DCIT, Circle-3(3), Hyderabad V. M/s. Zelan Projects Pvt.Ltd., Hyderabad

ITA 946/HYD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0277 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 15-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI MOHAN RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 946/HYD/2012 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(3), HYDERABAD. VS. M/S ZELAN PROJECTS PVT. LTD., HYDERABAD. PAN AAACZ2295B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJAT MITRA ASSESSEE BY : P. MURALI MOHAN RAO DATE OF HEARING 09-06-2015 DATE OF PRONOUNCEMENT -06-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST ORDER DATED 15/03/2011 OF LD. CIT(A), GUNTUR FOR AY 2006-07. 2. THE SOLITARY ISSUE ARISING FOR CONSIDERATION IS IN RELATION TO DECISION OF LD. CIT(A) IN DELETING THE ADDITION MAD E BY AO ON ESTIMATING INCOME @ 8% ON CONTRACT RECEIPTS. 3. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE, A SSESSEE A COMPANY IS ENGAGED IN BUSINESS OF EXECUTION OF CONTRACT. FO R THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 13/11/06 DECLARING LOSS OF RS. 65,48,374. DURING THE ASSESSM ENT PROCEEDING, AO NOTICED THAT ASSESSEE IN THE RELEVANT PY HAS OBT AINED CONTRACT WORK RELATING TO ERECTION AND PROCUREMENT OF 200 & 300 MW THERMAL 2 ITA NO. 946 /HYD/2012 ZELAN PROJECT PVT. LTD. POWER PROJECT AND HAS SUB-CONTRACTED THE SAME TO OT HER CONTRACTORS. FURTHER, HE FOUND THAT DURING THE RELEVANT PY ASSES SEE HAS OBTAINED ENGINEERING, PROCUREMENT AND CONSTRUCTION OF EPC CO NTRACT FROM LANCO AMARKANTAK POWER PVT. LTD. (LAPPL) FOR 300 MW THERMAL PROJECT AT KORBA DISTRICT, CHATTISGARH. FROM THE DE TAILS AVAILABLE ON RECORD, AO NOTICED THAT DURING THE YEAR, ASSESSEE H AS RECEIVED PAYMENTS OF RS. 14.49 CRORES FROM LAPPL ON DIFFEREN T DATES AS UNDER: 07/05/2005 RS. 2,41,48,750 29/07/05 RS. 4,82,07,500 21/09/2005 RS. 7,25,43,750 ON VERIFYING TDS CERTIFICATE, AO NOTICED THAT THE P AYMENTS MADE WERE ON ACCOUNT OF PROFESSIONAL AND TECHNICAL SERVI CES. HE FOUND THAT ASSESSEE HAS RECEIVED 103.63 CRORES TOWARDS MOBILIZ ATION ADVANCES AND AT THE SAME TIME HAS GIVEN LOANS AND ADVANCES T O SUB- CONTRACTORS AMOUNTING TO RS. 28.66 CRORES. WHEREAS AT THE END OF THE YEAR, ASSESSEE HAS DISCLOSED WORK-IN-PROGRESS AT RS . 16.22 CRORES. CONSIDERING THE AFORESAID FACTS, AO ISSUED A SHOW C AUSE NOTICE TO ASSESSEE TO EXPLAIN WHY INCOME SHOULD NOT BE ESTIMA TED ON THE WORK IN PROGRESS SHOWN DURING THE YEAR. IN RESPONSE TO T HE SAID SHOW CAUSE NOTICE, ASSESSEE SUBMITTED, THE AMOUNT RECEIV ED FROM LAPPL IS ONLY MOBILIZATION ADVANCE THOUGH OF COURSE, THE CONTRACTEE HAS DEDUCTED TAX ON SUCH ADVANCE AS IT PERTAINS TO PROF ESSIONAL AND TECHNICAL SERVICES AND TDS PROVISION IS EQUALLY APP LICABLE TO ADVANCE PAYMENTS ALSO. HOWEVER, AS FAR AS ASSESSEE IS CONCE RNED, SINCE THE AMOUNT RECEIVED IS ONLY AN ADVANCE, THE SAME WAS NO T SHOWN AS INCOME. IT WAS FURTHER SUBMITTED BY ASSESSEE THAT B ILLS WERE RAISED BY ASSESSEE TOWARDS WORK EXECUTED ONLY IN FY 2006-07 A ND ONCE BILLS WERE RAISED LAPPL STARTED RECOVERING THE ADVANCE AM OUNT FROM THE CONTRACT BILLS. THUS, IT WAS SUBMITTED BY ASSESSEE THAT ADVANCE CANNOT BE TREATED AS AMOUNT RECEIVED TOWARDS CONTRA CT RECEIPT, HENCE, THERE CANNOT BE ANY ESTIMATION OF INCOME. AO , HOWEVER, WAS 3 ITA NO. 946 /HYD/2012 ZELAN PROJECT PVT. LTD. NOT CONVINCED WITH THE SUBMISSIONS OF ASSESSEE. HE OBSERVED THAT ASSESSEE HAS GIVEN ON SUB-CONTRACT WHATEVER WORK IT HAD OBTAINED FROM LAPPL AND ASSESSEE HAS ALSO PAID ENTIRE BILLS TO THE SUB- CONTRACTORS, HENCE, ASSESSEE IS ONLY SUBMITTING THE BILLS TO THE CONTRACTEE FOR THE WORK DONE BY SUB-CONTRACTORS. HE OPINED THAT AS THE WORK HAS ALREADY BEEN COMPLETED, INCOME HAS TO BE ESTIMATED ON WORK-IN-PROGRESS. AO REFERRING TO THE AS-7 OF ICAI AS WELL AS A NUMBER OF JUDICIAL AUTHORITIES, ULTIMATELY, HELD TH AT INCOME @ 8% HAS TO BE ESTIMATED ON THE TOTAL EXPENDITURE OF RS. 16, 22,21,839 SHOWN AS WORK-IN-PROGRESS BY ASSESSEE AND ACCORDINGLY COM PLETED THE ASSESSMENT. BEING AGGRIEVED OF THE ASSESSMENT ORDER , SO PASSED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 4. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) , ASSESSEE APART FROM CHALLENGING THE ESTIMATION OF INCOME ON VARIOU S OTHER GROUNDS CONTENDED THAT DURING THE RELEVANT PY ASSESSEE HAS ONLY RECEIVED 15% OF THE TOTAL CONTRACT VALUE AS MOBILIZATION ADV ANCE. IT WAS SUBMITTED THAT ASSESSEE HAS STARTED RAISING BILLS O NLY IN FY 2006-07 AND LAPPL ALSO STARTED RECOVERING THE ADVANCE AMOUN T FROM BILLS RAISED BY ASSESSEE. IT WAS SUBMITTED BY ASSESSEE TH AT ONCE ASSESSEE HAS RAISED BILLS, AND AMOUNTS TOWARDS CONTRACT EXEC UTED WAS RECEIVED, IT HAS STARTED RECOGNIZING REVENUE AND HA S SHOWN INCOME IN ASSESSMENT YEAR 2007-08. AS FAR AS ALLEGATION OF AO THAT AMOUNTS RECEIVED BY ASSESSEE FROM LAPPL WAS PAID TO THE SUB -CONTRACTORS, ASSESSEE SUBMITTED THAT THE PAYMENTS MADE TO SUB-CO NTRACTORS WERE TOWARDS CONSULTANCY AND ADVISORY SERVICES AND ENGIN EERING, ERECTION AND COMMISSIONING EXPENDITURE BASED ON THE SUB-CON TRACT AGREEMENTS SEPARATELY ENTERED WITH THEM. ASSESSEE S UBMITTED THAT SINCE THE CONTRACT WAS NOT FULLY EXECUTED DURING TH E RELEVANT FY, ASSESSEE HAS NOT RAISED ANY BILL ON THE CONTRACTEE AND ENTIRE EXPENDITURE WAS SHOWN AS WORK-IN-PROGRESS. ASSESSEE ALSO SUBMITTED THAT ENTIRE WORK-IN-PROGRESS OF RS. 16.22 CRORES HA S BEEN BROUGHT FORWARD AS OPENING WORK-IN-PROGRESS IN P&L A/C FOR THE SUBSEQUENT 4 ITA NO. 946 /HYD/2012 ZELAN PROJECT PVT. LTD. AY IN WHICH CORRESPONDING INCOME ARISING FROM THE BILLS RAISED ON THE CONTRACTEE WAS SHOWN. 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND GOING THROUGH THE MATERIALS ON RECORD AVAILABLE BEF ORE HIM, DELETED THE ADDITION MADE BY AO ON ACCOUNT OF ESTIMATION OF INCOME ON CONTRACT WORK BY HOLDING AS UNDER: 4.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO AND ALSO PERUSED EVERY OTHER INFORMATION PLACED BE THERE IS NO DISPUTE THAT THE APPELLANT IS AN EPC (ENGINEERING, PROCUREMENT AND COMMISSIONING) C ONTRACTOR, RENDERING WORK TO LANCO AMARKANTAK POWER PRIVATE L TD., (LAPPL). THE APPELLANT HAS GIVEN SOME WORKS TO OTHER PLAYER S SUBCONTRACTS. FOR THE YEAR UNDER CONSIDERATION THE APPELLANT REC EIVED ADVANCES FROM CONTRACTOR IN THE MONTHS OF JULY 2005 AND MARCH 2006 & BY MARCH 2006 THE WORKS WERE UNDER PROGRESS. AS PER R ECORDS THE WORKS ASSIGNED TO THE APPELLANT BY THE CONTRACTOR WERE COMPLETED IN JUNE 2006. AFTER COMPLETION OF WORKS, BILLS WER E SUBMITTED AND FINALLY HANDED OVER THE POSSESSION AND ACCORDINGLY OFFERED INCOME IN THE NEXT FINANCIAL YEAR RELEVANT TO THE ASSESSM ENT YEAR 2007-08. THUS FOR THE YEAR UNDER CONSIDERATION AS THE PROJE CT WAS UNDER PROGRESS, THE APPELLANT HAS DRAWN WORK IN PROGRESS ACCOUNT AND ALSO PREPARED A BALANCE SHEET. SEEING THE STATE OF AFFAIRS, THE AO WAS OF THE VIEW THAT AS MAJOR WORKS HAVE BEEN COMP LETED, IT MUST RESULT IN INCOME AND AS THE APPELLANT HAS NOT PREP ARED THE PROFIT AND LOSS ACCOUNT, RIGHTLY SO, THE AO HAS SUBJECTED THE 8% ON ADVANCES RECEIVED FROM LAPPL FOR THE YEAR ENDING 3 1/03/2006 TO TAX, WHICH IS UNDER CHALLENGE NOW. EITHER IN THE A CCOUNTING PRINCIPLES OR AS IS KNOWN IN GENERAL PARLANCE, INC OME OR CURBING OUT INCOME FROM ADVANCES IS UNHEARD OF. FOR SUCH A PRO POSITION, NO COGENT MATERIAL HAS BEEN BROUGHT ON RECORD. THUS, FUNDAMENTALLY THE AO WAS IN ERROR IN CURBING OUT ELEMENT OF INCO ME FROM ADVANCES RECEIVED AS ON 31.03.2006. IT IS ALSO ON RECORD THAT IN THE NEXT FINANCIAL YEAR RELEVANT TO THE AY 2007-08, TH E APPELLANT UPON COMPLETION, ERECTION, COMMISSION OF THE PROJECT HA S HANDED OVER THE SAME TO THE CONTRACTOR AND ALSO UPON SUBMISSIO N OF BILLS TO THE CONTRACTOR THE FINAL AMOUNT PAYABLE TO THE APPELL ANT WAS ALSO 5 ITA NO. 946 /HYD/2012 ZELAN PROJECT PVT. LTD. DETERMINED AND PAID; AND AS A RESULT THE APPELLANT HAS WORKED OUT THE PROFIT FOR THE YEAR ENDING 2007 AND FILED A RE TURN. THUS, INCOME FROM THIS PROJECT ACCRUED TO THE APPELLANT IN THE NEXT ASSESSMENT YEAR AND ACCORDINGLY THE APPELLANT HAS ALSO FILED THE RETURN. THUS, SINCE NO COGENT MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE AO FOR CURBING OUT INCOME FROM THE ADVANCES RECEIVED FOR THE YEAR ENDING 31.03.2006, THE ACTION OF THE AO IS NOT SUSTAINABL E. IN THE CIRCUMSTANCES, THE AO IS DIRECTED TO DELETE THE SA ME. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. AS CAN BE SEEN, ONLY ON THE BASIS OF TDS CERTIFICAT E ENCLOSED BY ASSESSEE IN THE RETURN OF INCOME, AO HAS CONCLUDED THAT THE AMOUNT RECEIVED BY ASSESSEE FROM LAPPL IS A CONTRACT RECEI PT AND ACCORDINGLY PROCEEDED TO ESTIMATE THE INCOME. HOWEV ER, AS CAN BE SEEN FROM THE TERMS OF THE RELEVANT AGREEMENT BETWE EN ASSESSEE AND LAPPL, ASSESSEE IS TO RECEIVE 15% OF THE TOTAL CONT RACT AMOUNT AS MOBILIZATION ADVANCE. THOUGH, IT MAY BE A FACT THAT IN THE TDS CERTIFICATE, DEDUCTEE HAS MENTIONED IT AS PAYMENT T OWARDS PROFESSIONAL CHARGES BUT, THAT ITSELF IS NOT CONCLU SIVE ENOUGH TO PROVE THE FACT THAT AMOUNT RECEIVED WAS NOT ADVANCE BUT T OWARDS WORK EXECUTED. ASSESSEE HAS ALSO THROUGH DOCUMENTARY EVI DENCE DEMONSTRATED THAT DURING THE RELEVANT PY IT HAS NOT RAISED ANY BILLS ON THE CONTRACTEE TOWARDS CONTRACT WORK ENTRUSTED TO I T, BUT, HAS STARTED RAISING BILLS IN NEXT FY AFTER COMPLETION OF THE CO NTRACT WORK AND HAS ALSO RECOGNIZED INCOME ACCORDINGLY IN THE SAID FY. THESE FACTS HAVE NOT BEEN CONTROVERTED BY LD. DR. THEREFORE, WHEN IT IS A FACT ON RECORD THAT DURING THE IMPUGNED AY ASSESSEE HAS ONL Y RECEIVED MOBILIZATION ADVANCES BEING 15% OF THE TOTAL CONTRA CT PRICE AND HAS NOT RAISED ANY BILL ON THE CONTRACTEE TOWARDS A POR TION OF THE WORK EXECUTED. MOREOVER, WHEN ASSESSEE HAS SHOWN THE INC OME ON THE CONTRACT WORK IN THE SUCCEEDING AY, WHICH ALSO INCL UDES WORK-IN- PROGRESS OF 16.22 CRORES, ON WHICH INCOME HAS BEEN ESTIMATED BY AO IN THE IMPUGNED AY, IN OUR VIEW, THERE IS NO JUSTIF IABLE REASON IN 6 ITA NO. 946 /HYD/2012 ZELAN PROJECT PVT. LTD. INTERFERING WITH THE ORDER OF LD. CIT(A). IN ANY CA SE OF THE MATTER, THERE IS NO PREJUDICE CAUSED TO REVENUE AS THE INC OME ASSESSABLE ON THE CONTRACT RECEIPT HAS BEEN OFFERED BY ASSESSEE F OR TAXATION, THOUGH, IN A DIFFERENT ASSESSMENT YEAR. IN THE AFO RESAID FACTS AND CIRCUMSTANCES, THERE BEING NO INFIRMITY IN THE ORDE R OF LD. CIT(A), WE UPHOLD THE SAME BY DISMISSING THE GROUNDS RAISED. 7. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED. PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 12 TH JUNE, 2015 KV COPY TO:- 1) DCIT, CIRCLE 3(3), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 2) M/S ZELAN PROJECTS PVT. LTD., PLOT NO. 4, SOFTWA RE UNITS LAYOUT, HITECH CITY, MADHAPUR, HYDERABAD 500 081. 3) CIT(A), GUNTUR 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.