TMI Blog2009 (10) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... larly, percentage of completion method is another such method. Under the completed contract method , the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract period. As per the accepted accounting principle, it is accumulated under one head of account, work-in-progress . The project constituted the stock-in-trade of the assessee. The project did not constitute a fixed asset of the assessee. In the last accounting period when work is completed, the profit and loss account is prepared, that work-in-progress account is to be transferred in profit loss account. Thus, the completed contract method determines profits/loss only when contract is completed. Opening balance of work-in-progress of individual project will go up in the relevant year. When these projects were completed, in that year, income has to be computed after considering increased opening work-in-progress and receipts of the relevant project. Accordingly, in the year when these projects were completed, income on account of those projects is be computed after considering increased opening balance of work-in-progress due to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring to the assessee. In the result, the appeal of the assessee is partly allowed for statistical purposes. - D.K. AGARWAL AND A.L. GEHLOT, JJ. V.G. Ginde for the Appellant. L.K. Agarwal for the Respondent. ORDER A.L. Gehlot, Accountant Member. - This appeal filed by the assessee is directed against the order of CIT(A)-XXII, Mumbai passed on 7-4-2008 for the assessment year 2005-06 wherein the assessee has raised the following grounds of appeal: 1.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs. 63,22,988 made by the learned Assessing Officer under section 40( a )( ia ) of the Act, without appreciating the fact that in respect of the major expenses which were so disallowed, the appellant did not effectively claim deduction for those expenses, since the same were transferred to the closing work-in-progress. 2.The learned CIT(A) also failed to appreciate that since the relevant tax deducted at source was paid in the next following financial year relevant to the assessment year 2006-07, the corresponding expenses were allowable in that assessment year, and since the closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86 Completed in progress (A) 6,26,764 Labour (Contractor) Rajawadi 32,66,421 In progress Kurla Samta Nagar 18,99,509 Part project New Janta 5,30,294 Completed in progress (B) 56,96,224 3.1 The Assessing Officer made the addition of Rs. 63,22,988 as same is not allowable under section 40( a )( ia ) of the Act. The CIT(A) confirmed the action of the Assessing Officer. 4. The learned AR reiterated the submissions which were made before the CIT(A). The main contention of the learned AR is that effectively the assessee did not claim expenditure of those payments, therefore, there is no question making any addition. The learned AR submitted that the assessee followed project completion method. The assessee has capitalized that expenditure under the head Work-in-progress . The learned AR submitted that section 40( a ) clearly provides that sub-expenditures are allowable in the year of payment. The assessee has paid TDS in subsequent year, therefore, if work-in-progress for this year is reduced which will be the opening balance of next year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07-02-05 -do- 12892 -do- 18382 375 07-03-05 -do- 18392 -do- 65294 1332 07-10-04 21-06-05 65294 -do- 41422 845 07-11-04 -do- 41442 -do- 22647 462 07-12-04 -do- 22647 -do- 62157 1268 07-01-05 -do- 62157 -do- 78235 1596 07-02-05 -do- 78235 -do- 32010 653 07-03-05 -do- 32010 Particulars Amount TDS Due date Date of payment Disallowed u/s 40( a ) in order Allowable expenditure for March 2005 -do- 52451 1070 07-04-05 -do- 52451 52451 510537 55833 NEW JANTA Transport 3039 62 07-03-05 07-04-05 3039 -do- 3137 64 07-04-05 24-05-05 3137 3137 -do- 3137 64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-04-05 30196 30196 -do- 49265 1005 07-04-05 21-06-05 49265 49265 -do- 100490 2050 07-04-05 11-04-05 100490 100490 -do- 1229020 25072 07-04-05 21-06-05 1229020 1229020 3128529 2367304 PARSAWADA Labour 2157 44 07-01-05 21-04-05 2157 -do- 2157 44 07-02-05 -do- 2157 -do- 525980 10730 07-05-04 20-06-05 525980 530294 TOTAL 6322988 2553626 4.1 The learned AR conceded that Kurla Samata project was completed and the amount for which payment of TDS was not made, therefore, to that extent addition is warranted. In case of other project, no addition is warranted. The learned AR filed a summary Chart which is reproduced as under: Project Name Transport charges Labour charges Total Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. For the purposes of this sub-clause, (A) royalty shall have the same meaning as in Explanation 2 to clause ( vi ) of sub-section (1) of section 9; (B) fees for technical services shall have the same meaning as in Explanation 2 to clause ( vii ) of sub-section (1) of section 9; ( ia )any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII‑B and such tax has not been deducted or, after deduction, [has not been paid, (A)in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B)in any other case, on or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of the business or profession;] [( iii )any payment which is chargeable under the head Salaries , if it is payable (A)outside India; or (B)to a non-resident, and if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B;] ( iv )any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head Salaries ; [( v )any tax actually paid by an employer referred to in clause ( 10CC ) of section 10;] 6.1 On plain reading of above section, we find that certain expenditures are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contractor generally, or that relate to contract activity but cannot be related to specific contracts. Examples of costs that relate directly to a specific contract include: site labour costs, including supervision; materials used for project construction; depreciation of plant and equipment required for a contract; costs of moving plant and equipment to and from a site. Examples of costs that can be attributed to the contract activity in general and can be allocated to specific contracts include: insurance; design and technical assistance; construction overheads. Examples of costs that relate to the activities of the contractor generally, or that relate to contract activity but cannot be related to specific contracts, include: general administration and selling costs; finance costs; research and development costs; depreciation of plant and equipment that cannot be allocated to a particular contract. In case of completed contract method , the above expenses related to individual project have to be capitalized in work-in-progress which is similar to stock-in-trade, of respective individual project. Opening balance of work-in-progress of individual project will go up in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count/contract account for the year in which work is completed. The result of calculation of correct profit in case of completed contract method could be attained by this procedure. In the case under consideration, the Assessing Officer made addition in all the projects including incomplete projects, which is not warranted. Such addition in total income is warranted only in respect of project which is completed during the year. The learned AR has conceded the additions in respect of completed works. Necessary calculation is required after verification from original record. The original record is not readily available at this stage under the circumstances we send back this matter to the file of the Assessing Officer with direction to delete the additions made in total income in respect of incomplete projects. However, the addition in respect of completed project is to confirm subject to verification of calculation of the amount. The Assessing Officer is further directed to correct the amount of work-in-progress of incomplete works/projects in accordance with the above discussion and after providing opportunity of hearing to the assessee. 7. In the result, the appeal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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