TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 1657
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....Hon'ble Commissioner of Income tax (Appeals)-53 ['Hon'ble CIT(A)-53'] has erred in upholding the disallowance made by the Learned Assessing Office ['Ld. AO'] of the deduction claimed under Section 80-IA of the Act amounting to Rs. 1,69,27,38,721 in respect of the contracts entered into with non- government entities without appreciating the fact that the said contract is originally awarded by the Government to these parties. Ground 2. The Hon'ble CIT(A) - 53 has erred in confirming the action of the Ld. AO in computing the book profits under Section 115JB without considering the claim of Rs. 1,22,07,000 on account of IND AS transition adjustment and Rs. 1,83,88,000 towards OCI -Item that will not be re-classified to P & L Account - Section 115JB(2A)(B) by way of filing revised computation of total income during the course of assessment proceedings." 03. In ITA No. 2090/Mum/2023, the learned Assessing Officer has raised following grounds of appeal:- "1. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition of Rs. 29,32,554/- u/s. 14A of the IT Act, 1961 r.w. Rule 8D without appreciating the fa....
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....d stated that the same is allowable. It was further stated that the co-ordinate Bench in assessee's own case has allowed such losses as deduction. The assessee submitted the detail project wise working of such losses. The same was reproduced on page no.10 of the assessment order. The learned Assessing Officer held that provision for foreseeable losses is not an expenditure incurred in the year under consideration and these are likely losses and therefore, though it may be required to be provided as per AS 7, but same is not allowable under the Income Tax Act. Therefore, same was disallowed. iii. The assessee has claimed deduction under Section 80IA of the Act of Rs.209.30 crore in respect of 12 projects. The learned Assessing Officer found that out of those six projects are in the nature of working received from Government whereas other six projects are non-Government entities. He found that in respect of contract with Government, 80IA deduction of Rs.40.03 crore and in respect of non-government contract is Rs.169.27 crore. He perused the provision of Section 80IA of the Act and found that u/s 80IA of the Act deduction is to be allowed only if the assessee has entered into....
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....on 10th January 2023, the assessee was directed to submit the scope etc. Of the contract work done and to demonstrate whether the assessee is merely a sub-contractor or developer. The assessee did not furnish any such information and therefore, he held that in absence of such information eligibility of deduction cannot be verified. The learned CIT (A) further found that assessee has claimed deduction on contracts where there are no contracts with the Government by the other party as well and therefore, he held that the contracts which are awarded by the private players for which the private players have been assigned contract from Government is also not substantiated and therefore, the claim of the assessee is not allowable. Accordingly, he dismissed and confirmed the disallowance of deduction under Section 80IA(4) of the Act. iv. On issue of computation of Book profit where assessee claimed deduction on account of Implementation of First adoption of Ind As holding that such claim was raised before ld. AO without filing any revised return and before him assessee could not substantiate the claim. 08. Aggrieved by the above appellate order, both the parties are in appeal.....
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....sult of the business would be showing more credibility. Therefore, the co-ordinate Bench held that the assessee is undertaking fixed price contracts, and, in that circumstance, the assessee is entitled to the deduction of the provision for foreseeable losses. The co-ordinate Bench in Paragraph no.18 further followed several judicial precedents. Based on this, the learned CIT (A) deleted the above disallowance. 014. The learned Departmental Representative vehemently submitted that though in the case of the assessee for earlier years starting from 2004-05 till 2015-16, the co-ordinate Bench has allowed the claim but for A.Y. 2016-17, the co-ordinate Bench in ITA No.642/Mum/2023 dated 31st July 2023 has held otherwise. He referred to paragraph no.6 of the order. He submits that the argument of the learned Departmental Representative shows that foreseeable losses have been computed by the assessee on the basis of expenses which were not incurred in the year under consideration but to be incurred in future years for completion of the relevant works contract project. Therefore, it was contended that expenditure is not an ascertained liability for the year under consideration. The lear....
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....etion Method (PCM). If it is accepted that the contract will make a loss the estimated loss is immediately provided for in the books of account. This policy is backed by the principles of prudence in accounting. He also referred to page no.92 of the Paper Book wherein on account of 16 contracts, the foreseeable losses of Rs.4.22 crores were recognized. He explained the chart and the methodology of the provision. He submitted that these losses are neither contingent and nor merely a provision but accounted for on the basis of accepted accounting practices. He referred to the AS 7 issued by the Institute of Chartered Accountants of India on construction contracts and referred to the paragraph no.22 thereof to show that when the outcome of the construction contract can be estimated reliably, then revenue and their expenses thereof should be accounted at the stage of contract activity at the time of reporting date and if there is a loss then it should be recognized as an expense immediately. He further referred to paragraph no.31 of the AS. He also referred to paragraph no.35, wherein it is stated that where the total contract costs will probably exceed the total contract revenue expec....
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....ch in case of assessee itself where in it held that earlier orders of coordinate bench are incorrect and claim of the assessee is not allowable. We find that in AY 2016-17 ITAT in ITA No. 642/MUM/2023 dated 26/07/2023 has confirmed disallowance of claim of the assessee for following reason :- i. Foreseeable loss in expenditure claimed as deduction u/s 37(1) of the Act which is yet to be incurred and not incurred during the year, therefore such expenses are not allowable in this year but allowable in the year in which it is incurred. ii. It followed deduction of coordinate bench in ITA No 1198/ M/2021 in case of Loreal India Limited holding that this is not allowable u/s 37(1) of The Act as unascertained liability, thus As 7 issued by ICAI is also not allowable [ para no 6.4 where extract from that decision is quoted.] iii. Earlier decision of ITAT are not applicable as those deductions does not record a factual finding that whether such expenditure is ascertained liability [ Para 6.4 of the decision} 017. We find that issue in case of 1198/Mum/2021 in Loreal was disallowance of claim of Provision for expenses. The assessee had made "Provision for outst....
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.... Further this issue is decided in favour of the assessee by coordinate benches since AY 2004-05 and matter is pending before honourable high court, and in immediately subsequent year, assessee has shown that it has incurred higher expenses then the loss claimed in this year. It is not the case of double deduction of expenses in the guise of loss. Off course, if later on the losses which is provided in this year reduces assessee has to apply para no 37 of the As which provides that when the percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies). The changed estimates are used in determination of the amount of revenue and expenses recognized in the statement of profit and loss in the period in which the change is made and in subsequent periods. 022. De....
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....nment to these parties:- Serial number Project number Name of the client Amount (Rs) 1 35515DM Bharat Mumbai container terminal private limited 99,00,01, 47,263 2 33714DM Nhava Sheva India Gateway terminal private limited 23,98,76,756 Total 123 24,0219/- 029. assessee has filed additional evidence with a request to admit the sameby letter dated 16/8/2023 wherein it is stated that the learned CIT - A has order forwarded details as per order dated 10 January 2023 not furnish copies of the agreement which were lying in the court on and same were taking longer time for its retrieval. Therefore, the assessee could not submit those evidences before the learned CIT - A. Assessee referred to page number 94 - 524 number 3 additional evidences. 030. The learned authorized representative submitted that identical issue arose in the case of the assessee for assessment year 2018 - 19 wherein the coordinate bench admitted those evidence and referred the matter back to the file of the learned CIT - A to consider them. Therefore, these evidence may be admitted and matter may be restored back to the file of the learned CIT - A accor....
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.... the contract copies were lying in godown, those could not be retrieved in time and therefore, those could not be submitted before the learned CIT (A). Subsequently, the assessee was able to procure those contracts and now produced before us as additional evidences. The assessee submitted three paper books containing page no.41 to 1488 of such additional evidences and requested for admission of the same. Certain judicial precedents were also relied upon. 010. The learned Authorized Representative also referred to paragraph no.7.3.1 of the order of the learned CIT (A), wherein non-submission of such detail was mentioned. He submitted that because of this reason also amongst others the deduction was denied. He submits that though the scope of work of various contracts were made available to the learned CIT (A), but in absence of these contracts, as assessee has failed to produce, deduction under Section 80IA of the Act is denied. His argument is that assessee was prevented because of sufficient cause for not producing these details and therefore, it should be admitted. 011. The learned Departmental Representative vehemently contested that these additional evidences ....
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....ded inadequate opportunity to the assessee. In this case, we find that sufficient opportunities were provided to the assessee. But in this case, the disallowance of deduction claimed by the assessee is also confirmed for one of the reason of non- production of the evidences which assessee was prevented because of its non-availability or delay in its retrieval coupled with ongoing several reassessment and transfer pricing assessments pursuant to survey. Therefore, for these reasons, we allow the additional evidences to be adduced by the assessee. 014. It is also the argument of the learned Departmental Representative that whether the additional evidences submitted by the assessee are relevant to decide the issue Page | 12 ITD Cementation India Ltd; A.Y. 2018-19 or not should be examined, as the assessee has not been awarded the contracts by the Government Authorities but is merely a contractor. It is also pressed by the learned Authorized Representative that the argument of the learned Departmental Representative is not sustainable for the reason that judicial precedents provide that direct agreement with the Government Authorities is not necessary. 015. As we have....
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....e could not be classified to profit and loss and further sum of Rs. 122.07 lakhs were also claimed of 1/5 of the transition amount defined under explanation (iii) of the act. However, the learned assessing officer did not discussed the same in the assessment proceedings and consequently adopted book profit as per assessee's own computation. Further adjustment was made by the learned assessing officer by making an addition of disallowance under section 14 A and foreseeable losses. Thus, the book profit was computed at 12,78,99,9022/-. Assessee aggrieved with the same raised the issue before the learned CIT - A who decided the issue rejecting the claim of the assessee. The reason for rejection of the claim was that the assessee did not make the claim by filing a revised return or by application under section 119 (2) (b) of the act. The learned CIT - A further stated that the assessee has not substantiated the adjustment along with its audited financial accounts as to how such conditions are fulfilled. 036. The learned authorized representative referred to the balance sheet of the assessee company wherein the same is demonstrated by showing income in profit and loss account which w....