2015 (1) TMI 1105 - AT - Income Tax

Prior period expenses disallowed - Held that - addition made by the Assessing Officer is not justified because prior period income reported by the assessee at ₹ 9,44,601/- is more than prior period expenses of ₹ 9,11,259/-. The Assessing Officer has wrongly made addition of ₹ 18,52,518/- by adding both the amount of prior period income and expenditure and excluding net prior period income of ₹ 33,342/- offered to tax by the assessee. Even if the entire amount of prior period expenses of ₹ 9,11,259/- is excluded then also the addition can be made of only ₹ 9,11,259/- being difference between prior period income of ₹ 9,44,601/- and ₹ 33,342/-. - Decided in favour of assessee. Depreciation on temporary sheds - treat the cost of construction as deferred revenue expenditure and to estimate the life of project and life of temporary constructions at approximately 13 years - Held that - The first item is of ₹ 1,52,100/-, being cost of boundary wall and leveling charges. As per the detail, the boundary wall is of barbed wire and it includes the expenditure of ₹ 31,150/- on account of leveling of new store compound. In our considered opinion, such an expenditure is purely temporary in nature. The second item is of ₹ 25,000/- on account of fixing of shed. As per the bill, labour charges is paid on account of fixing of nut bolt for a shed using old materials. In our considered opinion, this is also temporary in nature. The third item is dismantling of old shed of ₹ 46,000/-. This item, in our considered opinion is allowable in full as Revenue expenditure. The 4th item is expenses of ₹ 1,05,300/- on account of earth filling. In our considered opinion, this expenditure is also allowable as Revenue expenditure in full. The next item is of ₹ 50,000/- incurred on account of cost of shifting of old store. In our considered opinion, this expenditure is also allowable as Revenue expenditure. The last item is of ₹ 9,750/- on account of labour charges for doing misc. work. In our considered opinion, as per above discussion, the entire expenses incurred by the assessee is allowable in full in the present year and hence, we delete these disallowances. - Decided in favour of assesse. Centage receivable on work in progress not reflected in the books of account - disallowance @12.5% on the closing work-in-progress without reducing it by opening work-in-progress - Held that - Unless it is established by the assessee that closing WIP includes opening WIP also, no exclusion can be made of opening WIP from closing WIP because there is completion of work also in the present year and if opening WIP has been completed in the present year and income is accounted for on such completion of project and closing WIP is for the present year only then no such exclusion of opening WIP from closing WIP is called for. In the absence of any such details having been provided by the assessee to establish that some portion of closing WIP is including opening WIP also, the assessee cannot get any benefit on this account also. Hence, on this issue, we do not find any reason to interfere in the order of CIT(A) in the light of above discussion. - Decided against assessee.

Summary

Issues Involved:

1. Disallowance of prior period expenses.
2. Depreciation on temporary sheds.
3. Addition based on centage receivable on work in progress.
4. Claim of credit of TDS.
5. Interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Prior Period Expenses:

The assessee contended that the learned Assessing Officer (AO) should not have disallowed prior period expenses amounting to Rs. 9,11,259 as the liability for these expenses crystallized during the relevant previous year. The assessee also argued that prior period income should be excluded from the current assessment year since it was already offered in the computation of income. The AO erroneously added both the prior period income and expenses, resulting in an addition of Rs. 18,22,518, which was later rectified to Rs. 9,44,601. The tribunal found that the prior period income of Rs. 9,44,601 was higher than the prior period expenses of Rs. 9,11,259, resulting in a net prior period income of Rs. 33,342, which was already included in the assessee's computation of income. Therefore, the tribunal decided in favor of the assessee, allowing Ground No. 1.

2. Depreciation on Temporary Sheds:

The assessee challenged the AO's decision to allow only 7.5% depreciation on temporary sheds instead of 100%. The tribunal examined the details and supporting bills provided by the assessee and found that the expenses were indeed temporary in nature. The tribunal allowed the entire expenses incurred on temporary sheds as revenue expenditure, thereby deleting the disallowances made by the AO. Ground No. 2 was allowed in favor of the assessee.

3. Addition Based on Centage Receivable on Work in Progress:

The assessee argued that the addition of Rs. 111,28,64,313 made by the AO on the basis that centage receivable on work in progress (WIP) was not reflected in the books of account was erroneous. The assessee contended that the WIP was inclusive of centage wherever applicable and that the same accounting method was accepted in earlier years. The tribunal, however, noted that the assessee was following the percentage completion method of accounting and should have accounted for centage receivable on WIP. The tribunal found no evidence to support the assessee's claim that the centage was included in the WIP and upheld the AO's addition. Ground No. 3 was rejected.

4. Claim of Credit of TDS:

The assessee sought full credit for TDS of Rs. 547,37,968, for which details were filed in the return of income or original certificates were submitted later. However, this ground was not pressed by the assessee during the hearing and was therefore rejected as not pressed. Ground No. 4 was rejected.

5. Interest Under Sections 234A, 234B, and 234C:

Both parties agreed that the issue of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961, was consequential. As such, no adjudication was necessary, and this ground was also rejected. Ground No. 5 was rejected.

Conclusion:

The appeal of the assessee was partly allowed, with the tribunal ruling in favor of the assessee on the issues of prior period expenses and depreciation on temporary sheds, while rejecting the grounds related to centage receivable on WIP, claim of TDS credit, and interest under sections 234A, 234B, and 234C.