DCIT, New Delhi V. M/s. BLK- NCC Consortium, New Delhi

ITA 6498/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6193 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D , NEW DELHI BEFORE SRI C.M.GARG, JM AND SRI L.P.SAHU, AM ITA NO. 649 8/DEL./2013 ASSTT. YEAR : 2010-11 DCIT CIRCLE-22(1), ROOM NO. 1205, 12 TH FLOOR, PRATYAKSH KAR BHAWAN, E-2 BLOCK, CIVIC CENTRE, J.L.MARG NEW DELHI VS BLK-NCC CONSORTIUM B-1/E-23, EXTN MOHAN CO-OP INDUSTRIAL ESTATE, MATHURA ROAD NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAAAB8961G ASSESSEE BY : SH. AJAY WADHWA, ADV. REVENUE BY : SH. SHRAVAN GOTRU, SR. D R DATE OF HEARING : 16 .03.2016 DATE OF PRONOUNCEMEN T : 31.03.2016 ORDER PER C.M.GARG, J.M. THIS APPEAL BY THE REVENUE HAS BEEN FILED AGAINST T HE ORDER OF THE CIT(A) XXIII, NEW DELHI DATED 27.09.2013 PASSED IN FIRS T APPEAL NO. 14/13-14 FOR AY 2010-11. THE GROUNDS RAISED BY THE REVENUE READS AS FOLLOWS :- 1. WHETHER ON THE FACTS AN IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN DELETING THE ENTIRE AMOUNT OF ADVANCE MONEY RECEIVED BY ASSESSEE. ITA NO. 6498/DEL/2013 BLK-NCC CONSORTIUM 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO O N ACCOUNT OF MOBILIZATION ADVANCE RECEIVED FROM DELHI METRO RAIL CORPORATION TO THE TUNE OF RS. 5.85 CRORE, AS THE ASSESSEE WAS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE SAME SHOULD BE ASSESSE D ON ACCRUAL BASIS. 3. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING THAT THE APPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF AC COUNTING, ANY AMOUNT RECEIVED BY THE APPELLANT CANNOT BE BROUGHT TO TAX UNTIL AND UNLESS IT PARTAKES THE NATURE OF INCOME. HOWEVER, I N THE CASE OF KESHAV MILLS LTD. VS. CIT(SC) 231 ITR 230 WHEREIN, THE APEX COURT HELD THAT IN MERCANTILE SYSTEM, PROFIT ARISES/ACCR UES ON THE DATE OF TRANSACTION. THE RECEIPT OF INCOME REFERS TO THE FIRST OCCASION WHEN THE RECIPIENT GETS THE MONEY UNDER HIS OWN CONTROL. 2. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE THE TRIBU NAL. THE LD. DR SUPPORTED THE ACTION OF THE AO, HOWEVER, WE COULD NOT POINT O UT ANY MISTAKE IN THE FIRST APPELLATE IMPUGNED ORDER. THE LD. DR ALSO COULD NOT COUNTROVERT THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT EVEN THOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ANY AMOU NT RECEIVED BY THE ASSESSEE CANNOT BROUGHT TO TAX UNTIL AND UNLESS IT PARTAKES THE NATURE OF INCOME AND MOBILIZATION ADVANCE OF RS. 5,85,05,000/- RECEI VED BY THE ASESSEE CANNOT BE TREATED AS INCOME BROUGHT TO TAX. 3. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSION, FROM THE RELEVANT OPERATIVE PART OF THE IMPUGNED ORDER, WE NOTE THAT THE CIT(A) GRANTED RELIEF TO THE ASSESSEE BY HOLDING AND OBSERVING FOLLOWING CON CLUSION : ITA NO. 6498/DEL/2013 BLK-NCC CONSORTIUM 3 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE, THE ASSESSMENT ORDER, THE ARGUMENTS PUT FORTH BY THE LD. AR OF THE APPELLANT AND THE JUDICIAL PRONOUNCEMENTS CITED BY BOTH THE AO AS WELL AS THE LD. AR. IN MY CONSIDERED OPINION, WHAT CAN BE BROUGHT TO TAX IS ONLY THE INC OME PART AND NOT AN ADVANCE. TILL THE TIME ANY ADVANCE PARTAKES THE NAT URE OF INCOME, IT CANNOT BE BROUGHT TO TAX. THIS IS ONE OF