TMI Blog2019 (3) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had wrongly made. We agree with the findings of learned CIT(A) that the expenditure cannot be disallowed merely because the expenses incurred actually were more than the budgeted expenses when the expenditure has actually been incurred and recorded in the books of accounts which have been subjected to multiple audits. Addition on account of excess loss claimed on projects - absence of complete documentary evidence for claiming of loss - CIT-A deleted the addition and held that since the income has not been accrued to the assessee, it cannot be charged to tax in the hands of the assessee - HELD THAT:- Findings of learned CIT(A) are quite exhaustive. The learned CIT(A) has rightly deleted the addition which the Assessing Officer had wrongly made. The learned CIT(A) has rightly relied on the case laws where the Hon'ble court had held that where the amount of interest on central grants has to be remitted back to Government for the same cannot be treated as income of the assessee Addition of interest income received from the FDR’s and SB accounts in the name of the assessee - assessee claimed TDS deducted by the bank on interest which is against the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal settlement after receipt of proper bills in case where the expenditure in earlier years was recorded in the books of accounts on estimate basis. His findings, that in case the expenditure is disallowed, the proper course would be to reduce the work in progress by equivalent amount and therefore, would be revenue neutral are, correct. We find that learned CIT(A) has rightly deleted the addition which the Assessing Officer had wrongly made. Addition of short computation of WIP - CIT(A) has deleted the same holding, that the expenses are neither excess nor non-related to business. However, the CIT(A) has upheld the addition to the extent of ₹ 1,22,575/- as against ₹ 5,71,922/-. - HELD THAT:- CIT(A) has rightly restricted the addition to ₹ 4,49,347/- as against ₹ 5,71,922/- which the Assessing Officer had made. We find no infirmity in the findings arrived at by learned CIT(A). Nature of expenditure - expenditure on the renovation of building including civil work - revenue or capital expenditure - CIT-A deleted part addition holding, that the repair and maintenance to the building are in the nature of current repairs - HELD THAT:- CIT(A) has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and diesel as these were borne by the assessee. While deleting the addition, learned CIT(A) has relied on the order of the Cochin Bench of the Tribunal in the case of M/s Three Star Granites (P) Ltd. Versus ACIT., Cir. 1 (1) Thrissur - [2014 (4) TMI 1058 - ITAT COCHIN - ITAT COCHIN.] Revenue recognition - addition for not following percentage completion method - AO made an addition of ₹ 21,20,09,287/- on account of Percentage Completion Method - AS-7 - HELD THAT:- CIT(A) has dealt with the issue exhaustively and has observed that as per system of accounting consistently being followed by the assessee while accounting for the income of a project as per requirements of AS-7(Revised), when the stage of completion of a project is more than 50% and less than 100% the assessee recognizes 2/3 of the profit and on completion of work the entire profit is accounted for. Thus, in respect of those works which were more than 50% completed in earlier years, 2/3 of the profit thereon or in respect of projects completed in subsequent years, the entire profit stands accounted for and has been offered for taxation or actually assessed by the assessing officer. Further, the statutory audito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, had filed confirmation of balances of creditors to whom notices were issued under section 133(6) of the Act by the Assessing Officer. These creditors relate to normal business transactions and credit has been given to these trade creditors for contract work done by them and payments are being made to the parties by cheques. The transactions resulting in income from contract work done by them have been accepted by the Assessing Officer and therefore, there is no justification in addition of the closing balances appearing in their accounts in the books of accounts of the assessee particularly as the balances stand confirmed. Revenue appeal dismissed. - I.T.A. Nos.330 to 332 & 508/Lkw/2016 - - - Dated:- 28-2-2019 - SHRI A.D. JAIN, VICE PRESIDENT And SHRI T. S. KAPOOR, ACCOUNTANT MEMBER Appellant by Shri A. K. Bar, CIT, (DR) Respondent by Shri Rakesh Garg, Advocate ORDER PER T. S. KAPOOR, A.M. This is a group of four appeals relating to assessment year 2010-11 to 2013-14 filed by the Revenue against the separate orders of learned CIT(A)-II, Lucknow dated 02/03/2016, 14/03/2016, 14/03/2016 and 17/06/2016. Some of the issues, involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has made the addition in absence of reasons for short computation of WIP of ₹ 5,71,922/- as mentioned by Special Auditor in respect of Bareilly unit. 8. The CIT (A) has erred in law and on facts in restricting the addition to ₹ 15,09,999/- as against ₹ 18,58,061/- made on account of capital expenditure claimed as revenue expenditure without appreciating the fact that the assessee has incurred the expenditure on the renovation of building including civil work. 9. The CIT (A) has erred in law and on facts in restricting the additions of ₹ 37,18,845/- as against ₹ 53,81,981/- disallowed u/s 43B of the Act in the absence of any documentary evidence of payment. 10. The CIT (A) has erred in law and on facts in deleting the additions of ₹ 1,13,63,781/- on account of prior period expenses not deductable in mercantile system of accounting. 11. The CIT (A) has erred in and on facts in deleting the additions of ₹ 6,32,63,235/- made on account of disallowance u/s 40(a)(ia) without appreciating the fact that the Assessing Officer has made the addition for not deducting TDS on POL of hired vehicles and TDS at the lese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5D of the Act without appreciating the fact that the above expenses were incurred before the commencement of the project. 5. The CIT(A) has erred in law and on facts in deleting the additions of ₹ 50,62,979/- on disallowance u/s 40(a)(ia) without appreciating the fact that the Assessing Officer has made the addition for not deducting TDS on POL of hired vehicles and TDS at the leser rate of 2%. 6. The CIT (A) has erred in law and on facts in deleting the addition of ₹ 12,24,49,122/- on disallowance u/s 40(a)(ia) without appreciating the fact that the Assessing Officer has made the addition for not deducting TDS on freight expenses, material supplied and labour charges. I.T.A. No.332/Lkw/2016 (Assessment year 2012-13) 1. The CIT (A) has erred in law and on fact in deleting the addition of ₹ 17,00,70,000/- without appreciating the fact that the A.O. made addition for not following percentage completion method recognition for revenue recognition as given in Accounting Standard-AS-7(Revised) and also, the assessee is deducting amounts from profits and crediting in retention reserve without any jurisdiction. 2. The CIT (A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the FDR's and S.B. accounts were in the name of the assessee and assessee has claimed the TDS deducted by banks on above deposits which is against the provisions of See-198 and 199 of I.T.Act, 1961. 3. The Commissioner of Income Tax (Appeals)Lucknow, has erred in law and on facts in deleting the additions of ₹ 3,58,85,285/- on disallowed by the Assessing Officer u/s 40(a)(ia) without appreciating the fact that the assessee has not deducted the TDS on POL of hired vehicles and TDS at the lesser rate of 2% was deducted on hire charges on vehicle. 4. The Commissioner of Income Tax (Appeals), Lucknow has erred in law and on facts in deleting the addition of ₹ 1,86,20,613/- made u/s 68 of I.T. Act , 1961 without appreciating the fact that no reply was received by post in response to the notices issued u/s 133(3) of the I.T. Act , 1961 for verification of creditors. 5. The Commissioner of Income Tax(Appeals), Lucknow, has erred in law and on facts in deleting the additions of ₹ 11,50,020/- made on account of prior expenses without appreciating the fact that the assessee company is following mercantile system of accounting and could not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of documentary evidences to prove the justification of expenses claimed. [Para 6(c) pages 7-9 of AO s order] [Para 6(1) to 6(4) pages 6-9 of CIT(A) s order] The Assessing Officer had disallowed a sum of ₹ 94,30,394/- being excess expenditure claimed on project completed. The CIT(A) has deleted the same holding, that there is no dispute that the expenditure had been incurred, and in real estate there is always a possibility of project cost being over run out price escalation and delay in project. The CIT(A) has wrongly deleted the same. The project cost of the assessee is fixed pre-hand before the commencement of the project itself, the assesseee should ought to have completed the project within the financial limit as laid down for every particular project. There was no reason for escalation or cost over run, the CIT(A) was not justified in deleting the expenditure incurred and thus the order of the Ld. CIT(A) be reversed and that of the AO be substained. 3. Ground No. 3 The CIT(A) has erred in law and on facts in deleting the addition of ₹ 30,94,199/- without appreciating the fact the AO made the addition on account of excess loss claimed on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating the fact the Assessing Officer has made the addition for not deducting TDS on freight expenses, material supplied and labour charges. [Para 6(f) page 11-13 of AO s order] [Para 9(1) to 9(4) pages 18-19 of CIT(A) s order] The Assessing Officer had made an addition of ₹ 54,15,933/- on acccount of non deduction of tax on freight expenses, material supplied and labour charges due to deduction of TDS provisions of Act. The CIT(A) has discussed the different heads of expenditure incurred by the assessee and has held, that out of the total disallowance of ₹ 54,15,933/- only disallowance of ₹ 4,08,525/- and ₹ 5,70,000/- having made without deduction of TDS, is to be disallowed under section 40(a)(ia). The CIT(A) has wrongly interpreted the provisions of the Act. Once if it is found the tax has not been deducted at source on the expenditure claimed as per the provisions of law, the disallowance is to be upheld. 6. Ground No. 6 The CIT(A) has erred in law and on facts in deleting the addition of ₹ 15,36,760/- made on account of excess expenditure without appreciating the fact that the AO made addition in absence of documentary evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses have been incurred on maintenance of existing office building which are capital in nature giving enduring benefit to the assessee, the entire disallowance made by the Assessing Officer should have been sustained. 9. Ground No. 9 The CIT(A) has erred in law and on facts in restricting the addition of ₹ 37,18,845/- as against ₹ 53,81,981/- disallowed u/s 43B of the Act in the absence of any documentary evidence of payment. [Para 6(i) pages 15-17 of AO s order] [Para 13(1) to 13(8) pages 23-26 of CIT(A) s order] The Assessing Officer had disallowed a sum of ₹ 53,81,981/- by applying the provisions of section 43B of the Act. The CIT(A) has restricted the disallowance at ₹ 37,18,845/-. The CIT(A) has deleted the addition of ₹ 17,15,898/-. The details have been mentioned in the appeal order. Reliance is placed on the order of the Assessing Officer, the disallowance made by the Assessing Officer should be upheld. 10. Ground No. 10 The CIT(A) has erred in law and on facts in deleting the additions of ₹ 1,13,63,781/- on account of prior period expenses not deductable in mercantile system of accounting. [Para 6(i) p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue Recognition Method depending upon the stage on which the project is at the end of the year. Once the assessee is following the Revenue Recognition Method, then revenue is to be recognized on the work done, irrespective of the stage of completion. Though, there is no change in the practice of accounting followed by the assessee, the addition made by the Assesing Officer and deleted by the CIT(A) be upheld. 13. Ground No. 13 The CIT(A) has erred in law and on facts in deleting the addition of ₹ 17,68,458/- made on account of disallowance u/s 40(a)(ia) without appreciating the fact that the Assessing Officer has made the addition for short deduction of TDS. [Para 6(n) pages 22-23 of AO s order] [Para 17(1) to 17(4) pages 32-34 of CIT(A) s order] The Assessing Officer disallowed a sum of ₹ 17,68,458/- by applying the provisions of section 40(a)(ia) on the ground that tax has not been deducted on vehicle hired. The CIT(A) has deleted the same holding, that no doubt there was short deduction of tax, but short deduction of tax itself would not be the cause for disallowance. Once it is held that the assessee has made short deduction of TDS, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed return. 