2019 (9) TMI 1224 - AT - Income Tax

Disallowance on account of works contract tax - AO found that the sum was not related for the year under consideration - CIT(A) deleted the said disallowance - HELD THAT - Although the learned DR has contended that the amount in question on account of works contract tax liability was not related to the year under consideration on the basis of deduction of the said tax by the concerned party and payment thereof in the subsequent year as mentioned in the relevant certificate, it is observed that the corresponding works receipts were accounted for by the assessee in the year under consideration as found by the Ld. CIT(A). As rightly held by him, when the works was executed and amount of erection sales was accounted for and offered to tax in the year under consideration, deduction for the corresponding amount of works contract tax incurred on such erection sales / works receipt was rightly claimed by the assessee as deduction. CIT(A) thus allowed the claim of the assessee by applying the matching principle and we do not find any infirmity in his impugned order - Decided against revenue Disallowance on account of alleged unascertainable payments to subcontractors - said labour charges in the absence of TDS were not ascertainable - CIT(A) deleted the said disallowance - HELD THAT - As explained by the assessee that the amount of unbilled sales represented revenue booked in the accounts on the percentage completion method for incomplete contracts at the end of the year. It was explained that corresponding expenditure incurred in relation to the unbilled sales including sub-contract charges for earning the revenue so booked was also provided for in the accounts. Since this method was followed by the assessee company consistently in the earlier years, the Ld. CIT(A) allowed the claim of the assessee as the same was made as per the method of accounting consistently followed by the assessee. Moreover, we are of the view that the said claim of the assessee is liable to be allowed even as per the matching principle. We, therefore, find no infirmity in the impugned order of the Ld. CIT(A) - Decided against revenue Disallowance on account of excise duty - as there was no corresponding credit made by the assessee in the profit and loss account on account of Excise Duty, the AO disallowed the claim - HELD THAT - Inclusive method was followed by the assessee in respect of excise duty and since the sales credited by the assessee to the profit and loss account as well as the stock of finished goods were inclusive of excise duty, there was no credit separately made on account of excise duty to the profit and loss account. It appears that this accounting treatment given by the assessee however was not appreciated by the AO while making the disallowance on account of excise duty. CIT(A), on the other hand, appreciated the said treatment in the right perspective and since he rightly allowed the claim of the assessee for excise duty on such appreciation, we do not find any justifiable reason to interfere with the impugned order of the Ld. CIT(A) on this issue. Ground No. 3 is accordingly dismissed. Addition on account of profit on sale of fixed assets while computing the book profit u/s 115JB - HELD THAT - As held by the Hon ble Supreme Court in the case of Appollo Tyres Ltd vs CIT 2002 (5) TMI 5 - SUPREME COURT relied upon by the AO in his order and cited by the learned DR at the time of hearing before us, the profit as shown in the accounts of the company, which are certified by the auditors of the company as having been maintained in accordance with the provisions of the Companies Act and which have been accepted in the general meeting of the company as well as by the Registrar of the Company, has to be taken as the starting point for computation of book profit u/s 115J and only the adjustments to the extent provided in the Explanation to Section 115J can be made. It appears that the Ld. CIT(A) however failed to consider this binding precedent and allowed the adjustment beyond what is provided in Explanation to Section 115JB by reducing the profit on sale of fixed assets which was credited by the assessee company to its profit and loss account. We set aside the impugned order of the CIT(A) giving relief to the assessee on this issue and confirm the addition made by the AO on account of profit on sale of fixed assets while computing the book profit of the assessee company u/s 115JB of the Act. Disallowance on account of charities and donations - HELD THAT - As observed that the disallowance made by the AO on account of puja donations was deleted by the Ld. CIT(A) after having found that the said donations were made by the assessee to various local entities primarily towards community celebrations in order to build goodwill within the community and to ensure the smooth conduct of business. Being satisfied that the business expediency of the expenses incurred by the assessee on payment of the said donations, CIT(A) allowed the same u/s 37(1) of the Act and keeping in view the relevant facts of the case, we do not find any infirmity in the impugned order of the Ld. CIT(A) on this issue

Issues Involved:
1. Deletion of disallowance on account of works contract tax.
2. Deletion of disallowance on account of unascertainable payments to subcontractors.
3. Deletion of disallowance on account of excise duty.
4. Deletion of addition on account of profit on sale of fixed assets while computing book profit u/s 115JB.
5. Deletion of disallowance on account of charities and donations.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Works Contract Tax:
The revenue challenged the Ld. CIT(A)'s action of deleting the disallowance of ?5,55,561/- made by the AO on account of works contract tax. The AO disallowed this amount, stating it did not relate to the year under consideration. The Ld. CIT(A) found that the works contract tax liability was accounted for in the year the corresponding works receipts were recognized. The Ld. CIT(A) allowed the claim by applying the matching principle, and the tribunal upheld this decision, finding no infirmity in the Ld. CIT(A)'s order.

2. Deletion of Disallowance on Account of Unascertainable Payments to Subcontractors:
The revenue contested the deletion of ?1,11,68,443/- disallowance made by the AO due to non-deduction of tax at source from labour charges. The Ld. CIT(A) found that the actual amount was ?94,50,715/- and included amounts not requiring TDS. The balance amount was for unbilled sales, recognized under the percentage completion method. The tribunal upheld the Ld. CIT(A)'s decision, noting the consistent accounting method and the matching principle.

3. Deletion of Disallowance on Account of Excise Duty:
The AO disallowed ?44,707/- debited by the assessee for excise duty, citing no corresponding credit in the profit and loss account. The Ld. CIT(A) found that finished goods were valued inclusive of excise duty, and the difference between closing and opening stock was credited to the profit and loss account. The tribunal upheld the Ld. CIT(A)'s decision, appreciating the inclusive method of accounting for excise duty.

4. Deletion of Addition on Account of Profit on Sale of Fixed Assets while Computing Book Profit u/s 115JB:
The AO added ?3,11,81,581/- to the book profit, stating that adjustments to net profit for book profit computation are limited to specific items in the explanation to Section 115JB. The Ld. CIT(A) deleted this addition, relying on tribunal decisions that profit on sale of fixed assets should not be included in business profits. However, the tribunal set aside the Ld. CIT(A)'s order, citing the Supreme Court's decision in Appollo Tyres Ltd. and the Kolkata High Court's decision in G.K.W. Ltd., confirming the AO's addition.

5. Deletion of Disallowance on Account of Charities and Donations:
The AO disallowed ?10,853/- for puja donations. The Ld. CIT(A) deleted this disallowance, finding the donations were made for community goodwill and business expediency. The tribunal upheld the Ld. CIT(A)'s decision, finding no infirmity in allowing the expenses under Section 37(1) of the Act.

Conclusion:
The appeal of the revenue was partly allowed, with the tribunal upholding the Ld. CIT(A)'s decisions on works contract tax, subcontractor payments, excise duty, and donations, but reversing the decision on profit from the sale of fixed assets. The order was pronounced in the open court on 22nd March 2019.

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