TaxTMI 
TaxTMI 
2017 (3) TMI 332
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....se, Ld. CIT(A) has erred in deleting the addition of Rs. 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.....
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....ced and he relied on the order of ld. CIT(A). 6. We have heard the rival contentions of both the 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....
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....year under consideration, has given advances in connection with its business to several parties but could not recover 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....
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....rd rival contentions and perused the material available on record. On perusal of the record, we find that all the necessary details of the impugned advances given 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 t....
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.... Nil 7,41,85,000 The assessee claimed the loss in the year under consideration after putting its reliance in Accounting Standard 7 issued by Institute of Chartered Accountant of India (ICAI). However the AO disregarded the claim of the 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 b....
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.... Standard-7 issued by ICAI which the appellant is mandatorily required to follow. (d) Now the issue arise whether loss written off as per the mandatory Accounting Standards are binding on the Income Tax Act also. In this regard, reference -was made by 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 ....
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....e loss was written off in the books of accounts. Our attention was also drawn to the accounting policy of the assessee and reference is also drawn to Schedule 22 of notes to accounts which is being reproduced below:- "Revenue on contracts is recognized when the contract 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 an....
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....s revenue neutral. It may be pointed out that it is a matter of record that against the provision of Rs. 139 lakhs, the assessee had to actually incur expenditure of Rs. 218.03 lakhs, i.e., more than the provision made. It is undisputed that the expenditure incurred by the assessee on the project 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 pro....
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.... be followed, such losses are also allowed under the Income Tax Act." 19.2 We also find that the aforesaid loss was claimed by the assessee in terms of the provisions of AS-7 issued by the ICAI which reads as under : "13. Provision for Foreseeable Losses 13.1 When current estimates of total contract costs and revenues indicate a 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" Th....
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....were not submitted is not correct and write off of such loss is a genuine loss incurred during the course of business." 19.4 The next allegation of the AO was that the assessee has not accounted for such loss in its profit & loss account. In this regard we find that the loss was adjusted against the revaluation reserve in terms of the Hon'ble Jurisdictional High Order in the own case of the assessee. 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....