2012 (12) TMI 66 - AT - Income Tax

Mobilization Advance - 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. 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 - no error in the decision reached by CIT (A) in deleting the addition on this count - no merit in this ground raised by the revenue, the same stands rejected. Treatment of Outstanding liability as Ceased Liability u/s 41 (1) - Held that - 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 - 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. Decision in Commissioner of Income-Tax Versus Sugauli Sugar Works Pvt. Limited 1999 (2) TMI 5 - SUPREME COURT followed - In the result, appeal filed by Revenue is dismissed.

Summary

Issues:
1. Addition of mobilization advance as income.
2. Treatment of outstanding liability under Section 41(1) of the IT Act.

Analysis:
1. The first issue pertains to the addition of mobilization advance as income. The Assessing Officer observed that the assessee had received mobilization advances from a company and treated it as income, bringing it to taxation. However, the assessee contended that the advance was related to work done and was subject to adjustment in final billings. The CIT (A) requested further evidence, including a letter of intent and account details. It was found that the advance was part of the contract value and was being adjusted against running bills. The CIT (A) concluded that the advance was not income but an advance for mobilizing resources, to be adjusted against future billing. The Tribunal upheld this decision, stating that the advance was not a contract receipt but a mobilization amount, not liable for taxation.

2. The second issue involves the treatment of an outstanding liability under Section 41(1) of the IT Act. The Assessing Officer considered a certain liability as ceased and added it to the income. The CIT (A) disagreed, noting that the liability was still acknowledged in the company's accounts. The Tribunal concurred, stating that the liability was not ceased as it was reflected in the balance sheet and was not written back. Therefore, Section 41(1) did not apply, and the addition was deleted. The appeal by the revenue was dismissed, upholding the CIT (A)'s decision on both issues.