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TMI Blog2013 (11) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of infrastructure development which includes building up of roads, bridges, tunnels, ports, jetties etc. The job is done on contractual basis. The assessee company has entered into various projects, relating to construction of roads and bridges and also non roads projects which are spread throughout the country. During the course of the assessment proceedings, a detailed questionnaire was issued and served on the assessee. The assessee filed details/documents from time to time. The AO was of the opinion that the books of account contain many discrepancies, flaws and loopholes. The assessee was asked to produce the books of account. The assessee submitted that since its business is diversified across the country projects being in different sites, books are computerized and the same are very huge in quantity and bulky. The AO asked the assessee to produce the floppy/CD of the books of account. The AO finally issued show cause notice which incorporated the discrepancies found in the books of account following which the AO proposed to reject the books in view of Section 145(3) of the I.T. Act. 2.1. The summary of the defect note by the AO is expedited at page-55 and 56 of the Pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business of the assessee and the complicated maintenance of books of accounts, the true and correct income of the company can be ascertained only after the assessee produces complete books of accounts with supporting documents and in view of the various deficiencies noted by the AO, he proceeded to reject the books of accounts u/s. 145(3) of the Act. Thereafter, the AO went on to make the best judgement assessment u/s. 144 of the Act and estimated the business income of the assessee at the rate of 5% of the total turnover and the business income was computed at Rs. 3,155.74 lcas. 4. Aggrieved by this findings, the assessee agitated the matter before the Ld. CIT(A). Before the Ld. CIT(A) it was contended that the AO has not considered the defence of the assessee inasmuch as the records pertaining to various sites are kept at those sites and therefore it was impractical to submit all those records for verification. However it was contended that the books of accounts are statutorily audited and the auditors have not pointed out any defect in the books of account. It was also explained that there was no change in the method of accounting regularly employed by the assessee. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of these years, the books of account have been rejected. The Ld. Counsel for the assessee further drew our attention to the decision of the Tribunal in assessee's own case for A.Y. 2005-06 and 2006-07 in ITA No. 4492/M/09 for A.Y. 2005-06 and ITA Nos. 4679 & 4680/M/09 for A.Y. 2005-06 & 2006-07. It is the say of the Counsel that during the remand proceedings, the AO has accepted most of the submissions relating to the books of accounts of the assessee. 7. We have considered the rival submissions and perused the orders of the lower authorities and the decision of the Tribunal relied upon by the assessee in its own case. It is an admitted fact that the business of the assessee is stretched across the country. It is also an admitted fact books of accounts are maintained project-wise at each site. Though the consolidated books of accounts are maintained in electronic form which fact has also been accepted by the AO. The main grievance of the AO is that the assessee is not maintaining day today stock register has been successfully explained by the assessee and accepted by the Ld. CIT(A) based on the Remand report of the AO. Whatever discrepancies relating to the expenses have been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on identical facts and for similar reasons, has accepted the correctness of the books of account of the assessee. ITA No. 2991/Mum/2011 - Assessee's appeal 9. The sum and substance of the grievance of the assessee is that the Ld. CIT(A) has erred in upholding the request of the AO to disallow the future losses recognized by the company as per Accounting Standard -7 (AS-7), as during original assessment proceedings there was no discussion or disallowance on this ground. 10. The facts on record show that during remand report proceedings, the AO issued show cause notice to the assessee requiring to explain as to why 100% loss was claimed even when the project was not completed 100%. The AO asked the assessee to explain why loss should not be allowed only upto the percent of work completed and why the excessive loss of Rs. 1,58,77,508/- should not be disallowed and added back to the income of A.Y. 2003-04. In response to which the assessee explained to the AO that it was consistently following Accounting Standard-7 (AS-7) issued by the ICAI for valuation of work-in-progress. It was explained that the valuation figures were based on the actual cost recorded in the books of account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of the Hon'ble Supreme Court in the cases of Wallfort Shares & Stock Brokers 233 CTR 42 and Indian Molasses Co. Vs CIT 37 ITR 66. The Ld. CIT(A) concluded that assessee's claim of future losses was not fitting in the frame work of provisions of Sec. 37(1) of the Act. The Ld. CIT(A) observed that the provisions of Accounting Standard cannot over write the statutory provisions of the Act. Accordingly, the Ld. CIT(A) directed to rework out the accounts/work-in-progress by excluding there from the claim of future losses. 12. Aggrieved by this finding, the assessee is before us. The Ld. Counsel for the assessee vehemently argued that since the assessee is a limited liability company in which public are substantially interested Accounting Standards of the ICAI have to be mandatory followed and therefore the assessee has been following AS-7 relying upon the specific clauses of AS-7, the Ld. Counsel submitted that the claim of the assessee is very much in line as per the law. To substantiate, the Ld. Counsel relied upon the decisions of Mazagaon Dock Ltd. Vs JCIT 29 SOT 356 (Bom), Jacobs Engineering India Pvt. Ltd. Vs ACIT 2009-TIO-533-ITAT-MUM and Dredging International Vs ADI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to make provision for foreseeable losses. 16. A perusal of the accounting statement of the assessee for the year under consideration shows that at para-1.6 to the notes to the financial statement, the auditors have provided as under: "Revenue recognition on contracts Contract prices are either fixed or subject to price escalation clauses. Revenue from contracts is recognized on the basis of percentage completion method, and the level of completion depends on the nature and type of each contract including : *Unbilled work-in-progress valued at lower of cost and net realizable value upto the stage of completion. Cost includes direct material, labour cost and appropriate overheads; and *Amounts due in respect of the price and other escalation, bonus claims and/or variation in contract work approved by the customer/third parties etc. where the contract allows for such claims or variations and there is evidence that the customer/third party has accepted it. In addition, if it is expected that the contract will make a loss, the estimated loss is provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had swayed more by the revenue loss than by the correct principle to be applied. The matching principle of accounting was not of much significance in the present context because if the loss had been properly estimated in the year in which the contract had been entered into, then it had to be allowed in that very year and could not be spread over the period of contract. The matching principle is of relevance where income and expenditure, both are to be considered together. However, in the instant case, the effect of valuation of WIP would automatically affect the profits of subsequent years accordingly. Therefore, there was no reason for not accepting in principle the assessee's claim as being allowable. However, in view of discrepancies pointed out by the Commissioner (Appeals) for correct estimation of loss, the matter was to be restored to the file of the AO to examine the correctness of amount claimed." 18. A similar view has been taken by the Tribunal in the case of Jacobs Engineering India Pvt. Ltd. (supra) wherein the assessee's claims of foreseeable losses were allowed irrespective of method of accounting in terms of AS-7. In the case of Dredging International (supra), th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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