2009 (6) TMI 897 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of prior-period expenditure of Rs. 1,76,20,000.
2. Allowance of man-hour cost of Rs. 1,58,73,976.
3. Allowance of proposal cost of Rs. 78,88,526.

Summary:

1. Allowance of Prior-Period Expenditure of Rs. 1,76,20,000:
The first issue pertains to the allowance of Rs. 1,76,20,000 as prior-period expenditure. The assessee-company, incorporated in the Netherlands, incurred this expenditure before setting up its project office in India. The Commissioner of Income-tax (Appeals) allowed the expenditure, noting that it was incurred for the purpose of executing the Indian project between April 1, 1998, and June 16, 1998, after the contract was awarded but before the Reserve Bank of India granted approval for setting up the project office. The Tribunal upheld this view, stating that the expenditure was for the same year and not prior-period expenditure. The Tribunal emphasized that the expenditure was identifiable with the project and should be allowed as a deduction from the total project value for computing income, aligning with the matching concept.

2. Allowance of Man-Hour Cost of Rs. 1,58,73,976:
The second issue concerns the allowance of man-hour cost amounting to Rs. 1,58,73,976. The Departmental representative conceded that a similar issue was raised in the assessee's own case for the assessment year 2000-01, where the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) allowing the deduction. The Tribunal found no reason to interfere with the impugned order on this issue and dismissed the ground.

3. Allowance of Proposal Cost of Rs. 78,88,526:
The third issue involves the allowance of proposal cost of Rs. 78,88,526. The assessee claimed this expenditure under "Opening work-in-progress," incurred during the financial year 1997-98 for bidding and actual execution of the contract. The Assessing Officer disallowed it, considering it prior-period expenditure and noting that no return of income was filed for the assessment year 1998-99. The Commissioner of Income-tax (Appeals) deleted the addition, observing that the assessee followed the percentage completion method as per Accounting Standard 7. The Tribunal upheld this view, stating that the opening work-in-progress must be considered in computing the income from the project. The Tribunal also noted that the non-filing of the return for the preceding year was not a valid reason for disallowance, as the assessee had no income chargeable to tax in that year and was not claiming any carry forward of loss.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income-tax (Appeals)'s decisions on all three issues. The order was pronounced on June 16, 2009.