M/s. Ambarwadikar & Co., Aurangabad v. ACIT,, Aurangabad

CO 27/PUN/2010 | 2001-2002
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 2724523 RSA 2010
Assessee PAN AAHFA6223A
Bench Pune
Appeal Number CO 27/PUN/2010
Duration Of Justice 4 year(s) 11 month(s) 5 day(s)
Appellant M/s. Ambarwadikar & Co., Aurangabad
Respondent ACIT,, Aurangabad
Appeal Type Cross Objection
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-07-2015
Date Of Final Hearing 04-12-2012
Next Hearing Date 04-12-2012
Assessment Year 2001-2002
Appeal Filed On 26-08-2010
Judgment Text
] IQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE !' # BEFORE SHRI R.K. PANDA AM AND SHRI VIKAS AWASTHY JM / ITA NOS.169 TO 171/PN/2006 '$ % &% / ASSESSMENT YEARS : 2001-02 TO 2003-04 THE ACIT AURANGABAD. . / APPELLANT V/S M/S. AMBARWADIKAR & CO. ENGINEERS & CONTRACTORS 212 SAMARTHNAGAR AURANGABAD. PAN NO.AAHFA 6223A ... . / RESPONDENT C.O.NO.27/PN/2010 (ARISING OUT OF ITA NO.169/PN/2006) ASSESSMENT YEAR : 2001-02 M/S. AMBARWADIKAR & CO. ENGINEERS & CONTRACTORS 212 SAMARTHNAGAR AURANGABAD. PAN NO.AAHFA 6223A ... CROSS OBJECTOR V/S THE ACIT AURANGABAD ... APPELLANT IN THE APPEAL / ASSESSEE BY : SHRI M.K.KULKARNI / DEPARTMENT BY : SHRI B.C. MALAKAR SINGH / DATE OF HEARING : 21.05.2015 !' / DATE OF PRONOUNCEMENT:31.07.2015 2 ' / ORDER PER R.K. PANDA AM : ITA NOS. 169 TO 171/PN/2006 FILED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER DATED 30-11-2005 OF THE CIT(A)-II AURANGABAD RELATING TO THE ASSESSMENT YEARS 2001-02 TO 2003-04 RESPECTIVELY. THE ASSESSEE HAS ALSO FILED CO NO. 27/PN/2010 AGAINST THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2001-02. FOR THE SAKE OF CONVENIENCE ALL THE 3 APPEALS FILED BY THE REVENUE AND THE CO FILED BY THE ASSE SSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS C OMMON ORDER. 2. FIRST WE TAKE UP ITA NO.169/PN/2006 FOR A.Y. 2001-02. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A PA RTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. IT FILED IT S RETURN OF INCOME ON 20-02-2002 U/S.139(4) OF THE I.T. ACT DECLARING TOTAL INCOME OF RS. 94 56 820/- WHICH WAS DULY PROCESSED U/S. 143(1) ON 15-06-2002 DETERMINING THE TAX PAYABLE BY THE ASSESSEE AT RS.22 28 630/-. THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 20-01-2003 DECLARING A LOSS OF RS.2 63 95 650/- WHICH WAS ERRONEOUSLY PROCESSED U/S.143 (1) OF THE ACT ON THE SAME DAY DETERMINING A REFUND OF RS.21 77 3 37/-. NO NOTICE U/S.143(2) (II) OF THE ACT WAS ISSUED ON THE BASIS OF THE FIRST RETURN FILED ON 20-02-2002. HOWEVER ON THE BASIS OF THE REVISED RETURN FILED ON 20-01-2003 A NOTICE U/S.143(2)(II) OF TH E ACT WAS ISSUED ON 27-05-2003 WHICH WAS SERVED ON THE ASSESSEE ON 28-05-2003. THE ASSESSING OFFICER LATER MOVED A PETIT ION U/S.263 OF THE ACT TO THE CIT WHO VIDE ORDER PASSED U/ S.263 OF THE ACT DATED 26-08-2003 HELD THAT THE SECOND RETURN FURNISHED 3 ON 20-01-2003 WAS NOT A VALID RETURN AND CANCELLED THE SECOND INTIMATION DATED 20-01-2003. ACCORDINGLY THE CIT CANCE LLED THE NOTICE SERVED ON 28-05-2003 ISSUED U/S.143(2)(II) OF THE I.T. ACT THUS CONFIRMING THE FIRST INTIMATION DATED 15-06-2003 A FINAL. 3. SUBSEQUENTLY THE ASSESSEE MOVED A PETITION U/S.264 OF THE I.T. ACT ON 03-09-2003 BEFORE THE CIT AURANGABAD WHE REIN THE ASSESSEE SOUGHT REVISION OF INTIMATION DATED 15-06-2002. IT WAS SUBMITTED THAT AS PER THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY THE ASSESSEE THE ASSESSEE TREATS THE WORK DONE A S WORK-IN- PROGRESS AND THE SAME IS MEASURED AND ACCOUNTED FOR A FTER REDUCING THE GROSS PROFIT AS PER THE BOOKS ON THE WORK DONE. IN THE MONTH OF MARCH 2001 THE ASSESSEE HAD RAISED A RUN NING ACCOUNT BILL FOR A SUM OF RS.5 88 69 955/-. AS PER THE PRACT ICE FOLLOWED IN THE PAST THE ASSESSEE REDUCED CERTAIN AMOUNT AS PERCENTAGE FROM THIS AMOUNT ON ACCOUNT OF GROSS PROFIT A ND VALUE OF WORK-IN-PROGRESS AS ON 31-03-2001 WAS ARRIVED AT BY IT AT RS.4.94 CRORES IN RESPECT OF THE GHATPRABHA SITE. IT WAS CLAIMED THAT THIS RUNNING ACCOUNT BILL OF THE ASSESSEE RAISED IN M ARCH 2001 WAS NOT CLEARED BY THE EXECUTIVE ENGINEER CONCERN ED THROUGHOUT THE F.Y. 2001-02. IT WAS FURTHER CLAIMED TH AT THE EXECUTIVE ENGINEER MEDIUM PROJECT NO.2 KOLHAPUR WITHOUT ASSIGNING ANY REASON SCALED DOWN THE VALUE OF SAID RUNNING ACCOUNT BILL ON 31-05-2002 FROM RS.5 88 69 955/- TO RS.3 CRO RES. ACCORDING TO THE ASSESSEE SINCE THE VALUE OF RUNNING BILL R AISED IN THE MONTH OF MARCH 2001 HAS BEEN SCALED DOWN TO RS. 3 CRORES THEREFORE THE VALUE OF THE WORK-IN-PROGRESS AT RS.4 94 00 000/- WAS REQUIRED TO BE REVISED. ACCORDINGLY THE ASSESSEE FI LED A REVISED RETURN. 4 4. IT WAS SUBMITTED THAT THE ASSESSEE ALSO FURNISHED RE TURN OF INCOME ON 31-10-2002 FOR A.Y. 2002-03 DECLARING LOSS OF RS.3 75 76 870/-. IN THE SAID RETURN THE VALUE OF OPENING W ORK- IN-PROGRESS WAS DISCLOSED AT RS.4.94 CRORES. THIS RETURN WAS ALSO REVISED ON 20-01-2003 SHOWING A LOSS OF RS. 1 74 92 950/-. IN THE SAID REVISED RETURN THE VALUE OF OPENING WORK-IN-PROGRESS WAS TAKEN AT RS.3 CRORES. SINCE THIS IS A CONTINUOUS PROCES S THE ASSESSEE FILED A REVISED RETURN FOR A.Y. 2003-04 ALSO. IT MAY BE PERTINENT TO MENTION HERE THAT THE ASSESSEE HAD FILED OR IGINAL RETURN OF INCOME FOR A.Y. 2003-04 SHOWING INCOME AT RS.33 21 880/-. 5. THE CIT DISPOSED OF THE REVISED PETITIONS FOR ALL THE 3 YEARS BY GIVING THE FOLLOWING DIRECTIONS : (I) INTIMATIONS DATED 15-06-2002/20-02-2003 U/S. 14 3(1)(A) OF THE ACT WERE SET-ASIDE. THE ASSESSING OFFICER IS HEREBY DIRECTED TO MAKE A FRESH ASSESSMENTS DE NOVO FOR THE ASSESSMENT YEARS 2001 -02 AND 2002-03 RIGHT FROM THE STAGE OF FURNISHING OF RET URN OF INCOME AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. (II). AS TO THE ASSESSMENT YEAR 2003-04 THE ASSESSING OFFIC ER MAY ISSUE A NOTICE U/S. 143(2)(II) OF THE ACT AND THEREAF TER HE MAY TAKE A REGULAR ASSESSMENT. 6. BASED ON THE DIRECTIONS OF THE CIT THE ASSESSING OFFICE R PROCEEDED TO MAKE FRESH ASSESSMENT IN RESPECT OF A.YRS. 2001-02 TO 2003-04. THE MAIN ISSUE INVOLVED WAS THE TIME AND VALU ATION OF WORK-IN-PROGRESS AS ON 31-03-2001 AT RS.3 CRORES OR AT RS.4.94 CRORES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS CONTENDED BY THE ASSESSEE THAT THE WIP SHOULD BE TAK EN AT RS. 3 CRORES AND NOT RS.4.94 CRORES. TO SUBSTANTIATE HIS CLAIM THE ASSESSEE FILED THE FOLLOWING SUBMISSIONS WHICH HAS BEEN SUMMARISED BY THE CIT(A) AT PARA 7 OF HER ORDER WHICH R EADS AS UNDER : 5 THE MAIN ISSUE WAS REGARDING VALUATION OF WORK IN PRO GRESS AS ON 31-03-2001. THE ASSESSEE WAS AWARDED THE CONTRACT WORK OF GHATPRABHA MEDIUM PROJECT AT PHATLAKWAD TQ: CHANDG AD DIST. KOLHAPUR IN THE YEAR 1997. SINCE THE WORK IS OF LON G TERM THE SAME IS BEING CARRIED ON CONTINUOUSLY. THE METHOD OF ACCOUNTING OF THE ASSESSEE IS TO RECOGNI SE THE REVENUE ONLY ON FINAL PASSING OF RUNNING BILL BY THE CONCERNE D DEPARTMENT. EVERY RUNNING PAYMENT IS EVALUATED BY THE ENGINEER O R SURVEYOR OF THE DEPARTMENT AND THE PAYMENTS ARE MADE ON THE BASIS OF VALUATION BY THE DEPARTMENT. THERE WERE INTERRUPTIONS ON ACCOUNT OF LACK OF FUNDS AND THE CONCERNED DEPARTMENT DID NOT VALUE THE WORK AS ON AN D UPTO 31-03-2001 EVEN THOUGH A RUNNING BILL WAS SUBMITTED B Y THE ASSESSEE. THE AMOUNT OF BILL PAYABLE ONLY AFTER THE DEPARTMEN T ENGINEER TAKES MEASUREMENT AND EVALUATE THE WORK AND PASS THE PAYMENT . THE CONCERNED ENGINEER ENDORSED ON THE BILL THAT THE MEA SUREMENTS WERE CHECKED ON 31-03-2001 BUT KEPT THE PAPERS IN H IS CUSTODY ONLY AND DID NOT SHOW THE SAME TO THE ASSESS UPTO 31-05-2002. THE ASSESSEE CLOSED ITS ACCOUNTS ON 31-10-2001 AND GOT ACC OUNTS AUDITED. SINCE THE ASSESSEE WAS NOT AWARE THAT THE BIL L WAS PASSED ONLY FOR RS. 3 CRORES THE FIRM VALUED THE WORK IN PR OGRESS AT RS. 4 94 00 000/-. THERE IS A MISTAKE IN THE PROFIT ARRIVED AT ON THE BA SIS OF ESTIMATED WIP AT RS. 4.94 CRORES INSTEAD OF RS. 3 CRORES. ACCORDI NG TO THE STANDARDS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS OF INDIA AND ADOPTED BY THE GOVERNMENT OF INDIA REVEN UE OF PERCENTAGE AND COMPLETION CANNOT BE RECOGNISED UNLESS THE SURVEYING AUTHORITY EVALUATES THE BILL AND APPROVES TH E CLAIM ADMITTED AS ON ANY DATE. THE WORK IN PROGRESS HAVING BEEN WRONGLY VALUED RESUL TED IN DISCLOSURE OF EXCESS INCOME FOR THE ASSESSMENT YEAR 2001-02 AND THE SAME MAY BE REDUCED BY RS. 1 94 00 000/-. AS THERE IS A CONTRAVENTION OF ACCOUNTING STANDARDS TH ERE IS A MISTAKE IN ARRIVING AT THE NET PROFIT AND THE SAME DE SERVES TO BE CORRECTED. THE ASSESSEE RELIED ON THE ACCOUNTING STATEMENT NO. 7 DE ALING WITH ACCOUNTING FOR CONSTRUCTION CONTRACTS (AS7) OF THE I NSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. THE ACCOUNTING STAND ARDS ARE BEING UNDER COMPANY LAW AND OTHER LAWS AND ARE TO BE UNIFO RMLY FOLLOWED. COPY OF AS 7 ENCLOSED FOR MY READY REFERE NCE. 7. HOWEVER THE ASSESSING OFFICER AFTER CONSIDERING THE VARIOUS SUBMISSIONS FILED BY THE ASSESSEE HELD THAT THE WI P SHOULD BE RS.5.88 CRORES AS AGAINST RS.3 CRORES CLAIMED B Y THE 6 ASSESSEE. THE RELEVANT OBSERVATION OF THE ASSESSING OFFICE R WHICH HAS BEEN SUMMARISED BY THE CIT(A) AT PARA 8 TO 12 OF H ER ORDER READS AS UNDER : 8. THE A.O. AFTER CONSIDERATION OF THE ISSUES INVO LVED AND THE SUBMISSIONS MADE BY THE ASSESSEE DECIDED THE I SSUES AS UNDER:- 'FROM THE ENTIRE DISCUSSION GIVEN ABOVE IT CAN BE CON CLUDED THAT; I) THE WORK IN PROGRESS BOTH CERTIFIED AND UNCERTIFI ED ARE PART OF WORK IN PROGRESS. WITHOUT PREJUDICE TO THIS FACT I N ASSESSEES CASE ENTIRE WORK WAS CERTIFIED: IN CASE OF THE ASSESSEE THE R.A. BILL NO.15 WAS DULY CER TIFIED AND THEREFORE QUESTION OF ACCOUNTING OF RS.3 00 00 0 00/- OUT OF RS.5 88 69 955/- DOES NOT ARISE. II) THE ASSESSEE HIMSELF HAS ARGUED THAT ASSESSEE RELIED ON AS- 7 AND THE WORK IN PROGRESS IS BEING VALUED ON THE BASIS OF AMOUNT OF BILL PAYABLE ONCE THE DEPARTMENTAL ENGINE ER TAKE MEASUREMENT AND VALUED THE WORK WHICH HAS BEEN DONE I N CASE OF R.A. BILL NO.15 ON 31/03/2001. III) THE CLAIM OF THE ASSESSEE THAT MEASUREMENT WAS CH ECKED ON 31/03/2001 BUT THE PAPERS WERE KEPT IN HIS CUSTODY TILL 31/05/2002 IS A STATEMENT DEVOID OF ANY TRUTH BECAUSE THE EXECUTIVE ENGINEER HIMSELF HAS CLARIFIED THE POSITION AND SECONDLY THE FINAL FINANCIAL STATEMENT OF THE ASSESSEE AR E PREPARED AFTER RECONCILIATION AND VERIFICATION OF T HE RELEVANT FACTS AND FIGURES. IV) THE ACCOUNTING OF RS.3 0 00 000/- ON THE BASIS OF RECEIPT OF PAYMENT AND CONSIDERING THE SAME FOR WORK IN PROGRESS I S NOT JUSTIFIED ONCE THE ACCOUNTS ARE BEING MAINTAINED ON MERCANTILE BASIS. V) THE RETURN FILED BELATEDLY I.E. ON 20/02/2002 DE PICTS THE CORRECT POSITION OF WORK IN PROGRESS AS PER THE R.A.BIL L NO.15 RELATED TO GHATPRABHA PROJECT IS THE CORRECT STATEME NT OF FINANCIAL AFFAIRS OF THE ASSESSEE FIRM.' 9. IN OTHER WORDS FOR THE AY 2001-02 THE A.O. HELD THAT THE WIP SHOULD BE ON THE BASIS OF BILL NO.15 SUBMIT TED BY THE ASSESSEE TO THE GOVERNMENT AMOUNTING TO RS.5 88 69 955/- INSTEAD OF RS.3 CRORES WHICH WAS THE AMOUNT SANCTIO NED BY THE EXECUTIVE ENGINEER ON RA BILL NO.L5A. THESE CONCLUS IONS WERE DRAWN BY THE A.O. ON THE VARIOUS FACTS AND OBSERVAT IONS MADE BY HIM DURING THE COURSE OF THE ASSESSMENT PROCEEDI NGS WHICH CAN BE NARRATED IN BRIEF AS UNDER:- I. THE A.O. OBSERVED THAT THE BILL NO.15 SUBMITTED B Y THE ASSESSEE FOR AN AMOUNT OF RS.5.88 CRORES WAS SERVED BY THE EE ON 31-03-2001. 