TaxTMI 
TaxTMI 
2017 (3) TMI 332
X X X X Extracts X X X X
X X X X Extracts X X X X
....5,67,156/- made on account of loose tools written off when the assessee failed to substantiate that loss was genuinely claimed. 3. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 1,45,57,065/- made on account of corporate advances written off without appreciating the fact that assessee failed to prove and substantiate the genuineness of loss. 4. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 6,50,00,000/- made on account of contract WIP written off without appreciating the fact that assessee booked a provisional loss allowable u/s.37. 5. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 10,43,715/- made by disallowing sub-contractor charges when the identity of the sub-contractor and genuineness of the transaction was doubtful. 2. The first issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for Rs. 1,46,976/- on account of advances written off by the assessee. 3. Briefly stated the facts are that the assessee, in the present case, is a limited....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he parties and perused the material available on record. From the foregoing discussions, we find that the amount given to MCRBCM was written off by the assessee in the year under consideration but the same was disallowed by the AO by observing that the purpose of the advances given to MCRBCM has not been given. However, on perusal of records, we find that all the necessary details were furnished before appellate stage with the nature and purpose of transaction. The assessee acquired leased asset from the MCRBCM but later the company went into liquidation. Subsequently the Hon'ble jurisdictional High Court ordered to the assessee for the payment of the aforesaid sum which later became irrecoverable. From the above, it gets established that the advances were given in the course of business and accordingly the same is eligible for deduction. In view of the above, we find no infirmity in the order of ld. CIT(A). Hence, this ground of appeal of Revenue is dismissed. 7. The second issue raised by Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for Rs. 5,67,156/- on account of loose tools written off. The assessee in this year has written off raw m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the same. Therefore, the assessee has written off such advances in its books of accounts. However, the AO observed that the necessary details of the parties such as name, address, amount of advances given, purpose for giving advances were not furnished. Therefore, the genuineness of the transactions cannot be established. Accordingly, the AO disallowed the same and added to the total income of the assessee. 12. Aggrieved, assessee preferred an appeal before the ld. CIT(A) whereas assessee submitted that the advances were given to the following parties :- Sl.No. Name of the party Amount 1. Techno Perfect pvt. Ltd. 5,00,000 2. ODC Carriers Pvt. Ltd. 1,40,57,065 The assessee further submitted that the necessary details was furnished to the AO during the assessment proceedings vide letter dated 14.02.2006. The advances written off as irrecoverable were duly approved by the Board of Directors in its meeting dated 30.03.2004. Ld. CIT(A) after considering the submission of the assessee has deleted the addition made by the AO by observing as under :- "7.4 I have pursued the documents as filed by the appellant both before the A.O. as well as before the Hon'ble ITAT. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the parties were furnished by the assessee at the time of assessment and the relevant details are enclosed at pages 79 of the paper book. The advances represent the money given in relation to business contracts of the assessee with Nevyeli Lignite Corporation. On further perusal, we find that the advances written off were also approved in the minutes of Board meeting held on 30th March, 2004. The necessary details of the parties were duly furnished at the time of assessment. In this connection, we rely in the case of Ashoka Marketing Limited Vs CIT reported in 253 ITR 460 wherein the Hon'ble Jurisdictional High Court has observed as under: "In the present case, undoubtedly Shalimar Works (P) Ltd. at the relevant time was a subsidiary of the assessee and this company was wound up because of the orders passed by this Court and all the assets of the company were purchased by a wholly-owned company of the Government of West Bengal for a sum of Rs. 74,00,000 and the entire amount went to the secured creditor with the result that undoubtedly the assessee had no chance of recovering the amount in question from the aforesaid subsidiary." When this Court while considering the possib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee by observing that the necessary details of the expenditure incurred by the assessee as well as the stage of completion of the work was not furnished at the time of assessment. Similarly the AO observed that the future loss in a contract is subject to high degree of uncertainty. Moreover, the assessee was following completed contract method as per accounting standard 7 as mentioned in notes to accounts. In the completed contract method the profit and loss is determined at the time of completion of contract and not on the basis of estimates as done in the present case. The contract in the present case hasn't not yet been completed therefore the claim for the loss by the assessee is not tenable. It was also observed by the AO that the future losses which are contingent in nature may be recognized as per the accounting standard but under the provisions of Income Tax Act such possible losses are not allowable. Therefore the loss claimed by the assessee is contingent in nature. The AO also observed that the loss has been adjusted against the revaluation reserve and the same was not routed through profit and loss account. In view of above the AO disallowed the loss claimed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appellant on various case laws which has already been mentioned above in para above. On reading of the above case laws and taking into account the submission made by the A.O. and the appellant, it is observed that the above matter is squarely covered by the decision of Hon'ble Mumbai Tribunal in the case of Jacobs Engineering Pvt Ltd.-vs.-ACIT (2009) 30 DTR 614(Mum). The A.O. in his order dated 31-12-2009 has not stated the facts of the above judgement correctly. Hence the contention of the A.O. that the above judgement has no relevance in the case of the appellant is completely without any basis. Hence in the light of above judgement and on the basis of the decision of Apex Court in the case of Woodward Governor India (P) Ltd. & Ors the foreseeable loss booked by the appellant is an allowable deduction under the Income Tax Act. With the above observation, the A.O. is directed to delete the disallowance made for Rs. 5,50,00,000/- on account of Contract Work In progress written off following AS-7 and this ground of appellant is allowed." Aggrieved by this, the revenue has come up in appeal before us. 18. The ld. AR before us submitted that loss has been incurred at the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is completed. In respect of contracts involving milestones revenue is recognized on completion of respective milestone. In case the long term contracts mainly, where the current estimate of total contract cost and revenue indicate a loss, provision is made for the entire loss on the contract. The costs on long term contracts not yet completed less related foreseeable losses and progress payments are shown in the stocks as Jobs-in-progress Contract" Hence, to allege that the loss derived by assessee is ad hoc is wrong as the same is well substantiated. Besides the above for assessable loss accounted in accordance with AS7 is not contingent in nature. Such loss has been accounted as per AS-7 issued by ICAI which permits the contractor to book the losses where estimated loss is indicated. On the other hand, ld. DR before us submitted that all the losses claimed by the assessee are capital in nature and, therefore, the same cannot be disallowed in the year under consideration. Besides, all the losses were not quantified on any scientific basis, therefore, all the losses were in contingent in nature. Ld. DR vehemently supported the order of AO. 19. We have heard rival contentions.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ject is admissible deduction. The only dispute that the Revenue seeks to raise is regarding the year of allowability of expenditure. Considering that the assessee is a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure is, in any case, revenue neutral. In such circumstances, substantial questions of law that need to be answered do not arise.-CIT vs. vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) and CIT vs. Shri Ram Pistons & Rings Ltd. (2008) 220 CTR (Del) 404 applied. As the assessee had to incur expenditure in excess of the provision made by it and the assessee being a company assessable at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure is revenue neutral and, therefore, no substantial question of law arises from the order of the Tribunal allowing the provision for future losses." 19.1 From the above judgment, it is clear that there is no denial of following the AS-7 issued by ICAI in the books of accounts and accordingly the deduction is allowed under the income tax Act. The issue is also squarely covered in favour of the assessee by the following....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loss, provision is made for the entire loss on the contract irrespective of the amount of work done and the method of accounting followed. In some circumstances, the foreseeable losses may exceed the costs of work done to date. Provision is nevertheless made for the entire loss on the contract. 13.2 . ......... 13.3. If a provision for loss is required, the amount of such provision is usually determined irrespective of (i) whether or not work has commenced on the contract; and (ii) the stage of completion of contract activities and (hi) the amount of profits expected to arise on other unrelated contracts. 19. A foreseeable loss on the entire contract should be provided for in the financial statements irrespective of the amount of work done and the method of accounting followed" Thus on the perusal of AS-7, we find that where the expected contract costs exceeds total contract revenue, then the probable loss should be recognized in the books immediately. Loss could be recognized irrespective of the stage of completion of contract and method of accounting followed. Hence, loss is permissible to be accounted for even in the period in which the contract is signed or when th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....In fact there was amalgamation which was sanctioned by the Hon'ble Jurisdictional High Court and accordingly the aforesaid loss was claimed against the revaluation reserve. However in our view the loss was genuine as no defect has been pointed out by the AO. Simply the loss was not written in the profit & loss account but adjusted against the revaluation reserve does not mean that the assessee is not entitled. In this connection we rely in the case of DCIT Vs. TATA sponge iron limited reported in 90 ITD 138. The relevant hand note reads as under : "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1998-99 - Assessee-company constructed railway sidings on railway land for quick and easy movement of raw materials and finished goods and in books of account, expenditure incurred on construction of railway sidings was capitalized and was written-off over a period of five years - However, in income-tax return, assessee claimed said expenditure as revenue expenditure - Assessing Officer disallowed assessee's claim - It was found that expenditure had been incurred by assessee only to run its business more efficiently and advantageously a....