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2018 (12) TMI 1215 - AT - Income TaxRejection of books of accounts u/s 145(3) - claim of unvouched expenditure - expenditure on sub-contract - part of contract executed by consortium members - accrual of income where issue has been referred to arbitration - Held that:- Assessing Officer is not right in rejecting the books of accounts of the assessee for the reason that the ld AO could not appreciate the nature of the business of the assessee and purpose of entering into consortium contract. He did not consider that assessee was only a pass through entity between the principle and the consortium members for the purpose of the above infrastructure project. The amount paid to the consortium members are also supported by the separate contracts entered into between AOP and consortium members for executing there part of the work. In fact each member was separately responsible for their own work - Decided against revenue Accrual of income - Realization of the claim of the assessee as it was referred to arbitration - Held that:- Bill raised by the assessee but not accepted by GAIL. The issue is whether the income accrues in the hands of the assessee despite it being disputed by the payee. It is also an accepted fact that there was a dispute and matter was referred to arbitration. Therefore, it was not sure whether the assessee has acquired right to receive the above income. Income can be held to accrue only when the assessee acquires a right to receive that income. Unless, the assessee acquired that right it merely remains a claim and not income. The mere raising a claim or a bill does not by itself create any legally enforceable right to receive any income. The Hon'ble Supreme Court in Godhra Electricity Vs. CIT [1997 (4) TMI 4 - SUPREME COURT] has held that unilateral increase in the rates of electricity shown as receipt in the books which could be realized due to protracted litigation did not result in an accrual of income, hence, such amount was not assessable. Therefore, in the present case there was no certainty of realization of the claim of the assessee as it was referred to arbitration, we confirm the finding of the ld CIT(A) in holding that such amount of ₹ 26.10 crore did not have any right to receive acquired by the assessee and hence, cannot be held as income chargeable to tax in the hands of the assessee.- Decided against revenue Set off of loss of AOP - Held that:- Undisputedly the assessee is a part of consortium which received a contract from GAIL for laying pipeline. Each of the consortium member also entered into sub-contracting agreement with the AOP for carrying out the above work and also sharing the gross receipts. Admittedly, the work has been executed by the members of the AOP by sharing of the gross receipts and incurring necessary expenditure to execute that contract, if any loss or income earned by them is chargeable to tax in their hands only. Therefore, we do not find any infirmity in the order of the ld CIT(A) in allowing the loss to the assessee. In view of this the only ground raised in appeal of the revenue is dismissed.
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