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TMI Blog2011 (9) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, petrochemicals, refining and other relates industries. 2.2 During the course of assessment proceedings A.O. observed that assessee has claimed expenses in P L A/c. for the provisions made for contracts amounting to ₹ 8,61,19,588/-. The A.O. asked the assessee to justify its claim of expenses. The assessee had submitted before the A.O. the types of provisions, cost/expenses provision (or completed contracts and loss provisions on incomplete contracts as under. (i) Gujarat State Fertilizers Corpn. Ltd. ₹ 58,70, 1 34/- (ii) Mangalore Chem. Fertilizers Ltd. ₹ 2,4104/- (iii) The West Coast Paper Mills ₹ 1,02.13.012/- (iv) The Andhra Sugars Ltd. ₹ 9,22,838/- (v) Colorcon Asia Pvt, Ltd. ₹ 4,16,768/- (vi) VS V Vitamin ₹ 2,00,000/- (vii) Udhe GmbH `.2.80.000/- (viii) Uhde GmbI I ₹ 3,90,00,000/- Loss provision (ix) Uhde GmbH ₹ 1,35,49,705/- (x) Finolex Industries Lid. ₹ 18,02,442/- (xi) VVF Ltd. ₹ 66,03,855/- (xii) Siemens Ltd. ₹ 55,50,250/- The A.O. has discussed at length in Para 2.3 to 2.6 on Page 7 to 11 of the assessment order regarding allowability of each provision m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project due to anticipated cost ever run and in view of this fact the provisions for the anticipated losses were contingent in nature and same is not allowable. In view of these facts, the claim of the assessee for provisions of loss on incomplete contracts was also rejected. The A.O. also relied on the decision of Hon'ble Supreme Court in the case of India Molasses Co. P. Ltd. v/s CIT, 37 ITR 66, CIT v/s Transport Corpo. Of India Ltd., 256 ITR 701. In view of above mentioned facts, provisions for contract amounting to ` 8,61,19,588, was disallowed and added back to the total income of the assessee. 3. The Assessing Officer also gave credit for the provisions made for costs on completed contracts disallowed in the earlier assessment year i.e., 2002- 03. Claim for credit of TDS was partly disallowed on the ground that the conditions of section 199 of the Income Tax Act, 1961 (for short the Act ) are not satisfied. Interest under section 234D of the Act, was charged. 4. Aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), after considering the contentions of the assessee, for various reasons given in his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed contracts and provisions for loss on incomplete contracts. He referred to Page-49 of the assessee s paper book which is a note on method of making contractual provisions and submitted that income is recognised as a matter of policy on commissioning of plant. After commissioning of plant, the company has to conduct guaranteed test runs and demonstrate the technical parameters. He Described the various steps involved and submitted that the income has been recognised on the commissioning of the plant and that certain expenditure has to be necessarily incurred by the assessee after commissioning as part of its obligation and that such expenditure is provided for in the books of account. He pointed out that the income of the assessee company has increased from ₹ 79,21,00,000 to ₹ 212,43,00,000, and that profits before tax has increased from ₹ 1,90,00,000 to ₹ 27,52,00,000 and compared the same with the provisions made to demonstrate that the provisions made by the company are not excessive. He submitted that the assessee follows project completion method by referring to the principle accounting policies, which are given in Schedule-XV to the annual acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering and Ind. Ltd. (2011) 336 ITR 374 (Del.) 7. He filed order of the Tribunal G Bench in assessee s own case in ITA no.1926/Mum./2006, order dated 10th September 2008, for assessment year 2002-03 and in ITA no.8053/Mum./2004, for assessment year 2001-02, order dated 23rd October 2007. He also relied on couple of other Tribunal decisions which we would be dealing with in this order, if necessary. 8. On ground no.3, which is on the withdrawal of TDS credit, learned Counsel submitted that for the assessment year 2002-03, at Para-9, the Tribunal allowed the claim of the assessee. 9. On ground no.4, learned Counsel relied upon the judgment of Hon'ble Jurisdictional High Court in CIT v/s Bajaj Hindustan Ltd., ITA no.198 of 2009, judgment dated 19th April 2009, and submitted that interest under section 234D of the Act, cannot be charged in respect of refund granted prior to 1st June 2003. He also filed a copy of judgment dated 30th January 2009, passed by the Hon'ble Jurisdictional High Court, wherein the Hon ble High Court admitted the questions of law for assessment year 2002-03, on the very same issue of allowability of provisions made. 10. Learned Departmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the claim are not available. 12. On section 199, learned Departmental Representative submitted that provisions of this section, for assessment year 2003-04, are very clear and TDS credit cannot be given where the corresponding receipt is not taken into income during the year. 13. On interest under section 234D, learned Departmental Representative relied on the order of the Assessing Officer. In reply, the learned Counsel reiterated his contentions that when the assessee followed and accepted the method of accounting, then it is not within the purview of the Assessing Officer to reject the same. He submitted that it is not even the case of the Assessing Officer that the mandatory accounting standards have not been followed. He emphasized that in the case of completed contracts, the expenditure i.e., ascertained and provided for has to be allowed or otherwise the profits would be distorted. 14. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 15. The first issue is the allowability of provisions made by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be allowed although the liability may have to be quantified and discharged at a later date. What should be certain is the incurring of the liability. It should also be capable of being with reasonable certainty although the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability in persenti though it will be discharged at a future date. It does not made any difference, if the future date, the liability shall have to be discharged, is not certain. 16. Thereafter, in the light of the above principles, provisions made partwise were examined and the claim of the assessee was partly allowed. The Tribunal has recorded that the assessee has not provided sufficient information or material in support of the provisions made in the case of Bombay Oxygen Corp. Ltd. and thus, it only allowed part of the amount based on the fact that this expenditure was incurred subsequently. Thus, consistent with the view of the Co-ordinate Bench of the Tribunal in assessee s own case cited supra, we hold that, in principle, the provisions of cost in respect of completed contracts have to be allowed, subject to the assessee jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt stating that the plant has been accepted on 28.10.2002 and we have completed all our contractual obligations. In view of this, we now request you to dilute ₹ 64.5 Mio. Provided earlier and make a provision for only ₹ 5.5 Mio. For further cost / replacement / modification till the contractual liability period is over. 19. No workings or details are provided in support of such internal memo. Under these circumstances, we have no hesitation in upholding the contentions of the learned Departmental Representative that this is a selfserving document. Thus, we hold that the assessee has not substantiated the quantification of the provisions made. Any how, as we find that the assessee has actually incurred an amount of ₹ 11,75,696, in the subsequent assessment years and as the entire income from this contract has been recognised and taxed in this year, the expenditure incurred in connection with the project has to be allowed this year. Hence, we allow the claim of the assessee to the extent of ₹ 11,75,696. The disallowance of balance amount is sustained. 20. On similar considerations, we allow the provisions claimed by the assessee in case of Mangalore Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged the burden that lies on it. The Commissioner (Appeals) has, at Para-4.3/Page-7 of his order, held that the assessee, neither before the Assessing Officer nor before the Commissioner (Appeals), has submitted any basis for estimation of the loss. Even before us, except for filing internal memos, no evidence is filed by the assessee. Under these circumstances, we are of the considered opinion that the findings of the Assessing Officer, as upheld by the Commissioner (Appeals), are to be accepted and the plea of the assessee is dismissed. 23. As on merits, we uphold the disallowance of provisions for anticipated loss on incomplete contracts. We do not deem it necessary to go into the legal aspect as it would be an academic exercise. This ground is, thus, partly allowed. 24. Coming to ground no.3, i.e., TDS claimed under section 199, for assessment year 2002-03, mandated that credit shall be given on the production of certificate given under section 203, in the assessment made under this Act, for the assessment year for which such income is assessable. The admitted fact in this case is that income in question on which TDS is made, is not assessable during the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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