2019 (1) TMI 750 - AT - Income Tax

Disallowance of loss foreseeable on project - Held that - Assessee merely submitted that assessee has given treatment in the accounts as per Accounting Standard-7 issued by ICAI. Assessee was not able to rebut the findings of the DRP in this regard. It is not in dispute that the claim was made on mere estimate. It was also not disputed that the loss have not actually been crystallized during the assessment year under appeal. It is also not explained as to how the foreseeable loss have been calculated and what was the justification. It is well settled law that if assessee would have incurred actual loss, then the same would be allowed in the year when such loss have been incurred and crystallized. DRP has specifically noted that even the loss have not taken place in assessment year under appeal. These findings of the authorities below have not been rebutted by the assessee through any evidence or material on record. Therefore, mere making a claim on account of foreseeable loss on estimate is not an allowable deduction under the Act. We, therefore, confirm the findings of the authorities below and dismiss Ground of the appeal of assessee. Disallowance of relation to sundry balances written off during the year, even though the same is allowable under section 37(l) - Held that - The draft order was sent to assessee-company. The assessee-company filed its objections before the DRP, but the Order of the A.O. was confirmed on the reasons that the amount is incurred on salary advance and other payments. Therefore, same are not in the nature of trading loss and also of bad debts. Tribunal restored the matter back to the file of DRP for considering the issue afresh. The DRP noted in their findings that amount have been incurred on salary advance and other payments which are neither in the nature of trading loss nor bad debts, therefore, Order of the A.O. was found correct. No merit in this ground of appeal of assessee. The assessee at the initial stage could not file any reply on this issue. The DRP has given a specific finding that this amount have been incurred on salary advance and other payments which are neither in the nature of trading loss nor the bad debts. Learned Counsel for the Assessee have not been able to point-out any infirmity in the findings of the DRP - decided against assessee.

Issues Involved:
1. Addition of ?42,14,599/- related to the upward adjustment made by the Transfer Pricing Officer (TPO).
2. Disallowance of ?80,99,113/- on account of "loss foreseeable on project."
3. Disallowance of ?58,417/- related to sundry balances written off.
4. Initiation of penalty proceedings under section 271(1)(c) of the I.T. Act.

Issue-wise Detailed Analysis:

1. Addition of ?42,14,599/- related to the upward adjustment made by the Transfer Pricing Officer (TPO):

The assessee challenged the addition of ?42,14,599/- on various grounds, including errors by the AO/DRP in upholding the TPO's adjustment, disallowance of reimbursement of expenses, and failure to follow the principle of natural justice. The AO noted that the assessee had international transactions with associated enterprises and referred the case to the TPO. The TPO computed the Arm's Length Price (ALP) of international transactions at NIL, resulting in an addition of ?55,59,824/-. The assessee's objections were rejected by the DRP, which confirmed the TPO's order. The ITAT initially set aside the DRP's order and remanded the matter for reconsideration. However, the DRP upheld the TPO's revised adjustment to ?42,14,599/- after reassessment. The assessee filed additional evidence before the Tribunal, but the Tribunal rejected the petition for admission of additional evidence due to lack of authentication, relevance, and genuineness. Consequently, the Tribunal dismissed ground Nos. 1 to 10 of the appeal, finding no infirmity in the DRP/AO's order.

2. Disallowance of ?80,99,113/- on account of "loss foreseeable on project":

The AO disallowed the expenditure of ?80,99,113/- towards "loss foreseeable on project" under the head "Construction Cost," citing that the loss was not ascertained and was based on an estimate. The DRP confirmed the addition, noting that the claim was unsubstantiated and the loss was not crystallized during the assessment year. The Tribunal, after reconsideration, upheld the DRP's findings, stating that the loss was not actually incurred or crystallized during the assessment year and that the claim was made on mere estimate. The Tribunal dismissed ground Nos. 11 to 13 of the appeal, confirming the disallowance.

3. Disallowance of ?58,417/- related to sundry balances written off:

The AO disallowed the expenditure of ?58,417/- towards sundry balances written off under the head "Other Expenses" due to the assessee's failure to provide details. The DRP confirmed the disallowance, stating that the amount was incurred on salary advance and other payments, which were neither in the nature of trading loss nor bad debts. The Tribunal upheld the DRP's findings, noting that the assessee failed to provide any substantial evidence or rebut the DRP's conclusions. Consequently, ground No. 14 of the appeal was dismissed.

4. Initiation of penalty proceedings under section 271(1)(c) of the I.T. Act:

The Tribunal dismissed ground No. 15 of the appeal as premature, stating that the initiation of penalty proceedings under section 271(1)(c) of the I.T. Act was not ripe for adjudication.

Conclusion:

The appeal of the assessee was dismissed in its entirety, with the Tribunal upholding the findings and disallowances made by the AO and DRP on all grounds. The Tribunal found no merit in the assessee's contentions and confirmed the orders of the authorities below.

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