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2019 (5) TMI 1669 - AT - Income TaxAddition of direct expenses incurred on behalf of the client shown in the Contract Account - whether the addition on account of Labour Cess should not be made? - disallowance invoking the provisions of section 43B - HELD THAT:- Labour cess is part of the contract account. That being so, the assessee is correct in contending that the addition, if any, is maintainable only in the hands of the client of the assessee Corporation and not in the hands of the assessee. The provisions made for labour cess, do not stand debited to the profit & loss account and the profitability of the Corporation in the form of centage earned as gross profit, is not affected. The assessee Corporation is only a collecting agency for the purposes of the labour cess and deposit thereof with the Government account. Thus, the action of the ld. CIT(A) in confirming the addition for the provisions for labour cess, is reversed and the addition is deleted. The sole ground raised by the assessee in its appeal is allowed. Addition u/s 40(a)(ia) - non-deduction and deposit of tax with the Central Government within due date on the provisions of labour charges made by the assessee’s various units in various districts of Uttar Pradesh - HELD THAT:- Section 40(a)(ia) is clearly not applicable to the facts of the present case, wherein, the claim of the assessee is that all the provisions made, represent labour charges, such provisions having been made by the assessee in its books of account, without debiting the profit & loss account. As settled in ‘Aahar Consumer Products Pvt. Limited’ [2011 (2) TMI 488 - ITAT, DELHI] , in order to enable invoking the provisions of section 40(a)(ia) the assessee should first be shown as contemplating deductions under sections 32 to 38, which provisions contained in the non obstante clause beginning section 40, attract disallowability to deductions in these provisions, on which tax is deductible and no TDS has been made by the assessee. Then, as settled in ‘M/s Teja Construction vs. ACIT’ (supra), all the expenditure, which represents direct costs and, hence, is adjustable against the revenue for the purpose of determining profit under section 28(i) of the Act, does not come within the provisions of section 40(a)(ia) of the Act. CIT(A) has correctly deleted the addition wrongly made. The ‘labour charges’ were only provisions made by the assessee in its books. The Contract Account containing these provisions had necessarily to be prepared by the assessee Corporation, in keeping with the requirement of its Working Manual. This contract account did not affect the profitability of the assessee. In fact, the profit & loss account of the assessee was never debited with the labour charges in question. The Contract Account merely reflected the resulting profit or loss accruing during a construction period, having a direct relation to the works dealt with by the assessee in its business and which ascertains the gross profit. This has duly been taken into consideration by the CIT(A) and the Department has not been able to successfully rebut the well reasoned finding of fact and law recorded by the ld. CIT(A). Addition of long standing credits in the books of accounts of the appellant - HELD THAT:- No infirmity in the order of the ld. CIT(A) on this issue. As observed by the ld. CIT(A), the A.O has nowhere given any finding that the liability in respect of the aforesaid credit balances has ceased to exist. Moreover, once the books of account of the assessee are accepted and the contract account is not disturbed, there is no justification to sustain the addition for the reason that these balances were old and unconfirmed. We, therefore, confirm the order of the ld. CIT(A) on this issue and reject ground No.3 of the Revenue. CIT(A) directing the A.O to accept the revised computation of income - HELD THAT:- CIT(A) has set aside the order of the ld. CIT(A) on this issue and restored the matter to the file of the A.O with a direction to accept the revised computation of income where the anomaly described by the AO has been corrected and the depreciation as per Income Tax Act has been claimed and depreciation as per the Companies Act has been added to the income. Since the issue relating to allowability of depreciation has been restored to the file of the A.O to decide the same afresh after accepting the revised computation, we do not find any infirmity in the order of the ld. CIT(A), therefore, we confirm the order of the ld. CIT(A) on this issue and reject ground No.4 of appeal of the Revenue. Loss on sale of fixed asset - CIT(A) directing the A.O to accept the revised computation of income wherein the assessee added loss on sale of fixed asset - HELD THAT:- As observed by us in para 32 above, since the issue relating to allowability of depreciation has been restored to the file of the A.O to decide the same after accepting the revised computation, we do not find any infirmity in the order of the ld. CIT(A), therefore, we confirm the order of the ld. CIT(A) on this issue and reject ground No.5 of appeal of the Revenue. Addition on account of prior period expenses - HELD THAT:- As claimed by the assessee, the amount pertains to the contract account and therefore, in case the addition is made, the equivalent amount is to be reduced from the work-in-progress. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue. Accordingly, we confirm his order on this issue and reject ground No.6 of the Revenue’s appeal. Accrual of income - interest on client fund as income of the assessee - HELD THAT:- Amount shown in the balance sheet as interest accrued on deposits was the running balance of the accrued interest on the funds of the clients of the assessee. The assessee maintains its books of account on mercantile basis and it makes provision of interest on accrual basis. The assessee also credits such interest to the respective clients’ accounts as per Government Order dated 11/4/1076 (supra). CIT(A) has rightly observed that the interest earned by the assessee on unutilized fund is credited to the respective accounts and are the income of the concerned clients and not of the assessee. No infirmity in the well reasoned order of the ld. CIT(A) on this issue. Addition on account of expenses relating to purchase of material - HELD THAT:- CIT(A) has deleted the addition placing reliance on the decisions of the Tribunal in the assessee’s own case for assessment yea₹ 1991-92 and 2000-01 wherein identical issue has come up for consideration before the Tribunal and the Tribunal held that if any disallowance was to be made in the cost debited to the contract account, then corresponding reduction is required to be made in the work done also being a case of contra entry. No justification to interfere with the order of the ld. CIT(A), who has rightly deleted the addition Addition on account of ‘income wrongly credited in previous year written back’ - HELD THAT:- as observed by the ld. CIT(A), that centage on the work of ₹ 2,13,04,810/- and ₹ 6,37,17,415/- has already been assessed to tax in the assessment year 2008-2009; that the reversal entry has been passed, as the CAG opined that the cost of construction was wrongly recognized in the assessment year 2008-2009; and that the remaining amount of ₹ 93,18,832/- is the excess centage shown in the assessment year 2008-2009. Once the centage has been offered to tax, there is no reason to disturb the contract account for the year under consideration by making addition of ₹ 9,43,41,057/-, as the income was offered to tax in assessment year 2008-2009. Therefore, no interference is called for in the order of the ld. CIT(A) on this issue. - Decided against revenue Addition on account of interest income earned on clients unutilized funds - HELD THAT:- Amount shown as ‘prior period adjustment’ by the assessee in its profit & loss account for assessment year 2011-12. A perusal of the Income Computation Statement of the assessee for assessment year 2011-12 shows the amount of ₹ 26,95,93,097/- in the profit & loss account. Since the amount received by the assessee as interest on FDRs on the funds received as advance from the clients, has duly been credited in the respective accounts of the clients, the ld. CIT(A) was justified in deleting the addition made by the A.O. We accordingly confirm the order of the ld. CIT(A) on this issue and reject grounds of the Revenue. Addition on the basis of the comments of the statutory auditor - as commented that the said amounts were part of the work done during the year, whereas the submission of the assessee was that the same have already been accounted for in assessment year 2011-12 - HELD THAT:- We find no error in the order of the ld. CIT(A) in deleting the addition as the same has been shown by the assessee as income in the subsequent year. We, therefore, confirm the order of the ld. CIT(A) on this issue and reject ground of the Revenue.
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