Asstt.CIT Cir.1, Nashik V. M/s.Dream Construction, Nashik

ITA 1013/PUN/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9729 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 21-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Keywords: Depreciation; Opportunity of being heard; Revised return
• Section: 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1013/PN/2009 (ASSESSMENT YEAR 2005-06) ACIT, CIRCLE-1, NASHIK .. APPELLANT VS. M/S. DREAMS CONSTRUCTIONS, S-1, JEHAN PLAZA, NEAR JEHAN CIRCLE, RAMNAGAR, GANGAPUR ROAD, NASHIK. .. RESPONDENT PAN NO.AAEFD 4590N CO.NO.01/PN/2011 ASSESSMENT YEAR 2005-06 M/S. DREAMS CONSTRUCTIONS, S-1, JEHAN PLAZA, NEAR JEHAN CIRCLE, RAMNAGAR, GANGAPUR ROAD, NASHIK. .. APPELLANT PAN NO.AAEFD 4590N VS. ACIT, CIRCLE-1, NASHIK .. RESPONDENT ASSESSEE BY : SRI NIKHIL PATHAK DEPARTMENT BY : SRI Y.K. BHASKAR DATE OF HEARING : 07-08-2012 DATE OF PRONOUNCEMENT : 23-08-2012 ORDER PER R.K. PANDA, AM : THE APPEAL FILED BY THE REVENUE AND THE CO FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 30-01-2009 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2005-06. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF BUILDING CONSTRUCTION. DURING T HE PERIOD UNDER CONSIDERATION THE ASSESSEE HAD CARRIED OUT CONSTRUCTION OF R.S. LUTH EDUCATION TRUST, NASHIK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS 2 VIOLATED THE PROVISIONS OF SECTION 194C AND THEREFO RE THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ON ACCOUNT OF THE FOLLOWIN G : PAYMENTS ON WHICH TAX IS NOT DEDUCTED AND PAID 1. AUDIT FEES PAID TO MR. S.D. MALPATHAK C.A. RS . 25,000/- 2. SECURITY CHARGES PAID TO TOPS SECURITY LTD. R S. 3,73,597/- 3. MR. KULKARNI P.G. R.C.C. CONSULTANT RS. 8,775/- ------------------- RS. 4,07,372/- ------------------- OUTSTANDING PAYMENT ON WHICH TAX WAS NOT DEDUCTED (AS DEDUCTED ON PAYMENT BASIS) 4. BHATE RAJE AND CONSTRUCTION CO. PVT. LTD. SUB C ONTRACTOR RS. 49,73,264/- 5. JYOTI CONSTRUCTIONS SUB CONTRACTOR RS.30,8 3,096/- 6. RAAJ CONSTRUCTIONS SUB CONTRACTOR RS.23,22 ,657/- --------------------- RS.1,03,79,017/- --------------------- PAYMENTS ON WHICH TAX IS DEDUCTED AND PAID LATE AFT ER 31-03-2005 7. BHATE AND RAJE CONSTRUCTION CO. PVT. LTD. RS. 11,00,000/- 8. SHINDE KHATRI AND ASSOCIATES RS.10,00,000/- 9. PRAMOD G. KULKARNI RS. 30,000/- 10. X-L ENTERPRISES RS. 50,00 0/- ------------------------ RS. 21,80,000/- ------------------------- TOTAL RS. 1,29,66,389/- ------------------------- 2.1 THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 40(A)(IA) SHOULD NOT BE INVOKED. IT WAS EX PLAINED BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE UNCONSTITUTIONA L, THAT THE PAYMENTS BY THE ASSESSEE HAVE ALREADY BEEN SHOWN AS INCOME BY PAYEE S AND TAXES ON INCOME HAS BEEN PAID, THAT THE WORK WAS EFFECTIVELY CARRIED OU T BY THE TRUST AND THAT THE OUTSTANDING PAYMENTS TO CONTRACTORS REPRESENT WORK -IN-PROGRESS SHOWN IN THE AUDITED INCOME AND EXPENDITURE ACCOUNT ON CREDIT SI DE AND HAS NOT BEEN DEBITED AS AN EXPENDITURE. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE HIM AND REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE THE AO MADE A DDITION OF RS. 1,29,66,389/- U/S. 40(A)(IA) OF THE INCOME TAX ACT. 3 3. IN APPEAL THE LEARNED CIT(A) AFTER CONSIDERING T HE REMAND REPORT FROM THE AO AND THE SUBMISSION OF THE ASSESSEE DELETED THE D ISALLOWANCE OF THE EXPENDITURE OF RS. 1,03,79,000/- MADE U/S. 40(A)(IA) OF THE AC T BEING OUTSTANDING PAYMENT ON WHICH TAX WAS NOT DEDUCTED AND WHICH HAS BEEN SHOWN AS WORK IN PROGRESS. HE HOWEVER SUSTAINED THE DISALLOWANCE ON ACCOUNT OF PA YMENTS ON WHICH TAX HAS BEEN DEDUCTED AND PAID AFTER 31-03-2005 TOTALLING TO RS. 21,80,000/- AND THE PAYMENTS ON WHICH TAX HAS NOT BEEN DEDUCTED AND PAID AMOUNTI NG TO RS. 4,07,373/-. 3.1 AGGRIEVED WITH SUCH RELIEF BY THE ASSESSEE THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A)-II, NASHIK HAS ERRED IN DELETING THE ADDITION OF RS. 1,03,79,0 00/- MADE BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A)-II, NASHIK HAS ERRED IN IGNORING THE OBSERVATION OF THE AO THA T THE REVISED RETURN OF INCOME ALONG WITH REVISED TAX AUDIT REPORT AND INCOME AND EXPENDITURE ACCOUNT FILED BY THE ASSESSEE ON 01-10-2007 IS TIME BARRED AND ALSO IS AN AFTER THOUGHT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A)-II, NASHIK HAS ERRED IN TAKING COGNIZANCE OF THE REVISED RETUR N FILED MUCH AFTER THE PRESCRIBED 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A)-II, NASHIK HAS ERRED IN HOLDING THAT AN AMOUNT OF RS. 1,03,79, 000/- AMOUNTED TO WORK-IN- PROGRESS EVEN THOUGH SALE BILLS HAVE BEEN ISSUED IN RESPECT OF THE SAME. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A)-II, NASHIK HAS ERRED IN BELIEVING THAT THERE WAS WIP OF RS. 1, 03,79,000/- EVEN WHEN THE ASSESSEE HAD ISSUED THE RUNNING BILLS OF RS. 9,50,0 0,000/-. 3.2 THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTION CHALLENGING THE AMOUNT SUSTAINED BY THE CIT(A) WITH THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS. 25,51,372/- U/S.40(A)(IA) OF THE ACT WITHOUT APPRECIATING THAT THE DISALLOWANCE WAS NOT WARRANTED. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT AS PER LAW, THE DISALLOWANCE U/S.40(A)(IA) WAS NOT WARRANTED AND HENCE, THE ADDI TION SHOULD HAVE BEEN DELETED. 4 4. THE LEARNED DR HEAVILY RELIED ON THE ORDER OF TH E AO. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND FAIRLY CONCEDED THAT THE PAYMENTS ON WHICH TAX HAS NOT BEEN DEDUCTED AND PAID AMOUNTING TO RS. 4,0 7,372/- HAS TO BE DISALLOWED SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. SO FAR AS THE AMOUNT OF RS. 21,80,000/- IS CONCERNED BEING PAYMENTS ON WHICH TA X HAS BEEN DEDUCTED AND PAID LATE, I.E. AFTER 31-03-2005 HE SUBMITTED THAT ALTHO UGH SUCH TAX HAS BEEN DEDUCTED AND PAID AFTER 31-03-2005 BUT THE SAME HAS BEEN PAI D BEFORE THE DUE DATE OF FILING OF THE RETURN. REFERRING TO PAGE NO. 38 OF THE PAP ER BOOK HE SUBMITTED THAT THE TAX SO DEDUCTED HAS BEEN DEPOSITED TO THE CREDIT OF THE CENTRAL GOVERNMENT ON 09-07- 2005 WHICH IS MUCH BEFORE THE DUE DATE OF FILING OF THE RETURN WHICH IN THE INSTANT CASE IS 31-10-2005. REFERRING TO THE DECISION OF T HE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. H.A. DEVELOPERS