9911796707
TMI Blog2012 (10) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming action of A.O. of applying Rule 10 of the Income Tax Rules. (5) The Learned CIT(A) erred in confirming the charging of interest u/s 234 B of the Income Tax Act. (6) The appellant crave for leave to add to alter to delete or to amend any of the grounds of appeal if necessary" 3. The assessee is a non-resident firm having its registered office in the State of Delaware and the principal place of business at Enron Corporation, 1400, Smith Street, Houston, Taxas 77002. It has entered into a contract with M/s. Dabhol Power Corporation (DPC) in connection with responsibility for onshore construction work and onshore services in connection with Phase II Dabhol Power Project and the attached Liquefied Natural Gas (LNG) unloading, storage and re-gasification. During the year under consideration following contracts were entered into by the assessee with DPC. (i) Onshore Construction Contract for Phase II of the Dabhol Power Project dated November 30, 1998. (ii) Onshore Services Contract for Phase II of Dabhol Power Project dated November 30, 1998. (iii) Onshore Construction Contract for LNG facility dated November 20, 1998. (iv) Onshore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . has been prepared for the relevant year." 6. The AO required the assessee to explain as to why the income accrued to the assessee firm during the year should not be brought to tax in the year of accrual. Vide reply dated 8/3/2002 it was submitted that the assessee recognizes the contract revenue for the contracts entered into with DPC under the "percentage of completion method" using cost incurred to date in relation to the estimated cost of the contracts based on the appropriate stage of completion of the project under the percentage of completion method revenues/profits are not recognized in fixed price contract unless the work under the contract has progressed to a reasonable extent. Ordinarily this test is not considered as having been not satisfied unless 20 to 25% of the work is completed. Reference was made to Accounting Standard-7 (AS-7) and it was submitted that the work was completed only to the extent of 14% of the total contract, therefore, assessee was not liable to declare any income having regard to the facts of the case. 7. AO vide letter dated 15/3/2002 required the assessee to explain as to why advances shown to be received by it of a sum of Rs. 320,14,19,720/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AS-7 and thus assessee was not able to show stage of contract performance completed at the end of the financial year. (para 5.2 of the assessment order) The AO also referred to disclosure clause of AS-7 which requires disclosure with regard to construction contracts regarding progress payments received and advances and retention on account of contracts included in the work-in-progress. The AO also referred to the International Accounting Standard - 11, which also require the disclosure of amount of advances received and amount of retention. From the above facts the AO has drawn the following conclusion to hold that the version of the assessee cannot be accepted. "In view of the above discussions and for the reasons mentioned hereunder, viz: (A) In the absence of details of stage of completion of contract furnished by the assessee, the advances received from the customer by the Assessee are being taken as income or a reasonable amount is estimated as income as discussed in the following paragraphs. (B) Further the assessee has also not tried to prove that only 14% of the work has been completed. The onus of proving that the minimum limit for work completion as subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting percentage of completion the value of the main contracts is required to be taken into consideration. He submitted that copy of all these contracts have been filed in the revised paper book which only will be referred during the course of arguments and it contains 82 pages. Copy of the main agreement is filed at page 73 to 82 of the paper book and according to attachement-4 placed at page 82 the total value of the main contract has been fixed at US$ 22,98,64,000 and Rs. 112,50,00,000. He submitted that if the total value of the contract is converted in terms of rupees total amount will be a sum of Rs. 1084,34,49,920 as per following calculations: Rate of US$ adopted by AO in para 11 at Rs.42.28 per dollar: US$ 22,98,64,000 x 42.28 = Rs. 971,84,49,920 + Rs. 122,50,00,000 Rs. 1084,34,49,920 Ld. A.R submitted that if profit element of 10% as taken by AO is removed from the aforementioned value of the contract i.e. a sum of Rs. 108,43,64,992 the cost of the project will come to Rs. 975,90,84,928. He submitted that the cost incurred by the assessee on the project during the year under consideration is only a sum of Rs. 149,78,24,027. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into consideration while computing percentage of completion of the project. Therefore, he pleaded that Ld. CIT(A) has wrongly confirmed the order of the AO vide which an addition of Rs. 16.00 crores was made to the income of the assessee. 13. As against aforementioned arguments of Ld. A.R it was vehemently pleaded by Ld. D.R that "OnCon IWA" were independent contracts. He submitted that the main contract was not even in existence on the date when final contract was arrived at between the assessee and DPC. He submitted that "OnCon IWA" was a tripartite agreement , whereas the final contract was between assessee and DPC. Therefore, he submitted that Ld. CIT(A) has rightly concluded that "OnCon IWA" were independent agreement and percentage of completion of the work contract has to be seen in the light of the value of contract as mentioned in "OnCon IWA". 14. He further submitted that the assessee is incorrect in contending that no invoices were issued to DPC. He submitted that Clasue-2 of the "OnCon IWA" clearly spelt out such obligation and he particularly referred to clause 2(a), which reads as under: "(a) EDC hereby agrees to pay LINGTEC according to the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion has to be seen vis-à-vis on that agreement only and the contention of the assessee that percentage should be computed only on the basis of total cost of the project should be rejected. 15. In the alternative, he submitted that in view of the aforementioned clause if the assessee has received the entire sum of Rs.320,14,19,720/-from EDC only in pursuance to this contract then the same would be considered to be received by the assessee only on submission of report regarding completion of work and if that amount is taken into consideration then even considering the total value of the contract reducing there from the estimated profit, the completion of work done by the assessee would be more than 20% of the project and, therefore, also the profit is assessable during the year under consideration. Thus it was submitted by Ld. D.R that in any case assessment has rightly been made in the hands of the assessee and the order of Ld. CIT(A) on this issue should be upheld. 16. Ld. D.R submitted that for the next assessment year Ld. CIT(A) has already given deduction of this income which has been assessed for the year under consideration as income having already been assessed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of that contract was in respect of work done by the assessee. If the total amount of Rs. 320,14,19,720/- is paid by EDC on completion of such work then the percentage of work as computed in the above part of this order will be more than 20%. However, in the interest of justice, we consider it just necessary to restore this issue to the file of AO with direction to allow another opportunity to the assessee to place on record all the invoices on the basis of which assessee had been receiving payments from EDC in respect of "OnCon IWA". If the entire payment received by assessee during the year is in respect of said agreement and is in respect of work done under that agreement then the project having completed more than 20% will be liable to be assessed to that extent during the year under consideration and appropriate assessment will be done by the AO with regard to year under consideration. We direct accordingly. 19. We may mention here that consideration of entire payments made by EDC to the assessee during the year under consideration is in no way improvement upon the case of the A.O as the said question has been raised by the A.O in the assessment order itself and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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