THE BASIC PRINCIPLES OF ACCOUNTANCY. ONE ALSO HAS TO KEEP IN MIND THE NATURE OF THE BUSINESS OF THE A SSESSEE, BEFORE APPLYING THE JUDICIAL PRONOUNCEMENTS. WHEN A JOINT VENTURE IS FO RMED, FOR A PARTICULAR PURPOSE, THE AGREEMENT BETWEEN THE MEMBERS OF THE A OP BECOMES VERY CRUCIAL. ANOTHER VERY CRUCIAL DOCUMENT IS THE CONTR ACT ENTERED INTO BY THE JOINT VENTURE CONSORTIUM WITH THE TENDERING PARTY. THE TERMS AND CONDITIONS OF THESE TWO DOCUMENTS DETERMINE THE NATURE OF PAYM ENTS RECEIVED BY THE JOINT VENTURE CONSORTIUM AND THE MANNER IN WHICH THEY ARE TO BE ACCOUNTED FOR, ALTHOUGH, IT HAS TO BE STATED CLEARLY THAT THE BASI C PRINCIPLES AND NORMS OF ACCOUNTANCY HAVE TO BE FOLLOWED. IN THE INSTANT CAS E, M/S. BLK-NCC CONSORTIUM ENTERED INTO A CONTRACT WITH DMRC, WHICH IS A JOINT VENTURE OF GOVERNMENT OF INDIA AND GOVERNMENT OF DELHI, FOR P ART, DESIGN AND CONSTRUCTION OF VIA-DUCT OF LENGTH 1897.71 METRES O N EXTENSION UPTO VAISHALI (GHAZIABAD) OF YAMUNA BANK-ANAND VIHAR CORRIDOR OF DELHI MRTS PROJECT. THE LETTER OF ACCEPTANCE GIVEN BY DMRC TO M/S. BLK- NCC CONSORTIUM DT. 26.06.2009 STATED THAT THE TOTAL COST OF THE PROJEC T IS RS. 58,50,00,000/- AND CLAUSE 14.2 OF THE GENERAL CONDITIONS OF CONDITIONS OF CONTRACT BETWEEN THE TWO PARTIES SPECIFIED THAT 5% OF ORIGINAL CONTRACT VALUE SHALL BE PAID AS PLANT AND MACHINERY ADV ANCE AND ANOTHER 5% SHALL BE GIVE N FOR HIGHLY SPECIALIZED PLANT AND EQUIPMENT. FURTHER, CLAUSE 14.4 SPECIFY T HAT ADVANCE ON ACCOUNT OF MAIN CONSTRUCTION MATERIALS SHALL BE 3% OF ORIGINAL CONTRACT VALUE. CLAUSE 14.6 PROVIDED THAT THE RECOVERY OF ADVANCE SHALL CO MMENCE WHEN 20% OF THE ORIGINAL CONTRACT VALUE OF THE WORK HAS BEEN PAID A ND IT WILL BE COMPLETED BY THE TIME 85% OF THE ORIGINAL CONTRACT VALUE HAVE BE EN PAID. UNDER THESE CIRCUMSTANCES AND IN THE LIGHT OF THE ABOVE CONDITI ONS LAID DOWN IN THE CONTRACT, THE MOBILIZATION ADVANCE OF RS. 5,85,00,0 00/- RECEIVED BY THE CONSORTIUM CANNOT PARTAKE THE CHARACTER OF INCOME A ND CANNOT BE BROUGHT TO TAX. THE AMOUNT HAS BEEN PAID BY DMRC TO THE CONSOR TIUM AS MOBILIZATION ADVANCE, IT HAS BEEN SHOWN IN THE BALANCE SHEET OF THE CONSORTIUM AS A LIABILITY AS PROJECT/MOBILIZATION ADVANCEAND THE NOTES TO THE ACCOUTNS CLEARLY MENTION UNDER SIGNIFICANT ACCOUNTING POLICI ES THAT THE CONSORTIUM HAS ISSUED A BANK GUARANTEE TO DMRC FOR RS. 11,70,00,00 0/- (RS. 5,85,00,000/- PERFORMANCE GUARANTEE AND RS. 5,85,00,000 MOBILIZAT ION ADVANCE GUARANTEE). THE LD. AR OF THE APPELLANT HAS PLACED RELIANCE ON THE JUDGMENT OF ITA NO. 6498/DEL/2013 BLK-NCC CONSORTIUM 4 THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS . CONSULTING ENGINEERING SERVICES INDIA LTD. (2001) 250 ITR 849 (DEL.) AND I N THE JUDGMENT OF HONBLE ITAT, KOLKATA BENCH D IN THE CASE OF USHA RANJAN SARKAR VS. ACIT (2007) 16 SOT 231 (CAL.), AMONGST OTHERS. IN THE CASE OF USHA RANJAN SARKAR (SUPRA), HONBLE ITAT HAS CLEARLY STATED THAT IN G OVERNMENT CONTRACT, THE ASSESSEE DOES NOT HAVE ANY RIGHT TO RECEIVE ANY AMO UNT AGAINST THE WORK EXECUTED BY HIM TILL THE BILL IS APPROVED BY THE GO VERNMENT. MERE RAISING OF THE BILL IS NOT IMPORTANT. IT IS THE RIGHT TO RECEIVE, WHICH IS IMPORTANT. THAT IS TO SAY, IT IS THE REAL INCOME AND NOT HYPOTHETICAL INC OME WHICH HAS TO BE SUBJECTED TO TAX. THE PAYMENT AGAINST BILL RAISED I S ASCERTAINED WHEN IT IS VERIFIED AND FINALLY APPROVED BY THE GOVERNMENT. TH US, THE ACCRUAL OF INCOME TAKES PLACE ONLY WHEN THE WORK OF THE ASSESSEE IS A CCEPTED AND THE BILL IS APPROVED AND NOT BEFORE THAT. ADMITTEDLY, THE ASSES SEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN THIS SYSTEM, T HE ASSESSEE IS REQUIRED TO ACCOUNT FOR ITS INCOME ONLY WHEN IT IS APPROVED OR RECEIVED. IN THE CASE OF DCIT VS. FIVE STAR CONSTRUCTION PVT. LTD. IN ITA NO . 1861/DEL/2011 FOR A.Y. 2007-08, HONBLE ITAT, DELHI BENCH B, NEW DELHI D ECIDED A SIMILAR ISSUE VIDE ITS ORDER DT. 02.11.2012. THE HONBLE ITAT HEL D THAT THE AMOUNT RECEIVED AS MOBILIZATION ADVANCE IS NOT TOWARDS A C ONTRACT RECEIPT, BUT IS MERELY AN ADVANCE FOR MOBILIZING RESOURCES BY THE A SSESSEE FOR CARRYING OUT THE WORK OF ITS CUSTOMER/CLIENT. THIS AMOUNT IS REQ UIRED TO BE ADJUSTED PROPORTIONATELY AGAINST THE RUNNING BILLS FROM THE WORKS CERTIFIED MERELY BECAUSE TAX AT SOURCE HAS BEEN DEDUCTED BUILDER, TH E RECEIPT OF MOBILIZATION MONEY CANNOT BE DEEMED AS INCOME OF THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION. FROM THE ABOVE, IT IS CLEAR THAT EVEN THOUGH THE A PPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, ANY AMOUNT RECEIVED BY THE APPELLANT CANNOT BE BROUGHT TO TAX UNTIL AND UNLESS IT PARTAKES, THE NATURE OF INCOME. IN MY OPINION, THE MOBILIZATION ADVANCE OF RS. 5,85,00,000/- RECEIVED BY THE APPELLANT CANNOT BE TREATED AS INCO ME AND BROUGHT TO TAX. ACCORDINGLY, THE ADDITION OF RS. 5,85,00,000/- IS H EREBY DELETED. 4. ON CAREFUL CONSIDERATION OF ABOVE WE NOTE THAT THE CIT(A) GRANTED RELIEF BY FOLLOWING PREPOSITION LAID DOWN BY VARIOU S ORDERS / DECISIONS OF HONBLE HIGH COURT AND THE TRIBUNAL INCLUDING ORDER OF ITAT DELHI B BENCH IN THE CASE OF DCIT VS. FIVE STAR CONSTRUCTION PVT. LTD. IN ITA NO. 1861/DEL/2011 FOR AY 2007-08 WHEREIN THE SIMILAR SE T OF FACTS AND ITA NO. 6498/DEL/2013 BLK-NCC CONSORTIUM 5 CIRCUMSTANCES IT WAS HELD THAT THE AMOUNTS RECEIVED AS MOBILIZATION ADVANCE IN NOT TOWARDS A CONTRACT RECEIPTS, BUT THE SAME IS ME RELY AN ADVANCE FOR MOBILIZING RESOURCES BY THE ASSESSEE CARRYING OUT T HE WORK OF ITS CUSTOMER/CLIENT. THIS AMOUNT IS REQUIRED TO BE ADJU STED PROPORTIONATELY AGAINST THE RUNNING BILLS FROM THE WORK CERTIFIED. IN THAT CASE THE TRIBUNAL ALSO HELD THAT MERELY BECAUSE TAX AT SOURCE HAS BEEN DEDUCTED BY THE PAYER BUILDER, THE RECEIPTS OF MOBILIZATION MONEY CANNOT BE DEEMED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE CIT(A) GRANTED RE LIEF BY FOLLOWING THE SAME PRECEDENT AND THUS WE ARE UNABLE TO SEE ANY VALID R EASON TO INTERFERENCE WITH THE IMPUGNED ORDER. CONSEQUENTLY GROUND NOS. 1 TO 3 OF THE REVENUE ARE DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 31/03/2016. SD/- SD/- (L.P.SAHU) (C.M.GA RG) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: 31/ 03/2016 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ITA NO. 6498/DEL/2013 BLK-NCC CONSORTIUM 6 DATE INITIAL 1. DRAFT DICTATED ON 30. 3.2016 2. DRAFT PLACED BEFORE AUTHOR 31.03.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.