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TMI Blog2012 (10) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... s furnished, it is obvious that some of the Departments have never made any payment on the application of “real income” theory and taking a realistic view, it is held that no income has accrued merely because proforma advices were raised, that too, at the instance of the CAG of India - restore this issue back to the Assessing Officer to examine the matter afresh - in favour of assessee for statistical purposes. Disallowance of retired medical benefit scheme - Held that:- CIT (A) rejected the additional evidence filed by the assessee which comprised an actuarial valuation report. The CIT (A) rejected this evidence, even though it was held that the provision for rehabilitation and eviction of illegal encroachments, as claimed by the assessee, needed to be allowed in view of various judicial pronouncements. In his remand report, AO himself agreed that the expenditure was an allowable expenditure. Thus remit this issue to the file of the Assessing Officer to examine the actuarial report and to re-decide the issue on the basis thereof. Disallowance of u/s 40 (a)(ia) - Held that:- As decided in Deputy Commissioner of Income-tax - 11(2) Versus Chandabhoy & Jassobhoy [2011 (7) TMI 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. on estimate basis for the work undertaken on behalf of others agencies. The ld. CIT has failed to appreciate that though the assessee is following Mercantile systems of accounting, revenue has not been recognized in respect of deposit work undertaken. 2. The ld. CIT (A) has erred in law and on facts in directing to delete the addition of Rs.14,36,68,882/- netted off by the assessee against prior income under the head prior period income. The ld. CIT has failed to appreciate that in Mercantile systems followed by assessee there is no provision to allow prior period expenses. 3. Ground No.1 in the assessee s appeal is general. 4. Ground No.2 in the assessee s appeal concerns disallowance of Rs. 50 crores on account of provision for rehabilitation and eviction of all illegal encroachments. The Assessing Officer made the disallowance, holding that the provision for expenses on account of rehabilitation and eviction of illegal encroachments was to be treated as a capital expenditure, as it was incurred in relation to a capital asset of land. The Assessing Officer further observed that the said amount was only a provision and not an ascertained liability and that mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the case of the assessee that these departments have their offices to facilitate the functioning of the assessee and they do not agree to pay any licence fee of the space occupied by them on the plea that they are regulatory bodies to provide special services in terms of the Government directions. Still the assessee had raised the proforma invoices in all these years and kept in memoranda account for example in the assessment year 1998-99. The proforma invoices were to the tune of Rs. 19.66 crores. According to the assessee these memoranda accounts are maintained by the assessee only because its auditors namely CAG of India had suggested/emphasized the assessee to maintain these accounts. The assessee also emphasized that such use by Government Department should not be treated as commercial departments since they have to be provided space for the performance of duty. Therefore, no regular revenue was being generated. The advices were only proforma in nature. The Assessing Officer, however, did not accept the aforesaid plea and treated the amount of proform advices as income of the assessee. The plea of the assessee that there was no 'real income accrued to the assessee was turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back to the Assessing Officer to examine the matter in the light of our aforesaid discussion. In respect of the Government Agencies, like Police, Customs who have never paid any amount to the assessee, on the application of real income theory and taking a realistic view, it is held that no income has accrued merely because proforma advices were raised, that too, at the instance of the CAG of India. 22. This question of law is answered accordingly with the direction to the Assessing Officer to determine the taxability of proforma invoices in respect of those parties who have been remitting part payments and have accepted their liability and not in respect of those Government Agencies who have never paid any amount. 7. The ld. Counsel for the assessee has further contended that the SLP filed by the department against the aforesaid High Court order since stands dismissed vide order dated 07.09.2012 (copy at APB 15). 8. The Ld. DR, on the other hand, has placed strong reliance on the impugned order in this regard. It has been contended that it remains undisputed that the assessee was unable to spend the amount of expenditure made out of the provision till date; and that so, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure by way of provision for retired medical benefit scheme to be an allowable expenditure, the Ld. CIT (A) has erred in not admitting the actuarial valuation report submitted by the assessee by way of additional evidence and in thereby rejecting the claim of the assessee. It has been submitted that the actuarial valuation report, even as per the impugned order, is to form the basis of the allowance/disallowance of the assessee s claim and so, the same needs to be taken in evidence and the matter needs to be remitted to the Assessing Officer to be decided afresh on considering the said actuarial valuation report. 13. The Ld. DR, per contra has strongly relied on the impugned order in this regard. It has been averred that the assessee has not been able to counter the finding given by the Ld. CIT (A) that the actuarial valuation report was filed at a very belated stage in the appellate proceedings before the Ld. CIT (A) and that it was nothing other than a mere afterthought designed to some-how get the assessee s false claim allowed. 14. We have heard both the parties and have perused the material on record. The Ld. CIT (A), it is seen, rejected the additional evidence filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting, the revenue had not been recognized in respect of the deposit work undertaken. 21. The Assessing Officer made the addition on an estimate basis for the work undertaken by the assessee on behalf of other agencies. It was observed that the assessee was required to show work-in-progress for the various projects and jobs undertaken by it at the close of the financial year, which the assessee had not done. The Assessing Officer estimated the amount of work-in-progress as at the end of the year, at Rs. 10,61,38,514/-, being the amount of 50% of the deposit against works received by the assessee. 22. The Ld. CIT (A), while deciding the issue in favour of the assessee, observed that there was a consistency in the accounting policy of the assessee and that the income against deposits works had been consistently accounted for on completion of the project/jobs. The Ld. CIT (A) followed the first appellate orders for Assessment Years 1992-93 and 2005-06 where similar additions had been deleted. 23. The Ld. DR, against the above findings of the Ld. CIT (A), has contended that the Ld. CIT (A) has erred in failing to appreciate that the assessee did not recognize the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was required to maintain its accounts on the accrual basis of accounting and that there was no provision under the Income tax Act for allowing any expenditure which accrued in the financial year. 29. The Ld. CIT (A) followed the first appellate orders in the assessee s own case for A.Ys 2004-05 and 2005-06 while directing the Assessing Officer to delete the addition. It was also noted that the COD had refused permission to the department to file appeal before the Tribunal for A.Y. 2001-02. 30. The Ld. DR has contended that the Ld. CIT (A), while wrongly directing the Assessing Officer to delete the addition, has not taken into consideration the finding recorded by the Assessing Officer that in the mercantile system of accounting, there is no provision to allow prior period expenses. 31. The ld. counsel for the assessee, on the other hand, has submitted that the matter is covered in favour of the assessee by the Tribunal order, for A.Y.s 2007-08 and 2008-09 in the assessee s own case, dated 16.03.2012 (copy at APB 16-23) and the Tribunal order dated 22.06.2012, in the assessee s own case for A.Y. 2008-09 (copy at APB 24-26). 32. For A.Y. 2007-08, it is seen, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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