INDIA TUBE MILLS & METAL INDUSTRIES P. LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 6637/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79356 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 13-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !', % % % % &' . % . () . % . , !' * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR.S.T.M. PAVALAN, JUDICIAL MEMBER ./ I.T.A. NO.6637/MUM/2013 ( + + + + / ASSESSMENT YEAR :2010-2011 M/S. INDIA TUBE MILLS & METAL INDUSTRIES PVT. LTD., L.B.S. MARG, VIKHROLI (W), MUMBAI-400 083 / VS. THE DCIT-10(3), AAYAKAR BHAVAN, MUMBAI-400 020 ./ I.T.A. NO.7675/MUM/2013 ( + + + + / ASSESSMENT YEAR :2010-2011 THE DCIT-10(3), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. INDIA TUBE MILLS & METAL INDUSTRIES PVT. LTD., L.B.S. MARG, VIKHROLI (W), MUMBAI-400 083 ', ./ -. ./ PAN/GIR NO. : AAACI 3048R ( ,/ / APPELLANT ) .. ( 01,/ / RESPONDENT ) ,/ 2 / ASSESSEE BY: SHRI SURINDER MEHRA 01,/ 3 2 / DEPARTMENT BY: SHRI SUNIL AGRAWAL 3 4) / DATE OF HEARING :01.07.2014 56+ 3 4) / DATE OF PRONOUNCEMENT :11.07.2014 M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 2 !7 / O R D E R PER N.K. BILLAIYA, AM: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE AGAINST THE ORDER OF THE LD. CIT(A)-22, MUMBAI DT. 23.10.20 13 PERTAINING TO ASSESSMENT YEAR 2010-11. BOTH THESE APPEALS WERE H EARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE AND BREVITY. ITA NO. 6637/M/2013 ASSESSEES APPEAL 2. THE ASSESSEE HAS RAISED 3 SUBSTANTIVE GROUNDS O F APPEAL. GROUND NO. 1 WITH ITS SUB-GROUNDS RELATES TO THE ADDITION OF RS. 3,11,60,000/- ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF SALES. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF BRIGHT BARS AND FABRICATION OF OIL TANK S AND VESSELS ETC. RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 25.9. 2010 DECLARING TOTAL INCOME AT RS. 9,88,91,503/-. THE RETURN WAS SELECT ED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SE RVED UPON THE ASSESSEE. 3.1. WHILE SCRUTINIZING THE RETURN, THE ASSESSING O FFICER NOTICED THAT THE ASSESSEE HAS ISSUED AN INVOICE FOR RS. 11,66,37,598 /- TO HPCL VISHAKHAPATNAM. THE AO NOTICED THAT THE ASSESSEE H AS REDUCED THE INVOICE VALUE BY A SUM OF RS. 3,11,60,000/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME AND JUSTIFY SUCH REDUCTION WITH DO CUMENTARY EVIDENCE AND TAXABILITY ON YEAR TO YEAR BASIS. THE ASSESSEE FILED A DETAILED REPLY STATING AS UNDER: M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 3 4.3 IN RESPONSE TO THE AFORESAID QUERY THE ASSESSEE HAS SUBMITTED AS UNDER :- 1. I) INVOICE ISSUED TO HINDUSTAN PETROLEUM CORPORATIO N LIMITED: THE MATTER REGARDING INVOICES ISSUED TO HINDUSTAN P ETROLEUM CORPORATION LIMITED- VISHAKHAPATNAM HAS BEEN EXPLAI NED IN DETAIL IN