TaxTMI 
TaxTMI 
2026 (5) TMI 407
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....ces/loans. Notices under section 143(2) dated 23.09.2019 and under section 142(1) dated 16.12.2020, 03.01.2021 and 31.03.2021 were issued and served upon the assessee. 3. During the course of assessment proceedings, the Assessing Officer observed that the assessee had shown TDS payable of Rs. 6,08,51,784/- in its balance sheet and called upon the assessee to furnish challans evidencing payment thereof. It was further observed that as per the audit report, TDS was not deducted on certain expenditures amounting to Rs. 47,72,650/-, whereas the assessee had disallowed only Rs. 34,80,352/- under section 40(a)(ia), thereby resulting in a difference. The assessee was also required to furnish copies of sale deeds in respect of properties sold during the year. However, the Assessing Officer recorded that the assessee failed to furnish the requisite information. 4. A show cause notice along with draft assessment order dated 08.04.2021 was issued proposing disallowance of TDS liability under section 43B and further disallowance under section 40(a)(ia).In response, the assessee submitted that provisions of section 43B are not applicable to non-payment of TDS and that such disallowance is....
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....he assessee was that the Assessing Officer initially proposed disallowance under section 43B in the show cause notice but ultimately made the disallowance under section 40(a)(ia), rendering the disallowance invalid. On this aspect, the Learned CIT(A) held that the substance and intent of the show cause notice clearly indicated that the proposed disallowance was on account of non-deposit of TDS and was in the nature of disallowance under section 40(a)(ia). The reference to section 43B in the show cause notice was held to be inadvertent. It was further observed that section 292B of the Act cures such defects and that mere incorrect mention of a statutory provision would not invalidate the proceedings if the action is otherwise in accordance with law. The Learned CIT(A) recorded that the assessee was fully aware of the nature of the proposed disallowance and was afforded adequate opportunity of being heard. Accordingly, the contention of the assessee was rejected as being devoid of merit. 8. With regard to the second contention of the assessee that section 40(a)(ia) is not applicable to expenditure debited to work-in-progress, the Learned CIT(A) examined the factual position and ob....
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....diture in question pertains to an incomplete project as claimed by the assessee. It was directed that if the expenditure relates to an incomplete project, the adjustment should be made only by reducing the work-in-progress. However, if it is found that the expenditure pertains to a completed project, then disallowance under section 40(a)(ia) is warranted in computing the income. 10. Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal: 1. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT A erred in setting aside the disallowance made under section 40(a)(ia) of the Income tax Act, 1961, amounting to Rs. 1,82,85,535 and in restoring the matter to the file of the Assessing Officer for verification, instead of adjudicating the issue on merits. 2. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT A erred in holding that disallowance under section 40 a (ia) is dependent upon the project being completed or finished, and in directing that the same be dealt with by merely correcting reducing WIP, thereby importing an extraneous test not found in section 40....
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....late authority has erred in law and on facts in not adjudicating the issue on merits and in restoring the matter to the file of the Assessing Officer. It was contended that the Learned CIT(A) has wrongly held that the disallowance under section 40(a)(ia) is dependent upon the completion or otherwise of the project and has directed that the impact of non-compliance of TDS provisions be dealt with by merely reducing the work-in-progress. The Learned Departmental Representative further invited our attention to the accounting policy placed in the paper book at page No. 20 and submitted that the assessee is, in fact, following the Percentage Completion Method for recognition of revenue and not the Completed Contract Method as assumed by the Learned CIT(A).The Learned DR further submitted that the Assessing Officer has computed the disallowance strictly in accordance with the details furnished by the assessee itself in the tax audit report in Form 3CD.The Learned DR submitted that in such circumstances, the findings of the Learned CIT(A) in setting aside the disallowance for verification are unwarranted, since the primary facts stand admitted and duly supported by the tax audit report. I....
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....A) erred in not sustaining the disallowance under section 40(a)(ia) and in restoring the matter to the file of the Assessing Officer, and further erred in holding that the consequence of non-compliance with TDS provisions should be reflected by way of adjustment to work-in-progress instead of direct disallowance. The Revenue has also assailed the reliance placed by the Learned CIT(A) on the decision in Savala Associates (supra) and has contended that the assessee is following Percentage Completion Method and not Completed Contract Method. 16. The core controversy lies in determining whether disallowance under section 40(a)(ia) is to be made in the year under consideration or whether the same is to be reflected through adjustment in work-in-progress. From the record, the following facts are not in dispute: i. The assessee has deducted TDS amounting to Rs. 6,08,51,784/- but has not deposited the same within the prescribed time. ii. The tax audit report in Form 3CD contains disclosure of such default. iii. The assessee is engaged in real estate development activity. iv. The assessee has capitalised substantial expenditure to work-in-progress. 17.....
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....tained by any one of the accounting methods. "Completed contract method" is one such method. Similarly, "percentage of completion method" is another such method. Under the "completed contract method", the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract period. As per the accepted accounting principle, it is accumulated under one head of account," work-in-progress". The project constituted the stock-in-trade of the assessee. The project did not constitute a fixed asset of the assessee. In the last accounting period when work is completed, the profit and loss account is prepared, that "work-in-progress" account is to be transferred in profit &loss account. Thus, the "completed contract method" determines profits/loss only when contract is completed. Now question arises how the profit is to be calculated in case of "completed contract method". One of the important aspects to be seen is Cost incurred by a contractor which can be divided into Cost that relate directly to a specific contract; Cost that can be attributed to the contract activity in general and can be allocated to specific contracts an....
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....aid that work-in-progress is just like one side of profit & loss account, i.e., debit side, the Assessing Officer can have all powers to examine this debit side of profit & loss account including the power of examination of allowability/disallowability of expenditure under section 40(a) of the Act. In the case under consideration, we find that the Assessing Officer has rightly noted that the expenditure claimed by the assessee which are subject to TDS liability but TDS was no paid in time; therefore, these were disallowable under section 40(a). In principle we agree with above view of revenue that in case of "completed contract method" the Assessing Officer is empowered to examine the expenditures incurred during the year which increases the opening work-in-progress or addition in work-in-progress. But we do not agree with the view of revenue that addition is to be made in total income, if some expenditure were found not allowable. The correct procedure in "completed contract method" is that instead of making addition, the Assessing Officer should correct the amount of work-in-progress by reducing or enhancing work-in-progress as the case may be. Such corrected WIP will be finally ....