TMI Blog2019 (5) TMI 1669X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation 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 make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No.317, 314/LKW/2017 Assessment Year: 2010-11 - - - Dated:- 17-5-2019 - Shri. A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member Assessee by: Shri K. R. Rastogi, FCA Department by: Shri A. K. Bar, CIT (DR) ORDER A. D. JAIN, V.P.: These cross-appeals are preferred by the assessee as well as the Revenue against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was unable to prove before the assessing officer that the expenses crystallized during the year under consideration. 7. The CIT(A), Lucknow has erred in law and on facts in deleting the addition of ₹ 39,46,18,444/- on account of interest income without appreciating the fact that in F.Y. 2008-09 (A.Y.2009-10) the assessee has not credited accrued interest of ₹ 39,46,18,444/- in interest income and thus reversal of above amount from current year s interest income is not allowable. 7.1 The CIT(A), Lucknow has erred in law and on facts in deleting the addition of ₹ 39,46,18,444/- on account of interest income without appreciating the fact that assessee is claiming TDS relating to accrued interest on unutilized funds and therefore as per provisions of Sec. 198 199 of the I.T. Act, the accrued interest is the income of the assessee. 8. The CIT(A), Lucknow has erred in law and on facts in deleting the addition of ₹ 19,27,197/- on account of expenses relating to purchase of material without appreciating the fact that the bills/vouchers for the purchase were not raised during the year under consideration. 9. The CIT(A), Luc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable on the part of the assessee Corporation @ 1% of the cost of construction incurred by it; that this provision was made applicable by the State Government itself, in its Labour Department, vide Notification dated 20/11/2009, which forms pages 193 to 196 of the Special Audit Report of the assessee; that in pursuance of this Notification, the assessee Corporation issued Circular dated 19/2/2010 (page 192 of the Special Audit Report); that through this Circular, it was informed that all the unit heads/General Managers were required to make provision for labour cess @ 1% of the cost of construction of the concerned work sanctioned by the Government and which was in progress; that it was specifically stated further in the Circular that the estimate be accordingly revised and the revised estimate be sent to the concerned Government Department, so that provisions of labour cess, as being made by the assessee Corporation, may be collected from the concerned Government Department and be deposited in the Government account; that since this process took time, the Corporation made a provision of ₹ 8,44,07,080/- in its books and the payment thereof was made in the subsequent year; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons where expenses are not payable as on the date of filing of the return of income; that as such, the provision for labour cess has not affected the profitability of the assessee Corporation in any manner and the profit of the assessee Corporation has not got reduced by such provision; that the provision was also not claimed as an expenditure; and that in assessment year 2000-01, vide order dated 18/12/2008, passed in ITA No.382/LKW/2004, similar additions made by the A.O, by disallowance of expenses debited to the profit loss account, were deleted by the ITAT, holding that no addition could be made by disallowing the expenses debited to the contract account; that it was further observed by the ITAT that since the assessee Corporation had already recognized the income on the expenses debited to the contract account as per Government notifications issued from time to time, disallowance of the expenses was not called for; and that therefore, the disallowance in question be deleted. The ld. A.R. of the assessee has directed our attention to APB pages 139 to 149, which are the copies of the audited balance sheet, profit loss account and computation chart of the assessee for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of actual costs of material, labour, etc., incorporated in the actual works concerned, plus certain percentage of additional payment towards overheads and profits of U.P.R.N.N. Limited for executing these works. 9. Accordingly, as per para 59 of the Working Manual, a contract account is to be prepared, which is a statement showing resulting profit or loss accruing during a construction period, which has a direct relation to the works dealt with in the business, which ascertains the cost of profit of the assessee Corporation. Thus, the contract account is, basically, accounting of work done where the gross profit worked out is the centage allowed towards the overheads and profits of the assessee Corporation. In the contract account, all direct costs, as are to be borne by the clients of the Corporation, are debited and the value of the work done is credited by adding 15% towards centage charges. As such, in case any disallowance is to be made in the cost debited to the contract account, a corresponding deduction is also required to be made in the cost debited to the work done, as this is a case of contra entries only. This accounting procedure of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from contract account from business activities under section 28 of the Act; that the amount of labour charges paid to various parties have been treated as part of the computation of income under section 28 of the Act; and that the assessee has shown contract work completed in the contract account for the year ended on 31/10/2010 and the payment made towards labour charges is a direct expenses, which is allowable under section 28 of the Act. It was further submitted that the provisions of section 40(a)(ia) can be invoked for disallowances of claim for deduction made under sections 30 to 38 of the Act and not on the expenses, which is admissible under section 28 of the Act. The ld. CIT(A) deleted the addition, observing, as below:- 5(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. At the outset I find that in the addition of ₹ 92,95,51,686/- made by A.O, there is a totaling mistake and the correct amount is ₹ 86,95,73,737/-. The issue involved is the disallowance made under section 40(a)(ia) of the Act by the AO on various expenses incurred by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works. 5(6)(i) This would show that contract account is basically accounting of work done where the gross profit worked out is the centage allowed towards overheads and profits of the appellant. The issue was also decided by the Hon'ble ITAT, Lucknow in the case of the appellant for the assessment year 1991-1992 in ITA No. 714/LUC/02 dated 30.11.2006 as under - We have considered the rival submissions and have perused the record of the case. As per the Working Manual and Forms 1984, submitted by the Ld. Counsel as contained at Pages 191 to 200 of the Paper Book, it is noticed that the assessee's work can be broadly, divided into following three categories. (a) Tender works (competitive or by negotiations). (b) Cost plus Centage Works (c) Deposit works as per Uttar Pradsh Financial Hand Books and U.P.P.W.D. practice In the present case, we are concerned with item (b) noted above which has been considered in Para 33 of the manual. This primarily describes what are the items of cost and how they are to be dealt with, the in Para 59, it is laid down that a contract account is to be prepared which is a statement showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 5(7)(i) A reference may now be made to provisions of section 40(a)(ia) of the Act which lays down as under - 40. Amounts not deductible.- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) in the case of any assessee- ( a) 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 subcontractor, 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 on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 40 begin, take the items of expenses covered by the provisions of sections 30 to 38 alone within, the ambit of section 40, and any item of expenditure allowable under the provisions of the Act, preceding section 30, is not covered by the said statutory disallowances envisaged under section 40. It may also be observed that if an assessee claims any expenditure as necessary to earn the business income and, as such, the same is allowable under section 28 and not under section 37, because section 28 taxes profits of the business which can be worked out only after allowing expenditure, such expenditure goes out of the clutches of the disallowance in terms of the provisions of section 40. In this view of the matter, an assessee may claim all his expenditures except for those which are clearly covered by some other sections, e.g., section 30 covering rent, rates, taxes, insurance, etc., as allowable under section 28. It may be further observed that all the expenditure, just as labour charges in the instant case, which represents direct costs and, therefore, adjustable against revenue for the purpose of determining the profit under section 28(i) do not come within the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s Works Manual. Copy of the same is placed at pages 10 to 19 of the paper book. He further submitted that this issue has been considered by Lucknow Bench of the Tribunal in the assessee's own case for A.Y 1991-92 in ITA No.714/LUC/02, wherein, it has been categorically held that therefore, if any disallowance is to be made in the cost debited to the Contract Account, then corresponding deduction is required to be made in the work done also, and this being a case of Contra Entry only. The assessee's accounting procedure has been accepted by the Department in the Assessment Year 1990-91 and therefore, there is no reason to adopt a different approach in other assessment years. In this view, of the matter, we are of the opinion that as far as the disallowance of ₹ 24,00,392.00 is concerned, the same is not justified in the facts and circumstances of the case and therefore, in regard to this extent we confirm the finding of the Ld. C.I.T. (Appeals). This ground is dismissed . Copy of the order of the Tribunal is placed is at pages 32 to 37 of the paper book. 16. The ld. A.R. of the assessee further submitted that an identical issue has also been consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No.714/LKW/2002. For assessment year 2000-01, the Tribunal, vide its order dated 18/12/2018, passed in ITA No.382/LKW/2004, also took note that all the expenditures incurred by the assessee Corporation on material consumed is recovered from its clients along with 15% profit thereon and that so, even if there is inflation in the expenses in material consumed, the same is recovered along with 15% profit thereon, resulting in no loss of profit or loss to the Revenue in the form of tax. the ld. CIT(A) has confirmed the disallowance, holding that this disallowance was correctly made by invoking the provisions of section 43B of the Act. It remains undisputed that the 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 ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covering rent, rates, taxes, insurance, etc., as allowable under section 28 of the Act. 22. Section 40(a)(ia) of the Act, thus, 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 (supra), in order to enable invoking the provisions of section 40(a)(ia) of the Act, 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. 23. In view of the above, the ld. CIT(A) has corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. The issue involved is the addition of long standing credits of ₹ 11,31,25,121/- in the books of accounts of the appellant. I find that the AO has nowhere given any finding that the liability in respect of this credit balances have seized to exist. The income of the appellant as per accounting discussed in paragraphs above is the Centage and the credits aforesaid relate to work done in contract account in earlier years. Once the books of accounts are accepted and the contract account is not disturbed; there is no sustainable way in which he impugned addition can be sustained for the reason that these balances were old and unconfirmed. The AO has not issued a single inquiry letter under section 133(6) of the Act, or as the case may be, section 131 of the Act to verify the balances or the work done by the appellant in respect of which the credits were generated in the books of accounts. In view thereof the addition made for old balances existing in the books of account of ₹ 11,31,25,121/- is deleted giving relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO on the decision of Hon'ble Apex Court in the case of Goetze India Ltd Vs CIT (2006) 284 ITR 323. I find that the judgment of Supreme Court in Goetze (India) to the effect that no fresh claim can be made except by filing revised return is limited to the power of the AO and not an appellate authority. I find that the appellant has filed return of income showing total income of ₹ 225,87,22,062/- and subsequently during the course of assessment proceedings the appellant filed revised computation of income showing total income of ₹ 227,53,38,435/-. The AO has made the addition by relying on the computation of income filed with return of income and has rejected the revised computation by relying on the case of Goetze India. I find that it makes no sense to make additions to income shown at ₹ 225,87,22,062/- of the nature described above and in paragraphs here in under and arrive at income of ₹ 227,53,38,435/- when the appellant has itself accepted the incorrectness and shown higher income as per revised computation. The addition made by the AO though justified in case first computation is considered; is taken care of when revised computation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the Assessing Officer and the submissions of the appellant. I find that the expenditure disallowed by the AO consists of ₹ 19,01,616/- paid to M/s Dakshinanchal Vidyut Vitran Nigam Limited, Agra against the bill raised by the Electricity Distribution Division, Etawah and the balance amount of ₹ 4,52,619/- is on account of payment made to the M/s U.P. State Bridge Corporation Limited. The AO disallowed the expenses stating that these do not relate to the year under consideration whereas the appellant claims that the liability arose in the year under consideration. Alternatively, the appellant claims that the amount pertains to contract account and therefore in case the addition is made then simultaneously, the work in progress should be reduced by like amount. 10(5) I find that the appellant has clearly brought out the fact that the bills were raised by the Electricity department on 30.10.2009, which means that the liability has arisen in the current year and therefore the expenses are allowable in the assessment year under consideration. Notwithstanding, the claim of the appellant that any addition made will result in reduction of work in progress is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of accrued interest on the funds of the clients of the appellant. This amount is inclusive of opening balance not received during the year as well as the interest accrued on the assessee's own funds, which have already been assessed to tax. The appellant undertakes construction work against advances received from the clients. Expenses are met by withdrawing the funds from the bank accounts wherein the funds were deposited. These are running accounts and the balance left in the bank account earns interest. The clients also keep margin money with the appellant in the form of fixed deposits which earns interest. The appellant maintains its books of accounts on mercantile basis and it makes provisions of interest on accrual basis. The appellant credits such interest to the respective client's account in view of the Government Order No. A-1-FA11/386/1976 dated 11.04.1976. 12(5) In view of my examination, I find that the interest accrued on deposits has been credited to the respective client account. The interest earned by the appellant on unutilized funds is therefore credited to the respective accounts and is income of the concerned client and not the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, held, as below: 16(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I find that the expenditure disallowed by the AO consists of fabricated material used in the newly constructed District Jail, Lucknow purchased from M/s Sree Balaji Enterprises for ₹ 19,27,197/-. The bill was raised by the party in April 2009. The AO disallowed the expenses stating that these do not relate to the year under consideration whereas the appellant claims that the liability arose in the year under consideration. Alternatively, the appellant claims that the amount pertains to contract account and therefore in case the addition is made then simultaneously, the work in progress should be reduced by like amount: 16(5) I find that the expenditure relates to cost of construction debited to the contract account and any addition made will result in reduction of work in progress by like amount. In this connection a reference may be made to the decision of Hon'ble ITAT, Lucknow in case of the appellant for the assessment year 19911992 in ITA No. 714/LUC/02 dated 30.11.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized as income in the F.Y. 2007-08; that as the books of accounts for F.Y. 2008-09 had already been finalized, the reversal was made in the current year; that the balance amount of ₹ 93,18,832/- pertains to extra centage stood already offered to tax by the assessee in F.Y. 2008-09. Being not satisfied with explanation furnished by the assessee, the A.O added the same to the income of the assessee. 48. Before the ld. CIT(A), the assessee filed written submission. It was the submission of the assessee that the income of ₹ 8,50,22,225/- has already been offered to tax in the financial year 2007-08 and the tax has been paid thereon; that as per the CAG directions, no profit on the said project is to be recognized until and unless it is completed and bills are finalized and hence, the reversal was made; that in the year under consideration, no income has been accrued to the assessee in light of AS-7 and finding by the CAG, therefore, in view of the above facts and in light of the directions issued by the CAG, no adverse inference is to be drawn. It was further submitted that the balance amount of ₹ 93,18,832/- pertains to extract centage stood already o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the ld. CIT(A) has given a concrete finding taking into consideration all the facts and circumstances of the case. We find, 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. Accordingly, we uphold the order of the ld. CIT(A) on this issue and reject ground No.9 of the Revenue s appeal. 50. Ground Nos. 10 and 10.1 relate to the deletion of addition of ₹ 26,95,93,097/- on account of interest income earned on clients unutilized funds. 51. The brief fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is placed at page 138 of the paper book wherein it is shown as deduction. The details of interest on client fund received during the year, is placed at pages 98 to 131 of the paper book. It was further submitted that interest earned on F.D.R.'s belongs to Clients and it has duly been credited in the respective accounts of the clients, therefore, no addition should be made on this issue. 55. Having heard the rival contentions and considering the material placed on record, we find that the aforesaid amount of ₹ 26,95,93,097/- has been 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 No.10 and 10.1 of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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