Rupayan Associates Pvt. Ltd. vs Deputy Commissioner Of Income ...
1995 Latest Caselaw 237 Del

ORDER

N. S. CHOPRA, A. M. :

The only grievance of the assessee in this appeal is that the learned CIT(A) in his order dt. 25th Aug., 1993 erred in upholding the taxation of Rs. 15,78,434 as income of the impugned assessment year instead of treating it as income of the asst. yr. 1992-93, as declared.

2. The relevant facts are that the assessee is a company. It is engaged in the business of renovation, interior decoration and allied job works. In early 1987 it was allotted a contract by the Standard Chartered Bank (the Bank for short) as a part of its renovation project of its New Delhi building, for which the bank also appointed architects, i.e., M/s. Jasbir Sahni & Associates (M/s. JSA for short); consultants, namely, M/s. Spectral Services Consultants Pvt. Ltd. and different contractors for different jobs, i.e., electrical works (M/s. National Electricals); air-conditioning works (M/s. Blue Star Ltd.) and civil works and interiors (M/s. Rupayan Associates Pvt. Ltd.), that is, the assessee. The assessee was given advances from time to time by the bank to carry out the work allotted and on completion of the works during the previous year relevant to assessment year under appeal, the assessee submitted its final bill to the bank on 29th March, 1990. The Assessing Officer noted that while the assessee had sent its final bill to the bank, it had accounted for all but an amount of Rs. 15,78,434 as its income for the earlier previous year as also the current previous year, the amount of Rs. 15,78,434 was shown as a liability in its balance sheet (under the head advances) in the name of the bank and in the remarks column of the details of advances it was shown as disputed and outstanding. He took the matter with the assessee when it was explained that the relevant bills were pending certification with the architects M/s. JSA and as the assessee is showing its income only of those amounts which are certified by the architects during a particular previous year, the amount of Rs. 15,78,434 could not be treated as its income by the assessee for the previous year ending 31st March, 1990. It was submitted that the bills were certified in July, 1991 and accordingly the assessee offered this amount as its income for the period ending 31st March. The Assessing Officer was not satisfied with the explanation offered and examined the matter further in depth and noted that even though the amount was shown in dispute, no evidence was led to establish that in fact there was any dispute between the assessee and the bank. On the other hand, the assessee supported its version on the basis of letter dt. 26th July, 1991 of M/s. JSA addressed to the bank to the effect that "it may be noted that the work entrusted to M/s. Rupayan have been completed since October, 1989. Now their bills amounting to Rs. 55,38,664 may be processed". The Assessing Officer took the view that in the context of the facts of the case this letter was of no value when he noted that M/s. JSA, the architects appointed by the bank for the said renovation project themselves stood paid their final bill for the services rendered some time in December, 1988. The Assessing Officer further noted that assessee had not explained the nature of dispute with the bank as also did not furnish confirmed copy of account of the bank, as required. He noted that the only basis on which the assessee was claiming that the amount was in dispute was letter dt. 26th July, 1991 of M/s. JSA and, therefore, not accounted for during the relevant previous year. The Assessing Officer made independent enquiries from the bank and recorded the statement of Shri Anil Jesuja, Premises Manager of the bank on 5th March, 1993 who confirmed that the total billing of Rs. 55,38,641 was accounted for in the books of the bank as on 31st March, 1990 and while an amount of Rs. 34,98,345 was capitalised by the bank, the balance of Rs. 20,40,296 was charged to revenue account. He further confirmed that the work entrusted to the assessee was totally completed on 29th March, 1990 and payments were directly made to the assessee by the bank and TDS was also deducted by the bank there from and there was no dispute between the assessee and the bank after completion of the job and receipt of final bill on 29th March, 1990 no payment stood made by the bank to the architects for their services after 6th Dec., 1988. The Assessing Officer furnished a copy of statement of Shri Anil Jesuja to the assessee and again called upon the assessee to explain as to why the amount of Rs. 15,78,434 shown as liability be not assessed as its income for the relevant assessment year. In reply the assessee admitted that there was no dispute with the bank. It also admitted that it is the bank which has made payments directly to the assessee. It, however, pointed out that the work done by it was required to be checked upon by the architects and any defects pointed out were to be removed by the assessee and the items involving claim of Rs. 15,78,434 were not cleared till the end of account period. It submitted that out of Rs. 55,38,641 a sum of Rs. 8,46,699 was credited during the relevant previous year while sum of Rs. 30 lakh and old was credited by the assessee to the P&L account in the earlier years. Thus, according to the assessee, pending clearance for the architects the assessee could not legitimately treat the amount of Rs. 15,78,434 as its income for the year ending 31st March, 1990, notwithstanding the fact that it has completed the contract and the bank had also stated as such. The Assessing Officer was not satisfied with the claim made by the assessee when he noted that the assessee was dealing with a bank and unless they were satisfied with the completion of work to their satisfaction they would not release/adjust the payments. He noted that the bank had accepted that there was no dispute between it and the assessee as on 31st March, 1990 and from the banks side the matter was closed. He also noted that the assessee was not showing the amount involved as work-in-progress either. On these facts and in these circumstances the Assessing Officer found the explanation given by the assessee as unacceptable and treated the amount as assessees income for the relevant previous year.

3. When the matter travelled in appeal before the learned CIT(A), it was submitted that the Assessing Officer had missed the facts as also misinterpreted the system of accounting followed by the assessee. It was elaborated that while the assessee had received advances from the bank, on completion of jobs it raised bills from time to time and the amounts of such bills were credited to its trading account only on their certification by the architects, M/s. JSA. It was pointed out that the assessee has disclosed a sum of Rs. 30 lakhs and odd in earlier previous years under this very system as also the sum of Rs. 8,46,699 during the relevant previous year while the balance of Rs. 15,78,434 remained certification by the architects and, therefore, the income had not accrued to the assessee. The learned CIT(A) after examining the issue at length found no merit in submissions made by the assessee when he noted that the assessee had raised bill against the bank which had treated the matter settled and closed as on 31st March, 1990 and there was admittedly no disputes between the bank and the assessee. They learned CIT(A) accordingly upheld the order of the Assessing Officer. The assessee is aggrieved.

4. The learned authorised representative for the assessee Shri Syali submitted that the assessee was allotted the contract by the bank in 1987 for renovation of their office and for this project the bank had appointed an architect, a consultant and contractors for different jobs, all of which were to act in tandem for the completion of the project and towards this end a system was evolved to review periodically the progress made and to undertake corrective measures whenever required. For the project the assessee was one of the contractors assigned civil work and interior. Shri Syali submitted that the architects appointed by the bank, namely, M/s. JSA were to coordinate, supervise and control the work to enable the bank to settle the bills of the contractors and even to certify advance payments to the contractors based on their bills and finally to clear the bills as per their certification. He submitted that with regard to the contract with the bank the assessee has been following a system of accounting under which it taken into account only those bills which are certified by the appointed architects, M/s. JSA and pending that the assessee does not acquire any right over the amounts involved as its income. Since certification of the architects on assessees bills for Rs. 15,78,434 was pending as on 31st March, 1990 that amount was not shown as the assessees income, the same having not become legally due to the assessee. According to the learned authorised representative the assessee has recorded its income as relating to the work only when the bills raised by the assessee against the bank are certified by the architects M/s. JSA and, therefore, in the absence of certification of bills involved for Rs. 15,78,434 the assessee legally could not treat the same as its income. In support of his proposition, the learned authorised representative has placed reliance on Patna High Court judgment in the case of CIT vs. Chanchani Bros. (Contractors) Pvt. Ltd. (1987) 161 ITR 418 (Pat). The learned authorised representative has also referred to the judgment of Calcutta High Court in the case of CIT vs. Simplex Concrete Pvt. Ltd. (1989) 179 ITR 8 (Cal) and of Kerala High Court in the case of CIT vs. Shanker Narain Construction Co. (1992) 197 ITR 688 (Ker).

5. On the other hand, the learned Departmental Representative submitted that admittedly there is no contract in writing between the assessee and the bank and, therefore, the nature of receipt is to be judged in accordance with the conduct of the parties. He submitted that notwithstanding the system of accounting as followed by the assessee, the Assessing Officer was justified in treating the amount as assessees income for the relevant previous year when the assessee raised its final bill involving the amount in question against the bank and the bank accepted the same as full and final when it treated the bills as settled and the work completed. He submitted that the mere fact that the bills involved were not certified by the architects till the end of the relevant previous year is of no consequence. He submitted that it is the bank which gets certification from its architects and once the bank has accepted the bills and closed the matter in the account year ending 31st March, 1990 having also capitalised a part of the expenditure as also treating and claiming a part as revenue in its books of accounts leaves nothing in doubt that the contract stood treated by the bank as finally concluded and assessee cannot take the plea that in spite of these happenings the amount did not constitute assessees income for the relevant previous year merely because the bills were pending certification with the architects. The learned Departmental Representative submitted that even by treating the amount involved as representing work-in-progress, the addition is justified notwithstanding the system of accounting of the assessee. In support of his proposition, the learned Departmental Representative placed reliance on Supreme Court judgment in the case of CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC).

5.1 In reply, Shri Syali, the learned authorised representative, submitted that the amount involved could not be treated as assessees income by treating the same as work-in-progress either since the work already stood completed during the relevant previous year itself and also addition on account of work-in-progress would not be equal to the amount of bills. The learned authorised representative also submitted that the ratio of Honble Supreme Court in British Paints India Ltd. (supra) is not applicable to the facts and circumstances of the case, inasmuch as, the assessee is not taking the value of bills as its closing stocks and, therefore, the question of valuation thereof does not arise. Shri Syali submitted that the learned CIT(A) did not uphold the addition on this count either. He submitted that the Revenue is admittedly not in appeal and, therefore, it is precluded from arguing the issue from this angle, i.e., the bills raised represented work-in-progress. In support of his proposition, the learned authorised representative has also placed reliance on Karnataka High Court judgment in the case of Karnataka State Forest Industries Corpn. Ltd. vs. CIT (1993) 201 ITR 674 (Kar) and Andhra Pradesh High Court (Full Bench) in the case of CIT vs. Late Begum Noor Bano Alladdin (1993) 204 ITR 166 (AP) (FB). After hearing the learned representatives of the parties and having also perused the relevant record, we find ourselves in agreement with Shri Syali, the learned authorised representative that the Revenue being not in appeal cannot build its case on the basis which did not prevail with the learned CIT(A), and, therefore we reject the submission made by the learned Departmental Representative that the Assessing Officer could made the impugned addition by way of valuation of closing stock. The judgments of Honble High Courts relied upon by Shri Syali in support of his proposition, i.e., (1993) 201 ITR 674 (Kar) (supra) and 204 ITR 166 (AP) (FB) (supra) support out view. The ratio of Honble Supreme Court in British Paints India Ltd. (supra) is also not applicable to the facts of the case either.

