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Income Tax Appellate Tribunal, “E”, BENCH
Before: SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH , JM
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2009-10 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-21 in appeal No.CIT(A)-21/IT/498/2011-12 dated 19/03/2013 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29/12/2011 by the ld. Income Tax Officer – 10(1)(4), Mumbai (hereinafter referred to as ld. AO).
The revenue has raised the following grounds before us:- 1. "On facts and in the circumstance of the case and in law:-
M/s. Sportina Payce Infrastructure Pvt Ltd. i) the Ld.CIT(A) erred in deleting the addition of Rs.2,32,80,672/- on account of income accounted short by the assessee under head "value of work" of Siri Fort Sports complex, holding that the addition was based on notional basis without any cogent evidence. ii) the Ld. CIT(A) erred in ignoring the fact that eh above addition was made on the basis of value of contract of project at Siri Fort Sports Complex, as appearing on internet. iii) while deleting the above addition of Rs.2,32,80,672/- the Ld. CIT(A) erred in not taking into account the fact that subsequent to the assessment, information was received from the o/o the Chief Engineer (Common Wealth Games), New Delhi in DDA that total amount paid to the assessee was Rs.23,85,27,705/-."
2. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
3. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
The brief facts of this appeal are that the assessee is a private limited company engaged in the development of infrastructure projects as a contractor. The assessee was awarded contract in the financial year 2007-08 for the construction of indoor stadium for badminton & squash for common wealth games -2010 at Siri Fort Sports Complex, Phase-I. The construction contract was completed during the year under appeal The assessee is following project completion method of accounting consistently from earlier years. During the year under consideration, the ld AO noticed in the internet that the value of Siri Fort Sports Project Contract were awarded to the assessee at total value of Rs 24,17,03,676/-. The assessee has executed the contract only for Rs 21,84,23,004/- which was offered as income during the year. The ld AO M/s. Sportina Payce Infrastructure Pvt Ltd. added the difference between the value of contract as per the internet and the total receipts received by the assessee in the sum of Rs 2,32,80,672/- in the assessment on the ground that the assessee company had suppressed its contract receipts.
Before the ld CITA , the assessee submitted as under:- "5.1 The appellant had during the accounting year 2007-08 relevant to assessment year 2008-09 secured a contract for the construction of an Indoor Stadium for Badminton & Squash for Commonwealth Games- 201 0 at Siri Fort Sports Complex, Phase-l 5.2 The appellant had submitted a tender and was awarded a contract of the value of Rs. Rs. 24, 17, 03, 676. 00. 5.3 The details of the contract are as under: - a. Estimated Cost Rs. 19, 64, 00, 000. 00 (Rupees Nineteen Crores Sixty four lacs only) b. Tendered amount after Rs.24,57,85,088.00 rebate (Rupees Twenty four Crores fifty seven lacs eighty five thousand and eighty eight only) c. Net Tendered amount after Negotiation. Rs.24,17,03,676.00 (Rupees Twenty four Crores seventeen lacs three thousand six hundred seventy six only) d. Accepted amount Rs.24,17,03,676.00 (Rupees Twenty four Crores seventeen lacs three thousand six hundred seventy six only) e. Percentage under Clause-12 Above Estimated cost. Percentage 23.07% Above Estimated cost (Twenty three point zero seven percent above)
M/s. Sportina Payce Infrastructure Pvt Ltd. f. Performance Guarantee FDR No.01/16083 dt. 10.01.2008 issued by in Shape of FDR Canara Bank. g. Time Allowed 120 Days (One Twenty days ) 5.4 Based on the above, since the appellant was not certain about the completion of the project, being substantially large and knowing the delay in settling of the bills by government agencies, the appellant had opted to follow the project completion method. Accordingly since the project was not complete in the assessment year 2008-09, no income was declared. That same has been accepted and there has been no scrutiny or even a reopening of the assessment after the present assessment. 5.5 In the assessment year under appeal the project stood completed and the appellant declared the profit as per its profit and loss account. The project was held to be completed and for the said project though the estimated cost was Rs. 19,64,00,000.00 and the tendered amount was Rs.24,57,85,088.00, the appellant had done work of Rs. 21,84,23,004/-only, and hence the income was declared on the said basis. The payments received by the appellant are for the work done by arriving at the same on the basis of the area work executed multiplied by the agreed rate. 5.6 The Assessing Officer has in para 3,2 of the order has held that since the tendered amount of the project was Rs.24,57,85,088.00, and the net tendered and accepted amount was Rs. Rs.24,17,03,676.00, he has assumed that the total project for the purpose of income at Rs.24,17,03,676.00, and has thus held the appellant ought to have accounted for the same as sales and accordingly he has added the difference between the net tendered and accepted amount and the actual amount of work done as the accrued income of the appellant. 5.7 The Assessing Officer has thus added a sum of Rs. 2,32,80,672/- to the income of the appellant as understated receipts. 5.8 The appellant submits that the action of the Assessing Officer in making the above addition is baseless and uncalled for. 5.9 The appellant submits that there is no provision in the Income-tax Act to tax a person on an estimated value of the project. 5.10 The appellant submits that income can be accounted only on the basis of the work done and not on an assumed basis of the total value of the contract.
M/s. Sportina Payce Infrastructure Pvt Ltd. 5.11 The appellant submits that neither parties be it the Executive Engineer of Common Wealth Games nor the appellant have been confronted by the Assessing Officer to verify the actual value of the contract. 5.12 The appellant submits that the Assessing Officer has grossly erred in making an addition on hypothetical basis merely on the value of the contract which is a proposal which is against the principles of real income. 5.13 The appellant submits that there is no justification in making an addition of an unearned and alleged understated receipt and prays that the same be deleted. 5.14 The very basis of the addition made by the appellant is the gross value of the contract. Where the final result of a contract is less than the actual work done, there is no provision in the Income-tax Act to tax an assessee on the basis of the quoted and assumed value of work to be done. 5.15 The appellant submits that the Assessing Officer has not even bothered to summon or call for the details of the work done or the payment made from the concerned governmental authorities before embarking on a wild unsubstantiated and unwarranted addition. 5.16 It is submitted that Contract revenue is measured at the consideration received or receivable. The measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future events. The estimates often need to be revised as events occur and uncertainties are resolved. Therefore, the amount of contract revenue may increase or decrease from one period to the next. For example: (a) a contractor and a customer may agree to variations or claims that increase or decrease contract revenue in a period subsequent to that in which the contract was initially agreed; (b) the amount of revenue agreed in a fixed price contract may increase as a result of cost escalation clauses; (c) the amount of contract revenue may decrease as a result of penalties arising from delays caused by the contractor in the completion of the contract; or (d) when a fixed price contract involves a fixed price per unit of output, contract revenue increases as the number of units is increased.
M/s. Sportina Payce Infrastructure Pvt Ltd. 5.17 In fact the tax deduction certificates have been issued as per the payment made by DDA to the appellant and hence no further mount can be added as income of the appellant on presumptive basis. 5.18 In view of the above, the appellant submits that the addition of Rs.2,32,80,672/- may kindly be deleted." - 3.3 After considering the submissions of the appellant, A.O's assessment order, the A.O. on verification found that the appellant was awarded contract worth Rs,24,17,03,676/- and appellant had shown the receipt from this contract only for Rs.21,84,23,004/- and the difference between them of Rs.2,32,80,672/- is added as income of appellant for the year. During appellate proceedings, the appellant had stated that it was awarded contract for Rs.24,17,03,676/- and appellant had completed the work and received total receipts for Rs.21,84,23,004/-. The amount received from the execution of the contract was offered as income and it has not received any income above this.”
The ld CITA deleted the addition of Rs 2,32,80,672/- by observing as under:- “I have considered the submissions of the appellant and details filed. A.O. had added in the appellant's income just the difference between the estimate value of the contract and value executed by the contractor as income of the appellant. The A.O. also not found out any error in the accounting of the appellant nor was any evidence. The A.O. further did not brought any material on the record to show that appellant had executed the contract for the estimate value of the contract i.e. Rs.24,17,03,676/-. The A.O. simply considered the estimate value of the contract as total amount received by the appellant without any cogent and reliable evidence. Under Income-tax Act, income can be assessed under accrued basis or on the receipt basis. In this case appellant only received and executed the contract worth Rs.21,84,23,004/-. Neither appellant has accrued any amount more than this during the year and offered as income. A.O's addition is simply on estimate and on notional basis without any cogent evidence. There is no provision in Income-tax Act to tax income on notional basis. Supreme Court in UCO Bank vs. CIT (1999) 237 ITR 889 (SC) held that notional income is not taxable, hence in view of the above reasons, A.O's addition is deleted and relief granted to the appellant is Rs.2,32,80,672/-. This ground of appeal is allowed.”
M/s. Sportina Payce Infrastructure Pvt Ltd.
Aggrieved, the revenue is in appeal before us on the aforesaid grounds.
We have heard the rival submissions. The ld DR vehemently relied on the order of the ld AO by arguing that the assessee is following mercantile system of accounting and hence income had to be offered by it on accrual system of accounting based on the amount of contract awarded to it irrespective of actual performance of services to that effect and value. In response, the ld AR fairly stated that the revenue had raised Ground No. 3 above, wherein it had obtained certain information from the office of the chief engineer (common wealth games), New Delhi in DDA certifying that the total amount paid to assessee was only Rs 23,85,27,705/-. He stated that let this fact be verified by the ld AO with reconciliation with the assessee’s books. The ld DR fairly agreed for the issue being set aside to the file of ld AO for denovo adjudication in the light of Ground No. 3 raised by it. Accordingly, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of ld AO for denovo adjudication in the light of Ground No. 3 raised by the revenue before us. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is at liberty to file fresh evidences, if any, before the ld AO in support of its contentions. All the arguments advanced by the ld AR are left open and the same may be taken before the ld AO by the assessee. Accordingly, the grounds raised by the revenue are allowed for statistical purposes.