9911796707
TMI Blog2015 (8) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the tax payable by the assessee at Rs. 22,28,630/-. The assessee filed a revised return of income on 20-01-2003 declaring a loss of Rs. 2,63,95,650/- which was erroneously processed u/s.143(1) of the Act on the same day determining a refund of Rs. 21,77,337/-. No notice u/s.143(2) (ii) of the Act was issued on the basis of the first return filed on 20-02-2002. However, on the basis of the revised return filed on 20-01-2003 a notice u/s.143(2)(ii) of the Act was issued on 27-05-2003 which was served on the assessee on 28-05-2003. The Assessing Officer later moved a petition u/s.263 of the Act to the CIT who vide order passed u/s.263 of the Act dated 26-08-2003 held that the second return furnished on 20-01-2003 was not a valid return and cancelled the second intimation dated 20-01-2003. Accordingly, the CIT cancelled the notice served on 28-05-2003 issued u/s.143(2)(ii) of the I.T. Act thus confirming the first intimation dated 15-06-2003 a final. 3. Subsequently, the assessee moved a petition u/s.264 of the I.T. Act on 03-09-2003 before the CIT, Aurangabad wherein the assessee sought revision of intimation dated 15-06-2002. It was submitted that as per the accounting poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(ii) of the Act, and thereafter he may take a regular assessment". 6. Based on the directions of the CIT the Assessing Officer proceeded to make fresh assessment in respect of A.Yrs. 2001-02 to 2003-04. The main issue involved was the time and valuation of work-in-progress as on 31-03-2001 at Rs. 3 crores or at Rs. 4.94 crores. During the course of assessment proceedings it was contended by the assessee that the WIP should be taken at Rs. 3 crores and not Rs. 4.94 crores. To substantiate his claim the assessee filed the following submissions which has been summarised by the CIT(A) at para 7 of her order which reads as under : "The main issue was regarding valuation of work in progress as on 31-03-2001. The assessee was awarded the contract work of Ghatprabha Medium Project at Phatlakwad, Tq: Chandgad, Dist. Kolhapur in the year 1997. Since the work is of long term, the same is being carried on continuously. The method of accounting of the assessee is to recognise the revenue only on final passing of running bill by the concerned department. Every running payment is evaluated by the Engineer or Surveyor of the Department and the payments are made on the basis of valuation by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, in assessee's case entire work was certified: In case of the assessee, the R.A. Bill No.15 was duly certified and therefore, question of accounting of Rs. 3,00,00,000/- out of Rs. 5,88,69,955/-, does not arise. ii) The assessee himself has argued that assessee relied on AS- 7 and the work in progress is being valued on the basis of amount of bill payable once the departmental Engineer take measurement and valued the work which has been done in case of R.A. Bill No.15 on 31/03/2001. iii) The claim of the assessee that measurement was checked on 31/03/2001, but the papers were kept in his custody till 31/05/2002 is a statement devoid of any truth because the executive Engineer himself has clarified the position and secondly the final financial statement of the assessee are prepared after reconciliation and verification of the relevant facts and figures. iv) The accounting of Rs. 3,0,00,000/- on the basis of receipt of payment and considering the same for work in progress is not justified once the accounts are being maintained on mercantile basis. v) The return filed belatedly i.e. on 20/02/2002 depicts the correct position of work in progress as per the R.A.Bill No.15 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contract expands over more than one recognition period. Earlier, there were two methods for revenue recognition one is completion contract method and the other one is percentage completion method. The revised accounting standard contains only percentage completion method. In case of percentage completion method, revenue is estimated and recognized as the work progresses. The salient features of revenue recognition under this method are; i) When outcome of a contract can be reliably estimated, contract receipt and contract cost should be estimated proportionately with reference to stage of completion. ii) Cost incurred on contract to the extent they are recoverable should be treated as receipt and total contract cost should be treated as expenses. Accordingly, profit and loss upto the date of stage of contract should be accounted for. iii) If it is expected that the total contract cost will exceed total contract revenue, the expected loss should be accounted for. The estimation of profit in percentage completion method, depends on estimation of total profit, stage of completion and provisioning of certain items. A reliable estimate of total contract is first step towards esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 -do- 11- 11/2000 508270 -- 15A 3/2001 58869955 30000000 37-5/2002 630000 -- 15B -do- -- 28800000 TEBI No.11, 12, 13, 18- 7/2003 60480 Withheld amount released 16A -do- 19212825 13700000 -do- 287700 -- 16B -do- -- 337000 120-3/04 7414 Withheld amount released However, as may be seen above, sometimes the R.A.bills were not paid fully, only part payment was made due to shortage of funds, there was no question of dispute in the passed bills as mentioned in your reference letter. The xerox copies of R.A.Bill No.15 and onwards is hereby enclosed for ready reference. Still an amount of Rs. 51,75,825/- is pending under R.A.bill No.16 due to shortage of funds and will be paid as soon as the funds are received. However there is no question of any sort of dispute as far as the amount of passed bills is concerned, as mentioned in your letter. Sometimes the part payment of R.A.bills has been made only due to shortage of funds." 12. It is on the basis of the accounting standard, Executive Engineer's letter that A.O. held that the WIP on the basis of bill amount of Rs. 2.88 Crores should be taken in AY 2001-02 and not in AY 2004-05." 8. Before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no court or arbitration proceedings. Relying on various decisions it was submitted that the assessee has taken the value of WIP correctly as per the method of valuation regularly followed by the assessee and as per the accounting policy for valuation of stock and WIP as disclosed right from 1996 onwards. 13. Based on the arguments advanced by the assessee the Ld.CIT(A) held that the belated return filed by the assessee cannot be revised and the return filed originally is the valid return. However, at the same time, the correct value of WIP for Ghatprabha project for A.Y. 2001-02 is Rs. 3 crores and not Rs. 4.94 crores. Therefore, even if the original return is not a valid return the assessee is liable for tax in A.Y. 2001-02 on the WIP of Rs. 3 crores and not Rs. 4.94 crores for the Ghatprabha project. Since the assessee has considered the amount of Rs. 1.94 crores during A.Y. 2004-05 the same has to be considered only in A.Y. 2004-05 and not in A.Y. 2001-02. 14. So far as the Bill Nos.15B, 16A and 16B are concerned, she held that the assessee is vested with the right to receive the income in the year relevant to A.Y.2004-05 amounting to Rs. 4.28 crores as the correct net realis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills receivable and therefore this amount cannot be treated as WIP unless the work done in respect of this amount has been accepted by the appropriate authority. 16. So far as the situation in respect of A.Y. 2002-03 and 2003- 04 are concerned she noted that as per the work done certificate given by the Executive Engineer, the work in respect of bill No.15B, 16A and 16B has been completed to the satisfaction in the year relevant to A.Y. 2004-05. Hence, the income in respect of these bills accrued to the assessee in A.Y. 2004-05 only. Since the income of Rs. 4.28 crores has already been offered by the assessee and taxes have been paid by way of TDS, therefore, she held that same cannot be taxed in the year A.Y. 2002-03 and 2003-04. Even otherwise also, she noted that it is the settled principle of law that closing stock has to be valued either at cost or market price whichever is less. In the instant case the assessee was following this method of accounting regularly. Initially, when assessee submitted the bill he followed the WIP at estimated net realisation value. Afterwards, i.e. when the bill was sanctioned at Rs. 3 crores the assessee corrected his WIP at the net realisable va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n A.Yrs. 2002-03 and 2003-04. 17.2 The assessee has filed the Cross Objections by taking the following grounds ; "1. On the facts and circumstances of the case and in law assessment dated 31-03-2005 is bad in law, illegal land without jurisdiction as the same was so completed without issue and service of notice under S.143(2) of the Act which is an undisputed fact since the AO himself has accepted this in his assessment order (ParaA). 2. On the facts and circumstances of the case and in law the fall out of the order of Ld. CIT Aurangabad passed under section 263 of the Act dated 26-08-2003 is that the statutory notice issued under section 143(2) which was served on 28-05-2003 was held to be invalid and was cancelled. This means the assessment completed u/s. 143(3) r.w.s. 263/264 was illegal and without jurisdiction and is required to be quashed. 3. On the facts and circumstances of the case and in law the order cancelling the statutory notice issued and served under section 143 (2) was without jurisdiction as the CIT is not empowered to cancel the statutory notice issued and served under section 143(2) as the provisions of section 263 only mandate him to set-aside any assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and valued the WIP at a particular figure which was duly certified by the auditors, therefore, the assessee should not be permitted to reduce the same just to suit his requirement. He submitted that the CIT(A) without considering the accounting principles allowed the claim of the assessee by substituting the revised WIP which is not permissible in law. So far as the various decisions relied on by the Ld. CIT(A) are concerned, he submitted that those are not applicable to the facts of the present case and are distinguishable. He accordingly submitted that the order of the CIT(A) be reversed and that of the AO be restored. 19. The Ld. Counsel for the assessee on the other hand strongly relied on the order of the CIT(A). He submitted that he was following a particular method of accounting consistently. He submitted that the assessee in the A.Y. 2004-05 has offered the contract receipts which have been accepted by the AO in the order passed u/s.143(3) and there is no loss to the Revenue. Referring to the decision of the Hon'ble Patna High Court in the case of CIT Vs. Chanchani Brothers (Contractors) Pvt. Ltd. he submitted that Hon'ble High Court has held that in the case of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 15-06-2002 determining the tax payable at Rs. 22,28,630/-. Subsequently, on 20-01-2003 the assessee filed a revised return declaring a loss of Rs. 2,63,95,650/- which was processed u/s.143(1) on the same day determining the refund to the assessee at Rs. 21,77,332/-. The Assessing Officer issued a notice u/s.143(2)(ii) on 27-05-2003 on the basis of the revised return filed on 20-01-2003 which was served on the assessee on 28-05-2003. The CIT issued a show cause notice to the assessee u/s.263 on 22-07-2003 fixing the date of hearing on 06-08-2003. Subsequently, he passed the order u/s.263 on 26-08-2003 cancelling the notice issued and served u/s.143(2)(ii) holding it as invalid. It was held that the intimation issued u/s.143(1) dated 15-06-2002 was the only legal document and on that basis whatever recovery is required to be made should be made by the Assessing Officer immediately. The assessee filed a petition u/s.264 on 03-09-2003 seeking revision of the intimation dated 15-06-2002 before CIT. It was submitted during the 264 proceedings that the WIP of Ghatprabha Medium Project, Kolhapur be reduced from Rs. 4.94 crores to Rs. 3 crores. The CIT in the order passed u/s.264 set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.131(1)(d) to conduct verification and obtain Explanation documents with respect to assessment proceedings in the case of M/s. Amberwadikar & Company, Aurangabad - Reg. Reference : Addl. Commissioner of Income Tax, Range-2, Aurangabad's letter No.ABD/ADDL..CIT/R- /131/(1)(d)/2004-05, dt.23-03-2005. Dear Sir, With respect to the above, it is informed that the work of construction of Main Dam, I.C.P.O. of Ghatprabha Medium Project, Tal. Chandgad, Dist. Kolhapur is entrusted to M/s. Amberwadikar & Co., Aurangabad vide agreement No.B.1/CE/1 for 1997-98, the work was started by the agency in the month of April 1997 and the following payment has been made against their Running Accounts bills to-date. R.A.bill No. Month of Bill Amount of bill Paid amount CV No. & month IDS amount Remarks 1 5/97 7865467 7865467 46-5/97 180905 -- 2 6/97 16781049 16781049 77-6/97 247964 -- 3 10/97 5000000 5000000 57-10/97 115000 -- 4 12/97 7401327 7401327 51-12/99 170231 -- 5 1/98 6082393 6082393 14-1/98 139895 -- 6 3/98 12001132 12001132 6-3/98 240023 -- 7 7/98 41205968 17210000 94-7/98 344200 Due to shortage of funds part payment was made. 8 8/9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to loss to the Revenue. It relates to the taxability of the income in a particular year. In the instant case the assessee follows mercantile system of accounting, has debited all the expenditure to the profit and loss account during the impugned assessment year, has valued the WIP at a particular figure, got its accounts audited and filed the return of income belatedly. Having done so the question that arises is whether the assessee be allowed to value the WIP at a reduced figure merely on receipt basis. The answer in our opinion in the facts of the present case is negative, i.e. in favour of the Revenue and against the assessee. 26. So far as the various decisions relied on by the Ld. Counsel for the assessee are concerned we find the same are not applicable to the facts of the present case. So far as the decision of Hon'ble Patna High Court is concerned we find the same is distinguishable and not applicable to the facts of the present case. In that case the assessee was engaged as contractor deriving income from construction of earthen dam, spillway etc. for irrigation department. The assessee has raised certain bills which were not admitted by the department pending ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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