THE ACIT CIR -23(1), MUMBAI v. M/S. HCC L & T PURULIA JOINT VENTURE, MUMBAI

ITA 6176/MUM/2007 | 2003-2004
Pronouncement Date: 26-02-2010 | Result: Dismissed

Appeal Details

RSA Number 617619914 RSA 2007
Assessee PAN AAAAH0710K
Bench Mumbai
Appeal Number ITA 6176/MUM/2007
Duration Of Justice 2 year(s) 4 month(s) 21 day(s)
Appellant THE ACIT CIR -23(1), MUMBAI
Respondent M/S. HCC L & T PURULIA JOINT VENTURE, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 26-02-2010
Date Of Final Hearing 22-02-2010
Next Hearing Date 22-02-2010
Assessment Year 2003-2004
Appeal Filed On 05-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI D MANMOHAN VICE PRESIDENT AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER ITA NO 6176/MUM/2007 (ASSESSMENT YEAR: 2003-04) ACIT-CIRCLE 23(1) BLDG C-10 1ST FLOOR ROOM NO.108 PRATYAKSHA KAR BHAVAN BANDRA KURLA COMPLEX BANDRA MUMBAI -400 051 MUMBAI -400 051 VS HCC L&T PURULIA JOINT VENTURE HINCON HOUSE L B S MARG VIKHROLI (W) MUMBAI -400 083 PAN: AAAAH 0710 K APPELLANT RESPONDENT APPELLANT BY: SHRI S K PAHOOD RESPONDENT BY: SHRI H P MAHAJANI ORDER PER PRAMOD KUMAR 1. BY WAY OF THIS APPEAL REVENUE HAS RAISED THE FO LLOWING GRIEVANCE AGAINST CIT (A)S ORDER FOR THE ASSESSMENT YEAR 200 3-04:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN REJEC TING THE DETERMINATION OF INCOME OF THE ASSESSEE BY THE ASSE SSING OFFICER AT AN ESTIMATED NET PROFIT RATE OF 10% OF THE WORK COMPLE TED BY THE END OF THE ACCOUNTING YEAR I.E. ON THE BASIS OF PERCENTAGE COMPLETION METHOD AS ADMITTEDLY THE ASSESSEE HAD COMPLETED 9.9% OF TH E CONTRACT WORK (I.E. RS 21 77 71 000/- OUT OF RS 220 CRORES) AND A CCORDINGLY THE ESTIMATED PROFIT ON THE CONTRACT WOULD BE 10% OF 21 .78 CRORES I.E. 2.178 CRORES AND THIS PROFIT OUGHT TO HAVE BEEN DEC LARED AS INCOME IN THE YEAR UNDER CONSIDERATION AS AGAINST ASSESSEES FAILURE TO OFFER ANY INCOME FOR A.Y. 2003-04 IN VIEW OF DECISION OF DEL HI HIGH COURT IN TIRATH RAM AHUJA PVT LTD VS CIT 103 ITR 015 (DEL). 2. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASS ESSEE AOP IS ENGAGED IN CARRYING OUT CIVIL CONTRACT WORK ON SUB-CONTRAC T BASIS. THIS IS THE FIRST YEAR ITA 6176/M/2007 HCC L&T PURULIA JOINT VENTURE 2 OF OPERATIONS OF BUSINESS. DURING THE COURSE OF AS SESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT SHOWN ANY PROFITS FORM THE CONSTRUCTION ACTIVITY EVEN THOUGH ASSESSEE HAS ALMOST COMPLETED 10% OF TOTAL CONTRACT WORK. IT WAS CLARIFIED BY THE ASSE SSEE THAT THE WORK COMPLETED MUCH LESS THAN 10% OF TOTAL CONTRACT THAT THE ASSE SSEE IS FOLLOWING PROJECT COMPLETION METHOD UNDER WHICH REVENUE ARE RECOGNISE D ONLY AFTER AT LEAST 20% OF WORK IS COMPLETED AND THAT IN THE SUBSEQUEN T YEAR IN WHICH WORK CROSSED THAT THRESHOLD ASSESSEE HAS DULY OFFERED T O TAX PROFIT ON THE COMPLETED PORTION OF PROJECT. A REFERENCE WAS ALSO MADE TO ACCOUNTING STANDARD 7 WHICH THE ASSESSEE WAS FOLLOWING. NONE OF THESE SUBMISSIONS HOWEVER IMPRESSED THE ASSESSING OFFICER. HE PROCE EDED TO OBSERVE THAT ONCE ASSESSEE HIMSELF ADOPTS PERCENTAGE OF COMPLETION ME THOD PROFIT ON COMPLETED WORK CANNOT BE IGNORED. HE ESTIMATED PRO FIT @ 10% OF REVENUE AND BROUGHT THE SAME TO TAX. AGGRIEVED ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). HE DELETED THE ADDITION S SO MADE BY OBSERVING AS FOLLOWS:- I HAVE VERY CAREFULLY CONSIDERED THE ARGUMENTS OF THE ARS. I FIND THAT THE A.O. HAS JUST NOT APPRECIATED THE SYSTEM ADOPTE D BY THE APPELLANT. THE A.OS ARBITRARY THRUSTING UPON OF A PERCENTAGE AS THE NET PROFIT IN A.Y. 2003-04 WAS NOT A CONSEQUENCE OF THIS FINDING OF ANY DEFECT OF THE ACCOUNTS OR THE METHOD OF RECOGNIZING THE REVENUE. THE A.O. HAS NOT OBJECTED EITHER TO THE LOWER CERTIFICATION OF WORK DESPITE HAVING ALMOST 22.10 CRORE OF WORK COMPLETED OUT OF THE TOTAL CONT RACT OF RS 220 CRORE. THE A.O. HAS NOT FOUND ANY FAULT WITH THE EXPENSES CLAIMED AND HAD NO REASON TO OBJECT TO THE ACCEPTED AS-7 ADOPTED BY T HE APPELLANT. BESIDES THERE IS NO BASIS OR METHOD MENTIONED BY H IM BY WHICH HE COULD HAVE ADOPTED A NET PROFIT OF 10%. THEREFORE THE ARBITRARY THRUSTING UPON OF A PROFIT PERCENTAGE CANNOT BE UPH ELD. I DELETE SUCH WHIMSICAL DETERMINATION FOR THE A.Y. 2003-04. AGGRIEVED BY THE RELIEF SO GIVEN BY THE CIT (A) RE VENUE IS IN APPEAL BEFORE US. ITA 6176/M/2007 HCC L&T PURULIA JOINT VENTURE 3 3. WE HAVE HEARD RIVAL SUBMISSIONS PERUSED THE MATERIA L ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX AS WELL AS THE APPLIC ABLE LEGAL POSITION. WE HAVE NOTED THAT THE ACTUAL WORK COMPLETED BY THE ASSESSEE AS EVIDENT FROM THE WORKS BILL RECEIVED AND WORK CERTIFIED UPTO 31ST MARCH 2003 WA S ONLY RS 12.38 CRORES WHICH WORKS OUT TO 5.627% OF THE TOTAL PROJECT. WE HAVE ALSO NOTED THAT EVEN UNDER PROJECT COMPLETION METHOD UNTIL THE THRESHOLD LIMIT OF PROGRESS IS CROSSED NO AMOUNT IS BROUGHT TO TAX. IN THE CASE OF THERMAX BABCOCK & WILCOX LTD A CO-ORDINATE BENCH HAS TAKEN THIS THRESHOLD LIMIT AT 25%. HONBLE SUP REME COURT IN THE CASE OF CIT VS HYUNDAI HEAVY INDUSTRIES CO LTD 291 ITR 482 HAS TAK EN A NOTE OF THRESHOLD LIMIT OF 25%. UNDER THESE CIRCUMSTANCES BEARING IN MIND TH E FACT THAT THE ASSESSEE HAS ONLY COMPLETED THE WORK UPTO 5.627% OF THE TOTAL PR OJECT AS ALSO THE FACT THAT IN THE SUBSEQUENT YEAR I.E. THRESHOLD WAS CROSSED PROFIT ON THE ENTIRE PROJECT IS OFFERED TO TAX WE SEE NO INFIRMITY IN THE ORDER OF THE CIT (A ). WE APPROVE THE SAME AND DECLINE TO INTERFERE IN THE MATTER. 4. IN THE RESULT APPEAL OF THE REVENUE STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON THE 26 TH FEBRUARY 2010. SD/- (D MANMOHAN) VICE PRESIDENT SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI DATE: 26TH FEBRUARY 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XXIII MUMBAI. 4) THE CIT 23 MUMBAI. 5) THE D.R. H BENCH ITAT MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T. MUMBAI ITA 6176/M/2007 HCC L&T PURULIA JOINT VENTURE 4 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 25.2.2010 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 25.2.2010 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER