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2013 (11) TMI 164 - AT - Income TaxExpenses Debited to P&L Account - The Assessing Officer that assessee had debited in its Profit & Loss Account an item of expenditure called expected loss - The amount of expected lease equalization charges was accurately determinable, and it could result in an outgo or surplus - Intention was to recoup the capital cost and even out the imbalances arising on application of standard depreciation rates over assets of varying kinds - an assessee showing as current income, if his expected contract cost was lower than the total contract receipts - Can we determine with reasonable accuracy the surplus or deficit that would arise in a contract execution which is far from complete - Can we say that such loss claimed were to off-set any deficiency in the depreciation claim - Answer to all these, in our opinion are a firm No . There were no escalation clause in the contract with clients - Relying on the decision of Hon ble Apex Court in the case of State Bank of Patiala Vs. CIT 1996 (3) TMI 128 - SUPREME Court - accrual system recognized the point of time at which liability was crystallized; expenses claimed by the assessee were only likely but not definite. It was nothing, but a contingent liability - Lease equalization charge represented the amount set aside to equalize the im-balance between lease rentals and depreciation created over a period of time - Sec.211(3C) of the Companies Act, 1956, required companies to follow the Accounting Standards prescribed by Institute of Chartered Accountants of India till Accounting Standards were notified by Government - Assessee could show that only a part of cost of asset could be recovered through the period of lease and depreciation provided was not sufficient to cover the deficit, even after considering the scrap value - If the depreciation claimed over the period of lease was less than capital recovery difference is debited as lease equalization charges and if it was more, difference was treated as lease equalization income. Disallowance of Staff Benefit Expenses Held that - Held that - Just because a breakup was not furnished, disallowance could not have been made - When such break-up was produced before the CIT(A), it should have been admitted and adjudicated - The issue had to be restored to the file of Assessing Officer for consideration afresh - Assessee shall produce the evidence in support of the claim and A.O. shall proceed in accordance with lawAssessee had given a breakup of the total claim of staff benefits expenses before the A.O and such breakup had been reproduced - The details were reproduced by the A.O. in the assessment order itself - the assessee had indeed given the nature of expenses included under the head Others - Only fault was that breakup was not given - A.O. had nowhere mentioned that assessee had failed to record such expenditure in its books of accounts. Disallowance of Bad Debts - Held that - A sum was claimed by the assessee as bad debts relatable to one M/s.Thiru Arooran Sugar, Kollumangudi - CIT(A) after verification of the ledger, found that the amount due from the said party - He therefore, allowed the claim to that extent only - Nothing was brought before us by the A.R to show that there was anything due from Thiru Aooran Sugar as at the end of the relevant previous year - Assessee could not have written off as bad debt an amount more than what was due to it - there was no reason to interfere in the order of the CIT(A) in this regard. Levy of Interest u/s 234D Held that - Section 234D of the Act was brought into statutory by Finance Act, 2003 with effect from 01.06.03 - Since the assessment was completed after the said date, levy of interest under section 234D was justified there was no reason to interfere in the orders of the lower authorities.
Issues Involved:
1. Addition of a provision for expected loss on contracts. 2. Disallowance of staff benefit expenses. 3. Disallowance of bad debts. 4. Levy of interest under section 234D. Issue-Wise Detailed Analysis: 1. Addition of a Provision for Expected Loss on Contracts: The assessee, engaged in the engineering construction business, declared a loss of Rs. 38,02,820/- and computed book profit for MAT at Rs. 52,22,890/-. During assessment, the Assessing Officer (AO) noted an expenditure item "expected loss" of Rs. 47,18,514/-, which the assessee justified as a necessary recognition of anticipated losses due to increased costs in contracts without escalation clauses. The AO disallowed this claim, considering it a provision for unascertained liabilities, not allowable for normal income computation or for calculating book profit under section 115JB. The CIT(A) upheld this view, terming it a contingent liability. The Tribunal agreed, emphasizing that only incurred expenses or suffered losses are allowable for tax purposes, rejecting the anticipated loss as not meeting the matching concept. The Tribunal also found the assessee's reliance on the case of Virtual Soft Systems Ltd. and SECIT SPA SOCIETA ECOLOGOCA unconvincing, as the circumstances differed significantly. 2. Disallowance of Staff Benefit Expenses: The AO disallowed Rs. 13,56,382/- out of the total staff benefit expenses of Rs. 24,35,718/- due to lack of detailed breakdown. The CIT(A) upheld this disallowance, refusing to admit additional evidence at the appellate stage. The Tribunal noted that while the assessee provided a general breakup of expenses, it failed to furnish specific details. The Tribunal directed the AO to reconsider the issue afresh, allowing the assessee to produce supporting evidence. 3. Disallowance of Bad Debts: The assessee claimed bad debts of Rs. 5,13,212.95 related to M/s. Thiru Arooran Sugar, but the CIT(A) found only Rs. 1,65,794/- due from the party and allowed the claim to that extent. The Tribunal upheld this decision, as the assessee could not substantiate any amount beyond Rs. 1,65,794/- as due from the debtor. 4. Levy of Interest under Section 234D: The AO levied interest under section 234D, which was contested by the assessee. The Tribunal upheld the levy, noting that the assessment order was passed after the effective date of the section, making the interest charge justified. Conclusion: The appeal was partly allowed for statistical purposes, with the Tribunal directing a fresh consideration of the staff benefit expenses while upholding the decisions on the other issues.
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