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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI. A. D. JAIN & SHRI T. S. KAPOOR
PER A.D. JAIN, V.P.:
These are cross-appeals by the assessee as well as the Revenue against the order of the ld. CIT(A), Lucknow-2, dated 14.1.2019 for the assessment year 2013-14.
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The assessee has raised the following grounds of appeal: 1. The ld. CIT (A)- 2, Lko erred on facts and in law in not appreciating that no addition should be made w.r.t direct expenses incurred on behalf of the client shown in the Contract Account. Thus, the addition on account of Labour Cess Rs.2,42,10,007/- should not be made. 2. The addition upheld is highly excessive, contrary to the facts, law and principal of nature justice without providing sufficient time and opportunity to have its say on the reasons relied upon by him.
The Revenue has raised the following grounds of appeal: 1. That the Ld. Commissioner of Income Tax (Appeal)-2, Lucknow had erred in law and facts in deleting the addition of Rs.88,61,308/- on account of prior period expenses ignoring the fact that the assessee is following mercantile system of accounting and only those prior period expenses which crystallized during the year can be claimed. 2. That the Ld. CIT(A)-2, Lucknow had erred in law and facts in deleting the addition of Rs.37,35,99,000/- on account of interest on "Client Interest Account" without appreciating the facts that the assessee is claiming TDS relating to FDR's of unutilized fund but is not showing the interest income of FDR's in its income which is against provisions of Section-198 and 199 of Income Tax Act 1961.
Apropos the sole ground raised by the assessee relating to addition under section 43B of the Act, the ld. CIT(A), while confirming the addition of Rs.2,15,56,614/-, observed as under: “8.1 Ground of appeal no.3 – Addition of Rs.2,15,56,614/- u/s 43B:
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The appellant has claimed these expenses under the Operating Expenses to tune of Rs.24,26,10,007/-. Proof of payment of Labour Cess was filed to the extent of Rs.22,10,53,393/-. The unpaid Labour Cess of Rs.2,15,56,614/- was added to the total income of appellant. 8.2 An identical issue was decided by my predecessor i.e. Ld. CIT(A)-II, Lucknow in appellants own case for AY 2011- 12 vide order dated 10.03.2017 where the appeal was partly allowed. The relevant portion is as under:- "5(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. The A.O has disallowed labour cess of Rs.42,41,05,418/- under section 43B of the Act which the appellant claims was not disallowable, as labour cess was claimed as direct expenditure in the contract account. I find that there is a marked difference in section 40(a)(ia) of the Act and section 43B of the Act. Whereas section 40(a)(ia) of the Act starts with a non obstante clause and restricts disallowance of an expenditure claimed under section 30 to section 38 of the Act; no such exclusion is envisaged in section 43B of the Act which is applicable to even the expenditure incurred for earning income under section 28 of the Act as well. The expenditure disallowed under section 43B of the Act is allowable in the year of payment. The claim of the appellant that expenditure was incurred as direct expenditure in contract account and therefore not disallowable; is therefore as direct expenditure in Contract Act is applicable to section 28 of the Act also as per concluding lines of the provision contained in the Act. 5(5) I find that the appellant has filed details of expenditure of Rs.6,02,80,528/- incurred on account of labour cess alongwith proof of payment where the payment was made before 30.09.2011 i.e. the due date for filing of return of income for the assessment year 2011-12 under consideration. Accordingly relief of Rs.6,02,80,528/- is allowed to the appellant and the
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addition made by the AO is confirmed to the extent of Rs.36,38,24,890/-. The ground of appeal is allowed partly. The AO is however, directed to allow Rs.36,38,24,890/- in subsequent year after examination of proof of payment. The additional ground of appeal is therefore allowed." 8.3 An identical issue was decided by my predecessor i.e. Ld. CIT(A)-H, Lucknow in appellants own case for AY 2013- 14 vide order dated 10.03.2017 where the appeal was partly allowed. The relevant portion is as under: “7 (4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. The AO has disallowed labour cess of Rs.8,44,07,080/- under section 43B of the Act which the appellant claims was not disallowable as labour cess was claimed as direct expenditure in the contract account. I find that there is a marked difference in section 40(a) (ia) of the Act and section 43B of the Act. Whereas section 40(a) (ia) of the Act starts with a non obstante clause and restricts disallowance of an expenditure claimed under section 30 to section 38 of the Act; no such exclusion is envisaged in section 43B of the Act which is applicable to even the expenditure incurred for earning income under section 28 of the Act as well. The expenditure disallowed under section 43B of the Act is allowable in the year of payment. The claim of the appellant that expenditure was incurred as direct expenditure in contract account and therefore not disallowable; is therefore as direct expenditure in contract Act is applicable to section 29 of the Act also as per concluding lines of the provision contained in the Act, 7(5) I find that the appellant has filed details of expenditure of Rs.9,47,996/- incurred on account of labour cess alongwith proof of payment where the payment was made before 30.09.2010 i.e the due date for filing of return of income for the assessment year 2010-11 under consideration. Accordingly relief of