NOTE NO. 9 IN SCHEDULE-K OF THE BALANCE S HEET AS ON 31.3.2010 AND ALSO IN PARA 7 OF OUR LETTER DATED 30 .12.2013 FILED ON 31.1.2013. COPY OF THE INVOICE RAISED ON THE SAI D PARTY HAS BEEN FILED ALONG WITH OUR LETTER DATED 30.1.2013 II) AS PER CONTRACT WITH THE SAID PARTY AND AS MEN TIONED IN THE SAID INVOICE, THE FOLLOWING AMOUNTS ARE TO BE RECEI VED LATER ON: A) 15% OF THE ORDER VALUE AMOUNTING TO RS. 1,58,70,000 /- TO BE CLAIMED AGAINST ACCEPTANCE OF GOODS AT SITE AND AGA INST SUBMISSION OF PERFORMANCE BANK GUARANTEE. B) FURTHER 5% OF THE ORDER VALUE AMOUNTING TO RS. 52,9 0,000/- IS TO BE CLAIMED AGAINST SUBMISSION OF TECHNICAL DOCUM ENTS. C) THE AMOUNT OF RS. 1 CRORE IS TO BE CLAIMED LATER ON AGAINST COMPLETION OF WORK AT SITE. III) IN RESPECT OF THESE AMOUNTS WHICH ARE RECEIVA BLE LATER ON, ON THE COMPANY DOING THE NEEDFUL, INCLUDING COMPLET ION OF WORK AT SITE AND FURNISHING OF BANK GUARANTEE, THE SALES HA VE BEEN REDUCED BY THE SAID AMOUNTS AGGREGATING TO RS. 3,11,60,000/ - WHICH ARE TO BE CLAIMED LATER ON. THE SAID TREATMENT IS CORRECT AND PROPER. IV) COPY OF THE CONTRACT WITH THE SAID PARTY IS ENC LOSED HEREWITH. THE PAYMENT TERMS ARE SPECIFIED IN PARA 6.1 OF THE SAID PURCHASE AGREEMENT WHICH READS AS FOLLOWS: 5%: ON APPROVAL OF PRE-IDENTIFIED DRAWINGS AT-LEAS T IN CODE 2 DULY CERTIFIED BY EIL AND AGAINST SUBMISSION OF BAN K GUARANTEE OF EQUAL AMOUNT VALID FOR THE PERIOD OF CONTRACTUAL DE LIVERY. 20%: ON RECEIPT AND IDENTIFICATION OF MAJOR ROW MA TERIALS/BOUGHT- OUT COMPONENTS DULY CERTIFIED BY EIL AND AGAINST SU BMISSION OF M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 4 BANK GUARANTEE OF EQUAL AMOUNT VALID FOR THE PERIOD OF CONTRACTUAL DELIVERY. 55%: AGAINST DISPATCH DOCUMENTS AFTER RECEIPT OF MA TERIALS AT OWNERS SITE ON PRO-RATA BASIS. 15%: ON ACCEPTANCE OF GOODS/EQUIPMENT AT SITE AND O N SUBMISSION OF PERFORMANCE BANK GUARANTEE FOR 10% OF ORDER VALU E AS PER THE RFQ TERMS. 5%: AGAINST SUBMISSION OF ALL VENDOR DATA REQUIREME NTS AS PER PURCHASE REQUISITION. V) THUS, 15% OF THE ORDER OF THE VALUE IS CLAIMABL E LATER ON AGAINST ACCEPTANCE OF GOODS AT SITE AND AGAINST SUB MISSION OF BANK GUARANTEE. AS THE BANK GUARANTEE WAS NOT FURNISHED DURING THE YEAR UNDER CONSIDERATION AND THE GOODS WERE STILL T O BE ACCEPTED AFTER THEIR COMPLETION AT SITE WHICH WAS DONE MUCH LATER ON, THE SAID AMOUNT OF RS. 1,58,78,000/- WAS NOT CLAIMABLE DURING THE YEAR UNDER CONSIDERATION AND THE SAME HAS BEEN RIGHTLY R EDUCED FROM THE GROSS VALUE OF THE INVOICE. VI) FURTHER, 5% OF THE ORDER VALUE AMOUNTING TO RS . 