2015 (7) TMI 910 - AT - Income Tax

Disallowance of provision made for a loss on account of a firm purchase contract - Held that - Prudence only implies that even though the amount cannot be determined with certainty and represents only a best estimate in light of the available information the same must be provided for. It nowhere advocates or prescribes providing for loss/liability that has not arisen during the relevant year or in any case by the end of the relevant year. Events after the balance-sheet date can only be taken into account in so far as they inform about the conditions prevailing during the relevant year so as to enable a correct assessment of the operating results for the year and the state of affairs as at its close. There is nothing to show that the market price of the raw-material or the finished products had declined much less to any substantial extent up to 31.03.2003 the relevant year end.The assessee s claim in view of foregoing is without merit. The decisions relied upon would be of little moment even as clarified during hearing in view of our specific finding of no loss having in fact arisen to the assessee during the year and further the principle of prudence as not being applicable to losses which arise or have their genesis in events subsequent to the end of the relevant year. Thus confirming the disallowance of the impugned loss. - Decided against assessee. Disallowance of the provision for various expenses - non supported by any evidences - Held that - During the hearing the ld. AR the assessee s counsel conceded to the assessee having no further details/material to support its claim relying on its written submissions before the authorities below and towards which reference was made to pages 18 and 19 of the assessee s paper-book. Under the circumstances we have no hesitation in confirming the impugned disallowance. The question is of the basis on which it could be said or concluded that expenditure to that extent had in fact accrued and which we find as wanting. The burden to prove its return as well as claims preferred thereby is only on the assessee and which we find as not discharged to that extent. It may also be clarified here that the assessee had been extended sufficient opportunity to present its case. Needless to add the assessee is a liberty to make a fresh claim for the subsequent year/s even as it shall have to be shown by it that expenditure as claimed had arisen for those years i.e. of payment each year being independent. We may though clarify that we are not making any observation with regard to the deduction of the said expenditure for those years/s.- Decided against assessee. Computation of the deduction u/s. 80HHC - Held that - The issue is squarely covered against the assessee by the decision of the Apex Court in the case of Ipca Laboratories Ltd. v. Dy. CIT 2004 (3) TMI 9 - SUPREME Court - Decided against assessee. Computation of book profit u/s. 115JB - Held that - The matter in our view stands squarely covered by the decision by the Apex Court in the case of CIT vs. Ajanta Pharma Ltd. 2010 (9) TMI 8 - SUPREME COURT . We accordingly set-aside the matter back to the file of the AO for working the book profit u/s. 115JB in terms of the said decision. We decide accordingly. Addition qua unutilized MODVAT credit - Held that - no infirmity in his direction for including the unutilized MODVAT credit and thus apply the condition of section 145A on all factors of production i.e. opening stock purchases sales and closing stock. This also represents the consistent view of the tribunal and for which we refer to the decision in the case of Hercules Pigment Industry vs. ITO 2013 (10) TMI 606 - ITAT MUMBAI rendered considering all the relevant decisions including in the case of Mahalakshmi Glass Works Pvt. Ltd. (2009 (4) TMI 182 - BOMBAY HIGH COURT ). We accordingly confirm the impugned order on this ground. Deletion of addition made on account of premium payable on premium notes (SPN) - Held that - The matter was during hearing fairly conceded by the ld. DR to be covered against the Revenue by the order by the tribunal in the assessee s own case for AY 1996-97 - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of provision for loss on account of a firm purchase contract.
2. Disallowance of provision for various expenses due to lack of evidence.
3. Computation of deduction under section 80HHC.
4. Computation of book profit under section 115JB.
5. Addition of unutilized MODVAT credit under section 145A.
6. Deletion of addition on account of premium payable on premium notes (SPN).

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Loss on Account of a Firm Purchase Contract:
The principal issue is the disallowance of a provision made for a loss of Rs. 1285.64 lacs due to a firm purchase contract. The assessee argued that the provision was made in compliance with Accounting Standard 1 (AS1), which mandates the disclosure of accounting policies and the provision of all known liabilities and losses. The Revenue dismissed the claim as contingent since the goods were to arrive only in the next year, making the loss contingent on the specific performance of the contract. The Tribunal held that the assessee's claim was not maintainable in law and accountancy, as the loss was contingent and the prices of raw materials started falling only after the relevant year. The Tribunal confirmed the disallowance, stating that no loss had in fact arisen during the relevant year.

2. Disallowance of Provision for Various Expenses:
Ground no.2 was dismissed as not pressed by the assessee during the hearing. Ground no.3 concerned the disallowance of Rs. 31,26,703/- for various expenses not supported by evidence. The CIT(A) had called for a remand report and granted deletion where expenses were evidenced. The Tribunal confirmed the disallowance, noting that the assessee had no further details to support its claim and emphasizing that each year is an independent unit of assessment.

3. Computation of Deduction under Section 80HHC:
Ground 4 related to the computation of deduction under section 80HHC. The assessee admitted that the issue was covered against them by the Supreme Court decision in Ipca Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521 (SC). The Tribunal directed for computation of deduction in terms of the said decision.

4. Computation of Book Profit under Section 115JB:
Ground 5 concerned the computation of book profit under section 115JB, with the assessee claiming a deduction under section 80HHC. The Tribunal found the matter covered by the Supreme Court decision in CIT vs. Ajanta Pharma Ltd. [2010] 327 ITR 305 (SC) and set aside the matter back to the AO for computation in terms of the said decision.

5. Addition of Unutilized MODVAT Credit under Section 145A:
Ground 2 of the Revenue's appeal concerned the addition of unutilized MODVAT credit of Rs. 354.40 lacs. The CIT(A) directed for including the credit in the value of opening stock, purchases, sales, and closing stock, which the Tribunal found to be a proper interpretation of section 145A. The Tribunal confirmed the impugned order, noting that this approach aligns with consistent Tribunal views and relevant decisions.

6. Deletion of Addition on Account of Premium Payable on Premium Notes (SPN):
Ground 3 of the Revenue's appeal related to the deletion of an addition on account of premium payable on premium notes (SPN). The matter was conceded by the Revenue to be covered against them by the Tribunal's order in the assessee's own case for AY 1996-97. The Tribunal declined interference and confirmed the deletion.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was dismissed. The Tribunal pronounced the order on June 11, 2015.