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DCIT,Circle 11 (1),Room No.312,CR Building,New Delhi. Vs. Five Star Construction P. Ltd.,Flat No.8, First Floor,New Rajinder Nagar,New Delhi.
November, 06th 2012
                 IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH : B : NEW DELHI

             BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER
                                 AND
                SHRI B.R. JAIN, ACCOUNTANT MEMBER

                         ITA No.1861/Del/2011
                       Assessment Year : 2007-08

DCIT,                                Vs.   Five Star Construction P. Ltd.,
Circle 11 (1),                             Flat No.8, First Floor,
Room No.312,                               New Rajinder Nagar,
CR Building,                               New Delhi.
New Delhi.
                                           PAN : AAACF2332H

     (Appellant)                               (Respondent)

             Assessee by         :    Ms Lalitha Krishnamoorthy, CA
             Revenue by          :    Shri Deepak Sehgal, Sr.DR





                                     ORDER

PER B.R. JAIN, ACCOUNTANT MEMBER

      This appeal by the revenue for Assessment Year 2007-08 against
the order dated 15.02.2011 passed by Ld. CIT (A)-XIII, New Delhi,
raises the following grounds:-


      "1.   On the facts and circumstances of the case and in law,
      the CIT (A) has erred in deleting the addition of Rs.37,29,738/-
      on account of mobilization advance.

      2. On the facts and circumstances of the case and in law, the
      CIT (A) has erred in deleting the addition of Rs.14,29,256/- on
      account of terms of Section 41 (1) of the IT Act."


2.    Briefly, the fats are that the assessee company is in the business
of construction activities. It has declared income of ` 32,41,870/- from
the said business. During the course of assessment proceedings, the
Assessing Officer noticed that the assessee has received mobilization
                                     2               ITA No.1861/Del/2011



advances to the extent of       ` 37,29,738/- from M/s Matrix Buildwell
Private Limited. Even TDS has been deducted on these receipts. As
the assessee did not disclose these receipts as his income for the year
under consideration, he required the assessee to justify and explain
the said receipt.   The assessee furnished written submissions which
were duly considered.     The Assessing Officer, thereafter, being not
satisfied with the explanation of the assessee, proceeded to treat the
receipt of ` 37,29,738/- as assessee's income from business and
brought the same to taxation.


3.    Before the Ld. CIT (A), the assessee relied on the same
submissions as were produced before the Assessing Officer wherein it
was stated that the assessee had raised the bill on M/s Matrix Buildwell
Private Limited for the work done by the assessee company.            The
impugned amount is the closing balance appearing in mobilization
advance account which the assessee contractor received from the
developer M/s Matrix Buildwell Private Limited for mobilizing resources
and recovered on prorata basis from payment due to the contractor
from such running bills of the contractor and the same is subject to
adjustment in the final bill. It was also submitted that the mobilization
advance cannot at any rate be the income of the appellant company as
the amount of running bills has already been taken into account as
assessee's income for the year under consideration under the head
"Work certified." It has also explained the nature of mobilization
advance account as under:-





      "Nature of Mobilisation Advance:-

      That the Mobilisation Advance is an advance amount which is
      given by Contractee to his Contractor according to letter of
      intent made between contractor and contractee towards
      construction of project before commencing the construction at
      specific site/project.
                                     3                  ITA No.1861/Del/2011



      Mobilisation payments are payments of funds to a supplier or
      contractor before in anticipation of and for the purpose of
      performance under the contract in connection with the
      Structure. Since these payments are not measured by contract
      performance, they differ from partial payments which are based
      on actual performance of tasks in furtherance of the contract.

      Advance payment may, for example, be advisable to cover the
      initial mobilization expenses for large civil works or custom
      made goods. Any advance payments are to be liquidated from
      payments made to the supplier or contractor during
      performance of the contract, usually by deducting a percentage
      from each scheduled payment for performance.

      The basic purpose of Mobilisation advance which is initially
      released against Bank Guarantee is to extend financial
      assistance within the terms of contract to the contractor to
      mobilize the man and material resource for timely and smooth
      take off of the project or procurement of equipment, material or
      other services contract."


4.    The Ld. CIT (A) required the assessee to substantiate further
from production of documents/evidence or letter of intent issued by
M/s Matrix Buildwell Private Limited that the mobilization advance was
in the nature of advance and was not related to its income/sale/work
receipts. The assessee company was also asked to give the basis on
which the mobilization advance was give by M/s Matrix Buildwell
Private Limited to the appellant contractor. The assessee vide its letter
dated 11.02.2011 enclosed the letter of intent dated 09.22.1006 and
release of mobilization amount letter dated 15.12.2006 given by the
aforesaid builder to the assessee company, running account of M/s
Matrix Buildwell Private Limited., work certificate account for financial
year 2006-07 and mobilization advance account till date as appearing
in its books of account.     The letter issued by M/s Matrix Buildwell
Private Limited at the time of releasing the mobilization advance and
first running account bill issued by the assessee company on the
builders were also produced before the Ld. CIT (A) and it was explained
that part of the mobilization amount is being adjusted in the running
bills raised by the assessee which are subject to adjustment in the final
                                   4                 ITA No.1861/Del/2011



bill that would be issued by the assessee contractor to the builder M/s
Matrix Buildwell Private Limited, after the completion of the project.
Since the gross amount of running bills has taken part of the
assessee's income, the mobilization advance amount so received as
advance cannot be treated as income of the assessee.