52,92,000/- WAS TO BE CLAIMED AGAINST SUBMISSION OF TECHNICAL D OCUMENTS. AS THE SAID TECHNICAL DOCUMENTS WERE NOT SUBMITTED DUR ING THE YEAR UNDER CONSIDERATION AND COULD BE SUBMITTED ONLY WHE N THE WORK AT SITE WAS COMPLETED, THE SAID AMOUNT OF RS. 52,90,00 0/- COULD NOT BE CLAIMED DURING THE YEAR UNDER CONSIDERATION AND HAS BEEN RIGHTLY REDUCED FROM THE GROSS VALUE OF THE INVOICE. VII) THE ORIGINAL PURCHASE ORDER ISSUED BY HPCL WAS AMENDED BY THEM BY THEIR REVISION NUMBER 7 DATED 3.11.2009. TH E MAIN PORTION OF THE SAID AMENDMENT READS AS FOLLOWS: 1. ITM WILL IMMEDIATELY DISPATCH THE SEMI FINISHED ASSEMBLIES AFTER RECEIPT OF THIS ORDER AMENDMENT FR OM HPCL. THE BANK GUARANTEES SUBMITTED BY ITM AGAIN DRAWING APPROVAL (5%) AND MATERIAL RECEIPT AND IDENTIFICATION (20%) V/ILL BE RELEASED IMMEDIATELY AFTER RECEIPT OF MATERIALS AT VR SITE. 2. BALANCE FABRICATION WORK WILL BE TAKEN UP AND CO MPLETED AT VISAKH UNIT IN THE SPACE PROVIDED BY HPCL WITHIN 4 (FOUR) M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 5 MONTHS FROM THE DATE OF RECEIPT OR DRAWINGS DULY AP PROVED BY EIL IN CODE-I. 3. THE VALUE OF BALANCE FABRICATION WORK TO BE CAR RIED OUT AT VR SITE IS AGREED TO BE RS ONE CRORE. FOR LABOUR ES CALATION, THE BASIS WILL BE ON ALL-INDIA CONSUMER PRICE INDEX NUM BERS FOR INDUSTRIAL WORKERS. THE SAME SHALL BE CONSIDERED FR OM THE DATE OF THE DISPATCH OF SEMI-FINISHED ASSEMBLIES UPTO THE C OMPLETION OF THE BALANCE WORKS AT OUR SITE. 3.2. THE REPLY OF THE ASSESSEE WAS DULY CONSIDERED BY THE AO BUT DID NOT ACCEPT THE SAME. THE AO WAS OF THE OPINION THA T THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNT ON MERCANTILE SYST EM OF ACCOUNTING. THE AO FOUND THAT THE ASSESSEE IS RECOGNIZING SALES INCLUSIVE OF EXCISE DUTY, VAT, SALES TAX COLLECTED ON SALES AND SERVICE CHARGES. THE AO FURTHER NOTICED THAT IN RESPECT OF FABRICATION CONT RACT, THE METHOD OF ACCOUNTING FOLLOWED REGARDING ACCOUNTING OF FABRIC ATION CONTRACT IS PERCENTAGE COMPLETION METHOD AS PRESCRIBED BY REVIS ED AS-7 ISSUED BY THE INSTITUTE OF THE CHARTERED ACCOUNTANTS OF INDI A. THE AO FURTHER NOTICED THAT THE ASSESSEE ISSUED TAX INVOICE NO. 18 DT. 12.10.2009 IN THE NAMES OF HINDUSTAN PETROLEUM CORPN. LTD., VIZAG REF INERY, VISHKHAPATNAM FOR RS. 11,66,37,598/-. THE AO FOUND THAT THE ASSESSEE HAS CHARGED EXCISE DUTY, EDUCATION CESS, CST, FREIG HT CHARGES AND SERVICE TAX. THE GOODS WERE DISPATCHED THROUGH VARIOUS RO ADLINES. THE ASSESSEE HAS ALSO RECEIVED C FORM FROM THE CONTRACTOR AND THE MATERIAL HAS REACHED TO THE CONTRACTOR BEFORE 30.3.2010. ALL CO ST RELATED TO THE SAID CONTRACT HAS ALREADY BEEN BOOKED IN THE BOOKS OF AC COUNTS. THE AO WAS OF THE FIRM BELIEF THAT CONSIDERING THE SEQUENCE OF THE EVENTS I.E. SUPPLY, BILLS, PAYMENTS ETC., IT IS CLEAR THAT THE WORK IS COMPLETED, DELIVERED TO THE HPCL. THE AO CONCLUDED BY OBSERVING THAT SINCE THE ASSESSEE HAS RAISED INVOICE ON RS. 11,66,37,598/- TO M/S. HPCL, THE EXCISE DUTY HAS BEEN CHARGED AND PAID, EVEN FREIGHT CHARGES HAS