TMI Blog2000 (9) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed in the two returns were as follows: Contract receipts Closing work-in-progress Net profit Adjusted net profit Rs. Rs. Rs. Rs. As per original return 21,50,304 15,00,000 2,06,133 2,36,253 As per first revised return 31,50,304 6,20,000 3,26,133 3,56,250 The first revised return was accompanied by a letter dt. 16th Feb., 1987, addressed to the AO which read as follows: "We have filed our return of income for the asst. yr. 1985-86 on 31st Dec., 1985. The contract receipts include Rs. 9,94,239.30 from the work "Idukki HEP-Cement Concrete lining behind steel liner in BVC area, etc." In fact Rs. 19,94,239.30 was remitted in the Court but we could draw only Rs. 9,94,239.30 and the balance was kept in the bank towards guarantee. As such we have credited the amount actually received from the work. We have been advised that even though the amount has not been paid to us and the Board has remitted the amount, it is advisable to include the same also in the contract receipts. Therefore, we are filing a revised return. The work-in-progress includes the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,87,118. This second revised return was not accompanied by any fresh P L a/c but it was accompanied by a letter dt. 30th March, 1998, addressed to the AO which read as follows: "We have filed a revised return of income for the asst. yr. 1985-86 and the assessment has been completed vide order dt. 30th March, 1987. On subsequent verification it is seen that contract receipts of Rs. 31,50,304 includes interest received for the delay in payment and compensation. As per the decision of the Hon'ble Orissa High Court in Govinda Choudhury Sons vs. CIT 1977 CTR (Ori) 190 : (1977) 109 ITR 497 (Ori) the interest receipt is not taxable. We have included in the P L a/c the total amount including the interest and as such there is no escapement of income from the assessment. However, if the Department is of the view that the same is taxable Rs. 3,87,118 has to be added as income for the asst. yr. 1985-86. The compensation (sic-computation) is given below: Total interest receipt Rs. 6,59,485 Less : Expenses incurred for earning income at 30% 1,97,845 Income already included at 11.3% on Rs. 6,59,485. 74,522 Rs. 2,72,367 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,07,349 to tax along with the interest offered by the assessee of Rs. 6,59,485 vide its letter dt. 30th March, 1988, after giving a deduction of 20 per cent towards expenses as relatable to the earning of such interest. 4. The CIT(A) accepted the contention of the assessee that the amount of Rs. 12,07,349 is not includible for the assessment year under consideration because of the pending appeal of the KSEB before the Hon'ble High Court of Kerala and, relying in this context the decision of the apex Court in the case of CIT vs. Hindustan Housing Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) Taxation 82(3)-80 (SC), deleted the addition of Rs. 12,07,349. 5. Before us, the Department objected to the deletion of addition of Rs. 12,07,349. It is mentioned in the ground taken before us that the assessee has been following cash system of accounting and it itself had credited this amount to the P L a/c as part of the contract receipt of Rs. 31,50,304 and so there was no justification for the CIT(A) to have deleted the addition of Rs. 12,07,349. In support of the stand of the Department, the learned Departmental Representative relied on the decision of the apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he right to receive future interest and also enhanced compensation on the compulsory acquisition of land was still unsettled inasmuch as the assessee had been directed to withdraw the future interest also along with the enhanced compensation, as in the present case, only on the furnishing of security and so the said amounts of interest and additional compensation were not includible in the assessment. 7. We are of the view that the assessee deserves to succeed substantially. In view of the judgment of the Hon'ble Kerala High Court holding that the arbitrator was not competent to have awarded the interest of Rs. 12,07,349, the assessee was not entitled for the receipt of the amount and so we find that the CIT(A) was justified in deleting it. It has been pleaded before us by the learned Departmental Representative that the judgment of the Hon'ble Kerala High Court was not available on the date of assessment or even on the date of the order of the CIT(A) and so there was no justification for the CIT(A) to have deleted the interest amount. We have to reject this contention for two reasons. Firstly, the CIT(A) has deleted this amount only because of the pending litigation in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oping society needs developing legal notions. " In the light of the ratio of the decision of the Rajasthan High Court, we have to go by the terms of the judgment of the Hon'ble Kerala High Court setting aside the award of the arbitrator. As such, we find that the CIT(A) was in principle correct in deleting the amount of interest awarded by the arbitrator. However, we have to make a small qualification in this regard. 8. The assessee had included the said interest of Rs. 12,07,349 in the first revised return filed by it and the assessment had also been completed on 30th March, 1987, on the basis that the said interest amount was part of contract receipts. That assessment order had reached finality and the assessee could not have taken any objection to that assessment in the appeal disposed of by the CIT(A) vide his order dt. 30th July, 1990, from which the present appeal arises before us. In the present assessment order the AO has not included the entire amount of Rs. 12,07,349. He has given a deduction of expenses at 20 per cent and also he has excluded the income portion at 10.35 per cent of Rs. 12,07,349, as we have explained hereinabove. So the effective addition in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est received by the assessee partake of the same character and both are assessable under the head "business", and that the interest is not separately assessable under the head "other sources" as held by the AO. The learned Departmental Representative pleaded that the deduction given by the Revenue authorities towards expenses is quite reasonable and on the basis of the P L a/c of the assessee, it is pointed out that no expenses are actually relatable to the earning of the interest. We agree with the contention of the learned Departmental Representative that expenses of not more than 20 per cent are relatable to the earning of interest income, if the interest income are to be assessed under the head "other sources". We cannot, however, go farther than this on the lines suggested by the learned Departmental Representative. As per the decision of the apex Court relied on by the learned counsel for the assessee and as per the decision of the juridictional High Court in the context of levy of penalty under s. 271(1)(c), the said interest income has only to be treated as part of business receipts. So, it is to be treated only as part of contract receipts and no further addition in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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