TMI Blog2013 (11) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... was crystallized; expenses claimed by the assessee were only likely but not definite. It was nothing, but a contingent liability - Lease equalization charge represented the amount set aside to equalize the im-balance between lease rentals and depreciation created over a period of time - Sec.211(3C) of the Companies Act, 1956, required companies to follow the Accounting Standards prescribed by Institute of Chartered Accountants of India till Accounting Standards were notified by Government - Assessee could show that only a part of cost of asset could be recovered through the period of lease and depreciation provided was not sufficient to cover the deficit, even after considering the scrap value - If the depreciation claimed over the period of lease was less than capital recovery difference is debited as lease equalization charges and if it was more, difference was treated as lease equalization income. Disallowance of Staff Benefit Expenses – Held that:- Held that:- Just because a breakup was not furnished, disallowance could not have been made - When such break-up was produced before the CIT(A), it should have been admitted and adjudicated - The issue had to be restored to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed at Rs.52,22,890/-. Return filed was appended with Profit Loss Account, Balance Sheet as well as Audit Report under section.44AB of the Income Tax Act, 1961 (In short the Act ). During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had debited in its Profit Loss Account an item of expenditure called expected loss Rs.47,18,514/-. When required to explain, assessee gave the following break-up. Details of expected loss:- Description Amount V A TECH WABAG Ltd. 667,197 ASGEC MYSORE SUGARS 670,562 CHENNAI PETROLEUM CORPORATION LTD 354,236 BHEL,TARAPORE 826,519 ALSTHOM 2,200,000 Total 4,718,514 Submission of the assessee was that total contract cost would exceed total contract revenue in respect of the above parties and hence, it was required to recognize such loss as an expense for the relevant previous year. Assessee also justified the book profit computed under section 115JB, which was after considering such debit of expected loss. However, Assessing Officer was of the opinion that this was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly expected loss was debited in the Profit Loss Account. To prove that loss claimed were correctly ascertained, Ld. A.R submitted a project status statement as on 31.03.04. Ld. A.R submitted that expected loss was correctly worked out considering the price increases and absence of escalation clause in the respective contracts. Reliance was placed on the decision of Hon be Delhi High Court in the case of CIT Vs. Virtual Soft Systems Ltd (341 ITR 593) and also that of Hon ble jurisdictional High Court in the case of CIT Vs. SECIT SPA SOCIETA ECOLOGOCA (2009) 316 ITR 378(Mad.). As per Ld. A.R, in the latter case Tribunal had remitted the matter back to the Assessing Officer for determining the stage to which project was completed and allowing the claim of expenditure accordingly, and this was upheld. 6. Per contra, Ld. D.R strongly supported the order of the CIT(A). 7. We have heard the rival contentions and perused the orders of the lower authorities. Admittedly, assessee was doing contract work and it was recognizing revenue based on percentage completion method. Assessee had debited expected loss of Rs.47,18,514/- in its profit and loss account. As per the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in the business of leasing. Assessee had relied on guidance note dated 20th September, 1995, of Institute of Chartered Accountants of India while claiming the amount as a Revenue outgo. No doubt, their Lordships allowed the claim of the assessee. A reading of the said judgment will clearly show that the claim was considered allowable on account of the following reasons. (i) Lease equalization charge represented the amount set aside to equalize the im-balance between lease rentals and depreciation created over a period of time. (ii) Sec.211(3C) of the Companies Act, 1956, required companies to follow the Accounting Standards prescribed by Institute of Chartered Accountants of India till Accounting Standards were notified by Government. (iii) Assessee could show that only a part of cost of asset could be recovered through the period of lease and depreciation provided was not sufficient to cover the deficit, even after considering the scrap value. (iv) If the depreciation claimed over the period of lease was less than capital recovery difference is debited as lease equalization charges and if it was more, difference was treated as lease equalization income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, etc. Assessing Officer disallowed the amount only for a reason that breakup was not furnished. Ld. A.R submitted that, CIT(A) by not considering the breakup, but had done considerable injustice. 10. Per contra, Ld. D.R strongly supporting the orders of the authorities below submitted that assessee was given a number of chances by A.O for producing the breakup, but assessee had failed to furnish it. In such circumstances, CIT(A) was justified in not admitting additional evidence. 11. We have heard the rival contentions and perused the orders of the lower authorities. Without doubt, assessee had given a breakup of the total claim of staff benefits expenses of Rs.24,35,718/- before the A.O and such breakup has been reproduced by us at para No. 8 above. When the breakup was given, assessee had given the following details as well. The staff benefit comprises of medical expenses and cost of medicines purchased, staff training expenses, staff welfare benefits which comprises of Cultural programme expenses, drinking water expenses, Food expenses, Housing subsidy expenses and others (Overtime, staff master check up, medical exp, magazine reimbursement, purchase of milk, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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