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TMI Blog2015 (2) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... sue de-novo. - Decided in favour of assessee for statistical purposes. Penalty u/s 271(1)(c) - Held that:- Since we have already set aside the addition towards provision for doubtful debts as aforesaid vide para no. 7 to 7.3, the penalty levied on this account is hereby quashed accordingly.- Decided in favour of assessee. Disallowance of Provision for Contractual Obligations - Held that:- The fact that the assessee had incurred a sizable portion of the provision as expenditure and the same has been allowed by the Assessing Authority itself is supporting the claim of the assessee that the expenses are accrued and the liability ascertained and the provisions are made on factual basis and they were not in the nature of any contingency of future expenses. The legal character of the provision for contractual obligation is in a way similar to the provision for warranty/ guarantee. Therefore, the discussion made in respect of the issue regarding provision of warranty equally applies to the provision for contractual obligations also. we restore back the issue to the file of the Assessing Officer for examining the issue de-novo. - Decided in favour of assessee for statistical purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Ld. CIT(A) is bad both in law and on facts of the case and is void ab initio. 2. That the Ld. CIT(A) had erred in upholding a penalty of ₹ 6,30,046/- u/s. 271(1)(c) of the I.T. Act. 3. That the Ld. CIT(A) had erred in upholding a penalty of ₹ 6,40,046/- u/s. 271(1)(c) of the I.T. Act, 1961. 4. That the Ld. CIT(A) had erred in holding that the appellant had furnished inaccurate particulars without appreciating the submission made by the appellant against levy of penalty. 5. That the Ld. CIT(A) had erred in interpreting decision of Hon ble Supreme Court as cited by the appellant. 6. The Ld. CIT(A) had erred in upholding penalty by applying the ratio of judicial precedents not applicable on the facts of the appellant. 7. That the Ld. CIT(A) had erred in not considering directions made in the appellate order against quantum appeal for exclusion of amount of ₹ 3,01,92,317/- and thus erroneously computed tax sought to be evaded . 8. That without prejudice, in any case, levy of penalty of ₹ 6,40,046/- is excessive and unjustified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide ground No 3.1 and 3.2. is regarding disallowance of bad and doubtful debts to the extent of ₹ 37,995,597/- Assessing Officer noted that assessee had debited an amount of ₹ 39,872,234/- as provision for doubtful debts in Profit and Loss account. He observed that this provision was also similar Page No. 7 to the provision for contractual obligations and treating the same contingent in nature, disallowed the assessee s claim. Ld. CIT(A) dismissed the assessee s appeal. 12. Ld counsel for the assessee referred to the balance sheet contained at Page No. 1 of the paper book and pointed out that no separate liability has been shown in balance sheet in regard to the provision for bad debts and the assessee has shown net asset position in this regard. He referred to the decision of the Hon ble Supreme Court in Vijaya Bank Vs. Commissioner of Income-tax (2010) 190 Taxman 257 (SC) wherein Hon ble Supreme Court has considered the following questions:- 2. Whether it is imperative for the assessee-bank to close the individual account of each of its debtors in its books or a mere reduction in the Loans and Advances or Debtors on the asset side of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under section 36(1)(vii). To understand the above dichotomy, one must understand `how to write off'. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989. 14. Ld counsel submitted that the assessee had written off the bad debts as per the decision of Supreme Court in the case of Vijaya Bank (supra) and, therefore, the requirement of writing off of bad Page No. 9 debts was fulfilled. Ld. DR relied on the order of the lower revenue authorities. 15. We have considered the submissions of the both the parties and have perused the record of the case. We find that Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and Tribunals orders covering the issues raised by the assessee in the appeal. 11.1 We find that the AO has observed that in response to penalty show cause, the assessee has claimed that the amount of ₹ 16,18,319/- debited on account of provision of doubtful debts represented genuine business expenditure allowable u/s. 37(1) of the Act. AO further observed that the assessee has claimed that no penalty can be levied on this addition. AO further observed that there is no force in the contention of the assessee of ₹ 16,18,319/- was not allowable to the assessee, still it was claimed to reduce the tax liability. Though an appeal was filed against the assessment order but this addition was not pressed meaning thereby that the assessee has accepted the stand of the Department and also that the claim was wrongly made. AO has held that in view of this, apparently there is no force in the contention of the assessee that the amount in question is a genuine business expenditure allowable u/s. 37(1) of the Act. After having considered all relevant facts of the case it is held that the assessee has furnished inaccurate particulars of income to the extent of ₹ 16,18,31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 23.8.2013 has set aside the issue to the AO to examine the de-novo, in light of the Hon ble Supreme Court decision. Ld. DR did not have any objection to this request. Since we have already decided the similar issue in favor of the assessee to set aside the issue to the AO vide para no. 7 to 7.3 of this order while dealing the ITA No. 5939/Mum/2008 (A.Y. 2001-02), hence, we also set aside this issue to the file of the AO with the similar directions, as made above. 16. The next ground is related to confirming the disallowance of Provision for Contractual Obligations amounting to ₹ 36,362/- . We find that the AO has disallowed a sum of ₹ 36,362/- as a provision made towards contractual obligations. The AO has disallowed the amount on similar reasoning while making disallowance of warranty provision. AO observed that the A/R also claimed for allowance of expenses towards contractual obligation for similar way as warranty provision has been allowed by the ITAT in its own case for the asstt. year (2002-03). We find that Ld. CIT(A) has considered the contention of assessee s counsel and the same was not acceptable because this year the claim made for ₹ 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual obligations. 4.6 The Assessing Authority in fact disallowed an amount of ₹ 62,36,462 from the claim made by the assessee. What has been allowed by the Assessing Authority is the amount of actual expenditure incurred by the assessee towards the contractual obligations. 4.7 The fact that the assessee had incurred a sizable portion of the provision as expenditure and the same has been allowed by the Assessing Authority itself is supporting the claim of the assessee that the expenses are accrued and the liability ascertained and the provisions are made on factual basis and they were not in the nature of any contingency of future expenses. The legal character of the provision for contractual obligation is in a way similar to the provision for warranty/ guarantee. Therefore, the discussion made in respect of the issue regarding provision of warranty equally applies to the provision for contractual obligations also. There is no doubt that the assessee has to incur expenditure towards the contractual obligations pertaining to the completed projects. This is evident from the fact that the Assessing Officer himself has disallowed only ₹ 62,36,462 as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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