INCOME TAX OFFICER, WARD- 1(1)(2), BANGALORE vs. M/S. ATLANTA ELEVATORS INDIA PRIVATE LIMITED, BANGALORE

The revenue has filed this appeal challenging the order dated 30.8.2019 passed by Ld. CIT(A)-1, Bengaluru and it relates to the assessment year 2015-16. The revenue is aggrieved by the decision of Ld. CIT(A) in deleting the addition of Rs.12.65 Crores relating to unexplained difference in the opening stock.

The facts relating to the issue are stated in brief. The assessee is engaged in the business of assembling, supply and erection of unbranded lifts and elevators. It filed its return of income for the year under consideration declaring loss of M/s. Atlanta Elevators India Pvt. Ltd., Bangalore

In this regard, the assessee explained before the A.O. that the assessee started facing problems from financial year 2009-10. Due to paucity of funds, the company could not complete erection and handing over of lifts to many customers, even though it had partially supplied material and machinery. The entire amount of Rs.12.65 crores related to the incomplete work in progress jobs undertaken from various customers. It was also submitted that the assessee had collected advances to the tune of Rs.12,31,85,255/- against these works, which was shown as liability in the Balance Sheet. However, all the customers had completed the work by engaging some other technical persons and hence the assessee could not complete the work. It was submitted that some of the customers had initiated legal proceedings also against the assessee. Accordingly, the advances received from customers and the corresponding work in progress was carried forward year after year. Hence, in order to bring the balance sheet to a realistic figures, the assessee has transferred the ‘advance received from the customers (Rs.12.31 crores)’ and the corresponding ‘work in progress (Rs.12.65 crores)’ to “exceptional items” account. The net balance in “Exceptional items a/c” was debited to the profit & loss account.

In the appellate proceedings, the Ld. CIT(A) noticed that the assessee has reduced the opening stock by Rs.12.65 crores and included the same in the exceptional items. Accordingly, he took the view that it is a revenue neutral exercise and hence no addition is called for. Accordingly, he deleted the disallowance of Rs.12.65 crores. Aggrieved, the revenue has filed this appeal before us.

We heard the parties and perused the record. We noticed earlier that the assessee has transferred Rs.12.65 crores from opening stock to exceptional item. We also noticed that the assessee has also transferred advance received from the customers against the orders to the tune of Rs.12,31,85,255/-. We notice that the Ld. CIT(A) did not consider the aspect of writing off of advance received from customers by transferring the same to Exceptional items account. There should not be any dispute with the advance received from customers against work orders constitute revenue receipts and hence, the same would be liable to tax, if it is written off in the books of accounts. However, in the instant case, it is the submission of the assessee that it has supplied materials and machines to the customers against the advances so received. Hence, it is the duty of the assessee to relate the advance received from a particular customer with the corresponding work done for him. If this exercise is carried out, the profit/loss arising to the assessee in respect of the each of the customer could be ascertained. In our view, there could arise three situations as narrated under:-

In our view, the taxable income that could arise on writing of advance received from customers and the corresponding work in progress can be ascertained only if assessee furnishes the break-up details of advance received from various customers and the break- up details of value of materials supplied to each of the customers. Then the assessee should make one to one reconciliation of both the items. According to the assessee, the aggregate amount of materials supplied to all the customers is Rs.12.65 crores, while the aggregate amount of advances received from customers is Rs.12.32 crores.

Accordingly, we are of the view that it is imperative for the assessee to furnish the breakup details, as mentioned above. We notice that the tax authorities have not examined this issue in the above discussed lines. Accordingly, we are of the view that this issue requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh by considering the details that may be furnished by the M/s. Atlanta Elevators India Pvt. Ltd., Bangalore Page 5 of 5 assessee. After hearing the assessee, the A.O. may take appropriate decision in accordance with law.

In the result, the appeal filed by the revenue is treated as allowed for statistical purposes.