Percentage of completion acceptance reverses inside India revenue adjustments; short deduction disallowance and advance tax interest removed.

Assessee's percentage-of-completion method for recognising inside India revenue must be accepted where it is shown to have been applied consistently in preceding and succeeding years; the assessing officer's contrary estimation is set aside. Advance tax liability must be computed after reducing tax payable by tax deducted at source for the year in question, therefore no interest for shortfall in advance tax is chargeable. Disallowance for short deduction of tax at source is not tenable and must be deleted. A written off unadjustable input service tax credit arising in the course of business is an allowable trading loss/deduction.

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Issues: (i) Whether the assessing officer was bound to accept the assessee's percentage of completion method for recognising inside-India revenues when consistency over preceding and succeeding years was shown and the Tribunal had directed re-examination; (ii) Whether interest under section 234B of the Income-tax Act, 1961 is chargeable where tax is deductible at source and advance tax liability is reduced accordingly for the relevant years; (iii) Whether section 40(a)(ia) of the Income-tax Act, 1961 is applicable to short deduction of tax at source; (iv) Whether service tax input credit receivable written off after completion of projects and surrender of registration is allowable as deduction.

Issue (i): Whether the percentage of completion method for inside-India revenue must be accepted for the year under consideration.

Analysis: The tribunal previously directed the assessing officer to verify whether the percentage of completion method was consistently followed in earlier and subsequent years and to adopt the figures if consistency was established. Evidence showed acceptance of that method in preceding and succeeding assessment years and submission of audited accounts. The assessing officer in the impugned assessment rejected books and estimated profits for inside-India revenue contrary to the tribunal's direction. The appellate authority reviewed the years and found no material change that would justify deviation from the consistent accounting treatment.

Conclusion: In favour of assessee - the assessing officer's divergent estimation for inside-India revenue is not sustainable and the assessee's percentage of completion method is to be accepted.

Issue (ii): Whether interest under section 234B is chargeable in the facts of the year where tax was deductible at source.

Analysis: For the relevant assessment year the statutory position required that tax payable by a non-resident be reduced by tax deductible at source for computing advance tax liability; the amended proviso affecting that position applied only from a later year. The appellate authority applied the law as applicable to the year under consideration.

Conclusion: In favour of assessee - interest under section 234B is not chargeable for the year in question.

Issue (iii): Whether section 40(a)(ia) can be invoked for short deduction of tax at source.

Analysis: Precedent from higher courts (including Calcutta High Court and Delhi High Court) establishes that section 40(a)(ia) cannot be applied to short deduction (as distinct from non-deduction) of tax at source. Where there are divergent non-jurisdictional High Court views, the construction favourable to the assessee is to be followed. The appellate authority followed these precedents and held that the disallowance under section 40(a)(ia) for short deduction was not tenable.

Conclusion: In favour of assessee - section 40(a)(ia) is not applicable to short deduction of tax at source; the disallowance is deleted.

Issue (iv): Whether service tax input credit receivable written off after project completion and surrender of registration is an allowable deduction.

Analysis: The input service tax credit arose in the course of business and was carried as a current asset; upon completion of projects and surrender of registration, the unadjusted input credit could not be utilized and was written off. Such write-off is not a bad debt under section 36(2) but a trading loss/allowable business deduction reflecting expenditure linked to the project. Relevant judicial precedent supports allowance of such write-offs.

Conclusion: In favour of assessee - the service tax input credit written off is allowable as a deduction and the assessing officer is directed to give effect accordingly.

Final Conclusion: The appeals are partly decided in favour of the assessee: the assessing officer's estimation for inside-India revenue and the related addition are set aside; interest under section 234B is not sustained; disallowance under section 40(a)(ia) for short deduction is deleted; the write-off of service tax input credit is allowable. Overall, the tax department's appeal is dismissed for the first assessed year while the assessee's appeals are allowed (one for the assessment year 2012-13 and one for 2016-17 treated as allowed for statistical purposes).

Ratio Decidendi: Section 40(a)(ia) of the Income-tax Act, 1961 is not applicable to short deduction of tax at source; where an assessee consistently applies the percentage of completion method across years and the tribunal directs verification, the assessing officer must accept that method if consistency is established; a writen-off unadjustable input tax credit arising in the course of business is deductible as a trading loss.

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