VIDE ITA NO. 3 73/PN/2009 ORDER DATED 27- 04-2012 FOR A.Y. 2005-06 HE SUBMITTED THAT THE TRIB UNAL IN THE SAID DECISION, FOLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS, HAS HELD THAT AMENDMENT TO THE PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT 2010 IS RETROSPECTIVE FR OM 01-04-2005. CONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE DURING PREVIO US YEAR RELEVANT TO AND FROM ASSESSMENT YEAR 2005-06 CAN BE MADE TO THE GOVERNME NT ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S. 40(A)(IA) OF TH E INCOME TAX ACT. SINCE IN THE INSTANT CASE THE ASSESSEE HAS DEPOSITED THE TAX SO DEDUCTED WELL BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME, THEREFORE, NO DISA LLOWANCE U/S. 40(A)(IA) IS CALLED FOR. 5. SO FAR AS THE RELIEF GIVEN BY THE CIT(A) ON ACCO UNT OF AMOUNT OF RS. 1,03,79,017/- BEING OUTSTANDING PAYMENT ON WHICH TA X WAS NOT DEDUCTED AND WHICH REPRESENTS THE WORK-IN-PROGRESS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SAV ALA ASSOCIATES VS. ITO 5 REPORTED IN 35 SOT 148. HE ACCORDINGLY SUBMITTED T HAT ONLY AN AMOUNT OF RS. 4,07,372/- CAN BE SUSTAINED AND THE PROVISIONS U/S. 40(A)(IA) ARE NOT ATTRACTED TO THE BALANCE PAYMENTS. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. SO FAR AS THE PAYMENTS ON WHICH TAX HAS NOT BEEN DEDUCTED AND PAID BEING ITEM NOS. 1, 2, AND 3 AT PARA 2 OF THIS ORDER AMOUNTING TO RS. 4,07 ,372/-, WE FIND ADMITTEDLY THE ASSESSEE HAS NEITHER DEDUCTED ANY TAX NOR PAID THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT. THE LEARNED COUNSEL FOR THE ASSESSEE H AS ALSO FAIRLY CONCEDED THAT THE SAME HAS TO BE DISALLOWED IN VIEW OF THE VIOLATION OF PROVISIONS OF SECTION 40(A)(IA). THEREFORE, THE AMOUNT OF RS. 4,07,372/- IN OUR OPINION HAS TO BE SUSTAINED. 7. SO FAR AS THE PAYMENTS ON WHICH TAX HAS BEEN DED UCTED AND PAID AFTER 31-03- 2005 IN CASE OF THE FOUR PARTIES MENTIONED AT SL.NO .7 TO 10 OF PARA 2 OF THIS ORDER TOTALLING TO RS. 21,80,000/- WE FIND FROM THE DETAI LS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK THAT THE TAX SO DEDUCTED HAS BEEN PAID O N 09-07-2005 AND FOR WHICH CHALLANS ARE PLACED IN THE PAPER BOOK AT PAGE 39. THE LEARNED DR ALSO COULD NOT CONTROVERT THE DATE OF PAYMENT WHICH IS 09-07-2005 . WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF H.A. DEVELOPERS (SUPRA) HAS HELD THAT AMENDMENT TO THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BY T HE FINANCE ACT 2010 IS RETROSPECTIVE FROM 01-04-2005. CONSEQUENTLY ANY PA YMENT OF TAX DEDUCTED AT SOURCE DURING PREVIOUS YEAR RELEVANT TO AND FROM AS SESSMENT YEAR 2005-06 CAN BE MADE TO THE CENTRAL GOVERNMENT ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S. 139(1) OF THE INCOME TAX ACT. SINCE IN THE INSTANT CASE THE ASSESSEE ADMITTEDLY HAS DEPOSITED THE TAX DEDUCTED AT SOURCE ON 09-07-05 AND THE DUE DATE 6 OF FILING THE RETURN IN THE INSTANT CASE BEING 31-1 0-2005, THEREFORE, IN VIEW OF THE DECISION CITED (SUPRA) NO DISALLOWANCE U/S. 40(A)(I A) CAN BE MADE. THE GROUNDS IN THE CO FILED BY THE ASSESSEE ARE ACCORDINGLY ALL OWED. 8. NOW COMING TO THE OUTSTANDING PAYMENT ON WHICH T AX WAS NOT DEDUCTED WE FIND THE ASSESSEE HAS NOT DEDUCTED TAX ON ACCOUNT O F THE PAYMENTS TO THE FOLLOWING PARTIES. BHATE RAJE AND CONSTRUCTION CO. PVT. LTD. SUB CONTR ACTOR RS. 49,73,264/- JYOTI CONSTRUCTIONS SUB CONTRACTOR RS.30,83,0 96/- RAAJ CONSTRUCTIONS SUB CONTRACTOR RS.23,22,65 7/- ----------------------- RS. 1,03,79,017/- ----------------------- WE FIND THE CIT(A) DELETED THE ADDITION MADE BY THE AO U/S. 40(A)(IA) ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED THE ABOVE AMOUNT AS DEDUCTION IN COMPUTATION OF INCOME OF THE FIRM AND THE SAID AMOU NT IS REFLECTED UNDER THE HEAD WORK IN PROGRESS AND HAS BEEN SHOWN UNDER THE HEA D LOANS AND ADVANCES IN THE BALANCE SHEET. ACCORDING TO HIM THOUGH TECHNIC ALLY THERE IS A DEFAULT IN NOT DEDUCTING THE TAX, HOWEVER, THIS WOULD NOT LEAD TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT AUTOMATICALLY SINCE THE AMOUNT OF WORK-IN-P ROGRESS WAS NOT CLAIMED AS DEDUCTION. 9. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SAVALA ASSOCIATES VS. ITO REPORTED IN 35 SOT 148 HAS HELD THAT WHERE THE ASSESSEE IS ENGAGED IN CONSTRUCTION OF BUILDINGS FOLLOWING COMPLETED CONTR ACT METHOD AND MAJOR PORTION OF THE EXPENDITURE IS CAPITALISED UNDER THE HEAD W ORK IN PROGRESS AND NOT CLAIMED AS EXPENDITURE IN THE P&L ACCOUNT, NO DISALLOWANCE CAN BE MADE BY THE AO U/S.40(A)(IA) FOR NON DEDUCTION OF TDS ON ACCOUNT O F SUCH EXPENDITURE WHICH HAD BEEN SHOWN UNDER THE HEAD WORK IN PROGRESS AND IF NO MISTAKES WERE DETECTED BY 7 THE AO IN SUCH WORK IN PROGRESS COMPUTATION. THE R ELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 6.2 OF THE ORDER READS AS UNDER : 6.2 THE ABOVE PROVISION IS RELATED TO AMOUNT NOT D EDUCTIBLE WHILE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION. BASICALLY, INCOME CHARGEAB LE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES, BE COMPUTED IN ACCORDANCE WITH CASH OR MERCANTILE S YSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. RECOGNITION/ID ENTIFICATION OF INCOME UNDER THE IT ACT IS ATTAINABLE BY SEVERAL METHODS O F ACCOUNTING CONSIDERING THE NATURE OF BUSINESS ACTIVITIES. IT MAY BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE OF THE ACCOUNTING METHODS. COMPLETED CONTRACT METHOD IS ONE SUCH METHOD. SIMILARLY, PERCENTAGE OF COMPLETION METHOD IS ANOTHER SUCH METHOD. UNDER THE COMPLETED CONTR ACT METHOD, THE REVENUE IS NOT RECOGNISED UNTIL THE CONTRACT IS COM PLETE. UNDER THE SAID METHOD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONTRACT PERIOD. AS PER THE ACCEPTED ACCOUNTING PRINCIPLE, IT IS ACCUMU LATED UNDER ONE HEAD OF ACCOUNT, WORK-IN-PROGRESS. THE PROJECT CONSTITUT ED THE STOCK-IN-TRADE OF THE ASSESSEE. THE PROJECT DID NOT CONSTITUTE A FIX ED ASSET OF THE ASSESSEE. IN THE LAST ACCOUNTING PERIOD WHEN WORK IS COMPLETED, THE P&L A/C IS PREPARED, THAT WORK-IN-PROGRESS ACCOUNT IS TO BE TRANSFERRE D IN P&L A/C. THUS, THE COMPLETED CONTRACT METHOD DETERMINES PROFITS/LOSS ONLY WHEN CONTRACT IS COMPLETED. NOW QUESTION ARISES HOW THE PROFIT IS T O BE CALCULATED IN CASE OF COMPLETED CONTRACT METHOD. ONE OF THE IMPORTANT ASPECTS TO BE SEEN IS COST INCURRED BY A CONTRACTOR WHICH CAN BE DIVIDED INTO COST THAT RELATE DIRECTLY TO A SPECIFIC CONTRACT; COST THAT CAN BE A TTRIBUTED TO THE CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFI C CONTRACTS AND COSTS THAT RELATE TO THE ACTIVITIES OF THE CONTRACTOR GENERALL Y, OR THAT RELATE TO CONTRACT ACTIVITY BUT CANNOT BE RELATED TO SPECIFIC CONTRACT S. EXAMPLES OF COSTS THAT RELATE DIRECTLY TO A SPECIFIC CONTRACT INCLUDE: SIT E LABOUR COSTS, INCLUDING SUPERVISION; MATERIALS USED FOR PROJECT CONSTRUCTIO N; DEPRECIATION OF PLANT AND EQUIPMENT REQUIRED FOR A CONTRACT; COSTS OF MOV ING PLANT AND EQUIPMENT TO AND FROM A SITE. EXAMPLES OF COSTS THAT CAN BE ATTRIBUTED TO THE CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFI C CONTRACTS INCLUDE: INSURANCE; DESIGN AND TECHNICAL ASSISTANCE; CONSTRU CTION OVERHEADS. EXAMPLES OF COSTS THAT RELATE TO THE ACTIVITIES OF THE CONTRACTOR GENERALLY, OR THAT RELATE TO CONTRACT ACTIVITY BUT CANNOT BE RELA TED TO SPECIFIC CONTRACTS, INCLUDE: GENERAL ADMINISTRATION AND SELLING COSTS; FINANCE COSTS; RESEARCH AND DEVELOPMENT COSTS; DEPRECIATION OF PLANT AND EQ UIPMENT THAT CANNOT BE ALLOCATED TO A PARTICULAR CONTRACT. IN CASE OF CO MPLETED CONTRACT METHOD, THE ABOVE EXPENSES RELATED TO INDIVIDUAL PROJECT HA VE TO BE CAPITALIZED IN WORK-IN-PROGRESS WHICH IS SIMILAR TO STOCK-IN-TRADE , OF RESPECTIVE INDIVIDUAL PROJECT. OPENING BALANCE OF WORK-IN-PROGRESS OF IN DIVIDUAL PROJECT WILL GO UP IN THE RELEVANT YEAR. WHEN THESE PROJECTS WERE COMPLETED, IN THAT YEAR, INCOME HAS TO BE COMPUTED AFTER CONSIDERING INCREAS ED OPENING WORK-IN- PROGRESS AND RECEIPTS OF THE RELEVANT PERIOD. ACCO RDINGLY, IN THE YEAR WHEN THESE PROJECTS WERE COMPLETED, INCOME ON ACCOUNT OF THOSE PROJECTS IS TO BE COMPUTER AFTER CONSIDERING INCREASED OPENING BALANC E OF WORK-IN-PROGRESS DUE TO ADDITION OF EXPENSES FOR THE PERIOD OF PROJE CT IN WORK-IN PROGRESS. CONTRARY, IF CERTAIN EXPENDITURES ARE NOT ALLOWABLE UNDER THE ACT, THE WORK- IN-PROGRESS WILL NOT INCREASED BY THAT AMOUNT. SUC H EXPENSES ARE TO EXCLUDE FROM THE WORK-IN-PROGRESS IF SAME WERE INCLUDED BY THE ASSESSEE. FOR THE 8 ABOVE PURPOSES, THE AO HAS TO EXAMINE THE WORK-IN-P ROGRESS ACCOUNT IN EACH ASSESSMENT YEAR. IF ON EXAMINATION THE AO DID NOT FIND ANY MISTAKE IN WORK-IN-PROGRESS ACCOUNT THEN SAID WORK-IN-PROGRESS IS TO BE CARRIED FORWARD IN THE NEXT YEAR AND SO ON TILL COMPLETION OF PROJECT. IF ON EXAMINATION, THE AO FOUND THAT THE WORK-IN-PROGRESS SHOWN IN BOOKS OF ACCOUNT IS NOT CORRECT, THE AO IS EMPOWERED TO CORR ECT THE SAME. IN OTHER WORDS, IT CAN BE SAID THAT WORK-IN-PROGRESS IS JUST LIKE ONE SIDE OF P&L A/C, I.E., DEBIT SIDE, THE AO CAN HAVE ALL POWERS TO EXA MINE THIS DEBIT SIDE OF P&L A/C INCLUDING THE POWER OF EXAMINATION OF ALLOWABIL ITY/DISALLOWABILITY OF EXPENDITURE UNDER S. 40(A) OF THE ACT. IN THE CASE UNDER CONSIDERATION, WE FIND THAT THE AO HAS RIGHTLY NOTED THAT THE EXPENDI TURE CLAIMED BY THE ASSESSEE WHICH ARE SUBJECT TO TDS LIABILITY BUT TDS WAS NO PAID IN TIME; THEREFORE THESE WERE DISALLOWABLE UNDER S. 40(A). IN PRINCIPLE WE AGREE WITH ABOVE VIEW OF REVENUE THAT IN CASE OF COMPLETED CO NTRACT METHOD THE AO IS EMPOWERED TO EXAMINE THE EXPENDITURES INCURRED D URING THE YEAR WHICH INCREASES THE OPENING WORK-IN-PROGRESS OR ADDITION IN WORK-IN-PROGRESS. BUT WE DO NOT AGREE WITH THE VIEW OF REVENUE THAT A DDITION IS TO BE MADE IN TOTAL INCOME, IF SOME EXPENDITURE WERE FOUND NOT AL LOWABLE. THE CORRECT PROCEDURE IN COMPLETED CONTRACT METHOD IS THAT IN STEAD OF MAKING ADDITION, THE AO SHOULD CORRECT THE AMOUNT OF WORK- IN-PROGRESS BY REDUCING OR ENHANCING WORK-IN-PROGRESS AS THE CASE MAY BE. SUCH CORRECTED WIP WILL BE FINALLY CONSIDERED IN P&L A/C/CONTRACT ACCOUNT F OR THE YEAR IN WHICH WORK IS COMPLETED. THE RESULT OF CALCULATION OF CO RRECT PROFIT IN CASE OF COMPLETED CONTRACT METHOD COULD BE ATTAINED BY TH IS PROCEDURE. IN THE CASE UNDER CONSIDERATION, THE AO MADE ADDITION IN A LL THE PROJECTS INCLUDING INCOMPLETE PROJECTS, WHICH IS NOT WARRANTED. SUCH ADDITION IN TOTAL INCOME IS WARRANTED ONLY IN RESPECT OF PROJECT WHICH IS CO MPLETED DURING THE YEAR. THE LEARNED AUTHORISED REPRESENTATIVE HAS CONCEDED THE ADDITIONS IN RESPECT OF COMPLETED WORKS. NECESSARY CALCULATION IS REQUIRED AFTER VERIFICATION FROM ORIGINAL RECORD. THE ORIGINAL R ECORD IS NOT READILY AVAILABLE AT THIS STAGE UNDER THE CIRCUMSTANCES WE SEND BACK THIS MATTER TO THE FILE OF THE AO WITH DIRECTION TO DELETE THE ADD ITIONS MADE IN TOTAL INCOME IN RESPECT OF INCOMPLETE PROJECTS. HOWEVER, THE AD DITION IN RESPECT OF COMPLETED PROJECT IS TO CONFIRM SUBJECT TO VERIFICA TION OF CALCULATION OF THE AMOUNT. THE AO IS FURTHER DIRECTED TO CORRECT THE AMOUNT OF WORK-IN- PROGRESS OF INCOMPLETE WORKS/PROJECTS IN ACCORDANCE WITH THE ABOVE DISCUSSION AND AFTER PROVIDING OPPORTUNITY OF HEARI NG TO THE ASSESSEE. 9.1 HOWEVER, THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AMOUNT ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE ONLY REPRESENTS THE WORK IN PROGRESS HAS NOT BEEN VERIFIED BY THE AO OR CIT(A). THE CIT(A) HAS SIMPLY ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE OU TSTANDING AMOUNT ON WHICH TAX HAS NOT BEEN DEDUCTED REPRESENTS WORK-IN-PROGRESS. WE, THEREFORE, DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A D IRECTION TO VERIFY THE NATURE OF WORK IN PROGRESS AS TO WHETHER THE SAME REPRESENTS THE EXPENDITURE ON WHICH NO 9 TAX HAS BEEN DEDUCTED OR IT ALSO INCLUDES THE EXPEN DITURE ON WHICH TAX HAS BEEN DEDUCTED AND PAID LATE OR TAX HAS BEEN DEDUCTED AN D DEPOSITED. WE ACCORDINGLY RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRE CTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION CITED (SUPRA) AND IN ACCO RDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY ALLOW ED FOR STATISTICAL PURPOSES AND THE CO FILED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CO FILED BY THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 23 RD DAY OF AUGUST 2012 SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 23 RD AUGUST 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, NASHIK 4. CIT(A)-II, NASHIK 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE