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Well Worth Wire Ropes Pvt. Ltd., C/o O.P. Sapra & Associates, Advocates, C-763, New Friends Colony, New Delhi. Vs. ITO, Ward 18(3), CR Building, New Delhi.
July, 31st 2014
              DELHI BENCHES : H : NEW DELHI


                     ITA No.1080/Del/2011
                   Assessment Year : 2007-08

                       CO No.110/Del/2011
                    (in ITA No.1254/Del/2011)
                   Assessment Year : 2007-08

Well Worth Wire Ropes Pvt.         Vs.   ITO,
Ltd.,                                    Ward 18(3),
C/o O.P. Sapra & Associates,             CR Building,
Advocates,                               New Delhi.
C-763, New Friends Colony,
New Delhi.


                     ITA No.1254/Del/2011
                   Assessment Year : 2007-08

ITO,                               Vs.   Well Worth Wire Ropes Pvt.
Ward 18(3),                              Ltd.,
CR Building,                             4045, First Floor,
New Delhi.                               Ajmeri Gate,
                                         New Delhi.

                                         PAN : AAACW0726E

  (Appellant)                               (Respondent)

           Assessee By         :    Shri Sandeep Sapra, Advocate
           Department By       :    Shri Sameer Sharma, Sr. DR
                                              ITA Nos.1080 & 1254/Del/2011
                                                        CO No.110/Del/2011



     These two cross appeals ­ one by the assessee and the other

by the Revenue ­ and the Cross Objection by the assessee arise

out of the order passed by the CIT(A) on 24.12.2010 in relation to

the assessment year 2007-08.

2. The first issue raised by the assessee in its appeal is against

confirmation of addition of ` 49,79,000/- made by the AO u/s 69C

of the Act. Briefly stated, the facts of the ground are that the AO

got AIR information relating to certain bank deposits made by the

assessee totaling ` 49,79,000/-. The assessee was called upon to

furnish source of these transactions.     In the absence of any

information forthcoming from the side of the assessee, as

recorded in the assessment order, the AO made addition for this

amount by applying the provisions of section 69C.        In reaching

this conclusion, he relied on the view taken by him for the AY

2006-07, in which year also addition u/s 69C was made, but

without recourse to any AIR information. The ld. CIT(A) echoed

                                              ITA Nos.1080 & 1254/Del/2011
                                                        CO No.110/Del/2011

the assessment order on this point by holding that similar

addition made by the AO for the AY 2006-07 was not challenged

by the assessee before the appellate authorities.

3.   We have heard the rival submissions and perused the

relevant material on record. It is observed that the basis for the

instant addition u/s 69C was the AIR information indicating that

the assessee deposited a sum of ` 49.79 lacs in its bank account,

which in the opinion of the AO, the source of which was not

disclosed. The details of such AIR information are contained on

pages 6-9 of the paper book. Page 10 of the paper book indicates

that the AO inquired about these transactions and requested the

assessee to produce cash book for verification.        In reply, the

assessee filed a letter dated 14.12.09 stating that all the entries

of cash deposits in the bank were duly reflected in its bank

account and the same could be verified from the cash book.

There is no discussion in the assessment order about such details

having been filed by the assessee or the AO matching the

information contained in AIR with the assessee's books of

account. The ld. CIT(A) upheld the addition by relying on the view

                                               ITA Nos.1080 & 1254/Del/2011
                                                         CO No.110/Del/2011

taken by the AO for the AY 2006-07, which the AO admitted to be

not based on any AIR information, as was the case for the year

under consideration. The ld. AR contended that all the deposits in

the bank, referred to in the AIR information, were duly recorded in

the books of account produced before the AO and, as such, there

could have been no reason for making addition u/s 69C of the Act.

At this juncture, it is relevant to note the mandate of section 69C

which provides that: "Where in any financial year an assessee has

incurred any expenditure and he offers no explanation about the

source of such expenditure or part thereof, or the explanation, if

any, offered by him is not, in the opinion of the Assessing Officer,

satisfactory, the amount covered by such expenditure or part

thereof, as the case may be, may be deemed to be the income of

the assessee for such financial year."     A bare perusal of this

provision indicates that the addition u/s 69C is contemplated only

when the assessee has incurred some expenditure and there is no

explanation about the source of such expenditure. Per contra, if a

particular expenditure is recorded in the books of account, it

implies that the source of such expenditure emanates from the

books of account, for which there can be no question of making

                                              ITA Nos.1080 & 1254/Del/2011
                                                        CO No.110/Del/2011

any addition u/s 69C. Here is a case in which the assessee stated

that the amounts referred to in AIR totaling to ` 49.79 lacs were

duly recorded in the books of account by means of cash deposits.

When the books of account were produced before the AO, it was

incumbent upon him to verify the veracity of the assessee's

contention as put forth before him through its letter dated

14.12.09.   The ld. CIT(A) sustained the addition by basing his

opinion on similar addition made for the preceding year, without

verifying the assessee's contention, more so, when the AO

himself admitted that the basis of addition for the instant year

was different from that of the preceding year. In our considered

opinion, the ends of justice would meet adequately if the

impugned order is set aside and the matter is restored to the file

of the AO. We order accordingly and direct him to verify whether

such transactions of deposit in bank, contained in AIR information,

were reflected in the books of account. If such entries are there

in the books of account, then, obviously, there can be no point in

making any addition u/s 69C. In the otherwise situation, the AO

will decide the issue as per law, after allowing a reasonable

opportunity of being heard to the assessee.

                                                 ITA Nos.1080 & 1254/Del/2011
                                                           CO No.110/Del/2011

4.      The only other ground in the assessee's appeal about the

levy of interest u/s 234B is consequential and, accordingly,

disposed of.

5.      The Revenue is aggrieved against the deletion of addition of

` 1,67,62,500/- which was made by the AO.

6.      The facts apropos this issue are that the assessee obtained a

contract for job work relating to installation, commissioning and

testing of wagon, shunting winches and ancillary works for

Kakinada Sea Port Ltd. During the year, the assessee received

five payments totaling to ` 1,25,71,875/-,       which amount was

directly taken to the Balance sheet without routing through the

Profit & Loss Account.      The AO observed that the value of the

entire contract was ` 1,67,62,500/-.      On being called upon to

explain as to why the assessee did not offer this income, it was

submitted that the project of Kakinada Sea Port Ltd. was in

progress during the year which completed in the subsequent

year.     The assessee stated that since it was following project

completion method, resultantly, the entire income emanating

                                                     ITA Nos.1080 & 1254/Del/2011
                                                               CO No.110/Del/2011

from such contract was duly offered for taxation in the

immediately succeeding year. Not convinced with the assessee's

submissions, the AO held that the amount of ` 1.67 crore was

liable to be taxed in the previous year relevant to the assessment

year under consideration. The assessee contended before the ld.

CIT(A) that it incurred expenses amounting to `1,00,01,925/- in

the year under consideration in respect of the above contract of `

1.67 crore and a further sum of ` 66,29,222/- was incurred in

subsequent    year   aggregating       to   total   expenditure       of       `

1,66,31,148/-.   The ld. CIT(A) observed that only the profit

element from the contract at ` 1,31,352/- should have been

charged to tax. He, therefore, worked out proportionate net profit

of ` 98,514/- on the basis of the contract receipts during the year

vis-a-vis the total value of the contract and restricted the addition

to this level. That is how, the ld. CIT(A) directed the AO to tax

proportionate net profit of ` 98,514/- in this year and give

consequential benefit of such addition in the subsequent year

because the assessee had offered the entire income to tax in the

succeeding year. The Revenue is aggrieved against the view

canvassed by the ld. CIT(A). The assessee in its cross objection is

                                               ITA Nos.1080 & 1254/Del/2011
                                                         CO No.110/Del/2011

aggrieved against the sustenance of addition at ` 98,514/- for the

instant year.

7.   Having heard the rival submissions and perused the relevant

material on record, it is observed as undisputed fact that the total

receipts during the year from this contract amounted to ` 1.25

crore. The value of the contract was ` 1.67 crore. The assessee

not only took receipts of ` 1.25 crore to its balance sheet direct,

but also simultaneously capitalized expenses incurred on this

project at ` 1.00 crore during the year and took such expenditure

also for consideration in the succeeding year.     The case of the

assessee is that it was following project completion method and

the entire income was offered to tax in the subsequent year. The

fact recorded by the ld. CIT(A) that the assessee incurred a sum

of ` 1.00 crore in this year and ` 66.29 lac in the subsequent year

towards this contract, has not been controverted by the ld. DR.

This shows that the action of the AO in taxing the gross sum of `

1.67 crore has no legs to stand on, because tax is levied on the

`income' and not on the `receipt'. The AO, by including a sum of

` 1.67 crore in the total income of the assessee for the current

                                                ITA Nos.1080 & 1254/Del/2011
                                                          CO No.110/Del/2011

year has, in fact, charged the entire receipt to tax ignoring the

fact that the assessee had also incurred expenditure on this

contract. The finding of the ld. CIT(A) to this extent is upheld.

8.   As the substantial part of the contract was completed by the

assessee during the year, in view of which it also received a sum

of ` 1.25 crore, in our considered opinion, the Percentage

completion method, as impliedly used by the ld. first appellate

authority, is correctly applicable to the facts and circumstances

of the instant case.   We, therefore, hold that the proportionate

income of ` 98,514/- was rightly chargeable to tax and there is no

basis for either upholding the action of the AO in taxing the gross

receipt at ` 1.67 crore or the view of the ld. AR that no amount be

charged to tax in the instant year. When confronted, the ld. AR

was fair enough not to press the cross objection filed by the

assessee against the sustenance of addition of ` 98,514/-. We,

therefore, uphold the impugned order on this issue.

                                                 ITA Nos.1080 & 1254/Del/2011
                                                           CO No.110/Del/2011

9.        In the result, the appeal of the assessee is allowed for

statistical purposes, the appeal of the Revenue is dismissed and

CO of the assessee is also dismissed.

          Order pronounced in the open court on 25.07.2014.

                Sd/-                                      Sd/-

       [A.T. VARKEY]                              [R.S. SYAL]
     JUDICIAL MEMBER                          ACCOUNTANT MEMBER

Dated, 25th July, 2014.


Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                               AR, ITAT, NEW DELHI.

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