TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1669
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....t, 1961 amounting to Rs. 86,96,73,557/- ignoring the fact that the provisions of sec 40(a)(ia) are applicable in respect of expenses claimed as deduction under the head "Profit & Gains from business or Profession". 2. The CIT(A), Lucknow has erred in law and on facts in deleting the disallowance u/s 40(a)(ia) of the I.T. Act 1961 amounting to Rs. 86,96,73,557/- ignoring the fact section 40(a)(ia) read with section 194C of the I.T. Act is applicable in case of carrying out any work including supply of labour for carrying out any work. 3. The CIT(A), Lucknow, has erred in law and on facts in deleting the addition of Rs. 11,31,25,121/- without appreciating the fact that the credit balance in clients account is in respect of projects which were completed more than 15 years ago and hence there is cessation of liability. 4. The CIT(A), Lucknow has erred in law and on facts in directing the Assessing Officer to accept the revised computation of income and deleting the addition of Rs. 2,42,57,570/- on account of depreciation ignoring the fact that the assessee can revise its income only by filing revised return of income. 5. The CIT(A), Lucknow has erred in law and on facts in ....
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.... of Rs. 26,95,93,097/- relating to A.Y. 2010-11 has to be assessed in the A.Y. 2010-11 only. 10.1 The CIT(A), Lucknôw has erred in law and on facts in deleting the addition of Rs. 26,95,93,097/- on account of interest income earned on client's unutilized funds without appreciating the fact that in A.Y. 2011-12, the assessee has considered Rs. 27,18 34,136/- as income in prior period adjustments in the P&L account but reduced this amount from income in computation of income. 11. The CIT(A), Lucknow has erred in law and on facts in deleting the addition of Rs. 1,38,77,000/- by observing that the amount of Rs. 1,38,77,000/- has been shown as income in subsequent year without appreciating the fact the above fact is not verifiable from the assessment record. 4. The facts of the case are that for the assessment year 20102011, the assessee had filed the return of income showing total Income of Rs. 225,87,22,062/-. The assessment was completed by the AO on an income of Rs. 422,01,39,715/-, making various additions, vide order passed under section 143(3) of the Act. 5. Aggrieved by the order of the A.O, assessee preferred an appeal before the ld. CIT(A), who part....
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....ed to the profit & loss account; that thereby, the profitability of the assessee Corporation, in the form of centage being earned as gross profit, remained unaffected; that the assessee Corporation only acted as the collecting agency for collection of labour cess, which fact is evident from the Notification dated 1/7/2011 (pages 197 to 201 of the Special Audit Report); that this makes it clear that the collection and deposit of labour cess has no relation whatsoever with the profitability of the assessee Corporation; that the labour provision for labour cess does not stand debited to the profit & loss account; that the assessee is a wholly owned undertaking of the Government of Uttar Pradesh; that it undertakes Government works only; that the income earned by it is limited to the centage allowed by the Government by issuing Government orders from time to time; that the assessee prepares separate contract account for each work site in order to ascertain and demonstrate the centage to be charged from the work concerned; that all the operational expenses incurred for the work are compiled and then, centage is charged, as prescribed by the Government; that all the administrative expens....
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....at therefore, the order of the ld. CIT(A) on this issue being on all fours, the same be upheld and the grievance sought to be raised by the assessee be rejected as being shorn of merit. 8. Having considered the rival contentions in the light of the material placed on record, we find the grievance of the assessee to be justified. It is not in dispute that the assessee Corporation is a wholly owned undertaking of the Government of Uttar Pradesh. It is also unchallenged that the assessee Corporation, i.e., 'Uttar Pradesh Rajkiya Nirman Nigam Limited' (U.P.R.N.N.) undertakes Government works only. It is patent that the income earned by the assessee Corporation is by way of centage allowed by the Government by issuing Government orders from time to time. It receives orders for projects on behalf of the Government and it is allowed a profit or centage on a fixed percentage, which varies, as per Government orders, from 10% to 15% of the work done by it. This centage or profit is allowed to enable the Corporation to meet its administrative and other expenditure. The assessee Corporation carries out two different types of work, i.e., deposit work and te....
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....rectly made by invoking the provisions of section 43B of the Act. It remains undisputed that the labour cess is part of the contract account. That being so, the assessee is correct in contending that the addition, if any, is maintainable only in the hands of the client of the assessee Corporation and not in the hands of the assessee. The provisions made for labour cess, do not stand debited to the profit & loss account and the profitability of the Corporation in the form of centage earned as gross profit, is not affected. The assessee Corporation is only a collecting agency for the purposes of the labour cess and deposit thereof with the Government account. Thus, the action of the ld. CIT(A) in confirming the addition for the provisions for labour cess, is reversed and the addition is deleted. The sole ground raised by the assessee in its appeal is allowed. 10. Now we will take up the appeal filed by the Department in ITA No.314/LKW/2017. 11. Ground Nos. 1 and 2 relate to the deletion of addition amounting to Rs. 86,96,73,557/- under section 40(a)(ia) of the Act. 12. The brief facts of the issue under consideration are that the A.O made add....
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....us centage and tender work. During the assessment.ear2010-2011 under consideration, the appellant has credited an amount of R 3504;45,59,061/- as deposit work and Rs. 166,12,09,970/- as tender work to the Contract Account. All direct expenses have been debited to the Contact account. The gross profit worked out from the contract account, which is essentially the amount of centage allowed for work done and profit on tender work is transferred to the profit and loss account where all indirect expenses are debited to eventually work out the net profit of the appellant. The Contract account is basically a computation under section 28 of the Act. 5(5)(ii) The moot point is therefore that the labour expenses were part of direct expenses claimed in contract account and not indirect expenses in profit and loss a1count. In the contract account the appellant has shown labour charges of Rs. 564,49,92,323/- out of which an amount of Rs. 92,95,51,686/- (correct amount is Rs. 86,95,73,737/-) has been disallowed under section 40(a)(ia) of the Act for payment made without deduction of TDS. To ascertain the issue a reference may also be made to the working manual which provides for recogni....
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....cerned, the same is not justified in the facts and circumstances of the case and therefore, in regard to this extent we confirm the findings of the Ld. C.I.T. (A). This ground is dismissed. 5(6)(ii) The said findings of the Hon'ble ITAT, Lucknow have been followed in the case of the appellant for the assessment year 2000-2001 in ITA No. 382/LUC/04 dated 18.12.2008 asunder - "Against this, the Ld. A. R. submitted that similar issue had, arose before the Tribunal in Assessment Year 1991-92 which was decided by the Tribunal vide its order dated 30 11 2006 in ITA No 714/LUC/02 wherein it is held that as per accounting procedure followed by the assessee and accepted by the Department in assessment year 1990-91, the direct cost are taken by the client which are debited and value of the work is credited by adding 15% as profit margin of the assessee. Thus, all the expenditure on material consumed is recovered from the clients along with 15% profit thereon. So even if there is any inflation in expenses in material consumed, the same is recovered along with 15% profit thereon from the clients hence, there is no loss of profit or no loss to the Revenue in the form of Tax. Sin....
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....to earn income from the business under Section 28 of the Act. Therefore, such allowable expenditure will not come under the purview of Section 40 of the Act. In other words, direct expenses incurred by the assessee to earn income which is assessable against revenue for the purpose of determining the profits earned under Section 28(1) of the Act are not disallowable under section 40(a)(ia) of the Act 5(8)(i) The said issue was considered by the Hon'ble ITAT, Delhi in the case of ITO Vs. Aahar Consumer Products Pvt. Limited in ITA No. ITA No.1354/DEL/2010 (10 Taxmann.com 181) as under- Only when the claim of the assessee for deduction is u/s 32 to section 38, the provisions of Section 40(a) (ia) can be pressed into service to disallow such claims for deduction. At the cost of repetition, we may say that to invoke said provision of Section 40(a) (ia), first of all, the case should be made out by the department that the assessee is contemplating deduction u/s 32 to 38 on which tax is deductible and the assessee has not deducted tax at source. In our opinion, tax is not deductible and the assessee has not claimed any deduction u/s 32 to section 38. 5(8)(ii) A referenc....
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....sion above and on examination of the method of accounting followed by the appellant which has been accepted in earlier assessment years and applying the decision of Hon'ble ITAT, Lucknow in case of the appellant supra I find that the labour expenses are direct cost incurred for earning of centage which is income of the appellant under section 28 of the Act. The disallowance under section 40(a)(ia) of the Act cannot be resorted to as discussed on expenditure incurred to earn income which is assessable against revenue, for the purpose of determining the profits earned Under Section 28(1) of the Act. The disallowance of Rs. 92,95,51,686/- (correct amount is Rs. 86,95,73,737/-) made by the A.O under section 40(a)(ia) of the Act is deleted giving relief to the appellant." 14. The ld. D.R. placed reliance on the order of the A.O and submitted that the ld. CIT(A) was not justified in deleting the addition made by the A.O under section 40(a)(ia) of the Act. 15. The ld. A.R. of the assessee, on the other hand, submitted that in respect of Cost plus Centage Work, the Government Department/Govt. Organization etc. agreed to get their works executed on the basis of actual co....
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....the labour expenses disallowed by the A.O represent direct costs incurred by the assessee to earn income from the business under section 28 of the Act, therefore, such allowable expenditure will not come under the purview of section 40 of the Act. 19. As per para 59 of the Working Manual, a contract account is to be prepared, which is a statement showing resulting profit or loss accruing during a construction period, which has a direct relation to the works dealt with in the business, which ascertains the cost of profit of the assessee Corporation. Thus, the contract account is, basically, accounting of work done where the gross profit worked out is the centage allowed towards the overheads and profits of the assessee Corporation. In the contract account, all direct costs, as are to be borne by the clients of the Corporation, are debited and the value of the work done is credited by adding 15% towards centage charges. As such, in case any disallowance is to be made in the cost debited to the contract account, a corresponding deduction is also required to be made in the cost debited to the work done, as this is a case of contra entries only. Thi....
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....mann.com 181 (Delhi) and that of the Hyderabad Tribunal in the case of 'M/s Teja Construction vs. ACIT', 39 SOT 13 (Hyd). The Department has not been able to controvert these decisions of the Tribunal, which are directly on the issue. In 'Aahar Consumer Products Pvt. Limited' (supra), it has been held that it is only when the claim of the assessee for deduction is under the provisions of sections 30 to 38, that the provisions of section 40(a)(ia) of the Act can come into play. In 'M/s Teja Construction vs. ACIT' (supra), it has been held that it is only provisions of sections 30 to 38, which get covered within the ambit of section 40, and any expenditure allowable under any other section, preceding section 30 or succeeding section 38, is not covered by the provisions of section 40 of the Act, as is made clear by the non obstante clause with which section 40 begins. It has further been held that if an assessee claims an expenditure as necessary to earn its business income and, as such, the same is allowable under section 28 of the Act and not under section 37 of the Act, because section 28 taxes profits of the business, which can be worked out only after allo....
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.... CIT(A) has decided the issue in the right perspective, we do not find any reason to interfere with the order of the ld. CIT(A) on this issue. Accordingly, we confirm his order and reject ground Nos.1 and 2 of the Revenue. 25. Ground No.3 relates to deletion of addition of Rs. 11,31,25,121/-. 26. The facts are that the assessee has shown credit balance of Rs. 11,31,25,121/- in client merge account in respect of many projects, which were completed more than 15 years ago. A show cause notice was issued by the A.O to show cause as to why the above credit balance of Rs. 11,31,25,121/- should not be recognized as income from the completed projects. In reply, the assessee submitted that the debit balance or the credit balance pertains to the Government Departments and therefore, these amounts cannot be written off. The assessee also stated that when it gets confirmation/refund from the concerned Government Department, the assessee is bound to make payment/adjustment of the same in the books of account. Being not satisfied with the submissions of the assessee, the credit balance of Rs. 11,31,25,121/- was treated as income from the completed projects of the asse....
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....f Rs. 8,10,79,044/- to the net profit in the computation, added Rs. 2,42,57,570/- to the total income of the assessee. 31. Before the ld. CIT(A), the assessee filed written submission challenging the action of the A.O. The ld. CIT(A) set aside the order of the A.O on this issue and directed the A.O to accept the revised computation of income where the anomaly described by the AO has been corrected and the depreciation as per Income Tax Act has been claimed and depreciation as per Companies Act has been added to the income, observing, as below: "9(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I find that there was certain anomaly in the computation of income relating to the depreciation as per Companies Act being added to income and depreciation as per Income Tax Act being reduced. The depreciation as per Companies Act to be added to the income was Rs. 8,10,79,044/- and depreciation allowable as per Income Tax Act was Rs. 7,41,59,205/-. The appellant added an amount of Rs. 5,68,21,474/- as against Rs. 8,10,79,044/- which has resulted in addition of Rs. 2,42,57,5....
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....ation, we do not find any infirmity in the order of the ld. CIT(A), therefore, we confirm the order of the ld. CIT(A) on this issue and reject ground No.4 of appeal of the Revenue. 33. Ground No.5 is against the order of the ld. CIT(A) directing the A.O to accept the revised computation of income wherein the assessee added back Rs. 11,96,948/- on account of loss on sale of fixed asset. 34. On this issue also, the grievance of the Revenue is against the order of the ld. CIT(A) in directing the A.O to accept the revised computation of income where the anomaly described by the AO has been corrected and the loss on sale of assets has been added to the income. As observed by us in para 32 above, since the issue relating to allowability of depreciation has been restored to the file of the A.O to decide the same after accepting the revised computation, we do not find any infirmity in the order of the ld. CIT(A), therefore, we confirm the order of the ld. CIT(A) on this issue and reject ground No.5 of appeal of the Revenue. 35. Ground No.6 relates to the deletion of addition of Rs. 23,54,235/- on account of prior period expenses. 36. The addition on account of pri....
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....,235/- made by the A.O is deleted giving relief to the appellant." 37. As observed by the ld. CIT(A), we find that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019. Moreover, as claimed by the assessee, the amount pertains to the contract account and therefore, in case the addition is made, the equivalent amount is to be reduced from the work-in-progress. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue. Accordingly, we confirm his order on this issue and reject ground No.6 of the Revenue's appeal. 38. Ground Nos. 7 and 7.1 relate to the deletion of addition of Rs. 39,46,18,444/- on account of interest income. 39. The A.O made the addition of Rs. 39,46,18,444/- being interest on client fund as income of the assessee, without appreciating the Government Order that interest on client funds is to be added in client fund. 40. The ld. CIT(A) deleted the addition, observing, as below:- "12(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I fi....
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....rm his order on this issue and reject ground Nos.7 & 7.1 of the Revenue. 42. Ground No.8 relates to the deletion of addition of Rs. 19,27,197/- on account of expenses relating to purchase of material. 43. The brief facts are that the assessee claimed expenses relating to purchase of material amounting to Rs. 19,27,197/- which relates to financial year 2008-09. On a query from the A.O, it was explained that some materials were delivered in the month of March, 2009 but all the bills aggregating to Rs. 19,27,197/- were raised by the supplier only on 9/4/2009 and on this date entry was passed in the books of the assessee and accordingly liability was also treated against the supplier of the material. Being not satisfied with the reply of the assessee, the A.O disallowed the expenses of Rs. 19,17,197/- and added to the income of the assessee, observing that the assessee should book the purchase in the same year in which the goods were received by him irrespective of the fact that the bills against the above purchases have been raised by the party in the next financial year. 44. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and filed written submissi....
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....o the contract account, then corresponding reduction is required to be made in the work done also being a case of contra entry. Since the ld. CIT(A) has deleted the addition following the orders of the Tribunal in the assessee's own case in preceding years, we do not find any justification to interfere with the order of the ld. CIT(A), who has rightly deleted the addition placing reliance on the orders of the Tribunal. We accordingly confirm his order on this issue and reject ground No.8 taken by the Revenue. 46. Ground No.9 relates to the deletion of addition of Rs. 9,43,41,057/- on account of 'income wrongly credited in previous year written back'. 47. The brief facts are that the assessee debited an amount of Rs. 9,43,41,057/- on account of income wrongly credited in previous year as 'written back' in the profit and loss account. The assessee was show caused to explain. The assessee submitted that out of total amount of Rs. 9,43,41,057/-, an amount of Rs. 8,50,22,225/- pertains to 500 Bedded Hospital, Basti and this was offered to tax in F.Y. 2007-08, but in F.Y. 2008-09, the CAG directed the assessee to make reversal of the amount of Rs. 5,50,22,....
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....struction was wrongly recognized in the assessment year 2008-2009. The remaining amount of Rs. 93,18,832/- is the excess centage shown in the assessment year 2008-2009. The AO has not given any finding that the centage thereon has not been offered to tax in the assessment year 2008-2009. On the contrary the addition has been made for the sole reason that the objection of CAG was not accepted at the first instant which was against commercial expediency. I find that once the centage has been offered to tax, there is no reason to disturb the contract account for the year under consideration by making a fictitious addition of Rs. 9,43,41,057/- as the income offered to tax in assessment year 2008-2009. The addition of Rs. 9,43,41,057/- made by the A.O is deleted giving relief to the appellant." 49. Having heard the rival contentions and after considering the materials on record, we find that the ld. CIT(A) has given a concrete finding taking into consideration all the facts and circumstances of the case. We find, as observed by the ld. CIT(A), that centage on the work of Rs. 2,13,04,810/- and Rs. 6,37,17,415/- has already been assessed to tax in the assessment ....
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....bmitted that the interest accrued on FDRs of clients' fund is the income of the assessee, as the assessee is claiming TDS in respect of these FDRs, therefore, interest income of Rs. 26,95,93,097/- earned on clients' unutilized fund was the income of the assessee and the same has rightly been added to the income of the assessee by the A.O. He placed reliance upon the order of the A.O on this issue. 54. The ld. A.R. of the assessee submitted that the interest on Client unutilized Fund of Rs. 26,95,93,097/- has been added in the Audited Balance Sheet of A. Y. 2011-12 under the head "Prior Period Adjustment' and while computing the taxable income of A. Y. 2011-12, the same has been deducted. In support of his submission, the ld. A.R. of the assessee has invited our attention to the copy of Computation Chart of A. Y. 2011-12, which is placed at page 138 of the paper book wherein it is shown as deduction. The details of interest on client fund received during the year, is placed at pages 98 to 131 of the paper book. It was further submitted that interest earned on F.D.R.'s belongs to Clients and it has duly been credited in the respective accounts of the....