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TMI Blog2016 (3) TMI 1457X X X X Extracts X X X X X X X X Extracts X X X X ..... xable income during the year under consideration when such amount related to assessment year 1993- 1994 or 2001-2002 and not during the year under consideration particularly when the assessee is following mercantile system of accounting. 1.2 That on the facts and in the circumstances of the case, the learned lower authorities grossly erred in subjecting to tax the entire interest component of arbitration award as taxable receipt during the year under consideration particularly when the assessee is following mercantile system of accounting and only relevant portion of interest accrued during the year amounting to Rs. 59,269/- could have been subjected to tax. 1.3 That taxing the entire receipt received on the basis of arbitration award during the year under consideration is unjust, illegal & bad in law, by no stretch of imagination entire receipts can be said to result as income. 1.4 That on the facts and in the circumstances of the case, the learned lower authority misinterpreted the direction of the Hon'ble ITAT by treating the entire receipt as income & not allowing the expenses when in a case of contract; expenses incurred should have been allowed & only net income ough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese receipts. It has been held that contract receipts of Rs. 6,24,983/- received from arbitration award had been rightly treated as income against the income of Rs. 53,561/- shown by the assessee. Accordingly, he made addition of Rs. 5,71,422/- in the income of the assessee. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal partly by observing that a sum of Rs. 5,20,036/- was awarded to the assessee on which interest of Rs. 2,80,115/- was computed. Thus the total amount payable was Rs.8,00,151/-. Out of which Rs. 6,24,983/- was paid during the current year and balance amount was paid in subsequent year. Regarding assessee's claim of proportionate expenses, the assessee failed to produce any evidence. Therefore, no relief on this count can be given to the assessee. From the extract of award, it was found that the award included Rs. 76,210/- as refund of security deposit and Rs. 30,000/- was awarded against litigation expenses. Both these amounts were not in the nature of income. Therefore, he deleted the addition of Rs. 1,06,210/-. Balance addition of Rs. 4,65,212/- has been confirmed. 4. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. This amount includes original award amount of Rs. 5,20,036/- and interest amount of Rs. 2,80,115/-. The ld AR has drawn our attention about calculation of interest on award submitted before the ld CIT(A), which has been reproduced on page 5 of the order of the ld CIT(A) and further argued that this interest amount is pertained to F.Y. 1993-94 to F.Y. 2003-04, thus the interest added in the award amount was not pertained to a particular year not for the year, which is before the Hon'ble Bench i.e. F.Y. 2004-05. It is further argued that the copy of arbitration was not produced before the Assessing Officer at the time of assessment and first appeal and even not before the Hon'ble ITAT due to reasons based known to the assessee and also the lower authorities had also not asked to provide the copy of arbitration to decide the nature of receipts awarded by the Arbitrator. It is undisputed fact that this award includes payment of vi running bills of Rs. 1,36,983/-, interest thereon Rs. 1,80,818/-, refund of security deposit of Rs. 76,210/-, interest thereon Rs. 96,025/- and litigation expenses Rs. 30,000/-. The ld CIT(A) had allowed relief on refund of security deposit of Rs. 76,210/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal has been dismissed by the Hon'ble Supreme Court. In the case of CIT Vs Builders Union (1995) 79 Taxman 130 (Ori) order dated 17/11/1994 was occasion to consider the similar issue award amount of Rs. 7,17,920/- in the case of civil work contract comprising of principal amount of Rs. 1,03,382/-, pre-award interest of Rs. 5,95,244/- and post-award interest of Rs. 19,293/-. The Assessing Officer taxed full amount whereas Tribunal confirmed the addition @ 12% on total award amount after excluding interest component should be taken as assessee's income. It also held that pre-award interest should be totally excluded from income but the Hon'ble Court held that ITAT was justified in directing ITO to estimate profit @ 12.5% on principal amount of award but pre-award interest component was taxable, which was attributable to and incidental to business carried on by the assessee. In the case of CIT Vs Premier Engg.Co. (1995) 23 ITR 522 (Ker), the Hon'ble High Court has held that the arbitration award amount payable on account of escalation of cost due to delay in completion of work and Tribunal was right in treating 11% award amount as a profit. He also relied on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard the rival contentions of both the parties and perused the material available on the record. The copy of award placed in the paper book was not before the Coordinate Bench at the time of hearing. The ld CIT(A) has considered the terms and conditions of the award and allowed part relief. On verification of computation, it is found that payment of (vi) running bills, principal amount was Rs. 1,79,206/- and thereon interest from 01/6/1993 to 31/5/1999 was Rs. 2,58,057/- and balance payment (unmeasured work), principal amount Rs. 2,40,000/- and interest thereon from November, 1993 to 31/5/1999 was Rs. 3,21,600/-. On both the claims, the Arbitrator has allowed principal amount of Rs. 1,36,983/- and thereafter interest at Rs. 1,80,818/-, thus, total amount has been worked by the Arbitrator at Rs. 3,17,801/-, remaining amount pertained to refund of security deposit of Rs. 76,210/- and interest thereon from November, 1993 to 31/5/1999 Rs. 95,025/- and litigation expenses of Rs. 30,000/-. Since the identical issue decided by the Coordinate Bench for A.Y. 2006-07 has already been challenged before the Hon'ble Jurisdictional High Court and the Hon'ble High Court has also framed qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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