TMI Blog2005 (9) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... is answerable to the assessment to be made on the assessee. Therefore, we have to accept the proposition that in every assessment year, even though the final result is ascertained only on the completion of the project, an element of income is latent in the yearly working result. The distinction between the above conceptual profit and the ultimate de facto assessment of profit is because of the fine distinction existing between income and profits . Therefore, we are of the considered opinion that the provisions of law contained in s. 199 do not stand in the way of the claim made by the assessee-company for credits in respect of TDS made during the relevant previous year. As such, it is our finding that the AO should give credit for the TDS. This issue is, therefore, decided in favour of the assessee. Prior-period expenses - It is quite natural that there would be, an amount of overflow of information after the close of the accounting year. Therefore, to certain extent, the claim of the assessee that the details of such expenditure were received only after the close of the accounting year, could be accepted. It is a continuous process to incur expenditure and to account (for) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the assessing authority that it was following project completion method for recognizing income/loss. The assessee-company recognized its income on the basis of the percentage of completion as certified by the competent personnel of the assessee-company, in respect of technical services rendered. Where the contract was for technical services along with cost guarantee and work execution, the profit is accounted in the year of completion of the project. The expenses incurred by the assessee-company for carrying on the work would be carried forward as work-in-progress till the completion of the project, Under both the methods, the assessee company used to make provisions for losses already incurred/recognized in the course of completion of the contract. 4. On the basis of the above method of accounting regularly employed by the assessee-company, the AO examined the TDS credit amount claimed by the assessee in finalizing its liability towards payment of tax, While examining such TDS accounts, the AO noticed that many of the projects like Haldia Petrochemicals, Chambal Fertilizers Chemicals, MRPL, etc, had completed only in the financial year 1999-2000, accountable for the asst. yr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be allowed in the impugned assessment years. Accordingly, the said amount of Rs. 24,23,000 has been added back to the income of the assessee. 7. Both the issues were taken in first appeal before the CIT(A). The CIT(A) confirmed both the issues against the assessee holding that the assessee was not entitled for the credit of TDS to the extent of Rs. 2,28,37,491 for the impugned assessment year as well as the assessee was not entitled for claiming deduction for the prior period expenses amounting to Rs. 24,23,000. 8. It is against the above that the assessee-company has come in second appeal before us. Following are the grounds raised by the assessee in this appeal: "1. CIT(A) erred in confirming the withdrawal of the credit of TDS (of) Rs. 2,28,37,491. 2. The CIT(A), erred in confirming the disallowance of prior-period expenses of Rs. 24,23,000." 9. Shri Phiroze Andhyarujina, the learned senior counsel appearing for the assessee-company argued the case at length. Regarding the issue of TDS credit, the contentions of the learned senior counsel are as follows: 9.1 The assessee-company is carrying on the business of rendering technical services and project execution services. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is his case that the assessee-company has earned income for the impugned assessment year and that amount of income has already been impregnated in the work-in-progress value reflected in its accounts and, therefore, the claim for credit of TDS was rightfully made by the assessee-company. The learned counsel contended that the assessee has complied with all the conditions laid down in s. 199 of the Act. TDS has been made at the time of payment. Such tax deduction has been paid over to the credit of the Central Government. Those deductions have been treated as tax. Certificates of deductions provided under s. 203 have been produced before the AO. Income accrued during the relevant previous year has been subject-matter of assessment as the income was impregnate in the value of work-in-progress credited in the accounts. Therefore, as the assessee has complied with all the conditions laid down for claiming the TDS credit as provided in s. 199 of the Act, the action of the lower authorities are against law. 9.3 The learned senior counsel further contended that tax has been deducted at source from every payments received by the assessee-company irrespective of the consideration whether su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression "income" includes not merely what is received or what comes in by exploiting use of a property but also what one saves by using it by oneself and also which can be converted into income. Likewise, the nexus between the deduction of tax at source and the assessable income is not apparent in every assessment year as held by the Supreme Court in the case of Transmission Corporation of AP Ltd. Anr. which is evident from the fact that every amount from which TDS is made does not constitute income. As held by the Supreme Court in the case of CIT vs. C.R. Karthikeyan, the word income is of the widest amplitude and it must be given its natural and grammatical meaning. When the facts of the present case are considered in the light of the above principles laid down in the judicial pronouncements, we find that the arguments of the learned senior counsel are substantive and convincing. First of all it is to be seen that tax is deducted at source from every piecemeal payment even though every such piecemeal payment did not reflect 'income' as such. Earning of income is a continuous, indivisible process embedded in the business dynamics. The income is recognized for a particular perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in profits. Therefore, it is all the more clear that the income whether profit or loss impregnated in the value of working in progress is finally summed up to be the profit/loss of the contract which is answerable to the assessment to be made on the assessee. Therefore, we have to accept the proposition that in every assessment year, even though the final result is ascertained only on the completion of the project, an element of income is latent in the yearly working result. The distinction between the above conceptual profit and the ultimate de facto assessment of profit is because of the fine distinction existing between "income" and "profits". 14. Therefore, in the facts and circumstances of the case, we are of the considered opinion that the provisions of law contained in s. 199 do not stand in the way of the claim made by the assessee-company for credits in respect of TDS made during the relevant previous year. As such, it is our finding that the AO should give credit for the TDS amounting to Rs. 2,28,37,491. This issue is, therefore, decided in favour of the assessee. 15. Next we will consider the disallowance of Rs. 24,23,000 made by the assessing authority for the reason o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Another amount included in the above disallowance is Rs. 5,94,337 relating to sub- contractors claims. The amount was paid during the relevant previous year as the claim was finalized and crystallized during the relevant previous year. As the final liability itself was ascertained in the relevant previous year, the corresponding payment should also be allowed as an expenditure. 18. Another amount included in the disallowance is Rs.2,75,296 relatihg to TDS payments/penalties relating to salaries and perks. The learned 'counsel appearing for the assessee-company himself fairly can ceded that the assessee-company should not have claimed deduction of the said amount of Rs. 2,75,295. The said disallowance is confirmed. 19. Another amount included in the said disallowance is Rs. 2,61,693.44 which related to interest payment made overseas. The bank advices relating to such debiting of interest were received belatedly and only because of that delay the assessee could not provide for such expenditure in the concerned assessment year. Therefore, it is to be seen that such expenses really crystallized in the hands of the assessee during the relevant previous year. Therefore, the claim far d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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