Mere TDS certificate not conclusive evidennce for determining nature of payments

Brief Facts of the case-

• The Appellant is a company engaged in the business of execution of EPC (Engineering, Procurement and Commissioning) contract.
• For the AY under consideration (AY 2006-07), assessee filed its return of income on 13/11/06 declaring loss of Rs. 65,48,374.
• The appellant had obtained an EPC contract form Lanco Amarkantak Power Private Ltd., (LAPPL).
• For the year under consideration the appellant received advances of Rs. 14.49 crores from LAPPL in the months of July 2005 and March 2006 & by March 2006 the works were under progress.
• LAPPL had deducted TDS on the said amount of mobilization advances and TDS certificates were issued to the Appellant.
• As per records the works assigned to the appellant by the Contractor Were completed in June 2006. Thus for the year under consideration as the project was under progress, the appellant has drawn work in progress account and also prepared a balance sheet.
• After completion of works, bills were submitted and finally handed over the possession and accordingly offered income in the next financial year relevant to the assessment year 2007-08.
• Seeing the state of affairs, the AO Was of the view that as major works have been completed, it must result in income. AO referring to the AS-7 of ICAI as well as a number of judicial authorities, ultimately, held that income @ 8% has to be estimated on the total expenditure of Rs. 16,22,21,839 shown as work-in-progress by assessee and accordingly completed the assessment, which is under challenge now.

Contention of Assessee

• The amount received from LAPPL is only mobilization advance only. The contractee had deducted tax on such advance as it pertains to professional and technical services and TDS provision is equally applicable to advance payments also.
• Since the amount received is only an advance in hands of the company, the same was not shown as income.
• Since the contract was not fully executed during the relevant FY, assessee has not raised any bill on the contractee during the year and entire expenditure was shown as work-in-progress. Also the entire work-in-progress of Rs. 16.22 crores had been brought forward as opening work-in-progress in P&L A/c for the next AY.
• The work was completed in AY 2007-08 when the bills were raised by the company. The entire income was recognized in AY 2007-08 and tax has been appropriately deposited by the assessee.

Contention of the revenue

• The Appellant had given on sub-contract whatever work it had obtained from LAPPL and assessee has also paid entire bills to the subcontractors, hence, assessee is only submitting the bills to the contractee for the work done by sub-contractors.
• Further, the TDS certificate issued by LAPPL shows the nature of payment as professional and technical services.
• Seeing the state of affairs, it appeared that the work had already been completed and accordingly, income had to be estimated on work-in-progress. Accordingly, profit and loss account, not being prepared rightly, the 8% on advances received from LAPPL for the year ending 31/03/2006 should be subjected to tax.

Held by Respective Court

• As can be seen from the terms of the relevant agreement between assessee and LAPPL, assessee is to receive 15% of the total contract amount as mobilization advance. Though, it may be a fact that in the TDS certificate, deductee has mentioned it as payment towards professional charges but, that itself is not conclusive enough to prove the fact that amount received was not advance but towards work executed.
• The fact that the Appellant started raising bills in next FY after completion of the contract work and also recognized income accordingly in the said FY has not been controverted by ld. DR.
• Since, the impugned addition made by AO has already been offered to tax in next assessment year, In any case of the matter, there is no prejudice caused to revenue as the income assessable on the contract receipt has been offered by assessee for taxation, though, in a different assessment year.
• In the result, appeal of the department is dismissed and the order of CIT(A) has been upheld.