Pr. Commissioner Of Income Tax vs. Devi Prasad

ITA No.75/2017 (Pr. Commissioner of Income Tax Vs. Devi Prasad) Indore dated 28/11/2017 Ms. Veena Mandlik, learned counsel for the appellant. Heard on the question of admission. This appeal under Section 260A of the Income Tax Act, 1961 has been filed by the Department against the order dated 7/11/2016 passed by Income Tax Appellate Tribunal, Bench Indore in ITA No.631/Ind/2014 & C/O83/Ind/2014(Revenue's appeal) for the Assessment Year 2010-2011 by which the learned Tribunal dismissed the appeal of the revenue and partly allowed the cross-objection of the assessee for statistical purposes. 2. The facts of the case are that the assessee is engaged in the road construction work. He undertakes the work of PWD, MPRRDA and Western Railway. The assessee filed the return of income declaring total income are Rs.17,23,240/- but the Assessing Officer has made the addition of Rs.1,45,23,174/- on account of work in progress and Rs.5,36,215/- on account of non-deduction of TDS. The Assessing officer while passing the assessment order added an amount of Rs.1,45,23,174/-. He was of the view that this work was completed prior to 31/03/2010 by the assessee while the assessee has not disclosed in the books of accounts. The amount was not incorporated in the figure of contract receipt. The assessee is engaged in the Government contract or road development and supply of Gitti material. During the course of assessment proceedings the Assessing Officer has recorded the statement of Babulal Verma and Deviprasad and from their statement recorded it was established by the Assessing Officer that the

assessee has completed some of the contract work in the financial year 2009-2010 and the assessee must have debited all the expenses relating to it. However, the assessee has not reflected the work in progress as on 31st March, 2010, therefore, the assessee ought to have shown the contract receipt of Rs.59,660/- and corresponding closing work in progress. 3. The Assessing Officer assessed Rs.1,67,82,629/- as total income and directed that the tax and interest are payable as per Section 250 of the I.T. Act and interest under Sections 234(A), 234(B) and 234(C) of the Act. 4. In an appeal, the learned CIT(A) allowed the appeal by observing as under :- “I had heard the appellant and considered his submissions. I had also perused the order of the A.O. and other documents placed on record. The assessee's learned counsel contended that the action of the A.O. has resulted in the double taxation of the same income since the closing work in progress was more than the opening work in progress. I find substantial force in this submission of the assessee. Opening stock was at a lower figure in comparison to closing stock. The Assessing Officer has charged tax on the higher amount of closing work in progress. Therefore, again charging of tax on the difference between the opening work in progress and closing work in progress will render double taxation on the same amount which is not permissible in law. In view of the above, I hold that once the closing work in progress has been taken as opening work in progress in the immediately subsequent financial year and tax has been charged on that closing balance, charging of tax on the differential amount between the two will tantamount to double taxation, once on the entire amount of closing figure and other on the difference between the opening and closing balance of work in progress. Therefore, addition made by the A.O. at Rs.1,45,23,174/- is deleted. The appeal on this ground is allowed.” 5. The sole contention of the Revenue before the learned

ITAT was that the assessee is following mercantile system of accounting and as per the mercantile system of accounting, any receipt or payment is taken into consideration on accrual basis only. In the case in hand, it was found that the assessee accepted the various contracts for various works. The assessee has received payment of Rs.1,47,66,827/- for the works executed in the financial year 2009-10 and corresponding expenses were debited in the books of accounts in the Financial Year 2009-10. Whatever expenditure was incurred for the contract work was paid and entered in the books of accounts from the period between 1.4.2009 to 31.3.2010, therefore, it is proved that the work has been executed in particular financial year and expenses corresponding to it has been debited in particular financial year, therefore, the corresponding work in progress should have been reflected in the books of accounts, therefore, the assessee has not shown the income in a particular year, therefore, this is a loss to the revenue. 6. On the other hand, the stand of the assessee is that he is engaged in the Government contract of road development and supply of Gitti material. In the Government, realisation depends upon various factors till the date on which inspection was done and bill was approved by the Government Authorities. Till the completion of the process, the amount of contract receipt is not ascertained, therefore, the assessee from the beginning and last so many years following system of accounting and the same has been accepted by the department in the past. The assessee carried out the works contract and booked the expenses, but the assessee showed the income when the bill is received by the assessee and when the Government deduct

TDS on contract receipt, the receipt is accounted, therefore, in this year it is a fact that the assessee has carried out the firm in the financial year 2009-10m but the assessee has shown this amount in the year 2010-11. 7. The contention of the assessee that in the mercantile system of accounting, mere raising the bill is not important. Its right to receive is important. It is the real income and not hypothetical income which is subject to tax. In the contract work, the payment is against the bill raised is ascertained and when it is verified and finally approved by the Government, therefore, the unrealised amount cannot be added to the income of the assessee. 8. The learned Tribunal considering the law laid down by the Apex Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd.; ITA 160/2015 dismissed the appeal of the revenue and allowed the cross objection of the assessee in part. Para 6 to 9 of the order dated 7/11/2016 passed by the Income Tax Appellate Tribunal in I.T.A. No.631/Ind/2014 reads as under :- 6. We have considered the submissions of both the sides. We find that the assessee is carrying out the Government contract and the assessee is following mercantile system of accounting. The assessee preferred reimbursement of expenses relating to contract work beyond the contract agreement and the assessee was not showing the income in the year under which the contract work has been done and the assessee was showing the income when he realised the amount from the department and the assessee was following the same method of accounting for the last so many years and it was accepted by the department. 7. So far as the cross objection of the assessee, we find that the Assessing Officer, has disallowed the amount of interest paid to M/s Sundram Finance Limited for non-deduction of tax. The learned CIT(A) has confirmed the same. 8. During the course of hearing the learned counsel for the assessee submitted that the interest payment made to M/s Sundram Finance

Limited has already been accounted in the return of income therefore the matter may be restored to the Assessing Officer as per the decision of the Hon'ble Supreme Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd.; (P) Ltd.; ITA 160/2015. 9. We have considered the submissions of both the sides. We find that the issue in controversy is covered by the aforesaid decision, therefore, we restore this issue to the file of the Assessing Officer with the direction to decide the same in the spirit of the decision of the Hon'ble Supreme Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd.(supra). 9. In view of the fact that the the assessee is following mercantile system of accounting and he preferred reimbursement of expenses relating to contract work beyond the contract agreement and the assessee was not showing the income in the year under which the contract work has been done and the assessee was showing the income when he realised the amount from the department and the assessee was following the same method of accounting for the last so many years and it was accepted by the department and the same has been approved by the Apex Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd.;(supra), we are of the view that there is no substantial question of lase is arising in this appeal. No case to interfere with the impugned order dated 7/11/2016 passed by Income Tax Appellate Tribunal, as prayed is made out. 10. The appeal is, accordingly, dismissed. (P.K. Jaiswal) (Virender Singh) Judge Judge

pn/ Preetha Nair 2017.12.12 14:13:16 +05'30'