5.    The Ld. CIT (A), after considering the entire details as were laid
before the Assessing Officer during the course of assessment
proceedings and also those as were called for by virtue of the powers
vested in him, found that the letter of intent itself stipulates that the
mobilization advance shall be recovered from running bills on prorata
basis subject to adjustment in pre final bill for complete recovery. The
total contract value was for ` 5,24,56,297/- and 7  % thereof as
mobilization advance comes to ` 39,29,884/- as is also revealed from
the copy of work order dated 15.12.2006 laid on record.        From the
copy of account of M/s Matrix Buildwell Private Limited mobilization
advance account in the assessee's books and from the copy of first
running bill for the work done for ` 26,68,618/- which after adding
service tax in the invoice value comes to ` 27,76,409/-, the assessee is
found to have adjusted ` 2,00,146/- on account of mobilization
advance and, thus, the balance of ` 37,29,738/- has been shown in the
balance sheet, as a current liability under the head `Mobilisation
advance' as on 31.3.2007.     The Ld. CIT (A) also found that the first
running bill for ` 26,68,618/- raised against the impugned work
contract forms part of the total work certified account of the appellant
and is taken as income of the year under consideration.        Since the
work certified forms part of the income of the year under consideration
and the additional amount received as mobilization advance required
to be adjusted on prorata basis against work certified, therefore, was
held to be an advance and not a contract receipt. He, therefore, found
no justification in bringing to tax the outstanding amount of
                                     5                 ITA No.1861/Del/2011



mobilization advance for ` 37,29,738/- as income of the assessee for
taxation for the year under consideration.


6.    The ld. DR contends that the Ld. CIT (A) has erred in setting
aside the addition as the amount of mobilization advance outstanding
at ` 37,29,738/- is not an amount of advance only but a contract
receipt liable for taxation as income in the year under consideration on
which tax at source was also been deducted. It is further stated that
before the Tribunal, the assessee has laid copy of mobilization amount
at paper book page 8 which does not tally with the copy of this account
produced before the assessing authority and this fact is verifiable from
the assessment record produced before the Tribunal.          He, therefore,
requested to ignore this document for coming to the conclusion in
accordance with the law.


7.    On the other hand,, the assessee's counsel relying on the order
of the Ld. CIT (A) contents that there is no material difference in the
copy of account as laid before the Appellate Tribunal and that laid
before the assessing authority inasmuch as all the dates of the entries,
narrations and amounts contained in both the accounts are materially
the same. It is only because of the "Tally Programme" in the computer
the last entry appearing on 31.03.2007 reflects complete details of first
running bill which though was available in the voucher produced before
the   assessing   authority,   was   not   reflected   due   to   computer
programming in the copy laid before the assessing authority.            No
adverse view of such narrations which are factually a part of record
needs to be taken.       It has therefore, been contended that the
mobilization advance being not part of contract receipts taken as
certified work has justifiably been treated as advance received and,
thus, not liable to tax as income of year under consideration.
                                      6                     ITA No.1861/Del/2011



8.   We have heard parties with reference to the material on record.
The assessee is found to have maintained two accounts in the name of
builders in the books of account maintained by it in the regular course
of its business.     The first account is under the title `Mobilisation
advance account' in which the advances received and required to be
adjusted against the running bills have been credited and stand
adjusted from time to time. The second account is in the name of M/s
Matrix Buildwell Private Limited as a running account in which the
assessee has received payments in advance towards contracts and
raised debits for the certified work by raising running bills. We have
also perused the running bill laid at the assessee's paper book at page
38. This bill reveals that the assessee has adjusted an amount of `
2,00,146/- out of mobilization advance amount and the balance of the
running bill amount has been routed through the running account of
the builder client. 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 for the work certified. The
amount of mobilization account that has been adjusted during the year
under consideration has been included as assessee's income whereas
the balance outstanding remains as a current liability for the year. The
same is liable to be adjusted against the future running bills in the
subsequent year.         Essential this receipt was not in the nature of
income.     Merely because tax at source has been deducted by the
builder, the receipt of mobilization money cannot be deemed as
income of the assessee for the year under consideration. We,
therefore, do not find any error in the decision reached by the Ld. CIT
(A) in deleting the addition on this count.          Finding no merit in this
ground raised by the revenue, the same stands rejected.
                                    7                 ITA No.1861/Del/2011



10.   The facts relating to the ground No.2 are that the Assessing
Officer treated the outstanding liability of ` 14,29,256/- as ceased
liability by application of provisions of Section 41 (1) of the Act. The
Ld. CIT (A) deleted the addition as there was no material on record of
the Assessing Officer to say that such liability has ceased to exist,
particularly when the assessee was declaring the said amount as
payable in its accounts. He has placed reliance on the judgements of
Hon'ble Supreme Court in CIT vs. Kesaria Tea Co. Ltd. 254 ITR 434
(SC) and in CIT vs. Sugauli Sugar Works (P) Ltd., 236 ITR 518 (SC).


11.   We have heard the parties with reference to the material on
record.   Admittedly, the assessee has not written back the credit
balance in its accounts. This is a case of a private limited company
wherein the liabilities are appearing in its books of account.        The
balance sheet being a public document, it cannot be said that the
assessee has not acknowledged the debt towards its creditors.         The
liability under the circumstances cannot be taken to be a ceased
liability. The Ld. CIT (A), therefore, cannot be said to have erred in
deleting the addition. As provisions of Section 41 (1) of the Act are not
applicable to a case like this and finding no merit in this ground, the
same is also rejected.


12.   In the result, the appeal filed by the revenue is dismissed.

      The order pronounced in the open court on 02.11.2012.


                   Sd/-                              Sd/-
            [B.R. MITTAL]                       [B.R. JAIN]
          JUDICIAL MEMBER                  ACCOUNTANT MEMBER

Dated, 02.11.2012.

dk
                             8        ITA No.1861/Del/2011




Copy   forwarded to: -
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(A)
5.     DR, ITAT


                         TRUE COPY

                                               By Order,


                                       Deputy Registrar,
                                     ITAT, Delhi Benches
 
 
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