ALS O BEEN CHARGED TO THE M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 6 CLIENT. THERE WAS NO REASON FOR REDUCING THE SALES BY RS. 3,11,60,000/-. THE AO FINALLY OBSERVED THAT THE ASSESSEE HAS NOT A CCOUNTED THE SALES TO THE TUNE OF RS. 3,11,60,000/- IN THE BOOKS AND ADDE D THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRO NGLY SUBMITTED THAT REVENUE AUTHORITIES HAVE NOT APPRECIATED THE AMENDE D PURCHASE ORDER. IT IS THE SAY OF THE LD. COUNSEL THAT CONSIDERING THE REVISED ORDER, THE ASSESSEE WAS NOT ENTITLED TO RECEIVE THE PAYMENT OF RS. 3.11 CRORES AND THEREFORE IT HAS RIGHTLY REDUCED THE INVOICE VALUE BY THE SAID AMOUNT. IT IS THE CLAIM OF THE ASSESSEE THAT IT NEVER GOT ANY RIGHT TO RECEIVE THE PAYMENT ON DISPATCH OF SEMI-FINISHED GOODS FROM I TS FACTORY AND THEREFORE NO INCOME ACCRUED IN RESPECT OF THE SAME DURING THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER STATED THAT RS. 3,11,60,000/- WAS TO BE RECEIVED LATER ON BY THE COMPANY DOING THE N EEDFUL INCLUDING COMPLETION OF WORK AT SITE AND FURNISHING BANK GUAR ANTEE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE REVENUE AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD B EFORE US. IN THE LIGHT OF RULE 18(6) OF THE APPELLATE TRIBUNAL RULE, 1963. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS RAISED INVOICE OF RS. 11 ,66,37,598/-. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAS CHARGED EX CISE DUTY, CST AND FREIGHT CHARGES. THE CONTRACT WAS FOR THE SUPPLY O F SCRUBBER AND INTERNALS M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 7 FOR FGD 1 & 2 AT VIZAG REFINERY, VISHAKHAPATNAM. THE CONTRACTUAL DELIVERY DATE FOR THIS ORDER WAS WITHIN 10 MONTHS. THE ENTIRE SUPPLIES WERE TO BE COMPLETED BY THE SUPPLIER WITHIN THE CON TRACTUAL DELIVERY DATE. THIS IS AS PER THE PURCHASE ORDER PLACED ON RECORD AT PAGE 8 TO 22 OF THE PAPER BOOK. 7.1. IT IS THE CLAIM OF THE ASSESSEE THAT THE SAID PURCHASE ORDER HAS BEEN REVISED BY M/S. HPCL FROM TIME TO TIME BECAUSE OF W HICH CERTAIN CONDITIONS WERE NOT FULFILLED WHICH PROMPTED THE AS SESSEE TO REDUCE THE INVOICE VALUE BY A SUM OF RS. 3,11,60,000/-. WE FI ND THAT THE FIRST REVISION WAS MADE ON 30.11.2006 WHICH IS AT PAGE-23 OF THE PAPER BOOK. BY THE SAID REVISION, THE DELIVERY PERIOD HAS BEEN EXTENDED BY 4 MONTHS UPTO 31.3.2007 FROM 27.11.2006. THE SECOND REVISIO N IS DT. 19.4.2007 BY WHICH THE PAYMENT TERMS HAVE BEEN REVISED AND TH E DELIVERY PERIOD HAS BEEN EXTENDED UPTO 30.9.2007 FROM 31.3.2007. T HIS REVISION IS AT PAGE-25 OF THE PAPER BOOK. THE THIRD REVISION IS D T. 28.9.2007 BY WHICH DELIVERY PERIOD HAS BEEN EXTENDED BY 4 MONTHS FOR F ABRICATION. THIS IS EXHIBITED AT PAGE-28 OF THE PAPER BOOK. THE FOURTH REVISION IS DT. 8.3.2008 WHICH WAS ISSUED TO REIMBURSE THE BANK COM MISSION