TaxTMI 
TaxTMI 
2007 (3) TMI 302
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....1961 is that of a non-resident. The appellant company together with JP Industries Ltd. was awarded a contract by National Hydro Electrical Power Corporation, Faridabad (NHPC), Haryana, on 18th July, 1999 for execution of planning, design and engineering review, site technical supervision, installation, testing and commissioning of electro-mechanical equipments for execution of 3 x 100 Chamera Hydro Electrical Project, Stage-II, Chamba, in Himachal Pradesh, India on turnkey basis under contract No, NH/Cont/CH-II/72002, dt. 18th July, 1999 (hereinafter referred to as Chamera project). The special conditions of contract were specified in document n, parts A, B and C. The project was financed by international funding agency, namely, European Development Corporation (EDC). The' company opened a project office at New Delhi and site office at Chamera (Chamba) in HP for the purposes of executing the contract No. NH/Cont/CH-II/2002, dt. 18th July, 1999. It established a permanent establishment (PE) in India after obtaining necessary approval from Reserve Bank of India. On application filed by the assessee under Section 6(6) of Foreign Exchange Management Act, 1999 (hereinafter referred ....
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....al taxable income to Rs. 1,06,84,67,698 by rectifying the mistake with regard to an addition of Rs. 32,42,301 by way of disallowance under Section 40(a)(i) of the Act with respect to the payment to Donell Consultant Inc., Canada, which he found was considered by the appellant itself as inadmissible expenditure and added back as per computation sheet filed with the return of income to arrive at the assessable income. The learned CIT(A) not only substantially upheld the basis of assessment but further enhanced the assessment by disallowing a sum of Rs. 85,08,852 in respect of guarantee and insurance expenses as such expenses were found not relating to Chamera project executed by appellant which are being agitated in assessee's appeal. The Revenue's appeal agitates the relief allowed by the learned CIT(A) on the issue connected with the salary of two expatriates. 3. With this background, we shall now deal with various grounds raised before us in the appeal of assessee. We have heard at length Mr. M.S. Syali, senior counsel appearing for and on behalf of Shri Tarandeep Singh, learned Counsel for assessee, and Mr. T.N. Chopra, learned special counsel appointed by Revenue auth....
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.... wrong as most of the work relating to project in India and bills/invoices relating thereto have been raised through the PE in India. Since the assessee has established a PE in India, the income is taxable in India. Learned CIT(A) in para 8.8 of his order concluded and approved the action of the AO. He held that the AO was justified in rejecting the belated claim of the appellant for attribution and apportionment of profit. Learned CIT(A) held that the assessee established its PE in India with the approval of RBI on 16th Aug., 2000. The agreement for execution of Chamera project was made in India. The assessee has credited all contract receipts from Chamera project and deducted all contract expenses relating thereto in the P&L a/c in the books of accounts of PE in India as furnished to RBI. The auditors' report certifies that the accounts relate to project office of the Indian operations. This indicates that all activities were carried out through the PE in India. The contract receipts were received in Canada on behalf of the project office in India for the services rendered in India. The appellant has not substantiated the claim that the project proceeds have been included in ....
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.... the attention of the assessee concerned to all the reliefs and refunds to which the assessee seems to be entitled on the facts of the case even though the assessee might have omitted to claim refund or relief. He accordingly pleaded that the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) may not be roped in so as to avoid the claim. 5.3 Assailing the arguments of Mr. M.S. Syali, learned special counsel for Revenue, Shri Chopra, submitted that the contentions raised in this behalf are factually and legally unsustainable. Since the issue has now been decided by Hon'ble Supreme Court wherein it was held that no claim should be entertained which is not part of return or revised return. He submitted that though the AO and learned CIT(A) have examined the claim of assessee regarding attribution and apportionment of income between PE in India and Head Office in Canada, the decision of Hon'ble Supreme Court was not available at that point of time. Thus, the concession granted by AO should not be extended further and the claim of assessee should be rejected outright. 6. We have considered rival submissions. We have also perused the decisio....