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Rs.9,47,996/- is allowed to the appellant and the addition made by the AO is confirmed to the extent of Rs.8,34,59,084/-. The ground of appeal is allowed partly. The AO is however directed to allow Rs.8,34,59,084/- in subsequent year after examination of proof of payment. The additional ground of appeal is therefore allowed." 8.4 The appellant has claimed Labour Cess expenses of Rs.24,26,10,007/-. Proof of payment of Labour Cess in Govt. Account was filed to the extent of Rs.22,10,53,393/- where the payment was made before the due date of filing of return of income for A.Y 2013-14. The addition/disallowance made by the AO u/s 43B to the extent of Rs.2,15,56,614/- is confirmed. 8.5 Ground of appeal no.3 is dismissed.”
Before us, the ld. Counsel for the assessee has submitted that the provision made for Labour Cess has not been debited to the profit and loss account and the profitability of the Corporation, in the form of centage being earned as gross profit, has remained unaffected; that the assessee Corporation in the present case has been the collecting agency only for collecting the cess from the concerned Government Department and depositing the same in the Government Account; and that the notification dated 01.07.2011 [APB:141] of the Special Audit Report of A.Y. 2010-11, clearly states that the assessee is merely a collecting agency and the collection of Labour Cess and depositing the same with the Government Account has nothing to do with the profitability of the Corporation. 6. The ld. Counsel for the assessee has further averred that the assessee is a wholly owned undertaking of the Government of U. P. and it undertakes Government works only; that the income earned by it is limited to the centage allowed by the Government by issuing Government orders from time to time;
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that with a view to demonstrate and find out the centage to be charged from the work, it prepares a separate contract account for each work site; that all the operation expenses incurred for the work are compiled and then centage is charged, as prescribed by the Government; that all the administrative expenses are then deducted from the centage / gross profit and the net is offered for tax; that the provision for Labour Cess has not been debited to the profit and loss account; and that hence, there is no justification to invoke the provisions of section 43B of the Income Tax Act, 1961. 7. It has further been argued by the ld. Counsel for the assessee, that the provisions of section 43B deal with situations where expenses are debited to the profit and loss account but not paid as on the date of filing of return of income as prescribed u/s 139(1) of the Income Tax Act, 1961; that in the present case, by making provision for Labour Cess, the assessee Corporation has neither reduced its profitability in any way, nor has it claimed the same as expenditure; that in law and in the peculiar circumstances of the present case, there is no justification for making any disallowance by invoking the provisions of section 43B of the I. T. Act, 1961 on account of provision made for Labour Cess; that in the assessment year 2000-01, similar additions were made by the Assessing Officer in the assessee’s case by way of making disallowances of expenses debited to the Contract Account, in which, the Lucknow Bench of the I.T.A.T., in I.T.A. No. 382/LKW/2004, held that no addition could be sustained by way of making the same by disallowing the expenses debited to the Contract Account; and that the Tribunal also observed that since the assessee Corporation had already recognized the income on the expenses debited to the Contract
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Account as per the Government Notifications issued from time to time, there was no occasion at all to disallow the expenses. 8. The ld. Counsel for the assessee also submitted that an identical issue, involved in the assessee’s own case in the appeals as mentioned below, has also been considered by the Lucknow Bench of the Tribunal and decided in favour of the assessee: (1) I.T.A. Nos. 317/LKW/2017 and 314/LKW/2017, for A. Y. 2010-11. (2) I.T.A. Nos. 315/LKW/2017 and 318/LKW/2017, for A. Y. 2011-12. (3) I.T.A. Nos. 316/LKW/2017 and 319/LKW/2017, for A. Y. 2012-13.
The ld. D.R., on the other hand, placing strong reliance on the order of the ld. CIT(A), has submitted that the assessee has claimed Labour Cess expenses of Rs.24,26,10,007/- and proof of payment of Labour Cess in Govt. account was filed to the extent of Rs.22,10,53,393/-, where the payment was made before the due date of filing of return of income for assessment year 2013-14, and therefore, the ld. CIT(A) was justified in confirming the addition/disallowance made by the AO under section 43B of the Act, to the extent of Rs.2,15,56,614/-. 10. We have heard both the parties and have perused the material on record. As contended by the assessee, the issue relating to the addition made with regard to the direct expenses incurred by the assessee on behalf of the client shown in the contract account, is squarely covered by the order of this Bench of the Tribunal in the assessee’s own case for assessment year
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2010-11. The Tribunal, in ITA No.317/LKW/2017, vide its order dated 17.5.2019, while deleting the addition, observed as under: “6. With regard to the ground of appeal taken by the assessee in its appeal in ITA No.314/LKW/2017, the assessee, as before the authorities below, contends that this was the first year when payment of labour cess was made applicable on the part of the assessee Corporation @ 1% of the cost of construction incurred by it; that this provision was made applicable by the State Government itself, in its Labour Department, vide Notification dated 20/11/2009, which forms pages 193 to 196 of the Special Audit Report of the assessee; that in pursuance of this Notification, the assessee Corporation issued Circular dated 19/2/2010 (page 192 of the Special Audit Report); that through this Circular, it was informed that all the unit heads/General Managers were required to make provision for labour cess @ 1% of the cost of construction of the concerned work sanctioned by the Government and which was in progress; that it was specifically stated further in the Circular that the estimate be accordingly revised and the revised estimate be sent to the concerned Government Department, so that provisions of labour cess, as being made by the assessee Corporation, may be collected from the concerned Government Department and be deposited in the Government account; that since this process took time, the Corporation made a provision of Rs.8,44,07,080/- in its books and the payment thereof was made in the subsequent year; that the total provision consists of the provision made by 159 works, which fact stands reflected by the special auditors in the Special Audit Report (pages 189 to 191 thereof); that the provision was not charged to the profit & loss account of the assessee; that it was made part of the Value of Works Done, as demonstrated in the contract account prepared by the assessee, concerning each work site, as presented before the authorities below, along with trial balance, profit & loss account and balance sheet of Purvanchal College, Jhansi, Urdu Arbi Farsi University, Lucknow and ECO Park, Lucknow; that in each case, the labour cess was charged to the Value of Work Done
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in addition to the centage charged by the assessee Corporation, as notified by the Government orders for the respective works; that the provision for labour cess was not debited to the profit & loss account; that thereby, the profitability of the assessee Corporation, in the form of centage being earned as gross profit, remained unaffected; that the assessee Corporation only acted as the collecting agency for collection of labour cess, which fact is evident from the Notification dated 1/7/2011 (pages 197 to 201 of the Special Audit Report); that this makes it clear that the collection and deposit of labour cess has no relation whatsoever with the profitability of the assessee Corporation; that the labour provision for labour cess does not stand debited to the profit & loss account; that the assessee is a wholly owned undertaking of the Government of Uttar Pradesh; that it undertakes Government works only; that the income earned by it is limited to the centage allowed by the Government by issuing Government orders from time to time; that the assessee prepares separate contract account for each work site in order to ascertain and demonstrate the centage to be charged from the work concerned; that all the operational expenses incurred for the work are compiled and then, centage is charged, as prescribed by the Government; that all the administrative expenses are then deducted from the centage/gross profit and the net is offered to tax; that since the provision for labour cess was not debited to the profit & loss account, the provisions of section 43B of the Act did not get attracted and there was no occasion to invoke the same; that the provisions of section 43B of the Act do not concern the situations where expenses are not payable as on the date of filing of the return of income; that as such, the provision for labour cess has not affected the profitability of the assessee Corporation in any manner and the profit of the assessee Corporation has not got reduced by such provision; that the provision was also not claimed as an expenditure; and that in assessment year 2000-01, vide order dated 18/12/2008, passed in ITA No.382/LKW/2004, similar additions made by the A.O, by disallowance of expenses debited to the profit & loss account, were deleted by the
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ITAT, holding that no addition could be made by disallowing the expenses debited to the contract account; that it was further observed by the ITAT that since the assessee Corporation had already recognized the income on the expenses debited to the contract account as per Government notifications issued from time to time, disallowance of the expenses was not called for; and that therefore, the disallowance in question be deleted. The ld. A.R. of the assessee has directed our attention to APB pages 139 to 149, which are the copies of the audited balance sheet, profit & loss account and computation chart of the assessee for assessment year 2010-11, as placed before the authorities below. 7. The ld. D.R., on the other hand, has placed strong reliance on the impugned order. It has been reiterated that sections 40(a)(ia) and 43B of the Act are completely different and distinct inter se; that no exclusion, as contained in the non obstante clause with which section 40(a)(ia) of the Act starts, is existent in section 43B of the Act; that section 43B is applicable even to the expenditure incurred for earning income under section 28 of the Act; that the expenditure disallowed under the provisions of section 43B of the Act is allowable in the year of payment; that therefore, the ld. CIT(A) has correctly rejected the assessee’s contention that the expenditure was incurred as a direct expenditure shown in the Contract Account, which was not disallowable; and that therefore, the order of the ld. CIT(A) on this issue being on all fours, the same be upheld and the grievance sought to be raised by the assessee be rejected as being shorn of merit. 8. Having considered the rival contentions in the light of the material placed on record, we find the grievance of the assessee to be justified. It is not in dispute that the assessee Corporation is a wholly owned undertaking of the Government of Uttar Pradesh. It is also unchallenged that the assessee Corporation, i.e., ‘Uttar Pradesh Rajkiya Nirman Nigam Limited’ (U.P.R.N.N.) undertakes Government works only. It is patent that the income earned by the assessee Corporation is by way of centage allowed by the
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Government by issuing Government orders from time to time. It receives orders for projects on behalf of the Government and it is allowed a profit or centage on a fixed percentage, which varies, as per Government orders, from 10% to 15% of the work done by it. This centage or profit is allowed to enable the Corporation to meet its administrative and other expenditure. The assessee Corporation carries out two different types of work, i.e., deposit work and tender work. The deposit work, as opposed to the tender work, is at cost plus centage. The work of the assessee Corporation is regulated by its Working Manual. This Working Manual provides for recognition of the income of the assessee, as follows:- “Some of the Government Departments, Government Organizations and other clients agree to get their works executed on the basis of actual costs of material, labour, etc., incorporated in the actual works concerned, plus certain percentage of additional payment towards overheads and profits of U.P.R.N.N. Limited for executing these works.” 9. Accordingly, as per para 59 of the Working Manual, a contract account is to be prepared, which is a statement showing resulting profit or loss accruing during a construction period, which has a direct relation to the works dealt with in the business, which ascertains the cost of profit of the assessee Corporation. Thus, the contract account is, basically, accounting of work done where the gross profit worked out is the centage allowed towards the overheads and profits of the assessee Corporation. In the contract account, all direct costs, as are to be borne by the clients of the Corporation, are debited and the value of the work done is credited by adding 15% towards centage charges. As such, in case any disallowance is to be made in the cost debited to the contract account, a corresponding deduction is also required to be made in the cost debited to the work done, as this is a case of contra entries only. This accounting procedure of the assessee Corporation stands accepted by the Department in assessment year 1990-91, as taken note of by the Tribunal in the assessee’s case for
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assessment year 1991-92, in its order dated 30/11/2006, passed in ITA No.714/LKW/2002. For assessment year 2000-01, the Tribunal, vide its order dated 18/12/2018, passed in ITA No.382/LKW/2004, also took note that all the expenditures incurred by the assessee Corporation on material consumed is recovered from its clients along with 15% profit thereon and that so, even if there is inflation in the expenses in material consumed, the same is recovered along with 15% profit thereon, resulting in no loss of profit or loss to the Revenue in the form of tax. The ld. CIT(A) has confirmed the disallowance, holding that this disallowance was correctly made by invoking the provisions of section 43B of the Act. It remains undisputed that the labour cess is part of the contract account. That being so, the assessee is correct in contending that the addition, if any, is maintainable only in the hands of the client of the assessee Corporation and not in the hands of the assessee. 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. The assessee Corporation is only a collecting agency for the purposes of the labour cess and deposit thereof with the Government account. Thus, the action of the ld. CIT(A) in confirming the addition for the provisions for labour cess, is reversed and the addition is deleted. The sole ground raised by the assessee in its appeal is allowed.”
Thus, the Tribunal, for assessment year 2010-11, 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
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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. 10. In view of the above, the issue is found to be covered squarely in favour of the assessee. We further notice that in assessment years 2011-12 and 2012-13 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 of Rs.2,15,56,614/- is deleted. ITA No.218/LKW/2019: 11. Coming to the grounds taken by the Department in its appeal, the Revenue, through ground no.1, has assailed the order of the ld. CIT(A) in deleting the addition of Rs.88,61,308/- on account of prior period expenses. 12. The ld. CIT(A) deleted the addition of Rs.88,61,308/- being the prior period expenses, observing as under: “7.1 Grounds of appeal no. 1 and 2 - Addition of Prior Period Expenses Rs.88,61,308/-: Appellant had shown Prior Period expenses of Rs.88,61,308/- in the Contract Account. Appellant filed written submissions on allowability of same. AO held that as per mercantile system of accounting the appellant has wrongly claimed these expenses now i.e. at time of making payment. These expenses were added to total income of appellant 7.2 FINDING:
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The appellant stated that the appellant follows Income Recognition and Accounting System for Tender work, deposit work, cost plus Centage work. During the year, appellant had done the work on Cost Plus Centage work. Under the method the Govt. Department gets their work executed on basis of actual cost of material, labour etc. plus certain percentage of additional payments towards overheads and profits of appellant for executing these works. 7.3 The appellant contended that identical issue was decided by Hon'ble ITAT, ‘B’ Bench, Lucknow in appellant’s own case for AY 1991-92 in ITA No. 714/LUC/02. The relevant portion of the order is as under: "In the present case, we are concerned with item (b) noted above which has been considered in Para 33 of the manual. This primarily describes what are the items of cost and how they are to be dealt with. Then in Para 59, it is laid down that a contract account is to be prepared which is a statement showing the resulting profit or loss occurring during a construction period which has direct relations to the work dealt in business, which ascertains gross profit. The Ld. Counsel has explained that in the contract account all direct cost as are to be borne by the client are debited and value of work done is credited by adding towards centage charges. Therefore, if any disallowance is to be made in the cost debited to the contract account then corresponding reduction is required to be made in the work done also, this being a case of contra entries only. The assessee’s accounting procedure has been accepted by the Department in assessment year 1990-91 and therefore, there is no reason to adopt a different approach in other assessment years. In this view of the matter, we are of the opinion that as far as the disallowance of Rs.24,00,392/- is concerned, the same is not justified in the facts and circumstances of the case and therefore, in regard to this extent, we confirm the findings of the Ld. CIT(A). This ground is dismissed. 7.4 The appellant further contended that identical issue has been decided in favour of appellant by Hon'ble ITAT, 'A'
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Bench, Lucknow in appellants own case for AY 2000-01 in ITA No 382/LUC/2004. The relevant portion of the order is as under: 'Against this, the Ld. AR submitted that similar issue had arose before the Tribunal in assessment year 1991-92 which was decided by the Tribunal vide its order dated 30.11.2006 in ITA No 714/Luc/02 wherein it is held that as per accounting procedure followed by the assessee and accepted by the Department in assessment year 1990-91, the direct cost are taken by the client which are debited and value of the work if credited by adding 15% as profit margin of the assessee. Thus, all the expenditure on material consumed is recovered from the clients alongwith 15% profit thereon. So, even if there is any inflation in expenses in material consumed, the same is recovered alongwith 15% profit thereon from the clients hence, there is no loss of profit or no loss to the Revenue in the form of tax. Since the Tribunal has already taken a view on this subject, the issue is covered in favour of the assesee." 7.5 The appellant further contended that issue has been decided by Ld. CIT(A)-II, Lucknow (predecessor of undersigned) in appellants own case for AY 2010-11 vide order dated 10.03.2017 in favour of the appellant. The relevant portion of order is as under: "10(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I find that the expenditure disallowed by the AO consists of Rs.19,01,616/- paid to M/s Dakshznanchal Vidyut Vitran. Nigam Limited, Agra against the bill raised by the Electricity Distribution Division, Etawah and the balance amount of Rs.4,52,619/- is on account of payment made to M/s U.P. State Bridge Corporation Limited. The AO disallowed the expenses stating that these do not relate to the year under consideration whereas the appellant claims that the liability arose in the year under consideration. Alternatively, the appellant claims that the
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amount pertains to contract account and therefore in case the addition is made then simultaneously, the work in progress should be reduced by like amount. 10 (5) I find that the appellant has clearly brought out the fact that the bills were raised by the Electricity Department on 30.10.2009, which means that the liability has arisen in the current year and therefore the expenses are allowable in the assessment year under consideration. Notwithstanding, the claim of the appellant that any addition made will result in reduction of work in progress is justified as the income corresponding to the said expenses of Rs.23,54,235/- has already been accounted for in the contract account of earlier years. In this connection, a reference may be made to the decision of Hon'ble ITAT, Lucknow in case of the appellant for the assessment year 1991-92 in ITA No 7104/LUC/02 dated 30.11.2006, which has been followed in case of the appellant for the assessment year 2000-01 in ITA No 382/LUC/04 dated 18.12.2008. While deciding a similar disallowance of prior period expenses, the Hon'ble Court held that if any disallowance was to be made in the cost debited to the Contract account, then corresponding reduction is required to be made in the work done also, this being a case of contra entries only. The decision of the Hon'ble Tribunal is discussed at length in paragraph 5(6) above. Relying on the decision supra and finding that the income corresponding to the expenditure of Rs.23,54,235/- has already been recognized in contract account of earlier years, the addition of Rs.23,54,235/- made by the AO is deleted giving relief to the appellant." 7.6 The appellant further contended that identical issue has been decided in appellants own case in favour of appellant by my predecessor i.e. Ld. CIT(A)-lI, Lucknow in cases of appellant for AY 2011-12 and AY 2012-13 vide orders dated 10.03.2017 and 14.03.2017. 7.7 In view of the above mentioned facts and relying on the orders of Hon'ble ITAT, Lucknow in the case of appellant for AY 1991-92 and AY 2000-2001 and orders
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of Ld. CIT(A)-II, Lucknow in the cases of appellant for AY 2010-11, 2011-12 and 2012-13 on identical issue, the addition of Prior Period Expenses of Rs.88,61,308/- is hereby deleted. Grounds of appeal no. 1 and 2 are allowed.”
