Pr Cit -7 v. Rites Ltd.

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• IN THE HIGH COURT OF DELHI AT NEW DELHI

• • ITA 404/2016

PR CIT -7 ..... Appellant Through: Mr. P. Roychaudhury, Sr. St. Consel and Mr. Vibhooti Malhotra, Junior Standing Counsel.

versus RITES LTD ..... Respondent Through: Mr. R.P. Garg and Kr. K.N. Ahuja, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI O R D E R % 06.12.2016

1. The ground urged by the revenue in this appeal under Section 260-A of the Income Tax Act relates to the interest on the mobilization amount claimed by the assessee. It is contended that recognition of revenue by the assessee was improper and having regard to the hybrid method of accounting adopted over the years, the interest amount had to be treated as income.

1. The facts are that the assessee had awarded a contract to M/s. RPCL (hereinafter ‘RPCL’). It had, as part of the agreement, paid to RPCL a mobilization advance. The question before this Court is with regard to interest accrued upon such mobilization advance. Apparently, the RPCL claimed that it completed the contract, the assessee, however, disputed that position and terminated the claim. The RPCL made a demand for arbitration. This led to a claim by the

assessee to the tune of 22195.43 lac. The RPCL counter-claimed to the tune of 46910.00 lac. Both A.O. and the CIT(A), rejected the assessee’s contention holding that the amount had accrued and had to be reflected as income. The ITAT, however was of the opinion that the entitlement had not crystallized having regard to the contentious nature of the matter even though the assessee had adopted hybrid method of accounting. The relevant findings of the ITAT are as follows: