Referred Sections:
Section 115JB of the Act.
Section 143(2) of the Act
Section 145(1) of the Act,
Section 37(1) of the Act
Section 80IA(4) of the Act
Section 80HHC of the Act
Section 244A of the Act
Section 154 of the Act.
Section 139(5) of the Act
Section 80HHB(A) of the Act.
Referred Cases / Judgments:
CIT Vs Insilco Ltd. reported in (2010) 320 ITR 322 (Del) .
CIT Vs Southern Petrochemical Industries Corporation Ltd (2007)
National Thermal Power Corporation limited Vs CIT (2013) 357 IT 253(Del)
CIT vs Yamaha motor India Private Limited (2009) 328 ITR 297(Del).
Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 (1975) 98 ITR 167 (SC)
In the Income-Tax Appellate Tribunal,
Delhi Bench `C', New Delhi
Before : Shri Bhavnesh Saini, Judicial Member And
Shri O.P. Kant, Accountant Member
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008
Assessment Years: 2001-02, 2002-03 & 2003-04
IRCON International Limited, vs. Addl. C.I.T., Range-11,
Palika Bhawan, R.K. Puram New Delhi.
Sector-13, New Delhi
(PAN: AAACI0684H)
(Appellant) (Respondent)
ITA No. 2234/Del/2005& 3805/Del/2008
Assessment Year: 2001-02& 2003-04
Dy. C.I.T., Range-11(1), vs. IRCON International Limited,
New Delhi. Palika Bhawan, R.K. Puram
Sector-13, New Delhi
(Appellant) (Respondent)
Assessee by Dr. Rakesh Gupta, Advocate &
Sh. Somil Aggarwal,
Advocate
Revenue by Sh. J.K. Mishra, CIT/DR
Date of hearing 21.08.2019
Date of 31.10.2019
Pronouncement
ORDER
Per O.P. Kant, A.M.:
These appeals by the assessee and the Revenue have been
raised against separate orders of the Ld. Commissioner of Income-
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
2
2234/Del/2005 & 3805/Del/2008
Tax (Appeals)-XIV, New Delhi [in short the Ld. CIT(A)] i.e.: order
dated 16/02/2005 for assessment year 2001-02; order dated
23/12/2005 for assessment year 2002-03 and order dated
29/10/2008 for assessment year 2003-04 respectively. As common
issues in same set of circumstances are involved in these appeals,
we have heard these appeals together and disposed off by way of
this consolidated order for sake of convenience.
2. First, we take up the appeal of the assessee and the Revenue
for assessment year 2001-02. The grounds of the appeal of the
assessee in ITA No. 1825/Del/2005 are reproduced as under:
"1(a) That on the facts and in the circumstances of the case, the
Ld. Commissioner of Income Tax (Appeals) [here-in-after
referred to as CIT(A)], was not justified in upholding the
disallowance of the appellant's claim for deduction of
depreciation amounting to Rs. 24,41,250/- on the value of
machinery spare parts capitalized during the year.
1(b) That on the facts and in the circumstances of the case and
without prejudice to ground no.1(a) taken here in above, the Ld.
CIT(A)grossly erred in holding that although depreciation is
allowable on machineries in 'ready to use' condition but the
same is not allowable on machinery spares which are also in
'ready to use 'condition.
1(c). That on the facts and in the circumstances of the case,
and without prejudice to ground no. 1(a) & 1(b) taken here in
above, the appellant may otherwise be allowed deduction on
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
3
2234/Del/2005 & 3805/Del/2008
the basis of Actual consumption, in case the claim of
depreciation is not allowable to the appellant.
2(a) That on the facts and in the circumstances of the case, Ld.
CIT(A) was not justified in disallowing the claim of the appellant
for deduction u/s 80IA in respect of income earned from the
business of development of infrastructure facilities amounting to
Rs.16,82,00,160/-
2(b) That on the facts and in the circumstances of the case, and
without prejudice to ground No. 2(a) taken here in above, the Ld.
CIT(A) grossly erred in considering that the appellant's role in
executing various infrastructure projects is that of a contractor
which cannot be equated to the business of developing the
infrastructure facilities and thereby disallowing the claim for
deduction u/s 80IA of the Act.
3(a). That on the facts and in the circumstances of the case, Ld.
CIT(A) was not justified in confirming the disallowance of the
claim of the appellant for deduction u/s 80HHC in respect of
income earned from the business of export of goods amounting
to Rs.23,17,36,491/-.
3(b) That on the facts and in the circumstances of the case, and
without prejudice to ground No. 3(a) taken here in above, the Ld.
CIT(A) grossly erred in considering that the appellant entered
into 'composite contract' which cannot be equated to the "supply
contract' thereby disallowing the claim for deduction u/s
80HHC of the Act.
4.0 That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified in upholding the disallowance of
Rs. 9,32,902/- on account of other miscellaneous donations.
5(a). That on the facts and in the circumstances of the case the
Ld. CIT(A) was not justified in disallowing the claim of the
appellant in respect of 'prior period expenses' amounting to Rs.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
4
2234/Del/2005 & 3805/Del/2008
1,80,20,765/- out of the total claim of appellant of Rs.
2.43,27,000/-.
5(b) That on the facts and in the circumstances of the
case and without prejudice to ground no.5(a) taken here in
above, the Ld. CIT(A) completed the appellant proceedings in
haste without affording reasonable opportunity to the appellant
for furnishing all the relevant documents and hence the issue
may be set aside for allowing the same on merits.
6(a) That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for demobilization
amounting to Rs 2,13,04,431/- out of the total claim for
Rs.4,80,49,000/-.
6(b) That on the facts and in the circumstances of the
case and without prejudice to ground no.6(a) taken here in
above, the Ld. CIT(A)completed the appellate proceedings in
haste without affording reasonable opportunity to the appellant
for furnishing all the relevant documents and hence the
impugned issue may be set aside for allowing the same on
merits.
7(a) That on the facts and in the circumstances of the case,
theLd.CIT (A) was not justified in upholding the disallowance of
the claim of the appellant towards provision for other
expenses amounting to Rs 1,61,25,533/- out of the total claim
for Rs.3,57,49,802/-.
7(b) That on the facts and in the circumstances of the case and
without prejudice to ground no.7(a) taken here in above, the
Ld. CIT(A)completed the appellate proceedings in haste without
affording reasonable opportunity to the appellant for furnishing
all the relevant documents and hence the impugned issue may
be set aside for allowing the same on merits.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
5
2234/Del/2005 & 3805/Del/2008
8(a) That on the facts and in the circumstances of the case,
the Ld. CIT(A)was not justified in confirming the
disallowance made by the Ld. Assessing Officer in respect of
interest received vide intimation u/s143(1) for the assessment
year 2000-01 amounting to Rs 25,56,813/-
8(b) That on the facts and in the circumstances of the
case and without prejudice to ground no. 8(a) taken here in
above, the Ld. CIT(A)grossly erred in holding that the interest
received by the appellant on provisional assessment u/s 143(1)
for the assessment year 2000-01 to be due and final,
disregarding the fact that the same was subsequently
withdrawn on finalization of the appellant's case for the said
assessment year u/s 143(3) of the Act.
9(a) That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified in confirming the addition of
Rs.2,00,30,000/- towards interest income on accrual basis on
the disputed dues with NBCC whose matter is pending before
the Hon'ble Delhi High Court.
9(b) That on the facts and in the circumstances of the case,
and without prejudice to ground no. 9(a) taken here in above,
the Ld. CIT (A)grossly erred in holding that principal and
interest amounts due from a Government Company cannot be
considered to be doubtful or sticky unless the said company has
gone into liquidation.
10. That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified in upholding the disallowance of
Rs. 2,48,73,000/- and Rs. 53,98,000/- towards provision for
doubtful advances respectively in computing the book profit for
the purpose of section 115JB of the Act.
11. That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
Rs. 2,13,04,431/- on account of provision for demobilization in
computing the book profit for the purpose of 115JB of the Act.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
6
2234/Del/2005 & 3805/Del/2008
12. That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
Rs. 1,61,25,533/- on account of provision for other expenses in
computing the book profit for the purpose of 15JB of the Act.
13. That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified and grossly erred in disallowing
deduction from income earned from permanent establishment in
foreign countries and not chargeable to tax under Double
Taxation Avoidance Agreement amounting to Rs.76,80,17,697/-
in computing the book profit for the purpose of Section 115JB of
the Act.
14. That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
the claim of the appellant amounting to Rs.6,77,97,458/- on
account of the profit on sale of fixed asset in computing the book
profit for the purpose of Section 115JB of the Act.
15. That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in disallowing Rs. 28,96,70,614/-
towards the claim of deduction u/s 80HHC in computing the
book profit for the purpose of Section 115JB of the Act.
16. That the appellant craves leave, to add, to amend, to
modify, to rescind, supplement or alter any ground stated
herein above either before or at the time of hearing."
3. The grounds of the appeal of the Revenue in ITA No.
2234/Del/2005 are reproduced as under:
"1. On the facts and in the circumstances of the case and
in law, the CIT(A) has erred in allowing the alternate
claim of the assessee for deduction
u/s80HHB(A)disregarding the fact that the assessee had
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
7
2234/Del/2005 & 3805/Del/2008
neither furnished with the return of income the report of the
auditor in form No.10CCAA nor created the requisite reserve
required as per the law. Since the assessee did not fulfill the
requisite requirements of law, the CIT(A) erred in granting the
aforesaid relief to the assessee.
2. On the facts and in the circumstances of the case and
in law, the CIT(A)has erred in allowing the assessee relief
with regard to the alternate claim of deduction u/s 80HHB
disregarding the fact that the assessee did not file the requisite
form No.10CCAH with the return of income from the accountant
and also did not create the Project Reserve Account, required as
per the law. Since the assessee did not qualify for deduction
u/s 80HHB as per the law, the CIT(A) erred in granting the
aforesaid relief to the assessee.
3. On the facts and in the circumstances of the case and in law,
the CIT(A) has erred in directing the A.O. to delete the
adjustment made by the AO and directing him to allow the
deduction u/s 80HHB without considering the corporate office
expenses.
4. On the facts and in the circumstances of the
case and in law, the CIT(A)has erred in deleting the
disallowance of the assessee's claim made by the AO u/s
35DDA, disregarding the objections raised by the AO as per the
remand report. Since requisite conditions were not satisfied, the
CIT(A) erred in granting the aforesaid relief to the assessee.
5. On the facts and in the circumstances of the
case and in law, the CIT(A)has erred in deleting the
disallowance of proportionate corporate expenses made by the
AO from the profit of foreign project for the purpose of allowing
exclusion of income under the Double Taxation Avoidance
Agreement.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
8
2234/Del/2005 & 3805/Del/2008
6. On the facts and in the circumstances of the case and in law,
the CIT(A) has erred in granting partial relief to the assessee
with regard to the claim of prior period expenses ignoring that
the assessee was following mercantile system of accounting
and as such the assessee was not entitled to grant of the claim
relating to the prior period expenses.
7. On the facts and in the circumstances of the
case and in law, the CIT(A) has erred in deleting the
disallowance of Rs.2,67,45,000/- out of total disallowance of
Rs.4,80,49,000/- on account of provision for demobilization
made by the AO disregarding the fact that the said expenditure
was claimed by the assessee on estimate and adhoc basis and
the expenditure had not crystallized in the relevant financial
year.
8. On the facts and in the circumstances of the
case and in law, the CIT(A) has erred in deleting the
disallowance of Rs.1,96,24,269/- out of total disallowance of
Rs.3,57,49,802/- made by the AO on account of provision for
other expenses disregarding the fact that the said expenditure
was claimed by the assessee on estimate and adhoc basis and
the expenditure had not crystallized in the relevant financial
year.
9. On the facts and in the circumstances of the case and in law,
the CIT(A) has erred in restricting the disallowance of provision
for demobilization to Rs.2,13,04,000/- and provision for other
expenses to Rs. 1,61,25,533/- in computation of book profit for
the purpose of section 115JB as against the disallowance made
by the AO of an amount of Rs.4,80,49,000/- as provision for
demobilization and Rs.3,57,49,802/- as provision for other
expenses.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
9
2234/Del/2005 & 3805/Del/2008
10. On the facts and in the circumstances of the case and in
law, the CIT(A) has erred in granting relief to the assessee with
regard to the AO's Action of adding back the provision for
gratuity amounting to Rs.44,39,494/- to compute the book profit
u/s 115JB of the I.T. Act, 1961.
11. On the facts and in the circumstances of the case and in
law, the CIT(A) has erred in partially setting aside the issue
relating to disallowance on account of provision written back
and credited to P&L Account in computing the book profit for the
purpose of section 115JB, ignoring that CIT(A) does not have the
power to set aside issues and restore them to file of the AO.
12. On the facts and in the circumstances of the case and in
law, the CIT(A) has erred in directing the AO to allow deduction
u/s 80HHB in respect of the claim made by the assessee during
the course of appellate proceedings for computation of book
profit u/s 115JB of the I.T. Act disregarding the fact that the
such adjustment is not permissible as per provisions of section
115JB of the Act.
13. On the facts and in the circumstances of the case and in
law, the CIT(A) has erred in deleting interest charged by the AO
u/s 234D of the I.T. Act."
4. Briefly stated facts of the case are that the assessee company
is a government undertaking and was engaged in execution of Civil
Engineering project in India and abroad. For the year under
consideration, the assessee company filed its return of income on
30/10/2001 declaring total income of Rs. 28,43,46,290/-under
regular provisions of Income Tax Act, 1961 (in short the Act) and
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
10
2234/Del/2005 & 3805/Del/2008
book profit of Rs. 6,75,31,827/-under section 115JB of the Act. The
total income was further revised to Rs. 16,43,46,290/-on
31/03/2003, while the book profit remained same as in the original
return of income. The case was selected for a scrutiny and notice
under section 143(2) of the Act was issued and complied. In the
assessment completed on 25/03/2004 under section 143(3) of the
Act, the Assessing Officer made certain additions/disallowances
and computed book profit of the assessee under section 115JB at
Rs. 1,41,37,92,764/-and worked out the tax payable thereon at Rs.
11,98,18,937/-. The Assessing Officer also computed assessed
income under normal provisions of the Act at Rs. 76,67,30,425 /-
and worked out the tax payable thereon at Rs. 30,32,41,883/-. As
the tax payable on the business income assessed as per normal
provisions of the Act was higher than the tax payable on book profit
assessed, the Assessing Officer raised demand of tax on the basis of
the tax payable under normal provisions of the Act. Aggrieved, the
assessee filed appeal before the Ld. CIT(A), who partly allowed the
appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A),
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
11
2234/Del/2005 & 3805/Del/2008
both the assessee and the Revenue are in appeal raising the
respective grounds as reproduced above.
5. In ground No. 1 of the appeal of the assessee, the issue of
disallowance of depreciation amounting to Rs. 24,41,250/-on the
value of the machinery part treated as capital asset by the assessee
,is involved. In ground number 1(a) & 1(b), the assessee has
contested the disallowance whereas in ground No. 1(c), the assessee
has sought alternative deduction on the basis of the actual
consumption of machinery spares as revenue expenditure.
6. The facts qua the issue in dispute are that in the assessment
years prior to the assessment year under consideration, the
assessee company had been following the practice of charging the
cost of `machinery spares' as revenue expenditure in the year of
actual consumption. In the year under consideration, it is claimed
that pursuant to change in the accounting policy to comply with
accounting standards, the assessee capitalised the `Machinery
spares'. Accordingly, the assessee added back the amount of Rs.
97.65 lakhs incurred on purchase of `Machinery spares' under
computation of the income and claimed depreciation amounting to
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
12
2234/Del/2005 & 3805/Del/2008
Rs. 24,41,250/-at the rate of 25% on the Machinery spares
capitalised. Both the Assessing Officer as well as the Ld. CIT(A)
disallowed the claim of depreciation of the assessee on the
`Machinery spares'.
7. Before us, the Ld. counsel of the assessee filed a paper book
containing pages 1 to 266 and referred page 71 to highlight the
Accounting Standard (AS-10). The Ld. counsel pointed out to para
8.2 of the Accounting Standard which reads that standby
equipment and servicing equipment are normally capitalised and
machinery spares are usually charged to the profit and loss account
as and when consumed, however if such a spare can be used only
in connection with an item of fixed asset and their use is expected
to be regular, it may be appropriate to allocate the total cost on a
systematic basis over a period not exceeding the useful life of the
principal item. The Ld. counsel submitted that in view of the change
in accounting policy, the assessee has capitalised its machinery
spare parts and thus eligible for depreciation on the same. The Ld.
counsel relied on the decision of the Hon'ble Delhi High Court in the
case of CIT Vs Insilco Ltd. reported in (2010) 320 ITR 322 (Del) . In
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
13
2234/Del/2005 & 3805/Del/2008
support of the contention that depreciation is allowable on standby
spare items, which are not taken for use during the accounting year
, the Ld. counsel relied on the decision of the Hon'ble Madras High
Court in the case of CIT Vs Southern Petrochemical Industries
Corporation Ltd (2007) 291 ITR 362 (Mad) and SPIC Ltd (2010) 37
DTR 177 (Mad. )The Ld. counsel further claimed that depreciation is
allowable not only on the asset actually used but also on the asset
kept ready for use. In support of the contention , he relied on the
decisions of the Hon'ble Delhi High Court in the case of National
Thermal Power Corporation limited Vs CIT (2013) 357 IT 253(Del)
and CIT vs Yamaha motor India Private Limited (2009) 328 ITR
297(Del).
8. In support of the alternative ground 1(c), the Ld. counsel
submitted that deviation between actual consumption of the Spares
and the depreciation charged is not substantial when compared
with the total expenditure of the assessee company and in
assessment year 2002-03, the Assessing Officer has allowed
deduction in respect of the actual continuation of the spares and
thus in such circumstances, if the deduction of depreciation of the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
14
2234/Del/2005 & 3805/Del/2008
machinery spares is not allowed, the assessee may be allowed
deduction on the basis of the actual consumption of the machinery
spares.
9. On the other hand, the Ld. DR submitted that in the case of
Insilco Ltd (supra), it is held that for eligibility of depreciation, the
spares must be integral part of the machinery, otherwise no
depreciation is allowable. He submitted that the assessee has
substantiated with documentary evidences that the spare parts in
question are integral part of the Machinery. He did not object on
the alternative ground for allowing expenditure on the basis of the
actual consumption of machinery spares.
10. We have heard the rival submissions and perused the relevant
material on record.
11.1 The 1st issue in the grounds raised is whether
capitalising of machinery spares for the purpose of Income Tax Act
in view of accounting standards is justified.
11.2 In the case of Insilco Ltd (supra) Hon'ble High Court has
referred to Accounting Standard (AS-10) and observed obligation of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
15
2234/Del/2005 & 3805/Del/2008
the assessee to treat the spares which are integral parts of fixed
asset as capital expenditure as under:
16.4 It is clear upon reading the provisions of AS-2 and AS-10
that, the opinion of the Counsel of the ICAI in respect of
treatment of machinery spares is briefly that; machinery spares
which are not specific to any fixed asset and can be used
generally should be treated as part of inventory and charged to
P&L a/c as and when they are consumed during the ordinary
course of business. On the other hand, , if the machinery spares
are of the nature of capital spares/insurance spares which are
specific to a particular item of fixed asset and their use is
irregular, then , they should be capitalized separately and
depreciated on a systematic basis over a time frame not
exceeding the useful life of the fixed asset to which they relate.
As a matter of fact, in case the fixed asset to which they relate,
is discarded, the machinery spares will also have to be
disposed of as these spares are integral parts of the fixed asset.
16.5 It is to be noted that these Accounting Standards are
mandatory in nature and applied to accounts prepared after 1st
April, 1999. In that sense the submission of the assessee has to
be accepted that the change in the accounting policy had been
brought about by virtue of the issuance of the revised
Accounting Standards issued by the Counsel of the ICAI, which
was, applicable for the assessment year under consideration.
Furthermore, the provisions of sub-ss. (3A), (3B) and (3C) of s.
211 of the Companies Act, 1956, clearly provide that every P&L
a/c and balance sheet of a company shall comply with the
Accounting Standards prescribed. Where the accounts of the
company do not comply with the Accounting Standards it is
required to disclose in the P&L a/c and the balance sheet : (a)
the deviation from the Accounting Standards ; (b) the reasons
for such deviation; and (c) the financial effect, if any, arising,
due to such deviation. What is important is that; sub-s. (3) of s.
211 provides that until the Central Government prescribes an
Accounting Standards in consultation with the National
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
16
2234/Del/2005 & 3805/Del/2008
Advisory Committee as set up under s. 210A of the Companies
Act, 1956 pursuant to a recommendation of the ICAI; the
Accounting Standards issued by the ICAI shall prevail.
Therefore, we have no difficulty in accepting the submissions of
the learned counsel for the assessee that it was obliged to
capitalize the entire cost of spares in consonance with the
mandatory provisions of AS-2 and AS-10."
11.3 In above case, the learned counsel of the assessee
submitted that in view of the mercantile system of accounting
followed under section 145(1) of the Act, the treatment of assessee's
emergency spares as capital expenditure in accordance to revised
AS-2 and AS-10 would be in consonance with provisions of the Act.
However this proposition was objected by the learned counsel of the
Revenue. The relevant observation of the Hon'ble High Court on the
issue whether Revenue authorities are required to follow accounting
standard is reproduced as under:
"16.6 It is not disputed that the assessee is maintaining the
accounts based on a mercantile system. Under sub-s. (1) of s.
145 of the Act the assessee's income which is chargeable under
the head "Profits and gains of business or profession" is
required to be computed in accordance with either cash or
mercantile system of accounting regularly employed by the
assessee.
16.7 As indicated above the assessee has been maintaining a
mercantile system of accounting, therefore, the treatment of
emergency spares in accordance with the revised AS-2 and AS-
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
17
2234/Del/2005 & 3805/Del/2008
10 would be in consonance with the mercantile system of
accounting which under the Act the Revenue is required to look
at for computing income of the assessee chargeable under the
head "Profits and gains from business". The submission of the
learned counsel for the Revenue that the accounting treatment
to be meted out to a transaction in accordance with the
Accounting Standards has no relevance for the purposes of the
IT Act, 1961 is a submission which does not commend to us.
16.8 In the past, Courts have applied rules and principles of
accountancy where words and expressions used in the Act have
not been given a definitive meaning. The Supreme Court in the
case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 :
(1975) 98 ITR 167 (SC) was called upon to interpret the meaning
of the expression 'Actual cost' for the purposes of determining
the justifiability of the assessee's claim for depreciation and
development rebate under the Indian IT Act, 1961. The
assessee sought to include in the cost of asset the interest paid
by it for the period prior to commencement of business on
borrowings taken up by it. The Supreme Court in coming to the
conclusion that the assessee's stand was correct resorted to the
rules of accountancy prevailing in the industry. In this context
the following observations of the Supreme Court being apposite
are extracted below :
"In finding the answer to the question mentioned above, we
have to bear in mind that it arises in the context of profits or
gains of business and the permissible deductions on account of
depreciation and development rebate relating to the machinery
and plant of the assessee. As the expression 'Actual cost' has
not been defined, it should, in our opinion, be construed in the
sense which no commercial man would misunderstand. For this
purpose, it would be necessary to ascertain the temptation of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
18
2234/Del/2005 & 3805/Del/2008
the above expression in accordance with the normal rules of
accountancy prevailing in commerce and industry.
....It would appear from the above that the accepted
accountancy rule for determining the cost of fixed assets is to
include all expenditure necessary to bring such assets into
existence and to put them in working condition. In case money
is borrowed by newly started company which is in the process
of constructing and erecting its plant, the interest incurred
before the commencement of production on such borrowed
money can be capitalized added to the cost of the fixed asset
which have been created as a result of such expenditure. The
above rule of accountancy should, in our view, be adopted for
determining the Actual cost of the assets in the absence of any
statutory definition or other indication to the contrary."
16.9 The learned counsel for the Revenue relied upon the
judgment of the Supreme Court in the case of Tuticorin Alkali
Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 :
(1997) 227 ITR 172 (SC) to buttress her submission that
accountancy principles cannot override the provisions of the Act.
This proposition is unassailable. One cannot take resort to a
principle or rule of accountancy when the Act provides
specifically for the situation at hand. But when the situation is
one where there is no definitive provision, a Court can take
resort to well accepted accountancy rules and principles. The
Supreme Court in Tuticorin Alkali Chemicals (supra) has not
derogated from this principle enunciated in Challapalli Sugar
Mills Ltd. (supra). See observation in Tuticorin Alkali Chemicals
(supra) at pp. 183 to 186, in particular, observations at p.
185(H) to p. 186(D).
16.10 The applicability of the principles of accountancy by the
Courts has also found favour in the judgments of the Supreme
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
19
2234/Del/2005 & 3805/Del/2008
Court in the cases of CIT vs. Indo Nippon Chemicals Co. Ltd.
(2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC) at p. 277(D-
E) and CIT vs. U.P. State Industrial Development Corporation
(1997) 139 CTR (SC) 267 : (1997) 225 ITR 703 (SC) and also the
judgment of a Division Bench of this Court in CIT vs. Woodward
Governor India (P) Ltd. & Ors. (2007) 210 CTR (Del) 354 : (2007)
294 ITR 451 (Del) at p. 463-464 (paras 15-16). The observations
of UPSIDC being apposite are extracted hereinbelow :
"In our opinion, this contention is devoid of force. The
accounting practice followed by the assessee in the instant
case was in consonance with the general principles of
accountancy governing underwriting accounts. It is a well
accepted proposition that 'for the purposes of ascertaining
profits and gains the ordinary principles of commercial
accounting should be applied, so long as they do not
conflict with any express provision of the relevant statutes,
[see Whimster & Co. vs. IRC (1925) 12 Tax Cases 813 (C.
Sess); IRC vs. Cock Rusell & Co. Ltd. (1949) 29 Tax Cases
387 (KB)]. This proposition has been affirmed by this Court
in P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735
(SC). In the said case it has been observed (at p. 743) :
'For that purpose it was the duty of the ITO to find out
what profit the business has made according to the
treatment of emergency spares in accordance with the
revised AS-2 and AS-10 would be in consonance with the
mercantile system of accounting which under the Act the
Revenue is required to look at for computing income of the
assessee chargeable under the head "Profits and gains
from business". The submission of the learned counsel for
the Revenue that the accounting treatment to be meted out
to a transaction in accordance with the Accounting
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
20
2234/Del/2005 & 3805/Del/2008
Standards has no relevance for the purposes of the IT Act,
1961 is a submission which does not commend to us.
16.8 In the past, Courts have applied rules and principles of
accountancy where words and expressions used in the Act have
not been given a definitive meaning. The Supreme Court in the
case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 :
(1975) 98 ITR 167 (SC) was called upon to interpret the meaning
of the expression 'Actual cost' for the purposes of determining
the justifiability of the assessee's claim for depreciation and
development rebate under the Indian IT Act, 1961. The
assessee sought to include in the cost of asset the interest paid
by it for the period prior to commencement of business on
borrowings taken up by it. The Supreme Court in coming to the
conclusion that the assessee's stand was correct resorted to the
rules of accountancy prevailing in the industry. In this context
the following observations of the Supreme Court being apposite
are extracted below :
"In finding the answer to the question mentioned above,
we have to bear in mind that it arises in the context of
profits or gains of business and the permissible deductions
on account of depreciation and development rebate
relating to the machinery and plant of the assessee. As the
expression 'Actual cost' has not been defined, it should, in
our opinion, be construed in the sense which no
commercial man would misunderstand. For this purpose, it
would be necessary to ascertain the temptation of the
above expression in accordance with the normal rules of
accountancy prevailing in commerce and industry.
....It would appear from the above that the accepted
accountancy rule for determining the cost of fixed assets is
to include all expenditure necessary to bring such assets
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
21
2234/Del/2005 & 3805/Del/2008
into existence and to put them in working condition. In
case money is borrowed by newly started company which
is in the process of constructing and erecting its plant, the
interest incurred before the commencement of production
on such borrowed money can be capitalized added to the
cost of the fixed asset which have been created as a result
of such expenditure. The above rule of accountancy
should, in our view, be adopted for determining the Actual
cost of the assets in the absence of any statutory definition
or other indication to the contrary."
16.9 The learned counsel for the Revenue relied upon the
judgment of the Supreme Court in the case of Tuticorin Alkali
Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 :
(1997) 227 ITR 172 (SC) to buttress her submission that
accountancy principles cannot override the provisions of the Act.
This proposition is unassailable. One cannot take resort to a
principle or rule of accountancy when the Act provides
specifically for the situation at hand. But when the situation is
one where there is no definitive provision, a Court can take
resort to well accepted accountancy rules and principles. The
Supreme Court in Tuticorin Alkali Chemicals (supra) has not
derogated from this principle enunciated in Challapalli Sugar
Mills Ltd. (supra). See observation in Tuticorin Alkali Chemicals
(supra) at pp. 183 to 186, in particular, observations at p.
185(H) to p. 186(D).
16.10 The applicability of the principles of accountancy by the
Courts has also found favour in the judgments of the Supreme
Court in the cases of CIT vs. Indo Nippon Chemicals Co. Ltd.
(2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC) at p. 277(D-
E) and CIT vs. U.P. State Industrial Development Corporation
(1997) 139 CTR (SC) 267 : (1997) 225 ITR 703 (SC) and also the
judgment of a Division Bench of this Court in CIT vs. Woodward
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
22
2234/Del/2005 & 3805/Del/2008
Governor India (P) Ltd. & Ors. (2007) 210 CTR (Del) 354 : (2007)
294 ITR 451 (Del) at p. 463-464 (paras 15-16). The observations
of UPSIDC being apposite are extracted hereinbelow :
"In our opinion, this contention is devoid of force. The accounting
practice followed by the assessee in the instant case was in
consonance with the general principles of accountancy
governing underwriting accounts. It is a well accepted
proposition that 'for the purposes of ascertaining profits and
gains the ordinary principles of commercial accounting should
be applied, so long as they do not conflict with any express
provision of the relevant statutes, [see Whimster & Co. vs. IRC
(1925) 12 Tax Cases 813 (C. Sess); IRC vs. Cock Rusell & Co.
Ltd. (1949) 29 Tax Cases 387 (KB)]. This proposition has been
affirmed by this Court in P.M. Mohammed Meerakhan vs. CIT
(1969) 73 ITR 735 (SC). In the said case it has been observed
(at p. 743) :
'For that purpose it was the duty of the ITO to find out
what profit the business has made according to the true
accountancy practice."
11.4 The decision in the case of CIT Vs Southern
petrochemical industries Corporation limited(supra) wherein it is
held that depreciation is allowable on standby spare parts items
which are not taken for use during the accounting year, has been
considered in the case of CIT Vs Insilco Ltd (supra). We also note
that the finding in the case of SPIC Ltd (supra) is identical to the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
23
2234/Del/2005 & 3805/Del/2008
finding in the case of Southern petrochemical industries
Corporation limited (supra).
11.5 Thus, according to the above decision of the Hon'ble High
Court in the case of Insilco Ltd (supra), prime requirement is that
the machinery spares should be integral part of the fixed asset or it
should be of emergency nature. The Hon'ble Delhi High Court has
further laid down following requirements for considering machinery
spares for capitalisation:
(i) the spares should be in the nature of capital
spares/insurances spares
(ii) those capital/insurance spares should be specific to a
particular item of fixed asset
(iii) use of those capital/insurances spares is irregular
11.6 We find that in the instant case before us, the assessee
has nowhere demonstrated the above requirements of the ratio in
the case of Insilco Ltd (supra), and thus facts of the instant case
being distinguishable, the ratio of the above decision cannot be
applied and arguments of the assessee to treat those machinery
spares as capital expenditure is rejected.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
24
2234/Del/2005 & 3805/Del/2008
11.7 Further we find that Hon'ble Supreme Court in the case
of Kedarnath Jute Mfg. Co. Ltd vs Commissioner Of Income
Tax, (1971) AIR 2145, 1972 SCR (1) 277, [1971] 82 ITR 363(SC)
held that whether the Assessee is entitled to a particular deduction
or not will depend on the provision of law relating thereto and not on
the view which the assessee might take of his rights nor can the
existence or absence of entries in the books of account be decisive or
conclusive in the matter.
11.8 We further note that the Hon'ble Supreme Court in the
case of Lakkshmiji Sugar Mills P Co. Ltd Vs CIT (1971) 82 ITR 376
(SC) , which has been further referred in CIT Vs Sri Mangayarkarasi
Mills P.Ltd (2009) 315 ITR 114(SC) , it is held that bringing into
existence a new asset or an enduring benefit for the assessee
amounts to capital expenditure. This principle has also been
reiterated by the Hon'ble Supreme Court in the case of CIT Vs.
Sharvana Spinning Mills P Ltd. (2007) 293 ITR 201(SC) as under:
" 12. This Court in the case of Ballimal Naval Kishore vs. CIT (1997) 138
CTR (SC) 284 : (1997) 2 SCC 449 approved the test formulated by Chagla
C.J. in the case of New Shorrock Spinning & Manufacturing Co. Ltd. vs.
CIT (1956) 30 ITR 338 (Bom) as to when the expenditure can be said to
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
25
2234/Del/2005 & 3805/Del/2008
have been incurred on current repairs. In that case it was observed as
follows :
"The simple test that must be constantly borne in mind is that as a
result of the expenditure which is claimed as an expenditure for
repairs what is really being done is to preserve and maintain an
already existing asset. The object of the expenditure is not to bring
a new asset into existence, nor is its object the obtaining of a new
or fresh advantage. This can be the only definition of "repairs"
because it is only by reason of this definition of repairs that the
expenditure is a revenue expenditure.
If the amount spent was for the purpose of bringing into existence
a new asset or obtaining a new advantage, then obviously such an
expenditure would not be an expenditure of a revenue nature but
it would be a capital expenditure, and it is clear that the deduction
which the legislature has permitted under s. 10(2)(v) is a deduction
where the expenditure is a revenue expenditure and not a capital
expenditure."
.............................................................................................."
11.9 Before us, the assessee has failed to demonstrate
whether the spare parts which are used when a machine
malfunctions, has brought into existence a new asset or given
enduring benefit to the assessee. In absence of satisfying the
requirement for constituting a machinery spare as capital
expenditure as laid down in the above decisions of the Hon'ble
Supreme Court, expenditure incurred on machinery repairs can not
be allowed as capital expenditure and consequent depreciation
claimed also cannot be allowed. Thus the ground number 1(a) of the
appeal is dismissed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
26
2234/Del/2005 & 3805/Del/2008
11.10 The 2nd issue raised is can the depreciation be allowed on
machinery in ready to use condition, though actually not put to
use.
11.11 On this issue, the Ld. Counsel has referred to the
decisions in the case of National Thermal Power Corporation limited
versus CIT (supra) and CIT vs Yamaha motor India Private
Limited(supra) to support the contention that depreciation is
allowable on the asset kept ready for use but not actually used. But
in the instant case as we have already held that machinery spares
does not constitute capital expenditures and thus the issue of
whether the same were ready for use or actually used is not
relevant in the facts of the case. This ground of the appeal no 1(b),
is accordingly dismissed.
11.12 The 3rd issue which has been raised by the assessee is
that in the event deduction towards depreciation on machinery
spare is not allowed, deduction may be allowed on the basis of the
actual consumption of the Spares. It has been mentioned by the
assessee that in assessment year 2002-03 also the assessee has
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
27
2234/Del/2005 & 3805/Del/2008
been allowed deduction on the basis of the actual consumption of
the machinery spares. In our opinion, this prayer of the assessee is
justified as the machinery spares which have been consumed in
repair of fixed asset, satisfies the requirement of section 37(1) of the
Act and accordingly, ground No.1(c) of the appeal of the assessee is
allowed.
12.1 Inground No. 2, the assessee has challenged
disallowance of deduction under section 80IA(4) of the
Actamounting to Rs. 16.82 crores.
12.2 The brief facts qua the issue in dispute are that the
assessee is engaged in construction of infrastructure facilities such
as `Rail systems', `Road' and `Bridges' etc. The assessee claimed
deduction under section 8IA of the Act amounting to Rs. 16.82
crores in respect of the projects awarded to it by various
Central/State/local authorities. The assessee claimed that those
projects were developed by it. The Assessing Officer disallowed the
claim assigning following reasons:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
28
2234/Del/2005 & 3805/Del/2008
(a) Assessee is only a contractor executing certain
specific civil work and not a developer
(b) Such infrastructure project should be notified in
the official Gazette and no evidence regarding the
same was submitted by the assessee
(c) The assessee is not involved in construction of the
entire infrastructure facility as a whole.
(d) The real motive and initiative behind undertaking
of the project remains that of the principal and
the contactors cannot lay claim on the same.
(e) The assessee company has not infused fresh
capital or any technical expertise in any manner
so as to lay claim over the fact that it is engaged
in development of infrastructure facility.
(f) Similar disallowance was made in assessment
year 2000-01.
12.3 The Ld. CIT(A) upheld the disallowance relying on the
decision of Ld. 1st appellate authority in assessment year 2000-01,
wherein it was held that;-
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
29
2234/Del/2005 & 3805/Del/2008
(a) The role of the assessee is that of a contractor only;
(b) The assessee was only executing certain civil works
relating to construction of infrastructure facility;
(c) Deduction under section 80IA is admissible to an
assessee who is engaged in developing infrastructure
facility as a whole, when such a facility belongs to the
assessee. At no point of time such a facility belonged to
the assessee;
(d) Receipt on account of contracts have been categorised
as work receipts and on such receipts, TDS has been
deducted, which further shows that the payment
received by the assessee are as a contactor only;
(e) The prominent gains of the assessee cannot be said to
be derived from the eligible business.
12.4 Before us, the Ld. Counsel of the assessee submitted that
issue in dispute is squarely covered in the favour of the assessee by
the decision of the Tribunal in the case of the assessee for
assessment year 2000-01.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
30
2234/Del/2005 & 3805/Del/2008
12.5 The Ld.DR on the other hand relied on the order of the
lower authorities.
12.6 We have heard the rival submission of parties and
perused the relevant material on the record. The Tribunal in the
case of the assessee in order dated 12/06/2017in ITA No.
2596/12/2004 for assessment year 2000-01 has held as under:
"3.5 Considering the arguments advanced by the parties
and. after going through the orders and material placed
before us, we hold as under :
Regarding the claim of deducted u/s. 80IA, it is seen that
appellant is a company and has entered into contracts
with various Central Government, State Government, State
Government and Local Authority and other statutory
bodies. A close reading of the agreement (for instance
agreement with MSRDC enclosed in the paper book)
clearly shows that appellant developed the infrastructure
facility and has not Acted merely as contractor as sought
to be made out by Assessing Officer and CIT (Appeals).
The Oxford dictionary defines the term developer as a
person that designs and crate new products, whereas
contractor is a person or a company that has a contract to
do work or to provide goods or services. Various clauses of
the above referred agreement to which reference has been
made by us little below would show7 that the construction
rail over bridge projection (ROB) awarded by MSRDC to the
appellant is nothing but development of infrastructure
facility, which was to be legally handed over to the-
Railways and MSRDC after the payment was received.
Various clauses of the agreement would show7 that the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
31
2234/Del/2005 & 3805/Del/2008
jobs done by the appellant were planning, execution,
construction and making the infrastructure facility ready
for operations. Ld. Assessing Officer has not pointed out
any specific clauses of any agreement, which show's that
all attributes of development were not present. Making a
bald assertion that assesses was a contractor does not
serve any purpose. Merely using the terms contractor in
the agreement would not make any difference as what
has to be seen is the substance. Anybody who enters into
a contract is closely called a contractor but that does not
mean that such person entering into the contract cannot be
developer. The other agreement with MSRDC shown to us
as one as instance clearly shows that appellant was
engaged in investigation, planning,, organizing and
construction of road over bridge within the stipulated time.
If the Activities undertaken by the appellant cannot be
termed as development, we are afraid then what can be
called development? Therefore, we do not have any
hesitation in holding in view of the arguments advanced
from the sides of both parties and decisions relied upon
that appellant was developing infrastructure facility and
claimed deduction u/s 80IA in respect of income derived
from the development of infrastructure facilities.
Explanation inserted below section 80IA(13) does not
prevent developers in claiming deduction u/s 80IA(4).
Similarly showing the receipts as work receipts in the
books of accounts of the appellant alone cannot determine
the character of the appellant which in our opinion was
that of development. The argument of revenue that
infrastructure facility should be owned by the appellant is
also misplaced in view of ITO vs. Cable Constructions 354
ITR 13 (Guj.) and various decisions relied upon by the Ld.
Counsel for the appellant. We also note that the Ld. CIT
(DR) tried to raise issues which were not even the case of
the Assessing Officer and this in our considered opinion is
clearly impressible. Case laws relied by the revenue are
clearly misplaced on facts and are clearly distinguishable.
Special bench decision in the case of R. T. Patil (Mum.) 126
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
32
2234/Del/2005 & 3805/Del/2008
TTJ 577 was recalled later on as it did not consider the
binding decision of Hon'ble Bombay High Court in the case
of ABG 322 ITR 323 (Bom). According to the assessment
order, copies of all the agreements were before Assessing
Officer yet Assessing Officer chose to make sweeping
observation that the assessee is not developer. Such
sweeping and bald assertion cannot be approved by us.
`Therefore, taking into the facts of the present case, we are
or the considered view that appellant is entitled to claim
deduction u/s 80IA, which was wrongly denied. We set
aside the order of the ld. CIT (Appeals) and direct the
Assessing Officer to allow deduction u/s 801A has
claimed by the appellant. Ground No. 1 is allowed."
12.7 In view of identical facts and circumstances in the
instant assessment year and that the Ld. CIT(A) himself followed
finding of 1st appellate authority in assessment year 2000-01,
respectfully following the finding of the Tribunal (supra), we set
aside the finding of the Ld. CIT(A) on the issue in dispute and direct
the Assessing Officer to allow deduction under section 80IA of the
Act on the eligible projects. The ground number 2(a) and 2(b) of the
assessee are accordingly allowed.
13.1 The ground Nos. 3(a) and 3(b) of the appeal of the
assessee relate to disallowance of claim of Rs. 23.18 crores for
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
33
2234/Del/2005 & 3805/Del/2008
deduction under section 80HHC of the Act in respect of supply of
signalling equipment.
13.2 The brief facts qua the issue in dispute are that the
assessee company entered into an agreement with the Government
of Iran for supply of signalling & electrical equipment and
supervision of its installation and commissioning. The agreement
also provided for services such as supervision of installation,
commissioning and training.
13.3 The Assessing Officer disallowed deduction amounting to
Rs. 23.18 crores claimed under section 80HHC of the Act on the
ground that the assessee company was obliged to supply services
and was also responsible for training & commissioning and the said
services are not eligible for deduction under section 80HHC of the
Act. The Assessing Officer also observed that no clearance of an
Indian custom station had taken place and the goods have been
transported directly from third countries. The Ld. CIT(A) relying on
the order of 1st appellate authority in assessment year 2000-01
upheld the action of the Assessing Officer. In assessment year
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
34
2234/Del/2005 & 3805/Del/2008
2000-01, the 1st appellate authority held that supply and erection of
signalling system cannot be categorised as export of goods.
13.4 Before us the Ld. Counsel of the assessee submitted that
issue in dispute is covered in favour of the assessee by the order of
the Tribunal in assessment year 2000-01.
13.5 The Ld. DR on the other hand relied on the order of the
lower authorities.
13.6 We have heard the rival submissions and perused the
relevant material on record. We find that the Tribunal in ITA No.
2596/12/2004 for assessment year 2000-01 has held as under:
4.4 We have considered the arguments advanced by the
parties on the issue raised in Ground No.2 in the matter of
deduction u/.s 80HHC.We have gone through the
agreement enclosed in the paper book and various clauses
and various other pages of the paper book to which our
attention was drawn. All these documents would show
that it was a purchase / sale contract in which
government of. Iran was buyer and appellant is a seller
and the contract was that of sale the goods and the price
of equipments completely built up was fixed in which the
total contract price of US$ 2,50,000 was bifurcated
between equipments and engineering, supervision of
installation and commissioning, training and thus 97.5 %
approximate of the contract price was for supply and
designing and only 2.5% was for supervision and training.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
35
2234/Del/2005 & 3805/Del/2008
Services are incidental to the supply of the material.
Dominant objective of the contract is purchase of
equipment by government of Iran. Therefore, the appellant
assessee before us was rightfully entitled to claim
deduction u/s 80HHC in respect of the export made qua
the amount of entire bill. Case laws relied upon by the
learned counsel supports the case of the appellant. Hence
appellant be allowed deduction under section 80HHC.
Similarly, it is seen that in respect of the deduction u/s
80HHC claimed in respect of goods exported from one
country to the other country outside India, Hon'ble
Karnataka High Court in the case of Anil Kumar vs. JTO
343 1TR 30 (Kar.) has held that direct shipment of goods
cannot disentitle assessee in claiming the deduction u/s
80HHC. This decision was rendered after taking into
account Explanation (aa) to section 80HHC. Case laws
relied upon by learned CIT (DR) are not on the issue at
hand and are distinguishable on facts. Decision of N.C.
Budhiraja was entirely on different factual matrix.
Deduction under section 80HHC on such export of goods
was wrongly disallowed. Therefore, we are of the
considered view that the deduction u/s 80HHC denied to
the appellant is not sustainable and the disallowance
made is hereby deleted"
13.7 Thus, the Tribunal has held that services are identical to
the supply of material and dominant objective of the contract is
purchase of equipment by the government of Iran. Further, it is
held that direct shipment of the goods cannot disentitle assessee in
claiming the deduction under section 80HHC in respect of the
goods exported from one country to the other country outside India.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
36
2234/Del/2005 & 3805/Del/2008
13.8 In view of facts and circumstances existed in the year
under consideration being identical as compared to assessment
year 2000-01 and the fact that Ld. CIT(A) himself has followed
finding of the 1st appellate authority in assessment year 2000-01,
respectfully following the finding of the Tribunal (supra), we set
aside the finding of the Ld. CIT(A) on the issue in dispute and direct
the Assessing Officer to allow the deduction claimed under section
80HHC of the Act.
14.1 In ground No. 4, the assessee has challenged
disallowance of Rs. 9,32,902/-on account of miscellaneous
donations.
14.2 The Assessing Officer observed that following donations
have been paid to various Sports and Railway welfare organisations,
in addition to donation of Rs.1,00,00,000/- to the Prime Minister
Relief Fund:
1 Prime Minsister Relief Fund 1,00,00,000/-
2 Railway Board Sports Association, New Delhi 50,000/-
3 Railway Ministers Welfare Fund, New Delhi 5,00,000/-
4 Railway Women's Welfare Central Organization 2,50,000/-
New Delhi
5 Railway Women's Welfare Central Organization 10,000/-
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
37
2234/Del/2005 & 3805/Del/2008
Chennai
6 Andhra Pradesh Road Project, Huzurabad 835/-
7 Malaysia Loco & K.L. Central 1,22,067/-
14.3 The claim of donation made to Prime Minister relief fund
has been subsequently allowed by the Assessing Officerin terms of
section 80G of the act on the basis of the receipt submitted before
him, but receipt(s) issued by other organisation(s) under section
80G of the Act, was not produced by the assessee. The claim of the
assessee for allowing said expenditure under section 37 of the
Actwas disallowed by the assessing officer holding that same was
not having any relation with the business of the assessee company.
Further, the Ld. CIT(A) upheld the disallowance observing as under:
"8.3.1. On going through the details filed of petty donations, it
is observed that the donations have been made to Railway Board
Sports Association, Railway Minister's Welfare Fund, Railway
Women's Welfare Central Organization, Andhra Pradesh Road
Project and Malaysia Loco & KL Central. The appellant has no
where justified how the payments made to these organizations as
mentioned above are connected with the smooth functioning of its
business. The contributions are not on account of festivals or other
community celebrations considered as allowable in the case of the
CIT vs. Bata India Ltd. (supra). In fact, they are in the nature of
donations only. As no evidence was submitted during the course of
assessment or during the course of appellate proceedings as to
how the donations made to the organizations are allowable as
business expenditure, the same has been rightly disallowed by the
A.O."
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
38
2234/Del/2005 & 3805/Del/2008
14.4 Before us, the Ld. Counsel of the assessee reiterated the
submission made before the Ld. CIT(A) and submitted that
donations were made on account of social function and festival to
ensure smooth functioning of the business.
14.5 The Ld. DR on the other hand relied on the order of the
lower authorities.
14.6 We have heard the rival submission of the parties. Before
the lower authorities, the assessee failed to establish that
expenditure incurred on donations are wholly and exclusively for
the purpose of business as required in terms of section 37 of the
Act. Before us also, the assessee failed to substantiate as how case
of the assessee is covered by the decision in the case of CIT Vs Bata
India Ltd(supra). The expenses have evidently incurred on donation
to Railway Board Association and Welfare Societies of Railway
employees and not on festivals or community celebration in the
area of projects executed by the assessee.In absence of any such
evidences of incurring expenses on account of festival or community
celebration in the vicinity of project executed, the reliance placed by
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
39
2234/Del/2005 & 3805/Del/2008
the assessee on the decision in the case of CIT Vs Bata India
Ltd(supra) is misplaced. We do not find any infirmity in the order of
the Ld. CIT(A) on the issue in dispute and accordingly, we uphold
the same. The ground of the appeal of the assessee is dismissed.
15.1 The ground No. 5 of the appeal of the assessee relates to
disallowance of prior period expenses amounting to Rs.
1,80,20,765/-sustained by the Ld. CIT(A). The ground No. 6 of the
appeal of the Revenue, pertains to relief of Rs.63,06,235/-allowed
by the Ld. CIT(A) out of the disallowance of prior period expenses.
Both the grounds being connected with the same issue, these are
adjudicated together.
15.2 The Assessing Officer disallowed prior period expenses of
Rs. 2,43,27,000/-stating that those did not pertain to the previous
year relevant to the current assessment year and there is no
provision in the Income-Tax Act to allow deduction of prior period
expenses. The Ld. CIT(A)partly confirmed the disallowance to the
extent of Rs. 1,80,20,765/- , holding that expenditure has not
crystallised in the year under consideration and no evidence filed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
40
2234/Del/2005 & 3805/Del/2008
15.3 We have heard rival submissions of the parties on the
issue in dispute and perused the relevant material on record. The
Ld. CIT(A) adjudicated the issue of prior period expenses observing
as under:
"10.3. The ratio laid down by the various High Courts in the cases
referred to by the appellant as mentioned above is that even if the
expenditure relates to earlier years but the liability crystallizes in
the subsequent years or it is ascertained in the subsequent years,
then it is allowable as an expense. Taking this into consideration
the appellant counsel was directed to prove that the liability has
got ascertained during the year in relation to the expenses claimed
under the head `Prior period Expenses'. The appellant has claimed
prior period expenditure to the amount of Rs.2,43,27,000.
10.3.1 The appellant counsel made submissions vide letter dated
17-01-2005, 18- 01-2005 and 25-01-2005. The appellant counsel
filed details in respect of few of the expenses only vide the above
mentioned letters and are being examined for their allowability.
The appellant has filed details in respect of the project at CIC
Noida, Kathmandu Nepal, Iraq, Anand Vihar Maintenance and
Corporate Office claiming an amount of Rs.8,22,887/-,
Rs.11,78,541/-, Rs.22,12,452/-, Rs.9,44,372 and Rs.11,70,450
respectively. On going through the details, it is observed that the
liability in respect of the above mentioned expenditure crystalised
during the year except of Rs.2,36,798 included in the Corporate
Office expenses of Rs.11,70,450 which relates to arrears of foreign
service contribution of Shri Manohar Lai for the FY 1986-87. No
evidence has been produced that the liability in respect of the
expenses pertaining to the FY 1986-87 crystalised during the year.
In view of the above facts, expenses to the amount of Rs.69,91.904
(Rs.8,22.887 + Rs.11.78.541 + Rs.22.12.452 + Rs.9.44.372 +
Rs.1[1.70.450 - Rs.2.36.798) is allowed.
10.3.2 The appellant counsel has also filed the details regarding
the claim of Rs.11,56,337 in respect of NOIDA Express Way Project
vide its letter dated 17-01-2005. On going through the details filed,
it is observed that the liability of the expenses was communicated
to the appellant vide letter dated 18-04-2001 by the concerned
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
41
2234/Del/2005 & 3805/Del/2008
authority. As the liability has not crystalised during the year,the
same cannot be allowed as expenditure.
10.3.3 In the letter dated 18-01-2005, prior period expenses in
respect of the NTPC Korba Project has been claimed of
Rs.11,48,247. On going through the details submitted on page
No.6, it is observed that the bifurcation of the expenses relating to
various years have been given but no proof has been attached that
the liability arose during the year, hence, the same cannot be
allowed as expenditure.
10.3.4 For the Malaysia Project, a sum of Rs.24,23,120 has been
claimed vide letter dated 18-01-2005. As per the details submitted
on page No.7, it is observed that only expenses of Rs.1,24,352/-,
Rs.12,279 and Rs.77,700 was ascertained during the year and for
all the other expenditure claimed, the liability has not ascertained
during the year. The major expenditure claimed is in respect of oil
canalization commission as per the note submitted alongwith the
letter dated 25-01-2005 at page No.50. On going through the note,
it is observed that 2% payment was required to be made to
agencies such as MMTC & STC during the year 1999-00 which was
not provided in the FY 1999- 00. It has been explained by the
appellant counsel as the oil was lifted in the subsequent FY i.e.
2000-01, the liability was also claimed in the AY 2001-02.
However, no evidence has been filed in support of the same, hence,
the same is also not allowable as. expenditure.
10.3.5 The appellant counsel has also claimed an amount of
Rs.53,20,297 and Rs.17,56,806 in respect of GAIL, S&T and OFC
Ambala respectively vide letter dated 18.01.2005. No evidence has
been filed in support of the claim made that the liability arose
during the year, therefore, the same cannot be allowed as
expenditure."
15.4 Before us the Ld. Counsel of the assessee reiterated that
prior period expenses is allowable as deduction,if liability to pay has
crystallised during the year under consideration. We note that the
Ld. CIT(A) also agreed with this proposition of law, and asked the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
42
2234/Del/2005 & 3805/Del/2008
assessee to demonstrate whether the expenses were crystallised
during the year under consideration. The assessee failed in
demonstrating so not only before the Ld. CIT(A), but before us as
well.
15.5 The Ld. counsel also submitted that the department in
earlier years has accepted and allowed the identical expenses in the
year in which it has been debited. In our opinion, the settled
principles is that expenses can be allowed as deduction in the year
if crystallised during the relevant year under consideration. The
prior period expenses in the year under consideration cannot be
allowed merely on the ground that prior period expenses have been
allowed by the department in earlier assessment years. The rule of
consistency does not apply as the prior period expenses have to be
seen in the light of the principle of crystallisation in the year under
consideration.
15.6 We find that the Ld. CIT(A) has sustained the
disallowance after examining and verifying the details in respect of
the expenses filed before him . The Ld. CIT(A) held that in respect of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
43
2234/Del/2005 & 3805/Del/2008
the expenses amounting to Rs. 11,70, 450 /-claimed as prior period
expenses for corporate office, the assessee failed to furnish any
evidence for liability in respect of Rs. 2,36,798/- related to arrears
of foreign service contribution of Sri Manoher Lal for the financial
year 1986-87, claimed as crystallised in the year under
consideration and accordingly sustained the disallowance in respect
of the amount of Rs. 2,36,798/-. Before us also no evidences in this
respect have been furnished by the assessee. Accordingly, we
uphold the said disallowance of Rs.2,36,798/-.
15.7 The Ld. CIT(A) disallowed claim of prior period expenses
of Rs. 11,56,337 in respect of `NIODA Expressway project' holding
that liability of the expenses was communicated to the assessee
vide letter dated 18/04/2001 by the concerned authority and thus
the liability had not crystallised during the year and same was not
allowable as expenditure in the year under consideration. Before us
the Ld. counsel has submitted that this amount represents
expenditure not accepted by the client for reimbursement in a cost-
plus contract. He further submitted that as the loss was quantified
and same was provided in the earliest available accounts and
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
44
2234/Del/2005 & 3805/Del/2008
moreover, the above letter dated 18.04.2001 is with reference to the
letter dated 1/02/2001 and relates to work done till 31/03/2000.
15.8 As evident from the facts on record , we find that the
clients of the assessee have rejected the claim of reimbursement of
the expenses in previous year relevant to subsequent assessment
year, thus, it cannot be said that expenditure crystallized during
the year under consideration. The assessee has failed to
substantiate before us that the said expenditure was crystallised
during the year under consideration. Thus, we do not find any error
in the finding of the Ld. CIT(A) on the issue in dispute and
accordingly , uphold the same.
15.9 The next disallowance sustained by the Ld. CIT(A) relates
to prior period expenses amounting to Rs. 11,48,247 claimed by the
assessee in respect of `NTPC Korba project'. The Ld. CIT(A) held that
no proof was provided by the assessee that the liability arose during
the year under consideration, and hence he sustained the
disallowance. Before us the Ld. counsel submitted that the
expenditure represents the amount of expenditure not accepted by
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
45
2234/Del/2005 & 3805/Del/2008
the client for reimbursement in a cost-plus contract and it is a
regular expenditure in relation to various years. In our opinion,
merely making a claim without substantiating that liability
crystallised during the year under consideration, the claim cannot
be allowed to the assessee. We do not find any error in the finding
of the of the Ld. CIT(A) in sustaining the disallowance, and
accordingly we uphold the same.
15.10 Next disallowance of prior period expenses amounting to
Rs. 22,08,789/-which has been sustained by the Ld. CIT(A), relates
to `Malaysia project'. The Ld. CIT(A) observed that major
expenditure claimed was in respect of Oil canalisation commission,
which the assessee was required to pay at the rate of 2% to agency
such as `MMTC' and `STC' during the year 1999-2000, which was
not provided in the relevant financial year. The assessee claimed
that oil was lifted in the subsequent financial year 2000-01, and
therefore liability was claimed in assessment year 2001-02 i.e. year
under consideration. However , in view of no evidence filed in
support of the claim of liability incurred in the year under
consideration, the Ld. CIT(A) sustained the disallowance to the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
46
2234/Del/2005 & 3805/Del/2008
extent of Rs. 22,08,789/-. Before us, also no evidence in support of
the claim that oil was lifted in the year under consideration, has
been brought on record by the assessee. In absence of any
documentary evidence in support of the claim, we uphold the
finding of the Ld. CIT(A) in sustaining the disallowance of Rs.
22,08,789/-.
15.11 Next disallowance under prior period expenses
amounting to Rs. 53,20,297/-pertaining to `GAIL', `L&T', and Rs.
17,56,806/- pertaining to `OFC Ambala' was upheld by the ld.
CIT(A), in view of no documentary evidences. Similarly disallowance
of Rs. 63, 06, 235/-has been sustained by the Ld. CIT(A) in view of
no details and evidence of the expenses. As no evidences were filed
by the assessee in support of the claim that liability arose during
the year under consideration, the Ld. CIT(A) upheld the
disallowance. Before us the Ld. counsel claimed that retention
money deducted and released by the client has been booked as
income twice. He submitted that at the time of raising bill in 1997-
98 and again on receipt of retention money in the year 1999 and
this error was detected in the previous year relevant to the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
47
2234/Del/2005 & 3805/Del/2008
assessment year 2001-02 and therefore same was charged to
expenses under the head prior period expenses. However, in
support of the above explanation, no documentary evidences have
been filed either before the Ld. CIT(A) or before us, accordingly the
contention of the assessee are not accepted and disallowance
sustained by the Ld. CIT(A) is therefore confirmed. The ground No.
5(a) of the appeal is accordingly dismissed.
15.12 In ground number 5(b) of the assessee, the Ld. counsel
submitted that the Ld. CIT(A) has decided the issue without
affording reasonable opportunity to the assessee for furnishing all
the relevant documents and hence issue might be set aside for
considering the same on the merit. But we find that before us no
any additional documents have been submitted as fresh evidence,
which can be a basis for sending the matter back to the Ld. CIT(A)
for fresh consideration and thus this plea of the assessee of
restoring matter to the Ld. AO is rejected. The ground No. 5(b) of
the appeal is accordingly dismissed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
48
2234/Del/2005 & 3805/Del/2008
15.13 As far as ground No. 6 of the appeal of the Revenue is
concerned, we find that the Learned CIT(A) has allowed the relief to
the assessee after verification of the fact that expenses of Rs.
63,06,235/-having details as under were crystallised during the
year under consideration:
Details of expenditure allowed by the CIT(A) :
Sl.No. Particulars Amount Pg of PB-D Details of Project
(in Rs.)
1. CIC Noida 8,22,887 188-190 Sales tax collected but not paid
And paid in the present year
2. Kathmandu, Nepal 11,78,541 200 Client has overpaid work receipts
Hence to be refunded
3. Iraq 22,12,452 201-214 Amount payable to HCCL as
Interest pursuance to an
Arbitration award dt. 25.1.2001
4. Anand Vihar 9,44,372 216-223 Settlement of dispute with
Maintenance Northern Railways in relation to
DBV's Bills of electricity
5. Corporate Office
Expenses 9,33,652 225 Includes cost of air tickets and
Various fees bonus etc payable
For earlier years
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
49
2234/Del/2005 & 3805/Del/2008
6. Malaysia Project 2,14,331 231 Includes ticket & training
expenses for the year 1999-00
TOTAL 63,06,235
15.14 This factual finding has not been rebutted by the learned
DR before us. In view of unrebutted fact that the liability amounting
to Rs. 63,06,235/-crystallised during the year under consideration,
the action of the Learned CIT(A) in allowing relief to the assessee to
the extent, is justified. We do not find any error in the order of the
Learned CIT(A) in this regard. The ground No. 6 of the appeal of the
Revenue is accordingly dismissed.
16.1 The ground No. 6 of the appeal of the assessee relates to
provision for demobilisation expenses sustained by the Ld. CIT(A) to
the extent of Rs. 2,13,04,431/-. The ground No. 7 of the appeal of
the Revenue relates to disallowance of provision for mobilisation
expenses of Rs.2.67 crores deleted by the Ld. CIT(A).
16.2 Regarding the provision of demobilisation expenses of Rs.
4,80,49,000/-claimed by the assessee as deduction, it was
explained before the learned Assessing Officer that said provision
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
50
2234/Del/2005 & 3805/Del/2008
was made for removal of temporary structure constructed at the
project sites during construction period and shifting plant and
equipment from the project site after completion of the projects. The
assessee submitted that though the exact amount might not be
quantified, the liability had to be incurred. According to the
assessee, the provision represented definite obligation to be
discharged by the assessee. The learned Assessing Officer, however
held that provision is an estimated liability and not quantified
exactly. The learned Assessing Officer observed from past history of
the case that the assessee regularly make such provisions and after
a gap of three to four years, it writes back a portion of the said
provisions, which itself indicates that the expenses were claimed
purely on estimate basis. The learned Assessing Officer accordingly,
disallowed the expense holding the same as purely estimated, ad-
hoc and not crystallised during the relevant previous year.
16.3 The Ld. CIT(A) after taking into consideration submission
of the assessee, sustained disallowance amounting to
Rs.2,13,04,000/ + Rs. 431, in view of no evidences submitted to
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
51
2234/Del/2005 & 3805/Del/2008
substantiate the claim. The relevant part of the order of the Ld.
CIT(A) is reproduced as under:
13.2 During the course of appellate proceedings, the various
submissions made by the appellant counsel which are summarized
below:
(i) For working on an on-site project, the appellant company had to
create several temporary structures at the project site itself besides
carrying of the plant and machinery to the project site. On completion of
the project, the temporary structure alongwith plant and machinery are
to be removed and the expenses on this account are claimed under the
head demobilization expense. These expenses no doubt are claimed on
estimate basis but are based upon the experience in the industry.
(ii) For the provision for other expenses, the tax auditors have given
complete item- wise details of the above provision of Rs.6,43,12,810 and
the tax auditors have certified out of the above, expenditure amounting
to Rs.2,85,63,198 is contingent in nature and are not allowable as
business expenditure. Accordingly, the appellant claimed the balance
provision of Rs.3,57,49,612. As the expenditure has been incurred
during the normal course of business, the same is thus allowable as
expenditure.
iii) It is a settled law now that the estimated provisions based on definite
obligations are allowable as expenditure even if the part of the same is
written back. Reliance has been placed on the following case laws:
(a) ITO Vs. Wanson India Ltd., 5 ITD 102;
(b) Thermax Babcock & Wilcox Ltd. Vs. DCIT,72 TTJ 8271;
(c) Voltas Ltd. Vs. DCIT, 64 ITD 232;
(d) Calcutta Co. Ltd. Vs. CIT, 37 ITR 1,
(e) CIT Vs. Navbharat Nirman Ltd., 141 ITR 723
(iv) The claim of the appellant is allowed in its own case in the earlier
years. The claim on account of demobilization expenses and other
expenses were disallowed only in AY 1985-86 and 1995-96 and in those
years also, the same was allowed by the CIT (A). The department did not
file any appeal on the issue before the ITAT. Therefore, as discussed
above in the case of Radha Satsang Vs. CIT (supra), the same should not
have been disallowed during the year.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
52
2234/Del/2005 & 3805/Del/2008
13.3 As far as the provision for demobilization expenses are concerned,
as the appellant has estimated the same on completion of the work at the
work site, there is no dispute that the temporary structures and the
plant and machinery moved at the site is required to be moved back for
which the appellant is supposed to incur an expenditure. It cannot be
said that the liability is not an ascertained liability though it is a fact that
it is not exactly quantifiable. It is also a fact that in the earlier years, the
addition has been deleted by the CIT(A) and the appellant has also
certified that no appeal has been filed by the department before the ITAT.
Taking into consideration the above facts, the appellant was directed to
file the details to verify whether the liability arose during the year or not.
13.3.1 The appellant counsel filed details vide letter dated 17-01-
2005, 18-01-2005 and 25-01-2005. It is observed from the details filed of
Rs.4,80,48,569/-, the liability arose during the year except three of the
claims which are discussed below:
(a) It is observed that the appellant has claimed a sum of Rs.3,04,000 in
respect of Delhi - Mathura Road Project. On going through the details
enclosed by the appellant, it is observed that the project was completed
in Haryana on 26-12-1997 and in UP on 20- 02-1998. The defect liability
period was upto 26-12-1998 for Haryana and 20-02-1999 for UP. No
explanation has been given why after the completion of defect liability
period in the FY 1998-99 themselves how the expenses are being claimed
in the FY 2000-01. No explanation is coming forward as the appellant
counsel has not been able to give evidence that the liability to the above
amount was ascertained during the year, the same is not allowable and
the addition made to this extent is upheld.
(b) An amount of Rs. 1,14,00,000 has been claimed in respect of NTPC
Kahalgaon Project as per the details submitted. This is the cost of 44
employees on the pay roll of IRCON out of which, 38 employees have filed
a case in Patna High Court against the company and there is a stay
order. It has been further mentioned in the note that the cost of
demobilization asset is for two financial years. The appellant counsel has
not been able to provide any evidence that this liability got ascertained
during the year nor information has been given when the project was
completed and what is the matter of dispute pending in the Patna High
Court. Therefore, the same cannot be allowed as an expenditure and the
AO has rightly not allowed the same.
(c) In respect of NTPC Farakka MGR Project, demobilization expenses
of Rs.96 lakhs have been claimed. Again in the annexure filed in page
No.22 alongwith letter dated 25-01-2005, it is observed that the expenses
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
53
2234/Del/2005 & 3805/Del/2008
has been claimed as establishment charges of 42 employees for two years
as there is no work at Farakka. Again no evidence has been filed when
this project was completed and how after completion of the project, the
liability of the appellant to pay the employees arises. Therefore, the AO
has rightly made the addition.
To sum up. out of the total disallowance made by the AO of
Rs.4,80,49,000/-, a sum of Rs.2,13,04,000 (Rs.3,04,000 +
Rs.1,14,00.000 + Rs.96,00,000) is confirmed and the balance is deleted.
As no details have been filed for Rs.431 (Rs.4,80,49,000 -
Rs.4,80,00,569), the same is confirmed."
16.4 Before us, the learned counsel of the assessee reiterated
the submission made before the Ld. CIT(A) and further submitted
that provision for demobilisation represented definite business
liability and was provided in accounts following mercantile system
of the accounting though a part of the same was written back in
the future years. The Ld. Counsel relied on the decision of the
Hon'ble Supreme Court in the case of Rotork Control India (P) Ltd
Vs CIT (2009) 314 ITR 62 (SC). In support of the proposition that
accounting method followed by the assessee is presumed to be
correct till the Assessing Officer comes to the conclusion that the
estimate does not reflect true and correct profit, ld. counsel of
assessee relied on the decision of the Hon'ble Supreme Court in the
case of CIT Vs Woodward Governor India P Ltd(2009) 312 ITR 254
(SC). He also submitted that similar disallowance made byAssessing
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
54
2234/Del/2005 & 3805/Del/2008
Officer has been deleted by the Ld. CIT(A) in assessment year 1995-
96 and no appeal has been preferred by the Revenue against the
said deletion.
16.5 On the contrary, the Ld. DR relied on the order of the
lower authorities and filed written submission, which is reproduced
as under:
"6.1 The assessee has claimed expenditure on account of provision for
demobilization. The AO has held in para 13.3 on page 18 of his order
that the provisions made by the assessee are nothing but estimated
liability as the assessee was no able to exactly quantify the liabilities on
this account. On perusal of list of provision of mobilization expenses on
page 274 of assessee's PB , it may be noted that provision of 1.22 crores
has been made in respect of Malaysia Loco Project while provision of Rs.
1.14 crores. No substantiating document has been filed to prove that the
provisioning was made on a solid basis. In respect of Amre Bankra
project, provision is of Rs. 50 lakh(round figure) has been made in
respect of Kahalgaon project, which shows that it was merely an
estimate. In its explanation before the A.O, the assessee itself has
submitted, as mentioned in para 13.2 of the assessment order, that -
" the provisions are made on best estimate basis"
The AO has also mentioned that a part of such provision of expenses was
written off in subsequent years which prove that the expenses were
merely estimation. The onus was on the assessee to prove that there was
ascertained liability, which has not been discharged by the assessee. It is
trite that merely provision of an expense cannot be allowed. Reference is
made to para 2.2 on page 277 of the PB. It was submitted before the
CIT(A) that the assessee has not been able to identify the Actual year of
completion of projects in respect of which provisioning of expenses was
made and the details were being compiled Hence, the provision of
expenses was merely estimation and hence, unascertained liability which
is not allowable u/s 37(1) of the Act.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
55
2234/Del/2005 & 3805/Del/2008
6.2 in this regard, reliance is made on the decision of the Hon'ble Madras
High Court in the case of FFE Minerals India Pvt. Ltd. Vs. JCIT [2018] 98
taxmann.com 170 (Madras), particularly para 26-28. In para 26 of the
order, the Hon'ble Court has held that --
"Possibility" has been defined as an event that may or may not happen.
Thus, degree of proof required to show that there is a probability of outflow
of resource is higher, as the effect is which is more likely to happen than
not to happen as to where possibility is an event, which may or may not
happen. Therefore, the assessee has to definitely show that there is every
probability that an outflow of resources will be required to settle. "
6.3 The Hon'ble Court has further held that -
"Thus, only those obligations arisen for past event existing independently
on the future contract of the enterprise is recognized provision. "
In this case also the assessee has failed to produce the past events before
the AO to show that there is every probability that the expenditure will be
incurred. At best, the case of the assessee is of possibility but not a case
of probability. Thus, the assessee having failed to fulfil the triple test
prescribed in Rotork Controls India Pvt. Ltd. Vs. CIT 314 ITR 62 (SC), is
not entitled to claim deduction on account of provisioning of expenses.
6.4 Reliance is placed on the following decisions also-
(i) Oswal Agro Mills Ltd. Vs. CIT [2014] 363 ITR 486 -
"A provision can only be recognized when the obligation has already
fructified."
(ii) Grace Shelter Vs. ACIT [2019] 104taxmann.com 133
(iii) Taparia Tools Ltd. Vs. JCIT [2003] 260 ITR 102
(iv) DCIT Vs. Fag Bearing India Ltd. [2008] 115 ITD 53
(v) CIT Vs. Aman Khera [2016] 387 ITR 33
6.5 The decisions relied upon by the assessee, as submitted in case
law compilation, are mainly in respect of provision for warranty. In those
cases, the Courts have observed that there has to be scientific
method/historical trend to substantiate the claim for provision on
account of warranty. In the instant case, assessee has claimed deduction
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
56
2234/Del/2005 & 3805/Del/2008
on account of merely estimation/possibility of expenses and provisioning
of expenses is not based on any scientific working/solid material. Hence,
claim of the assessee is not admissible.
16.6 We have heard rival submissions and perused the
relevant material on record. We find that the Ld. CIT(A) has taken
into consideration various decisions relied upon by the authorised
representative of the assessee and concurred that the liability
cannot be said to be an un-ascertained liability though it was not
exactly quantifiable . The Ld. CIT(A) has sustained the disallowance
only in the event where the assessee failed to substantiate its claim
with documentary evidences. As the assessee failed to discharge its
onus of substantiating whether the respective liabilities were
ascertained or arose during the year under consideration, the ld.
CIT(A) is justified in sustaining the respective disallowances. As far
as the decisions relied upon the learned counsel of the assessee are
concerned, same cannot be applied without ascertaining the facts
with documentary evidences. No such documentary evidences, as
pointed out by the Ld. CIT(A), have been produced before us also. In
the circumstances, we do not find any error in the order of the Ld.
CIT(A) on the issue in dispute and accordingly uphold the same.
The ground No. 6 (a) of the appeal the assessee is dismissed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
57
2234/Del/2005 & 3805/Del/2008
16.7 The ground No. 6(b) of the appeal of the assessee being
identical to ground number 5(b), same is dismissed following our
reasoning while deciding ground number 5(b) of the appeal.
16.8 As regard to the relief of Rs.2.67 crores allowed by the
Learned CIT(A) , against which Revenue is in appeal in ground No.
7, we find that Learned CIT(A) has verified each and every provision
to ascertain whether the liability had crystallised during the year
under consideration. This factual finding has not been rebutted by
the ld. DR before us. In absence of any such rebuttal to
substantiate grounds of appeal by the Revenue, we do not find any
error in the order of the Learned CIT(A) in deleting the part of
disallowance of provision of mobilisation expenses amounting to Rs.
2.67 crores. The ground No. 7 of the appeal of the Revenue is
accordingly dismissed.
17.1 The ground No. 7 of the appeal of the assessee relates to
disallowance of provision for other expenses amounting to Rs.
1,61,25, 533/-sustained by the Ld. CIT(A). The ground No. 8 of the
appeal of the Revenue relates to relief of Rs.1.96 crores allowed
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
58
2234/Del/2005 & 3805/Del/2008
against provision for other expenses. Both grounds being
connected, same are adjudicated together.
17.2 The facts qua the issue in dispute are that the Assessing
Officer observed "provision for others"of Rs. 6,43,13,000/-debited in
the profit and loss account and out of which Rs. 3,57,49,802/-was
not considered for disallowance by the assessee. The Assessing
Officer observed that the assessee company has been regularly
making such provision and after a gap of three to four years, it
writes back a portion of the said provisions. According to the
Assessing Officer the provision is purely estimated, ad-hoc and not
crystallised in the relevant financial year and thus, he disallowed
provision of Rs.3,37,49,802/-.
17.3 The Ld. CIT(A) after considering the detailed submission
filed by the assessee, restricted the disallowance to Rs.
1,61,25,533/-. The relevant part of the finding of the Ld. CIT(A) is
reproduced as under:
13.3.4 The appellant counsel filed details and submissions vide its
letter dated 17-01-2005 and 25-01-2005. The claim of the appellant are
discussed below:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
59
2234/Del/2005 & 3805/Del/2008
(a) On going through the submissions made, it is observed that the
appellant counsel has claimed a sum of Rs.8,79,814 on account of the
project NCLKBJ Annapara for the theft of rails at the project site. On
going through the details submitted by the appellant counsel at page
No.10i alongwith the submissions dated 17-01-2005, it is observed that
the theft took place during the night of 14/15-04-1999 and FIR was also
lodged at Shakti Nagar Police Station. As theft occurred in the FY 1999-
00 relevant to AY 2000-01, the liability did not arise during the FY
relevant to the AY 2001-02 and the same cannot be allowed.
(b) The appellant has claimed a sum of Rs.1,27,32,338 for Jaipur By-
pass Road Project. As per the details filed at page No.41 to 49 in the
submissions made vide letter dated 25-01-2005, it is observed that the
liability of Rs.69,44,024 in respect of Gupta Construction Company was
only ascertained during the year which can be allowed as expenditure.
The further papers attached for claiming the balance liability of Kamal
Builders shows that they have only made a request for releasing an
amount of Rs.60 lakhs as an advance to clear the liability vide their letter
dated 10-10-2000 and the other letter of M/s. Kamal Builders is dated
24-08-2001 which is related to subsequent financial year and is also on
the issue of refund of additional retention money. Therefore, only a sum
of Rs.69,44,024 is allowable from the claim made of Rs.1,27,32,338.
(c) Regarding the claim in respect of projects APSH-1A, 1B & 3 and
Bhopal Hospital, a sum of Rs.76 lakhs and Rs. 18,57,405 has been
claimed but it has been submitted that the documents are being
collected. As no evidence has been filed that the liabilities in respect of
above two projects have been ascertained during the year, the same
cannot be allowed.
(d) The provisions were made in respect of corporate office expenses of
Rs.90 lakhs and in respect of SECL-DIPKA of Rs.36,80,055. As per the
details submitted, the liability arose during the year for both the
expenditure claimed, hence, the same are allowed.
To sum up, out of the claim of Rs.3,57,49,612/-, the disallowance is
upheld to the amount of Rs. 1,61,25,533 [Rs.8,79,814 + Rs.57,88,314
(Rs.1,27,32,338 - Rs.69,44,024) + Rs.76,00,000 + Rs.18,57,405] and the
balance is deleted."
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
60
2234/Del/2005 & 3805/Del/2008
17.4 Before us, the learned counsel of the assessee reiterated
the submission made before the Ld. CIT(A) and advanced
arguments similar to arguments made with reference to ground No.
6 of this appeal of the assessee.
17.5 The ld. DR on the other hand relied on the order of the
lower authorities and submitted as under:
"7.2 The submission in para 6 above, made in respect of
provisioning of mobilization expenses, is reiterated in respect of the
above ground of appeal also. The assessee has not been able to
substantiate its case before the A.O as to how the provision of
expenses was ascertained liability and was based on specific
working. Onus has not been discharged by the assessee. It may be
noted that on page 322, list of provision of other expenses is given.
Last item is of Rs. 90.00 Lakh. On page 324 of PB, 3rd item is
regarding Rs.90 lakh. It is seen that in the Board meeting on
25.04.2001, it was decided to award employees with a gold coin
and total expense for the same was admitted at Rs. 1.80 crores.
Half of the said estimated expense-Rs. 90 Lakhs was claimed as
provision in AY 2001-02 whereas Board meeting took place in A Y.
2002-03. Attention is drawn to page 326 of PB, in which it was
submitted before the CIT(A) that in respect of prior period
expenses, provision for demobilization and provision for other
expenses were still being compiled. No substantiating documents
were filed before the A.O, Ld. CIT(A) and before the Hon'ble ITAT in
support of its claim of deduction in order to prove that the
provisioning was based on ascertained liability and was not merely
estimation."
17.6 We have heard rival submission of the parties and
perused the relevant material on record. We find that the Ld. CIT(A)
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
61
2234/Del/2005 & 3805/Del/2008
has sustained the disallowance due to failure on the part of
assessee in substantiating whether the liability arose during the
year under consideration and also failure to submit necessary
documentary evidence in support of the claim. Before us also, no
evidences have been furnished by the assessee to substantiate the
claim whether the expenses crystallised during the year. In our
opinion, the order of the Ld. CIT(A) on the issue in dispute is well
reasoned and we do not find any infirmity in the same. Accordingly,
the finding of the Ld. CIT(A) on the issue in dispute is upheld. The
ground No.7(a) of the appeal of the assessee ground No. 8 of the
appeal of the Revenue, are dismissed.
17.7 The ground number 7(b) of the appeal of the Revenue is
also dismissed, being identical to ground number 5(b) of the appeal,
which has already been dismissed by us.
18.1 The ground No. 8 of the appeal of the assessee relates to
interest received vide intimation under section 143(1) of the Act
amounting to Rs. 25,56,813/-, which was not shown by the
assessee as income in the year under consideration.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
62
2234/Del/2005 & 3805/Del/2008
18.2 Brief facts qua the issue in dispute are that during the
previous year relevant to assessment year consideration , the
assessee received interest under section 244A of the Act vide
intimation dated 30/07/2002 under section 143(1) of the Act for
assessment year 2000-01, which was debited by the assessee under
the loans and advances and was not credited to the profit and loss
account forprevious year corresponding to assessment Year 2001-
02. On completion of the assessment proceedings for Assessment
year 2000-01 in financial year 2003-04, the interest under section
244A was withdrawn. According to the assessee the aforesaid
interest received under intimation u/s 143(1) was not final and
therefore the assessee had neither credited the same in its books of
accounts nor offered the same to tax. According to the Assessing
Officer, the assessee was required to offer the said amount to tax
following the mercantile system of accounting regularly employed by
the assessee. The Ld. CIT(A) upheld the interest received as income
for the year under consideration on the ground that interest was
actually received by the assessee and it was due to the assessee in
the year in consideration.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
63
2234/Del/2005 & 3805/Del/2008
18.3 Before us, the Ld. Counsel of the assessee relied on the
decision of the special bench of the Tribunal in the case of Avada
Trading Company (P) Ltd Vs ACIT (2006) 100 ITD 131 wherein it is
held that if interest under section 244A granted under section
143(1) is reduced on account of subsequent proceeding, the interest
originally granted would be substituted by the reduced amount.
Accordingly, the learned counsel submitted that in the present
case, the interest originally granted has been reduced to Nil on
completion of the assessment proceeding under section 143(3) of
the Act, thus, no interest income should be considered as
chargeable to tax in the instant year.
18.4 The ld. DR on the other hand relied on the order of the
lower authorities.
18.5 We have heard rival submission of the parties and
perused the relevant material on record. The issue in dispute in the
case is covered by the decision of the special bench in the case of
Avada Trading Company (P) Ltd. (supra). The Tribunal (supra)
clearly held that when the assessee received refund under
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
64
2234/Del/2005 & 3805/Del/2008
intimation under section 143(1) of the Act, an enforceable debt was
created in favour of the assessee in respect of the interest due on
such refund and thus income accrued as the right to receive was
acquired. The relevant finding of the Tribunal is reproduced as
under:
"9. The main contention of the assessee's counsel is that such right is
contingent as the interest so received can be varied or withdrawn after
the assessment under s. 143(3'). We are unable to accept such
contention of assessee for the reasons given hereafter. According to the
dictionary meaning, a right or an obligation can be said to be contingent
when such right or obligation is dependent on something not yet certain.
According to s. 244A. the only condition for grant of interest is that there
must be a refund due to assessee under any provision of the Act. There
is no other condition in the said provision affecting such right. Therefore,
the moment a refund becomes due to assessee, an enforceable debt is
created in favour of assessee and assessee acquires a right to receive the
interest. Sub-s. (3) of s. 244A only affects its quantification under certain
circumstances and not the right of interest. The Hon'ble Supreme Court
in the case of CIT vs. Shri Goverdhan Ltd. (1968) 69 ITR 675 (SC) has
observed at p. 681 that once a debt is created, then the liability cannot
be said to be contingent merely because it is to be quantified at later
date. Under s. 244A, even the interest is quantified immediately
whenever a refund is issued. In our view, the right to grant interest is
absolute since existence of such right is not dependent on any event. For
example, assessee is granted interest of Rs. 1,000 on the date of granting
refund. Subsequently, under s. 244A(3), it is reduced to Rs. 600 by virtue
of assessment under s. 143(3). Can it be said that right to interest did
not accrue on the date of refund ? In our opinion, the right of interest
came into existence on the date of refund by virtue of s. 244A(1) though
its quantification may or may not vary depending upon the outcome of
assessment."
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
65
2234/Del/2005 & 3805/Del/2008
18.6 However the Tribunal, further held that in case
subsequently, the said interest is withdrawn, the said interest
income can be rectified under section 154 of the Act. The relevant
finding of the Tribunal is reproduced as under:
14. It has been apprehended by assessee's counsel that assessee
would be without remedy if the interest is reduced by virtue of
assessment under s. 143(31. This apprehension, in our opinion, is
unfounded. If interest is reduced by virtue of sub-s. (3) of s. 244A
on account of assessment under s. 143(3), the interest granted in
earlier year gets substituted and it is the reduced amount of
interest that would form part of income of that year. Thus, it would
amount to mistake rectifiable under s. 154 of the Act. In our
opinion, if the basis, on which income was assessed is varied or
ceases to exist, then such assessment would become erroneous
and can be rectified. This can be explained with an example. For
instance, land in a village belonging to various persons is acquired
by Government for some development works and the compensation
is awarded by the Collector with interest, if any. But one of the
land holders challenges the acquisition proceedings in the High
Court and later on succeeds as the acquisition is declared illegal.
By virtue of such High Court order, such compensation has to be
returned and Government will have to restore the land to the
villagers. Therefore, if capital gain has been assessed in the hands
of some of the persons where lands were acquired, such
assessment would become patently erroneous, as the basis itself
has ceased to exist. Such assessment would, therefore, amount to
mistake, which, in our opinion, can be rectified. Similarly, any
income assessed may become non-taxable by virtue of
retrospective amendment and consequently, erroneous assessment
can be rectified. Therefore, in our humble opinion, if the interest
granted under s. 244A(1) is varied under sub-s. (3) of such section,
then the interest originally granted would be substituted by the
reduced/increased amount as the case may be. Thus, income on
account of interest if assessed can be rectified under s. 154."
18.7 In view of the above finding of the Tribunal (supra), we
restore the issue in dispute to the file of the Ld. Assessing Officer
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
66
2234/Del/2005 & 3805/Del/2008
for verifying that the interest granted under section 143 (1) in
relation to assessment year 2000-01 in the previous year
corresponding to assessment year under consideration, but same
has been subsequently withdrawn under section 143(3) of the Act
passed in financial year 2003-04 and decide the issue in
accordance with law after providing adequate opportunity of being
heard to the assessee. In the result, the ground No. 8 of the appeal
is allowed for statistical purposes.
19.1 The ground No. 9 of the appeal of the assessee relates to
interest income of Rs. 2,00,30,000/- from M/S National Building
Construction Company (NBCC), which according to the Assessing
Officer accrued to the assessee during year under consideration.
19.2 Before the Assessing Officer, the assessee contended that
interest income from NBCC had not been taken into account on the
basis of the accounting policy followed by the assessee and it was
further stated that the interest amount was disputed and therefore
it was not taxable pursuant to section 145 of the Act, however the
Assessing Officer observed that in view of the mercantile system of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
67
2234/Del/2005 & 3805/Del/2008
accounting followed, the assessee was obliged to credit the said
interest of Rs. 2,00,30,000/-in its profit and loss account.
19.3 The assessee in revised computation of income credited
disputed interest income of Rs. 2,00,30,000/-in the profit and loss
account and consequently claimed the said amount as deduction in
view of the decision of the Hon'ble Supreme Court in the case of
UCO Bank Vs CIT 237 ITR 889 wherein it is held that interest
arising out of sticky and disputed loans are fully deductible. This
revised claim was not accepted by the Ld. Assessing Officer on the
ground that mandated period for revising return of income under
section 139(5) of the Act had already expired and otherwise also,
the revision of that nature was not covered under the provision of
section 139(5) of the Act. Accordingly the Assessing Officer added
the sum of Rs. 2,00,30,000/-to the income of the assessee. The
assessee made detailed submission before the Ld. CIT(A), who has
summarised the submission of the assessee as under:
14A.2 The various submissions made by the appellant counsel vide letter
dated 04-01-2005 and letter dated 09-02-2005 during the course of
appellate proceedings are summarized below:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
68
2234/Del/2005 & 3805/Del/2008
(i) The appellant entered into a contract with National Building
Construction Corporation (NBCC) Ltd. for purchase of 7500 Sq. Mtr. of
office space with parking and storage spare in NBCC Tower for Rs.17
crores vide agreement dated 22-09-1989. A dispute arose between the
appellant and NBCC.
(ii) The committee on disputes (COD) referred the matter to arbitration in
August 1996. The arbitrator awarded that 20% of the contract amount
be forfeited and the balance to be refunded to the appellant. The
appellant appealed against the award but the appellate authority upheld
the award on 08-10-1999 and held that the entire amount of Rs. 15.93
crores paid by the appellant be refunded to it by NBCC within two
months beyond which interest would be leviable at the rate of 15%.
(iii) After continuous persuasion, NBCC only refunded a sum of
Rs.416.50 lakhs on 14-02-2001 and Rs. 126.50 lakhs on 28-02-2001.
IRCON thereafter wrote number of letters dated 30-03-2001, 01-06-
2001, 16-08-2001, etc. The appellant has gone into litigation and the
appeal is pending before the Hon'ble High Court of Delhi.
(iv) The outstanding interest receivable to the appellant was Rs.2 crores
arising out of the delayed refund of advance payment by NBC to the
appellant. The disputed and unaccrued interest is not chargeable to tax
under the mercantile system of accounting as per the judgment of the
Apex Court in the case of UCO Bank, the interest arising out of sticky
and disputed loans is wholly deductible.
(v) Reliance has been placed on the case of CIT Vs. Bavala Gopalak Vivid
Karya Kari Sahakari Mandali Ltd., 253 ITR 97 where it has been held
that an amount which is subject matter of dispute cannot be said to have
accrued to the appellant and can be taxed only when the dispute is
settled.
(vi) In the case of State Bank of Travancore Vs. CIT, 158 ITR 102, the
principle of real income has been laid.
(vii) Reliance has also been placed on the case of Anoop Engineering Ltd.
Vs. CIT, 247 ITR 457 where it has been held that for the purpose of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
69
2234/Del/2005 & 3805/Del/2008
ascertaining whether income had accrued to the assessee one has to find
out whether the assessee had a vested right to receive the income.
(viii) Reliance has been placed on the decision of CIT Vs. Motor Credit
Co. Ltd., 127 ITR 572 where it has been held that where no income has
resulted , it cannot be said that the income has accrued merely on the
ground that the assessee has been following the mercantile system of
accounting. It has also been observed that the mercantile system of
accounting can be only relevant only to determine the point of time at
which tax liability is attracted and it cannot be relied on to determine
whether income has in fact resulted or materialized in favour of the
assessee merely because the assessee has been maintaining his account
on the basis of mercantile system of accounting.
(ix) It has been submitted in the instant case that the interest receivable
by it is clearly in dispute and the appellant has since filed a petition
before the Hon'ble Delhi High Court
For recovery of the said principal and interest will depend upon the
outcome of the decision of the Hon'ble High Court.
(x) In the case of CIT Vs. Pondichery Industrial Promotion Development
Investment Corporation Ltd., 254 ITR 748, it has been held that - `having
regard to the decision of the Apex Court, it cannot be said that it was
impermissible for the assessee here to have followed a mixed or hybrid
system of accounting and that while following the mercantile system, it
was permissible for it to adopt a cash system of accounting so far as
interest and rent were concerned'.
(xi) Through its letter dated 25-03-2004, the appellant merely
substantiated its claim by relying upon a Supreme Court judgment and
no revised claim was filed by the appellant. In any case, the fresh claim
should have been entertained by the AO has been held in the appellant's
own case for the AY 2000-01 and 1994-95 by the CIT(A)."
19.4 The Ld. CIT(A) distinguished the decision in the case of
UCO Bank (supra) as under:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
70
2234/Del/2005 & 3805/Del/2008
"In the above decision, the Apex Court has decided the issue taking into
consideration the CBDT Circular of 9th Oct 1984 and have held that the
circulars are binding. Even in this case, as per the Circular of 1984, the
interest charged in an account where there has been no recovery for
three consecutive accounting years is not to be subjected to tax in the
fourth year and onwards. Thus, the decision of the Apex Court is under
different set of circumstances and is in relation to whether the circular
issued by the CBDT is binding or not. In the case of the appellant, the
facts are entirely different because NBCC has not denied its liability to
pay the principal and interest due during the year. In fact, NBCC has
agreed to make the payment due to IRCON in three instalments payable
on 31-01-2001, 28-02-2001 and 31-03-2001 and has paid part of the
amount also. In the case of the appellant, under no stretch of
imagination, it can be said that the principal had become sticky during
the year, hence, no interest is due to the appellant."
19.5 The Ld. CIT(A) distinguished the other decisions relied
upon by the assessee and rejected the contention of the assessee
observing as under:
14A3.1 In the letter dated 09-02-2005, the appellant has enclosed papers
of the meeting held by COD or addressed to High Power Committee. As
per the letter dated 14-11-2002 addressed to COD by the appellant, it is
observed that after detailed discussion, the schedule for payment of dues
by NBCC to IRCON was jointly agreed alongwith certain attendant
conditions. As per the agreement, the amount was to be paid in three
installments i.e. 31-01-2001 28-02-2001 and 31-03-2001 and the
amount payable in each installment was 25%, 35% and 40% respectively
of the amount due alongwith the interest. NBCC has informed IRCON
vide letter dated 04-12-2000 that they are fully committed to honoring its
liability towards IRCON in terms of appellate authority order dated 08-
10-1999 read with the order of the Secretary (Law) dated 18-04-2000 and
it was further confirmed that NBCC should be able to liquidate their
liability towards IRCON latest by 31-03-2001. Again the CMD, NBCC vide
letter dated 12-06-2001 addressed to IRCON mentioned that due to the
financial constraints being faced by NBCC, the commitment made by
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
71
2234/Del/2005 & 3805/Del/2008
NBCC was getting delayed and they were making all efforts to pay the
balance amount to IRCON by making alternate arrangements at the
earliest possible. Thus, taking into the above facts of the case, the
interest has definitely accrued to the appellant on the amount payable by
NBCC and NBCC has also not denied its liability to pay the amount. In
fact, NBCC has agreed to liquidate the principal and interest due during
the financial year relevant to the assessment year itself and under no
circumstances it can be said that the interest was not due to the
appellant during the year or the principal amount has become
unrecoverable during the year. As already mentioned above, NBCC is a
Government company and it is not that it has gone into liquidation and
the recovery of principal and interest has become doubtful. In the FY
2000-01 relevant to the assessment year, the interest has become due to
the appellant and neither the liability to pay the same has been denied
by the NBCC. Therefore, under no stretch of imagination, it cannot be
said that interest has not become due to the appellant or the accrued
interest is not the real income of the appellant. Merely filing of a suit for
recovery against NBCC in subsequent year by the appellant does not
mean that the interest has not become accrued to the appellant during
the year or the loan has become sticky, hence, no interest is due. In any
case, the principal and interest has not become sticky at least during the
financial year relevant to assessment though as mentioned above, in the
present circumstances of the case, it cannot be held that the recovery of
due amount from NBCC has become sticky. Therefore, the addition made
by the AO is confirmed and the appeal of the appellant on this issue is
dismissed."
19.6 Before us, the ld. counsel of the assessee relied on the
decision in the case of UCO Bank (supra) and submitted that
interest arising out of sticky and disputed loans cannot be shown
as income as long as its realisation is doubtful.
19.7 The learned DR, on the other hand, relied on the order of
the lower authorities.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
72
2234/Del/2005 & 3805/Del/2008
19.8 We have heard rival submission of parties and perused
the relevant material on record. The Ld. CIT(A) distinguished the
decision in the case of UCO Bank(supra) observing that in that case
there has been no recovery for three consecutive accounting years.
In fourth year onwards the interest charged was held to be not
subjected to tax. The Ld. CIT(A) has observed that in the instant
case the NBCC has not denied its liability to pay the principal and
interest during the year. We agree with the observation of the Ld.
CIT(A) and concur with the finding that decision in the case of UCO
bank (supra) is not applicable over the facts of the instant case. The
Ld. CIT(A) has brought on record facts in detail that the NBCC had
agreed to liquidate the principal and interest due during the
financial year relevant to the assessment itself and therefore under
no circumstances the interest due could be said to be unrecoverable
during the year under consideration. Before us the ld. counsel did
not rebut any of the observation of the Ld. CIT(A) or submitted any
documentary evidence in support of its claim except the claim that
loan was sticky and disputed. In the case, the appellate authority
against the award by the arbitrator, directed to refund entire
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
73
2234/Del/2005 & 3805/Del/2008
amount of Rs. 15.93 crores within 2 months and beyond which
interest would be levied at the rate of 15%. The NBCC complied and
partly refunded the amount also. By merely filing appeal by the
assessee before the Hon'ble Delhi High Court, it cannot be said that
interest was not accrued to the assessee. The onus was on the
assessee to establish that loan was unrecoverable during the year
under consideration and no such evidences having been filed either
before the Ld. CIT(A) or before us. In view of the facts and
circumstances, we do not find any error in the order of the Ld.
CIT(A) on the issue in dispute and accordingly, we uphold the same.
The ground No. 9(a) and 9(b) of the appeal of the assessee are
accordingly dismissed.
20.1 The ground No. 10 relates to disallowance of deduction of
provision for doubtful debts (Rs. 2, 48, 73,000/-) and doubtful
advances ( Rs.53,98,000/-) for computing book profit under section
115JB of the Act.
20.2 The Assessing Officer on perusal of computation of book
profit under section 115JB of the Act , observed that the assessee
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
74
2234/Del/2005 & 3805/Del/2008
failed to add back the provision for bad and doubtful debts
amounting to Rs. 2,48,73,000/-and provision for doubtful advances
of Rs.53,98,000/-. It was submitted by the assessee that the
provisions were ascertained liability and, therefore, it was not
required to added back in computing the book profit. The assessee
explained that provisions for doubtful debts and doubtful advances
were infact assets and not liabilities and thus, no adjustment under
clause (c) of Explanation-II, below provision of section 115JBwas to
be called for, relying on the judgement in the case of CIT Vs Echjay
Forging (P) Ltd (2001) 251 ITR 15 (Bombay).
20.3 The Assessing Officer rejected the contention of assessee
with the detailed reasons mentioned in para 16.1.2 of the
assessment order. According to the Assessing Officer, since
provision was made, it clearly signified that liabilities were
unascertained liabilities. The Ld. Assessing Officer observed that
while computing the business income, the assessee added the
provisions therefore there is no reason as why the same are not
added for computing book profit. Regarding the provision for
doubtful advances, the Ld. Assessing Officer observed that those
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
75
2234/Del/2005 & 3805/Del/2008
advances had not been treated as income of the assessee or
credited to the profit and loss account in earlier years and therefore,
there was no basis for debiting the same in profit and loss account.
The Ld. Assessing Officer also rejected the contention of the
assessee that provision for doubtful debt and doubtful advances
pertain to asset side of the balance sheet. According to the
Assessing Officer it was only manner of presentation in the balance
sheet of doubtful debt and doubtful advances. The Ld. Assessing
Officer pointed out that in the instant case, the provision for
doubtful debt has been reduced from the total debtors and similarly
provision for doubtful advances has been reduced from the total
advances in the asset side of the balance sheet. Thus, instead of
reducing provisions of doubtful debt and advances on the asset side
of the balance sheet, the same provision of the doubtful debt and
advances can be shown on the liability side of the balance sheet
and the effect in the balance sheet shall remain the same. Thus
according to the Assessing Officer, the manner of depiction is not of
such meaningful significance and the said provisions remain
unascertained liabilities. In support, he relied on the decision of the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
76
2234/Del/2005 & 3805/Del/2008
Madras High Court in the case of DCIT Vs Beardsell Ltd 244 ITR
256, wherein it is held that provision for bad and doubtful debts are
unascertained liabilities and liable for adding back for the purpose
of computation of the book profit. The Assessing Officer accordingly
added the provision in dispute to the computation of book profit
under section 115JB of the Act.
20.4 Before the Ld. CIT(A) the assessee filed detailed
submission. The Ld. CIT(A) distinguished the decision in the case of
Echjay forging private limited (supra). The Ld. CIT(A) relying on the
decision in the case of the CIT versus Beardsell Ltd. ( supra) and
the Tribunal third member decision in the case of steel authority of
India Ltd (supra), upheld the addition in dispute made by the
Assessing Officer.
20.5 Before us the Ld. counsel of the assessee submitted that
said provisions for bad and doubtful debt /advances were reduced
from the debtors/advances and therefore such provisions
represented actual write off and thus clause (i) of explanation to sec
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
77
2234/Del/2005 & 3805/Del/2008
115JB does not apply in the facts of the case. The Ld. counsel in
support of his contention relied on following decisions:
(i) CIT versus Yokogawa India Ltd (2012) 204
Taxman 305 (kar).
(ii) Phillips Carbon Black Ltd versus ACIT (ITA
No. 741/Kol/2012)
(iii) Murigappa Morgan Thermal Ceramics Ltd.
Vs ACIT (ITA No. 2208/Mds/2010)
(iv) Trent Limited Vs DCIT (ITA No.
1073/Mum/2005).
20.6 The Ld. DR on the other hand relied on the order of the
lower authorities and submitted as under:
"10.1. On perusal of P & L account (PB-page-2 for ITA 1825), it is noted
that provision of Rs.36.38 crores has been deducted out of operating
profit. The details of such provisions are givenin Sch P )PB-pg 19).
Provision for Bad and doubtful debts is for Rs.248.73 lakhs
whileprovision for bad and doubtful advances amounted to Rs.53.98
lakhs.The said provision has been debited to P & L account.
10.2. The aforesaid provision is required to be added to total
income in terms of clause )i) to Explanation 1 to Section 115JB. This
issue is in fact no longer res integra in view of the said insertion of clause
(i) w.e.f. 01.04.2001. In this regard, reliance is placed on the following
decisions :
1. CIT v llpea paramount P. Ltd[2010] 336 ITR 54(Delhi)(para 4 &5)
2. Eastern India Powertech Ltd v Addl CIT, Rg 10, New Delhi[2013] 32
taxmann.com 11 (Delhi-Trib.)
In this order Hon'ble ITAT has discussed the issue in detail and has held
that after insertion of clause(i) to Expln 1 to Section 115JB, addition of
doubtful debts has to be made to total income to derive the book profit.
Hon'ble I TAT has relied on the decision of jurisdictional High Court in
the case of CIT v llpea Paramount P. Ltd.(supra).
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
78
2234/Del/2005 & 3805/Del/2008
3. Whirlpool of India Ltd. v UOI [2013] 31 taxmann.com 200(Delhi)
In this case,in para 3 of the order Hon'ble Court has discussed the
background of insertion of clause (i) to Expln 1 to Section 115JB.
4. Lusture Manufacturers P Ltd v ITO, Surat [2016] 73 taxmann.com
203(Ahmedabad-trib.)
5. CIT v Steriplate P Ltd [2012] 338 ITR 547(Punjab & Har.)
6. CIT v Yashaswi Leasing & Finance Ltd. [2012] 204 Taxman 602(Kar)
7. DCM sriram Consolidated Ltd v Asst CIT[2010] 39 SOT 203(ITAT -
Delhi)
8. ITO v TCFC Finance Ltd. [2011 ] 131 ITD 103(ITAT- Mumbai)
9. Kamat Hotels India Ltd. V DCIT[2018] 89 taxmann.com 225(ITAT-
Mumbai)."
20.7 We have heard rival submission and perused the relevant
material on record. We find that in the case of Philips Carbon Black
Ltd (supra) following the decision of the Hon'ble Karnataka High
Court in the case of Yokogawa India Ltd (supra),the issue of no
addition of the amount of provision for doubtful debt/advances in
the event of same is reduced from total debts and only net balances
shown in the balance sheet, has been restored back by the Tribunal
to the file of the Assessing Officer for verification observing as
under:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
79
2234/Del/2005 & 3805/Del/2008
"9. Vis-a-vis the claim in respect of provision for bad and doubtful debts,
relevant Schedule 7 of its Balance-sheet is reproduced hereunder:-
Schedule 7 Sundry debtors (unsecured)
Debts 4,446.29 4,263.29
outstanding
for a period
exceeding six
months
considered
good
Doubtful 1063.70 439.00
Less : 1063.70 439.00
Provision
4,446.20 4,263.29
Other debts 18,920.26 1 7,948.30
Considered
good
33,366.55 22,211.59
It is not clear whether the total debts of Rs.23,366.55 lakhs is after
deducting the provision of Rs.1,063.70 lakhs. The amount of Rs.624.70
lakhs considered by the Assessing Officer for addition is obviously
difference between opening provision of Rs.439 lakhs and closing
provision of Rs.1063.70 lakhs, mentioned in the above schedule. If the
provision debited by assessee is indeed deducted from the total debts
and only the net balance shown in the balance-sheet then by virtue of
decision of the Hon'ble Karnataka High Court in the case of Yokogawa
India Ltd. (supra) there cannot be any addition of such amount under
section 115JB of the Act. However, as mentioned by us, this aspect is not
clear. Hence we are of the opinion that the issue regarding provision for
doubtful debts requires a fresh look by the Assessing Officer. We,
therefore, set aside the order of authorities below in so far as this aspect
is concerned, and remit the matter back to the file of Assessing Office for
consideration afresh in accordance with law."
20.8 The issue in dispute being identical and need verification
at the end of the Assessing Officer, we feel it appropriate to restore
this issue to the file of the Ld. Assessing Officer for deciding afresh
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
80
2234/Del/2005 & 3805/Del/2008
in accordance with law after providing adequate opportunity of
being heard to the assessee. In the result, the ground No. 10 of the
appeal of the assessee is allowed for statistical purposes.
21.1 The ground No. 11 and 12 of the appeal of the assessee
relate to disallowance of claim towards provision for demobilisation
amounting to Rs. 2,13,04,431/- in computing book profit under
section 115JB of the Act and disallowance of claim towards
provision for other expenses amounting to Rs. 1,61,25,533/-in
computing book profit under section 115JB of the Act respectively.
The ground No. 9 of the appeal of the Revenue is related to the relief
granted by the Ld CIT(A) for considering the part provision of
demobilisation and other expenses for computing book profit u/s
115JB of the Act in view of ascertained liability.
21.2 The Ld. CIT(A) in para 15A.1 of the impugned order has
held grounds corresponding to the ground No. 6 and 7 of the
present appeal as consequential in nature. The Learned Counsel of
the assessee has also concurred with the finding of the Ld. CIT(A)
that these issues are consequential to the ground No. 6 and 7
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
81
2234/Del/2005 & 3805/Del/2008
respectively of the present appeal. We have already dismissed the
ground No. 6 and 7 of the appeal of the assessee in preceding
paras, and held that those provisions are not ascertained liability.
Once the respective items are not ascertained liability, same are
liable to be added back to the book profit for computation of book
profit under section 115JB of the Act. Accordingly to have
consistency in our decision, the ground No. 11 and 12 of the appeal
of the assessee are dismissed.
21.3 As regards to ground No. 9 of the appeal of the Revenue
is concerned, we find that while adjudicating the ground No. 7 and
8 of the appeal of the Revenue, we have already upheld the decision
of the Ld CIT(A) of holding the relevant amount of provision under
demobilisation and other expenses as ascertained liability and
hence , we concur with the decision of the Ld CIT(A) that same are
not required to be added to book profit u/s 115JB of the Act. The
ground no. 9 of the appeal of the Revenue is accordingly dismissed.
22.1 The ground No. 13 of the appeal of the assessee relates to
denial of exclusion of income amounting to Rs. 76,80,17,697/-
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
82
2234/Del/2005 & 3805/Del/2008
earned from permanent establishment in foreign countries while
computing book profit under section 115JB of the Act by applying
the provisions of Double Tax Avoidance Agreement (DTAA).
22.2 The Assessing Officer held that adjustment can be made
only as provided in Explanation to section 115J as decided by the
Hon'ble Supreme Court in the case of Apollo tyres Vs CIT (2002)
255 ITR 273 (SC). According to him, exclusion of DTAA is not
provided in that explanation. The Ld. CIT(A) confirmed the action of
the Assessing Officer.
22.3 Before us the Ld. Counsel of the assessee submitted that
issue in dispute is covered in the favour of the assessee by the
decision of the Tribunal in the case of the assessee for assessment
year 2000-01, wherein it is held that when such income is not to be
taxed as per DTAA, it cannot be brought to tax indirectly under the
deeming fiction under section 115JB of the Act.
22.4 The Ld. DR, on the other hand relied on the order of the
lower authorities.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
83
2234/Del/2005 & 3805/Del/2008
22.5 We have heard rival submission and perused the relevant
material on record. The Tribunal in ITA No. 2596/del/2004 in the
case of the assessee for assessment year 2000-01 has adjudicated
on the identical issue in dispute involved as under:
"9. We considered the above heard the rival submissions made by
the parties in respect of Ground No.7 and it is seen that income earned
from permanent establishment in foreign countries is liable to be
excluded from the computation of book profit in view of the decision in
the case of the bank of Tokyo-Mitsubishi UFJ Ltd vs. ADIT 152 1TD 796
(Del.), which has been affirmed by Hon'ble High Court of Delhi. When
such income is not to be taxed as per DTAA, it cannot be brought to tax
indirectly under the deeming fiction under section115JA
Accordingly, this ground of appeal is decided in favor of the appellant."
22.6 The issue in dispute involved in the present ground of the
appeal, being identical to the issue adjudicated by the Tribunal
(supra) above, respectfully following the finding of the Tribunal
(supra), we direct the Assessing Officer to exclude the income which
is subject matter of dispute under this ground of the appeal from
the ambit of the computation of book profit under section 115JB of
the Act. The ground of the appeal is according allowed.
23.1 In ground No. 14 of the appeal, the assessee has
disputed denial of exclusion of profit on sale of fixed assets
amounting to Rs. 6,77,97,458/-in computing book profit under
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
84
2234/Del/2005 & 3805/Del/2008
section 115JB of the Act. It was the contention of the assessee that
profit on sale of fixed assets was in the nature of capital receipts.
The Ld. Assessing Officer disallowed the claim based on the
decision of the Hon'ble Supreme Court in the case of Apollo Tyres
limited (supra). The Ld. CIT(A) upheld the finding of the Assessing
Officer in view of the Hon'ble Bombay High Court in the case of
Veekaylal Investment Company Private Limited reported in (2001)
249 ITR 597(Bombay).
23.2 Before us, the Ld. Counsel of the assessee clearly
conceded that issue in dispute is covered against the assessee by
the decision of the Hon'ble Bombay High Court in the case of Vee
Kay Lal Investment Company Private Limited (supra) and the
decision of the Hon'ble Kerala High Court in the case of NJ Jose
and Company Private Limited Vs CIT (2010) 321 ITR 132 (ker.).
23.3 We have heard the rival submission and perused the
relevant material on record. The hon'ble Bombay High Court in the
case of Veekaylal Investment Company Private Limited (supra) held
that while computing the book profit under the companies Act, the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
85
2234/Del/2005 & 3805/Del/2008
assessee has to include capital gains for computing the book profit
under section 115J of the Act. The relevant finding of the Hon'ble
High Court is reproduced as under :
"7. We find merit in this appeal. According to s. 1153(1), in the case of an
assessee being a company if the total income is less than 30 per cent of
its book profits then the total income of such company shall be deemed
to be an amount equal to 30 per cent of such book-profit and such
income shall be chargeable to tax. That, the assessee has to first
compute the total income in accordance with the IT Act and if the total
income is less than 30 per cent of the book profit then the assessee has
to prepare a P&L a/c for the previous year in accordance with Part II and
III of Sch. VI to the Companies Act. In other words, a plain reading of s.
1153 shows that if the assessee is a company and its total income under
the IT Act is less than 30 per cent of its book profits then, fictionally, it
will be deemed that its total income chargeable to tax would be an
amount equal to 30 per cent of such book profits. Hence, in such a case,
the total income of the assessee is first required to be computed under
the IT Act and if the total income so computed is less than 30 per cent of
the book profits then the P&L a/c shall have to be prepared in
accordance with Part II and Part III of Sch. VI of the Companies Act. The
important thing to be noted is that while calculating the total income
under the IT Act, the assessee is required to take into account income by
way of capital gains under s. 45 of the IT Act. In the circumstances, one
fails to understand as to how in computing the books profits under the
Companies Act, the assessee-company cannot consider capital gains for
the purposes of computing book profits under s. 115J of the Act.
Further, under cl. (2) of Part II of Sch. VI to the Companies Act where a
company receives the amount on account of surrender of leasehold
rights, the company is bound to disclose in the P&L a/c the said amount
as non-recurring transaction or a transaction of an exceptional nature
irrespective of its nature i.e. whether capital or revenue. That, it would be
inappropriate to directly transfer such amount to capital reserve [see
Companies Act by A. Ramaiya, p. 1669 (Fourteenth Edn.]. Such receipts
are also covered by cl. 2(b) of Part II of Sch. VI of the Companies Act
which, inter alia, states that P&L a/c shall disclose every material
feature, including credits or receipts and debits or expenses in respect of
non-recurring transactions or transactions of an exceptional nature.
Lastly, even under cl. 3(xii)(b) profits or losses in respect of transactions
not usually undertaken by the Company or undertaken in circumstances
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
86
2234/Del/2005 & 3805/Del/2008
of exceptional or non-recurring nature shows clearly that capital gains
should be included for the purposes of computing book profits. That,
capital gains would certainly be one of the various items whose
information is required to be given to the share holders under the said cl.
3 (xii)(b). So also, the disclosure is required to be made in respect of
investment in the capital of a partnership firm if the company is a
partner on the date of the balance sheet (see p. 1651 of the Companies
Act by A. Ramaiya [Fourteenth Edn.]. Similarly, profits or losses on such
investments are also required to be disclosed. [See cl. 3(xii)(a) of Part II of
Sch. VI of the Companies Act]."
23.4 As the Ld. CIT(A) has followed a binding precedent on the
issue in dispute, we do not find any error in the order of the Ld.
CIT(A) on the issue in dispute and accordingly, we uphold the same.
The ground No. 14 of the appeal of the assessee is accordingly
dismissed.
24.1 The ground No. 15 of the appeal of the assessee relates to
disallowance of claim of deduction under section 80HHC of the Act
amounting to Rs.28.97 crores while computing the book profit
under section 115JB of the Act.
24.2 The Assessing Officer disallowed the claim of deduction
under section 80HHC of the Act under normal business income and
consequently he held that the assessee cannot be allowed deduction
under section 80HHC for the purpose of section 115JB ( MAT
provisions) of the Act. The Ld. CIT(A) held that the issue is
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
87
2234/Del/2005 & 3805/Del/2008
consequential in nature to the disallowance of deduction section
80HHC under normal provisions of business income.
24.3 The Ld. Counsel of the assessee submitted that Tribunal
in the assessment year 2000-01 has allowed the benefit of
deduction under section 80HHC under normal provisions of the Act
and therefore in view of the clause (iv) of explanation to section
115JB of the Act, the assessee is entitled to benefit of deduction
under section 80HHC under the provisions of the MAT.
24.4 On the other hand, the Ld.DR relied on the order of the
lower authorities.
24.5 We have heard rival submissions and perused the
relevant material on record. While adjudicating the ground No. 3,
we have allowed the deduction under section 80HHC of the Act
following the decision of the Tribunal in the case of the assessee for
assessment year 2000-01. Further, as per the clause (iv) of
explanation 115JB of the Act which was in operation during
relevant period, the deduction under section 80HHC of the Act was
to be reduced from the book profit as per the Companies Act for the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
88
2234/Del/2005 & 3805/Del/2008
purpose of computation of book profit under section 115JB of the
Act. The relevant provision is reproduced as under:
"Omitted by the Finance Act, 2011, w.r.e.f. 1.4.05. Prior to their omission, clauses
(iv), (v) and (vi) read as under :
(iv). The amount of profits eligible for deduction under section 80HHC, computed
under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the
case may be, of that section, and subject to the conditions specified in that section; or
(v). .....................
(vi). .......................
24.6 As the assessee was entitled for reducing the deduction
under section 80HHC out of the book profit during relevant period,
we direct the Assessing Officer to allow the benefit in view of clear
provision of clause (iv) below explanation of section 115JB of the
Act. The ground No. 15 of the appeal of the assessee is allowed.
25. Now, we take up the appeal of the Revenue.
26.1 The ground No.1(one) of the appeal of the Revenue relates
to deduction of Rs.1.42 Crs. under section 80HHB(A) allowed to the
assessee.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
89
2234/Del/2005 & 3805/Del/2008
26.2 This claim of deduction was made for the first time before
the Ld. CIT(A). It was submitted that if deduction under section
80IA of the Act is denied to the assessee, then the deduction under
section 80HHB(A) of the Act might be allowed as the assessee fulfils
all the requisite condition of the said provision. The assessee
submitted that three projects namely "APSH 1A Hazurabad" ,
"APSH 1B Kareem Nagar"and "APSH 3 Kamalapuram" totalling Rs.
2,03,55,02,091/-which were funded by the World Bank, were
eligible for claim of deduction at the rate of 40% of such profit,
which was worked out to Rs.1,42,00,837/-. The assessee submitted
that all the required conditions including maintenance of separate
books of accounts, furnishing of audit report of chartered
accountant certificate in prescribed form 10CCAA, creation of a
special reserve etc have been fulfilled, and hence the assessee is
eligible for the deduction.
26.3 The Ld. CIT(A) called for the remand report from the
Assessing Officer, wherein he submitted that the two conditions of
furnishing of a certificate in form No. 10CCAA and creation of
housing project reserve account were not satisfied.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
90
2234/Del/2005 & 3805/Del/2008
26.4 Regarding creation of a special reserve the Ld. CIT(A) ,
followed the decision of jurisdictional High Court in the case of
continental construction Ltd. versus CIT 185 ITR 230. Regarding
filing of the chartered accountant certificate in form No. 10CCAA,
the ld. CIT(A) followed the decision of the Hon'ble Calcutta High
Court in the case of CIT Vs. Berger paints India Ltd 254 ITR 503.
The Ld. CIT(A) also placed reliance on CIT vs. Shivanand
Electronics 209 ITR 63 and CIT versus Gujarat Oil and Allied
Industries 201 ITR 325. In view of the decisions relied upon, the Ld.
CIT(A) found the claim of the assessee in order and allowed the
claim accordingly.
26.5 Before us, the Ld. DR relied on the submission of the
Assessing Officer made during the remand proceedings and
submitted that the assessee has not fulfilled the required conditions
for eligibility of deduction in dispute.
26.6 On the other hand, the Ld. Counsel of the assessee
submitted that deduction under section 80 HHB(A) of the Act was
claimed as alternative to the deduction under section 80IA of the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
91
2234/Del/2005 & 3805/Del/2008
Act. He submitted that the Tribunal in ITA No. 2596/Del/2004 for
assessment year 2000-01 has already allowed the claim of
deduction under section 80IA of the Act, and thus the assessee is
not pressing for the deduction under section 80HHB(A) of the Act.
26.7 We have heard the rival submissions and perused the
relevant material on record. Before the Ld. CIT(A), the assessee
claim deduction under section 80HHB(A) of the Act as alternative
claim that if the deduction under section 80IA of the Act is denied
to it, then the assessee might be allowed deduction under section
80 HHB(A) of the Act. Since the assessee has already been allowed
deduction under section 80IA of the Act by us while adjudicating
the ground No. 2 of the appeal of the assessee, this alternative
claim of deduction under section 80HHB(A) cannot be allowed in
addition to the claim under section 80IA of the Act. The assessee
has also not insisted for this claim before us. Accordingly, the
ground of the appeal of the Revenue is allowed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
92
2234/Del/2005 & 3805/Del/2008
27.1 The ground No. 2 of the appeal of the Revenue relates to
alternative claim of deduction under section 80HHB amounting to
Rs. 12.66 crores, which has been allowed by the Ld. CIT(A).
27.2 Before us, the ld. counsel of the assessee submitted that
it was an alternative ground for deduction under section 80HHB of
the Act, in the unlikely event, the disallowance of deduction under
section 80HHC is upheld in appeal. He submitted that the Tribunal
in the assessee's own case for assessment year 2000-01 has
allowed the deduction under section 80HHC of the Act, thus, the
assessee is not insisting for claim under section 80HHB of the Act.
The ld. DR, on the other hand, has not objected to the
withdrawal of the claim by the assessee.
27.3 We have heard the rival submissions and perused the
relevant material on record. We have already allowed claim of the
assessee for deduction under section 80HHC of the Act, while
adjudicating, the ground No. 3 of the appeal of the assessee, and
thus, this alternative claim cannot be allowed to the assessee. The
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
93
2234/Del/2005 & 3805/Del/2008
assessee has also withdrawn this claim before us. Accordingly this
ground of the appeal of the Revenue is allowed.
28.1 The ground No.3(three) of the appeal of the Revenue
relates to the grant of deduction under section 80HHB in respect of
foreign project without allocating corporate office expenses.
28.2 The Ld. Counsel of the assessee before us submitted
that the claim of deduction under section 80HHB of the Act was
made as an alternative claim under section 80HHC of the Act. He
submitted that the claim of the assessee under section 80HHC of
the Act has been allowed by the Tribunal in assessment year 2000-
01, therefore the claim of deduction under section 80 HHB of the
Act is not insisted. However, it was submitted that the issue in
dispute was covered in favour of the assessee by the decision of the
Tribunal in the case of Telecommunication Consultant India Ltd
versus DCIT (ITA No. 333/Del/1990) wherein it is held that
expenses not connected with the activity of the assessee i.e.
exclusion of foreign project cannot be taken into consideration,
while computing the income derived from such activity and
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
94
2234/Del/2005 & 3805/Del/2008
consequently the head office expenses cannot be apportioned in the
present case for setting off the same against the income of the
foreign projects.
28.3 The Ld. DR, on the other hand, submitted that when the
main claim of the assessee has been allowed by the Tribunal in
earlier years, the assessee is not entitled for deduction under
section 80 HHB of the Act during the year under consideration.
28.4 We have heard the rival submission of the parties. We
find that this claim of deduction under section 80HHB was made
only as alternative claim before the Ld. CIT(A). Since we have
already allowed the main claim of the assessee under section
80HHC of the Act while adjudicating the ground No. 3 of the appeal
of the assessee, and thus this claim of deduction under section
80HHB is denied to the assessee. Before us, the assessee has also
not insisted for allowing this claim. Accordingly, the ground of the
appeal of the Revenue is allowed.
29.1 The ground No.4(four) of the appeal of the Revenue
relates to deduction of Rs. 12.51 lakhs under section 35DDA of the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
95
2234/Del/2005 & 3805/Del/2008
Act being 1/5th amount of Rs.62,54,482/-paid to the employees
under the Voluntary Retirement Scheme (VRS) as applicable in the
assessee company. The Ld. Assessing Officer disallowed the claim
in view of no details filed. The assessee filed detail before the Ld.
CIT(A), who remanded the matter to the Assessing Officer. The
Assessing Officer has objected on the ground that it was not evident
that the deduction claimed pertained to those employees who had
actually resigned during the concerned period. The Ld. CIT(A)
allowed the claim of the assessee considering that -
(i) The assessee is a government of India undertaking,
whose accounts are audited by the statutory and
government auditors.
(ii) All the details are available in the audited balance
sheet and the assessee has also submitted all the
details of the VRS before him and also before the
Assessing Officer in remand proceedings.
29.2 Before us, the Ld. DR relied on the order of the
Assessing Officer and submitted that requisite details of employees
resigned were not filed by the assessee, and therefore deleting the
disallowance by the Ld. CIT(A) was not justified.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
96
2234/Del/2005 & 3805/Del/2008
29.3 We have heard the rival submissions in view of the order
of the lower authorities and other material on record. We find that
the Ld. CIT(A) has allowed the claim of the deduction of the
assessee observing as under:
"7.2.3 In the rejoinder filed by the appellant counsel vide letter dated 09-
02-2005, it has been submitted that it is obvious that the employees who
resigned and are eligible for VRS are only those who are covered under
the VRS scheme as is applicable to the company. It is not possible under
any circumstances that expenditure incurred under the head voluntary
retirement scheme may pertain to employees who are not covered under
the VRS scheme or has resigned when the scheme was not in operation.
The appellant is a government undertaking and its accounts are being
statutorily audited by the statutory auditor? and again audited by CAG
and placed before the Parliament for approval thereof.
7.3 Taking into consideration that the appellant is the government of
India undertaking, there is no doubt, its accounts are audited both by
statutory and government auditors. It is also a fact that all the details
were available in the audited balance sheet and the appellant has also
submitted all the details of voluntary retirement scheme vide its letter
dated 22-01-2004. It is also a fact that during the course of remand
proceedings, the appellant has also filed the copy of the voluntary
retirement scheme and its ratification by the Board of Directors. Taking
all the above facts into consideration, no disallowance is called for and
the addition made by the AO is deleted."
29.4 We find that all the requisite details of the voluntary
retirement scheme and the expenses incurred of Rs. 62, 54, 482/-
towards said scheme have already been filed by the assessee and
thus the contention of the Ld. DR that no details of the employee
resigned were filed, cannot be made a basis for disallowance of the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
97
2234/Del/2005 & 3805/Del/2008
claim of the assessee. In our opinion, the finding of the Ld. CIT(A)
on the issue in dispute is well reasoned and we do not find any
error in the same. The ground of the appeal of the Revenue is
dismissed.
30.1 The ground No. 5 of appeal of the Revenue relates to
deduction of corporate office expenses by the Assessing Officer
while granting exclusion of income from foreign projects under
DTAA.
30.2 The assessee has computed income earned under the
DTA agreement from Bangladesh and Malaysia at Rs.2,96,13,866/-
and Rs. 73, 84, 03, 831/-respectively. According to the Assessing
Officer those incomes have been determined without deducting the
corporate office expenses. In view of the Assessing Officer
appropriation of the corporate office expenses was necessitated by
the rational of section 14, which prescribed that no deduction of
expenditure shall be allowed in relation to income which do not
form part of the total income. In view of this observation, the Ld.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
98
2234/Del/2005 & 3805/Del/2008
Assessing Officer allocated Rs. 51,68,697/-and Rs.3,15,44,520/-
towards DTA income from Bangladesh and Malaysia respectively.
30.3 Before the Ld. CIT(A), the assessee submitted that all
corporate office expenses attributable to permanent establishment
outside India had been charged to the related projects. According to
the assessee, separate books of accounts were maintained for each
project at the project site itself and all the expenses were debited to
profit and loss account. It was submitted that even the expenditure
relating to any visit of an executive from corporate office and/or any
expenditure incurred by the corporate office has been directly
booked in the accounts of the project itself.
30.4 The Ld. CIT(A) deleted the allocation of corporate office
expenses towards the DTAA income observing as under:
"9.2.4. In the preceding assessment years 1999-00 and 2000-01, it was
allowed in favour of the appellant.
9.3. The adjustment made by the A.O. was deleted by my ld.
Predecessors on the ground that as the entire expenditure attributable to
foreign projects have been duly considered in the P & L account prepared
for the foreign projects, no part of the corporate office expenditure could
be attributable to the foreign projects and, hence, the same was deleted. I
agree with the decision of my ld. Predecessors and following the same for
the same reasons, the adjustment made by the A.O. is deleted."
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
99
2234/Del/2005 & 3805/Del/2008
30.5 Before us, the Ld. DR relied on the finding of the
Assessing Officer. On the contrary, Ld. Counsel of the assessee
reiterated the submission made before the ld. CIT(A) and submitted
that all the expenses attributable to the project, whether corporative
or administrative have already been debited to the respective profit
and loss account of the projects and therefore no further allocation
of corporate expenses are justified. The Ld. Counsel submitted that
issue in dispute has been decided in favour of the assessee by the
Ld. CIT(A) in its own case in assessment year 1999-2000 and
2000-2001 on the basis of the decision of the Delhi Tribunal in the
case of telecommunication Consultant India Ltd versus DCIT in ITA
No. 333/Del/1990.
30.6 We have heard rival submissions and perused the
relevant material on record. The income of the foreign projects
through their permanent establishment, is chargeable in the
respective country and in such a situation, reducing of promotional
corporate office expenses in working out the income of the
permanent establishment in the foreign country excludable while
computing income chargeable to tax in India, cannot be justified.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
100
2234/Del/2005 & 3805/Del/2008
We do not find any error in the order of the Ld. CIT(A) in following
the order of the Tribunal in the case of Telecommunication
Consultant India Ltd. (supra), which is a binding precedent.
Accordingly, the finding of the Ld. CIT(A) on the issue in dispute is
upheld. The ground of the appeal of the Revenue is accordingly
dismissed.
31.1 The ground No. 10 of the appeal of the Revenue relates to the
provision of gratuity allowed while computing book profit u/s
115JB by the Ld. CIT(A). According to the Ld. AO, it is
unascertained liability, whereas the Ld. CIT(A) held the provision of
the gratuity as ascertained liability in view of actuarial valuation,
following a binding precedent. The finding of the ld. CIT(A) is
reproduced as under:
"15B. The next issue of appeal taken by the appellant in Ground No.15(c)
is that the AO is not justified and grossly erred in considering that the
provision for gratuity amounting to Rs.44,39,494 is on account of
liability other than ascertaining liability and adding it to the computation
of book profit for the purpose of Section 115JB of the Act.
15B.1 The grounds taken for disallowing the provision for gratuity by the
AO have already been summarized in the Ground No. 15(a).
15B.2 The submissions made by the appellant counsel on the issue
during the course of appellate proceedings are summarized below:
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
101
2234/Del/2005 & 3805/Del/2008
(i) The company has set up a gratuity trust fund which is being
administered by LIC of India. The annual gratuity liability is determined
by LIC based on actuarial valuation under group gratuity scheme.
During the previous year under consideration, the company provided for
gratuity amounting to Rs.44,39,494 based on actuarial valuation.
(ii) Since the determination of the gratuity provision is by way of an
actuarial valuation it cannot be said that the same is an unascertained
liability. The appellant vide its letter dated 24-03-2004 has submitted
before the AO that gratuity has been provided on the basis of actuarial
valuation. The AO did not sought for actuarial valuation certificate,
however, the same is enclosed herewith. This disallowance has never
been made in any of the earlier years.
(iii) The Delhi ITAT in the case of GD Rathi Steels Ltd. Vs. DCIT, 56 ITD
103 has stated that gratuity which has been actuarially valued is an
ascertained liability. Similar view has been expressed by Hon'ble Mumbai
High Court in. the case Echjay Forging (supra).
15B.3 The provision for gratuity has been added by the appellant u/s
40A(7) because the gratuity trust fund which has been established and is
being administered by LIC is not an approved gratuity trust fund.
However, for the provision of Section 115JB of the Act, it is required to be
seen whether the provision created is in respect of ascertained liability or
unascertained liability. As in the case of the appellant, the provision has
been created on the basis of actuarial valuation, the same is ascertained
liability as per the ITAT Delhi decision in the case of GD Rathi Steel Ltd.
and is allowable expenditure. Therefore, the addition made on this
account for computing the income under the MAT provision is deleted."
31.2 Before us the ld. DR relied on the order of the AO,
whereas the Ld. Counsel of the assessee relied on the order of ld.
CIT(A) and further relied on the following decisions in support of the
claim that provision based on actuarial valuation amounts to
ascertained liability:
(i). CIT vs. IIpea Paramount P. Ltd. (2010) 336 ITR 54 (Del)
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
102
2234/Del/2005 & 3805/Del/2008
(ii). Eastern India Powertech Ltd. V Addl. CIT (2013) 32
taxmann.com 11 (Del. Trib.)
31.3 We have heard rival submissions of the parties. The Ld.
CIT(A) has allowed the issue in dispute in view of the decision of the
Tribunal in the case of GD Rathi Steels Ltd Vs DCIT 56 ITD 103,
wherein it is held that gratuity which has been actually valued is an
ascertained liability. We don't find any error in the finding of the Ld.
CIT(A) on the issue in dispute following a binding precedent on the
issue. Accordingly, we uphold the finding of the Ld. CIT(A) on the
issue in dispute and dismiss the ground No. 10 of the appeal of the
Revenue.
32.1 The ground No. 11 of the appeal of the Revenue relates to
amount of Rs. 9,00,77,782/- which has been reduced by the
assessee from the book profit for computation of MAT liability u/s
115JB of the Act in view of clause (i) of explanation below section
115JB(2) of the Act. According to the AO the assessee was required
to enhance the book profit of previous/ earlier years corresponding
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
103
2234/Del/2005 & 3805/Del/2008
to the reduction in book profit claimed on account of written back
liabilities.
32.2 The Ld. CIT(A) keeping in view the provisions of the Act
as amended and the decisions relied upon by the assessee restored
the issue partly for verification by the Assessing Officer observing as
under:
"18.2 The various submissions made by the appellant counsel during the
course of appellate proceedings are as under:
(i) The observation of the AO is totally incorrect and contrary to the
provisions of the Act. According to clause (i) of Explanation to Section
115JB of the Act, it is clear that any amount withdrawn from reserves or
provisions which are created and/or provided in the previous year ended
on or before 31-03-1996 should be allowed. The said clause imposes
certain restrictions in respect of provisions created in the previous year
relevant to the AY beginning on or after the 1st day of April 1997.
However, as far as the provision created on or before 31-03-1996 is
concerned, the provisions of the Act are very clear and there is no doubt
that the same should be excluded in computing the book profit for the
purpose of Section 115JB of the Act.
(ii) The clause (i) was amended with retrospective effect by the Finance
Act, 2002 from 01-04-2001. In the original clause (i), when it was
brought into force w.e.f. 01-04-2001, alongwith the new provisions of
Section 115JB of the Act, instead of 1st day of April 1997, the term used
in the statute was 1st day of April 2001 and, accordingly, it claimed the
said deduction in relation to the provisions utilized and/or withdrawn,
which were made prior to the previous year relevant to the AY under
consideration. However,in view of the retrospective amendment, the
amount of provisions utilized and/or withdrawn during the year under
consideration, which were created in the FY 1995-96, and/or earlier FYs
is Rs.87,90,316 only. Hence, it is stated that the same should be
excluded in computing the book profit for the purpose of Section 115JB
of the Act.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
104
2234/Del/2005 & 3805/Del/2008
(iii) Reliance has been placed on the decision of the following case
laws:
(a) J.K. Cotton Spinning & Weaving Mills Co. Ltd. Vs. ACJT, 60 ITD 99
(All);
(b) SRF Ltd. Vs. ACIT, 47 ITD 504 (Del);
(iv) The CIT(A) while passing the appellate order in the appellant's own
case for the AY 2000-01 has deleted the addition.
18.3 Taking into consideration that the provisions were amended from
retrospective effect by the Finance Act, 2002 w.e.f. 01-04-2001, the claim
allowable to the appellant as per the appellant's own admission is only
Rs.87,90,316 as against the claim made by the appellant of
Rs.9,77,00,872 as per the provisions at the time of filing of the return.
The AO is directed to verify that the sum of Rs.87,90,316 relates to
provision or reserve created before first day of April 1997 and if found to
be correct, the same should be allowed."
32.3 Before us the Ld DR relied on the order of Assessing
Officer, whereas the Ld counsel of the assessee submitted that
issue is already decided in favour of the assessee in its own case in
assessment year 2000-01 by the Ld. CIT(A) and no appeal has been
preferred by the Department against the issue before the Tribunal.
32.4 We have heard rival submission of the parties and
perused the relevant material on record. The ld. CIT(A) has
explained the clause(i) of explanation to section 115JB of the Act
that it applies to any amount withdrawn from the reserves or
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
105
2234/Del/2005 & 3805/Del/2008
provision which are created and/or provided in the previous year
ended on or before 31/03/96 and should be allowed. In our
opinion, the Ld. CIT(A) has correctly appreciated the position of the
law into the facts of the instant case. We do not find any error in
the order of the Ld. CIT(A) on the issue and accordingly, we uphold
the same.
33.1 The ground No. 12 of the appeal of the Revenue relates to
allowance of claim for deduction under section 80HHB while
computing book profit under section 115JB of the Act.
33.2 Before us, the Ld. Counsel of the assessee submitted that
this ground was only taken as alternative ground in unlikely event
the disallowance under section 80IA and 80HHC is not allowed.
Since, we have already allowed the deduction under section 80IA
and 80HHC of the Act while computing book profit under section
115JB of the Act, this claim of the assessee is rendered infructuous
and accordingly, we allow the ground of the appeal of the Revenue.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
106
2234/Del/2005 & 3805/Del/2008
34.1 The ground No. 13 of the appeal of the revenue relates to
interest under section 234D of the Act amounting to
Rs.2,23,26,453/-.
34.2 The Ld. CIT(A) deleted the interest charged under section
234D of the Act on the ground that relevant section was introduced
with effect from 01/06/2003 and refund in the present case was
granted before the said date ( i.e. on 30/07/2002).
34.3 Before us, the Ld. DR submitted that in the instant case
assessment proceedings have been completed on 25/03/2004 and
therefore provision of section 234D is applicable.
34.4 We have heard rival submission of the parties. The
explanation -2 to section 234D has been inserted by way of Finance
Act 2012 which provides that provisions of section 234D would be
applicable for assessment year commencing before 01/06/2003 if
the proceeding for such assessment year is completed on or after
1.6.2003. It is undisputed that in the present case assessment
proceedings have been completed on 25/03/2004 and hence
provision of section 234D are applicable. Accordingly, the finding of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
107
2234/Del/2005 & 3805/Del/2008
the ld. CIT(A) are set aside and interest charged by the learned
Assessing Officer under section 234D is restored. The ground of the
appeal of the Revenue is accordingly allowed.
35. In the result, the appeal of the assessee is allowed partly for
statistical purpose whereas the appeal of the Revenue is partly
allowed.
36. Now, we come to the remaining appeals of assessee for A.Yrs.
2002-03 and 2003-04 and appeal of the Revenue for A.Y. 2003-04.
The grounds raised by the assessee in its appeals for both the years
read as under :
Grounds raised by assessee in appeal for A.Y. 2002-03
1(a) That on the facts and in the circumstances of the case, the
Ld. Commissioner of Income Tax (Appeals) [here-in-after referred
to as 'CIT(A)'], was not justified in upholding the disallowance of
the appellant's claim for deduction of depreciation amounting to
Rs. 18,30,937/- on the value of machinery spare parts
capitalized during the year.
1(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 1(a) taken here in above, the Ld.
CIT(A) grossly erred in holding that although depreciation is
allowable on machineries in 'ready to use' condition but the
same is not allowable on machinery spares which are also in
'ready to use 'condition.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
108
2234/Del/2005 & 3805/Del/2008
2(a) That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in disallowing appellant's claim for
deduction u/s 80-IA in respect of income earned from the
business of development of infrastructure facilities amounting to
Rs.19,03,52,236/-.
2(b) That on the facts and in the circumstances of the case and
without prejudice to ground No. 2(a) taken here in above, the Ld.
CIT(A) grossly erred in considering that the appellant's role in
executing various infrastructure projects is that of a contractor
which cannot be equated to the business of developing the
infrastructure facilities and thereby disallowing the claim for
deduction u/s 80-IA of the Act.
2(c). That on the facts and circumstances of the case and
without prejudice to ground No. 2(a) and 2(b) taken here in
above, the Ld. CIT(A) was not justified in not taking into
consideration the decision of Hon'ble the case of Patel Engg. Ltd
- vs. - Dy CIT (2005) 94 ITD wherein based on the identical facts
as of the appellant the deduction u/s 80-IA of the Act has been
allowed.
3(a). That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in confirming the disallowance of
the claim of the appellant tor deduction u/s 80HHC amounting
to Rs. 17,09,53,587/- in respect of income earned from the
business of export of goods.
3(b). That on the facts and in the circumstances of the case,
and without prejudice to ground No. 3(a) taken here in above,
the Ld. CIT(A) grossly erred in considering that the appellant
entered into 'composite contract' which cannot be equated to the
'supply contract' thereby disallowing the claim for deduction u/s
80HITC of the Act.
3(c) That on the facts and in the circumstances of the case, and
without prejudice to ground No. 3(a) and 3(b) taken here in
above, the Ld. CIT(A) grossly erred in not allowing the alternate
claim of the appellant u/s 80HHB in respect of supplies made to
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
109
2234/Del/2005 & 3805/Del/2008
Syria when under the similar circumstances alternate claim u/s
80HIIB was allowed to the appellant in respect of supplies
made to Iran.
4(a). That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for demobilization
amounting to Rs. 20,32,836/- out of the total claim for Rs
2,95,17,122/-.
4(b) That on the facts- and in the circumstances of the case and
without prejudice to ground no. 4(a) taken here in above, the Ld.
CIT(A) completed the appellate proceedings without affording
reasonable opportunity to the appellant for furnishing all the
relevant documents and hence the impugned issue may be set
aside for allowing the same on merits.
5(a) That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for maintenance
expense amounting to Rs. 50,54,000/- out of the total claim for
Rs. 87,33,107/-.
5(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 5(a) taken here in above, the Ld.
CIT(A) completed the appellate proceedings without affording
reasonable opportunity to the appellant for furnishing all the
relevant documents and hence the impugned issue may be set
aside for allowing the same on merits.
6(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
the claim of the appellant towards provision for other expenses
amounting to Rs 28,85,31 1/- out of the total claim for Rs
1,18,85,311 /-.
6(b) That on the facts and in the circumstances of flu* case and
without prejudice to ground no. 6(a) taken here in above, the Ld.
C1T(A) completed the appellate proceedings without affording
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
110
2234/Del/2005 & 3805/Del/2008
reasonable opportunity to the appellant for furnishing all the
relevant documents and hence the impugned issue may be set
aside for allowing the same on merits.
7(a) That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in confirming the disallowance
made by the Ld. AO in respect of interest received vide
intimation u/s 143(1) for the assessment year 2001-02
amounting to Rs 2,00,469/-.
7(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 7(a) taken here in above, the Ld.
CIT(A) grossly erred in holding that the interest received by the
appellant on provisional assessment u/s 143(1) for the
assessment year 2001-02 was due and final, disregarding the
fact that the same was subsequently withdrawn on finalization
of assessment u/s 143(3) of the Act for the said assessment
year 2001-02.
8(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in confirming the addition of Rs.
1,60,30,000/- towards interest income on accrual basis on the
disputed dues with NBCC whose matter is pending before the
Hon'ble Delhi High Court.
8(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 8(a) taken here in above, the Ld.
CIT(A) grossly erred in holding that principal and interest
amounts due from a Government Company cannot be
considered to be doubtful or sticky unless the said company has
gone into liquidation.
8(c) That on the facts and in the circumstances of the case and
without prejudice to ground no. 8(a) and 8(b) taken here in
above, the Ld. CIT(A) was not justified in upholding the addition
of interest calculated @ 15% p.a. as awarded by the arbitration
award instead of interest calculated @ 6% p.a. being actually
paid by NBCC on outstanding dues, which has been duly
offered to tax by the appellant in the assessment year 2003-04.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
111
2234/Del/2005 & 3805/Del/2008
9.0 That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of Rs.
13,37,89,617/- towards provision for bad & doubtful debts and
Rs. 1,64,73,633/- towards provision for bad & doubtful
advances for computing the book profits for the purpose of
section 115JB of the Act.
10.0 That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for demobilization
amounting to Rs 20,32,836/- out of the total claim for Rs
15,93,46,597/- for computing the book profits for the purpose of
115JB of the Act.
11.0 That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for maintenance
expenses amounting to Rs 5,53,92,513/- out of the total claim
for Rs 7,46,71,237/- for computing the book profits for the
purpose of 115JB of the Act.
12.0 That on the facts and in the circumstances of the case, the
Ld. CIT(A) was not justified in upholding the disallowance of the
claim of the appellant towards provision for other expenses
amounting to Rs 28,85,311/- out of the total claim for Rs
1,18,85,311/- for computing the book profits for the purpose of
115JB of the Act.
13.0 That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified and grossly erred in disallowing
deduction of income earned from permanent establishment in
foreign countries and not chargeable to tax under Double
Taxation Avoidance Agreement amounting to Rs.
1,10,27,05,706/- in computing the book profit for the purpose of
Section L15JB of the Act.
14.0 That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
the claim of the appellant amounting to Rs. 2,24,79,738/- on
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
112
2234/Del/2005 & 3805/Del/2008
account of the profit on sale of fixed asset in computing the book
profit for the purpose of Section 115JB of the
15.0 That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in disallowing Rs. 24,42,19,410/-
towards the claim of deduction u/s 80HHC in computing the
book profit for the purpose of Section L15JB of the Act."
Grounds raised by assessee in appeal for A.Y. 2003-04:
1(a) That on the facts and in the circumstances of the case,
the Ld. Commissioner of Income Tax (Appeals) [here-in-after
referred to as CTT(A)], was not justified in upholding the
disallowance of the appellant's claim for deduction of
depreciation amounting to Rs. 13,73,203/- on the WDV of
machinery spare parts capitalized in the earlier
years(Assessment year 2001-2002).
1(b) That on the facts and in the circumstances of the case and
without prejudice to ground no.1(a) taken here in above,
the Ld. CIT (A) grossly erred in holding that although
depreciation is allowable on machinery in 'ready to use'
condition but the same is not allowable on machinery spares
which are also in 'ready to use 'condition.
1(c) That on the facts and in the circumstances of the case and
without prejudice to ground no.1(a) and 1(b) taken here in
above, the Ld.CIT (A)grossly erred in not following the decision
of the Jurisdictional Delhi High Court in the case of Capital
Bus Services (123 ITR 404) wherein depreciation on parts of
machinery which is ready for use has been categorically
allowed.
2(a) That on the facts and in the circumstances of the case,Ld.
CIT(A) was not justified in disallowing the claim of the appellant
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
113
2234/Del/2005 & 3805/Del/2008
for deduction u/s 80IAin respect of income earned from the
business of development of infrastructure facilities amounting to
Rs.13,19,72,609/-.
2(b) That on the facts and in the circumstances of the case,
and without prejudice to ground No. 2(a) taken here in above,
the Ld. CIT (A) grossly erred in considering that the appellant's
role in executing various infrastructure projects is that of a
contractor which cannot be equated to the business of
developing the infrastructure facilities and there by disallowing
the claim for deduction under section 80IA of the Act.
2(c) That on the facts and in the circumstances of the case,
and without prejudice to ground No. 2(a) and 2(b) taken here in
above, the Ld. CIT (A) grossly erred in not considering that the
appellant is an enterprise and not a person, who executes a
work contract with an undertaking and thereby disallowing the
claim for deduction u/s 80IA of the Act.
2(d) That on the facts and in the circumstances of the case,
and without prejudice to ground No. 2(a) and 2(b) taken here in
above, the Ld. CIT (A) was not justified in not taking into
consideration the decision of Hon'ble Mumbai ITAT in the case
of ACIT vs Bharat Udhyog Ltd., (ITA No 6137/Mum/2005)
wherein based on the identical facts as that of the appellant,
the benefit of deduction u/s 80-IA of the Act has been allowed.
3(a) That on the facts and in the circumstances of the case, Ld.
CIT(A) was not justified in confirming the disallowance of the
claim of the appellant for deduction u/s 80HHC relating to the
export of goods and supplies made to the Government of Syria
amounting to Rs.1,60,34,887/- .
3(b) That on the facts and in the circumstances of the case, and
without prejudice to ground No. 3(a) taken here in above, the Ld.
CIT(A) grossly erred in considering that the appellant entered
into 'composite contract' which cannot be equated to the "supply
contract' thereby disallowing the claim for deduction u/s
80HHC of the Act.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
114
2234/Del/2005 & 3805/Del/2008
4(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
the total claim of the appellant towards provision for other
expenses amounting to Rs 4,30,61,843/- under normal
provisions of the Act.
4(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 4(a) taken here in above, the Ld.
CIT (A) completed the appellate proceedings in haste without
affording Reasonable opportunity to the appellant for furnishing
all the relevant documents and hence the impugned issue may
be set aside for allowing the same on merits.
5(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in confirming the addition made by
the Assessing Officer towards interest received on provisional
assessment u/s 143(1) amounting to Rs. 2,05,90,009/-.
5(b) That on the facts and the circumstances of the case and
without prejudice to ground no. 5(a) taken herein above, the Ld.
CIT (A) grossly erred in including the above interest income
received on provisional basis which was subsequently
withdrawn on finalization of assessment u/s 143(3).
6(a) That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified in confirming the addition of
Rs.1,36,70,000/- towards interest income on accrual basis on
the disputed dues with NBCC whose matter is pending before
the Hon'ble Delhi High Court.
6(b) That on the facts and in the circumstances of the case, and
without prejudice to ground no. 6(a) taken here in above, the Ld.
CIT (A) grossly erred in holding that principal and interest
amounts due from a Government Company cannot be
considered to be doubtful or sticky unless the said company has
gone into liquidation.
7(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
115
2234/Del/2005 & 3805/Del/2008
the claim of the appellant towards provision for demobilization
and other expenses amounting to Rs. 99,12,075/- utilized
during the year although the same has already been taxed in
earlier years under the normal provisions of the Act.
7(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 7(a) taken here in above, the Ld.
CIT (A) completed the appellate proceedings in haste without
affording reasonable opportunity to the appellant for furnishing
all the relevant documents and hence the impugned issue may
be set aside for allowing the same on merits.
8(a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in not allowing assessee's claim of
Rs. 25,56,813/- arising from withdrawal made by the
department in the instant Assessment Year in respect of interest
granted u/s 244A pertaining to Assessment Year 2000- 2001
which was already taxed in the Assessment Year 2001-2002.
8(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 8(a) taken here in above, the Ld.
CIT (A) grossly erred in holding that the interest amounting to
Rs. 25,56,813/- received by the appellant on provisional
assessment u/s 143(1) for the assessment year 2000-01 to be
due and final, disregarding the fact that the same was
subsequently withdrawn on finalization of the appellant's case
for the said assessment year u/s 143(3) of the Act.
9(a) That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified in making the additions while
computing the book profits for the purposes of sec. 115JB, of the
amounts of Rs. 1,70,85,297/- and Rs. 6,37,472/- respectively
on account of provision for bad and doubtful debts and
provision for bad and doubtful advances.
9(b) That on the facts and in the circumstances of the case and
without prejudice to ground no. 9(a) taken here in above, the Ld.
CIT (A) grossly erred in holding that addition be made to book
profit on account of the provision for bad and doubtful debts
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
116
2234/Del/2005 & 3805/Del/2008
and provision for bad and doubtful advances on the ground that
these are liability other than ascertained liability.
9(c) That on the facts and in the circumstances of the case and
without prejudice to ground no. 9(a) and 9(b) taken here in
above, the Ld. CIT (A) was not justified in not taking into
consideration the decision of the Supreme Court in the case of
CIT V. HCL Comnet Systems & Services
[2008] 305 ITR 409 , wherein it was held that the provision for
bad and doubtful debts is not for meeting a liabilities is not to
be included in the book profits for the purposes of sec. 115JB.
10.0 That on the facts and circumstances of the case the Ld. CIT
(A) was not justified in rejecting the appellant's claim for
provision for other expenses amounting to Rs. 4,30,61,843/- in
respect of non DTAA projects. The appellant claimed the said
provisions as deductible expenditure while computing the book
profits for the purposes of section 115JB of the Act, since the
same were quantifiable and ascertained liabilities in the hands
of the appellant. The Ld. Officers however, not accepting the
contention of the appellant rejected the claim of the appellant on
the ground that the said provision is on account of liability other
than ascertained and/or accrued liability and hence, added
back the same while computing the book profits for the
purposes of section 115JB of the Act.
11.0 That on the facts and in the circumstances of the case the
Ld. CIT (A) was not justified and grossly erred in disallowing
deduction from income earned from permanent establishment in
foreign countries and not chargeable to tax under Double
Taxation Avoidance Agreement amounting to Rs.
84,82,65,351/- in computing the book profit for the purpose of
Section 115JB of the Act.
12.0 That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in upholding the disallowance of
the claim of the appellant amounting to Rs. 1,90,11,891/- on
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
117
2234/Del/2005 & 3805/Del/2008
account of the profit on sale of fixed asset in computing the book
profit for the purpose of Section 115JB of the Act.
13.a) That on the facts and in the circumstances of the case, the
Ld. CIT (A) grossly erred in not considering the claim of the
appellant amounting to Rs.99,12,075/- towards provision for
bad and doubtful debts, advances, demobilization expenses,
maintenance expenses, etc., utilized during the year, which
have already been taxed in the earlier years by the department,
resulting taxation of the aforesaid provisions once again in the
instant assessment year while computing the book profits.
13.b). That on the facts and in the circumstances of the case
and without prejudice to ground no. 13(a) taken here in above,
the Ld. CIT (A) completed the appellate proceedings in haste
without affording reasonable opportunity to the appellant for
furnishing all the relevant documents and details of the
allowance/disallowances in earlier years. Hence the impugned
issue may be set aside for allowing the same on merits.
14.0 That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in disallowing Rs. 3,20,69,774/-
towards the claim of deduction u/s 80HLIC while computing the
book profit for the purpose of Section 115JB of the Act.
15.0 That on the facts and in the circumstances of the case, the
Ld. CIT (A) was not justified in rejecting assessee's claim of
excess levy of interest u/s 234D by Rs. 8,45,013/-.
Grounds raised by Revenue in appeal for A.Y. 2003-04
1. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the disallowance of Rs. 69,58,033/-
on account of deduction u/s 80HHB.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
118
2234/Del/2005 & 3805/Del/2008
2. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the disallowance of Rs. 1,29,214/-
on account of corporate office expenses.
3. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the disallowance of Rs.
7,78,00,676/- on account of corporate expenses proportionate to
profit of foreign projects.
4. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the addition of Rs. 1,10,71,800/- on
account of the provision for demobilization expenditure.
5. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the addition of Rs. 1,28,77,257/- on
account of provision for maintenance expenditure.
6. On the facts and circumstances of the case and in law, the
CIT(A) has erred in deleting the addition of Rs. 1,10,71,800, Rs.
1,28,77,257/- & Rs. 4,30,61,843/- on account of the provision
for demobilization, provision for maintenance and other
expenses respectively.
37. Adverting to the appeals of the assessee for A.Y. 2002-03
and 2003-04, grounds Nos. 1(a) and 1(b) for A.Y. 2002-03 and 1(a),
1(b) & 1(c) for A.Y. 2003-04 are covered by our decision on ground
Nos. 1(a) & 1(b) in appeal of assessee for A.Y. 2001-02, which we
have dismissed as per our discussion made herein above.
Accordingly, these grounds of assessee's both the appeals are
dismissed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
119
2234/Del/2005 & 3805/Del/2008
38. Similarly, grounds Nos. 2(a), 2(b) & 2(c) raised by assessee for
A.Y. 2002-03 and 2003-04 are covered by our decision on grounds
Nos. 2(a) &2(b) in appeal of assessee for A.Y. 2001-02. Accordingly,
ground No. 2(a),&2(b) of assessee's appeals for both these years are
allowed. As regards ground No. 2(c) was raised without prejudice to
ground no. 2(a) and 2(b) only and not required to be adjudicated ,
when we have already allowed ground no. 2(a) and 2(b) of the
appeal.
39. Grounds Nos. 3(a) and 3(b) in both these appeals of the
assessee are covered by our decision on grounds Nos. 3(a) & 3(b) in
appeal of assessee for A.Y. 2001-02. Accordingly, these grounds of
assessee's appeals for both these years, are allowed.
40. Ground Nos. 4(a) & 4(b) for A.Y. 2002-03 are covered by our
decision on ground Nos. 6(a) & 6(b) of assessee's appeal for A.Y.
2001-02. Accordingly, these grounds of assessee are dismissed.
Similarly, ground Nos. 4(a) & 4(b) raised in A.Y. 2003-04, are
identical to grounds Nos. 7(a) and 7(b) raised in A.Y. 2001-02,
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
120
2234/Del/2005 & 3805/Del/2008
which we have decided against the assessee. Accordingly, these
grounds of appeal for A.Y. 2003-04 are also dismissed.
41. Grounds Nos. 5(a) & 5(b) for A.Y. 2002-03 relates to provision
of maintenance expenses of Rs. 50,54,000/- upheld by the Ld.
CIT(A) , out of provision of Rs. 87,33,107/- disallowed by the
Assessing Officer. The Ld CIT(A) upheld the with detailed reasoning
in para 10.3 of the impugned order. The Ld CIT(A) has in principle
allowed the claim of the assessee that maintenance expenses are
required to be incurred as part of contract , however , in case
Fatwa-Patna project ( Rs. 20,54,000/-) and Raxul Birganj project (
Rs. 30,00,000/-) , no details were furnished before him and thus
he sustained the disallowance to the extent of Rs. 50,54,000/-.
Before us also no such details have been furnished by the assessee,
we uphold the disallowance as we have decided in other grounds of
the appeals of the assessee. The ground No. 5(a) and 5(b) of the AY
2002-03 are dismissed accordingly.
42. Grounds Nos. 5(a) & 5(b) raised by assessee in appeal for A.Y.
2003-04 are covered by our decision on ground No. 8(a) & 8(b)
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
121
2234/Del/2005 & 3805/Del/2008
raised in A.Y. 2001-02. Accordingly, these grounds are allowed for
statistical purposes in terms of our decision on ground No. 8 of
assessee's appeal for A.Y. 2001-02.
43. Grounds Nos. 6(a) & 6(b) raised by assessee in its appeal for
A.Y. 2002-03 and grounds Nos. 6(a) & 6(b) raised in appeal for A.Y.
2003-04 are covered by our decision rendered on grounds Nos. 7(a)
& 7(b) and 9(a) & 9(b) of assessee's appeal for A.Y. 2001-02
respectively, whereby the respective claims of the assessee have
been dismissed. Accordingly, these grounds Nos. 6(a) & 6(b) raised
by assessee in both the appeals for A.Y. 2002-03 and 2003-04 are
also dismissed.
44. Grounds Nos. 7(a) & 7(b) raised by assessee in its appeal for
A.Y. 2002-03 are covered by our decision rendered on grounds Nos.
8(a) & 8(b) in assessee's appeal for A.Y. 2001-02, which have been
allowed for statistical purposes. Accordingly, these grounds of
appeal for A.Y. 2002-03 are also allowed for statistical purposes in
terms of our decision on grounds Nos. 8(a) and 8(b) in appeal for
A.Y. 2001-02. Similarly, grounds Nos. 7(a) & 7(b) raised in appeal
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
122
2234/Del/2005 & 3805/Del/2008
for A.Y. 2003-04are covered by our decision given on ground Nos.
6(a) and 6(b) of assessee's appeal for A.Y. 2001-02, whereby the
identical claim of assessee has been dismissed. Accordingly, these
grounds for A.Y. 2003-04 are also dismissed.
45. Grounds Nos. 8(a) & 8(b) in appeal for A.Y. 2002-03 are
similar to ground Nos. 9(a) and 9(b) of assessee's appeal for A.Y.
2001-02, which have been dismissed. Accordingly, these grounds of
assessee for A.Y. 2002-03 are also dismissed.
46. As regards ground No. 8(c) of assessee's appeal for A.Y. 2002-
03, which has been taken without prejudice to ground No. 8(a) and
8(b) is concerned, we are of the opinion that the assessee is not
entitled to deduction of interest on loans to NBCC as already held
by us. Accordingly, this ground no. 8(c) of the appeal for AY 2002-
03 is dismissed.
47. The ground No. 8(a) and 8(b) in assessee's appeal for A.Y.
2003-04, pertain to interest u/s 244A of the Act. The issue in
dispute has been adjudicated while deciding the ground No. 8(a)
and 8(b) for assessment year 2001-02, wherein we have remitted
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
123
2234/Del/2005 & 3805/Del/2008
the issue in dispute to file of the assessing officer for deciding in
view of the decision of special bench in the case of Avada Trading
Company (P) Ltd. (supra). The issue in dispute being identical, the
ground No. 8(a) and 8(b) of the appeal for AY 2003-04 are also
allowed for statistical purpose.
48. Grounds Nos. 9 raised by assessee in its appeal for A.Y. 2002-
03 and grounds Nos. 9(a), 9(b) and 9(c) raised in appeal for A.Y.
2003-04 are covered by our decision rendered on grounds Nos. 10
of assessee's appeal for A.Y. 2001-02, which has been allowed for
statistical purposes. Accordingly, all these grounds of assessee for
both the years are allowed for statistical purposes in terms of our
relevant decision given on ground No. 10 for A.Y. 2001-02.
49. The issues raised by assessee by way of ground Nos. 10 in
both the years, pertaining to disallowance of provision for
demobilization and disallowance of provision for other expenses
under MAT u/s. 115JB are covered by our decision given on
grounds Nos. 11 and 12for A.Y. 2001-02 respectively, whereby the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
124
2234/Del/2005 & 3805/Del/2008
respective claims of the assessee have been dismissed. Accordingly,
these grounds of appeal of assessee are also dismissed.
50. Ground No. 11 of appeal of assessee for A.Y. 2002-03 relates
to disallowance of provision for maintenance 5, 53, 92, 513/-out
of 7, 46, 71, 237/-. The Ld. CIT(A) upheld the disallowance
holding the same as unascertained liability as held in the case of
demobilisation expenses. As we have already upheld disallowance of
the similar nature, while adjudicating ground No. 11 of the appeal
for assessment year 2001-02, the provision for maintenance of 5,
53, 92, 513/- made under my provisions in the assessment year
2002-03, is also upheld. The ground No. 11 of the appeal for
assessment year 2002-03, is accordingly dismissed.
51. Ground No. 11 raised by assessee in appeal for A.Y. 2003-04
is similar to ground No. 13 of A.Y. 2001-02, which we have allowed
in the identical facts and circumstances. Accordingly, this ground of
appeal of assessee is also allowed.
52. Ground No. 12 of assessee's appeal for A.Y. 2002-03 is similar
to ground No. 12 of A.Y. 2001-02 and ground No. 12 of assessee's
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
125
2234/Del/2005 & 3805/Del/2008
appeal for A.Y. 2003-04 is similar to ground No. 14 of assessee's
appeal for A.Y. 2001-02. Since we have rejected the respective
claims of the assessee in A.Y. 2001-02, the ground Nos. 12 of
assessee's appeals for A.Y. 2002-03 and 2003-04 are dismissed.
53. Ground No. 13 of assessee's appeal for A.Y. 2002-03 is covered
by our decision given on ground No. 13 of A.Y. 2001-02.
Accordingly, this ground of appeal of the assessee is dismissed.
54. Ground No. 13(a) and 13(b) of assessee's appeal for A.Y. 2003-
04 pertain to disallowance of provision of Rs.99,12,075/-. The
assessee's claim that relevant amount of provisions were disallowed
in assessment year 2001-02 and 2002-03, out of which the
assessee utilised in the previous year relevant to assessment year
2003-04, the amount of Rs. 20,15,350/-and Rs.78,96,725 from the
provision for demobilisation expenses and other expenses
respectively totalling Rs.2,99,12,075/-. We find that the identical
issue raised by the assessee before the Ld. CIT(A) in assessment
year 2002-03 has been restored to the assessing officer for
verification in para 16.3 of the order of the Ld. CIT(A) for
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
126
2234/Del/2005 & 3805/Del/2008
assessment year 2002-03. In our opinion, the issue needs
verification at the end of the assessing officer and accordingly, we
rest of this issue to the file of the assessing officer for verification
and deciding a fresh. The ground of the appeal is accordingly
allowed for statistical purposes.
55. The ground No. 14 for assessment year 2002-03 relates to
disallowance on profit on sale of fixed asset Rs.2,24,79,738/- under
section 115JB of the Act. The issue being identical to ground No. 14
of the assessment in 2001-02, it is dismissed accordingly. The
ground No. 14 for assessment year 2003-04 relates to deduction
under section 80HHC of Rs.3,20,69,774/-under section 115 JB,
which being identical to ground No.15 of assessment year 2001-02,
it is dismissed accordingly.
56. The ground No. 15 for assessment year 2002-03 relates to
deduction under section 80 HHC of Rs.24, 42, 19, 410/-under
section 115 JB of the Act, which being identical to ground No. 15
for assessment year 2001-02, is dismissed accordingly.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
127
2234/Del/2005 & 3805/Del/2008
57. In ground No. 15 for assessment year 2003-04, the assessee
has raised the issue of access levy of interest under section 234D by
Rs.8,45,013/-. The Ld. CIT(A) held that interest under section 234D
is consequential in nature and incorrect computation if any has to
be rectified under section 154 of the Act. The Ld. CIT(A) observed
that the assessee had not furnished any details/evidence of filing a
rectification petition under section 154 of the Act before the
assessing officer. Accordingly he rejected the claim of the assessee.
In our opinion, the Ld. CIT(A) has directed to avail the remedy
provided in the act. We do not find any error in the said finding of
the Ld. CIT(A), and accordingly we dismiss the ground of the appeal
of the assessee.
Revenue's appeal for A.Y. 2003-04:
58. In Ground Nos. 1 , the Revenue had challenged allowing
alternative claim of Rs.69,58,033 /- under section 80 HHB of the
Act . The identical claim of deduction under section 88HHB of the
Act in assessment year 2001-02 has been rejected by us while
adjudicating ground No.2, accordingly following our finding, the
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
128
2234/Del/2005 & 3805/Del/2008
ground No. one of the appeal of the Revenue for assessment year
2003-04 is allowed.
59. The ground No. 2 of the appeal of the Revenue relates to
deduction of corporate office expenses of Rs.1,29,214/-from the
profit of the eligible projects for the purpose of computation of
deduction under section 80HHB of the Act. The identical issue
raised in ground No. 3 for assessment year 2001-02 has been
allowed, accordingly the ground No. two of the appeal of the
revenue for assessment year 2003-04 is also allowed .
60. Ground No. 3 of Revenue's appeal is similar to ground No. 5 of
Revenue's appeal for A.Y. 2001-02, which as per our above decision,
has been dismissed. Accordingly, this ground of Revenue is also
dismissed.
61. Ground No. 4 of this appeal is covered by our decision
rendered on ground No. 7 of Revenue's appeal for A.Y. 2001-02,
which has been dismissed in the identical facts of the case.
Accordingly, this ground of Revenue is also dismissed.
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
129
2234/Del/2005 & 3805/Del/2008
62. Ground No. 5 the appeal relates to addition of
Rs.1,28,77,257/-deleted by the Ld. CIT(A) on account of provision
for maintenance expenses. We find that the Ld. CIT(A) has verified
that the liability on account of maintenance expenses arisen in the
year under consideration. The Ld. DR could not rebut this factual
finding of Ld. CIT(A). Accordingly we do not find any error in the
order of the Ld. CIT(A) in deleting the disallowance. The ground of
the appeal of the Revenue is accordingly dismissed.
63. The issue raised in Ground No. 6 pertaining to provision for
demoblization and provision for maintenance and other expenses, is
covered by our decision given on ground No. 9 of Revenue's appeal
for A.Y. 2001-02, which we have dismissed vide our findings given
herein above. Accordingly, ground of Revenue is also dismissed.
64. Ground No. 7 is general in nature and needs no specific
adjudication.
65. In the result, all the three appeals of the assessee for A.Yrs.
2001-02, 2002-03 and 2003-04 are allowed partly for statistical
ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos.
130
2234/Del/2005 & 3805/Del/2008
purpose whereas both the appeals of the Revenue for A.Yrs. 2001-
02 and 2002-03 are partly allowed.
Order pronounced in the open court on 31/10/2019
Sd/- Sd/-
(Bhavnesh Saini) (O.P. Kant)
Judicial member Accountant Member
Dated: 31 Oct., 2019
*aks*
Copy of order forwarded to:
(1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Delhi Benches, New Delhi
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