9911796707
TMI Blog2014 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income Tax (Appeals) -6 [CIT(A)] has - Closing balance of advances of Rs 22,58,01,168 added to income of Appellant 1. erred in confirming addition of closing balance of customer advances of Rs 22,58,01,168/-, shown as advances in the Balance Sheet as income of Appellant, 2. erred in holding that, if TDS credit is claimed in the return of income, the corresponding income ought to be offered to tax without appreciating that income corresponding to impugned TDS was not accrued during the year under appeal; 3. erred in confirming the addition of customer advances on account of claim of corresponding tax credit during the year under appeal, without appreciating that accrual of income is not dependent on year in which corresponding credit of taxes has been claimed, but credit of tax is dependent on the year in which income is accrued and offered to tax; 4. Without prejudice to above, erred in not directing AO to give consequential relief in subsequent years where the impugned amount is offered to tax by the appellant, thereby leading to double taxation of the same income. Disallowance of Rs 1,73,75,045!- under section 14A of the Act read with Rule 80 of the Income-tax Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance. The assessee is engaged in the business of executing Trunkey projects both in India and abroad. The assessee bids for contracts on engineering procurement and construction basis ('EPC'). The assessee receives mobilization advance from the customers against the contract awarded to the assessee on EPC. This mobilization advance could be up to maximum of 10% of the total contract value depending upon the terms and conditions of the contract between the parties. During the course of assessment proceedings, the AO noticed that the assessee has claimed TDS credit of Rs.35,94,283/- in the return of income though, the corresponding income of Rs.22.93/- crores was not considered for computing the income. The AO, accordingly, asked the assessee why the corresponding income should not be included in the total income of the assessee. In reply, the assessee submitted that the TDS credit was wrongly claimed for the amount which were not considered for computing the income and requested the AO that the TDS credit of Rs.35.95 lakh may be disallowed. The AO did not accept the contention of the assessee on the ground that the assessee has failed to explain as to how work relating to the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer the income is recognized and offer to tax. Even otherwise, the assessee issued invoices to the customers based on work certified. The ld. AR has forcefully contended that when the revenue has not disturb the method consistently followed by the assessee as it has been accepted over the years then the advance received by the assessee cannot be treated as income of the assessee on the reason that the remittance of advance has been subjected to TDS. The ld. AR has referred to the details of the TDS claimed by the assessee on advance receipt from customers and submitted that only a part of the advance received is in respect of the work completed during the year up to 31st March 2010 and therefore more than the amount of advance representing the work completed up to 31st March 2010 cannot be recognized as income/revenue for the year under consideration. The ld. AR has thus submitted that the assessee has wrongly claimed the TDS credit of the entire amount which may be withdrawn/disallowed. He has further submitted that the advance received by the assessee for mobilization as per the terms of the contract are adjusted against the progress billing till such advance are fully recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Therefore the receipt of the amount being advance for mobilization would not change the work actually completed by the assessee till the end of the financial year relevant to the assessment year under consideration. The advance is not for the work completed but it is only the advance to be adjusted over the period of term of contract as per the terms and conditions agree between the parties. Therefore, the sole point involved in the controversy is the wrong claim of credit of TDS and the remedy for the same was to disallow the said claim and not to add the corresponding amount to the income of the assessee when the assessee has already offered the income based on percentage completion method. We have already expressed our view that the receipt of amount does not effect the income recognize on mercantile system of accounting and as per AS-7. Therefore, the addition made by the authorities below purely on the ground that the assessee has claimed credit of TDS in respect of advance receipt is highly arbitrary and unjustified when the assessee has withdrawn the said claim though, it was not allowed by the AO. Accordingly, we direct the AO to delete the addition made on account of wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable for the said assessment year therefore, the disallowances on account of administrative expenses were restricted to 5% of the dividend income. For the subsequent year i.e. 2008-09 and 2009-10, the CIT(A) has deleted the disallowance on account of interest expenses and disallowance on account of administrative expenses is restricted to 0.5% of average investment against which both the department and assessee are in appeal/cross-objection before the Tribunal. Thus, the ld. AR has submitted that when no disallowance was sustained on account of interest expenditure in the earlier year by virtue of orders of appellate authorities and investment during the year are made out of its own fund and not out of borrowed fund then there is no question of disallowance of any interest expenditure. The ld. AR has further submitted that the AO has not given a finding that the assessee has used the borrowed fund for investment in mutual fund and therefore when the Assessing Officer has not recorded any reason as to why he was not satisfied with the explanation of the assessee that no borrowed fund was used for investment in mutual fund then the provision of section 14A cannot be invoked in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs on this account. The assessee claimed that the suo moto disallowance made by the assessee is sufficient considering the nature and volume of the transactions. It is to be noted that Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D. However, the disallowance work out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income. Thus we set aside this issue to the record of AO for the limited purpose of computing the total expenditure incurred by the assessee for the composite/indivisible activities in which taxable and non-taxable income is received and if the disallowance work out under Rule 8D on account of administrative expenses exceeds the total claim of expenditure incurred for the composite activities resulting taxable or non-taxable income then the disallowance should be restricted to the said actual total claim of expenditure. 11. Accordingly, the AO is directed to recompute the disallowance after considering the above aspect. 12. Ground no.13 is regarding disallowance of community development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of 36.34 lakhs is hereby deleted. The Assessing Officer while passing the giving effect order dt.27/11/2013 has denied the relief to the assessee on flimsy ground that no addition was made on the account in the assessment order. The relevant part of the giving effect order dated 27/11/2013 of the Assessing Officer is as under:- "2. No relief for community Development expenses are allowed as no addition was made on this account in assessment order. (para 7.4 of CIT(A)'s order). 16. It appears that the AO has shown total disregard and defiance to the orders of the FAA by picking and choosing the particular words instead of the finding of the Appellate Authority. It appears that the AO has acted in a most irresponsible manner and by circumventing the propriety of quasi judicial authority to follow the decision of the Appellate Authority. When the Assessing Officer did not choose to challenge the order of the ld. CIT(A) then it is highly inappropriate to not give effect to the same. We took serious note of the conduct and the action of the AO while passing the giving effect order 27/11/2013 in this case. Accordingly the AO is directed to allow the claim of the assessee in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR of the assessee has submitted that the assessee has already reversed the warranty provision and offered to tax for the assessment year 2012-13. The cross objection of the assessee is only to the extent that in case provision is not allowed in this year. Then the same is not be taxed on the reversal of the provision offered by the assessee for the assessment year 2012-13. The ld. AR has further submitted that the assessee has no objection if the provision is disallowed for the year under consideration but at the same time it should not be taxed for the A.Y. 2012-13 as the assessee has offered the same on reversal of the provision. 23. Having considered the statement of ld. AR we set-aside the impugned order of the Commissioner on this issue and restore the order of the Assessing Officer. Consequently, the AO is directed not to tax the reversal of the provision offered by the assessee for the Assessment Year 2012-13. 24. In the result, Revenue's appeal is allowed and cross objection of the assessee is dismissed. 24. For the Assessment year 2008-09, the assessee has raised following grounds. "On the facts and in the circumstances of the case in law, the learned Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Ld. AR and considered the relevant record. An identical issue has been considered by us in assessee's appeal for the A.Y. 2010-11 in a para 7 to 11 above. Accordingly this issue is set-aside to the record of the AO on same terms. 29. Ground no.2 regarding adjustment of disallowance of interest u/s 14A while computing book profit u/s 115JB. This is consequential to ground no.1, accordingly this issue is set-aside to the record of the AO to give effect as per the outcome of ground no.1. 30. For the Assessment years 2009-10th revenue has raised the following grounds. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below; 1. The order of the CIT(A) is opposed to law and facts of the case. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance under Rule 8D(2)(ii) and at the same time giving the finding that the AO is duty bound to make disallowance as per Rule 8D thereby contradicting himself. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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