NATIONAL PROJECTS CONSTRUCTION LTD.,NEW DELHI vs. ACIT (OSD), NEW DELHI

In the assessee’s appeal in , the following grounds have been raised:- “1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.3,66,61,812/- on account of sub contract work.

Being aggrieved the assessee carried the matter to the ld. CIT (A) and submitted that the impugned disallowance was made by the AO by assuming that it was mere a provision and did not relate to any liability. It was further submitted that the project was under construction at Ranchi Works Unit which was given on sub-contract CO No.264/Del/2014 during the year under construction and the bill of the same was submitted by the contractor on post balance sheet date and that the actual figure of work done up to 31.03.2008 had been credited for liability of the contractor by debiting the cost of project under construction at Ranchi Works Unit thereby showing an increased value of project under construction in the closing stock in the balance sheet. It was further submitted that the said liability as incurred in the previous year relevant to the assessment year under consideration and was not in the nature of capital or personal account rather the same was incurred in the normal course of business of the assessee and that the said liability had been added to the stock (business assets) of the assessee, therefore, the disallowance by assuming and ignoring the facts and submissions of the assessee was liable to be deleted. The assessee also furnished the additional evidences under Rule 46A of the Income-tax Rules, 1962 (hereinafter referred to as ‘the Rules’). The ld. CIT (A) forwarded the additional evidences to the AO by observing that during the course of assessment proceedings, the assessee asked for more time but the AO allowed time up to 30.11.2010 and the assessee could not furnish since the projects and business activities of the assessee were spread over throughout India which was managed by approximately 175 branches/units and the registered office in Delhi, therefore, collection CO No.264/Del/2014 informations from difference branches spread over different parts of India will naturally take some time.

The ld. CIT (A) admitted those additional evidences under Rule 46A (2) of the Rules. However, there was no response from the AO. The ld. CIT (A), after considering the submissions of the assessee, sustained the disallowance by observing in para 5.4.2 in the impugned order which reads as under:- “5.4.2 The above amounts were included under the head Construction & Work Expenses and debited in the P&L account under schedule J. From the transfer voucher of the Ranchi Works unit and respective details it is observed that the above liability was debited against provision for expenses on works. Therefore, it is clear that the liability did not crystallize during the previous year relevant to A Y 2008-09. In view of the above, the above liability being a provision only being debited in the P&L account, therefore, the same should have been added back in the computation of taxable income. Since, the said amount was not added back being provision, therefore, the AO is justified in making the said addition. The appeal fails in this ground.” 7. Now, the assessee is in appeal.

The ld. Counsel for the assessee submitted that all the details were furnished before the ld. CTI (A) who asked the remand report on the additional evidences but the AO did not comment on the evidences. It was further submitted that actual figure of the work done up to 31.03.2008 had been credited for liability of the contractor CO No.264/Del/2014 by debiting to the cost of project under construction at Ranchi Works Unit thereby showing an increased value of project under construction/closing value of the assets in the balance sheet. A reference was made to page no.12 of the assessee’s paper book which is a copy of the letter dated 04.01.2011 of Deputy Manager (Finance) wherein it was stated that net provision of Rs.3,66,61,812/- had to be created against the bills submitted for payment to the sub-contractors on receipt of the payments from the departments against the bills submitted at that time and that all the liabilities against the said provisions had already been cleared after receipt of the payments against the Value of Work Done (VWD) suspense account 2007-08. A reference was made to page no. 14 of the assessee’s paper book wherein gross value of VWD/suspense has been mentioned, out of which corporation margin and provision shown in the Financial Year 2006-07 as well as the net provisions has been shown. It was submitted that the gross amount was credited in the profit & loss account and the amount of net provision was included in the said overall gross VWD on which tax had been paid but neither the AO nor the ld. CIT (A) appreciated the facts in right perspective. In his rival submissions, the ld. DR supported the orders of the authorities below.

We have considered the submissions of both the parties and carefully gone through the material available on record. In the CO No.264/Del/2014 present case, it appears that the additional evidences furnished by the assessee before the ld. CIT (A) were not available to the AO, therefore, he had no occasion to examine the same during the course of assessment proceedings. However, the said additional evidences were forwarded to the AO for his comments by the ld. CIT(A) but AO did not comment and furnish the remand report. The ld. CIT (A) also did not appreciate the facts in the right perspective, particularly this submission of the assessee that the net provision shown was already included in the gross value of VWD which was credited in the profit and loss account. We, therefore, considering the totality of the facts, deem it proper to remand this issue back to the file of the AO for re-adjudication after considering the reconciliation statement furnished by the assessee, copy of which is placed at page no.18 of the assessee’s paper book, and to decide the issue in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

As regards to the cross objection No. 264/Del/2014, the ld. Counsel for the assessee submitted that he has the instruction not to press the same and gave in writing as under:- “Cross objection not pressed. Sd/-” CO No.264/Del/2014 In view of the above, the cross objection filed by the assessee is dismissed as not pressed.

In the Department’s appeal in following grounds have been raised:- “1. On the facts & in the circumstances of the case, the Ld. CIT (A) has erred in reducing the disallowance u/s 40(a)(ia) of the Act from Rs.20,69,74,740/- to Rs.1,11,83,140/-. 1.1 On the facts & in the circumstances of the case, the Ld. CIT (A) has erred in reducing the disallowance u/s 40(a)(ia) by accepting the additional evidences submitted by the assessee during appellate proceedings and not appreciating the fact that the assessee was provided many opportunities to furnish its reply and evidences.

The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee was required to deduct TDS @ 1% on account of sub-contract work expenses as per the provisions of section 194C of the Act and the quantum of sub-contract expenses worked out to Rs.20,12,78,300/- thereon TDS of Rs.20,12,783/- was not deposited to the Government account. He also noticed that the assessee failed to deduct / deposit TDS on the expenses of Rs.56,96,440/- incurred during the financial year relevant to the assessment year under consideration. He CO No.264/Del/2014 disallowed total expenses of Rs.20,69,74,740/- (Rs.56,96,440/- + Rs.20,12,78,300/-) u/s 40a(ia) of the Act.

Being aggrieved, the assessee carried the matter to the ld. CIT (A) and submitted that out of total TDS of Rs.20,12,783/- taken into account by the AO, a sum of Rs.13,78,183/- pertained to earlier years, therefore, no disallowance could have been made in respect of TDS figures which have been brought forward from earlier years. It was further submitted that a sum of Rs.4,07,901/-, which was deducted during the year, was deposited in Government account before the due date of filing the Income-tax return for the assessment year under consideration, therefore, no disallowance could have been made on this account.

The ld. CIT (A) after considering the submissions of the assessee sustained the disallowance of Rs.1,11,83,140/- by observing in para 5.2.4 of the impugned order which reads as under :- “5.2.4 It is also evident from the replies sent by the Jalpaiguri Unit that the sum of Rs.61,602/- (TRB) has been wrongly reported by the auditor as TDS not deposited. Similarly, from the replies sent by the units it is seen that Rs.81,716: Kopili and Rs. 1,529: Karbilangi is more than 15 years old. However, no explanation or reply is available in respect of TDS of Rs. 54,867: Durgapur. Therefore, disallowance of only Rs.54,86,700/- is justified on account of non deposit of TDS of Rs. 54,867/- (Durgapur). In view of the above CO No.264/Del/2014 the disallowance of sub-contract expenses of Rs. 20,12,78,300/- made by the AO u/s 40(a)(ia) on account of non-deposit of TDS is reduced to Rs. 54,86,700/-. The AO is however directed to verify whether above TDS of Rs.4,07,901/- were deposited in Government Account before the due date of filing of IT Return for A.Y 2008-09. Regarding the disallowance of Rs.56,96,440/- made by the AO u/s 40(a)(ia), no submission have been made and the same was also not pressed for by the A/R. Therefore, no adjudication is called for on this disallowance. In view of the above, the disallowance made by the AO is reduced from Rs.20,69,74,740/- to Rs.1,11,83,140/- subject to correctness of the claim that the TDS were deposited before the due date of return.”

Now, the department is in appeal.

The ld. DR supported the order of the AO and reiterated the observations made in the assessment order. In his rival submissions, the ld. Counsel for the assessee reiterated the submissions made before the ld. CIT (A) and strongly supported the impugned order.

We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it appears that ld. CIT (A) after proper verification of the details furnished by the assessee came to the conclusion that the assessee could not explain the deposit of TDS of Rs.54,867/- in respect of Durgapur unit, so disallowance of Rs.54,86,700/- was CO No.264/Del/2014 justified on account of non-deposit of TDS. He also observed that the assessee did not press for disallowance of RS.56,96,440/-. In our opinion, the ld. CIT (A) was justified in sustaining the disallowance to the extent of Rs.1,11,83,140/- (Rs.54,86,700/- + Rs.56,96,440/-). The ld. CIT (A) also directed the AO to verify as to whether TDS of RS.4,07,901/- was deposited in the Government Account before the due date of the filing of the return. We, therefore, considering the totality of the facts, do not see any valid ground to interfere with the findings given by the ld. CIT (A) on this issue in the impugned order. Accordingly, we do not see merit in this ground of the department.

The next issue vide ground no.2 to 2.2 relates to the reduction of disallowance u/s 43B of the Act of Rs.23,06,980/- to Rs.56,037/-.

The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the notes on accounts of annual report furnished by the assessee revealed that an amount of Rs.20,12,783/- was pertaining to income-tax out of the total tax liability of Rs.43,19,763/-. He disallowed a sum of Rs.23,06,980/- (Rs.43,19,763/- - Rs.20,12,783/-) on account of unpaid other tax liability u/s 43B of the Act and added the same to the income of the assessee. CO No.264/Del/2014 21. Being aggrieved, the assessee carried the matter to the ld. CIT (A) and submitted that the tax liability of Rs.9,192/- NCR, Noida was more than 10 years old, Rs.3,29,013/- Raurkela pertained to FY 1994-95, Rs.3,45,203/- Raurkela pertained to FY 1999-00, Rs.26,981/- TRB was wrong reporting, therefore, the above other tax liabilities amounting to Rs.7,29,982/- was relating to earlier years and was not required to be considered for disallowance u/s 43B of the Act. It was further submitted that the tax liability of Rs.48,130/- and Rs.624/- of DOT CRPF, Rs.624/- Passighat and Rs.27,169/- Raipur Zonal Office were deposited before the due date of filing the return, therefore, the above amount of Rs.76,547/- being deposited before the due date of filing the return should not have been disallowed. It was further submitted that a sum of Rs.14,41,770/- had been brought forward from the earlier years as was evident from the annual report for the FY 2006-07 relevant to AY 2007-08. The ld. CIT (A) accepted the aforementioned contention of the assessee. As regards to the remaining amount of Rs.56,037/- comprising of Rs.45,180/- railways and Rs.10,857/- Passighat which were deposited after due date of filing the return, the ld. CIT (A) sustained the said disallowance.

Now, the Department is in appeal. CO No.264/Del/2014 23. We have considered the submissions of both the parties and carefully perused the material available on record. In the present case, it appears that the ld. CIT (A), after proper verification, accepted the claim of the assessee, the ld. DR could not rebut the aforesaid findings of the ld. CIT (A). We, therefore, do not see any valid ground to interfere with the findings given by the ld. CIT (A). Accordingly, we do not see any merit in this ground of the Department’s appeal.

In the result, the appeal of the assessee is allowed for statistical purposes and the appeal of the department as well as cross objection of the assessee are dismissed. (Order Pronounced in the Open Court on 27/04/2017)