CHARGES. THE SIXTH REVISION IS DT. 29.5.2009 WHICH IS AT PAG E-36 OF THE PAPER BOOK. THIS REVISION ORDER WAS ISSUED TO REIMBURSE BANK GU ARANTEE EXTENSION CHARGES UPTO 6.3.2010 AND TO ENHANCE THE FINANCE LI MIT FOR THE BANK COMMISSION CHARGES FROM 10 LAKHS TO 15 LAKHS. THE SEVENTH REVISION IS DT. 3.11.2009 AND IS AT PAGE-40 OF THE PAPER BOOK. THIS REVISION ORDER WAS ISSUED FOR THE FOLLOWING REASONS: 1. ITM WILL IMMEDIATELY DISPATCH THE SEMI FINISHED ASS EMBLIES AFTER RECEIPT OF THIS ORDER AMENDMENT FROM HPCL. T HE BANK GUARANTEES SUBMITTED BY ITM AGAINST DRAWING APPROVA L (5%) M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 8 AND MATERIAL RECEIPT & IDENTIFICATION (20%) WILL B E RELEASED IMMEDIATELY AFTER RECEIPT OF MATERIALS VR SITE. 2. BALANCE FABRICATION WORK WILL BE TAKEN UP AND COMPL ETED AT VIZAKH UNIT IN THE SPACE PROVIDED BY HPCL WITHIN 4 MONTHS FROM THE DATE OF RECEIPT OF DRAWINGS DULY APPROVED BY EIL IN CODE-1. 3. THE VALUE OF BALANCE FABRICATION WORK TO BE CARRIED OUT AT VR SITE IS AGREED TO BE RS. ONE CRORE. FOR LABOUR ESC ALATION, THE BASIS WILL BE ON ALL INDIA CONSUMER PRICE INDEX NUM BERS FOR INDUSTRIAL WORKERS. THE SAME SHALL BE CONSIDERED F ROM THE DATE OF THE DISPATCH OF SEMI-FINISHED ASSEMBLIES UPTO TH E COMPLETION OF THE BALANCE WORKS AT OUR SITE. 4. THE PAYMENT TERMS ARE REVISED AS PER ANNEXURE-1. NOTE: INCASE OF ANY REFUND ON BANK COMMISSIONING C HARGES CREDITED BY THE BANK FOR EARLY CANCELLATION OF BGS, THE SAME SHALL BE PASSED TO HPCL. ALL OTHER TERMS AND CONDITIONS REMAIN UNALTERED. 7.2. AFTER CAREFULLY PERUSING THESE DOCUMENTARY EV IDENCES, WE FIND THAT ONLY PAYMENT TERMS HAVE BEEN REVISED. WE FAIL ED TO UNDERSTAND HOW THE PAYMENT TERMS CAN OVERRIDE THE PRINCIPLE OF ACC OUNTING OF THE SALES. PAYMENT SEQUENCE ARE POST SALES EVENTS. WE FIND TH AT THE ASSESSEE IS RECOGNIZING REVENUE ON THE BASIS OF PERCENTAGE OF C OMPLETION OF WORK. THE TOTAL INVOICE RAISED IS OF RS. 11,66,37,598/- A ND THE ONLY WORK WHICH WAS PENDING RELATES TO THE FABRICATION AS PER REVIS ED PURCHASE ORDER. REVISION NO. 7 WHICH RELATES TO RS. ONE CRORE WHICH MEANS THAT 90% OF THE WORK HAS ALREADY BEEN COMPLETED. GOING BY ASSES SEES OWN METHOD M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 9 OF ACCOUNTING AND THE ACCOUNTING STANDARDS FOLLOWE D BY IT, THE ASSESSEE OUGHT TO HAVE RECOGNIZE THE ENTIRE INVOICE VALUE AS ITS SALES. WE FIND THAT THE OTHER REDUCTIONS BY THE ASSESSEE ONLY RELATE TO THE PAYMENT TERMS WHICH CANNOT DECIDE THE RECOGNITION OF SALE. CONSID ERING ALL THESE FACTS IN TOTALITY WITH THE DOCUMENTARY EVIDENCES ON RECORD, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE REVENU E AUTHORITIES. GROUND NO. 1 AND ALL ITS SUB-GROUNDS ARE DISMISSED. 8. GROUND NO. 2 RELATES TO THE ADDITION OF RS. 1,44 ,593/- OUT OF INTEREST PAID TO DIRECTORS. 9. THE AO NOTICED THAT DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF RS. 96,39 ,532/- TO VARIOUS PERSONS SPECIFIED IN SEC. 40A(2)(B). THE ASSESSEE WAS ASK ED TO JUSTIFY THE PAYMENTS MADE TO THE PERSONS SPECIFIED IN SEC. 40A( 2)(B). THE ASSESSEE FILED THE REQUIRED DETAILS. AFTER PERUSING THE DET AILS, THE AO FURTHER SOUGHT CLARIFICATION FROM THE ASSESSEE TO JUSTIFY I NTEREST PAID TO THE DIRECTOR @ 15%. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO WAS OF THE OPINION THAT PAYMENT OF INTEREST @ 15% IS NO T INCONFORMITY WITH THE PREVAILING MARKET RATE AND ACCORDINGLY DISALLOW ED THE INTEREST BEYOND 12% AND MADE AN ADDITION OF RS. 19,27,906/-. 10. BEFORE THE LD. CIT(A) THE ASSESSEE CLAIMED THAT IT IS PAYING INTEREST TO PUNJAB NATIONAL BANK @ 14% PLUS BANK CH ARGES ALONGWITH SECURITIES WHICH HAVE BEEN GIVEN TO THE BANK. THE ASSESSEE CLAIMED THAT INTEREST @ 15% WAS REASONABLE. THE ASSESSEE ALSO R ELIED UPON THE DECISION OF THE LD. CIT(A) FOR A.Y. 2008-09 WHEREIN A SIMILAR ADDITION WAS DELETED BY THE LD. CIT(A). 10.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIO NS, THE LD. CIT(A) WAS OF THE OPINION THAT INTEREST @ 13.5% TO THE DIR ECTORS IS FAIR AND M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 10 REASONABLE AND ACCORDINGLY SUSTAINED THE ADDITION T O THE EXTENT OF 1.5% AMOUNTING TO RS. 1,44,593/-. 11. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEF ORE THE LOWER AUTHORITIES. 12. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LD. CIT(A). 13. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE FI NDINGS OF HIS PREDECESSOR FOR A.Y. 2008-09 WHEREIN INTEREST @ 13. 5% WAS ALLOWED. IT SEEMS THAT THE ASSESSEE HAS ACCEPTED THE ORDER OF T HE LD. CIT(A) FOR A.Y. 2008-09. AS NO DISTINGUISHING FACTS HAVE BEEN BROU GHT ON RECORD, NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 IS ACCORD INGLY DISMISSED. 14. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO. 3 SAME IS DISMISSED AS NOT PRESSED. ITA NO. 7675/M/2013 REVENUES APPEAL 15. GRIEVANCES OF THE REVENUE READ AS UNDER: 1(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE OF RS. 24,00,000/- CLAIMED ON ACCOUNT OF LIQUIDATED DAMAGE. 1.(II) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SALES HAD NOT BEEN ACCOUNTED IN THE BOOKS, HENCE LIQUIDATED DAMAGE CHARGES BY WAY OF REDUCTION IN WIP IS NOT ALLOWABLE. 2(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LIQUIDATED DAMAGES OF RS. 2,81,77,068/- M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 11 2(II) LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE DISALLOWANCE WAS WORKED OUT CONSIDERING EVEN THE AMOUNT OF SALES MADE/BOOKED IN EARLIER YEARS. 16. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSEE WAS ASKED TO FURNISH PARTY-WISE SALES AND CONTRACT-WISE REVENUE VIS--VIS SUB CONTRACT GIVEN. THE AO NOTICED THAT THE AUDITORS H AVE QUALIFIED THEIR REPORT IN RESPECT OF KERALA SITE IN RESPECT OF INVO ICE NO. 1 IN THE NAME OF BPCL, KOCHI REFINERY WHICH WAS FOR RS. 4.80 CRORES + EXCISE DUTY AGGREGATING TO RS. 5,19,55,200/-. THE COMPANY HAD SHOWN WORKS IN PROGRESS IN RESPECT OF THIS CONTRACT AT RS. 4.24 C RORES. THE ASSESSEE EXPLAINED THAT IT HAS SHOWN WIP AT RS. 4.24 CRORES. THE PROFIT ON THE SAME HAS ALREADY BEEN INCORPORATED IN THE VALUATION OF WIP. THE WIP IN RESPECT OF THIS JOB HAS BEEN SHOWN AT ITS FULL REAL IZABLE VALUE. IT WAS FURTHER EXPLAINED THAT THE WIP OF THIS JOB IS INCOR PORATED IN THE CLOSING STOCK , THUS THE PROFIT ON THIS JOB IS OFFERED FOR TAXATION. IT WAS FURTHER EXPLAINED THAT THE JOB OF RS. 32 LAKHS IS YET TO BE COMPLETED. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED RS. 24 LAKHS AS LIQUIDATED DAMAGE AGAINST THIS JOB. THE AO WAS OF THE OPINION THAT T HE ASSESSEE ITSELF HAS NOT ACCOUNTED THE SALES THEREFORE THE CLAIM OF LIQU IDATED DAMAGES IS NOT ACCEPTABLE. THE AO ADDED THE SAME TO THE TOTAL INC OME OF THE ASSESSEE. 16.1. ON FURTHER PERUSAL OF THE ACCOUNT, THE AO NOT ICED THAT THE ASSESSEE HAS CLAIMED RS. 4,06,89,515/- AS LIQUIDATED DAMAGES . THE ASSESSEE WAS ASKED TO SUBMIT MONTH-WISE AND PARTY-WISE DETAILS O F LIQUIDATED DAMAGES ALONGWITH SALES MADE TO THE PARTIES IN THE YEAR UND ER CONSIDERATION FOR WHICH LIQUIDATED DAMAGES HAVE BEEN CLAIMED. THE AS SESSEE FILED A DETAILED REPLY DT. 12.2.2013. IT WAS EXPLAINED THA T THE MAJOR AMOUNT OF LIQUIDATED DAMAGES OF RS. 3,08,51,879/- WAS IN RESP ECT OF CONTRACT WITH BHARAT OMAN REFINERIES LTD. THE SAID LIQUIDATED DA MAGES AROSE BECAUSE M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 12 THE CONTRACT WAS DELAYED AND AS PER THE CONTRACT, T HE COMPANY AWARDING THE CONTRACT WAS ENTITLED TO DEDUCT LIQUIDATED DAMA GES FROM THE PAYMENTS. THE SAID DAMAGES ARE SUPPORTED BY THE COM PLETION CERTIFICATE ISSUED BY ENGINEERS INDIA LTD. 16.2. AFTER CONSIDERING THE SUBMISSIONS AND THE DET AILS FILED BY THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS CLA IMED LIQUIDATED DAMAGES MORE THAN 5%. THE AO WAS OF THE OPINION TH AT THE DAMAGES CANNOT BE ALLOWED BEYOND 5% OF THE SALES AND ACCORD INGLY MADE AN ADDITION OF RS. 2,81,77,068/-. 17. THE ASSESSEE CARRIED BOTH THESE ADDITIONS BEFOR E THE LD. CIT(A). BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT THE AO HAS FAILED TO UNDERSTAND THE FACTS IN THE RIGHT PERSPECTIVE. THE DAMAGES OF THE LIQUIDATED DAMAGES OF RS. 24 LAKHS WAS INFACT DEDUC TED BY THE SAID PARTY AS THE JOB WAS NOT COMPLETED BY THE SPECIFIED DATE. 17.1. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, IN THE LIGHT OF THE PURCHASE ORDER GIVEN BY M/S. BPCL WITH REGARD T O KOCHI REFINERY WORKS THE LD. CIT(A) OBSERVED THAT THE INSPECTION R EPORT CLEARLY SHOWS THAT CERTAIN BALANCE WORK WAS STILL TO BE CARRIED OUT BY THE ASSESSEE AND HENCE LIQUIDATED DAMAGES AMOUNTING TO RS. 24 LAKHS WAS REDUCED FROM THE TOTAL CONTRACT VALUE OF RS. 4.80 CRORES. THE LD. CIT(A) WAS CONVINCED THAT REDUCTION OF RS. 24 LAKHS TOWARDS TH E LIQUIDATED DAMAGES WAS DUE TO DELAY IN COMPLETION OF WORK AND DELETED THE ADDITION. 18. THE LD. DR SIMPLY SUPPORTED THE FINDINGS OF THE AO. 19. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LD. CIT(A). M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 13 20. WE HAVE CAREFULLY PERUSED THE FINDINGS OF THE L D. CIT(A). WE FIND THAT THE LD. CIT(A) HAS GIVEN CATEGORICAL FIND INGS. AFTER CONSIDERING THE PURCHASE ORDER GIVEN BY M/S. BPCL WITH REGARD TO KOCHI REFINERY WORK AND THE CERTIFICATE ISSUED BY ENGINE ERS INDIA LTD., WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 WITH ITS SUB-GROUNDS ARE DISMISSED. 21. IN SO FAR AS ADDITION OF RS. 2,81,77,068/- IS C ONCERNED, THE LD. CIT(A) HAS CONSIDERED THIS ISSUE QUA GROUND NO. 3 A T PARA-4 OF HIS ORDER. WE FIND THAT AT PARA- 4.3, THE LD. CIT(A) HAS CONSI DERED THE PURCHASE ORDER WITH REGARD TO M/S. BHARAT OMAN REFINERIES L TD FOR BINA REFINERY PROJECT. WE FIND THAT THE LD. CIT(A) HAS CONSIDER ED THE COMPLETION CERTIFICATE GIVEN BY ENGINEERS INDIA LTD., AND AS P ER THE TERMS OF THE BIDDING DOCUMENT, THE LD. CIT(A) OBSERVED THAT THE LIQUIDATED DAMAGES WORKED OUT TO 4.47% ONLY AND HENCE THE FINDINGS OF THE AO THAT THE DAMAGES HAVE BEEN CLAIMED IN EXCESS OF 5% IN INCORR ECT. ON THESE APPRECIATION OF FACTS, THE LD. CIT(A) HAS DELETED T HE ADDITION. 22. THE LD. DR SIMPLY RELIED UPON THE FINDINGS OF T HE AO. WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION AFTER CONSIDERING THE FACTS IN THE LIGHT OF THE COMPLETION CERTIFICATE GIVEN BY EN GINEERS INDIA LTD. WE ALSO FIND THAT THE ALLEGATION OF THE AO THAT LIQUID ATED DAMAGES ARE IN EXCESS OF 5% IS FOUND TO BE ERRONEOUS BY THE LD. CI T(A). CONSIDERING ALL THESE FACTS IN TOTALITY, NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 WITH ITS SUB-GROUNDS ARE DISMISSED. M/S.INDIA TUBE MILLS & METAL INDUSTRIES. 14 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND THE CROSS APPEAL FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2014 . !7 3 6+ 8 9!: 11.7.2014 6 3 ; SD/- SD/- (DR. S.T.M. PAVALAN) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 9! DATED 11.7.2014 . . ./ RJ , SR. PS !7 !7 !7 !7 3 33 3 04 04 04 04 <+4 <+4 <+4 <+4 / COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. >; 04 , , / DR, ITAT, MUMBAI 6. ;& ? / GUARD FILE. !7 !7 !7 !7 / BY ORDER, 14 04 //TRUE COPY// @ @@ @ / A A A A - - - - (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI