UHDE INIDA P. LTD, MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 6510/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55404 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 07-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 21-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Keywords: Onus to prove
• Section: 145; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 6510/MUM./2009 (ASSESSMENT YEAR : 2003-04 ) UDHE INDIA PVT. LTD. UDHE HOUSE, LBS MARG VIKHROLI (W), MUMBAI 400 083 PAN AAACU1416H .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE-10(3), MUMBAI .... RESPONDENT ASSESSEE BY : MR. M.M. GOLVALA A/W MR. SANDEEP CHETIWAL REVENUE BY : MR. SUBACHAN RAM DATE OF HEARING 07.09.2011 DATE OF ORDER O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 8 TH OCTOBER 2009, PASSED BY THE COMMISSIONER (APPEALS)-XXII, MUMBAI, FOR ASSESSMENT YEAR 2003-04 . 2. BRIEF FACTS, AS BROUGHT OUT BY THE COMMISSIONER (AP PEALS) IN THE IMPUGNED ORDER VIDE PAGE-1 TO 3, ARE EXTRACTED BELO W FOR READY REFERENCE:- THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPA NY HAD TILED ITS RETURN OF INCOME ON 31.10.2003, DECLARING TOTAL INC OME AT RS.28,32,58,838/-. THE RETURN WAS PROCESSED U/S. 14 3(1) AND THEREAFTER THE ASSESSMENT HAS BEEN COMPLETED U/S. 1 43(3) ON 28.02.2006 DETERMINING TAXABLE INCOME AT RS.36,60,9 1,550/-. DURING UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 2 THE YEAR THE APPELLANT COMPANY IS INVOLVED IN SUPPL Y OF PROCESSORS, DESIGNING, CONSTRUCTION AND COMMISSIONING OF COMPLE TE PLANTS FOR CHEMICAL, FERTILIZERS, PETROCHEMICALS, REFINING AND OTHER RELATES INDUSTRIES. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . OBSERVED THAT ASSESSEE HAS CLAIMED EXPENSES IN P&L A/C. FOR THE PROVISIONS MADE FOR CONTRACTS AMOUNTING TO RS.8,61,19,588/-. T HE A.O. ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM OF EXPENSES. THE ASSE SSEE HAD SUBMITTED BEFORE THE A.O. THE TYPES OF PROVISIONS, COST/EXPEN SES PROVISION (OR COMPLETED CONTRACTS AND LOSS PROVISIONS ON INCOMPLE TE CONTRACTS AS UNDER. (I) GUJARAT STATE FERTILIZERS CORPN. LTD. RS.58,70, 1 34/- (II) MANGALORE CHEM. & FERTILIZERS LTD. RS.2,4104/- (III) THE WEST COAST PAPER MILLS RS. 1,02.13.012/- (IV) THE ANDHRA SUGARS LTD. RS.9,22,838/- (V) COLORCON ASIA PVT, LTD. RS.4,16,768/- (VI) VS V VITAMIN RS.2,00,000/- (VII) UDHE GMBH ` .2.80.000/- (VIII) UHDE GMBI I RS.3,90,00,000/- LOSS PROVISION (IX) UHDE GMBH RS. 1,35,49,705/- (X) FINOLEX INDUSTRIES LID. RS.18,02,442/- (XI) VVF LTD. RS.66,03,855/- (XII) SIEMENS LTD. RS.55,50,250/- THE A.O. HAS DISCUSSED AT LENGTH IN PARA 2.3 TO 2.6 ON PAGE 7 TO 11 OF THE ASSESSMENT ORDER REGARDING ALLOWABILITY OF EACH PROVISION MADE IN RESPECT OF COMPLETE AND INCOMPLETE CONTRACTS. THE A .O. HAS STATED THAT ASSESSEE HAS FAILED TO SUBMIT ANY EVIDENCE TO PROVE THE LIABILITY TO THE EXTENT AS CLAIMED IN EACH OF THE PROJECT MENTIO NED ABOVE. IT HAS FARTHER BEEN STATED THAT EXPENSES INCURRED AND BOOK ED IN THE SUBSEQUENT YEAR WERE MORE THAN THE PROVISION MADE D URING THE YEAR, WHICH ESTABLISHES THAT THE LIABILITY WAS NOT ASCERT AINABLE AS ON 31.03.2003. IT HAS ALSO BEEN STATED THAT AS PER DET AILS SUBMITTED BY THE ASSESSEE IN SOME CASES, EVEN AFTER 2 YEARS OF T HE CLOSE OF THE ACCOUNTING YEAR, THE EXPENSES INCURRED ARE LESS THA N THE TOTAL PROVISION WHICH WAS MADE ON 31.03.2003 WHICH SHOWS THAT THE LIABILITY WAS NOT ASCERTAINABLE AT THE CLOSE OF THE ACCOUNTIN G YEAR. THE A.O. FURTHER STATED THAT IN SOME CASES PROVISION MADE WA S CONTINGENT IN NATURE, HENCE THE SAME WAS DISALLOWED. THE A.O. ALS O STATED THAT THERE WAS NOT EVEN A SINGLE CASE WHERE, THE PROVISI ON CREATED BY THE ASSESSEE MATCHED WITH THE EXPENSES ACTUALLY INCURRE D SUBSEQUENTLY. THE A.O. ALSO STATED THAT THE PROVISIONS HAVE NOT B EEN MADE ON THE BASIS OF IDENTIFIED, DETERMINED AND ASCERTAINED LIA BILITIES. IN VIEW OF THESE FACTS THE A.O. DISALLOWED ASSESSEES CLAIM OF PROVISIONS MADE FOR CONTRACTS COMPLETED DURING THE YEAR MENTIONED ABOVE (I) TO (VII) AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 3 2.3 IN RESPECT OF LOSS PROVISIONS IN RESPECT OF (VI II) TO (XII) AS MENTIONED ABOVE RELATING TO INCOMPLETE CONTRACTS, T HE A.O. STATED THAT ASSESSEE COMPANY FOLLOWED ACCOUNTING POLICY WHERE P ROFIT WAS ACCOUNTED ON COMPLETED CONTRACT BASIS WHILE THE LOS S WAS ACCOUNTED IN THE YEAR IN WHICH IT IS ANTICIPATED. THE A.O. FURTH ER STATED THAT ASSESSEE CANNOT HAVE TWO DIFFERENT METHODS OF ACCOU NTING FOR PROFITS & LOSS TO ARRIVE AT THE TAXABLE INCOME. THE A.O. ALSO STATED THAT ACCOUNTING STANDARDS ALLOW EXPENSES IN RESPECT OF T HE LIABILITIES THAT HAVE ACCRUED OVER THE ACCOUNTING PERIOD TO BE REDUC ED TO ARRIVE AT THE TRUE PROFIT WHICH IS NOT TREATED AS LEGITIMATE EVER Y TIME BY I.T. ACT. THE A.O. FURTHER STATED THAT SINCE THE ASSESSEE IS NOT FOLLOWING THE OF COMPLETION METHOD OF ACCOUNTING WHICH WAS NOT MANDA TORY IN A.Y. 2003-2004, THE ASSESSEE CANNOT CLAIM LOSSES IN RESP ECT OF INCOMPLETE PROJECT WHEN IT WAS FOLLOWING COMPLETED CONTRACTS M ETHOD TO OFFER INCOME FOR TAXATION. THE A.O. ALSO STATED THAT PROV ISION MADE FOR THE COSTS YET TO BE INCURRED ON THE PROJECT DUE TO ANTI CIPATED COST EVER RUN AND IN VIEW OF THIS FACT THE PROVISIONS FOR THE ANT ICIPATED LOSSES WERE CONTINGENT IN NATURE AND SAME IS NOT ALLOWABLE. IN VIEW OF THESE FACTS, THE CLAIM OF THE ASSESSEE FOR PROVISIONS OF LOSS ON INCOMPLETE CONTRACTS WAS ALSO REJECTED. THE A.O. ALSO RELIED ON THE DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF INDIA MOLASSES CO. P. LTD. V/S CIT, 37 ITR 66, CIT V/S TRANSPORT CORPO. OF INDIA LTD., 256 ITR 701. IN VIEW OF ABOVE MENTIONED FACTS, PROVISIONS FOR CONTRACT AMOU NTING TO ` 8,61,19,588, WAS DISALLOWED AND ADDED BACK TO THE T OTAL INCOME OF THE ASSESSEE. 3. THE ASSESSING OFFICER ALSO GAVE CREDIT FOR THE PROV ISIONS MADE FOR COSTS ON COMPLETED CONTRACTS DISALLOWED IN THE EARLIER AS SESSMENT YEAR I.E., 2002- 03. CLAIM FOR CREDIT OF TDS WAS PARTLY DISALLOWED O N THE GROUND THAT THE CONDITIONS OF SECTION 199 OF THE INCOME TAX ACT, 19 61 (FOR SHORT THE ACT ) ARE NOT SATISFIED. INTEREST UNDER SECTION 234D OF T HE ACT, WAS CHARGED. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS), AFTE R CONSIDERING THE CONTENTIONS OF THE ASSESSEE, FOR VARIOUS REASONS GI VEN IN HIS ORDER, CAME TO A CONCLUSION THAT THE PROVISIONS IN QUESTION HAVE N OT BEEN MADE ON ANY SCIENTIFIC BASIS AND THAT THE PROVISIONS ARE BASED ON SUSPICION, PLAY SAFE FINANCIAL PLANS AND BEYOND REASONABLE CERTAINTY. HE UPHELD THE FINDINGS OF THE ASSESSING OFFICER THAT THE CLAIM IS CONTINGENT IN NATURE. HE SPECIFICALLY OBSERVED THAT NO BASIS WAS FURNISHED BEFORE THE ASS ESSING OFFICER OR BEFORE THE COMMISSIONER (APPEALS) IN SUPPORT OF THE ESTIMA TES. THE OTHER TWO GROUNDS WERE ALSO HELD AGAINST THE ASSESSEE. AGGRIE VED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL, ON THE FOLLOWING GROUND S:- UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 4 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DISALLOWING PROVISION FOR COSTS ON COMPLETED CONTRACTS AND PROVISION FOR LOSS ON INCOMPLETE CONTRACTS PROVISION FOR COSTS ON COMPLETED CONTRACTS - RS.19 ,613,336/- PROVISION FOR LOSS ON INCOMPLETE CONTRACTS - RS. 66,506,252/- TOTAL RS. 86,119,588/- WITHOUT APPRECIATING THE FACT THAT THE PROVISIONS W ERE MADE OF IDENTIFIED, DETERMINED AND ASCERTAINED PRESENT LIAB ILITIES PAYABLE IN RESPECT OF COMPLETED CONTRACTS AND INCOMPLETE CONTR ACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) FAILED TO APPRECIATE THE REALITY OF THE SITUATION THAT LIABILITIES ACTUALLY AROSE DURING THE YEAR AND THE FACT THAT TH E PROVISION / LIABILITY WAS ACTUALLY EXISTING AS ON 31 .03.2003 AND WERE DE TERMINED ON THE BASIS OF TECHNICAL ASSESSMENT MADE BY PROJECT MANAG ER UPTO ACCEPTANCE OF PLANT BY THE CLIENTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN WITHDRAWING TAX CREDIT FOR TDS CLAIM AMOUNTING TO RS.2,361,179/- AND TDS CLAIM OF RS.44,881 FOR USV L TD., BY WRONGLY INTERPRETING THE PROVISIONS OF SECTION 199 OF THE I NCOME TAX ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CT(A) HAS NOT ADJUDICATED THE GROUND PERTAINING TO INTEREST OF RS.1,148,323/- ULS.234D OF THE ACT, WHEN IT WAS SUB MITTED THAT THE SAID SECTION DOES NOT APPLY SINCE THE ASSESSEE DENI ES LIABILITY TO PAY AT ALL. 5. BEFORE US, LEARNED COUNSEL, MR. M.M. GOLVALA, ON BE HALF OF THE ASSESSEE, SUBMITTED THAT GROUNDS NO.1 AND 2, RELATE D TO ALLOWABILITY OF PROVISIONS FOR COSTS. HE FILED A PAPER BOOK RUNNING INTO 93 PAGES AND SUBMITTED THAT THE PROVISIONS IN QUESTION CAN BE CL ASSIFIED INTO TWO TYPES I.E., PROVISIONS OF COSTS ON COMPLETED CONTRACTS AND PROV ISIONS FOR LOSS ON INCOMPLETE CONTRACTS. HE REFERRED TO PAGE-49 OF THE ASSESSEES PAPER BOOK WHICH IS A NOTE ON METHOD OF MAKING CONTRACTUAL PRO VISIONS AND SUBMITTED THAT INCOME IS RECOGNISED AS A MATTER OF POLICY ON COMMISSIONING OF PLANT. AFTER COMMISSIONING OF PLANT, THE COMPANY HAS TO CO NDUCT GUARANTEED TEST RUNS AND DEMONSTRATE THE TECHNICAL PARAMETERS. HE D ESCRIBED THE VARIOUS STEPS INVOLVED AND SUBMITTED THAT THE INCOME HAS BE EN RECOGNISED ON THE COMMISSIONING OF THE PLANT AND THAT CERTAIN EXPENDI TURE HAS TO BE NECESSARILY INCURRED BY THE ASSESSEE AFTER COMMISSI ONING AS PART OF ITS OBLIGATION AND THAT SUCH EXPENDITURE IS PROVIDED FO R IN THE BOOKS OF ACCOUNT. HE POINTED OUT THAT THE INCOME OF THE ASSESSEE COMP ANY HAS INCREASED FROM UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 5 ` 79,21,00,000 TO ` 212,43,00,000, AND THAT PROFITS BEFORE TAX HAS INC REASED FROM ` 1,90,00,000 TO ` 27,52,00,000 AND COMPARED THE SAME WITH THE PROVISIONS MADE TO DEMONSTRATE THAT THE PROVISIONS MADE BY THE COMPANY ARE NOT EXCESSIVE. HE SUBMITTED THAT THE ASSESSEE F OLLOWS PROJECT COMPLETION METHOD BY REFERRING TO THE PRINCIPLE ACCOUNTING POL ICIES, WHICH ARE GIVEN IN SCHEDULE-XV TO THE ANNUAL ACCOUNTS AND SUBMITTED TH AT THE LOSS IS ACCOUNTED IN THE YEAR IN WHICH SUCH LOSS IS ANTICIPATED. HE R EFERRED TO AS/7, WHICH IS ON ACCOUNTING FOR CONSTRUCTION CONTRACTS PARA-13, AND POINTED OUT THAT THE ACCOUNTING POLICY OF THE ASSESSEE COMPANY IS IN TUN E WITH AS/7. HE FURTHER SUBMITTED THAT SECTION 145 OF THE ACT DOES NOT GIVE N POWER TO THE ASSESSING OFFICER TO TAMPER WITH THE METHOD OF ACCOUNTING ADO PTED BY THE ASSESSEE. HE POINTED OUT THAT THE PROVISIONS OF SECTION 145(3 ) WERE NOT INVOKED BY THE ASSESSING OFFICER. HE SUBMITTED THAT AS/1 HAS BEEN NOTIFIED BY THE CBDT UNDER SECTION 145(1) AND THAT PRUDENCE CONTEMPLATED IN THE STANDARD REQUIRES THAT LOSS SHOULD HAVE TO BE PROVIDED FOR. HE FILED CHARTS OF LOSSES PROVIDED FOR INCOMPLETE CONTRACTS AND PROVISIONS MA DE ON COMPLETED CONTRACTS. HE REFERRED TO THE VARIOUS REPLIES GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS THE FINDINGS OF THE AS SESSING OFFICER AT PAGE-9 / PARA-2.4 AND THE FINDINGS AT PAGES-10 & 11 / PARAS- A TO E AND DISPUTED EACH OF THE FINDINGS RECORDED THEREIN. HE STRONGLY DISPU TED THE FINDINGS OF THE COMMISSIONER (APPEALS) THAT THERE IS NO BASIS FOR E STIMATION. HE REFERRED TO PAGES-71 TO 79 OF THE PAPER BOOK AND SUBMITTED THAT THE INTERNAL MEMOS DEMONSTRATE THAT SUFFICIENT EVIDENCE WAS PROVIDED T O THE LOWER AUTHORITIES IN SUPPORT OF THE PROVISIONS MADE. HE RELIED ON THE WR ITTEN SUBMISSIONS MADE BEFORE THE COMMISSIONER (APPEALS) WHICH ARE PLACED AT PAGES-81 TO 93 OF THE PAPER BOOK. HE REFERRED TO THE PHOTOCOPIES OF T HE MINUTES OF THE MEETING BETWEEN THE ASSESSEE AND CERTAIN CLIENTS WH ICH ARE PLACED IN THE PAPER BOOK AND POINTED OUT THAT THE CLIENTS HAD LIS TED OUT A NUMBER OF ITEMS OR WORK WHICH THE ASSESSEE HAS TO COMPLETE AND SUBM ITTED THAT THIS DEMONSTRATE THAT THE ASSESSEE HAS TO NECESSARILY IN CUR CERTAIN EXPENDITURE. 6. ON COMPLETED CONTRACTS, HE SUBMITTED THAT INCOME HA S BEEN RECOGNISED AND THUS, THE EXPENDITURE THAT IS TO BE INCURRED ON THE CONTRACT HAS TO BE NECESSARILY PROVIDED FOR AND ONLY THEN PR OPER INCOME FROM THAT UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 6 CONTRACT CAN BE ESTIMATED. IN SUPPORT OF HIS ARGUME NTS, HE RELIED ON THE FOLLOWING CASE LAWS:- CHAINRUP SAMPATRAM V/S CIT, (1953) 24 ITR 481 (SC); CALCUTTA CO. LTD. V/S CIT (1959) 037 ITR 0001 (SC); CIT V/S BILAHARI INVESTMENT P. LTD. (2008) 299 ITR 001 (SC) ROTORK CONTROLS INDIA P. LTD V/S CIT, (2009) 314 IT R 062 CIT V/S TRIVENI ENGINEERING AND IND. LTD. (2011) 33 6 ITR 374 (DEL.) 7. HE FILED ORDER OF THE TRIBUNAL G BENCH IN ASSESSE ES OWN CASE IN ITA NO.1926/MUM./2006, ORDER DATED 10 TH SEPTEMBER 2008, FOR ASSESSMENT YEAR 2002-03 AND IN ITA NO.8053/MUM./2004, FOR ASSESSMEN T YEAR 2001-02, ORDER DATED 23 RD OCTOBER 2007. HE ALSO RELIED ON COUPLE OF OTHER TR IBUNAL DECISIONS WHICH WE WOULD BE DEALING WITH IN THIS OR DER, IF NECESSARY. 8. ON GROUND NO.3, WHICH IS ON THE WITHDRAWAL OF TDS C REDIT, LEARNED COUNSEL SUBMITTED THAT FOR THE ASSESSMENT YEAR 2002 -03, AT PARA-9, THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. 9. ON GROUND NO.4, LEARNED COUNSEL RELIED UPON THE JUD GMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S BAJAJ HINDUSTA N LTD., ITA NO.198 OF 2009, JUDGMENT DATED 19 TH APRIL 2009, AND SUBMITTED THAT INTEREST UNDER SECT ION 234D OF THE ACT, CANNOT BE CHARGED IN RESPECT OF RE FUND GRANTED PRIOR TO 1 ST JUNE 2003. HE ALSO FILED A COPY OF JUDGMENT DATED 3 0 TH JANUARY 2009, PASSED BY THE HON'BLE JURISDICTIONAL HIGH COURT, WHEREIN T HE HONBLE HIGH COURT ADMITTED THE QUESTIONS OF LAW FOR ASSESSMENT YEAR 2 002-03, ON THE VERY SAME ISSUE OF ALLOWABILITY OF PROVISIONS MADE. 10. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SUBACHAN R AM, ON BEHALF OF THE REVENUE, OPPOSED THE CONTENTIONS OF THE ASSESSE E AND SUBMITTED THAT THE PROVISIONS IN QUESTION ARE NOTHING BUT AN ATTEM PT BY THE ASSESSEE FOR PREPONEMENT OF EXPENDITURE AND THUS, DEFERRING THE TAX PAYMENTS. HE REFERRED TO THE ACCOUNTING POLICY AND SUBMITTED THA T PROFITS ARE SOUGHT TO BE OFFERED TO TAX ON ACCRUAL BASIS WHEN THE PROJECT IS COMPLETED BUT LOSSES ARE BEING BOOKED ON ANTICIPATION I.E., BEFORE CRYSTALLI ZATION. HE REFERRED TO THE ORDER PASSED BY THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 7 NOT FURNISHED ANY WORKING OR DOCUMENTS, SUBSTANTIAT ING THE QUANTIFICATION OF THE PROVISIONS. REFERRING TO THE DOCUMENTS SUBMITTE D BY THE ASSESSEE, HE SUBMITTED THAT THEY ARE ONLY INTERNAL MEMOS GIVEN B Y THE SUBORDINATE STAFF TO THE HEAD OFFICE AND, AT BEST, THESE ARE SELF-SER VING DOCUMENTS. HE POINTED OUT THAT NONE OF THE INTERNAL MEMOS, EVEN O N TEST CHECK BASIS, ARE SUPPORTED BY DETAILED CALCULATION OR REASONS. HE RE FERRED TO SOME OF THE INTERNAL MEMOS SPECIFICALLY TO PAGES-74 TO 75 AND P OINTED OUT THAT THERE IS NO BASIS FOR THE MEMO. REFERRING TO THE OTHER INTER NAL MEMOS, HE ARGUED THAT THESE ARE MERE SPECULATION AND NO ALLOWANCE CA N BE MADE ON SUCH SPECULATION. HE SUBMITTED THAT THE ASSESSEE HAS NOT DISCHARGED THE BURDEN OF PROOF THAT LAY ON IT IN RESPECT OF THE PROVISION S CLAIMED AS EXPENDITURE. HE SUBMITTED THAT THE EXPENDITURE HAD NOT CRYSTALLIZED DURING THE YEAR AND HENCE, IT CANNOT BE ALLOWED AND THAT THE SAME WOULD BE ALLOWED ONLY IN THE YEAR OF CRYSTALLIZATION. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE REFE RRING TO THE DECISION OF THE TRIBUNAL A BENCH, IN ABN AMRO SEC URITIES P. LTD., ITA NO.7073/MUM./2006, ORDER DATED 26 TH AUGUST 2011, SUBMITTED THAT THE DEDUCTION SHOULD BE ALLOWED ONLY ON BUSINESS PROFIT S OF THE YEAR AND NOT ON PROJECTED LOSS. HE TOOK THIS BENCH TO PAGES-2 TO 9 OF THE ASSESSING OFFICERS ORDER AND PARA-4.1/PAGE-6 OF THE IMPUGNED ORDER PAS SED BY THE COMMISSIONER (APPEALS) AND RELIED ON THE SAME. ON A QUERY FROM THE BENCH, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE TRIBUNAL CAN GIVE A DIRECTION TO THE ASSESSING OFFICER TO ALLOW THESE E XPENDITURE IN SUBSEQUENT YEARS AS AND WHEN THE EXPENDITURE IS CRYSTALLIZED. HE SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE DO NOT COME T O ITS RESCUE FOR THE REASON THAT PRIMARY DETAILS AND EVIDENCE IN SUPPORT OF THE CLAIM ARE NOT AVAILABLE. 12. ON SECTION 199, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT PROVISIONS OF THIS SECTION, FOR ASSESSMENT YEAR 200 3-04, ARE VERY CLEAR AND TDS CREDIT CANNOT BE GIVEN WHERE THE CORRESPONDING RECEIPT IS NOT TAKEN INTO INCOME DURING THE YEAR. UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 8 13. ON INTEREST UNDER SECTION 234D, LEARNED DEPARTMENTA L REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. IN RE PLY, THE LEARNED COUNSEL REITERATED HIS CONTENTIONS THAT WHEN THE ASSESSEE F OLLOWED AND ACCEPTED THE METHOD OF ACCOUNTING, THEN IT IS NOT WITHIN THE PUR VIEW OF THE ASSESSING OFFICER TO REJECT THE SAME. HE SUBMITTED THAT IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER THAT THE MANDATORY ACCOUNTING STA NDARDS HAVE NOT BEEN FOLLOWED. HE EMPHASIZED THAT IN THE CASE OF COMPLET ED CONTRACTS, THE EXPENDITURE I.E., ASCERTAINED AND PROVIDED FOR HAS TO BE ALLOWED OR OTHERWISE THE PROFITS WOULD BE DISTORTED. 14. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- 15. THE FIRST ISSUE IS THE ALLOWABILITY OF PROVISIONS M ADE BY THE ASSESSEE, ON (I) COMPLETED CONTRACTS AND (II) INCOMPLETE CO NTRACTS. THE ASSESSEE HAS RELIED ON A NUMBER OF JUDGMENTS OF THE COURTS TO EM PHASIZE HIS POINT THAT FORESEEN LOSSES HAVE TO BE TAKEN INTO ACCOUNT WHILE ARRIVING AT THE PROFITS OF BUSINESS FOR A PARTICULAR ASSESSMENT YEAR. BEFORE W E COME TO THIS ASPECT, WE FIND THAT THE ASSESSEE HAS, IN THE PREVIOUS ASSESSM ENT YEARS, MADE SIMILAR PROVISIONS AND THE MATTER HAS TRAVELED UP TO THE TR IBUNAL FOR THE ASSESSMENT YEAR 2001-02. THE ASSESSEE CLAIMED DEDUCTION OF ` 18,85,545, TOWARDS PROVISIONS MADE FOR COST ON COMPLETED CONTRACTS, TO MEET THE EXPENDITURE INCURRED UPTO ACCEPTANCE OF THE PLANT. THE TRIBUNAL , IN ITA NO.8053/MUM./ 2004, I BENCH, ORDER DATED 23 RD OCTOBER 2007, HAS GIVEN A FINDING THAT THE LIABILITY HAS BEEN IDENTIFIED, DETERMINED AND ASCER TAINED ON THE BASIS OF TECHNICAL ASSESSMENT AND THAT IT PERTAINS TO YEAR U NDER APPEAL. IT ALLOWED THE CLAIM. WHEN THE MATTER CAME UP BEFORE THE TRIBU NAL FOR ASSESSMENT YEAR 2002-03, THE G BENCH OF THE TRIBUNAL IN ITA NO.19 26/MUM./2006, FOR ASSESSMENT YEAR 2002-03, ORDER DATED 10 TH SEPTEMBER 2008, CONCURRED WITH THE VIEW TAKEN BY THE TRIBUNAL IN EARLIER YEAR AND RECORDED THAT THE CLAIM OF PROVISIONS AGAINST THE PROFITS IN THE PROFIT & LOSS ACCOUNT ARE ALLOWABLE. THE TRIBUNAL AT PARA-7/PAGE-6 OF THE ORDER, HELD AS FOL LOWS:- UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 9 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE OTHER DOCUMENTS AND TRIBUNAL ORDER RELIED ON BY THE PARTIES. IT IS A FACT THAT THE CRE ATION OF PROVISIONS ARE IN THE COMMERCIAL ACCOUNTANCY AND SUCH PROVISIONS A RE MADE TO AVOID FUTURE LOSSES OR CONTINGENCIES, IF ANY. THE CLAIM O F SUCH PROVISIONS AGAINST THE ASSESSEES PROFITS IN THE PROFIT & LOSS ACCOUNTS ARE ALLOWABLE AS HELD IN THE JUDGMENT OF THE APEX COURT IN THE CASE OF METAL BOX CO. OF INDIA LTD. 73 ITR 53 (SC). IN THE LIGHT OF THE SAME, WE HAVE ALSO PERUSED OTHER APEX COURT JUDGMENTS IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) AND CALCUTTA CO. LTD. ( SUPRA) AS WELL AS THE TRIBUNAL ORDER OF ASSESSEES OWN CASE FOR THE A .Y. 2001-02. THE PRINCIPLES LAID DOWN BY THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) IN REGARD TO THE PROVISIONS, THOUGH RELATING TO THE ISSUE OF LEAVE ENCASHMENT IN THAT CASE, ARE AS FOLLOWS:- THE LAW IS SETTLED. IF THE BUSINESS LIABILITY HAS DEFINITELY ARISEN DURING THE ACCOUNTING YEAR, THE DEDUCTION SH OULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A LATER DATE. WHAT SHO ULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOUL D ALSO BE CAPABLE OF BEING WITH REASONABLE CERTAINTY ALTHOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IN PERSENTI THOUGH IT WILL BE DI SCHARGED AT A FUTURE DATE. IT DOES NOT MADE ANY DIFFERENCE, IF THE FUTURE DATE, THE LIABILITY SHALL HAVE TO BE DISCHAR GED, IS NOT CERTAIN. 16. THEREAFTER, IN THE LIGHT OF THE ABOVE PRINCIPLES, P ROVISIONS MADE PARTWISE WERE EXAMINED AND THE CLAIM OF THE ASSESSE E WAS PARTLY ALLOWED. THE TRIBUNAL HAS RECORDED THAT THE ASSESSEE HAS NOT PROVIDED SUFFICIENT INFORMATION OR MATERIAL IN SUPPORT OF THE PROVISION S MADE IN THE CASE OF BOMBAY OXYGEN CORP. LTD. AND THUS, IT ONLY ALLOWED PART OF THE AMOUNT BASED ON THE FACT THAT THIS EXPENDITURE WAS INCURRE D SUBSEQUENTLY. THUS, CONSISTENT WITH THE VIEW OF THE CO-ORDINATE BENCH O F THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA, WE HOLD THAT, IN P RINCIPLE, THE PROVISIONS OF COST IN RESPECT OF COMPLETED CONTRACTS HAVE TO BE A LLOWED, SUBJECT TO THE ASSESSEE JUSTIFYING THE QUANTUM OF THE PROVISION. 17. WE NOW EXAMINE THE COMPLETED CONTRACTS INVOLVED. TH E ASSESSEE RECOGNISES INCOME ON THE BASIS OF COMMISSIONING OF THE PLANT. THE ASSESSING OFFICER, IN THE PRESENT CASE, HAS DISALLOWED PROVIS IONS IN CASE OF GUJARAT STATE FERTILIZER CORP. LTD., ON THE GROUND THAT THE ASSESSEE HAD FAILED TO SUBMIT ANY EVIDENCE TO PROVE THAT LIABILITY TO THE EXTENT OF ` 58,70,134 EXISTED ON 31 ST MARCH 2003. THE ASSESSING OFFICER ALSO OBSERVED TH AT IN THE UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 10 SUBSEQUENT YEARS, THE UTILISATION / COST BOOKED WAS ONLY ` 11,41,132 AND THE BALANCE OF ` 45,79,002 WAS REVERSED AND OFFERED FOR TAXATION. D URING THE APPELLATE PROCEEDINGS, THE COMMISSIONER (APPEALS), VIDE PARA-4.2 / PAGES-6 & 7, OBSERVED THAT OUT OF A TOTAL PROVISIONS OF ` 58,71,134, AN AMOUNT OF ` 45,79,002, WAS REVERSED AND THAT THIS PROVES THAT T HERE WAS NO REASONABLE CERTAINTY IN ESTIMATION OF THE PROVISIONS AND THAT THE ESTIMATE WAS WILD. 18. BEFORE US, THE LEARNED COUNSEL WAS NOT ABLE TO PROD UCE ANY EVIDENCE IN SUPPORT OF THE FIGURE OF ` 58,70,134, PROVIDED IN CASE OF GUJARAT STATE FERTILIZER LTD. ONLY A NOTE ON METHOD OF WORKING CO NTRACTUAL PROVISIONS HAS BEEN FURNISHED. IN REPLY, IT IS STATED THAT THE PRO VISION WAS REQUIRED FOR FURTHER COST / REPLACEMENT / MODIFICATION AND MISCE LLANEOUS EXPENDITURE AS INDICATED BY THE CLIENT IN THE MINUTES OF THE MEETI NG DATED 4 TH DECEMBER 2002. WE HAVE ALSO PERUSED SOME OF THE INTERNAL MEM OS FILED IN THIS REGARD. INTERNAL MEMO DATED 25 TH MARCH 2003, WHICH IS AT PAGE-64 OF THE PAPER BOOK, IT IS STATED AS FOLLOWS:- INTERNAL MEMO TO DEPARTMENT COMMERCIAL FROM DEPARTMENT PROJECT OFFICE OFFICE VIKHROLI NAME NAME D.K. JULKA PHONE NO. 8099 YOUR REFERENCE NO. OUR REFERENCE NO. DATE 25.03.2003 SUBJECT : CONTRACT NO. 66-0065-GSFC SUBJECT : GSFC DAP PLANT PROVISIONS AS ON 31.3.2003 PLEASE REFER TO OUR EARLIER MEMO DATED 28.09.2002, WHEREIN WE HAD REQUESTED YOU TO MAKE A PROVISION OF ` 70 MIO. FOR COST / HARDWARE REPLACEMENT / MODIFICATIONS. SUBSEQUENTLY, ON 4 TH DECEMBER 2002, WE HAD RECEIVED THE PLANT ACCEPTANCE CERTIFICATE FROM THE CLIENT STATING THAT THE PLANT HAS BEEN ACCEPTED ON 28.10.2002 AND WE HAVE COMPLETED ALL OU R CONTRACTUAL OBLIGATIONS. IN VIEW OF THIS, WE NOW REQUEST YOU TO DILUTE ` 64.5 MIO. UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 11 PROVIDED EARLIER AND MAKE A PROVISION FOR ONLY ` 5.5 MIO. FOR FURTHER COST / REPLACEMENT / MODIFICATION TILL THE CONTRACT UAL LIABILITY PERIOD IS OVER. 19. NO WORKINGS OR DETAILS ARE PROVIDED IN SUPPORT OF S UCH INTERNAL MEMO. UNDER THESE CIRCUMSTANCES, WE HAVE NO HESITATION IN UPHOLDING THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTAT IVE THAT THIS IS A SELF- SERVING DOCUMENT. THUS, WE HOLD THAT THE ASSESSEE H AS NOT SUBSTANTIATED THE QUANTIFICATION OF THE PROVISIONS MADE. ANY HOW, AS WE FIND THAT THE ASSESSEE HAS ACTUALLY INCURRED AN AMOUNT OF ` 11,75,696, IN THE SUBSEQUENT ASSESSMENT YEARS AND AS THE ENTIRE INCOME FROM THIS CONTRACT HAS BEEN RECOGNISED AND TAXED IN THIS YEAR, THE EXPENDITURE INCURRED IN CONNECTION WITH THE PROJECT HAS TO BE ALLOWED THIS YEAR. HENCE , WE ALLOW THE CLAIM OF THE ASSESSEE TO THE EXTENT OF ` 11,75,696. THE DISALLOWANCE OF BALANCE AMOUNT IS SUSTAINED. 20. ON SIMILAR CONSIDERATIONS, WE ALLOW THE PROVISIONS CLAIMED BY THE ASSESSEE IN CASE OF MANGALORE CHEMICAL AND FERTILIZ ERS LTD., AS THE ACTUAL EXPENDITURE WAS IN EXCESS OF THE PROVISIONS MADE ON COMPLETED CONTRACTS. SIMILARLY, IN CASE OF WEST COST PAPER MILLS, ANDHRA SUGAR LTD., U.S.V. VITAMIN AND UHDE, GMBH, THE ACTUAL EXPENDITURE INCURRED IS IN EXCESS OF THE PROVISIONS MADE. THOUGH THE ASSESSEE HAD NOT SUBSTA NTIATED THE PROVISIONS MADE AT THE TIME OF CLAIM IN VIEW OF THE SUBSEQUENT EVENTS, IT IS CLEAR THAT THE ACTUAL EXPENDITURE WAS MORE THAN THE PROVISIONS AND, HENCE, REASONABILITY OF THE PROVISIONS CANNOT BE QUESTIONE D. THUS, THESE PROVISIONS ARE DIRECTED TO BE ALLOWED. 21. COMING TO THE CASE OF COLORCON ASIA PVT. LTD., NIRM A AND VVF LTD., THE ACTUAL EXPENDITURE IS FAR LESSER THAN THE PROVISION S MADE AND THE ASSESSEE HAS, IN FACT, WRITTEN BACK A LARGE PERCENTAGE OF TH E PROVISIONS MADE ON THE GROUND THAT THE PROVISION IS NO LONGER REQUIRED. WE HAVE ALREADY STATED THAT THE ASSESSEE HAS NOT FILED SUFFICIENT EVIDENCE TO D EMONSTRATE THAT THE FAIR AND REASONABLE EXERCISE HAS BEEN UNDERTAKEN BY HIM IN ARRIVING AT THE PROVISIONS. INTER-DEPARTMENTAL MEMOS ARE THE ONLY B ASIS FOR MAKING THE PROVISIONS. THESE INTER-DEPARTMENTAL MEMOS ARE NOT SUPPORTED BY ANY TYPE OF WORKINGS, REASONS OR EVIDENCE. UNDER THESE CIRCU MSTANCES, THOUGH IN UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 12 PRINCIPLE, THE PROVISIONS HAS TO BE ALLOWED ON THE ISSUE OF QUANTUM, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDITURE TO T HE EXTENT ACTUALLY INCURRED IN THE SUBSEQUENT ASSESSMENT YEARS MAY BE ALLOWED. THUS, IN CASE OF COLORCON ASIA PVT. LTD., AN AMOUNT OF ` 2,45,360, MAY BE ALLOWED AS AGAINST THE CLAIM OF ` 4,16,768. SIMILARLY, IN THE CASE OF VVF LTD., THE EXPENDITURE OF ` 58,884, MAY BE ALLOWED AS AGAINST THE PROVISIONS OF ` 11,91,290. 22. WE NOW DISCUSS THE ALLOWABILITY OF THE PROVISIONS O N PROJECTED LOSSES ON INCOMPLETE PROJECTS. BEFORE COMING TO THE ISSUE AS TO WHETHER A PROJECTED LOSS ON INCOMPLETE CONTRACTS SHOULD BE ALLOWED IN T HE YEAR UNDER CONSIDERATION, WE FIRST EXAMINE THE NATURE OF DOCUM ENTATION GIVEN BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. AS IN THE CASE OF COMPLETED CONTRACTS, EVEN IN CASE OF INCOMPLETE CONTRACTS, THE ASSESSEE WAS N OT ABLE TO SUBSTANTIATE THE BASIS ON WHICH THE PROVISIONS HAVE BEEN MADE. W HEN THE ASSESSEE MAKES A CLAIM FOR ANTICIPATED LOSSES, TO DEMONSTRAT E THAT THE PROVISIONS ARE JUSTIFIED, THE BURDEN OF PROOF IS ON IT. IN THE PRE SENT CASE, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN THAT LIES ON IT. THE COMM ISSIONER (APPEALS) HAS, AT PARA-4.3/PAGE-7 OF HIS ORDER, HELD THAT THE ASSE SSEE, NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE COMMISSIONER (APPE ALS), HAS SUBMITTED ANY BASIS FOR ESTIMATION OF THE LOSS. EVEN BEFORE US, E XCEPT FOR FILING INTERNAL MEMOS, NO EVIDENCE IS FILED BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE FINDINGS OF THE ASSESSING OFFICER, AS UPHELD BY THE COMMISSIONER (APPEALS), ARE TO BE ACC EPTED AND THE PLEA OF THE ASSESSEE IS DISMISSED. 23. AS ON MERITS, WE UPHOLD THE DISALLOWANCE OF PROVISI ONS FOR ANTICIPATED LOSS ON INCOMPLETE CONTRACTS. WE DO NOT DEEM IT NEC ESSARY TO GO INTO THE LEGAL ASPECT AS IT WOULD BE AN ACADEMIC EXERCISE. T HIS GROUND IS, THUS, PARTLY ALLOWED. 24. COMING TO GROUND NO.3, I.E., TDS CLAIMED UNDER SECT ION 199, FOR ASSESSMENT YEAR 2002-03, MANDATED THAT CREDIT SHALL BE GIVEN ON THE PRODUCTION OF CERTIFICATE GIVEN UNDER SECTION 203, IN THE ASSESSMENT MADE UDHE INDIA PVT. LTD. ITA NO. 6510/MUM./2009 13 UNDER THIS ACT, FOR THE ASSESSMENT YEAR FOR WHICH S UCH INCOME IS ASSESSABLE. THE ADMITTED FACT IN THIS CASE IS THAT INCOME IN QU ESTION ON WHICH TDS IS MADE, IS NOT ASSESSABLE DURING THE ASSESSMENT YEAR 2003-04. HENCE, IN OUR 5OPINION, THE FIRST APPELLATE AUTHORITY WAS RIGHT I N REJECTING THE CONTENTION OF THE ASSESSEE. CONSEQUENTLY, THIS GROUND IS DISMISSE D. 25. COMING TO LEVY OF PENALTY UNDER SECTION 234D, THE H ON'BLE JURISDICTIONAL HIGH COURT IN BAJAJ HINDUSTAN LTD. ( SUPRA) HELD THAT INTEREST UNDER SECTION 234D CANNOT BE CHARGED IN RESPECT OF REFUND GRANTED PRIOR TO 1 ST JUNE 2003. IN THE CASE ON HAND, THE RETURN OF INCO ME WAS PROCESSED UNDER SECTION 143(3) ON 19 TH FEBRUARY 2004, WHICH IS AFTER 1 ST JUNE 2003. THE RETURN OF INCOME ITSELF WAS FILED AFTER 1 ST JUNE 2003. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T INTEREST UNDER SECTION 234D HAS BEEN RIGHTLY CHARGED IN THIS CASE. THIS GR OUND IS, THUS, DISMISSED. 26. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH SEPTEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, F BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI