TMI Blog2013 (8) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... e work as per the contract was not completed by the assessee up to the date of issuance of provisional acceptance certificate and the assessee was still not relieved of the obligations under the contract as made clear in the certificate itself. The provisional acceptance certificate also made it clear that the same did not constitute final acceptance of the work and as per clause 25.1 of the contract, the assessee was entitled to apply to the owner for its final acceptance certificate upon completion of pending items identified in the provisional acceptance certificate to the satisfaction of the owner. The said final acceptance certificate was issued by the owner only on 26-3-2007 and even the said certificate indicating the effective final date as 8-10-2006 was subject to certain defect and deficiencies as set out in the Appendix –A to the certificate which were required to be rectified by the contractor - Therefore, it is held that contract work was finally completed in the subsequent year and the disclosure made by the assessee of its income by showing 98.54% work completed upto 31-03-2006 and offering the income relating to the balance work in the subsequent year i.e. A.Y. 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-2009. 3. Ground No. 1 of this appeal involve the main issue relating to addition of Rs. 1,74,80,406/- made by the A.O. and confirmed by the ld. CITA) on account of contract receipts. 4. The assessee in the present case is a company incorporated on 31-12- 2001. It is engaged in providing management services to Hazira LNG Private Limited (HLPL) in connection with the construction of the LNG Terminal at Hazira, Gujrat. For this purpose, it entered into a contract on 22- 02-2002 with HLPL (referred to in the contract documents as the owners). The total value of the contract stood at Rs.274,04,28,416. The contract receipts/management fees arise upon achievement of certain milestones under the contract. These milestones are given in the Payment Schedule of the contract, copy of which is enclosed to the Assessment Order as Annexure- 3. The Payment schedule showed the scheduled date of the milestone, the description of the milestone, percentage of the contract completed with each milestone and the progressive and cumulative payments due on each milestone achieved. As per the payment schedule, the assessee company was to achieve the last milestone of the Provisional Acceptance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me due to the assessee on the said date which fell in the current accounting year. He noted that certain minor activities which had remained incomplete while issuing the provisional acceptance were to be completed during the current year itself. The A.O. also noted that the assessee had disposed of its entire fixed assets, which showed that it had treated the contract as complete during the current year. The A.O. therefore concluded that though the assessee had completed the contract during the year, it failed to account for the whole receipts. In other words, as per the AO the assessee following the percentage completion method of accounting, should have accounted for the entire contract value of Rs.2,74,04,28,416 as reduced by the aggregate receipts of Rs.2,56,09,37,918 declared in earlier years and the expenses of Rs.10,45,15,060 incurred during the current year. The AO thus found that the appellant had not accounted for contract/management fees amounting to Rs. 1,74,80,406 which he worked out as under: Total accrued contract receipts Rs.2,74,04,28,416 Less: contract receipts offered up to Financial Year 2005-06 Rs.2,56,09,37,918 Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l acceptance was received by the assessee on 27-10-2005 itself, the entire contract fees constituted income accrued to the assessee up to 27-10-2005. He also noted that even the final acceptance certificate was received by the assessee on 26-03-2007 and the assessee, therefore, could not contend that the contract had not been completed even on 26-3-2007. He held that merely because there was some deficiency in the contract work done by the assessee, it could not be said that the contract fees which had become due to the assessee was not accrued as income. He held that the income had accrued to the assessee when it became legally due and the deficiencies pointed out in the work done in the acceptance certificate could not postpone such accrual. He, therefore, confirmed the addition made by the A.O. on this issue. 8. The ld. Counsel for the assessee submitted that the percentage completion method was being followed by the assessee to recognize its income on accrual basis and the same was accepted by the Department in the earlier year. He submitted that the relevant contract although substantially completed by the assessee up to 31-3-2006, the same was not fully completed. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted by the Department in the earlier year. As per the said method, 98.54% of the total contract work was shown to be completed by the assessee upto 31-3-2006 and accordingly the corresponding income was offered to tax in the year under consideration. The A.O. as well as the ld. CIT(A), however, took the contract as fully completed up to 31-3-2006 mainly on the basis of provisional acceptance certificate issued by the owners taking a stand that the assessee having become entitled to receive the entire contract fees on the issue of provisional acceptance certificate, income to that extent had accrued to the assessee and the same was taxable in the year under consideration. A copy of the said provisional acceptance certificate is placed on record before us at page No. 125 of the assessee s paper book and a perusal of the same shows that it was confirmed by the owners therein that requirements of clause 22.5 of the contract had been satisfied and that the guarantee period was deemed to be commenced on 8-10-2005 subject, however, to the exceptions noted in the attached list. The said attached list contained various items of work to be completed by the assessee giving correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same is accordingly dismissed as infructuous. 12. The issue raised in ground No. 3 relates to the addition of Rs. 11,65,000/- made by the A.O. and confirmed by the ld. CIT(A) on account of professional fees. 13. During the year under consideration, provision of Rs. 5,50,000/- was made by the assessee on account of auditors remuneration and further provision of Rs. 6,15,000/- was made for the services relating to transfer pricing services. Since no tax at source was deducted from these two amounts, the same were shown as inadmissible u/s 40(a)(ia) of the Act in the tax audit report. As per the stand taken by the assessee before the A.O., the relevant professional services were to be rendered by the concerned professionals only after 31-3-2006 and since the charges for the same were to be paid only after rendering the services, provisions of section 40(a)(ia) were not applicable. According to the A.O., since the said provisions were made by the assessee for the expenses that had not been actually incurred in the year under consideration, the same represented contingent liability. He, therefore, disallowed the provision made by the assessee for auditor s remuneration and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards ground No. 4, it is observed that the issue involved therein relating to the disallowance of Rs. 14,44,000/- u/s 40(a)(ia) of the Act in respect of rent paid for short deduction of tax is squarely covered in favour of the assessee by the decision of the co-ordinate Bench of this Tribunal in the case of DCIT vs. Chandabhoy Jassobhoy reported in (2012) 49 SOT 448 (Mum) where it was held that section 40(a)(ia) of the Act is applicable only when there is no deduction of tax and not in the case where there is only short deduction of tax. Respectfully following the said decision of the coordinate Bench of this Tribunal, we delete the disallowance made by the A.O, and confirmed by the ld. CIT(A) on this issue and allow ground No. 4 of assessee s appeal. 16. Now, we shall take up the appeal filed by the assessee namely Hazira Marine Engineering Construction Management Private Limited being ITA No. 2563/Mum/2010 for A.Y. 2006-07 which is directed against the order of ld. CIT(A) 20, Mumbai dtd. 16-12-2009. 17. Ground No. 1 of this appeal is relating to addition of Rs. 2,67,38,378/- made by the A.O. and confirmed by the ld. CITA) on account of contract receipts. 18. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of the same amount in A.Y. 2006-07 in appeal, thereby seeking undue and double relief. 2. The appellant prays that the order of the ld. CIT(A) be set aside and that of the Assessing Officer be restored." 23. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, the solitary issue involved in this appeal of the Revenue for A.Y. 2008-09 is consequential to the main issue involved in the appeal of the assessee for A.Y. 2006-07 relating to addition made on account of contract receipts and this position is very much evident from the ground raised by the Revenue in this appeal, which is reproduced hereinabove. While deciding the main issue involved in the appeal for A.Y. 2006-07, we have already deleted the addition made by the A.O. and confirmed by the ld. CIT(A) on account of contract receipts and consequently the Revenue has to succeed on the issue raised in its appeal for A.Y. 2008-09 as agreed even by the ld. counsel for the assessee inasmuch as the amount of contract receipts in question having been held to be not liable to tax in A.Y. 2006-07 and the same ..... 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