TaxTMI 
TaxTMI 
2013 (8) TMI 481
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....ompany incorporated on 31-12- 2001. It is engaged in providing management services to Hazira LNG Private Limited (HLPL) in connection with the construction of the LNG Terminal at Hazira, Gujrat. For this purpose, it entered into a contract on 22- 02-2002 with HLPL (referred to in the contract documents as the owners). The total value of the contract stood at Rs.274,04,28,416. The contract receipts/management fees arise upon achievement of certain milestones under the contract. These milestones are given in the Payment Schedule of the contract, copy of which is enclosed to the Assessment Order as Annexure- 3. The Payment schedule showed the scheduled date of the milestone, the description of the milestone, percentage of the contract completed with each milestone and the progressive and cumulative payments due on each milestone achieved. As per the payment schedule, the assessee company was to achieve the last milestone of the Provisional Acceptance of the contract in January, 2005 entitling it to the full value of the contract amount. However, the Auditors in Note 1(b) to the Financial Statements of the year reported that the assessee company received the provisional acceptance cert....
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....t year itself. The A.O. also noted that the assessee had disposed of its entire fixed assets, which showed that it had treated the contract as complete during the current year. The A.O. therefore concluded that though the assessee had completed the contract during the year, it' failed to account for the whole receipts. In other words, as per the AO the assessee following the percentage completion method of accounting, should have accounted for the entire contract value of Rs.2,74,04,28,416 as reduced by the aggregate receipts of Rs.2,56,09,37,918 declared in earlier years and the expenses of Rs.10,45,15,060 incurred during the current year. The AO thus found that the appellant had not accounted for contract/management fees amounting to Rs. 1,74,80,406 which he worked out as under: Total accrued contract receipts Rs.2,74,04,28,416 Less: contract receipts offered up to Financial Year 2005-06 Rs.2,56,09,37,918 Contract revenue for the year Rs.17,94,90,498 Less: contract receipts credited to P&L A/c of the current year Rs. 16,20,10,092 Contract receipts accrued but not accounted during current year Rs. 1,74,80,406 The AO accordingly added the above amou....
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....ot contend that the contract had not been completed even on 26-3-2007. He held that merely because there was some deficiency in the contract work done by the assessee, it could not be said that the contract fees which had become due to the assessee was not accrued as income. He held that the income had accrued to the assessee when it became legally due and the deficiencies pointed out in the work done in the acceptance certificate could not postpone such accrual. He, therefore, confirmed the addition made by the A.O. on this issue. 8. The ld. Counsel for the assessee submitted that the percentage completion method was being followed by the assessee to recognize its income on accrual basis and the same was accepted by the Department in the earlier year. He submitted that the relevant contract although substantially completed by the assessee up to 31-3-2006, the same was not fully completed. He submitted that the assessee had accordingly offered its income by showing the work completed to the extent of 98.54% up to 31-3-2006 but the A.O. as well as the ld. CIT(A) took the contract work as completed in the year under consideration on the basis that it was substantially completed. H....
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....e ld. CIT(A), however, took the contract as fully completed up to 31-3-2006 mainly on the basis of provisional acceptance certificate issued by the owners taking a stand that the assessee having become entitled to receive the entire contract fees on the issue of provisional acceptance certificate, income to that extent had accrued to the assessee and the same was taxable in the year under consideration. A copy of the said provisional acceptance certificate is placed on record before us at page No. 125 of the assessee's paper book and a perusal of the same shows that it was confirmed by the owners therein that requirements of clause 22.5 of the contract had been satisfied and that the guarantee period was deemed to be commenced on 8-10-2005 subject, however, to the exceptions noted in the attached list. The said attached list contained various items of work to be completed by the assessee giving corresponding description as well as target completion dates. The said list, in our opinion, is sufficient to show that the work as per the contract was not completed by the assessee up to the date of issuance of provisional acceptance certificate and the assessee was still not relieved of t....
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....,000/- was made by the assessee on account of auditors remuneration and further provision of Rs. 6,15,000/- was made for the services relating to transfer pricing services. Since no tax at source was deducted from these two amounts, the same were shown as inadmissible u/s 40(a)(ia) of the Act in the tax audit report. As per the stand taken by the assessee before the A.O., the relevant professional services were to be rendered by the concerned professionals only after 31-3-2006 and since the charges for the same were to be paid only after rendering the services, provisions of section 40(a)(ia) were not applicable. According to the A.O., since the said provisions were made by the assessee for the expenses that had not been actually incurred in the year under consideration, the same represented contingent liability. He, therefore, disallowed the provision made by the assessee for auditor's remuneration and the services rendered to transfer pricing matter. Before the ld. CIT(A), it was contended on behalf of the assessee that although the services were rendered after the end of the relevant previous year, the same being related to the previous year fees for the same was deductible in a....
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....ch of this Tribunal in the case of DCIT vs. Chandabhoy & Jassobhoy reported in (2012) 49 SOT 448 (Mum) where it was held that section 40(a)(ia) of the Act is applicable only when there is no deduction of tax and not in the case where there is only short deduction of tax. Respectfully following the said decision of the coordinate Bench of this Tribunal, we delete the disallowance made by the A.O, and confirmed by the ld. CIT(A) on this issue and allow ground No. 4 of assessee's appeal. 16. Now, we shall take up the appeal filed by the assessee namely Hazira Marine Engineering & Construction Management Private Limited being ITA No. 2563/Mum/2010 for A.Y. 2006-07 which is directed against the order of ld. CIT(A) - 20, Mumbai dtd. 16-12-2009. 17. Ground No. 1 of this appeal is relating to addition of Rs. 2,67,38,378/- made by the A.O. and confirmed by the ld. CITA) on account of contract receipts. 18. As the issue involved in this case as well as all the material facts relevant thereto are similar to the issue involved in ground No. 1 of the appeal filed in the case of M/s Hazira Cryogenic Engineering & Construction Management Pvt. Ltd. (supra) which has been decided by us in ....