Assessee following POCM liable to deduct TDS instead of making provisions

Assessee following POCM liable to deduct TDS instead of making provisions

In a recent judgment, the ITAT Delhi has held that once the assessee claims that while following percentage of completion method at 100% of the revenue of the project has been recognized, it was incumbent to also account, expenditures by deducting TDS instead of making provisions.

ABCAUS Case Law Citation:
ABCAUS 4069 (2024) (06) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance made by the Assessing Officer (AO) u/s 40(a)(ia)/u/s 43B of the Income Tax Act, 1961 (the Act).

The return of the assessee was selected for complete scrutiny and during the course of assessment proceedings, Assessing Officer examined the expenses debited in P&L Account.

The Assessing Officer observed that assessee was following percentage method of accounting in respect of construction business being done by him. The Assessing Officer taking into consideration that completion certificate were received, inter alia made disallowance on account of non deduction of TDS.

The CIT (Appeals) observed in his order as to what weighed the disallowance made and reconsidered appropriate as follows:

Before the Tribunal, the assessee submitted that the only question to be determined was whether when following and accepted method of accounting which is Percentage of Completion Method (POCM) Method in this case, the assessee estimated and made accounting provisions towards the unfinished work, the provisions of TDS under Section 40(a)(ia) of the Act were attracted or not?

It was submitted that on the date of estimating the remaining costs to be incurred on the project which was treated to be completed and in respect of which 100% of the revenue had been recognized, such estimates cannot be subjected to TDS and provisions because neither the payee nor the assessee can calculate the exact amount.

Relying upon judicial verdicts it was submitted that no assessee can be compelled to do the impossible. It was submitted that the CIT (Appeals) had accepted the fact that assessee was consistently following system of accounting then the disallowance made by the CIT (Appeals) was not sustainable.

The Tribunal observed that CIT (Appeals) keeping in mind the provisions of section 40(a)(ia) of the Act, examined the details furnished by the assessee with regard to the nature of work for which provisions were made and derived the gross amount which was liable for a tax deduction at source under provisions of section 194C of the Act and held that 30% of these expenses was liable to be sustained for the reason that TDS was not deducted.

The Tribunal opined that there was no error in the findings of the CIT (Appeals) in regard to both the counts of disallowances under Section 40A(ia) and section 40B of the Act.

The Tribunal further opined that once the assessee claims that while following percentage of completion method at 100% of the revenue of the project has been recognized, it was incumbent to also account, expenditures by deducting TDS instead of making provisions.

However, the Tribunal observed that as complete details of payment after the close of the accounts and TDS deducted and deposited there from in subsequent years was filed before the CIT (Appeals) which had not been taken into consideration.

Accordingly, the Tribunal restored the issue to that extent before the CIT (Appeals).

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