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Income Tax Appellate Tribunal, DELHI BENCH ‘D ’, NEW DELHI
ORDER PER C.M.Garg, J.M.
This appeal by the Revenue has been filed against the order of the CIT(A) – XXIII, New Delhi dated 27.09.2013 passed in first appeal no. 14/13-14 for AY 2010-11. The Grounds raised by the Revenue reads as follows :-
1. Whether on the facts an in the circumstances of the case, Ld. CIT(A) was right in deleting the entire amount of advance money received by assessee.
2. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition made by the AO on account of Mobilization Advance received from Delhi Metro Rail Corporation to the tune of Rs. 5.85 crore, As the assessee was following Mercantile System of accounting and the same should be assessed on accrual basis.
3. The Ld. CIT(A) deleted the addition by holding that the appellant is following the Mercantile System of accounting, any amount received by the appellant cannot be brought to tax until and unless it partakes the nature of Income. However, in the case of Keshav Mills Ltd. vs. CIT(SC) 231 ITR 230 wherein, the Apex Court held that “in Mercantile System, Profit arises/accrues on the date of transaction. The “receipt” of income refers to the first occasion when the recipient gets the money under his own control.”
We have heard arguments of both the sides and carefully perused the relevant material placed on record before the Tribunal. The Ld. DR supported the action of the AO, however, we could not point out any mistake in the first appellate impugned order. The Ld. DR also could not countrovert the contention of the Ld. Counsel of the Assessee that even though the assessee is following mercantile system of accounting, any amount received by the assessee cannot brought to tax until and unless it partakes the nature of income and mobilization advance of Rs. 5,85,05,000/- received by the asessee cannot be treated as income brought to tax.
On careful consideration of above submission, from the relevant operative part of the impugned order, we note that the CIT(A) granted relief to the assessee by holding and observing following conclusion :
“4.3 I have carefully considered the facts of the case, the assessment order, the arguments put forth by the ld. AR of the appellant and the judicial pronouncements cited by both the AO as well as the ld. AR. In my considered opinion, what can be brought to tax is only the income part and not an advance. Till the time any advance partakes the nature of income, it cannot be brought to tax. This is one of the basic principles of accountancy. One also has to keep in mind the nature of the business of the assessee, before applying the judicial pronouncements. When a joint venture is formed, for a particular purpose, the agreement between the members of the AOP becomes very crucial. Another very crucial document is the Contract entered into by the Joint Venture Consortium with the tendering party. The terms and conditions of these two documents determine the nature of payments received by the Joint Venture Consortium and the manner in which they are to be accounted for, although, it has to be stated clearly that the basic principles and norms of accountancy have to be followed. In the instant case, M/s. BLK-NCC Consortium entered into a contract with DMRC, which is a joint venture of Government of India and Government of Delhi, for “Part, design and Construction of Via-Duct of Length 1897.71 metres on extension upto Vaishali (Ghaziabad) of Yamuna Bank-Anand Vihar Corridor of Delhi MRTS Project”. The letter of Acceptance given by DMRC to M/s. BLK-NCC Consortium dt. 26.06.2009 stated that the total cost of the project is Rs. 58,50,00,000/- and Clause 14.2 of the General Conditions of Conditions of Contract between the two parties specified that 5% of original contract value shall be paid as Plant and Machinery Adv ance and another 5% shall be given for highly specialized plant and equipment. Further, Clause 14.4 specify that advance on account of main construction materials shall be 3% of original contract value. Clause 14.6 provided that the recovery of advance shall commence when 20% of the original contract value of the work has been paid and it will be completed by the time 85% of the original contract value have been paid. Under these circumstances and in the light of the above conditions laid down in the Contract, the mobilization advance of Rs. 5,85,00,000/- received by the Consortium cannot partake the character of income and cannot be brought to tax. The amount has been paid by DMRC to the Consortium as Mobilization Advance, it has been shown in the Balance Sheet of the Consortium as a Liability as “Project/Mobilization Advance”and the Notes to the Accoutns clearly mention under Significant Accounting Policies that the Consortium has issued a Bank Guarantee to DMRC for Rs. 11,70,00,000/- (Rs. 5,85,00,000/- Performance Guarantee and Rs. 5,85,00,000 Mobilization Advance Guarantee). The ld. AR of the appellant has placed reliance on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Consulting Engineering Services India Ltd. (2001) 250 ITR 849 (Del.) and in the judgment of Hon’ble ITAT, Kolkata Bench “D” in the case of Usha Ranjan Sarkar vs. ACIT (2007) 16 SOT 231 (Cal.), amongst others. In the case of Usha Ranjan Sarkar (supra), Hon’ble ITAT has clearly stated that “In Government Contract, the assessee does not have any right to receive any amount against the work executed by him till the bill is approved by the Government. Mere raising of the bill is not important. It is the right to receive, which is important. That is to say, it is the real income and not hypothetical income which has to be subjected to tax. The payment against bill raised is ascertained when it is verified and finally approved by the Government. Thus, the accrual of income takes place only when the work of the assessee is accepted and the bill is approved and not before that. Admittedly, the assessee was following the Mercantile system of Accounting. In this system, the assessee is required to account for its income only when it is approved or received.” In the case of DCIT vs. Five Star Construction Pvt. Ltd. in for A.Y. 2007-08, Hon’ble ITAT, Delhi Bench “B”, New Delhi decided a similar issue vide its order dt. 02.11.2012. The Hon’ble ITAT held that “The amount received as Mobilization Advance is not towards a contract receipt, but is merely an advance for mobilizing resources by the assessee for carrying out the work of its customer/client. This amount is required to be adjusted proportionately against the running bills from the works certified… Merely because Tax at Source has been deducted builder, the receipt of mobilization money cannot be deemed as income of the assessee for the year under consideration.” From the above, it is clear that even though the appellant is following the Mercantile system of Accounting, any amount received by the appellant cannot be brought to tax until and unless it partakes, the nature of income. In my opinion, the Mobilization Advance of Rs. 5,85,00,000/- received by the appellant cannot be treated as income and brought to tax. Accordingly, the addition of Rs. 5,85,00,000/- is hereby deleted.”
On careful consideration of above we note that the CIT(A) granted relief by following preposition laid down by various orders / decisions of Hon’ble High Court and the Tribunal including order of ITAT Delhi “B” bench in the case of DCIT vs. Five Star Construction Pvt. Ltd. in ITA No. 1861/Del/2011 for AY 2007-08 wherein the similar set of facts and circumstances it was held that the amounts received as mobilization advance in not towards a contract receipts, but the same is merely an advance for mobilizing resources by the assessee carrying out the work of its customer/client. This amount is required to be adjusted proportionately against the running bills from the work certified. In that case the Tribunal also held that merely because tax at source has been deducted by the payer builder, the receipts of mobilization money cannot be deemed as income of the assessee for the year under consideration. The CIT(A) granted relief by following the same precedent and thus we are unable to see any valid reason to interference with the impugned order. Consequently ground nos. 1 to 3 of the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order Pronounced in the Court on 31/03/2016.