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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These two appeals filed by the assessee are arising out of different orders of Commissioner of Income Tax (Appeals)-42 & 34, Mumbai [in short CIT(A)], in appeal Nos. CIT(A) 42/IT-284/2014-15, CIT(A)- 34/IT/248/2011-12 dated 03.03.2016 & 26.02.2013. The Assessment were framed by the Deputy Commissioner of Income Tax, Circle-24(3) Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2009-10 vide dated 22.12.2011 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). The penalty was levied by the DCIT, Circle 24(3) under section 271(1)(c) of the Act vide order dated 19.03.2014.
The first issue in this appeal of assessee in for AY 2009-10 is against the order of CIT(A) disallowing the expenses relatable to non-deduction of TDS under section 194C of the Act and treating the transaction of sale of goods as part of works contract and thereby invoking the provisions of section 40(a)(ia) of the Act. For this assessee has raised the following ground No. 1 and 2: -
1. On the facts and the circumstances of the case & in aw the learned A.0 has erred in treating the transaction of sale of goods as part of works contract and holding that the said transaction was covered by provisions of section 194C and liable to TDS and the learned CIT(A) has erred in confirming the same.
ITAs No.4114/Mum/2016 & & 2811/Mum/2013 2. On the facts and the circumstances of the case & in law the learned. A.O. has erred in disallowing Rs. 4491845/m by invoking provisions of section 40(a)("a) of the Act and the learned CIT(A) has erred in confirming the said disallowance.”
We have heard the rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that the AO noted that the assessee has not deducted TDS in respect of sale transactions being part of work contract amounting to Rs. 44,91,845/-. According to AO the assessee has not deducted TDS. The AO also noted that although the assessee has debited the TDS of Rs. 1,02,040/- and paid this amount before the due date of return of income but balance amount of TDS of Rs. 46,260/- remained unpaid till the due date of filing of return of income under section 139(1) of the Act. Therefore, the AO disallowed the expenses corresponding to non-paid TDS of Rs. 46,266/- which worked out to Rs. 44,91,845/-. The CIT(A) also confirmed the action of the AO. Aggrieved, assessee in appeal before Tribunal.
At the outset, the learned Counsel for the assessee raised the additional ground that the assessee has filed additional evidences in form No. 26A establishing that the payee has filed its return of income and paid the tax due thereon on the said income arising out of the receipts of the contract and filed form No. 26A along with Annexure as provided in Rule 31ACB of the Income Tax Rules, 1962 in respect of sale of equipments. It was contended by the learned Counsel for the assessee that in view of insertion of second proviso to section 40(a)(ia) of the Act by the Finance Act, 2011, which is curative by nature, the assessee’s claim of contract payment of Rs. 44,91,845/- is not be disallowed. The learned Counsel for the assessee stated that this issue has been decided ITAs No.4114/Mum/2016 & & 2811/Mum/2013 by Hon’ble Delhi High Court in the case of CIT vs. Ansal Landmark Township Pvt. Ltd. 279 CTR 384 (Delhi), wherein the second proviso to section 40(a)(ia) of the Act is held to be declaratory and curative and as retrospective with effect from 01.04.2005. Even the CBDT vide Circular No. 1 of 2015 dated 21.01.2015 explained the provisions of Finance No. 2 Act 2014 by which provisions of section 40(a)(ia) of the Act were clarified.
When a query was put to the learned Sr. DR, he could not controvert the above proposition. After hearing both the sides and going through the facts that the assessee has filed form No. 26A before us for the first time as additional evidence which need verification. In case the payee has included the said income in his return of income and paid the tax due thereon, there will be no disallowance under section 40(a)(ia) of the Act in the case of the assessee. Hence, we admit this issue and direct the AO to verify the same. We find that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Delhi High Court in the case of Ansal Landmark Township Pvt. Ltd. (supra), the AO will delete this disallowance after verifying the facts. Needles to say, the issue being covered in favour of assessee, we need not adjudicate this issue on merits.
The second issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making addition on account of revaluation of closing work-in-progress as on 31.03.2009 amounting to Rs. 37,81,174/-. For this assessee has raised the following ground No. 3(a) to 3(d): - “3(a) On the facts and in the circumstances of the case ad in law the learned A.O. has erred in ITAs No.4114/Mum/2016 & & 2811/Mum/2013 resorting to revaluation of closing WIP on 31.3.2009 and rejecting the method of valuation of the closing stock i.e. closing WIP, regularly followed by the appellant from-year to year.
3(b) On the facts and in the circumstances of the case ad in law the learned A.O. has erred in adding Rs. 3781174 to the income of the appellant on account of alleged undervaluation of closing WIP 31.03.2009 and, the learned CIT(A) has' erred in confirming the said addition.
3(c) "Without prejudice to Ground of Appeal No. 3(a) & 3(b) and on the facts and in the circumstances of the case ad in law the learned A.O. has erred in calculating the addition at ₹ 3781174/- being addition @ 7% on WIP valued at cost of ₹ 43964726/- which correctly works out to ₹ 3077530/- and the learned CIT(A) has erred in confirming the said addition.
3(d) "Without prejudice to Ground of appeal No. 3(a)(b)(c) and on the facts and in the circumstances of the case and in law the learned A.O. has erred in not carrying out corresponding revaluation of opening stock i.e. opening WIP on 01.04.2008 before resorting to revaluation of the closing stock i.e. closing WIP to arrive at the correct income of AY 2009-10.”
7. Briefly stated facts are that the AO noted during the course of assessment proceedings that there is a different in contract receipts as per AIR information and that what the assessee declared contract receipt ITAs No.4114/Mum/2016 & & 2811/Mum/2013 in the return of income. The assessee filed party wise reconciliation of contract receipts as per profit and loss account in the books of the assessee and receipts as per AIR data. The AO noted that the margin of profit worked out by the assessee on the cost incurred during the year was on estimate basis and assessee has worked out the closing work in progress at ₹ 4,79,42,033/- which includes cost of purchase and labour totaling to ₹ 4,39,64,726/-. Accordingly, the profit worked out was ₹ 39,77,307/-. The AO noted that the profit element in the value of closing work in progress worked out at 8.30% of total value of work in progress and cost of work in progress in term of percentage is 9.04%. The AO noted that the assessee has already debited the direct expenses relating to all the jobs carried within the year, receipts relating to which is either credited to the profit and loss account or it is lying in closing work in progress. The AO also noted that the assessee has worked out gross profit of ₹ 1,66,13,752/- on sales plus closing work in progress. He noted that the assessee after reducing the gross profit of ₹ 39,77,307 on closing work in progress, gross profit on the sale was declared at ₹ 7,42,51,835/- and reported during the year, which worked out at ₹ 1,26,36,445/-. The AO noted that the gross profit rate on the sales reported by the assessee is 17.02% as against the gross profit rate of 8.30 percent included by the assessee while working out closing work in progress. Accordingly, the AO noted that the gross profit already mentioned above in respect of sales reported during the year is around 17% whereas the gross profit included in the closing work in progress is only 8%. Hence, the AO estimated the profit in closing work in progress at 15% as against 8% estimated by the assessee. Accordingly, the AO made addition by applying 7% of profit on work in progress, which comes to ₹ 37,81,174/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO by observing in Para 4.3 and 4.4 as under: - ITAs No.4114/Mum/2016 & & 2811/Mum/2013 “4.3. I have carefully considered the impugned assessment order and the submissions of the appellant above. TDS was duly deducted by the payer on the entire contract which is evident from the TDS certificate. The appellant had debited the entire indirect expenses relating to the jobs carried out during the year and similarly the entire receipts are admitted either as income credited to the P & L A/c. or to the closing WIP, The Assessing Officer has arrived at gross profit of 17.02%. According to the Assessing Officer, entire expenditure for all the contract taken during the year is debited and at the same time all the payments were also received and hence practically there is no WIP, The Assessing Officer was of the view that the Gross profit of 170/o should have been equally distributed between the receipts admitted as income and receipts embedded in closing WIP. By admitting lesser profit the appellant had definitely suppressed the closing WIP. I am not in agreement with the Authorized Representative that because final bill raised was not approved a portion of the receipts were taken to the WIP. Hence the Assessing Officer is justified in adding 15% gross profit to the WIP and to this extent the appellant had tried to suppress the valuation of the closing WIP. The action of the Assessing Officer is upheld.
4.4. It is the contention of the appellant that the closing WIP has been arrived at as per the AS 7. As mentioned already, the proprietary concern of the appellant M/s VAV Air conditioners is engaged in ITAs No.4114/Mum/2016 & & 2811/Mum/2013 the business of procuring contract for installation and commissioner of Air Conditioner and ventilation system. As 7 is applicable only to construction contract and hence the same is not applicable to the business of the appellant. In view of this, the claim that AS 7 is applicable is not tenable.”
Aggrieved, now assessee is in appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the AO has not recorded any adverse finding in regard to correctness and completeness of the books of account of the assessee even though the assessee has filed complete details in respect of closing work in progress. During the course of assessment proceedings even job wise breakup of closing work in progress was submitted by the assessee. The assessee also before the AO and even before CIT(A) and even now before us contended that the assessee is following the method of valuing his closing stock i.e. work in progress consistently from year to year basis by ascertaining and accumulating the direct cost and other identifiable expenses and adding the same to realizable profit as on 31st March of every year having due regard to the progress of the relevant job. The assessee has filed the detailed working relating to opening work in progress and subsequent bills raised in respect of opening WIP or closing WIP during the appellant proceedings before CIT(A). We noted that despite assessee’s details filed before AO, the AO could not pointed out any mistake in the books of accounts or any discrepancy and no books of accounts were ever rejected by the AO while applying the profit rate to the work in progress. Even otherwise, we noted that the assessee is following the method of accounting consistently and it is followed consistently year after year by ITAs No.4114/Mum/2016 & & 2811/Mum/2013 ascertaining and accumulating the direct cost such as material cost, labour and other identifiable expenses directly relating to a particular ongoing job as on the last day of the accounting year. We also noted that the work in progress followed at cost + net profit so as to bring the contract revenue for the period lying with the requirement of accounting standard AS 7 as prescribed by ICAI and adopted by assessee as per section 145 of the Act. In such circumstances, we are of the view that the AO and CIT(A) has wrongly made adhoc addition, which we delete. This issue of assessee’s appeal is allowed in term of the above.
Coming to AY 2009-10, which is in regard to levy of penalty by AO and confirmed by CIT(A) under section 271(1)(c) of the Act in respect of addition made by AO on work in progress on adhoc basis. For this assessee has raised the following ground: - “
1. On the facts and in the circumstances of the case in law the learned Assessing Officer has erred in holding and the learned CIT(A) has erred in confirming that the appellant had furnished inaccurate particulars of income thereby concealing the particulars of income with relation to the method of valuation of the work in progress as on 31.03.2009.
2. On the facts and in the circumstances of the case & in law the learned Assessing Officer has erred in levying and the learned CIT(A) has erred in confirming penalty of ₹ 1344140/- under section 271(1)(c) on the appellant for furnishing income for AY 2009-10. 10 ITAs No.4114/Mum/2016 & & 2811/Mum/2013
3. On the facts and in the circumstances of the case & in law the learned Assessing Officer has erred in not holding in abeyance penalty proceedings in the case of the appellant till the disposal of the appeal of the appellant filed against the assessment order u/s. 143(1) and against the order of the CIT(A) which Honorable ITAT and which is pending disposal for AY 2009-10.”
10. At the outset, it is to be mentioned that we have already deleted the addition of work in progress while deciding the quantum appeal of the assessee. Hence, this penalty will not survive. This penalty is deleted.
In the result, both the appeals of the assessee are allowed in term of the above.
Order pronounced in the open court on 24.05.2019. (एन. के. प्रधान/ NK PRADHAN) (महावीर ससंह /MAHAVIR SINGH) (लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER) मुंबई, ददनांक/ Mumbai, Dated: 24.05.2019. दीप रकार, व.यनजी धिव / Sudip Sarkar, Sr.PS