2. Ground No. 2 The CIT(A) has erred in law and on facts in deleting the addition of ₹ 25,12,26,591/- without appreciating the fact that the AO made addition for not following percentage completion method recognition for revenue recognition as given in Accounting Standard-AS-7 (Revised) and also, the assessee is deduction amounts from profits and creating in retention reserve without any jurisdiction. [Para 3 pages 2-3 of AO s order] [Para 6(1) to 6(4) pages 4-7 of CIT(A) s order] The Assessing Officer had made an addition of ₹ 25,12,26,591/- on account of Percentage Completion Method. The CIT(A) has deleted the same. The CIT(A) has held, that the assessee is following the Revenue Recognition Method depending upon the stage on which the project is at the end of the year. Once the assessee is following the Revenue Recognition Method, then revenue is to be recognized on the work done, irrespective of the stage of completion. Though, there is no change in the practice of accounting followed by the assessee, the addition made by the Assessing Officer and deleted by the CIT(A) be upheld. 3. Ground No. 3 The CIT(A) has erred in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to the expenses incurred and the purpose for which it has been incurred. The fact remains that the expenses incurred were before the commencement of the projects which are proposed to be under taken. The disallowance made by the Assessing Officer be upheld. 5. Ground No. 5 The CIT(A) has erred in law and on facts in addition of ₹ 50,62,979/- made on account of disallowance u/s 40(a)(ia) without appreciating the fact that the Assessing Officer has made the addition for not deducting TDS on POL of hired vehicles and TDS at the leser rate of 2%. [Para 6 pages 5 of AO s order] [Para 9(1) to 9(7) pages 16-19 of CIT(A) s order] The Assessing Officer made an addition of ₹ 50,62,979/- by applying the provisions of section 40(a)(ia) of the Act and to failure to deduct tax at source on the payment made. The CIT(A) has deleted the same holding, that the tax at source was deducted wherever the same was applicable. He has further held, that no deduction of TDS is required to be made on expenses incurred on petrol and diesel and these expenses were borne by the appellant. Since the assessee had taken the vehicle on hire, there was a liability on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Method. The CIT(A) has deleted the same. The CIT(A) has held, that the assessee is following the Revenue Recognition Method depending upon the stage on which the project is at the end of the year. Once the assessee is following the Revenue Recognition Method, then revenue is to be recognized on the work done, irrespective of the stage of completion. Though, there is no change in the practice of accounting followed by the assessee, the addition made by the Assessing Officer and deleted by the CIT(A) be upheld. 2. Ground No. 2 The CIT(A) has erred in law and on facts in deleting the additions of ₹ 42,21,00,000/- on account of interest income without appreciating the fact that the AO made the addition of the interest income received from the FDRs and SB accounts in the name of the assessee, and the assessee claimed TDS deducted by the bank on interest which is against the provision of section 198 and 199 of the IT Act [Para 4 pages 3-4 of AO s order] [Para 5(1) to 5(4) pages 3-4 of CIT(A) s order] The Assessing Officer had made an addition of ₹ 42,21,00,000/- on account of interest in FDRs. The CIT(A) has deleted the same holding, that the funds grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -14 and 2011-12 appeal no. 22/03/DCIT/R-6/Lko/14-15 as the same has deleted entire amount of addition of ₹ 6,19,18,021/- made u/s 40(a)(ia). The CIT(A) has wrongly interpreted the provisions of the Act. Once it is found the tax has not been deducted at source on the expenditure claimed as per the provisions of law, the disallowance is to be upheld. 5. Ground No. 5 The CIT(A) has erred in law and on facts in deleting the additions of ₹ 1,63,396/- on account of loss against disposal of stock without appreciating the fact that the AO has made the addition for not deducting TDS on freight expenses, material supplied and labor charges. [Para 7 page 7 of AO s order] [Para 8(1) to 8(4) pages 9-12 of CIT(A) s order] The AO had made an addition of ₹ 1,63,386/- being loss against disposal of stock for the reason that no tax was deducted at source. The CIT(A) has deleted the same. The deletion made by the CIT(A) is contrary to facts as well as law, in as much as, the provisions of TDS are applicable on freight expenses, material supplied and labour charges. Accordingly, the addition made by the AO be restored. 6. Ground No. 6 The CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting in retention reserve without any jurisdiction. [Para 3 pages 2-3 of AO s order] [Para 5(1) to 5(4) pages 2-4 of CIT(A) s order] The Assessing Officer had made an addition of ₹ 21,20,09,287/- on account of Percentage Completion Method. The CIT(A) has deleted the same. The CIT(A) has held, that the assessee is following the Revenue Recognition Method depending upon the stage on which the project is at the end of the year. Once the assessee is following the Revenue Recognition Method, then revenue is to be recognized on the work done, irrespective of the stage of completion. Though, there is no change in the practice of accounting followed by the assessee, the addition made by the Assesing Officer and deleted by the CIT(A) be upheld. 2. Ground No. 2 The CIT(A) has erred in law and on facts in deleting the addition of ₹ 43,28,49,105/- on account of interest income without appreciating the fact that the AO made the addition of the interest income received from the FDR s and SB accounts in the name of the assessee, and the assessee claimed TDS deducted by the bank on interest which is against the provision of section 198 and 199 of the IT Act. [Para 4 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) s order] The AO made the addition in respect of the outstanding creditors. Notice u/s 133(6) was issued by the AO to the creditors whose balance were outstanding. In response to notice u/s 133(6) out of the 14 creditors, only 1 creditor in the name of Ajay Associates responded. Other did not respond. The AO on the basis of test check method, out of 100 (hundred) creditors in various units, selected 14 (fourteen) parties and made an addition of ₹ 1,86,20,613/- u/s 68 treating as unverifiable. In response to show cause notice to the assessee, the assessee filed confirmations from all the respective parties. Assessee also submitted explanation in respect to non compliance to the notice u/s 133(6). The CIT(A) has held that the assessee had complied to the questionnaire and has filed confirmations of all the remaining creditors to whom notices were issued u/s 133(6) of the Act. CIT(A) has held that these creditors relate to normal business transaction and the credit have been given to the trade creditors for the contract work done by them. Payments are being made to these parties by cheque. The books of account have not been rejected. The transactions resulting as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able only when there are receipts . In the instant case section 35D of the act is not applicable as the business has already commenced and it is not the case of extension of industrial undertaking. Thus the order of CIT (A) to be upheld. 2. GROUND NO 2- Addition of an amt of amt of ₹ 94,30,394.00 We have already submitted that the sanctioned amount of the work allotted is fixed by Government on the estimations including centage. The actual amount Incurred towards the cost of construction as recorded in the books of account on day to day basis by the units of the Corporation ' total amount including Centage arrived on the basis of the book of accounts cannot tally with the estimations. The actual expenditure depends on number of factors including cost index, day to day rate fluctuations in material, delay in execution and rise in Prices for which there is no escalation clause and some time increase in labour cost due to technicality of work. All the expenditures are actually incurred in completion of the Project are duly supported by bills and vouchers and verifiable from the books of accounts. The Corporation is a Wholly owned Government corporation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be upheld. 4. Ground No 4 The assessee is a wholly owned government corporation and receives deposits and funds from the government for executing the deposit civil contract works . As per Government GO a copy of which was already provided to learned Assessing officer during the assessment proceedings along with reply explaining the treatment made by the assessee, the interest on such unutilized funds lying in bank fixed saving deposits pertains to government and not to the assessee. As per GO No B-1/564/10-7/97 dated 02.03.1998 it has been specifically mentioned that whatever interest income is accrued on advances /funds from banks it would be income of government and is to be remitted to government. Thus the interest accrued on the advances received by the assessee from the Government for construction activities would be the income of the Government and not of the assessee. On its accrual, it becomes a liability to the Government which is to be remitted by the assessee to the Government in due course. Since the income has not been accrued to the assessee it cannot be charged to tax in its hands. A reference in this connection may be made to the decision of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impression, under wrong provision of TDS, the provisions of section 40 (a) (ia) of the act cannot be invoked. iii) The Ao disallowed a sum of ₹ 60,000 and ₹ 1,08,000 on the ground that tds has been deducted at lower rate. These payments were for vehicle hired. The assessee was of the view that they were liable to TDS under section 194 C of the act whereas AO has taken the view that payment was on account of rent. A reference in this connection is may be made to the decision in DCIT Vs S K Tekriwal (2011) 48 SOT 515 (KOL) in this case the assessee paid machinery hire charges on which it deducted TDS at 1% under section 194C of the act. The AO claimed that the amount was in the nature of rent and tds @10% ought to have deducted under section 194I of the act. A proportionate disallowance under section 40(a) (ia) of the act was made on the ground that there was a failure to deduct TDS on the payment. The Hon ble tribunal upheld the assessee ple that in section 40(a) (ia) of the act disallowance could not be made when there was a shortfall in TDS deduction. On appeal by department to the hon ble high court, the high court upheld the Hon ble tribunal order . c) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a liability and moreover tds is not passed through profit and loss account hence cannot be disallowed under section 43 B of the act. b) of the amount of ₹ 10,85,878 an amount of ₹ 4,61,559/- has been paid before the due date of filling return of income. c) Relief of ₹ 53,441/- has been provided since amt paid before due date of filling return of income d) Relief of ₹ 14,87,947 has been given since the nature of amount was retention money which are released once the supplier submits proof of payment of royalty . Thus the order of CIT (A) to be upheld. 10. The Learned Assessing officer has disallowed a sum of ₹ 1,13,63,781 on the basis of special audit report. The Special auditors did not provide any opportunity to the assessee to explain the entities point of view and, thus, the explanations of the assessee were not considered by the special auditors. The matter was explained to learned AO vide written submissions dated 20.09.2013 and the bill and vouchers were produced for verification in support of the contention of the assessee. However, without pointing out any flaw in the explanation of the assessee or in the vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue recognition in schedule B of schedule of significant accounting policies and notes annexed to and forming part of accounts for the year ended 31st March 2010) followed by it for past several years which are in conformity with the requirements of AS-7 (Revised). The said Retention Reserve is in fact the amount of profits of future years deducted from the Work in Progress on the basis of stage of completion of work in accordance with the accounting policy of the corporation. Another important factor is that when the stage of completion is more than 50 % and less than 100% the assessee recognizes 2/3 of the profit and on completion of work the entire profit is accounted for. Thus in respect of those works which were more than 50% completed 2/3rd of the profit or totally completed in subsequent years the entire profit stands accounted for and has been offered for taxation or actually assessed by the AO. Thus if same profit is taxed in AY 2010-11 also by making addition of retention reserves, it will amount to taxation of same income twice. Thus there is absolutely no justification for this addition as the reserves for contingencies pursuant to accounting policy consistently followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be stated here that assessment has been completed on the basis of accounts audited by statutory auditors who are duly appointed by C AG of India and hence the income as per revised computation ought to have been accepted by learned AO. Thus the order of CIT (A) to be upheld. 2 The assessee is creating retention reserve on the basis of accounting policies (policy on revenue recognition in schedule B of schedule of significant accounting policies and notes annexed to and forming part of accounts for the year ended 31 st March 2010 ) followed by it for past several years which are in conformity with the requirements of AS-7 (Revised). The said Retention Reserve is in fact the amount of profits of future years deducted from the Work in Progress on the basis of stage of completion of work in accordance with the accounting policy of the corporation. Another important factor is that when the stage of completion is more than 50 % and less than 100% the assessee recognizes 2/3 of the profit and on completion of work the entire profit is accounted for. Thus in respect of those works which were more than 50% completed 2/3rd of the profit or totally completed in subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the central grant already released would form part of the central grant limit , the court laid down that Held, considering the condition imposed by the Central Government, while releasing the grant in favor of the Assessee, when the interest earned on the Central grant already released was required to be forming Part of the Central grant, Tribunal has rightly held that the interest earned on cannot be said to be the income of the Assessee-No error had been committed by the Tribunal in deleting the addition made by the Assessing officer. Thus the order of CIT (A) to be upheld. 4 GROUND NO 4 From the Language of section 35D, the expenses which are falling under section 35D(2) are to be considered for amortization. In case the business is already in existence then the revenue expenses cannot be disallowed on the ground that business has not commenced. The expenses on survey, testing drawing etc have been incurred in connection with the construction projects undertaken by applicant. These do not relate to the applicants business coming into existence. An expenditure which is otherwise allowable cannot be considered under section 35D of the act. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or goods. The question of any TDS doesn t arise. There is no provision in the act which requires for deduction of TDS on purchase of goods for which payment is made to suppliers. Thus the order of CIT (A) to be upheld. ASSESSMENT YEAR 2012-13 BRIEF SYNOPSIS AND WRITTEN STATEMENT BY ASSESSEE 13. GROUND NO 1 The assessee is creating retention reserve on the basis of accounting policies (policy on revenue recognition in schedule B of schedule of significant accounting policies and notes annexed to and forming part of accounts for the year ended 31 st March 2010 ) followed by it for past several years which are in conformity with the requirements of AS-7 (Revised). The said Retention Reserve is in fact the amount of profits of future years deducted from the Work in Progress on the basis of stage of completion of work in accordance with the accounting policy of the corporation. Another important factor is that when the stage of completion is more than 50 % and less than 100% the assessee recognizes 2/3 of the profit and on completion of work the entire profit is accounted for. Thus in respect of those works which were more than 50% completed 2/3rd of the profit or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favor of the assessee that interest earned on the central grant already released would form part of the central grant limit , the court laid down that Held, considering the condition imposed by the Central Government, while releasing the grant in favor of the Assessee, when the interest earned on the Central grant already released was required to be forming Part of the Central grant, Tribunal has rightly held that the interest earned on cannot be said to be the income of the Assessee-No error had been committed by the Tribunal in deleting the addition made by the Assessing officer. Thus the order of CIT (A) to be upheld. 15. Ground No 3 The company takes hired vehicles on contract basis . The basic term of the contract is that the running cost of the vehicle will be borne by the appellant corporation. This running cost comprises of the cost of petrol , diesel and lubricants being POL expenses. Hence the company from past several years have been deducting TDS @2% on the contractual cost paid for these hired vehicles owners where ever the payment was in excess of specified limit of ₹ 20000/- on payments made for hiring of vehicles. The amount which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has not furnished payment proof of contribution to provident fund and also no bifurcation of amt claimed as contribution and amt claimed as provision has been furnished. The assessee has deposited ₹ 7,08,78,737 on account of contributions to EPF act , Contribution towards Group gratuity , Group Leave encashment and contribution towards leave salary and pension contribution . Necessary documents along with copies of acknowledgement for payment to LIC of India on account of gratuity and GLES and copies of challan for payment to EPF contribution were produced . Further the provisions of section 43B of the act are not applicable to Leave salary and pension contribution. Thus the order of CIT (A) to be upheld. 7. Addition on account of Prior Period expenses ₹ 1,25,561/- The assessee has already added back an amount of ₹ 1,15,500/- to income as per computation as per details below Prior period expenses Amt Road tax and others 5500.00 Contract expenses 66531.00 Survey testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Government GO a copy of which was already provided to learned Assessing officer during the assessment proceedings along with reply explaining the treatment made by the assessee, the interest on such unutilized funds lying in bank fixed saving deposits pertains to government and not to the assessee. As per GO No B-1/564/10-7/97 dated 02.03.1998 it has been specifically mentioned that whatever interest income is accrued on advances /funds from banks it would be income of government and is to be remitted to government. Thus the interest accrued on the advances received by the assessee from the Government for construction activities would be the income of the Government and not of the assessee. On its accrual, it becomes a liability to the Government which is to be remitted by the assessee to the Government in due course. Since the income has not been accrued to the assessee it cannot be charged to tax in its hands. A reference in this connection may be made to the decision of Hon ble ITAT Lucknow in the case of UP Police Awas Nigam ltd Vs ACIT in ITA No 344 345 /LKW/1999 dated 22.08.2012. A reference may also be made to the decision of Hon ble Gujrat Highcourt in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had provide full details of the sundry creditors with their names , addresses and amt outstanding as on 31.03.2013 and also furnished confirmation of balances of creditors to whom notices were issued by Ld AO. It may be stated here that in most of the cases there are regular transactions with the parties. No amt has been recd in cash by from them. They are trade creditors and credit has been given to them for contract works done by them and payments are being made by cheque. Thus the order of CIT (A) to be upheld. 5. Ground No 5 The assessee has filed the original return of income on 29-09-2013 and subsequently the return of income was revised on 28-02-2015 on the basis of financial statements audited by the statutory auditors appointed by the Central government. It is obvious that various figures of original return of income would vary with the revised return of income. Accordingly in the revised return of income ₹ 3,60,210/- was added in the computation of income on account of prior period income/expenses. Ignoring the fact the learned assessing officer has added ₹ 11,50,020/- on account of prior period income/expenses on the basis of original return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11. The first ground is for disallowance of survey, testing and drawing expenses as the Assessing Officer treated the same in the nature of preliminary expenses whereas the learned CIT(A) has held that since the assessee was already engaged in the business of construction, such expenses cannot be treated as preliminary expenses and therefore, he has rightly deleted the same holding the same to be of Revenue in nature. The relevant findings of learned CIT(A) are reproduced below: 5(4) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the appellant is a Government company within the meaning section 617 of the Companies Act, 1956 and its entire share capital is owned by the Government of Uttar Pradesh and Government of India. It is engaged in the business of civil works and construction of tube-wells mainly for Government Departments. The appellant claimed expenses of ₹ 82,19,937/- on survey testing and drawing which were treated as preliminary expenses by the AO under section 35D of the Act. Section 35D of the Act was inserted by Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of association of the company; b) expenditure on printing of the memorandum and articles of association; c) fees for registering the company under the provisions of the Companies Act, 1956; provisions of the Companies Act, 1956; d) expenditure in connection with the issue, for public subscription, of share in or debentures of the company, by way of underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus. This will include legal charges and auditors' fees for drafting of the prospectus]. The Central Board of Direct Taxes is also empowered to specify in the Income-tax Rules any other item or items of expenditure in respect of which the law does not provide for any allowance or deduction, and, thereupon the items of expenditure so specified will also be eligible for amortization under section 350. 43.The aggregate amount of the expenditure under all the specified heads will, for the purpose of amortisation be limited to 21/2 per cent of the cost of the project The 'cost of the project has been defined to mean the actual cost of the fixed assets, namely, land, buildings, leaseholds, plant, machinery, furniture, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by section 35AB would certainty come into play . 5(6) One has to see the allowability of expenditure as per the provisions of the Act. The expenses debited are mainly of revenue nature and it is not necessary that these expenses will be allowable only when there are receipts. If the expenses are incurred for the are to be allowed. In the instant case section 35D of the Act is not applicable as the business has already commenced and it is not the case of the extension of industrial undertaking. The assessee was earlier carrying out construction activities is earlier years also when such expenditure was incurred in connection with construction activities under taken by the appellant. The expenses claimed are of revenue nature in connection with the continuing business activities of the appellant and is allowable under section 37 of the Act in computing the business income of the appellant and therefore cannot be disallowed under section 35D of the Act. The Assessing Officer is directed to allow the expenditure as revenue and therefore, the addition of ₹ 73,97,943/- made by the Assessing Officer is deleted giving relief to the appellant. 4.1 The above findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt). The books of accounts have also been subjected to special audit by the auditor appointed by the Department. It is on the basis of the books of accounts audited by the special auditor that the cost overrun of ₹ 94,30,394/- has been identified by the auditor. It is not the case that these expenses are bogus rather these expenses have actually been incurred by the appellant on the projects under taken. The expenditure cannot be disallowed merely because the expenses incurred actually are more than the budgeted expenses. If this was the case then there would be no cost and time over runs in the construction business. The disallowance made by the AO has no basis as the expenditure has actually, been incurred and recorded in the books of accounts which have been subjected to multiple audits. The addition of ₹ 04,30,394/- made by the Assessing Officer is deleted giving relief to the appellant. 5.1 We find that learned CIT(A) has dealt with the issue exhaustively and has rightly deleted the addition which the Assessing Officer had wrongly made. We agree with the findings of learned CIT(A) that the expenditure cannot be disallowed merely because the expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.330 for assessment year 2010-11 is dismissed. 7. Vide Ground No. 4, the Revenue has challenged the action of learned CIT(A) in deleting the addition of ₹ 29,31,44,630/- made by the Assessing Officer on account of interest income from the FDRs and SB accounts. Learned CIT(A) has held that the interest earned by the assessee on bank fixed and savings deposits made out of funds received from the Government for executing the civil contract work is to be considered as income of the UP Government as per GO No. B-1/564/10-7/97 dated 02.03.1998 wherein it has been specifically mentioned that whatever interest income is accrued on the advances from the Bank, it would be remitted to the Government and therefore, the learned CIT(A) held that since the income has not been accrued to the assessee, it cannot be charged to tax in the hands of the assessee. The relevant findings of learned CIT(A) are reproduced below: 8.4 I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the amount of interest of ₹ 29,71,44,630/- earned by the appellant on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, ground No. 4 of the appeal in I.T.A. No.330 for assessment year 2010-11 is dismissed. Similarly, ground No. 3 in assessment year 2011-12, ground No. 2 in assessment year 2012-13 and ground no. 2 in assessment year 2013-14 relating to the same issue is also dismissed. 8. Vide Ground No. 5, the Revenue has challenged the action of learned CIT(A) in deleting the addition of ₹ 54,15,933/- made by the Assessing Officer for not deducting TDS on freight expenses, material supplied and labour charges. The learned CIT(A), while dealing with the additions made under different heads, has reproduced a chart and has dealt with each issue in detail. The relevant findings of learned CIT(A) are reproduced below: 9(4)(a) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. The AO has disallowed a sum of ₹ 3,52,960/- on the ground that this was the payment out of ₹ 7,05,920/- which was approved. I find that there are two bills of ₹ 3,20,000/- each which inclusive of service tax @ 10.3% total ₹ 3,52,960/-. The two bills cumulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, '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 on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. The case supra lays down that where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) ef the Act cannot be invoked. Respectfully following the decision of Hon'ble ITAT (supra), I find that no disallowance is called for under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the payment has been made on the letter head of contractor without TIN, Bill No. I find that the AO has not given any finding that the payment was bogus or that the payment was not actually made. The payment to the party has been made through banking channels by account payee cheque which establishes the genuineness of the expenditure. In view thereof the disallowance of ₹ 3,50,000/- is deleted giving relief to the appellant. 9(4)(f) The AO disallowed a sum of ₹ 1,54,338/- as per S. No. 5 of the chart incorporated in the assessment order as reproduced above for the reason that the bill was not available. I find that the impugned payment of ₹ 1,54,338/- relates to payment of trade tax as per challan. The question of bill does not make sense as the challan for payment of Government dues is available. The addition of ₹ 1,54,338/- is therefore deleted giving relief to the appellant. 9(4)(g) The AO disallowed a sum of ₹ 4,08,535/-, ₹ 5,70,000/- and ₹ 1,60,000/- as per S. No. 9, 10 and 11 of the chart incorporated in the assessment order as reproduced above for the reason that the vouchers were not attached for clarity of TDS deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that these payments of ₹ 15,36,760/- include payments which have been rectified and reversed in financial year 2013-2014 relevant to assessment year 2014-2015 or are the payments which relate to final settlement after receipt of proper bills in case where the expenditure in earlier years was recorded in the books of accounts on estimate basis. This expenditure of ₹ 15,36,760/- is therefore included in the work in progress shown in the profit and loss account. In case the expenditure is disallowed the proper course would be to reduce the work in progress by equivalent amount. Hence, the claim of expenditure is revenue neutral which is any case has been rectified in subsequent years. The expenditure of ₹ 15,36,760/- having been included in work in progress is revenue neutral and therefore the addition of ₹ 15,36,760/- is deleted giving relief to the appellant. 9.1 The above findings of learned CIT(A) are quite exhaustive. The learned CIT(A) has held that these payments include payments which have been rectified and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to ₹ 15,09,999/- as against ₹ 18,58,061/- made by the Assessing Officer on account of capital expenditure claimed as revenue expenditure. The learned CIT(A) has given part relief to the assessee. The relevant findings of learned CIT(A) are reproduced below: 12(4)I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the disallowance of ₹ 18,58,061/- by treating the expenditure as capital as against of revenue nature has been made by the Assessing Officer only on the basis of the audit report without giving due consideration to the nature of expenditure claimed. I find that the appellant's claim for expenditure of the nature incurred under Section 30(a) of the Act has not been rightly disallowed by the AO. There is a clear distinction between the expression 'repairs' and the expression 'current repairs'. It is obvious that the word 'repairs' is much wider than the expression 'current repairs'. This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of ₹ 18,58,061/- made by the Assessing Officer was restricted to ₹ 3,48,062/- giving relief of ₹ 15,09,999/- to the assessee. We find no infirmity in the findings arrived at by learned CIT(A). In view of the above, ground No. 8 of the appeal in I.T.A. No.330 for assessment year 2010-11 is dismissed. 12. Vide Ground No. 9, the Revenue has challenged the action of learned CIT(A) in restricting the additions of ₹ 37,18,485/- as against ₹ 53,81,981/- made by the Assessing Officer u/s 43B of the I.T. Act under different head. Learned CIT(A) has deleted the additions by observing as under: 13(4) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the AO has disallowed the following amounts under section 43B of the Act S. No. Description As per SAR Allowed by AO Disallowance 1. VAT TDS - 23,29,764 6,13,866 17,15,898 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n able to demonstrate that the bonus and service tax were paid before the due date of filing of return of income under section 139(1) of the Act except for an amount of PF of ₹ 53,441/-. Accordingly, the addition of ₹ 7,62,685/-, ₹ 18,424/- and ₹ 2,57,707/- are confirmed giving relief of ₹ 53/441/- to the appellant. The AO is however directed to allow the aforesaid expenditure in the year in which it is paid. 13(8) The AO disallowed a sum of ₹ 14,87,947/- under section 43B of the Act as per S. No. 6 of the chart above. I find that the appellant as per its practice deducts an amount as royalty from the payments to be made to suppliers on the basis of bills raised by them. The amount so retained is the liability of the appellant which is discharged when the supplier submits proof of payment of royalty. The amount retained by the appellant is therefore not a payment covered under section 43B of the Act. Accordingly, the addition of ₹ 14,87,947/- made by the AO is deleted giving relief to the appellant. 12.1 We find that learned CIT(A) has dealt with the issue exhaustively and by reproducing a chart of all the heads where the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer had wrongly made. In view of the above, ground No. 10 of the appeal in I.T.A. No.330 for assessment year 2010-11 is dismissed. Similarly, ground No. 7 in assessment year 2012-13 and ground No. 5 in assessment year 2013-14 relating to the same issue are also dismissed. 14. Vide Ground No. 11, the Revenue has challenged the action of learned CIT(A) in deleting the addition of ₹ 6,32,63,235/- made by the Assessing Officer on account of disallowance u/s 40(a)(ia) of the Act. Learned CIT(A) has held that the assessee has deducted TDS @2% wherever the payment was in excess of specified limit of ₹ 20,000/- on payments made for hiring of vehicles. No deduction is required to be made on expenses incurred on petrol and diesel as these were borne by the assessee. The relevant findings of learned CIT(A) are reproduced below: 15(4) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the appellant has deducted IDS @2% wherever the payment was in excess of specified limit of ₹ 20,000/- on payments made for hiring of vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that as per system of accounting consistently followed by the appellant while accounting for the income of a project as per requirements of AS- 7(Revised), when the stage of completion of a project is more than 50% and less than 100% the appellant recognizes 2/3 of the profit and on completion of work the entire profit is accounted for. Thus, in respect of those works which were more than 50% completed in earlier years, 2/3 of the profit thereon or in respect of projects completed in subsequent years, the entire profit stands accounted for and has been offered for taxation or actually assessed by the assessing officer. Further, the statutory auditors have not taken exception or qualification to creation of reserve and the C AG of India have also not given any adverse comment on this issue. In other words taxation of the retention reserve will lead to taxation of same amount twice and moreover no such addition was made in earlier years in respect of the retention reserve. In view thereof the addition of ₹ 21,20,09,287/- on account of retention reserve is deleted giving relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure under section 40(a)(ia)of the Act on account of deduction of TDS at a lower rate. I have already discussed several case authorities in the paragraphs above which lay down that the short deduction of tax cannot be a reason/basis for disallowance under section 40(a)(ia) of the Act. In view of the decisions discussed supra the addition of ₹ 17,68,458/- made by the AO is deleted giving relief to the appellant. 17. We find that while deleting the addition, the learned CIT(A) has observed that the short deduction of tax cannot be a reason/basis for disallowance under section 40(a)(ia) of the Act. The learned CIT(A) has rightly relied on a number of case laws for the proposition that in case of short deduction of tax, disallowance u/s 40(a)(ia) cannot be made. Finding no infirmity in the order of learned CIT(A), we confirm the same on this issue. In view of the above, ground No. 13 of the appeal in I.T.A. No.330 for assessment year 2010-11 is dismissed. 18. Vide Ground No. 14, the Revenue has challenged the action of learned CIT(A) in deleting the addition of ₹ 13,75,49,494/- made by the Assessing Officer on account of disallowance u/s 49(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), while deleting this addition, has observed as under: 8(4) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I find that the appellant sold old unusable stock comprising of old pvc pipes, rusted iron rods, pipes, pump sets etc that were purchased in earlier years through open tender and suffered a loss of ₹ 1,63,386/- thereon. The loss is the value of the stock as per the books of accounts and the amount realized of sale thereof which was disallowed by the AO. In case of CIT Vs. Dhanrajgiriji Raja Narsinghgiri 91 ITR 544 (SC), while deciding allowability of certain expenditure claimed by the appellant under section 37(1) of the Act, the Hon'ble Supreme Court has observed that it was for the assessee to decide how best to protect his own interest. It is further held by the Hon'ble Apex Court that it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. In view of the above ratio laid down by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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