To reject view taken in earlier assessment years, there must be material change in the fact, situation or in law

In this case assessee is receiving mobilization advance from customers. This is to enable the assessee to purchase the raw material for the proposed work. As per the assessee’s method of accounting, the material, finished or semi finished stocks is transferred to customers work site for installation through invoices. The customer is billed and the amount is credited to sales account at pro-rata to the extent work is done and billed from time to time. The mobilization advance is accordingly adjusted proportionately.

This system of accounting does not suffer from any short coming. Moreover, it has been accepted by the department in earlier years. Under the circumstances, when assessee is following an acceptable method accounting and that also for a number of years, there is no reason to change the same. There is no change in facts or law as compared to earlier years. Hence, no change is warranted as the mobilization advances is ultimately offered for taxation as income as per a consistent method of accounting followed by the assessee.

In this regard, we also place reliance upon the Hon’ble Jurisdictional High Court decision in the case of CIT vs. Dalmia Promoters Developers (P) Ltd. 281 ITR 346, wherein it was held that for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law.

INCOME TAX APPELLATE TRIBUNAL, DELHI

I.T.A. No. 1924/Del/2011 – A.Y.: 2008-09

Dy. Commissioner of Income Tax

Vs.

M/s Ahlcon India Pvt. Ltd.

ORDER

PER SHAMIM YAHYA: AM

Explore how Income Tax Appellate Tribunal upholds consistency in mobilization advance treatment, referencing an accepted accounting method and legal precedent.

This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-IV, New Delhi dated 14.3.2011 pertaining to assessment year 2008-09.

2. The issue raised is that Ld. Commissioner of Income Tax (A) has erred on facts and in law in deleting the addition of ` 3,87,74,848/- made by the Assessing Officer on account of mobilization advance.

3. Assessee company in this case is engaged in the business of manufacturing, designing and fabrication of aluminum and architectural products. In this case it was noted that the assessee has shown ` 3,87,74,848/- as mobilization advance under the head ‘current liabilities’. The assessee was asked to provide details of the said advance. In response, the assessee stated that whenever it obtains a new project, it receives 20% mobilization advance from the customer for procuring the material. After the execution of the work, it raises the bill for the work done which is certified by the client. Out of the certified amount, the client deducts portion of mobilization advance apart from TDS and WCT. At the time of certification of the bill some portion of mobilization advance is recognized as income and balance unadjusted mobilization advance kept under the head ‘current liabilities and provisions’. The assessee submitted a list of 11 such entities from whom mobilization advance had been taken.

3.1 Not satisfied with the reply of the assessee, the Assessing Officer requisitioned for giving justification for showing the amount as mobilization advance along with the copy of agreement / contract. The assessee was also show caused as to why the said income should not be taken as ‘income for the year’. In response, the assessee stated that it was following the mercantile system of accountancy. It also drew attention to Board Circular No. 86 dated 29.5.1972. It was also clarified that TDS was being deducted as per the Board’s circular. It was further clarified that the mobilization advance received remained a liability of the assessee to the extent work was not executed. It was pointed out that the TDS of mobilization advance claimed had all along being assessed in the year of deduction and has always been accepted by the Assessing Officer.

3.2 The Assessing Officer was dissatisfied with the reply of the assessee. He was of the view that since the assessee was following the mercantile system of accounting, all income and expenditure should be booked in the year on accrual basis. It was further observed that all expenses had been accounted but not the accrued income which was unacceptable to the Assessing Officer. It was further noted that the assessee had not submitted copies of agreement with the parties. Accordingly, the Assessing Officer added ` 38774848/- to the assessee’s income.

4. Before the Ld. Commissioner of Income Tax (A) assessee made the following submissions:-

“It was submitted that the assessee was a private limited company engaged in the business of manufacturing of aluminum panels and other related products. The manufacturing was carried out as per the architectural designs and specification supplied by the customers which varies from customer to customer. The assessee company mostly insists and receives about 10% to 30% mobilization advance from the customers to enable the assessee to purchase aluminum raw material for the proposed work. The material, finished or semi finished stock is transferred to customer work site for installation through invoice as the product is manufactured under the excise Rules. The customer is billed and the amount is credited to sales account at pro- rata to the extent work is done and billed from time to time.

The mobilization advance is accordingly adjusted proportionately. The material, finished or semi finished stock, against work is taken as work in progress at the end of the year which was so as per Schedule 14 of the Audited Accounts.

It was further stated that the mobilization advance remains a liability till completion of the work awarded and so much so it is refundable on termination of work awarded as the customer is fully secured as per Indemnity Bond with Cooperative Bank guarantees. The assessee, which follows the mercantile system of accounting has always booked the material at cost or market value. The Assessing Officer has mis-conceived suo motto that there is no value of work in progress despite the return filed. Such a method of accounting has always been followed and accepted by the Assessing Officer. Further, the claim on TDS deducted on mobilization advance has been claimed in the year of receipt u/s. 199 of the Act. It was further stated that Section 199 was enabling provision for credit and not a computation provision. It permits assessee to claim TDS in the year of deduction and also the income in subsequent years under the mercantile system of accounting.”

4.1 Considering the above, Ld. Commissioner of Income Tax (A) observed that there was no doubt that the assessee has followed a system of accounting which has been accepted in the earlier years by the Department. Assessee had also shown work-in-progress during the year and observed that this was a consistent method of accounting being followed by the assessee and accepted by the Revenue. In such  a scenario, Ld. Commissioner of Income Tax (A) held that the assessee’s system of accounting cannot be questioned. He referred to the case laws including that of Hon’ble Apex Court in the case of Radhasoami Satsang vs. C.I.T. [1992] 193 ITR 321 (SC). Considering the above, Ld. Commissioner of Income Tax (A) held that it was clear from the Hon’ble Supreme Court and the Hon’ble Delhi High Court decisions, that principle of res judicata does not apply to income tax proceedings yet for the sake of consistency and for the purpose of finality in all litigations the earlier conclusions should not be reopened unless some fresh facts are found in the subsequent years. Ld. Commissioner of Income Tax (A) further observed that in this case it was crystal clear that there was no change in facts or law which would have persuaded the Assessing Officer to deviate from the stand taken by the earlier Assessing Officers. He further observed that assessee has been consistently reflecting the accounts which has taken a dispute only during this year. Ld. Commissioner of Income Tax (A) held that according to the principle of consistency, the stand of the Assessing Officer to his mind is incorrect as there was no reason why he should have gone for any exception to the principle of consistency.

5. Against the above order the Revenue is in appeal before us.

6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that in this case assessee is receiving mobilization advance from customers. This is to enable the assessee to purchase the raw material for the proposed work. As per the assessee’s method of accounting, the material, finished or semi finished stocks is transferred to customers work site for installation through invoices. The customer is billed and the amount is credited to sales account at pro- rata to the extent work is done and billed from time to time. The mobilization advance is accordingly adjusted proportionately.

6.1 This system of accounting does not suffer from any short coming. Moreover, it has been accepted by the department in earlier years. Under the circumstances, when assessee is following an acceptable method accounting and that also for a number of years, there is no reason to change the same. There is no change in facts or law as compared to earlier years. Hence, no change is warranted as the mobilization advances is ultimately offered for taxation as income as per a consistent method of accounting followed by the assessee.

6.2 In this regard, we also place reliance upon the Hon’ble Jurisdictional High Court decision in the case of CIT vs. Dalmia Promoters Developers (P) Ltd. 281 ITR 346, wherein it was held that for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law.

6.3 In the background of aforesaid discussions and precedent, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same.

7. In the result, the appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 19/10/2012.