DCIT, CIRCLE-3(1), VISAKHAPATNAM vs. MYTHRI INFRA, VISAKHAPATNAM

आयकर अपीलीय अिधकरण, िवशाखापटणम पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Visakhapatnam Bench, Visakhapatnam Before Shri Ravish Sood, Hon’ble Judicial Member and Shri Omkareshwar Chidara, Hon’ble Accountant Member आ.अपी.सं /ITA No.324/Viz/2025 (िनधा�रण वष�/Assessment Year:2020-21) DCIT, Vs. Mythri Infra, Circle-3(1), Visakhapatnam. Visakhapatnam. PAN: AAVFM2510N (Appellant) (Respondent)

C.O. No. 28/Viz/2025 (In आ.अपी.सं /ITA No.324/Viz/2025) (िनधा�रण वष�/Assessment Year:2020-21) DCIT, Vs. Mythri Infra, Circle-3(1), Visakhapatnam. Visakhapatnam. PAN: AAVFM2510N (Appellant in appeal) (Respondent/Cross Objector) िनधा�रती �ारा/Assessee by: Shri GVN Hari, Advocate राज� व �ारा/Revenue by: Shri Badicala Yadagiri, CIT-DR सुनवाई की तारीख/Date of 12/02/2026 Hearing: घोषणा की तारीख/Date of 10/04/2026 Pronouncement:

2 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra आदेश / ORDER PER. RAVISH SOOD, JM : The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals), National Faceless Appeal Centre (NFAC), dated 08.10.2022, which in turn arises from the order passed by the AO under Section 143(3) r.w.s. 144B of the income-tax Act, 1961 (for short, “Act”), dated 23.09.2022, for the Assessment Year 2020-21. The revenue has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us:

3 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra involved in this case. The assessee claimed credit for TDS of Rs.24,63,164/- by crediting the unadjusted mobilization advance of Rs.12,31,58,215/- in Profit & loss account by debiting provision for expense in the Profit and loss account, effectively taking out this amount from taxable income. 3.2. The Ld.CIT(A) failed to appreciate that the assessee debited expenditure of Rs.12,31,58,215/- without there being any 'Provision for expenditure' and also there is no expenditure to be incurred by the assessee. The AO has clearly brought that the claim of Provision of expenditure was not in accordance with the Income Computation and Disclosure Standards (ICDS)-X issued by the Government of India in exercise of Powers conferred to it under Sec. 145(2) of the Income Tax Act, 1961. 3.3 The Ld.CIT(A) ought to have considered that the assessee claimed the entire TDS under one concern without disclosing the corresponding receipt/income in the said concern as stipulated under the Act. 4. The assessee craves leave to add or delete or amend or substitute any ground of appeal before and/or at the time of hearing of appeal. 5. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that all these above additions be restored.” 2. Also, the assessee company is before us as a cross-objector on the following grounds:

4 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra vi. Written off amounts 4,99,773 47,39,209 3. The learned Commissioner of Income Tax (Appeals) is justified in deleting addition of Rs.12,31,58,215 the by the assessing officer towards provision for expenses. 4. The learned Commissioner of Income Tax (Appeals) ought to have directed the assessing officer to either allow the credit for TDS of Rs 24,63,164 or to transfer the credit to the account of M/s Mythra Infrastructure and Mining India Pvt Ltd. 5. Any other grounds of Cross-Objection that may the raised at the time of hearing.” 3. As common issues are involved in the revenue’s appeal and the cross-objection filed by the assessee firm, the same are being taken up and disposed of vide a consolidated order.

5 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra deductions. The assessee firm, in its reply, submitted that the “departmental recoveries” represented deductions made by customers from its invoices towards contractual adjustments, reimbursements, statutory recoveries and other business-related deductions and hence were allowable under Section 37 of the Act. As regards the provision for expenses, the assessee firm submitted that the same was created in the context of the mobilisation advance and TDS credit upon conversion of the assessee firm into a company during the subject year, i.e., as on 16.12.2019. However, the AO did not find favour with the explanation of the assessee firm. As regards the departmental recoveries, the AO was of the view that the assessee firm had failed to file supporting documentary evidence and that the subject expenditure appeared to be penal in nature. Accordingly, the AO, based on his aforesaid conviction, disallowed the entire claim of the assessee firm for the deduction of departmental recoveries of Rs. 1,07,05,029/-.

6 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra income while claiming TDS credit. Accordingly, the AO relied on Rule 37BA and ICDS-X, and held the claim for deduction of “provision for expenses” as not allowable and added back the same to the returned income of the assessee firm.

7 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra income unless and until work is executed against it. The CIT(A) observed that due to peculiar circumstances, i.e., conversion of the assessee firm into a company, the assessee firm with the solitary purpose of claiming credit of tax deducted at source (TDS) on the mobilisation advance as was deducted at the time of receipt under its PAN (as deductee), had credited the aforesaid balance amount of mobilisation advance as an income in its books only to claim credit of the corresponding TDS; and simultaneously debited an equal amount as provision, thereby neutralizing it. The CIT(A) observed that both entries were purely notional accounting entries, which did not reflect the real income or real expenditure. Accordingly, the CIT(A), based on his aforesaid observations, deleted the addition of Rs. 12,31,58,215/- made by the AO towards “provision for expenses”.

8 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra penal in nature. However, the CIT(A), upon examination of additional evidence, observed that some items were clearly contractual or compensatory in nature and hence allowable. Further, it was observed by him that certain other items were either penal in nature or not supported by sufficient evidence. Accordingly, the CIT(A) proceeded to examine each item independently, and based on his observations, allowed part relief to the assessee firm.

9 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra 13. As the controversy involved in the present appeal pertains to two issues, viz. (i). deduction of “provision for expenses”: Rs. 12,31,58,215/- ; and (ii). the disallowance of the claim of the assessee firm for deduction of “departmental recoveries”: Rs. 1,07,05,029/-, we shall separately deal with them, as under:

(A). Disallowance of “provision for expenses” : Rs. 12,31,58,215/-

Before dealing with the aforesaid issue, we deem it apposite to cull out the background of the case leading to the subject controversy, i.e., disallowance of “Provision for Expenses” of Rs. 12,31,58,215/- and the corresponding claim of TDS credit, which finds its genesis in the conversion of the assessee firm into a company, as under:

(ii). The assessee firm had received a mobilisation advance from its customer, viz. M/s Utkal Alumina International Limited (for short, “UAIL”), against the execution of contractual work. At the time of making such payment, the said customer had deducted tax at source (TDS) @ 2% under the relevant provisions of the Act by quoting the PAN of the assessee firm, and the same stood reflected in the books and “Form 26AS” of the assessee firm.

10 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra (iii). The mobilisation advance received by the assessee firm did not constitute income at the time of receipt, but as per the settled principles, the same was required to be recognised as income only when it was adjusted against the work executed. Accordingly, the assessee firm had been offering its income proportionately in the earlier years and claiming the corresponding TDS credit to that extent, while carrying forward, viz. (a). the balance mobilisation advance (as a liability); and (b). the unclaimed TDS (as an asset).

(iv). Thereafter, the assessee firm was converted into a private limited company on 16.12.2019, i.e., during the subject year under consideration. Upon such conversion of the assessee firm into a private limited company, all ongoing contracts and future work obligations were taken over by the successor company, viz., M/s Mythri Infrastructure and Mining India Pvt. Ltd. Also, the unadjusted mobilisation advance was effectively transferred to the books of the successor company, as the future work was to be executed by the latter.

(v). However, pursuant to the aforesaid conversion of the assessee firm into a private limited company, a practical difficulty surfaced, i.e., the TDS on the mobilization advance had been deducted earlier by M/s Utkal Alumina International Limited by quoting the PAN of the assesseee firm;

11 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra but, credit of the same could not be claimed by the successor company, viz. M/s Mythri Infrastructure and Mining India Pvt. Ltd., as it had a different PAN, and there was no specific provision or mechanism under the Income-tax Act or Rules for the transfer of TDS credit from the PAN of the predecessor firm to the PAN of the successor company in such circumstances.

(vi). Accordingly, the successor company, viz. M/s Mythri Infrastructure and Mining India Pvt. Ltd., under the aforesaid set of circumstances, would thereafter execute the work of M/s Utkal Alumina International Limited and offer the income in future years, but it could not claim the TDS credit, since the same was not appearing under its PAN.

(vii). The assessee firm remained well aware that if it did not claim the subject TDS credit, then the same would lapse permanently, resulting in a loss.

(viii). The assessee firm to safeguard the TDS credit, thus credited the unadjusted mobilization advance of Rs. 12,31,58,215/- as its income in its “profit and loss account”, so as to become eligible to claim the corresponding TDS of Rs. 24,63,164/-, and simultaneously, it debited an equivalent amount as “provision for expenses”, on the ground that the

12 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra corresponding work and related expenditure would be carried out in future by the successor company.

(ix). The assessee firm, by adopting the aforesaid method, ensured that the TDS deducted in its PAN by M/s Utkal Alumina International Limited was duly claimed; and the net effect on income remained nil, as the income and “provision for expenses” would offset each other. Also, the real income would be offered to tax in the hands of the successor company as and when the mobilisation advance was adjusted against the actual work in the succeeding years.

13 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra 15. We have given thoughtful consideration to the aforesaid issue in the backdrop of the orders of the authorities below and the contentions advanced by the Ld. Authorised Representatives of both parties.

14 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra 19. Admittedly, the mobilisation advance would be adjusted against future work to be executed by the successor company, and the income arising therefrom would be taxed in the hands of the successor company. In our view, if the addition made by the AO is sustained, it would result in taxing the same income twice, once in the hands of the assessee firm and again in the hands of the successor company, which is contrary to settled principles of taxation. Also, it is a well-settled principle that income tax is levied on “real income” and not on notional or hypothetical income. In the present case, the entries passed by the assessee firm are merely notional and do not give rise to “real income”. Further, the method adopted by the assessee firm is only to ensure that the TDS credit, which otherwise would not be transferable due to the change in PAN, is not lost.

15 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra divorced from the corresponding income. In our view, as the subject TDS of Rs. 24,63,164/- pertains to the “mobilisation advance” of Rs. 12,31,58,215/-, which pursuant to the conversion of the assessee firm into a company, viz. M/s Mythri Infrastructure and Mining India Pvt. Ltd. on 16.12.2019, would be adjusted against the contract work executed by the said successor company in the succeeding years, therefore, the credit of the corresponding TDS is to be allowed in the hands of the successor company, i.e., as and when the corresponding work is executed by the successor company and is offered as part of its revenue in the said succeeding period. Our aforesaid view that the credit of tax deducted at source (TDS) has to go hand in hand with the income is supported by the judgment of the Hon’ble Supreme Court in Income- Tax Officer, Award, Lucknow vs Bachulal Kapoor, has held that the income and the credit of the corresponding taxes cannot be divorced and have to go hand in hand. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble Supreme Court, as under:

“ It was said that as the orders of assessment on the individual members of the said family had become final, if the Income-tax Officer was permitted to assess the Hindu undivided family for the same assessment year, tax would be imposed on the same income twice over. It is true that the Act does not envisage taxation of the same income twice over "on one passage of money in the form of one sort of income". It is equally true that s. 14(1) of the Act expressly debars the imposition of tax on any part of the income of a Hindu undivided family received by its members. The fact that there is no provision in the Act

16 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra dealing with a converse position does not affect the question, for the existence of such a converse position is legally impossible under the Act. So long as the Hindu undivided family exists, the individuals thereof cannot separately be assessed in respect of its income. Nonetheless, if, under some mistake, such income was assessed to tax in the hands of the individual members, which should not have been done, when a proper assessment was made on the Hindu undivided family in respect of that income, the Revenue had to make appropriate adjustments; otherwise, the assessment made in respect of that income on the Hindu undivided family would be contrary to the provisions of the Act, particularly s. 14(1) of the Act. We, therefore, bold that if the assessment proceedings initiated under s. 34 of the Act culminates in the assessment of the Hindu undivided family, appropriate adjustments have to be made by the Income-tax Officer in respect of the tax realised by the Revenue in respect of that part of the income of the family assessed on the individuals of the said family. To do so is not to reopen the final orders of assessment, but in reality to arrive at the correct figure of tax payable by the Hindu undivided family.” We, thus, in terms of our aforesaid observations, direct the AO to allow credit of the TDS of Rs. 24,63,164/- in the hands of the assessee company in the respective year(s) in which the corresponding mobilisation advance is adjusted against the contract work executed by it in the succeeding period.

(B). Disallowance of Departmental Recoveries

17 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra firm is aggrieved with the sustaining of part-disallowance by the CIT(A) to the extent of Rs. 47,39,209/- (6 parties). The core issue before us is whether the amounts claimed as a deduction by the assessee firm represent allowable business expenditure or are in the nature of penalties for infraction of law.

18 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra w.r.t, viz. (ii). Vedanta Limited: Rs. 4,14,072/-; (iii). Vedanta Limited: 22,960/-; (v) recovered by NALCO: 1,24,443/-; and (vi) written off amounts. Accordingly, the Ld. AR has confined his contentions only w.r.t two disallowances, viz. (i). Hindalco Industries: Rs. 15,10,257/-; and (iv) Excess provision by NALCO: Rs. 21,67,704/-. On the other hand, the revenue has assailed the vacating of the disallowance by the CIT(A) pertaining to, viz. (i). M/s Orissa Mining Corporation: Rs. 55,45,855/-. We shall hereinafter deal with the respective vacating/sustaining of the respective disallowances by the CIT(A), as under:

(a) Orissa Mining Corporation: Rs. 55,45,855/-

(i). We find on a perusal of the record that the aforesaid amount was recovered by the aforementioned party from the assessee firm for the shortfall in excavation/raising of bauxite ore as per contractual terms. As observed by the CIT(A), the tender document specifically provides for such recovery in case of a shortfall. The recovery is therefore a contractual adjustment and not a penalty for infringement of the law. In our view, as such expenditure is incidental to the business operations and allowable u/s 37 of the Act, we uphold the order of the CIT(A) who has allowed the same.

19 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra (b). Hindalco Industries :Rs. 15,10,257/-

(i). The aforesaid amount represents the overloading charges levied by Railways and recovered by Hindalco from the assessee firm. In our view, as the overloading of wagons is a violation of statutory regulations, and the charges are penal in nature, therefore, the said expenditure falls within the mischief of the “Explanation 1” to section 37(1) of the Act. We, thus, being of the view that the CIT(A) was justified in sustaining the disallowance, uphold his order.

(xi) NALCO (Excess provision written off): Rs.21,67,704/-

(i). The Ld. AR submits that the aforesaid amount claimed as deduction by the assessee firm represents excess provision made in earlier years, which was offered as income but not realised, and is therefore written off as a bad debt. The CIT(A), however, sustained the disallowance on the ground that no third-party evidence was furnished.

(ii). We have given thoughtful consideration and are of the view that the aforesaid claim of the assessee firm requires proper verification. If the amount was earlier offered as income and has become irrecoverable, the same may be allowable as bad debt, subject to the fulfilment of conditions prescribed under the Act. Since the relevant facts and

20 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra evidences had not been properly examined, we deem it appropriate to set aside this issue to the file of the AO with a direction to verify the claim of the assessee firm and decide the same in accordance with law after affording a reasonable opportunity of being heard.

Order pronounced in the open court on 10th April, 2026

Sd/- Sd/- (OMKARESHWAR CHIDARA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 10th April, 2026 **OKK / SPS

21 ITA No.324/Viz/2025 & C.O. No. 28/viz/2025 DCIT vs. Mythri Infra Copy to: S.No Addresses 1 DCIT, CIRCLE-3(1), VISAKHAPAINAM 50-92-35, Income Tax Office, Infinity Tower, Sankara Matam Road, Visakhapatnam, Visakhapatnam, Andhra Pradesh- 530016. 2 MYTHRI INFRA 50-117-17, BESIDE STATE BANK OF INDIA, A.S.R. NAGAR, SEETHAMMADHARA, VISAKHAPATNAM, Visakhapatnam, Andhra Pradesh-530013. 3 The Pr. Commissioner of Income Tax, Visakhapatnam. 4 The DR, ITAT, Visakhapatnam Bench 5 Guard File