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TMI Blog2012 (8) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... ted contracts And incomplete contracts. 2. On the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate the reality of the situation that liabilities actually arose during the year and the fact that the provision/liability was actually existing as on 31.03.2004 and were determined on the basis of technical assessment made by project manager upto acceptance of plant by the clients. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in withdrawing credit for TDS amounting to ₹ 3,384,649/- by wrongly interpreting the provisions of Section 199 of the Income Tax Act. 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in disallowing software expenses of ₹ 5,926,204 and treating the same as capital in nature. 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in disallowing deduction u/s 80HHB of ₹ 3,405,207 (wrongly taken as ₹ 3,755,005/- by AO) on the ground that the company has a business loss by treating the income and miscellaneous receipts as income from other sources, and by excluding the profit on foreign exchange transla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 7,253,588, The Company had received an order from Krupp Uhde GmbH for setting up of a Urea Formaldehyde Plant for Qafco Fertilizer Company, SAQ, Doha, Qatar. The contract started on 1 December, 2001. The scope of the contract included rendering of basic and detail engineering services, supply of equipment / machinery for the plant and supervision services during erection upto the acceptance of the plant. The above plant was commissioned and handed over to in September, 2003 to Uhde Germany. However to complete the contractual obligations, company had to request M/s Uhde GmbH to procure/fabricate and supply certain items from Europe. Also certain items had to be additionally procured since the original supplies were not fully in compliance with the technical requirements of the Plant. The company had received an interim claim from Uhde, Gemany towards compensation for the efforts put in by them as well as for the various purchases made by them on behalf of the company such as: Claim for inspection carried out on our Behalf (Euro 29376) : 1,615,700 Claim for Purchase of items on our behalf (Euro 29707/-) : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year ended 31.03.2004 the electrical power supply Le the LT supply could accommodate only one additional compressor. Even with this addition, it was not definite whether the guaranteed unloading rate could be achieved or not. In such a situation there was a probability that the Compressor may have to be replaced with that of a higher capacity which would also require converting the power supply from LT to HT. In view of this, provision of ₹ 4.15 Mio. towards replacement of higher capacity Compressor and HT electrical equipment was required to be made. An additional provision of ₹ 6 mio was required towards engineering hours of 82 hours expected on the contract, supply of insulation, compressor, flare tip modification and other sundry purchases, which were yet to be effected and travel and site expenses expected to be incurred. This according to us, cannot be held to be ascertained as no exact figure has been arrived at, hence cannot be allowed. c) The Andhra Sugars Ltd. (Rs. 543,695 ) The contract was for phase-Il of Caustic Soda Plant expansion in Andhra Pradesh and imported and indigenous supplies for cell elements. The scope of services included engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds realized = ₹ 485,000) been provided for in the year ended 31.03.2004. The provision was based on the estimates made by the Project Implementation team. Since the final figure arrived as on 31.03.2004 has been ascertained the provision can be said to be allowable. g) Kirloskar Pneumatic Co. Ltd. (Rs. 146,211) The company had entered into a contract with Kirloskar Pneumatic Co. Ltd. for rendering detailed engineering services for ONGC Gandhinagar project in Gujarat. This contract was expected to result in a loss considering the expected cost till the completion and contract revenue. The final loss on the contract was ₹ 148,866 which is higher than the initial estimation of ₹ 146,211. A further expenditure of ₹ 2,655 is expected and therefore the final loss on this contract would be ₹ 148,866. Thus, the loss of ₹ 0.14 million has already crystallized as on 31.03.2004 (cost booked = ₹ 406,211 less proceeds realized ₹ 260,000) been provided for in the year ended 31.03.2004. The provision was based on the estimates made by the Project Implementation team. Since the description talks about estimates, no finality can be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ ₹ 457 per hour ₹ 1,600,000 Subcontracting Costs ₹ 935,000 Other expenses (machine hour cost) ₹ 45,000 Total ₹ 2,580,000 The provision for engineering costs was made for as-build documentation and attending site queries. Since the final figure arrived as on 31.03.2004 has been ascertained the provision can be said to be allowable. j) Sanjana Cryogenic Storages Ltd. (Rs. 2,332,406) The contract was for setting up of a 10 MT Arhmonia Storage tank and associated handling facilities at Haldia, West Bengal. The scope of services included erection and installation of the Ammonia Storage tank and cross country pipelines (under third party inspection) and equipment, electrical and instrumentation. The scope also included planning, managing, supervising, scheduling and monitoring all insulation and civil works including foundations, buildings, sheds, roads, drains, pavements, supports/pipe racks inside the battery limits and along cross country pipelines. During the year ended 31.03.2004, a provision of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract revenue. The loss of ₹ 1.10 million has already crystallized as on 31.03.2004 (cost booked = ₹ 20,622,704 less proceeds realized = ₹ 19,519,500) been provided for in the year ended 31.03.2004. The provision was based on the estimates made by the Project Implementation team. Since it talks about estimates, no finality can be said to have been arrived at, hence, provision cannot be allowed. 5. On these observations, we set aside the order of the CIT(A) on the impugned issue and direct the AO allow the provisions, as per our findings in each case. 6. Ground No. 2 is linked to ground no. 1, being consequential, therefore, no separate adjudication is required. 7. Ground No. 3 pertains to withdrawal of TDS amounting to ₹ 33,84,649/-. The issue has been in contention with the assessee in the earlier years as well. During the course of hearing before us, Senior Counsel submitted that the business of the assessee being setting up of projects which involve over lapping years, is thus fully covered by the decision taken in the case of Toya Engineering India Ltd. v/s JCIT, reported in 100 TTJ 373, wherein the co-ordinate Bench at Mumbai held as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions in the assessee s own cases before the coordinate Benches. The distinguishing decisions taken on the impugned issue, in the case of the assessee, by the revenue authorities as well as by the coordinate Benches, had been on the premise that the TAS is on incomes, not pertaining to the current year. In the instant year, as well, the impugned TDS does not pertain to the current/instant year, and the circumstances for disallowance has not changed, wherein we ignore the decisions in the assessee s own case and take into consideration the decision taken by the coordinate Bench in Toyo Engineering. 10. Since the TDS does not pertain to the impugned year, we are in agreement with the observations of the revenue authorities and respectfully following the decision of the coordinate Bench in assessee s own case in the preceding year, we hold that credits cannot be given for the TDS of ₹ 33,84,649/- in the instant year. This ground is, thus rejected. 10. Ground No. 4 pertains to the disallowance of ₹ 59,26,204/- being software development, holding the same to be capital in nature. 11. The assessee has filed details of expenses debited under the head software deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is sustained . 13. The Senior Counsel has relying upon the following decisions in CIT vs Rachna Udhyog, reported in 230 CTR 72 (Bom), CIT vs Syntel Ltd., CIT vs United Riceland Ltd. (Unreported IT Appeal No. 6997 of 2010 Bombay High Court) and coordinate Bench of ITAT, at Mumbai in ITA No. 5338/Mum/2008 in ACIT vs M/s Macro Bars Wires India Pvt. Ltd., pleaded that interest is a part of business income on the contracts executed outside India. But beyond this no further detail has been filed. The reason for disallowance has been that the details have not been provided, here once again, before us, no details have been filed. We find that the assessee is an engineering company having contracts in foreign countries and the question of earning income from source other than business is remote, therefore, in the interests of justice, we restore this issue to the file of the AO, wherein the assessee shall provide for all the details as asked for, with regard to its claim on deduction u/s 80HHB. The AO is thus directed to examine the issue afresh after giving a reasonable opportunity of being heard. In the result, the order of the CIT(A) is set aside on this issue and the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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