TMI Blog2018 (12) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... te' all the services performed in the past would be rendered futile and the assessee would be required to refund the advance received owing to its inability to provide the services agreed upon. For income to accrue to the assessee, the transaction should have been materialized. Since, there is no accrual the consideration received shall be treated as advance and not as an income item. Thus, the original Memorandum of agreement alongwith new deed of amendment dated 15/03/2012 establishes in clear and unambiguous terms that the amount received by the assessee was as “advance” and was refundable in case the objectives were not met. Further as per Clause 2 of MOA, it is evident that the “acquisition of land” was the essence of the agreement entered into as MoA. Once the same is established, it flows that the amount received cannot be bifurcated between the “past services” and “future services”. The land as envisaged as available by both the parties to MoA never became available due to the stiff opposition to the proposed power plant. To confirm the position from the perspective of opposite party HPC, a confirmation was received from the said party. The said confirmation also sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the MOA dated 07.03.2011 to the satisfaction of HPC for which it had received the lump sum payment of ₹ 11.25 Crores, and the said fact is acknowledged in the MOA itself. (v) The claim of the assessee that the project was scuttled and hence, she was liable to refund the entire amount of ₹ 11.25 Crores to HPC in all certitude is implausible per se, as loss if any, in such an eventuality is always borne by the contractee, and the contractor is never called upon to refund the fees, that too when the services have already rendered by the contractor. The assessee's claim in this regard is preternatural and defies all sense of logic. (vi) The Ld. CIT(A)'s reliance on the revised MOA dated 15.03.2012 is clearly misplaced, as the assessee had never furnished the same during the assessment proceedings. Had there been any such agreement the assessee was not precluded from furnishing the same during the assessment proceedings, as the so called agreement is dated 15.03.2012 and the assessment order was passed on 21.03.2014. The assessee has planted the said back dated agreement during the appellate proceedings to defraud the Revenue and deprive it of its rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early says that HPC shall not have any rights for any reason to claim any refund. It was also observed that HPC in its balance sheet as on 31/03/2011 has already accounted for the amount of ₹ 11.25 crores in its work in progress. Had the amount been given to the assessee firm as an advance, the same should not have been included in the loan and advances by HPC as on 31/03/2011. Accordingly by taking the expenditure involved at 10% of total receipts i.e. ₹ 11.25 crores, the AO added back the balance amount of ₹ 101250000 to the total income of the assessee as undisclosed profits from business. 5. By the impugned order, CIT(A) deleted the addition after observing as under:- 5. DECISION: I have carefully considered the facts of the case, grounds of appeal and written submissions made before me. 5.1. Ground 1: This is against the action of the AO in assessing ₹ 10,12,50,000 as undisclosed profits from the payments received from HPC. The case of the AO is that the payment made by HPC on the strength of the Memorandum of Agreement proves that income has accrued to the appellant. On the other hand, the case of the appellant is that no income has accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this transaction. The appellant did not recognize the consideration received as revenue since all the acts relating to the said transaction were not completed. For income to accrue to the appellant, the transaction should have been materialized. Since, there is no accrual the consideration received shall be treated as advance and not as an income item. The appellant thereafter also submits that the correct view of the transaction was accurately captured in the amendment to original MOA in terms of new deed of amendment dated 15.03.2012. The appellant contends that the terms of said amended MOA establishes in clear and unambiguous terms that the amount received by the appellant was as advance and was refundable in case the objectives were not met. 5.1.1 The appellant contends that the action of refunding the amount of 5.13 crores to HPC clearly illustrates the fact that the amount was an advance liable to be refundable in event of certain circumstances. Relying on the same, appellant argues that the treating the same as income by the AO is wrong and unjust on the appellant. As regards the AOs assertion of the accounting treatment given by HPC, the appellant vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an admitted fact by appellant as well as the AO that the pp . services were duly performed but the provision of future services was hampered by extraneous factors. The possibility of the extraneous factors is also placed in the MoA dated 07.03,2011. The Clause 1 of the MoA recognizes the said factors and mentions as under However, HANs obligation is subject to the local villagers and existing owners of the said land having no objection to the sale if the said land to HPC due to pollution related concerns. In fact the clause 2 mentions that HAN has represented that the said land was available for bonafide industrial use. Looking into the above clauses, it is evident that the acquisition of land was the essence of the agreement entered into as MoA. Once the same is established, it flows that the amount received cannot be bifurcated between the past services and future services . The land as envisaged as available by both the parties to MoA never became available due to the stiff opposition to the proposed power plant. To confirm the position from the perspective of opposite party HPC, a confirmation was received from the said party. The said confirmation also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al substantiation of the position comes from the fact that the appellant has refunded a sum of ₹ 5.13 crores to HPC. In my opinion, all the above factors point out the fact that the accounting of amount received by appellant of ₹ 11,25,00,000 as liability on the balance sheet date was proper and the same cannot be considered as income of the appellant. I hold accordingly. I therefore delete the addition of ₹ 10,12,50,000 made by the AO on this count. Ground 1 is allowed. 6. Against above order of CIT(A), Revenue is in further appeal before us. 7. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. 8. From the record we found that assessee was in respect of advance during the year from HPC with respect to land proposed to be acquired with the help of assessee. Since the assessee could not acquire the land and the subsequent act regarding taking clearance from Government aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refundable relying on another part of the clause 8 of the MoA. On careful reading of the said clause. We observe that the said clause is a generic clause preventing HPC from claiming any refund / damages relating to past performance activity of HAN and is not representative of the consideration clause. 13. The language of the MOA clearly stipulates that the amount received is in consideration for both past as well as future performances of the assessee as stated in the MOA. Herein it is important to note that the very relevance of the past performances is dependent on the successful completion of the future performance of the assessee i.e. whether the services such as seeking permission from the DC, evaluation of land, etc. are of any importance whatsoever would depend upon whether the assessee is able to acquire the land for HPC. 14. Various clauses as per the new deed of Amendment dated 15.03.2012, reads as under:- * Clause 1 of the Amended MOA stated that the MAN shall identify and help in acquiring fresh piece of 1000 acre of land and shall further perform all the obligations afresh/again (Past performances as well as Future performances) as stipulated in the MOA dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the objective of the HPC in entering into MOA was acquisition of land for the purposes of building power plant. Since HPC couldn't acquire the land and the very objective of the transaction ceased to exist, there is no question of income accruing to the assessee out of this transaction. The assessee did not recognize the consideration received as revenue since all the acts relating to the said transaction were not completed. For income to accrue to the assessee, the transaction should have been materialized. Since, there is no accrual the consideration received shall be treated as advance and not as an income item. Thus, the original Memorandum of agreement alongwith new deed of amendment dated 15/03/2012 establishes in clear and unambiguous terms that the amount received by the assessee was as advance and was refundable in case the objectives were not met. 19. Further as per Clause 2 of MOA, it is evident that the acquisition of land was the essence of the agreement entered into as MoA. Once the same is established, it flows that the amount received cannot be bifurcated between the past services and future services . The land as envisaged as available by both t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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