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TMI Blog2024 (9) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Sub Divisional Engineer, Rural Water Supply, was looking after the matter. Various work completion certificates clearly denotes that the work was completed subsequently and the income was also offered for taxation in subsequent years. We further find that it is beyond comprehension as to how the non commensurate amount of work in progress amounting to ₹ 69,31,666, convert the advances as an income. The Assessing Officer has ultimately added ₹ 2,00,95,900, as an unaccounted receipts from Samiti. The Assessing Officer has failed to note that the same has already been shown in the books of account by way of liability. Therefore, is it not the case that the receipts are not accounted at all. Consequently, there is no instance to interfere with the cogent observations of the learned CIT(A). Accordingly, the order passed by the learned CIT(A) is upheld by dismissing the grounds raised by the Revenue. - Shri V. Durga Rao, Judicial Member And Shri K.M. Roy, Accountant, Member For the Assessee : Shri Abhay Agrawal For the Revenue : Shri Abhay Y. Marathe ORDER PER K.M. ROY, A.M. The present appeal has been filed by the Revenue challenging the impugned order dated 25/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from various Government and Semi Government Agencies. For the year under consideration, the assessee filed his return of income on 07/10/2015, declaring total income at ₹ 32,99,120. The Assessing Officer, during the assessment proceedings, observed that there was an increase in the sundry creditors. The Assessing Officer asked the assessee to explain the reason for rise in sundry creditors in response to which the assessee submitted that it had undertaken projects/ works contract of Gram Arogya Poshan Pani Purvatha and Swachata Samiti (Samiti) at Waghora, Mohadi, Tadegaon and Vizora. The Assessing Officer further observed that during the year under consideration, the assessee received an aggregate amount of ₹ 2,12,95,900, from the Samiti from time to time (i.e., Samiti Waghora ₹ 28,58,000, Samiti Mohadi ₹ 80,53,000, Samiti Tadegaon ₹ 22,20,000, Samiti Vizora ₹ 81,64,900) towards advances for stage wise work to be done. Hence, it was the contention of the assessee that the advances received from the Samiti were shown as creditors, as the corresponding work was not yet completed as on the date of Balance Sheet. 3. The Assessing Officer, while cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet as the bills of works contract were not finalized before 31.03.2015. These receipts are taken into consideration in F.Y. 2015 16 after settlement of works contract bills. The assessee furnished account copies of these creditors. The assessee requested that no addition be made on this issue. 3.3 Contention of the assessee is nothing but reiteration of his submissions made before recording of the statements of the Secretaries of the Samiti. The assessee during the course of recording of statement or even in response to show cause notice has not objected to the categorical statement that payments were released only after completion of work and not before that. Secondly it is contention of the assessee that as the bills were not settled before 31.03.2015 the same were shown as advance clearly means that the assessee has accounted for all the expenses related to these contracts in the Profit Loss account for the period under consideration and only receipts have not been accounted for. As the assessee is following mercantile system of accounting he was duty bound to account for the receipts during the Financial Year 2014-15. Even if the contention of the assessee is accepted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 The Samiti members (all) have stated that, they did not know whether the appellant had raised R.A bills or not. Under such circumstances, it is highly questionable as to how they could have stated for sure whether the payment was made towards completed work or as an advance? 6.6.4 Further, in the statement recorded, all the samiti members have stated that work was not completed during FY 2014-15 and that remaining work was completed in subsequent years; Thus, the AO erred in presuming that entire work was completed during FY 2014-15 and that entire advance shown was to be considered as income/turnover of current year. 6.6.5 On perusal of the statements and various basic documentary evidences, it is evident that statements of Samiti members are self-contradictory and also contrary to the facts documentary evidences on record. Therefore, reliance cannot be solely placed on the statements of Samiti members dehors any contrary evidence and assessment had to completed based on documentary evidences on record. 6.6.6 The AO has mentioned in the remand report that, summons was issued to four members of Samiti which were not complied by the members of Samiti. Therefore, an Inspector was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and net profit (NP)for current year as well as in the past and subsequent years. The appellant has enclosed working chart showing the GP/NP rate for the various years including the year under consideration which supports his contention. If the action of the AO is accepted, then the gross profit for the year under consideration would be 41.2% which is abnormal and unrealistic. I find force in appellant's submission that, only real income can be subjected to tax and not any hypothetical income. The appellant has maintained regular books of account which are duly audited by a chartered accountant. The AO has neither found any defect nor doubted the correctness of books of accounts. The audited financials have evidentiary value under the eyes of law. Therefore, the profits as per profit and loss account cannot be simply brushed aside without rejecting the books of the appellant I find that, the AO has not rejected the books of accounts of the appellant in accordance with conditions of section 145(3) but has erred in treating the advances received as unaccounted receipts which is unjustified and bad in law. 6.7.2 I find merit in appellant's submission that, it had shown the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year instead of this, there is likely to be a loss to the Revenue, In fact the impugned order of the Tribunal has relied upon the decision of this Court in CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 and in that context reproduced the decision of Delhi High Court in CIT v. Vishnu Industrial Gases (P) Ltd. [IT Reference No. 229 (Delhi) of 1988, dated 6-5-2008] as under:- (Emphasis Supplied) 6.7.3 The appellant has placed reliance on the decision of Hon'ble Gujarat HC wherein, the Hon'ble Court had deleted the similar addition made in respect of mobilization advance treated as revenue receipt by the Income-tax Officer: CIT v. Narayansingh Gulabsinghji (63 taxmann.com 335) (Gujarat HC)wherein it has been held as under: 8. At the outset, it is required to be noted and it has come on record that the assessee was following the system regularly showing the mobilization account and the amount of advance were always stated in the subsequent AY against bills in that year and the revenue had not raised any objection for that treatment. Considering the aforesaid facts and circumstances, when the learned CIT (Appeals) as well as the learned Tribunal have deleted the additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh translated copies of work orders, a statement of Samiti Members which are relied upon by the Assessing Officer. A detailed note of arguments furnished by the learned Counsel for the assessee are reproduced below: 1.1 The Assessee is a Civil Contractor who undertakes works contract from various Government and Semi Government agencies. 1.2 The learned AO observed that there was an increase in the sundry creditors during the year. The Assessee had submitted that, it had undertaken projects/ works contract of Gram Arogya Poshan Pani Purvatha and Swachata Samiti (Samiti) at Waghora, Mohadi, Tadegaon and Vizora. The Assessee submitted that during FY 2014-15, it had received an amount totaling to Rs. 2,12,95,900 from the Samiti from time to time (i.e Samiti Waghora Rs. 28,58,000, Samiti Mohadi Rs. 80,53,000, Samiti Tadegaon Rs. 22,20,000, Samiti Vizora Rs. 81,64,900) towards advances for stagewise work to be done. Therefore, the advances received from the Samiti were shown as creditors as the corresponding work was not yet completed as on the date of Balance Sheet. 1.3 The Assessee had explained before the learned AO the nature of its business operations. The Assessee had submitted bid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only after completion of the work and payments were withheld for the works which were not completed. The learned AO had mentioned that the secretaries/ President stated that the Assessee was not given any advance against the work orders issued to the Assessee. The Assessee states that the statement recorded of the Secretaries/President of the Samiti are factually incorrect and contrary to the evidences on record. The learned CIT(A) has meticulously verified the documentary evidences and given fact finding on the discrepancies in the statement of samiti members, Refer Para 6.6 of Appellate Order and Annexure A to Appellate order. Therefore, the statements of samiti members are not reliable being contrary to documentary evidences of record. 2.2 Though the AO has mentioned that the Assessee was present at the time of recording of statement, however, the Assessee was not allowed to cross-examine the Secretaries/ President. The Assessee further submits that any statement recorded by the learned AO without providing an opportunity of cross examination is inadmissible evidence and cannot be used against the Assessee. Reliance is palced on the decision of Hon'ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g FY 2014-15. 4. Consistent accounting practise followed by assessee over the years The Assessee submits that, though he is following mercantile system of accounting, revenue is recognized only when particular stage of contract work is completed and the corresponding contract receipt has been received by the Assessee. This is a consistent accounting practice regularly followed by the Assessee disclosed in the financials kindly refer Page 52 of Factual Paper Book. The Assessee has been following similar accounting practice in earlier and subsequent years consistently. The Department has never taken any objection in any of the other years except the year under consideration. The Assessee submits that a consistent accounting practice followed by the Assessee should be accepted following the principle of consistency as has been held by the honorable Supreme Court in the decision of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) (Copy is enclosed at Pages 182 to 190 of Legal Paper Book). 5. Reasonable gross profit (GP) and net profit (NP) for current year as well as in the past and subsequent years The Assessee submits that it has shown reasonable gross profit (GP) and net profit (N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular income is to be taxed in either of the two years. The Assessee relies on following judicial precedent in support of its contention CIT v. Excel Industries Ltd (358 ITR 295) (SC) wherein the Hon'ble Court has observed as under (Refer Pages 166 to 175 of Legal Paper Book): 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. (Emphasis Supplied) CIT-2 v. Millennium Estates (P) Ltd (93 taxmann.com 41) (Bombay HC), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the assessee as well as the learned Departmental Representative and perused the material available on record. We find that the issue before us for adjudication is covered by the judgment of the Hon ble High Court of Gujarat rendered in CIT v/s Narayansingh Gulabsinghji, [2015] 63 taxmann.com 335 (Guj.), wherein, the Hon ble Gujarat High Court, under similar facts, held as under: '8. At the outset, it is required to be noted and it has come on record that the assessee was following the system regularly showing the mobilization account and the amount of advance were always stated in the subsequent AY against bills in that year and the revenue had not raised any objection for that treatment. Considering the aforesaid facts and circumstances, when the learned CIT (Appeals) as well as the learned Tribunal have deleted the additions made by the Assessing Officer on account of Mobilization Advance in the year under consideration, it cannot be said that the learned CIT (Appeals) as well as the learned Tribunal have committed any error. In paras 8.4 and 9, the revenue observed and held as under:'' 9. The Assessing Officer has relied on the statement of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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