TMI Blog2021 (12) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years 2011-12 [ 2019 (8) TMI 46 - ITAT LUCKNOW ] and 2012-13.[ 2021 (2) TMI 1229 - ITAT LUCKNOW] also, an identical issue had come up for consideration before the Lucknow Bench of the Tribunal, wherein also, the Tribunal decided the issue in favour of the assessee. Therefore, respectfully following the order of the Tribunal in the assessee s own case for the preceding years, i.e., assessment years 2010-11, 2011-12 and 2012-13, the grievance of the assessee is found to be justified and is accepted as such. Accordingly, the ground of appeal taken by the assessee is allowed and the addition is deleted.- Decided in favour of assessee. Addition on account of prior period expenses - HELD THAT:- The Tribunal, for assessment year 2010-11, held that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019; that moreover, as claimed by the assessee, the amount pertains to the contract account and, therefore, in case the addition is made, an equivalent amount is to be reduced from the work-in-progress; and hence, no infirmity was found in the order of the ld. CIT(A) on this issue - grievance of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of FDR's in its income which is against provisions of Section-198 and 199 of Income Tax Act 1961. 4. Apropos the sole ground raised by the assessee relating to addition under section 43B of the Act, the ld. CIT(A), while confirming the addition of ₹ 2,15,56,614/-, observed as under: 8.1 Ground of appeal no.3 Addition of ₹ 2,15,56,614/- u/s 43B: The appellant has claimed these expenses under the Operating Expenses to tune of ₹ 24,26,10,007/-. Proof of payment of Labour Cess was filed to the extent of ₹ 22,10,53,393/-. The unpaid Labour Cess of ₹ 2,15,56,614/- was added to the total income of appellant. 8.2 An identical issue was decided by my predecessor i.e. Ld. CIT(A)-II, Lucknow in appellants own case for AY 2011- 12 vide order dated 10.03.2017 where the appeal was partly allowed. The relevant portion is as under:- 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. The A.O has disallowed labour cess of ₹ 42,41,05,418/- under section 43B of the Act which the appellant claims was not disallowable, as labour cess w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act; no such exclusion is envisaged in section 43B of the Act which is applicable to even the expenditure incurred for earning income under section 28 of the Act as well. The expenditure disallowed under section 43B of the Act is allowable in the year of payment. The claim of the appellant that expenditure was incurred as direct expenditure in contract account and therefore not disallowable; is therefore as direct expenditure in contract Act is applicable to section 29 of the Act also as per concluding lines of the provision contained in the Act, 7(5) I find that the appellant has filed details of expenditure of ₹ 9,47,996/- incurred on account of labour cess alongwith proof of payment where the payment was made before 30.09.2010 i.e the due date for filing of return of income for the assessment year 2010-11 under consideration. Accordingly relief of ₹ 9,47,996/- is allowed to the appellant and the addition made by the AO is confirmed to the extent of ₹ 8,34,59,084/-. The ground of appeal is allowed partly. The AO is however directed to allow ₹ 8,34,59,084/- in subsequent year after examination of proof of payment. The additional ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act, 1961; that in the present case, by making provision for Labour Cess, the assessee Corporation has neither reduced its profitability in any way, nor has it claimed the same as expenditure; that in law and in the peculiar circumstances of the present case, there is no justification for making any disallowance by invoking the provisions of section 43B of the I. T. Act, 1961 on account of provision made for Labour Cess; that in the assessment year 2000-01, similar additions were made by the Assessing Officer in the assessee s case by way of making disallowances of expenses debited to the Contract Account, in which, the Lucknow Bench of the I.T.A.T., in I.T.A. No. 382/LKW/2004, held that no addition could be sustained by way of making the same by disallowing the expenses debited to the Contract Account; and that the Tribunal also observed that since the assessee Corporation had already recognized the income on the expenses debited to the Contract Account as per the Government Notifications issued from time to time, there was no occasion at all to disallow the expenses. 8. The ld. Counsel for the assessee also submitted that an identical issue, involved in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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; that the total provision consists of the provision made by 159 works, which fact stands reflected by the special auditors in the Special Audit Report (pages 189 to 191 thereof); that the provision was not charged to the profit loss account of the assessee; that it was made part of the Value of Works Done, as demonstrated in the contract account prepared by the assessee, concerning each work site, as presented before the authorities below, along with trial balance, profit loss account and balance sheet of Purvanchal College, Jhansi, Urdu Arbi Farsi University, Lucknow and ECO Park, Lucknow; that in each case, the labour cess was charged to the Value of Work Done in addition to the centage charged by the assessee Corporation, as noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 assessment year 2010-11, as placed before the authorities below. 7. The ld. D.R., on the other hand, has placed strong reliance on the impugned order. It has been reiterated that sections 40(a)(ia) and 43B of the Act are completely different and distinct inter se; that no exclusion, as contained in the non obstante clause with which section 40(a)(ia) of the Act starts, is existent in section 43B of the Act; that section 43B is applicable even to the expenditure incurred for earning income under section 28 of the Act; that the expenditure disallowed under the provisions of section 43B of the Act is allowable in the year of payment; that therefore, the ld. CIT(A) has correctly rejected the assessee s contention that the expenditure was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee Corporation stands accepted by the Department in assessment year 1990-91, as taken note of by the Tribunal in the assessee s case for assessment year 1991-92, in its order dated 30/11/2006, passed 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment in its appeal, the Revenue, through ground no.1, has assailed the order of the ld. CIT(A) in deleting the addition of ₹ 88,61,308/- on account of prior period expenses. 12. The ld. CIT(A) deleted the addition of ₹ 88,61,308/- being the prior period expenses, observing as under: 7.1 Grounds of appeal no. 1 and 2 - Addition of Prior Period Expenses ₹ 88,61,308/-: Appellant had shown Prior Period expenses of ₹ 88,61,308/- in the Contract Account. Appellant filed written submissions on allowability of same. AO held that as per mercantile system of accounting the appellant has wrongly claimed these expenses now i.e. at time of making payment. These expenses were added to total income of appellant 7.2 FINDING: The appellant stated that the appellant follows Income Recognition and Accounting System for Tender work, deposit work, cost plus Centage work. During the year, appellant had done the work on Cost Plus Centage work. Under the method the Govt. Department gets their work executed on basis of actual cost of material, labour etc. plus certain percentage of additional payments towards overheads and profits of appellant for executin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts alongwith 15% profit thereon. So, even if there is any inflation in expenses in material consumed, the same is recovered alongwith 15% profit thereon from the clients hence, there is no loss of profit or no loss to the Revenue in the form of tax. Since the Tribunal has already taken a view on this subject, the issue is covered in favour of the assesee. 7.5 The appellant further contended that issue has been decided by Ld. CIT(A)-II, Lucknow (predecessor of undersigned) in appellants own case for AY 2010-11 vide order dated 10.03.2017 in favour of the appellant. The relevant portion of order is as under: 10(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 ₹ 19,01,616/- paid to M/s Dakshznanchal 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 M/s U.P. State Bridge Corporation Limited. The AO disallowed the expenses stating that these do not relate to the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses of ₹ 88,61,308/- is hereby deleted. Grounds of appeal no. 1 and 2 are allowed. 13. At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered by the order of the Lucknow Bench of the Tribunal in the assessee s own case for assessment years 2010-11, 2011-12 and 2012-13, wherein an identical issue raised by the Revenue was rejected by the Tribunal and it had confirmed the order of the ld. CIT(A), deleting the addition made by the Assessing Officer. The ld. Counsel for the assessee has invited our attention to paragraphs 35, 36 37 of the order of the Tribunal, dated 17.5.2019, in ITA Nos.317/LKW/2017 and 314/LKW/2017, for assessment year 2010-11. 14. We have heard both the parties and have perused the material on record. As contended by the assessee, the issue relating to the addition made with regard to the prior period expenses is squarely covered by the order of this Bench of the Tribunal in the assessee s own case for assessment years 2010- 11, 2011-12 and 2012-13. In ITA No.314/LKW/2017, an identical issue raised by the Revenue was rejected by the Tribunal, confirming the order of the ld. CIT(A). The relevant portion, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries only. The decision of the Hon'ble Tribunal is discussed at length in paragraph 5(6) above. Relying on the decision supra and finding that the income corresponding to the expenditure of ₹ 23,54,235/- has already been recognized in contract account of earlier years, the addition of ₹ 23,54,235/- made by the A.O is deleted giving relief to the appellant. 37. As observed by the ld. CIT(A), we find that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019. Moreover, 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. 15. Thus, the Tribunal, for assessment year 2010-11, held that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019; that moreover, as claimed by the assessee, the amount pertains to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant. I find that the amount of ₹ 39,46,18,444/- shown in the balance sheet as interest accrued on deposits is the running balance 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-FA-11/386/1976 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 appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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