TaxTMI 
TaxTMI 
2014 (12) TMI 805
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....st a. Dyckerhoff & Widmann AG, Germany (later changed to Dywidag International Gmbh) 29.0% b. Larsen & Toubro Ltd., India 26.0% c. Samsung Corporation, Korea 26.0% d. Ircon International Ltd. India 9.5% e. Shimizu Corpon, Japan 9.5% 100.0% 3. The Joint venture is engaged in execution of a project for construction of the Rail Corridor from ISBT upto Central Secretariat packaged as MCIB for the Delhi Metro Rail Corporation. The return for the year was filed on 30.10.2004 declaring a loss of Rs. 6,59,74,376/-. The return was selected for scrutiny assessment and statutory notices were issued and served upon the assessee. 3.1. During the course of the assessment proceedings, a proposal u/s. 142(2A) for audit of the books of account was forwarded to the Commissioner of Income Tax-18, Mumbai. The CIT granted approval which was challenged by the assessee vide a Writ petition. The Hon'ble Bombay High Court set aside the order. Again a proposal was sent for Special Audit u/s. 142(2A) which was approved by the Commissioner. Against this order, the assessee approached the Hon'ble Bombay High Court in a Writ....
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....urnover of Rs. 4,94,75,18,674/- in its books as per AS-7. However, the turnover declared in the returns of work contract was at Rs. 5,30,46,88,602/-. The turnover as per running account (RA) was at Rs. 5,00,68,52,523/-. The AO was of the strong belief that the turnover as per running account should be considered as the actual turnover for the year. 3.3. The assessee was asked to justify its claim of turnover of Rs. 4,94,78,18,674/-. The assessee filed a detailed reply stating that it has been consistently following AS-7 and it is incorrect to hold that it is not mandatory under the Income tax Act. The assessee claimed that this method was accepted in the earlier years also. This explanation of the assessee did not find favour from the AO. The AO was of the belief that income assessable under the Income Tax Act has to be computed in accordance with the Act and since the accounts have been drawn by the assessee on the basis of AS-7 which is neither recognized nor mandatory under the Act. The AO proceeded by taking the turnover as per the Running Account statement as the actual turnover for the year under consideration and added the difference of Rs. 5,90,33,849/- to the income of ....
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.... 3.6. In so far as the claim of depreciation by amortization method by the assessee is concerned, after considering the facts and the submission, the Ld. CIT(A) was of the opinion that depreciation is a charge on current year's income by prescribed rate mandated by the statute. Therefore, there is no option available either for the assessee or for the AO to deviate from the prescribed rate mandated by the statute. The Ld. CIT(A) further observed that the difference amount between the statutory depreciation and excess as per amortization also cannot be allowed u/s. 37 of the Act as Sec. 37 is not applicable to depreciation. The Ld. CIT(A) concluded that there is no evidence to show that expenses on machineries were revenue in nature and accordingly upheld the findings of the AO in relation to the claim of depreciation. 3.7. Before the Ld. CIT(A), the assessee raised an additional ground which related to the claim of foreseeable losses of Rs. 4,42,31,018/-. The Ld. CIT(A) observed that the assessee itself has disallowed the claim in the return of income. Since he has rejected the method adopted by the assessee and further relying upon the decision of the Hon'ble Supreme Court in....
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....ation of the contract. For solving this problem, the Institute of Chartered Accountant of India came out with Accounting Standard AS-7 on account for construction contracts. Construction contracts are formulated in a variety of ways in general fall into two basic types (1) fixed price contracts and (2) cost plus contract. Two methods of accounting for contracts commonly followed by the contractors are the percentage of completion method and the completed contract method. 4.5. Under the percentage of completion method, Revenue is recognized as the contract activity progresses based on the stage of completion reached. The cost incurred in reaching the costs of completion are matched with revenue resulting in the reporting of results which can be attributed to the proportion of the work completed. Although as per the principle of prudence, Revenue is recognized only when realized under this method, the revenue is recognized as the activity progresses even though in certain circumstances it may not be realized. Under the percentage of completion method, the amount of revenue recognized is determined by reference to the stage of completion of the work activity at the end of each acco....
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.... Sec. 145 will prevail. This does not mean that if the assessee is following a particular accounting standard issued by ICAI which is not notified by the Central Government, the method of accounting of the assessee would be out-rightly rejected. As there is no doubt that the assessee has been consistently following accounting standard-7, in our considered opinion, the method followed by the assessee has to be accepted. We, therefore, do not find any justification in not accepting the sales recorded by the assessee in its books of accounts as per Accounting Standard AS-7. We set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 5,90,33,849/-. Ground No. 1 is accordingly allowed. 5. Ground No. 2 relates to the disallowance of Rs. 23,61,29,230/- out of amortization of cost of specific equipment. 5.1. During the course of the assessment proceedings, it was noticed that the assessee has debited depreciation of Rs. 43,42,76,155/- to the profit and loss account. On perusing the schedule, it was found that the assessee has provided depreciation on the useful life of the asset over the contractual period of the project and the value of an asset for t....
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....the orders of the lower authorities and the decisions relied upon by the assessee. The assessee has followed a particular method of claiming depreciation/amortization. However, the Income tax Act u/s. 32 specifically provides the method of computing the depreciation and the Income Tax Rules provide the relevant rates. All assessees are bound to follow the rates prescribed under the rules and compute the depreciation as per the procedure laid down u/s. 32 of the Act. The assessee has followed none. The corporate assessees compute depreciation in their books of account as per the Companies Act 1956. The same is recomputed for filing the Income tax returns in line with the provisions of the Income tax Act. By similar analogy, the assessee is free to compute the depreciation in its books in whatever manner/whatever method it wants to adopt but for income-tax purpose, the depreciation shall be computed and allowed as per the provisions of the Income-tax Act. The reliance on the judicial decisions placed by the AR do not support the facts of the case. The decision relied upon by the assessee relate to the fact that whether the expenditure is of revenue or capital in nature. In both the c....
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....see stated that since the assessment year 2004-05 is also under consideration, the expenses may be allowed in that year. We find force in the contention of the Ld. Counsel. It is not in dispute that the expenditure of Rs. 1,31,59,717/- has been disallowed as it pertain to A.Y. 2004-05. We, accordingly, restore this issue to the file of the AO. The AO is directed to entertain the claim of the assessee in A.Y. 2004-05. Ground No. 2 is treated as allowed for statistical purpose. 16. Ground No. 3 relates to the disallowance of Rs. 3,84,018/- out of salary. 16.1. It was noticed that the assessee has claimed TDS liability of Rs. 1,15,68,355/- being TDS on salary to expatriate employees by JV. The sum was reduced to Rs. 1,08,84,337/- through a rectification entry by debiting TDS payable by Rs. 3,84,108/- and crediting salary account. Accordingly, Rs. 3,84,10-8/- was treated as excess credit of salary. It was explained by the assessee that this mistake has crept up and has been rectified by the accountant. However, the same was disallowed as excess salary. 16.2. Before us, the Ld. Counsel for the assessee stated that it was a genuine mistake on the part of the accountant and the s....
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....ssessee and in favour of the Revenue. 24. Ground No. 3 is against adjustment of Rs. 11.48 crores to arm's length price in relation to international transaction entered into with Associated Enterprises (AE). 24.1. Facts relating to this issue are that the assessee has entered into the following international transaction with its AE. Sr. No. Name of the Associated Enterprise Nature of International Transaction Method used for determining ALP Amount in INR 1. Gtckerhoff & Widmann AG Purchase of old equipments Comparable uncontrolled price method 2,939,660 2. Samsung Corporation Tunnel ventilation and station Air conditioning & ventilation works Comparable uncontrolled price method 690,805,808 3. Samsung Corporation Head Office Overheads Cost Plus Method 43,893,690 4. Dytwidag International Gmbh Head Office Overheads Cost plus method 53,420,531 5. Shimizu Corpn. Head Office Overheads Cost Plus Method 17,499,829 6. Samsung Corporation Direct expenses Cost 1,114,860 7. Dytwidag International GmbH Direct Expenses Cost 11,543,328 8. Shimizu Corporation Direct ....
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.... relating to the assessee are separately calculated and charged to the assessee. The TPO was of the firm belief that under these circumstances, there was no justification for allocating the head office overheads of JV partners to assessee to the extent of 8.5%. It was further observed that the assessee has failed to give details of services availed by the assessee from the JV partners which could justify the allocation of overheads to the assessee. The only piece of evidence available is the agreement entered between the assessee and its JV partners. 24.5. The TPO finally concluded by stating that in respect of all the international transactions with the AE, it is the responsibility of the assessee to justify/prove the nature of services availed from the AEs and also to prove as to how the said services have been utilized in the income earning process by the assessee during the financial year before determining the ALP of the transaction and the final allowability of the said expenditure under the provisions of Income tax Act. The TPO proceeded by taking the ALP of the allocation of overhead expenses at Rs. Nil and made an adjustment of Rs. 11,48,14,050/-. 25. The second TP a....
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....3.88 crores. The TPO proceeded by determining the arithmetic mean of the assessee's comparables by using the data for the year under consideration. Arithmetic mean was determined at 8.17% as under: Sr. No. Name of the company Net sales Profit before tax Profit/sales (%) 1. Air conditioning Corpn. Ltd. 4.40 0.98 22.27% 2. Associated Building Co. Ltd. 1.74 -0.04 -2.30% 3. Ethos Hvac Systems Ltd 8.12 0.17 2.09% 4. Flakt (India)Ltd. 93.43 10.03 10.74% 5. Voltas Ltd. 1382.35 111.07 8.03% Arithmetic mean of all cases 8.17% 25.2. On receiving no details of segmental analysis of data/profitability of contract works with the AEs and the non-AEs, the TPO computed the ALP of the sub-contract price paid to the AE as under: Total value of contract receipt during the year Rs. 271.44 crores Total Operating expenses as per assessee Rs. 281.30 crores Total Operating Loss as per the assessee Rs. 9.86 crores Determination of ALP by applying arithmetic mean: Total value of contract receipts during the year Rs. 271.44 cror....
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....th them are not treated as international transaction. 27. It is the say of the Ld. Counsel that Revenue authorities have grossly erred in stating that the assessee had not furnished any details in relation to the services utilized by the assessee from its JV partners. The Ld. Counsel stated that all the related documents were furnished before the lower authorities. The Ld. Counsel concluded by stating that since in earlier years the same transactions, the same set of facts have been accepted. There is no reason for taking a different view during the year under consideration. 28. Per contra, the Ld. DR strongly supported the order of the lower authorities. 29. We have carefully perused the orders of the authorities below and the relevant documentary evidences brought on record before us. The TPO has arrived at the ALP of this international transaction at Nil on the basis that the assessee was awarded a single contract work in the earlier years and more than 85% of the said contract had already been assigned to various sub-contractors including AEs on back to back basis. We find that the assessee JV came into existence with 5 independent enterprises coming together for execu....
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....b-contracted on back to back basis. Therefore, in our considered opinion, there can be no allocation of the cost of the VAC work. We, further find that the assessee has awarded this sub-contract to Samsung Corpn., based on the lowest bidding by the AE. The TPO has also not brought on record any comparable or set of comparable in support of the adjustment on account of excess cost claimed. 32. We have also the benefit of going through the orders for A.Yrs 2004-05 and 2005-06. No adverse inferences have been drawn in respect of the ALP for this international transaction. We, therefore, do not find any merit in the findings of the TPO. We, accordingly, set aside the findings of the TPO and direct the TPO to delete the adjustments made on account of arm's length price in relation to these international transactions entered into by the assessee with its AE. Ground No. 3 with its sub-grounds are accordingly allowed. 32.1. In the result, the appeal filed by the assessee is partly allowed. ITA No. 3608/M/2012 - A.Y. 2007-08 - Assessee's appeal 33. The first ground relates to addition of Rs. 29,23,55,121/- on account of alleged difference in sales. 33.1. The issue relates to ....