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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI PAVAN KUMAR GADALE, JM &
Appellant) : Respondent) Appellant/Assessee by : Shri Anuj Kisnadwala & M.M. Lalvani, CA : Shri Joginder Singh, Sr. DR Revenue/Respondent by Date of Hearing : 16.11.2023 Date of Pronouncement : 20.11.2023 O R D E R Per Padmavathy S, AM:
This appeal is against the order of the Commissioner of Income Tax (Appeal) / NFAC, Delhi dated 27.07.2023 for AY 2017-18. The only issue contended by the assessee in this appeal is the Assessing Officer (AO) not granting credit for TDS of Rs.2,76,47,272/- deducted on the mobilization advance extended to the assessee.
Afcons Sibmost Joint Venture 2. The assessee is a joint venture between Afcons Infrastructure Ltd. and OJSC Sibmost, Russia. The joint venture is formed to execute the work of replacement of superstructure of existing 5,575 km. long 4-lane MG Setu over Ganga river on NH-19 from km. 212.72 to km. 218.295 in Patna in the state of Bihar under engineering, procurement and construction mode. During the previous year relevant to AY 2017-18, the assessee was awarded the said contract by letter of acceptance dated 14.09.2016 issued by Ministry of Road Transport and Highways, Government of India through Road Construction Department, Government of Bihar (client).
The assessee filed a return of income for AY 2017-18 on 03.12.2017 declaring total income of Rs. 17,28,617/-. In the return of income the assessee claimed a refund of Rs. 2,97,26,630/- towards tax deduced by the client. The assessee subsequently filed a revised return on 15.01.2018 declaring a total income of Rs.16,19,690. The return was processed under section 143(1) of the Act determining the refund of the assessee as Rs. 28,93,713/-. Subsequently, the case was selected for scrutiny and the AO accepted the income returned by the assessee in the revised return but the AO thereby did not grant credit for TDS of Rs.2,76,47,272/- which the client has deducted on the mobilization advance extended to the assessee. The assessee submitted before the AO that the mobilization advance of Rs. 138,26,63,636/- is received from Ministry of Surface Transport on which tax has been deduced under section 194C of the Act and that the mobilization advance received is a capital receipt repayable which is shown as other liabilities in the financial statements. Accordingly, the assessee submitted that the mobilization advance is not reflected as income of the assessee. The AO did not accept the submissions of the assessee and did not grant Afcons Sibmost Joint Venture credit to the TDS deducted on mobilization advance. The relevant observation of the AO in this regard is extracted below:
“7. The above submission of the assessee has been considered, however, the same is not acceptable. Mobilisation advance is nothing but activation of a contractor's physical and manpower resources for transfer to a constructions site till the completion of the contract, in civil construction projects advance is given to the contractor which is known is as Mobilization Advance. It is normally 15% of the total contract value. The prerequisite for the issue of advance is that contractor has to provide a guarantee in the shape of Bank or Insurance equal to the amount being issued to the contractor. Mobilization advance is deducted from the bills of contractor in equal instalments covering the project period On completion of recovery Guarantee provided by the contractor is released. As per section 194C - tax is deductible at the time of credit or payment whichever is earlier, and the mobilization advance is paid as per the terms & conditions of the contract the same falls under the contractual obligation and the TDS provisions u/s 194C are applicable and in the assessee's case, the TDS has duly been deducted by the Road Transport Division of the Ministry of Road Transport and Highways.
8. With the above basic facts, I have come to conclusion that irrespective of the contentions of the assessee the provisions of Section 199 read with Rule 37BA(3) will prevail and TDS credit for the amount of Rs 2.76.47.272 can be allowed only in the year's in which the assessee offers for tax the amounts received as mobilization advance, by raising invoices on the client for the work done. Since there were no invoices raised in the current year and the entire revenue is on account of unbilled debtors of Rs 11.78 crores and it is evident that no regular billing was done and only unbilled revenue was credited to the P&L A/c., which is in violation of the provisions of Sec.199 and Rule 37A. Therefore, the claim made for TDS credit for Rs.2,76,47,272 being tax deducted on the mobilization advance. cannot be allowed during the year as no corresponding income from the contract has been offered to tax. It is required to be allowed in subsequent years when mobilization advance gets converted into billings and income is offered to tax.
9. Subject to the above discussion, the credit for TDS amounting to Rs.2,76 47,272 on the mobilization advance is not being allowed and only the credit for TDS of Rs 25,81,508 on interest income is allowed to the assessee, as said interest income has been offered to tax.”
Aggrieved, the assessee filed the appeal before the CIT(A). The CIT(A) directed the AO to verify the claim of the assessee that the mobilization advance is a capital receipt and allow the credit for TDS accordingly.
Aggrieved, the assessee is in appeal before the Tribunal. Before us, the Ld. Authorized Representative (AR) submitted that the mobilization advance is given by the Government of India as per the terms of the contract agreement with the client and that the said advance is given against the bank guarantee extended by the assessee. The ld. AR further submitted that the mobilization advance bears interest at the rate 10% that needs to be paid until the repayment of the advance. In this regard the ld. AR drew our attention to the relevant clauses in the contract agreement with the client. The ld. AR submitted that the mobilization advance is in the nature of loan and therefore, is a capital receipt on which tax is deducted at source. It is also argued by the ld. AR that in the financial statements the mobilization advance is shown under the head "Other liabilities" (page 25 of PB) and also interest paid on the mobilization advance is debited the P&L A/c (page 27 of PB). The ld AR also submitted the below table to substantiate that the advance/loan has been fully recovered against the subsequent contract payments and that the billed revenue is offered to tax on gross basis to submit that the advance / loan is a capital receipt.
Afcons Sibmost Joint Venture 6. The ld. AR further submitted that the contention of the revenue is that the refund cannot be granted since the corresponding income has not been offered to tax in order to give credit for the TDS and that it would in violation of the provisions of section 199 r.w.r. 37A. The ld. AR further argued that the provisions of section 199 r.w.r. 37A need to be interpreted liberally and in assessee's case the receipt being capital in nature cannot be offered to tax and that cannot be the reason for denial of TDS credit. The ld. AR submitted that the Co- ordinate Bench of the Tribunal in the case of Patel Engineering Ltd. V/s ACIT (ITA No. 6605/M/2013 dated 18.11.2015) has considered a similar issue and directed the AO to given credit for the TDS. The ld. AR also placed reliance on the decision of the Co-ordinate Bench in the case of assessee's sister concern Transonnelstory Afcons Joint Ventures vs ACIT (ITA No. 1452/M/2015 dated 14.05.2019) where a similar view has been held by the Tribunal.
The ld. DR relied on the order of the lower authorities.
We have heard the parties and perused the material on record. The assessee has entered into a contract with the Ministry of Road Transport & Highways, Government of India through Road Construction Department, Government of Bihar dated 07.10.2016, in order to construct the 4 lane replacement of superstructure over river Ganga on NH-19 at Patna. The relevant clauses of the agreement with regard to the mobilization advance and the interest thereon are extracted below - “19.2.1.The Authority shall make an interest-bearing advance payment (the "Advance Payment"), equal in amount to 10 (ten) percent of the Contract Price, for mobilisation expenses and for acquisition of equipment. The Advance Payment shall be made in two instalments each equal to 5% (five percent) of the Contract Price. The advance payment would be deemed as an Afcons Sibmost Joint Venture interest bearing advance at an interest rate of 10 % per annum, to be compounded quarterly. The interest would be recovered along with the recovery of advance payment.
19.2.2. The Contractor may apply to the Authority for the first instalment of the Advance Payment at any time after the Appointed Date, along with an irrevocable and unconditional guarantee from a Bank for an amount equivalent to 110% (one hundred and ten per cent) of such instalment, substantially in the form provided at Annex-III of Schedule-G, to remain effective till the complete and full-repayment thereof.”
We notice that the Ministry of Surface Transport and Road has deducted TDS on the mobilization advance of Rs. 138,23,63,636/- @ 2% which amounted to Rs. 2,76,47,272/-. The claim of the assessee is that the amount received as mobilization advance is in the nature of loan which is repayable along with the interest and therefore, is in the nature of capital receipt. The assessee also claims that the TDS is allowed to be claimed as refund. Since the capital receipt is not an income. The contention of the revenue is that without the income being offered to tax the refund cannot be processed under section 199 r.w.r. 37A.
From the perusal of the above terms of the contract agreement, it is clear that the mobilization advance is in the nature of loan which bears interest @ 10% p.a. and the interest along with the advance payment should be recovered from the assessee. It is also noticed that the said advance is extended to the assessee against the bank guarantee given @ 110% of the amount of advance given. Therefore, we see merit in the contention that the amount received by the assessee is a capital receipt and does not bear the element of income i.e. to be offered to tax with regard to the claim of the assessee that the credit for TDS should be given to the assessee. We noticed that the Co-ordinate Bench in the case of Patel Engineering (supra) has considered a similar issue and held that “32. We have considered rival contentions and found that in terms of the contract agreement, the assessee receives advances / loans on which the payer deducts tax at source. Such loans and advances can broadly be classified as (i) Site Mobilisation loan granted to enable the assessee to mobilise the work site i.e. create access roads, mobilise men, equipments, establish and set up site office, etc., (ii) Machinery Mobilisation loan granted to enable the assessee to purchase machineries and equipments needed to carry out the subsequent work on the site and (iii) Advance against work and material given to the assessee to help it in procuring material and against the work in progress on the site. Whereas in the first two cases, it is a capital receipt in the nature of loan not connected to any work carried out by the contractor, the third one is an advance in the revenue field. In all the above cases, the Principal uniformly deducts tax at source u/s 194C of the Act. From the record we found that the AO has discussed this on pages 18-21 of the assessment order and citing section 199 has disallowed credit of TDS of Rs.1,29,31,900/- as the advances pertaining thereto are not credited to the profit and loss account during the year. The CIT(A), on page 73-74 para 11 of her order, concurred with the view of the AO. As per terms of various contract agreements under which Site Mobilisation Loan and the Machinery Mobilisation Loan / advances, mostly on interest ranging from @ 12% to 18% p.a., have been granted against bank guarantee. In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the head Contractee advances as a liability. Such loan can never be the income of the assessee, neither in present or in future; deduction of such loan advance from running bills is only a practical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 194C. If tax has been deducted at source, the credit for such TDS has to be allowed in the year of deduction itself. In ACIT v. Peddu Srinivas Rao ITA 324/Vizag/2009 mobilisation advance was received and on identical facts it was held that credit for such TDS should be given in the year of deduction of TDS itself. This decision was followed in Zelan Projects Pvt. Ltd. v. DCIT ITA 1361/Hyd/2013 fel::pB- IS-ee]. Similarly, in Arvind Murjani Brands (P) Ltd.v. ITO 21 Taxmann.com 131 (Mum) E, it was held that where tax is deducted at source on an amount which is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in the year of receipt of amount, in which the tax was deducted at source.
Afcons Sibmost Joint Venture 33. In respect of advance against work and material, we found that the said advance is reflected as a reduction from construction work in progress, which itself is valued at contract rates i.e. selling price. In other words, the income pertaining to such advance is already impregnated in the work in progress offered for tax during the impugned year itself. The Tribunal in ACIT v Patel KNR Joint Venture ITA 5230/Mum/2012, on identical facts, following Toyo Engineering Ltd., decided in favour of the assessee. Respectfully following the decision of the coordinate bench in the case of associate concern of the assessee vis-à-vis other decisions referred above, we direct the AO to allow the credit for TDS in year of deduction itself. We direct accordingly.”
We also noticed that the similar view has been held by the Co-ordinate Bench in the sister concern of the assessee Transonnelstory Afcons Joint Ventures V/s ACIT (supra).
During the course of hearing the ld. AR brought to our attention that in the case of assessee's sister concern Transonnelstory Afcons Joint Ventures V/s ACIT for AY 2011-12 a similar issue was contended and since the CIT(A) did not consider the issue on merits for the said assessment year without condoning the delay, the Co-ordinate Bench remitted the issue back to the CIT(A) with a direction to condone the delay and adjudicate the issue on merits. It is further brought to our attention that the CIT(A) in the order under section 250 r.w.s. 254 of the Act dated 30.03.2023 had allowed the credit for TDS and held the appeal in favour of the assessee. We notice from the above table submitted by the ld AR that the mobilisation advance is recovered against the billed revenue in the subsequent years. We further notice that the assessee has offered income on gross basis and that the TDS is deducted on the net amount paid which would mean that the advance amount is not treated as revenue that goes to reduce the billed revenue. Therefore in our considere view the CIT(A)'s contention that the amount adjusted goes to reduced the income of the assessee and accordingly is in nature Afcons Sibmost Joint Venture of income is not correct. Further this fact is identical to the facts in Patel Engineering (supra) where the coordinate bench has directed the AO to allow credit for the TDS deducted on the advance. Considering the above facts and the decisions of the Co-ordinate bench on the similar issue, we hold that the assessee should be allowed credit for the TDS claimed which is deducted from the mobilization advance.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 20-11-2023.