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2016 (7) TMI 903 - ITAT KOLKATA

2016 (7) TMI 903 - ITAT KOLKATA - TMI - Revision u/s 263 - provision for future losses on construction - Held that:- AO is deemed to have applied his mind to the claim of the assessee for deduction. We are of the view that this stand taken by the assessee cannot be sustained. The basis on which the loss was arrived has not been enquired into by the AO. As to whether AS-7 will apply to the case of the assesee and as to whether the computation of the loss done by the assessee in accordance with AS .....

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y an adjudicator but also an investigator, he cannot remain passive in the face of a return which is apparently in order but calls for further enquiry in the facts and circumstances of the case and the word `erroneous' in s. 263 includes the failure to make such an enquiry. We are therefore of the view that exercise of jurisdiction u/s 263 of the Act in respect of provision for future losses on construction contract was fully justified. - Payments being in the nature of accommodation entry - .....

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ojects Ltd is not in the nature of accommodation entries and are genuine. The AO will look into the submissions of the assessee and after taking into consideration the evidence and materials before him, he is free to come to the conclusion as to whether the claim made by the assessee has to be accepted or not, uninfluenced by the fact that the assessment is being made to direction u/s.263 of the Act. With these observations, we dismiss the appeal of the assessee. - I.T.A No. 134/Kol/2016 - Dated .....

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ract basis. The Assessee filed return of income for the assessment year 2011-12 declaring total income of ₹ 2,70,10,360/-. The Assessing Officer (A.O.) completed the assessment u/s 143(3) of the Act dated 25.3.2014 determining total income of the Assessee at ₹ 68,01,50,080/- under normal provisions and ₹ 31,32,70,078/- u/s. 115JB of the Act. In the assessment so completed the AO disallowed/ added back under several heads aggregating to ₹ 6,23,78,564/- and also denied exem .....

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s was an anticipated and unascertained liability and could not have been construed as an accrued liability allowable as deduction while computing business income for AY 2011-12. According to the said show-cause notice, such anticipated losses were not allowable in mercantile system of accounting. (ii) According to the CIT, the assessee had taken accommodation entries in the nature of bogus expenditure amounting to ₹ 5.42 crores from M/s. Sintex Infra Projects Ltd. which was not admissible .....

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eference to Accounting standard followed by the Auditor and verification of the same done by the A.O. during assessment proceeding in the light of several judicial pronouncements on the issues. With regard to the allegation of accommodation entries of bogus expenditure it was explained that the assessee made payments subject to TDS through banking channel to M/ s. Sintex Infra Projects Ltd. for the services rendered by them as subcontractor. The Assessee submitted that the details and background .....

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ing evidences etc. filed. On the issue of future loss on construction contracts of ₹ 14,83,51,419/-, which was claimed and allowed as deduction in the assessment proceedings, he held as under:- "On going through the assessment records, I find that the A.O. had not made any enquiry whatsoever to ascertain the nature of the transaction or that of the contract and the circumstances that led to premature termination of the contract. It is apparent that without ascertaining these facts, it .....

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in so far as prejudicial to the interest of revenue as the deduction of ₹ 14,83,51,419/- was allowed by the A.O. without even ascertaining its real nature. I, therefore, have no hesitation in holding that the assessment order dated 25.03.2014 for the Asst. Year 2011-12 is erroneous in so far as prejudicial to the interest of the revenue." 6. On the other issue of alleged bogus expenditure of ₹ 5.42 crores paid to M/s. Sintex Infra Projects Ltd., the Assessee had contended that t .....

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o and he held as under :- "On consideration of the assessee's submission and arguments, I find that although the assessee has stated that the services rendered by the said company to the assessee was also established but has not been able to produce any material or evidence from which it can be conclusively established that M/s. Sintex Infra Projects Ltd.· had rendered the services in lieu of the payment received by it. In a collusive transaction, it always happens that the payme .....

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assessee in lieu of the payment made by the assessee was conducted by the A.O. The A.O. had also not examined the bank statements to look into the movement of the fund out of the payment made by the assessee. As these enquiries which were required to be made before accepting the claim of the assessee were not make, the assessment order is erroneous in so far as prejudicial to the interest of revenue as deduction of the sum of ₹ 5.42 crores was allowed without making any enquiry." 7. T .....

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ed that the services rendered by the said company to the assessee was also established but has not been able to produce any material or evidence from which it can be conclusively established that Is. Sintex Infra Projects Ltd. had rendered the services in lieu of the payment received by it. In a collusive transaction, it always happens that the payments are made through banking channels and TDS is deducted in conformation with the relevant provisions so as to render a cover of genuineness to oth .....

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ement of the fund out of the payment made by the assessee. As these enquiries which were required to be made before accepting the claim of the assessee were not made, the assessment order is erroneous in so far as prejudicial to the interest of revenue as deduction of the sum of ₹ 5.42 Crores was allowed without making any enquiry. I, therefore, hold that the assessment order dated 25.03.2014 completed u/s. 143(3) for the Asst. Year 2011-12 is erroneous and prejudicial to the interest of r .....

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business and following percentage construction method is allowable as deduction. In particular our attention was drawn to column 17(k) of the Tax Audit Report wherein the basis on which provision for future losses were claimed as deduction has been clearly set out by the Assessee as follows :- Rs.14,83,51,419/- being provision for future losses on construction contracts in terms of Accounting Staneard-7 notified by the Companies Accounting Standard Rules, 2006 (as emended). The Company has reli .....

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allowing the claim of the assessee would not be material as on the basis of the material available on record it can be presumed that the AO has accepted the claim of the assessee after due consideration of the Tax Audit Report referred to above and the judicial pronouncements referred to therein. Reference was made to the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co.Ltd. vs CIT 243 ITR 83 (SC). It was submitted that two views are possible on the question of allowin .....

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-8, Ahmedabad which was to the effect that the assessee had taken accommodation entries in respect of expenditure paid to M/S.Sintex Infra Projects Ltd., and these expenses were therefore bogus. It was submitted that since information in question was received after the conclusion of the assessment proceedings, it cannot be said that the AO ought to have made enquiries into the alleged Accommodation entry. It was submitted that the conclusion of the CIT that the order of AO was erroneous for not .....

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assed the impugned order u/s 263 of the Act on the basis of material obtained behind the back of the assessee and this was not permissible under law. Reference was made to the decision of the Hon ble Delhi High Court in the case of CIT vs Rajesh Kumar 306 ITR 27 (Delhi) and the decision of the Hon ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise 281 CTR 241(SC). The ld. Counsel for the assessee prayed that the order of 263 be quashed. 11. The ld. DR p .....

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ourt in the case of Gee Vee.Enterprises 99 ITR 375 (Del). 12. We have given a very careful consideration to the rival submissions. It is clear from the material on record that the AO while completing the assessment u/s 143(3) of the Act did not make any enquiries whatsoever with regard to the provision for future losses on construction contract of ₹ 14,83,51,419/- claimed by the assessee. The submission of the ld. Counsel for the assessee was that since the basis on which this loss was cla .....

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a matter which ought to have been enquired into by the AO. His failure to make an enquiry on these aspects and accepting the claim of the assessee for deduction was erroneous and prejudicial to the interest of the revenue. The law is well settled that if the AO fails to make an enquiry on an issue, which in the given facts and circumstances of the case, calls for an enquiry then the order of the AO should held to be erroneous and prejudicial to the interest of the revenue. The decision of the H .....

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of the view that exercise of jurisdiction u/s 263 of the Act in respect of provision for future losses on construction contract was fully justified. 13. With regard to the payments made to M/s. Sintex Infra Projects Ltd of ₹ 5.42 crores is concerned, it is no doubt true that the information with regard to payments being in the nature of accommodation entry came into the possession of the AO after the conclusion of the assessment proceedings. It is however seen that at the time when the CI .....

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l which comes to the possession of the AO after conclusion of the assessment proceedings, and which is part of the record before CIT when the jurisdiction u/s.263 of the Act is being invoked by the CIT. We are supported in the above conclusions by the decision of the Hon ble Supreme Court in CIT vs. Shree Manjunathesware Packing Products & Camphor Works 231 ITR 53 (SC) wherein the Hon ble Supreme Court after examining the legislative amendment to s. 263 including the amendment made with retr .....

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as he deems necessary in order to find out if any order passed by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry, if he considers the order to be erroneous, then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the .....

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and it was open to the CIT not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination." The Hon ble Calcutta High Court itself in a subsequent decision in B.P.Agarwalla & Sons Ltd. Vs. CIT 208 ITR 863 (Cal) made a remark that the CIT can certainly take into consideration subsequent information for the purpose of initiating proceedings under s. 263 so that an assessment order which was good when it was ma .....

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