2021 (2) TMI 1229 - AT - Income Tax

Addition on account of expenses of labour Cess - HELD THAT - As relying on assessee's own case 2019 (5) TMI 1669 - ITAT LUCKNOW 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. Difference in valuation of stock - HELD THAT - CIT(A) in his finding has clearly held that the difference was due to typographical error and he has further observed that books of accounts of assessee were audited by statutory auditor as well as by CAG and such inventory was physically verified therefore he has rightly allowed relief to the assessee and we do not find any reason to interfere with his finding and therefore Ground No.1 of the appeal is dismissed. Addition on account of prior period items - HELD THAT - This issue is covered in favour of the assessee in the case of assessee itself in 2019 (5) TMI 1669 - ITAT LUCKNOW and in 2019 (8) TMI 46 - ITAT LUCKNOW . Addition on account of provision of gratuity - HELD THAT - The written back provision has been taken in the P L account under the head other non operating income, which is apparent from paper book Pg. 52 where such schedule forming part of balance sheet is placed. The AO has wrongly made the addition of outstanding balance of provision for gratuity which the ld. CIT(A) has rightly deleted. Accrual of income - Addition on account of interest income earned on unutilized fund by holding that the assessee was claiming TDS relating to FDRs of unutilized fund - HELD THAT - CIT(A) has held that the interest on unutilized funds which belonged to clients of the assessee were required to be credited to their account and therefore, this income cannot be said to have accrued to the assessee. The Hon'ble Tribunal in own case 2019 (5) TMI 1669 - ITAT LUCKNOW for AY 2010-11 and 2019 (8) TMI 46 - ITAT LUCKNOW in AY 2011-12 has allowed relief to the assessee under similar facts and circumstances. Addition on account of profit on sale of assets which the assessee had declared under head other income in schedule 12 forming part of balance sheet - assessee had claimed depreciation as per income tax rules on block of assets and therefore, the block of assets was arrived at after reducing the sale value of assets sold and depreciation as per Income Tax Rules was claimed as per Income Tax Rules - HELD THAT - AO , on the one hand, allowed depreciation as per Income tax Rules but again added ₹ 98,01,151 being profit on sale of assets without appreciating the fact that no such addition was to be made as depreciation was allowed on block of assets as per Income Tax Rules where the sale consideration of assets was already reduced from the block of assets of depreciation was claimed on net block. The copy of computation sheet is placed at paper book Pg.42 where the computation of income is placed and where the assessee had reduced depreciation as per income tax rules and added back the depreciation debited in the P L account. We find that ld. CIT(A) has made a finding of fact that assessee has claimed depreciation as per I.T. Rules on block of assets and has reduced the sale consideration of assets from gross block of assets and had claimed depreciation on net block therefore, he has rightly allowed relief to the assessee and we do not find any infirmity in the same and therefore, Ground No.5 is also dismissed. Addition on account of interest on unlisted machinery - HELD THAT - CIT(A) has made a finding of fact that interest on unlisted machinery is in the nature of notional interest being charged by assessee on the machinery used in the construction work undertaken by it and the notional interest chart on unlisted machinery being used in the work. The ld. CIT(A) further made a finding of fact that such amount has been debited in the contract account and therefore, the assessee had earned centage on this amount as specified by the Government and the centage so earned was taken in the P L account - The findings of ld. CIT(A) are quite exhaustive and such addition is covered in favour of assessee by the Tribunal order in the case of assessee itself. Therefore, we do not find any reason to interfere in the same and therefore, Ground No.6 is also dismissed. Addition on account of gratuity which the assessee had written back as no longer required - HELD THAT - The assessee by writing back the excess provision of gratuity credited the other receipts and declared it as income and simultaneously the assessee reduced the same in the computation chart in computing net taxable income. The assessee had claimed that it never claimed the gratuity expenses and added back the same in computing of income and therefore, the addition was not justified. The Assessing Officer had wrongly made the addition, which the ld. CIT(A) has deleted by appreciating the facts correctly. The ld. CIT(A) has already dealt this issue and has rightly deleted the addition. Additions on account of interest accrued on investment and other income which was shown in the balance sheet under the head current assets - HELD THAT - As under the head other current assets declares interest accrued on investment at ₹ 299543067 and other income accrued but not received at ₹ 54497865. When the assessee passed this entry and declared the income as receivable naturally credit would have been given to the income which would have gone to the P L account. The system of accounting adopted by assessee is that the income is arrived at by first adding interest received during the year less opening balance of interest accrued considered income in earlier years and then by adding accrued interest of the year not received. The ld. CIT(A) has deleted this addition rightly. Disallowing depreciation in P L account under the head operating expenses which was added back while computing allowable depreciation as per I.T. Rules - HELD THAT - There is no justification in the addition made by the AO as the correct depreciation has been claimed by the appellant as per Rules after adding back the depreciation debited to the contract account and profit and loss account. The addition of ₹ 1,19,55,313/- made by the AO is deleted giving relief to the appellant. - Appeal of revenue dismissed.

Summary

Issues Involved:
1. Addition on account of Labour Cess.
2. Deletion of addition due to difference in closing stock.
3. Deletion of addition on account of prior period expenses.
4. Deletion of addition on account of provision for gratuity.
5. Deletion of addition on account of interest income on unutilized funds.
6. Deletion of addition on account of profit on sale of assets.
7. Deletion of addition on account of interest on unlisted machinery.
8. Deletion of addition on account of provisions written back.
9. Deletion of addition on account of interest accrued on investments and other income accrued but not received.
10. Deletion of addition on account of depreciation on unlisted assets.

Detailed Analysis:

1. Addition on Account of Labour Cess:
The assessee argued that no addition should be made regarding direct expenses incurred on behalf of the client shown in the contract account, specifically labour cess. The Tribunal noted that similar issues in previous years were resolved in favor of the assessee, and following the precedent, the addition sustained by the CIT(A) was deleted.

2. Deletion of Addition Due to Difference in Closing Stock:
The CIT(A) found that the difference in stock valuation was due to a typographical error. The correct value of closing stock was verified through physical verification by government officers. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

3. Deletion of Addition on Account of Prior Period Expenses:
The Tribunal noted that similar issues in previous years were resolved in favor of the assessee. The CIT(A) had found that the liability arose in the current year and the income corresponding to the expenditure had already been recognized in earlier years. The Tribunal upheld this finding.

4. Deletion of Addition on Account of Provision for Gratuity:
The CIT(A) found that the assessee had written back an excess provision for gratuity and that the balance was correctly shown in the balance sheet. The Tribunal upheld the CIT(A)'s decision, noting that the provision for gratuity had been correctly accounted for and added back in the computation of income.

5. Deletion of Addition on Account of Interest Income on Unutilized Funds:
The CIT(A) held that the interest on unutilized funds, which belonged to the clients, was credited to their accounts and not to the assessee's income. The Tribunal noted that similar issues in previous years were resolved in favor of the assessee and upheld the CIT(A)'s decision.

6. Deletion of Addition on Account of Profit on Sale of Assets:
The CIT(A) found that the assessee had correctly claimed depreciation as per Income Tax Rules on the block of assets, reducing the sale value from the gross block. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

7. Deletion of Addition on Account of Interest on Unlisted Machinery:
The CIT(A) found that the interest on unlisted machinery was a notional interest charged for the purpose of earning centage, which was correctly accounted for in the contract account and other receipts. The Tribunal upheld the CIT(A)'s decision, noting that similar issues in previous years were resolved in favor of the assessee.

8. Deletion of Addition on Account of Provisions Written Back:
The assessee had written back an excess provision for gratuity, which was credited to other receipts and simultaneously reduced in the computation of income. The CIT(A) found that the addition was not justified, and the Tribunal upheld this decision.

9. Deletion of Addition on Account of Interest Accrued on Investments and Other Income Accrued but Not Received:
The CIT(A) found that the interest accrued on investments and other income was correctly accounted for under the mercantile system of accounting, and the additions made by the AO were not justified. The Tribunal upheld the CIT(A)'s decision.

10. Deletion of Addition on Account of Depreciation on Unlisted Assets:
The CIT(A) found that the assessee had correctly added back depreciation in the computation of income and claimed depreciation as per Income Tax Rules. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

Conclusion:
The appeal filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, finding that the additions made by the AO were not justified and that the issues were resolved in favor of the assessee based on precedents and correct accounting practices.