Veolia India Pvt. Ltd. Vs DCIT (ITAT Delhi)
Ground- Learned CIT(A) has erred in considering amounts aggregating to Rs.26,839,975 towards Value Added Tax and Service Tax included in the customer’s work order as constituting part of construction contract value for the purposes of recognizing revenue under AS7.
The CBDT Circular No. 4/2008 dated 04.04.2008 clarified that service tax doesn’t partake the nature of income. The Circular was issued while dealing with Section 194-I. Since, the sum and substance of the circular is that the service tax doesn’t form a part of the income of the assessee, the same need not be considered for calculating the profits of the assessee for the year. Similarly, the Value Added Tax which do not form the part of the income of the assessee also needs to be excluded while determining the revenues of the year in the instant case.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-33, New Delhi dated 09.05.2016.
2. Following grounds have been raised by the assessee:
“1. That on the facts and circumstances of the case the impugned order of the Ld. Commissioner of Income Tax (Appeals) [hereafter referred to as “CIT(A)”] is bad in law and on facts.
2. That, on the facts and circumstances of the case the learned CIT(A) has erroneously sustained the action of the AO alleging short recognition of contract revenue under “Accounting Standard (AS) 7 – Construction Contracts” (hereafter referred to as “AS 7”) by incorrectly treating the ‘revised work order value’ of Rs. 27,70,60,188 for Project Demo Zone as the ‘contract value’ (including the consideration for operation and maintenance services and all the applicable taxes of Rs 4,15,26000) instead of the construction contract value of Rs. 21,94,78,821.
2.1 That, the learned CIT(A) has erred in misapplication of AS 7 to an item of Income/ revenue amounting to Rs 4,15,26,000 not related to construction activity carried out during the post construction period viz. Revenue from Operation and Maintenance (O&M) services during the regular O&M phase which is required to be considered only during the period when O&M activity actually takes place.
2.2 That, the learned CIT(A) has erred in considering amounts aggregating to Rs.26,839,975 towards Value Added Tax and Service Tax included in the customer’s work order as constituting part of construction contract value for the purposes of recognizing revenue under AS7.
3. That the appellant may be allowed to add, supplement, revise or amend grounds raised hereinabove in the interests of justice.”
3. The assessee company is engaged in activities relating to water distribution, supply, maintenance, treatment /management and / or sewage treatment/sanitation/related civil construction activities. It earns revenue from the execution of construction contracts for water infrastructural facilities as well as by way of income from operation and maintenance (O&M) of such facilities.
4. During the year under consideration, the assessee was offered and implementing construction contract of the Project Demo Zone (PDZ) pertaining to rehabilitation and implementation of water supply in the pilot area of Dharampeth of Nagpur Municipal Corporation. The contract received by the assessee consists of three parts namely,
