The ITO, Ward-1(1),, Surat v. Bharat Vijay Construction Pvt.Ltd.,, Surat

ITA 4018/AHD/2007 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Dismissed

Appeal Details

RSA Number 401820514 RSA 2007
Assessee PAN AABCD1585D
Bench Ahmedabad
Appeal Number ITA 4018/AHD/2007
Duration Of Justice 2 year(s) 6 month(s) 15 day(s)
Appellant The ITO, Ward-1(1),, Surat
Respondent Bharat Vijay Construction Pvt.Ltd.,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 21-05-2010
Date Of Final Hearing 19-05-2010
Next Hearing Date 19-05-2010
Assessment Year 2004-2005
Appeal Filed On 05-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI D.C. AGRAWAL A.M.) I.T.A. NO. 4018/AHD./2007 ASSESSMENT YEAR : 2004-2005 INCOME TAX OFFICER WARD-1(1) SURAT -VS.- BHARAT VIJAY CONSTRUCTION PVT. LTD. SURAT (PAN : AABCD 1585 D) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJEEV KASHY AP SR. D.R. RESPONDENT BY : SHRI P.M. JAGASHETH O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 31.08.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I SURAT DELETI NG THE ADDITION OF RECEIPT AMOUNTING TO RS.43 40 470/- MADE BY THE ASSESSING OFFICER ON ACC RUAL BASIS FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE-C OMPANY IS A GOVERNMENT CONTRACTOR. IT IS ENGAGED IN CONSTRUCTION OF DAMS ROADS AND CANALS ETC. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FILED THE RETURN OF INCOME ON 01.11.2004 DECLARING TOTAL INCOME AT RS.3 86 257/-. THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 27.03.2006 DETERMINING TOTAL INCOME OF RS.47 26 730/-. IN THIS ASSESSMENT ORDER THE ASSES SING OFFICER MADE AN ADDITION OF ACCRUAL RECEIPTS OF RS.43 40 470/- OF WORK EXECUTED OF PWD DAMAN (PHASE-III) IN RESPECT OF WHICH THE ASSESSEE HAD CLAIMED EXPENDITURE. 3. ON APPEAL IN THE IMPUGNED ORDER THE LD. CIT(A) DELETED THE ENTIRE ADDITION OF RS.43 40 470/- BY OBSERVING AS UNDER :- ALTERNATIVELY EVEN IF FOR THE SAKE OF ARGUMENT IT IS ACCEPTED THAT THE INCOME IS ACCRUED STILL SINCE THE PAYMENT HAS BEEN TOTALLY DE NIED BY THE PWD THE SAME HAS BECOME BAD DEBT AND IT IS ONLY A QUESTION OF MAKING ACADEMIC ENTRIES BY SHOWING THE INCOME AND THEN WRITING THE SAME OFF WITHIN THE SAME YEAR WHICH WOULD SATISFY 2 ITA NO. 4018/AHD/200 7 THE CONDITIONS OF SECTION 36(2) FOR ALLOWING THE BA D DEBTS. THEREFORE IN VIEW OF BOTH THE REASONS THE INCOME TAXED BY THE AO IS WRON G AND HENCE THE SAME IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. 4. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING ON BEHALF OF REVENUE SHR I SANJEEV KASHYAP SR. D.R. APPEARED AND CONTENDED THAT THE DECISION OF THE LD. CIT(A) I S NOT ACCEPTABLE ON ACCOUNT OF FOLLOWING REASONS :- ( I) THE ASSESSEE-COMPANY IS DOING GOVERNMENT CONTRAC T WORK SINCE LONG AND HAS CARRIED OUT WORK ON VERBAL ORDER AND DIRECTIONS ISS UED FROM TIME TO TIME FOR THAT AND THEREFORE IT CAN BE SAID THAT ASSESSEE IS ACQU AINTED WITH THE PRACTICE OF DOING WORK ON VERBAL ORDER. (II) WHAT WAS THE BASE OF CORRESPONDENCE MADE BY TH E EXECUTIVE ENGINEER WITH THE ASSESSEE AT REGULAR INTERVAL OF TIME INSISTING TO COMPLETE THE WORK WHEN THERE WAS NO WORK ORDER EXECUTED ? (III) WHY THE ASSESSEE HAS NOT INCLUDED RECEIPT OF PWD DAMAN THOUGH THE ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING ? (IV) WITH REFERENCE TO PHASE-III WORK THE TENDER O F CONTRACTOR I.E. ASSESSEE COMPANY HAS BEEN APPROVED AND WRITTEN DIRECTIONS W ERE ALSO ISSUED FROM TIME TO TIME FOR COMPLETION OF WORK. THE CONTRACTOR I.E. A SSESSEE COMPANY HAS COMPLETED THE WORK IN THE MANNER IN WHICH IT REQUIRED TO BE C ARRIED OUT WITHIN THE TIME LIMIT PRESCRIBED AND THE CONTRACTEE IS ALSO ENJOYING THE BENEFIT OF CONTRACT WORK COMPLETED. IN VIEW OF THIS FACT KEEPING IN VIEW TH E PROVISION OF SEC. 70 OF INDIAN CONTRACT ACT 1872 THE ASSESSEE WAS SPECIFICALLY AS KED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHETHER IT HAS GIVEN UP ITS CLAIM. THE SEC. 70 OF INDIAN CONTRACT ACT 1872 READS AS UNDER :_ OBLIGATION OF PERSON ENJOYING BENEFIT OF NON-GRATI TUOUS ACT : WHERE A PERSON LAWFULLY DOES ANYTHING FOR ANOTHER PERSON OR DELIVERS ANYTHING TO HIM NOT INTENDING TO DO SO GRATUITOUSLY AND SU CH OTHER PERSON ENJOYS THE BENEFIT THEREOF THE LATER IS BOUND TO MAKE COMPENS ATION TO THE FORMER IN RESPECT OF OR TO RESTORE THE THING SO DONE OR DELIVERED. PRINCIPLES LAID DOWN BY THE SUPREME COURT IN RELATI ON TO THE APPLICABILITY OF SEC. 70 APPLY TO CITIZENS AS WELL AS TO CORPORATION OR G OVERNMENT. IF THE CONTRACT IS VOID IT IS VOID FOR BOTH. NEITHER PARTY CAN CLAIM A SPECIFIC PERFORMANCE OF IT OR DAMAGES FOR BREACH OF IT OR ITS ENFORCEMENT IN ANY OTHER MANNER. ANY PARTY HOWEVER BY SATISFYING THE REQUIREMENTS OF SEC. 70 OF THE INDIAN CONTRACT ACT CAN BASE ITS CLAIM ON THAT FOOTING. IN THAT CASE ALSO THE PRINCIPLES ENUNCIATED BY THE 3 ITA NO. 4018/AHD/200 7 SUPREME COURT WILL BE APPLICABLE EQUALLY TO THE CIT IZENS CORPORATION AND THE GOVERNMENT. (V) AS DISCUSSED IN THE BODY OF ORDER VIDE PARA 8 THE ASSESSEE STATED FOLLOWING FACTS : (1) IT BEING A GOVERNMENT BODY AND DUE TO T ECHNICAL HITCH WE WERE NOT IN A POSITION TO RECOVER ANY AMOUNT FOR PHASE III. (2) W E HAVE IN FACT FOLLOWED MERCANTILE BASIS OF ACCOUNTING (3) UNDER THE MERCAN TILE BASIS OF ACCOUNTING TRANSACTIONS ARE RECOGNIZED AS AND WHEN THEY OCCUR IRRESPECTIVE OF ACTUAL RECEIPT. HOWEVER IN RESPONSE TO SHOW CAUSE LETTER THE ASSES SEE REMAINED SILENT ON THE POINT THAT WHETHER IT HAS GIVEN UP ITS CLAIM ON BEI NG DENIAL TO MAKE ANY PAYMENT. (VI) THE ASSESSEE IS MAINTAINING HIS BOOKS OF ACCOU NTS ON MERCANTILE BASIS. THEREFORE IT IS NECESSARY FOR IT TO DECLARE THE IN COME ON MERCANTILE BASIS. (VII) THE CONTENTION OF THE ASSESSEE BEFORE THE CIT (A) THAT IT HAS SHOWN THE INCOME AND SINCE IT WAS NOT REALIZED SO IT HAS REDU CED THE INCOME IN THE BOOS OF ACCOUNTS. THIS STATEMENT IS NOT CORRECT BECAUSE THE AO HAS EXAMINED THE BOOKS OF ACCOUNTS DURING THE ASSESSMENT PROCEEDINGS AND THER E WAS NO ADDITION/ DECLARATION AND DELETING/ WRITE OFF ENTRY IN THE BO OKS OF ACCOUNT. IF THE ASSESSEE HAS PRODUCED SUCH TYPE OF BOOKS OF ACCOUNT DURING T HE APPELLATE PROCEEDINGS THEN IT HAS MANIPULATED THE BOOKS OF ACCOUNT. THIS FACT WAS ALSO BROUGHT TO THE NOTICE OF CIT(A) IN THE PRESENCE OF THE THEN ADDL. CIT RANGE-1 SURAT AFTER SUBMISSION OF FIRST REMAND REPORT. MOREOVER THE AS SESSEE DURING THE ASSESSMENT PROCEEDINGS AND ALSO IN ITS REPLY TO SHOW CAUSE LET TER HAS NOT BROUGHT TO THE NOTICE THE ABOVE FACTS THAT IT HAS MADE CREDIT ENTR Y IN BOOKS OF ACCOUNT AND AT THE SAME TIME IT HAS DELETED / WRITE OFF THE INCOME DU E TO NON-REALIZATION OF CONTRACT RECEIPTS. IN THE CORRESPONDENCE AO ASKED THE ASSES SEE THAT WHY IT HAS NOT SHOWN RECEIPT OF PWD DAMAN ON ACCRUAL BASIS WHEN IT HAS FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IF THE BOOKS PRODUCED BEFORE THE CIT (A) WERE PRODUCED BEFORE THE AO THEN AO COULD HAVE ASKED THE ASSESSEE THAT WHY IT HAS DEDUCTED THE RECEIPT OF PWD DAMAN FROM THE TOTAL RECEIPTS SHOWN. (VIII) IN THE REMAND REPORT IT WAS BROUGHT TO THE NOTICE OF CIT(A) THAT THE EXECUTIVE ENGINEER PWD DAMAN HAS MAINTAINED SILEN CE ON THE ACT AS TO WHETHER THE ASSESSEE HAD LET OFF ITS CLAIM FOR THE WORK UNDERTAKEN BY THE ASSESSEE COMPANY. THE COURT MATTER IS A SECONDARY PROCEEDING S AND IT IS NOT ASCERTAINABLE AS TO WHETHER ANY ARBITRARY PROCEEDINGS HAVE BEEN C ONTEMPLATED BY THE ASSESSEE OR NOT. PERUSAL OF APPELLATE ORDER REVEALED THAT DU RING THE APPELLATE PROCEEDINGS THE CIT(A) HAS NEVER ASKED THE ASSESSEE WHETHER IT HAS LET OFF ITS CLAIM. THE WORK ORDER HAS NOT BEEN EXECUTED AND THE CONCERNED PARTY IS A GOVERNMENT BODY BOTH THESE POINTS ARE IMMATERIAL WITH REFERENCE TO SEC. 70 OF THE INDIAN CONTRACT ACT 1872 AS DISCUSSED SUPRA. ALSO CONSIDERING THE QUANT UM OF EXPENDITURE INCURRED THE CIT(A) OUGHT TO HAVE ASKED THIS QUESTION WHICH IS THE BASE OF ADDITION FOR ASSESSING OFFICER BEFORE GIVING FINDINGS WITH REFER ENCE TO SEC. 36(2) OF THE INCOME TAX ACT 1961. 4 ITA NO. 4018/AHD/200 7 (IX) IT IS PERTINENT TO MENTION HERE THAT IN THE CO URSE OF ASSESSMENT PROCEEDINGS THE AO HAD REPEATEDLY REQUESTED THE ASSESSEE TO STA TE AS TO WHETHER CLAIM OF RECEIPT HAS BEEN GIVEN UP OR OTHERWISE. THE ASSESSE E CHOSE TO MAINTAIN SILENCE ON THE SPECIFIC QUERY. UNDER THE CIRCUMSTANCES ADDITI ON OF RECEIPT AMOUNTING TO RS.43 40 470/- (AS PER WORKING GIVEN BY THE ASSESSE E HIMSELF) ON ACCRUAL BASIS WAS CORRECTLY MADE TO SAFEGUARD THE INTEREST OF REV ENUE. 6. ON THE OTHER HAND SHRI P.M. JAGASHETH LD. COUN SEL APPEARING ON BEHALF OF THE ASSESSEE FILED A PAPER BOOK CONTAINING 107 PAGES WHICH INT ER ALIA VARIOUS LETTERS WRITTEN BY ASSISTANT ENGINEER PWD SUB-DIVISION NO. 1 NANI DAMAN TO TH E ASSESSEE THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE RELEVANT WORK WAS CARRI ED OUT ON THE BASIS OF VARIOUS LETTERS WRITTEN BY PWD. FINALLY PWD INFORMED THE ASSESSEE THAT AS P ER RECORD AVAILABLE IT IS FOUND THAT THE CONTRACT AGREEMENT FOR THE PHASE-II IS NOT EXECUTED AND THE WORK ORDER IS NOT ISSUED BY THIS OFFICE FOR THE WORK OF DEVELOPMENT OF EXISTING POND AT DU NETHA VILLAGE IN DAMAN DISTRICT FOR STORAGE AND TREATMENT OF RAW WATER TO AUGMENTS THE ADJUSTIN G DRINKING WATER SUPPLY SCHEME (PHASE-III). THEREFORE IT IS NOT POSSIBLE TO MAKE PAYMENT FOR T HE SAID WORK OF PHASE-III BY PWD. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ON THIS BASI S THE LD. CIT(A) IN THE IMPUGNED ORDER ACCEPTED THE ALTERNATE CONTENTION OF THE ASSESSEE T HAT HE HAS SATISFIED THE CONDITIONS UNDER SECTION 36(2) FOR ALLOWING THE BAD DEBTS. THE LD. COUNSEL O F THE ASSESSEE ACCORDINGLY SUBMITTED THAT THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 7. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS PERTINENT TO NOTE THAT AFTER APPRECIATING THE FACTS NARRATED BEFORE THE AO EVIDENCES PRODUCED BY THE ASSESSEE THE LD. CIT(A) ACCEPTED THE ALTERNATE CONTENTION OF THE ASSESSEE TO ALLOW RS.43 40 470/- AS BAD DEBTS UNDER SECTION 36(1)(III)). THE RELEVANT DISCUSSION IS CONTAINED IN PARA 4.1 & 4.2 OF THE IMPUGNED ORDER WHICH READS AS UNDER :- 4.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE AO. THE FACTS WHICH ARE UNDISPUTED ARE AS UN DER :- THERE WAS NO WRITTEN ORDER PLACED BY THE PWD WITH T HE APPELLANT. THE APPELLANT WAS PROMISED THAT THE ORDER WOULD BE PLACED WITH IT AND ASKED TO CARRY OUT THE WORK AS IS EVIDENT FROM VARIOUS LETTE RS QUOTED ABOVE. 5 ITA NO. 4018/AHD/200 7 THE PWD IN REPLY TO THE NOTICE ISSUED DURING THE AP PELLANT PROCEEDINGS HA ADMITTED THE ABOVE TWO FACTS AND HAS ALSO STATED TH AT NO COURT CASE HAS BEEN FILED BY THE APPELLANT FOR RECOVERY OF THE DUES ALTHOUGH THE CLAIM WAS MADE WITH THE PWD WHICH HAS BEEN REJECTED BECAUSE NO WRITTEN ORDE R HAS BEEN GIVEN TO THE APPELLANT FOR CARRYING OUT THE WORK. 4.2. IN VIEW OF THE ABOVE IT IS CLEAR THAT IN THE ABSENCE OF THE WRITTEN ORDER THE INCOME HAS NOT ACCRUED AT ALL BUT THE EXPENDITURE I NCURRED HAS TO BE ALLOWED BECAUSE THE SAME WAS INCURRED IN ANTICIPATION OF TH E WORK ORDER AND HENCE THE SAME HAS TO BE ALLOWED AS BUSINESS EXPENDITURE IN V IEW OF THE DECISION OF THE HONBLE AHMEDABAD ITAT IN THE CASE OF GUJARAT STATE FINANCIAL CORPORATION (SUPRA) AND GUWAHATI ITAT IN THE CASE OF ABC INDIA LTD. (SUPRA). IN PARA 5 OF THE SECOND REMAND REPORT AS QUOTE ABOVE THE AO HAS ADM ITTED THAT THE EXPENDITURE IS GENUINE AND THE ASSESSEE COMPANY HAS COMPLETED THE WORK IN THE MANNER IN WHICH IT WAS REQUIRED TO BE CARRIED OUT AND THEREFO RE THE AO HAS STATED IT WAS NOT VIABLE ACTION ON THE APART OF THE AO TO DISALLO W THE EXPENSES AS THEY WERE FULLY VOUCHED. FROM THIS IT IS VERY CLEAR THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS IN ANTICIPATION OF THE WORK ORD ER FROM PWD HOWEVER DUE TO THE COLLAPSE OF DAMAN GANGA BRIDGE THE CONCERNED OF FICERS WERE SUSPENDED AND WORK ORDER WAS NEVER GIVEN TO THE APPELLANT EVEN TH OUGH THE WORK ALLOTTED TO THE APPELLANT WAS DIFFERENT FROM THE DAMAN GANGA BRIDGE AND WHICH WAS CARRIED OUT BY THE APPELLANT. THEREFORE IT IS VERY CLEAR THAT THE INCOME HAS NOT AT ALL ACCRUED BUT THE EXPENDITURE IS FULLY ALLOWABLE. ALTERNATIVE LY EVEN IF FOR THE SAKE OF ARGUMENT IT IS ACCEPTED THAT THE INCOME IS ACCRUED STILL SINCE THE PAYMENT HAS BEEN TOTALLY DENIED BY THE PWD THE SAME HAS BECOME BAD DEBT AND IT IS ONLY A QUESTION OF MAKING ACADEMIC ENTRIES BY SHOWING THE INCOME AND THEN WRITING THE SAME OFF WITHIN THE SAME YEAR WHICH WOULD SATISFY T HE CONDITIONS OF SECTION 36(2) FOR ALLOWING THE BAD DEBTS. THEREFORE IN VIEW OF B OTH THE REASONS THE INCOME TAXED BY THE AO IS WRONG AND HENCE THE SAME IS DEL ETED AND THE GROUNDS OF APPEAL ARE ALLOWED. 8. BY CONSIDERING THE TOTALITY OF THE FACTS WE ARE CONVINCED THAT THE LD. CIT(A) HAS GIVEN COGENT REASON FOR ACCEPTING THE ALTERNATE CONTENTIO N OF THE ASSESSEE AND THEREBY HOLDING THAT THE ASSESSEE HAS SATISFIED THE CONDITIONS OF SECTION 3 6(2) FOR ALLOWING THE SUM OF RS.43 40 470/- AS BAD DEBTS. WE THEREFORE INCLINE TO UPHOLD THE ORD ER OF LD. CIT(A). 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.05.2010 . SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 / 05 /2010 6 ITA NO. 4018/AHD/200 7 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.