7 II. THE ORIGINAL RETURN ITSELF WAS FILED BELATEDLY U/ S.139(4) AND THE SAME COULD NOT BE REVISED U/S.139(5) AS PER THE ASSESSEE'S VERSION THE ORIGINAL BILL NO.15 WAS KEPT BY THE EE AND IT WAS HANDEDOVER TO THE ASSESSEE ONLY ON 30-05-2002 WHEREAS THE ASSESSEE FILED ITS RETURN ON 20-01-2003 I.E. APPROXIMATELY AFTER 8 MONTHS AFTER THE SO CALLED REDU CTION IN THE BILL NO.15. III. THE ORIGINAL RETURN FOR AY 2002-03 WAS FILED ON 31-10- 2002 BUT THE PENDING WIP WAS SHOWN AS PER THE CLOSING W IP OF ORIGINAL RETURN FOR AY 2001-02 I.E. RS.4.94 CRORE S. IV. THE RETURN FOR AY 2001-02 & 2002-03 WERE SIMUL- TANEOUSLY REVISED ON 20-10-2003 WHICH ACCORDING TO TH E AO ITSELF INDICATE THAT THE SO CALLED REDUCTION WAS NOT TAKEN. 10. WHILE COMING TO THE CONCLUSION THAT WIP SHOULD BE BASED ON RS.5 88 69 955/- INSTEAD OF RS.3 CRORES FOR AY 2 001-02 THE A.O. ALSO REFERS TO THE ACCOUNTING STANDARDS. THE S AME ARE REPRODUCED BELOW:- 'THE ACCOUNTING STANDARDS-7 (AS-7) DEALS WITH ACCOUNT ING OF CONSTRUCTION CONTRACTS. PARA-3 OF AS-7 DEFINES A CONSTR UCTION CONTRACT AS A CONTRACT FOR CONSTRUCTION OF AN ASSET OR A CONTINUATION OF ASSETS. CONSTRUCTION OF BRIDGES DAMS SH IPS BUILDING AND OTHER COMPLEX OF EQUIPMENTS ARE SOME OF THE EXAMPLES WHICH ARE DETAILED BY AS-7. THE SUBJECT MATT ER OF AS-7 IS REVENUE RECOGNITION AND IT PROVIDES TIME AND MANNER IN WHICH REVENUE I.E. PROFIT AND LOSS IN A CONSTRUCTIO N CONTRACT IS TO BE REORGANIZED. DUE TO LONG TIME BETWEEN COMME N- CEMENT OF WORK AND ITS COMPLETION AND DETERMINATION OF REVENUE EARNED IT BECOMES NECESSARY TO DEAL WITH THE SUBJECT IN A DIFFERENT MANNER. THE BASIC CHARACTERISTI C OF A CONSTRUCTION CONTRACT NECESSITATES A DIFFERENT APPROACH AS THAT THE WORK UNDER CONTRACT EXPANDS OVER MORE THAN ONE RECOGNITION PERIOD. EARLIER THERE WERE TWO METHODS FOR REVENUE RECOGNIT ION ONE IS COMPLETION CONTRACT METHOD AND THE OTHER ONE IS PERCENTAGE COMPLETION METHOD. THE REVISED ACCOUNTING STANDARD CONTAINS ONLY PERCENTAGE COMPLETION METHOD. IN CASE OF PERCENTAGE COMPLETION METHOD REVENUE IS ESTIM ATED AND RECOGNIZED AS THE WORK PROGRESSES. THE SALIENT FEATU RES OF REVENUE RECOGNITION UNDER THIS METHOD ARE; I) WHEN OUTCOME OF A CONTRACT CAN BE RELIABLY ESTIMA TED CONTRACT RECEIPT AND CONTRACT COST SHOULD BE ESTIMATED PROPORTIONATELY WITH REFERENCE TO STAGE OF COMPLETIO N. II) COST INCURRED ON CONTRACT TO THE EXTENT THEY ARE RECOVERABLE SHOULD BE TREATED AS RECEIPT AND TOTAL CO NTRACT COST SHOULD BE TREATED AS EXPENSES. ACCORDINGLY PROFIT AND LOSS UPTO THE DATE OF STAGE OF CONTRACT SHOULD BE ACCO UNTED FOR. III) IF IT IS EXPECTED THAT THE TOTAL CONTRACT COST W ILL EXCEED TOTAL CONTRACT REVENUE THE EXPECTED LOSS SHOULD BE AC COUNTED FOR. 8 THE ESTIMATION OF PROFIT IN PERCENTAGE COMPLETION ME THOD DEPENDS ON ESTIMATION OF TOTAL PROFIT STAGE OF COMPLE TION AND PROVISIONING OF CERTAIN ITEMS. A RELIABLE ESTIMATE OF TOTAL CONTRACT IS FIRST STEP TOWARDS ESTIMATION OF INCOME FROM YEAR TO YEAR UNDER THIS METHOD. THE ESTIMATE OF TOTAL PRO FIT MAY BE REQUIRED TO BE CHANGED FROM YEAR TO YEAR HAVING RE GARD TO EXPENDITURE ALREADY INCURRED AND CHANGES IN TERMS O F CONTRACT RELATING TO REVENUE IN FLOW. THE STAGE OF C OMPLETION OF CONTRACT CAN BE DETERMINED IN VARIOUS MANNERS. TH E MOST RELIABLE APPROACH IS BASED ON THE ASCERTAINMENT OF WO RK DONE WITH REFERENCE TO SURVEY OF WORK PERFORMED AND CERT IFICATION OF PHYSICAL PREPOSITION OF THE CONTRACT WORK. IN ASSESSEE'S CASE AT EVERY STAGE THE RUNNING BILLS ARE R AISED BY THE ASSESSEE AND DEPENDING ON THE VARIOUS FACTORS OF CONTRACTUAL AGREEMENT WORK COMPLETED BY THE CONTRA CTOR IS EXAMINED AND CERTIFIED BY THE DEPARTMENT I.E. DY. ENGINEER EXECUTIVE ENGINEER EXECUTIVE ENGINEER SUPERINTEND ENT ENGINEER AND SO ON.' 11. THE A.O. ALSO REFERRED THE MATTER REGARDING R.A .BILL NO.15 TO THE EXECUTIVE ENGINEER KOLHAPUR FOR VERIFICATI ON OF REDUCTION IN WORK IN PROGRESS OF RS.5 88 69 955/- T O RS.3 CRORES BY THE ASSESSEE. THE EXECUTIVE ENGINEER REP LIED VIDE LETTER NO.MPD-2/AB-L/IT/469 DATED 24-03-2005. THE C ONTENTS OF THIS LETTER ARE REPRODUCED BELOW :-. ' WITH RESPECT TO THE ABOVE IT IS INFORMED THAT THE WORK OF CONSTRUCTION OF MAIN DAM I.C.P.O. OF GHATPRABHA MED IUM PROJECT TAL.CHANDGAD DIST.KOLHAPUR IS ENTRUSTED TO M/S. AMBARWADIKAR & CO. AURANGABAD VIDE AGREEMENT NO.B.I/CE/I FOR 1997-98 THE WORK WAS STARTED BY THE AGENCY IN THE MONTH OF APRIL 1997 AND THE FOLLOWING PAYME NT HAS BEEN MADE AGAINST THEIR RUNNING ACCOUNT BILLS TO DATE : R.A.BILL NO. MONTH OF BILL AMOUNT OF BILL PAID AMOUNT CV NO. & MONTH IDS AMOUNT REMARKS 1 5/97 7865467 7865467 46-5/97 180905 -- 2 6/97 16781049 16781049 77-6/97 247964 -- 3 10/97 5000000 5000000 57-10/97 115000 -- 4 12/97 7401327 7401327 51-12/99 170231 -- 5 1/98 6082393 6082393 14-1/98 139895 -- 6 3/98 12001132 12001132 6-3/98 240023 -- 7 7/98 41205968 17210000 94-7/98 344200 DUE TO SHORTAGE OF FUNDS PART PAYMENT WAS MADE. 8 8/98 -- 6000000 67-8/98 120000 WITHHELD AMOUNT RELEASED 9 10/98 -- 17995968 50-10/98 359920 -DO- 10 5/99 34259443 20000000 79-5/99 400000 -- 11 6/99 -- 13857697 43-6/99 277160 WITHHELD AMOUNT RELEASED 12 7/99 -- 401746 62-7/99 8035 -DO- 13 5/2000 9820000 9820000 TEBI NO.9- 8/2000 225860 -- 9 14 9/2000 23103000 23103000 -DO- 11- 11/2000 508270 -- I5A 3/2001 58869955 30000000 37-5/2002 630000 -- 15B -DO- -- 28800000 TEBI NO.11 12 13 18- 7/2003 60480 WITHHELD AMOUNT RELEASED 16A -DO- 19212825 13700000 -DO- 287700 -- 16B -DO- -- 337000 120-3/04 7414 WITHHELD AMOUNT RELEASED HOWEVER AS MAY BE SEEN ABOVE SOMETIMES THE R.A.BILLS W ERE NOT PAID FULLY ONLY PART PAYMENT WAS MADE DUE TO SHO RTAGE OF FUNDS THERE WAS NO QUESTION OF DISPUTE IN THE PASSED BI LLS AS MENTIONED IN YOUR REFERENCE LETTER. THE XEROX COPIE S OF R.A.BILL NO.15 AND ONWARDS IS HEREBY ENCLOSED FOR READ Y REFERENCE. STILL AN AMOUNT OF RS.51 75 825/- IS PENDI NG UNDER R.A.BILL NO.16 DUE TO SHORTAGE OF FUNDS AND WILL BE PAID AS SOON AS THE FUNDS ARE RECEIVED. HOWEVER THERE IS NO QUESTION OF ANY SORT OF DISPUTE AS F AR AS THE AMOUNT OF PASSED BILLS IS CONCERNED AS MENTIONED IN YOUR LETTER. SOMETIMES THE PART PAYMENT OF R.A.BILLS HAS BE EN MADE ONLY DUE TO SHORTAGE OF FUNDS.' 12. IT IS ON THE BASIS OF THE ACCOUNTING STANDARD EXECUTIVE ENGINEER'S LETTER THAT A.O. HELD THAT THE WIP ON TH E BASIS OF BILL AMOUNT OF RS.2.88 CRORES SHOULD BE TAKEN IN AY 2001 -02 AND NOT IN AY 2004-05. 8. BEFORE THE CIT(A) THE ASSESSEE CONTENDED THAT THE IN COME ACCRUES TO THE ASSESSEE ONLY AT THE TIME OF FINAL SANCTIO N OF THE BILL WHICH IN THE INSTANT CASE WAS FINALLY PAID BY THE EXECU TIVE ENGINEER IN THE A.Y. 2004-05. IT WAS SUBMITTED THAT THE AO DECIDED THE ISSUE AGAINST THE ASSESSEE ENTIRELY RELYING ON ONE SIDED EVIDENCE OF LETTER OF EXECUTIVE ENGINEER MP DIVISION KOLHAPUR. HE HAS DISBELIEVED THE VERSION OF THE ASSESSEE WITHOUT ANY REASON. REFERRING TO THE ACCOUNTING STANDARD-7 WH ICH DEALS WITH VALUATION OF WIP IN CONSTRUCTION CONTRACT IT WAS SUBM ITTED THAT A RELIABLE ESTIMATE OF TOTAL CONTRACT IS FIRST STEP TO WARDS ESTIMATION OF INCOME FROM YEAR TO YEAR UNDER THE METHOD OF PERCENTAGE COMPLETION METHOD. IT WAS SUBMITTED THAT IN ASSESSEE S OWN CASE AT EVERY STAGE RUNNING BILLS ARE RAISED BY THE 10 ASSESSEE DEPENDING ON THE VARIOUS FACTORS OF CONTRACTUA L AGREEMENT WORK COMPLETED BY THE CONTRACTOR WHICH IS EX AMINED BY AND CERTIFIED BY THE DEPARTMENT AND SO ON. 9. IT WAS ARGUED THAT ALTHOUGH BILL NO.15 WAS SUBMITTED B UT NO SANCTION WAS MADE UPTO 31-05-2002 AND THAT THE WI P WAS VALUED ON THE BASIS OF THE BILL. IT WAS SUBMITTED THAT TH E CONTRACTOR IS NOT AWARE AT THE TIME OF CLOSING OF BOOKS AS TO HOW MUCH AMOUNT OF BILL IS GOING TO BE ADMITTED FOR PAYMENT. THE AUDIT WAS COMPLETED SHOWING WIP OF RS.4 94 00 000/-. THE DEPARTMENT HAS SANCTIONED THE BILL FOR RS.3 CRORES AND WIT HHELD BALANCE AMOUNT OF THE BILL. ACCORDINGLY THE ASSESSEE REV ISED THE WIP AT RS. 3 CRORES AND FILED THE REVISED RETURN. 10. REFERRING TO THE ACCOUNTING POLICY FOLLOWED BY THE ASSE SSEE IT WAS SUBMITTED THAT ONLY BILLS WHICH ARE NOT WITHHELD ARE TAKEN AS WIP. IF THE BILL IS WITHHELD OR PART OF THE BILL IS WITHHELD THE WITHHELD AMOUNT WAS NOT RECOGNISED AS INCOME EITHER AS CONTRACT RECEIPT OR WIP. 11. SO FAR AS THE OBSERVATION OF THE AO REGARDING THE LE TTER DATED 24-03-2005 OF THE EXECUTIVE ENGINEER ON THE BAS IS OF WHICH THE AO HAS BASED HIS DECISION IT WAS SUBMITTED THAT THE EXECUTIVE ENGINEER HAS STATED IN GENERAL TERMS THAT SOM ETIMES PART PAYMENTS ARE MADE FOR SHORTAGE OF FUNDS. HE NEVER PINPOINTED THAT BILL NO.15 WAS SHORT PAID FOR SHORTAGE OF FUNDS. 12. AS REGARDS THE OBSERVATION OF THE EXECUTIVE ENGINEE R THAT THERE WAS NO QUESTION OF DISPUTE IN ITS BILLS IT WAS ARGUED THAT THERE ARE DEFINITELY DIFFERENCES BETWEEN THE CLAIM AND SANC TION. THIS ITSELF IS SOURCE OF DISPUTE EVEN THOUGH THERE WERE NO COURT OR 11 ARBITRATION PROCEEDINGS. RELYING ON VARIOUS DECISIONS IT WA S SUBMITTED THAT THE ASSESSEE HAS TAKEN THE VALUE OF WIP CORRECTLY AS PER THE METHOD OF VALUATION REGULARLY FOLLOWED BY THE A SSESSEE AND AS PER THE ACCOUNTING POLICY FOR VALUATION OF STOCK A ND WIP AS DISCLOSED RIGHT FROM 1996 ONWARDS. 13. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) HELD THAT THE BELATED RETURN FILED BY THE ASSESSE E CANNOT BE REVISED AND THE RETURN FILED ORIGINALLY IS THE VALID RETUR N. HOWEVER AT THE SAME TIME THE CORRECT VALUE OF WIP FOR GHATPRABHA PROJECT FOR A.Y. 2001-02 IS RS.3 CRORES AND N OT RS.4.94 CRORES. THEREFORE EVEN IF THE ORIGINAL RETURN IS NO T A VALID RETURN THE ASSESSEE IS LIABLE FOR TAX IN A.Y. 2001-02 ON T HE WIP OF RS.3 CRORES AND NOT RS.4.94 CRORES FOR THE GHATPRABHA P ROJECT. SINCE THE ASSESSEE HAS CONSIDERED THE AMOUNT OF RS.1.94 CRORES DURING A.Y. 2004-05 THE SAME HAS TO BE CONSIDERED ONLY IN A.Y. 2004-05 AND NOT IN A.Y. 2001-02. 14. SO FAR AS THE BILL NOS.15B 16A AND 16B ARE CONCERNED SHE HELD THAT THE ASSESSEE IS VESTED WITH THE RIGHT TO RECE IVE THE INCOME IN THE YEAR RELEVANT TO A.Y.2004-05 AMOUNTING TO RS.4.28 CRORES AS THE CORRECT NET REALISABLE VALUE WAS ASCERTAIN ED IN THE YEAR RELEVANT TO A.Y. 2004-05. SHE ACCORDINGLY DIRECTE D THE AO TO CONSIDER THE ENTIRE WIP OF RS.4.28 CRORES TO BE TAKEN FOR A.Y. 2004-05 AND NOT IN A.YRS. 2001-02 TO 2003-04. WHILE DOIN G SO SHE FURTHER NOTED THAT THE LETTER RECEIVED FROM THE EXE CUTIVE ENGINEER MEDIUM PROJECT NO.2 KOLHAPUR REVEALS THAT WHENE VER THE PAYMENTS HAVE BEEN MADE DUE TO SHORTAGE OF FUNDS IT HAS BEEN MENTIONED IN THE LETTER ITSELF. HOWEVER AS FAR AS THE BILL NO.15A IS CONCERNED I.E. WHICH WAS SUBMITTED BY THE ASSESS EE FOR 12 CLAIM OF RS.5 88 68 955/- BUT WAS SANCTIONED ONLY FOR RS.3 CRORES NOTHING HAS BEEN MENTIONED IN THE REMARKS COLUMN . IT IS ONLY AGAINST COLUMN NO.15B IT WAS WRITTEN THAT WITHHELD AM OUNT REALISED. THEREFORE SHE HELD THAT IT CANNOT BE SAID THAT THE AMOUNT OF RS.2.88 CRORES WAS WITHHELD ON ACCOUNT OF SHORT AGE OF FUNDS. THE EXECUTIVE ENGINEER HAS NOT CATEGORICALLY STA TED IN RESPECT OF BILL NO.15A THAT THE PART PAYMENT IN RESPECT O F BILL NO. 15A HAS BEEN MADE BECAUSE OF SHORTAGE OF FUNDS. HE HAS SIMPLY MENTIONED THAT SOMETIMES THE PAYMENTS ARE WITHHELD DUE TO SHORTAGE OF FUNDS. THEREFORE IT DOES NOT MEAN THAT THE PART PAYMENT IN RESPECT OF BILL NO.15 HAS BEEN MADE DUE TO SHO RTAGE OF FUNDS. SHE ACCORDINGLY HELD THAT THE AMOUNT OF RS.2.88 C RORES WAS WITHHELD NOT BECAUSE SHORTAGE OF FUNDS BUT BECAUSE OF THE FACT THAT EITHER THE WORK WAS NOT DONE COMPLETELY OR T HE WORK WAS NOT DONE SATISFACTORILY AS PER THE DIRECTIONS OF THE IRRIG ATION DEPARTMENT. 15. UNDER THESE CIRCUMSTANCES ACCORDING TO HER IT HAS TO BE DECIDED AS TO WHETHER THE AMOUNT OF RS.2.88 CRORES WHICH WAS WITHHELD BY THE IRRIGATION DEPARTMENT AS ON 31-03-2001 WHICH WAS LATER ON PASSED AND PAID IN THE PREVIOUS YEAR RELEVA NT TO A.Y. 2004-05 HAS TO BE TAKEN FOR A.Y. 2001-02 FOR THE PURPO SE OF INCOME/WIP OR THE SAME HAS TO BE TAKEN IN THE A.Y. 2004 -05. RELYING ON VARIOUS DECISIONS SHE HELD THAT THE INCOME HAS TO BE TAXED IN THE YEAR IN WHICH THE ASSESSEE GETS THE RIGHT TO RECEIVE THAT INCOME OR IN OTHER WORDS THE INCOME WILL BE SAID TO A CCRUE TO THE ASSESSEE WHEN THE ASSESSEE GETS THE RIGHT TO REC EIVE THAT INCOME WHETHER IT IS PAID LATER OR DURING THE SAME YEAR. RELYING ON VARIOUS DECISIONS SHE NOTED THAT IN THE A.Y. 2001-02 THE ASSESSEE HAS RIGHT TO RECEIVE AN AMOUNT OF RS.3 CRORES O NLY AND IN 13 RESPECT OF THE BALANCE AMOUNT OF RS.2.8 CRORES THE CLAIM H AD NOT BECOME BILLS RECEIVABLE AND THEREFORE THIS AMOUNT CANNOT B E TREATED AS WIP UNLESS THE WORK DONE IN RESPECT OF THIS AMOUNT HAS BEEN ACCEPTED BY THE APPROPRIATE AUTHORITY. 16. SO FAR AS THE SITUATION IN RESPECT OF A.Y. 2002-03 AN D 2003- 04 ARE CONCERNED SHE NOTED THAT AS PER THE WORK DON E CERTIFICATE GIVEN BY THE EXECUTIVE ENGINEER THE WORK IN RESPECT OF B ILL NO.15B 16A AND 16B HAS BEEN COMPLETED TO THE SATISFACT ION IN THE YEAR RELEVANT TO A.Y. 2004-05. HENCE THE INCOME IN R ESPECT OF THESE BILLS ACCRUED TO THE ASSESSEE IN A.Y. 2004-05 ONL Y. SINCE THE INCOME OF RS.4.28 CRORES HAS ALREADY BEEN OFFERED BY T HE ASSESSEE AND TAXES HAVE BEEN PAID BY WAY OF TDS THERE FORE SHE HELD THAT SAME CANNOT BE TAXED IN THE YEAR A.Y. 2002-03 AND 2003-04. EVEN OTHERWISE ALSO SHE NOTED THAT IT IS THE SE TTLED PRINCIPLE OF LAW THAT CLOSING STOCK HAS TO BE VALUED EITHER AT COST OR MARKET PRICE WHICHEVER IS LESS. IN THE INSTANT CASE T HE ASSESSEE WAS FOLLOWING THIS METHOD OF ACCOUNTING REGULARLY. INITIALLY WHEN ASSESSEE SUBMITTED THE BILL HE FOLLOWED THE WI P AT ESTIMATED NET REALISATION VALUE. AFTERWARDS I.E. WHEN THE BIL L WAS SANCTIONED AT RS.3 CRORES THE ASSESSEE CORRECTED HIS W IP AT THE NET REALISABLE VALUE WHICH WAS RS.3 CRORES ONLY. THE ASS ESSEE DID THIS IN VIEW OF METHOD OF ACCOUNTING FOLLOWED BY HIM CONSISTEN TLY I.E. VALUATION OF STOCK AT COST OR MARKET VALUE WHICHEVER IS LESS. 17. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : GROUNDS IN ITA NO.169/PN/2006 : I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN DIRECTING TO TAKE WIP FOR A.Y. 2001-02 AT RS. 3 CRS AND NOT RS. 4.94 FOR GHATPRABHA PROJECT AS ADOPTED BY THE AO. 14 II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS FURTHER ERRED IN ARRIVING AT THE DECISION THAT FO R A.Y. 2001-02 CORRECT VALUE OF WIP IS RS. 3 CRS AND NOT RS. 4.94 CRS F OR GHATPRABHA PROJECT. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS FURTHER ERRED IN HOLDING THAT ENTIRE WIP OF RS. 4 .28 CRS HAS TO BE TAKEN FOR A.Y. 2004-05 AND NOT IN 2001-02 2002-03 AND 2003-04. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HAT THE ASSESSEE FIRM HAS FILED RETURN OF INCOME FOR A.Y. 2001-0 2 BELATED SHOWING INCOME AT RS. 94 56 820/- ON 26-02-2002 WHIC H WAS PROCESSED U/S. 143(1) ON 15-06-2002. THEREAFTER A RE VISED RETURN OF INCOME FOR A.Y. 2001-02 WAS FILED ON 20-01-2003 D ECLARING A LOSS OF RS. 2 63 95 650/-. THEREFORE THE LOSS SHOWN IN THE REVISED BELATED RETURN CANNOT BE ALLOWED TO BE CARRIED FORW ARD TO NEXT YEAR. SIMILARLY FOR A.Y. 2002-03 THE ASSESSEE HAS FILED REVI SED RETURN OF INCOME ON 20-01-2003 DECLARING A LOSS OF RS. 1 74 92 9 50/-. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH AT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNT ING I.E. WORK DONE AS WORK IN PROGRESS AND THE SAME IS ACCOUNTED FOR AFTER REDUCING THE GROSS PROFIT AS PER THE BOOK ON THE WORK DONE. HOWEVER BEFORE THE CIT(A)-II ABAD THE ASSESSEE IN R ESPECT OF ACCOUNTING POLICY HAS STATED THAT ONLY BILLS WHICH AR E NOT WITHHELD ARE TAKEN AS WORK IN PROGRESS. IF THE BILLS ARE WITHHE LD OR PART OF THE BILL IS WITHHELD THE WITHHELD AMOUNT WAS NOT RECOGNI SED AS INCOME EITHER AS CONTRACT RECEIPT OR WORK IN PROGRESS UNTIL T HE WITHHELD AMOUNT IS RELEASED. VI ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE AO BE REST ORED. VII. THE APPELLANT CRAVES LEAVES TO ADD AMEND ALTE R ANY GROUND(S) OF APPEAL. 17.1 IDENTICAL GROUNDS HAVE BEEN RAISED BY THE REVENUE IN A.YRS. 2002-03 AND 2003-04. 17.2 THE ASSESSEE HAS FILED THE CROSS OBJECTIONS BY TAK ING THE FOLLOWING GROUNDS ; 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW ASSESSMENT DATED 31-03-2005 IS BAD IN LAW ILLEGAL LAND WITHOUT JURISDICTION AS THE SAME WAS SO COMPLETED WITHOUT ISSUE AN D SERVICE OF NOTICE UNDER S.143(2) OF THE ACT WHICH IS AN UNDI SPUTED FACT SINCE THE AO HIMSELF HAS ACCEPTED THIS IN HIS ASSESSMENT ORDER (P ARAA). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE FALL OUT OF THE ORDER OF LD. CIT AURANGABAD PASSED UNDER SE CTION 263 OF THE ACT DATED 26-08-2003 IS THAT THE STATUTORY NOTICE ISSUED UNDER SECTION 143(2) WHICH WAS SERVED ON 28-05-2003 WAS HELD TO BE INVALID AND WAS CANCELLED. THIS MEANS THE ASSESSMENT COMP LETED 15 U/S. 143(3) R.W.S. 263/264 WAS ILLEGAL AND WITHOUT JUR ISDICTION AND IS REQUIRED TO BE QUASHED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE ORDER CANCELLING THE STATUTORY NOTICE ISSUED AND SERVED UNDER SECTION 143 (2) WAS WITHOUT JURISDICTION AS THE CIT IS NOT EMPO WERED TO CANCEL THE STATUTORY NOTICE ISSUED AND SERVED UNDER SECT ION 143(2) AS THE PROVISIONS OF SECTION 263 ONLY MANDATE HIM TO SE T-ASIDE ANY ASSESSMENT WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF REVENUE. THE SETTING ASIDE OF THE NOTICE SERVED UNDER SECTION 143(2) IS BEYOND THE PURVIEW OF SECTION 263 OF THE ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE ASSESSMENT IS ALSO BARRED BY LIMITATION IN VIEW OF THE PR OVISIONS OF SECTION 153(1)(A) SINCE THE ASSESSMENT WAS NOT COMPLETED W ITHIN TWO YEARS FROM THE END OF THE ASSESSMENT YEAR THAT IS BE FORE 31-03- 2004 CONSIDERING THE FACT THAT THE LD. CIT AURANGAB AD HAD CANCELLED ALL THE PROCEEDINGS INCLUDING INTIMATION UNDER 143(1 )(A) OF THE ACT. THE INVALID ASSESSMENT THEREFORE BE QUASHED. 5. THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW A ND SINCE THE ACTION UNDER SECTION 263 AND U/S. 264 WERE INITIA TED PRIOR TO COMPLETION OF ASSESSMENT UNDER SECTION 143(3) AND THERE WAS NO ORDER AVAILABLE UNDER SECTION 263/264 SETTING ASIDE TH E SAME THE PROVISIONS OF S.153 (2A) ALSO BECOME INAPPLICABLE. TH E ONLY LEGAL ALTERNATIVE WOULD BE THE ILLEGAL ASSESSMENT WILL HAVE T O BE QUASHED AND IT BE QUASHED ACCORDINGLY. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE CROSS OBJECTIONS RAISED ARE DELAYED IN VIEW OF SUB-SECTIO N (4) OF SECTION 253 OF THE ACT. THE HONBLE SUPREME COURT HELD IN SHREEMANT SHAMRAO SURYAWANSHI & ANOTHER VS. PRALHAD B HAIROBA SURYAWANSHI (DEAD) 2002 AIR SCW 659 HELD THE ESTABLI SHED RULE OF LIMITATION IS NOT APPLICABLE TO A PLEA TAKEN N DEFEN CE UNLESS EXPRESSLY A PROVISION IS MADE IN THE STATUTE. THIS IS ALSO IN C ONSONANCE WITH RULE 27 OF ITAT RULE 1963. THE DELAY BE CONDONED AND CROSS OBJECTION BE ADMITTED FOR HEARING. 7. THE APPELLANT CRAVES TO LEAVE ADD/AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 18. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT WHEN THE ASSESSEE FILED THE ORIGINAL RETURN WHICH WAS A BELATED ONE HE CANNOT FILE A RE VISED RETURN. HE SUBMITTED THAT THE ASSESSEE IN THE ORIGINAL R ETURN OF INCOME HAS DECLARED THE WIP IN RESPECT OF GHATPRABHA PR OJECT AT RS.4 94 00 000/-. FURTHER THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING THEREFORE THE VALUE OF WIP SHOWN OR IGINALLY AT RS.4.94 CRORES FOR THE GHATPRABHA PROJECT HAS TO BE TREATED AS 16 CORRECT. REFERRING TO THE CERTIFICATE ISSUED BY THE EXECU TIVE ENGINEER HE SUBMITTED THAT THERE IS NO SUCH DISPUTE AS SUCH AND ONCE THE ASSESSEE HAS BOOKED THE EXPENDITURE IN THE P ROFIT AND LOSS ACCOUNT AND VALUED THE WIP AT A PARTICULAR FIGURE W HICH WAS DULY CERTIFIED BY THE AUDITORS THEREFORE THE ASSESSEE S HOULD NOT BE PERMITTED TO REDUCE THE SAME JUST TO SUIT HIS REQU IREMENT. HE SUBMITTED THAT THE CIT(A) WITHOUT CONSIDERING THE ACCOUNT ING PRINCIPLES ALLOWED THE CLAIM OF THE ASSESSEE BY SUBSTITUTING THE REVISED WIP WHICH IS NOT PERMISSIBLE IN LAW. SO FAR AS THE V ARIOUS DECISIONS RELIED ON BY THE LD. CIT(A) ARE CONCERNED HE S UBMITTED THAT THOSE ARE NOT APPLICABLE TO THE FACTS OF THE PRESEN T CASE AND ARE DISTINGUISHABLE. HE ACCORDINGLY SUBMITTED THAT THE OR DER OF THE CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 19. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND S TRONGLY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT HE W AS FOLLOWING A PARTICULAR METHOD OF ACCOUNTING CONSISTENTLY. HE SUBMITTED THAT THE ASSESSEE IN THE A.Y. 2004-05 HAS OFFE RED THE CONTRACT RECEIPTS WHICH HAVE BEEN ACCEPTED BY THE AO IN THE ORDE R PASSED U/S.143(3) AND THERE IS NO LOSS TO THE REVENUE. R EFERRING TO THE DECISION OF THE HONBLE PATNA HIGH COURT IN THE CA SE OF CIT VS. CHANCHANI BROTHERS (CONTRACTORS) PVT. LTD. HE SUBMITTE D THAT HONBLE HIGH COURT HAS HELD THAT IN THE CASE OF CONTRACT OR CARRYING OUT A GOVERNMENT CONTRACT AND REGULARLY FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING THE INCOME ACCRUES ONLY WHEN THE BILLS ARE ADMITTED BY THE CONTRACTEE AND NOT WHEN T HE BILLS ARE RAISED. HE SUBMITTED THAT IN THE SAID DECISION THE HONB LE HIGH COURT REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VISHNU AGENCIES PVT. LTD. VS. CIT REPORTED IN 48 ITR 444 (BOM.). HE SUBMITTED THAT IN THE SAID DECISION THE HON BLE 17 HIGH COURT HAS HELD THAT THE INCOME ACCRUED AT THE T IME WHEN THE BILLS WERE ACCEPTED AND ITS ACCRUAL HAD NO REFERENCE TO THE TIME WHEN IT WOULD BE ACTUALLY RECEIVED. THE MERE ASSER TION OF A CLAIM ON THE PART OF THE GOVERNMENT FOR DAMAGES FOR BRE ACH OF CONTRACT WAS NOT SUFFICIENT TO MAKE THE CLAIM ENFORCEABLE O NE OR TO AFFECT THE ACCRUAL OF THE INCOME TO THE ASSESSEE. HE SUBMITTED THAT THE HONBLE PATNA HIGH COURT IN THE SAID DECISION HA S ALSO REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ACC REPORTED IN 48 ITR 1 WHEREIN IT HAS BEEN HELD THAT THE PRESENTATION OF THE BILLS BY THE ASSESSEE WAS O NLY A CLAIM BY THE ASSESSEE AND UNLESS THE CLAIM IS ADMITTED AND ACC EPTED BY THE GOVERNMENT DEPARTMENT INCOME WILL NOT ACCRUE. HE ACCORDINGLY SUBMITTED THAT SINCE THE BILL RAISED BY THE A SSESSEE HAS FINALLY BEEN ACCEPTED BY THE GOVERNMENT DEPARTMENT IN THE A.Y. 2004-05 AND THE ASSESSEE HAS ALREADY OFFERED THE SAME TO TAX IN THE A.Y. 2004-05 THEREFORE THERE IS NO LOSS TO THE REV ENUE. ACCORDING TO HIM SINCE THE ORDER OF THE CIT(A) IS IN CONSON ANCE WITH LAW THEREFORE THE SAME HAS TO BE UPHELD AND THE GR OUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 20. SO FAR AS THE CO OF THE ASSESSEE IS CONCERNED NO A RGUMENT WAS MADE BY EITHER SIDE. 21. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. BEFORE PROCEEDING TO DE CIDE THE ISSUE AT HAND THE CHRONOLOGY OF EVENTS THAT HAVE TAKEN PLACE ARE MATERIAL. IN THE INSTANT CASE ALTHOUGH THE DUE DATE OF FILING OF THE RETURN FOR A.Y. 2001-02 WAS 31-10-2001 THE ASSESSEE FILED RETURN 18 OF INCOME ON 20-02-2002 DECLARING TOTAL INCOME OF RS.94 56 820/-. HOWEVER THE AUDIT REPORT U/S.44AB DATED 31- 10-2001 WAS FURNISHED ON 31-10-2001. THE RETURN FILED O N 20- 02-2002 WAS PROCESSED U/S.143(1) ON 15-06-2002 DETERMIN ING THE TAX PAYABLE AT RS.22 28 630/-. SUBSEQUENTLY ON 20-0 1-2003 THE ASSESSEE FILED A REVISED RETURN DECLARING A LOSS OF RS.2 63 95 650/- WHICH WAS PROCESSED U/S.143(1) ON THE SAME DAY DETERMINING THE REFUND TO THE ASSESSEE AT RS.21 77 33 2/-. THE ASSESSING OFFICER ISSUED A NOTICE U/S.143(2)(II) ON 27-05- 2003 ON THE BASIS OF THE REVISED RETURN FILED ON 20-01-2003 WH ICH WAS SERVED ON THE ASSESSEE ON 28-05-2003. THE CIT ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE U/S.263 ON 22-07-2003 FIX ING THE DATE OF HEARING ON 06-08-2003. SUBSEQUENTLY HE PASSED THE ORDER U/S.263 ON 26-08-2003 CANCELLING THE NOTICE ISSUED AND SERVED U/S.143(2)(II) HOLDING IT AS INVALID. IT WAS HELD THAT THE INTIMATION ISSUED U/S.143(1) DATED 15-06-2002 WAS THE ONLY LEGAL DOCUMENT AND ON THAT BASIS WHATEVER RECOVERY IS REQUIR ED TO BE MADE SHOULD BE MADE BY THE ASSESSING OFFICER IMMEDIATELY. THE ASSESSEE FILED A PETITION U/S.264 ON 03-09-2003 SEEKING RE VISION OF THE INTIMATION DATED 15-06-2002 BEFORE CIT. IT WAS SU BMITTED DURING THE 264 PROCEEDINGS THAT THE WIP OF GHATPRABHA MEDIUM PROJECT KOLHAPUR BE REDUCED FROM RS.4.94 CRORES TO RS.3 CRORES. THE CIT IN THE ORDER PASSED U/S.264 SET ASIDE THE INTIMA TIONS ISSUED U/S.143(1)(A) ON 15-06-2002 AND 20-01-2003 AND DIR ECTED THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT DENOVO RIG HT FROM THE STAGE OF FURNISHING THE RETURN. SIMILARLY THE INTIMATION FOR A.Y. 2002-03 PASSED U/S.143(1)(A) WAS ALSO SET ASIDE WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE FRESH ASSESSMEN T DENOVO. FOR A.Y. 2003-04 THE LD.CIT DIRECTED THE ASSESS ING 19 OFFICER TO ISSUE NOTICE U/S.143(2)(II) AND THEREAFTER MAKE A REG ULAR ASSESSMENT. 22. SUBSEQUENTLY THE ASSESSING OFFICER PASSED THE ORDER U/S.143(3) R.W.S.263/264 OF THE I.T. ACT ON 31-03-2005 FOR THE A.Y. 2001-02 WHEREIN HE REJECTED THE CLAIM OF THE ASSES SEE THAT THE WIP OF THE GHATPRABHA PROJECT BE RS.3 CRORES AS P ER THE REVISED RETURN AS AGAINST RS.4.94 CRORES IN THE ORIGINAL RE TURN OF INCOME. WE FIND THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSE E HOLDING THAT THE CORRECT VALUE OF WIP IS RS.3 CRORES AND NOT RS.4.94 CRORES FOR THE GHATPRABHA PROJECT. ACCORDING TO HER THE AMOUNT OF RS.1.94 CRORES HAS TO BE CONSIDERED IN THE A.Y. 2004- 05 IN WHICH THE ASSESSEE WAS VESTED WITH THE RIGHT TO R ECEIVE THE INCOME. 23. IT IS THE CASE OF THE REVENUE THAT WHEN THE ASSES SEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING HAS RAISED THE BILL OF RS.5.88 CRORES OUT OF WHICH AN AMOUNT OF RS.3 CRORES WAS PAID BY THE DEPARTMENT IN THE MONTH OF MAY 2002 AND THE AMOUN T OF RS.2.88 CRORES IN THE MONTH OF JULY 2003 THEREFORE THE A SSESSEE CANNOT REDUCE THE WIP OF GHATPRABHA PROJECT ON THE G ROUND THAT SAME WAS DISPUTED. IT IS ALSO CASE OF THE REVENUE THAT WHEN THE ASSESSEE HAS RECEIVED THE DIFFERENCE AMOUNT OF RS.2.88 CRO RES IN SUBSEQUENT YEAR WITHOUT INCURRING ANY FURTHER EXPENDITU RE TO THE SOCALLED DISPUTED WORK THEREFORE IT IS NOT KNOWN AS TO UN DER WHAT CIRCUMSTANCES THE DISPUTE AROSE AND WITHOUT ANY ADDITIONAL WORK HOW REMAINING AMOUNT WAS RELEASED ESPECIALLY WHEN T HE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 24. WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTATIVE. FROM THE COPY OF THE LETTE R 20 ADDRESSED BY THE EXECUTIVE ENGINEER MEDIUM PROJECT KOLH APUR DATED 24-03-2005 ADDRESSED TO THE ADDL.CIT WE FIND THE EXECUTIVE ENGINEER HAS STATED AS UNDER : NO.MPD-2/AB-1/TT/1469 OFFICE OF THE EXECUTIVE ENGINEER MEDIUM PROJECT DR.NO.2 KOLHAPUR DATE : 24-03-2005 TO THE ADDL. COMMISSIONER OF INCOME TAX RANGE-1 KOLHAPUR. SUBJECT : COMMISSION U/S.131(1)(D) TO CONDUCT VERIFICA TION AND OBTAIN EXPLANATION DOCUMENTS WITH RESPECT TO ASSESSMENT PROCEEDINGS IN THE CASE OF M/S. AMBERWADIKAR & COMPANY AURANGABAD REG. REFERENCE : ADDL. COMMISSIONER OF INCOME TAX RANGE-2 AURANGABADS LETTER NO.ABD/ADDL..CIT/R- /131/(1)(D)/2004-05 DT.23-03-2005. DEAR SIR WITH RESPECT TO THE ABOVE IT IS INFORMED THAT THE WO RK OF CONSTRUCTION OF MAIN DAM I.C.P.O. OF GHATPRABHA MED IUM PROJECT TAL. CHANDGAD DIST. KOLHAPUR IS ENTRUSTED TO M/S. AMBE RWADIKAR & CO. AURANGABAD VIDE AGREEMENT NO.B.1/CE/1 FOR 1997 -98 THE WORK WAS STARTED BY THE AGENCY IN THE MONTH OF APRIL 1997 AND THE FOLLOWING PAYMENT HAS BEEN MADE AGAINST THEIR RUNNIN G ACCOUNTS BILLS TO-DATE. R.A.BILL NO. MONTH OF BILL AMOUNT OF BILL PAID AMOUNT CV NO. & MONTH IDS AMOUNT REMARKS 1 5/97 7865467 7865467 46-5/97 180905 -- 2 6/97 16781049 16781049 77-6/97 247964 -- 3 10/97 5000000 5000000 57-10/97 115000 -- 4 12/97 7401327 7401327 51-12/99 170231 -- 5 1/98 6082393 6082393 14-1/98 139895 -- 6 3/98 12001132 12001132 6-3/98 240023 -- 7 7/98 41205968 17210000 94-7/98 344200 DUE TO SHORTAGE OF FUNDS PART PAYMENT WAS MADE. 8 8/98 -- 6000000 67-8/98 120000 WITHHELD AMOUNT RELEASED 9 10/98 -- 17995968 50-10/98 359920 -DO- 10 5/99 34259443 20000000 79-5/99 400000 11 6/99 -- 13857697 43-6/99 277160 WITHHELD AMOUNT RELEASED 12 7/99 -- 401746 62-7/99 8035 -DO- 13 5/2000 9820000 9820000 TEBI NO.9- 8/2000 225860 -- 21 14 9/2000 23103000 23103000 -DO- 11- 11/2000 508270 -- I5A 3/2001 58869955 30000000 37-5/2002 630000 - 15B -DO- -- 28800000 TEBI NO.11 12 13 18- 7/2003 60480 WITHHELD AMOUNT RELEASED 16A -DO- 19212825 13700000 -DO- 287700 - 16B -DO- 337000 120-3/04 7414 WITHHELD AMOUNT RELEASED BALANCE PAYMENT OF RS.5175825/-. HOWEVER AS MAY BE SEEN ABOVE SOME TIMES THE R.A. BILL S WERE NOT PAID FULLY ONLY PART PAYMENT WAS MADE DUE TO SHORTAG E OF FUNDS THERE WAS NO QUESTION OF DISPUTE IN THE PASSED BILLS AS ME NTIONED IN YOUR REFERENCE LETTER. THE XEROX COPIES OF R.A. BIL L NO.15 AND ONWARDS IS HEREBY ENCLOSED FOR READY REFERENCE. STIL L AN AMOUNT OF RS.5175825/- IS PENDING UNDER R.A. BILL NO.16 DUE TO SHORTAGE OF FUNDS AND WILL BE PAID AS SOON AS THE FUNDS ARE RECEIVED . HOWEVER THERE IS NO QUESTION OF ANY SORT OF DISPUTE AS FAR AS THE AMOUNT OF PASSED BILL IS CONCERNED AS MENTIONED IN YOU R LETTER. SOMETIMES THE PART PAYMENT OF R.A. BILLS HAS BEEN MAD E ONLY DUE TO SHORTAGE OF FUNDS. THANKING YOU. YOURS FAITHFULLY SD/- (G.K. SHINDE) EXECUTIVE ENGINEER MEDIUM PROJECT DN.NO.2 KOLHAPUR 25. FROM THE ABOVE IT IS CLEAR THAT THE BILL RAISED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT AND FOR WHATEVER REASON AN AMOUNT OF RS.2.88 CRORES WAS NOT PAID DURING F .Y. 2001-02 BUT THE FACT REMAINS THAT THERE IS NO SUCH DISP UTE AS CLAIMED BY THE ASSESSEE. NO DOCUMENTARY EVIDENCE/CORRESPONDENCE HAS BEEN FILED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS OR APPEAL PROCEEDINGS OR EVEN B EFORE US TO SUBSTANTIATE THE CONTENTION THAT SOME DISPUTE WAS G OING ON BETWEEN THE ASSESSEE AND DEPARTMENT. IT IS ALSO TO BE NOTED THAT THE ASSESSEE HAS NOT INCURRED ANY FURTHER EXPENDITURE IN SUBSEQUENT YEARS FOR RECEIPT OF THE ABOVE AMOUNT. WE D O NOT FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT 22 SINCE THE ASSESSEE HAS OFFERED THE INCOME IN THE A.Y. 2004 -05 AND SINCE THERE IS NO LOSS TO THE REVENUE THE ORDER OF THE C IT(A) SHOULD BE UPHELD. HERE IN THE INSTANT CASE THE QUESTION IS NO T RELATING TO LOSS TO THE REVENUE. IT RELATES TO THE TAXABILITY OF T HE INCOME IN A PARTICULAR YEAR. IN THE INSTANT CASE THE ASSESSEE FOL LOWS MERCANTILE SYSTEM OF ACCOUNTING HAS DEBITED ALL THE EXPEND ITURE TO THE PROFIT AND LOSS ACCOUNT DURING THE IMPUGNED ASSE SSMENT YEAR HAS VALUED THE WIP AT A PARTICULAR FIGURE GOT ITS A CCOUNTS AUDITED AND FILED THE RETURN OF INCOME BELATEDLY. HAVING DO NE SO THE QUESTION THAT ARISES IS WHETHER THE ASSESSEE BE ALLO WED TO VALUE THE WIP AT A REDUCED FIGURE MERELY ON RECEIPT BAS IS. THE ANSWER IN OUR OPINION IN THE FACTS OF THE PRESENT CASE IS NEGATIVE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 26. SO FAR AS THE VARIOUS DECISIONS RELIED ON BY THE LD. C OUNSEL FOR THE ASSESSEE ARE CONCERNED WE FIND THE SAME ARE N OT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SO FAR AS THE DECISION OF HONBLE PATNA HIGH COURT IS CONCERNED WE FIND THE SAM E IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESE NT CASE. IN THAT CASE THE ASSESSEE WAS ENGAGED AS CONT RACTOR DERIVING INCOME FROM CONSTRUCTION OF EARTHEN DAM SPILLWAY E TC. FOR IRRIGATION DEPARTMENT. THE ASSESSEE HAS RAISED CERTA IN BILLS WHICH WERE NOT ADMITTED BY THE DEPARTMENT PENDING VERIFIC ATION OF SATISFACTORY CONCLUSION OF THE WORK WAS DONE. THE ASSES SEE WAS NOT SHOWING ANY INCOME ON THE AMOUNT COVERED BY SUCH NON ADMITTED BILLS. IT WAS ARGUED THAT THE ASSESSEE HAD NO RIGHT TO CLAIM SUCH WITHHELD AMOUNT AND THEREFORE IT DOES NOT ACC RUE AS INCOME OF THE ASSESSEE. IT WAS ACCORDINGLY HELD THAT IF T HE LIABILITY IS ACCEPTED RELATING TO THE BILL OF THE CONTRACTOR AND THE AMOUNT IS NOT DISPUTED THEN IN THE MERCANTILE SYSTEM OF ACCOUNTING THE 23 ACCRUAL WILL TAKE PLACE THE MOMENT THE BILLS ARE ACCEPTED A ND THE CLAIM IS ADMITTED BUT WHERE THE CLAIM IS NOT ADMITTED AND ACCEPTED BY THE GOVERNMENT IT CANNOT BE SAID THAT THE INCOME ACCRUES TO CONTRACTOR BY MERE PRESENTATION OF THE BILL. IT WAS HELD THAT SINCE THE CLAIM HAS NOT BECOME A DEBT THE INCOME CANNOT ACCRUE. 27. HOWEVER IN THE INSTANT CASE THE ASSESSEE INITIALLY RAISED THE BILL ON THE GOVERNMENT DEPARTMENT WHICH HAS NOT BEEN D ISPUTED BY THE DEPARTMENT. THE ASSESSEE HAS CATEGORICALLY SUB MITTED BEFORE THE CIT(A) THAT THE DEPARTMENTAL ENGINEER ENDORS ED ON THE BILL THAT THE MEASUREMENTS WERE CHECKED ON 31-03-2001. EVEN THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT HAS ALSO ACC OUNTED FOR SUCH WIP. FURTHER FROM THE COPY OF THE LETTER ADDRESSE D BY THE EXECUTIVE ENGINEER TO THE ADDL.CIT THERE APPEARS TO BE NO DISPUTE SO FAR AS THE BILL IS CONCERNED. ONLY THERE WAS A DELAY IN RELEASE OF THE PAYMENT. THEREFORE THE DECISION OF HONBLE PATNA HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND SIN CE THE ASSESSEE HIMSELF HAS SHOWN IN THE BELATED ORIGINAL RE TURN OF INCOME THE FIGURE OF WIP AS PER THE BILLS RAISED BY IT ON TH E GOVERNMENT DEPARTMENT AND SINCE THE ASSESSEE HAS NOT INCURRED ANY FURTHER EXPENDITURE ON SUCH AMOUNT RECEIVED IN SUBS EQUENT YEAR THEREFORE THE ORDER OF THE CIT(A) REDUCING THE WIP FROM RS.4.94 CRORES TO RS.3 CRORES FOR A.Y. 2001-02 IN OUR OPIN ION CANNOT BE ACCEPTED. MERELY BECAUSE ASSESSEE HAS OFFER ED THE SAME TO TAX IN A.Y. 2004-05 CANNOT BE A GROUND TO RED UCE THE CORRECT WIP FROM RS.4.94 CRORES TO RS.3 CRORES. WE ACCO RDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED. FOR THE REASONS GIVEN ABOVE THE GROUNDS 24 RAISED BY THE REVENUE FOR A.Y. 2002-03 AND 2003-04 ARE ALSO ALLOWED. 28. SINCE NO ARGUMENTS WAS ADVANCED BY THE LD. COUNSE L FOR THE ASSESSEE IN RESPECT OF THE GROUNDS RAISED IN THE CO THEREFORE THE CO IS DISMISSED AS NOT PRESSED. 29. IN THE RESULT ALL THE 3 APPEALS FILED BY THE REVENUE A RE ALLOWED AND THE CO FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31-07-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; #$% DATED : 31 ST JULY 2015. LRH'K '()'*+ &* / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' ' ( ( ) -II +% $ / THE CIT(A)-II AURANGABAD 4. ' ' ( -II +% $ / THE CIT-II AURANGABAD 5. -. / ' /' IQ.KS / DR ITAT B PUNE; 6. 1 2 / GUARD FILE. '$3 / BY ORDER - //TRUE COPY// - //TRUE COPY// 45 6 /7 / SR. PRIVATE SECRETARY ' /' IQ.KS / ITAT PUNE