COMMISSIONER OF INCOME TAX-I vs. M/S. AMARSHIV CONSTRUCTION LTD

O/TAXAP/1798/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1798 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-I....Appellant(s) Versus M/S. AMARSHIV CONSTRUCTION LTD....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 8

O/TAXAP/1798/2006 JUDGMENT

Date : 22/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. By way of this appeal, the appellant has challenged the judgment and order dated 10.2.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “B” in ITA No. 1742/Ahd/2001 for AY 1998-99. 2. While admitting this appeal on 25.7.2007, this Court has framed the following substantial question of law: “Whether on the facts and circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 6,90,000/- made on the basis of work completed

the

sub-contractor, associate concern, by relying on the fact that no bill was raised by sub- contractor ?” 3. The facts of the present case are that the return of income was filed on 30.11.1998 declaring total income at Rs. 2,50,31,980/-.The processing of the above return is done on 17.5.99 and notice under sec. 143(2) of the Act was issued on 7.9.99. Meanwhile, the assessee has filed an application u/s. 154 of the IT Act on 7.6.99 in which is is submitted that the receipts Page 2 of 8

O/TAXAP/1798/2006 JUDGMENT of donation are in the name of Amar Construction Company. The Amar Construction Company is a division of Amarshiv Construction company which can be verified from the records of earlier years. The eligibility certificate of Sindhu Sevak Sangh dated 3.11.95 is also filed according to which exemption is valid up to 31.3.98. As this application is not disposed of till date, the same is decided with the assessment order. Notice under sec. 142(1) along with details questionnaire was issued on 27.2.2000.In compliance to the notices as well as in compliance to the further queries raised through the order sheet on different dates, the assessee has furnished necessary details. After considering the material on record, the assessment order came to be passed. The assessee has challenged the said assessment order before the CIT(A), which came to be partly allowed. Against the said order of CIT(A), the Revenue has preferred an appeal before ITAT. The ITAT has also partly allowed the appeal. Being aggrieved by the said order of ITAT, the Revenue has preferred the present Tax Appeal before this Court. 4. We have heard the learned advocates appearing for the parties and considered the submissions. Learned advocate Mr. Parikh has taken us through the order of the A.O., and the grounds raised in the memo of appeal, has urged that both the Page 3 of 8

O/TAXAP/1798/2006 JUDGMENT authorities below have committed a grave error while deciding the appeal and relying on the decision of the Apex Court which does not apply to the facts of this case. It is submitted that the order dated 10.2.2006 is bad in eye of law, and the appeal, therefore, deserves to be accepted by this Court. Per contra, Mr. Patel has taken us through the entire record, more particularly, the finding of facts by the Tribunal as well as CIT(Appeals). The CIT(Appeals)while disposing the entire issue has placed reliance on the decision of the Apex Court in the case of E.D. Sasoon & Co. Ltd. v. CIT, 261 ITR 27, has observed in para 2.2 and 2.3 as under: “2.2 A similar principles was propounded by the Supreme Court in E.D. Sasoon & Co. Ltd. v. CIT, 261 ITR 27, wherein, it had been held that if the assessee acquires a right to receive the income, the income is said to have accrued to him, though it may be received later on. The basic concept is that he must have acquired a right to receive the income. In other words, there must be a debt owed to him by somebody. Unless and until a debt is created in favour of the assessee by somebody, it cannot be said that the assessee has acquired a right to receive Page 4 of 8

O/TAXAP/1798/2006 JUDGMENT the income or the income has accrued to him. As regards, the legal position, the learned counsel for the appellant submitted that one has to see whether a right has been created in favour of the appellant to receive a sum of Rs. 6.9 lakhs, which was shown as the closing stock in respect of work in progress by Ashok Construction Company, another partnership concern, a separate legal identity than the appellant. It is not in dispute that the appellant had not received

any

bill

from

Ashok Construction in respect of Rs. 46 shown as work in progress by Ashok Construction Company. Further, it is also not in dispute that the appellant had not forwarded the invoices to Mahi Canal authorities. These facts would clearly establish that the appellant did not have any right to recovery from Mahi Canal authorities in respect of work in progress disclosed in the balance sheet by

Ashok

Construction

Company. Therefore, as observed by the Supreme Court in several cases, the income accrues only when the assessee gets a right to receive the same and if the right to receive is not established, no income would accrue or arise to the assessee. He, therefore, pleaded that in Page 5 of 8

O/TAXAP/1798/2006 JUDGMENT the present case, since there was no right to receive the income, because the bills were not raised by the Ashok Construction, there is no question of taxing the same by taking 15% of deemed income on the work in progress. 2.3 I have heard the appellant’s counsel and gone through the material on record. After considering the facts of the case and looking to the terms of payment between the appellant and the Mahi Canal Authorities and also the mode of raising invoices by Ashok Construction Company to the appellant,it is clear that the appellant did not get any right to receive the sum of Rs. 6.9 lakhs in respect of work in progress so long as the bills was not raised to the extent by Ashok Construction. In view of this fact and also following the above mentioned decisions of Supreme Court, I hold that since the income did not accrue or arise to the appellant, without raising of bills by the sub contractor, there is no question of taxing the same on the basis of notional income. In view of this fact, I hold that the addition is not justified and the same stands deleted. Page 6 of 8

O/TAXAP/1798/2006 JUDGMENT 5. This facts finding exercise by the CIT(Appeals) has found favour with the Tribunal also and the Tribunal, in detail, has deleted the addition on the basis that there was no accrual of interest to assessee and held that the CIT(Appeals) has correctly deleted the addition. 6. On the factual matrix as well as finding of facts by both the authorities below, we are not persuaded by the submissions made by Mr. Parikh that the amount has accrued and the deletion is bad. We hold that there was no accrual of amount, in fact, we are unable to accept the proposition that the assessee ‘s income of Rs. 6,90,000/- has to be added to his income. Just because the books of account should not be looked into does not make the order of Tribunal as well as CIT(A) vulnerable. We are not persuaded to take a different view than the one taken by the authorities below. 7. The question posed for our consideration is answered in favour of the assessee and against the Revenue. We hold that the Tribunal was right in law in deleting the addition of Rs. 6,90,000/- made on the basis of work completed by the sub- contractor, associate concern, by relying on the fact that no bill was raised by sub-contractor. The present Tax Appeal is dismissed. (K.S.JHAVERI, J.) Page 7 of 8

O/TAXAP/1798/2006 JUDGMENT (K.J.THAKER, J) mandora Page 8 of 8