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2018 (12) TMI 820
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....and propriety of the same, and without affording the AO an opportunity to do so. Hence, the action of the Ld. CIT(A) is in violation of Rule 46A of the I.T. Rules 1962. (ii) In response to issue of letter dated 03.03.2014 to HPC seeking details of the said transaction during the course of assessment proceedings, the said party vide its letter dated 16.03.2014 has unambiguously mentioned that the amount has been treated as CWIP in their books, and not an advance as claimed by the assessee. Further perusal of its Balance Sheet revealed that its loans and advances as on 31.03.2011 stood at Rs. 45,75,024/- only. (iii) If the sum of Rs. 11.25 Crores received by the assessee from HPC had in actual fact been an advance, as claimed by the assessee, ipso facto HPC would not have subjected the same to TDS as per Chapter XVII of the Act. (iv ) The assessee had duly performed the functions assigned to her vide the MOA dated 07.03.2011 to the satisfaction of HPC for which it had received the lump sum payment of Rs. 11.25 Crores, and the said fact is acknowledged in the MOA itself. (v) The claim of the assessee that the project was scuttled and hence, she was ....
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....ervices was to be provided to HPC. The assessee was asked to explain why the said amount should not be treated as current year's income and was also asked to give details of settlement of the said amount of Rs. 11.25 crores shown as liability in the balance sheet as on 31/03/2011. The assessee submitted a letter from HPC confirming that they have given advance of Rs. 11.25 crores to HAN Realty & Infrastructure which is still receivable by them due to delay in completion of project. Further HPC vide letter dtd. 16/03/2014 intimated that the amount of Rs. 11.25 crores given to HAN has been treated as CWIP in their books of accounts. However, the balance sheet of HPC showed the loans and advances as on 31/03/2011 at Rs. 4575024 only. The AO found that the assessee firm (HAN) had already provided certain services to HPC for which HPC had paid Rs. 11.25 crores. AO also observed that the MOA clearly says that HPC shall not have any rights for any reason to claim any refund. It was also observed that HPC in its balance sheet as on 31/03/2011 has already accounted for the amount of Rs. 11.25 crores in its work in progress. Had the amount been given to the assessee firm as an advance, t....
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....luation of land and obtaining statutory permission from DC as having a direct nexus to the future performances to be carried out such as assistance in acquisition of land. The appellant submits that the in the eventuality that appellant fails to perform the future services with respect to acquiring land, conducting a land survey and providing Title certificate' all the services performed in the past would be rendered futile and the appellant would be required to refund the advance received owing to its inability to provide the services agreed upon. The appellant stresses upon the point that the objective of the HPC in entering into MOA was "acquisition of land" for the purposes of building power plant. The appellant argues that since HPC couldn't acquire the land and the very objective of the transaction ceased to exist, there is no question of income accruing to the appellant out of this transaction. The appellant did not recognize the consideration received as revenue since all the acts relating to the said transaction were not completed. For income to accrue to the appellant, the transaction should have been materialized. Since, there is no accrual the consideration rece....
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....his regard the definition of liability as per Accounting Standard 29 on "Provisions, Contingent liabilities and contingent assets throws light. The same is "a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits". The key aspect in the above definition is that there should be a "present obligation" as on the date of the balance sheet which can result into the outflow for the appellant. To determine the said obligation, I have perused the MoA entered into by the appellant and also considered the subsequent events to determine whether the amount was "liability" indeed. 5.1.4 The fee clause in the MoA dated 07.03.2011 stated that the amount was receivable for the past services rendered by appellant as well as future services to be rendered as on the date of MoA. It is an admitted fact by appellant as well as the AO that the pp . services were duly performed but the provision of future services was hampered by extraneous factors. The possibility of the extraneous factors is also placed in the MoA dated 07.03,2011. The Clause 1 of the MoA recognizes....
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....entified land were willing to sell the land for the project. However, on ground the acquisition of identified land by HAN never took off and the entire MoA including the "past performances" undertaken by HAN were of no value for the project and therefore inconsequential." The above highlighted portion establishes the fact that the both the parties were in agreement on the position that the "past performance" described in the MoA were not of consequence. In the above backdrop, it is also important to note as to whether the HAN had performed the obligations under the MoA. It is cardinal principle of contract that a contract is said to be discharged by performance when both the parties perform all the primary obligations both express and implied which are set out under the contract. The above discussion illustrates in clear terms that both the parties are in agreement that the contract was not performed. Final substantiation of the position comes from the fact that the appellant has refunded a sum of Rs. 5.13 crores to HPC. In my opinion, all the above factors point out the fact that the accounting of amount received by appellant of Rs. 11,25,00,000 as "liability" on the bala....
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.... * CIT vs. Ashokbhai Chimanbhai, 46 1TR 42 (SC) * Godhra Electricity Co Ltd., 225 ITR 746 (SC) * Hope (India) Ltd., 238 ITR 740 (Cal.) 10. Clause 8 of MOA dated 07/03/2011 reads as follows:- "It is hereby agreed by and between the parties that HPC shall pay a lump sum refundable fee of Rs. 11,25,00,000 (Rupees Eleven Crore and Twenty Five Lacs Only) to HAN in consideration of HAN's past performances as well as, future performances of the specified services for HPC, payable to HAN upon the execution of this MOA." 11. It is clear that the consideration received by the assessee is refundable. When will be the consideration refundable? It is cardinal rule of contracts, that in the event of failure of fulfilling any of the obligations, the receiver of consideration will have to refund the consideration. 12. In the assessment order, the AO contends that the said fee is nonrefundable relying on another part of the clause 8 of the MoA. On careful reading of the said clause. We observe that the said clause is a generic clause preventing HPC from claiming any refund / damages relating to past performance activity of HAN and is not representative of th....
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....xist. Further proof for the above comes in the future transactions entered into by the assessee with HPC. The assessee has already refunded an amount of Rs. 5.13 crores to HPC as on date. The same has been verified by the ledger account of HPC in the books of the assessee and the confirmation given by HDFC bank which reflects the payments made by the assessee to HPC. On the basis of above, the question of refundability or otherwise becomes immaterial and the said advance cannot be treated as income in the hands of the assessee. 18. In view of the above, in the eventuality that assessee fails to perform the future services with respect to acquiring land, conducting a land survey and providing Title certificate' all the services performed in the past would be rendered futile and the assessee would be required to refund the advance received owing to its inability to provide the services agreed upon. We also observe that the objective of the HPC in entering into MOA was "acquisition of land" for the purposes of building power plant. Since HPC couldn't acquire the land and the very objective of the transaction ceased to exist, there is no question of income accruing to the as....