Appeal details
Counselvise Citation
444220114 RSA 2010
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 11 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-09-2012
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
17-09-2012
Assessment Year
2004-2005
Appeal Filed On
05-10-2010
Judgement Text
ITA NOS. 4442 & 4443/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 4442 & 4443/DEL/2010 A.YRS. : 2004-05 & 2005-06 ACIT, CIRCLE 10(1), NEW DELHI VS. M/S DREDGING INTERNATIONAL INDIA PVT. LTD. C-790, NEW FRIENDS COLONY, NEW DELHI (PAN : AAACD4328D) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. KAPIL GOEL, ADV. DEPARTMENT BY : SH. S. KRISHNA, C.I.T.(D.R.) SH. PRITHI LAL, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS)- XIII, DELHI PERTAINING TO ASSESSMENT YEARS 2004-05 & 2005-06 RESPECTIVELY. SINCE THE ISSUES ARE COMMON AND HEN CE, THE APPEALS WERE HEARD TOGETHER. THESE APPEALS ARE BEING CONSO LIDATED AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. THE GROUNDS RAISED IN ITA NO. 4442/DEL/2010 READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. COMMISSIONER OF INCOME TAX (A) IS WRONG, PERVERS E, ITA NOS. 4442 & 4443/DEL/2010 2 ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETI NG THE ADDITION OF ` 1,23,28,335/- MADE ON ACCOUNT OF DEPRECIATION @ 100% ON TEMPORARY STRUCTURES WITHOUT APPRECIATING THE FACT THAT THE STRUCTURES ON WHICH DEPRECIATION IS CLAIMED ARE NOT TEMPORARY STRUCTURES . III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE ADDITION OF ` 1,63,41,890/- MADE ON ACCOUNT OF PROV ISIONS FOR BUND MAINTENANCE WITHOUT APPRECIATING THE FAC T THAT THE EXPENSES WERE CONTINGENT IN NATURE AND ARE NOT ALLOWABLE. IV) THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER O R AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 3. THE GROUNDS RAISED IN ITA NO. 4443/DEL/2010 READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) IS WRONG, PERVERS E, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETI NG THE ADDITION OF ` 2,12,500/- MADE ON ACCOUNT OF DEPRECIATION @ 100% ON TEMPORARY STRUCTURES WITHOUT ITA NOS. 4442 & 4443/DEL/2010 3 APPRECIATING THE FACT THAT THE STRUCTURES ON WHICH DEPRECIATION IS CLAIMED ARE NOT TEMPORARY STRUCTURES . III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE ADDITION OF ` 1,04,65,057/- MADE ON ACCOUNT OF PROV ISIONS FOR BUND MAINTENANCE WITHOUT APPRECIATING THE FAC T THAT THE EXPENSES WERE CONTINGENT IN NATURE AND ARE NOT ALLOWABLE. IV) THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER O R AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 4. SINCE THE FACTS ARE IDENTICAL, WE ARE ADJUDICATIN G THE ISSUES WITH REFERENCE TO THE FACTS AND FIGURES OF ASSESSMENT YE AR 2004-05 FOR THE SAKE OF CONVENIENCE. 5. APROPOS THE ISSUE OF 100% DEPRECIATION ON TEMPORA RY STRUCTURES ON THIS ISSUE ASSESSING OFFICER NOTED THAT AS PER THE COMPUTATION OF INCOME, ASSESSEE HAS CLAIMED DEPREC IATION AT RS. 1,23,28,335/- ON ACCOUNT OF 'TEMPORARY STRUCTURES'. IN THE NOTES TO THE COMPUTATION OF INCOME ASSESSEE HAS SUBMITTED AS UNDER: - 'ASSESSEE HAS CLAIMED 100% DEPRECIATION IN RESPECT O F THE TEMPORARY STRUCTURES ERECTED AT THE HAZIRA SITE AMOUN TING TO RS. 1,21,15,835/- AS PER PROVISIONS OF SECTION 3 2 OF THE ACT READ WITH APPENDIX-I TO INCOME TAX RULES. ALTERN ATIVELY, IT IS SUBMITTED THAT AMOUNT INCURRED ON ERECTION OF TEMPORARY CONSTRUCTIONS AT HAZIRA CAN BE CLAIMED AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT, BASED ON THE ITA NOS. 4442 & 4443/DEL/2010 4 DECISION OF THE SUPREME COURT IN THE CASE OF 'MADRAS AUTO SERVICES (P) LTD. REPORTED IN 233 ITR 468. 5.1 FURTHER, THE ASSESSEE SUBMITTED THE FOLLOWING WIT H REFERENCE TO THE CLAIM OF 100% DEPRECIATION ON TEMPORARY STRUCTURE S. - LAND BENEATH THESE STRUCTURES IS NOT OWNED BY THE ASSESSEE. - SAID LAND WAS MADE AVAILABLE BY THE HAZIRA PORT TO THE ASSESSEE ONLY IN CONNECTION WITH CONTRACTUAL WORK. - THE STRUCTURES WERE PRIMARILY USED FOR A LIMITED WOR K I.E. ACCOMMODATION FOR STAFF. - THESE STRUCTURES ARE NOT CONSTRUCTED OR ATTACHED T O LAND I.E. THEY HAVE NO EARTH FOUNDATION AND NO EARTH FLO ORING. - THE COST OF TEMPORARY STRUCTURES HAS BEEN BORNE ENTIRELY BY THE ASSESSEE. - THE ASSESSEE IS ONLY ALLOWED NON EXCLUSIVE ACCESS T O THE LAND FOR THE PURPOSE SPECIFIED IN THE CONTRACT WITH HAZIRA PORT. HOWEVER, ASSESSING OFFICER WAS NOT CONVINCED. HE HELD THAT 100% DEPRECIATION WAS ALLOWABLE ONLY ON 'PUREL Y TEMPORARY STRUCTURES SUCH AS WOODEN STRUCTURES'. FURTHER, AS SESSING OFFICER OBSERVED THAT STRUCTURES COMPRISED OF THE FOLLOWING ITEMS: - WATER PUMP - RCC BLOCKS, WATER TANK - ELECTRICAL WIRING - 32 CONTAINERS - 8 CONTAINERS ITA NOS. 4442 & 4443/DEL/2010 5 HE OBSERVED THAT THESE ARE NOT WOODEN STRUCTURES. ASSESSING OFFICER DID NOT CONSIDER ASSESSEES CLAI M TENABLE THAT 100% DEPRECIATION SHOULD BE PROVIDED. AS REGARDS THE ASSESSEE'S ALTERNATIVE PLEA THAT TH E AMOUNT INCURRED ON ACCOUNT OF TEMPORARY STRUCTURES CAN BE C LAIMED AS REVENUE EXPENDITURE U/S. 37(1) OF THE I.T. ACT THE SAME WAS NOT ACCEPTED BY THE ASSESSING OFFICER. ACCORDINGLY, ASSESSING OFFICER DISALLOWED DEPRECIATION AMOUNTING TO ` 1,23 ,38,335/- AND TREATED THE SAME AS CAPITAL EXPENDITURE. 6. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ASS ESSEE SUBMITTED THAT ASSESSEE HAD INSTALLED TEMPORARY HOUS ING UNITS (CONTAINERS) AT THE PROJECT SITE IN HAZIRA. THE AMOUNT SPENT ON CONSTRUCTION OF THESE TEMPORARY UNITS COMPRISED OF PU RCHASE OF CONTAINER UNITS, INSTALLATION OF INSTAKABINS, PREPA RING FOUNDATION FOR THE CABINS, INSTALLATION OF WATER TANK, ETC. BEFORE T HE LD. COMMISSIONER OF INCOME TAX (A), ASSESSEE SUBMITTED AS UNDER:- - THE STRUCTURES WERE ERECTED ON THE LAND, WHICH IS NOT OWNED BY THE APPELLANT COMPANY BUT BY THE CONTRACTOR EXECUTING THE CONTRACT. THE APPELLANT COMPANY DOES N OT PER-SE HAVE ANY LEGAL RIGHTS WITH REGARD TO THESE S TRUCTURES. - THESE STRUCTURES ARE NOT CONSTRUCTED OR ATTACHED TO LAND, I.E. THEY HAVE NO EARTH FOUNDATION AND NO EARTH FLO ORING. - CONTRACTOR HAS MADE AVAILABLE THE LAND TO THE APP ELLANT COMPANY FOR PUTTING UP TEMPORARY STRUCTURES, ETC. REQ UIRED FOR/ ONLY IN CONNECTION WITH THE EXECUTION OF THE C ONTRACTUAL WORK AND NOT FOR OTHER PURPOSES. ITA NOS. 4442 & 4443/DEL/2010 6 - THE COST OF TEMPORARY STRUCTURES HAS BEEN BORNE E NTIRELY BY THE APPELLANT COMPANY. - THE STRUCTURES WERE USED FOR A LIMITED PURPOSE MAIN LY AS ACCOMMODATION FOR LABOUR. - THE APPELLANT IS ONLY ALLOWED NON EXCLUSIVE ACCE SS TO THE LAND AS PER TERMS OF THE CONTRACT FOR ROCK DREDGING BETWEEN THE APPELLANT AND THE CONTRACTOR. THE LAND IS NOT L EASED TO THE APPELLANT AND THE APPELLANT HAS THE ACCESS TO T HE LAND ONLY FOR THE PURPOSES SPECIFIED IN THE CONTRACT. FU RTHER, THE APPELLANT COMPANY COULD BE CALLED UPON TO VACATE THE LAND AT ANY TIME, UPON WHICH THE APPELLANT COMPANY WOULD BE OBLIGED TO REMOVE ALL TEMPORARY STRUCTURES, WORKS, E TC. PUT UP BY THE APPELLANT COMPANY. BESIDE, UPON COMPLETION OF THE CONTRACT THE APPELLANT COMPANY IS UNDER AN OBLIG ATION TO VACATE THE LAND AND REMOVE ALL STRUCTURES. IN FAC T, ON COMPLETION OF DURATION OF CONTRACT, THE TEMPORARY STR UCTURES WERE REMOVED. - THE CONTAINERS PURCHASED DURING THE PREVIOUS YEA R UNDER CONSIDERATION, WERE SOLD BY THE APPELLANT IN FY 200 5-06 AT A SALE CONSIDERATION OFRS.3,157,133. SINCE THE VALUE OF BLOCK OF ASSET WAS 'NIL', THE APPELLANT HAS OFFERED TO TA X, ENTIRE SALES CONSIDERATION OFRS.3,157,133 AS 'SHORT TERM C APITAL GAINS' IN ASSESSMENT YEAR 2006-07 RELEVANT TO FY 20 05-06. 6.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCO ME TAX (A) OBSERVED THAT IN APPENDIX-I OF I.T. RULES IT IS NOT ED THAT THE WORDS MENTIONED ARE 'PURELY TEMPORARY ERECTIONS SUCH AS WOO DEN STRUCTURE. HE OBSERVED THAT THE TRUE IMPORT OF THE ABOVE EXPRES SION IS THAT ITA NOS. 4442 & 4443/DEL/2010 7 REFERENCE TO WORDS 'WOODEN STRUCTURE' IS MERELY ILL USTRATIVE IN NATURE AND THE MAIN EMPHASIS IS ON THE WORD PURELY TEMPORA RY ERECTIONS'. LD. COMMISSIONER OF INCOME TAX (A) HELD THAT HE WAS OF THE OPINION THAT 100% DEPRECIATION SHOULD BE ALLOWED TO THE ASS ESSEE ON THE TEMPORARY STRUCTURES CONSTRUCTED AT THE PROJECT SITE . 7. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 8. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT STR UCTURES IN THIS REGARD ARE NOT TEMPORARY IN NATURE. HE ARGUED THAT THE SAME WERE CAPITAL EXPENDITURE AND THE ASSESSEE DERIVED ENDURI NG BENEFIT FORM THEM. 8.1 LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT THE STRUCTURES WERE PURELY TEMPORARY. HENCE, ASSESS EE SHOULD BE ALLOWED 100% DEPRECIATION. 8.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSEES TEMPORARY ST RUCTURES IN THIS REGARD COMPRISED OF PURCHASE OF CONTAINER UNITS, INS TALLATION OF INSTAKABINS, PREPARING FOUNDATION FOR THE CABINS, INSTALLATION OF WATER TANK, ETC. WE FIND THAT THE STRUCTURES WERE EREC TED ON THE LAND, WHICH IS NOT OWNED BY THE ASSESSEE COMPANY. THE ASSE SSEE COMPANY DOES NOT PER-SE HAVE ANY LEGAL RIGHTS WITH REGARD T O THESE STRUCTURES. WE FURTHER FIND THAT NO STRUCTURES ARE NOT CONSTRU CTED OR ATTACHED TO LAND, I.E. THEY HAVE NO EARTH FOUNDATION AND NO EAR TH FLOORING. CONTRACTOR HAS MADE AVAILABLE THE LAND TO THE ASSES SEE COMPANY FOR PUTTING UP TEMPORARY STRUCTURES, ETC. REQUIRED FOR/ ONLY IN CONNECTION WITH THE EXECUTION OF THE CONTRACTUAL WORK AND NOT FOR OTHER PURPOSES. THE COST OF TEMPORARY STRUCTURES HAS BEEN BORNE ENT IRELY BY THE ASSESSEE COMPANY. THE STRUCTURES WERE USED FOR A LI MITED PURPOSE ITA NOS. 4442 & 4443/DEL/2010 8 MAINLY AS ACCOMMODATION FOR LABOUR. THE ASSESSEE IS ONLY ALLOWED NON EXCLUSIVE ACCESS TO THE LAND AS PER TERMS OF THE CON TRACT FOR ROCK DREDGING BETWEEN THE ASSESSEE AND THE CONTRACTOR. T HE LAND IS NOT LEASED TO THE ASSESSEE AND THE ASSESSEE HAS THE ACC ESS TO THE LAND ONLY FOR THE PURPOSES SPECIFIED IN THE CONTRACT. W E FURTHER FIND THAT ASSESSEE COMPANY COULD BE CALLED UPON TO VACATE THE LAND AT ANY TIME, UPON WHICH THE ASSESSEE COMPANY WOULD BE OBLI GED TO REMOVE ALL TEMPORARY STRUCTURES. FURTHERMORE, UPON COMPLETI ON OF THE CONTRACT THE ASSESSEE COMPANY IS UNDER AN OBLIGATION TO VACATE THE LAND AND REMOVE ALL STRUCTURES. 8.3 FROM THE ABOVE DISCUSSION, WE FIND THAT LD. COMMI SSIONER OF INCOME TAX (A) IS CORRECT IN HOLDING THAT THE STRU CTURES WERE TEMPORARY STRUCTURES AND THE ASSESSEE SHOULD HAVE B EEN ALLOWED 100% DEPRECIATION THEREON. THE ABOVE VIEW IS FURT HER FORTIFIED BY THE FACT THAT THE CONTAINERS PURCHASED DURING THE PREV IOUS YEAR UNDER CONSIDERATION, WERE SOLD BY THE ASSESSEE IN FY 2005 -06 AT A SALE CONSIDERATION OF RS.3,157,133/-. SINCE THE VALUE OF BLOCK OF ASSET WAS 'NIL', THE ASSESSEE HAS OFFERED TO TAX, ENTIRE SALE S CONSIDERATION OF RS.3,157,133/- AS 'SHORT TERM CAPITAL GAINS' IN AS SESSMENT YEAR 2006- 07. 8.4 IN THIS REGARD, WE REFER TO THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT DECISION IN THE CASE OF C.I.T. VS. INDUSTRIAL CABLES I LTD. 254 ITR 267. IN THIS CASE, IT WAS HELD THAT AS SESSEE COMPANY HAD BROUGHT AN INDUSTRIAL UNIT IN THE BACKWARD AREA AN D CONSTRUCTED TEMPORARY QUARTERS FOR THE WORKERS, ALSO PROVIDED A TEMPORARY (KACHA) ROAD FOR THE QUARTERS. AS THE CONSTRUCTION WERE TEMPORARY, THE ENTIRE AMOUNT WAS ADMISSIBLE AS REVENUE EXPENDITURE U/S. 37 OF I.T. ACT, ITA NOS. 4442 & 4443/DEL/2010 9 1961. FURTHERMORE, IN THE CASE OF SHALIVAHANA CONST RUCTIONS LTD. VS. DCIT 12 SOT 406, IT WAS HELD THAT IN THE CASE OF ASS ESSEE CONTRACTOR HAD PUT UP TEMPORARY STRUCTURES ON PROJECT SITE ON T HE LAND GIVEN BY THE CONTRACTEE AND CLAIMED DEPRECIATION 100% WHICH WAS APPLICABLE TO TEMPORARY CONSTRUCTION. SINCE NO LEASE HOLD ON THE LAND WAS ACQUIRED BY THE ASSESSEE, IT WAS HELD THAT THE CLAI M WAS ALLOWABLE EVEN IF, STRUCTURE WERE MADE OF MATERIAL OTHER THAN WOODEN. AGAIN HONBLE MADRAS HIGH COURT IN THE CASE OF C.I.T. VS. PRINT SYSTEMS AND PRODUCTS 285 ITR 337, HAS HELD THAT ASSESSEE WAS EN TITLED OF 100% DEPRECIATION IN RESPECT OF EXPENSES INCURRED BY IT ON CONSTRUCTION OF TEMPORARY STRUCTURES IN THE LEASE PROPERTY. 8.5 IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE HOLD THAT ASSESSEE HAS CONSTRUCTED PURELY TEMPORARY STRUCTURES . STRUCTURES WERE PRIMARILY USED FOR ACCOMMODATION OF THE STAFF. LAND BENEATH THESE STRUCTURES IS NOT OWNED BY THE ASSESSEE. THE SAID LAND WAS MADE AVAILABLE BY THE HAZIRA PORT TO THE ASSESSEE ON LY IN CONNECTION WITH CONTRACTUAL WORK. THESE STRUCTURES WERE NOT CO NSTRUCTED OR ATTACHED TO LAND I.E. THEY HAVE NO EARTH FOUNDATION AND NO EARTH FLOORING. THE COST OF TEMPORARY STRUCTURES HAS BEEN BORNE ENTIRELY BY THE ASSESSEE. THE ASSESSEE IS ONLY ALLOWED NON EXCL USIVE ACCESS TO THE LAND FOR THE PURPOSE SPECIFIED IN THE CONTRACT WITH HAZIRA PORT. THE CASE LAWS MENTIONED ABOVE DULY SUPPORT THE CASE OF THE ASSESSEE. HENCE, IN OUR CONSIDERED OPINION, THERE IS NO INFIR MITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) ON THIS ISSUE AND ACCORDINGLY, WE UPHOLD THE SAME. 9. APROPOS ISSUE OF PROVISION FOR BUND MAINTENANCE ITA NOS. 4442 & 4443/DEL/2010 10 ON THIS ISSUE ASSESSING OFFICER NOTED THAT A SUM O F RS. 1,63,41,890/- WAS CLAIMED ON ACCOUNT OF 'PROVISION FO R BUND MAINTENANCE'. ASSESSING OFFICER OPINED THAT THE SA ME WAS NOT A ASCERTAINED LIABILITY. HE OPINED THAT PROVISIONS AND CONTINGENT LIABILITIES ARE NOT ALLOWED AS EXPENSE TO THE ASSES SEE. ASSESSING OFFICER REFERRED TO THE DECISION OF THE METAL BOX CO. PVT. L TD., 73 ITR 53 AND SBI VS. CIT 157 ITR 67 (SC). HE HELD THAT THE PRO VISION WAS NOT ALLOWABLE. 10. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A), A SSESSEE SUBMITTED THAT THE ASSESSEES CLAIM WAS IN THE NATUR E OF WARRANTY EXPENSES TO BE INCURRED BY THE ASSESSEE AT A LATER DATE. ASSESSEES COUNSEL SUBMITTED THAT IT IS EVIDENT FROM THE EXTRACT S OF THE CONTRACT, ASSESSEE WAS RESPONSIBLE FOR THE REMOVAL AND REPLACE MENT OF DEFECTS ARISING UNDER THE CONTRACT FOR CONSTRUCTION OF BUND AT THE PROJECT SITE. ASSESSEE FURTHER SUBMITTED THAT THE AMOUNT OF LIABIL ITY TOWARDS PROVISION FOR BUND MAINTENANCE WAS COMPUTED FOLLOWIN G THE ACCEPTED PRINCIPLES OF ACCOUNTING AND THE ACCOUNTING STANDAR D - 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). IT WAS FURTHER SUBMITTED THAT THE COMPUTATION OF THE AMOUNT OF PROVI SION FOR BUND MAINTENANCE REQUIRED TO BE RECOGNIZED IN THE BOOKS O F ACCOUNT, AS PER WHICH, AMOUNT SO PROVIDED FOR IN THE BOOKS OF ACCOU NT WAS ARRIVED AT BY APPLYING THE DEGREE OF PERCENTAGE COMPLETION OF T HE PROJECT TO THE TOTAL ESTIMATED LIABILITY ON ACCOUNT OF WARRANTY. I T WAS FURTHER SUBMITTED THAT THE TOTAL ESTIMATED WARRANTY COST OF THE PROJECT IS DERIVED BASED ON THE EXPERIENCE THAT THE GROUP COMPA NIES OF THE ASSESSEE IS HAVING IN SIMILAR PROJECTS AND WHICH (WA RRANTY AMOUNT) GENERALLY VARIES FROM 8% TO 10%. THUS, IT WAS SUBMIT TED THAT ASSESSEE HAS MADE THE PROVISION BASED ON THE TECHNICAL EVALU ATION AND WAS ITA NOS. 4442 & 4443/DEL/2010 11 SCIENTIFICALLY ABLE TO ESTIMATE THE WARRANTY CLAIMS LIKELY TO ARISE DURING THE WARRANTY PERIOD. IT WAS FURTHER SUBMITTED THAT THE ACCURACY OF THE WARRANTY PROVISION (FOR BUND MAINTENANCE) IS BORNE OUT OF THE FACT THAT OUT OF THE TOTAL PROVISION OF RS. 2,68,06,947/- MAD E TILL MARCH 31, 2005 AN AMOUNT OF RS. 2,42,99,883/WAS EXPENDED TILL MARCH 31, 2006 LEAVING A BALANCE OF ONLY RS. 25,07,064/- AS ON MAR CH 31, 2006 IN THE PROVISION ACCOUNT, WHICH WAS SUBSEQUENTLY OFFERED TO TAX IN AY 2007- 08. 10.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCO ME TAX (A) REFERRED TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS V. CIT 245 ITR 428 (SC) & NOTE D THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACC OUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. LD. CO MMISSIONER OF INCOME TAX (A) FURTHER REFERRED TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF METAL BOX CO. PVT. LTD., 73 ITR 53 AND NOTED THAT FOLLOWING PRINCIPLES WERE LAID DOWN IN THE SAID DOW N:- (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOU GH TO BE DISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDU CTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSI NESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMM ERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDU CTION IS PERMISSIBLE ONLY IN THE CASE OF AMOUNTS ACTUALLY EXP ENDED OR PAID; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS B UT ACCRUED DUE ARE BROUGHT IN FOR INCOME-TAX ASSESSMENT, SO ALS O ITA NOS. 4442 & 4443/DEL/2010 12 LIABILITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAINS OF THE BUSINESS; (III) A CONDITION SUBSEQUENT, THE FULFILLMENT OF WH ICH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE L IABILITY, WOULD NOT HAVE THE EFFECT OF CONVERTING THAT LIABIL ITY INTO A CONTINGENT LIABILITY. 10.2 LD. COMMISSIONER OF INCOME TAX (A) FURTHER REF ERRED TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VINITEC CORPN. (P) LTD. (2005) 278 ITR 337 (HC) (DEL HI) AND HONBLE APEX COURT DECISION IN THE CASE OF WOODWARD GOVERN OR INDIA P. LTD. (312 ITR 254) (SC). CONSIDERING THE ABOVE, LD. COMMI SSIONER OF INCOME TAX (A) HELD THAT THE CLAIM OF THE ASSESSEE COMPANY FOR THE AMOUNT PROVIDED IN ITS BOOKS OF ACCOUNTS TOWARDS PR OVISION FOR BUND MAINTENANCE IS ESTIMATED ON RATIONAL BASIS AND CAN BE EQUATED WITH PROVISION FOR WARRANTY HAVING REGARD TO THE METHOD OF ACCOUNTING AND THE AS-7 FOLLOWED BY THE ASSESSEE FOR MAINTENANCE O F ITS BOOKS OF ACCOUNT. THUS, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT HE FOUND THAT THE CLAIM OF THE ASSESSEE, PROVISION FOR BUND MAINTENANCE WAS LEGITIMATE AND GENUINE. IN THESE CIRCUMSTANCES, HE H ELD THAT THE PROVISION FOR BUND MAINTENANCE IN THIS REGARD WAS AL LOWABLE. 11. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT A S PER THE CONTRACTS REFERRED BY THE LD. COMMISSIONER OF INCOME TAX (A) IN THIS REGARD, ASSESSEE WAS RESPONSIBLE FOR REMOVAL AND REPLACEMENT OF DEFECTS ARISING UNDER THE CONTRACT FOR CONSTRUCTION OF BUND AT THE PROJECT SITE. FURTHER IT IS THE ASSESSEES CLAIM THAT AMOUNT OF L IABILITY ON A/C OF ITA NOS. 4442 & 4443/DEL/2010 13 PROVISION OF BUND MAINTENANCE WAS COMPUTED BY FOLLOWI NG ACCEPTED PRINCIPLES OF ACCOUNTING AND THE AS-7 ISSUED BY THE ICAI. WE FURTHER NOTE THAT THE PROVISION IN THIS REGARD WAS MADE KEE PING INTO ACCOUNT THE PREVIOUS EXPERIENCE. THUS, WE FIND THAT ASSES SEE HAS MADE THE PROVISION IN THIS REGARD BASED ON TECHNICAL EVALUAT ION AND ASSESSEE WAS SCIENTIFICALLY ABLE TO ESTIMATE THE WARRANTY CL AIM LIKELY TO ARISE DURING THE WARRANTY PERIOD. 12.1 IN THIS REGARD, WE FIND THAT HONBLE APEX COUR T DECISION IN THE CASE OF BHARAT EARTH MOVERS V. CIT 245 ITR 428 (SC ) IS RELEVANT IN THIS REGARD WHEREIN IT WAS HELD THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. IN OUR CONSIDERED OPINION, WHEN THE ASSESSEE IS MAINTAINING THE ACCOUNTS ON MERCANTILE BASIS, THE LI ABILITY ALREADY ACCRUED THOUGH TO BE DISCHARGED A FUTURE DATE HAS T O BE ACCOUNTED FOR, IN LIGHT OF THE ACCEPTED PRINCIPLES OF COMMERCIAL P RACTICE OF ACCOUNTANCY. FURTHERMORE, WE FIND THAT THE ASSESS EE DID INCUR THE EXPENDITURE FOR BUND MAINTENANCE IN THIS REGARD. S UBSEQUENTLY, THE ACCURACY OF THE PROVISION IS BORNE OUT OF THE FACT THAT THE OUT OF THE TOTAL PROVISION OF RS. 2,68,06,947/- MADE TILL MARCH 31, 2005 AN AMOUNT OF RS. 2,42,99,883/WAS EXPENDED TILL MARCH 31, 200 6. WE FURTHER FIND THAT FOLLOWING CASE LAWS RELIED UPON BY THE ASSESSE E BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ALL ARE GERMANE AND S UPPORT THE CASE OF THE ASSESSEE. - METAL BOX CO. PVT. LTD., (73 ITR 53) (SC), - SBI V CIT 157 ITR 67 (SC), - CALCUTTA CO. LTD. VS CIT (1959) 37 ITR 1 (SC), ITA NOS. 4442 & 4443/DEL/2010 14 - BHARAT EARTH MOVERS (245 ITR 428) (SC), - COMMISSIONER OF INCOME TAX V S. VINITEC CORPN. (P) LTD. (2005) 278 ITR 337 (HC)(DELHI), - WOODWARD GOVERNOR INDIA P. LTD. (312 ITR 254) 12.2 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE HOLD THAT THE ASSESSEE WAS ABLE TO ESTIMATE THE L IABILITY FOR PROVISION OF BUND MAINTENANCE REASONABLY ACCURATELY . THERE IS NO REASON WHY THE PROVISION SHOULD NOT BE ALLOWED. U NDER THE CIRCUMSTANCES, WE AFFIRM THE ORDER OF THE LD. COMMISS IONER OF INCOME TAX (A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE. 13. IN THE RESULT, BOTH THE APPEALS FILED BY TH E REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/9/2012. SD/- SD/- [ [[ [JOGINDER SINGH JOGINDER SINGH JOGINDER SINGH JOGINDER SINGH] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 21/9/2012 SRB SRB SRB SRBHATNAGAR HATNAGAR HATNAGAR HATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES
