TMI Blog2020 (7) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- Assessee is a developer, and not merely a works contractor and is eligible for deduction u/s. 80- IA. Accordingly, the claim for deduction u/s. 80-IA(4) is hereby allowed. Disallowance of employees contribution to PF ESI - HELD THAT:- This issue is covered in favour of the assessee by the judgement in the case of PCIT vs. Rajasthan State Beverages Corporation Ltd. [ 2017 (7) TMI 1087 - SC ORDER]. Thus we dismiss this ground of the Revenue. Deductibility of the provision for future losses - Revenue s contention is that these are unascertained liability and hence not deductible - HELD THAT:- AO has merely rejected the claim of the appellant by calling it a contingent and unascertained expenditure. However, as per the discussion, in the various decisions discussed above it has been held that applicability of AS-7 is acceptable. In this case it has been argued that as the unbilled revenue has been offered for taxation therefore the provision for future losses, as per AS-7 should be allowed. The AO has not pointed out any defect in the estimate or application of AS-7. In fixed price contracts, the appellant having credited all its revenue, as per the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the year for the purpose of computation of disallowance under the Rules. This direction is in line with the propositions of law laid down by the Hon ble Calcutta High Court in the case of CIT vs. M/s. REI Agro Ltd. in GA No. 3581 of 2013 I.T.A.T. No. 220 of 2013 order dated 09.04.2014 and the order of the Special Bench of the ITAT in the case of Vireet Investment Pvt. Ltd. Thus, we see no reason to interfere with the direction of the ld. CIT(A) on this issue. Thus we dismiss ground no. 1 of the Revenue. 4. Ground no. 2 is on the issue of deduction u/s 80-IA of the Act. The ld. CIT(A) held as follows: The Hon'ble ITAT in ITA Nos. 1291-1292/Kol/2013 for Asst. Yr. 2006-07 2009-10 has allowed the claim of the appellant for deduction u/s. 80-IA(4). The salient points with regard to allowability of deduction us. 80-1A which emerges from the above order is as follows: i. In a case where a person makes the investment and himself executes the development work i.e. carries out the civil construction work he will be eligible for tax benefit u/s. 80-IA of the Act. ii. Works contract used in Explanation to section 80-1A(13) means a contract of developing infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a mere works contractor. In this case it is observed that the appellant has been carrying out similar projects with similar functional responsibilities. Respectfully following the above findings of the Hon'ble ITAT I am of the considered opinion that the assessee is a developer, and not merely a works contractor and is eligible for deduction u/s. 80- IA. Accordingly, the claim for deduction u/s. 80-IA(4) is hereby allowed. 5. The ld. DR, though not leaving his ground, ultimately agreed that the issue is covered in favour of the assessee by the judgement of the Tribunal for the AY 2011-12. There is no dispute that the facts of this year are the same as that of the previous year. 6. In view of the above, respectively following the decision of the coordinate Bench of the Tribunal for the AY 2011-12 on this issue, we uphold the finding of the ld. CIT(A) and dismiss this ground of the Revenue. 7. Ground no. 3 is on the disallowance of employees contribution to PF ESI. This issue is covered in favour of the assessee by the judgement of the Hon ble Supreme Court in the case of PCIT vs. Rajasthan State Beverages Corporation Ltd. [2017] 84 taxmann.com 185 (SC). Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same could not be subject matter of deduction and the expenditure which was deductible for this purpose was only those liabilities which were not contingent. By holding this, Assessing Officer disallowed the provisions for future losses. The assessee raised objection against said disallowance before the DRP. The DRP however, rejected said objection with a single sentence that assessee did not file proper reply. The Hon ble Tribunal on the said issue of claim for future losses has held as under: As far as the factual position is concerned assessee has given detailed explanation for estimating the future losses which in fact it had suffered and the final loss was already determined by the Assessing Officer in the next assessment year, the order of which does not contain any disallowance. There is evidence on record that assessee has suffered loss and loss claim id in that year on completion of the project stood allowed. No adjustments have been made to the loss claimed in later year. In view of this we are of the opinion that as far as quantification of loss is concerned assessee has made a justifiable claim in arriving at the future loss for this year. [Para 24] F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including: Unbilled work-in-progress valued at lower of cost and net realizable value upto the stage of completion. Cost includes direct material, labour cost and appropriate overheads; and Amounts due in respect of the price and ether escalation, bonus claims and/or variation in contract work approved by the customer/third parties etc. where the contract allows for such claims or variations and there is evidence that the customer/third party has accepted it. In addition, if it is expected that the contract will make a loss, the estimated loss is provided for in the books of account. Contractual liquidated damages, payable for delays in completion of contract work or for other causes, are accounted for as costs when such delays and causes are attributable to the Company or when deducted by the client.' 17. A similar issue has been considered by the Tribunal in the case of Mazagon Dock Ltd. v. Jt. CIT (supra) wherein the Tribunal has held as under: The question that came up for consideration was as to whether the anticipated loss on the valuation of fixed price contract in view of the mandatory requirements of the AS-7, was to be allowed in the year in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epting in principle the assessee's claim as being allowable. However, in view of discrepancies pointed out by the CIT(A) for correct estimation of loss, the matter was to be restored to the file of the AO to examine the correctness of amount claimed.' 18. A similar view has been taken by the Tribunal in the case of Jacobs Engineering India (P.) Ltd. v. Asstt. CIT (supra) wherein the assessee's claims of foreseeable losses were allowed irrespective of method of accounting in terms of AS-7. In the case of Dredging International (supra), the issue before the Tribunal was whether under s. 37(1) of the Act provision for foreseeable loss made in accordance with guidelines of AS-7 and duly debited in audited accounts of company is an allowable expenditure. The Tribunal decided the case in favour of the assessee and held that 'yes' it is an allowable expenditure. The Tribunal while deciding this issue has also considered the decision of Mazagon Dock Ltd. v. Jt. CIT (supra). 19. Considering the facts of the case in the light of the accounting standards and the decisions of the Tribunal (supra), and as no distinguishing cases have been brought on records by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Section 145(2) provides that the Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. It is a fact that AS-7 has not been notified by the Central Government. This does not mean that the assessee is precluded from following AS-7. A perusal of the provisions of section 145 show that accounting standards which have been notified by the Central Government have to be mandatorily followed by the assessee. But this does not mean that the assessee cannot follow the other accounting standards issued by ICAI. The accounting standards issued by ICAI cannot be brushed aside lightly. On the contrary, if an assessee is following the accounting standards issued by ICAI, it would give more credibility and authenticity to its account. [Para 14] It is not in dispute that the assessee is executing fixed price contract, which means that the contractor has agreed to a fixed contract price or rate m some cases subject to cost escalation prices. As per AS-7 the assessee is entitled to make provision for foreseeable losses. [Para 15] A perusal of the accounting s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s followed AS-7 and has debited the future losses. Respectfully following the various decisions as discussed above, I am of the considered opinion that deduction for Future loss of ₹ 4,73,81,883/- is allowable. Therefore, these grounds of appeal of the appellant ate hereby allowed. 9. Thus we find that this issue is covered in favour of the assessee by the order of the ITAT in his own case for the AY 2011-12. The ld. DR fairly agreed that the issue is covered in favour of the assessee. Consistent with the view taken therein we dismiss this ground of the Revenue. 10. In the result, the appeal of the Revenue is dismissed. 11. Now we take up ITA No. 1410/Kol/2018 for the AY 2013-14. 12. Ground no. 1 is against the disallowance made u/s 14A of the Act read with Rule 8D(2)(ii) of the Rules. 13. Consistent with the view taken by us while dealing with ground no. 1 in ITA No. 1212/Kol/2018 for the AY 2012-13, we uphold the order of the ld. CIT(A) and dismiss this ground of the Revenue for the reason that interest free own funds are much higher than the investments made by the assessee. 14. Ground no. 2 is on the disallowance of the deduction u/s 80-IA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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