TMI Blog2012 (12) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... se. further view of revenue that in case of ‘completed contract method’ AO is empowered to examine the expenditures incurred during the year which increases the opening work-in-progress or addition in work-in-progress. But one does not agree with the view of revenue that addition is to be made in total income, if some expenditure were found not allowable. The correct procedure in ‘completed contract method’ is that instead of making addition, the AO should correct the amount of work-in-progress by reducing or enhancing workin- progress as the case may be. Such corrected WIP will be finally considered in P&L a/c /contract account for the year in which work is completed - AO made addition in all the projects including incomplete projects, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 40(a)(ia) are attracted. 3. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A). 4. Before the CIT(A), the learned AR of the assessee filed copies of computation of total income, profit and loss account and balance sheet as on 31.03.2007, which were submitted before the assessing officer during the course of scrutiny assessment proceedings and submitted that from profit and loss account the assessee credited the profit and loss account with contract receipts of RS.10 lakhs (Schedule F) the assessee claimed construction expenditure of Rs.8,90,130/- (Schedule G). He, therefore, submitted that from the schedules it is clear that the assessee claimed expenditure towards material, sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditures and did not debit the same to the profit and loss account. The learned AR of the assessee contended that when the assessee firm itself did not claim the expenditure/ payments by debiting to profit and loss account the question of disallowance of those amounts by invoking the provisions of section 40a(ia) does not arise. 6. It was further submitted that the assessee incurred the above mentioned expenditure in the process of land development making the land a salable commodity. As can be seen from the details of schedule E to balance sheet as on 31.3.2007 the assessee reflected the expenditure incurred towards land development during the accounting year 2006-07 as current asset. Land Development expenditure as on 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to RS.l0 lakhs. He, therefore, submitted that the computation made by the assessing officer is illogical and without any basis. 9. It was also submitted that there is no contractual obligation existed between the assessee firm and the above mentioned four persons in respect of whom the assessing officer disallowed amounts. The learned AR of the assessee finally submitted that when there is no contractual obligation the question of deduction of tax as envisaged ujs.194C does not arise and without calling for any details or examining the issue in detail, it was not proper for the assessing officer making disallowance of Rs. 44,01,500/- by invoking provisions of section 40a(ia). 10. After considering the submissions of the assessee, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Before us, the learned counsel for the assessee Shri K.A. Sai Prasad reiterated the submissions made before the CIT(A) and he relied on the decision of the ITAT, Hyderabad Bench in the case of M/s Narne Constructions (P) Ltd. in ITA Nos. 1462 1463/Hyd/2011 for AYs. 2004-05 order dated 25/01/2012, wherein it has been held as follows:- 10. We have heard both the parties on this issue. The contention of the assessee is that this item has not been debited to profit loss a/c and this has been shown in the balance sheet and it cannot be considered for allowance or disallowances. We find force in the contention of the assessee s counsel that unless the assessee claims-this item as expenditure, the AO cannot allow or disallow the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced by the CIT(A), the ITAT Mumbai Bench held as under:- In principle, one agrees with the above view of revenue that in case of completed contract method the AO is empowered to examine the expenditures incurred during the year which increases the opening work-in-progress or addition in work-in-progress. But one does not agree with the view of revenue that addition is to be made in total income, if some expenditure were found not allowable. The correct procedure in completed contract method is that instead of making addition, the AO should correct the amount of work-in-progress by reducing or enhancing workin- progress as the case may be. Such corrected WIP will be finally considered in P L a/c /contract account for the year in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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