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TMI Blog2001 (8) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... heet. The details as mentioned in Schedule 8 are being reproduced as under: ----------------------------------------------------------------------- Rs. Rs. ----------------------------------------------------------------------- Provision for duty and taxes 58,963 Provisions for expenses 83,58,500 Salaries payable 1,94,831 Tax payable 2,34,010 ------------ 87,88,341. ----------------------------------------------------------------------- 3. After considering the explanation of the assessee in this regard, the factual position was summarised by Assessing Officer as under: "The facts found by me hitherto are summarised as under: (i) Classification for the provision for taxes made in the balance sheet was misleading. The provision mainly related to expenses. (ii) On31-3-1997, provision made for the expenses was nullified next day by passing reverse entries, and as per assessee, the provision for expenses is nullified and treated like a dummy account in books in the next year. (iii) Reversal entry was passed to the professional receipt amount on31-3-1997on the ground that the other party refused to entertain payment. Under Cochin Port Trust, there were two projects. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account cannot be said to have been incurred." In view of the above discussion, it was held by him that claim of provisions for liabilities shown in the books in the guise of "provision for taxation" could not be sustained. According to him, it was only inserted to reduce the incidence of tax. The claim of Rs.83,58,500 on account of "provision for expenses" was, therefore, disallowed and the assessment was completed. The CIT(A) has also confirmed the disallowances for the reasons given by the Assessing Officer. Hence, the assessee has preferred this appeal before the Tribunal. 4. The ld. counsel for the assessee Mr. R. Ganeshan has assailed the order of CIT(A) by raising various contentions. Firstly, it was submitted by him that the head "Provisions for taxation" in the balance sheet was due to typographical mistake and in fact it was "provision for expenses" and, therefore, no adverse inference can be drawn from this factual aspect. In this connection, he drew our attention to the balance sheet and Schedule 8 enclosed thereto to point out that provision for tax was only for Rs.2,34,010 out of total provisions of Rs.87,88,341. Rest of the provisions were for expenses. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the account of the respective parties are credited. If there is any excess or deficiency in the provisions for expenses account, the same has to be taken to the Profit and Loss A/c. If the entries are made in this manner, the liabilities claimed as deduction in the year under consideration cannot be said to be nullified in the next year. What is nullified only is the account of provisions for expenses. It was clarified by him that instead of adopting the provisions for expenses and crediting the parties account as and when the invoices are received, the assessee reversed the entry in first go on the first day of April, 1997 and thereafter again debited the sub-contract account and crediting the parties account as and when invoices were received in the subsequent year. According to him, the net effect remained the same and, therefore, no adverse inference could be drawn by the lower authorities on this account. He drew our attention to the entries made by the assessee. Therefore, it was played by him that the disallowance made by Assessing Officer and sustained by CIT(A) should be deleted in toto. On the other hand, the ld. DR has strongly relied on the orders of lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 209(3) of the Companies Act, 1956, read with Notification No. 9949, dated25-1-1996issued by the Central Government under section 145(2) and the Accounting Standards prescribed by ICAI. Accounting Standard-7 as prescribed by the Institute allows the assessee to follow the percentage completion method in the case of contract activity. AS-9 allows the assessee to follow the proportionate completion method in the case of activity of rendering services. Relevant portion of AS-9, as stated by the assessee in the statement of facts before the CIT(A) is reproduced as under: "AS-9: In a transaction involving rendering of services, performance should be measured either under the completed service contract method or under the proportionate completion method, whichever relates the revenue to the work accomplished, such performance should be regarded as being achieved when no significant uncertainty exists regarding the amount of consideration that will be derived from rendering the service ** In the accrual basis of accounting, cost are matched either against revenues or against the relevant time-period to determine periodic income. Further costs which are not charged against income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,00,000.00 TDS professional charges payable Cr. 5,680.00 (Being the Bill No. Vam/02 dated 3-5-1997 of Vam Management Services P. Ltd., towards professional charges for Gangavarm Port bid project. 14-7-1997 J-118 Subcontract Dr. 85,000.00 IIT Madras Cr. 85,000.00 [Being the Bill No. Nil (Ref./ IC/96-97/OEC/016/FRH/RSUN) for consultancy charges for completion of item No. 2 geotechnical investigation]. 25-7-1997 J-135 Sub-contract Dr. 33,16,860.00 Coastal Marine Con. & Engg. Ltd. Cr. 31,51,017.00 TDS professional charges payable Cr. 1,65,843.00 (Being the professional services Bill RA-2, dated 7-7-1997 passed for Rs. 33,16,860 (Rs. 88,16,860)-- 55,00,000, already accounted) for GMB project. ----------------------------------------------------------------------- When these entries were ledgerised, the sub-contract account appeared in the books of the assessee as under: --------------------------------------------------------------------------- Sub-contract 1997-98 A/c --------------------------------------------------------------------------- Rs. Rs. ------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is bound to be reversed and not the liabilities itself. Therefore, in our considered opinion, the Assessing Officer as well as CIT(A) was not justified in rejecting the claim of the assessee merely on this ground. 10. However, it is seen that on account of outright rejection of the assessee's claim on the wrong appreciation of entries, the Assessing Officer had not considered the claim on merit. As already held, the onus is on the assessee to prove that the amount represented by these provisions related to the year under consideration considering the system of accounting followed by the assessee. A doubt has been created in our mind while reading the order of CIT(A) in para 6 of the order. It has been mentioned while stating the submissions of the assessee "A copy of the bills and list were also filed during appeal proceedings. It was contended that the list would show that out of the provisions made, Rs.60,74,841 were for expenses billed in the beginning of the next financial year and, therefore, evidently relate to assessment year 1997-98 only". So it has to be clarified whether the entire expenses of Rs.83,58,500 related to this year or the sum of Rs.60,74,841. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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