TaxTMI 
TaxTMI 
2014 (5) TMI 1074
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....s and the expenditure incurred towards construction during the year was Rs. 170,61,37,363 and the sales accounted were Rs. 30,24,50,000 and an amount of Rs. 23.38 crores as cost of the sales. The balance of Rs. 1189.09 crores [Rs. 1041.18 crores (Opening Balance) + Rs. 170.61 crores [construction expenditure incurred during the year - Rs. 30.24 crores shown as sales during the year] was shown as closing work in progress. During the assessment proceedings, the Assessing Officer noted that out of the project expenses of Rs. 1212,47,48,985 the assessee incurred interest expenditure payable to M/s. Vinamra Universal Traders Pvt. Ltd. (Rs. 15,36,78,432), and to UIOF (Rs. 69,02,055), Architect fee (Rs. 1,75,18,008) to Genesis & Premnath and Consultancy charges (Rs. 30,70,394) and no TDS was made from the above, said credits. The Assessing Officer observed that the above amount of Rs. 18.11 crores was in the nature of revenue and the expenditure was incurred in the year under consideration since no tax was deducted at source the provisions of section 409(a)(ia) of the Act are clearly attracted. After taking into account the objections raised by the assessee and also the disallowance made ....
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....ance to the extent of Rs. 1,60,329 (Rs. 36,56,890 - Rs. 34,96,560) only could be made and the addition is confirmed only to that extent and the balance amount of Rs. 18,58,19,257 (18,11,68,889 + 83,07,258 - 36,56,890) is ordered to be deleted. However, in view of the decision of the Hon'ble Mumbai Tribunal in the case of Savala Associates vs. ITO (35 SOT 148) (Mum) which has been followed by the ITAT Hyderabad, the Assessing Officer is directed to correct the amount of work-in-progress by taking into account the amount disallowable as per the provisions of section 40(a)(ia) of the Act and to consider such corrected work-in-progress finally in the P&L Account j Contract Account for the year in which the work is completed or in the year in which the TDS deductible is paid by the assessee. Against this, the Revenue is in appeal before us. 7. The learned DR submitted that though the assessee has not claimed this as an expenditure in the Profit and Loss A/c. and shown it as an inventory in the Balance Sheet it will have the deeming effect on the profit of the assessee. Being so, the disallowance should be made by taking into consideration all provisions of section 40(a)(ia) of th....
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....llowed in the year of payment. 8.0 Regarding non3 application of sec 40(a)(ia) to expenditure actually paid Assessee argument is now upheld by the Special Branch in the case of Merilyn Shipping & Transports, Vizag 136 ITD 23 SB. 10. The AR submitted that It was submitted that the Assessing Officer's detailed observations are mostly devoid of merits and some of the discussions are totally irrelevant for deciding the issue on hand. In fact the Assessing Officer has accepted the book results and merely made the technical disallowance u/s. 40(a)(ia). With regard to the issue of disallowance u/s. 40(a)(ia), it was submitted that the disallowance can be made only if the assessee claims something as expenditure. What is to be seen is whether the entire amount referred to in para 3 was claimed as expenditure in this year. The answer is a definite no. Only 1.93% of the same was claimed as expenditure against sales of Rs. 30,24,50,000 during the year as part of total recognized expenditure of Rs. 23,38,41,519. As submitted in detail in earlier paras the amount attracting the provisions of sec. 40(a)(ia) and included in Rs. 23,38,41,519 is Rs. 34,96,560 only wh....
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....k (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 on or before the due date specified in sub- section (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid." 13. The AR submitted that as per the above provision, only that expenditure which has been claimed by the assessee shall not be allowed as deduction if the assessee did not deduct tax at source as per Chapter-XVII B of IT. Act, 1961. In the present case, the assessee has been following project completion method as per which it has recognized the income in respect of sales executed and the proportionate expenditure has been claimed and the balance cost of construction has been treated as work in progress and the same has been transferred to the Balance Sheet. Section 40(a)(ia) applie....
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....h, 2007 at page 3 of the paper book where rent has not been claimed under the head "Expenditure" and we are convinced that the assessee is only an intermediary. Hence, applying the ratio of the decision in the case of Godavari Developers (supra), we allow the assessee's appeal." 15. Further, the AR relied on the order of the co-ordinate Bench in the case of DCIT vs. M/s. S.P. Real Estate Developers Pvt. Ltd. (ITA No. 866/Hyd/2010 & Anr) order dated 12.2.2014: "52. With regard to disallowance u/s. 40(a)(ia) of the Act, we are inclined to direct the AO not to disallow the expenditure if TDS has been remitted by the assessee before due date of filing of the return of income as held by the Hon'ble Andhra Pradesh High Court in the case of CIT vs. PEC Electricals Pvt. Ltd. in ITA No. 263 of 2013 dated 12.7.2013. The Hon'ble High Court held as under: "With regard to the next question, the Tribunal by following the decision of the Kolkata High Court in CIT vs. Virgin Creations (GA No. 3200/2011), wherein it has been held that the amendment to the provisions of section 40(a)(ia) is retrospective in operation and consequently in respect of any payment of TDS made bef....
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....ttained by this procedure. In the case under consideration, the AO made addition in all the projects including incomplete projects, which is not warranted." 18. The CIT(A) also placed reliance on the decision of ITAT Hyderabad in the case of M/s. Narne Constructions Pvt. Ltd. in ITA Nos. 1462 & 1463/Hyd/2011 dated 25.01.2012 where it has been held that "We have heard both the parties on this issue. The contention of the assessee is that this item has not been debited to Profit & Loss A/c and this has been shown in the balance-sheet and it cannot be considered for allowance or disallowances. We find force in the contention of the assessee's counsel that unless the assessee claims this item as expenditure, the assessing officer cannot allow or disallow the same. In the circumstances, we set aside this issue to the file of the assessing officer to examine whether this is an expenditure claimed by the assessee in the Profit & Loss A/c or shown as an item in the balance- sheet. In the event, if it is claimed as an expenditure, the assessing officer could disturb the same and disallow an expenditure claimed in the P & L A/c to the extent of 10%, which, in our opinion, is ....