IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : H : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
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.
PAN : AAACW0726E
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
ORDER
PER R.S. SYAL, AM:
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
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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
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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
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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.
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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
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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
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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
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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.
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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.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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