THE ACIT, (CENTRAL)-I, Indore V. M/S. PRAKASH ASPHALTING & TOLL HIGHWAYS (INDIA) LTD., Mhow

ITA 589/IND/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5698 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 29-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Keywords: Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Commercial expediency
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., ..!', #$ # !% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 589/IND/2015 ASSESSMENT YEAR: 2009-10 ACIT (CENTRA) I INDORE :: APPELLANT VS M/S PRAKASH ASPHALTING & TOLL HIGHWAYS (INDIA) LTD. MHOW ./ PAN: AABCP-0398N :: RESPONDENT /APPELLANT BY SHRI MOHD. JAVED RESPONDENT BY SHRI ANIL KAMAL GARG !' DATE OF HEARING 20.09.2016 #$%& !' DATE OF PRONOUNCEMENT 20.09.2016 ( O R D E R PER SHRI D.T. GARASIA, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-II, INDORE, DATED 30.4.2015. PRAKASH ASPHALTING ITA NO. 589/IND/2015 2 2. GROUND NO. 1 IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF INVESTMENT IN SHARES MADE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULE TO THE TUNE OF RS.1,80,71,675/-. 3. WE HAVE HEARD BOTH THE SIDES. WE FIND THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 THE MATTER TRAVELLED TO THE TRIBUNAL AND THE TRIBUNAL AFTER ELABORATELY DISCUSSING THE ISSUE VIDE ITS ORDER DATED 30.9.2013 IN ITA NO. 580/IND/2012 HAS DECIDED THE ISSUE AS UNDER :- 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECOR DS PERUSED. THE ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF CONSTRUC TION/OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECT OF ROADS AND BRIDGE UNDER B.O. T. SCHEME. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AS SESSING OFFICER FOUND THAT ASSESSEE HAD MADE INVESTMENT IN EQUITY CAPITAL S -: 6: - 6 OF GROUP COMPANIES AS WELL AS IN THE MUTUAL FUNDS. HE FURTHE R NOTED THAT DURING THE YEAR THERE IS FRESH INVESTMENT OF RS. 7.87 CROR ES. ACCORDINGLY, BY INVOKING PROVISIONS OF SECTION 14A, HE WORKED OUT I NTEREST OF RS. 1,76,38,517/- AS DISALLOWABLE. THE ASSESSING OFFICE R HAS DISCUSSED THE ISSUE AT PAGE 3 TO 7 OF THE ORDER. BY THE IMPUGNED ORDER, THE LD. CIT(A) PRAKASH ASPHALTING ITA NO. 589/IND/2015 3 CONFIRMED THE ACTION OF ASSESSING OFFICER AGAINST W HICH 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 WAS MADE BY TH E ASSESSEE COMPANY OUT OF INTEREST FREE FUNDS BEING CASH ACCRU AL OF THE YEAR, THEREFORE, THERE IS NO JUSTIFICATION TO INVOKE THE P ROVISIONS OF SECTION 14A FOR MAKING DISALLOWANCE OF INTEREST U/S 14A. THE LD . AUTHORIZED REPRESENTATIVE FURTHER CONTENDED THAT THE PROVISION S OF SUB-SECTION (2) OF SECTION 14A OF THE ACT, WOULD COME INTO OPERATIO N ONLY IN A SITUATION WHERE BOTH THE BASIC CONDITIONS VIZ.(I) THE ASSESSE E HAS INCURRED CERTAIN EXPENDITURE AND (II) SUCH EXPENDITURE HAVE BEEN INC URRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME, AS ENJOINED UNDER THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A; GET FULFILLED AND FURTHER BOTH THE CONDITIONS HAVE TO BE FULFILLED CU MULATIVELY AND IF ANY ONE OF THESE CONDITIONS ARE NOT MET OUT THEN CASE O F 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-S ECTION (1) OF SECTION 14A OF THE ACT, THE COMPUTATION MACHINERY AS SET OU T IN SUB SECTION (2) OF SECTION 14A WOULD COME INTO MOTION AND THEN & TH EREAFTER ONLY AN ASSESSING OFFICER , AFTER GIVING A FINDING TO THIS EFFECT, CAN DETERMINE THE AMOUNT OF DISALLOWANCE IN ACCORDANCE WITH THE METHO D 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 DISALLOWANCE BY INVOKING THE PROVISIONS OF SUB SECTION (2) OF SECTION 14A R/W RULE 8D OF THE IT RULES, 1962, WITH OUT FIRST GIVING A FINDING TO THE EFFECT THAT THE ASSESSEE HAS INCURRE D ANY EXPENDITURE FOR EARNING ANY EXEMPT INCOME WHICH IS NOT PERMISSIBLE IN THE LOWER AUTHORITIES. FOR SUCH PROPOSITION, RELIANCE IS PLAC ED ON THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASES OF CIT VS. AVON CYCLES LIMITED,(2012) 81 CCH 188 ( P & H ) PAGE 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 APPROVAL BY THE LD. CIT(A ) DESERVE TO BE KNOCKED-DOWN ON THIS COUNT ALONE. PRAKASH ASPHALTING ITA NO. 589/IND/2015 4 6. WITHOUT PREJUDICE TO THE ABOVE IT WAS SUBMITTED B Y LD. AUTHORIZED REPRESENTATIVE THAT IN THE INSTANT CASE, THE ENTIRE INVESTMENTS IN SHARES OF THE GROUP COMPANIES HAVE BEEN MADE BY THE ASSESS EE COMPANY ONLY OUT OF THE INTEREST FREE FUNDS BEING INTERNAL ACCRU ALS FOR THE CURRENT YEAR AND, THEREFORE, THERE WAS NO JUSTIFICATION FOR INVOK ING PROVISIONS OF SECTION. 14A OF THE ACT IN RESPECT OF INTEREST EXPE NSES CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. FOR OUR SUCH ASS ERTION, ATTENTION WAS INVITED TO SCHEDULE -6 OF THE AUDITED FINANCIAL STA TEMENTS OF THE ASSESSEE COMPANY AS PLACED AT PAGE NO. 61 OF THE CO MPILATION, WHICH INDICATE THAT THE ASSESSEE COMPANY WAS HAVING OPENI NG INVESTMENTS AMOUNTING TO RS. 34,66,13,178/- AND THE CLOSING INV ESTMENTS AMOUNTING TO RS. 42,43,50,000/- THEREBY REGISTERING A NET INC REASE IN 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 NONGROUP COMPANIES AT RS. 9,50,678/- IS ADDED, THE AMOUNT 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 AT PAGE NO.56 OF THE PAPER BOOK, THE NET PROFIT OF THE COMPANY AFTER DEPRECIATION AND TA X HAS BEEN SHOWN AT RS.8,39,12,704/- AND AFTER MAKING ADJUSTMENTS FOR NO N-CASH ITEMS BEING DEPRECIATION AND REVERSAL OF EXCESS PROVISION OF TA X FOR EARLIER YEARS AT RS.4,88,81,353/- AND RS.2,36,037/- RESPECTIVELY THE NET CASH PROFIT OF THE ASSESSEE COMPANY, FOR THE PREVIOUS YEAR UNDER CONSI DERATION, WORKS OUT TO BE AT RS.13,25,58,020/-. THUS, IN VIEW OF THE AB OVE 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 INTEREST-FREE FUNDS BEING INTERNAL ACCRUALS FOR THE CURRENT YEAR. IT IS SUBMITTED THAT ONCE THE INVESTMENTS HAVING BEEN MADE OUT OF THE INTERNAL ACCRUALS WITHO UT MAKING ANY BORROWING FOR SUCH INVESTMENTS, THERE WAS NO JUSTIFI CATION FOR INVOKING THE PROVISIONS OF S. 14A OF THE ACT QUA THE AMOUNT OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE. FOR SUCH PROPOSITION, RELI ANCE IS PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: -: 10 I) J.K. INDUSTRIES LTD. VS. CIT (2011) 61 DTR ( CAL)153 [JCB PAGE NO. 3 TO 9] PRAKASH ASPHALTING ITA NO. 589/IND/2015 5 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 I TR 316 (DEL) [JCB PAGE NO. 12 TO 15]. AS PER LD. AUTHORIZED REPRESENTATIVE , THE INCOME F ROM THE INVESTMENTS IN GROUP COMPANIES IS NOT ONLY TAXABLE BUT THE ASSE SSEE HAS ALSO OFFERED INCOME FROM SUCH INVESTMENTS IN ITS RETURN OF INCOM E FOR SUBSEQUENT YEARS. OUR ATTENTION WAS ALSO INVITED TO THE COMPUTATION OF INTEREST UNDER RULE 8D, AS MADE BY THE ASSESSING OFFICER AND IT WAS POI NTED OUT THAT THE LEARNED ASSESSING OFFICER HAS TAKEN THE AMOUNT OF I NVESTMENT ON FIRST DAY OF THE RELEVANT PREVIOUS YEAR AT RS. 34,66,13,1 78/- WHICH GETS COMPLETELY TALLIES WITH THE AMOUNT OF INVESTMENT SH OWN IN THE AUDITED FINANCIAL STATEMENTS UNDER THE COLUMN OF PREVIOUS Y EAR I.E. AS AT 31-03- 2007 [KINDLY REFER PB PAGE NO. 61]. LIKEWISE, THE L EARNED ASSESSING OFFICER HAS TAKEN THE AMOUNT OF INVESTMENT ON LAST DAY OF THE RELEVANT PREVIOUS YEAR AT RS. 42,43,50,000/- WHICH ALSO GETS FULLY TALLIED WITH THE AMOUNT OF -: 11: - 11 INVESTMENTS SHOWN IN THE AUDI TED BALANCE-SHEET AS OF 31-03-2008. AS PER DETAILS OF INVESTMENTS, ON BO TH THE DATES, I.E. 31- 03-2007 AND 31-03-2008, THE ASSESSEE WAS HAVING INV ESTMENT 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 REPRESENT ATIVE , THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISALLOWANCE QUA THES E INVESTMENTS BY IMPLIEDLY HOLDING 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 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2010-11, A SUBSTAN TIAL INCOME AMOUNTING TO RS.20,40,60,000/- FROM SALE OF INVESTM ENT IN SHARES OF THE ABOVE NAMED TWO COMPANIES WAS NOT ONLY SHOWN BY THE APPELLANT COMPANY IN ITS AUDITED PROFIT & LOSS ACCOUNT FOR TH E YEAR ENDED AS ON 31- 03-2010 BUT THE SAME WAS ALSO OFFERED BY IT IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 AS TAXABLE LONG-TERM/SH ORT-TERM CAPITAL GAIN. AS PER AUDITED FINANCIAL STATEMENTS OF THE AS SESSEE COMPANY FOR THE FINANCIAL YEAR ENDED 2009-10, AS PLACED AT PAGE NO.94 TO 115 OF THE PRAKASH ASPHALTING ITA NO. 589/IND/2015 6 PAPER BOOK, IT IS -: 12: - 12 CLEAR THAT THE ASSESS EE COMPANY HAS SHOWN INCOME AMOUNTING TO RS. 20,40,60,000/- AS PROFIT ON SALE OF SHARES UNDER SCHEDULE 12 OF OTHER INCOME. FURTHER, THE VERACITY OF THE CLAIM AS REGARD TO DERIVING OF PROFIT ON SALE OF SHARES OF THE GROU P COMPANIES CAN ALSO BE VERIFIED FROM SCHEDULE 06 OF INVESTMENTS AS PLACED AT PAGE NO. 104 OF THE PAPER BOOK. FROM THE COMPUTATION OF TAXABLE INC OME OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 AS PLACED AT PAGE NO. 9 1 OF THE PAPER BOOK, IT CAN FURTHER BE GATHERED THAT THE ASSESSEE COMPAN Y HAS DULY SHOWN INCOME AMOUNTING TO RS. 15,83,27,550/- AND RS. 2,06 ,96,882/- RESPECTIVELY AS LONG-TERM CAPITAL GAIN FROM SALE OF SHARES N ORIENTAL PATHWAYS (INDORE) PVT. LTD. AND SHORT-TERM CAPITAL GAIN FROM SALE OF SHARES IN ORIENTAL PATHWAYS (AGRA) PVT. LTD. IN NUT SHELL, THE CLAIM OF THE ASSESSEE TO THE EFFECT THAT INCOME FROM INVESTMENTS IN GROUP COMPANIES IS NOT EXEMPTED GETS FULLY FORTIFIED BY THE DOCUMEN TARY EVIDENCES AND THE RETURN OF INCOME WHICH WERE ALSO PLACED ON THE LEARNED ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT FOR THE ASSESS MENT YEAR UNDER CONSIDERATION. 8. AS PER LD. AUTHORIZED REPRESENTATIVE ANY INVESTM ENT IN SHARES OF A CLOSELY HELD COMPANY IS CAPABLE OF YIELDING BASICAL LY TWO TYPES OF INCOME VIZ.(I) DIVIDEND INCOME AND (II) REALIZATION OF THE GAIN ON SALE OF SUCH SHARES. ALTHOUGH, THE INCOME FROM DIVIDEND IS OUT O F THE PURVIEW OF THE TOTAL INCOME IN VIEW OF THE PROVISIONS OF S. 10(34) OF THE ACT BUT GAIN ON SALE OF SUCH SHARES IS NOT SO. IT IS SUBMITTED THAT SALE OF SHARES IN A CLOSELY HELD COMPANY IS NOT SUBJECTED TO SECURITIES TRANSACTION TAX AND THEREFORE, ANY INCOME ARISING FROM TRANSFER OF SHAR ES IN SUCH COMPANIES IS NOT EXEMPTED UNDER S.10(38) OF THE ACT. AS PER L D. AUTHORIZED REPRESENTATIVE MERELY BECAUSE THE INCOME FROM DIVID END EARNED ON INVESTMENTS IN SHARES OF GROUP COMPANIES IS EXEMPTE D, IT CANNOT BE SAID THAT INCOME FROM MAKING SUCH INVESTMENTS IS COMPLET ELY EXEMPT SO AS TO BRING THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A INTO OPERATION. ON THE CONTRARY, THE ASSESSEE HAS SHOWN A SIZEABLE AMO UNT OF INCOME IN SUBSEQUENT YEARS FROM MAKING THE SUBJECT INVESTMENTS AND AMOUNT OF INCOME IS QUITE HIGHER EVEN AFTER TAKING INTO CONSI DERATION ANY HYPOTHETICAL AMOUNT OF INTEREST ATTRIBUTABLE TO SUC H INVESTMENTS. INVESTMENT IN GROUP COMPANIES HAVE BEEN MADE AS BUS INESS PRUDENCE AND COMMERCIAL NECESSITIES, THEREFORE, EVEN IF TEST ED FROM THE VIEW POINT PRAKASH ASPHALTING ITA NO. 589/IND/2015 7 OF PROVISIONS OF SECTION 36(1)(III) OF THE INCOME-T AX ACT, 1961, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. 9. ON THE OTHER HAND, THE LD. CIT DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONTENDED THAT THE ASSESSEE HAD DIV ERTED INTEREST BEARING FUND FOR NON-BUSINESS PURPOSES, THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 14A FOR DISALLOWANCE OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECO RD THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF GROUP COMPANIES AS A MATTER OF COMMERCIAL EXPEDIENCY. WE ALSO FOUND THAT THE ASSES SEE WAS HAVING HUGE RESERVE AS WELL AS SURPLUS FUNDS AVAILABLE OUT OF ITS PROFIT. HOWEVER, TO SHOW THAT INVESTMENT IN SHARES OF ASSOCIATE CONC ERNS HAVE BEEN MADE OUT OF NON INTEREST BEARING FUNDS, IS ON THE ASSESS EE AND BURDEN LIES ON HIM TO DEMONSTRATE BEFORE THE DEPARTMENTAL AUTHORIT IES THAT 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 S. A. BUILDERS LIMITED, 288 ITR 1, IS REQUIRED TO BE CONS IDERED BEFORE DISALLOWING INTEREST EXPENDITURE HAVING BEEN INCURR ED ON THE FUNDS BORROWED FOR THE PURPOSE OF BUSINESS. WE ALSO FOUND THAT INVESTMENT IN GROUP COMPANIES WERE HAVING TAXABLE INCOME AND ASSE SSEE HAS OFFERED SUBSTANTIAL LONG TERM AND SHORT 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 IN TERMS OF OUR ABOVE OBSERVATIONS AND THE JUDICIAL PRONOUNCEMENTS CITED BY THE LD. AUTHORIZED REPRESEN TATIVE , AS DISCUSSED HEREINABOVE. WE DIRECT ACCORDINGLY. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH IN PRAKASH ASPHALTING ITA NO. 589/IND/2015 8 TERMS OF THE ABOVE OBSERVATIONS OF THE TRIBUNAL. WE DIRECT ACCORDINGLY. 4. THE NEXT GROUND TAKEN BY THE REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES OF RS.34,06,665/-. 5. THE SHORT FACTS OF THE CASE ARE THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED PRIOR PERIOD EXPENSES OF RS.34,06,665/- RELATED TO REVERSAL OF MONTHLY TOLL CHARGES UNDER SETTLEMENT WITH SPV COMPANY PATH ORIENTAL HIGHWAYS LTD. FOR THE ASSESSMENT YEAR 2008-09 AND INCOME HAS BEEN OFFERED IN RESPECTIVE YEAR WHEREAS THERE IS NO INCOME RECEIVED TO THE ASSESSEE. THE SPV COMPANY HAS OFFERED INCOME ON SAME IN THE ASSESSMENT YEAR 2009-10. THE COPY OF THE SAID SPV COMPANY WAS ALSO FILED BY THE ASSESSEE ON THE PERUSAL OF WHICH THE PRAKASH ASPHALTING ITA NO. 589/IND/2015 9 ASSESSING OFFICER OBSERVED THAT THE SAID INCOME IS P ART OF THEIR CLAIM OF 80IA MEANS NO TAX IS RECEIVED FROM EITHER PARTY BY THE DEPARTMENT. THE ASSESSING OFFICER OBSERVED THAT THE CLAIM IS NOT ENTERTAINABLE IN THE ASSESSEE COMPANYS CASE OF THIS YEAR AND THEY SHOULD HAVE LODGED THEIR CLAIM IN THE ASSESSMENT YEAR 2008- 09. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICE R DISALLOWED THE SAME. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS :- 4.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS GIVEN BY THE A.O. IN THE ASSESSMENT ORDER, THE DETAILED SUBMISSIONS OF THE APPELLANT AND ALSO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE SUBMISSION OF THEN APPELLANT THAT AN ASSESSING OFFICER CANNOT DISTURB THE NET PROFIT SHOWN BY AN ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT WHICH PRAKASH ASPHALTING ITA NO. 589/IND/2015 10 HAS BEEN DRAWN IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT, 1956 HAS BEEN FOUND REASONABLE AND TENABLE. IT IS ALSO OBSERVED THAT THE INCOME OF THE APPELLANT FOR BOTH THE ASSESSMENT YEARS I.E. A.Y. 2008-09 AND A.Y. 2009-10 (UNDER APPEAL) HAVE BEEN COMPUTED ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB OF THE ACT AND THEREFORE THE APPELLANTS ACTION OF TREATING CERTAIN INCOME IN ITS BOOKS OF ACCOUNTS IN ONE YEAR AND SUBSEQUENT REVERSAL THEREOF IN THE SUBSEQUENT YEAR, CANNOT BE SUBJECTED TO ANY ADDITION. EVEN ON MERITS, I PERUSED THE PROVISION OF THE EPC CONTRACT IN WHICH THE LIABILITY TO PAY RS. 5 LAKHS PER MONTH AS PROVISION WAS SPELT OUT. INSTEAD THE BILL WAS RAISED FOR RS.89.06 LAKHS AND GOT ACCOUNTED ACCORDINGLY BY THE APPELLANT PARTY AND ALSO PRAKASH ASPHALTING ITA NO. 589/IND/2015 11 OFFERED AS INCOME BY THE COUNTERPARTY. IN NEXT ACCOUNTING YEAR I.E. 2008-09 THIS ERROR WHEN NOTICED WAS CORRECTED. IN ACCOUNTING, THE ERRORS AND OMISSIONS MAY OCCUR WHICH HAS TO BE RECTIFIED AND A WRONG LIABILITY CLAIM NEEDS TO BE ADDRESSED SUITABLY AND EXPEDITIOUSLY WHICH HAS BEEN DONE. THE POINT OF ACCOUNTING IN SUCH SITUATION IS WHEN AN ACTION FOR RECOVERY IS INITIATED. THEREFORE, THIS WAS A GENUINE MISTAKE WHICH HAS BEEN RECTIFIED IN FY 2008-09, NO DISALLOWANCE IN THIS YEAR WHICH IS POINT OF ACCRUAL CAN BE MADE SO AS TO DISENTITLE THE APPELLANT OF ITS LEGITIMATE CLAIM. SIMILAR AMOUNT OF INCOME IS OFFERED BY THE COUNTERPARTY. THE TRANSACTION WAS FOUND GENUINE AND REVENUE ENTERTAINED NO CONTRARY BELIEFR. THIS FURTHER AFFIRMS THAT IT WAS AN ERROR WHICH HAS BEEN PRAKASH ASPHALTING ITA NO. 589/IND/2015 12 NOTICED IN THE SUBSEQUENT YEAR AND GIVEN EFFECT TO. THE JUDGMENT IN CIT VS. NAGRI MILLS LTD. 330 ITR 681 IF THE RATE OF TAX IS SAME, THE REVENUE SHOULD NOT RESORT TO MAKE ADDITION IN ONE YEAR AND DELETION IN ANOTHER YEAR, HAS ALSO BEEN FOUND APPLICABLE. IN VIEW OF ABOVE DISCUSSION, THE IMPUGNED ADDITION OF RS.34,06,665/- IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US, THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AS THE ADDITION WAS MADE ON THE GROUND THAT THE SAID INCOME IS PART OF THEIR 80IA CLAIM WHICH CLEARLY MEANS THAT NO TAX IS RECEIVED FROM EITHER PARTY BY THE DEPARTMENT AND AS SUCH THE CLAIM IS NOT ENTERTAINABLE DURING THE RELEVANT YEAR AS THE ASSESSEE PRAKASH ASPHALTING ITA NO. 589/IND/2015 13 SHOULD HAVE LODGED THE CLAIM IN F.Y. 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-09 WHEREAS THE PRESENT ASSESSMENT YEAR IS 2009-10. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) WITH THE CONTENTION THAT AN ASSESSING OFFICER CANNOT DISTURB THE NET PROFIT SHOWN BY AN ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT WHICH HAS BEEN DRAWN IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT, 1956 HAS BEEN FOUND REASONABLE AND TENABLE. HE, THEREFORE, SUBMITTED THAT AS SUCH THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION IN QUESTION. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE SIDES. THE TRIBUNAL IN ITS ORDER IN THE ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2008-09 HAS RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER BY OBSERVING AS UNDER :- PRAKASH ASPHALTING ITA NO. 589/IND/2015 14 19. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECO RDS PERUSED. FROM THE RECORD, WE FOUND THAT THE ASSESSEE COMPANY HAD ENTERED IN T O E.P.C. CONTRACT ON 25TH JULY, 2005, WITH M/S. PATH ORIENTAL HIGHWAYS LIMITED ( IN SHORT POHL ) FOR EXECUTING 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 DA TED 23.6.2005 ENTERED INTO BETWEEN MORT&H AND POHL. WE HAD GONE THROUGH THE TE RMS AND CONDITIONS CONTRACT EXECUTED BETWEEN MORT&H AND POHL. DURING T HE COURSE OF EXECUTION OF THE SAID CONTRACT, THE APPELLANT COMPANY RAISED BILLS F ROM TIME TO TIME UPON POHL AND CORRESPONDINGLY RECOGNIZED THE INCOME FROM SUCH CON TRACT IN ITS BOOKS OF ACCOUNT, BY EMPLOYING MERCANTILE SYSTEM OF ACCOUNTING, WHICH HA S DULY BEEN INCORPORATED -: 48: - 48 IN THE AUDITED FINANCIAL STATEMENTS FOR THE RELE VANT FINANCIAL YEAR. THE YEAR-WISE BREAK-UP OF THE REVENUE FROM THE CONTRACT, AS RECOG NIZED 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 2008 - 09 (UNDER CONSIDERATION TOTAL 45,82,18,819 20. FROM THE RECORD, WE FOUND THAT THE ABOVE RECEIP T OF INCOME BY ASSESSEE FROM POHL IS FULLY TALLYING WITH THE AMOUNT OF PAYMENTS SHOWN BY POHL IN THEIR LETTER OF CONFIRMATION, WHICH HAS ALSO BEEN MADE A PART OF RE MAND REPORT DATED 12.6.2012 SUBMITTED BY THE ASSESSING OFFICER TO THE LD. CIT(A ). THUS, THERE WAS NO VARIATION IN THE AMOUNT OF CONTRACT PAYMENT RECEIVED BY THE ASSE SSEE FROM POHL AND RECORDED IN THE REGULAR BOOKS OF ACCOUNT. WHILE FRAMING ASSE SSMENT U/S 143(3), THE ASSESSING OFFICER HAS NOT DOUBTED ANY RECEIPTS FROM POHL WHIC H WERE DULY ACCOUNTED FOR BY ASSESSEE AS PER SYSTEM OF ACCOUNTING REGULARLY FOLL OWED. DURING APPELLATE PROCEEDINGS, CIT(A) OBSERVED THAT ASSESSEE HAS RAIS ED -: 49: - 49 ADDITIONAL CLAIM ON ACCOUNT OF ESCALATION COST, THEREFORE, LIABLE TO TA X ON SUCH AMOUNT. FROM THE RECORD, WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RAISED PROFORMA INVOICE ON POHL IN RESPECT OF ESCALATION C OST/SHIFTING WORK/ADDITIONAL WORK. THE PROFORMA INVOICE RAISED BY THE ASSESSEE W ERE REJECTED BY POHL AND NOTHING WAS PAID TO THE ASSESSEE DURING THE YEAR UN DER CONSIDERATION. WHILE REJECTING THE CLAIM OF ASSESSEE, POHL RELIED UPON C LAUSE 12.1 OF EPC CONTRACT, WHICH PROVIDES THAT THE CONTRACT PRICE IS THE TOTAL FIXED LUMP SUM TURNKEY PRICE PAYABLE TO THE CONTRACTOR FOR THE CONSTRUCTION, OPERATION & MA INTENANCE WORKS AND ITS OBLIGATION UNDER THE CONTRACT. FURTHER, IN TERMS OF CLAUSE 12.1, THE CONTRACT PRICE CANNOT BE INCREASED AND THE CONTRACTOR IS NOT ENTIT LED TO ADDITIONAL PAYMENT EXCEPT AS SPECIFIED IN THE CONTRACT. THUS, THE IMPUGNED AM OUNT OF PROFORMA INVOICE RAISED BY THE ASSESSEE WAS UN-ADMITTED CLAIM OF ASSESSEE, INCOME ATTRIBUTABLE TO SUCH PROFORMA INVOICE NEITHER GOT ACCRUED IN THE HANDS O F ASSESSEE COMPANY, NOR ANY PAYMENT WAS AROSE NOR ANY AMOUNT WAS ACTUALLY RECEI VED BY ASSESSEE COMPANY DURING RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION . SINCE THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF UNDERTAKING CONSTRUCTION CONTRACT, -: 50: - 50 THEREFORE, ACCOUNTING STANDARD AS-7 ISSUED BY I.C.A.I. SQUAREL Y APPLIES TO IT. AS PER THE ACCOUNTING STANDARD, IN CASE OF CONSTRUCTION CONTRA CTOR, THE CONTRACT REVENUE WOULD ACCRUE OR ARISE ONLY IN RESPECT OF INITIAL AMOUNT O F REVENUE AGREED IN THE CONTRACT. PRAKASH ASPHALTING ITA NO. 589/IND/2015 15 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 VARIATIONS, CLAIM OR INVENTIVE ARE RELIABLY MEASURABLE. BOTH THE CONDITIONS ENJOYED IN RESPECT OF VARIATIONS, CLAIM OR INCENTIVE PAYMENT ARE CUMULATIVE AND UNLESS BOTH THE CONDITIONS ARE MET O UT TOGETHER, NO REVENUE CLAIM OR INCENTIVE CAN BE RECOGNIZED IN THE BOOKS OF ACCOUNT . IN THE INSTANT CASE, THE CLAIM OF THE ASSESSEE COMPANY HAS BEEN REJECTED BY POHL AT T HRASH HOLD ONLY AND EVEN THE PROCESS OF NEGOTIATIONS HAVE NOT GOT COMMENCED DURI NG THE YEAR UNDER CONSIDERATION. FURTHERMORE, UNDER CLAUSES OF EPC CO NTRACT, EVEN THE AMOUNT OF REVENUE IN RESPECT OF PROFORMA INVOICE WERE NOT REL IABLY MEASURABLE. IT IS ALSO PERTINENT TO MENTION THAT POHL WOULD ACKNOWLEDGE TH E CLAIM OF ASSESSEE COMPANY ONLY IF THE MORT&H ACCEPTS THE COUNTER CLAIM OF POH L. THUS, THE PREMATURITY CLAIM LODGED BY THE ASSESSEE COMPANY WAS FULL OF UN-CERTA INTY BOTH AS REGARDS TO ITS ACCEPTANCE -: 51: - 51 BY POHL AND THE MEASUREMENT OF MAGNITUDE OF THE CLAIM. IT IS MATTER OF RECORD THAT DURING THE YEAR UNDER CONSIDE RATION, NOTHING WAS RECEIVED BY ASSESSEE FROM POHL AGAINST THESE PROFORMA INVOICES, THEREFORE, NO INCOME ACCRUED, AROSE OR RECEIVED BY THE ASSESSEE WITH RESPECT TO T HE PROFORMA INVOICE RAISED. ON SPECIFICALLY ASKING BY THE BENCH, IT CAME TO OUR NO TICE THAT TILL DATE, NOTHING WAS RECEIVED BY THE ASSESSEE NOR THE CLAIM OF THE ASSES SEE WAS ACKNOWLEDGED BY POHL NOR THE CLAIM OF POHL HAS BEEN ASSESSED AND DETERMI NED BY MORT&H. ALL THESE FACTS ARE EVIDENT AS PER MATERIAL PLACED ON RECORD. 21. AS PER OUR CONSIDERED VIEW, UNDER THE PROVISION S OF INCOME-TAX ACT, INCOME TAX IS CHARGED FOR ANY ASSESSMENT YEAR IN RESPECT OF TOTAL INCOME OF ANY PERSON FOR PREVIOUS YEAR AND SUCH INCOME TAX IS CHARGED FOR TO TAL INCOME AS CONTEMPLATED UNDER THE PROVISIONS OF SECTION 5. UNDER THE PROVIS IONS OF SECTION 5, TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHICH IS RESIDENT INC LUDES OF INCOME FROM WHATEVER SOURCE DERIVED, WHICH IS EITHER RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE IN INDIA DURING THE RE LEVANT PREVIOUS YEAR. THUS, 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 INCO ME-TAX ACT, 1961. UNDER A CASE WHERE NO INCOME HAS EITHER BEEN RECEIVED OR ACCRUED TO ASSESSEE IN A PREVIOUS YEAR, THE QUESTION OF LEVYING ANY INCOME TAX DOES NOT AR ISE AT ALL. FURTHERMORE, MERE WRONG DEDUCTION OF TAX AT SOURCE BY CONTRACTEE WILL NOT GIVE RIGHT TO THE CONTRACTOR TO RECEIVE THAT INCOME. IN THE INSTANT CASE BEFORE US, THE ALLEGED AMOUNT OF PROFORMA INVOICE HAS NEITHER BEEN RECEIVED NOR ACCR UED TO THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. THERE FORE, THERE IS NO JUSTIFICATION IN THE ACTION OF CIT(A) FOR BRINGING TO TAX NET SUCH A MOUNT DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE DEPARTMENT IS AT LIBERT Y TO TAX SUCH INCOME IN THE YEAR OF ACTUAL RECEIPT, IN ANY SUBSEQUENT YEAR. ACCORDIN GLY, WE RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY AND TAX THI S INCOME IN THE YEAR OF ACTUAL RECEIPT. WE DIRECT ACCORDINGLY. WE RESPECTFULLY FOLLOWING THE SAME, RESTORE THIS ISS UE TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME. THE PRAKASH ASPHALTING ITA NO. 589/IND/2015 16 ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF PRIOR PERIOD EXPENSES AND DECIDE THE SAME AS PER THE ABOVE JUDGMENT OF THE TRIBUNAL. THEREFORE, WE RESTORE THI S ISSUE AS PER THE ABOVE DIRECTION. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 20 TH OCTOBER, 2016. SD/- SD/- ( ..!') (..) #$ ) (O.P.MEENA) (D.T.GARASIA) ACCOUNTANT MEMBER J UDICIAL MEMBER )'* / DATED : 20 OCTOBER, 2016. DN/ PRAKASH ASPHALTING ITA NO. 589/IND/2015 17