ITO 8(3)(2), MUMBAI vs. SIDDHARTH TANKS AND VESELS P.LTD, MUMBAI

The captioned appeal by revenue for Assessment Year [AY] 2010- 11 assails the order of Ld. Commissioner of Income Tax (Appeals)-18 [CIT(A)], Mumbai dated 21/05/2014 qua deletion of certain advances of Rs.50.00 Lacs received by the assessee from an entity namely Gammon India Limited particularly when the assessee debited expenses of Rs.30,16,721/- against the same.

Facts leading to the dispute are that the assessee, being resident corporate assessee engaged in the business of manufacturing / supply of equipment to sugar industries, was assessed u/s 143(3) at Rs.99,96,900/- after certain additions / disallowances vide Assessing Officer [AO] order dated 25/03/2013 as against ‘Nil’ return filed by the assessee on 28/09/2010. During Assessment proceedings, it was noticed that the assessee received certain advances of Rs.50.00 Lacs & Rs.91,83,673/- on 12/01/2010 & 31/03/2010 respectively from an entity namely Gammon India Limited against which TDS was deducted by the payer u/s 194C, however, the same was not offered to tax. The assessee explained that the said advances were received by the assessee pursuant to an agreement with the payer for certain construction project at Pravaranagar and since the same were mere advances in nature, the income thereon did not accrue to the assessee during impugned AY and therefore, not offered to tax by the assessee. However, the AO noted that the assessee debited expenses of Rs.30.16 Siddharth Tanks & Vessels Private Limited Assessment Year-2010-11 Lacs as Site expenses for this project but did not offered / credited the receipts in Profit & Loss Account and reflected the same as mere advances and therefore, the same called for an addition to the extent of Rs.50.00 Lacs, being amount received by the assessee during the impugned AY on 12/01/2010. Finally, AO treated the advance of Rs.50 Lacs received by the assessee as receipt of revenue in nature and added the same to the income of the assessee. 3. The assessee contested the same with success before Ld. CIT(A) vide impugned order dated 21/05/2014 where the assessee contended that the project work against this advance was completed in Financial Year 2013-14 and the invoices were raised during that year and therefore, following mercantile system of accounting, offered to tax in that year and hence addition of mere advance amount in the impugned AY was not justified and would lead to double taxation. The Ld. CIT(A) after considering the various submissions made by the assessee and factual matrix of the case came to the conclusion that a mere advance do not give rise to accrual of income particularly when the assessee offered the income in various AYs as per the invoices raised by the assessee against the project. Further, the assessee following consistent method of accounting offered the income whenever the same accrued to the assessee and mere deduction of TDS against advance payment per- se did not make them liable to tax in the impugned AY. Aggrieved, the revenue is in appeal before us. 4. The Ld. Departmental representative contended that since the assessee availed the benefit of TDS in the impugned AY, he was liable to offer the advances as income in the impugned AY particularly when it Siddharth Tanks & Vessels Private Limited Assessment Year-2010-11 debited expenditure of Rs.30.16 Lacs against the project in the Profit & Loss Account as it violated the matching principle of accounting. 5. Per contra, the Ld. AR explained that the assessee got a sub- contract for certain construction work at Pravaranagar from the main contractor namely Gammon India Ltd. and received certain advances against the same in impugned AY. However, the project got delayed for want of approvals and could be started only in December, 2013. The Ld. AO erred in noting that the assessee debited expenses of Rs.30.16 Lacs against the same whereas those expenses were not related with this project. Merely because TDS was deducted on the impugned payment, the same per-se do not make the said advances taxable in the hands of the assessee as the income thereupon never got accrued during impugned AY. The assessee completed the project in various stages / phases and raised invoices as per the agreement and offered the income as per the invoices raised by the assessee in various AYs. The work against this particular advance was completed in FY 2013-14 when the assessee raised a bill of Rs.52.91 Lacs and offered the same to tax in that year. The assessee followed consistent method of accounting and following the same recognized the revenue as per the accounting principles and therefore, the additions were unwarranted and the same amounts to double taxation. The details of site expenses, details of year wise invoices raised against Pravaranagar project along with copies of the invoices, financial statements for AY 2014-15, copies of agreement, ledger extract, VAT returns etc. have been placed in the paper-book in support of various contentions. Siddharth Tanks & Vessels Private Limited Assessment Year-2010-11 6. We have heard rival contentions and perused relevant material on record. The short dispute before us is whether the assessee was liable to offer the advances to tax merely because TDS was deducted thereupon particularly when the assessee, following mercantile system of accounting, recognized the revenue from the project in AY 2014-15 when the invoices were raised. There is no dispute that the assessee received two advances of Rs.50.00 Lacs & Rs.91.83 Lacs during impugned AY, against which TDS was deducted. However, the Ld. AO treated both the advances differently and added only Rs.50.00 Lakhs to the income of the assessee, which, in our opinion, was not correct approach. We further find that the assessee has recognized the revenue in the books of accounts, by following consistent method of accounting and offered the same to tax whenever the invoices were raised by him and the same is not in dispute. At this juncture, it would be prudent to reproduce the findings of Ld. CIT(A) made in the impugned order:

We find that the Ld. AO proceeded in the matter on the assumption that since assessee claimed expenses against the said project and Siddharth Tanks & Vessels Private Limited Assessment Year-2010-11 therefore, was obliged to offer the said advances to tax. The revenue has raised a specific ground in the appeal that Ld. CIT(A) erred in not appreciating the fact that the assessee debited expenses of Rs.30.16 Lacs during impugned AY without offering corresponding receipts to tax. This fact has been controverted by the Ld. AR by contending that the same was factually incorrect as whatever expenses were incurred by the assessee towards this project were shown as closing stock / work-in- progress in the impugned AY and the expense of Rs.30.16 Lacs debited in the profit & Loss Account were incurred in relation to other projects, which may be verified by the lower authorities. Therefore, for the limited purpose of verification of this fact, we deem it fit to restore the matter back to the file of Ld. AO. The assessee is directed to substantiate this fact with necessary evidences failing which the AO shall be at liberty to decide the same as per law on the basis of material available on record. The Ld. AO is also directed to re-compute book profits u/s 115JB, carry forward / set off of losses in the light of the final outcome.

Resultantly, the revenue’s appeal stand allowed for statistical purposes.