Tribunal upholds disallowance of estimated losses, remands TDR income issue for fresh computation, and deletes addition under section 115JB.

The Tribunal upheld the disallowance of future estimated losses for the assessment years 2000-01 to 2003-04, rejecting the assessee's claim for deductions based on AS-7. It confirmed the legal validity of reopening assessments for the same years. Regarding the assessment year 2003-04, the Tribunal remanded the issue of TDR income back to the AO for fresh computation to avoid double counting and deleted the addition under section 115JB for prior period expenses.

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Issues Involved:
1. Disallowance of future estimated losses.
2. Addition on account of sale of Transferable Development Rights (TDR).
3. Addition under section 115JB.
4. Legal validity of reopening of the assessment.

Issue-wise Detailed Analysis:

1. Disallowance of Future Estimated Losses:
The primary issue across all assessment years (2000-01 to 2003-04) was the disallowance of future estimated losses. The assessee, executing slum rehabilitation projects, followed the percentage completion method of accounting as per AS-7, recognizing revenue based on the stage of construction. The assessee claimed deductions for future estimated losses, arguing that these were foreseeable losses as per AS-7, which mandates provisioning for total contract losses irrespective of the work done. The AO disallowed these losses, stating they were contingent and not actual liabilities, and allowed only losses proportionate to the Work in Progress (WIP) at the end of the year. CIT(A) upheld the AO's decision, noting that under mercantile accounting, only due income or expenses could be allowed, and AS-7 was not applicable as the projects were not under sale agreements. The Tribunal confirmed CIT(A)'s order, emphasizing that income for tax purposes must be computed under the Income Tax Act and not as per AS-7, which was not notified by the Government. The Tribunal also noted that the notified AS-1 did not mandate allowing provisions for known liabilities as deductions.

2. Addition on Account of Sale of TDR:
For the assessment year 2003-04, the AO added Rs. 7,37,41,582/- to the income from the sale of TDR, arguing that the income accrued during the year of sale as per the mercantile system. The assessee contended that TDR income should be recognized based on the percentage completion method. The Tribunal agreed with the AO that TDR income accrued during the year of sale but noted that part of this income had already been considered while allowing estimated losses related to WIP. The Tribunal set aside CIT(A)'s order and remanded the matter back to the AO for fresh computation, ensuring no double counting of TDR income.

3. Addition Under Section 115JB:
Relevant to the assessment year 2003-04, the AO added Rs. 1,93,061/- to the book profit under section 115JB, disallowing prior period expenses. CIT(A) upheld this addition. The Tribunal, however, cited the Supreme Court's judgment in Apollo Tyres Ltd., stating that book profit must be computed based on the P&L account prepared as per the Companies Act, and only specified adjustments under Explanation-1 to section 115JB are permissible. Since prior period expenses were part of the P&L account, the Tribunal deleted the addition.

4. Legal Validity of Reopening of the Assessment:
This issue was relevant for assessment years 2000-01 and 2002-03. The assessee did not press this ground during the hearing, and thus, the Tribunal dismissed the ground regarding the reopening of assessments.

Conclusion:
The Tribunal dismissed the appeals for the assessment years 2000-01, 2001-02, and 2002-03, upholding the disallowance of future estimated losses and confirming the legal validity of reopening the assessments. For the assessment year 2003-04, the Tribunal partly allowed the appeal, remanding the issue of TDR income back to the AO for fresh computation and deleting the addition under section 115JB for prior period expenses.

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