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TMI Blog2018 (8) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the question of withholding taxes on such payment does not arise, consequently, the question of disallowance of such expenditure u/s 40(a)(ia) also does not arise. - Entire additions directed to be deleted - Decided in favor of assessee. Estimation of income on advance receipts - principle laid down in AS-11 to recognize revenue - Held that:- Once the assessee is following a method of accounting which is in accordance with the method prescribed by ICAI for recognition of revenue from the kind of projects the assessee is undertaking and such method has been accepted by the department in the earlier year, there is no reason for the AO to deviate from the method followed by the assessee without any change in facts and circumstances. In this case, the AO has made addition towards income from the project on advances received without recording any reasons as to how advance received by the assessee forms part of revenue for the current year. - No additions - Decided against the revenue. - I.T.A No. 2475/Mum/2013, I.T.A No. 4480 /Mum/2013 - - - Dated:- 24-8-2018 - Shri Mahavir Singh ( Judicial Member ) And Shri G Manjunatha ( Accountant Member ) Assessee by : Shri Prak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred on drawings, design and technical assistance, the Ld. CIT(A) has allowed partial relief, wherever the assessee has proved that either TDS provisions is not applicable or TDS provisions are complied with and accordingly, out of total disallowance of ₹ 1,56,83,873 sustained addition of ₹ 63,15,200 paid to Saudi Designer Engineering Constructions on the ground that although assessee required to deduct TDS u/s 194J failed to deduct such TDS, therefore, the AO was right in disallowing such expenditure for failure to deduct TDS u/s 194J of the I.T. Act, 1961. The Ld.CIT(A), however, deleted other additions made by the AO towards freight charges, packing and forwarding, transportation expenses, clearing and forwarding charges, printing and stationery, advertisement expenses and other charges on the ground that there is no requirement of deduction of TDS on such payments. Insofar as disallowance of liaisoning services of ₹ 5,20,67,912, the Ld.CIT(A), for the reasons stated in his order, directed the AO to make adhoc disallowance of 25% which worked out to ₹ 1,29,19,935 and directed the AO to delete balance disallowance of ₹ 3,91,48,377. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in relation to exempt income, when the assessee has not maintained separate books of account for investment activity and its business transactions. We further observe that when common expenditure are incurred towards business as well as investment activity, then possibility of certain expenditure attributable to investment services cannot be ruled out. Therefore, keeping in view of the provisions of section 14A r.w.r. 8D(2), we are of the considered view that 5% of exempt income towards expenditure would meet the ends of justice. Accordingly, we direct the AO to make addition of 5% of exempt income towards expenditure incurred in relation to earning of exempt income. 6. The next issue that came up for our consideration from assessee as well as revenue s appeal is disallowance of expenses u/s 40(a)(ia) towards liaisoningcharges @25% of such expenses. The AO has made disallowance of ₹ 5,20,67,912 towards liaisoning and site services and project commission for the reason that the assessee has failed to deduct TDS u/s 195 of the Income-tax Act, 1961. It is the contention of the assessee that expenditure incurred under the head liaisoning services are paid outside India for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering relevant facts in principle, accepted that the provisions of TDS is applicable in respect of payment made to Industrial Development Promotion Company Ltd of ₹ 1,29,19,535 has directed the AO to make adhoc disallowance of 25% of the payment on the ground that the bifurcation of expenditure attributable to technical services is not furnished by the assessee. Insofar as payment made to Legane Consultancy Ltd, by considering the agreement entered into between the assessee and Legane Consultancy Ltd and also by following the decision of ITAT Jaipur Bench in the case of JCIT vs Modern Insulators Ltd (2011 140 TTJ 715 (Jaipur) held that once payment has been made outside India to any person for rendering services outside India, then the provisions of section 195 has no application, consequently, disallowance cannot be made u/s 40(a)(i) of the Income-tax Act, 1961. We find that in respect of payment made to Industrial Development Promotion Company Ltd, the assessee has filed necessary agreements entered into between the parties to prove that no part of services has been rendered in India or sourced in India, therefore, the question of adhoc disallowance of such payment u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio shown by the assessee company on the completed project shown in the P L account filed for the year. It is the contention of the assessee that it is following mercantile system of accounting and has been recognizing revenue on proportionate completion of contract basis in accordance with the accounting standard prescribed by Institute of Chartered Accountants of India. This method of accounting has been continuously followed and the same has been accepted by the department in the past. It is further claimed that revenue can be booked only on project which has been completed and no advance from a client can be taken to revenue. In these circumstances, the AO was not at all justified in adding the advance received from the customers to the income of the assessee by taking into account gross profit ratio of completed projects ignoring the fact that these two projects have not been completed during the year. 10. We have heard both the parties and perused the material available on record. The assessee has recognized revenue from the incomplete projects on proportionate completion method by taking into account percentage of work done in the project. The assessee is following this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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