2017 (3) TMI 332 - AT - Income Tax

Addition on account of advances written off - whether allowable u/s. 37 - Held that - We find that the amount given to MCRBCM was written off by the assessee in the year under consideration but the same was disallowed by the AO by observing that the purpose of the advances given to MCRBCM has not been given. However, on perusal of records, we find that all the necessary details were furnished before appellate stage with the nature and purpose of transaction. The assessee acquired leased asset from the MCRBCM but later the company went into liquidation. Subsequently the Hon ble jurisdictional High Court ordered to the assessee for the payment of the aforesaid sum which later became irrecoverable. From the above, it gets established that the advances were given in the course of business and accordingly the same is eligible for deduction. - Decided in favour of assessee Addition on account of loose tools written off - Held that - On perusal of the details of the stores and loose tools written off furnished at the time of assessment, we find that the necessary supporting evidence were duly submitted by the assessee before the AO at the time of assessment. Before us ld. DR has also not brought anything on record contrary to the findings of ld. CIT(A) in deleting the addition made by the AO. - Decided in favour of assessee Addition on account of corporate advances written off - Held that - On perusal of the record, we find that all the necessary details of the impugned advances given to the parties were furnished by the assessee at the time of assessment and the relevant details are enclosed at pages 79 of the paper book. The advances represent the money given in relation to business contracts of the assessee with Nevyeli Lignite Corporation. On further perusal, we find that the advances written off were also approved in the minutes of Board meeting held on 30th March, 2004. The necessary details of the parties were duly furnished at the time of assessment. CIT(A) did not erred in deleting the addition as relying on case of Ashoka Marketing Limited Vs CIT 2001 (8) TMI 74 - CALCUTTA High Court wherein held possibility for recovery of loan in case unsecured creditors found that the entire amount went to the secured creditors and nothing remains to be paid for unsecured creditors, there is no justification to deny the claim of the assessee. - Decided in favour of assessee Addition on account of WIP written off - application of AS 7 - Held that - On the perusal of AS-7, we find that where the expected contract costs exceeds total contract revenue, then the probable loss should be recognized in the books immediately. Loss could be recognized irrespective of the stage of completion of contract and method of accounting followed. Hence, loss is permissible to be accounted for even in the period in which the contract is signed or when the legal or constructive obligation has been assumed. Assessee has determined the loss on the basis of the cost that can be attributed to a contract in accordance with AS-7. Actual expenditure incurred in the first year is in excess of amount written off in the first year of contract. Such write off have been made to comply with the provisions of Accounting Standard 7 as prescribed by the lCAI. The fact that assessee has made a correct estimate of the loss is further supported by the fact that actual loss borne by the assessee in every contract referred above is higher than the amount written off in the first year of contract. Hence, the contention of the A.O that such loss is a contingent loss and does not have any basis does not hold good. Foreseeable losses written off in accordance with Accounting Standard 7- Construction Contracts is an allowable loss. Para 13 of Accounting Standard 7- Construction Contracts as prescribed by lCAl mandates an entity to make a provision for losses irrespective of the method of accounting followed and percentage of contract completed. CIT(A) has given very clear finding that all the details were submitted before the AO and accordingly the finding of the AO is wrong that the assessee failed to file necessary details of the expenditure and work completed at the time of assessment. loss was adjusted against the revaluation reserve in terms of the Hon ble Jurisdictional High Order in the own case of the assessee. In fact there was amalgamation which was sanctioned by the Hon ble Jurisdictional High Court and accordingly the aforesaid loss was claimed against the revaluation reserve. However in our view the loss was genuine as no defect has been pointed out by the AO. Simply the loss was not written in the profit & loss account but adjusted against the revaluation reserve does not mean that the assessee is not entitled. Thus addition need to be deleted - Decided in favour of assessee Addition on account of payment made to sub-contractor - Held that - On perusal of the record, we find that all the necessary details of sub-contractor charges paid to M/s Lakshmi Enterprises were duly submitted before the AO. In our considered view, the assessee has filed the necessary details, which are sufficient enough to prove the identity of the party. Non-service of notice issued u/s.133(6) of the Act cannot be the sole reason for treating the payment as in-genuine. In rejoinder, Ld. DR has not brought anything on record contrary to the finding of ld. CIT(A) - Decided in favour of assessee

Summary

Issues Involved:

1. Deletion of addition on account of advances written off.
2. Deletion of addition on account of loose tools written off.
3. Deletion of addition on account of corporate advances written off.
4. Deletion of addition on account of contract WIP written off.
5. Deletion of addition by disallowing sub-contractor charges.

Issue-wise Detailed Analysis:

1. Advances Written Off:
The Revenue contested the deletion of ?1,46,976/- by the CIT(A) regarding advances written off by the assessee. The assessee, a limited company engaged in manufacturing and turnkey contracts, had written off this amount given to M/s CRB Capital Market (MCRBCM) due to liquidation. The AO disallowed it, asserting the purpose of the advance was unexplained. However, the CIT(A) found the advance was made to pay off the liquidator and was expected to be recovered post-settlement. The Tribunal upheld the CIT(A)'s decision, acknowledging the advance was given in the course of business and eligible for deduction.

2. Loose Tools Written Off:
The Revenue challenged the deletion of ?5,67,156/- related to loose tools written off. The AO had disallowed this amount due to the assessee's failure to substantiate the claim. However, the CIT(A) found that the necessary details were submitted, and the Tribunal confirmed this, noting the supporting evidence was provided during the assessment. Thus, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

3. Corporate Advances Written Off:
The Revenue disputed the deletion of ?1,45,57,065/- concerning corporate advances written off. The AO disallowed it due to a lack of details about the parties and the purpose of the advances. The CIT(A) found that the assessee provided the necessary details and noted that similar advances to another party were allowed as business loss. The Tribunal upheld the CIT(A)'s decision, citing the advances were for business purposes and allowable as business loss under Section 28 read with Section 37(1).

4. Contract WIP Written Off:
The Revenue objected to the deletion of ?6,50,00,000/- related to Work-In-Progress (WIP) written off. The AO disallowed the loss, arguing it was contingent and not substantiated with details. The CIT(A) found the loss was estimated based on Accounting Standard 7 (AS-7) and was mandatory to be recognized. The Tribunal upheld the CIT(A)'s order, referencing multiple judgments supporting the recognition of foreseeable losses under AS-7, and dismissed the Revenue's appeal.

5. Sub-Contractor Charges:
The Revenue contested the deletion of ?10,43,715/- related to sub-contractor charges. The AO disallowed it due to the non-service of notice to M/s Laxmi Enterprises, questioning the transaction's genuineness. The CIT(A) found sufficient material proving the transaction's genuineness and noted TDS was deducted on the payment. The Tribunal upheld the CIT(A)'s decision, stating non-service of notice alone cannot invalidate the transaction, and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s decisions to delete the disallowances made by the AO. The judgment emphasized the importance of substantiating claims with adequate documentation and recognized the applicability of accounting standards in tax assessments.