9911796707
TMI Blog2012 (10) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... essment will be done by the AO with regard to year under consideration. Issue remand back to AO - IT APPEAL NO. 5376 (MUM.) OF 2003 - - - Dated:- 24-8-2012 - R. S. SYAL AND I. P. BANSAL, JJ. Hiro Rai for the Appellant. Mahesh Kumar for the Respondent. ORDER I.P. Bansal, Judicial Member - This is an appeal by the assessee. It is directed against order passed by Ld. CIT(A)XXXI, Mumbai dated 16/05/2003 for the assessment year 1999-2000. 2. The grounds of appeal filed originally were lengthy and narrative. The assessee has filed a concise grounds of appeal which read as under: "(1) The learned CIT(A) erred in confirming the action of Assessing Officer of considering the initial work agreements to be independent contract rather than part of a main contract. (2) The learned CIT(A) erred in not accepting the principle of Accounting Standard 7 issued by Institute of Chartered Accountant of India. (3) The learned CIT(A) erred in confirming the action of A.O of treating advance of Rs. 320 crores as income and Rs. 16 crores as taxable income. (4) The learned CIT(A) erred in confirming action of A.O. of applying Rule 10 of the Income Tax Rules. (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venues only after 20% of the project work has been complete. The firm recognizes contract revenues for the contracts entered into with DPC under the percentage of completion method using cost incurred to date in relation to the estimated total cost of the contracts based on the appropriate stage of completion of the project. Till March 31st 1999 the firm had incurred approximately 14% of the estimated cost on the total Onshore LNG Facility contracts. Accounting Standard 7 issued by Institute of Chartered Accountants of India states that "Normally profit is not recognized in fixed price contract unless the contract has progressed to a reasonable extent. Ordinarily this test is not considered as having been satisfied unless 20 to 25% of the work is completed. As costs as compared to the estimated costs as at 31st March 1999 have been incurred only to the extent of approximately 14% of the firm has not recognized profits during the period ending 31st March 1999 and the work completed upto 31st March 1999 has been recorded as WIP in this financial statement and accordingly P L A/c. has been prepared for the relevant year." 6. The AO required the assessee to explain as to why the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se which cannot be treated as income. The AO did not accept such submission of the assessee as according to AO as per para 7.2 of the AS-7, under the "percentage of completion method" revenue is recognized as contract activity progresses based on the stage of completion reached. The costs incurred in reaching the stage of completion are matched with this revenue, resulting reporting of results which can be attributed to the proportion of work completed. Although as per the principle of "prudence" revenue is recognized only when realized, under such method, the revenue is recognized as activity progresses even though in certain circumstances it may not be realized. The AO observed that assessee in its submission has never produced the stage of completion of contract activity, the proportion that costs incurred to date bear to the estimated total cost and the details of services conducted to measure the work performed and completion of the physical proportion of the contract work. In absence of details of the above exercise assessee did not comply with the provisions of para -7.2 of AS-7 and thus assessee was not able to show stage of contract performance completed at the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit he assessed the income of the assessee at Rs.16.00 crores against nil declared by the assessee. 9. The Ld. CIT(A) confirmed the order of the AO. The assessee is aggrieved and hence, has raised aforementioned grounds of appeal. 10. Ld. A.R submitted that Ground No.1 to 4 essentially raise one issue only i.e. with regard to estimation of income during the year under consideration. He submitted that according to the note given in the financial statement unless 20 to25% of the total contract is not completed, the assessee is not under an obligation to disclose any income and this position of law has been accepted by the Mumbai Tribunal in the case of Dy. DIT (International Taxation) v. Strok Engineers Contractors B.V. India Project Office [2010] 127 ITD 211, wherein it has been held that if the work is not completed upto 20 to 22%, till that stage, no income need to be identified and offered for taxation. 11. He further submitted that "OnCon IWA" contracts were not independent contract and those contracts have to be seen with the principal contract and while computing percentage of completion the value of the main contracts is required to be taken into consideration. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iveness of the LNG OnCon Contract prior to Financial Close, (i) the Initial Work shall become consolidated (without duplication) with the Contractor's scope of work under such contract and shall become subject to the terms and conditions of the LNG OnCon Contract applicable to the work performed thereunder, including, without limitation, the payment schedule and warranty provisions therein, (ii) the amounts paid by or on behalf of the Company or LINGTEC hereunder shall be deemed to have been paid by or on behalf of such party under such contract, and shall become subject to the terms and conditions of the LNG OnCon Contract applicable to the payments made thereunder, and (iii) the provisions of Clauses 2 and 5 of this Initial OnCon Agreement shall remain in full force and effect until financial Close." Simultaneously Ld. A.R referred to Clause - 10 of the main agreement for LNG facilities which is dated 20th November, 1998 and Clause -10 was referred in which the reference to initial work agreement has extensively been made . Thus it was submitted by Ld. A.R that the total value of the contract is required to be taken into consideration while computing percentage of completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LINGTEC shall be entitled to terminate this Initial OnCon Agreement forthwith. Interest shall accrue on any unpaid amounts from the date such amount become due and owing." Referring to the above clause he submitted that it has been clearly spelt out that payment by EDC shall be made within 14 days following presentation by LINGTEC to the company of an invoice accompanied by such evidence of the progress of the initial work achieved as may reasonably required by the company, which invoice shall be transmitted by the company to EDC within one business day following receipt by the company. In case the payment is not received within 30 days of the date such amount was due then assessee was entitled to terminate the OnCon Agreement and interest right shall also accrue to the assessee on unpaid amounts. Thus it was submitted by Ld. D.R that it is difficult to believe that the assessee had received payments from EDC without referring to the work executed by it. Therefore, it was submitted by Ld. D.R that work carried out by the assessee in pursuance of "OnCon IWA" was an independent work and the percentage of completion has to be seen vis- -vis on that agreement only and the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of total value of the contract. Here it will be relevant to mention the arguments of Ld. D.R that in view of clause 2(a) of the "OnCon IWA" which has already been reproduced in the above part of this order, any payment was to be received by the assessee from EDC was in respect of work done by the assessee with regard to this project. The assessee did not produce invoices before AO and this fact has been spelt out in the assessment order at more than one place. Ld. A.R also did not deny the fact that these invoices were not produced either before AO or before Ld. CIT(A). simultaneously it was submitted by Ld. A.R that assessee is in a position to produce invoices which could not be produced earlier. Those invoices will be very relevant and germane to the issue as from those invoices it can be determined that how much work was completed by the assessee during the year under consideration. No material has been brought on record by the assessee to show that the total amount received by it amounting to Rs. 320,14,19,720/- from EDC did not pertain to "OnCon IWA" as the payment, if any, was to be made by EDC on the basis of that contract was in respect of work done by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
