2021 (12) TMI 819 - AT - Income Tax

Direct expenses incurred on behalf of the client shown in the Contract Account - HELD THAT - Issue is squarely covered by the order of this Bench of the Tribunal in the assessee s own case for assessment year 2010-11 2019 (5) TMI 1669 - ITAT LUCKNOW held that it remains undisputed that the labour cess is part of the contract account; that this being so, the assessee is correct in contending that addition, if any, is maintainable only in the hands of the client of the assessee Corporation and not in the hands of the assessee; that 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; and that the assessee Corporation is only a collecting agency for the purposes of the labour cess and deposit thereof in the Government account. The facts for the year under consideration are, mutatis mutandis, exactly similar. The issue is found to be covered squarely in favour of the assessee. We further notice that in assessment years 2011-12 2019 (8) TMI 46 - ITAT LUCKNOW and 2012-13. 2021 (2) TMI 1229 - ITAT LUCKNOW also, an identical issue had come up for consideration before the Lucknow Bench of the Tribunal, wherein also, the Tribunal decided the issue in favour of the assessee. Therefore, respectfully following the order of the Tribunal in the assessee s own case for the preceding years, i.e., assessment years 2010-11, 2011-12 and 2012-13, the grievance of the assessee is found to be justified and is accepted as such. Accordingly, the ground of appeal taken by the assessee is allowed and the addition is deleted.- Decided in favour of assessee. Addition on account of prior period expenses - HELD THAT - The Tribunal, for assessment year 2010-11, held that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019; that moreover, as claimed by the assessee, the amount pertains to the contract account and, therefore, in case the addition is made, an equivalent amount is to be reduced from the work-in-progress; and hence, no infirmity was found in the order of the ld. CIT(A) on this issue - grievance of the Revenue is not found to be justified and accordingly, ground of appeal taken by the Revenue is rejected. Accrual of income - Addition on account of interest on Client Interest Account - HELD THAT - As decided in own case for the preceding assessment years, i.e., 2010-11, 2011-12 and 2012-13 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. We do not find any infirmity in the well-reasoned order of the ld. CIT(A) on this issue. We accordingly confirm his order on this issue and reject ground - Decided against revenue.

Summary

Issues Involved:
1. Addition on account of Labour Cess under Section 43B.
2. Addition on account of prior period expenses.
3. Addition on account of interest on "Client Interest Account."

Issue-Wise Detailed Analysis:

1. Addition on Account of Labour Cess under Section 43B:
The assessee argued that the provision for Labour Cess was not debited to the profit and loss account and thus did not affect the profitability of the corporation. The assessee claimed it was merely a collecting agency for the Labour Cess, which was deposited into the Government Account. The Tribunal noted that this issue had been previously decided in favor of the assessee in earlier years (2010-11, 2011-12, and 2012-13), where it was held that the Labour Cess is part of the contract account and any addition should be made in the hands of the client, not the assessee. The Tribunal found the facts for the current year to be similar and thus deleted the addition of ?2,15,56,614/-, allowing the assessee's appeal on this ground.

2. Addition on Account of Prior Period Expenses:
The Revenue challenged the deletion of ?88,61,308/- on account of prior period expenses. The CIT(A) had deleted this addition, observing that the expenses were part of the contract account and any addition would require a corresponding reduction in the work-in-progress. This approach was consistent with the Tribunal's decisions in the assessee's own case for assessment years 1991-92, 2000-01, 2010-11, 2011-12, and 2012-13. The Tribunal upheld the CIT(A)'s decision, noting that the liability for these expenses arose in the current year and that the accounting procedure of the assessee had been accepted by the Department in earlier years. Consequently, the Tribunal rejected the Revenue's appeal on this ground.

3. Addition on Account of Interest on "Client Interest Account":
The Revenue contested the deletion of ?37,35,99,000/- on account of interest on the "Client Interest Account." The CIT(A) had deleted this addition, stating that the interest accrued on deposits was credited to the respective client's account as per a Government Order and was not the income of the assessee. The Tribunal noted that this issue had been similarly decided in favor of the assessee in earlier years (2010-11, 2011-12, and 2012-13), where it was held that the interest earned on unutilized funds was the income of the clients, not the assessee. The Tribunal found no infirmity in the CIT(A)'s order and thus rejected the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the addition of Labour Cess and dismissed the Revenue's appeals concerning the prior period expenses and the interest on the "Client Interest Account." The judgments were consistent with the Tribunal's decisions in the assessee's previous assessment years. The order was pronounced in the open court on 14/12/2021.