ALLOWED HEREIN ARE NOT ALLOWED TO THE OWNER UNDER THE TERMS OF CON CESSION AGREEMENT THEN THE SUM PAID AGAINST THE SAME WOULD BE SETTLED BY THE OWNER AND IN CASE OF DISPUTE BY THE INDEPENDENT CONSULTANT. ADDITIONAL SUM PAID FOR THE INCREASE IN CONTRACT PRICE FOR VARIATIONS WHICH ARE ALLOWED UNDER THE TERMS OF CONCESSION AGREEMENT TO THE CONCESSIONAIRE SUBJECT TO APPROVAL OF MORT&H, SHALL NOT EXCEED IN ANY CASE TH E AMOUNT OF VARIATION APPROVED BY THE MORT&H WHETHER DIRECTL Y IN THE -: 27: - 27 FORM OF CASH PAYMENT TO THE CONCESSIONAIRE OR IN TH E FORM OF INCREASE IN CONCESSION PERIOD.' [EMPHASIS SUPPLIED] 12.3 NOTICE OF CLAIMS IF THE CONTRACTOR CONSIDERS THAT IT MAY HAVE GROUND S TO CLAIM AN INCREASE IN THE CONTRACT PRICE, IT MUST (IN ADDI TION TO COMPLIANCE WITH ANY OTHER RELEVANT PROCEDURE OR OBL IGATION) INFORM THE OWNER'S REPRESENTATIVE WITHIN 28 DAYS AF TER THE DATE OF THE EVENT-GIVING RISE TO THE CLAIM. THE INFORMATION MUST INCLUDE DETAILS OF THE CLAUSE OF THE CONTRACT UNDER WHICH THE CLAIM IS MADE, THE CIRCUMSTANCES IN WHICH THE CLAIM ARISES A ND DETAILS OF THE RECORDS OF THE CONTRACTOR WILL MAINTAIN TO SUBSTANT IATE THE CLAIM.' [EMPHASIS SUPPLIED '12.7 DETERMINATION THE OWNER'S REPRESENTATIVE WILL DETERMINE THE AMOUN T OF ANY INCREASE IN THE CONTRACT PRICE DUE UNDER THIS CLAUS E 12.' (T) VARIATIONS [PLEASE REFER CLAUSE 13 AT INTERNAL PAGE NO.43] 13.1 RIGHT TO VARY DURING CONTRACT PERIOD VARIATIONS MAY BE INITIATED BY THE OWNER'S REPRESEN TATIVE AT ANY -: 28: - 28 TIME DURING THE CONTRACT PERIOD, EITHER BY INSTRUCT ION OR BY A REQUEST FROM THE CONTRACTOR TO SUBMIT A PROPOSAL. ANY EXTRA WORK AS INSTRUCTED BY THE STEERING GROUP SHALL BE PAID EXTRA IN THE MANNER AS UNDER, 1. THE ITEMS WHICH WERE INCLUDED IN THE ORIGINAL WORK SHALL BE PAID AT AGREED RATE PLUS ESCALATION, AS PER ACTUAL UP TO DATE OF EXECUTION. THE ITEM NOT INCLUDED IN THE ORIGINAL WORKS SHALL BE PAID AT PREVAILING MARKET PRICE. 2. FOR DELAY IN WORK DUE TO NON AVAILABILITY OF SITE O R PART THEREOF FOR NON COMPLIANCE OF GOI OR STG OBLIGATION OR ANY OTHER REASON NOT ATTRIBUTABLE TO THE EPC CONTRACTOR , THE TIME OF EXECUTION SHALL BE EXTENDED. 3. THE CONTRACT PRICE SHALL BE ADJUSTED TO INCLUDE ESC ALATION IN COST DUE TO THE ABOVE DELAY BASED ON ESCALATION AMOUNT AGREED BY STEERING GROUP FOR THE SAME.' [EMPHASIS SUPPLIED] (G) DEFAULT OF CONTRACTOR [PLEASE REFER CLAUSE 14 AT INTERNAL PAGE 45] '14.1 NOTICE TO CORRECT WITHOUT PREJUDICE TO CLAUSE 14.2 IF THE CONTRACTOR FAILS TO CARRY OUT ANY OF HIS OBLIGATIONS, OR IS NOT EXECUTING THE WOR KS IN ACCORDANCE -: 29: - 29 WITH THIS CONTRACT, THE OWNER'S REPRESENTATIVE MAY GIVE NOTICE TO THE CONTRACTOR REQUIRING HIM TO MAKE GOOD SUCH FAILURE AND REMEDY THE SAME WITHIN A SPECIFIED REASONABLE TIME. 14.2 EXPULSION . 14.3 PAYMENT FOLLOWING TERMINATION IF THE OWNER REJECTS THE WORKS UNDER THE CLAUSE 14. 2 THE OWNER WILL NOT BE OBLIGED TO MAKE ANY FURTHER PAYMENT TO THE C ONTRACTOR UNDER THE CONTRACT AND THE CONTRACTOR MUST PAY TO THE OWN ER AGGREGATE OF ALL AMOUNTS PREVIOUSLY PAID TO THE CONTRACTOR TOGET HER AND THE COSTS AND EXPENSES OF DISMANTLING THE WORKS, CLEARING THE PROJECT SITE AND RETURNING PLANT, MATERIALS, EQUIPMENT AND OTHER MAT ERIALS TO THE CONTRACTOR OR OTHERWISE DISPOSING OF THEM IN ACCORD ANCE WITH THE CONTRACTOR'S INSTRUCTIONS. (H) APPENDIX - 1 [PLEASE REFER INTERNAL PAGE NO. 63 TO 67] (B) CONTRACT VALUE: -: 30: - 30 A TOTAL CONSIDERATION OF RS. 48.67 CRORES (RUPEES F ORTY EIGHT CRORES AND SIXTY SEVEN LAKHS ONLY) SHALL BE PAYABLE TO THE CONTRACTOR FOR ITS WORK SCOPE UNDER THIS CONTRACT SUBJECT TO CHANG ES FOR THE COMPONENTS OF WORK SCOPE AS IS ENUMERATED BELOW. TH IS CONSIDERATION SHALL BE DIVIDED AND PAID FOR EACH CO MPONENTS OF THE WORK SCOPE UNDER THIS CONTRACT AS UNDER:- FOR CONSTRUCTION WORK THE VALUE OF CONSTRUCTION WORK UNDER THIS CONTRACT SHALL AMOUNT TO RS.45.72 CRORES AS PER B.O.Q. OF THE CONCESSION AGR EEMENT. THE VALUE IS GROSS OF TDS AND SALES TAX/WORKS CONTRACT TAX, ROYALTY, COMMERCIAL TAX BUT NET OF ANY OTHER TAX UNDER ANY O THER APPLICABLE STATUTE OF THE COUNTRY. THE PAYMENT IS ALSO NET OF ANY VARIATION IN RATES OF TAXES THAT HAPPEN DURING THE PERIOD OF CON STRUCTION. FOR ANY ADDITIONAL WORK AS INSTRUCTED BY OWNER/STEE RING GROUP A SEPARATE AMOUNT SHALL BE PAID TO THE CONTRACTOR WHI CH WILL BE DECIDED BY MUTUAL CONSENT. [EMPHASIS SUPPLIED] 2.5 YOUR HONOURS, IN PURSUANCE OF THE EPC CONTRACT ENTERED INTO BY THE APPELLANT WITH POHL, AS AFORESAID, THE APPELLAN T COMPANY COMMENCED THE EXECUTION OF WORK DURING THE FINANCIA L YEAR RELEVANT -: 31: - 31 TO A.Y. 2006-07 AND COMPLETED THE CONSTRUCTION PART OF THE CONTRACT DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR UNDER CONSIDERATION I.E, ON 27-04-2007. AFTER COMPLETION OF THE CONSTRUCTION, OPERATION AND MAINTENANCE OF THE PROJECT OBLIGATION OF THE APPELLANT GOT COMMENCED. DURING THE COURSE OF EXECUTION OF TH E SAID CONTRACT, THE APPELLANT COMPANY RAISED BILLS FROM TIME TO TIM E UPON POHL AND CORRESPONDINGLY RECOGNIZED THE INCOME FROM SUCH CON TRACT IN ITS BOOKS OF ACCOUNT, BY EMPLOYING MERCANTILE SYSTEM OF ACCOUNTING, WHICH HAS DULY BEEN INCORPORATED IN THE AUDITED FIN ANCIAL STATEMENTS FOR THE RELEVANT FINANCIAL YEAR. THE YEAR-WISE BREA K-UP OF THE REVENUE FROM THE CONTRACT, AS RECOGNIZED BY THE APPELLANT, IS GIVEN AS UNDER: FINANCIAL YEAR ASSESSMENT YEAR AMOUNT (RS.) 2005-06 2006-07 12,14,01,933 2006 - 07 2007 - 08 31,46,29,591 2007-08 [UNDER CONSIDERATION] 2008-09 [UNDER CONSIDERATION] 02,21,87,295 TOTAL 45,82,18,819 IT SHALL NOT BE OUT OF PLACE TO MENTION HERE THAT T HE RECEIPTS SHOWN BY THE APPELLANT FROM POHL GET FULLY TALLIED WITH THE AMOUNT OF PAYMENT SHOWN BY POHL IN THEIR LETTER OF CONFIRMATION WHICH HAS ALSO BEEN MADE A PART OF THE REMAND REPORT DATED 12-06-2012 SUBMITTED BY THE LEARNED AO TO -: 32: - 32 LEARNED CIT(A) AS ANNEXURE-2 [KINDLY REFER PB PAGE NO.20]. IN OTHER WORDS, THERE IS NO VARIATION IN THE AMOUNT OF CONTRACT PAYMENT RECORDED BY POHL IN THEIR BOOKS OF ACCOUNT AND CONTRACT RECEIPTS SHOWN BY THE APPELLANT IN ITS REGULAR BOOKS OF ACCOUNT. 2.6 YOUR HONOURS, AS STATED IN PRECEDING PARAS, TH E APPELLANT WAS AWARDED EPC CONTRACT TO EXECUTE THE PROJECT OF CONSTRUCTION AND OPERATION & MAINTENANCE OF REWA BY -PASS ON NH-7 NEAR REWA IN THE STATE OF MADHYA PRADESH ON BO T BASIS FROM KM 292/2 TO 243/6 AS PER THE SCOPE OF WORK AS CONTAINED IN APPENDIX-I OF THE CONTRACT. HOWEVER, DUE TO CERT AIN TECHNICAL COMPULSIONS, THE APPELLANT COMPANY HAD TO' INCUR CE RTAIN ADDITIONAL COST WHICH, IN ITS TURN, WAS ATTRIBUTABL E TO THE INCREASE IN WIDTH OF TWO CANALS VIZ. 'KEOTY CANAL' AND 'PURVA CANAL' FALLING IN THE NATIONAL HIGHWAY UNDER CONSTR UCTION AND CONSTRUCTION OF ONE MORE UNDER-PASS AND GRADE SEPAR ATOR. SUCH ADDITIONAL WORK WAS' EXECUTED BY THE APPELLANT COMPANY DURING THE FINANCIAL YEAR RELEVANT TO THE A.Y. 2007 -08 AND NOT DURING THE FINANCIAL YEAR UNDER REVIEW. ALTHOUGH IT WAS NOT CERTAIN, BUT STILL THE APPELLANT COMPANY FELT THAT DUE TO NON- COOPERATION ON THE PART OF THE MOSRTH THERE RESULTE D SOME -: 33: - 33 DELAY IN EXECUTION OF THE CONTRACT WHICH, IN ITS TU RN, RESULTED INTO ESCALATION OF COST OF CONSTRUCTION IN THE HAND S OF THE APPELLANT COMPANY. ALTHOUGH, AS PER THE TERMS OF CL AUSE 12.3 OF THE CONTRACT, ANY CLAIM FOR INCREASE IN THE CONT RACT PRICE WAS REQUIRED TO BE LODGED BY THE APPELLANT COMPANY WITH THE POHL WITHIN A PERIOD OF 28 DAYS AFTER THE DATE OF EVENT GIVING RISE TO THE CLAIM AND THE COMPANY COULD NOT COMPLY WITH SUC H CLAUSE BUT STILL FOR TAKING A CHANCE, DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.V . 2008-09, THE APPELLANT COMPANY DECIDED TO RAISE A CLAIM FOR ADDITIONAL WORK AND ESCALATION UPON THE. POHL. ACCORDINGLY, TH E APPELLANT COMPANY RAISED A PROFORMA BILL, ON TENTAT IVE BASIS, ON 27-04-2007, UPON POHL MAKING CLAIM FOR ESTIMATED ADDITIONAL WORK, ESTIMATED UTILITY SHIFTING COST AN D ESTIMATED ADDITIONAL ESCALATION COST FOR A SUM OF RS. 6,64,08.950/-. 2.7 HOWEVER, THE POHL DID NOT ACKNOWLEDGE THE CLA IM OF THE APPELLANT COMPANY AND RATHER THEY, OUT RIGHTLY REJE CTED THE CLAIM OF THE APPELLANT COMPANY, MADE THROUGH PROFOR MA BILL, ON THE FOLLOWING COUNTS: (A) THE APPELLANT COMPANY CLAIMED THE PERIOD OF EVE NT GIVING -: 34: - 34 RISE TO THE CLAIM AS FROM 01-04-2006 TO 31-12-2006, BUT THE CLAIM WAS LODGED AS LATE AS ON 27-04-2007 WHEREAS A S PER THE CLAUSE 12.3 OF THE EPC CONTRACT, THE APPELLANT COMPANY SHOULD HAVE LODGED THE CLAIM WITHIN 28 DAYS AFTER T HE DATE OF EVENT GIVING RISE TO THE CLAIM. (B) THE APPELLANT COMPANY HAS BEEN AWARDED THE CONTRACT ON TURNKEY BASIS AS PER THE CLAUSE 4.1(E) OF THE EPC CONTRACT AND, THEREFORE, THE ENTIRE COST FOR EX ECUTION OF THE PROJECT WORK WAS TO BE BORNE BY THE APPELLAN T COMPANY ONLY. THE POHL FURTHER STRESSED THAT AS PER CLAUSE 4.1 (F) OF THE EPC CONTRACT, THE APPELLANT C OMPANY WAS UNDER AN OBLIGATION TO PROVIDE THE WORKS SO THA T THE FACILITY WILL BE FIT FOR THE PURPOSE INTENDED AND C AN BE OPERATED IN ACCORDANCE WITH APPLICABLE LAWS IN FORC E. THE POHL VERSION WAS THAT THE TECHNICAL VARIATION W AS MADE ONLY WITH A VIEW TO MAKE THE HIGHWAY FACILITY FIT FOR THE INTENDED PURPOSE AND THEREFORE, ADDITIONAL WORK, IF ANY, DONE BY THEM WAS WELL WITHIN THEIR ORIGINAL SCOPE OF WORK FOR WHICH NO EXTRA PRICE WAS STIPULATED TO BE PAID. -: 35: - 35 (C) THE POHL RELIED UPON THE CLAUSE 12.1 OF THE EPC CONTRACT WHICH PROVIDES THAT THE CONTRACT PRICE IS THE TOTAL FIXED LUMP SUM TURNKEY PRICE PAYABLE TO THE CONTRACTOR FOR THE CONSTRUCTIO N, OPERATION & MAINTENANCE WORKS AND ITS OBLIGATION UNDER THE CONT RACT. FURTHER, IN TERMS OF CLAUSE 12.1, THE CONTRACT PRICE CANNOT BE INCREASED AND THE CONTRACTOR IS NOT ENTITLED TO ADDITIONAL PAYMENT EX CEPT AS SPECIFIED IN THE CONTRACT. (D) THE POHL FURTHER RELIED UPON THE LAST PARA OF C LAUSE 12.1 OF THE EPC CONTRACT IN WHICH IT IS STATED THAT THE CONTRAC TOR SHALL BE RESPONSIBLE FOR GETTING THE VARIATION ORDER, ESCALA TION AND OTHER CLAIMS APPROVED FROM MORT &H. THE AGITATION OF THE POHL WAS THAT PRIMARILY IT WAS RESPONSIBILITY OF THE APPELLA NT COMPANY ONLY TO GET THE VARIATION ORDER FOR THE ADDITIONAL COST AND ESCALATION APPROVED FROM THE MORT&H AND WITHOUT GETTING SUCH A PPROVAL THE APPELLANT COMPANY WAS NOT ENTITLED EVEN TO LODGE, M UCH LESS OF RECEIPT OF ANY CLAIM FROM THE POHL. SINCE THE APPEL LANT COMPANY NEITHER GOT SUCH VARIATION APPROVED NOR ASSESSED FR OM THE MORT &H, ACCORDING TO THE POHL, THE APPELLANT COMPANY WA S NOT HAVING ANY CONTRACTUAL RIGHT OR CLAIM OVER THE POHL. (E) THE POHL FURTHER ASSERTED THAT IN ANY EVENT, AN Y AMOUNT -: 36: - 36 FOR INCREASE IN THE CONTRACT PRICE CAN BE DETERMINE D BY THE REPRESENTATIVE OF POHL ONLY, AS PER CLAUSE 12.7 OF THE EPC CONTRACT AND THE APPELLANT COMPANY WAS NOT ELIGIBLE TO LODGE OR RAISE ANY TENABLE CLAIM UNLESS AND UNTIL ANY SUCH DETERMINATION IS MADE BY THE POHL'S REPRESENTATIVE. (F) THE POHL ALSO AVERTED THAT AS PER CLAUSE 13.1 O F THE EPC CONTRACT, THE CONTRACT PRICE CAN BE ADJUSTED FOR ES CALATION IN COST DUE TO DELAY ONLY WHEN IT IS INSTRUCTED BY THE STEERING GROUP FORMULATED BY THE MORT&H. FOR THIS AVERMENT, THEY ALSO REFERRED CLAUSE OF CONTRACT VALUE FOR CONSTRUC TION WORK AS CONTAINED IN THE APPENDIX 1 OF THE EPC CONTRACT. AS PER THE POHL, EVEN IF THE CLAIM FOR ADDITIONAL WORK AND ESC ALATION IS ADMITTED BY MORT&H, THE CONTRACTOR SHALL BE ELIGIBL E TO GET ONLY SUCH AMOUNT AS IS DECIDED BY MUTUAL CONSENT AND THE APPELLANT COMPANY HAS NO CONTRACTUAL RIGHT TO LODGE ANY CLAIM FOR ANY CERTAIN AMOUNT AGAINST THE POHL. 2.8 AFTER GETTING THE NOTE OF REJECTION OF CLAIM F ROM THE POHL, THE APPELLANT COMPANY SOUGHT LEGAL OPINION FROM VARIOUS LEGAL EXPERTS WHO ALSO SUPPORTED AND ENDORSED THE VARIOUS POINTS OF REJECTION STATED BY THE POHL. THE APPELLANT COMP ANY WAS -: 37: - 37 ADVISED THAT AS PER THE TERMS OF THE EPC CONTRACT, THE APPELLANT COMPANY SHOULD FIRST PURSUE THE POHL