AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (1) TMI 35
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....r: "During the year, the assessee has earned income from contract sales and the product sales. In respect of contract sales, it has claimed advance receipt of Rs.29,08,07,163/- which has not been considered as income of AY 2008-09 but considered as liability in the balance sheet. However, this advance money from various customers has been received after deduction of TDS. The assessee was asked to reconcile its claim of TDS credit with related income in the profit & loss account. The details submitted by the assessee in this regard lead to no conclusion as there are thousand of TDS tax credits as per Form No.26AS and the TDS claim made by the assessee which are not reconciled properly. The assessee itself has admitted that the TDS claim has been made in respect of advances receipts also. As per the provisions of Rule 37BA read with Sec. 199, 'credit for tax deducted at source and paid to the Central government, shall be given in assessment year in which such income is assessable.' Since TDS credit of Rs.66.01 has been claimed during the year, the corresponding advance receipts of Rs.29,08,07,163/- have also to be taken in the income related to AY 2008-09. Accordi....
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....laim for TDS has been made by the assessee in the assessment year in which such income is assessable. Both the sections, viz., 198 and 199, fall within Chapter XVII of the Income-tax Act, 1961, which are titled as "Collection and recovery of tax-Deduction at source." In other words, these are machinery provisions for effectuating collection and recovery of the taxes that are determined under the other provisions of the Act. In other words, these are only machinery provisions dealing with the matters of procedure and do not deal with either the computation of income or chargeability of income. The basis of charge of income to tax in the case of business income is provided in section 28 of the Act. The computation provisions of sections 28 to 43A deal with the assessment of profits and gains of business. In computing the income from business or profession, the method of accounting followed by the assessee becomes relevant. The profits and gains of business or profession carried on by the assessee should be computed in accordance with the method of accounting regularly followed by the assessee as provided in section 145(1) of the Income-tax Act, 1961. ....
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....d as an expense immediately. Estimate billings and expenses are based on budget approved by management at the time of finalization of the order/placement of procurement orders and includes subsequent revision, if any. Profit / Losses on job executed less than 10% of contract value has not been considered. The assessee-company is carrying on the business of product sales and job contracts. The assessee-company is maintaining its books of account on accrual system. The profits on contracts entered into by the assessee-company undisputedly have been recognized on percentage of completion method as per the accounting standards indicated above and offered for taxation accordingly. It does not mean that income from a project is earned only at the completion of the project. Income is earned by the assessee-company simultaneously with the progress in the project execution in a contemporaneous manner. The assessee-company is accounting for the expenditure in work-in-progress account as well as raising running bills and being carried forward from assessment year to assessment year till the completion of the project. However, profits are bench marked up....
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....ted in (2006) 5 SOT 616 (Mum), copy enclosed. The provisions of section relating to deduction of tax at source are not charging sections or computation section unless and until it is followed by an assessment order making a charge of tax. The deduction of tax is not a levy of tax. Deduction of tax at source is merely one of the mode of collection of tax. The amount on which TDS is deducted is subject to charge as per the provisions of the Act. There are few instances which can further elaborate this view. For example, the recipient maintains account on cash basis which may not match with the amounts certified in the TDS Certificate due to the reason that the deductor has maintained the account on mercantile basis. Naturally the deductor will deduct the tax on accrual basis; however, the recipient shall disclose the income on receipt basis. In this situation, there shall always be a mismatch between the amount of receipt as per TDS Certificate and the taxable income offered by the assessee. Due to this reason, the statute has clarified that it is not necessary that the receipts on which tax was deducted as per TDS Certificate should be offered to tax in the same ....
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....essing Officer. On the other hand, counsel of the assessee placed reliance on the order of CIT(A). 8. After considering the orders of Assessing Officer and CIT(A) we find no infirmity in the finding of CIT(A). The finding of CIT(A) has been incorporated in para 3.2 to 3.6 at pages 6 to 10 of his order, which are self explanatory and in detail. The findings of CIT(A) are reproduced herein below: 3.2. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer and the facts on record. The perusal o the return of income and the computation of taxable income filed alongwith the return of income reveals that the assessee has claimed credit for TDS in the Income tax return amounting to Rs.6,18,49,871/- and the corresponding amount reflected in the said TDS certificates is to the tune of Rs.259,42,51,681/-. As against the amount of Rs.259,42,51,681/-, the assessee has shown contract sales of Rs.306,73,33,963/- in the Profit & Loss account (Refer to Schedule-8 to the accounts for the year5 ended 31st March 2008). There is also no dispute over the fact that the assessee has shown contract sales of Rs.306,73,33,963/-....
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....ying accrual. In other words, the tax deduction has to match in time the earlier of the payment (receipt) or accrual. Put differently, the deduction of tax at source does not necessarily, or is not required to, match alongside the corresponding income, recognition of which by the recipient could be either on accrual or on receipt basis. The accrual of the tax liability on income would arise only on the same being/becoming assessable. There is thus an inherent mismatch, in terms of time, between the payment of tax (per TDS) and the accrual of tax liability against the corresponding income, i.e., given the fact of admission of income as per the relevant provisions of law. It is in view of and to address this mismatch in time, so that the tax stands deducted while the corresponding income, though accrued has yet to be received or though received, as by way of an advance, is yet to accrue, that the law [per section 199 r/w ss. 190 & 191 and Rule 37BA] clarifies that the credit for the TDS shall be available for the year for which the corresponding income is assessable. The law as provided by the statute, to my mind, could not get clearer than this. 3.4. There should....
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....of Smt. Varsha G. Salunke vs. DCIT (2006) 98 ITD 147(Mumbai)(tm): 101 TTJ (Mumbai) ((tm))703, it was held as under:- "Section 199 of the Act has two objectives - one to declare the TDS as payment of tax on behalf of the person on whose behalf the deduction was made and to give credit for the amount so deducted on the production of the certificate in the assessment made for the assessment year for which such income is assessable. The second objective mentioned in section 199 is only to answer the question as to the year in which the credit for TDS shall be given. It links up the credit with assessment year in which such income is assessable. In other words, the Assessing Officer is bound to give credit in the year in which the income is offered to tax. This section 199 does not empower he Assessing Officer to determine the year of assess ability of the income itself but it only mandates the year in which the credit is to be given on the basis of the certificate furnished. In other words, when the assessee produces the certificates of TDS, the Assessing Officer is required to verify whether the assessee has offered the income pertained to t....
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....rity has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom. But these rights and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated, as erroneous by the assessee. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The procedure of the Assessing Officer is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay. 3.6. Thus for all these reasons and as the assessee ....
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....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 (ia)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,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub sec. (1) of sec. 139, or (B) in any other case, on or before the last day of the previous year. The high lighted part in the above provisions has been substituted by the Finance Act 2010 with effect from 1st April 2010 for the following words : "has not been paid on or before the due date specified in sub-s....
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....r A.Y. 2008-09. As the assessee has deposited the TDS by July 2008, consequently, there is no disallowance to be made u/s 40(a)(ia). Reliance is placed on the decision of the Mumbai Tribunal in the case of Global Stables Lifestyle Centre Pvt. Ltd. vs. CIT in ITA No.5145/Mum/2009 reported in BCAJ November 2010 issue the relevant extract is enclosed, ITAT "B" Bench Ahmedabad in ITA No.3983/Ahd./2008 dated 3rd Dec. 2010 reported in 2010 (extract enclosed) wherein it has been held that the amendment made by the Finance Act 2010 being curative in nature and brought in to remove the hardship of the assessee is applicable retrospectively from 2005 onwards. Hence, the addition of Rs.1,78,31,914/- may kindly be deleted." 14. After considering the submissions and perusing the material on record CIT(A) found that Assessing Officer was not justified in making the disallowance. Various case laws relied on by assessee were found in favour of the assessee and accordingly he deleted the addition by further observing that provisions of sec. 40(a)(ia) as amended by Finance Act 2010 w.e.f. 1-4- 2010 to be effective for the year under consideration as these pro....
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....ed at source on 11.4.2008 i.e. before the due date for filing return of income u/s 139(1) of the Act. In this situation, especially when the Revenue have not brought to our notice any contrary decision, we are not inclined to interfere with the findings of the ld. CIT(A)." 18.1. Accordingly, the ground of the department was dismissed. 19. Here in before us, the facts are identical. CIT(A) followed various other decisions whereby similar view has been expressed. Undisputedly the payment of TDS has been made before due date of filing of the return. Return has been filed u/s 139(1), therefore, no disallowance can be made on account of non-payment of TDS u/s 40(a)(ia) on these facts. Therefore, the order of CIT(A) remained uncontroverted. Therefore, we see no reason to interfere in the finding of CIT(A) on this issue also. The ground is dismissed. 20. Ground no. 5 relates to the deletion of additions of Rs. 51,68,020/- and Rs. 1,74,88,597/- made by the Assessing Officer on account of noninclusion of excise duty in the closing stock of finished goods and raw material respectively. 21. The Assessing Officer made a disallowance of Rs. Rs. 51,68,020/- on account of non-inclusion of exc....
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....le to the assessee towards the excise liability. As a result of this working an amount of Rs.11,93,668/- is the amount of excise duty on closing stock which has remained unpaid up to 31st July 2008 and has been considered by the assessee for disallowance u/s 43B with the Income Tax Act, 1961. Only if the AO had understood the working under 145A, the addition would not have resulted. The assessee has consistently followed the same system in the earlier years which has been accepted by the AO in assessment u/s 143(3). Copy of the working u/s 145A for the assessment year 2006-07 and 2007-08 is enclosed to appreciate the consistent method of valuation of closing stock followed by the assessee which is in line with sec. 145A of the Income Tax Act 1961. There is no deviation by the assessee. Therefore, no addition is called for. The assessee has fully complied with the provision of sec. 145A of the Income Tax Act, 1961 as has been reported by the Tax Auditors giving the complete working. Therefore, the addition made of Rs.51,68,020/- and Rs.1,74,88,597/- may kindly be deleted." 22. After considering the submissions and perusing the material on rec....
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....ence of any change either in facts or in law, principles of consistency itself can be made a basis to uphold the claim of the appellant company. Reliance is placed on the judgments of the Hon'ble Delhi High Court in the cases of Commissioner of Income-tax vs. Neo Poly Pack (P) Ltd. (2000) 245 ITR 492 (Del) and CIT vs. Rajeev Grinding Mills (2005) 279 ITR 86 (Delhi) wherein the judgment of the Hon'ble Apex Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) was followed. 6.3. It is also observed that for the purpose of computation of taxable income, a separate working has been done u/s 145A of the Act depicting the excise duty on the closing stock of finished goods as well as raw material and also reflecting the adjustment by way of Cenvat credit available to the assessee towards the excise liability. The above working shows that the excise duty on closing stock amounting to Rs.11,93,668/- has remained unpaid up to 31.07.2008 and therefore has been voluntarily disallowed under section 43B of the Act and added back to the total income by the assessee. In view of the above, it is held that the disallowances of (a) Rs.51,68,020/- on account of no....
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....,020/- was not justified for the simple reason that assessee has himself included this amount. However, since the payments were made before due date of filing of return, they were claimed as deduction. Ld. CIT(A) has examined this aspect and therefore, it has been held that the addition of adjustment of Rs. 51,68,020/- was not correct. 26. In fact the excise duty relating to closing stock of finished goods was Rs. 63,61,688/- out of which Rs. 51,68,020/- has been shown to be paid in view of the provisions of sec. 43B in respect of clearance up to 31st July 2008 and balance amount of Rs. 11,93,668/- has already been added in the computation as disallowance u/s 43B, therefore, if the contention of the department is accepted, then this would amount to double addition because of the reason that assessee has added itself and as the same was paid before the due date of filing of the return and therefore to this extent the amount was claimed as deduction on account of excise duty paid. This is a factual finding given by CIT(A). Therefore, to this extent the order of ld. CIT(A) is liable to be confirmed and we confirm the same. 27. However, regarding the remaining amount of Rs. 1,74,88,5....
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.... in respect of provisions of sec. 145A and in the light of the working made by the assessee on the basis of exclusive method by which it has been stated that there will be Nil effect. Accordingly, we restore this issue to the file of Assessing Officer to examine the issue afresh in view of our observations above and after affording opportunity to the assessee of being heard. We order accordingly. This ground of the department is partly allowed for statistical purposes. 30. Ground no. 6 is against the deletion of addition of Rs. 3,57,55,437/- made on account of bad debt. 31. The Assessing Officer made addition of Rs. 3,57,55,437/- on account of bad debt written off by following observations: "It was noticed that these debts belong to very sound parties like BHEL, TATA, NTPC, L&T etc. Assessee has itself also accepted vide its reply dated 17.11.2010 that it is not a case where non-realisability is due to the party absconding or nontraceability. For any debt to become bad, it is imperative that it should really become non-recoverable i.e. either the debtor is incapable of paying or non-traceable etc. As these conditions are not all satisfied and keeping in view o....
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....ors become irrecoverable due to job/material rejections, quality of material used/supply order, measurement differences, Non-payment of extra work done, delays in completion resulting in slashing of bills by the party. It may be noted that these disputes may arise with any of the customers, even reputed parties like BHEL, TATA, NTPC, L&T will not admit the job work bills / product bills unless it is scrutinized by their officials and are satisfied with the work. Assessee has also reflected in the profit & loss account the recovery of bad debts as and when there is a realization of the bad debts as its income. Even in the earlier years such claim of the assessee has been allowed in the assessment u/s 143(3). For the Asst. Year 2006-07, the bad debt claimed by the assessee is Rs.1,67,76,043/-and for Asst. Year 2007-08 the bad debts claimed is Rs.3,56,27,738/- which has been allowed to the assessee. Therefore the conditions required for allowability of bad debt u/s 36(1)(vii) read with sec. 36(2) of the Income Tax Act are fully satisfied namely the bad debt is as a result of income which has been offered for tax and secondly, the amount has been....
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.... under:- "2. In these appeals, we are concerned with assessment year 1990-91 and assessment year 1993-94. Prior to 1.4.1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had in fact, become irrecoverable. That position got altered by deletion of the word "established", which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961 ('Act'). 3. For the sake of clarity, we reproduce herein below provisions of section 36(1)(vii) of the Act, both prior to 1.4.1989 and post 1.4.1989: "Pre-1-4-1989 36. Other deductions-(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section -28 (i) to (vi) ** ** ** (vii) subject to the provisions of sub-section (2) the amount of any debt, or part thereof, which is established to have become a bade debt in the previous year. ....
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....f the Bench was drawn on pages 121 & 122 of the paper book and it was submitted that as per these details it cannot be established that these debts have become bad. It was further submitted that the matter may be sent back to the file of Assessing Officer to examine the same afresh in the light of the decision of the Apex Court in the case of T.R.F. Ltd. 323 ITR 397. 35. On the other hand, learned counsel for the assessee strongly placed reliance on the order of CIT(A). It was further submitted that both the conditions are satisfied in this case as the sales have been effected in the last so many years which have been offered for taxation in those very respective years. Now since the payments have not been received, therefore, in this year the amount has been written off by treating these receivable payments as bad debts. Therefore, it cannot be said that conditions are not satisfied. It was further submitted that all these details were filed before Assessing Officer and he has not commented over the details whether they are right or not, as he disallowed the claim of the assessee by observing that the debts have become bad. Accordingly, conditions were not satisfied and therefore....
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....f Modi Telecommunication (supra) and Prasad & Co. 341 ITR 480 also support the case of the assessee. 42. In view of the above facts and circumstances we hold that CIT(A) was justified in allowing the claim of the assessee. Accordingly, we confirm the order of CIT(A) on this issue also. 43. Remaining ground i.e. ground no. 3 in appeal of department is against restricting the addition u/s 14A to Rs. 5,39,063/- as against Rs. 13,88,000/- made by the Assessing Officer . The assessee has also challenged the addition sustained by ld. CIT(A) by filing its cross-objection. Since these grounds are common, therefore, they are being disposed of together. 44. Assessing Officer made a disallowance of Rs. 13,88,000/- u/s 14A of the Act read with Rule 8D of the I.T. Rules. It was submitted before CIT(A) that Assessing Officer had mechanically applied the provisions of Rule 8D without appreciating the submissions of the assessee that there is no expenditure incurred to earn dividend income, which is only Rs. 2,228/-. It was further submitted that this dividend income was earned by the assessee on the basis of investments made in March 05 and before the year 1990 in Punjab National Bank and Bomb....