SHAPOORJI PALLONJI AND COMPANY PRIVATE LIMITED ,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX (CENTRAL),-4, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

This appeal in ITA No.1149/Mum/2022 for A.Y.2012-13 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-4, Mumbai u/s.263 of the Act dated 31/03/2022 for the A.Y.2012-13.

2 ITA No.1149/Mum/2022 M/s. Shapoorji Pallonji and Company Pvt. Ltd.,

 Disclosing the foreign bank details;  14A Disallowance of Rs. 5,00,000 while computing book profits under Section 115JB Act

3.1. Subsequently, the case was selected for scrutiny assessment under section 143(2) of the Act vide notice dated 08/08/2013. During the assessment proceedings, the ld. AO issued notices u/s 143(2) and 142(1) of the Act dated 17/11/2014. In the said notice the ld. AO had asked for report under section 115JB of the Act and various other details. The assessee submitted the report under section 115JB of the Act and various other details vide submission dated 21/01/2015. Further, various notices were issued under Section 142(1) of the Act, which were duly complied by the assessee and all the submissions were made in respect of details called for. The ld. AO vide order u/s 143(3) of the Act dated 20/04/2016

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made disallowance under section 14A and 36(1)(iii) of the Act and addition under section 92CA(3) of the Act while computing income under normal provisions of the Act and assessed the total loss at Rs. 97,94,04,731/- and made addition under section 14A and made adjustment for provision for gratuity while computing book profits under Section 115JB of the Act.

3.2. Against the said order, the assessee had preferred an appeal before Commissioner of Income Tax (Appeals)-8 ('CIT(A)"), Mumbai, presently pending before Ld. CIT(A), National Faceless Appeal Centre ('NFAC').

3.3. Subsequently a notice u/s.148 of the Act was issued on 29/03/2019 reopening the assessment for A.Y.2012-13. The reasons recorded for reopening were duly communicated to the assessee. In the said reasons, the ld. AO had stated that an amount of Rs.2,18,98,416/- paid to contractor towards supply of manpower to contractor Smt. Mayaben Vijay Parmar (holding bank account with Shri Vijay G Parmar (HUF)) was not substantiated in as much as the funds received by them from the assessee were immediately withdrawn and thus the expenditure claimed in that regard by the assessee remained unexplained. The assessee filed detailed objections for the reasons recorded by providing explanation with supporting documents. The ld. AO however, disregarded the contentions of the assessee and proceeded to frame the reassessment u/s.143(3) r.w.s. 147 of the Act dated 09/12/2019 by making disallowance on account of non-genuine expenditure stated supra in the sum of Rs.218,98,416/- under normal provisions of the Act. In the said re- assessment order dated 09/12/2019, the ld. AO determined the assessed loss of Rs.95,75,06,315/- under normal provisions of the Act and retained the book profit u/s.115JB of the Act which had already been determined

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u/s.143(3) r.w.s. 144C (3) of the Act on 20/04/2016 at Rs.60,20,41,406/-. The assessee preferred an appeal before ld. CIT(A)-8 against the said reassessment order dated 09/12/2019 which is presently pending before CIT(A), NFAC.

3.4. The ld. Principal Commissioner of Income Tax-3 (PCIT) issued a notice under section 263 of the Act dated 18/03/2021 stating that the expenditure relating to provision for foreseeable loss is an unascertained liability and though the expenditure was added back to total income computed under normal provisions of the Act, the ld. AO failed to add back the same to book profit under section 115JB of the Act during re- assessment proceedings. Accordingly, the assessee was issued show cause notice to explain why revision under section 263 of the Act should not be made. Subsequently, vide letter dated 07/05/2021, the assessee filed a detailed reply on the validity of proceedings under section 263 of the Act and explained that no disallowance to be made with regards to the provision for foreseeable loss while computing the book profit under section 115JB of the Act. It is pertinent to note that the assessee has always contested that the revision proceedings are time barred and thus are not valid.

3.5. Thereafter, the ld. PCIT issued second notice under section 263 of the Act on 17/09/2021, wherein, the ld. PCIT again mentioned about the details of earlier notice. The assessee filed a detailed response to the said notice vide its submission dated 13/11/2021 wherein the assessee explained the issues raised by the ld. PCIT by relying on judicial precedents.

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3.6. Thereafter the assessee was issued third notice u/s 263 of the Act on 09/02/2022 asking to submit other representation/ submissions along with supporting documents/ information. The assessee relying on earlier submissions filed a response to notice vide submission dated 16/02/2022. Further, due to change in incumbent from ld PCIT-3 to ld PCIT (Central) - 4, a notice under section 263 was served on 12/03/2022. The assessee attended the hearing with submissions already filed before ld. PCIT-3. The ld. PCIT (Central)- 4 disregarded the submissions made by the assessee and passed an order under section 263 dated 30/03/2022 by holding the order dated 09/12/2019 passed under section 143(3) read with section 147 of the Act as erroneous and prejudicial to the interest of the revenue and directing the ld. AO to complete assessment afresh.

3.7. At the outset, we find that in response to the notice issued u/s.143(2) and 142(1) of the Act during the course of original scrutiny assessment proceedings, the assessee had furnished the audit report u/s.115JB of the Act as called for by the ld. AO. The ld. AO on verification of the said audit report u/s.115JB of the Act had even resorted to make disallowance u/s.14A of the Act and also towards provision for gratuity treating it as an unascertained liability while computing book profits u/s.115JB of the Act. This goes to prove that the ld. AO had duly applied his mind and had enquired into all the aspects that are relevant for the purpose of determination of book profits u/s.115JB of the Act while framing the original scrutiny assessment order 20/04/2016 u/s.143(3) of the Act. If at all there is an error in the said computation of book profits u/s.115JB of the Act by not disallowing the provision for foreseeable losses (which is the subject matter of present revision proceedings before us u/s.263 of the Act), the said assessment order dated 20/04/2016 would become erroneous and prejudicial to the interest of the revenue

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warranting revision u/s.263 of the Act by the ld. PCIT, in which event, the revision order u/s.263 of the Act should have been passed on or before 31/03/2019 as per provisions of Section 263 (2) of the Act. Admittedly, the reassessment proceedings were initiated against the assessee only to make disallowance on account of certain non-genuine payments made to contractors which was duly made in the reassessment order dated 09/12/2019. In our considered opinion, it cannot be said that not adding the provisions for foreseeable losses while computing book profits u/s.115JB of the Act had arose only in the reassessment order dated 09/12/2019. This error, even if any, was present in the original assessment order dated 20/04/2016 itself. Hence, we hold that the ld. PCIT’s action in treating the reassessment order dated 09/12/2019 as erroneous and prejudicial to the interest of the Revenue as erroneous and prejudicial to the interest of the revenue , is not correct. Now the short point that arises for our consideration is as to whether the time limit for invoking revision jurisdiction u/s 263(2) of the Act should be reckoned from the date of original assessment order dated 20/04/2016 or from the reassessment order dated 09/12/2019. We find that this issue is no longer res integra in view of the decision of Hon’ble Supreme Court in the case of Alagendran Finance Ltd., reported in 293 ITR 1 (SC) wherein it was held as under:-

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once jurisdiction under section 147 of the Act is invoked, the whole assessment proceeding became reopened, which was negatived by the Court opining : "Section 147, which is subject to section 148, divides cases of income escaping assessment into two clauses, viz., (a) those due to the non-submission of the return of income or non-disclosure of true and full facts, and (b) other instances. Explanation (1) defines as to what constitutes escape of assessment. In order to invoke jurisdiction under section 147(a) of the Act, the ITO must have reason to believe that some income chargeable to tax of an assessee has escaped assessment by reason of the omission or failure on the part of the assessee either to make a return under section 139 for the relevant assessment year or to disclose fully and truly material facts necessary for the assessment for that year. Both the conditions must exist before an ITO can proceed to exercise jurisdiction under section 147(a) of the Act. Under section 147(b), the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason to believe, on the basis of information in his possession, that income chargeable to tax has been either underassessed or has been assessed at too low a rate or has been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed. In either case, whether the Income-tax Officer invokes his jurisdiction under clause (a) or clause (b) or both, the proceedings for bringing to tax an 'escaped assessment' can only commence by issuance of a notice under section 148 of the Act within the time prescribed under the Act. Thus, under section 147, the Assessing Officer has been vested with the power to 'assess or reassess' the escaped income of an assessee. The use of the expression 'assess or reassess such income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in clauses (a) and (b), viz., 'escaped assessment'. The term 'escaped assessment' includes both non-assessment as well as 'under assessment'. Income is said to have 'escaped assessment' within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression 'assess' refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in the regular manner under the Act. The expression 'reassess' refers to a situation where an assessment has already been made but the Income-tax Officer has, on the basis of information in his possession, reason to believe that there has been under assessment on account of the existence of any of the grounds contemplated by the provisions of section 147(b) read with Explanation (I) thereto." (p. 309) 9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd.'s case (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373 interpreting the provisions of section 34 of the Act was reproduced which reads as under: 'Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is

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reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year'." (p. 643) 10. There may not be any doubt or dispute that once an order of assessment is reopened, the previous underassessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject-matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened. 11. In Sun Engg. Works (P.) Ltd.'s case (supra) also, V. Jaganmohan Rao's case (supra) was noticed stating: "The principle laid down by this Court in Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act) the previous under assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. . . The judgment in V. Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as [if] laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'under assessment' but to the entire assessment for the year and starts the assessment proceeding de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. . . ." (p. 319)

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It was furthermore held : "As a result of the aforesaid discussion, we find that in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under section 14. . . ." (p. 320) 12. We may at this juncture also take note of the fact that even the Tribunal found that all the subsequent events were in respect of the matters other than the allowance of 'lease equalization fund'. The said finding of fact is binding on us. Doctrine of merger, therefore, in the fact situation obtaining herein cannot be said to have any application whatsoever. It is not a case where the subject-matter of reassessment and subject-matter of assessment were the same. They were not. 13. It may be of some interest to notice that a similar contention raised at the instance of an assessee was rejected by a 3-Judge Bench of this Court in CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50. This Court took note of the amendment made in section 263 of the Act by the Finance Act, 1989 with retrospective effect from 1-6- 1988, inserting Explanation (c) to sub-section (1) of section 263 of the Act stating: "The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred." (p. 52) We, therefore, are clearly of the opinion that in a case of this nature, the doctrine of merger will have no application. 14. The Madras High Court in A.K. Thanga Pillai's case (supra), in our opinion, has rightly considered the matter albeit under section 17 of the Wealth-tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engg. Works (P.) Ltd.'s case (supra), it was held: "Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to deal with underassessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of Sun Engg. [1992] 198 ITR 297 , is

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in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment already made in respect of items which are not required to be reopened, as also matters which are required to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment. An assessee who has failed to file an appeal against the original order of assessment cannot utilise the reassessment proceedings as an occasion for seeking revision or review of what had been assessed earlier. He may only question the extent of the reassessment insofar as the escaped assessment is concerned. The revenue is similarly bound. . . ." (p. 263) The same principle was reiterated by a Division Bench of the Calcutta High Court in CIT v. Kanubhai Engineers (P.) Ltd. [2000] 241 ITR 665 . 15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income-tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity. (Emphasis supplied by us) 16. The Tribunal and the High Court, therefore, in our opinion, were correct in passing the impugned judgment. The appeal, therefore, being devoid of any merit is dismissed with costs. Counsel's fee assessed at Rs. 25,000.

3.8. Moreover, we further find that the Hon’ble Jurisdictional High Court in the case of Ashoka Buildcon Ltd., reported in 325 ITR 574 had also held as under: 10. The submission which has been urged on behalf of the revenue is that when several issues are dealt with in the original order of assessment and only one or more of them are dealt with in the order of reassessment passed after the assessment has been reopened, the remaining issues must be deemed to have been dealt with in the order of reassessment. Hence, it has been urged that the omission of the Assessing Officer, while making an order of reassessment to deal with those issues under section 143(3) read with section 147 constitutes an error which can be revised in

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exercise of the jurisdiction under section 263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of sections 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court. The Supreme Court has now clearly held in the decision in Alagendran Finance that the doctrine of merger does not apply where the subject- matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under section 143(3) read with section 147. Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate. The order of assessment cannot be regarded as being subsumed within the order of reassessment in respect of those items which do not form part of the order of reassessment. Where a reassessment has been made pursuant to a notice under section 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the Assessing Officer reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under section 147. The submission of the revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the Assessing Officer can be construed to be erroneous and to be prejudicial to the interest of the revenue within the meaning of section 263. The submission cannot be accepted in the facts of the present case. The substantive part of section 147 as well as Explanation 3 enables the Assessing Officer to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the Assessing Officer as having escaped assessment in the course of the proceedings under section 147 and when he passed the order of reassessment. The Commissioner, when he exercised his jurisdiction under section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under section 263 is sought to be exercised in respect of issues which did not form the subject-matter of the reassessment proceedings under section 143(3) read with section 147. In respect of those issues, limitation would commence with reference to the original order of assessment. If the exercise of the revisional jurisdiction under section 263 was to be in respect of issues which formed the subject-matter of the reassessment, after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category. (Emphasis supplied by us) 11. Counsel appearing on behalf of the revenue relied upon the judgment of the Supreme Court in ITO v. K.L. Srihari (HUF) [2001] 118 Taxman 890 . That was a case where an assessment was reopened under section 147. The Supreme Court, after

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considering the original order of assessment dated 19-3-1983 and the order of reassessment dated 16-7-1987 passed under section 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under section 147, the Assessing Officer had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject-matter of the original order of assessment as well as of the order of reassessment was the same. This is distinct from the situation in the subsequent judgment of Alagendran Finance Ltd.'s case (supra) where the Supreme Court noted that the subject-matter of the original assessment and the order of reassessment was not the same. The facts of the present case are similar to those in Alagendran Finance Ltd.'s case (supra) which must, therefore, apply. 12. For these reasons, we are of the view that the exercise of the revisional jurisdiction under section 263 is barred by limitation. We clarify that this would not preclude the revenue from taking recourse to any other remedy that may be available in law.

3.9. Similar views were also expressed by this Tribunal in the case of Institute of Chemical Technology vs. DDIT (Exemptions)-II(1) in ITA No.3522/Mum/2018 dated 23/12/2021 and also by the Hon’ble Jurisdictional High Court in the case of CIT vs. ICICI Bank Ltd., reported in 212 Taxman 130 and CIT vs. Lark Chemicals Ltd., reported in 230 Taxman 305.

3.10. Respectfully following the aforesaid judicial precedents, we hold that the ld. PCIT seeking to invoke revision jurisdiction u/s.263 of the Act to disallow provision for foreseeable losses in the computation of book profits u/s.115JB of the Act is barred by limitation as it emanates from the date of original assessment order dated 20/04/2016 and not from the reassessment order dated 09/12/2019. Hence, the period of limitation should have to be reckoned in terms of Section 263 (2) of the Act from the date of original assessment order dated 20/04/2016 and not from the date of reassessment order dated 09/12/2019. Hence, the revision order passed by the ld. PCIT u/s.263 of the Act is hereby quashed.

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3.11. Even on merits, we find that the ld. PCIT had not conclusively stated as to whether the provision for foreseeable loss is an unascertained liability warranting to be added back while computing book profits u/s.115JB of the Act. He has not even chosen to address the contentions of the assessee filed before him in this regard. We find the assessee had submitted that it executes fixed price contracts and accordingly, cost and revenue of the project for a particular year is recognized based on the percentage of completion method, being cost incurred to total cost of the project. Every year, basis the stage of completion, provision for foreseeable loss is created on basis of Accounting Standard (AS)-7 on Construction contracts. Para 35 of AS-7 provides that when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately. Thus, assessee is required to estimate its total contract costs (ie, sum of costs incurred and expected future costs) and recognize the expected losses (e. difference between the contract revenue and total contract costs). Further, in the subsequent year in which the pending work is completed, the provision for foreseeable loss is reversed against which actual loss is booked. During the year under consideration, the assessee has made disclosure in the financials as per Accounting Standard-7. Further it is pertinent to note that in the notes to financial statements, it has been stated that "Full provision is made for any loss in the period in which it is foreseen”. To substantiate its claim further, the assessee has also submitted details of year wise provision for foreseeable loss created and reversed for project named "IIM Kashipur from FY 2015- 16 and party wise details of provision for foreseeable created for Engineering and Construction division for the year under consideration. These details are enclosed in pages 169 to 170 of the Factual Paper Book filed before us. The ld AR further submitted the year wise details of

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provision of foreseeable loss and its reversal as tabulated below for various financial years:- Shapoorji Palionji and Company Private Limited Details for Provision for Forseeable Loss (Rs. In Crs.) Particulars FY FY FY 2019- FY 2020- FY FY FY FY FY :|Y FY 20 21 2011-12 2012-13 2014-15 2015-16 2016-17 2017-18 2018-19 $010-11 2013-14

76.03 130.22 Opening Balance - 18.71 48.02 42.24 24.83 39.33 74.48 66.16 68.28

18.71 29.32 - - 14.50 35.15 2.12 7.75 54.19 37.11 Add: Creation during the year - - - 5.78 17.41 - - 8.32 - - - Less: Reversal during the year 18.71 29.32 -5.78 -17.41 14.50 35.15 -8.32 2.12 7.75 54.19 37.11 Net amount debited to P& L A/c

18.71 48.02 42.24 24.83 39.33 74.48 66.16 68.28 76.03 130.22 167.33 Closing Balance

76.37 130.56 167.67 As per FS 18.71 48.02 42.24 24.83 39.33 74.48 66.50 68.62

3.12. Thus, it is clearly evident from the above, that the assessee has created provisions for foreseeable loss for complying with the requirements of AS-7 and hence is an allowable deduction as it is only an ascertained liability. The provision for foreseeable loss being an ascertained liability, the same is treated as an allowable expenditure while computing book profits under Section 115JB of the Act. We also find that the ld. AR rightly placed reliance on the co-ordinate bench decision of this tribunal in the case of Summit Securities Ltd in ITA No. 2336/Mum/2012 dated 05/10/2020 wherein this provision for foreseeable loss was accepted to be an ascertained liability and hence allowable as deduction. Moreover, even in the following judicial precedents, it has been held that

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provision for foreseeable loss created as per AS-7 is an allowable deduction under Section 37 of the Act under normal provisions of the Act:

 Decision of Kolkata Tribunal in the case of SPMPL Infra Ltd in ITA No. 1228/Kol/2018 dated 17/01/2020;  Decision of Pune Tribunal in the case of Ashoka Buildcon Ltd reported in 61 taxmann.com 330 (Pune-Trib.) dated 31/12/2014;  Decision of this Tribunal in the case of Jacobs Engineering India Pvt Ltd reported in 14 taxmann.com 186 (Mum. ITAT) dated 26/05/2009;

 Decision of this Tribunal in the case of Dredging International NV reported in 148 SOT 430 (Mumbai ITAT)] dated 16/09/2011;

 Decisions of this Tribunal in the case of ITD Cementation India Ltd reported in 146 ITD 59 (Mum. ITAT)] dated 16/09/2011 and Toyo Engineering India Limited in ITA No. 6219 & 6916/Mum/2014 dated 04/04/2018.

3.13. However, for abundant precaution and as prudent businessman, the assessee has merely disallowed the same under normal provisions of the Act. In this regard, we hold that merely because the assessee had disallowed a particular item under normal provisions of the Act, it does not automatically become eligible to be added back while computing book profits u/s 115JB of the Act. It is trite law that there is no estoppel against the statute. The ld. PCIT is duty bound to bring on record that the said item would be an eligible item for adding back while computing book profits u/s 115JB of the Act, which had admittedly not done by the ld. PCIT in the instant case. The ld. PCIT has also not applied the ratio decidendi laid down by the Hon’ble Supreme Court in the case of Apollo Tyres Ltd reported in 255 ITR 273 (SC), wherein the ld. AO could not make any additions or deletions beyond what is prescribed in the list of

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items as per Explanation 1 to section 115JB (2) of the Act. In the instant case, there is no dispute that the said provision for foreseeable loss has been made in accordance with the guidelines and mandate provided in AS-7 issued by ICAI and hence we hold that the said provision is an ascertained liability and hence an allowable expenditure under section 115JB of the Act. It is pertinent to note that the said practice has been consistently followed by the assessee in the previous as well as subsequent years and has been also accepted by the Department except for the year under consideration.

3.14. Hence, it could be seen that even on merits, the provision made for foreseeable losses would only be an ascertained liability and hence, it does not fall under any of the items listed in Explanation 1 to Section 115JB (2) of the Act warranting addition thereon. Hence, even on merits, this provision deserves to allowed while computing book profits u/s.115JB of the Act.

Order pronounced on 30/09/2022 by way of proper mentioning in the notice board.

Sd/- Sd/- (SANDEEP SINGH KARHAIL) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 30/09/2022 KARUNA, sr.ps

17 ITA No.1149/Mum/2022 M/s. Shapoorji Pallonji and Company Pvt. Ltd.,

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. //True Copy//

BY ORDER,

(Sr. Private Secretary / Asstt. Registrar) ITAT, Mumbai