At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered by the order of the Lucknow Bench of the Tribunal in the assessee’s own case for assessment years 2010-11, 2011-12 and 2012-13, wherein an identical issue raised by the Revenue was rejected by the Tribunal and it had confirmed the order of the ld. CIT(A), deleting the addition made by the Assessing Officer. The ld. Counsel for the assessee has invited our attention to paragraphs 35, 36 & 37 of the order of the Tribunal, dated 17.5.2019, in ITA Nos.317/LKW/2017 and 314/LKW/2017, for assessment year 2010-11. 14. We have heard both the parties and have perused the material on record. As contended by the assessee, the issue relating to the addition made with regard to the prior period expenses is squarely covered by the order of this Bench of the Tribunal in the assessee’s own case for assessment years 2010- 11, 2011-12 and 2012-13. In ITA No.314/LKW/2017, an identical issue raised by the Revenue was rejected by the Tribunal, confirming the order of the ld. CIT(A). The relevant portion, i.e., paragraphs, 35, 36 & 37 of the order dated 17.5.2019 of the Tribunal, confirming the deletion of addition, is reproduced as under: “35. Ground No.6 relates to the deletion of addition of Rs.23,54,235/- on account of prior period expenses.
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The addition on account of prior period expenses made by the A.O was deleted by the ld. CIT(A), observing, as below: “10(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I find that the expenditure disallowed by the AO consists of Rs 19,01,616/- paid to M/s Dakshinanchal Vidyut Vitran Nigam Limited, Agra against the bill raised by the Electricity Distribution Division, Etawah and the balance amount of Rs. 4,52,619/- is on account of payment made to the M/s U.P. State Bridge Corporation Limited. The AO disallowed the expenses stating that these do not relate to the year under consideration whereas the appellant claims that the liability arose in the year under consideration. Alternatively, the appellant claims that the amount pertains to contract account and therefore in case the addition is made then simultaneously, the work in progress should be reduced by like amount. 10(5) I find that the appellant has clearly brought out the fact that the bills were raised by the Electricity department on 30.10.2009, which means that the liability has arisen in the current year and therefore the expenses are allowable in the assessment year under consideration. Notwithstanding, the claim of the appellant that any addition made will result in reduction of work in progress is justified as the income corresponding to the said expenses of Rs.23,54,235/- has already been accounted for in the contract account of earlier years. In this connection a reference may be made to the decision of Hon'ble ITAT, Lucknow in case of the appellant for the assessment year 1991-92 in ITA No 714/LUC/02 dated 30/11/2006, which has been followed in case of the appellant for the assessment year 2000-2001 in ITA No 382/LUC/04 dated 18/12/2008. While deciding a similar disallowance of prior period expenses the Hon'ble Court held that if any disallowance was to be made in
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the cost debited to the Contract account then corresponding reduction is required to be made in the work done also, this being a case of contra entries only. The decision of the Hon'ble Tribunal is discussed at length in paragraph 5(6) above. Relying on the decision supra and finding that the income corresponding to the expenditure of Rs.23,54,235/- has already been recognized in contract account of earlier years, the addition of Rs.23,54,235/- made by the A.O is deleted giving relief to the appellant. 37. As observed by the ld. CIT(A), we find that the liability arose in the year under consideration, as is evident from the bill raised by the Electricity Department on 30/10/2019. Moreover, as claimed by the assessee, the amount pertains to the contract account and therefore, in case the addition is made, the equivalent amount is to be reduced from the work-in-progress. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue. Accordingly, we confirm his order on this issue and reject ground No.6 of the Revenue’s appeal.”
Thus, 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. 16. In view of the above, respectfully following the order of the Tribunal in the assessee’s own case for the preceding assessment years, i.e., 2010-11, 2011-12 and 2012-13, the grievance of the Revenue is not found to be justified and accordingly, ground No.1 of appeal taken by the Revenue is rejected.
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Through Ground no.2 , the Revenue has assailed the order of the ld. CIT(A) in deleting the addition of Rs.37,35,99,000/- on account of interest on ‘Client Interest Account”. 18. At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered by the order of the Lucknow Bench of the Tribunal in the assessee’s own case for assessment years 2010-11, 2011-12 and 2012-13, wherein an identical issue raised by the Revenue was rejected by the Tribunal and it had confirmed the order of the ld. CIT(A) deleting the addition made by the Assessing Officer. The ld. Counsel for the assessee has invited our attention to paragraphs 39, 40 and 41 of the order of the Tribunal, dated 17.5.2019, in ITA Nos.317/LKW/2017 and 314/LKW/2017. 19. We have heard both the parties and have perused the material on record. As contended by the assessee, the issue relating to the addition made with regard to the addition on account of interest on Client Interest Account is squarely covered by the order of this Bench of the Tribunal in the assessee’s own case for the preceding assessment years, i.e., 2010-11, 2011-12 and 2012-13, wherein an identical issue raised by the Revenue was rejected by the Tribunal, confirming the order of the ld. CIT(A). In ITA No.314/LKW/2017, the Tribunal, vide paragraphs, 39, 40 and 41 of its order dated 17.5.2019, while confirming the deletion of addition, observed as under: “39. The A.O made the addition of Rs.39,46,18,444/- being interest on client fund as income of the assessee, without appreciating the Government Order that interest on client funds is to be added in client fund.
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The ld. CIT(A) deleted the addition, observing, as below:- “12(4) I have examined the facts and circumstances of the case. I have examined the findings of the Assessing Officer and the submissions of the appellant. I find that the amount of Rs.39,46,18,444/- shown in the balance sheet as interest accrued on deposits is the running balance of accrued interest on the funds of the clients of the appellant. This amount is inclusive of opening balance not received during the year as well as the interest accrued on the assessee's own funds, which have already been assessed to tax. The appellant undertakes construction work against advances received from the clients. Expenses are met by withdrawing the funds from the bank accounts wherein the funds were deposited. These are running accounts and the balance left in the bank account earns interest. The clients also keep margin money with the appellant in the form of fixed deposits which earns interest. The appellant maintains its books of accounts on mercantile basis and it makes provisions of interest on accrual basis. The appellant credits such interest to the respective client's account in view of the Government Order No. A-1-FA-11/386/1976 dated 11.04.1976. 12(5) In view of my examination, I find that the interest accrued on deposits has been credited to the respective client account. The interest earned by the appellant on unutilized funds is therefore credited to the respective accounts and is income of the concerned client and not the appellant. The GO dated 11.04.1976 referred above supports the contention of the appellant. The addition of Rs.39,46,18,444/- made by the A.O on account of interest accrued on deposits is deleted giving relief to the appellant.” 41. Having considered the rival submissions and perusal of record, we find that the amount of Rs.39,46,18,444/- shown in the balance sheet as interest accrued on deposits was the
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running balance of the accrued interest on the funds of the clients of the assessee. The assessee maintains its books of account on mercantile basis and it makes provision of interest on accrual basis. The assessee also credits such interest to the respective clients’ accounts as per Government Order dated 11/4/1076 (supra). The ld. 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 Nos.7 & 7.1 of the Revenue.” 20. In view of the above, respectfully following the order of the Tribunal in the assessee’s own case for the preceding assessment years, i.e., 2010-11, 2011-12 and 2012-13, the grievance of the Revenue is not found to be justified and accordingly, Ground No.2 of appeal taken by the Revenue is rejected. 21. In the result, the appeal of the assessee is allowed and the appeal of the Revenue stands dismissed. Order pronounced in the open Court on 14/12/2021.
Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT DATED:14/12/2021 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar