DCIT, Circle - 8(2), Kolkata , Kolkata V. M/s. SPML Infra Limited , Kolkata

ITA 1211/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8755 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 01-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K TULSIYAN; LATA GOYAL ACA
• Assessee Lawyers: RADHEY SHYAM
• Keywords: Opportunity of being heard; Principle of natural justice; Opportunity of cross examination; Earning of tax free income; Question of law; Accommodation entries; Assessment record; TDS; Rule 8D
• Section: 43B; 143(3); 142(1); 14A; 115JB; 133(6); 37(1); 250; 80IA; 139(1); 48; 13; 131; 145; 263; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.1228/KOL/2018 ( / ASSESSMENT YEAR:2011-12) M/S SPML INFRA LTD. 22, CAMAC STREET, BLOCK-A, 3 RD FLOOR, KOLKATA-700016 VS. DCIT, CIRCLE-8(2), KOLKATA ./ ./PAN/GIR NO.: AADCS 2469 K (APPELLANT) .. (RESPONDENT) ./ITA NO.1211/KOL/2018 ( / ASSESSMENT YEAR: 2011-12) DCIT, CIRCLE-8(2), KOLKATA VS. M/S SPML INFRA LTD. 22, CAMAC STREET, BLOCK-A, 3 RD FLOOR, KOLKATA-700016 ./ ./PAN/GIR NO.: AADCS 2469 K (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.K. TULSIYAN, ADVOCATE & MS. LATA GOYAL, ACA RESPONDENT BY : SHRI RADHEY SHYAM, CIT / DATE OF HEARING : 18/12/2019 /DATE OF PRONOUNCEMENT : 17/01/2020 / O R D E R PER A.L. SAINI, AM: THE CAPTIONED CROSS APPEALS FILED BY THE ASSESSE E AS WELL AS REVENUE, PERTAINING TO ASSESSMENT YEAR 2011-12, ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL)-3, KOLKATA IN APPEAL NO. M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 2 10812/CIT(A)-3/R-8/KOL/15-16, WHICH IN TURN ARISE O UT OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 263 / 143(3) O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 20/12/2016. 2. SINCE THESE CROSS APPEALS PERTAIN TO THE SAME AS SESSEE, SAME ASSESSMENT YEAR, COMMON AND IDENTICAL ISSUES ARE INVOLVED THEREFORE THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PA SSED FOR THE SAKE OF BREVITY. 3. NOW, WE SHALL TAKE ASSESSEES APPEAL IN ITA NO. 1228/KOL/2018 FOR A.Y. 2011- 12, WHEREIN THE GROUNDS OF APPEAL RAISED BY THE ASS ESSEE ARE AS FOLLOWS: 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF GENUINE EXPENDITURE O F RS. 5.42 CRORES BY WAY OF PAYMENT TO SUB-CONTRACTOR M/S SINTEX INFRA PROJECTS (P) LTD. (SINTEX) THROUGH BANKING CHANNEL SUBJECT TO TDS AS BOGUS EXPENSES ON THE ALLEGED GROUND THAT THE APPELLANT WAS UNABLE TO ESTABLISH BY ANY MATERIAL O R EVIDENCE THAT THE SAID SUB- CONTRACTOR HAD RENDERED SERVICES IN LIEU OF PAYMENT S RECEIVED BY IT. 2. THAT, THE LD. C.I.T.(A) FURTHER ERRED IN ALLEGIN G ABSENCE OF EVIDENCE IN SUPPORT OF CARRYING OUT SUBCONTRACT WORKS BY SINTEX IN SPIT E OF THE FACT THAT BILLS, LEDGER ACCOUNT IN THE ASSESSEES BOOKS, AUDITED ACCOUNTS S HOWING TURNOVER OF RS.284 CRORES & PROFITS OF RS. 19.23 CRORES OF SINTEX AND BANK STATEMENT SHOWING PAYMENTS WERE FILED AND NOTHING ADVERSE WAS POINTED OUT AND HENCE THE DISALLOWANCE OF RS.5.42 CRORES SUSTAINED BY HIM ON SURMISE & CONJECTURE IS LIABLE TO BE DELETED. 3. THAT, THE LD. C.I.T.(A) FURTHER ERRED IN TREATIN G THE SUB-CONTRACT EXPENDITURE OF RS.5.42 CRORES AS BOGUS IN SPITE OF THE FACT THAT W ORK OF T.K.HALLY PROJECTS ALLOTTED BY BWSSB (GOVT.) TO JV (SPML + KIRLOSKAR) AND ANOTHER WORK OF JAMUI PROJECTS WERE CARRIED OUT BY SINTEX IN LIEU OF PAYM ENTS OF RS.4,68,32,646/- & RS.74,48,980/-, AGGREGATING TO RS.5,42,81,626/-, AN D IN REPLY TO ONE OF THE QUESTIONS, CFO OF SINTEX HAS CATEGORICALLY ADMITTED THAT COMPLETION CERTIFICATES WERE ISSUED BY SPML AND HENCE THERE WAS NO QUESTION TO DOUBT THE COMPLETION OF WORK. 4. THAT, THE LD. C.I.T.(A) ACTED ARBITRARILY AND IL LOGICALLY IN NOT CONSIDERING THAT ALL THE PROJECTS IN RESPECT OF WHICH SOME WORK WAS GIVEN TO SINTEX WERE GOVT, PROJECTS AND WERE DULY MONITORED BY VARIOUS AUTHORI TIES AND ON COMPLETION OF THE WORK AWARDED TO THE APPELLANT AND SANCTION/APPROVAL FROM SUCH AUTHORITIES, PAYMENTS WERE MADE TO THE APPELLANT AND HENCE TREAT MENT OF PAYMENT TO SINTEX AS BOGUS ASSUMING THAT NO WORK WAS PERFORMED BY SINTEX ON BEHALF OF THE APPELLANT IS UNFOUNDED AND DISALLOWANCE CONFIRMED IS LIABLE T O BE DELETED. 5. THAT, THE LD. C.I.T.(A) SOLELY ON THE BASIS OF A LLEGED STATEMENT OF ONE P.K. SINHA OF SILICON REAL ESTATE P. LTD. AT THE BACK OF THE APPELLANT, WHO WAS UNKNOWN TO THE APPELLANT AND WITH WHOM THE ASSESSEE HAD NO TRANSACTION, SHIFTED THE ONUS ON THE APPELLANT TO PROVE AS TO WHO PERFOR MED THE WORK ,WHEN CFO OF M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 3 SINTEX IN HIS STATEMENT HAS CONFIRMED THAT SUB-CONT RACT AND PAYMENTS ON COMPLETION OF WORK BOTH WERE RECEIVED FROM THE APPE LLANT. 6. THAT, AS THE ORDER OF LD. C.I.T.(A) ON THE ABOVE FACTS SUFFERS FROM ILLEGALITY AND IS DEVOID OF ANY MERIT, THE SAME SHOULD BE QUASHED AND YOUR APPELLANT BE GIVEN SUCH RELIEF(S) AS PRAYED FOR. 7. THAT, THE APPELLANT CRAVES LEAVE TO AMEND, ALTER , MODIFY, SUBSTITUTE, ADD TO, ABRIDGE AND/ OR RESCIND ANY OR ALL OF THE ABOVE GRO UNDS. 4. THE FACTS OF THE CASE WHICH CAN BE STATED QUITE SHORTLY ARE AS FOLLOWS.AN INFORMATION HAS BEEN RECEIVED BY ASSESSING OFFICER FROM THE JCIT, RANGE-8, AHMEDABAD STATING THAT THE ASSESSEE COMPANY HAD TAK EN ACCOMMODATION ENTRIES IN THE NATURE OF BOGUS EXPENSES AMOUNTING TO RS. 5,42, 00,000/-. THE INFORMATION CONTAINS THAT DURING THE ASSESSMENT PROCEEDING IN T HE CASE OF M/S SINTEX INFRA PROJECTS (P) LTD. FOR A.Y. 2011-12, WHICH IS ASSESS ED WITH THE DCIT, CIRCLE - 8, AHMEDABAD, INFORMATION WAS RECEIVED FROM DCIT, CENT RAL CIRCLE-XXI, KOLKATA THAT DIRECTOR OF M/S SILICON REAL ESTATE (P) LTD. ( PAN: AALCS3385C) WHICH WAS ASSESSED WITH HIM FOR A.Y. 2011-12 HAS ADMITTED THA T THIS COMPANY HAS NOT EXECUTED ANY WORK IN REALITY AND ONLY PROVIDED ACCO MMODATION ENTRY FOR TURNOVER AND / OR EXPENSES. M/S SINTEX INFRA PROJECTS (P) LT D. (PAN: AANCS6027R) ASSESSED WITH DCIT, CIRCLE-8, AHMEDABAD WAS ALSO IN THE LIST, HAS SUBCONTRACTED WORK OF WORTH RS. 23,92,37,351/- TO M/S SILICON REA L ESTATE (P) LTD. AFTER RECEIPT OF THE INFORMATION, THE DCIT, CIRCLE-8, AHMEDABAD I SSUED A SUMMON U/S 131 OF THE ACT TO M/S SINTEX INFRA PROJECTS (P) LTD. AND S RI S.N. MAHESHWARI, CFO OF M/S SINTEX INFRA PROJECTS (P) LTD, AND CFO APPEARED ON BEHALF OF THE COMPANY WHOSE STATEMENT WAS RECORDED ON 28.03.2014. IN THE SAID S TATEMENT, MR. MAHESHWARI STATED THAT SUCH WORK ORDER WAS ARRANGED TO HIS COM PANY BY ONE MR. ANSHU BALBIR. SRI MAHESHWARI HAS CATEGORICALLY STATED THA T HIS COMPANY HAS RECEIVED THE ENTIRE WORK OF RS. 23,92,37,351/- ON BACK TO BACK B ASIS FROM FIVE COMPANIES. M/S SPML INFRA LTD. BEING ONE OF SUCH FIVE COMPANIES HA S AWARDED CONTRACT OF WORTH RS. 5.42 CRORE OUT OF THE ABOVE MENTIONED AMOUNT. S RI MAHESHWARI HAS ADMITTED THAT HIS COMPANY HAS NEITHER EXECUTED NOR SUPERVISE D THE PROJECT. M/S MAHESHWARI HAS FURTHER MENTIONED THAT M/S SINTEX INFRA HAS REC EIVED THE PAYMENTS FROM M/S SPML INFRA LTD. AFTER COMPLETION OF WORK FOR WHICH COMPLETION CERTIFICATE WAS M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 4 44 4 ISSUED BY M/S SPML INFRA LTD. IT IS ALSO PERTINENT TO MENTION THAT M/S SPML INFRA LTD, HAS DEDUCTED TDS ON SUCH CONTRACT AND THE SAME WAS PASSED ON TO M/S SILICON REAL ESTATE (P) LTD. BY THE M/S SINTEX INFR A AFTER DEDUCTING THE TDS. UNDER SUCH FACTS AND CIRCUMSTANCES, IT APPEARED TO ASSESSING OFFICER THAT THE ENTIRE WORK SUBCONTRACTED ULTIMATELY TO M/S SILICON REAL ESTATE (P) LTD. WAS SOURCED FROM M/S SPML INFRA LTD. UNDER THE ABOVE CI RCUMSTANCES, THE ASSESSEE WAS ASKED TO EXPLAIN THAT WHY THE EXPENSES OF RS. 5 ,42,00,000/- SHOULD NOT BE TREATED AS BOGUS. 5. IN RESPONSE, THE ASSESSEE MADE A WRITTEN SUBMISS ION ON 02,11.2016 IN WHICH IT WAS STATED THAT COPIES OF THE AFORE-SAID STATEMENT HAD NOT BEEN PROVIDED TO THE ASSESSEE. THE ASSESSEE HAS ALSO STATED IN HIS SUBMI SSION THAT ALL LABOUR JOB WAS GIVEN TO M/S SINTEX INFRA PROJECTS LTD. IN RELATION TO A FEW PROJECTS AND THE SAID PARTY HAD DULY RAISED BILLS ON THE ASSESSEE IN RESP ECT OF THE SAID WORK. ALL PAYMENTS WERE MADE AFTER DEDUCTING TDS AT THE TIME OF CREDITED TO THE SAID PARTY. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE IS NO T AWARE OF THE CONCERN M/S SILICON REAL ESTATE (P) LTD. AND HAS HAD NO TRANSAC TIONS WITH THE SAID PARTY. ALL PROJECTS IN RESPECT OF WHICH WORK WAS GIVEN TO M/S SINTEX INFRA PROJECTS LTD. ARE GOVT, PROJECTS AND ARE DULY MONITORED BY THE VARIOU S AUTHORITIES. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE A DDITION AMOUNTING TO RS. 5,42,00,000/-. 6. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER.THE LD. CIT(A) DISALLOWED THE EXPENSE ONLY ON THE BASIS OF STATEMENT OF SRI PRANAY KUMAR SINHA, DIRECTOR OF M/S SILICON REAL ESTATE PVT LTD. AND STATEMENT OF SRI NARAYAN MAHESHWARI, CFO O F M/S SINTEX INFRA PROJECTS LTD. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 7. SHRI S.K. TULSIYAN, LD COUNSEL FOR THE ASSESSEE, BEGINS BY POINTING OUT THAT LABOUR JOB WAS GIVEN TO M/S SINTEX INFRA PROJECTS L TD. IN RELATION TO PROJECTS AND THE SAID PARTY HAD DULY RAISED BILLS ON THE ASSESSE E IN RESPECT OF THE SAID WORK. ALL PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. PAYMEN TS WERE MADE AFTER M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 5 55 5 DEDUCTING TDS. ALL PROJECTS IN RESPECT OF WHICH WOR K WAS GIVEN TO M/S SINTEX INFRA PROJECTS LTD. ARE GOVT, PROJECTS AND ARE DULY MONITORED BY THE VARIOUS GOVERNMENT AUTHORITIES, THEREFORE GENUINENESS OF TH E TRANSACTIONS CANNOT BE DOUBTED. THE LD. COUNSEL FURTHER SUBMITTED THAT ASS ESSEE COMPANY WAS NOT GIVEN AN OPPORTUNITY TO CROSS EXAMINE THE STATEMENTS OF S HRI P.K. SINGHA AND SHRI NARAYAN MAHESWARI, THEREFORE, ASSESSING OFFICER HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AND THEREFORE ADDITION MADE BY AO S HOULD BE DELETED. 8.ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREA DY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 9. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD.WE NOT E THAT ASSESSEE COMPANY GAVE A LABOUR CONTRACT TO ONE M/S SINTEX INFRA PROJ ECTS LIMITED FOR RS.5.42 CRORES. THE SAID COMPANY IN TURN GAVE A FURTHER CONTRACT, O N BACK TO BACK BASIS, TO M/S SILICON REAL ESTATE PVT. LIMITED. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELIED ON THE STATEMENT OF SRI PARNAY K UMAR SINHA, DIRECTOR OF M/S SILICON REAL ESTATE PVT. LIMITED, RECORDED ON 12.03 .2014 AND SRI NARAYAN MAHESHWARI, CFO OF M/S SINTEX INFRA PROJECTS LTD, R ECORDED ON 28.03.2014, AND MADE ADDITION OF RS. 5.42 CRORES. WE NOTE THAT LD. CIT(A) DISALLOWED THE EXPENSE ONLY ON THE BASIS OF STATEMENT OF SRI PRANAY KUMAR SINHA, DIRECTOR OF M/S SILICON REA L ESTATE PVT LTD. AND STATEMENT OF SRI NARAYAN MAHESHWARI, CFO OF M/S SIN TEX INFRA PROJECTS LTD. IN THIS CONNECTION LD COUNSEL SUBMITTED BEFORE US T HAT THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR HAD GIVEN LABOUR CONTRACT FOR HARD ROCK CHISELLING USING ROCK HAMMERS AND CHISELS, STACKING ON ROAD SI DE FOR PIPE LINE TRENCHES, CARTING EXCESS EARTH AND OTHER SIMILAR LABOUR JOB T O M/S SINTEX INFRA PROJECTS LTD. IN RELATION TO FOLLOWING PROJECTS: (I). T K HALLY PROJECTS: TK HALLY PROJECT WAS AWARDED BY THE ORIGINAL PARTY BWSSB (GOVT.) TO JOINT VENTURE SPML & KIRLOSKAR COMPANY PROVIDED THE LABOUR CONTRACT FOR HARD ROCK CHISELLING TO SINTEX INFRA PROJECTS LTD. THE TOTAL WORK DONE BY SINTEX IN THIS PROJECT IS RS. 4,68,32,646/ (II) JAMUI PROJECTS : THE TOTAL WORK DONE BY SINTEX INFRA PROJECTS LTD. IN THIS PROJE CTS IS RS. 74,48,980/ THE TUNE OF RS. 5,42,81,626/ PROJECTS LTD. ARE ENCLOSED AT PAGE 284 THE ACTIVITIES UNDER TAKEN BY M/S SINTEX INFRA PROJECTS LTD. ARE A S UNDER: ITA NO S. 1228 & 1211 ASSESSMENT YEAR: T K HALLY PROJECTS: TK HALLY PROJECT WAS AWARDED BY THE ORIGINAL PARTY BWSSB (GOVT.) TO JOINT VENTURE SPML & KIRLOSKAR . SPML INFRA LTD COMPANY PROVIDED THE LABOUR CONTRACT FOR HARD ROCK CHISELLING TO SINTEX INFRA PROJECTS LTD. THE TOTAL WORK DONE BY SINTEX IN THIS PROJECT IS RS. 4,68,32,646/ THE TOTAL WORK DONE BY SINTEX INFRA PROJECTS LTD. IN THIS CTS IS RS. 74,48,980/ - . THE TOTAL AMOUNT PAID TO SINTEX INFRA PROJECTS LT D RS. 5,42,81,626/ - ( COPIES OF INVOICES ISSUED BY M/S SINTEX INFRA PROJECTS LTD. ARE ENCLOSED AT PAGE 284 -293 OF THE PAPER BOOK). AS PER THE INVOICES, UNDER TAKEN BY M/S SINTEX INFRA PROJECTS LTD. ARE A S UNDER: M/S SMPL INFRA LTD. S. 1228 & 1211 /KOL/2018 ASSESSMENT YEAR: 2011-12 P PP PA AA AG GG GE EE E | || | 6 66 6 T K HALLY PROJECTS: TK HALLY PROJECT WAS AWARDED BY THE ORIGINAL PARTY SPML INFRA LTD , ASSESSEE COMPANY PROVIDED THE LABOUR CONTRACT FOR HARD ROCK CHISELLING TO SINTEX INFRA PROJECTS LTD. THE TOTAL WORK DONE BY SINTEX IN THIS PROJECT IS RS. 4,68,32,646/ -. THE TOTAL WORK DONE BY SINTEX INFRA PROJECTS LTD. IN THIS . THE TOTAL AMOUNT PAID TO SINTEX INFRA PROJECTS LT D IS TO ( COPIES OF INVOICES ISSUED BY M/S SINTEX INFRA AS PER THE INVOICES, UNDER TAKEN BY M/S SINTEX INFRA PROJECTS LTD. ARE A S UNDER: FROM THE ABOVE TABLE, IT IS APPARENT THAT M/S SINTE X INFRA PROJECTS LTD HAS WELL DESCRIBED THE TYPE OF WORK UNDERTAKEN BY IT FOR THE ASSESSEE. IN THE CASE OF TK HALLY PROJECTS, SINTEX INFRA P SHIFTING OF HARD ROCK AND FINALLY CARTING EXCESS EA RTH AND REMOVING SOFT ROCK. IN THE CASE OF JAMUI PROJECT, SINTEX INFRA PROJECTS LTD HA D CONSTRUCTED ROAD INCLUDING CLEARING, FILLING, LEVELLING AND EARTH. HENCE, LD COUNSEL SUBMITTED THAT SINTEX INFRA PROJECTS LTD AND THE PAYMENT WERE MADE ACCORDINGLY THROUGH BANK AFTER DEDUCTION OF TDS. 10. WE NOTE THAT LD. AO RE AHMEDABAD AND WITHOUT MAKING PROPER VERIFICATION AN D FURTHER ENQUIRIES, ALLEGED THAT THE EXPENDITURE OF RS.5.42 CRORES IS BOGUS. PERTINENT TO BRING OUT THE DOWN IN SECTION 142 OF THE I.T. EXTENT RELEVANT FOR OUR DISCUSSION 142. INQUIRY BEFORE ASSESSMENT (1) FOR THE PURPOSE OF MAKING AN ASSESSMENT UND MAY SERVE ON ANY PERSON WHO HAS MADE A RETURN UNDER SECTION 139 OR IN WHOSE CASE THE TIME ALLOWED UNDER SUB RETURN HAS EXPIRED, (I) WHERE SUCH PERSON HAS NOT MADE A RETURN WITHIN THE TIME ALLOWED UNDER SUB ITA NO S. 1228 & 1211 ASSESSMENT YEAR: FROM THE ABOVE TABLE, IT IS APPARENT THAT M/S SINTE X INFRA PROJECTS LTD HAS WELL DESCRIBED THE TYPE OF WORK UNDERTAKEN BY IT FOR THE ASSESSEE. IN THE CASE OF TK HALLY PROJECTS, SINTEX INFRA P ROJECTS LTD PROVIDED FIRSTLY, CHISELLING HARD ROCK, THEN SHIFTING OF HARD ROCK AND FINALLY CARTING EXCESS EA RTH AND REMOVING SOFT ROCK. IN THE CASE OF JAMUI PROJECT, SINTEX INFRA PROJECTS LTD HA D CONSTRUCTED ROAD INCLUDING CLEARING, FILLING, LEVELLING AND DISPOSAL ALONG WITH EXCAVATION, DISPOSAL OF EXCESS LD COUNSEL SUBMITTED THAT ALL THE WORKS WERE DULY EXECUTED BY SINTEX INFRA PROJECTS LTD AND THE PAYMENT WERE MADE ACCORDINGLY THROUGH BANK LD. AO RE CEIVED SOME INFORMATION FROM THE JCIT, RANGE AHMEDABAD AND WITHOUT MAKING PROPER VERIFICATION AN D FURTHER ENQUIRIES, ALLEGED THAT THE EXPENDITURE OF RS.5.42 CRORES IS BOGUS. AT THIS JUNCTURE IT WOULD BE PERTINENT TO BRING OUT THE LAW RELATING TO ASSESSMENT PROCEEDINGS WHICH IS LAI D SECTION 142 OF THE I.T. ACT AND THE SAME IS BEING REPRODUCED BELOW FOR OUR DISCUSSION ): 142. INQUIRY BEFORE ASSESSMENT FOR THE PURPOSE OF MAKING AN ASSESSMENT UND ER THIS ACT, THE ASSESSING OFFICER MAY SERVE ON ANY PERSON WHO HAS MADE A RETURN UNDER SECTION 139 OR IN WHOSE CASE THE TIME ALLOWED UNDER SUB - SECTION (1) OF THAT SECTION FOR FURNISHING THE A NOTICE REQUIRING HIM, ON A DATE TO BE THER EIN SPECIFIED, WHERE SUCH PERSON HAS NOT MADE A RETURN WITHIN THE TIME ALLOWED UNDER SUB M/S SMPL INFRA LTD. S. 1228 & 1211 /KOL/2018 ASSESSMENT YEAR: 2011-12 P PP PA AA AG GG GE EE E | || | 7 77 7 FROM THE ABOVE TABLE, IT IS APPARENT THAT M/S SINTE X INFRA PROJECTS LTD HAS WELL DESCRIBED THE TYPE OF WORK UNDERTAKEN BY IT FOR THE ASSESSEE. IN THE CASE OF TK ROJECTS LTD PROVIDED FIRSTLY, CHISELLING HARD ROCK, THEN SHIFTING OF HARD ROCK AND FINALLY CARTING EXCESS EA RTH AND REMOVING SOFT ROCK. IN THE CASE OF JAMUI PROJECT, SINTEX INFRA PROJECTS LTD HA D CONSTRUCTED ROAD INCLUDING DISPOSAL ALONG WITH EXCAVATION, DISPOSAL OF EXCESS ALL THE WORKS WERE DULY EXECUTED BY SINTEX INFRA PROJECTS LTD AND THE PAYMENT WERE MADE ACCORDINGLY THROUGH BANK CEIVED SOME INFORMATION FROM THE JCIT, RANGE -8, AHMEDABAD AND WITHOUT MAKING PROPER VERIFICATION AN D FURTHER ENQUIRIES, ALLEGED AT THIS JUNCTURE IT WOULD BE LAW RELATING TO ASSESSMENT PROCEEDINGS WHICH IS LAI D IS BEING REPRODUCED BELOW (TO THE ER THIS ACT, THE ASSESSING OFFICER MAY SERVE ON ANY PERSON WHO HAS MADE A RETURN UNDER SECTION 139 OR IN WHOSE SECTION (1) OF THAT SECTION FOR FURNISHING THE EIN SPECIFIED, - WHERE SUCH PERSON HAS NOT MADE A RETURN WITHIN THE TIME ALLOWED UNDER SUB M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 8 88 8 SECTION (1) OF SECTION 139, TO FURNISH A RETURN OF HIS INCOME OR THE INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE U NDER THIS ACT, IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETT ING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED, OR] (II) TO PRODUCE OR CAUSE TO BE PRODUCED, SUCH ACCOU NTS OR DOCUMENTS AS THE ASSESSING OFFICER MAY REQUIRE, OR (III) TO FURNISH IN WRITING AND VERIFIED IN THE PRE SCRIBED MANNERS INFORMATION IN SUCH FORM AND ON SUCH POINTS OR MATTERS (INCLUDING A STATEMENT OF ALL ASSETS AND LIABILITIES OF THE . (2) FOR THE PURPOSE OF OBTAINING FULL INFORMATION I N RESPECT OF THE INCOME OR LOSS OF ANY PERSON, THE ASSESSING OFFICER MAY MAKE SUCH INQUIRY AS HE CONSIDERS NECESSARY. .. (3) THE ASSESSEE SHALL, EXCEPT WHERE THE ASSESSMENT IS MADE UNDER SECTION 144, BE GIVEN AN OPPORTUNITY OF BEING HEARD IN RESPECT OF A NY MATERIAL GATHERED ON THE BASIS OF ANY INQUIRY UNDER SUB-SECTION (2) OR ANY A UDIT UNDER SUB-SECTION (2A) AND PROPOSED TO BE UTILIZED FOR THE PURPOSE OF THE ASSE SSMENT. WITH REFERENCE TO SECTION 142 OF THE ACT, IT IS SEE N THAT THE SAID SECTION LAYS DOWN THE PROCEDURE OF THE ENQUIRIES THAT ARE TO BE CONDU CTED BEFORE ASSESSMENT WHEREBY VIDE SECTION 142(1), IT IS LAID OUT THAT THE A.O. I S TO SERVE NOTICE ON THE ASSESSEE AND THE ASSESSEE IS TO PRODUCE ALL RELEVANT ACCOUNT S/DOCUMENTS AS THE A.O. MAY REQUIRE. NEXT, VIDE SECTION 142(2) IT IS LAID OUT THAT THE ASSESSING OFFICER IS REQUIRED TO MAKE ALL SUCH INQUIRY AS HE CONSIDERS NECESSARY FOR THE PURPOSE OF OBTAINING FULL INFORMATION IN RESPECT OF THE INCOME OR LOSS OF THE ASSESSEE. IN IMMEDIATE SUCCESSION IS THE SECTION 142(3) WHICH LA YS DOWN THAT IN RESPECT OF THE MATERIAL GATHERED ON THE BASIS OF THE SAID INQUIRY AND WHICH IS PROPOSED TO BE UTILIZED FOR THE PURPOSES OF THE ASSESSMENT, THE A. O. IS TO GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD ON THE SAME. APPLYING TH E ABOVE SECTIONS TO THE CASE OF THE ASSESSEE, IT IS FIRSTLY SEEN THAT THE LD. A.O. VIDE THE NOTICE DATED 03.09.2016, ASKED THE ASSESSEE TO SHOW CAUSE WHY THE SAID EXPEN SES OF RS.5.42 CRORES SHOULD NOT BE TREATED AS BOGUS. THE ASSESSEE IN RESPONSE T O THE SAID NOTICE FURNISHED ALL THE DETAILS AND DOCUMENTS BEFORE THE A.O. AND ASKED THE A.O. TO PROVIDE THE M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 9 99 9 OPPORTUNITY TO EXAMINE THE COPIES OF STATEMENT RECO RDED AND ALSO THE OPPORTUNITY TO THE CROSS EXAMINE THE SAID PARTIES ON THE BASIS OF WHOSE STATEMENT THE EXPENSES WERE HELD TO BE BOGUS. THE A.O. HAS NOWHERE RAISED ANY DOUBTS ON THE SAID EVIDENCES AS FILED BY THE ASSESSEE BEFORE HIM IN RE SPONSE TO THE SHOW CAUSE NOTICE. THEREAFTER, THE LD. AO PROVIDED THE COPY OF THE STA TEMENT OF SRI NARAYAN MAHESHWAR, CFO OF SINTEX INFRA PROJECTS LTD RECORDE D ON 28.03.2014 AND SRI PARNAY KUMAR SINHA, DIRECTOR OF SILICON REAL ESTATE PVT LTD. RECORDED ON 12.03.2014. HOWEVER, THE LD. AO NEITHER PROVIDED OP PORTUNITY TO CROSS EXAMINE THE SAID PARTIES NOR HE HIMSELF CALLED THEM FOR EXA MINATION. IF THE A.O. DOUBTED THE VERACITY OF THE SAID EVIDENCES/DOCUMENTS PRODUC ED, HE SHOULD HAVE, HAVING CALLED FOR THE SAID INFORMATION/DOCUMENTS, CONDUCTE D INQUIRIES RELATING TO THE SAID DOCUMENTS BY CALLING THE INFORMATION FROM SINTEX IN FRA PROJECTS LTD AND SILICON REAL ESTATE PVT LTD. AND ALSO EXAMINING THEM. THEN AFTER ALL SUCH INQUIRIES IF THE A.O. FOUND THAT THE VERACITY OF THE EVIDENCES/DOCUM ENTS WERE SUBMITTED BY THE ASSESSEE WERE NOT GENUINE, THEN THE A.O., AS PER RE QUIREMENT OF SECTION 142(3) OF THE ACT, SHOULD HAVE PROVIDED THE INQUIRY DOCUMENTS (IN THE FORM OF POSSIBLE EVIDENCES AND STATEMENTS RECORDED OF CONCERNED PERS ONS) TO THE ASSESSEE FOR VERIFICATION AND CROSS EXAMINATION. THE A.O. IN THE ASSESSEE`S CASE, BEFORE ARRIVING AT THE ADVERSE CONCLUSION OF REJECTING THE CONTENTION OF THE ASSESSEE, HAS ADMITTEDLY, DONE NOTHING OF THE ABOVE WHICH WAS THE ABSOLUTE PRE REQUISITE TO THE LAW. THUS, IF THERE WAS NO DOUBT ABOUT THE GENUINEN ESS OF THE SAID DOCUMENTS AND IF IT NEEDED NO FURTHER INQUIRY THEN HOW COME THE A .O. ARRIVED AT HIS ADVERSE CONCLUSION ON THE BASIS OF SOME SO CALLED INFORMATI ON FROM JCIT, RANGE-8, AHMEDABAD. 11. AS DISCUSSED EARLIER, THE A.O. POST ACQUISITION OF INFORMATION FROM THE ASSESSEE IS MANDATED TO MAKE INQUIRY U/S 142(2) OF THE ACT BUT THE ASSESSING OFFICER FAILED TO DO SO. IN THE ASSESSEE`S CASE, T HE A.O. TALKS OF INFORMATION RECEIVED FROM THE JCIT, RANGE-8, AHMEDABAD, WHEREIN THE JCIT HAD SUPPLIED THE COPY OF STATEMENT OF SRI S N MAHESHWARI RECORDED IN THE CASE OF SINTEX INFRA PROJECTS LTD. IT IS NOT KNOWN WHEN THE A.O. CAME TO ACQUIRE THIS INFORMATION AND M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 WHAT ENQUIRY THE A.O. HAS CONDUCTED AFTER COMING TO KNOW OF SUCH INFORMATION. IT IS ALSO AN ADMITTED FACT THAT THE FACT OF ANY SUCH INFORMATION AND ANY SUCH ENQUIRY ON THE SAME WAS NEVER MADE KNOWN TO THE ASSESSEE AS MANDATED BY SECTION 142(3) OF THE ACT. THUS IT IS NOT UNDERSTOOD AS TO HOW THE LD. A.O. FRAMED THE ASSESSMENT IN THE CASE OF THE ASSESSEE BY UTILIZING SUCH INFORMATION AND HOW THE A.O. DREW ADVERSE CONCLUSION AT TO THE CLAIM OF THE ASSESSEE THAT IT HAD INCURRED BOGUS EXPENDITURES. THE LD. COUNSEL SUBMITTED BEFO RE US THAT ASSESSMENT ORDER FRAMED BY ASSESSING OFFICER IS NOT AS PER THE SCHEM E OF SECTION 142 OF THE ACT, AS EXPLAINED ABOVE, THEREFORE ORDER PASSED BY ASSESSIN G OFFICER SHOULD BE QUASHED. THE LD COUNSEL FURTHER SUBMITTED BEFORE US THAT IT IS ALSO THE MATTER OF FACT THAT BOTH THE PROJECTS UNDERTAKEN BY THE ASSESSEE WERE G OVERNMENT PROJECTS AND WERE DULY MONITORED BY THE AUTHORITIES WHO HAVE GIVEN TH E SAID PROJECTS TO THE ASSESSEE. NO DOUBT WAS RAISED BY THE LD. AO REGARDING THE GEN UINENESS AND VALIDITY OF THE PROJECT AWARDED TO THE ASSESSEE BY THE GOVERNMENT. THE LD. AO ALSO ACCEPTED THAT THE LABOUR CONTRACT WAS GIVEN TO SINTEX INFRA PROJE CTS LTD IN RELATION TO BOTH THE PROJECTS. INVOICES RAISED BY SINTEX INFRA PROJECTS LTD WERE DULY ACCEPTED BY THE LD. AO. IT WAS ALSO ACCEPTED BY THE LD. AO THAT THE PAYMENT WERE MADE THROUGH BANK AND TDS WAS ALSO DEDUCTED. THE AFORESAID FACTS WERE NOT AVAILABLE IN THE INFO RMATION RECEIVED FROM JCIT, AHEMDABAD, NOR WERE IT OBTAINED FROM SINTEX INFRA P ROJECTS LTD OR SILICON REAL ESTATE PVT LTD. THE ASSESSEE HIMSELF DURING THE PER IOD OF ASSESSMENT PROCEEDINGS PROVIDED THE DETAILS OF THE AFORESAID FACTS. THUS, THE PROJECT BEING THE GOVERNMENT PROJECT, THE EXPENDITURES WERE INCURRED IN RELATION TO THESE PROJECTS. IT WOULD BE ABSURD TO SAY OR ASSUME THAT THE AUTHORITIES WHO HA VE GIVEN THE PROJECTS HAD SANCTIONED OR APPROVED THE ASSESSEES WORK AND HAD MADE PAYMENTS TO IT WITHOUT ASSESSEE HAVING DONE THE JOB AS ENTRUSTED TO IT, A PART OF WHICH WAS GIVEN TO SINTEX INFRA PROJECTS LTD. THE GOVERNMENT AUTHORITIES WERE OBVIOUSLY SATISFIED WITH THE WORK DONE BY THE ASSESSEE AND ONLY AFTER EXAMINING THE WORK, PAYMENT WAS MADE BY THEM TO THE ASSESSEE COMPANY. HENCE, AFTER THE M AJOR FACTS BEING ON RECORD, IT WAS THE RESPONSIBILITY OF THE LD. AO TO CONDUCT PRO PER ENQUIRY IN THIS RESPECT. SIMPLY RELYING ON THE STATEMENTS RECORDED BY THE JU RISDICTIONAL AO OF SINTEX INFRA M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 PROJECTS LTD AND SILICON REAL ESTATE PVT LTD. DO NO T JUSTIFY THAT THE LD. AO HAD CONDUCTED PROPER ENQUIRY. IT IS SETTLED LAW THAT TH E ADDITION CANNOT BE MADE SOLELY BASED ON THIRD PARTY INFORMATION. ANY THIRD PARTY I NFORMATION RECEIVED SHALL BE SUBJECT TO FURTHER ENQUIRY AND ASSESSMENT SHALL BE MADE WITH PROPER APPLICATION OF MIND. FOR THAT WE RELY ON THE JUDGMENT OF HON`BLE S UPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ODEON BUILDERS PVT. LTD. (21.08.2019-SC) [2019] 418 ITR 315 (SC), WHERE IT WAS HELD AS FOLLOWS: 3. HOWEVER, ON GOING THROUGH THE JUDGMENTS OF THE CIT , ITAT AND THE HIGH COURT, WE FIND THAT ON MERITS A DISALLOWANCE OF RS. 19,39,60,866/- WAS BASED SOLELY ON THIRD PARTY INFORMATION, WHICH WAS NOT SU BJECTED TO ANY FURTHER SCRUTINY. THUS, THE CIT (APPEALS) ALLOWED THE APPEAL OF THE A SSESSEE STATING : 'THUS, THE ENTIRE DISALLOWANCE IN THIS CASE IS BASE D ON THIRD PARTY INFORMATION GATHERED BY THE INVESTIGATION WING OF T HE DEPARTMENT, WHICH HAVE NOT BEEN INDEPENDENTLY SUBJECTED TO FURTHER VE RIFICATION BY THE AO WHO HAS NOT PROVIDED THE COPY OF SUCH STATEMENTS TO THE APPELLANT, THUS DENYING OPPORTUNITY OF CROSS EXAMINATION TO THE APP ELLANT, WHO HAS PRIMA FACIE DISCHARGED THE INITIAL BURDEN OF SUBSTANTIATI NG THE PURCHASES THROUGH VARIOUS DOCUMENTATION INCLUDING PURCHASE BILLS, TRA NSPORTATION BILLS, CONFIRMED COPY OF ACCOUNTS AND THE FACT OF PAYMENT THROUGH CHEQUES, & VAT REGISTRATION OF THE SELLERS & THEIR INCOME TAX RETURN. IN VIEW OF THE ABOVE DISCUSSION IN TOTALITY, THE PURCHASES MADE BY THE APPELLANT FROM M/S PADMESH REALTORS PVT. LTD. IS FOUND TO BE ACCEPTABL E AND THE CONSEQUENT DISALLOWANCE RESULTING IN ADDITION TO INCOME MADE F OR RS. 19,39,60,866/-, IS DIRECTED TO BE DELETED.' 4. THE ITAT BY ITS JUDGMENT DATED 16TH MAY, 2014 RELI ED ON THE SELF-SAME REASONING AND DISMISSED THE APPEAL OF THE REVENUE. LIKEWISE, THE HIGH COURT BY THE IMPUGNED JUDGMENT DATED 5TH JULY, 2017, AFFIRME D THE JUDGMENTS OF THE CIT AND ITAT AS CONCURRENT FACTUAL FINDINGS, WH ICH HAVE NOT BEEN SHOWN TO BE PERVERSE AND, THEREFORE, DISMISSED THE APPEAL ST ATING THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE IMPUGNED ORDER OF T HE ITAT. 12. LD. COUNSEL SUBMITTED THAT THE ASSESSEE PROVIDE D THE LABOUR CONTRACT TO SINTEX INFRA PROJECTS LTD, LOOKING THE NATURE OF BUSINESS OF THAT ORGANIZATION. M/S SINTEX INFRA PROJECTS HAD UNDERTAKEN NUMEROUS OF HOUSING P ROJECTS, ATM PROJECTS, DRUG HOUSE PROJECTS, BARRACK PROJECTS, HEALTH CENTRE PRO JECT AND OTHER. SINCE, THE PROJECTS AWARDED TO THE ASSESSEE WERE GOVERNMENT PROJECT, TH E ASSESSEE AFTER LOOKING INTO THE SIZE AND NATURE OF BUSINESS OF THE COMPANY GAVE LABOUR CONTRACT FOR HARD ROCK CHISELLING USING ROCK HAMMERS AND CHISELS, STACKING ON ROAD SIDE FOR PIPE LINE TRENCHES, CARTING EXCESS EARTH AND OTHER SIMILAR LA BOUR JOB TO SINTEX INFRA PROJECTS LTD. M/S SINTEX INFRA PROJECTS LTD BEING A LARGE CO NCERN HAVING TURNOVER DURING M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 THE YEAR UNDER APPEAL, OF RS.284.00 CRORES AND HAD DISCLOSED A PROFIT OF RS. 19.23 CRORES IN ITS PROFIT & LOSS ACCOUNT. A COPY OF THE AUDITED ACCOUNTS AS DOWNLOADED FROM THE ROC SITE OF THE SAID PARTY IS ENCLOSED AT PAGE 244-283 OF THE PAPER BOOK. AS PER THE INFORMATION SO RECEIVED FORM JCIT, AHME DABAD, IT WAS STATED THAT:- IN THE SAID STATEMENT, MR. MAHESHWARI STATED THAT SUCH WORK ORDER WAS ARRANGED TO HIS COMPANY BY ONE MR. ANSHU BALBIR. SR I MAHESHWARI HAS CATEGORICALLY STATED THAT HIS COMPANY HAS RECEIVED THE ENTIRE WORK OF RS.23,92,37,351/- ON BACK TO BACK BASIS FROM FIVE C OMPANIES. THE TURNOVER FROM THE FIVE COMPANIES WAS RS.23,92,37,351/- WHEREAS TH E TOTAL TURNOVER COMPRISES OF 284 CRORES. THIS VERY CLEARLY SHOWS THAT M/S SINTEX INFRA PROJECTS LTD HAD ALSO UNDERTAKEN SEVERAL OTHER PROJECTS DURING THE YEAR. ONLY ON THE BASIS OF THE STATEMENT WITHOUT ANY MATERIAL EVIDENCE IN THIS REG ARD, IT CANNOT BE DEEMED THAT THE EXPENDITURE WAS INCURRED BY SINTEX INFRA PROJEC TS LTD ONLY IN RELATION TO THIS FIVE PROJECTS. THE LD COUNSEL ALSO SUBMITTED THAT THE LD. AO RELIE D ON THE STATEMENT OF SRI NARAYAN MAHESHWARI, CFO OF M/S SINTEX INFRA PROJECT S LTD. IN THIS REGARD IT IS SUBMITTED THAT THE SAID STATEMENT WAS NOT RECORDED BY THE JURISDICTIONAL AO OF THE ASSESSEE BUT WAS RECORDED BY THE JURISDICTIONAL ASS ESSING OFFICER OF SINTEX INFRA PROJECTS LTD. THE STATEMENT WAS RECORDED DURING THE ASSESSMENT STAGE IN THE CASE OF SINTEX INFRA PROJECTS LTD. ON THE BASIS OF THE S TATEMENT PROVIDED BY P.K. SINHA IN THE CASE OF SILICON REAL ESTATE PVT. LTD. THE R ELEVANT EXTRACT OF THE STATEMENT IS PRODUCED AS UNDER: ANALYZ ING THE AFORESAID STATEMENT SO RECORDED, IT THAT IF THE STATEMENT OF MR. S N MAHESHWARI IS TO B E RELIED THEN IT IS ACCEPTED FACT IN HIS STATEMENT THAT HE HAD NOWHERE STATED THAT M/ S SINTEX INFRA PROJECTS LTD IS INVOLVED IN PROVIDING ACCOMMODATION ENTRY AND NO SU CH INFORMATION HAS BEEN RECEIVED BY R EVENUE AUTHORITIES FROM ANY OTHER SOURCE. MOREOVER, HE HAS STATED THAT THE CERTIFICATE OF COMPLETION WAS RECEIVED BY THEM ON COMPLETION OF THE WORK WHICH CLEARLY SHOWS THAT THE WORK WAS ACTUALLY EXEC UTED. NOT VERIFY THE STATEMENT SO PROJECTS LTD. THE LD. AO COULD HAVE CALLED FOR THE CERTIFICATE OF COMPLETION FROM SINTEX INFRA PROJECTS LTD. HE ALSO COULD HAVE ISSUE D NOTICE U/S 133(6) AND CALLED FOR THE INVOICES RAISED BY M/S SILICON RECEIPTS AND PAYMENTS DETAILS AND ALSO THE DOCUMENT S/EVIDENCE WHICH SHOWS THE ITA NO S. 1228 & 1211 ASSESSMENT YEAR: ING THE AFORESAID STATEMENT SO RECORDED, IT WA S SUBMITTED THAT IF THE STATEMENT OF MR. S N MAHESHWARI IS TO B E RELIED THEN IT IS ACCEPTED FACT IN HIS STATEMENT THAT HE HAD NOWHERE STATED THAT M/ S SINTEX INFRA PROJECTS LTD IS INVOLVED IN PROVIDING ACCOMMODATION ENTRY AND NO SU CH INFORMATION HAS BEEN EVENUE AUTHORITIES FROM ANY OTHER SOURCE. MOREOVER, HE HAS STATED THAT THE CERTIFICATE OF COMPLETION WAS RECEIVED BY THEM ON COMPLETION OF THE WORK WHICH CLEARLY SHOWS THAT THE WORK WAS ACTUALLY EXEC UTED. HOWEVER, THE LD.AO DID NOT VERIFY THE STATEMENT SO RECORDED BY THE JURISDICTIONAL AO OF M/S SINTEX INF RA PROJECTS LTD. THE LD. AO COULD HAVE CALLED FOR THE CERTIFICATE OF COMPLETION FROM SINTEX INFRA PROJECTS LTD. HE ALSO COULD HAVE ISSUE D NOTICE U/S 133(6) AND CALLED FOR THE INVOICES RAISED BY M/S SILICON REAL ESTATE (P) LTD, COPY OF BANK STATEMENT, RECEIPTS AND PAYMENTS DETAILS AND ALSO THE DOCUMENT S/EVIDENCE WHICH SHOWS THE M/S SMPL INFRA LTD. S. 1228 & 1211 /KOL/2018 ASSESSMENT YEAR: 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 13 33 3 S SUBMITTED BY LD. COUSNEL THAT IF THE STATEMENT OF MR. S N MAHESHWARI IS TO B E RELIED THEN IT IS ACCEPTED FACT IN HIS STATEMENT THAT HE HAD NOWHERE STATED THAT M/ S SINTEX INFRA PROJECTS LTD IS INVOLVED IN PROVIDING ACCOMMODATION ENTRY AND NO SU CH INFORMATION HAS BEEN EVENUE AUTHORITIES FROM ANY OTHER SOURCE. MOREOVER, HE HAS STATED THAT THE CERTIFICATE OF COMPLETION WAS RECEIVED BY THEM ON COMPLETION OF THE WORK HOWEVER, THE LD.AO DID RECORDED BY THE JURISDICTIONAL AO OF M/S SINTEX INF RA PROJECTS LTD. THE LD. AO COULD HAVE CALLED FOR THE CERTIFICATE OF COMPLETION FROM SINTEX INFRA PROJECTS LTD. HE ALSO COULD HAVE ISSUE D NOTICE U/S 133(6) AND CALLED REAL ESTATE (P) LTD, COPY OF BANK STATEMENT, RECEIPTS AND PAYMENTS DETAILS AND ALSO THE DOCUMENT S/EVIDENCE WHICH SHOWS THE M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 14 44 4 PROJECTS OF THE ASSESSEE WERE ACTUALLY SUB-CONTRACT ED BY SINTEX INFRA PROJECTS LTD TO SILICON REAL ESTATE PVT LTD. 13. THE LD COUNSEL SUBMITTED BEFORE THE BENCH THAT IN THE CONSTRUCTION LINE OF BUSINESS, THE COSTS OF THE PROJECTS ARE HIGH, AND T HEREFORE, THE COST AND ACCOUNTING RECORDS ARE REQUIRED TO BE MAINTAINED PROJECT WISE. THE ASSESSEE HAS ALSO BEEN MAINTAINING THE PROJECT WISE COST RECORDS. THEREFOR E, THE LD. AO SHOULD HAVE ALSO EXAMINED WHETHER THE COMPANY MAINTAINS RECORDS PROJECT WISE FROM WHERE IT CAN BE ASCERTAINED THAT INFLATION OF EXPENDITURE WA S FOR CERTAIN TYPE OF PROJECT WHICH WAS ALSO NOT DONE BY HIM. FURTHERMORE, IT WAS DULY EXPLAINED BEFORE THE LD. AO AS WELL AS LD. CIT(A) THAT THE ASSESSEE WAS NOT AWARE OF THE CONCERN, M/S SILICON REAL ESTATE (P) LTD AND HAD NOT DONE TRANSA CTION WITH THE SAID PARTY. THE ASSESSEE HAD NO DIRECT OR INDIRECT CONNECTION WITH THE SAID PARTY AND THE CONTRACT FOR BOTH THE PROJECTS WAS AWARDED TO ONE, M/S SINTE X INFRA PROJECTS LTD. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS IGNORED BY BOTH THE AO AND THE CIT(A). IT IS ALSO EVIDENT FROM THE INVOICES DETAILS IN PARA 3 AB OVE, THAT THE LABOUR CONTRACT PROVIDED TO SINTEX INFRA PROJECTS LTD HAS BEEN DULY EXECUTED AND NOWHERE IN THE INVOICES, WAS IT MENTIONED THAT ANY SERVICE IN RELA TION TO SUCH CONTRACT WAS UNDERTAKEN BY SILICON REAL ESTATE PVT LTD. FURTHER, THE ASSESSEE WAS ALSO NEITHER INFORMED BY SINTEX INFRA PROJECTS LTD THAT THE CONT RACT WAS SUB CONTRACTED TO SILICON REAL ESTATE PVT LTD.THE LD.AO AND THE LD. C IT(A) BOTH FAILED TO ESTABLISH CONNECTION OF ASSESSEE WITH M/S SILICON REAL ESTATE PVT LTD. IN THIS REGARD, THE STATEMENT OF SRI PRANAY KUMAR SINHA, DIRECTOR OF M/ S SILICON REAL ESTATE PVT LTD, EXTRACTED BY THE LD. CIT(A) IN HIS ORDER WHICH WAS ALSO RELIED UPON BY THE LD. AO IS REPRODUCED HEREUNDER: FROM THE ABOVE STATEMENT, IT IS CLEAR THAT NO INFOR MATION HAS BEEN RECEIV THE ASSESSEE AND NOWHERE THE NAME OF THE ASSESSEE C OMPANY WAS MENTIONED. EVEN THE ASSESSEE COMPANY WAS NOT AWARE THAT THEIR SUB CONTRACTED THE IMPUGNED WORK. FURTHER, NO ANY SUCH MATERIAL OR EVIDENCE WAS OBTAINED BY TH E ASSESSING OFFICER FROM SILICON REAL ESTATE PVT LT D FROM WHICH IT CAN BE ASCERTAINED THAT M/S SINTEX INFRA PROJECTS L TD HAD SUB OF ASSESSEE COMPANY TO THEM. HENCE, THIS STATEMENT CANNOT BE CONSIDERED AS BASIS FOR DISALLOWING THE EXPENS THAT BOTH THE AFORESAID STATEMENTS OF THE THIRD PAR TY WERE RECORDED AT THE BACK OF THE ASSESSEE AND THEREFORE THESE STATEMENTS COULD N OT BE THE BASIS FOR MAKING THE ADDITION. THE ASSESSEE VIDE SUB REQUESTED THE LD. AO TO AFFORD AN OPPORTUNITY OF CR OSS PARTIES SO AS TO ENABLE THE ASSESSEE TO REBUT THE C ONTENTIONS RAISED BY THE OFFICER ON THE BASIS OF THEIR STATEMENTS. 108- 115 OF THE PAPER BOOK. CROSS- EXAMINATION WHICH HAD LEAD TO VIOLATION OF PRINCIPL E OF NATURAL JUSTICE. SETTLED LAW THAT DENIAL OF OPPORTUNITY TO THE APPEL LANT TO CROSS EXAMINE WITNESSES WHOSE STATEMENTS HAVE BEEN RELIED UPON IS CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE. FOR THAT WE RELY ON THE OF A NDAMAN TIMBER INDUSTRIES VS. COMMISSIONER OF CENTRA L EXCISE CTR 241 (SC) WHEREIN IT WAS HELD ITA NO S. 1228 & 1211 ASSESSMENT YEAR: FROM THE ABOVE STATEMENT, IT IS CLEAR THAT NO INFOR MATION HAS BEEN RECEIV THE ASSESSEE AND NOWHERE THE NAME OF THE ASSESSEE C OMPANY WAS MENTIONED. EVEN THE ASSESSEE COMPANY WAS NOT AWARE THAT THEIR SUB - CONTRACTOR HAS FURTHER SUB CONTRACTED THE IMPUGNED WORK. FURTHER, NO ANY SUCH MATERIAL OR EVIDENCE WAS E ASSESSING OFFICER FROM SILICON REAL ESTATE PVT LT D FROM WHICH IT CAN BE ASCERTAINED THAT M/S SINTEX INFRA PROJECTS L TD HAD SUB - CONTRACTED PROJECTS OF ASSESSEE COMPANY TO THEM. HENCE, THIS STATEMENT CANNOT BE CONSIDERED AS BASIS FOR DISALLOWING THE EXPENS ES OF RS.5.42 CRORES. MOREOVER, IT IS ALSO A MATTER OF FACT THAT BOTH THE AFORESAID STATEMENTS OF THE THIRD PAR TY WERE RECORDED AT THE BACK OF THE ASSESSEE AND THEREFORE THESE STATEMENTS COULD N OT BE THE BASIS FOR MAKING THE THE ASSESSEE VIDE SUB MISSION DATED 31.10.2016 SUBMITTED ON 02.11.2016 REQUESTED THE LD. AO TO AFFORD AN OPPORTUNITY OF CR OSS - EXAMINATION OF BOTH THE PARTIES SO AS TO ENABLE THE ASSESSEE TO REBUT THE C ONTENTIONS RAISED BY THE ON THE BASIS OF THEIR STATEMENTS. COPY OF THE SUBMISSION IS ENCLOSED AT 115 OF THE PAPER BOOK. HOWEVER, THE LD.AO DID NOT PROVIDE OPPORTUNITY FOR EXAMINATION WHICH HAD LEAD TO VIOLATION OF PRINCIPL E OF NATURAL JUSTICE. SETTLED LAW THAT DENIAL OF OPPORTUNITY TO THE APPEL LANT TO CROSS EXAMINE WITNESSES WHOSE STATEMENTS HAVE BEEN RELIED UPON IS CONTRARY TO THE PRINCIPLES OF NATURAL FOR THAT WE RELY ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE NDAMAN TIMBER INDUSTRIES VS. COMMISSIONER OF CENTRA L EXCISE WHEREIN IT WAS HELD AS FOLLOWS: M/S SMPL INFRA LTD. S. 1228 & 1211 /KOL/2018 ASSESSMENT YEAR: 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 15 55 5 FROM THE ABOVE STATEMENT, IT IS CLEAR THAT NO INFOR MATION HAS BEEN RECEIV ED AGAINST THE ASSESSEE AND NOWHERE THE NAME OF THE ASSESSEE C OMPANY WAS MENTIONED. EVEN CONTRACTOR HAS FURTHER SUB - CONTRACTED THE IMPUGNED WORK. FURTHER, NO ANY SUCH MATERIAL OR EVIDENCE WAS E ASSESSING OFFICER FROM SILICON REAL ESTATE PVT LT D FROM WHICH IT CONTRACTED PROJECTS OF ASSESSEE COMPANY TO THEM. HENCE, THIS STATEMENT CANNOT BE CONSIDERED AS BASIS MOREOVER, IT IS ALSO A MATTER OF FACT THAT BOTH THE AFORESAID STATEMENTS OF THE THIRD PAR TY WERE RECORDED AT THE BACK OF THE ASSESSEE AND THEREFORE THESE STATEMENTS COULD N OT BE THE BASIS FOR MAKING THE MISSION DATED 31.10.2016 SUBMITTED ON 02.11.2016 EXAMINATION OF BOTH THE PARTIES SO AS TO ENABLE THE ASSESSEE TO REBUT THE C ONTENTIONS RAISED BY THE ASSESSING COPY OF THE SUBMISSION IS ENCLOSED AT PAGE HOWEVER, THE LD.AO DID NOT PROVIDE OPPORTUNITY FOR EXAMINATION WHICH HAD LEAD TO VIOLATION OF PRINCIPL E OF NATURAL JUSTICE. IT IS SETTLED LAW THAT DENIAL OF OPPORTUNITY TO THE APPEL LANT TO CROSS EXAMINE WITNESSES WHOSE STATEMENTS HAVE BEEN RELIED UPON IS CONTRARY TO THE PRINCIPLES OF NATURAL HONBLE SUPREME COURT IN THE CASE NDAMAN TIMBER INDUSTRIES VS. COMMISSIONER OF CENTRA L EXCISE (2015) 281 M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 16 66 6 5. ACCORDING TO US, NOT ALLOWING THE ASSESSEE TO C ROSS-EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS FLAW W HICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEMENTS G IVEN BY THE AFORESAID TWO WITNESSES. WE NOTE THAT ASSESSEE ASKED THE AO TO PROVIDE THE OPPORTUNITY TO CROSS EXAMINE THE PARTIES WHOSE STATEMENT WAS RELIED UPON, HOWEVE R THE SAME WAS NOT PROVIDED. FURTHER, THE ASSESSEE ALSO PLEADED BEFORE THE LD CI T(A) FOR CROSS EXAMINATION, HOWEVER, LD CIT(A) IGNORED THE SAME AND CONFIRMED T HE ADDITION MADE BY AO ONLY ON THE BASIS OF STATEMENT OF THIRD PARTIES WHI CH WAS RECORDED AT THE BACK OF THE ASSESSEE, WHICH VIOLATES THE PRINCIPLE OF NATUR AL JUSTICE. 14. TO CONCLUDE: WE NOTE THAT NONE OF THE STATEMENT S WERE RECORDED BY THE ASSESSING OFFICER OF THE ASSESSEE COMPANY, AND NO O PPORTUNITY FOR CROSS EXAMINATION HAS BEEN PROVIDED TO THE ASSESSEE COMPA NY. THE MANDATE OF LAW TO CONDUCT ENQUIRY BY THE ASSESSING OFFICER ON DUE INF ORMATION COMING TO HIM TO VERIFY AUTHENTICITY OF INFORMATION WAS NOT DONE AS PER SECTION 142 OF THE ACT. THEREFORE, MERE RECEIPT OF UNSUBSTANTIATED STATEMEN T RECORDED BY SOME OTHER OFFICER IN SOME OTHER PROCEEDINGS MORE PARTICULARLY HAVING NO BEARING ON THE TRANSACTION WITH THE ASSESSEE DOES NOT CREATE ANY M ATERIAL EVIDENCE AGAINST THE ASSESSEE. THIS IS BECAUSE SECTION 142(2) MANDATES A NY SUCH MATERIAL ADVERSE TO THE FACTS OF ASSESSEE COLLECTED BY AO U/S 142(1) HAS TO BE NECESSARILY PUT TO THE ASSESSEE U/S 142(3) BEFORE UTILIZING THE SAME FOR A SSESSMENT SO AS TO CONSTITUTE AS RELIABLE MATERIAL EVIDENCE THROUGH THE PROCESS OF A SSESSMENT U/S 143(3) OF THE ACT. ADMITTEDLY AS DISCUSSED ABOVE, IT IS EVIDENT THAT THE ASSESSEE HAD NOTHING TO DO WITH M/S SILICON REAL ESTATE PVT LTD. THE FACT OF C ONTRACT BETWEEN M/S SINTEX INFRA PROJECTS LTD AND M/S SILICON REAL ESTATE PVT LTD, IS NOT A MATTER OF RECORD NOR ANY SUCH MATERIAL WAS PROVIDED BY AO TO THE ASS ESSEE. THEREFORE, THERE WAS NOTHING TO SUGGEST THAT ANY WRONG DOING BETWEEN SIN TEX INFRA PROJECTS LTD AND SILICON REAL ESTATE PVT LTD. INFRINGE UPON THE TRAN SACTION AT HAND OR CAN OPERATE AS RELIABLE EVIDENCE AGAINST THE ASSESSEE. M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 17 77 7 WE NOTE THAT DURING THE ASSESSMENT STAGE, THE ASSES SEE SUBMITTED THE FOLLOWING DOCUMENTS AND EVIDENCES: (I).BILLS RAISED BY M/S SINTEX INFRA PROJECTS LTD. (II).LEDGER COPY OF M/S SINTEX INFRA PROJECTS LTD (III).BANK STATEMENT HIGHLIGHTING THE PAYMENTS MADE TO THE SAID PARTY. (IV). TDS HAS BEEN DEDUCTED PROPERLY AS PER THE RAT E PRESCRIBED IN THE INCOME TAX ACT. THE LD ASSESSING OFFICER DID NOT FIND ANY MISTAKE I N THESE MATERIAL EVIDENCES/ DOCUMENTS EXCEPT TO SAY THAT EXPLANATION OF THE ASS ESSEE IS NOT ACCEPTABLE. WE NOTE THAT PAYMENTS HAVE BEEN MADE THROUGH BANKING C HANNELS AFTER DEDUCTION OF TDS AND AO HAS FAILED TO BRING ANY COGENT EVIDENCE ON RECORD TO DEMONSTRATE THAT THESE DOCUMENTS/EVIDENCES ARE FALSE. THEREFORE, ADD ITION MADE BY THE ASSESSING OFFICER NEEDS TO BE DELETED AND ACCORDINGLY WE DELE TE THE ADDITION OF RS. 5.42 CRORES. FOR THE SAKE OF ACADEMIC DISCUSSION, WE ALSO NOTE T HAT AFORESAID TWO PROJECTS ARE INFRASTRUCTURE PROJECTS SPECIFIED U/S 80IA OF THE A CT AND 100% PROFIT FROM SUCH INFRASTRUCTURE PROJECT IS ALLOWED AS DEDUCTION U/S 80IA OF THE ACT. EVEN IF THE DISALLOWANCE OF RS.5.42 CRORES IS MADE, THERE WOULD BE NO IMPACT ON THE TAX LIABILITY OF THE ASSESSEE, AS DISALLOWANCE OF THE E XPENDITURE OF RS.5.42 CRORES WILL INCREASE THE PROFIT U/S 80IA OF THE ACT AND SUCH IN CREASED PROFIT WILL BE ALLOWED AS DEDUCTION U/S 80IA OF THE ACT. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 16. NOW, WE SHALL TAKE REVENUES APPEAL IN ITA NO. 1211/KOL/2018, FOR A.Y. 2011-12 .GROUND NO. 1 RAISED BY THE REVENUE RELATES TO DELETION OF DISALLOWANCE OF RS. 14,83,51,419/- ON ACCOUNT OF PROVISION FOR FUTU RE LOSS BEING UNASCERTAINED LIABILITY, WHICH READS AS FOLLOWS: M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 18 88 8 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 14,83,51,419/- ON ACCOUNT OF PROVISION OF FUTURE LOSS BEING UNASCERTAINED LIABILITY. 17. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE AUDITED ACCOUNTS THAT A SUM OF RS. 14,83,51,419/- WAS DEBITED ON ACCOUNT OF PROVISION FOR FUTURE LOSSES ON INCOMPL ETE CONTRACT. IT IS ALSO NOTICED IN NOTES TO ACCOUNTS THAT COMPANY LODGED COUNTER CLAIMS ON THE CLIENT AND EXPECTED LOSS WAS DULY PROVIDED FOR IN THE ACCOUNTS . THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROVISION FOR FUTURE LOSS SHOULD NO T BE DISALLOWED BEING ANTICIPATED UNASCERTAINED LIABILITY NOT ACCRUED DUR ING THE YEAR UNDER CONSIDERATION. IN RESPONSE, THE ASSESSEE MADE A WRITTEN SUBMISSION ON 02.11.2016; WHICH IS PLACED IN THE ASSESSMENT RECORD. HOWEVER, AO REJECT ED THE CONTENTION OF THE ASSESSEE AND HELD THAT ANTICIPATED LOSS IS NOT ALLO WABLE IN MERCANTILE SYSTEM OF ACCOUNTING. IN VIEW OF THE ABOVE, THE CLAIM OF DEDU CTION OF RS. 14,83,51,419/- ON ACCOUNT OF PROVISION FOR FUTURE LOSS WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 18. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A), WHO HAS DEL ETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE REVENUE IS IN APP EAL BEFORE US. 19. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY G ONE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. BEF ORE US, LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASS ESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS N OT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF THE LD CIT(A). WE NOTE THAT BEFORE THE LD. CIT(A), THE ASSESSEE FU RNISHED THE DETAILED SUBMISSION IN RESPECT OF THE PROVISION FOR FUTURE LOSSES OF RS . 14,83,51,419/- CLAIMED BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION, THE LD. CIT(A) EXAMINED THE FACTS OF M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 1 11 19 99 9 THE ASSESSEES CASE ALONG WITH THE RELATED DECISION OF ITAT MUMBAI AND ITAT PUNE AND REACHED TO THE FOLLOWING CONCLUSION: I) THE CONTRACT SHOULD BE FIXED PRICE CONTRACTS. II) THE CONTRACTOR IS LIABLE TO CLAIM FORESEEABLE LOSSE S ON THE BASIS OF AS-7. III) AS-7 IS ACCEPTABLE FOR CONTRACT ACCOUNTING. IV) THE LOSSES ARE NOT CONTINGENT OR UNASCERTAINED. THE LD. CIT(A) ALSO CONSIDERED THE TAX AUDIT REPORT AND AUDITED ANNUAL ACCOUNTS OF THE ASSESSEE AND HELD THAT THE LD. ASSESSING OFFICE R FAILED TO POINT OUT ANY DEFECT IN THE ESTIMATE OR APPLICATION AS-7. WE NOTE THAT DURING THE YEAR, THE ASSESSEE CLAIMED A SUM OF RS. 14,83,51,419/- BY WAY OF PROVISION FOR LOSSES EXPECTED TO BE INCURRED ON CONTRACTS IN ACCORDANCE WITH AS-7. THE ASSESSING OFFICER DISALLOWED THE SAM E OBSERVING THAT LOSSES ARE IN RESPECT OF SOME CONTRACT WHICH WAS CANCELLED BY ONE OF THE CLIENTS AND IN RESPECT OF WHICH TERMINATION PROCEEDINGS ARE PENDING BEFORE THE SUPREME COURT. THE LD AO HELD THAT A SUM OF RS. 14,83,51,419/- IS AN UNAS CERTAINED AND ANTICIPATED LIABILITY IN RESPECT OF THE CANCELLED CONTRACT WHIC H HAS NOT ACCRUED DURING THE FY 2010-11. ACCORDINGLY, HE DISALLOWED THE PROVISIONS OF RS.14,83,51,419/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE A SSESSEE CALCULATES A BUDGETED COST, PROJECT-WISE EVERY YEAR, WHICH IS A SUM OF CO STS ACTUALLY INCURRED AND EXPENDITURES EXPECTED TO BE INCURRED IN THE FUTURE. A PERCENTAGE IS WORKED OUT BY DIVIDING THE ACTUAL COST INCURRED TILL DATE BY SUCH BUDGETED COST. SUCH A PERCENTAGE IS REFERRED TO AS THE PERCENTAGE OF WORK COMPLETED. COMPARING SUCH BUDGETED COST WITH THE CONTRACT VALUE A PROFIT MARGIN IS COMPUTED . SUCH MARGIN IS APPLIED TO THE UNEXECUTED PORTION OF THE WORK (UNEXECUTED PERCENTA GE OF WORK X CONTRACT VALUE) TO ARRIVE AT THE FUTURE LOSS I.E. LOSS ON UNEXECUTE D PORTION OF THE PROJECT. THE ABOVE MAY BE EXPLAINED WITH THE HELP OF AN EXAMPLE. SUPPO SE CONTRACT VALUE IS RS. 100/-. BUDGETED COST IS 110. COSTS INCURRED TILL DA TE IS 90. THEN THE PROVISIONS FOR FUTURE LOSSES SHALL BE COMPUTED AS BELOW: THE AFORESAID SUM OF RS.10 ALSO REPRESENTS THE DIFF ERENCE BETWEEN THE CONTACT VALUE - BUDGETED COST (SUM OF COSTS INCURRED TILL DATE AND EXPECTED EXPENDITURE IN THE FUTURE) WHICH IS ALLOWABLE UNDER PARA 35 OFAS- 7, PROVIDES AS 35. WHEN IT IS PROBABLE THAT TOTAL CONTRACT COSTS WILL EXCEED TOTAL CONTRACT REVENUE, THE EXPECTED LOSS SHOULD BE RECOGNIZED AS AN EXPENSE IMMEDIATELY. 36. THE AMOUNT OF SUCH A LOSS IS DETERMINED IRRESP EC A) WHETHER OR NOT WORK HAS COMMENCED ON THE CONTRAC T; B) THE STAGE OF COMPLETION OF CONTRACT ACTIVITY; OR C) THE AMOUNT OF PROFITS EXPECTED TO ARISE ON OTHER CONTRACTS WHICH ARE NOT TREATED AS A SINGLE CONSTRUCTION CONTRACT IN ACCORDANCE WIT H P THUS, AS PER AS- 7 WHICH IS MANDATORY IN NATURE, THE ASSESSEE IS REQ UIRED TO ESTIMATE ITS TOTAL CONTRACT COSTS (I.E. SUM OF COST S INCURRED AND EXPECTED FUTURE COSTS) AND RECOGNIZE THE EXPECTED LOSSES (I.E. DIFF ERENCE BETWEEN THE CONTRACT REV ENUE AND TOTAL CONTRACT COSTS). MUMBAI IN CASE OF DREDGING INTERNATIONAL N.V. VS. ADIT [48 SOT 430] ANY PROVISION FOR LOSSES RECOGNIZED IN ACCORDANCE W ITH AS THE ACT . THE FINDINGS OF THE ITA NO S. 1228 & 1211 ASSESSMENT YEAR: THE AFORESAID SUM OF RS.10 ALSO REPRESENTS THE DIFF ERENCE BETWEEN THE CONTACT BUDGETED COST (SUM OF COSTS INCURRED TILL DATE AND EXPECTED EXPENDITURE IN THE FUTURE) WHICH IS ALLOWABLE UNDER PARA 35 OFAS-7. 7, PROVIDES AS FOLLOWS: 35. WHEN IT IS PROBABLE THAT TOTAL CONTRACT COSTS WILL EXCEED TOTAL CONTRACT REVENUE, THE EXPECTED LOSS SHOULD BE RECOGNIZED AS AN EXPENSE IMMEDIATELY. 36. THE AMOUNT OF SUCH A LOSS IS DETERMINED IRRESP EC TIVE OF : A) WHETHER OR NOT WORK HAS COMMENCED ON THE CONTRAC T; B) THE STAGE OF COMPLETION OF CONTRACT ACTIVITY; OR C) THE AMOUNT OF PROFITS EXPECTED TO ARISE ON OTHER CONTRACTS WHICH ARE NOT TREATED AS A SINGLE CONSTRUCTION CONTRACT IN ACCORDANCE WIT H P ARAGRAPH 8. 7 WHICH IS MANDATORY IN NATURE, THE ASSESSEE IS REQ UIRED TO ESTIMATE ITS TOTAL CONTRACT COSTS (I.E. SUM OF COST S INCURRED AND EXPECTED FUTURE COSTS) AND RECOGNIZE THE EXPECTED LOSSES (I.E. DIFF ERENCE BETWEEN THE CONTRACT ENUE AND TOTAL CONTRACT COSTS). WE NOTE THAT COORDINATE BENCH OF ITAT IN CASE OF DREDGING INTERNATIONAL N.V. VS. ADIT [48 SOT 430] ANY PROVISION FOR LOSSES RECOGNIZED IN ACCORDANCE W ITH AS - 7 IS ALLOWABLE UNDER . THE FINDINGS OF THE COORDINATE BENCH IS GIVEN BELOW: M/S SMPL INFRA LTD. S. 1228 & 1211 /KOL/2018 ASSESSMENT YEAR: 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 20 00 0 THE AFORESAID SUM OF RS.10 ALSO REPRESENTS THE DIFF ERENCE BETWEEN THE CONTACT BUDGETED COST (SUM OF COSTS INCURRED TILL DATE AND EXPECTED EXPENDITURE IN 35. WHEN IT IS PROBABLE THAT TOTAL CONTRACT COSTS WILL EXCEED TOTAL CONTRACT REVENUE, THE EXPECTED LOSS SHOULD BE RECOGNIZED AS AN EXPENSE IMMEDIATELY. C) THE AMOUNT OF PROFITS EXPECTED TO ARISE ON OTHER CONTRACTS WHICH ARE NOT TREATED ARAGRAPH 8. 7 WHICH IS MANDATORY IN NATURE, THE ASSESSEE IS REQ UIRED TO ESTIMATE ITS TOTAL CONTRACT COSTS (I.E. SUM OF COST S INCURRED AND EXPECTED FUTURE COSTS) AND RECOGNIZE THE EXPECTED LOSSES (I.E. DIFF ERENCE BETWEEN THE CONTRACT WE NOTE THAT COORDINATE BENCH OF ITAT IN CASE OF DREDGING INTERNATIONAL N.V. VS. ADIT [48 SOT 430] HELD THAT 7 IS ALLOWABLE UNDER M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 21 11 1 AS FAR AS THE FACTUAL POSITION IS CONCERNED ASSESSE E HAS GIVEN DETAILED EXPLANATION FOR ESTIMATING THE FUTURE LOSSES WHICH IN FACT IT HAD S UFFERED AND THE FINAL LOSS WAS ALREADY DETERMINED BY THE A.O. 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 CLAIMED IN THAT YEAR ON COMPLETION OF THE PROJECT S TOOD ALLOWED. NO ADJUSTMENTS HAVE BEEN MADE TO THE LOSS CLAIMED IN LATER YEAR. IN VIE W 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. ASSESSEE S CLAIM FOR PROVISION FOR LOSS, WHICH WAS MADE IN ACCORDANCE WITH THE GUIDELINES OF AS-7 AND DULY DEBITED IN THE AUDITED ACCOUNTS OF THE COMPANY IS AN ALLOWABLE EXPENDITURE. WE NOTE THAT SAME VIEW WAS UPHELD BY THE COORDINATE BENCH OF ITAT (MUMBAI) AND PUNE IN CASE OF ACIT VS. ITD CEMENTATION INDIA LTD. [146 ITD 59] AND IN CASE OF ACIT VS. ASHOKA BUILDCON LTD. [170 TTJ 19] RESPECTIVELY. 20. WE NOTE THAT LD CIT(A) DELETED THE ADDITION, OB SERVING THE FOLLOWINGS: THESE GROUNDS ARE REGARDING DISALLOWANCE MADE BY T HE AOFUTURE LOSS OF RS. 14,83,51,419/-. THE AO HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE FUTURE LOSSES WERE IN THE NATURE OF AN UNASCERTAINED AND A NTICIPATED LIABILITY. THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE TH E EXPENDITURE WAS CONTINGENT IN NATURE THE LIABILITY HAD NOT CRYSTALLIZED AND HENCE NOT ALLOWABLE. THE AO HAS REFERRED TO NOTES ON ACCOUNTS POINT NO. 24 WHICH RE ADS AS FOLLOWS: 'DURING THE YEAR, ONE OF THE CLIENTS OF THE COMPANY HAS PREMATURELY TERMINATED A PART OF THE CONTRACT WITH CONSEQUENTIA L DAMAGES. THE COMPANY HAS CHALLENGED THE SAID TERMINATION IN THE HON'BLE SUPREME COURT. HOWEVER, AS A MATTER OF PRUDENCE, THE COMPAN Y HAS REVISED THE CONTRACT VALUE AND CONTRACT COST, AS PER THE MANAGE MENT'S BEST ESTIMATE AND THE EXPECTED LOSS HAS BEEN DULY PROVIDED FOR IN THE ACCOUNTS. THE COMPANY HAS ALSO LODGED COUNTER CLAIMS ON THE CLIEN T AND IT DOES NOT EXPECT ANY FURTHER LOSS ARISING OUT OF SUCH TERMINA TION '. BEFORE ME THE A/R OF THE APPELLANT HAS STATED THAT THE APPELLANT ENTERS INTO FIXED PRICE CONTRACTS AND THE ESTIMATED FUTURE LOSSES ARE MADE IN ACCORDANCE WITH ACCOUNTING STANDARD (AS-7). IT HAS BEEN SUBMITTED T HAT THE TOTAL REVENUE OF THE APPELLANT COMPANY DURING THE PREVIOUS YEAR WAS RS.1 140.83 CRORES. THE UNBILLED REVENUE OF THE FIXED PRICE CONTRACT, OFFERED TO TAX ATION, AS SUBMITTED BY THE A/R WAS RS. 299.58 CRORES. ACCORDINGLY, IT WAS ARGUED T HAT AS THE ENTIRE REVENUE OF THE FIXED PRICE CONTRACT HAD BEEN OFFERED TO TAXATI ON THE IMMEDIATE AND FORESEEABLE LOSSES AS PER AS-7 WAS ACCORDINGLY CLAI MED AS A DEDUCTION. THE LOSS HAS BEEN EXPLAINED TO BE COMPUTED ACCORDING TO THE GUIDELINES AS PROVIDED IN THE PARA 35 OF AS-7. THE FUTURE LOSSES HAVE BEEN CLAIMED ON ACCOUNT OF T HE FACT THAT THE REVENUE WHICH HAS NOT BEEN BILLED TO THE PRINCIPAL, AS THE WORK H AS NOT BEEN DONE, HAS BEEN RECOGNIZED. ACCORDINGLY IT HAS BEEN STATED THAT THE EXCESS REVENUE HAS BEEN RECOGNIZED BY THE ASSESSEE THEREFORE THE ESTIMATED FUTURE LOSSES ON THE SAME SHOULD BE ALLOWED. M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 22 22 2 A SIMILAR ISSUE REGARDING FIXED PRICE CONTRACT AND FUTURE LOSSES CLAIMED AS PER AS-7 CAME BEFORE THE HONBLE ITAT MUMBAI BENCH IN T HE CASE OF DREDGING INTERNATIONAL N. V. [2011] 15 TAXMANN.COM 198 (MUMB AI). THE FACTS IN THE SAID CASE WERE AS FOLLOWS: THE ASSESSEE MADE PROVISIONS FOR FORESEEABLE LOSS AMOUNTING TO RS. 32,86,17,293 AND CLAIMED DEDUCTION ON SAME. THE ASS ESSING OFFICER DISALLOWED SAID CLAIM ON THE REASON THAT THE EXPENS ES WERE CONTINGENT UPON OCCURRENCE OR NON-OCCURRENCE OF CERTAIN EVENTS AND ASSESSEE ITSELF HAD CLASSIFIED IT AS A PROVISION FOR FUTURE LOSSES. THE CONTINGENT LIABILITY DID NOT CONSTITUTE EXPENDITURE AS THE SAME COULD NO T BE SUBJECT MATTER OF DEDUCTION AND THE EXPENDITURE WHICH WAS DEDUCTIBLE FOR THIS PURPOSE WAS ONLY THOSE LIABILITIES WHICH WERE NOT CONTINGENT. B Y 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 HONBLE TRIBUNAL ON THE SAID ISSUE OF CLAIM FOR FUTURE LOSSES HAS HELD AS UNDER: AS FAR AS THE FACTUAL POSITION IS CONCERNED ASSESS EE HAS GIVEN DETAILED EXPLANATION FOR ESTIMATING THE FUTURE LOSSES WHICH IN FACT IT HAD SUFFERED AND THE FINAL LOSS WAS ALREADY DETERMINED BY THE A. O. IN THE NEXT ASSESSMENT YEAR, THE ORDER OF WHICH DOES NOT CONTAI N ANY DISALLOWANCE. THERE IS EVIDENCE ON RECORD THAT ASSESSEE HAS SUFFE RED LOSS AND LOSS CLAIMED IN THAT YEAR ON COMPLETION OF THE PROJECT S TOOD ALLOWED. NO ADJUSTMENTS HAVE BEEN MADE TO THE LOSS CLAIMED IN L ATER YEAR. IN VIEW OF THIS WE ARE OF THE OPINION THAT AS FAR AS QUANTIFIC ATION OF LOSS IS CONCERNED ASSESSEE HAS MADE A JUSTIFIABLE CLAIM IN ARRIVING A T THE FUTURE LOSS FOR THIS YEAR. [PARA 24] FURTHER, THE ASSESSEE WAS FOLLOWING THE GUIDELINES OF AS-7 WHICH PROVIDED FOR THE ESTIMATED LOSS IN BOOKS OF ACCOUNT. THIS IS SUE ABOUT THE CLAIM OF FUTURE LOSS ON THE BASIS OF AS-7 WAS ALSO EXAMINED BY VARIOUS CO-ORDINATE BENCHES OF ITAT AND CLAIM OF FUTURE LOSSES ON THE BASIS OF AS-7 WAS CONSIDERED AS ALLOWABLE DEDUCTION WHILE COMPUTING P ROFIT OF THE YEAR. [PARA-26] IN THE CASE OF JACOBS ENGG. PVT. LTD. VS. ACIT [IT APPEAL NOS. 7017 AND 7018 (MUM) OF 2006 AND 335 AND 336(MUM) OF 2007, DA TED 26.05.2009] THE MUMBAI TRIBUNAL HAS HELD THAT THE PROVISION FOR FORSEEABLE LOSSES UNDER AS-7 IS AN ALLOWABLE EXPENDITURE. MAZAGAON DO CK LTD. VS. JT. CIT [2009] 29 SOT 356 (MUM). [PARA 27] KEEPING THE PRINCIPLE LAID DOWN ON THIS ISSUE IN VA RIOUS CO-ORDINATE BENCH DECISIONS, IT IS HELD THAT ASSESSEES CLAIM F OR PROVISION FOR LOSS, WHICH WAS MADE IN ACCORDANCE WITH THE GUIDELINES OF AS-7 AND DULY DEBITED IN THE AUDITED ACCOUNTS OF THE COMPANY IS A N ALLOWABLE EXPENDITURE. THEREFORE, DRP WAS NOT CORRECT IN REJ ECTING THE SAME WITHOUT ASSIGNING ANY REASON. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF FUTURE LOSS IN THIS YEAR. SINCE ASSESS EES CLAIM WAS REJECTED BY THE ASSESSING OFFICER IN THE ORDER AND ADJUSTED IN THE NEXT ASSESSMENT M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 23 33 3 YEAR, ASSESSING OFFICER IS FREE TO PASS NECESSARY MODIFICATION ORDER, IF NECESSARY IN ASSESSMENT YEAR 2007-08 WITHDRAWING TH E CLAIM TO THAT EXTENT BEING ALLOWED IN THIS YEAR. [PARA 29] FURTHER, THE HONBLE ITAT PUNE BENCH IN THE CASE OF ASHOKA BUILDCON LTD. [2015] 61 TAXMANN.COM 330 (PUNE-TRIB.) ON THE ISSUE OF ALLOWABILITY OF FUTURE LOSSES HAS HELD AS UNDER: 15. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS EXECU TING FIXED PRICE CONTRACT WHICH MEANS THAT THE CONTRACTOR HAS AGREED TO A FIXED CON TRACT PRICE OR RATE IN SOME CASES SUBJECT TO COST ESCALATION PRICES. AS PER AS- 7, THE ASSESSEE IS ENTITLED TO MAKE PROVISION FOR FORESEEABLE LOSSES. 16. A PERUSAL OF THE ACCOUNTING STATEMENT OF THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION SHOWS THAT AT PARA 1.6 TO THE NOTES T O THE FINANCIAL STATEMENT, THE AUDITORS HAVE PROVIDED AS UNDER : 'REVENUE RECOGNITION ON CONTRACTS CONTRACT PRICES ARE EITHER FIXED OR SUBJECT TO PRIC E ESCALATION CLAUSE. REVENUE FROM CONTRACTS IS RECOGNIZED ON THE BASIS OF PERCEN TAGE COMPLETION METHOD, AND THE LEVEL OF COMPLETION DEPENDS ON THE NATURE AND T YPE OF EACH CONTRACT INCLUDING : UNBILLED WORK-IN-PROGRESS VALUED AT LOWER OF COST A ND NET REALIZABLE VALUE UPTO THE STAGE OF COMPLETION. COST INCLUDES DIRECT MATER IAL, LABOUR COST AND APPROPRIATE OVERHEADS; AND AMOUNTS DUE IN RESPECT OF THE PRICE AND OTHER ESCAL ATION, 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 T HERE IS EVIDENCE THAT THE CUSTOMER/THIRD PARTY HAS ACCEPTED IT. IN ADDITION, IF IT IS EXPECTED THAT THE CONTRACT WI LL 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 COST S 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 TRIB UNAL IN THE CASE OF MAZAGON DOCK LTD. V. JT. CIT (SUPRA) WHEREIN THE TRIBUNAL H AS 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 VI EW OF THE MANDATORY REQUIREMENTS OF THE AS-7, WAS TO BE ALLOWED IN THE YEAR IN WHICH THE CONTRACT HAD BEEN ENTERED INTO OR IT WAS TO BE SPREAD OVER A PER IOD OF CONTRACT, AS WAS DONE BY THE ASSESSEE IN EARLIER YEARS. AS FAR AS THE CHANGE IN THE METHOD OF VALUATION OF WORK-IN-PROGRESS WAS CONCERNED, IT COULD NOT BE DIS PUTED THAT IN VIEW OF MANDATORY REQUIREMENTS OF THE AS-7, IT WAS A BONA F IDE CHANGE IN THE METHOD OF VALUATION OF WORK-IN-PROGRESS, PARTICULARLY IN VIEW OF THE QUALIFICATION MADE IN THIS REGARD BY STATUTORY AUDITORS AS WELL AS BY THE COMPTROLLER & AUDITOR GENERAL OF INDIA. THEREFORE, THE OBSERVATION OF THE CIT(A) THAT THE ASSESSEE HAD BOOKED BOGUS LOSS WAS NOT CORRECT. AS FAR AS THE BASIS OF ESTIMATION WAS CONCERNED, THE SAME WAS DONE ON TECHNICAL ESTIMATION BASIS AND, TH EREFORE, MERELY BECAUSE THERE WERE SOME VARIATIONS IN THE FIGURES FURNISHED BY TH E ASSESSEE AT DIFFERENT STAGES, IT COULD NOT BE SAID THAT THE ESTIMATED LOSS WAS NOT A LLOWABLE. IT WAS NOT DISPUTED M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 24 44 4 THAT THE DEPARTMENT IN EARLIER YEARS HAD ALLOWED TH E LOSS ON ESTIMATED BASIS HAVING REGARD TO THE EXPENDITURE ACTUALLY INCURRED IN VARIOUS YEARS. THEREFORE, IN PRINCIPLE, IT WAS NOT DISPUTED THAT THE ESTIMATED L OSS UNDER THE PRESENT CIRCUMSTANCES WAS AN ALLOWABLE DEDUCTION. HOWEVER, MERELY BECAUSE THE CHANGE IN METHOD OF ACCOUNTING WAS BONA FIDE, IT COULD NOT LEAD TO THE INFERENCE THAT THE INCOME WAS ALSO DEDUCIBLE PROPERTY UNDER THE ACT. T HIS ASPECT IS VERY EVIDENT FROM THE FIRST PROVISO TO S. 145 AS IT STOOD PRIOR TO THE AMENDMENT BY THE FINANCE ACT, 1995 W.E.F. 1ST APRIL, 1997. IT COULD NOT BE D ISPUTED THAT FROM THE METHOD ADOPTED BY THE ASSESSEE, THE ASSESSEE'S INCOME COUL D NOT BE DEDUCTED PROPERLY IN THE YEAR IN WHICH THE LOSS HAD BEEN ANTICIPATED. AS A MATTER OF FACT THIS ASPECT WAS NOT DISPUTED BY THE AO ALSO. HE HAD SWAYED MORE BY THE REVENUE LOSS THAN BY THE CORRECT PRINCIPLE TO BE APPLIED. THE MATCHING PRINC IPLE OF ACCOUNTING WAS NOT OF MUCH SIGNIFICANCE IN THE PRESENT CONTEXT BECAUSE IF THE LOSS HAD BEEN PROPERLY ESTIMATED IN THE YEAR IN WHICH THE CONTRACT HAD BEE N ENTERED INTO, THEN IT HAD TO BE ALLOWED IN THAT VERY YEAR AND COULD NOT BE SPREAD O VER THE PERIOD OF CONTRACT. THE MATCHING PRINCIPLE IS OF RELEVANCE WHERE INCOME AND EXPENDITURE, BOTH ARE TO BE CONSIDERED TOGETHER. HOWEVER, IN THE INSTANT CASE, THE EFFECT OF VALUATION OF WIP WOULD AUTOMATICALLY AFFECT THE PROFITS OF SUBSEQUEN T YEARS ACCORDINGLY. THEREFORE, THERE WAS NO REASON FOR NOT ACCEPTING IN PRINCIPLE THE ASSESSEE'S CLAIM AS BEING ALLOWABLE. HOWEVER, IN VIEW OF DISCREPANCIES POINTE D OUT BY THE CIT(A) FOR CORRECT ESTIMATION OF LOSS, THE MATTER WAS TO BE RE STORED TO THE FILE OF THE AO TO EXAMINE THE CORRECTNESS OF AMOUNT CLAIMED.' 18. A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL I N THE CASE OF JACOBS ENGINEERING INDIA (P.) LTD. V. ASSTT. CIT (SUPRA) W HEREIN THE ASSESSEE'S CLAIMS OF FORESEEABLE LOSSES WERE ALLOWED IRRESPECTIVE OF MET HOD 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 D ECIDED 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 DECISIO N 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 DI STINGUISHING CASES HAVE BEEN BROUGHT ON RECORDS BY THE REVENUE, REVERSING THE FI NDINGS OF THE LEARNED CIT(A), WE DIRECT THE AO TO RECOMPUTE THE BUSINESS PROFITS BY ALLOWING THE LOSSES PROVIDED BY THE ASSESSEE IN ITS BOOKS. THE APPEAL F ILED BY THE ASSESSEE IS ALLOWED.' 12. TO THE SIMILAR EFFECT IS THE DECISION OF THE MUMBA I BENCH OF THE TRIBUNAL IN THE CASE OF MAZAGAON DOCK (SUPRA) WHICH HAS ALSO BE EN RELIED UPON BY THE TRIBUNAL IN THE CASE OF ITD CEMENTATION INDIA LTD. (SUPRA). THEREFORE, IN VIEW OF THE AFORESAID PRECEDENTS IN PRINCIPLE, IT HAS TO BE INFERRED THAT WHERE AN ASSESSEE IS EXECUTING AN INFRASTRUCTURE DEVELOPMENT FIXED PR ICE CONTRACT, THE FORESEEABLE LOSSES OF FUTURE YEARS CAN BE RECOGNIZED FOLLOWING THE RATIONALE OF AS-7 ISSUED BY ICAI, AND SUCH A PROVISION IS AN ALLOWABLE DEDUCTIO N. A SIMILAR ISSUE HAS BEEN DECIDED IN THE CASE OF ITD CEMENTATION INDIA LTD. [2013] 36 TAXMANN. COM 74 (MUMBAI-TRIB) BY THE HON BLE ITAT BENCH, MUMBAI. IN THE SAID CASE THE FACTS AS FOLLOWS: M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 25 55 5 DURING THE REMAND REPORT PROCEEDINGS, THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE REQUIRING TO EXPLAIN AS TO WHY 100 PER CENT LOSS WAS CLAIMED EVEN WHEN THE PROJECT WAS NOT COMPLETED 100 PER CENT. HE ASKED THE ASSESSEE TO EXPLAIN WHY LOSS SHOULD NOT BE ALLOWED ONLY UP TO THE PER CENT OF WORK COMPLETED AND WHY THE EXCESSIVE LOSS SHOULD NO T BE DISA LLOWED AND ADDED BACK TO ITS INCOME OF THE ASSESSMENT YEAR 2004- 05. THE ASSESSING OFFICER FURTHER AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE OBSERVED THAT THE ASSESSEE HAD CLAIMED ENTIRE FORESEEABLE LOSSES OF F UTURE YEARS IN THE ASSESSMENT YEAR 2004- 05. HE OPINED THAT SUCH CLAIM COULD NOT BE ALLOWED BECAUSE IT WAS ONLY BASED ON ESTIMATE AND WAS CONTINGENT IN NATURE . THE COMMISSIONER (APPEALS) HELD THAT THE EXPENSES R ELATING TO BUSINESS WERE ALLOWABLE AS PER PROVISIONS OF SECTIONS 28 TO 43. T HE E XPENSES ALLOWABLE HAD BEEN SPECIFICALLY MENTIONED IN THE RELEVANT SECTION OF THE ACT. THE RESIDUARY EXPENSES WERE ALLOWABLE UNDER SECTION 37(1) ONLY. H E CONCLUDED THAT THE ASSESSEE'S CLAIM OF FUTURE LOSSES WAS NOT FITTING I N THE FRAME WORK OF PROVISIONS OF SECTION 37(1). HE OBSERVED THAT THE PROVISIONS OF A CCOUNTING STANDARDS COULD NOT OVER WRITE THE STATUTORY PROVISIONS OF THE ACT. ACCORDINGLY, HE DIRECTED TO REWORK OUT THE ACCOUNTS/WORK IN PROGRESS BY EXCLUDI NG THEREFROM THE CLAIM OF FUTURE LOSSES. THE HONBLE TRIBUNAL IN THIS CASE HAS HELD AS UNDER : SECTION 145(2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STAND ARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS O F 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 STAN DARDS 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 CONTR ARY, 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 CONTRACT OR HAS AGREED TO A FIXED CONTRACT PRICE OR RATE IN SOME CASES SUBJECT TO COST ESCALATION PRICES. AS PE R AS- 7 THE ASSESSEE IS ENTITLED TO MAKE PROVISION FOR FORESEEABLE LOSSES. [PARA 15] A PERUSAL OF THE ACCOUNTING STATEMENT OF THE ASSESS EE FOR THE YEA R UNDER CONSIDERATION SHOWS THAT IN THE FINANCIAL STATEMENT , THE AUDITORS HAVE PROVIDED AS FOLLOWS: CONTRACT PRICES ARE EITHER FIX ED OR SUBJECT TO PRICE ESCALATION CLAUSES. REVENUE FROM CONTRACTS IS RECOG NIZED ON THE BASIS OF PERCENTAGE COMPLETION METHOD, AND THE LEVEL OF COMPLETION DEPENDS ON THE NATURE AND TYPE OF EACH CONTRACT. IN ADDITION, IF I T IS EXPECTED THAT THE CONTRACT WILL MAKE A LOSS, THE ESTIMATED LOSS IS PR OVIDED FOR IN THE BOOKS OF ACCOUNT. [PARA 16] CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ACCOUNTING STANDARD AND THE DECISIONS OF THE TRIBUNAL RENDERED IN THE CASES OF MAZAGAON DOCK LTD . V. JT. CIT [2009]29SOT356(MUM.) AND JACOBS ENGG. INDIA (P.) LTD. V. ASSTT. M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 26 66 6 CIT [2011]14TAXMANN.COM 186 (MUM.) AND DREDGING INTERNATIONAL V. ASSTT. DIT (IT) [2011] 48 SOT 430/15 TAXMANN.COM 198 (MUM.) , THE ASSESSING OFFICER WAS TO BE DIRECTED TO RECOMPUTE THE BUSINES S PROFITS BY ALLOWING THE LOSSES PROVIDED BY THE ASSESSEE IN ITS BOOKS. [PARA 19] THE SALIENT FEATURES EMERGING FROM THE ABOVE DISCUS SION ARE AS FOLLOWS: I) THE CONTRACT SHOULD BE FIXED PRICE CONTRACTS. II) THE CONTRACTOR IS LIABLE TO CLAIM FORESEEABLE LOSSE S ON THE BASIS OF AS-7. III) AS-7 IS ACCEPTABLE FOR CONTRACT ACCOUNTING. IV) THE LOSSES ARE NOT CONTINGENT OR UNASCERTAINED. FURTHER IN THIS CASE IT IS OBSERVED AS FOLLOWS: I) IN THE TAX AUDIT REPORT IT HAS BEEN STATED THAT THE LOSS OF RS. 14,83,51,419/- HAS BEEN PROVIDED AS PER AS-7. II) IN NOTES TO ACCOUNT IT HAS BEEN STATED THAT ONE OF THE COMPANIES HAS TERMINATED THE CONTRACT. H OWEVER, ON ACCOUNT OF PRUDENCY, THE COMPANY HAS REVISED THE CONTRACT VALUE AND CONT RACT COST AND ESTIMATED THE FUTURE LOSS WHICH HAS BEEN DULY P ROVIDED FOR. III) THE AO HAS MERELY REJECTED THE CLAIM OF THE ASSESS EE 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 OF APPLICATION OF AS-7. IV) THE SUM AND SUBSTANCE OF THE ABOVE DECISIONS, IS TH AT IN FIXED PRICE CONTRACTS, THE APPELLANT HAVING CREDITED ALL ITS RE VENUE, AS PER THE CONTRACT, HAS TO PROVIDE FOR ALL THE FORESE EABLE EXPENSES WHICH IT IS BOUND TO INCUR AS PER THE CONTRACT. THE ACCOUNTING STANDARD AS-7 PROVIDES FOR SUCH AN EVENTUALITY. IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS OBSERVE D THAT THE COMPA NY HAS FOLLOWED AS- 7 AND HAS DEBITED THE FUTURE LOSSES. RESPECTFULLY F OLLOWING THE VARIOUS DECISIONS AS DISCUSSED ABOVE, I AM OF T HE CONSIDERED OPINION THAT DEDUCTION FOR FUTURE LOSS OF RS. 14,83,51,419/ - IS ALLOWABLE. THEREFORE, THESE GROUNDS OF APPEAL OF THE APPELLANT ARE HEREBY ALLOWED. WE NOTE THAT IN FIXED PRICE CONTRACTS, THE ASSESSEE HAVING CREDITED ALL ITS REVENUE, AS PER THE CONTRACT, HAS TO PROVIDE FOR ALL THE FOR ESEEABLE EXPENSES WHICH IT IS BOUND TO INCUR AS PER THE CONTRACT. THE ACCOUNTING STANDARD AS-7 PROVIDES FOR SUCH AN EVENTUALITY . HAVING GONE THROUGH THE ORDER OF LD CIT(A), WE NOTE THAT THERE IS NO INFIRMITY IN THE ORDER OF LD CIT(A). TH AT BEING SO, WE DECLINE TO M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 27 77 7 INTERFERE IN THE ORDER PASSED BY THE LD CIT(A), HIS ORDER ON THIS ISSUE IS HEREBY ACCEPTED AND GROUNDS OF APPEAL RAISED BY THE REVENU E IS DISMISSED. 21. GROUND NO. 2 RAISED BY THE REVENUE READS AS FOL LOWS: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN LAW IN DIRECTING THE AO TO REWORK THE DISA LLOWANCE U/S 14A OF THE IT ACT,1961 OF THE IT ACT 1961 TO RS.43,16,078/- CONSI DERING ONLY THOSE INVESTMENTS WHICH HAVE YIELDED THE EXEMPTED INCOME IN THE FORM OF DIVIDEND OR LTCG 22. WE NOTE THAT GROUND NO. 2 RAISED BY THE REVENUE IS NO LONGER RES INTEGRA . THE LD. COUNSEL PLEADED BEFORE US THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE. THE WRITTEN SUBMISSION OF THE LD COUNSEL, IN THIS REGARD IS REPRODUCED BELOW: THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME DURI NG THE YEAR UNDER APPEAL, HENCE, NO EXPENSE CAN BE SAID TO HAVE BEEN INCURRED IN RELATION TO EXEMPT INCOME. HENCE THE QUESTION OF DISALLOWING ANY EXPENSE DOES NOT ARISE. IN THIS REGARD, RELIANCE IS PLACED ON JUDGMENT OF DELHI HIGH COURT IN THE CASE OF M/S CHEMINVEST LTD. VS. CIT, 378 ITR 33 (DEL), (COPY ENCLOSED AT P AGE 63-67 OF PAPER BOOK) WHERE IT IS HELD THAT IF NO EXEMPT INCOME HAS BEEN EARNED, THEN NO DISALLOWANCE IS WARRANTED. FURTHER RELIANCE IS ALSO PLACED ON THE FOLLOWING D ECISIONS: THE DECISION OF THE ALLAHABAD HIGH COURT IN ITA NO. 88 OF 2014, COMMISSIONER OF INCOME TAX VS. M/S SHIVAM MOTORS P LTD. DECIDED ON 05.05.2014 REPORTED IN (2014) 272 CTR (ALL) 277 (COPY ENCLOSED AT PAGE 68- 71 OF PAPER BOOK). IN THE SAID DECISION IT WAS HELD THAT: AS REGARDS THE SECOND QUESTION, S. 14A OF THE ACT P ROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE NCE, WHAT S. 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PAR T OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE I NCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX-FREE INCOME. HENCE, IN THE ABSENCE O F ANY TAX-FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL , HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETIO N OF THE DISALLOWANCE OF RS. 2,03,752 MADE BY THE AO WAS IN ORDER. M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 28 88 8 THE MADRAS HIGH COURT JUDGMENT IN THE CASE OF REDIN GTON (INDIA) LTD. VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY, RAN GE-V [2017] 392 ITR 633 (MAD) (COPY ENCLOSED AT PAGE 72-75 OF PAPER BOOK), WHEREIN IT WAS HELD THAT: 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RE LATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MAT CHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. MADRAS INDUSTRI AL INVESTMENT CORPN. LTD. V. CIT [1997] 225 ITR 802/91 TAXMAN 340 (SC) . THE LANGUAGE OF S.14A (1) SHOULD BE READ IN THAT CONTEXT AND SUCH THAT IT ADV ANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROVISI ONS OF S. 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACU UM I.E. IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. 23. SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT IN COME THEREFORE NO DISALLOWANCE IS WARRANTED. WE NOTE THAT SINCE THE L D. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO REWORK THE DISALLOWANCE U/S 1 4A OF THE ACT TO THE TUNE OF RS. 43,16,078/- CONSIDERING ONLY THOSE INVESTMENTS WHIC H HAVE YIELDED THE EXEMPTED INCOME IN THE FORM OF DIVIDEND. HERE WE WOULD LIKE TO INTERFERE IN THE DIRECTION GIVEN BY THE LD. CIT(A) TO ASSESSING OFFICER TO CON SIDER ONLY DIVIDEND BEARING SECURITY TO WORKOUT THE DISALLOWANCE UNDER RULE 8DO F THE I T RULES. SINCE, THE LD. COUNSEL SUBMITTED BEFORE US THAT THE ASSESSEE HAS N OT EARNED ANY EXEMPT INCOME THEREFORE NO DISALLOWANCE IS WARRANTED AS SUPPORTED BY THE ABOVENOTED JUDGMENTS THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DELET E ENTIRE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE RULES. GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 24. GROUND NO. 3 RAISED BY THE REVENUE READS AS FOL LOWS: 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAWS, THE LD. CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN ALLOWING THE DE DUCTION U/S 80-IA OF THE IT ACT. WHEREAS THE ASSESSEE COMPANY IS SIMPLY A CONTRACTOR WHO MERELY EXECUTED WORK CONTRACT ON THE BASIS OF QUOTED TENDER FUNDED BY THE GOVERNM ENT/SEMI-GOVERNMENT ORGANIZATION AND HENCE NOT ENTITLED TO THE DEDUCTION U/S 80-IA WITHIN THE SCOPE OF EXPLANATION BELOW SUB-SECTION 13 TO 80-IA OF THE ACT M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 29 99 9 25. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE S CRUTINY PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION AMO UNTING TO RS.59,83,57,154/- U/S 80IA OF THE ACT. THE ASSESSING OFFICER, IN ORDE R TO ASCERTAIN THE AVAILABILITY OF THE DEDUCTION TO THE ASSESSEE, ANALYZED AND INVESTI GATED THE CLAIM. THE ASSESSING OFFICER REFERRED THE PROVISIONS OF SECTION 80IA OF THE ACT AND CASE LAW ON THE SUBJECT AND CONCLUDED THAT THE ASSESSEE IS NOT AT A LL A DEVELOPER GOING BY THE LEGISLATIVE INTENT OF THE ACT.THAT IS, THE ASSESSEE IS NOT AT ALL A DEVELOPER WHO HAS UNDERTAKEN ENTREPRENEURIAL AND INVESTMENT RISK. INS TEAD IT IS MERELY INTO THE BUSINESS OF WORKS CONTRACT AS A CONTRACTOR WHO HAS ONLY UNDERTAKEN BUSINESS RISK. THERE IS NO ELEMENT OF CONTRIBUTION BY THE ASSESSEE IN TERMS OF PRIVATE SECTOR PARTICIPATION IN THE DEVELOPMENT OF INFRASTRUCTURE FACILITIES WHICH IS A SIGNIFICANT ASPECT FOR IDENTIFICATION OF AN ASSESSEE AS DEVELOP ER. HENCE SUCH BUSINESS DOES NOT QUALIFY FOR DEDUCTION U/S 80IA OF THE ACT. IN VIEW OF THE ABOVE, THE ENTIRE CLAIM OF DEDUCTION OF ASSESSEE UNDER CHAPTER VIA AMOUNTING T O RS. 59,83,57,154/- WAS DISALLOWED. 26. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELE TED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: DURING THE PREVIOUS YEAR THE ASSESSEE HAS UNDERTAK EN THE VARIOUS PROJECTS AS OBSERVED BY THE ASSESSING OFFICER AS FOLLOWS: I) JAWAI PALI PROJECTS II) BISALPUR JAIPUR PROJECTS- PK-4 III) R.K. PURAM PROJECT IV) T.K. HALLY PROJECT, W-5 V) TARAKA LIFT IRRIGATION SCHEME VI) RAJARHAT PROJECT VII) PROJECT WITH UP JAL NIGAM VIII) T.K. HALLY PROJECT(W3). IX) URBANI LIFT IRRIGATION SCHEME X) POKHANA PROJECT XI) MIRA BHAYANDAR PROJECT XII) PREET VIHAR PROJECTS XIII) LASALGAON PROJECTS XIV) DELHI JAL VIHAR PROJECTS THE APPELLANT CLAIMED DEDUCTION U/S 80IA OF RS. 59, 83,57,154/- ON THE ABOVE PROJECTS WHICH WAS DENIED BY THE ASSESSING OFFICER ON THE FO LLOWING GROUND: M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 30 00 0 A) THE ASSESSEE IS A MERE CONTRACTOR AND CANNOT BE CO NSIDERED AS A DEVELOPER AS ENVISAGED U/S 80IA. B) THE ASSESSEE IS ONLY EXECUTING CIVIL CONSTRUCTION C ONTRACT AND IS NOT TAKING ANY ENTREPRENEURIAL OR INVESTMENT RISKS. C) THE ASSESSEE IS MERELY A WORKS CONTRACTOR AS PER TH E EXPLANATION TO 80-IA(13) AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S. 80-IA. D) THE DEFINITION OF WORK AS PROVIDED IN THE EXPLANATI ON TO SECTION 194(C) IS ONLY FOR THE PURPOSES OF TDS ONLY AND IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. DURING THE COURSE OF APPELLATE PROCEEDINGS THE A/R FURNISHED THE DETAILED ANALYSIS OF THE SCOPE OF WORK WITH REFERENCE TO VARIOUS PROJECTS, S TATING INTER ALIA FACTS REGARDING LABOUR AND MATERIAL SUPPLIED, RISK UNDERTAKEN, INVESTMENT MADE, ETC. BEFORE ME THE A/R OF THE APPELLANT HAS ARGUED THAT IT IS ENGAGED IN ALL THE THREE ACTIVITIES AS REQUIRED U/S. 80-IA. IT WAS FURTHER STATED THAT IN SOME PROJECTS THE APPELL ANT IS INVOLVED ONLY IN THE DEVELOPMENT OF INFRASTRUCTURE FACILITY. IN SOME PROJECTS IT WAS INVOLVED IN OPERATION AND MAINTENANCE OF INFRASTRUCTURE FACILITY, AND IN SOME PROJECTS IT WAS INVOLVED IN DEVELOPMENT, MAINTENANCE & OPERATION OF INFRASTRUCTURE FACILITY. FURTHER IT WAS SUBMITTED THAT THE WORK WAS COMPLETE D BY USING DRAWING, DESIGN, LABOUR, PLANT & MACHINERY AND MATERIAL PROCURED BY THEM. IN VESTMENTS IN THE FORM OF BANK GUARANTEE EMD ETC. WAS MADE IN THE PROJECTS. MOBILI SATION ADVANCE IN SOME CASES WERE RECEIVED ON FURNISHING OF BANK GUARANTEE. VARIOUS R ISKS WITH REFERENCE TO PROJECT WERE UNDERTAKEN BY THEM. IN MOST CASES THE LIABILITY FOR DAMAGES TO ANY PROPERTY OR WORK EXECUTED WAS ON ACCOUNT OF THE APPELLANT. THE A/R T HEREFORE ARGUED THAT THE APPELLANT COMPANY IS NOT A MERE WORKS CONTRACTOR AS PROVIDED IN EXPLANATION TO SECTION 80-IA(13). THE A/R STATED THAT THE ISSUE IS COVERED BY THE DEC ISION OF THE HONBLE JURISDICTIONAL ITAT IN THEIR OWN CASES IN ASSESSMENT YEARS 2006-07 TO 2010-11. THE HONBLE 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 U/S. 80-IA WHIC H EMERGES FROM THE ABOVEORDER IS AS FOLLOWS: I. IN A CASE WHERE A PERSON MAKES THE INVESTMENT DEVEL OPMENT 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- IA(13) MEANS A CONTRACT OF DEVELOPING INFRASTRUCTURE BY MERELY EMPLOYING LA BOUR AND MAKING NO INVESTMENTS. III. HOWEVER, IF UNDER A CONTRACT, THE CONTRACTOR EMPLOY S HIS CAPITAL AND ENTERPRISE IN ADDITION TO LABOUR, THEN THE SAID CON TRACT DOES NOT CONSTITUTE A WORKS CONTRACT UNDER THE EXPLANATION TO SECTION 80- IA(13) AND THE CONTRACTOR SHALL BE ELIGIBLE FOR DEDUCTION U/S 80-IA. IV. EVEN IF AN ASSESSEE IS MERELY DEVELOPING THE INFRAS TRUCTURAL FACILITY (WITHOUT OPERATING AND MAINTAINING THE SAME), IT IS ENTITLED TO DEDUCTION U/S 80-IA. V. MERELY BECAUSE THE TRANSFEREE HAD PAID FOR THE DEVE LOPMENT OF INFRASTRUCTURE FACILITY CARRIED OUT BY THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE DID NOT DEVELOP THE INFRASTRUCTURE FACILITY. IF THE INTERPR ETATION DONE BY THE ASSESSING OFFICER IS ACCEPTED, NO ENTERPRISE CARRYING ON THE BUSINESS OF ONLY DEVELOPING THE INFRASTRUCTURE FACILITY WOULD BE ENTITLED TO DE DUCTION UNDER SECTION 80IA(4). VI. AS REGARDS THE OBSERVATION OF THE AO THAT THE ASSES SEE IS EXECUTING THE CONTRACT OF CIVIL CONSTRUCTION AT THE PREDETERMINED RATE, AND HENCE IT IS A M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 31 11 1 WORKS CONTRACT THE HONBLE ITAT HAS OBSERVED THAT THE ASSESSEE WAS RESPONSIBLE FOR OVERALL DEVELOPMENT OF THE INFRASTR UCTURE FACILITY. IT WAS MERELY PROVIDED WITH THE SITE WHICH IT HAD TO DEVEL OP INTO AN INFRASTRUCTURAL FACILITY BY DEPLOYING HIS RESOURCES I.E. MATERIAL, PLANT & MACHINERY, LABOUR, SUPERVISORS ETC. IT WAS RESPONSIBLE FOR ANY DAMAGE/ LOSS CAUSED TO ANY PROPERTY OR LIFE IN COURSE OF EXECUTION OF THE WORK S. IT WAS EVEN RESPONSIBLE FOR REMEDYING OF THE DEFECTS IN THE WORKS AT ITS CO ST. VII. THE ASSESSEE VIDE THE AGREEMENTS HAS CLEARLY DEMONS TRATED THE VARIOUS RISKS UNDERTAKEN BY IT. THE ASSESSEE WAS TO FURNISH A SEC URITY DEPOSIT TO THE EMPLOYER AND INDEMNIFY THE EMPLOYER OF ANY LOSSES/D AMAGE CAUSED TO ANY PROPERTY/LIFE IN COURSE OF EXECUTION OF WORKS. FURT HER, IT WAS RESPONSIBLE FOR THE CORRECTION OF DEFECTS ARISING IN THE WORKS THAT THE ASSESSEE HAD NOT UNDERTAKEN ANY RISK. VIII. THE ASSESSEE WAS NOT A WORKS CONTRACTOR SIMPLICITOR AND WAS A DEVELOPER AND HENCE EXPLANATION TO SECTION 80- IA(13) DOES NOT AP PLY TO THE ASSESSEE. ON PERUSAL OF THE ABOVE ORDER IT SEEN THAT THE HON BLE ITAT, IN THE CASE OF ASSESSEE HAS DISCUSSED AS TO WHAT ARE THE INGREDIENTS FOR AL LOWING DEDUCTION U/S 80IA.APPELLANT IS NOT A MERE WORKS CONTRACTOR. IN T HIS CASE IT IS OBSERVED THAT THE APPELLANT HAS BEEN CARRYING OUT SIMILAR PROJECTS WI TH SIMILAR FUNCTIONAL RESPONSIBILITIES. RESPECTFULLY FOLLOWING THE ABOVE FINDINGS OF THE HONBLE ITAT I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE IS A DEVEL OPER, AND NOT MERELY A WORKS CONTRACTOR AND IS ELIGIBLE FOR DEDUCTION U/S80-IA.A CCORDINGLY, THE CLAIM FOR DEDUCTION U/S. 80-IA(4) IS HEREBY ALLOWED. 27. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE WAS N OT A WORKS CONTRACTOR SIMPLICITOR AND WAS A DEVELOPER AND HENCE EXPLANATI ON TO SECTION 80-IA(13) DOES NOT APPLY TO THE ASSESSEE. FURTHER, IN ADDITION TO DEVELOPING THE INFRASTRUCTURE FACILITY, THE ASSESSEE WAS EVEN OPERATING AND MAINT AINING THE SAME. THUS, CLEARLY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80-IA. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE COORDINATE BENCH, IN ASSESSEE`S OWN CASE IN ITA NOS. 1291-1292/KOL/2013 FOR ASST YR. 2006-07 & 2009-10 AND THERE IS NO CHANGE IN FACTS AND LAW AND THE REV ENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AF ORESAID FINDINGS OF THE DIVISION BENCH (SUPRA). THE LD CIT(A) RELIED ON THE JUDGMEN T OF THE COORDINATE BENCH IN THE ASSESSEE`S OWN CASE(SUPRA). WE FIND NO REASON T O INTERFERE IN THE SAID ORDER OF THE DIVISION BENCH, THEREFORE, RESPECTFULLY FOLLOWI NG THE JUDGMENT OF THE COORDINATE BENCH IN ASSESSEES OWN CASE WE DISMISS THE GROUND RAISED BY THE REVENUE. 28. GROUND NO. 4 RAISED BY THE REVENUE READS AS FOL LOWS: M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 32 22 2 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW THE PAYMENT FOR EMPLOYE ES CONTRIBUTION TO PF/ESI OF RS.2,35,61,904/- WHICH WERE PAID BEFORE DUE DATE OF FILING OR RETURN WHEREAS SECTION 36(I)(VA) CLEARLY STATE THAT THE PAYMENT WI LL BE ALLOWED ON PAYMENT ON OR BEFORE THE DUE DATE 29. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID TH E EMPLOYEES CONTRIBUTION TO PF / ESI BEHIND THE PRESCRIBED DUE DATE MENTIONED IN T HE RELEVANT ACT. THEREFORE, ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 2,26 ,32,986/- AND RS. 9,28,918/- BEING EMPLOYEES CONTRIBUTION TO PF AND ESI RESPECT IVELY. 30. ON APPEAL, LD CIT(A) DELETED THE ADDITION. AGGR IEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 31. THE LD. DR HAS PRIMARILY REITERATED THE STAND T AKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF LD CIT(A). 32. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT PAYMENTS WERE MADE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT AS APPARENT FROM THE TAX AUDIT REPORT. WE NOTE THAT VARIOUS HIGH COURTS AND NOW CONCLUSIVE LY DECIDED BY THE HONBLE SUPREME COURT, IN THE CASE OF CIT VS. RAJASTHAN STA TE BEVERAGES CORPN. LTD. (2017) 84 TAXMANN.COM 185 (SC) 250 TAXMAN 0016, WHE REIN IT WAS HELD THAT THE CONTRIBUTIONS RECEIVED FROM THE EMPLOYEES, BEING DE POSITED TO THE GOVT, ACCOUNT BEFORE THE DUE DATE OF FILING ROI, COULD NOT BE DIS ALLOWED UNDER SECTION 43B OR M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 33 33 3 UNDER SECTION 36(1 )(VA) OF THE ACT. RESPECTFULLY F OLLOWING THE JUDGMENT OF THE HON`BLE SUPREME COURT, WE DISMISS THE GROUND RAISED BY THE REVENUE. 33. GROUND NO. 5 RAISED BY THE REVENUE READS AS FOL LOWS: 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN LAWS AS WELL AS IN FACTS THAT DISALLOWANCE U/S 14A CANNOT BE MADE FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE I T ACT, L961 34. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN GROUND NO. 5 RAISED BY THE REVENUE IS N O LONGER RES INTEGRA . WE NOTE THAT THE LD. AO WHILE COMPUTING THE BOOK PROFIT U/S 115JB HAD ADDED THE AMOUNT DISALLOWED U/S 14A OF THE INCOME TAX ACT, 1961 WHIC H IS CONTRARY TO THE BINDING PRINCIPLE OF LAW. IN THIS REGARDS IT IS SUBMITTED T HAT CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB PROVIDES FOR ADJUSTMENT TOWARDS: - ' THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTIO N 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF OR SECTION 11 OR S ECTION 12 APPLY' HOWEVER, IT IS STIPULATED IN THE CONCLUSION TO THE CLAUSE THAT; 'I F ANY AMOUNTS REFERRED TO IN CLAUSE (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUN T'. THE DISALLOWANCE MADE U/S. 14A BY THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDER ONLY. THUS, THE CONDITIONAL STIPULATION APPLIES. THE ADJUSTMENT CAN NOT BE MADE. THE IMPORTANT THING TO NOTE HERE IS THAT FOR THE PURPOSE OF APPLI CABILITY OF SECTION 14A READ WITH RULE 8D, THE COMPUTATION OF TOTAL INCOME HAS TO BE UNDER SOME HEADS IN CHAPTER - IV OF THE I.T. ACT, 1961. SECTION 14A CLEARLY SAYS 'FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION S HALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. WHEREAS T HE COMPUTATION OF TOTAL INCOME U/S. 115JB FALLS UNDER CHAPTER -XIIB OF THE I.T. AC T, 1961. THEREFORE, IT IS VERY CLEAR THAT THE DISALLOWANCE/COMPUTATION FOR SECTION 14A READ WITH RULE 8D WILL NOT BE APPLICABLE FOR THE PURPOSE OF CALCULATION OF INC OME U/S. 115JB OF THE I.T. ACT, 1961. HENCE, THE DISALLOWANCE UNDER SECTION 14A REL ATABLE TO EXEMPT INCOME CANNOT BE ADDED FOR COMPUTATION OF BOOK PROFIT U/S 115JB.FOR THAT WE RELY ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. BENGAL FINANCE M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 34 44 4 &INVESTMENTS PVT. LTD [INCOME TAX APPEAL NO.337 OF 2013], WHEREIN IT WAS HELD AS FOLLOWS: 4. SO FAR AS QUESTION (B) IS CONCERNED, THE IMPUGN ED ORDER OF THE TRIBUNAL FOLLOWED THE DECISION IN M/S ESSAR TELEHOLDINGS LTD . VS. DCIT IN ITA NO. 3850/MUM/2010 TO HELD THAT AN AMOUNT DISALLOWED UND ER SECTION 14A OF THE ACT CANNOT BE ADDED TO ARRIVE AT BOOK OF PROFIT FOR PU RPOSES OF SECTION 115JB OF THE ACT. THE REVENUES APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN M/S ESSAR TELEHOLDINGS (SUPRA) WAS DISMISSED BY THIS COURT IN THE ITA NO. 438 OF 2012 RENDERED ON 7 TH AUGUST, 2014. IN VIEW OF THE ABOVE, QUESTION (B) D OES NOT ARISE ANY SUBSTANTIAL QUESTION OF LAW. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BENGAL FINANCE & INVESTMENTS PV T. LTD [INCOME TAX APPEAL NO.337 OF 2013] (SUPRA) WE NOTE THAT DISALLOWANCE U /S 14A CANNOT BE MADE FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE I T ACT, L961, HENCE WE DISMISS THE GROUND RAISED BY THE REVENUE. 35. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 1228/KOL/2018 FOR AY 2011-12 IS ALLOWED AND THE APPEAL OF THE REVENUE I N ITA NO. 1211/KOL/2018 FOR AY 2011-12 IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 17.01.2020 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 17/01/2020 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. M/S SMPL INFRA LTD. 2. DCIT, CIRCLE-8(2), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES M/S SMPL INFRA LTD. ITA NOS. 1228 & 1211/KOL/2018 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 35 55 5