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.... (a) the PE, and (b) ... from other business activities of the same or similar kind as those effected through that PE. The provision of the OECD Model Convention and the provision of the Indo-Canada treaty vis-a-vis Articles 7(1) and 7(2) are absolutely pari materia barring only the contents of Article 7(1)(b). The contents of Article 7(1)(b) are factually not applicable in the facts of case as there are no sales of goods and merchandise of same or similar kind as those sold, or from other business activities of the same or similar kind as those effected through that PE. It is an admitted factual position that the Head Office has acted only through the PE. This is accepted by the AO at p. 31, para 24.4. The AO submits so before the CIT(A) in his written submissions during remand proceedings. The CIT(A) so records at pp. 16-17, para 6.6. There is no allegation of a direct transaction. Thus, Article 7(1)(b) factually not being applicable, the issue of apportionment is only to be tested vis-a-vis Article 7(1)(a) r/w Article 7(2). Article 7(3) only refers to computation of the attributed income and has no impact on the extent of attribution. But for Article 7(1)(b)....
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....o. Reliance is not placed on this section to submit its applicability, as an option to be taxed under DTAA stands exercised, but it is being cited only to show that even under the IT Act all incomes from all operations cannot be said to be taxed in India. There have been instances, where an assessee carries on manufacture, sale, export and import, but it is not possible to say that the place where the profits accrue to him is the place of sale. The profits received relate, firstly, to his business as a manufacturer, secondly, to his trading operations, and thirdly, to his business of import and export. Profit or loss has to be apportioned between these businesses in a business like manner and according to well established principles of accountancy. The mere fact that manufacture and sale are integrated is no ground not to split the profit and attribute. For this purpose, reliance was placed on following decisions: 1. Anglo French Textile Co. v. CIT (1954) 25 ITR 27 (SC) 2. CIT v. Ahmedbhai Umarbhai & Co. (1950) 18 ITR 472 (SC); 3. Provincial Treasurer of Manitoba v. WM. Wrigley Jr. Co. Ltd. (1951) 20 ITR 614 (PC); 4. International Harvester Co. o....
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.... the reasons that merely because contract for execution of Chamera hydroelectric project was made in India and was executed by the PE in India will not result in refusal of attribution as it is an admitted fact that the PE of the applicant came into existence only on 16th Aug., 2000 when permission was obtained from RBI for opening project office in India and the agreement with NHPC was signed on 18th July, 1999 when the PE was not in existence. Even otherwise, as per the provisions of Article 7(2) of the Indo-Canada treaty, PE and Head Office are to be treated as a functionally separate entity thus even though the contract was executed through the PE (as conduit) in India, it would not mean that all the profits or receipts are attributable to India. As per the provisions of Section 5, Expln. 1, income accruing or arising outside India shall not be deemed to be received in India by reason only of the fact that it is taken into account in a balance sheet prepared in India. Even as per provisions of Section 9(1)(i), where all the operations of the business of the non-resident are not carried out in India, the income of the business deemed to accrue or arise in India shall be only suc....
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.... AO to CIT(A). These factors clearly show that all the work was not done in India. Extent of attribution i.e., whether it should be 30 per cent as admitted but denied by AO or 80 per cent as claimed depends on application of attribution guidelines starting from the books maintained of the project [which are accepted both by AO/CIT(A)]. The integration of the activity does not rule out attribution. It is not a commercially impossible situation where such help is sourced to an independent party. Split is possible and so it should be done. The mere fact that the project is one does not make it impossible of functional division. Whether the Head Office acted on its own or acted as a conduit is of no relevance as a commonly accepted fact will be that the work done by Head Office or as outsourced by Head Office is not functionally the work of PE or attributable to that separate entity. Same accounts of the project as given to the income-tax with original return were given to FEMA and company law authorities too. But, accounting treatment has to be in consonance with the requirements of the relevant statute. The relevance too is to be understood in consonance with the terms of the rele....
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....ement is accompanied by the following documents: Document No. I. General Conditions of Contract Document No. II. Special Conditions of Contract Part A--Planning, Design and Engineering Part B--Site Technical Supervision Part C--Supervision of Installation, Testing and Commissioning of Electromechanical Equipment Document No. III. Bill of Quantities Planning, Design and Engineering Review Site Technical Supervision Supervision of Installation, Testing and Commissioning of Electromechanical equipment Document No. IV. Nil Document No. V. Project Profile and Drawings Assessee has submitted a coordinated bid for the contract along with following parties: - Jaiprakash Industries Ltd. - SNC Lavalin/Acres (Transnational) Inc. - General Electric Canada International Inc. Under the General Contract "Contractor" shall mean M/s Jaiprakash Industries Ltd. The scope of work under the head "Planning, Design & Engineering Review" shall mean the review of overall and detailed planning of the project, all necessary additional investigations, the basic and detailed design of the ci....
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....ttraction may be restricted or complete. If it is complete all the profits of the Head Office are to be taxed as those of PE. However, if it is restrictive, only those profits that arise from the stated transactions are to be included in income attributable as are stated in the article. The Indo-Canada treaty does not embody complete force of attraction and hence profits other than those arising from what is stated in Article 7(1)(b) are not to be included. Article 7(1)(b) extends taxation by the State of the PE, i.e., India, to direct activities of an assessee which are not from the PE's own activities. Rather, they include those from direct transactions effected by the Head Office (or those from transactions effected by a PE situated in a third State) to the extent that such transactions are of the same or similar kind as those effected through the PE. Since this rule does not require all of the profits derived by the enterprise from sources in the State of the PE to be attributed to the PE, this arrangement is referred to as the restricted force of attraction principle. Thus, force of attraction rule gets activated when Head Office directly transacts with an enterprise of th....
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....g after affairs of the PE. That during the relevant assessment year, 37 personnel were deployed by the Head Office in Canada directly for the execution of the Chamera Hydroelectric Project-Stage II. 2. All these employees worked under the supervision of the Head Office which can be seen from the fact that out of 37 personnel, 26 personnel never visited India and only 11 personnel visited India for a short duration. The necessary capital required for day-to-day functioning of the PE was provided by the Head Office via telegraphic transfers. The expenditure ratio that is actual expenditure incurred in India and outside India-throws considerable light on the extent of activity and constitutes reasonable criteria for attribution as done and submitted duly certified by auditors. Consideration itself has been split into Part A, Part B and Part C. Thus, a bifurcation of the consideration too is also available. Without prejudice to the above arguments, Mr. Syali submitted that if contention of appellant is not acceptable then, the taxation still has to be of the PE, the provisions of Section 44D r/w Section 115A will apply and the taxation will be restricted to 20 per cent of t....
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....7 and allocated the proportional amount to the project office and prepared a revised account and arrived at the net profit of the Head Office at Rs. 22,99,115. The assessee claimed before the AO that the revised computation of income is in accordance with the provisions of Articles 7(1), 7(2) and 7(3) of the Indo-Canada tax treaty. The request of the assessee calling upon the AO to carry out the task of allocation of income even after the assessee has itself filed the return of income on the basis of audited accounts of the project office in India appears to be absurd and irrational. The AO called upon the assessee to produce the books of account of the Head Office and also to indicate as to what version of its operations in India has been presented before the Canadian tax authorities. The response of the assessee was totally non-co-operative during the assessment proceedings. This is what the assessee stated with regard to its Canadian income: In para 4.1 there is no provision of law that a non-resident before he makes a claim for exclusion of income for operations carried outside India or profits attributable to Canadian office, must furnish proof of payment of such taxe....
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....4. The P&L a/c appears to have been made much after the completion of the impugned assessment. The assessee company did not produce any books of account of the Canadian Head Office before the learned CIT(A). Section 594 of the Companies Act makes it incumbent upon a foreign company to furnish world accounts as well as Indian business accounts duly audited by a practising Chartered Accountant in India. The statutory requirements relating to maintenance of accounts by the foreign companies as per the provisions of the Companies Act have been elaborately explained by the Hon'ble AAR in its ruling in XYZ, In re (1998) 148 CTR (AAR) 417 : (1998) 234 ITR 335 (AAR) while upholding the applicability of MAT provisions contained under Section 115JA of the Act to the foreign company. In the instant case, furnishing of world accounts as per the aforesaid statutory requirements has not been fulfilled. Whatever be the position under the Canadian laws, it was obligatory on the assessee company to furnish the world accounts by virtue of the provisions of the Companies Act. This statutory requirement has not been complied with by the assessee company. Mr. Chopra further submitted that the co....
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....ated on rational principles of commercial accounting. The proposition is unexceptional and well-settled. However, when separate accounts are maintained in the various tax jurisdictions, that is, for the manufacturing operation in one jurisdiction and sale in the other jurisdiction, profits arising in the various jurisdictions would necessarily have to be adopted on the basis of such separate accounts. Even after maintaining the separate accounts for the various branches, there would be no occasion for carrying out any further exercise of apportionment of aggregate profits of the assessee. In the instant case, since the project office in India has maintained the accounts in India in respect of execution of the project, profits arrived at in its books are liable to be treated as the profits of the project office, that is, the profits of the PE in India without any further apportionment. The contention on behalf of the assessee company for apportionment is not in consonance with the realities of the situation. There is in fact no occasion for any apportionment after the project accounts have been maintained in India. 8.5 As regards reliance on the decision of CIT v. Tata Chemicals ....
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....t would apply to sales of goods or merchandise and other business activities in the following manner: If an enterprise has a PE in the other Contracting State for the purpose of selling goods or merchandise, sales of the same or similar kind may be taxed in that State even if they are not conducted through the PE; a similar rule applies if the PE is used for other business activities and the same or similar activities are performed without any connection with the PE." Thus, it would be seen that Article 7(1) in UN Convention is much wider in scope as compared with corresponding article in OECD Convention since the profits that it allows to be attributed to the PE are not strictly limited to those resulting from PE's own activities. Rather, they include those from direct transactions effected by the head office in the other Contracting State to the extent that such transactions are of the same or similar kind as those effected through the PE. This principle is referred to as the 'restricted force of attraction' principle since it does not bring within its purview all of the profits derived by the enterprise from sources in the State of the PE to be attributed to the PE. ....
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....fits pertain to the Head Office, would be of no avail in view of attraction rule in Article 7(1). 8.10 Para 2 of Article 7 of DTAA contains the central directive on which allocation of profits to a PE is intended to be based. The para is substantially similar in both the conventions, namely, UN and OECD. In the OECD commentary, it has been observed that the trading accounts of PE which are commonly available in well run business organizations will be used by the taxation authorities concerned to ascertain the profit properly attributable to that establishment. The commentary further observes that such trading accounts of the PE should normally be accepted by the taxation authorities in case these represent the real facts of the situation. It appears that the accounts maintained by the PE as per the OECD commentary should be adopted as the basis of taxation in the local tax jurisdictions. In the instant case of the assessee, the approach adopted is in conformity with the practice recommended in the OECD commentary, whereas it is the assessee company which is coming up with the plea for rejection of the project accounts and adopting a hypothetical and unrealistic basis for computi....
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....Article 7(3) of the Indo-Canada Tax Treaty which would govern the deduction of expenses. The decision renders no assistance whatsoever to appellant's case. Payments made by the project office to the Head Office would have to be considered in the light of the aforesaid provisions of Article 7(3). The various expenses debited in the project office would indicate that following expenses are on account of payments made to Head Office: (i) Cost of personnel allocated by Head Office Rs. 2,63,02,407 (ii) Travelling expenses in r/o aforesaid personnel Rs. 56,66,033 (iii) Purchase of software ' Rs. 2,03,761 (iv) Computer repair and maintenance Rs. 10,86,321 The aforesaid expenses are, inter alia, subject- matter of disallowance confirmed by the learned CIT(A) and being assailed by the appellant vide ground Nos. 4, 7, 8 and 11. 8.13 Insofar as applicability of Article 7(3) is concerned, disallowance of the aforesaid deductions deserves to be upheld since the payments are covered under the prohibition contained under Article 7(3) above. Apart from the prohibition contained under Article 7(3), the deductions are also barred by virtue of Section....
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....n 18th July, 1999 with NHPC which was executed in India. As noted in para 2 above, the appellant company is a joint venture company incorporated only for the execution of the said Chamera project. Except the execution of said Chamera project, the appellant company has not executed any other contract either in India or outside India. The whole of the activity pertains to only execution of the Chamera project signed on 18th July, 1999. The other contractor involved in this regard is M/s Jai Prakash Industries Ltd. of India. It is the contention of the assessee that even prior to setting up of the PE in India, the work pursuant to the agreement commenced but the same was executed by raising the bills after the PE was established. That is why value of the work done prior to setting up of the PE is reflected as opening work-in-progress and claimed as expenditure on debit of P&L a/c. In this backdrop of facts, we shall examine whether the claim of assessee for exclusion of the profit as is not attributable to the PE in India is outside the scope of taxation in India. 9.1 Section 5(2) provides that subject to the provisions of this Act, the total income of a person who is a non-residen....
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....PE the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE. In any case, where the correct amount of profits attributable to a PE is incapable of determination or the ascertainment thereof presents exceptional difficulties, the profits attributable to the PE may be estimated on a reasonable basis provided that the result shall be in accordance with the principles laid down in this article. 3. In the determination of the profits of a PE, there shall be allowed those deductible expenses which are incurred for the purposes of the business of the PE including executive and general administrative expenses, whether incurred in the State in which the PE is situated or elsewhere as are in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than as a reimbursement of actual expenses) by the PE to the head office of the enterprise or any of its other offices, ....
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....butable to 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. UN Model Double Taxation Convention OECD Model Double Taxation Convention (a) that permanent establishment; (b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on it that other State of the same or similar kind as those effected through that permanent establish-ment. 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinc....
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....nts or other rights, or by way of commission for specific services performed or for management, or except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices. Comparing the clause (1) of article 7 of DTAA between India and Canada, we find that the same is based on UN Model Convention and not on OECD Model Convention. As per UN Model Convention, not only the profits as is attributable to that permanent establishment is taxable but even the profits attributable to sales in other Contracting State of same or similar kind as sold through that permanent establishment are also taxable. Compared with OECD MC, it extends primary taxation by the State of the permanent establishment, viz., the profits that it allows to be attributed to the permanent establishment are not strictly limited to those resulting from the permanent establishment's own activities. Rather, they include those from direct transactions effected by the head office, though in the State of the permanent establishment (or those from transactions effected by a permanent establishment situated in a third State) to the extent t....
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....ct of Chamera Project is to be taxed in India. Thus, though in view of section 5(2) read with section 9(1)(i) of the Act, and also read with article 7(1) of the DTAA, broadly the principle of attributions are acceptable yet in view of clause (b) of sub-article (1) of article 7 of DTAA between India and Canada, no part of the profit from the execution of Chamera Project can be excluded while computing the profit of the appellant non-resident in India. Accordingly, Ground No. 2 raised in this regard is to be dismissed. 10. At this juncture we also need to discuss and decide the alternate contention raised on behalf of the assessee which is contained in ground No. 11.1 before us. It is the contention of appellant that the assessee has option not to be governed by the provisions of DTAA and may be taxed as per the provisions of the IT Act. It is contended that since what is received by the assessee from the execution of Chamera project can be described as "fees for technical services" as defined in Expln. 2 in Section 9(1)(vii) of the Act, the income be computed as per the provisions of Section 44D of the Act and the tax may be charged as per Section 115A of the Act. 10.1 Learned....
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.... this alternate plea cannot now be considered by the Revenue authorities. 10.3 We have considered rival submissions. Sub-section (2) of Section 90 provides as under: Where the Central Government has entered into an agreement with the Government of any country outside India under Sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. It is settled law that provisions of DTAA shall override the provisions of IT Act if the assessee chooses to be governed by the provisions of treaty. However, the option is with the assessee to choose whether it wants to be governed by the provisions of treaty or not. Since the assessee in the alternate has raised a claim that it does not want to be governed by the provisions of treaty between India and Canada but as per the provisions of IT Act, there can be no bar to apply the provisions of IT Act while computing the income of non-resident. As per Section 5(2) of the Act, all the income received or deemed to be received or accruing or a....
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....ications including revisions and amendments thereto supplied by the contractor and undertaking the liability of safe delivery of the equipment to the port of deliver in India including obtaining adequate insurance cover for shipment. Reading the aforesaid, it is clear that the services of the assessee are technical services as defined in Expln. 2 to Section 9(1)(vii) of the Act. The assessee also does not dispute that the services are technical services. As per Section 44D while computing the income by way of fees for technical services, no deduction in respect of any expenditure or allowance is to be allowed. As per Section 115A(1)(b), where the total income of a foreign company includes any income by way of fees for technical services received from an Indian concern, the amount of income-tax on the income by way of fees for technical services shall be 20 per cent where such fees for technical services are received in pursuance of an agreement made after 31st May, 1997. Since admittedly the assessee received fees for technical services as defined in Expln. 2 to Section 9(1)(vii), the same can be taxed as per the provisions of Section 44D r/w Section 115A of the Act. Since the a....
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.... fully completed and invoiced, the cost of work-in-progress completed till the end of the year, cannot be deemed to be nil. Since the assessee is following mercantile system of accounting, the assessee was liable to declare, if not the invoice value, at least the value of work-in-progress. Since the expenses incurred in this regard have been accounted for under the principles of accounting though the same receipts are accounted in the subsequent year, the same is to be brought to tax in the applicable year only. He accordingly made an addition of Rs. 3.24 crores. The same was confirmed by learned CIT(A). He held that major part of the work for which progressive bill was made had been performed by the appellant during the year and the amount had become legally due to the appellant. Any amount which becomes legally due on completion of work would prima facie be deemed as its income to be assessed during relevant assessment year. Since the amount was legally due to the appellant, the same was accordingly taxable in the year. 11.2 Learned Counsel for assessee submitted that the appellant is following percentage completion method of accounting. Following this method, revenue from ....
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....o submitted that merely raising of the bill cannot be treated as accrual of income. For this purpose, he relied upon following decisions: 1. CIT v. Bharat Petroleum Corporation Ltd. (1992) 108 CTR (Cal) 140 : (1993) 202 TTR 492 (Cal); 2. CIT v. Kerala State Drugs & Pharmaceuticals Ltd. (1991) 192 ITR 1 (Ker); 3. CIT v. Rehmat Khan (1995) 127 CTR (Raj) 384 : (1995) 213 ITR 134 (Raj). He accordingly pleaded that since the value of work was excluded subsequent to the close of relevant financial year, the same cannot be added to the income for this year. 11.3 Learned Counsel for Revenue, on the other hand, strongly relied upon orders of authorities below. He submitted that the assessee is following percentage completion method of accounting. Though the assessee is showing opening work-in-progress, no amount is shown in the closing stock as work-in-progress. He further submitted that as per p. 61A of paper book I, filed by the assessee which indicates that the assessee has submitted five bills for an amount of Rs. 10,29,84,431, the fifth bill being dt. 29th Jan., 2001 related to the work done till December, 2000. No bills for the work done for Janua....
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....fter been adjusted out of the subsequent bills sent by the assessee and details of adjustment are available at p. 56 of the DPB. During the course of hearing before the Hon'ble Bench, learned Counsel, in response to specific queries from the Bench, stated that since the books of account of the project office had been closed and audited on 29th Oct., 2001, amount of Rs. 3.09 crores released by the NHPC out of the provision has been credited in the books and the remaining amount of provision had not been accounted for in the absence of any such adjustment made till 29 Oct., 2001 when the accounts were closed. The argument appears to be factually incorrect inasmuch as adjustment out of ad hoc provision against the seventh bill dt. 22nd July, 2001 has been made for an amount of Rs. 1,68,16,185 before the closure of accounts, that is, 29th Oct., 2001. Even on the basis of argument of the learned Counsel this amount has not been credited as on 31st March, 2001. From the aforesaid facts it is manifestly clear that the amount of Rs. 3,24,28,301 for which provision has been made by the NHPC by 31st March, 2001 on account of the work done by the assessee and bill not raised represents th....
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....failed to account the accrual of receipt or the work-in-progress as on 31st March, 2001. 11.4 Shri Chopra submitted that the decisions cited by the learned Counsel laid down a legal proposition concerning the crystallisation of right to receive the income as per the mercantile system of accounting. The whole issue cannot be viewed in a purely legalistic manner. The accrual of income as per principles of accounting has to be judged according to the facts and circumstances of the case. In the instant case, since the owner, that is, NHPC has acknowledged its liability to make the payment to the assessee by making a provision in its books of account as on 31st March, 2001, it amounts to crystallisation of liability of NHPC outstanding in favour of the assessee. There is no dispute with regard to the amount payable by NHPC and in fact the subsequent events establish the undisputed nature of the accrued receipt by the assessee inasmuch as payments have actually been made by NHPC in the subsequent year. This is therefore a clear case of suppression of receipts and the addition of Rs. 3,24,28,301 sustained by the learned CIT(A) is fully justified. 11.5. We have considered rival submi....
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....ate is assessable. Thus, the reverse is not the law. The AO has merely presumed that since the amount has been credited by NHPC and since the work pertaining to J.P Industries Ltd. has been completed, the work of assessee is also completed. In our opinion, this presumption is not based on facts established in this regard. The assessee raised the running bill from month to month on the basis of work to be executed by it and not on the basis of work completed by J.P. Industries. Since the value of work done is also part of the invoices raised in subsequent year and which is accounted as income in the subsequent year, we find that the assessee is following proper method of accounting for such contract receipts based on percentage completion method. We accordingly do not find any justification to treat the income accruing in subsequent year as income of the . year under appeal. We accordingly delete the addition of Rs. 3,24,28,301 as alleged under statement of contract proceeds. 12. Ground Nos. 4, 5, 7, 8 and 9 relate to disallowance of various expenses as under: (a) Cost of personnel Rs. 2,63,02,407 (b) Opening work-in-progress Rs. 1,84,30,838 (c) Comp....