Assistant Commissioner Of Income Tax, Circle- 1(2)(1), Bangalore V. M/s. CEC Soma CICI Joint Venture, Bengaluru

ITA 2501/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5229 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 09-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVASAN
• Assessee Lawyers: MUZAFFAR HUSSAIN
• Section: 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2501/BANG/2019 ASSESSMENT YEAR : 2013 14 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2)(1), BENGALURU. VS. M/S CEC SOMA CICI JOINT VENTURE, OPP. GATE NO.20, NEAR M CHINNASWAMY STADIUM, M.G ROAD, BENGALURU-560 001. PAN AAAAC 8081 E APPELLANT RESPONDENT APPELLANT BY : SHRI V SRINIVASAN, ADVOCATE RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 14-09-2020 DATE OF PRONOUNCEMENT : 09-10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAINS T ORDER DATED 01/08/2019 PASSED BY LD.CIT(A), KORAMANGALA, BANGAL ORE, FOR ASSESSMENT YEAR 2013-14 ON FOLLOWING GROUNDS OF APP EAL: PAGE 2 OF 8 ITA NO.2501/BANG/2019 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO F AR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND T HE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT (A) ERRED IN DELETING THE DISALLOWAN CE OF RS. 7,85,14,570/- MADE BY AO TOWARDS THE PROVISIONS FOR FUTURE EXPENSES CLAIMED. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE LD. CIT (A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARIN G OF APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS AN ASSOCIATION OF PERSONS CARRYING O N BUSINESS OF CIVIL CONSTRUCTION. IT HAS BEEN SUBMITTED THAT, ASSESSEE WAS FORMED BY 3 DISTINCT PARTIES TO SECURE ELIGIBILITY/ QUALIFICATION FOR BIDDING FOR TENDER FLOATED BY BMRCL FOR CONSTRUCTI ON OF STATIONS, TUNNELS FOR METRO LINE FROM QUEENS CIRCLE TO MAJES TIC, IN BANGALORE. IT HAS BEEN SUBMITTED THAT, ASSESSEE WAS THE SUCCESSFUL BIDDER IN SECURING WORK FROM BMR SALE ON A FIXED LUMP SUM CONTRACT OF RS.995.20 CRORES. IT IS SUBMIT TED THAT, ASSESSEE STARTED EXECUTING IN THE SAID WORK FROM AS SESSMENT YEAR 2009-10. 3. FOR YEAR UNDER CONSIDERATION ASSESSEE FILED ITS RETURN OF INCOME ON 30/11/2013, DECLARING GROSS TOTAL INCOME AT NIL. ASSESSEE CLAIMED CURRENT YEAR BUSINESS LOSS AT RS.2 ,38,02,141/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WAS ISSUED TO ASSESSEE IN RESPONSE TO WHICH, REPRESENTATIVE OF ASSESSEE APPEARED BEFOR E LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. PAGE 3 OF 8 ITA NO.2501/BANG/2019 4. LD.AO OBSERVED THAT ASSESSEE SHOWN OUTSTANDING E XPENSES TOWARDS PROVISION FOR EXPENSES, AMOUNTING TO RS.26, 64,07,546/- OUT OF WHICH, RS.7,85,14,570/- HAS BEEN CLAIMED AS EXPENDITURE TOWARDS PROVISION FOR FUTURE EXPENSES FOR THE CURRE NT YEAR. ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY TH E SAME SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE TOTA L INCOME FOR YEAR UNDER CONSIDERATION. IN RESPONSE TO THE NOTICE ISSUED, ASSESSEE FILED ITS REPLY DATED 16/11/2016 STATING T HAT, THE EXPENDITURE HAS BEEN IDENTIFIED BUT TO WHOM THE WOR K HAS BEEN ENTRUSTED AS NOT BEEN DECIDED AS ON 31/03/2013. IT WAS ALSO SUBMITTED THAT, SIMILAR PROVISION WAS MADE FOR EXPE NDITURE IN PREVIOUS ASST. YEARS, BEING 2011-12 AND 2012-13. LD . AO PERUSED SUBMISSIONS FILED BY ASSESSEE AND CALLED UP ON ASSESSEE ONCE AGAIN TO EXPLAIN THE REASON FOR UNBELIEVABLE A MOUNT CLAIMED AS EXPENDITURE IN PROFIT AND LOSS ACCOUNT. 5. UPON RECEIPT OF DETAILS FILED BY ASSESSEE, LD.AO WAS OF THE OPINION THAT, SUCH TYPE OF CONTINGENT LIABILITIES W ERE NOT DEDUCTIBLE AS HELD BY HONBLE SUPREME COURT IN CASE OF INDIAN MOLASSES COMPANY LTD VS CIT , REPORTED IN (1959) 37 ITR 66 . HE ALSO PLACED RELIANCE ON DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS MICROLAND LTD REPORTED IN (2012) 347 ITR 613. LD.AO THUS WAS OF OPINION THAT, PROVISION IN QUESTI ON IS YET TO BE CRYSTALLISED AND WAS LOADED WITH UNCERTAINTY OF EVE NT TO CAUSE A LIABILITY, AND HENCE THE SAME WAS NOT ALLOWABLE. HE PLACED RELIANCE ON DECISION BY HONBLE SUPREME COURT IN CASE OF CIT VS ROTORK CONTROLS INDIA PVT. LTD. , PAGE 4 OF 8 ITA NO.2501/BANG/2019 6. LD.AO THUS DISALLOWED DEDUCTION OF RS.7,85,14,57 0/- CLAIMED BY ASSESSEE AS PROVISION FOR POSSIBLE FUTUR E CLAIMS. 7. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE PREFERRED APPEAL BEFORELD.CIT(A). LD.CIT(A) REFERED TO ORDER PASSED BY THIS TRIBUNAL DATED 03/05/2019, FOR ASSESSMENT YEAR 2011-12 AND 2 012-13 IN ITA NO.126 AND 1822/BANG/2016, WHEREIN THIS TRIBUNAL , RELYING ON DECISION OF HONBLE SUPREME COURT IN CASE OF BEML LTD ., REPORTED IN 245 ITR 482 TOOK A VIEW THAT, PROVISION CAN BE ALLOWED AS DEDUCTION PROVIDED THE 2 CONDITIONS STAN DS SATISFIED NAMELY: (1) INCURRING OF LIABILITY MUST BE CERTAIN AND (2) THE BASIS OF QUANTIFICATION OF THE FUTURE EXPENSES SHOULD BE SCIENTIFIC AND REASONABLE. 8. LD.CIT(A) OBSERVED THAT, THIS TRIBUNAL ALLOWED CLAIM OF ASSESSEE, SINCE BOTH THESE CONDITIONS STOOD SATISFI ED IN ASSESSMENT YEAR 2011-12 AND 2012-13. 9. AGGRIEVED BY ORDER OF LD.CIT(A), REVENUE IS IN A PPEAL BEFORE US NOW. 10. LD.CIT.DR SUBMITTED THAT, ALL ISSUES RAISED IN PRESENT APPEAL ARE IN RESPECT OF PROVISION ALLOWED BY LD.CI T(A). AT THE OUTSET, LD.CIT.DR SUBMITTED THAT, FUTURE PAYMENTS C ONSIDERED BY THIS TRIBUNAL IN ASSESSMENT YEAR 2011-12 AND 2012-13 WERE RELATED TO WORK WHICH IS NOT SIMILAR TO YEAR UNDER CONSIDERATION. HE SUBMITTED THAT, FOR YEAR UNDER CONSIDERATION ASS ESSEE HAS NOT ESTABLISHED/DEMONSTRATED NATURE OF PAYMENTS, FOR W HICH ESTIMATION HAS BEEN MADE UNDER THE PROVISION FOR FU TURE CLAIMS. PAGE 5 OF 8 ITA NO.2501/BANG/2019 HE THUS SUBMITTED THAT, ISSUE MAY BE REMANDED BAC K FOR VERIFICATION IN LIGHT OF AGREEMENT ENTERED INTO B Y ASSESSEE WITH BMR CL. 11. ON THE CONTRARY, LD.AR SUBMITTED THAT, SUM OF RS.33,72,01,011/- HAS BEEN PROVIDED TOWARDS OUTSTAN DING EXPENSES WHICH FELL DUE AND WAS DISCHARGED DURING T HE YEAR. THE 2 ND PROVISO WAS MADE TOWARDS FUTURE EXPENSES AMOUNTING TO RS.7,85,14,570/-. LD.AR SUBMITTED THAT, THIS IS A C ASE WHERE, ASSESSEE HAS TO INCUR CERTAIN EXPENDITURE WITHOUT A NY FURTHER BILLING, AS HE SUBMITTED THAT THESE EXPENSES ARE BU ILT INTO OVERALL COST OF THE CONTRACT AWARDED BY BMRCL. IT HAS BEEN SUBMITTED THAT, ASSESSEE THEREFORE THOUGHT IT FIT TO MAKE A P ROVISION FOR THESE EXPENSES THAT ARE REQUIRED TO BE MET AT THE E ND OF THE PROJECT FOR WHICH NO BILLING COULD BE MADE OUT OF PROFIT DERIVED IN THE CURRENT YEAR. IT HAS THUS BEEN SUBMITTED THAT C OST OF UNBILLED WORKS REQUIRED TO BE EXECUTED AT THE END OF THE PRO JECT HAS TO BE PROVIDED ON PRO RATA OVER ENTIRE PERIOD OF CONTRACT BY ESTIMATING THE SAME ON SCIENTIFIC AND RATIONAL BASED ON ENGINE ERING ESTIMATES FOR THE SAME. 12. HE THUS SUBMITTED THAT PROVISION SATISFIES BOTH CONDITIONS LAID DOWN BY HONBLE SUPREME COURT REFERRED TO BY THIS TRIBUNAL IN PRECEDING ASSESSMENT YEARS. 13. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 14. FROM THE RECORDS, WE NOTE THAT, LD.AO DID NOT V ERIFY AGREEMENT WITH BMRCL AND CONDITIONS STIPULATED THER EIN. PAGE 6 OF 8 ITA NO.2501/BANG/2019 ASSESSEE HAS REFERRED TO PAGE 63 OF PAPER BOOK, WHE REIN, YEAR WISE PROVISIONS MADE AN ACTUAL AMOUNT OF EXPENSES I NCURRED DEBITED TO PROVISION ACCOUNT HAS BEEN SUMMARISED. PAGE 64-74 OF PAPER BOOK & LEDGER EXTRACT OF EXPENSES SO INCU RRED, FOR WHICH, PROVISIONS WERE CREATED IN THE PAST. IT HAS ALSO BEEN SUBMITTED THAT, CERTAIN EXPENSES HAS BEEN INCURRED BY ASSESSEE OVER AND ABOVE THE PROVISION WHICH HAS BEEN TABULAT ED AT PAGE 271-73 OF PAPER BOOK THAT DOES NOT FORM PART OF LU MP SUM CONTRACT REVENUE. 15. WE NOTE THAT, AUTHORITIES BELOW HAVE NOT LOOKED INTO THE DOCUMENTS REFERRED TO BY ASSESSEE BEFORE US. WE ALS O AGREE WITH LD.CIT DR THAT, NATURE OF PROVISIONS CONSIDERED BY THIS TRIBUNAL IN PRECEDING YEARS ARE NOT SIMILAR TO FUTURE CLAIM PROVIDED FOR BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION AMOUNT ING TO RS.7,85,14,570/-. IT IS ALSO NOTED THAT, ASSESSEE S UBMITTED DETAILS OF WORK, WHICH WAS TO BE INCURRED BY ASSESS EE IN PRECEDING YEAR AGAINST WHICH, PROVISION WAS MADE. A LSO THAT BEFORE THIS TRIBUNAL ASSESSEE DEMONSTRATED THAT, THE PROVISIONS WERE SUBSEQUENTLY DEBITED AT THE END OF THE YEAR AS THE EXPENDITURE HAD BEEN INCURRED BY ASSESSEE IN RESPEC T OF THE SAME. IN THE INTEREST OF JUSTICE, WE REMAND THE ISS UE TO LD.AO TO VERIFY THE SUBMISSIONS OF ASSESSEE IN LIGHT OF THE CONTRACT ENTERED INTO WITH BMRCL. ASSESSEE IS DIRECTED TO FURNISH AL L REQUISITE DETAILS IN SUPPORT OF ITS CLAIM. LD.AO IS THEN DIRE CTED TO CONSIDER THE CLAIM OF ASSESSEE IN ACCORDANCE WITH LAW. PAGE 7 OF 8 ITA NO.2501/BANG/2019 ACCORDINGLY, GROUNDS RAISED BY REVENUE STANDS ALLOW ED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY REVENUE STANDS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCT, 2020 SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 9 TH OCT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 8 OF 8 ITA NO.2501/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -10-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -10-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -10-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -10-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -10-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -10-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS