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TMI Blog2019 (1) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to record the entire expenses which had incurred by him or to be incurred to earn the said entire sales/Revenue. Therefore, in order to derive the true net profit in project completion method it is necessary to show these estimated expenditures, like,Exp. on minor/miscellaneous work. Hence, we accept the treatment made by the assessee in respect of estimated expenditures, like, Exp.on minor/miscellaneous work, in its books of accounts. Deduction of TDS on the estimated expenditures, like, Exp. on minor/miscellaneous work - Held that:- So far the sum of ₹ 94,51,860/- is concerned, we note that the assessee has deducted TDS and paid before 31.09.2012 i.e. before the due date of submission of return of income for assessment year 2012-13, therefore by no any stretch of imagination, the disallowance should be attracted i.e. the disallowance made by the Assessing Officer is directed to be deleted based on the fact that the assessee made the compliance and paid TDS on or before submissions of the return of income. So far the balance amount of ₹ 2,15,30,312/- is concerned, as we have explained that since the assessee is following the project completion method an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, but at the time of hearing, the solitary grievance of the assessee has been confined to the issue that out of total disallowance of ₹ 4,79,18,880/- made by the Assessing Officer, the ld. CIT(A) erred in confirming the disallowance of ₹ 94,51,860/- and ₹ 2,15,30,312/-,( being estimated expenditure still required to be incurred). On the other hand, the solitary grievance of the Revenue in its appeal in I.T.A. No. 2549/Kol/2017, is that the ld. CIT(A) has wrongly allowed the provisions for expenses amounting to ₹ 1,69,36,708/-, out of total disallowance of ₹ 4,79,18,880/-. We note that solitary grievance of the Assessee and Revenue are common and interlinked with each other, as mentioned above, challenging total disallowance of ₹ 4,79,18,880/- made by the Assessing Officer, and on appeal, deleted by the ld CIT(A) partly, which are dealt together as under. 5. The facts of the case which can be stated quite shortly are as follows: The assessee company is engaged in the real estate business.During the assessment year 2012-13,it had disclosed its total income from a project known as Anahita Project involving construction of a large numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d list of provisional direct expenses during assessment year 2012-13, in which the following facts were noted by the assessing officer: i) That all the bills of expenditure namely superstructure, superstructure lift, sanitary and water supply, electrification etc, were received after 31/03/2012, majority of which are dated in the months between July, 2012 and March. 2013 and some are even dated between April, 2013 and November, 2013. ii) That the date of transactions on receipt of bills from various parties under the above heads of expenditure fall in the months as mentioned in Sl. No. (i) above. The payments on final settlement of bills have been made to the parties during the AY 2013-14 and also in AY2014- 15, not relevant to the impugned assessment year 2012-13. iii) That the TDS was deducted on such bills at the time of credits/ payments on the dates of transactions and therefore much beyond the end of the AY 2012-13. It was submitted by the assessee that all expenses related to project Anahita were booked and were provided during the AY 2012-13 itself, as all expenses have to be booked, as the project was completed. However,the following information were noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iyan, the Ld. Counsel for the assessee, begins by pointing out that the assessee has made a provision for the expenses to be incurred / already incurred to the tune of ₹ 4,79,18,880/-. Out of the said total expenditure a sum of ₹ 1,69,36,708/- belongs to raw material purchased by the assessee, therefore no TDS is required to be deducted, as it relates to raw material purchased by the assessee. Therefore, on appeal by the assessee, the ld CIT(A) has rightly deleted the addition of ₹ 1,69,36,708/-. On the balance amount of ₹ 94,51,860/- the assessee has deducted TDS before 31.09.2012, i.e. before filing the return of income, for assessment year 2012-13, therefore the disallowance on account of TDS u/s 40a(ia) does not arise. On the remaining sum of ₹ 2,15,30,312/-( ₹ 4,79,18,880-Rs.1,69,36,708-Rs.94,51,860), since the assessee is following contract completed method, which is known as project completion method of accounting, in this method of accounting of construction contracts the assessee prepared the financial statement on substantial completion of the project. The assessee s substantial activities were completed before 31/03/2012, therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all, the assessee has not produced before the Assessing Officer the project completion certificate and has also not submitted the bills and vouchers and the sufficient proof to substantiate these expenditures, hence the addition made by the AO should be sustained. Moreover, the assessee has not submitted the bills and invoices in relation to the raw material purchased to the tune of ₹ 1,69,36,708/-. He has also pointed out that these expenses were based on the provisions made in accounts, and these are not actual expenditure incurred by the assesseetherefore these should not allowed.The DR further pointed out that since the assessee has completed its project substantially therefore he supposed to deduct TDS on the entire expenditures which are to be incurred for ancillary or minor work, which are to be done after completion of the project. Since the assessee has failed to deduct TDS on ₹ 4,79,18,880/-, therefore the same should be disallowed. 10. We have given a careful consideration to the rival submissions and perused the material available on record. We note that recognition of contract revenue andexpenses are done by the contractors by following either percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it is necessary for the assessee to make provision for estimated expenditures which are to be incurred in subsequent years on account of minor/miscellaneous work. If the assessee does not make provision for estimated expenditures, like, exp. on minor/miscellaneous work, then in that case assessee will not able to show true profit and loss, in its profit and loss account.As we pointed out in our earlier para that in project completion method, the assessee prepares profit and loss account and other financial statements once in life of a project, therefore, these estimated expenditures, like, exp. on minor/miscellaneous work, can not be shown next year. Another important point is that in project completion method, the assessee has shown entire sales/Revenue therefore he is entitled to record the entire expenses which had incurred by him or to be incurred to earn the said entire sales/Revenue.Therefore, in order to derive the true net profit in project completion method it is necessary to show these estimated expenditures, like,Exp. on minor/miscellaneous work. Hence, we accept the treatment made by the assessee in respect of estimated expenditures, like, Exp.on minor/miscellane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above) is present in the assessment year under consideration though it should bedischarged at a future date.For that we rely on the judgment of the Hon ble Supreme Court in the case of Bharat Earth Movers vs. CIT reported in 245 ITR 428, wherein the same facts and ratio was decided. 14. At the cost of repetition, we reiterate the facts that the assessee is following project completion method and in this method the revenue is recognized when a substantial portion of the construction work is completed although some unfinished ancillary works may remain pending. The total expenditure in respect of such ancillary unfinished work is estimated and a provision is made in the books of accounts. This principle is adopted when the assessee has recognized the entire income from the project and the same is credited in the books of accounts. Therefore in the assessee s case under consideration, since the assessee has disclosed its entire project receipts of its Anahita project in the assessment under consideration, therefore,all the expenses incurred or to be incurred in connection with the said project were also taken into account so as to arrive at the correct net profit from this projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and, having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income-tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression ''profits or gains in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure purpose of earning the receipts is deducted therefrom whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. 15. We note that the grievance of the revenue is that the assessee has not deducted TDS on the sum of ₹ 94,51,860/- and ₹ 2,15,30,312/-. So far the sum of ₹ 94,51,860/- is concerned, we note that the assessee has deducted TDS and paid before 31.09.2012 i.e. before the due date of submission of return of income for assessment year 2012-13, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose account such credit is to be given. Therefore, when the tax deductor cannot ascertain the payee who is the beneficiary of a credit of tax deduction at source, the mechanism of Chapter XVII-B cannot be put into service. The Assessing Officer was to verify whether the payee was identifiable and the amount payable to him was ascertainable. Then the assessee would be required to deduct tax at source in respect of such provision. However, if payee was not identifiable, the provisions of Chapter XVII-B i.e., tax deduction at source, could not be pressed into service and, therefore, the assessee was not required to deduct tax at source in such a case. The Assessing Officer was to re adjudicate the issue afresh after examining the facts. Considering the entirety of facts and circumstances of the case and the material on record, we are unable to uphold the stand of the Revenue, therefore we direct the Assessing officer to delete the addition of ₹ 94,51,860/- and ₹ 2,15,30,313. We also uphold the order of the ld. CIT(A) in respect of deletion of amount of ₹ 1,69,36,702/-, since this amount pertains to purchase of raw materialstherefore no TDS is attracted. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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