SUMMIT SECURITIES LTD, MUMBAI V. ADDL CIT RG 8(2), MUMBAI

ITA 2336/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0079 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 10-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Keywords: Depreciation; Search and seizure; Bad and doubtful debts; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD , JUDICIAL MEMBER ITA NO. 2282 /MUM/201 2 : (A.Y : 20 05 - 06 ) ACIT - 8(3), MUMBAI (APPELLANT) VS. SUMMIT SECURITIES LTD. (FORMERLY KNOWN AS KEC INFRASTRUCTURE LTD.), CEAT MAHAL, DR. ANNE BESANT ROAD, WORLI, MUMBAI 400 030. PAN : AAACK4279J (RESPONDENT) ITA NO. 2336 /MUM/201 2 : (A.Y : 20 05 - 06 ) SUMMIT SECURITIES LTD. CEAT MAHAL, 463, DR. ANNE BESANT ROAD, WORLI, MUMBAI 400 030. PAN : AAACK4279J (APPELLANT ) VS. ADDL. CIT - 8(3), MUMBAI ( RESPONDENT ) ASSESSEE BY : SHRI RONAK DOSHI REVENUE BY : SHRI MANJUNATHA SWAMY DATE OF HEARING : 0 5 / 12 /201 7 DATE OF PRONOUNCEMENT : 01 /0 3 /201 8 O R D E R PER G.S. PANNU , AM : THESE ARE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE, AGAINST THE ORDER OF CIT(A) - 17 , MUMBAI DATED 19.01.2012 , PERTAINING TO THE ASSESSMENT YEAR 2005 - 06 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY 2 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. THE ASSESSING OFFICER DATED 28.12.2006 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). S INCE THE CROSS - APPEALS INVOLVE CERTAIN COMMON ISSUES, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE MAY FIRST TAKE - UP THE APPEAL OF REVENUE WHEREIN THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING PROVISION FOR EXCEPTIONAL ITEMS AND DOUBTFUL DEBTS OF RS.6.58 CRS. U/S 36(1)(VII) BY NETTING OFF THE PROVISION WITH DEBTORS IN THE BALANCE SHEET EVEN THOUGH THE INDIVIDUAL DEBTORS ACCOUNTS WERE NOT CREDITED WITHOUT APPRECIATING THE FACT THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (323 ITR 166) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE COMPANY, AS IT IS NOT ENGAGED IN BANKING OR MONEY - LENDING BUSINESS. 2. ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING RS.1.47 CRS. OF DEFERRED SALES - TAX RELYING ON THE DECISION OF HON'BLE ITAT SPECIAL BENCH, MUMBAI, IN THE CASE OF SULZER INDIA LTD. VS JCIT, 42 SOT 457, WITHOUT APPRECIATING TH E FACT THE DEPARTMENT HAS NOT ACCEPTED THE SAME AND HAS FILED A MISCELLANEOUS APPLICATION, BEFORE THE HON'BLE ITAT. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/ACIT/DCIT BE RESTORED. 3. INSOFAR AS GROUND OF APPEAL NO. 1 IS CONCERNED, THE SAME RELATES TO THE DISALLOWANCE OF RS.6,58,63,000/ - MADE BY THE ASSESSING OFFICER REPRESENTING PROVISION FOR DOUBTFUL DEBTS. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT AN AMOUNT OF RS.6,58,63,000/ - WA S DEBITED TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS, BUT THE SAME WAS ADDED BACK IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF 3 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. INCOME. HOWEVER, BY WAY OF A NOTE IN THE COMPUTATION, ASSESSEE CLAIMED THAT THE SAID AMOUNT WAS DEDUCTIBLE U/S 36(1)(VII) OF THE ACT BY RELYING ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI VS CIT, 130 ITR 95 (GUJ.) . THE ASSESSING OFFICER DISALLOWED THE CLAIM ON TWO GROUNDS; FIRSTLY, THAT THE AS SESSEE HAS NOT ESTABLISHED THAT THE CORRESPONDING DEBTS HAVE BECOME BAD; AND, SECONDLY, THAT IT WAS A MERE PROVISION AND THE CORRESPONDING DEBTS WERE NOT ACTUALLY WRITTEN - OFF AS BAD IN THE ACCOUNT BOOKS. THE CIT(A) HAS SINCE ALLOWED THE CLAIM OF ASSESSEE BY RELYING ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD VS. CIT, 323 ITR 397 (SC) FOR THE PROPOSITION THAT WRITE - OFF OF DEBT IS SUFFICIENT EVIDENCE THAT THE DEBT HAS BECOME IRRECOVERABLE. FURTHER, WITH REGARD TO DEBTS NOT WRITTEN - OFF IN ACCOUNT BOOKS, THE CIT(A) NOTED THAT THE DEBIT TO THE PROFIT & LOSS ACCOUNT WITH THE PROVISION FOR DOUBTFUL DEBTS WAS FOLLOWED - UP BY REDUCING SUCH PROVISION FROM ITS DEBTORS IN THE BALANCE - SHEET AND THUS, THE BALANCE - SHEET CONTAINED THE FIGURE OF N ET DEBTORS. ACCORDING TO THE CIT(A), EVEN THOUGH THE INDIVIDUAL DEBTOR S ACCOUNTS WERE NOT CREDITED, BUT IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT, 323 ITR 166 (SC) , THE AFORESAID ACTION OF THE ASSESSEE WAS TO BE UNDERSTOOD AS A WRITE - OFF FOR THE PURPOSES OF SEC. 36(1)(VII) OF THE ACT . ACCORDINGLY, CIT(A) HAS ALLOWED THE CLAIM, AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AN IDENTICAL CONTROVERSY HAD ARISEN IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999 - 2000 AND VIDE ITA NO S . 2059 & 1439/MUM/2014 DATED 17.10.2012, THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRI BUNAL FOR 4 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 VIDE ITA NO S . 929, 930, 957 & 958/MUM/2008 DATED 03.07 .2015, WHEREIN ALSO SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 5. T HE LD. DR REITERATED THE STAND OF THE ASSESSING OFFICER, WHICH WE HAVE NOTED EARLIER AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY, BUT HE HAS NOT DISPUTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE. 6. HAVING CONSIDERED THE RIVAL SU BMISSIONS, IN OUR VIEW, THE ORDER OF CIT(A) DOES NOT REQUIRE ANY INTERFERENCE INASMUCH AS IT IS BASED ON THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF T . R . F LTD. (SUPRA) AS WELL AS IN THE CASE OF VIJAYA BANK (SUPRA). BOTH THE JUDGEM ENTS CLEARLY ANSWER THE OBJECTIONS RAISED BY THE ASSESSING OFFICER. AS PER THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF T . R . F LTD. (SUPRA), IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE THAT THE DEBT HA D BECOME BAD SO LONG AS IT IS WRITTEN - OFF IN THE ACCOUNT BOOKS AS IRRECOVERABLE. FURTHER, IN THE CONTEXT OF THE MANNER OF WRITING - OFF, THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA) FOUND IT EXPEDIENT TO HOLD THAT BESIDES DEBITING THE PROFIT & LOSS ACCOUNT, THE CORRESPONDING PROVIS ION FOR BAD DEBTS, IF REDUCED FROM THE DEBTORS AMOUNT IN THE BALANCE - SHEET, WOULD CONSTITUTE COMPLIANCE WITH THE REQUIREMENTS OF SEC. 36(1)(VII) OF THE ACT. IN VIEW OF THE AFORESAID, WE HEREBY AFFIRM THE ORDER OF CIT(A) AND ACCORDINGLY, REVENUE FAILS ON T HIS ASPECT. 7. THE NEXT GROUND OF APPEAL OF THE REVENUE IS WITH REGARD TO AN ADDITION OF RS.1,47,85,983/ - MADE BY THE ASSESSING OFFICER REPRESENTING THE 5 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. DIFFERENCE BETWEEN THE AMOUNT OF LOAN REPAYABLE BY THE ASSESSEE AND ITS NET PRESENT VALUE (NPV). NOTA BLY, THE RELEVANT FACTS ARE THAT IN TERMS OF THE SCHEME OF THE GOVERNMENT OF MAHARASHTRA FOR PROMOTING INDUSTRIAL DEVELOPMENT IN THE BACKWARD AREAS, ASSESSEE WAS ALLOWED SALES TAX INCENTIVE UPTO A CERTAIN PERCENTAGE OF CAPITAL EXPENDITURE. IN TERMS OF SAL ES TAX DEFERRAL INCENTIVE, ASSESSEE COLLECTED AN AMOUNT OF RS.3,06,89,950/ - OVER THE ELIGIBLE PERIOD OF 01.07.1996 TO 30.09.1999 AND THE SAME WAS CREDITED TO A SEPARATE LOAN ACCOUNT REFLECTED AS UNSECURED LOAN IN THE ACCOUNT BOOKS. SUBSEQUENTLY, THE GOV ERNMENT OF MAHARASHTRA IN THE YEAR 2002 ALLOWED PREMATURE REDEMPTION OF DEFERRED SALES TAX LIABILITY AT ITS NPV. IN TERMS THEREOF, ASSESSEE PAID THE NPV OF THE DEFERRED SALES TAX LIABILITY AMOUNTING TO RS.1,54,03,967/ - AND THE BALANCE OF RS.1,47,85,983/ - WAS CREDIT ED TO PROFIT & LOSS ACCOUNT. IN THE RETURN OF INCOME, ASSESSEE CLAIMED THAT THE AMOUNT OF RS.1,47,85,983/ - WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX AND HENCE, EXCLUDED THE SAME FROM THE COMPUTATION OF TAX LIABILITY. THE ASSESSING OFFICER, HO WEVER, TREATED THE SAME AS CESSATION OF TRADING LIABILITY TAXABLE IN TERMS OF SEC. 41(1) OF THE ACT. THE CIT(A) HAS DIFFERED WITH THE ASSESSING OFFICER FOLLOWING THE RATIO OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LT D. VS JCIT , ITA NO. 2944 TO 2871/MUM/2007 . AS PER THE CIT(A), THE SAID AMOUNT WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. AGAINST SUCH A DECISION, REVENUE IS IN APPEAL BEFORE US. 8. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RELIED UPON BY THE CIT(A) HAS SINCE BEEN AFFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SULZER INDIA LTD. , 369 ITR 717 (BOM.) WHEREIN IT HAS BEEN HELD THAT CESSATION OF SALES TAX 6 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. LIABILITY IN TERMS OF SCHEME OF GOVERNMENT OF MAHARASHTRA WAS NOT AN AMOUNT LIABLE TO BE TAXED U/S 41(1) OF THE ACT. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE ALSO POINTED OUT THAT IN THE CASE OF BALKRISHNA INDUSTRIES , CIV IL APPEAL NO. 19587 OF 2017 , THE HON'BLE SUPREME COURT HAS ALSO AFFIRMED SUCH A DECISION. IN VIEW OF THE AFORESAID, WE HEREBY AFFIRM THE ORDER OF CIT(A) AND ACCORDINGLY, REVENUE FAILS ON THIS ASPECT. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED A S ABOVE. 10. NOW, WE MAY TAKE - UP THE CROSS - APPEAL OF THE ASSESSEE WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED : - GROUND I - REDUCTION IN THE CLAIM FOR DEPRECIATION 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 17, MUMBAI ('THE CIT(A)') ERRED IN CONFIRMING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX 8(2), MUMBAI ('THE AO') IN REDUCING THE ALLOWANCE OF DEPRECIATION FROM RS.11,00,43,612 AS PER RETURN OF INCOME TO RS.9,86,78,968. 2 . THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW DEPRECIATION ON BASIS OF WRITTEN DOWN VALUE WITHOUT REDUCING ANY DEPRECIATION FOR AY 1999 - 00. GROUND II - DISALLOWANCE OF DEFERRED REVENUE EXPENSES 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE - 8(2), MUMBAI ('THE AO') OF DISALLOWING THE CLAIM IN RESPECT OF DEFERRED REVENUE EXPENSES OF RS.29,95,845/ - , WHICH IS PENSION PAID TO THE RET IRED EMPLOYEES WHO HAD TAKEN VOLUNTARY RETIREMENT UNDER THE VRS. 2. THE APPELLANT PRAYS THAT THE ENTIRE DISALLOWANCE OF RS.29,95,845/ - BE DELETED, AND CLAIM OF THE APPELLANT BE ALLOWED IN FULL. 7 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. 3. WITHOUT PREJUDICE TO ABOVE, IF AT ALL ACTION OF A O IS TO BE CONFIRMED, THEN IN THAT CASE, THE AO BE DIRECTED TO ALLOW DEDUCTION OF RS.5,99,169 U/S 35DDA BEING 1/5TH OF EXPENDITURE ACTUALLY INCURRED, AS AGAINST RS.4,99,307 ALLOWED BY THE AO. FURTHER, THE AO BE DIRECTED TO ALLOW THE BALANCE COMPONENT OF TH E VRS EXPENDITURE OVER BALANCE PERIOD OF 4 YEARS. GROUND NO III : DISALLOWANCE OF PROVISION ON FORESEEABLE LOSSES 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE PROVISION FOR PROJECT LOSSES OF RS.2,01,01,000 ON THE ALLEGED GROUND THAT IT IS OF CONTINGENT NATURE. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW THE PROVISION FOR PROJECT LOSSES. GROUND NO IV : DISALLOWANCE OF PROVISION ON FORESEEABLE LOSSES UNDER SECTION 115JB OF THE ACT 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING THE PROVISION FOR PROJECT LOSSES OF RS.2,01,01,000 IN THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW THE PROVISION FOR PROJECT LOSSES IN THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 11. INSOFAR AS GROUND OF APPEAL NO. 1 IS CONCERNED, THE SAME ARISES FROM THE ACTION OF ASSESSING OFFICER IN SCALING DOWN ASSESSEES CLAIM FOR DEPRECIATION FROM RS. 11,00,43,612 / - TO RS.9,86,78,968/ - . IT WAS NOTICED BY THE ASSESSING OFFICER THAT FOR THE ASSESSMENT YEAR 1999 - 2000, ASSESSEE HAD NOT CLAIMED DEPRECIATION, BUT IN THE ASSESSMENT ORDER, THE THEN ASSESSING 8 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. OFFICER HAD ALLOWED DEPRECIATION. IN THE RETURN OF INCOME FILED FOR THE INSTANT ASSESSMENT YEAR, ASSESSEE CALCULATED DEPRECIATION AT RS.11,00,43,612/ - BASED ON THE WRITTEN - DOWN VALUE WI THOUT REDUCING THE DEPRECIATION ALLOWED IN ASSESSMENT YEAR 1999 - 2000. THE CIT(A) HAS AFFIRMED THE STAND OF THE ASSESSING OFFICER ON THE GROUND THAT ONCE DEPRECIATION IS GRANTED IN ASSESSMENT YEAR 1999 - 2000, THE WDV OF THE ASSETS IN THE SUBSEQUENT YEARS HA VE TO BE CONSEQUENTLY REDUCED. 12. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SO FAR AS THE ASSESSMENT YEAR 1999 - 2000 IS CONCERNED, THE ACTION OF THE ASSESSING OFFICER OF ALLOWING DEPRECIATION CONTINUES TO HOLD INASMUCH AS THE SAME HAS BEEN AFFIRMED BY THE TRIBUNAL IN ITS ORDER DATED 17.10.2012 (SUPRA) BY RELYING ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PLASTIB L END INDIA LTD. , 318 ITR 352 (BOM.) . THUS, FOLLOWING THE SAID PRECEDENT, WE HEREBY AFFIRM THE ORDER OF CIT(A) AND ACCORDINGLY, ASSESSEE FAILS ON THIS GROUND. 13. THE SECOND GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS.29,95,845/ - REPRESENTING EXPENDITURE ON PENSION PAID TO EMPLOYEES WHO HAVE TAKEN VOLUNTARY RETIREMENT UNDER THE VOLUNTARY RETIREMENT SCHEME (VRS ) . THE ASSESSING OFFICER DISALLOWED THE CLAIM AND INSTEAD, ALLOWED DEDUCTION TO THE EXTENT OF 1/5 TH OF THE CLAIM, I.E., RS.4,99,307/ - BY REFERRING TO THE PROVISIONS OF SEC. 35DDA OF THE ACT. THE CIT(A) HAS ALSO SUSTAINED THE ACTION OF THE ASSESSING OFFIC ER BY REFERRING TO THE DECISION OF HIS PREDECESSOR ON THE SAME ISSUE FOR ASSESSMENT YEAR 2004 - 05, WHICH IN TURN HAD RELIED UPON THE DECISION IN ASSESSMENT YEAR 2002 - 03. 9 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. 14. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID DISPUTE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 1999 - 2000 AND VIDE ORDER IN ITA NOS. 1439 & 2059/MUM/2004 DATED 17.10.2012, THE CLAIM OF AS SESSEE FOR DEDUCTION OF THE ENTIRE AMOUNT PAID ON ACCOUNT OF VRS WAS ALLOWED AS A REVENUE EXPENDITURE. THEREAFTER, FOR ASSESSMENT YEAR 2003 - 04 AND ALSO 2004 - 05, SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ORDERS IN ITA NO S . 929, 930, 957 & 958/MUM/2008 DATED 03.07.2015 . 15. ON THE OTHER HAND, THE LD. DR HAS NOT CONTROVERTED THE FACTUAL MATRIX BUT REITERATED THE STAND OF THE REVENUE. 16. HAVING CONSIDERED THE RIVAL STANDS WE FIND THAT IN VIEW OF THE PRECEDENTS, THE CLAIM OF THE ASSESSEE REGARDING ALLOWABILITY OF EXPENDITURE INCURRED ON ACCOUNT OF VRS BY WAY OF PAYMENTS TO THE RETIRED EMPLOYEES DESERVES TO BE ALLOWED. NOTABLY, IN ITS ORDER DATED 17.10.2012 (SUPRA), THE TRIBUNAL NOTED THAT IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 1998 - 1999 , THE TRIBUNAL HAS ALLOWED THE CLAIM FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS BHOR INDUSTRIES LTD., 264 ITR 180 (BOM.) . THEREAFTER, IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 (SUPRA), THE TRIBUNAL HAS A LLOWED SIMILAR CLAIM OF ASSESSEE AND BEFORE US NOTHING HAS BEEN BROUGHT ON RECORD TO SAY THAT THE SAID PRECEDENTS HAVE BEEN ALTERED BY ANY HIGHER AUTHORITY. THEREFORE, FOLLOWING THE PRECEDENTS, WE HEREBY ALLOW THE CLAIM OF THE ASSESSEE AND ACCORDINGLY, AS SESSEE SUCCEEDS ON THIS GROUND. 17. THE LAST GROUND IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO ASSESSEES CLAIM FOR DEDUCTION OF PROVISION FOR FORESEEABLE LOSSES OF 10 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. RS.2,01,01,000/ - WITH RESPECT TO THE PROJECT AT TUNISIA. IN THIS CONTEXT, THE RELEVA NT FACTS ARE THAT THE APPELLANT WAS AWARDED A CONTRACT IN TUNISIA FOR DESIGN, MANUFACTURING, SUPPLY, CONSTRUCTION AND COMMISSIONING OF OVERHEAD ELECTRICAL TRANSMISSION LINES. THE SAID CONTRACT WAS STILL UNDER EXECUTION AND WAS NOT CONCLUDED AT THE CLOSE O F THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. AT THE CLOSE OF THE ACCOUNTING YEAR, ASSESSEE MADE A PROVISION FOR LOSS OF RS.2,01,01,000/ - IN RESPECT OF THE FORESEEABLE LOSS ES OF THE PROJECT. IN THE RETURN OF INCOME FILED, ASSES SEE ADDED BACK THIS LOSS IN THE COMPUTATION OF INCOME, BUT IN THE COURSE OF ASSESSMENT PROCEEDINGS, RAISED THE CLAIM, WHICH HAS BEEN REJECTED BY THE ASSESSING OFFICER. BEFORE THE ASSESSING OFFICER, ASSESSEE HAD EXPLAINED THAT THE FORESEEABLE LOSS ES OF THE TUNISIA PROJECT WAS BASED ON THE ACTUAL COST/EXPENSE INCURRED UPTO THE FINANCIAL YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR AND THE EXPECTED/PROJECTED COSTS FOR THE SUBSEQUENT ASSESSMENT YEARS ALSO. THE ASSESSEE TOOK INTO CONSIDERATION THE EXPECTED TO TAL REVENUES TO BE GENERATED FROM THE PROJECT, WHICH WAS A FIXED PRICE PROJECT. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CLAIM PRIMARILY NOTING THAT IT WAS CONTINGENT IN NATURE. THE ASSESSING OFFICER OBSERVED THAT EVEN UNDER THE MERCANTILE SYST EM OF ACCOUNTING, SUCH LOSS ES WOULD BE ELIGIBLE FOR CLAIM IN THE YEAR IN WHICH IT CRYSTALLISES AS A LIABILITY ON ACTUAL OR ACCRUAL BASIS . THE ASSESSING OFFICER ALSO OBSERVED THAT PRUDENCE ALONE IS NOT SUFFICIENT FOR CLAIMING THE EXPENSES PRIOR TO ITS O CCURRENCE . 18. WHEN THE MATTER WAS TAKEN - UP BY THE ASSESSEE BEFORE THE CIT(A), IT WAS CANVASSED THAT THE PROVISION FOR FORESEEABLE LOSSES FOR THE TUNISIA PROJECT WAS BASED ON PAST EXPERIENCE AND WAS ALLOWABLE SINCE IT WAS BASED ON A SCIENTIFIC AND ASCERTAINABLE CALCULATION AND THE SAME WAS CONSISTENT 11 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. WITH THE ACCOUNTING STANDARDS NOTIFIED FOR THE PURPOSE OF SEC. 145A OF THE ACT ALSO. ASSESSEE ALSO JUSTIFIED THE QUANTIFICATION OF FORESEEABLE LOSSE S BY POINTING OUT THAT BEING A FIXED PRICE COST, THE REVENUE FROM THE CONTRACT REMAINED FIXED WHEREAS DUE TO REASONS BEYOND THE CONTROL OF THE ASSESSEE, EXPENSES FOR EXECUTION WERE SUBSTANTIALLY INCREASED. VARIOUS REASONS FOR INCREASE OF COST WERE ASSIGNE D BY THE ASSESSEE, NAMELY, DELAY IN EXECUTION DUE TO PROTEST FROM LAND OWNERS WHERE THE TRANSMISSION LINES WERE TO BE ERECTED, ADVERSE WEATHER CONDITIONS, STOPPAGE OF WORK BY SUB - CONTRACTOR FOR ALMOST 18 MONTHS, DISPUTE BY SUB - CONTRACTOR ON PAYMENTS, RE - RO UTING OF LINE AS WELL AS REDUCTION IN THE ORIGINAL SCOPE OF WORK, ETC. IN PARTICULAR, ACCOUNTING STANDARD - 7 (AS) WAS RELIED UPON TO SAY THAT IN CIRCUMSTANCES WHERE THE TOTAL COSTS OF EXECUTION OF A CONTRACT ARE LIKELY TO EXCEED THE TOTAL CONTRACT REVENUE, THE EXPECTED LOSSES SHOULD BE RECOGNISED AS AN EXPENSE IMMEDIATELY. THE CIT(A) HAS DISAGREED WITH THE ASSESSEE. THE CIT(A) FIRSTLY REFERRED TO THE JUDGMENT S OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PVT. LTD., 312 ITR 25 4 (SC) AND M/S. ROTORK CONTROLS INDIA (P) LTD. , 314 ITR 62 (SC) AND PROCEEDED TO DISPOSE OFF THE APPEAL IN THE FOLLOWING MANNER : - 5.12 FROM A READING OF THE ABOVE JUDGEMENTS OF THE APEX COURT WHAT CAN BE CONCLUDED IS THAT: I) ACCOUNTING STANDARDS, AS L ONG AS THEY ARE NOT IN CONFLICT WITH THE PROVISIONS OF THE INCOME TAX ACT, ARE TO BE FOLLOWED AND THE EXPENSES ALLOWED. II) A PROVISION FOR FORESEEABLE LOSSES IS ALLOWABLE SO LONG AS IT IS BASED UPON PRESENT OBLIGATIONS AND RELIABLE ESTIMATES. 5.13 IN THE LIGHT OF THE ABOVE PROPOSITION LET US EXAMINE THE FACTS IN THE INSTANT CASE. AS QUOTED ABOVE, THE APPELLANT WAS ASKED TO GIVE THE 12 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. WORKING ON THE BASIS OF WHICH THE FORESEEABLE LOSS OF RS.2,01,01,000/ - HAVE BEEN WORKED OUT. AS PER THE SAID WORKINGS, QUOTED SUPRA, IT IS SEEN THAT THE PRIMARY REASON FOR THE FORESEEABLE LOSSES ARE TWO: I) REDUCTION IN THE TOTAL PROJECTED REVENUE AT TND 14239928, AS AGAINST TND 17373737, AS PER THE CONTRACT, AND II) PROJECTED NET LOSS MARGIN OF 207.63% FOR FY 2006 - 07. IN RESPONSE TO A SPECIFIC QUERY WITH REGARD TO REDUCTION IN PROJECTED REVENUE, THE APPELLANT SUBMITTED THAT THE REASON FOR THE DECLINE IN THE FORECASTED CONTRACT REVENUES WAS DUE TO CHANGES MADE IN THE SCOPE OF WORK; NAMELY, REALIGNMENT OF THE SPECIFIED RO UTE FROM 664 KMS TO 562 KMS. HOWEVER, NO EVIDENCE IN SUPPORT OF CHANGE IN THE SCOPE OF THE ORIGINAL CONTRACT WAS FILED. I FAIL TO UNDERSTAND HOW AN INTERNATIONAL CONTRACT, RUNNING INTO MILLIONS OF RUPEES, COULD HAVE BEEN ALTERED WITHOUT ANY AMENDME NT HAVING BEING MADE TO THE ORIGINAL CONTRACT. IN THE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT THE ARGUMENT PUT FORWARD THAT THE CONSIDERATION OF THE CONTRACT WAS REDUCED FROM TND 17373737 TO 14282174. EVEN IF SUBSEQUENT EVENTS WERE TO SHOW THAT THE AC TUAL RECEIPT FROM THE CONTRACT WAS LESS THAN TND 17373737, THERE WAS NO EVIDENCE OR REASON AVAILABLE WITH THE APPELLANT IN F.Y. 2004 - 05, TO COME TO SUCH A CONCLUSION. LIKEWISE, FROM THE ABOVE GIVEN BUDGETARY ESTIMATES THE FORECASTED LOSS FOR F.Y. 2006 - 07 H AS BEEN SHOWN AT A NET LOSS MARGIN OF 207.63%, AS AGAINST ACTUAL LOSSES FLUCTUATING BETWEEN 98.57% TO 36.08% DURING THE PERIOD 2002 - 03 TO 2005 - 06. ONCE AGAIN, IN ITS REPLY FILED ON 23.11.2011, THE APPELLANT HAS SUBMITTED THAT THE SUB CONTRACTOR EXPENSES HA VE BEEN ENHANCED DUE TO ADDITIONAL DEMANDS MADE BY THE SUB CONTRACTOR. IN THIS REGARD, THE EVIDENCE FILED IS IN THE SHAPE OF CORRESPONDENCE BETWEEN THE SUB CONTRACTOR AND THE APPELLANT RELATING TO THE F.Y. 2006 - 07. NO DOCUMENTARY EVIDENCE TO SHOW THAT DURI NG THE F.Y. 2004 - 05 THE APPELLANT WAS LIKELY TO INCUR ENHANCED EXPENSES IN F.Y. 2006 - 07, HAVE BEEN PUT ON RECORD. IN THE CIRCUMSTANCES, IT IS QUITE CLEAR THAT THE COMPUTATION OF FORESEEABLE LOSSES, IS WITHOUT ANY BASIS. AS LAID DOWN BY THE SUPREME COURT I N M/S. ROTORK CONTROLS INDIA (P) LTD, A PROVISION FOR FORESEEABLE LOSSES IS ALLOWABLE SO LONG AS IT IS BASED UPON PRESENT OBLIGATIONS AND RELIABLE ESTIMATES. I AM AFRAID NO SUCH EVIDENCE HAS BEEN PLACED ON RECORD BY THE APPELLANT. IN THE CIRCUMSTANCES, TH E AO HAS RIGHTLY 13 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. REJECTED THE CLAIM OF THE APPELLANT. IN THE CIRCUMSTANCES, THE AO HAS RIGHTLY REJECTED THE CLAIM OF THE APPELLANT. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. 19. FROM THE AFORESAID DISCUSSION IT EMERGES THAT THE CIT(A) WAS NOT SAT ISFIED WITH THE BASIS OF COMPUTATION OF FORESEEABLE LOSSES ON THE GROUND THAT THE SAME WAS NOT BASED UPON PRESENT OBLIGATIONS AND RELIABLE ESTIMATES . HE HAS DRAWN SUPPORT FROM THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. ROTORK CONTROLS INDIA (P) LTD. (SUPRA) IN ORDER TO EXAMINE THE VERACITY OF THE IMPUGNED PROVISION FOR FORESEEABLE LOSSES MADE BY THE ASSESSEE WHICH , ACCORDING TO HIM, WERE NOT RELIABLE. PERTINENTLY, IT IS ALSO RELEVANT TO OBSERVE HERE THAT SO FAR AS THE RELIANCE PLACED BY THE ASSESSEE ON AS - 7 TO JUSTIFY THE MERIT OF THE PROVISION IS CONCERNED, THE CIT(A) HAS NOT DISPUTED THE SAME IN PRINCIPLE, AS ACCORDING TO HIM, THE ACCOUNTING STANDARDS CAN BE FOLLOWED IN COMPUTING THE TOTAL INCOME SO LONG AS THEY ARE NOT IN CONFLICT W ITH THE PROVISIONS OF THE ACT. IN THIS BACKGROUND, ASSESSEE IS IN APPEAL BEFORE US. 20. BEFORE US, THE LEARNED REPRESENTATIVE POINTED TO THE PAPER BOOK WHEREIN COPIES OF DETAILED SUBMISSIONS MADE TO THE LOWER AUTHORITIES JUSTIFYING THE CALCULATION OF THE PROVISION FOR FORESEEABLE LOSSES AS WELL AS ITS ALLOWABILITY IN LAW , HA VE BEEN PLACED . IT IS CONTENDED THAT BEFORE THE LOWER AUTHORITIES, IT WAS EXPLAINED THAT THE ASSESSEE WAS AWARDED A FIXED PRICE CONTRACT AND THAT FOR VARIED REASONS, THE LEVEL OF EXPE NDITURE INCURRED ON EXECUTION OF THE CONTRACT WAS TO EXCEED THE REVENUES EARNED. PARTICULARLY, IT IS POINTED OUT THAT ASSESSEE ALSO ASSERTED BEFORE THE LOWER AUTHORITIES THAT THE DATA OF THE SUBSEQUENT YEARS WOULD SHOW THAT THE ACTUAL LOSSES INCURRED 14 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. BY T HE ASSESSEE WERE FAR MORE THAN THE LEVEL OF EXPENSES CONSIDERED BY THE ASSESSEE TO COMPUTE THE IMPUGNED PROVISION FOR FORESEEABLE LOSSES. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE ALSO EXPLAINED THAT, IN FACT, THE ACTUAL LOSSES FROM TUNISIA PROJE CT, WHICH HAS ALSO BEEN ACCEPTED IN THE SUBSEQUENT YEARS ASSESSMENTS, WOULD BEAR OUT THAT THE PROVISION FOR FORESEEABLE LOSSES DETERMINED BY THE ASSESSEE WAS ON A CONSERVATIVE BASIS. ACCORDING TO THE LEARNED REPRESENTATIVE, HAVING REGARD TO THE FOLLOWING DECISIONS, THE PROVISION FOR FORESEEABLE LOSSES IS TO BE CONSIDERED AS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT : - I) ACIT VS ASHOKA BUILDCON LTD. (170 TTJ 19) (PUNE TRIB.) II) ACIT VS ITD CEMENTATION INDIA LTD. (146 ITD 59) (MUM. TRIB.) III) DREDGI NG INTERNATIONAL N.V. VS ADIT (48 SOT 430) (MUM. TRIB.) IV) JACOB ENGINEERING INDIA (P.) LTD. VS ACIT (14 TAXMANN.COM 186)(MUM. TRIB.) V) MAZGAON DOCK LTD. VS JCIT (29 SOT 356) (MUM. TRIB.) 21. WITH REGARD TO THE STAND OF THE CIT(A) THAT DETERMINATION OF PROVISION WAS NOT RELIABLE, THE LEARNED REPRESENTATIVE HAS REFERRED TO THE WRITTEN SUBMISSIONS FILED WITH THE CIT(A), WHICH ARE PLACED IN THE PAPER BOOK AT PAGES 170 - 174. IN TERMS THEREOF, IT HA S BEEN EXPLAINED THAT DUE TO REDUCTION IN THE SCOPE OF WORK, THE TOTAL REVENUE HAS COME DOWN AND THAT LOSSES OCCURRED ON ACCOUNT OF IDLE MANPOWER FOR MORE THAN THREE YEARS DUE TO DELAY IN EXECUTION OF WORK FOR VARIOUS REASONS. IT IS FURTHER POINTED OUT TH AT THE INCREASE IN CONSTRUCTION COST WAS NOT COMPENSATED BY THE CLIENT, BUT RATHER THE ASSESSEE HAD TO BEAR THE ADDITIONAL COSTS ON PAYMENT TO THE SUB - CONTRACTOR. WITH REGARD TO THE ADDITIONAL PAYMENTS MADE TO THE SUB - 15 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. CONTRACTOR NOT BEING ACCEPTED BY THE CIT(A), ASSESSEE POINTED OUT THAT BEFORE THE CIT(A), PROOF WAS ALSO FURNISHED IN THE FORM OF CLAIM FINALLY SETTLED WITH THE CONTRACTOR IN THE SUBSEQUENT YEAR , AND ONCE IT WAS COMPARED WITH THE AMOUNT ACTUALLY TAKEN BY THE ASSESSEE IN DETERMINING THE IMPUGNED PROVISION, IT WOULD SHOW THAT ASSESSEE HAD MADE THE PROVISION ON A CONSERVATIVE BASIS. IN SUM AND SUBSTANCE, THE LEARNED REPRESENTATIVE SOUGHT TO JUSTIFY THE BASIS OF ARRIVING AT THE PROVISION FOR FORESEEABLE LOSSES AND ALSO CANVASSED ON THE POINT OF LAW THAT IT WAS AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. 22. ON THE OTHER HAND, THE LD. DR HAS PRIMARILY REITERATED THE STAND OF THE LOWE R AUTHORITIES, WHICH WE HAVE NOTED IN SOME DETAIL IN THE EARLIER PARAS AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. THE EMPHASIS BY THE LD. DR IS PRIMARILY TO THE EFFECT THAT THE IMPUGNED CLAIM WAS CONTINGENT IN NATURE AND, THEREFORE, THE SAME WAS J USTIFIABLY DENIED BY THE LOWER AUTHORITIES. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. FACTUALLY SPEAKING, IN THE PRESENT CASE, THE ISSUE BEFORE US RELATES TO THE LOSSES ANTICIPATED BY THE ASSESSEE ON THE EXECUTION OF A FIXED PRICE CONTRACT AND SUCH PROVISION FOR FORESEEABLE LOSSES IS CANVASSED TO BE IN TERMS OF THE REQUIREMENTS OF AS - 7. AS - 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) SEEKS TO PRESCRIBE THE ACCOUNTING TREATMENT OF REVENUE AND COSTS ASSOCIATED WITH CONST RUCTION CONTRACTS. AS - 7, INTER - ALIA , PRESCRIBES THAT WHEN THE OUTCOME OF A CONSTRUCTION CONTRACT CAN BE ESTIMATED WITH RELIABILITY, THE CONTRACT REVENUE AND CONTRACT COSTS SHOULD BE RECOGNISED WITH REFERENCE TO THE LEVEL OF COMPLETION OF THE CONTRACTED AC TIVITY ON A GIVEN DATE. IT, INTER - ALIA , ALSO PRESCRIBES THAT SO FAR AS RECOGNITION OF AN 16 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. ANTICIPATED LOSS IS CONCERNED, THE SAME IS LIABLE TO BE RECOGNISED AS AN EXPENDITURE IMMEDIATELY DE - HORS THE STAGE OF COMPLETION OF THE CONTRACTED ACTIVITY. IN FACT, PARA 35 OF THE AS - 7, WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER, PRESCRIBES THAT SUCH ANTICIPATED LOSS SHOULD BE RECOGNISED AS AN EXPENDITURE IMMEDIATELY IRRESPECTIVE OF WHETHER OR NOT THE CONTRACTED WORK HAS COMMENCED. AT THIS STAGE, WE MAY RE FER TO THE DECISION OF THE TRIBUNAL IN THE CASE OF JACOB ENGINEERING PVT. LTD. (SUPRA), WHEREI N THE ALLOWABILITY OF FORESEEABLE LOSS DETERMINED IN TERMS OF AS - 7 HAS BEEN ACCEPTED IN - PRINCIPLE. IN COMING TO SUCH A DECISION, THE TRIBUNAL RELIED UPON AN EARL IER DECISION OF THE TRIBUNAL IN THE CASE OF MAZGAON DOCK LTD., AS ALSO THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF METAL BOX CO. OF INDIA LTD. , 73 ITR 53 (SC) . TO THE SIMILAR EFFECT ALSO ARE THE DECISIONS OF OUR CO - ORDINATE BENCH IN THE CASE S OF ASHOKA BUILDCON LTD. (SUPRA), ITD CEMENTATION INDIA LTD. (SUPRA) AND DREDGING INTERNATIONAL N.V. (SUPRA) WHICH HAVE ALSO BEEN RELIED UPON BEFORE US. 24. INSOFAR AS THE EFFIC ACY OF THE PROVISION MADE BY THE ASSESSEE IS CONCERNED, WE FIND NO REASON TO UPHOLD THE FINDING OF THE CIT(A) THAT THE SAME IS UNREALIABLE. FIRSTLY, THE MANNER IN WHICH THE PROVISION WAS DETERMINED BY THE ASSESSEE HAS BEEN PERUSED BY US, AND WHICH HAS BEEN A DEQUATELY BROUGHT OUT BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US. THE REASONS FOR THE LOSS HAS BEEN EXPLAINED TO BE (I) REDUCTION IN THE SCOPE OF WORK LEADING TO LOWER REVENUE, (II) SUBSTANTIAL DELAY IN COMPLETION OF THE PROJECT, AN D, (III) WHEREAS THE REVENUE EARNINGS WERE FIXED, BUT THE INCREASE IN CONSTRUCTION COST WAS NOT COMPENSATED TO THE ASSESSEE AND ON THE CONTRARY, THE SUB - CONTRACTOR HAD MADE ADDITIONAL CLAIMS DUE TO DELAY, WHICH WERE COMPENSATED BY THE ASSESSEE. QUITE CLEA RLY, THE 17 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. COMPUTATION OF FORESEEABLE LOSS IS DETERMINED BY THE ASSESSEE ON THE BASIS OF ACTUAL FINANCIAL FIGURES UPTO THE CLOSE OF THE YEAR UNDER CONSIDERATION AND THE BUDGETED ESTIMATES FOR THE NEXT TWO YEARS. IN TERMS OF THE BUDGETED COSTS, ASSESSEE TOOK INTO CONSIDERATION THE ADDITIONAL COSTS AND COMPENSATION CLAIMED BY THE SUB - CONTRACTOR. IN SUPPORT, ASSESSEE FURNISHED BEFORE THE LOWER AUTHORITIES CORRESPONDENCE WITH THE SUB - CONTRACTOR IN TERMS OF WHICH THE ADDITIONAL COSTS WERE DEMANDED FOR DELAY IN E XECUTION OF THE WORK BECAUSE OF PROTEST FROM THE LAND OWNERS WHERE THE TRANSMISSION LINE WAS TO BE ERECTED, ADVERSE WEATHER CONDITIONS, INADEQUATE SUPPLY OF MATERIAL AT SITE, RE - ROUTING OF LINE , REDUCTION OF ORIGINAL SCOPE OF WORK, ETC. ASSESSEE EXPLAINED THAT THOUGH SUCH CLAIMS WERE NOT ACCEPTED DURING THE YEAR UNDER CONSIDERATION , THE SAME WERE BEING NEGOTIATED, AND THE BUDGETED AMOUNT CONSIDERED BY THE ASSESSEE WAS LESS THAN THE CLAIM FINALLY SETTLED WITH THE SUB - CONTRACTOR IN THE SUBSEQUENT YEAR. ASSE SSEE ALSO SUPPORTED THE REDUCED REVENUE EARNING S BY POINTING OUT THAT THE LUMP - SUM PRICE WAS BASED ON RATE PER KILOMETRE BASIS. IT WAS EXPLAINED THAT DUE TO THE CHANGE IN SCOPE OF WORK TO BE CARRIED OUT, SOME OF THE LINES WERE NOT TO BE LAID AND SOME OF T HE ORIGINAL LINES TO BE LAID WERE RE - ROUTED THEREBY RESULTING IN DECREASED ROUTE LENGTH OF LINES, WHICH ULTIMATELY REDUCED THE REVENUE EARNING S . CIT(A) HAS NOT ACCEPTED THE AFORESAID TWO POINTS BY POINTING OUT THAT THERE WAS NO EVIDENCE FOR THE SAME. IN OUR CONSIDERED OPINION, THE EXPLANATION FURNISHED BY THE ASSESSEE IS QUITE PLAUSIBLE AND IS BORNE OUT OF RECORD ; SO FAR AS THE CLAIM OF THE SUB - CONTRACTOR IS CONCERNED, THE BUDGETED AMOUNT IS LOWER THAN THE FINALLY SETTLED CLAIM IN THE SUBSEQUENT YEAR , AN ASPECT WHICH HAS NOT BEEN FOUND TO BE UNTRUE . EVEN WITH REGARD TO THE REDUCTION IN THE SCOPE OF WORK, THERE IS NO NEGATION TO THE PLEA SET - UP BEFORE THE CIT(A) THAT THE ABSENCE OF ANY FORMAL VARIATION 18 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. ORDER BY THE TUNISIAN CLIENT DOES NOT DISTRACT FROM TH E FACT THAT REVENUE EARNING CORRESPONDING TO THE DECREASED SCOPE OF WORK HAS NOT COME TO THE ASSESSEE. IN OUR VIEW, THE PLEAS OF THE ASSESSEE JUSTIFYING THE QUANTIFICATION OF PROVISION OF FORESEEABLE LOSSES HAS BEEN MERELY DISBELIEVED BY THE CIT(A) WITHOU T ANY FACTUAL SUPPORT. WE, THEREFORE, HOLD THAT THE DETERMINATION OF FORESEEABLE LOSS MADE BY THE ASSESSEE IN TERMS OF AS - 7 IS FAIR, PROPER AND JUSTIFIED. 2 5 . IN OUR CONSIDERED OPINION, THE IMPUGNED ISSUE CAN ALSO BE EXAMINED FROM ANOTHER ANGLE, WHICH IS AS FOLLOWS. SEC. 4 OF THE ACT PROVIDES THE BASIS OF CHARGING OF INCOME - TAX IN RESPECT OF THE TOTAL INCOME OF PREVIOUS YEAR OF AN ASSESSEE. SEC. 5 OF THE ACT LAYS DOWN THE SCOPE OF TOTAL INCOME OF ANY PREVIOUS YEAR OF AN ASSESSEE AND THE ACT ALSO PRESCRI BES THE MANNER OF COMPUTATION OF SUCH TOTAL INCOME. NOTABLY, SO FAR AS THE INCOMES CHARGEABLE UNDER THE HEADS PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND INCOME FROM OTHER SOURCES ARE CONCERNED, THE SAME ARE LIABLE TO BE COMPUTED IN TERMS OF THE METHOD OF ACCOUNTING PRESCRIBED IN SEC. 145 OF THE ACT. SEC. 145(1) OF THE ACT, SO FAR AS IT IS RELEVANT FOR OUR PURPOSE, PRESCRIBES THAT INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION SHALL BE COMPUTED IN ACCORDANCE WIT H EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY AN ASSESSEE. SUB - SECTION (2) OF SEC. 145 OF THE ACT, AS IT STOOD AT THE RELEVANT POINT OF TIME, EMPOWERS THE CENTRAL GOVERNMENT TO NOTIFY ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLA SS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOMES WHILE CARRYING OUT THE COMPUTATION OF INCOME REFERRED TO IN SEC. 145(1) OF THE ACT. UNDER SEC. 145(2) OF THE ACT, ONE OF THE ACCOUNTING STANDARDS NOTIFIED IS AS - 1, WHICH REFERS TO THE PRINCIPLE OF PRUDE NCE. THE PRINCIPLE OF PRUDENCE, AS 19 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. AN ACCOUNTING POLICY, SEEKS TO ENSURE THAT PROVISIONS OUGHT TO BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THERE MAY REMAIN CERTAIN UNCERTAINTY WITH REGARD TO ITS QUANTIFICATION OR DETERMINATION. IN OTHER W ORDS, IT HAS TO BE APPRECIATED THAT THE SIGNIFICANCE OF THE PRINCIPLE OF PRUDENCE IS THAT ALL PROBABLE AND EVEN FORESEEABLE LOSSES SHOULD BE IMMEDIATELY RECOGNISED AND SUCH RECOGNITION CAN ALSO BE A BEST ESTIMATE, IN THE LIGHT OF THE AVAILABLE INFORMATION. THE CLAIM OF ASSESSEE FOR DEDUCTION OF PROVISION OF FORESEEABLE LOSSES CAN ALSO BE SEEN IN THE AFORESAID LIGHT. IN FACT, THE SIGNIFICANCE OF ADHERENCE TO THE ACCOUNTING STANDARDS NOTIFIED IN SEC. 145(2) OF THE ACT CAN ALSO BE FOUND FROM THE PRESCRIPTION OF SUB - SECTION (3) OF SEC. 145 OF THE ACT. SHORN OF OTHER DETAILS, IT IS SIGNIFICANT TO NOTE THAT SUB - SECTION (3) OF SEC. 145 OF THE ACT EMPOWERS THE ASSESSING OFFICER TO REJECT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR THE METHO D OF ACCOUNTING REFERRED TO IN SUB - SECTION (1), IF IT IS FOUND THAT THE ACCOUNTING STANDARDS, AS NOTIFIED UNDER SUB - SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IN OUR CONSIDERED OPINION, IN THE PRESENT CASE, THE METHOD OF ACCOUNTING EMP LOYED BY THE ASSESSEE IS MERCANTILE SYSTEM, WHICH IS WITHIN THE FRAMEWORK OF SEC. 145(1) OF THE ACT AND HAVING REGARD TO THE FACT THAT THE IMPUGNED CLAIM IS COMPLIANT WITH THE PRINCIPLE OF PRUDENCE, WHICH IS A PART OF THE ACCOUNTING STANDARDS NOTIFIED UNDE R SEC. 145(2) OF THE ACT, WE FIND NO JUSTIFICATION FOR THE LOWER AUTHORITIES TO HAVE REJECTED THE CLAIM ON THE GROUND OF IT BEING CONTINGENT IN NATURE. IN FACT, SO FAR AS THE FACTUM OF LOSS IS CONCERNED, THERE WERE ENOUGH FACTORS IN THE KNOWLEDGE OF THE A SSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INSTANT ASSESSMENT YEAR TO JUSTIFY MAKING OF THE PROVISION FOR SUCH FORESEEABLE LOSSES. THUS, ON THIS COUNT ALSO, IN OUR VIEW, THE CLAIM OF ASSESSEE IS NOT UNJUSTIFIED. 20 ITA NOS. 2282 & 2336/MUM/2012 SUMMIT SECURITIES LTD. 2 6 . THUS, IN CONCLUSION, HAVING REGA RD TO THE AFORESAID DISCUSSION, ON FACTS AS WELL AS IN LAW, WE HOLD THE CLAIM OF ASSESSEE FOR DEDUCTION OF PROVISION OF FORESEEABLE LOSSES OF RS. 2,01,01,000/ - ON TUNISIA PROJECT IS AN ALLOWABLE CLAIM. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. 2 7 . IN THE RESULT, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED, THAT OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 S T MARCH , 2018. SD/ - SD/ - (C.N. PRASAD) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 1 S T MARCH , 2018 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, E BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI