ACIT - 12(3)(1), MUMBAI V. KC & SONS INFRASTRUCTURE INDIA PVT. LTD., MUMBAI

ITA 6109/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9546 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH LD
• Assessee Lawyers: ABHAY KADAM LD
• Keywords: Principle of natural justice; Additional evidence
• Section: 143(3); 133(6)

Judgement Text

ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6109/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) ASS ISTAN T COMMISSIONER OF INCOME TAX -12(3)(1) ROOM NO.147B, 1 ST FLOOR AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. / VS. M/S. K.C. & SONS INFRASTRUCTU RE INDIA PVT. LTD. 183/1459, MOTILAL NAGAR NEAR POST OFFICE CIRCLE GOREGAON (W), MUMBAI-400 104. ! ./ ./PAN/GIR NO. AADCK-6491-R ( !# /APPELLANT ) : ( $!# / RESPONDENT ) ASSESSEE BY : ABHAY KADAM- LD. AR REVENUE BY : CHAUDHARY ARUN KUMAR SINGH - LD.DR / DATE OF HEARING : 10/12/2018 / DATE OF PRONOUNCEMENT : 20/12/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-20, MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-20/DCIT-12(3)(1)/IT-407/2015-16 DATED 29/07/2016 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 2 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF RUNNING BILL OF RS. 5,49,08,049/- RAISED BUT NOT AC COUNTED FOR BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR IGNORING THE FACT THAT (I)ASSESSEE WAS FOLLOWING ACCRUAL METHOD OF ACCOUNT ING AND MOREOVER, CONTRACTEE HAD CREDITED THE SAID AMOUNT TO THE ACCO UNT OF THE ASSESSEE AND HAD MADE TDS ON IT. (II)ASSESSEE HAD CLAIMED THE CREDIT FOR TDS MADE B Y THE CONTRACTEE AND YET, DID NOT OFFER THE SAME AS ITS INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE W AS FOLLOWING ACCOUNTING STANDARD 9 (AS-9) FOR REVENUE RECOGNITION IN THE BO OKS OF ACCOUNT WITHOUT APPRECIATING THAT (I) ASSESSEE HAD BEEN FOLLOWING ACCOUNTING STANDARD 7 FOR REVENUE RECOGNITION ON REGULAR BASIS AND NOT AS-9, AS EVIDE NT FROM ASSESSEE'S OWN ADMISSION IN THE STATEMENT OF THE FACTS FILED WITH FORM NO.35 BEFORE LD. CIT(A) AND ALSO VARIOUS SUBMISSIONS MADE BY THE ASS ESSEE DURING THE ASSESSMENT PROCEEDINGS. (II) ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION CO NTRACT AND AS PER THE ACCOUNTING PRINCIPLES, ACCOUNTING STANDARD 7 IS MOS T APPROPRIATE FOR RECOGNITION OF REVENUE BY THE ASSESSEE. (III) ASSESSEE MADE THE CLAIM OF FOLLOWING AS-9 FOR THE FIRST TIME THROUGH ADDENDUM TO GROUNDS OF APPEAL BEFORE LD. CIT(A) AND SUCH A CLAIM WAS NEVER MADE BY THE ASSESSEE BEFORE A.O. THEREFORE, A O SHOULD HAVE BEEN GIVEN OPPORTUNITY TO RESPOND BY WAY OF CALLING A RE MAND REPORT, WHICH WAS NEVER DONE LEADING TO CONTRAVENTION TO RULE 46A OF I.T. RULES AND NATURAL JUSTICE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO GIVE FU LL CREDIT OF TDS CLAIM OF ASSESSEE IGNORING THAT CREDIT FOR TDS CORRESPONDING TO RA BILLS OF RS. 5,49,08,049/- NOT OFFERED FOR TAX BY THE ASSESSEE C ANNOT BE GIVEN DURING THE RELEVANT PREVIOUS YEAR AS LD.CIT(A) HIMSELF HAS HEL D THAT SAID AMOUNT OF RS, 5,49,08,049/- IN NOT LIABLE TO TAX DURING THE RELEV ANT PREVIOUS YEAR. THE ASSESSMENT FOR THE IMPUGNED AY WAS FRAMED BY LD . DEPUTY COMMISSIONER OF INCOME TAX-12(3)(1), MUMBAI [AO] IN SCRUTINY ASSESSMENT U/S. 143(3) ON 20/03/2015 WHEREIN THE IN COME OF THE ASSESSEE WAS DETERMINED AT RS.245.45 LACS AFTER CER TAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED LOSS OF RS.303.62 LACS FILED BY THE ASSESSEE ON 25/09/2012. DURING IMPUGNED AY, THE ASS ESSEE BEING RESIDENT CORPORATE ENTITY WAS STATED TO BE ENGAGED IN CONSTRUCTION ACTIVITIES . ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 3 2.1 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT DURING FINANCIAL YEAR 2009-10, THE ASSESSEE RECEIVED A CONSTRUCTION CONTRACT FROM AN ENTITY NAMELY HOUSING DEVELOPMENT & INFRASTRUCTURE LIMITED [HDIL] FOR DEVELOPMENT OF CERTAIN PROJECTS AT KURLA & VIRAR. THE ASSESSEE CARRIED CONSTRUCTION ACTIVITY AND INCURRED VARIOUS EXPENSES WHICH WERE DEBITED TO PROFIT & LOSS ACCOUNT. INITIALLY, HDIL MADE PAYMENT TO ASSESSEE AND THE PROJECT WAS ONGOING HOWEVER, IN THE IMPUGNED AY , CERTAIN DISPUTE AROSE BETWEEN THE ASSESSEE AND HDIL AND ACCORDINGLY HDIL STOPPED THE PAYMENTS TO THE ASSESSEE AND THE ASSESSEE STOPP ED WORK AT PROJECTS OF HDIL . THEREFORE, NO REVENUE RECEIPTS WERE REFLECTED BY THE ASSESSEE DURING IMPUGNED AY. HOWEVER, THE EXPENSES CONTINUED ON ONGOING BASIS WHICH WERE CLAIMED BY WAY OF DEBIT TO PROFIT & LOSS ACCOUNT, AS A RESULT OF WHICH THE ASSESSEE REFLECTE D LOSS OF MORE THAN 3 CRORES DURING IMPUGNED AY. 2.2 TO CONFIRM THE TRANSACTIONS, NOTICE U/S 133(6) WAS ISSUED TO HDIL AGAINST WHICH A REPLY WAS RECEIVED FROM HDIL ALONG WITH LEDGER EXTRACTS ETC. THE PERUSAL OF THE SAME REVEALED THAT FOR IMPU GNED AY, HDIL ACCEPTED RUNNING BILLS OF RS.549.08 LACS AGAINST TH E ASSESSEE. THE ASSESSEE WAS CONFRONTED WITH THE DISCREPANCY. IN TH E ABSENCE OF ANY REPLY FROM ASSESSEE, THE AFORESAID AMOUNT OF RS.549 .08 LACS WAS BROUGHT TO TAX PARTICULARLY IN VIEW OF THE FACT THA T HDIL HAD DEDUCTED TDS AGAINST THE SAME AND THE AMOUNTS WERE REFLECTED IN FORM 26AS AND THE ASSESSEE HAD CLAIMED THE CREDIT OF TDS IN T HE RETURN OF INCOME. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH S UCCESS BEFORE LD. CIT(A) WHEREIN THE ADDITIONS WERE DELETED BY MAKING FOLLOWING OBSERVATIONS: - ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 4 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSIONS OF THE APPELLANT AND ORDER OF THE ASSESSING OFFICER. IT IS SEEN THAT DURING THE F.Y. 2009-10, THE ASSESSEE COMPANY HAD RECEIVED CONSTRUCTION CONT RACT FROM THE HOUSING DEVELOPMENT AND INFRASTRUCTURE LIMITED (HDIL) FOR D EVELOPMENT OF PROJECTS I.E. REHAB PROJECT AT KURLA AND HDIL RESIDENCY PARK AT V IRAR. THE COMPANY CARRIED OUT CONSTRUCTION ACTIVITY AND INCURRED VARIOUS EXPENSES WHICH WERE DEBITED TO PROFIT AND LOSS A/C. INITIALLY THE HDIL MADE PAYMENT TO THE AS SESSEE COMPANY AND THE PROJECTS WERE ONGOING. HOWEVER, DURING THE YEAR UNDER CONSID ERATION, THE DISPUTE AROSE BETWEEN THE ASSESSEE COMPANY AND HDIL. THE HDIL STO PPED PAYMENTS TO THE COMPANY AND CONSEQUENTLY THE COMPANY STOPPED WORK A T THE PROJECTS OF HDIL. THUS DURING THE YEAR, THERE ARE NO REVENUE RECEIPTS FROM THE PROJECTS; HOWEVER THE EXPENSES CONTINUED ON ONGOING BASIS AND ARE DEBITED TO PROFIT AND LOSS A/C. THE COMPANY INCURRED LOSS OF RS. 3 CRORES WHICH IS CARR IED FORWARD TO SUBSEQUENT YEARS IN THE RETURN OF INCOME FILED. IT IS OBSERVED THAT THE BASIC QUESTION THAT ARISES IS WHETHER THE ASSESSEE SHOULD HAVE RECOGNISED THE REV ENUE ARISING FROM THE CONSTRUCTION CONTRACT WITH HDIL. IT IS A FACT THAT THERE WAS DISPUTE BETWEEN ASSESSEE AND THE HDIL AND NO PAYMENTS WERE RECEIVED BY THE A SSESSEE. THE A.O. HAD TRIED TO BRING THE AMOUNT OF BILLS RAISED BY THE ASSESSEE TO TAX SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING. THE AO W AS ALSO OF THE VIEW THAT THERE IS REASONABLE CERTAINTY OF RECEIPT OF THE INCOME IN FU TURE. THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT SINCE THERE WAS A DISPUTE WITH HDIL THERE WAS NO SURETY OF RECEIVING ANY MONEY FROM IT AND DURING THE YEAR IN SPITE OF THE ALL-ROUND EFFORTS ASSESSEE COULD NOT REALIZE THE AMOUNTS AS PER THE B ILLS RAISED FROM HDIL AND IN VIEW OF THIS IT IS CONTENDED THAT THERE IS NO SURET Y OF GETTING THE PAYMENTS FROM HDIL AND FOR THIS REASON THE REVENUE WAS NOT RECOGNIZED. THE ASSESSEE HAS ALSO SUBMITTED THAT DUE TO THIS REASON THE ASSESSEE HAD SUFFERED HUGE LOSSES AND THE BUSINESS OF THE COMPANY HAD COME TO A STANDSTILL. T HERE IS FORCE IN THE CONTENTION OF THE ASSESSEE ESPECIALLY IN VIEW OF THE ONGOING DISP UTE ON THE PAYMENTS AS WELL AS THE FUTURE CONSTRUCTION. THE ASSESSEE HAD RELIED ON THE INDIAN ACCOUNTING PRACTICE IN THIS REGARD AS PER WHICH IF A CONSTRUCTION AGREEMEN T IS UNDER A CONTRACT, REVENUE SHALL BE RECOGNISED IF THE ENTITY HAS TRANSFERRED P ROJECT TO THE CONTRACT GIVER AND THE SIGNIFICANT RISK AND REWARD OF OWNERSHIP OF AND CON TROL OVER THE PROJECT. THIS EFFECTIVELY MEANS THAT THE REVENUE ON CONTRACT COUL D BE RECOGNIZED WHEN THE PROJECT IS CONSTRUCTED AND DELIVERED TO THE BUYER. IN THE P RESENT CASE THE WORK IS DISRUPTED OR STOPPED AND NO MONEY WAS PAID TO ASSESSEE DURING THE YEAR. SINCE THERE IS A DISPUTE AND PROJECT IS YET TO BE CONSTRUCTED AND PO SSESSION YET TO BE GIVEN, THE ASSESSEE SUBMITTED THAT RECOGNITION OF REVENUE AND TAXING THE SAME IS CONTRARY TO THE CONCEPT OF REAL INCOME AND PROVISIONS OF AS 9. IT IS OBSERVED THAT THE GENERAL PRINCIPLE GOVERNING REVENUE RECOGNITION AS PER ACCO UNTING STANDARD 9 DEMANDS THAT THE REVENUE IS MEASURABLE AND THAT AT THE TIME OF S ALE OR RENDERING THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLEC TION. IN THE CASE UNDER CONSIDERATION, IT IS A FACT THAT WHEN THE ULTIMATE INCOME BY THE ASSESSEE WILL FLOW FROM M/S. HDIL TO ASSESSEE IS NOT CLEAR. THE STAND OF THE ASSESSEE THAT THERE IS UNCERTAINTY OF REALIZATION OF INCOME IS NOT WITHOUT FORCE AND IS FOUND TO BE IN ACCORDANCE WITH ACCOUNTING STANDARDS. AS PER THE AC COUNTING STANDARD, WHEN CONSIDERATION IS NOT DETERMINABLE WITHIN A REASONAB LE LIMIT THE RECOGNITION OF REVENUE IS POSTPONED. IN SUCH CASES, IT MAY BE APPR OPRIATE THE RECOGNIZE REVENUE ONLY WHEN IT REASONABLY CERTAIN THAT THE ULTIMATE C OLLECTION WILL BE MADE. THIS VIEW IS ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 5 SUPPORTED BY THE DECISION OF THE HON'BLE ITAT HYDER ABAD BENCH DT.12.02.2014 IN THE CASE OF S.P. REAL ESTATE DEVELOPERS PVT. ... VS DEPARTMENT OF INCOME TAX IN ITA NO. 1058/HYD/2010. IN VIEW OF THIS DISCUSSION THE A DDITION MADE BY THE AO ON THIS ISSUE CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED THE REVENUE IS IN FURTHER APPEAL BEFORE U S. 4. THE PRIME ARGUMENT OF LD. DEPARTMENTAL REPRESENT ATIVE [DR] REVOLVE AROUND THAT FACT THAT THE ASSESSEE FAILED T O EXPLAIN THE DISCREPANCY NOTED BY LD. AO DURING ASSESSMENT PROCE EDINGS WHEREAS THE FIRST APPELLATE AUTHORITY, WITHOUT CONFRONTING THE ADDITIONAL EVIDENCES / SUBMISSION MADE BY ASSESSEE DURING APPELLATE PROCEE DINGS, PROVIDED RELIEF TO THE ASSESSEE, WHICH WAS NOT JUSTIFIED. TH E LD. AUTHORIZED REPRESENTATIVE [AR] SUPPORTED THE STAND OF FIRST AP PELLATE AUTHORITY, 5. UPON CAREFUL CONSIDERATION, WE FIND THAT IT IS U NDISPUTED FACT THAT THE ASSESSEE HAD FAILED TO EXPLAIN THE DISCREPANCIE S NOTED BY LD. AO DURING ASSESSMENT PROCEEDINGS AND COULD NOT JUSTIFY AS TO WHY THE SAID RECEIPTS WERE NOT OFFERED TO TAX. THE PERUSAL OF LE DGER ACCOUNTS RECEIVED FROM HDIL REVEALED THAT THE ASSESSEE WAS GIVEN CREDIT OF IMP UGNED AMOUNT AND DUE TDS WAS ALSO DEDUCTED AGAINST THE SAME. THE TRANSACTIONS WERE DULY REFLECTED IN FORM 26AS . THE ASSESSEE WHILE CLAIMING THE CREDIT OF TDS , JUSTIFIED ITS STAND OF NOT OFFERING THE SAME TO TAX ON THE PREMISE THAT THERE WAS UNCERTAINTY AS TO COLLECTION OF THE REVENUE WHICH WAS IN SHARP CONTRAST TO THE FACT THA T EXPENDITURE AGAINST THE PROJECTS WERE BEING CLAIMED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT. UNDER THE GIVEN CIRCUMSTANCES, WE SET ASIDE THE FIN DINGS OF FIRST APPELLATE AUTHORITY AND REMIT THE MATTER BACK TO TH E FILE OF LD. AO FOR RE- ADJUDICATION OF THE SAME WITH A DIRECTION TO THE AS SESSEE TO SUBSTANTIATE ITA NO.6109/MUM/2016 K.C. & SONS INFRASTRUCTURE INDIA PRIVATE LIMITED ASSESSMENT YEAR: 2012-13 6 HIS STAND. NEEDLESS TO ADD THAT REASONABLE OPPORTUN ITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE. 6. RESULTANTLY, THE APPEAL STANDS ALLOWED FOR STATI STICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2018. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 20/12/2018 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ,- & . , . , / DR, ITAT, MUMBAI 6. -/01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.