2011 (9) TMI 1183 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of provisions for costs on completed contracts.
2. Allowability of provisions for loss on incomplete contracts.
3. Withdrawal of TDS credit.
4. Levy of interest u/s 234D.

Summary:

1. Allowability of Provisions for Costs on Completed Contracts:
The assessee claimed provisions for costs on completed contracts amounting to Rs. 19,613,336. The Assessing Officer (A.O.) disallowed these provisions, stating that the assessee failed to provide evidence to prove the liability as claimed. The Commissioner (Appeals) upheld this disallowance, noting that the provisions were not made on a scientific basis and were contingent in nature. The Tribunal, however, referred to previous assessment years where similar provisions were allowed and held that in principle, provisions for costs on completed contracts should be allowed, subject to the assessee justifying the quantum of the provision. Specific cases like Gujarat State Fertilizer Corp. Ltd., Mangalore Chemical and Fertilizers Ltd., and others were examined, and the Tribunal allowed the provisions to the extent of actual expenditure incurred in subsequent years.

2. Allowability of Provisions for Loss on Incomplete Contracts:
The assessee claimed provisions for loss on incomplete contracts amounting to Rs. 66,506,252. The A.O. disallowed these provisions, stating that the assessee cannot have different methods of accounting for profits and losses and that the provisions were contingent in nature. The Commissioner (Appeals) upheld this disallowance, noting that the assessee did not provide any basis for the estimation of the loss. The Tribunal agreed with the findings of the lower authorities, stating that the assessee failed to substantiate the basis for the provisions and upheld the disallowance of provisions for anticipated loss on incomplete contracts.

3. Withdrawal of TDS Credit:
The assessee's claim for TDS credit amounting to Rs. 2,361,179 was partly disallowed by the A.O. on the ground that the conditions of section 199 of the Income Tax Act, 1961, were not satisfied. The Tribunal upheld the decision of the Commissioner (Appeals), stating that TDS credit cannot be given where the corresponding receipt is not taken into income during the year.

4. Levy of Interest u/s 234D:
The assessee contested the levy of interest amounting to Rs. 1,148,323 u/s 234D of the Act. The Tribunal referred to the judgment of the Hon'ble Jurisdictional High Court in CIT v/s Bajaj Hindustan Ltd., which held that interest u/s 234D cannot be charged in respect of refund granted prior to 1st June 2003. However, in this case, the return of income was processed after 1st June 2003, and thus, the Tribunal upheld the levy of interest u/s 234D.

Conclusion:
The Tribunal partly allowed the assessee's appeal, allowing provisions for costs on completed contracts to the extent of actual expenditure incurred, while upholding the disallowance of provisions for loss on incomplete contracts, withdrawal of TDS credit, and levy of interest u/s 234D.