TMI Blog2017 (3) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence were duly submitted by the assessee before the AO at the time of assessment. Before us ld. DR has also not brought anything on record contrary to the findings of ld. CIT(A) in deleting the addition made by the AO. - Decided in favour of assessee Addition on account of corporate advances written off - Held that:- On perusal of the record, we find that all the necessary details of the impugned advances given to the parties were furnished by the assessee at the time of assessment and the relevant details are enclosed at pages 79 of the paper book. The advances represent the money given in relation to business contracts of the assessee with Nevyeli Lignite Corporation. On further perusal, we find that the advances written off were also approved in the minutes of Board meeting held on 30th March, 2004. The necessary details of the parties were duly furnished at the time of assessment. CIT(A) did not erred in deleting the addition as relying on case of Ashoka Marketing Limited Vs CIT [2001 (8) TMI 74 - CALCUTTA High Court] wherein held possibility for recovery of loan in case unsecured creditors found that the entire amount went to the secured creditors and nothing remains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but adjusted against the revaluation reserve does not mean that the assessee is not entitled. Thus addition need to be deleted - Decided in favour of assessee Addition on account of payment made to sub-contractor - Held that:- On perusal of the record, we find that all the necessary details of sub-contractor charges paid to M/s Lakshmi Enterprises were duly submitted before the AO. In our considered view, the assessee has filed the necessary details, which are sufficient enough to prove the identity of the party. Non-service of notice issued u/s.133(6) of the Act cannot be the sole reason for treating the payment as in-genuine. In rejoinder, Ld. DR has not brought anything on record contrary to the finding of ld. CIT(A) - Decided in favour of assessee - ITA No. 99/Kol/2011 - - - Dated:- 11-1-2017 - S. S. Viswanethra Ravi (Judicial Member) And Waseem Ahmed (Accountant Member) For the Revenue : Ram Bilas Meena, CIT For the Assessee : Vijay Shah ORDER Waseem Ahmed (Accountant Member) The above appeal is directed by the Revenue against the order dated 20.09.2010, passed by the ld. Commissioner of Income Tax (Appeals)-I, Kolkata in Appeal No.605/CIT(A)-1/Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of business. Accordingly, the AO disallowed the same and added to the total income of the assessee. 4. Aggrieved, the assessee preferred an appeal before ld. CIT(A) whereas assessee submitted that the said amount was given to MCRBCM as per the Hon ble jurisdictional High Court order as the official liquidator raised the claim against the assessee for the said amount. The said amount was accordingly given and shown as advances to be realized after the settlement of the process of liquidation. But the same was not realized, therefore, it was treated as loss to the business of assessee. Ld. CIT(A) after considering the submission of the assessee has deleted the addition made by the AO by observing as under :- 5.2 I have carefully examined the above facts and submissions. The lease was taken to purchase the asset which was for the purpose of the business. CRB capital market who financed the lease went into liquidation and the amount had to be paid to the official liquidator of the company. Therefore, the contention of the A.O. that the amount was not given in the normal course of business is not correct as it can be seen that advances has been made in order to payoff the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, assessee preferred appeal before ld. CIT(A) whereas assessee submitted that the details of loose tools which was written off for ₹ 5,67,156/- was duly submitted before the AO along with letter dated 24th February, 2006. Accordingly, the argument of the AO that the details were not submitted is not tenable. Ld. CIT(A) after considering the submissions of the assessee has deleted the addition made by the AO by observing as under :- Hence, the contention of the A.O. that no details have been filed is not correct. The A/R in its written submission has filed copies of the above details with the documentary evidence that the same were before the Hon'ble ITAT and copy of it was submitted to the A.O. The AIR further contended that the above details may have been missed out by the A.O. while giving effect to the order of ITAT. Aggrieved by this, the Revenue has come up in appeal before us. 9. Before us both the parties before us relied upon the order of authorities below as favorable to them. 10. We have heard rival contentions and perused the material available on record. On perusal of the details of the stores and loose tools written off furnished at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h such advance was given. On perusal of the assessment records it could be noted that the A.O. had no where asked the assessee to produce any further details. The A.O. himself has allowed write off in relation to 1 party i.e . Flora Vanijya for ₹ 1,07,52,690/- though the advance given to said party was for the same contract and for the same purpose. If the said advance can be allowed as business loss I fail to understand how the advance given to other 2 parties for the same contract can be disallowed with the contention that the purpose of giving the advance have not been furnished. What is true for 1 party should be followed for the other 2 parties also when all the 3 contractors were in relation to only 1 contract i.e. Neyveli Lignite Corporation Ltd. 7.5 The A.O while making the disallowance has also relied upon the decision in the case of Salem Magnesite (P) Itd. -vs.- CIT (2009) ITCL 549 (Bom-HC). The A/R submitted that the above judgment relied by the AO has no relevance in the present case. It has been submitted that the above decision speaks about capital advance made to its subsidiary company for the purpose of construction of an asset. Hence, the High Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of this Court regarding possibility of the recovery of loan of unsecured creditors when there is no chance the assessee has rightly written off that debt treating as a bad debt. Respectfully following the aforesaid judgment and in view of the facts discussed above, we find no infirmity in the order of ld. CIT(A). Hence, this ground of appeal of revenue is dismissed. 15. The fourth issue raised by Revenue is that ld. CIT(A) erred in deleting the addition made by AO for ₹ 50 lakh on account of WIP written off. 16. Facts relating to this ground are that the assessee during the year has undertaken several projects including the four projects as discussed subsequently. These four projects were based on Port Handling, Ash Handling and Water Management activities. The assessee never had any experience of these projects in earlier years. As such, these projects were new to the assessee but the assessee wanted to enter into the aforesaid activities. Therefore such projects were undertaken by the assessee without any profit margin. These projects were undertaken in the year under consideration and were completed in the financial year ending as on 31st of March 2007. In all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in nature. The AO also observed that the loss has been adjusted against the revaluation reserve and the same was not routed through profit and loss account. In view of above the AO disallowed the loss claimed by the assessee and added to the total income of the assessee. 17. Aggrieved, assessee preferred an appeal before ld.CIT(A) whereas assessee submitted that all the relevant details along with bills, invoices were duly submitted before the AO at the time of assessment proceedings. The loss incurred by the assessee in all contracts is substantially higher than the expenses actually written off in the books of accounts in the year under consideration. So the expenses written off on the basis of estimated cost is reasonable and justifiable. The assessee further submitted that no loss was claimed on the basis of ad hoc estimation as the assessee was well aware that it is the new line of activity and these projects were undertaken without any margin. Therefore, all the losses were reasonably estimated on the basis of supporting quotations and these losses were claimed in terms of provisions of Accounting Standard-7 issued by ICAI. Ld. CIT(A) after considering the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Contract Work In progress written off following AS-7 and this ground of appellant is allowed. Aggrieved by this, the revenue has come up in appeal before us. 18. The ld. AR before us submitted that loss has been incurred at the end of the completion of the project i.e. total cost incurred is higher than the total revenue booked by the assessee for the said projects. Yearwise revenue, cost incurred and loss suffered in the project for the years ended 31-03-2003, 31-03-2004, 31-03-2005, 31-03-2006 and 31-032007 has been filed with the Paper Book. From above it could be noted that, the total loss incurred for each project is substantially higher than the expenses written off in the year under consideration. Therefore, expenses written off on the basis of estimated cost is justified as the actual expenditure incurred is higher than the amount written off in the year under consideration. Hence, the contention of the A.O. that details in relation to write off of WIP, details of contract revenue and details of estimates of cost in relation to each project have not been furnished is not correct. Detailed statement showing estimated cost of contract prepared at the time of acquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed in the year under consideration. Besides, all the losses were not quantified on any scientific basis, therefore, all the losses were in contingent in nature. Ld. DR vehemently supported the order of AO. 19. We have heard rival contentions. On perusal of the record we find that the issue in the instant case relates to the disallowance made by the AO on account of the losses claimed by the assessee. The reasons for the losses have been elaborated in the preceding paragraph and the same are not repeated here for the sake of brevity. In the instant the assessee is following completed contract method as per accounting standard 7 issued by ICAI which states about the claim of foreseeable loss. Accordingly the loss was claimed by the assessee. This fact about the AS 7 was duly observed by the AO in its order. But the AO was of the view that the AS 7 has no application in the proceedings under the Income Tax Act. Therefore the loss claimed by the assessee was treated as contingent in nature and accordingly the same was disallowed. However we find that the provisions of AS 7 has application in the income tax proceedings as held by the Hon'ble Delhi High Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the above judgment, it is clear that there is no denial of following the AS-7 issued by ICAI in the books of accounts and accordingly the deduction is allowed under the income tax Act. The issue is also squarely covered in favour of the assessee by the following decisions of ACIT -vs.- ITD Cementation India Ltd (2014) 146 ITD 59 (Mum Trib) Sec 145(2) provides that Central Govt may notify in the Official Gazette from time to time accounting standards to be followed by any class of asses sees or in respect of any class of income. It is a fact that AS-7 has not been notified by the Central Govt. This does not mean that the assessee is precluded from following AS-7 issued by ICAl. lCAI being the highest accounting body of the country, created by an Act of Parliament, Accounting Standards issued by it cannot be brushed aside lightly. On the contrary, if an assessee was following the Accounting Standards issued by ICAI, it would give more credibility and authenticity to its account. It was not in dispute that the assessee was executing fixed price contract which means that the contractor has agreed to a fixed contract price or rate in some cases subject to cost escalation prices. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract revenue, then the probable loss should be recognized in the books immediately. Loss could be recognized irrespective of the stage of completion of contract and method of accounting followed. Hence, loss is permissible to be accounted for even in the period in which the contract is signed or when the legal or constructive obligation has been assumed. Assessee has determined the loss on the basis of the cost that can be attributed to a contract in accordance with AS-7. Actual expenditure incurred in the first year is in excess of amount written off in the first year of contract. Such write off have been made to comply with the provisions of Accounting Standard 7 as prescribed by the lCAI. The fact that assessee has made a correct estimate of the loss is further supported by the fact that actual loss borne by the assessee in every contract referred above is higher than the amount written off in the first year of contract. Hence, the contention of the A.O that such loss is a contingent loss and does not have any basis does not hold good. Foreseeable losses written off in accordance with Accounting Standard 7- Construction Contracts is an allowable loss. Para 13 of Accounting St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed and was written-off over a period of five years - However, in income-tax return, assessee claimed said expenditure as revenue expenditure - Assessing Officer disallowed assessee s claim - It was found that expenditure had been incurred by assessee only to run its business more efficiently and advantageously and it was not in relation to assets owned by assessee or to acquire any new asset but in order to facilitate movement of materials for business operation of assessee - Whether, since expenditure did not bring any asset to assessee and Railways owned it and also reserved right to close sidings, though assessee had been given a long-term right of use, said expenditure did not result in acquisition of capital asset and, hence, by no stretch of imagination could be treated as expenditure for creation of an asset of enduring nature - Held, yes - Whether, therefore, said expenditure was allowable as revenue expenditure - Held, yes In view of above and respectfully following the aforesaid judgments of various Hon'ble High Courts, we do not find any infirmity in the order of ld. CIT(A). We uphold accordingly. Hence, ground raised by the Revenue is dismissed. 20. Last is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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