2015 (5) TMI 391 - AT - Income Tax

Addition on account of difference in contract receipts shown by the appellant and accounted for by the customer M/s Uniproducts India Ltd. - Held that - Assessee company is in the business of the building contract work and has followed AS-7 accounting standard, while finalizing account as per mercantile system. The ld CIT(A) and AO erred in not taking notice the working submitted by the assessee wherein the assessee has shown the working demonstrating that revenue earned from M/s Uniproduct Ltd, has been shown in the accounts on the percentage completion method. So viewed from this angle also the action of the authorities below is legally and factually untenable. So we find no justification to make the addition and so we allow the said ground of the assessee and direct the AO to delete the impugned addition made on this account. - Decided in favour of asseessee. Disallowance on account of the purchase made from M/s. Amit Steel on the ground that the said party was not traceable - Held that - assessee has purchased steel from M/s Amit Steel but it was wrongly shown in the account of M/s Dharam Steel, because both the concerns belonged to the same person. And the mistake was clerical in nature. The assessee has pointed out the mistake which has arisen and on perusal of the Remand Report of the AO in which the Inspector s Report wherein the Inspector has clearly mentioned that the M/s Amit Steel and Dharam Steel belongs to one and the same person and the mistake made by the assessee accountant need not come in their way to saddle them with the liability. The explanation of the assessee has been corroborated by evidence on record, therefore, there is no justification for impugned disallowance. We find force in the contention of the assessee s counsel regarding this factual aspect and the ld. DR could not point out anything contrary to the said fact so we are inclined to allow this ground and direct the AO to delete the addition in dispute made on this account. - Decided in favour of assessee. Disallowance of the service tax payable under section 43B - Held that - We find from the records that the Service Tax payable has not been claimed as deduction in the P&L account. We further find that assessee is following the mercantile system of accounting. Similar case was decided by the Hon ble Jurisdictional High Court in the case CIT vs. Noble & Hewitt (I) P. Ltd. (2007 (9) TMI 238 - DELHI HIGH COURT ) has held in our opinion, since the assessee did not debit the amount to the P&L account as an expenditure nor did the assessee claimed any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting the question of disallowance of deduction not claimed could not arise. The aforesaid case is similar to that case in hand and therefore ratio laid down in that case is squarely applicable to the case in hand, therefore, we allow the claim of the assessee. - Decided in favour of assessee. Disallowance under section 40(a)(ia) - Held that - Amount given to Arjun Singh was 42,300, Krishan ₹ 12,000/- and NTS Scaffolding ₹ 15,000/- which total amounting to ₹ 69,320/- which is admittedly less than the threshold limit of ₹ 1,20,000/- given in section 194I of the Act. Hence, we find force in the contention of the Ld. AR in this regard, so we direct the deduction of ₹ 69,320/-, out of ₹ 18,03,690/- from the disallowance made under section 40(a)(ia) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Addition of Rs. 1,09,92,260/- on account of difference in contract receipts.
2. Disallowance of Rs. 16,61,161/- on account of purchases from M/s. Amit Steel.
3. Disallowance of service tax of Rs. 15,64,994/- under section 43B of the Act.
4. Disallowance under section 40(a)(ia) of the Act to the extent of Rs. 69,320/-.

Detailed Analysis:

Issue 1: Addition of Rs. 1,09,92,260/- on account of difference in contract receipts
The assessee, a construction company, was found to have a discrepancy between the receipts shown in the P&L Account and the TDS certificates issued by M/s. Uniproducts India Ltd. The AO added Rs. 1,09,92,260/- to the income of the assessee due to this difference. The assessee contended that it followed the percentage completion method as per Accounting Standard (AS) - 7, and the revenue was recognized in the subsequent year. The Tribunal found that the income was already offered to tax in the next assessment year, and since the tax rates for both years were the same, the addition was not justified. The Tribunal directed the AO to delete the impugned addition.

Issue 2: Disallowance of Rs. 16,61,161/- on account of purchases from M/s. Amit Steel
The AO added Rs. 16,61,161/- as unexplained expenditure due to discrepancies in the purchase accounts with M/s. Dharam Steel. The assessee claimed that the purchase was made from M/s. Amit Steel but was wrongly entered in the account of M/s. Dharam Steel. The Tribunal noted that both concerns belonged to the same person and the mistake was clerical. The Tribunal found the explanation of the assessee corroborated by evidence and directed the AO to delete the addition.

Issue 3: Disallowance of service tax of Rs. 15,64,994/- under section 43B of the Act
The AO disallowed the service tax payable as the assessee had not informed when the remaining amount was paid. The CIT(A) confirmed the disallowance. The assessee argued that it did not claim any deduction on account of service tax in the P&L account. The Tribunal found that since the assessee did not debit the amount in the P&L account nor claimed any deduction, the disallowance under section 43B was not justified. The Tribunal allowed the claim of the assessee.

Issue 4: Disallowance under section 40(a)(ia) of the Act to the extent of Rs. 69,320/-
The AO disallowed the entire amount of Rs. 18,03,690/- for shuttering expenses due to non-deduction of TDS. The assessee contended that Rs. 69,320/- paid to three parties was below the threshold limit for TDS. The Tribunal found that the payments to the three parties were indeed below the threshold limit and directed the deduction of Rs. 69,320/- from the disallowance.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal directing the deletion of the additions and disallowances made by the AO. The Tribunal emphasized adherence to accounting standards and proper reconciliation of accounts, while also recognizing clerical errors and ensuring that disallowances were not made unjustly.

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