9911796707
TMI Blog2007 (3) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... nance of additions of Rs. 84,10,927 in respect of Government sub-contract works for Amta-Jhikara Road and Rs. 46,90,650 for Alipurduar Siltorsa Bridge by the CIT(A). The facts, in brief, relating to these additions are that the assessee carries on contract business under the name and style of M/s Neo Build Corporation. Vide agreement dt. 1st June, 2001 by and between the assessee and M/s Mackintosh Burn Ltd. (in short MBL), M/s MBL awarded sub-contract Government work of construction of RCC double lane road bridge along Amta-Jhikira Road, Howrah. As per the agreement, rates for the entire work shall be at par as per the specified P.W.-(Roads) Schedule effective from 15th Dec., 1999. The agreement also stipulates payment against assessee's .RA bills and final bill to be settled and made clear to the assessee on back-to-back with the corresponding payment to MBL by its client, i.e. Government of West Bengal. With regard to Alipurduar contract, vide agreement dt. 8th March, 2002, the assessee was awarded with the said work by MBL @ 7.50 per cent below the priced schedule of the Department. Regarding payment, the agreement says payment against assessee's RA bills and final bill duly ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng period relevant to the assessment year under appeal. According to the AO, under the mercantile system of accounting, gross bill values should be recognized as revenue, because tax was deducted at source @ 1.05 per cent on the gross bill values of all the bills including 6th RA bill amounting to Rs. 1,53,13,927. He thus held that as the assessee has failed to consider the full value of the bill as income for the year, the difference of Rs. 84,10,927 (Rs. 1,53,77,927 - Rs. 69,67,000) is treated as the income at the assessee for the year under appeal and, accordingly, added back the same to the total income of the assessee. 3.1 Regarding the second addition of Rs. 46,90,656 in respect of Alipurduar project, facts of the case and explanation of the assessee are more or less similar. The AO found that the assessee had raised single bill on 9th Aug., 2002 for Rs. 2,70,90,656 against which the assessee received Rs. 1,41,00,000 and Rs. 83,00,000 as revenue for the year and did not recognize the difference amount of Rs. 46,90,656 as income for the year. According to the assessee, he had accounted for Rs. 2,24,00,000 which was received within the relevant accounting period and duly supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to receive income in respect of the subcontracts accrued during the previous year relevant to this assessment year, needs to be examined with reference to his agreement with the MBL. On perusal of the relevant agreement, I find that the appellant receives net payments (after deduction of agreed percentage) from MBL on back-to-back basis as and when it receives payments from the Government department. Hence, insofar as the bill amount is concerned, on acceptance of the bill, such bill amount becomes due to the appellant, subject to deduction of agreed percentages of MBL. In that analogy, if the argument of the appellant is taken on its face value, as a contractor of Government department, income will at first accrue in the hand of MBL and it will be liable to be assessed at first on the total contract receipt as it receives entire bill amounts from the Government department, whereas as per agreement, the MBL receives only the agreed percentages on account of Amta and Alipurduar projects on which it is assessable. Here the crux of the issue is whether income from these subcontracts accrues to the appellant or to the MBL. The appellant has disclosed gross bill values in several y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls, bills passed by the Government of West Bengal, certificate of TDS, etc. His submissions in regard to Amta project are summarized as under: (a) The appellant raised and submitted the 6th RA bill for Rs. 1,53,77,927 during the assessment year under consideration. (b) That neither M/s Mackintosh Burn Ltd. (contractor) nor Government of West Bengal (customer) sent an intimation of the passing of the bill by 31st March, 2003 i.e., last day of the accounting year. (c) That the contractor did not confirm to the learned AO that they have intimated the passing of the bill within 31st March, 2003. (d) That the system of accounting of "gross receipt" is that although bills may be raised and sent to the parties, however till the bills raised are approved by them are not taken into consideration for being included within "gross receipt". (e) That the act of the learned AO in obtaining the information from the contractor, without giving an opportunity to the appellant, was against the rule of natural justice. (f) In the absence of the intimation either from the contractor or Government of West Bengal, the appellant took the sum of Rs. 69,67,000 (being the ad hoc payment released ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The payment by the contractee, i.e. MBL, was on back basis, i.e. payment of the amount as received by MBL after deducting mutually agreed percentages. It is also evident from p. 3 of the assessment order, which is to quote as under: "Information and copy of bill was called for from Mackintosh Burn Ltd. and filed by them on 8th March, 2006. On perusal of the 6th RA bill raised by the assessee on 27th March, 2003, it is seen that payment has been recommended by the site in charge on 31st March, 2003 which is within the financial year. It is also seen that the contractee had deducted full value of the materials supplied by them for the aforesaid billed work and deducted sales-tax @ 2 per cent from the billed amount for the purpose of payment to the assessee. The reason for payment of Rs. 69,67,000 as recorded on the said bill is that 'We have received 58 per cent ad hoc payment from I W Dte., so 58 per cent of Rs. 120,13,431 i.e. Rs. 69,67,000 is recommended for payment." The AO, therefore, did not dispute the quantum of gross bill for the project and actual receipt thereof. However, he in addition to the advance payment as above also included the balance due from contractor c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity deposit will also be on back-to-back basis. No mobilization advance shall, however, be made admissible to you." It is thus evident that for Amta project, rate was at par and payment back-to-back. For Alipurduar project, the rate was below the priced schedule of the Department and payment term was back-to-back. The assessee undertook Government contracts through MBL. The assessee submitted estimate of work done through RA bill, subject to approval and finalization by the principal. We find that the receipts are credited when these are actually received after passing of the bill, on which TDS is deducted by the Government. In mercantile system of accounting, for accrual of income, it requires acceptance of the other side. The assessee raised estimate on 27th March, 2003 and as per recommendation of site in-charge, MBL granted as advance 58 per cent of the amount which amounted to Rs. 69,67,000. It is an admitted position that in Government job the assessee does not have any right to receive any amount against the work executed by him till the bill is approved by the Government. In mercantile system of accounting, mere raising of bill is not important. It is right to receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill was passed by the State Government by fixing the price, the accrual takes place and only such amount, therefore, becomes debt. The balance amount accounted for by the assessee was not a debt. It was a loss incidental to business. In this case also, therefore, the Hon'ble Tribunal having clearly held that the accrual of income takes place only when the Government accepts the bill and not before that, the AO's action in having assessed the aforesaid amount merely because the bills were raised, is not in accordance with the accepted procedure of accounting and hence unjustified. 9. Further, the assessee follows mercantile system of accounting. Receipts are credited when the same are actually received after passing of the bill on which TDS under s. 194C is deducted by the Government. Sec. 194C(1) reads as under: . "194C (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or any State Government; or (b) ..... shall, at the time of credit of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing work-in-progress and added the same to the total income of the assessee for the year under appeal. 12. On appeal, the CIT(A) sustained the addition with the following observation: "Thus, the valuations of WIP shown in the account whether it is the valuation of opening WIP or that of the closing WIP these are not at all reliable and, hence, the values of opening and closing WIP shown in the account of this assessment year cannot be accepted as correct, as according to the auditor, work-in-progress was valued at cost and the value thereof was as certified by the proprietor (balance sheet). Thus, the auditor has merely relied on what was certified by the proprietor and has not audited appellant's entire account on the basis of any evidence insofar as the valuation of WIP is concerned and had qualified his audit report merely on the basis of the certificate of the proprietor. In view of what has been discussed above, I am not inclined to delete this addition as because the valuation of WIP was not based on any record or materials whatsoever besides, it included even the part of the income. billed in respect of the completed works which, in fact, and in law, accrued during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
