2007 (3) TMI 298 - AT - Income Tax

Summary

Issues Involved:
1. Sustenance of additions of Rs. 84,10,927 related to Amta Work.
2. Sustenance of additions of Rs. 46,90,650 related to Alipurduar Work.
3. Addition of Rs. 57,28,926 on account of work-in-progress.

Detailed Analysis:

1. Sustenance of Additions of Rs. 84,10,927 Related to Amta Work:
The core issue revolves around whether the addition of Rs. 84,10,927, representing the difference between the full value of the 6th RA bill and the ad hoc receipt, should be recognized as income for the year. The assessee argued that the bill was not fully approved by the Government by the end of the financial year, and therefore, only the received amount should be considered as income. The CIT(A) upheld the addition, reasoning that under the mercantile system of accounting, income accrues when the right to receive it is established, regardless of actual receipt. The Tribunal, however, concluded that mere raising of a bill does not equate to income accrual. It emphasized that income accrual requires acceptance and approval of the bill by the Government, which had not occurred by the financial year-end. Thus, the addition of Rs. 84,10,927 was unjustified and was directed to be deleted.

2. Sustenance of Additions of Rs. 46,90,650 Related to Alipurduar Work:
Similar to the Amta Work issue, the addition of Rs. 46,90,650 was contested on the grounds that the bill raised was not approved by the Government within the financial year. The CIT(A) upheld the addition using the same rationale applied to the Amta Work. The Tribunal reiterated its stance that income accrual under the mercantile system requires the bill's acceptance and approval. Since the bill for the Alipurduar project was not approved within the relevant financial year, the addition was deemed incorrect and was ordered to be deleted.

3. Addition of Rs. 57,28,926 on Account of Work-in-Progress:
The AO added Rs. 57,28,926 based on the difference between the opening and closing work-in-progress, citing non-submission of detailed pending works and cost attribution. The CIT(A) sustained this addition, questioning the reliability of the work-in-progress valuation. The Tribunal found merit in the assessee's argument that such an addition would result in double taxation. It noted that the closing work-in-progress was already taxed, and taxing the differential amount would lead to double taxation, which is impermissible. Consequently, the Tribunal directed the deletion of the addition of Rs. 57,28,926.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the additions of Rs. 84,10,927 and Rs. 46,90,650 related to the Amta and Alipurduar projects, respectively, as well as the addition of Rs. 57,28,926 on account of work-in-progress. The judgment emphasized the principles of income accrual under the mercantile system and the inadmissibility of double taxation.