6. We have also carefully considered the submissions made by the learned representatives of the parties and have perused the relevant record, including the paper book filed by the learned authorised representative for the assessee. We have also taken note of judgments of High Courts relied upon by the learned authorised representative for the assessee. The assessee was awarded a contract by the bank for a particular job involving renovation of its Delhi office along with certain other contractors for specified jobs under a project for which the bank had also appointed architects, M/s. JSA as also a consultant and contractors. It is common ground that there is no written contract between the assessee and the bank. The assessee on demand was also given advance for the job by the bank, as is apparent from page 34 of the paper book, which is a copy of letter dt. 21st Dec., 1987 addressed by the assessee to the bank requesting for an advance of Rs. 5 lakhs, as against the work-in-progress at site and the bank, in fact, paid an advance of Rs. 5 lakhs against wood work in phase II area which was in progress. It is also not in dispute that it is the bank which is to review the work done by the assessee and record its satisfaction as is manifest from various progress reports on the project prepared by the bank form time to time. A reference may also be made to letter dt. 11th March, 1988 sent by the bank to the assessee calling upon it to remove defects noticed in a few chairs supplied. It is also a matter of record that the bills submitted by the assessee are got vetted by the bank from the architects, M/s. JSA and on their certification the bills are treated as settled (page 37 of the paper book, which is a copy of letter dt. 16th March, 1989 from the bank to the assessee). It is the claim of the assessee that as thee bills involving amounts of Rs. 15,78,434 were pending certification with the architects, the amount involved could not be treated as its income unless there was actual certification, which according to the assessee, came some time in account period relevant to asst. yr. 1992-93 and the amount stood treated as its income for the same period. We cannot, however, accept the proposition of the learned authorised representative for the assessee that unless the relevant bills were certified by the architects, the amount involved could not be treated as its income. What is to be seen is the conduct of the parties to the contract, i.e., between the bank and the assessee, there being admittedly no written contract. The assessee has admittedly completed the job during the relevant previous year as has also submitted its full and final bill to the bank. The bank has accepted the completion of the work done by the assessee and has also accepted the bills received by it some time in March, 1990. Since both the contracting parties agreed to the completion and execution of the job, as also to treat the bills as full and final, we are unable to accept the submissions made by the learned authorised representative that pending certification of some of the bills with the architects of the bank, the assessee could not treat the amount involved as its income when the bank itself has treated the matter closed, inasmuch as, it has finally adjusted the amount advanced in its books of accounts, partly under the head capital and partly revenue as is admitted by Shri Anil Jasuja, premises manager of the bank in his statement recorded by the Assessing Officer as on 5th March, 1993. The learned authorised representative has referred to the letter dt. 9th Jan., 1993 of Shri Jasuja to the assessee advising the assessee that the value of work executed on the designs/plans of the architects was Rs. 55,38,641 and this amount was settled in full after receipt of architects certificate dt. 26th July, 1991. In this context it is noted that the Assessing Officer had duly made available the copy of statement dt. 5th March, 1993 of Shri Anil Jasuja, premises manager of the bank to the assessee and in reply dt. 19th March, 1993 the assessee duly commented upon the contents of the statement of Shri Jasuja, but it did not seek opportunity to cross-examine Shri Jasuja. Accordingly, the letter dt. 9th Jan., 1993 of Shri Jasuja is of no consequence in the context of statement dt. 5th March, 1993 of Shri Jasuja. The Assessing Officer, on the other hand, specifically referred to the letter dt. 22nd Feb., 1993 to Shri Anil Jasuja wherein it was mentioned that the amount of Rs. 20,40,296 was expense of revenue nature and it was confirmed by Shri Jasuja that the amount was accounted for in or around December, 1989 or January, 1990. In his statement Shri Jasuja also to a specific question (question No. 4) accepted that the work assigned tot he assessee was completed as on 29th March, 1990. The Assessing Officer also in question No. 5 referred to letter dt. 22nd Feb., 1993 of Shri Jasuja to the assessee and in reply it was accepted that payments were made directly by the bank to the assessee and the bank also deducted TDS thereon and further there was no dispute between the bank and the assessee. The bank also confirmed that the architects stood paid their amount on 6th Dec., 1988 and when they submitted their final bill on 26th Aug., 1991 it was found that no further amounts were payable to them and no payments stood made after 6th Dec., 1988. Apparently, therefore, the bank was satisfied that the assessee had, in fact, completed the job as in March, 1990 itself to the entire satisfaction of the bank and on these facts and under these circumstances, it is not acceptable that the architects had any say in so far as the bills of the assessee on the bank for Rs. 15,78,434 was concerned. In simple terms the assesses-contractor had made a claim for Rs. 15,78,434 and the bank had accepted the same in March, 1990. Therefore, having considered the matter in depth we are clearly of the view, that on the facts and in the circumstances of the case, the Revenue was justified in taxing the amount as assessees income for the previous year relevant to the assessment year under appeal. We do not consider it necessary to discuss the judgments of the Honble Supreme Court and High Courts, relied upon by the learned authorised representative for the assessee, the same being either not relevant or distinguishable and not applicable to the facts of the case. We accordingly uphold the order of the learned CIT(A).

7. The appeal of the assessee is dismissed.