FOR MAKING A CLAIM UPON THE MORT&H AND ONLY AFTER ADMISSION OF THE CLAIM BY MORT&H AND DETERMINATION OF AMOUNT BY THE POHL'S REPRESENTATIVE, THE APPELLANT COMPANY WOULD BE IN A POSITION TO LODGE A CLAIM UPON THE POHL. THUS, THE APPELLANT COMPANY WAS MADE TO UNDERSTAND THAT THE CLAIM LODGE D BY IT UPON THE POHL WAS NOT ONLY PRE-MATURED ONE BUT E VEN THE AMOUNT OF CLAIM WAS NOT ASCERTAINABLE. UNDER THESE CIRCUMSTANCES, THE APPELLANT COMPANY REVERSED THE PROFORMA BILL ERRONEOUSLY RECORDED EARLIER IN ITS A CCOUNTS BOOK. 2.9 YOUR HONOURS, ALTHOUGH THE TECHNICAL WING OF TH E POHL REJECTED THE CLAIM OF THE APPELLANT COMPANY ON THE VARIOUS GROUNDS AS NOTED ABOVE, BUT THE ACCOUNTS WING OF TH E POHL, UNDER A WRONG NOTION, MERELY ON THE BASIS OF PROFOR MA INVOICE RAISED BY THE APPELLANT COMPANY, PASSED THE ACCOUNTING ENTRIES IN THEIR BOOKS OF ACCOUNT AND AL SO MADE THE DEDUCTION OF TAX AT SOURCE WITHOUT ANY AUTHORIT Y AND SANCTITY. AFTER HAVING DEDUCTED THE TAX, THEY PAID THE SAME -: 38: - 38 TO THE CREDIT OF THE TREASURY AND ISSUED CERTIFICAT E OF TDS IN THE PRESCRIBED FORM TO THE APPELLANT COMPANY. HOWEV ER, SUBSEQUENTLY, THE APPELLANT COMPANY RAISED ITS OBJE CTION ON MAKING OF TDS ON THE GROUND THAT WITHOUT ACTUALLY A DMITTING THE CLAIM FOR ADDITIONAL WORK/ESCALATION AND WITHOU T MAKING ANY PAYMENT AGAINST SUCH CLAIM, THE POHL WAS NOT JU STIFIED IN MAKING THE SAID TDS. THE POHL HAVING MADE THE TD S WAS NOT PREPARED TO SUFFER ANY LOSS ON THIS COUNT A ND EVEN THEY WERE NOT PREPARED TO LODGE THEIR CLAIM FOR REF UND OF TDS ERRONEOUSLY PAID BY THEM FROM THE INCOME-TAX DEPART MENT AND, THEREFORE, THEY INSISTED THE APPELLANT COMPANY TO LODGE THE CLAIM OF REFUND OF TDS IN THEIR OWN CASE ON THE BASIS OF CERTIFICATE OF TDS ISSUED BY POHL. HOWEVER, THE POH L GOT ITSELF AGREED TO REVISE THE RETURN OF TDS FOR THE A MOUNT OF CONTRACT PAYMENT SHOWN IN THE ORIGINAL RETURN AND ACCORDINGLY THEY REVISED THEIR RETURN OF TDS. IT SH ALL BE APPRECIATED BY YOUR HONOURS THAT THE APPELLANT COMP ANY BEING AN ENTITY ON THE RECEIVING HAND, WAS HAVING N O OPTION BUT TO ACCEPT THE PROPOSITION OF THE POHL AND IT WA S THEREFORE THAT DESPITE NOT GETTING ACKNOWLEDGEMENT FOR ITS -: 39: - 39 CLAIM OR ANY MONEY THERE-AGAINST, THE APPELLANT COM PANY WAS COMPELLED TO ADOPT THE ROUTE OF TDS REFUND THRO UGH THE INCOME TAX DEPARTMENT ONLY BY WAY OF MAKING CLAIMS ON THE BASIS OF THE TDS CERTIFICATE ISSUED BY THE POHL. IN SUCH CIRCUMSTANCES, YOUR HONOURS WOULD APPRECIATE THAT N O FAULT CAN BE FOUND WITH THE ACT OF THE APPELLANT CO MPANY IN LODGING THE CLAIM AND IN ANY EVENT, MERELY ON THE B ASIS OF LODGING OF CLAIM OF TDS .THE APPELLANT COMPANY SHOU LD NOT HAVE BEEN PUT TO THE RIGORS OF ANY UNWANTED ENHANCE MENT. 2.10 YOUR HONOURS WOULD ALSO APPRECIATE THAT SINCE A CLAIM WAS LODGED BY THE APPELLANT COMPANY AGAINST THE POHL AN D, THEREFORE, DESPITE OUTRIGHT REJECTION OF SUCH CLAIM BY THE POHL, UNDER THE ACCEPTED ACCOUNTING AND DISCLOSURE NORMS, THE POHL WAS UNDER AN OBLIGATION TO MAKE A SUITABLE DISCLOSU RE TO THIS EFFECT IN THEIR AUDITED FINANCIAL STATEMENTS. UNDER THESE CIRCUMSTANCES ONLY, THE POHL MADE THE SUITABLE DISC LOSURE AS REGARD TO THE CLAIM OF THE APPELLANT IN THEIR FINAN CIAL STATEMENTS UNDER THE HEAD 'NOTES TO THE ACCOUNTS - CONTINGENT LIABILITY' AS PER THE DETAILS GIVEN AT ANNEXURE-3 O F THE AO'S REMAND REPORT DATED 12-06-2012 [KINDLY REFER PB PAG E NO. -: 40: - 40 21]. IT IS SUBMITTED THAT IN ANY EVENT, THE APPELLA NT COMPANY WAS HAVING NO CONTROL OVER THE POHL AND MERELY ON T HE BASIS OF DISCLOSURE BY THE POHL, NO ADVERSE INFERENCE WAS DESERVED TO BE DRAWN AGAINST THE APPELLANT COMPANY. FURTHER, THE DISCLOSURE UNDER THE CONTINGENT LIABILITY WITHOUT M AKING ANY SUITABLE PROVISION ITSELF GOES TO PROVE THAT THE CL AIM OF THE APPELLANT WAS NOT ACKNOWLEDGED BY THE POHL. 2.11 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES O F THE CASE, IT SHALL BE APPRECIATED BY YOUR HONOURS THAT THE IMPUGNED AM OUNT OF RS. 6,84,24,OOO/- BEING THE AMOUNT OF UN-ADMITTED C LAIM OF THE APPELLANT AGAINST POHL NEITHER GOT ACCRUED NOR ARISEN IN THE HANDS OF THE APPELLANT COMPANY DURING THE RELEV ANT PREVIOUS YEAR. IT IS SUBMITTED THAT THE APPELLANT I S A COMPANY AND IT IS STATUTORILY REQUIRED TO PREPARE ITS FINAN CIAL STATEMENTS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS NOTIFIE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA [IN SHO RT ICAI] ONLY. SINCE THE APPELLANT IS A COMPANY ENGAGED IN THE BUS INESS OF UNDERTAKING CONSTRUCTION CONTRACTS AND, THEREFORE, THE ACCOUNTING STANDARD-AS-7 ISSUED BY THE ICAI SQUAREL Y APPLIES TO IT. A COPY OF THE ACCOUNTING STANDARDS AS-7 IS P LACED AT -: 41: - 41 PAGE NO.233 TO 250 OF OUR PAPER BOOK. IN THE AS- 7, THE VARIOUS ASPECTS RELATING TO THE CONTRACT REVENUE AND CONTRA CT COSTS HAVE BEEN ENVISAGED. IN PARA 10, IT HAS BEEN CLEARL Y STATED THAT THE CONTRACT REVENUE SHOULD COMPRISE: (A) THE INITIAL AMOUNT OF REVENUE AGREED IN THE CON TRACT; AND (B) VARIATION IN CONTRACT WORK, CLAIMS AND INCENTIVE PAYMENTS: (I) TO THE EXTENT THAT IT IS PROBABLE THAT THEY WIL L RESULT IN REVENUE; AND (II) THEY ARE CAPABLE OF BEING RELIABLY MEASURED. ON A PLAIN READING OF THE PARA 10, IT BECOMES ABUND ANTLY CLEAR THAT IN THE CASE OF A CONSTRUCTION CONTRACTOR, THE CONTR ACT REVENUE WOULD ACCRUE OR ARISE ONLY IN RESPECT OF THE INITIAL AMOU NT OF REVENUE AGREED IN THE CONTRACT. HOWEVER, IN RESPECT OF VARI ATIONS, CLAIMS AND INCENTIVES THE REVENUE WOULD ACCRUE AND ARISE ONLY IN A SITUATION WHEN THERE IS NOT ONLY SOME PROBABILITY OF ACCEPTAN CE OF CLAIM BUT ALSO WHEN SUCH VARIATION, CLAIMS OR INCENTIVE ARE R ELIABLY MEASURABLE. IT WOULD BE APPRECIATED BY YOUR HONOUR THAT BOTH THE CONDITIONS ENJOINED IN RESPECT OF VARIATION, CLAIMS AND INCENTIVE PAYMENTS ARE CUMULATIVE AND UNLESS AND UNTIL BOTH T HE CONDITIONS ARE MET OUT TOGETHER, NO REVENUE IN RESPECT OF SUCH VARIATIONS, CLAIMS AND INCENTIVE CAN BE RECOGNIZED IN THE BOOKS OF ACCOUNT. -: 42: - 42 YOUR HONOURS, THE TERMS 'VARIATION' AND 'CLAIMS' HA VE RESPECTIVELY BEEN DESCRIBED IN THE ACCOUNTING STANDARD AS-7 AT P ARAS 12 AND 13. UNDER PARA 12, A VARIATION IS AN INSTRUCTION BY THE CUSTOMER FOR A CHANGE IN THE SCOPE OF THE WORK TO BE PERFORMED U NDER THE CONTRACT. A VARIATION MAY LEAD TO AN INCREASE OR A DECREASE IN CONTRACT REVENUE. A VARIATION IS INCLUDED IN CONTRA CT REVENUE WHEN IT IS PROBABLE THAT THE CUSTOMER WILL APPROVE THE VARI ATION AND THE AMOUNT OF REVENUE ARISING FROM THE VARIATION AND TH E AMOUNT OF REVENUE CAN BE RELIABLY MEASURED. UNDER PARA 13, A CLAIM IS AN AMOUNT THAT THE CONTRACTOR SEEKS TO COLLECT FROM TH E CUSTOMER OR ANOTHER PARTY AS REIMBURSEMENT FOR COSTS NOT INCLUD ED IN THE CONTRACT PRICE. A CLAIM MAY ARISE FROM, FOR EXAMPLE , CUSTOMER CAUSED DELAYS, ERRORS IN SPECIFICATIONS OR DESIGN AND DISP UTED VARIATIONS IN CONTRACT WORK. THE MEASUREMENT OF THE AMOUNTS OF RE VENUE FROM CLAIMS IS SUBJECT TO A HIGH LEVEL OF UNCERTAINTY AN D OFTEN DEPENDS ON THE OUTCOME OF NEGOTIATIONS AND, THEREFORE, CLAIMS ARE ONLY INCLUDED IN CONTRACT REVENUE WHEN NEGOTIATIONS HAVE REACHED AN ADVANCED STAGE, SUCH THAT IT IS PROBABLE THAT THE CUSTOMER W ILL ACCEPT THE CLAIM AND THE AMOUNT THAT IT IS PROBABLE WILL BE ACCEPTED BY THE CUSTOMER CAN BE MEASURED RELIABLY. -: 43: - 43 ON A COMBINED READING OF PARAS 10, 12 AND 13, IT MA Y SAFELY BE CONCLUDED THAT ANY REVENUE IN RESPECT OF THE VARIAT ION OR CLAIM CAN BE RECOGNIZED ONLY WHEN BOTH THE CONDITIONS I.E. PR OBABILITY OF APPROVING THE VARIATION/CLAIM BY THE CUSTOMER AND R ELIABLE MEASUREMENT OF THE AMOUNT OF REVENUE GET FULL FILLE D. IN RESPECT OF THE CLAIM, THERE IS A FURTHER REQUIREMENT THAT NEGO TIATION SHOULD HAVE REACHED TO AN ADVANCED STAGE. IN THE INSTANT C ASE, THE CLAIM OF THE APPELLANT COMPANY HAS BEEN REJECTED BY THE POHL AT THRESHOLD ONLY AND EVEN THE PROCESS OF NEGOTIATION HAS NOT GO T COMMENCED DURING THE YEAR UNDER CONSIDERATION. BESIDES, UNDER THE VARIOUS CLAUSES OF THE EPE CONTRACT, AS DISCUSSED ABOVE, EV EN THE AMOUNT OF REVENUE CANNOT BE RELIABLY MEASURED. IT SHALL BE AP PRECIATED BY YOUR HONOUR THAT FIRST OF ALL THE POHL WOULD ACKNOW LEDGE THE CLAIM OF THE APPELLANT COMPANY ONLY IF THE MORT&H ACCEPTS THE CLAIM. SECONDLY, THE AMOUNT OF THE CLAIM SHALL BE DETERMIN ED BY THE MORT &H AND THE REPRESENTATIVES OF THE POHL AND THE APPE LLANT HAS NO SAY IN THE DETERMINATION OF THE AMOUNT OF CLAIM. FI NALLY, EVEN IF THE CLAIM IS ACCEPTED BY THE MORT&H THE MODE OF PAYMENT / REIMBURSEMENT IS NOT CERTAIN. THE MODE OF COMPENSAT ING THE CLAIM FOR ADDITIONAL COST/ ESCALATION BY MORT &H CAN EITH ER BE IN THE -: 44: - 44 TERMS OF MONEY OR IN TERMS OF EXTENSION OF CONCESSI ON PERIOD TO POHL AS PER LAST PARA OF CLAUSE 12.2 OF THE EPC CON TRACT. IN A SITUATION WHERE THE CONCESSION PERIOD IS EXTENDED T O POHL AGAIN THE CONTROVERSY AND DISPUTE WOULD ARISE AS REGARD TO TH E MEASUREMENT OF THE MONETARY VALUE OF THE BENEFITS ACCRUING TO T HE POHL DUE TO THE EXTENSION OF THE CONCESSION PERIOD OF RECOVERIN G THE TOLL. IN THESE CIRCUMSTANCES, THERE CANNOT BE TWO VIEWS ON THE ISS UE THAT THE PREMATURED CLAIM LODGED BY THE APPELLANT COMPANY WA S FULL OF THE UNCERTAINTIES BOTH AS REGARD TO ITS ACCEPTANCE BY T HE POHL AND THE MEASUREMENT OF THE MAGNITUDE OF THE CLAIM. THIS BEI NG THE SITUATION, NO INCOME COULD BE SAID TO HAVE ACCRUED TO THE APPE LLANT COMPANY, DURING THE RELEVANT PREVIOUS YEAR, UNDER AS-7 NOTIF IED BY THE ICAI. EVEN IF THE ISSUE IN HAND IS VIEWED FROM ANOTHER AC COUNTING STANDARD I.E. AS-9, NOTIFIED BY THE ICAI, NO REVENU E CAN BE RECOGNIZED IF THE REVENUE IS NOT MEASURABLE AND IT IS UNREASONABLE TO EXPECT ULTIMATE COLLECTION [KINDLY REFER COPY OF ACCOUNTING STANDARD AS-9 PLACED AT PB PAGE NO.251 TO 262]. IT IS REITERATED THAT TILL DATE THE CLAIM OF THE APPELLANT COMPANY HAS NEITHER BEEN ACKNOWLEDGED BY THE POHL NOR THE CLAIM OF THE POHL HAS BEEN ASSESSED AND DETERMINED BY THE MORT&H. SUCH FACT IS EVIDENT -: 45: - 45 FROM THE MINUTES OF THE STEERING GROUP FORMULATED B Y MORT&H, DATED 04-02-2011 A COPY WHEREOF IS PLACED AT PAGE N O.226 TO 232 OF OUR PAPER BOOK. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, IT SHALL BE APPRECIATED BY YOUR HONOURS THAT THE SUBJECT AMOUNT OF RS. 6,84,24,000/- WAS NEITHER RECEIVED BY THE APPELLANT NOR IT GOT ACCRUED TO THE APPELLANT DURING THE RELEVANT PREVIO US YEAR AND, THEREFORE, SUCH AMOUNT CANNOT BE SUBJECTED TO TAX U NDER THE PROVISIONS OF S. 5 R/W S. 4 OF THE INCOME-TAX ACT, 1961. CONSEQUENTLY, THE ENHANCEMENT SO MADE BY THE LEARNE D CIT(A) DESERVES TO BE DELETED ON THE FACTUAL MATRIX OF THE CASE TOO. 16. ON THE OTHER HAND, THE LD. CIT DR RELIED ON THE ORD ER OF THE ASSESSING OFFICER WITH REGARD TO NON-INCLUSION OF INCOME ATTRIBUTABLE TO T. D. S. OF RS. 52.54 LAKHS AND ON THE ORDER OF CIT(A) WITH RESPECT TO ENHANCEMENT OF INCOME MADE BY THE C IT(A). 17. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. WE FOUND THAT T.D. S. HAS BEEN DEDUCTED BY MPRDC FOR PAYMENT OF RS. 22.49 CRORES, WHILE THE ASSESSEE HAS DECLARED RECEIPT OF RS. 6.14 CRORES ONLY. AS PER ASSESSEE, T HE AMOUNT OF BILL -: 46: - 46 SUBMITTED AND PASSED ARE ONLY OF RS. 6.14 CRORES AN D THE BALANCE AMOUNT WAS OF MOBILIZATION ADVANCE AND ADVANCE AGAI NST MATERIAL, WHICH HAS BEEN SHOWN AS LIABILITY IN THE BALANCE SH EET. AS PER OUR CONSIDERED VIEW, TDS IS LIABLE TO BE DEDUCTED IN RE SPECT OF INCOME PAID OR CREDITED IN FAVOUR OF THE ASSESSEE AND NOT IN RESPECT OF ADVANCE GIVEN TO THE ASSESSEE. EVEN IF THE DEDUCTOR HAS WRONGLY DEDUCTED TAX ON THE AMOUNT PAID AS ADVANCE AND ISSU ED CERTIFICATE OF TDS ON SUCH PAYMENT, THE ASSESSEE IS ENTITLED TO GET CREDIT OF THIS T. D. S. IN ITS COMPUTATION OF INCOME. HOWEVER , WHILE GIVING CREDIT FOR SUCH TDS, THE ASSESSING OFFICER IS REQUI RED TO VERIFY AS TO WHETHER SUCH TDS WAS DEDUCTED ON THE INCOME ACCRUED AND/OR RECEIVED BY THE ASSESSEE. IN CASE T.D.S. HAS BEEN W RONGLY DEDUCTED ON THE ADVANCES, INCOME ATTRIBUTABLE TO WHICH ACCRU E IN THE SUBSEQUENT YEAR, THE ASSESSEE IS ENTITLED TO TAKE B ENEFIT OF SUCH TDS IN SUBSEQUENT YEAR. HOWEVER, FACTS ARE NOT CLEA R AS TO WHETHER TDS WAS DEDUCTED ON THE INCOME ACCRUED/RECEIVED BY THE ASSESSEE OR ON THE ADVANCES, WHICH DID NOT FORM PART OF THE ASSESSEES INCOME DURING THE YEAR UNDER CONSIDERATION. IN THE INTEREST OF JUSTICE, THE MATTER IS RESTORED BACK TO THE FILE OF A.O. FOR DECIDING AFRESH IN TERMS OF OUR ABOVE DISCUSSION. -: 47: - 47 18. THE LD. CIT(A) HAS ENHANCED THE ASSESSMENT ON THE P LEA THAT PROFORMA BILL WAS RAISED WITH RESPECT TO CLAIM OF ESCALATION IN PRICE/COST. AS PER ASSESSEE, ONLY PROFORMA INVOICE WAS RAISED, WHICH WAS NOT ACCEPTED BY THE CONTRACTEE AS SUCH NO R ANY PAYMENT WAS RECEIVED BY THE ASSESSEE FROM PATH ORIENTAL HIG HWAYS LIMITED. AGAINST THIS ENHANCEMENT, ASSESSEE IS BEFORE US. 19. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. FROM THE RECORD, WE FOUND THAT THE ASSESSE E COMPANY HAD ENTERED IN TO E.P.C. CONTRACT ON 25 TH JULY, 2005, WITH M/S. PATH ORIENTAL HIGHWAYS LIMITED ( IN SHORT POHL ) FOR E XECUTING THE PROJECT OF CONSTRUCTION AND OPERATION AND MAINTENAN CE OF REWA BY PASS, ON B.O.T.BASIS, WHICH WAS AWARDED TO POHL BY MINISTRY OF SURFACE ROAD TRANSPORT AND HIGHWAYS ( IN SHORT MORT & H) UNDER AN AGREEMENT DATED 23.6.2005 ENTERED INTO BETWEEN M ORT&H AND POHL. WE HAD GONE THROUGH THE TERMS AND CONDITIONS CONTRACT EXECUTED BETWEEN MORT&H AND POHL. DURING THE COURSE OF EXECUTION OF THE SAID CONTRACT, THE APPELLANT COMPA NY RAISED BILLS FROM TIME TO TIME UPON POHL AND CORRESPONDINGLY REC OGNIZED THE INCOME FROM SUCH CONTRACT IN ITS BOOKS OF ACCOUNT, BY EMPLOYING MERCANTILE SYSTEM OF ACCOUNTING, WHICH HAS DULY BEE N INCORPORATED -: 48: - 48 IN THE AUDITED FINANCIAL STATEMENTS FOR THE RELEVAN T FINANCIAL YEAR. THE YEAR-WISE BREAK-UP OF THE REVENUE FROM THE CONT RACT, AS RECOGNIZED BY THE ASSESSEE, IS GIVEN AS UNDER: FINANCIAL YEAR ASSESSMENT YEAR AMOUNT (RS.) 2005 - 06 2006 - 07 12,14,01,933 2006-07 2007-08 31,46,29,591 2007-08 [UNDER CONSIDERATION] 2008-09 [UNDER CONSIDERATION] 02,21,87,295 TOTAL 45,82,18,819 20. FROM THE RECORD, WE FOUND THAT THE ABOVE RECEIPT OF INCOME BY ASSESSEE FROM POHL IS FULLY TALLYING WITH THE AMOUNT OF PAYMENTS SHOWN BY POHL IN THEIR LETTER OF CONFIRMAT ION, WHICH HAS ALSO BEEN MADE A PART OF REMAND REPORT DATED 12.6.2 012 SUBMITTED BY THE ASSESSING OFFICER TO THE LD. CIT(A). THUS, T HERE WAS NO VARIATION IN THE AMOUNT OF CONTRACT PAYMENT RECEIVE D BY THE ASSESSEE FROM POHL AND RECORDED IN THE REGULAR BOOK S OF ACCOUNT. WHILE FRAMING ASSESSMENT U/S 143(3), THE ASSESSING OFFICER HAS NOT DOUBTED ANY RECEIPTS FROM POHL WHICH WERE DULY ACCO UNTED FOR BY ASSESSEE AS PER SYSTEM OF ACCOUNTING REGULARLY FOLL OWED. DURING APPELLATE PROCEEDINGS, CIT(A) OBSERVED THAT ASSESSE E HAS RAISED -: 49: - 49 ADDITIONAL CLAIM ON ACCOUNT OF ESCALATION COST, THE REFORE, LIABLE TO TAX ON SUCH AMOUNT. FROM THE RECORD, WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RAISED P ROFORMA INVOICE ON POHL IN RESPECT OF ESCALATION COST/SHIFTING WORK /ADDITIONAL WORK. THE PROFORMA INVOICE RAISED BY THE ASSESSEE W ERE REJECTED BY POHL AND NOTHING WAS PAID TO THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION. WHILE REJECTING THE CLAIM OF ASSESSE E, POHL RELIED UPON CLAUSE 12.1 OF EPC CONTRACT, WHICH PROVIDES TH AT THE CONTRACT PRICE IS THE TOTAL FIXED LUMP SUM TURNKEY PRICE PAY ABLE TO THE CONTRACTOR FOR THE CONSTRUCTION, OPERATION & MAINTE NANCE WORKS AND ITS OBLIGATION UNDER THE CONTRACT. FURTHER, IN TERMS OF CLAUSE 12.1, THE CONTRACT PRICE CANNOT BE INCREASED AND TH E CONTRACTOR IS NOT ENTITLED TO ADDITIONAL PAYMENT EXCEPT AS SPECIF IED IN THE CONTRACT. THUS, THE IMPUGNED AMOUNT OF PROFORMA INV OICE RAISED BY THE ASSESSEE WAS UN-ADMITTED CLAIM OF ASSESSEE, INC OME ATTRIBUTABLE TO SUCH PROFORMA INVOICE NEITHER GOT A CCRUED IN THE HANDS OF ASSESSEE COMPANY, NOR ANY PAYMENT WAS AROS E NOR ANY AMOUNT WAS ACTUALLY RECEIVED BY ASSESSEE COMPANY DU RING RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. SINCE THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF UNDERTAKING CONSTRUCT ION CONTRACT, -: 50: - 50 THEREFORE, ACCOUNTING STANDARD AS-7 ISSUED BY I.C. A.I. SQUARELY APPLIES TO IT. AS PER THE ACCOUNTING STANDARD, IN C ASE OF CONSTRUCTION CONTRACTOR, THE CONTRACT REVENUE WOULD ACCRUE OR ARISE ONLY IN RESPECT OF INITIAL AMOUNT OF REVENUE AGREED IN THE CONTRACT. HOWEVER, IN RESPECT OF VARIATIONS OF CLAIM AND INCE NTIVE, THE REVENUE WOULD ACCRUE AND ARISE ONLY IN THE SITUATION, WHEN THERE IS NOT ONLY PROBABILITY OF ACCEPTANCE OF CLAIM BUT ALSO WHEN VA RIATIONS, CLAIM OR INVENTIVE ARE RELIABLY MEASURABLE. BOTH THE CONDITI ONS ENJOYED IN RESPECT OF VARIATIONS, CLAIM OR INCENTIVE PAYMENT A RE CUMULATIVE AND UNLESS BOTH THE CONDITIONS ARE MET OUT TOGETHER , NO REVENUE CLAIM OR INCENTIVE CAN BE RECOGNIZED IN THE BOOKS O F ACCOUNT. IN THE INSTANT CASE, THE CLAIM OF THE ASSESSEE COMPANY HAS BEEN REJECTED BY POHL AT THRASH HOLD ONLY AND EVEN THE PROCESS O F NEGOTIATIONS HAVE NOT GOT COMMENCED DURING THE YEAR UNDER CONSID ERATION. FURTHERMORE, UNDER CLAUSES OF EPC CONTRACT, EVEN TH E AMOUNT OF REVENUE IN RESPECT OF PROFORMA INVOICE WERE NOT REL IABLY MEASURABLE. IT IS ALSO PERTINENT TO MENTION THAT POHL WOULD ACK NOWLEDGE THE CLAIM OF ASSESSEE COMPANY ONLY IF THE MORT&H ACCEPT S THE COUNTER CLAIM OF POHL. THUS, THE PREMATURITY CLAIM LODGED B Y THE ASSESSEE COMPANY WAS FULL OF UN-CERTAINTY BOTH AS REGARDS TO ITS ACCEPTANCE -: 51: - 51 BY POHL AND THE MEASUREMENT OF MAGNITUDE OF THE CLA IM. IT IS MATTER OF RECORD THAT DURING THE YEAR UNDER CONSIDE RATION, NOTHING WAS RECEIVED BY ASSESSEE FROM POHL AGAINST THESE PR OFORMA INVOICES, THEREFORE, NO INCOME ACCRUED, AROSE OR RE CEIVED BY THE ASSESSEE WITH RESPECT TO THE PROFORMA INVOICE RAISE D. ON SPECIFICALLY ASKING BY THE BENCH, IT CAME TO OUR NOTICE THAT TIL L DATE, NOTHING WAS RECEIVED BY THE ASSESSEE NOR THE CLAIM OF THE A SSESSEE WAS ACKNOWLEDGED BY POHL NOR THE CLAIM OF POHL HAS BEEN ASSESSED AND DETERMINED BY MORT&H. ALL THESE FACTS ARE EVIDE NT AS PER MATERIAL PLACED ON RECORD. 21. AS PER OUR CONSIDERED VIEW, UNDER THE PROVISIONS OF INCOME-TAX ACT, INCOME TAX IS CHARGED FOR ANY ASSES SMENT YEAR IN RESPECT OF TOTAL INCOME OF ANY PERSON FOR PREVIOUS YEAR AND SUCH INCOME TAX IS CHARGED FOR TOTAL INCOME AS CONTEMPLA TED UNDER THE PROVISIONS OF SECTION 5. UNDER THE PROVISIONS OF SE CTION 5, TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHICH IS RE SIDENT INCLUDES OF INCOME FROM WHATEVER SOURCE DERIVED, WHICH IS EI THER RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUES OR ARISES OR DEEME D TO ACCRUE OR ARISE IN INDIA DURING THE RELEVANT PREVIOUS YEAR. T HUS, ACCRUAL OR RECEIPT OF INCOME BY A PERSON IS A SINE QUA NON FOR BRINGING THE INCOME TO CHARGE WITHIN THE AMBIT OF PROVISIONS OF SECTION 4 OF INCOME-TAX ACT, 1961. UNDER A CASE WHERE NO INCOME HAS EITHER BEEN RECEIVED OR ACCRUED TO ASSESSEE IN A PREVIOUS YEAR, THE -: 52: - 52 QUESTION OF LEVYING ANY INCOME TAX DOES NOT ARISE A T ALL. FURTHERMORE, MERE WRONG DEDUCTION OF TAX AT SOURCE BY CONTRACTEE WILL NOT GIVE RIGHT TO THE CONTRACTOR TO RECEIVE TH AT INCOME. IN THE INSTANT CASE BEFORE US, THE ALLEGED AMOUNT OF PROFO RMA INVOICE HAS NEITHER BEEN RECEIVED NOR ACCRUED TO THE ASSESSEE D URING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. THERE FORE, THERE IS NO JUSTIFICATION IN THE ACTION OF CIT(A) FOR BRINGI NG TO TAX NET SUCH AMOUNT DURING THE YEAR UNDER CONSIDERATION. HOWEVER , THE DEPARTMENT IS AT LIBERTY TO TAX SUCH INCOME IN THE YEAR OF ACTUAL RECEIPT, IN ANY SUBSEQUENT YEAR. ACCORDINGLY, WE RE STORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY AND TAX THIS INCOME IN THE YEAR OF ACTUAL RECEIPT. WE DIRECT ACCORDINGLY. 22. IN THE RESULT, THE APPEAL IS ALLOWED IN PART FOR ST ATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH SEPTEMBER, 2013. CPU* 624279