2009 (10) TMI 640

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....g financial year relevant to the assessment year 2006-07, the corresponding expenses were allowable in that assessment year, and since the closing work-in-progress in which those expenses were included formed the opening work-in-progress for the assessment year 2006-07, there was no warrant for any disallowance in the assessment year under appeal. 3.On the facts and in the circumstances of the case, the aforesaid disallowance to the extent the same relates to the expenses, for which the tax was deducted in the month of March 2005, was, in any event, not justified since the payments of the TDS were made before the due date under section 139(1), and, hence, the provisions of section 40(a)( ia) were not attracted in those cases, in view of the retrospective amendment made to section 40(a)( ia) by the Finance Act, 2008." 2. The assessee filed modified Ground No. 3, which reads as under:- "On the facts and in the circumstances of the case and in law, out of the total disallowance of Rs. 63,22,988, the disallowance relating to the expenses in respect of which the tax was deducted in the month of March 2005, was, in any event, not justified since the payments of the TDS were made....

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.... in the next year, the expenditure is allowable as TDS and paid, therefore, these expenses are to be added in WIP in subsequent year. The net result will be NIL; therefore, no addition is warranted. The learned AR submitted that amount paid in the month of which TDS is payable in next year. The assessee paid the TDS, before the time prescribed in section 40(a) itself, therefore, to that extent, no disallowance is warranted. The learned AR filed a chart which is reproduced below:- Details of amount paid under section 40(a) Particulars Amount TDS Due date Date of payment Disallowed u/s 40(a) in order Allowable expenditure for March 2005 RAJAWADI Transport 3480 71 07-10-04 09-06-05 3480   -do- 6863 140 07-11-04 -do- 6863   -do- 17598 359 07-12-04 -do- 17598             27941 - KURLA SAMTA Transport 16078 328 07-11-04 11-04-05 16078   -do- 6667 136 07-12-04 11-04-05 6667   -do- 1667 34 -do- 11-04-05 1667   -do- 13235 270 07-01-05 11-04-05 1....

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....do- 93529 1908 07-05-04 21-06-05 93529   -do- 444951 9077 07-01-05 21-06-05 444951             2037401 113235 KURLA SAMTA Labour 122990 2509 07-11-04 11-04-05 122990   -do- 135686 2768 07-02-05 11-04-05 135686   -do- 407010 8303 07-03-05 11-04-05 407010   -do- 50245 1025 07-04-05 11-04-05 50245 50245 -do- 150735 3075 -do- 25-05-05 150735 150735 -do- 681961 13912 -do- 21-06-05 681961 681961 -do- 15098 308 07-02-05 11-04-05 15098   -do- 10049 205 07-04-05 -do- 10049 10049 -do- 65343 1333 -do- 25-05-05 65343 65343 -do- 20098 410 07-02-05 11-04-05 20098   -do- 60343 1231 07-03-05 -do- 60343     Particulars Amount TDS Due date Date of payment Disallowed u/s 40(a) in order Allowable expenditure for March 2005 -do- 30196 616 07-04-05 11-04-05 30196 30196 -do- 49265 1005 07-04....

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....its and gains of business or profession',- (a)in the case of any assessee- [(i)any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A)outside India; or (B)in India to a non-resident, not being a company or to a foreign company, 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 during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (A)"royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B....

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.... is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] [(iia)any sum paid on account of wealth-tax. Explanation.-For the purposes of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of a....

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....in-trade of the assessee. The project did not constitute a fixed asset of the assessee. In the last accounting period when work is completed, the profit and loss account is prepared, that 'work-in-progress' account is to be transferred in profit & loss account. Thus, the "completed contract method" determines profits/loss only when contract is completed. Now question arises how the profit is to be calculated in case of 'completed contract method'. One of the important aspects to be seen is Cost incurred by a contractor which can be divided into Cost that relate directly to a specific contract; Cost that can be attributed to the contract activity in general and can be allocated to specific contracts and Costs that relate to the activities of the contractor generally, or that relate to contract activity but cannot be related to specific contracts. Examples of costs that relate directly to a specific contract include: site labour costs, including supervision; materials used for project construction; depreciation of plant and equipment required for a contract; costs of moving plant and equipment to and from a site. Examples of costs that can be attributed to the contract activity in ge....