ACIT, NEW DELHI vs. M/S. LAHMEYER INTERNATIONAL INDIA (P) LTD., NEW DELHI

The aforesaid appeal has been filed by the Revenue against the impugned order dated 17.05.2016 passed by Ld. CIT (Appeals)-5, Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal, the Assessee has raised following grounds: I. The Ld. CIT(A) has erred in deleting the addition of Rs.10,89,77,286/- made by A.O. on account of expenses claimed by the assessee. II. The Ld. CIT(A) has erred in deleting the addition of Rs.1,95,000/- made by the A.O. on account of disallowance under section 14A read with rule 8D for the A.Y. 2012-13 by ignoring fact that as per the CBDT’s Circular No.5/2014 dated 11.02.2014 Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.

2. At the outset, the Ld. Counsel for the assessee submitted that in so far as ground no. 1 is concerned, the same is squarely covered by the decision of the Tribunal in assessee’s own case for the assessment years 2010-11 and 2011-12 passed in & 6073/Del/2014, order dated 21/06/2018.

The facts in brief are that the assessee-company is 3. engaged in the business of providing consultancy services in the field of power sector comprising thermal, hydel, wind and solar energy and also infrastructure sector and as per schedules/plan/requirement of their projects it raises invoices, as per services provided to their clients. During the course of assessment proceedings, the assessee was asked to give project wise details of expenses and income earned during the year and further also asked why the addition should not be made on adhoc basis being 10% of the total expenditure as was made in the earlier Assessment Years 2010-11 and 2011-12, wherein it was held that disproportionate expenses are being incurred by the assessee company in respect of revenue booked. In response, the assessee has filed a very detailed reply and described the nature of services rendered, method of revenue recognition followed, expenses incurred to earn the income and the status of its ongoing projects. It was further submitted that it was also discussed and clarified that having regard to the peculiar nature of services being rendered and the size of business, there cannot be work-in-progress in the case of assessee. It was also explained that maintaining projects wise accounting is not feasible and moreover not mandatorily required. It was further explained that during the relevant assessment year, assessee was having 148 jobs and revenue earned was Rs.45.48 crores. Out of these, 62 jobs were completed by the end of year having revenue 19.77 crore. Out of 86 ongoing jobs (having revenue of 25.71 crore), considering the nature of projects there is no work-in-progress from the Lender’s Engineering (LE) jobs. There were 52 ongoing LE jobs (contributed revenue of Rs.8.46 crores) on 31st March, 2010. Out of remaining 34 ongoing jobs, 5 jobs are on man hours or man days basis. Since revenue for these jobs (Rs.11.08 crore) having already been charged for services rendered up to 31st March, 2010 there is no work-in-progress. Further, in remaining 29 ongoing jobs (having revenue of Rs.6.17 crore) in some jobs review and supervision services are also provided besides major activities on lump sum basis. Since revenue of all such activates (i.e. review and supervision) performed till 31st March, 2010 has already been booked there is no work in progress for the as well. However, the Assessing Officer proceeded to make the ad-hoc disallowance of 10% of the expenses, which was worked out at Rs.10,89,77,268/-on the ground that project wise expenses are not bifurcated.

“10. We have carefully considered the rival contentions and find that the ld AO has disallowed 10% of the total expenditure incurred by the assessee on ad hoc basis. As the assessee is engaged in providing services it recognized revenue on milestone basis. As soon as milestone is achieved the invoices have been raised, hence, it was contended by the assessee that there is not remained any work in progress at the end of the year. The ld AO asked the assessee to furnish project wise revenue and the project wise expenses which the assessee did not maintain and therefore, same was not given and on our examination of the method of accounting applied by the assessee, it appears that when the assessee has received billing as per milestone and from the milestone till the close of the year there are no expenditure identified by the ld AO then there cannot be any work in progress in the business of the assessee. The ld AO could not find out that whether there is such expenditure exists or not. It was also not found by the ld AO that the assessee has incurred substantial expenditure. If the milestone before the close of the year.As the assessee is engaged in the business of consultancy services definitely there canbe sum over lap of the expensesbetween two years. However that does not give any rise to the AO to disallowthe expenditure @10% and treatitas work in progress. We do not find any reason to deviate from this reason given by the ld CIT(A) in deleting the above disallowance. Even otherwise the order of the ld CIT(A) is reasonable as it follows the decision of the Hon’ble Bombay

High Court, we do not have any reason to deviate from the same. Accordingly ground NO. 1 of the appeal of the revenue for both the years are dismissed.” 6. Thus, respectfully following the earlier year precedents which is applicable to the facts of the present appeal also, we hold that the finding of the Ld. CIT(A) is based on correct appreciation of facts and law, therefore, the same is uphold. Accordingly, ground no.1 of the Revenue is dismissed.

Order pronounced in the open Court on 12th March, 2020.