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Income Tax Appellate Tribunal - Mumbai

Acit - 12(3)(1), Mumbai vs Kc & Sons Infrastructure India Pvt. ... on 20 December, 2018

1 ITA No.6109/Mum/2016 K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13 आयकर अपीलीय अिधकरण "जी"

ायपीठ मुंबई म ।

IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI माननीय ी सी. एन. साद, ाियक सद एवं माननीय ी मनोज कुमार अ वाल ,ले खा सद के सम ।

BEFORE HON'BLE SHRI C.N. PRASAD, JM AND HON'BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ I.T.A. No.6109/Mum/2016 (िनधा रण वष / Assessment Year: 2012-13) Assistant Commissioner of M /s. K .C . & S o n s I n f r ast ru ct u r e Income tax -12(3)(1) In d i a Pv t . L t d .

                                      बनाम/      18 3 /1 4 59 , M ot i l al N a g ar
     Room No.147B, 1 s t Floor                   Ne ar P os t O f f ic e C ir c l e
     Aaykar Bhavan,                    Vs.
                                                 G or eg a on (W ) , Mum b a i- 40 0 1 0 4.
     M.K. Road, Mumbai-400 020.

थायीले खासं ./जीआइआरसं ./PAN/GIR No. AADCK-6491-R (अ पीलाथ#/Appellant) : ( $थ# / Respondent) Assessee by : Abhay Kadam- Ld. AR Revenue by : Chaudhary Arun Kumar Singh - Ld.DR सुनवाई की तारीख/ : 10/12/2018 Date of Hearing घोषणा की तारीख / : 20/12/2018 Date of Pronouncement आदे श / 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: -

K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13

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 accounted for by the assessee during the relevant previous year ignoring the fact that

(i)Assessee was following accrual method of accounting and moreover, contractee had credited the said amount to the account of the assessee and had made TDS on it.

(ii)Assessee had claimed the credit for TDS made by 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 was following Accounting standard 9 (AS-9) for revenue recognition in the books of account without appreciating that

(i) Assessee had been following Accounting Standard 7 for revenue recognition on regular basis and not AS-9, as evident 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 assessee during the assessment proceedings.

(ii) Assessee is in the business of construction contract and as per the accounting principles, Accounting Standard 7 is most 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, AO should have been given opportunity to respond by way of calling a remand 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 full 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 cannot be given during the relevant previous year as Ld.CIT(A) himself has held that said amount of Rs, 5,49,08,049/- in not liable to tax during the relevant 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 income of the assessee was determined at Rs.245.45 Lacs after certain additions / disallowances as against returned loss of Rs.303.62 Lacs filed by the assessee on 25/09/2012. During impugned AY, the assessee being resident corporate entity was stated to be engaged in construction activities.

K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13 2.1 During assessment proceedings, it transpired that 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 stopped 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 reflected 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 impugned AY, HDIL accepted running bills of Rs.549.08 Lacs against the assessee. The assessee was confronted with the discrepancy. In the absence of any reply from assessee, the aforesaid amount of Rs.549.08 Lacs was brought to tax particularly in view of the fact that 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 the return of income.

3. Aggrieved, the assessee agitated the same with success before Ld. CIT(A) wherein the additions were deleted by making following observations: -

K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13 6.3 I have carefully considered the facts of the case, 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 contract from the Housing Development and Infrastructure Limited (HDIL) for development of projects i.e. Rehab Project at Kurla and HDIL residency Park at Virar. 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 assessee company and the projects were ongoing. However, during the year under consideration, the dispute arose between the assessee company and HDIL. The HDIL stopped payments to the company and consequently the company stopped work at 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 carried 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 revenue 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 assessee. 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 was also of the view that there is reasonable certainty of receipt of the income in future. 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 bills raised from HDIL and in view of this it is contended that there is no surety 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. There is force in the contention of the assessee especially in view of the ongoing dispute 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 agreement is under a contract, revenue shall be recognised if the entity has transferred project to the contract giver and the significant risk and reward of ownership of and control over the project. This effectively means that the revenue on contract could be recognized when the project is constructed and delivered to the buyer. In the present 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 possession 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 Accounting Standard 9 demands that the revenue is measurable and that at the time of sale or rendering the service it would not be unreasonable to expect ultimate collection. 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 Accounting Standard, when consideration is not determinable within a reasonable limit the recognition of revenue is postponed. In such cases, it may be appropriate the recognize revenue only when it reasonably certain that the ultimate collection will be made. This view is 5 ITA No.6109/Mum/2016 K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13 supported by the decision of the Hon'ble ITAT Hyderabad 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 addition 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 us.

4. The prime argument of Ld. Departmental Representative [DR] revolve around that fact that the assessee failed to explain the discrepancy noted by Ld. AO during assessment proceedings whereas the first appellate authority, without confronting the additional evidences / submission made by assessee during appellate proceedings, provided relief to the assessee, which was not justified. The Ld. Authorized representative [AR] supported the stand of first appellate authority,

5. Upon careful consideration, we find that it is undisputed fact that the assessee had failed to explain the discrepancies 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 ledger accounts received from HDIL revealed that the assessee was given credit of impugned 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 that expenditure against the projects were being claimed by the assessee in profit & loss account. Under the given circumstances, we set aside the findings of first appellate authority and remit the matter back to the file of Ld. AO for re- adjudication of the same with a direction to the assessee to substantiate 6 ITA No.6109/Mum/2016 K.C. & Sons Infrastructure India Private Limited Assessment Year: 2012-13 his stand. Needless to add that reasonable opportunity of being heard shall be provided to the assessee.

6. Resultantly, the appeal stands allowed for statistical purposes in terms of our above order.

Order pronounced in the open court on 20th December, 2018.

            Sd/-                         Sd/-
       (C.N. Prasad)            (Manoj Kumar Aggarwal)

ाियक सद / Judicial Member लेखा सद / Accountant Member मुंबई Mumbai; िदनां क Dated : 20/12/2018 Sr.PS, Jaisy Varghese आदे शकी ितिलिपअ!ेिषत/Copy of the Order forwarded to :

1. अपीलाथ#/ The Appellant

2. $थ#/ The Respondent

3. आयकरआयु+(अपील) / The CIT(A)

4. आयकरआयु+/ CIT- concerned

5. िवभागीय ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai

6. गाड0 फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai.