2019 (8) TMI 46 - AT - Income Tax

Addition on account of labour cess - addition in the hands of the client or in the hands of the assessee - HELD THAT - The said issue is covered by the order of the Tribunal in the assessee s own case for assessment year 2010-11 wherein held 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 Addition by working out a notional centage @12.5% - Cost related to Dr. B. R. Ambedkar Multi Speciality Hospital, Noida - HELD THAT - We find from breakup of contract account, that amount of ₹ 16,78,78,589/- is mentioned under code 8357 under the head laboratory and testing charges, which in fact were contract expenses pertaining to Dr. B. R. Ambedkar Multi Specialty Hospital and which were wrongly clubbed with laboratory and testing expenses. The Assessing Officer though accepted this fact but made notional addition of 12.5% towards centage on these work expenses. While do so, he ignored the fact that centage on this work contract was already declared by the assessee in its contract account, a copy of which, declaring total receipt of ₹ 36,80,71,97,530/-. The break-up of this amount giving code wise and name wise jobs undertaken during the year has also been filed by Learned A.R., which tallies with the gross total of the turnover declared in contract account. The name of Dr. B. R. Ambedkar Project appears at page 20. Therefore, CIT(A) has rightly allowed relief to the assessee. Addition of prior period expenses - HELD THAT - 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 of the Revenue s appeal Addition on account of interest on unlisted machinery - HELD THAT - We find that in schedule-12 to the profit loss account, placed at page 28, the assessee, under the head other receipts , has declared as income of ₹ 19,34,458/- and the total of all other receipts including the interest on unlisted machinery has been declared as income in the contract account. Therefore, learned CIT(A) has rightly allowed relief to the assessee. In view of the above, ground No. 3 of the Revenue is dismissed. Addition on account of interest on client s fund account - HELD THAT - Amount shown in the balance sheet as interest accrued on deposits was the running balance of the accrued interest on the funds of the clients of the assessee. The assessee maintains its books of account on mercantile basis and it makes provision of interest on accrual basis. The assessee also credits such interest to the respective clients accounts as per Government Order dated 11/4/1076 - CIT(A) has rightly observed that the interest earned by the assessee on unutilized fund is credited to the respective accounts and are the income of the concerned clients and not of the assessee. Disallowing the depreciation on unlisted assets - HELD THAT - Assessee has added back at its own, an amount of ₹ 7,31,66,085/- under the head depreciation added back , which fact is also verifiable from the computation of income where the assessee itself has added back depreciation of the equivalent amount, which included the depreciation of ₹ 2,41,64,170/-. Therefore, there is no infirmity in the order of CIT(A). Allowability of provision of gratuity - HELD THAT - As against a provision of gratuity of ₹ 16,24,45,315/- upto assessment year 2012-2013 the appellant has already added back an amount of ₹ 16,87,26,673/- in the computation of income. The amount added back is more than the amount claimed as provision for gratuity. The addition made by the Assessing Officer for ₹ 3,57,97,224/- is therefore not sustainable and is deleted giving relief to the appellant

Summary

Issues Involved:
1. Deletion of addition regarding cost of work done and centage.
2. Deletion of addition on account of prior period expenses.
3. Deletion of addition on account of interest on unlisted machinery.
4. Deletion of addition on account of interest on "Clients Interest Account".
5. Deletion of addition regarding depreciation claims.
6. Deletion of addition on account of provision for gratuity.
7. Addition on account of labor cess.

Detailed Analysis:

1. Deletion of Addition Regarding Cost of Work Done and Centage:
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,09,44,822 by not appreciating that the assessee did not produce proof before the Assessing Officer that centage had been charged on work-in-progress of ?16,78,78,589. The Tribunal found that the cost related to Dr. B. R. Ambedkar Multi Speciality Hospital, Noida, was already declared in the contract account. The CIT(A) rightly allowed relief as centage on this work contract was already declared through the contract account.

2. Deletion of Addition on Account of Prior Period Expenses:
The Revenue argued that the CIT(A) erred in deleting the addition of ?24,32,88,508 on account of prior period expenses, ignoring the mercantile system of accounting. The Tribunal noted that the issue was covered by an earlier order in the assessee's favor, where it was established that the liability arose in the year under consideration. The CIT(A) correctly deleted the addition as the expenses were allowable in the assessment year under consideration.

3. Deletion of Addition on Account of Interest on Unlisted Machinery:
The Revenue contended that the CIT(A) wrongly allowed relief to the assessee for ?19,34,458 on account of interest on unlisted machinery. The Tribunal found that the assessee had already added back the amount in the profit & loss account under 'other receipts'. The CIT(A) rightly allowed relief as the interest was declared as income in the contract account.

4. Deletion of Addition on Account of Interest on "Clients Interest Account":
The Revenue argued that the CIT(A) erred in deleting the addition of ?16,38,98,000 on account of interest on "Clients Interest Account". The Tribunal referred to a previous order where it was established that the interest earned on unutilized funds was credited to the respective client accounts, not the assessee's income. The CIT(A) rightly deleted the addition.

5. Deletion of Addition Regarding Depreciation Claims:
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,41,64,170 by not appreciating that the assessee did not furnish a depreciation chart during assessment proceedings. The Tribunal found that the assessee had added back ?7,31,66,085 under 'depreciation added back' and claimed depreciation allowable under section 32 of the Act. The CIT(A) correctly allowed relief as the correct depreciation was claimed.

6. Deletion of Addition on Account of Provision for Gratuity:
The Revenue argued that the CIT(A) wrongly allowed relief for ?3,57,97,224 on account of provision for gratuity by admitting fresh evidence. The Tribunal found that the chart showing provision for gratuity was not additional evidence but figures from earlier records. The CIT(A) rightly allowed relief as the provision for gratuity written back was more than the amount claimed.

7. Addition on Account of Labor Cess:
The assessee contended that no addition should be made regarding direct expenses incurred on behalf of the client shown in the contract account. The Tribunal found that the issue was covered by an earlier order in the assessee's favor, where it was established that the labor cess is part of the contract account and should not be added in the hands of the assessee. The CIT(A)'s order was reversed, and the addition was deleted.

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, confirming that the additions made by the Assessing Officer were rightly deleted.