UHDE INDIA P.LTD, MUMBAI V. ASST CIT RG 10(3), MUMBAI

ITA 2924/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79011 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 26-11-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 30-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 2924/MUM/2012 ( / ASSESSMENT YEAR: 2004-05) UHDE INDIA PRIVATE LIMITED UHDE HOUSE, L. B. S. MARG, VIKHROLI (W), MUMBAI-400 083 VS. ASST. CIT, RANGE 10(3), MUMBAI ! ' ./PAN/GIR NO. AAACU 1416 H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI FIROZ ANDHYARUJINA $%!#&' / RESPONDENT BY : SHRI RAJESH RANJAN PRASAD ( )*&+, / DATE OF HEARING : 09.04.2014 -./&+, / DATE OF PRONOUNCEMENT : 28.05.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-22, MUMBAI (CIT(A) FOR SH ORT) DATED 28.02.2012, CONFIRMING THE LEVY OF PENALTY U/S. 271(1)(C) OF THE INCOME TA X ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2004-05, VIDE ORDER DATED 28.03 .2011. 2. THE PRESENT APPEAL, AT THE INSTANCE OF THE ASSES SEE, CONTESTS THE CONFIRMATION OF THE LEVY OF PENALTY U/S.271(1)(C) OF THE ACT ON THE FOL LOWING ADJUSTMENTS MADE TO ITS RETURNED INCOME IN ASSESSMENT: 2 ITA NO. 2924/MUM/2012 (A.Y. 2004-05) UHDE INDIA PRIVATE LIMITED VS. ASST. CIT A) DISALLOWANCE OF PROVISION OF COSTS ON COMPLETED/ UNCOMPLETED CONTRACTS; B) DISALLOWANCE OF SOFTWARE EXPENSES; AND C) DISALLOWANCE OF DEDUCTION U/S.80-HHB. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. 3.1 A FUNDAMENTAL DIFFERENCE HAS COME ABOUT SINCE T HE PASSING OF THE IMPUGNED ORDER, I.E., AN ORDER BY THE TRIBUNAL IN THE QUANTUM PROCE EDINGS ALLOWING THE ASSESSEE A TOTAL RELIEF QUA THE ADJUSTMENTS REFERRED TO AT (B) AND (C) ABOVE ( IN ITA NOS.651/MUM(F)/2009 DATED 08.08.2012/PB PGS.46-58). THOUGH THE SAME HAS SINCE BEEN CHALLENGED BY THE ASSESSEE BEFORE THE HONBLE JURISDICTIONAL HIGH COU RT, TWO THINGS NEED TO BE BORNE IN MIND. FIRSTLY, AS IT APPEARS, THERE HAS BEEN NO APPEAL BY THE REVENUE AGAINST THE SAID ORDER BY THE TRIBUNAL, SO THAT THE RELIEF ALLOWED TO THE ASS ESSEE HAS BECOME FINAL. TWO, THE PURVIEW OF THE HONBLE COURT IN APPEAL WOULD ONLY BE ON MAT TERS INVOLVING SUBSTANTIAL QUESTION OF LAW. AS SUCH, TO THE EXTENT THE ASSESSEES EXPLANAT ION IN RESPECT OF THE ADJUSTMENTS CONFIRMED FOR DISALLOWANCE CONCERN MATTERS OF FACT WHICH WE OBSERVE TO BE SUBSTANTIALLY SO, EVEN AS IS THE CASE OF THE AUTHOR ITIES BELOW, IT WOULD BE REQUIRED TO BE SEEN IF THE EXPLANATION IS ROOTED IN FACTS OR STA NDS SUBSTANTIATED. IF SO, THERE COULD BE NO OCCASION TO JUSTIFY PENALTY. SECONDLY, AGAIN, WHERE AND TO THE EXTENT THE ASSESSEES EXPLANATION IS PRIMARILY OR SUBSTANTIALLY LEGAL IN NATURE, ITS ADMISSIBILITY AS A VALID EXPLANATION WOULD HAVE TO BE EXAMINED WITH REFERENC E TO THE SETTLED LAW IN THE MATER IN- AS-MUCH AS NO VIEW CONTRARY THERETO COULD HOLD, WHI LE WHERE OR IF THE LAW IS NOT SETTLED, W.R.T. THE ASSESSEES VIEW AS REPRESENTING A POSSIB LE VIEW, SO THAT ITS EXPLANATION BECOMES PLAUSIBLE, SAVING PENALTY. 3.2 HAVING DELINEATING THE BROAD CONTOURS OF THE CA SE, WE MAY PROCEED TO DISCUSS THE CASE ISSUE-WISE: A) DISALLOWANCE OF PROVISION ON COMPLETED/UNCOMPLET ED CONTRACTS : THE SAME IS IN RESPECT OF ELEVEN (11) CONTRACTS. T HE PROVISION STANDS ACCEPTED BY THE TRIBUNAL IN SIX CASES, WHILE NOT IN THE BALANCE FIVE. THE CONFIRMATION OF THE 3 ITA NO. 2924/MUM/2012 (A.Y. 2004-05) UHDE INDIA PRIVATE LIMITED VS. ASST. CIT DISALLOWANCE BY THE TRIBUNAL IS ON THE PREMISE THAT WHAT HAS BEEN CLAIMED ARE ONLY IN THE NATURE OF AND BY WAY OF ESTIMATES, SO THAT NO DEFIN ITIVENESS COULD BE ASCRIBED THERETO. IN OUR VIEW, WHAT ALL THE ASSESSEE IS REQUIRED TO DEMO NSTRATE, MORE SO IN THE PENALTY PROCEEDINGS, IS THAT THE ESTIMATES ARE VALID AND NO MORE, I.E., ARE SOUND, BASED ON COGENT MATERIAL. AS LONG AS A PROVISION REPRESENTS A REASO NABLE ESTIMATE, BASED ON THE BEST AVAILABLE INFORMATION (AT THE TIME THE SAME IS MADE ), THE SAME WOULD WARRANT DEDUCTION, BOTH FROM THE STAND POINT OF BEING AN ACCOUNTING ES TIMATES AS WELL AS IN LAW (SECTION 145). OF COURSE, THE SAME SHOULD BE ADMISSIBLE AS A COST, I.E., ON THE BASIS OF THE PERCENTAGE OF THE WORK COMPLETED; THE ASSESSEE STAT ING TO BE FOLLOWING THE SAID METHOD, AS ALSO AGREE WITH THE MATCHING COST PRINCIPLE. REF ERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISIONS, SETTLING THE LAW IN THE MATTER, AS I N THE CASE OF BHARAT EARTH MOERS VS. CIT [2000] 245 ITR 428 (SC) AND ROTARK CONTROLS INDIA (P) LTD. VS. CIT [2009] 314 ITR 62 (SC). THE MATTER THUS IS PRINCIPALLY FACTUAL. IN THIS REG ARD, WE OBSERVE THAT WHILE THE ASSESSEE CLAIMS TO HAVE FOLLOWED THE MANDATE OF THE ACCOUNTING STANDARD (AS) 7, ADVOCATING PERCENTAGE COMPLETION METHOD, BY MAKING AN INFORMED ESTIMATE BASED ON A TECHNICAL ASSESSMENT/S, THE REVENUE FINDS THE IMPUG NED PROVISION TO HAVE NO BASIS IN FACTS, THE COSTS CLAIMED BEING UNCERTAIN AND CONTIN GENT. CLEARLY, THE MATTER CANNOT BE DECIDED ON GENERALIZED STATEMENTS OR ASSUMPTIONS, B UT WOULD NEED TO BE FACTUALLY DETERMINED, SEPARATELY QUA EACH PROVISION, EVEN AS WAS DONE BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS. WE, ACCORDINGLY, ONLY CONSIDER IT FIT AND PROPER, IN VIEW OF THE FOREGOING, TO RESTORE THE MATTER QUA THE BALANCE FIVE CONTRACTS, I.E., THE DISALLOWANCE ON WHICH STANDS CONFIRMED BY THE TRIBUNAL, BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION PER A SPEAKING ORDER, BY ISSUING DEFIN ITE FINDINGS OF FACT AFTER HEARING THE PARTIES. NEEDLESS TO ADD, THE EXERCISE WOULD NEED T O BE EXTENDED TO OTHER CONTRACTS AS WELL IF THE REVENUE IS ALSO IN APPEAL AGAINST THE ORDER BY THE TRIBUNAL IN-AS-MUCH AS THE SAME CANNOT THEN BE REGARDED AS FINAL. HOWEVER, IN THE A BSENCE OF ANY APPEAL BY THE REVENUE, THE PENALTY TO THAT EXTENT STANDS AUTOMATICALLY VAC ATED. WE DECIDE ACCORDINGLY. 4 ITA NO. 2924/MUM/2012 (A.Y. 2004-05) UHDE INDIA PRIVATE LIMITED VS. ASST. CIT B & C) DISALLOWANCE OF SOFTWARE EXPENSES AND DISALL OWANCE OF DEDUCTION U/S.80-HHB : WITHOUT DOUBT, THERE IS NO QUESTION OF ANY PENALTY IN VIEW OF THE ORDER BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS DELETING THE DISALLOWANCE. EVEN WHERE CHALLENGED BY THE REVENUE, I.E., ASSUMING SO, ITS ACCEPTANCE BY THE T RIBUNAL; THE MATTER POSING MIXED QUESTION OF FACT AND LAW, WOULD IN OUR VIEW EXCLUDE PENALTY. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 28, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 1* MUMBAI; 2 DATED : 28.05.2014 )3 ROSHANI , SR. PS !' # $%&' (!'% COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( 4+ 5 6 / THE CIT(A) 4. ( 4+ / CIT - CONCERNED 5. 7)89$3+3:; ,:;/ ( 1* / DR, ITAT, MUMBAI 6. 9<=* GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ( 1* / ITAT, MUMBAI