KSB LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(4), MUMBAI

The assessee has raised the following grounds of appeal:

The learned CIT (Appeals) erred in not appreciating that the advances could be recognized as income by the appellant only upon fulfillment of the corresponding contractual obligations assigned thereto specifically being delivery of goods wherein the risk, title, control and economic ownership stands transferred to the customer, etc.

The learned CIT (Appeals) erred in not appreciating the submissions in its correct perspective and in making unsubstantiated and irrelevant observations and in drawing erroneous conclusions therefrom. Addition on advances received in earlier years and outstanding as on March 31, 2021, cannot be made.

Without prejudice to the above, the learned CIT (Appeals) erred in not considering that the addition at best could be made, only to the extent of Incremental advances received during the year under consideration. 6. Without prejudice to the above, the learned CIT (Appeals) erred in not excluding the advances received in the earlier years and which are outstanding on as on 31 March 2021 as well as the amount of advances received during the year under consideration and which have been already invoiced and accounted as income during the year. Double taxation 7. Without prejudice to the above, the learned CIT (Appeals) erred in not appreciating the fact that out of the total advances of Rs. 143.32 crores outstanding as on 31 March 2021, some of these advances were invoiced and offered to tax in the subsequent years. Therefore, bringing the entire amount of Rs. 143.32 crores to tax in the year under consideration has resulted into a double taxation of such sum, which the learned CIT (Appeals) ought to have directed to be deleted in subsequent respective years. Addition made on gross basis without allowing a corresponding expense. 8. Without prejudice to the above, the learned CIT (Appeals) erred in not directing the assessing officer to allow corresponding expenses against the advance received from customers. Consequential excess-levy of interest under section 234A/2348 of the Act (A.Y. 2020-21) KSB Limited 9. The learned CIT (Appeals) erred in confirming the levy of excess interest charged under section 234A of the Act to the extent of Rs. 1,44,28,612 and under section 234B of the Act to the extent of Rs. 8,12,46,396.

The learned CIT (Appeals) erred in confirming the levy of excess interest under section 234C of the Act to the extent of Rs. 31,34,842.

The learned Authorised Representative ('ld. AR' for short) for the assessee contended that out of the total advances received from the customers by the assessee, the majority is from Nuclear Power Corporation of India Ltd. (NPCIL) amounting to Rs. 58.49 crores and Rs. 84.83 crores from other customers were the party-wise details of the said amount has been filed before us. The ld. AR further stated that the contract with NPCIL (A.Y. 2020-21) KSB Limited was entered into by the assessee in January, 2018 with a total contract value of Rs. 398 crores for supply of pumps and motors. The ld. AR further stated that as these are specialized pumps which requires considerable amount of time, the assessee receives advance in tranches as per the terms of the contract. The ld. AR contended that out of Rs. 58.49 crores received from NPCIL, the assessee did not receive any advance during the year under consideration and the same pertains to the prior years and that the assessee had requested for extension of the delivery of final products until 2026-27 on account of covid pandemic and various other reasons and the same was approved by NPCIL. Further, the ld. AR contended that the advance received by the assessee was utilized towards advance to suppliers and for inventory work in progress and the same still stands as “Advance received from customers” in the books of the assessee and has been offered to tax in the subsequent years on completion of projects and on supply of goods on the basis of the revenue recognition method followed by the assessee consistently. The ld. AR reiterated that the assessee has received advances from customers in its routine business activities which was utilized for the purpose of its manufacturing activities and the revenue is recognized as and when the goods are transferred to the customers and that for other years there has been no such addition made in the hands of the assessee were the department has accepted the assessee’s method of accounting.

The learned Departmental Representative ('ld. DR' for short) for the revenue on the other hand controverted the same and stated that the assessee has failed to furnish complete details of the transactions along with the copy of the agreements which (A.Y. 2020-21) KSB Limited contained the risk and rewards of the said contracts and also the revenue recognition for the advance that has been received from various parties. The ld. DR relied on the orders of the lower authorities.

We have heard the rival submissions and perused the materials available on record. The issue that requires adjudication is whether advance received by the assessee from various customers has been brought to tax as per the method of accounting followed by the assessee for revenue recognition. The lower authorities have made an addition on account of the receipt of money received by the assessee under the head “Advance from customers” were advances were received from major parties viz. NPCIL and from other customers. The assessee’s contention was that these advances were received in a normal course of business and were offered to tax in subsequent years as and when the project is completed. The assessee further contends that as against such advances the assessee has also had closing stock of work in progress (projects under execution) which amounted to Rs. 171.04 crores. The assessee further gave a summary of the outstanding advance as on 31.03.2021 and the revenue recognition against such advance which has been tabulated herein under: Particulars Advance as on 31 Revenue Balance advance March, 2021 Recognised in pending as on 31 subsequent years March 2025 NPCIL 58,49,19,970 - 58,49,19,970 Other Customers 84,82,75,284 77,30,56,623 7,52,18,661 Total 1,43,31,95,254 77,30,56,623 66,01,38,631 (A.Y. 2020-21) KSB Limited 10. It is also observed that the lower authorities have rejected the assessee’s contention mainly on the ground that the assessee has failed to furnish complete documentary evidences to substantiate its claim that the assessee has already to the extent of Rs. 77.30 crores has duly recognized revenue in the subsequent years and has offered the same to tax out of total advance of Rs. 143.31 crores which was not considered by the lower authorities. Further, the assessee prays that the ld. AO may be directed to verify the agreements entered into by the assessee that NPCIL from whom it had received the sizable amount of advance which as per the said contract has extended the time for project completion till 2026/2027 which fact has not been looked into by the lower authorities. The assessee further contended that the out of the advance received from other customers amounting to Rs. 84.82 crores, the assessee has already offered to tax Rs. 77.30 crores and the remaining is only Rs. 7.52 crores which fact has also been not considered by the lower authorities.

From the above facts of the case, it is evident that there has been no such addition made in the earlier years and in the subsequent years as contended by the assessee and further it is evident that the lower authorities have not looked into the terms and conditions of the contractual obligation entered into by the assessee with the NPCIL from whom the assessee has received an advance of Rs. 58.49 crores. As the same requires factual verification with regard to the said transaction and also the fact that the advance received from other customers which aggregated to Rs. 84.82crores, the assessee has offered Rs. 77.30 crores, we deem it fit to remand these issues back to the file of ld. AO for verifying whether or not the assessee has offered the same to tax in the subsequent (A.Y. 2020-21) KSB Limited years as and when the project has been completed. We also direct the assessee to provide complete details along with documentary evidence to establish that the assessee has offered the same to tax on completion of the projects and to also consider the terms of agreement with NPCIL. While considering the same, the ld. AO is also directed to take into consideration the method of accounting followed by the assessee in earlier and subsequent years for revenue recognition and to decide the issue in hand in accordance with the same.

On the above terms, ground no. 1 to 8 raised by the assessee are hereby allowed for statistical purpose.

Ground no. 9 to 11 pertain to interest levied for default in furnishing return of income, default in payment of advance tax and for deferment of advance tax. The assessee contends that the return of income has been filed on time and there has been no delay in the same. As this requires factual verification, we deem it fit to remand this issue also back to the file of the ld. AO and the other two grounds on 234B and 234C being consequential in nature requires no separate adjudication.

In the result, all the grounds raised