2024 (1) TMI 994 - AT - Income Tax

Credit for TDS deducted on the mobilization advance extended to the assessee - grant of credit denied by AO and case was selected for scrutiny and the AO accepted the income returned by the assessee in the revised return - Assessee submitted that the mobilization advance is received from Ministry of Surface Transport as advance is in the nature of loan and therefore is a capital receipt on which tax is deducted at source on which tax has been deduced u/s 194C - HELD THAT - From the perusal of the above terms of the contract agreement it is clear that the mobilization advance is in the nature of loan which bears interest @ 10% p.a. and the interest along with the advance payment should be recovered from the assessee. It is also noticed that the said advance is extended to the assessee against the bank guarantee given @ 110% of the amount of advance given. Therefore we see merit in the contention that the amount received by the assessee is a capital receipt and does not bear the element of income i.e. to be offered to tax with regard to the claim of the assessee that the credit for TDS should be given to the assessee. As per table submitted by the ld AR that the mobilisation advance is recovered against the billed revenue in the subsequent years. We further notice that the assessee has offered income on gross basis and that the TDS is deducted on the net amount paid which would mean that the advance amount is not treated as revenue that goes to reduce the billed revenue. Therefore in our consider view the CIT(A) s contention that the amount adjusted goes to reduced the income of the assessee and accordingly is in nature of income is not correct. This fact is identical to the facts in Patel Engineering 2015 (11) TMI 1665 - ITAT MUMBAI where the coordinate bench has directed the AO to allow credit for the TDS deducted on the advance. Thua assessee should be allowed credit for the TDS claimed which is deducted from the mobilization advance. Appeal of assessee allowed.

Summary

Issues Involved:
1. Credit for TDS on mobilization advance.
2. Nature of mobilization advance as capital receipt or income.
3. Application of Section 199 read with Rule 37BA(3).

Summary:

1. Credit for TDS on Mobilization Advance:
The primary issue in the appeal was the Assessing Officer (AO) not granting credit for TDS of Rs. 2,76,47,272/- deducted on the mobilization advance extended to the assessee. The AO's stance was that TDS credit can only be allowed in the years when the mobilization advance is offered for tax as income, as per Section 199 read with Rule 37BA(3). The AO observed that since no invoices were raised in the current year and the revenue was on account of unbilled debtors, the TDS credit could not be allowed.

2. Nature of Mobilization Advance as Capital Receipt or Income:
The assessee argued that the mobilization advance received from the Ministry of Surface Transport was a capital receipt in the nature of a loan, repayable with interest, and shown as "Other liabilities" in the financial statements. The assessee contended that since the mobilization advance is not income, TDS credit should be allowed. The Tribunal noted that the mobilization advance, bearing interest at 10% p.a. and secured by a bank guarantee, is indeed a capital receipt and does not constitute income to be offered for tax.

3. Application of Section 199 read with Rule 37BA(3):
The Tribunal referred to precedents, including the case of Patel Engineering Ltd. and Transonnelstory Afcons Joint Ventures, where it was held that credit for TDS should be allowed in the year of deduction itself, even if the amount is a capital receipt. The Tribunal observed that the CIT(A)'s contention that the mobilization advance reduced the income was incorrect. The Tribunal concluded that the assessee should be allowed credit for the TDS deducted from the mobilization advance.

Conclusion:
The Tribunal allowed the appeal, directing that the assessee should be granted credit for the TDS deducted on the mobilization advance, aligning with the decisions in similar cases. The order was pronounced in the open court on 20-11-2023.