Commission expenses disallowed for public sector contracts lacking service evidence violates public policy under Section 37

ITAT Mumbai decided against the appellant on commission expenses disallowance, finding insufficient evidence of services rendered and noting identical issues were previously decided against the appellant in earlier assessment years. The tribunal held that without knowing exact nature of services, payments to parties for public sector contracts violated public policy under Section 37. On construction work-in-progress valuation, the appeal was dismissed as academic since no addition was made. Provision for foreseeable losses was partly allowed, directing verification of completed projects. Addition under Section 40A(9) was deleted following previous tribunal decision. Depreciation disallowance was deleted as transaction was held to be slump sale. Section 14A disallowance was deleted as investments were made from own funds. Transfer pricing adjustment was remanded for fresh determination.

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Issues Involved:
1. Disallowance of commission expenses.
2. Valuation of Construction Work-In-Progress.
3. Disallowance of provision for foreseeable loss.
4. Disallowance under Section 40A(9).
5. Partial disallowance of depreciation.
6. Disallowance under Section 14A.
7. Addition on account of gain from extinguishment of sales tax deferred loan liability.
8. Transfer pricing adjustment.
9. Computation of deduction under Section 80HHC.
10. Computation of deduction under Section 80HHE.
11. Disallowance under Section 14A for computing book profit under Section 115JB.
12. Additional grounds regarding computation of deduction under Section 80HHC and 80HHE for determining book profit under Section 115JB.

Detailed Analysis:

Ground No. 1: Disallowance of Commission Expenses
- The Appellant claimed commission expenses of INR 2,94,88,620/- for services rendered by various parties.
- The Assessing Officer disallowed this amount due to inadequate evidence of services rendered.
- The CIT(A) upheld this disallowance based on previous Tribunal decisions against the Appellant.
- The Tribunal, following the precedent, confirmed the CIT(A)'s order and dismissed the ground.

Ground No. 2: Valuation of Construction Work-In-Progress
- The Assessing Officer noted a discrepancy in the valuation of Work-in-Progress, reducing it by INR 54,16,82,032/-.
- The CIT(A) dismissed the issue as academic since no addition was made by the Assessing Officer.
- The Tribunal agreed with the CIT(A) that the issue was academic and dismissed the ground.

Ground No. 3: Disallowance of Provision for Foreseeable Loss
- The Appellant created a provision for foreseeable losses of INR 9,79,40,038/-.
- The Assessing Officer disallowed this, deeming it contingent.
- The CIT(A) upheld the disallowance, stating the provision did not crystallize during the relevant year.
- The Tribunal, while agreeing in principle that foreseeable losses can be allowed, remanded the issue back to the Assessing Officer for verification of project completions and revenue offerings.

Ground No. 4: Disallowance under Section 40A(9)
- The Appellant paid INR 1,50,000/- to Utmal Employees Welfare Fund.
- The Assessing Officer disallowed this under Section 40A(9).
- The CIT(A) upheld the disallowance.
- The Tribunal, following previous decisions, deleted the addition and allowed the ground.

Ground No. 5: Partial Disallowance of Depreciation
- The Assessing Officer reduced depreciation by INR 4,11,94,218/- due to a hypothetical allocation of asset values.
- The CIT(A) confirmed this reduction.
- The Tribunal, following a previous decision that recognized the sale as a slump sale, directed the Assessing Officer to accept the Appellant's depreciation calculation and allowed the ground.

Ground No. 6: Disallowance under Section 14A
- The Assessing Officer disallowed INR 3,18,00,000/- under Section 14A for interest expenses.
- The CIT(A) enhanced the disallowance to INR 12.24 Crores.
- The Tribunal found that the Appellant's own funds were more than the investments and deleted the disallowance, following the HDFC Bank Ltd. case.

Ground No. 7: Addition on Account of Gain from Extinguishment of Sales Tax Deferred Loan Liability
- The Assessing Officer treated the gain of INR 4,25,44,104/- from extinguishment of sales tax deferred loan liability as revenue receipt.
- The CIT(A) upheld this addition.
- The Tribunal, following previous decisions, deleted the addition and allowed the ground.

Ground No. 8: Transfer Pricing Adjustment
- The TPO made an adjustment of INR 4,11,67,000/- based on the Appellant bearing 100% of project cost overrun expenses.
- The CIT(A) upheld this adjustment.
- The Tribunal remanded the issue back to the TPO/Assessing Officer for determination of ALP and recomputation, allowing the ground for statistical purposes.

Ground No. 9: Computation of Deduction under Section 80HHC
- The Assessing Officer reduced 90% of gross interest and miscellaneous income from business profits and excluded profits eligible under Section 80HHB.
- The CIT(A) upheld this computation.
- The Tribunal, following previous decisions, directed the Assessing Officer to reduce net profits and remanded other issues for fresh adjudication.

Ground No. 10: Computation of Deduction under Section 80HHE
- Similar to Ground No. 9, the Assessing Officer's computation was upheld by the CIT(A).
- The Tribunal directed the Assessing Officer to reduce net profits and remanded other issues for fresh adjudication.

Ground No. 11: Disallowance under Section 14A for Computing Book Profit under Section 115JB
- The Assessing Officer added INR 3,18,00,000/- while computing book profit under Section 115JB.
- The CIT(A) upheld this addition.
- The Tribunal deleted the addition, directing the Assessing Officer to compute disallowance based on audited financial statements as per the Vireet Investments Ltd. case.

Additional Grounds 1 & 2: Computation of Deduction under Section 80HHC and 80HHE for Determining Book Profit under Section 115JB
- The Appellant claimed deductions should be computed based on profits as per the Profit & Loss Account.
- The Tribunal admitted these additional grounds and remanded the issues to the Assessing Officer for adjudication.

Conclusion:
The Tribunal partly allowed the appeal, providing relief on several grounds, remanding some issues for fresh adjudication, and maintaining disallowances where precedent dictated.

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