9911796707
TMI Blog2009 (2) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... granted approval to the assessee-company to pursue following grounds of appeal only for assessment year 1996-97. "1. Ld. CIT(A) erred in confirming the addition of Rs. 491.48 lakhs. The Ld. CIT(A) erred in confirming that there was undervaluation of work-in-progress resulting in understatement of profits. Ld. CIT(A) failed to appreciate that the difference in valuation of Rs. 491.48 lakhs had arose as the appellants had valued the work-in-progress as per AS 7 issued by the ICAI. 2. The Ld. CIT(A) erred in not allowing the deduction of Rs. 26.55 lakhs towards the decrease in the value of the surplus material left over on completion of projects not included in inventory. This was added to the income in the earlier assessment years for increase in the value of the surplus materials." 3. The assessee had filed its return declaring total income at Rs. Nil. The assessment was completed under section 143(3) at a total income of Rs. 12,16,82,810, inter alia, making addition on account of decrease in value of work-in-progress at Rs. 491.48 lakhs. Ld. CIT(A) confirmed the addition. Being aggrieved with order of Ld. CIT(A), the assessee is in appeal before us. 4. Brief facts, apropos Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... progress shown as By 31-3-1995 & 31-3-1996 as on 31-3-1995 & 31-3-1996 on 31-3-1995 & 31-3-1996" After considering the assessee's submissions, the Assessing Officer observed that assessee's claim was not acceptable as the assessee had not furnished any cogent reasons for change in the valuation of these contracts. He further observed that the only reason given by the assessee was that it was felt necessary to review the company's existing accounting policy as per Accounting Standard-No. 7 (AS-7) of the Institute of Chartered Accountants of India (ICAI). He further observed that as per changed method of accounting, in case of contracts where loss is anticipated, the entire loss was reckoned based on estimated realizable values and estimated cost of contracts. The assessee took the entire loss in the very first year. However, all along in the previous years estimated loss was reckoned on pro rata basis with reference to the expenditure incurred vis-a-vis estimated total cost for completion. With reference to the details furnished by the assessee, Assessing Officer observed that though actual expenditure incurred in respect of the project was only Rs. 9.61 lakhs. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Micon Ltd. After considering the variation in figures furnished before the Assessing Officer and before him, he confirmed the Assessing Officer's action for the reasons given in para 7 of his order in which, he, inter alia, observed that the loss was not allowable to the assessee as the assessee was not entitled to claim any anticipatory loss in view of the decision of the Hon'ble Bombay High Court in the case of CIT v. Kamani Metals & Alloys Ltd. [1994] 208 ITR 1017-1022 . Further, the loss being notional one, was also not allowable in view of the decision of the Hon'ble Orissa High Court in the case of Tripty Drinks (P.) Ltd. v. CIT [1978] 112 ITR 721. He further observed that the loss was bogus loss as the assessee had not been able to prove the genuineness in view of variation in different figures. 6. Ld. Counsel for the assessee submitted that AS-7 became mandatory from 1991. He referred to page 10 of PB, wherein, the report of the auditors for assessment year 1993-94 is contained in which auditors had given following quantification in their report:- "( a)No provision has been made for liquidated damages of Rs. 3,333.88 lakhs. ( b)Provision of Rs. 410.45 lakhs has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mandatory requirements for implementing AS-7, the assessee company implemented AS-7 in financial year 1995-96 and it incorporated following note in its accounts: "The company has adopted the Accounting policy as contained in Accounting Standard No. 7 issued by Institute of Chartered Accountants of India for the valuation of work-in-progress in case of fixed price construction contracts, whereby in case of contracts where loss is anticipated the entire loss is reckoned based on estimated realizable value and estimated cost of construction. In the earlier years, the estimated loss was reckoned on a pro rata basis with reference to the expenditure incurred vis-a-vis the estimated total cost for completion. As a result of this change, the profit for the year and work-in-progress as at the year end is lower by Rs. 491.48 lakhs." Ld. Counsel for the assessee submitted that the change in method of accounting was bona fide and, therefore, the assessee had claimed entire loss in the year in which change took place. He further pointed out that Ld. CIT(A) confirmed the Assessing Officer's action because there was some difference in figures which was very little. Ld. Counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of the Hon'ble Bombay High Court in the case of CIT v. Bhor Industries Ltd. [2003] 264 ITR 180, wherein, payment under Voluntary Retirement Scheme was allowed in its entirety in the year in which it was incurred though in the books it was spread over a period of 60 months. 9. We have considered the rival submissions and perused the record of the case. The short dispute is whether the anticipated loss on the valuation of fixed price contract, in view of the mandatory requirements of AS-7, is to be allowed in the year in which the contract has been entered into or it is to be spread over a period of contract, as was done by the assessee in earlier years. As far as the change in the method of valuation of work-in-progress is concerned, it cannot be disputed that in view of mandatory requirements of AS-7, it was a bona fide change in the method of valuation of work-in-progress, particularly in view of the qualification made in this regard by statutory auditors as well as by Comptroller & Auditor General of India. Therefore, at the very outset, we may observe that the observation of Ld. CIT(A) that the assessee had booked bogus loss is not correct. As far as the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years accordingly. We, accordingly, do not find any reason for not accepting in principle the assessee's claim as being allowable. However, in view of discrepancies pointed out by Ld. CIT(A) for correct estimation of loss, we restore the matter to the file of the Assessing Officer to examine the correctness of amount claimed. This ground is, accordingly, treated as allowed for statistical purposes. 10. Brief facts apropos Ground No. 2 are that the assessee vide its letter dated 20-1-1998 filed during assessment proceedings, had claimed deduction Rs. 26.55 lakhs towards decrease in the value of surplus materials left over on completion of projects not included in the inventory. This was added to the income in the earlier assessment years for increase in the value of surplus material. Ld. CIT(A) confirmed the addition, inter alia, observing that the issue was pending before ITAT. 11. Before us, Ld. Counsel for the assessee filed a copy of decision dated 21-11-2006 of a Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 1991-92 in ITA No. 28/M/97 and submitted that the issue is covered in favour of the assessee. Ld. D.R. could not controvert the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployers" issued by the Institute of Chartered Accountants of India. The Assessing Officer has not brought on record any facts from which it could be inferred that assessee had not complied with the requirements of AS-15. We, therefore, do not find any basis for not applying the ratio laid down in the case of Bharat Earth Movers (supra), wherein, it has been held that the provision made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and staff subject to the ceiling on accumulation as applicable on the relevant date, was entitled to deduction out of the gross receipts of the accounting year during which, the provision is made for the liability. It was further held that the liability was not a contingent liability. Respectfully following the decision of the Hon'ble Supreme Court in the case, we direct the Assessing Officer to allow the deduction as claimed by the assessee in respect of provision for leave encashment. This ground is, accordingly, allowed. 17. Apropos Ground No. 2 are that the Assessing Officer noticed that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
