DCIT, CIRCLE-11(1) vs. IRCON INTERNATIONAL LTD.,,

In the Income-Tax Appellate Tribunal, Delhi Bench ‘C’, New Delhi

Before : Shri Bhavnesh Saini, Judicial Member And Shri O.P. Kant, Accountant Member

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 Assessment Years: 2001-02, 2002-03 & 2003-04

IRCON International Limited, vs. Addl. C.I.T., Range-11, Palika Bhawan, R.K. Puram New Delhi. Sector-13, New Delhi (PAN: AAACI0684H) (Appellant) (Respondent)

ITA No. 2234/Del/2005& 3805/Del/2008 Assessment Year: 2001-02& 2003-04

Dy. C.I.T., Range-11(1), vs. IRCON International Limited, New Delhi. Palika Bhawan, R.K. Puram Sector-13, New Delhi (Appellant) (Respondent)

Assessee by Dr. Rakesh Gupta, Advocate & Sh. Somil Aggarwal, Advocate Revenue by Sh. J.K. Mishra, CIT/DR Date of hearing 21.08.2019 Date of 31.10.2019 Pronouncement

ORDER Per O.P. Kant, A.M.: These appeals by the assessee and the Revenue have been

raised against separate orders of the Ld. Commissioner of Income-

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 2 2234/Del/2005 & 3805/Del/2008

Tax (Appeals)-XIV, New Delhi [in short the Ld. CIT(A)] i.e.: order

dated 16/02/2005 for assessment year 2001-02; order dated

23/12/2005 for assessment year 2002-03 and order dated

29/10/2008 for assessment year 2003-04 respectively. As common

issues in same set of circumstances are involved in these appeals,

we have heard these appeals together and disposed off by way of

this consolidated order for sake of convenience.

for assessment year 2001-02. The grounds of the appeal of the

assessee in ITA No. 1825/Del/2005 are reproduced as under:

“1(a) That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as CIT(A)], was not justified in upholding the disallowance of the appellant's claim for deduction of depreciation amounting to Rs. 24,41,250/- on the value of machinery spare parts capitalized during the year.

1(b) That on the facts and in the circumstances of the case and without prejudice to ground no.1(a) taken here in above, the Ld. CIT(A)grossly erred in holding that although depreciation is allowable on machineries in 'ready to use' condition but the same is not allowable on machinery spares which are also in 'ready to use 'condition.

1(c). That on the facts and in the circumstances of the case, and without prejudice to ground no. 1(a) & 1(b) taken here in above, the appellant may otherwise be allowed deduction on

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 3 2234/Del/2005 & 3805/Del/2008

the basis of Actual consumption, in case the claim of depreciation is not allowable to the appellant.

2(a) That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified in disallowing the claim of the appellant for deduction u/s 80IA in respect of income earned from the business of development of infrastructure facilities amounting to Rs.16,82,00,160/-

2(b) That on the facts and in the circumstances of the case, and without prejudice to ground No. 2(a) taken here in above, the Ld. CIT(A) grossly erred in considering that the appellant's role in executing various infrastructure projects is that of a contractor which cannot be equated to the business of developing the infrastructure facilities and thereby disallowing the claim for deduction u/s 80IA of the Act.

3(a). That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified in confirming the disallowance of the claim of the appellant for deduction u/s 80HHC in respect of income earned from the business of export of goods amounting to Rs.23,17,36,491/-.

3(b) That on the facts and in the circumstances of the case, and without prejudice to ground No. 3(a) taken here in above, the Ld. CIT(A) grossly erred in considering that the appellant entered into 'composite contract' which cannot be equated to the "supply contract' thereby disallowing the claim for deduction u/s 80HHC of the Act.

4.0 That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified in upholding the disallowance of Rs. 9,32,902/- on account of other miscellaneous donations.

5(a). That on the facts and in the circumstances of the case the Ld. CIT(A) was not justified in disallowing the claim of the appellant in respect of 'prior period expenses' amounting to Rs.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 4 2234/Del/2005 & 3805/Del/2008

1,80,20,765/- out of the total claim of appellant of Rs. 2.43,27,000/-.

5(b) That on the facts and in the circumstances of the case and without prejudice to ground no.5(a) taken here in above, the Ld. CIT(A) completed the appellant proceedings in haste without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the issue may be set aside for allowing the same on merits.

6(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for demobilization amounting to Rs 2,13,04,431/- out of the total claim for Rs.4,80,49,000/-.

6(b) That on the facts and in the circumstances of the case and without prejudice to ground no.6(a) taken here in above, the Ld. CIT(A)completed the appellate proceedings in haste without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits.

7(a) That on the facts and in the circumstances of the case, theLd.CIT (A) was not justified in upholding the disallowance of the claim of the appellant towards provision for other expenses amounting to Rs 1,61,25,533/- out of the total claim for Rs.3,57,49,802/-.

7(b) That on the facts and in the circumstances of the case and without prejudice to ground no.7(a) taken here in above, the Ld. CIT(A)completed the appellate proceedings in haste without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 5 2234/Del/2005 & 3805/Del/2008

8(a) That on the facts and in the circumstances of the case, the Ld. CIT(A)was not justified in confirming the disallowance made by the Ld. Assessing Officer in respect of interest received vide intimation u/s143(1) for the assessment year 2000-01 amounting to Rs 25,56,813/-

8(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 8(a) taken here in above, the Ld. CIT(A)grossly erred in holding that the interest received by the appellant on provisional assessment u/s 143(1) for the assessment year 2000-01 to be due and final, disregarding the fact that the same was subsequently withdrawn on finalization of the appellant's case for the said assessment year u/s 143(3) of the Act.

9(a) That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified in confirming the addition of Rs.2,00,30,000/- towards interest income on accrual basis on the disputed dues with NBCC whose matter is pending before the Hon'ble Delhi High Court.

9(b) That on the facts and in the circumstances of the case, and without prejudice to ground no. 9(a) taken here in above, the Ld. CIT (A)grossly erred in holding that principal and interest amounts due from a Government Company cannot be considered to be doubtful or sticky unless the said company has gone into liquidation.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 6 2234/Del/2005 & 3805/Del/2008

2234/Del/2005 are reproduced as under:

"1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing the alternate claim of the assessee for deduction u/s80HHB(A)disregarding the fact that the assessee had

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 7 2234/Del/2005 & 3805/Del/2008

neither furnished with the return of income the report of the auditor in form No.10CCAA nor created the requisite reserve required as per the law. Since the assessee did not fulfill the requisite requirements of law, the CIT(A) erred in granting the aforesaid relief to the assessee. 2. On the facts and in the circumstances of the case and in law, the CIT(A)has erred in allowing the assessee relief with regard to the alternate claim of deduction u/s 80HHB disregarding the fact that the assessee did not file the requisite form No.10CCAH with the return of income from the accountant and also did not create the Project Reserve Account, required as per the law. Since the assessee did not qualify for deduction u/s 80HHB as per the law, the CIT(A) erred in granting the aforesaid relief to the assessee. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the A.O. to delete the adjustment made by the AO and directing him to allow the deduction u/s 80HHB without considering the corporate office expenses. 4. On the facts and in the circumstances of the case and in law, the CIT(A)has erred in deleting the disallowance of the assessee’s claim made by the AO u/s 35DDA, disregarding the objections raised by the AO as per the remand report. Since requisite conditions were not satisfied, the CIT(A) erred in granting the aforesaid relief to the assessee. 5. On the facts and in the circumstances of the case and in law, the CIT(A)has erred in deleting the disallowance of proportionate corporate expenses made by the AO from the profit of foreign project for the purpose of allowing exclusion of income under the Double Taxation Avoidance Agreement.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 8 2234/Del/2005 & 3805/Del/2008

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 9 2234/Del/2005 & 3805/Del/2008

is a government undertaking and was engaged in execution of Civil

Engineering project in India and abroad. For the year under

consideration, the assessee company filed its return of income on

30/10/2001 declaring total income of Rs. 28,43,46,290/-under

regular provisions of Income Tax Act, 1961 (in short the Act) and

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 10 2234/Del/2005 & 3805/Del/2008

book profit of Rs. 6,75,31,827/-under section 115JB of the Act. The

total income was further revised to Rs. 16,43,46,290/-on

31/03/2003, while the book profit remained same as in the original

return of income. The case was selected for a scrutiny and notice

under section 143(2) of the Act was issued and complied. In the

assessment completed on 25/03/2004 under section 143(3) of the

Act, the Assessing Officer made certain additions/disallowances

and computed book profit of the assessee under section 115JB at

Rs. 1,41,37,92,764/-and worked out the tax payable thereon at Rs.

11,98,18,937/-. The Assessing Officer also computed assessed

income under normal provisions of the Act at Rs. 76,67,30,425 /-

and worked out the tax payable thereon at Rs. 30,32,41,883/-. As

the tax payable on the business income assessed as per normal

provisions of the Act was higher than the tax payable on book profit

assessed, the Assessing Officer raised demand of tax on the basis of

the tax payable under normal provisions of the Act. Aggrieved, the

assessee filed appeal before the Ld. CIT(A), who partly allowed the

appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A),

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 11 2234/Del/2005 & 3805/Del/2008

both the assessee and the Revenue are in appeal raising the

respective grounds as reproduced above.

disallowance of depreciation amounting to Rs. 24,41,250/-on the

value of the machinery part treated as capital asset by the assessee

,is involved. In ground number 1(a) & 1(b), the assessee has

contested the disallowance whereas in ground No. 1(c), the assessee

has sought alternative deduction on the basis of the actual

consumption of machinery spares as revenue expenditure.

years prior to the assessment year under consideration, the

assessee company had been following the practice of charging the

cost of ‘machinery spares’ as revenue expenditure in the year of

actual consumption. In the year under consideration, it is claimed

that pursuant to change in the accounting policy to comply with

accounting standards, the assessee capitalised the ‘Machinery

spares’. Accordingly, the assessee added back the amount of Rs.

97.65 lakhs incurred on purchase of ‘Machinery spares’ under

computation of the income and claimed depreciation amounting to

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 12 2234/Del/2005 & 3805/Del/2008

Rs. 24,41,250/-at the rate of 25% on the Machinery spares

capitalised. Both the Assessing Officer as well as the Ld. CIT(A)

disallowed the claim of depreciation of the assessee on the

‘Machinery spares’.

containing pages 1 to 266 and referred page 71 to highlight the

Accounting Standard (AS-10). The Ld. counsel pointed out to para

8.2 of the Accounting Standard which reads that standby

equipment and servicing equipment are normally capitalised and

machinery spares are usually charged to the profit and loss account

as and when consumed, however if such a spare can be used only

in connection with an item of fixed asset and their use is expected

to be regular, it may be appropriate to allocate the total cost on a

systematic basis over a period not exceeding the useful life of the

principal item. The Ld. counsel submitted that in view of the change

in accounting policy, the assessee has capitalised its machinery

spare parts and thus eligible for depreciation on the same. The Ld.

counsel relied on the decision of the Hon’ble Delhi High Court in the

case of CIT Vs Insilco Ltd. reported in (2010) 320 ITR 322 (Del) . In

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 13 2234/Del/2005 & 3805/Del/2008

support of the contention that depreciation is allowable on standby

spare items, which are not taken for use during the accounting year

, the Ld. counsel relied on the decision of the Hon’ble Madras High

Court in the case of CIT Vs Southern Petrochemical Industries

Corporation Ltd (2007) 291 ITR 362 (Mad) and SPIC Ltd (2010) 37

DTR 177 (Mad. )The Ld. counsel further claimed that depreciation is

allowable not only on the asset actually used but also on the asset

kept ready for use. In support of the contention , he relied on the

decisions of the Hon’ble Delhi High Court in the case of National

Thermal Power Corporation limited Vs CIT (2013) 357 IT 253(Del)

and CIT vs Yamaha motor India Private Limited (2009) 328 ITR

297(Del).

submitted that deviation between actual consumption of the Spares

and the depreciation charged is not substantial when compared

with the total expenditure of the assessee company and in

assessment year 2002-03, the Assessing Officer has allowed

deduction in respect of the actual continuation of the spares and

thus in such circumstances, if the deduction of depreciation of the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 14 2234/Del/2005 & 3805/Del/2008

machinery spares is not allowed, the assessee may be allowed

deduction on the basis of the actual consumption of the machinery

spares.

Insilco Ltd (supra), it is held that for eligibility of depreciation, the

spares must be integral part of the machinery, otherwise no

depreciation is allowable. He submitted that the assessee has

substantiated with documentary evidences that the spare parts in

question are integral part of the Machinery. He did not object on

the alternative ground for allowing expenditure on the basis of the

actual consumption of machinery spares.

material on record.

11.1 The 1st issue in the grounds raised is whether

capitalising of machinery spares for the purpose of Income Tax Act

in view of accounting standards is justified.

11.2 In the case of Insilco Ltd (supra) Hon’ble High Court has

referred to Accounting Standard (AS-10) and observed obligation of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 15 2234/Del/2005 & 3805/Del/2008

the assessee to treat the spares which are integral parts of fixed

asset as capital expenditure as under:

16.4 It is clear upon reading the provisions of AS-2 and AS-10 that, the opinion of the Counsel of the ICAI in respect of treatment of machinery spares is briefly that; machinery spares which are not specific to any fixed asset and can be used generally should be treated as part of inventory and charged to P&L a/c as and when they are consumed during the ordinary course of business. On the other hand, , if the machinery spares are of the nature of capital spares/insurance spares which are specific to a particular item of fixed asset and their use is irregular, then , they should be capitalized separately and depreciated on a systematic basis over a time frame not exceeding the useful life of the fixed asset to which they relate. As a matter of fact, in case the fixed asset to which they relate, is discarded, the machinery spares will also have to be disposed of as these spares are integral parts of the fixed asset. 16.5 It is to be noted that these Accounting Standards are mandatory in nature and applied to accounts prepared after 1st April, 1999. In that sense the submission of the assessee has to be accepted that the change in the accounting policy had been brought about by virtue of the issuance of the revised Accounting Standards issued by the Counsel of the ICAI, which was, applicable for the assessment year under consideration. Furthermore, the provisions of sub-ss. (3A), (3B) and (3C) of s. 211 of the Companies Act, 1956, clearly provide that every P&L a/c and balance sheet of a company shall comply with the Accounting Standards prescribed. Where the accounts of the company do not comply with the Accounting Standards it is required to disclose in the P&L a/c and the balance sheet : (a) the deviation from the Accounting Standards ; (b) the reasons for such deviation; and (c) the financial effect, if any, arising, due to such deviation. What is important is that; sub-s. (3) of s. 211 provides that until the Central Government prescribes an Accounting Standards in consultation with the National

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 16 2234/Del/2005 & 3805/Del/2008

Advisory Committee as set up under s. 210A of the Companies Act, 1956 pursuant to a recommendation of the ICAI; the Accounting Standards issued by the ICAI shall prevail. Therefore, we have no difficulty in accepting the submissions of the learned counsel for the assessee that it was obliged to capitalize the entire cost of spares in consonance with the mandatory provisions of AS-2 and AS-10.” 11.3 In above case, the learned counsel of the assessee

submitted that in view of the mercantile system of accounting

followed under section 145(1) of the Act, the treatment of assessee’s

emergency spares as capital expenditure in accordance to revised

AS-2 and AS-10 would be in consonance with provisions of the Act.

However this proposition was objected by the learned counsel of the

Revenue. The relevant observation of the Hon’ble High Court on the

issue whether Revenue authorities are required to follow accounting

standard is reproduced as under:

“16.6 It is not disputed that the assessee is maintaining the accounts based on a mercantile system. Under sub-s. (1) of s. 145 of the Act the assessee's income which is chargeable under the head "Profits and gains of business or profession" is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 16.7 As indicated above the assessee has been maintaining a mercantile system of accounting, therefore, the treatment of emergency spares in accordance with the revised AS-2 and AS-

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 17 2234/Del/2005 & 3805/Del/2008

10 would be in consonance with the mercantile system of accounting which under the Act the Revenue is required to look at for computing income of the assessee chargeable under the head "Profits and gains from business". The submission of the learned counsel for the Revenue that the accounting treatment to be meted out to a transaction in accordance with the Accounting Standards has no relevance for the purposes of the IT Act, 1961 is a submission which does not commend to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business on borrowings taken up by it. The Supreme Court in coming to the conclusion that the assessee's stand was correct resorted to the rules of accountancy prevailing in the industry. In this context the following observations of the Supreme Court being apposite are extracted below : "In finding the answer to the question mentioned above, we have to bear in mind that it arises in the context of profits or gains of business and the permissible deductions on account of depreciation and development rebate relating to the machinery and plant of the assessee. As the expression 'Actual cost' has not been defined, it should, in our opinion, be construed in the sense which no commercial man would misunderstand. For this purpose, it would be necessary to ascertain the temptation of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 18 2234/Del/2005 & 3805/Del/2008

the above expression in accordance with the normal rules of accountancy prevailing in commerce and industry. ....It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized added to the cost of the fixed asset which have been created as a result of such expenditure. The above rule of accountancy should, in our view, be adopted for determining the Actual cost of the assets in the absence of any statutory definition or other indication to the contrary." 16.9 The learned counsel for the Revenue relied upon the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) to buttress her submission that accountancy principles cannot override the provisions of the Act. This proposition is unassailable. One cannot take resort to a principle or rule of accountancy when the Act provides specifically for the situation at hand. But when the situation is one where there is no definitive provision, a Court can take resort to well accepted accountancy rules and principles. The Supreme Court in Tuticorin Alkali Chemicals (supra) has not derogated from this principle enunciated in Challapalli Sugar Mills Ltd. (supra). See observation in Tuticorin Alkali Chemicals (supra) at pp. 183 to 186, in particular, observations at p. 185(H) to p. 186(D). 16.10 The applicability of the principles of accountancy by the Courts has also found favour in the judgments of the Supreme

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 19 2234/Del/2005 & 3805/Del/2008

Court in the cases of CIT vs. Indo Nippon Chemicals Co. Ltd. (2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC) at p. 277(D- E) and CIT vs. U.P. State Industrial Development Corporation (1997) 139 CTR (SC) 267 : (1997) 225 ITR 703 (SC) and also the judgment of a Division Bench of this Court in CIT vs. Woodward Governor India (P) Ltd. & Ors. (2007) 210 CTR (Del) 354 : (2007) 294 ITR 451 (Del) at p. 463-464 (paras 15-16). The observations of UPSIDC being apposite are extracted hereinbelow : "In our opinion, this contention is devoid of force. The accounting practice followed by the assessee in the instant case was in consonance with the general principles of accountancy governing underwriting accounts. It is a well accepted proposition that 'for the purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be applied, so long as they do not conflict with any express provision of the relevant statutes, [see Whimster & Co. vs. IRC (1925) 12 Tax Cases 813 (C. Sess); IRC vs. Cock Rusell & Co. Ltd. (1949) 29 Tax Cases 387 (KB)]. This proposition has been affirmed by this Court in P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735 (SC). In the said case it has been observed (at p. 743) : 'For that purpose it was the duty of the ITO to find out what profit the business has made according to the treatment of emergency spares in accordance with the revised AS-2 and AS-10 would be in consonance with the mercantile system of accounting which under the Act the Revenue is required to look at for computing income of the assessee chargeable under the head "Profits and gains from business". The submission of the learned counsel for the Revenue that the accounting treatment to be meted out to a transaction in accordance with the Accounting

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 20 2234/Del/2005 & 3805/Del/2008

Standards has no relevance for the purposes of the IT Act, 1961 is a submission which does not commend to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business on borrowings taken up by it. The Supreme Court in coming to the conclusion that the assessee's stand was correct resorted to the rules of accountancy prevailing in the industry. In this context the following observations of the Supreme Court being apposite are extracted below : "In finding the answer to the question mentioned above, we have to bear in mind that it arises in the context of profits or gains of business and the permissible deductions on account of depreciation and development rebate relating to the machinery and plant of the assessee. As the expression 'Actual cost' has not been defined, it should, in our opinion, be construed in the sense which no commercial man would misunderstand. For this purpose, it would be necessary to ascertain the temptation of the above expression in accordance with the normal rules of accountancy prevailing in commerce and industry. ....It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 21 2234/Del/2005 & 3805/Del/2008

into existence and to put them in working condition. In case money is borrowed by newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized added to the cost of the fixed asset which have been created as a result of such expenditure. The above rule of accountancy should, in our view, be adopted for determining the Actual cost of the assets in the absence of any statutory definition or other indication to the contrary." 16.9 The learned counsel for the Revenue relied upon the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) to buttress her submission that accountancy principles cannot override the provisions of the Act. This proposition is unassailable. One cannot take resort to a principle or rule of accountancy when the Act provides specifically for the situation at hand. But when the situation is one where there is no definitive provision, a Court can take resort to well accepted accountancy rules and principles. The Supreme Court in Tuticorin Alkali Chemicals (supra) has not derogated from this principle enunciated in Challapalli Sugar Mills Ltd. (supra). See observation in Tuticorin Alkali Chemicals (supra) at pp. 183 to 186, in particular, observations at p. 185(H) to p. 186(D). 16.10 The applicability of the principles of accountancy by the Courts has also found favour in the judgments of the Supreme Court in the cases of CIT vs. Indo Nippon Chemicals Co. Ltd. (2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC) at p. 277(D- E) and CIT vs. U.P. State Industrial Development Corporation (1997) 139 CTR (SC) 267 : (1997) 225 ITR 703 (SC) and also the judgment of a Division Bench of this Court in CIT vs. Woodward

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 22 2234/Del/2005 & 3805/Del/2008

Governor India (P) Ltd. & Ors. (2007) 210 CTR (Del) 354 : (2007) 294 ITR 451 (Del) at p. 463-464 (paras 15-16). The observations of UPSIDC being apposite are extracted hereinbelow : "In our opinion, this contention is devoid of force. The accounting practice followed by the assessee in the instant case was in consonance with the general principles of accountancy governing underwriting accounts. It is a well accepted proposition that 'for the purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be applied, so long as they do not conflict with any express provision of the relevant statutes, [see Whimster & Co. vs. IRC (1925) 12 Tax Cases 813 (C. Sess); IRC vs. Cock Rusell & Co. Ltd. (1949) 29 Tax Cases 387 (KB)]. This proposition has been affirmed by this Court in P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735 (SC). In the said case it has been observed (at p. 743) : 'For that purpose it was the duty of the ITO to find out what profit the business has made according to the true accountancy practice.” 11.4 The decision in the case of CIT Vs Southern

petrochemical industries Corporation limited(supra) wherein it is

held that depreciation is allowable on standby spare parts items

which are not taken for use during the accounting year, has been

considered in the case of CIT Vs Insilco Ltd (supra). We also note

that the finding in the case of SPIC Ltd (supra) is identical to the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 23 2234/Del/2005 & 3805/Del/2008

finding in the case of Southern petrochemical industries

Corporation limited (supra).

11.5 Thus, according to the above decision of the Hon’ble High

Court in the case of Insilco Ltd (supra), prime requirement is that

the machinery spares should be integral part of the fixed asset or it

should be of emergency nature. The Hon’ble Delhi High Court has

further laid down following requirements for considering machinery

spares for capitalisation:

(i) the spares should be in the nature of capital spares/insurances spares

(ii) those capital/insurance spares should be specific to a particular item of fixed asset

(iii) use of those capital/insurances spares is irregular 11.6 We find that in the instant case before us, the assessee

has nowhere demonstrated the above requirements of the ratio in

the case of Insilco Ltd (supra), and thus facts of the instant case

being distinguishable, the ratio of the above decision cannot be

applied and arguments of the assessee to treat those machinery

spares as capital expenditure is rejected.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 24 2234/Del/2005 & 3805/Del/2008

11.7 Further we find that Hon’ble Supreme Court in the case

of Kedarnath Jute Mfg. Co. Ltd vs Commissioner Of Income

Tax, (1971) AIR 2145, 1972 SCR (1) 277, [1971] 82 ITR 363(SC)

held that whether the Assessee is entitled to a particular deduction

or not will depend on the provision of law relating thereto and not on

the view which the assessee might take of his rights nor can the

existence or absence of entries in the books of account be decisive or

conclusive in the matter.

11.8 We further note that the Hon’ble Supreme Court in the

case of Lakkshmiji Sugar Mills P Co. Ltd Vs CIT (1971) 82 ITR 376

(SC) , which has been further referred in CIT Vs Sri Mangayarkarasi

Mills P.Ltd (2009) 315 ITR 114(SC) , it is held that bringing into

existence a new asset or an enduring benefit for the assessee

amounts to capital expenditure. This principle has also been

reiterated by the Hon’ble Supreme Court in the case of CIT Vs.

Sharvana Spinning Mills P Ltd. (2007) 293 ITR 201(SC) as under:

“ 12. This Court in the case of Ballimal Naval Kishore vs. CIT (1997) 138 CTR (SC) 284 : (1997) 2 SCC 449 approved the test formulated by Chagla C.J. in the case of New Shorrock Spinning & Manufacturing Co. Ltd. vs. CIT (1956) 30 ITR 338 (Bom) as to when the expenditure can be said to

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 25 2234/Del/2005 & 3805/Del/2008

have been incurred on current repairs. In that case it was observed as follows : "The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of "repairs" because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the legislature has permitted under s. 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." ………………………………………………………………………………….” 11.9 Before us, the assessee has failed to demonstrate

whether the spare parts which are used when a machine

malfunctions, has brought into existence a new asset or given

enduring benefit to the assessee. In absence of satisfying the

requirement for constituting a machinery spare as capital

expenditure as laid down in the above decisions of the Hon’ble

Supreme Court, expenditure incurred on machinery repairs can not

be allowed as capital expenditure and consequent depreciation

claimed also cannot be allowed. Thus the ground number 1(a) of the

appeal is dismissed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 26 2234/Del/2005 & 3805/Del/2008

11.10 The 2nd issue raised is can the depreciation be allowed on

machinery in ready to use condition, though actually not put to

use.

11.11 On this issue, the Ld. Counsel has referred to the

decisions in the case of National Thermal Power Corporation limited

versus CIT (supra) and CIT vs Yamaha motor India Private

Limited(supra) to support the contention that depreciation is

allowable on the asset kept ready for use but not actually used. But

in the instant case as we have already held that machinery spares

does not constitute capital expenditures and thus the issue of

whether the same were ready for use or actually used is not

relevant in the facts of the case. This ground of the appeal no 1(b),

is accordingly dismissed.

11.12 The 3rd issue which has been raised by the assessee is

that in the event deduction towards depreciation on machinery

spare is not allowed, deduction may be allowed on the basis of the

actual consumption of the Spares. It has been mentioned by the

assessee that in assessment year 2002-03 also the assessee has

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 27 2234/Del/2005 & 3805/Del/2008

been allowed deduction on the basis of the actual consumption of

the machinery spares. In our opinion, this prayer of the assessee is

justified as the machinery spares which have been consumed in

repair of fixed asset, satisfies the requirement of section 37(1) of the

Act and accordingly, ground No.1(c) of the appeal of the assessee is

allowed.

12.1 Inground No. 2, the assessee has challenged

disallowance of deduction under section 80IA(4) of the

Actamounting to Rs. 16.82 crores.

12.2 The brief facts qua the issue in dispute are that the

assessee is engaged in construction of infrastructure facilities such

as ‘Rail systems’, ‘Road’ and ‘Bridges’ etc. The assessee claimed

deduction under section 8IA of the Act amounting to Rs. 16.82

crores in respect of the projects awarded to it by various

Central/State/local authorities. The assessee claimed that those

projects were developed by it. The Assessing Officer disallowed the

claim assigning following reasons:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 28 2234/Del/2005 & 3805/Del/2008

(a) Assessee is only a contractor executing certain

specific civil work and not a developer

(b) Such infrastructure project should be notified in

the official Gazette and no evidence regarding the

same was submitted by the assessee

(c) The assessee is not involved in construction of the

entire infrastructure facility as a whole.

(d) The real motive and initiative behind undertaking

of the project remains that of the principal and

the contactors cannot lay claim on the same.

(e) The assessee company has not infused fresh

capital or any technical expertise in any manner

so as to lay claim over the fact that it is engaged

in development of infrastructure facility.

(f) Similar disallowance was made in assessment

year 2000-01.

12.3 The Ld. CIT(A) upheld the disallowance relying on the

decision of Ld. 1st appellate authority in assessment year 2000-01,

wherein it was held that;-

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 29 2234/Del/2005 & 3805/Del/2008

(a) The role of the assessee is that of a contractor only;

(b) The assessee was only executing certain civil works

relating to construction of infrastructure facility;

(c) Deduction under section 80IA is admissible to an

assessee who is engaged in developing infrastructure

facility as a whole, when such a facility belongs to the

assessee. At no point of time such a facility belonged to

the assessee;

(d) Receipt on account of contracts have been categorised

as work receipts and on such receipts, TDS has been

deducted, which further shows that the payment

received by the assessee are as a contactor only;

(e) The prominent gains of the assessee cannot be said to

be derived from the eligible business.

12.4 Before us, the Ld. Counsel of the assessee submitted that

issue in dispute is squarely covered in the favour of the assessee by

the decision of the Tribunal in the case of the assessee for

assessment year 2000-01.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 30 2234/Del/2005 & 3805/Del/2008

12.5 The Ld.DR on the other hand relied on the order of the

lower authorities.

12.6 We have heard the rival submission of parties and

perused the relevant material on the record. The Tribunal in the

case of the assessee in order dated 12/06/2017in ITA No.

2596/12/2004 for assessment year 2000-01 has held as under:

“3.5 Considering the arguments advanced by the parties and. after going through the orders and material placed before us, we hold as under : Regarding the claim of deducted u/s. 80IA, it is seen that appellant is a company and has entered into contracts with various Central Government, State Government, State Government and Local Authority and other statutory bodies. A close reading of the agreement (for instance agreement with MSRDC enclosed in the paper book) clearly shows that appellant developed the infrastructure facility and has not Acted merely as contractor as sought to be made out by Assessing Officer and CIT (Appeals). The Oxford dictionary defines the term developer as a person that designs and crate new products, whereas contractor is a person or a company that has a contract to do work or to provide goods or services. Various clauses of the above referred agreement to which reference has been made by us little below would show7 that the construction rail over bridge projection (ROB) awarded by MSRDC to the appellant is nothing but development of infrastructure facility, which was to be legally handed over to the- Railways and MSRDC after the payment was received. Various clauses of the agreement would show7 that the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 31 2234/Del/2005 & 3805/Del/2008

jobs done by the appellant were planning, execution, construction and making the infrastructure facility ready for operations. Ld. Assessing Officer has not pointed out any specific clauses of any agreement, which show's that all attributes of development were not present. Making a bald assertion that assesses was a contractor does not serve any purpose. Merely using the terms contractor in the agreement would not make any difference as what has to be seen is the substance. Anybody who enters into a contract is closely called a contractor but that does not mean that such person entering into the contract cannot be developer. The other agreement with MSRDC shown to us as one as instance clearly shows that appellant was engaged in investigation, planning,, organizing and construction of road over bridge within the stipulated time. If the Activities undertaken by the appellant cannot be termed as development, we are afraid then what can be called development? Therefore, we do not have any hesitation in holding in view of the arguments advanced from the sides of both parties and decisions relied upon that appellant was developing infrastructure facility and claimed deduction u/s 80IA in respect of income derived from the development of infrastructure facilities. Explanation inserted below section 80IA(13) does not prevent developers in claiming deduction u/s 80IA(4). Similarly showing the receipts as work receipts in the books of accounts of the appellant alone cannot determine the character of the appellant which in our opinion was that of development. The argument of revenue that infrastructure facility should be owned by the appellant is also misplaced in view of ITO vs. Cable Constructions 354 ITR 13 (Guj.) and various decisions relied upon by the Ld. Counsel for the appellant. We also note that the Ld. CIT (DR) tried to raise issues which were not even the case of the Assessing Officer and this in our considered opinion is clearly impressible. Case laws relied by the revenue are clearly misplaced on facts and are clearly distinguishable. Special bench decision in the case of R. T. Patil (Mum.) 126

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 32 2234/Del/2005 & 3805/Del/2008

TTJ 577 was recalled later on as it did not consider the binding decision of Hon’ble Bombay High Court in the case of ABG 322 ITR 323 (Bom). According to the assessment order, copies of all the agreements were before Assessing Officer yet Assessing Officer chose to make sweeping observation that the assessee is not developer. Such sweeping and bald assertion cannot be approved by us. ‘Therefore, taking into the facts of the present case, we are or the considered view that appellant is entitled to claim deduction u/s 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction u/s 801A has claimed by the appellant. Ground No. 1 is allowed.”

12.7 In view of identical facts and circumstances in the

instant assessment year and that the Ld. CIT(A) himself followed

finding of 1st appellate authority in assessment year 2000-01,

respectfully following the finding of the Tribunal (supra), we set

aside the finding of the Ld. CIT(A) on the issue in dispute and direct

the Assessing Officer to allow deduction under section 80IA of the

Act on the eligible projects. The ground number 2(a) and 2(b) of the

assessee are accordingly allowed.

13.1 The ground Nos. 3(a) and 3(b) of the appeal of the

assessee relate to disallowance of claim of Rs. 23.18 crores for

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 33 2234/Del/2005 & 3805/Del/2008

deduction under section 80HHC of the Act in respect of supply of

signalling equipment.

13.2 The brief facts qua the issue in dispute are that the

assessee company entered into an agreement with the Government

of Iran for supply of signalling & electrical equipment and

supervision of its installation and commissioning. The agreement

also provided for services such as supervision of installation,

commissioning and training.

13.3 The Assessing Officer disallowed deduction amounting to

Rs. 23.18 crores claimed under section 80HHC of the Act on the

ground that the assessee company was obliged to supply services

and was also responsible for training & commissioning and the said

services are not eligible for deduction under section 80HHC of the

Act. The Assessing Officer also observed that no clearance of an

Indian custom station had taken place and the goods have been

transported directly from third countries. The Ld. CIT(A) relying on

the order of 1st appellate authority in assessment year 2000-01

upheld the action of the Assessing Officer. In assessment year

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 34 2234/Del/2005 & 3805/Del/2008

2000-01, the 1st appellate authority held that supply and erection of

signalling system cannot be categorised as export of goods.

13.4 Before us the Ld. Counsel of the assessee submitted that

issue in dispute is covered in favour of the assessee by the order of

the Tribunal in assessment year 2000-01.

13.5 The Ld. DR on the other hand relied on the order of the

lower authorities.

13.6 We have heard the rival submissions and perused the

relevant material on record. We find that the Tribunal in ITA No.

2596/12/2004 for assessment year 2000-01 has held as under:

4.4 We have considered the arguments advanced by the parties on the issue raised in Ground No.2 in the matter of deduction u/.s 80HHC.We have gone through the agreement enclosed in the paper book and various clauses and various other pages of the paper book to which our attention was drawn. All these documents would show that it was a purchase / sale contract in which government of. Iran was buyer and appellant is a seller and the contract was that of sale the goods and the price of equipments completely built up was fixed in which the total contract price of US$ 2,50,000 was bifurcated between equipments and engineering, supervision of installation and commissioning, training and thus 97.5 % approximate of the contract price was for supply and designing and only 2.5% was for supervision and training.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 35 2234/Del/2005 & 3805/Del/2008

Services are incidental to the supply of the material. Dominant objective of the contract is purchase of equipment by government of Iran. Therefore, the appellant assessee before us was rightfully entitled to claim deduction u/s 80HHC in respect of the export made qua the amount of entire bill. Case laws relied upon by the learned counsel supports the case of the appellant. Hence appellant be allowed deduction under section 80HHC. Similarly, it is seen that in respect of the deduction u/s 80HHC claimed in respect of goods exported from one country to the other country outside India, Hon’ble Karnataka High Court in the case of Anil Kumar vs. JTO 343 1TR 30 (Kar.) has held that direct shipment of goods cannot disentitle assessee in claiming the deduction u/s 80HHC. This decision was rendered after taking into account Explanation (aa) to section 80HHC. Case laws relied upon by learned CIT (DR) are not on the issue at hand and are distinguishable on facts. Decision of N.C. Budhiraja was entirely on different factual matrix. Deduction under section 80HHC on such export of goods was wrongly disallowed. Therefore, we are of the considered view that the deduction u/s 80HHC denied to the appellant is not sustainable and the disallowance made is hereby deleted” 13.7 Thus, the Tribunal has held that services are identical to

the supply of material and dominant objective of the contract is

purchase of equipment by the government of Iran. Further, it is

held that direct shipment of the goods cannot disentitle assessee in

claiming the deduction under section 80HHC in respect of the

goods exported from one country to the other country outside India.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 36 2234/Del/2005 & 3805/Del/2008

13.8 In view of facts and circumstances existed in the year

under consideration being identical as compared to assessment

year 2000-01 and the fact that Ld. CIT(A) himself has followed

finding of the 1st appellate authority in assessment year 2000-01,

respectfully following the finding of the Tribunal (supra), we set

aside the finding of the Ld. CIT(A) on the issue in dispute and direct

the Assessing Officer to allow the deduction claimed under section

80HHC of the Act.

14.1 In ground No. 4, the assessee has challenged

disallowance of Rs. 9,32,902/-on account of miscellaneous

donations.

14.2 The Assessing Officer observed that following donations

have been paid to various Sports and Railway welfare organisations,

in addition to donation of Rs.1,00,00,000/- to the Prime Minister

Relief Fund:

1 Prime Minsister Relief Fund 1,00,00,000/- 2 Railway Board Sports Association, New Delhi 50,000/- 3 Railway Ministers Welfare Fund, New Delhi 5,00,000/- 4 Railway Women’s Welfare Central Organization 2,50,000/- New Delhi 5 Railway Women’s Welfare Central Organization 10,000/-

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 37 2234/Del/2005 & 3805/Del/2008

Chennai 6 Andhra Pradesh Road Project, Huzurabad 835/- 7 Malaysia Loco & K.L. Central 1,22,067/-

14.3 The claim of donation made to Prime Minister relief fund

has been subsequently allowed by the Assessing Officerin terms of

section 80G of the act on the basis of the receipt submitted before

him, but receipt(s) issued by other organisation(s) under section

80G of the Act, was not produced by the assessee. The claim of the

assessee for allowing said expenditure under section 37 of the

Actwas disallowed by the assessing officer holding that same was

not having any relation with the business of the assessee company.

Further, the Ld. CIT(A) upheld the disallowance observing as under:

“8.3.1. On going through the details filed of petty donations, it is observed that the donations have been made to Railway Board Sports Association, Railway Minister’s Welfare Fund, Railway Women’s Welfare Central Organization, Andhra Pradesh Road Project and Malaysia Loco & KL Central. The appellant has no where justified how the payments made to these organizations as mentioned above are connected with the smooth functioning of its business. The contributions are not on account of festivals or other community celebrations considered as allowable in the case of the CIT vs. Bata India Ltd. (supra). In fact, they are in the nature of donations only. As no evidence was submitted during the course of assessment or during the course of appellate proceedings as to how the donations made to the organizations are allowable as business expenditure, the same has been rightly disallowed by the A.O.”

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 38 2234/Del/2005 & 3805/Del/2008

14.4 Before us, the Ld. Counsel of the assessee reiterated the

submission made before the Ld. CIT(A) and submitted that

donations were made on account of social function and festival to

ensure smooth functioning of the business.

14.5 The Ld. DR on the other hand relied on the order of the

lower authorities.

14.6 We have heard the rival submission of the parties. Before

the lower authorities, the assessee failed to establish that

expenditure incurred on donations are wholly and exclusively for

the purpose of business as required in terms of section 37 of the

Act. Before us also, the assessee failed to substantiate as how case

of the assessee is covered by the decision in the case of CIT Vs Bata

India Ltd(supra). The expenses have evidently incurred on donation

to Railway Board Association and Welfare Societies of Railway

employees and not on festivals or community celebration in the

area of projects executed by the assessee.In absence of any such

evidences of incurring expenses on account of festival or community

celebration in the vicinity of project executed, the reliance placed by

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 39 2234/Del/2005 & 3805/Del/2008

the assessee on the decision in the case of CIT Vs Bata India

Ltd(supra) is misplaced. We do not find any infirmity in the order of

the Ld. CIT(A) on the issue in dispute and accordingly, we uphold

the same. The ground of the appeal of the assessee is dismissed.

15.1 The ground No. 5 of the appeal of the assessee relates to

disallowance of prior period expenses amounting to Rs.

1,80,20,765/-sustained by the Ld. CIT(A). The ground No. 6 of the

appeal of the Revenue, pertains to relief of Rs.63,06,235/-allowed

by the Ld. CIT(A) out of the disallowance of prior period expenses.

Both the grounds being connected with the same issue, these are

adjudicated together.

15.2 The Assessing Officer disallowed prior period expenses of

Rs. 2,43,27,000/-stating that those did not pertain to the previous

year relevant to the current assessment year and there is no

provision in the Income-Tax Act to allow deduction of prior period

expenses. The Ld. CIT(A)partly confirmed the disallowance to the

extent of Rs. 1,80,20,765/- , holding that expenditure has not

crystallised in the year under consideration and no evidence filed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 40 2234/Del/2005 & 3805/Del/2008

15.3 We have heard rival submissions of the parties on the

issue in dispute and perused the relevant material on record. The

Ld. CIT(A) adjudicated the issue of prior period expenses observing

as under:

“10.3. The ratio laid down by the various High Courts in the cases referred to by the appellant as mentioned above is that even if the expenditure relates to earlier years but the liability crystallizes in the subsequent years or it is ascertained in the subsequent years, then it is allowable as an expense. Taking this into consideration the appellant counsel was directed to prove that the liability has got ascertained during the year in relation to the expenses claimed under the head ‘Prior period Expenses’. The appellant has claimed prior period expenditure to the amount of Rs.2,43,27,000.

10.3.1 The appellant counsel made submissions vide letter dated 17-01-2005, 18- 01-2005 and 25-01-2005. The appellant counsel filed details in respect of few of the expenses only vide the above mentioned letters and are being examined for their allowability. The appellant has filed details in respect of the project at CIC Noida, Kathmandu Nepal, Iraq, Anand Vihar Maintenance and Corporate Office claiming an amount of Rs.8,22,887/-, Rs.11,78,541/-, Rs.22,12,452/-, Rs.9,44,372 and Rs.11,70,450 respectively. On going through the details, it is observed that the liability in respect of the above mentioned expenditure crystalised during the year except of Rs.2,36,798 included in the Corporate Office expenses of Rs.11,70,450 which relates to arrears of foreign service contribution of Shri Manohar Lai for the FY 1986-87. No evidence has been produced that the liability in respect of the expenses pertaining to the FY 1986-87 crystalised during the year. In view of the above facts, expenses to the amount of Rs.69,91.904 (Rs.8,22.887 + Rs.11.78.541 + Rs.22.12.452 + Rs.9.44.372 + Rs.1[1.70.450 - Rs.2.36.798) is allowed.

10.3.2 The appellant counsel has also filed the details regarding the claim of Rs.11,56,337 in respect of NOIDA Express Way Project vide its letter dated 17-01-2005. On going through the details filed, it is observed that the liability of the expenses was communicated to the appellant vide letter dated 18-04-2001 by the concerned

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 41 2234/Del/2005 & 3805/Del/2008

authority. As the liability has not crystalised during the year,the same cannot be allowed as expenditure.

10.3.3 In the letter dated 18-01-2005, prior period expenses in respect of the NTPC Korba Project has been claimed of Rs.11,48,247. On going through the details submitted on page No.6, it is observed that the bifurcation of the expenses relating to various years have been given but no proof has been attached that the liability arose during the year, hence, the same cannot be allowed as expenditure.

10.3.4 For the Malaysia Project, a sum of Rs.24,23,120 has been claimed vide letter dated 18-01-2005. As per the details submitted on page No.7, it is observed that only expenses of Rs.1,24,352/-, Rs.12,279 and Rs.77,700 was ascertained during the year and for all the other expenditure claimed, the liability has not ascertained during the year. The major expenditure claimed is in respect of oil canalization commission as per the note submitted alongwith the letter dated 25-01-2005 at page No.50. On going through the note, it is observed that 2% payment was required to be made to agencies such as MMTC & STC during the year 1999-00 which was not provided in the FY 1999- 00. It has been explained by the appellant counsel as the oil was lifted in the subsequent FY i.e. 2000-01, the liability was also claimed in the AY 2001-02. However, no evidence has been filed in support of the same, hence, the same is also not allowable as. expenditure.

10.3.5 The appellant counsel has also claimed an amount of Rs.53,20,297 and Rs.17,56,806 in respect of GAIL, S&T and OFC Ambala respectively vide letter dated 18.01.2005. No evidence has been filed in support of the claim made that the liability arose during the year, therefore, the same cannot be allowed as expenditure.”

15.4 Before us the Ld. Counsel of the assessee reiterated that

prior period expenses is allowable as deduction,if liability to pay has

crystallised during the year under consideration. We note that the

Ld. CIT(A) also agreed with this proposition of law, and asked the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 42 2234/Del/2005 & 3805/Del/2008

assessee to demonstrate whether the expenses were crystallised

during the year under consideration. The assessee failed in

demonstrating so not only before the Ld. CIT(A), but before us as

well.

15.5 The Ld. counsel also submitted that the department in

earlier years has accepted and allowed the identical expenses in the

year in which it has been debited. In our opinion, the settled

principles is that expenses can be allowed as deduction in the year

if crystallised during the relevant year under consideration. The

prior period expenses in the year under consideration cannot be

allowed merely on the ground that prior period expenses have been

allowed by the department in earlier assessment years. The rule of

consistency does not apply as the prior period expenses have to be

seen in the light of the principle of crystallisation in the year under

consideration.

15.6 We find that the Ld. CIT(A) has sustained the

disallowance after examining and verifying the details in respect of

the expenses filed before him . The Ld. CIT(A) held that in respect of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 43 2234/Del/2005 & 3805/Del/2008

the expenses amounting to Rs. 11,70, 450 /-claimed as prior period

expenses for corporate office, the assessee failed to furnish any

evidence for liability in respect of Rs. 2,36,798/- related to arrears

of foreign service contribution of Sri Manoher Lal for the financial

year 1986-87, claimed as crystallised in the year under

consideration and accordingly sustained the disallowance in respect

of the amount of Rs. 2,36,798/-. Before us also no evidences in this

respect have been furnished by the assessee. Accordingly, we

uphold the said disallowance of Rs.2,36,798/-.

15.7 The Ld. CIT(A) disallowed claim of prior period expenses

of Rs. 11,56,337 in respect of ‘NIODA Expressway project’ holding

that liability of the expenses was communicated to the assessee

vide letter dated 18/04/2001 by the concerned authority and thus

the liability had not crystallised during the year and same was not

allowable as expenditure in the year under consideration. Before us

the Ld. counsel has submitted that this amount represents

expenditure not accepted by the client for reimbursement in a cost-

plus contract. He further submitted that as the loss was quantified

and same was provided in the earliest available accounts and

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 44 2234/Del/2005 & 3805/Del/2008

moreover, the above letter dated 18.04.2001 is with reference to the

letter dated 1/02/2001 and relates to work done till 31/03/2000.

15.8 As evident from the facts on record , we find that the

clients of the assessee have rejected the claim of reimbursement of

the expenses in previous year relevant to subsequent assessment

year, thus, it cannot be said that expenditure crystallized during

the year under consideration. The assessee has failed to

substantiate before us that the said expenditure was crystallised

during the year under consideration. Thus, we do not find any error

in the finding of the Ld. CIT(A) on the issue in dispute and

accordingly , uphold the same.

15.9 The next disallowance sustained by the Ld. CIT(A) relates

to prior period expenses amounting to Rs. 11,48,247 claimed by the

assessee in respect of ‘NTPC Korba project’. The Ld. CIT(A) held that

no proof was provided by the assessee that the liability arose during

the year under consideration, and hence he sustained the

disallowance. Before us the Ld. counsel submitted that the

expenditure represents the amount of expenditure not accepted by

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 45 2234/Del/2005 & 3805/Del/2008

the client for reimbursement in a cost-plus contract and it is a

regular expenditure in relation to various years. In our opinion,

merely making a claim without substantiating that liability

crystallised during the year under consideration, the claim cannot

be allowed to the assessee. We do not find any error in the finding

of the of the Ld. CIT(A) in sustaining the disallowance, and

accordingly we uphold the same.

15.10 Next disallowance of prior period expenses amounting to

Rs. 22,08,789/-which has been sustained by the Ld. CIT(A), relates

to ‘Malaysia project’. The Ld. CIT(A) observed that major

expenditure claimed was in respect of Oil canalisation commission,

which the assessee was required to pay at the rate of 2% to agency

such as ‘MMTC’ and ‘STC’ during the year 1999-2000, which was

not provided in the relevant financial year. The assessee claimed

that oil was lifted in the subsequent financial year 2000-01, and

therefore liability was claimed in assessment year 2001-02 i.e. year

under consideration. However , in view of no evidence filed in

support of the claim of liability incurred in the year under

consideration, the Ld. CIT(A) sustained the disallowance to the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 46 2234/Del/2005 & 3805/Del/2008

extent of Rs. 22,08,789/-. Before us, also no evidence in support of

the claim that oil was lifted in the year under consideration, has

been brought on record by the assessee. In absence of any

documentary evidence in support of the claim, we uphold the

finding of the Ld. CIT(A) in sustaining the disallowance of Rs.

22,08,789/-.

15.11 Next disallowance under prior period expenses

amounting to Rs. 53,20,297/-pertaining to ‘GAIL’, ‘L&T’, and Rs.

17,56,806/- pertaining to ‘OFC Ambala’ was upheld by the ld.

CIT(A), in view of no documentary evidences. Similarly disallowance

of Rs. 63, 06, 235/-has been sustained by the Ld. CIT(A) in view of

no details and evidence of the expenses. As no evidences were filed

by the assessee in support of the claim that liability arose during

the year under consideration, the Ld. CIT(A) upheld the

disallowance. Before us the Ld. counsel claimed that retention

money deducted and released by the client has been booked as

income twice. He submitted that at the time of raising bill in 1997-

98 and again on receipt of retention money in the year 1999 and

this error was detected in the previous year relevant to the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 47 2234/Del/2005 & 3805/Del/2008

assessment year 2001-02 and therefore same was charged to

expenses under the head prior period expenses. However, in

support of the above explanation, no documentary evidences have

been filed either before the Ld. CIT(A) or before us, accordingly the

contention of the assessee are not accepted and disallowance

sustained by the Ld. CIT(A) is therefore confirmed. The ground No.

5(a) of the appeal is accordingly dismissed.

15.12 In ground number 5(b) of the assessee, the Ld. counsel

submitted that the Ld. CIT(A) has decided the issue without

affording reasonable opportunity to the assessee for furnishing all

the relevant documents and hence issue might be set aside for

considering the same on the merit. But we find that before us no

any additional documents have been submitted as fresh evidence,

which can be a basis for sending the matter back to the Ld. CIT(A)

for fresh consideration and thus this plea of the assessee of

restoring matter to the Ld. AO is rejected. The ground No. 5(b) of

the appeal is accordingly dismissed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 48 2234/Del/2005 & 3805/Del/2008

15.13 As far as ground No. 6 of the appeal of the Revenue is

concerned, we find that the Learned CIT(A) has allowed the relief to

the assessee after verification of the fact that expenses of Rs.

63,06,235/-having details as under were crystallised during the

year under consideration:

Details of expenditure allowed by the CIT(A) :

Sl.No. Particulars Amount Pg of PB-D Details of Project

(in Rs.)

And paid in the present year

Hence to be refunded

Interest pursuance to an

Arbitration award dt. 25.1.2001

Maintenance Northern Railways in relation to

DBV’s Bills of electricity

Expenses 9,33,652 225 Includes cost of air tickets and

Various fees bonus etc payable

For earlier years

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 49 2234/Del/2005 & 3805/Del/2008

15.14 This factual finding has not been rebutted by the learned

DR before us. In view of unrebutted fact that the liability amounting

to Rs. 63,06,235/-crystallised during the year under consideration,

the action of the Learned CIT(A) in allowing relief to the assessee to

the extent, is justified. We do not find any error in the order of the

Learned CIT(A) in this regard. The ground No. 6 of the appeal of the

Revenue is accordingly dismissed.

16.1 The ground No. 6 of the appeal of the assessee relates to

provision for demobilisation expenses sustained by the Ld. CIT(A) to

the extent of Rs. 2,13,04,431/-. The ground No. 7 of the appeal of

the Revenue relates to disallowance of provision for mobilisation

expenses of Rs.2.67 crores deleted by the Ld. CIT(A).

16.2 Regarding the provision of demobilisation expenses of Rs.

4,80,49,000/-claimed by the assessee as deduction, it was

explained before the learned Assessing Officer that said provision

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 50 2234/Del/2005 & 3805/Del/2008

was made for removal of temporary structure constructed at the

project sites during construction period and shifting plant and

equipment from the project site after completion of the projects. The

assessee submitted that though the exact amount might not be

quantified, the liability had to be incurred. According to the

assessee, the provision represented definite obligation to be

discharged by the assessee. The learned Assessing Officer, however

held that provision is an estimated liability and not quantified

exactly. The learned Assessing Officer observed from past history of

the case that the assessee regularly make such provisions and after

a gap of three to four years, it writes back a portion of the said

provisions, which itself indicates that the expenses were claimed

purely on estimate basis. The learned Assessing Officer accordingly,

disallowed the expense holding the same as purely estimated, ad-

hoc and not crystallised during the relevant previous year.

16.3 The Ld. CIT(A) after taking into consideration submission

of the assessee, sustained disallowance amounting to

Rs.2,13,04,000/ + Rs. 431, in view of no evidences submitted to

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 51 2234/Del/2005 & 3805/Del/2008

substantiate the claim. The relevant part of the order of the Ld.

CIT(A) is reproduced as under:

13.2 During the course of appellate proceedings, the various submissions made by the appellant counsel which are summarized below:

(i) For working on an on-site project, the appellant company had to create several temporary structures at the project site itself besides carrying of the plant and machinery to the project site. On completion of the project, the temporary structure alongwith plant and machinery are to be removed and the expenses on this account are claimed under the head demobilization expense. These expenses no doubt are claimed on estimate basis but are based upon the experience in the industry.

(ii) For the provision for other expenses, the tax auditors have given complete item- wise details of the above provision of Rs.6,43,12,810 and the tax auditors have certified out of the above, expenditure amounting to Rs.2,85,63,198 is contingent in nature and are not allowable as business expenditure. Accordingly, the appellant claimed the balance provision of Rs.3,57,49,612. As the expenditure has been incurred during the normal course of business, the same is thus allowable as expenditure.

iii) It is a settled law now that the estimated provisions based on definite obligations are allowable as expenditure even if the part of the same is written back. Reliance has been placed on the following case laws:

(a) ITO Vs. Wanson India Ltd., 5 ITD 102; (b) Thermax Babcock & Wilcox Ltd. Vs. DCIT,72 TTJ 8271; (c) Voltas Ltd. Vs. DCIT, 64 ITD 232; (d) Calcutta Co. Ltd. Vs. CIT, 37 ITR 1, (e) CIT Vs. Navbharat Nirman Ltd., 141 ITR 723

(iv) The claim of the appellant is allowed in its own case in the earlier years. The claim on account of demobilization expenses and other expenses were disallowed only in AY 1985-86 and 1995-96 and in those years also, the same was allowed by the CIT (A). The department did not file any appeal on the issue before the ITAT. Therefore, as discussed above in the case of Radha Satsang Vs. CIT (supra), the same should not have been disallowed during the year.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 52 2234/Del/2005 & 3805/Del/2008

13.3 As far as the provision for demobilization expenses are concerned, as the appellant has estimated the same on completion of the work at the work site, there is no dispute that the temporary structures and the plant and machinery moved at the site is required to be moved back for which the appellant is supposed to incur an expenditure. It cannot be said that the liability is not an ascertained liability though it is a fact that it is not exactly quantifiable. It is also a fact that in the earlier years, the addition has been deleted by the CIT(A) and the appellant has also certified that no appeal has been filed by the department before the ITAT. Taking into consideration the above facts, the appellant was directed to file the details to verify whether the liability arose during the year or not.

13.3.1 The appellant counsel filed details vide letter dated 17-01- 2005, 18-01-2005 and 25-01-2005. It is observed from the details filed of Rs.4,80,48,569/-, the liability arose during the year except three of the claims which are discussed below:

(a) It is observed that the appellant has claimed a sum of Rs.3,04,000 in respect of Delhi - Mathura Road Project. On going through the details enclosed by the appellant, it is observed that the project was completed in Haryana on 26-12-1997 and in UP on 20- 02-1998. The defect liability period was upto 26-12-1998 for Haryana and 20-02-1999 for UP. No explanation has been given why after the completion of defect liability period in the FY 1998-99 themselves how the expenses are being claimed in the FY 2000-01. No explanation is coming forward as the appellant counsel has not been able to give evidence that the liability to the above amount was ascertained during the year, the same is not allowable and the addition made to this extent is upheld.

(b) An amount of Rs. 1,14,00,000 has been claimed in respect of NTPC Kahalgaon Project as per the details submitted. This is the cost of 44 employees on the pay roll of IRCON out of which, 38 employees have filed a case in Patna High Court against the company and there is a stay order. It has been further mentioned in the note that the cost of demobilization asset is for two financial years. The appellant counsel has not been able to provide any evidence that this liability got ascertained during the year nor information has been given when the project was completed and what is the matter of dispute pending in the Patna High Court. Therefore, the same cannot be allowed as an expenditure and the AO has rightly not allowed the same.

(c) In respect of NTPC Farakka MGR Project, demobilization expenses of Rs.96 lakhs have been claimed. Again in the annexure filed in page No.22 alongwith letter dated 25-01-2005, it is observed that the expenses

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 53 2234/Del/2005 & 3805/Del/2008

has been claimed as establishment charges of 42 employees for two years as there is no work at Farakka. Again no evidence has been filed when this project was completed and how after completion of the project, the liability of the appellant to pay the employees arises. Therefore, the AO has rightly made the addition. To sum up. out of the total disallowance made by the AO of Rs.4,80,49,000/-, a sum of Rs.2,13,04,000 (Rs.3,04,000 + Rs.1,14,00.000 + Rs.96,00,000) is confirmed and the balance is deleted. As no details have been filed for Rs.431 (Rs.4,80,49,000 - Rs.4,80,00,569), the same is confirmed.”

16.4 Before us, the learned counsel of the assessee reiterated

the submission made before the Ld. CIT(A) and further submitted

that provision for demobilisation represented definite business

liability and was provided in accounts following mercantile system

of the accounting though a part of the same was written back in

the future years. The Ld. Counsel relied on the decision of the

Hon’ble Supreme Court in the case of Rotork Control India (P) Ltd

Vs CIT (2009) 314 ITR 62 (SC). In support of the proposition that

accounting method followed by the assessee is presumed to be

correct till the Assessing Officer comes to the conclusion that the

estimate does not reflect true and correct profit, ld. counsel of

assessee relied on the decision of the Hon’ble Supreme Court in the

case of CIT Vs Woodward Governor India P Ltd(2009) 312 ITR 254

(SC). He also submitted that similar disallowance made byAssessing

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 54 2234/Del/2005 & 3805/Del/2008

Officer has been deleted by the Ld. CIT(A) in assessment year 1995-

96 and no appeal has been preferred by the Revenue against the

said deletion.

16.5 On the contrary, the Ld. DR relied on the order of the

lower authorities and filed written submission, which is reproduced

as under:

“6.1 The assessee has claimed expenditure on account of provision for demobilization. The AO has held in para 13.3 on page 18 of his order that the provisions made by the assessee are nothing but estimated liability as the assessee was no able to exactly quantify the liabilities on this account. On perusal of list of provision of mobilization expenses on page 274 of assessee’s PB , it may be noted that provision of 1.22 crores has been made in respect of Malaysia Loco Project while provision of Rs. 1.14 crores. No substantiating document has been filed to prove that the provisioning was made on a solid basis. In respect of Amre Bankra project, provision is of Rs. 50 lakh(round figure) has been made in respect of Kahalgaon project, which shows that it was merely an estimate. In its explanation before the A.O, the assessee itself has submitted, as mentioned in para 13.2 of the assessment order, that -

“ the provisions are made on best estimate basis”

The AO has also mentioned that a part of such provision of expenses was written off in subsequent years which prove that the expenses were merely estimation. The onus was on the assessee to prove that there was ascertained liability, which has not been discharged by the assessee. It is trite that merely provision of an expense cannot be allowed. Reference is made to para 2.2 on page 277 of the PB. It was submitted before the CIT(A) that the assessee has not been able to identify the Actual year of completion of projects in respect of which provisioning of expenses was made and the details were being compiled Hence, the provision of expenses was merely estimation and hence, unascertained liability which is not allowable u/s 37(1) of the Act.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 55 2234/Del/2005 & 3805/Del/2008

6.2 in this regard, reliance is made on the decision of the Hon’ble Madras High Court in the case of FFE Minerals India Pvt. Ltd. Vs. JCIT [2018] 98 taxmann.com 170 (Madras), particularly para 26-28. In para 26 of the order, the Hon’ble Court has held that —

“Possibility” has been defined as an event that may or may not happen. Thus, degree of proof required to show that there is a probability of outflow of resource is higher, as the effect is which is more likely to happen than not to happen as to where possibility is an event, which may or may not happen. Therefore, the assessee has to definitely show that there is every probability that an outflow of resources will be required to settle. ”

6.3 The Hon’ble Court has further held that -

“Thus, only those obligations arisen for past event existing independently on the future contract of the enterprise is recognized provision. ”

In this case also the assessee has failed to produce the past events before the AO to show that there is every probability that the expenditure will be incurred. At best, the case of the assessee is of possibility but not a case of probability. Thus, the assessee having failed to fulfil the triple test prescribed in Rotork Controls India Pvt. Ltd. Vs. CIT 314 ITR 62 (SC), is not entitled to claim deduction on account of provisioning of expenses.

6.4 Reliance is placed on the following decisions also-

(i) Oswal Agro Mills Ltd. Vs. CIT [2014] 363 ITR 486 -

“A provision can only be recognized when the obligation has already fructified.”

(ii) Grace Shelter Vs. ACIT [2019] 104taxmann.com 133

(iii) Taparia Tools Ltd. Vs. JCIT [2003] 260 ITR 102

(iv) DCIT Vs. Fag Bearing India Ltd. [2008] 115 ITD 53

(v) CIT Vs. Aman Khera [2016] 387 ITR 33

6.5 The decisions relied upon by the assessee, as submitted in case law compilation, are mainly in respect of provision for warranty. In those cases, the Courts have observed that there has to be scientific method/historical trend to substantiate the claim for provision on account of warranty. In the instant case, assessee has claimed deduction

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 56 2234/Del/2005 & 3805/Del/2008

on account of merely estimation/possibility of expenses and provisioning of expenses is not based on any scientific working/solid material. Hence, claim of the assessee is not admissible. 16.6 We have heard rival submissions and perused the

relevant material on record. We find that the Ld. CIT(A) has taken

into consideration various decisions relied upon by the authorised

representative of the assessee and concurred that the liability

cannot be said to be an un-ascertained liability though it was not

exactly quantifiable . The Ld. CIT(A) has sustained the disallowance

only in the event where the assessee failed to substantiate its claim

with documentary evidences. As the assessee failed to discharge its

onus of substantiating whether the respective liabilities were

ascertained or arose during the year under consideration, the ld.

CIT(A) is justified in sustaining the respective disallowances. As far

as the decisions relied upon the learned counsel of the assessee are

concerned, same cannot be applied without ascertaining the facts

with documentary evidences. No such documentary evidences, as

pointed out by the Ld. CIT(A), have been produced before us also. In

the circumstances, we do not find any error in the order of the Ld.

CIT(A) on the issue in dispute and accordingly uphold the same.

The ground No. 6 (a) of the appeal the assessee is dismissed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 57 2234/Del/2005 & 3805/Del/2008

16.7 The ground No. 6(b) of the appeal of the assessee being

identical to ground number 5(b), same is dismissed following our

reasoning while deciding ground number 5(b) of the appeal.

16.8 As regard to the relief of Rs.2.67 crores allowed by the

Learned CIT(A) , against which Revenue is in appeal in ground No.

7, we find that Learned CIT(A) has verified each and every provision

to ascertain whether the liability had crystallised during the year

under consideration. This factual finding has not been rebutted by

the ld. DR before us. In absence of any such rebuttal to

substantiate grounds of appeal by the Revenue, we do not find any

error in the order of the Learned CIT(A) in deleting the part of

disallowance of provision of mobilisation expenses amounting to Rs.

2.67 crores. The ground No. 7 of the appeal of the Revenue is

accordingly dismissed.

17.1 The ground No. 7 of the appeal of the assessee relates to

disallowance of provision for other expenses amounting to Rs.

1,61,25, 533/-sustained by the Ld. CIT(A). The ground No. 8 of the

appeal of the Revenue relates to relief of Rs.1.96 crores allowed

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 58 2234/Del/2005 & 3805/Del/2008

against provision for other expenses. Both grounds being

connected, same are adjudicated together.

17.2 The facts qua the issue in dispute are that the Assessing

Officer observed “provision for others”of Rs. 6,43,13,000/-debited in

the profit and loss account and out of which Rs. 3,57,49,802/-was

not considered for disallowance by the assessee. The Assessing

Officer observed that the assessee company has been regularly

making such provision and after a gap of three to four years, it

writes back a portion of the said provisions. According to the

Assessing Officer the provision is purely estimated, ad-hoc and not

crystallised in the relevant financial year and thus, he disallowed

provision of Rs.3,37,49,802/-.

17.3 The Ld. CIT(A) after considering the detailed submission

filed by the assessee, restricted the disallowance to Rs.

1,61,25,533/-. The relevant part of the finding of the Ld. CIT(A) is

reproduced as under:

13.3.4 The appellant counsel filed details and submissions vide its letter dated 17-01-2005 and 25-01-2005. The claim of the appellant are discussed below:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 59 2234/Del/2005 & 3805/Del/2008

(a) On going through the submissions made, it is observed that the appellant counsel has claimed a sum of Rs.8,79,814 on account of the project NCLKBJ Annapara for the theft of rails at the project site. On going through the details submitted by the appellant counsel at page No.10i alongwith the submissions dated 17-01-2005, it is observed that the theft took place during the night of 14/15-04-1999 and FIR was also lodged at Shakti Nagar Police Station. As theft occurred in the FY 1999- 00 relevant to AY 2000-01, the liability did not arise during the FY relevant to the AY 2001-02 and the same cannot be allowed.

(b) The appellant has claimed a sum of Rs.1,27,32,338 for Jaipur By- pass Road Project. As per the details filed at page No.41 to 49 in the submissions made vide letter dated 25-01-2005, it is observed that the liability of Rs.69,44,024 in respect of Gupta Construction Company was only ascertained during the year which can be allowed as expenditure. The further papers attached for claiming the balance liability of Kamal Builders shows that they have only made a request for releasing an amount of Rs.60 lakhs as an advance to clear the liability vide their letter dated 10-10-2000 and the other letter of M/s. Kamal Builders is dated 24-08-2001 which is related to subsequent financial year and is also on the issue of refund of additional retention money. Therefore, only a sum of Rs.69,44,024 is allowable from the claim made of Rs.1,27,32,338.

(c) Regarding the claim in respect of projects APSH-1A, 1B & 3 and Bhopal Hospital, a sum of Rs.76 lakhs and Rs. 18,57,405 has been claimed but it has been submitted that the documents are being collected. As no evidence has been filed that the liabilities in respect of above two projects have been ascertained during the year, the same cannot be allowed.

(d) The provisions were made in respect of corporate office expenses of Rs.90 lakhs and in respect of SECL-DIPKA of Rs.36,80,055. As per the details submitted, the liability arose during the year for both the expenditure claimed, hence, the same are allowed.

To sum up, out of the claim of Rs.3,57,49,612/-, the disallowance is upheld to the amount of Rs. 1,61,25,533 [Rs.8,79,814 + Rs.57,88,314 (Rs.1,27,32,338 - Rs.69,44,024) + Rs.76,00,000 + Rs.18,57,405] and the balance is deleted.”

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 60 2234/Del/2005 & 3805/Del/2008

17.4 Before us, the learned counsel of the assessee reiterated

the submission made before the Ld. CIT(A) and advanced

arguments similar to arguments made with reference to ground No.

6 of this appeal of the assessee.

17.5 The ld. DR on the other hand relied on the order of the

lower authorities and submitted as under:

“7.2 The submission in para 6 above, made in respect of provisioning of mobilization expenses, is reiterated in respect of the above ground of appeal also. The assessee has not been able to substantiate its case before the A.O as to how the provision of expenses was ascertained liability and was based on specific working. Onus has not been discharged by the assessee. It may be noted that on page 322, list of provision of other expenses is given. Last item is of Rs. 90.00 Lakh. On page 324 of PB, 3rd item is regarding Rs.90 lakh. It is seen that in the Board meeting on 25.04.2001, it was decided to award employees with a gold coin and total expense for the same was admitted at Rs. 1.80 crores. Half of the said estimated expense-Rs. 90 Lakhs was claimed as provision in AY 2001-02 whereas Board meeting took place in A Y. 2002-03. Attention is drawn to page 326 of PB, in which it was submitted before the CIT(A) that in respect of prior period expenses, provision for demobilization and provision for other expenses were still being compiled. No substantiating documents were filed before the A.O, Ld. CIT(A) and before the Hon’ble ITAT in support of its claim of deduction in order to prove that the provisioning was based on ascertained liability and was not merely estimation.”

17.6 We have heard rival submission of the parties and

perused the relevant material on record. We find that the Ld. CIT(A)

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 61 2234/Del/2005 & 3805/Del/2008

has sustained the disallowance due to failure on the part of

assessee in substantiating whether the liability arose during the

year under consideration and also failure to submit necessary

documentary evidence in support of the claim. Before us also, no

evidences have been furnished by the assessee to substantiate the

claim whether the expenses crystallised during the year. In our

opinion, the order of the Ld. CIT(A) on the issue in dispute is well

reasoned and we do not find any infirmity in the same. Accordingly,

the finding of the Ld. CIT(A) on the issue in dispute is upheld. The

ground No.7(a) of the appeal of the assessee ground No. 8 of the

appeal of the Revenue, are dismissed.

17.7 The ground number 7(b) of the appeal of the Revenue is

also dismissed, being identical to ground number 5(b) of the appeal,

which has already been dismissed by us.

18.1 The ground No. 8 of the appeal of the assessee relates to

interest received vide intimation under section 143(1) of the Act

amounting to Rs. 25,56,813/-, which was not shown by the

assessee as income in the year under consideration.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 62 2234/Del/2005 & 3805/Del/2008

18.2 Brief facts qua the issue in dispute are that during the

previous year relevant to assessment year consideration , the

assessee received interest under section 244A of the Act vide

intimation dated 30/07/2002 under section 143(1) of the Act for

assessment year 2000-01, which was debited by the assessee under

the loans and advances and was not credited to the profit and loss

account forprevious year corresponding to assessment Year 2001-

year 2000-01 in financial year 2003-04, the interest under section

244A was withdrawn. According to the assessee the aforesaid

interest received under intimation u/s 143(1) was not final and

therefore the assessee had neither credited the same in its books of

accounts nor offered the same to tax. According to the Assessing

Officer, the assessee was required to offer the said amount to tax

following the mercantile system of accounting regularly employed by

the assessee. The Ld. CIT(A) upheld the interest received as income

for the year under consideration on the ground that interest was

actually received by the assessee and it was due to the assessee in

the year in consideration.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 63 2234/Del/2005 & 3805/Del/2008

18.3 Before us, the Ld. Counsel of the assessee relied on the

decision of the special bench of the Tribunal in the case of Avada

Trading Company (P) Ltd Vs ACIT (2006) 100 ITD 131 wherein it is

held that if interest under section 244A granted under section

143(1) is reduced on account of subsequent proceeding, the interest

originally granted would be substituted by the reduced amount.

Accordingly, the learned counsel submitted that in the present

case, the interest originally granted has been reduced to Nil on

completion of the assessment proceeding under section 143(3) of

the Act, thus, no interest income should be considered as

chargeable to tax in the instant year.

18.4 The ld. DR on the other hand relied on the order of the

lower authorities.

18.5 We have heard rival submission of the parties and

perused the relevant material on record. The issue in dispute in the

case is covered by the decision of the special bench in the case of

Avada Trading Company (P) Ltd. (supra). The Tribunal (supra)

clearly held that when the assessee received refund under

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 64 2234/Del/2005 & 3805/Del/2008

intimation under section 143(1) of the Act, an enforceable debt was

created in favour of the assessee in respect of the interest due on

such refund and thus income accrued as the right to receive was

acquired. The relevant finding of the Tribunal is reproduced as

under:

“9. The main contention of the assessee's counsel is that such right is contingent as the interest so received can be varied or withdrawn after the assessment under s. 143(3’). We are unable to accept such contention of assessee for the reasons given hereafter. According to the dictionary meaning, a right or an obligation can be said to be contingent when such right or obligation is dependent on something not yet certain. According to s. 244A. the only condition for grant of interest is that there must be a refund due to assessee under any provision of the Act. There is no other condition in the said provision affecting such right. Therefore, the moment a refund becomes due to assessee, an enforceable debt is created in favour of assessee and assessee acquires a right to receive the interest. Sub-s. (3) of s. 244A only affects its quantification under certain circumstances and not the right of interest. The Hon'ble Supreme Court in the case of CIT vs. Shri Goverdhan Ltd. (1968) 69 ITR 675 (SC) has observed at p. 681 that once a debt is created, then the liability cannot be said to be contingent merely because it is to be quantified at later date. Under s. 244A, even the interest is quantified immediately whenever a refund is issued. In our view, the right to grant interest is absolute since existence of such right is not dependent on any event. For example, assessee is granted interest of Rs. 1,000 on the date of granting refund. Subsequently, under s. 244A(3), it is reduced to Rs. 600 by virtue of assessment under s. 143(3). Can it be said that right to interest did not accrue on the date of refund ? In our opinion, the right of interest came into existence on the date of refund by virtue of s. 244A(1) though its quantification may or may not vary depending upon the outcome of assessment.”

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 65 2234/Del/2005 & 3805/Del/2008

18.6 However the Tribunal, further held that in case

subsequently, the said interest is withdrawn, the said interest

income can be rectified under section 154 of the Act. The relevant

finding of the Tribunal is reproduced as under:

18.7 In view of the above finding of the Tribunal (supra), we

restore the issue in dispute to the file of the Ld. Assessing Officer

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 66 2234/Del/2005 & 3805/Del/2008

for verifying that the interest granted under section 143 (1) in

relation to assessment year 2000-01 in the previous year

corresponding to assessment year under consideration, but same

has been subsequently withdrawn under section 143(3) of the Act

passed in financial year 2003-04 and decide the issue in

accordance with law after providing adequate opportunity of being

heard to the assessee. In the result, the ground No. 8 of the appeal

is allowed for statistical purposes.

19.1 The ground No. 9 of the appeal of the assessee relates to

interest income of Rs. 2,00,30,000/- from M/S National Building

Construction Company (NBCC), which according to the Assessing

Officer accrued to the assessee during year under consideration.

19.2 Before the Assessing Officer, the assessee contended that

interest income from NBCC had not been taken into account on the

basis of the accounting policy followed by the assessee and it was

further stated that the interest amount was disputed and therefore

it was not taxable pursuant to section 145 of the Act, however the

Assessing Officer observed that in view of the mercantile system of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 67 2234/Del/2005 & 3805/Del/2008

accounting followed, the assessee was obliged to credit the said

interest of Rs. 2,00,30,000/-in its profit and loss account.

19.3 The assessee in revised computation of income credited

disputed interest income of Rs. 2,00,30,000/-in the profit and loss

account and consequently claimed the said amount as deduction in

view of the decision of the Hon’ble Supreme Court in the case of

UCO Bank Vs CIT 237 ITR 889 wherein it is held that interest

arising out of sticky and disputed loans are fully deductible. This

revised claim was not accepted by the Ld. Assessing Officer on the

ground that mandated period for revising return of income under

section 139(5) of the Act had already expired and otherwise also,

the revision of that nature was not covered under the provision of

section 139(5) of the Act. Accordingly the Assessing Officer added

the sum of Rs. 2,00,30,000/-to the income of the assessee. The

assessee made detailed submission before the Ld. CIT(A), who has

summarised the submission of the assessee as under:

14A.2 The various submissions made by the appellant counsel vide letter dated 04-01-2005 and letter dated 09-02-2005 during the course of appellate proceedings are summarized below:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 68 2234/Del/2005 & 3805/Del/2008

(i) The appellant entered into a contract with National Building Construction Corporation (NBCC) Ltd. for purchase of 7500 Sq. Mtr. of office space with parking and storage spare in NBCC Tower for Rs.17 crores vide agreement dated 22-09-1989. A dispute arose between the appellant and NBCC.

(ii) The committee on disputes (COD) referred the matter to arbitration in August 1996. The arbitrator awarded that 20% of the contract amount be forfeited and the balance to be refunded to the appellant. The appellant appealed against the award but the appellate authority upheld the award on 08-10-1999 and held that the entire amount of Rs. 15.93 crores paid by the appellant be refunded to it by NBCC within two months beyond which interest would be leviable at the rate of 15%.

(iii) After continuous persuasion, NBCC only refunded a sum of Rs.416.50 lakhs on 14-02-2001 and Rs. 126.50 lakhs on 28-02-2001. IRCON thereafter wrote number of letters dated 30-03-2001, 01-06- 2001, 16-08-2001, etc. The appellant has gone into litigation and the appeal is pending before the Hon’ble High Court of Delhi.

(iv) The outstanding interest receivable to the appellant was Rs.2 crores arising out of the delayed refund of advance payment by NBC to the appellant. The disputed and unaccrued interest is not chargeable to tax under the mercantile system of accounting as per the judgment of the Apex Court in the case of UCO Bank, the interest arising out of sticky and disputed loans is wholly deductible.

(v) Reliance has been placed on the case of CIT Vs. Bavala Gopalak Vivid Karya Kari Sahakari Mandali Ltd., 253 ITR 97 where it has been held that an amount which is subject matter of dispute cannot be said to have accrued to the appellant and can be taxed only when the dispute is settled.

(vi) In the case of State Bank of Travancore Vs. CIT, 158 ITR 102, the principle of real income has been laid.

(vii) Reliance has also been placed on the case of Anoop Engineering Ltd. Vs. CIT, 247 ITR 457 where it has been held that for the purpose of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 69 2234/Del/2005 & 3805/Del/2008

ascertaining whether income had accrued to the assessee one has to find out whether the assessee had a vested right to receive the income.

(viii) Reliance has been placed on the decision of CIT Vs. Motor Credit Co. Ltd., 127 ITR 572 where it has been held that where no income has resulted , it cannot be said that the income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. It has also been observed that the mercantile system of accounting can be only relevant only to determine the point of time at which tax liability is attracted and it cannot be relied on to determine whether income has in fact resulted or materialized in favour of the assessee merely because the assessee has been maintaining his account on the basis of mercantile system of accounting.

(ix) It has been submitted in the instant case that the interest receivable by it is clearly in dispute and the appellant has since filed a petition before the Hon’ble Delhi High Court

For recovery of the said principal and interest will depend upon the outcome of the decision of the Hon’ble High Court.

(x) In the case of CIT Vs. Pondichery Industrial Promotion Development Investment Corporation Ltd., 254 ITR 748, it has been held that - ‘having regard to the decision of the Apex Court, it cannot be said that it was impermissible for the assessee here to have followed a mixed or hybrid system of accounting and that while following the mercantile system, it was permissible for it to adopt a cash system of accounting so far as interest and rent were concerned’.

(xi) Through its letter dated 25-03-2004, the appellant merely substantiated its claim by relying upon a Supreme Court judgment and no revised claim was filed by the appellant. In any case, the fresh claim should have been entertained by the AO has been held in the appellant’s own case for the AY 2000-01 and 1994-95 by the CIT(A).”

19.4 The Ld. CIT(A) distinguished the decision in the case of

UCO Bank (supra) as under:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 70 2234/Del/2005 & 3805/Del/2008

“In the above decision, the Apex Court has decided the issue taking into consideration the CBDT Circular of 9th Oct 1984 and have held that the circulars are binding. Even in this case, as per the Circular of 1984, the interest charged in an account where there has been no recovery for three consecutive accounting years is not to be subjected to tax in the fourth year and onwards. Thus, the decision of the Apex Court is under different set of circumstances and is in relation to whether the circular issued by the CBDT is binding or not. In the case of the appellant, the facts are entirely different because NBCC has not denied its liability to pay the principal and interest due during the year. In fact, NBCC has agreed to make the payment due to IRCON in three instalments payable on 31-01-2001, 28-02-2001 and 31-03-2001 and has paid part of the amount also. In the case of the appellant, under no stretch of imagination, it can be said that the principal had become sticky during the year, hence, no interest is due to the appellant.”

19.5 The Ld. CIT(A) distinguished the other decisions relied

upon by the assessee and rejected the contention of the assessee

observing as under:

14A3.1 In the letter dated 09-02-2005, the appellant has enclosed papers of the meeting held by COD or addressed to High Power Committee. As per the letter dated 14-11-2002 addressed to COD by the appellant, it is observed that after detailed discussion, the schedule for payment of dues by NBCC to IRCON was jointly agreed alongwith certain attendant conditions. As per the agreement, the amount was to be paid in three installments i.e. 31-01-2001 28-02-2001 and 31-03-2001 and the amount payable in each installment was 25%, 35% and 40% respectively of the amount due alongwith the interest. NBCC has informed IRCON vide letter dated 04-12-2000 that they are fully committed to honoring its liability towards IRCON in terms of appellate authority order dated 08- 10-1999 read with the order of the Secretary (Law) dated 18-04-2000 and it was further confirmed that NBCC should be able to liquidate their liability towards IRCON latest by 31-03-2001. Again the CMD, NBCC vide letter dated 12-06-2001 addressed to IRCON mentioned that due to the financial constraints being faced by NBCC, the commitment made by

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 71 2234/Del/2005 & 3805/Del/2008

NBCC was getting delayed and they were making all efforts to pay the balance amount to IRCON by making alternate arrangements at the earliest possible. Thus, taking into the above facts of the case, the interest has definitely accrued to the appellant on the amount payable by NBCC and NBCC has also not denied its liability to pay the amount. In fact, NBCC has agreed to liquidate the principal and interest due during the financial year relevant to the assessment year itself and under no circumstances it can be said that the interest was not due to the appellant during the year or the principal amount has become unrecoverable during the year. As already mentioned above, NBCC is a Government company and it is not that it has gone into liquidation and the recovery of principal and interest has become doubtful. In the FY 2000-01 relevant to the assessment year, the interest has become due to the appellant and neither the liability to pay the same has been denied by the NBCC. Therefore, under no stretch of imagination, it cannot be said that interest has not become due to the appellant or the accrued interest is not the real income of the appellant. Merely filing of a suit for recovery against NBCC in subsequent year by the appellant does not mean that the interest has not become accrued to the appellant during the year or the loan has become sticky, hence, no interest is due. In any case, the principal and interest has not become sticky at least during the financial year relevant to assessment though as mentioned above, in the present circumstances of the case, it cannot be held that the recovery of due amount from NBCC has become sticky. Therefore, the addition made by the AO is confirmed and the appeal of the appellant on this issue is dismissed.”

19.6 Before us, the ld. counsel of the assessee relied on the

decision in the case of UCO Bank (supra) and submitted that

interest arising out of sticky and disputed loans cannot be shown

as income as long as its realisation is doubtful.

19.7 The learned DR, on the other hand, relied on the order of

the lower authorities.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 72 2234/Del/2005 & 3805/Del/2008

19.8 We have heard rival submission of parties and perused

the relevant material on record. The Ld. CIT(A) distinguished the

decision in the case of UCO Bank(supra) observing that in that case

there has been no recovery for three consecutive accounting years.

In fourth year onwards the interest charged was held to be not

subjected to tax. The Ld. CIT(A) has observed that in the instant

case the NBCC has not denied its liability to pay the principal and

interest during the year. We agree with the observation of the Ld.

CIT(A) and concur with the finding that decision in the case of UCO

bank (supra) is not applicable over the facts of the instant case. The

Ld. CIT(A) has brought on record facts in detail that the NBCC had

agreed to liquidate the principal and interest due during the

financial year relevant to the assessment itself and therefore under

no circumstances the interest due could be said to be unrecoverable

during the year under consideration. Before us the ld. counsel did

not rebut any of the observation of the Ld. CIT(A) or submitted any

documentary evidence in support of its claim except the claim that

loan was sticky and disputed. In the case, the appellate authority

against the award by the arbitrator, directed to refund entire

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 73 2234/Del/2005 & 3805/Del/2008

amount of Rs. 15.93 crores within 2 months and beyond which

interest would be levied at the rate of 15%. The NBCC complied and

partly refunded the amount also. By merely filing appeal by the

assessee before the Hon’ble Delhi High Court, it cannot be said that

interest was not accrued to the assessee. The onus was on the

assessee to establish that loan was unrecoverable during the year

under consideration and no such evidences having been filed either

before the Ld. CIT(A) or before us. In view of the facts and

circumstances, we do not find any error in the order of the Ld.

CIT(A) on the issue in dispute and accordingly, we uphold the same.

The ground No. 9(a) and 9(b) of the appeal of the assessee are

accordingly dismissed.

20.1 The ground No. 10 relates to disallowance of deduction of

provision for doubtful debts (Rs. 2, 48, 73,000/-) and doubtful

advances ( Rs.53,98,000/-) for computing book profit under section

115JB of the Act.

20.2 The Assessing Officer on perusal of computation of book

profit under section 115JB of the Act , observed that the assessee

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 74 2234/Del/2005 & 3805/Del/2008

failed to add back the provision for bad and doubtful debts

amounting to Rs. 2,48,73,000/-and provision for doubtful advances

of Rs.53,98,000/-. It was submitted by the assessee that the

provisions were ascertained liability and, therefore, it was not

required to added back in computing the book profit. The assessee

explained that provisions for doubtful debts and doubtful advances

were infact assets and not liabilities and thus, no adjustment under

clause (c) of Explanation-II, below provision of section 115JBwas to

be called for, relying on the judgement in the case of CIT Vs Echjay

Forging (P) Ltd (2001) 251 ITR 15 (Bombay).

20.3 The Assessing Officer rejected the contention of assessee

with the detailed reasons mentioned in para 16.1.2 of the

assessment order. According to the Assessing Officer, since

provision was made, it clearly signified that liabilities were

unascertained liabilities. The Ld. Assessing Officer observed that

while computing the business income, the assessee added the

provisions therefore there is no reason as why the same are not

added for computing book profit. Regarding the provision for

doubtful advances, the Ld. Assessing Officer observed that those

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 75 2234/Del/2005 & 3805/Del/2008

advances had not been treated as income of the assessee or

credited to the profit and loss account in earlier years and therefore,

there was no basis for debiting the same in profit and loss account.

The Ld. Assessing Officer also rejected the contention of the

assessee that provision for doubtful debt and doubtful advances

pertain to asset side of the balance sheet. According to the

Assessing Officer it was only manner of presentation in the balance

sheet of doubtful debt and doubtful advances. The Ld. Assessing

Officer pointed out that in the instant case, the provision for

doubtful debt has been reduced from the total debtors and similarly

provision for doubtful advances has been reduced from the total

advances in the asset side of the balance sheet. Thus, instead of

reducing provisions of doubtful debt and advances on the asset side

of the balance sheet, the same provision of the doubtful debt and

advances can be shown on the liability side of the balance sheet

and the effect in the balance sheet shall remain the same. Thus

according to the Assessing Officer, the manner of depiction is not of

such meaningful significance and the said provisions remain

unascertained liabilities. In support, he relied on the decision of the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 76 2234/Del/2005 & 3805/Del/2008

Madras High Court in the case of DCIT Vs Beardsell Ltd 244 ITR

256, wherein it is held that provision for bad and doubtful debts are

unascertained liabilities and liable for adding back for the purpose

of computation of the book profit. The Assessing Officer accordingly

added the provision in dispute to the computation of book profit

under section 115JB of the Act.

20.4 Before the Ld. CIT(A) the assessee filed detailed

submission. The Ld. CIT(A) distinguished the decision in the case of

Echjay forging private limited (supra). The Ld. CIT(A) relying on the

decision in the case of the CIT versus Beardsell Ltd. ( supra) and

the Tribunal third member decision in the case of steel authority of

India Ltd (supra), upheld the addition in dispute made by the

Assessing Officer.

20.5 Before us the Ld. counsel of the assessee submitted that

said provisions for bad and doubtful debt /advances were reduced

from the debtors/advances and therefore such provisions

represented actual write off and thus clause (i) of explanation to sec

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 77 2234/Del/2005 & 3805/Del/2008

115JB does not apply in the facts of the case. The Ld. counsel in

support of his contention relied on following decisions:

(i) CIT versus Yokogawa India Ltd (2012) 204 Taxman 305 (kar). (ii) Phillips Carbon Black Ltd versus ACIT (ITA No. 741/Kol/2012) (iii) Murigappa Morgan Thermal Ceramics Ltd. Vs ACIT (ITA No. 2208/Mds/2010) (iv) Trent Limited Vs DCIT (ITA No. 1073/Mum/2005). 20.6 The Ld. DR on the other hand relied on the order of the

lower authorities and submitted as under:

“10.1. On perusal of P & L account (PB-page-2 for ITA 1825), it is noted that provision of Rs.36.38 crores has been deducted out of operating profit. The details of such provisions are givenin Sch P )PB-pg 19). Provision for Bad and doubtful debts is for Rs.248.73 lakhs whileprovision for bad and doubtful advances amounted to Rs.53.98 lakhs.The said provision has been debited to P & L account. 10.2. The aforesaid provision is required to be added to total income in terms of clause )i) to Explanation 1 to Section 115JB. This issue is in fact no longer res integra in view of the said insertion of clause (i) w.e.f. 01.04.2001. In this regard, reliance is placed on the following decisions : 1. CIT v llpea paramount P. Ltd[2010] 336 ITR 54(Delhi)(para 4 &5) 2. Eastern India Powertech Ltd v Addl CIT, Rg 10, New Delhi[2013] 32 taxmann.com 11 (Delhi-Trib.) In this order Hon’ble ITAT has discussed the issue in detail and has held that after insertion of clause(i) to Expln 1 to Section 115JB, addition of doubtful debts has to be made to total income to derive the book profit. Hon’ble I TAT has relied on the decision of jurisdictional High Court in the case of CIT v llpea Paramount P. Ltd.(supra).

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 78 2234/Del/2005 & 3805/Del/2008

material on record. We find that in the case of Philips Carbon Black

Ltd (supra) following the decision of the Hon’ble Karnataka High

Court in the case of Yokogawa India Ltd (supra),the issue of no

addition of the amount of provision for doubtful debt/advances in

the event of same is reduced from total debts and only net balances

shown in the balance sheet, has been restored back by the Tribunal

to the file of the Assessing Officer for verification observing as

under:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 79 2234/Del/2005 & 3805/Del/2008

“9. Vis-a-vis the claim in respect of provision for bad and doubtful debts, relevant Schedule 7 of its Balance-sheet is reproduced hereunder:- Schedule 7 –Sundry debtors (unsecured)

Debts 4,446.29 4,263.29 outstanding for a period exceeding six months considered good Doubtful 1063.70 439.00 Less : 1063.70 439.00 Provision 4,446.20 4,263.29 Other debts – 18,920.26 1 7,948.30 Considered good 33,366.55 22,211.59

It is not clear whether the total debts of Rs.23,366.55 lakhs is after deducting the provision of Rs.1,063.70 lakhs. The amount of Rs.624.70 lakhs considered by the Assessing Officer for addition is obviously difference between opening provision of Rs.439 lakhs and closing provision of Rs.1063.70 lakhs, mentioned in the above schedule. If the provision debited by assessee is indeed deducted from the total debts and only the net balance shown in the balance-sheet then by virtue of decision of the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) there cannot be any addition of such amount under section 115JB of the Act. However, as mentioned by us, this aspect is not clear. Hence we are of the opinion that the issue regarding provision for doubtful debts requires a fresh look by the Assessing Officer. We, therefore, set aside the order of authorities below in so far as this aspect is concerned, and remit the matter back to the file of Assessing Office for consideration afresh in accordance with law.”

20.8 The issue in dispute being identical and need verification

at the end of the Assessing Officer, we feel it appropriate to restore

this issue to the file of the Ld. Assessing Officer for deciding afresh

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 80 2234/Del/2005 & 3805/Del/2008

in accordance with law after providing adequate opportunity of

being heard to the assessee. In the result, the ground No. 10 of the

appeal of the assessee is allowed for statistical purposes.

21.1 The ground No. 11 and 12 of the appeal of the assessee

relate to disallowance of claim towards provision for demobilisation

amounting to Rs. 2,13,04,431/- in computing book profit under

section 115JB of the Act and disallowance of claim towards

provision for other expenses amounting to Rs. 1,61,25,533/-in

computing book profit under section 115JB of the Act respectively.

The ground No. 9 of the appeal of the Revenue is related to the relief

granted by the Ld CIT(A) for considering the part provision of

demobilisation and other expenses for computing book profit u/s

115JB of the Act in view of ascertained liability.

21.2 The Ld. CIT(A) in para 15A.1 of the impugned order has

held grounds corresponding to the ground No. 6 and 7 of the

present appeal as consequential in nature. The Learned Counsel of

the assessee has also concurred with the finding of the Ld. CIT(A)

that these issues are consequential to the ground No. 6 and 7

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 81 2234/Del/2005 & 3805/Del/2008

respectively of the present appeal. We have already dismissed the

ground No. 6 and 7 of the appeal of the assessee in preceding

paras, and held that those provisions are not ascertained liability.

Once the respective items are not ascertained liability, same are

liable to be added back to the book profit for computation of book

profit under section 115JB of the Act. Accordingly to have

consistency in our decision, the ground No. 11 and 12 of the appeal

of the assessee are dismissed.

21.3 As regards to ground No. 9 of the appeal of the Revenue

is concerned, we find that while adjudicating the ground No. 7 and

8 of the appeal of the Revenue, we have already upheld the decision

of the Ld CIT(A) of holding the relevant amount of provision under

demobilisation and other expenses as ascertained liability and

hence , we concur with the decision of the Ld CIT(A) that same are

not required to be added to book profit u/s 115JB of the Act. The

ground no. 9 of the appeal of the Revenue is accordingly dismissed.

22.1 The ground No. 13 of the appeal of the assessee relates to

denial of exclusion of income amounting to Rs. 76,80,17,697/-

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 82 2234/Del/2005 & 3805/Del/2008

earned from permanent establishment in foreign countries while

computing book profit under section 115JB of the Act by applying

the provisions of Double Tax Avoidance Agreement (DTAA).

22.2 The Assessing Officer held that adjustment can be made

only as provided in Explanation to section 115J as decided by the

Hon’ble Supreme Court in the case of Apollo tyres Vs CIT (2002)

255 ITR 273 (SC). According to him, exclusion of DTAA is not

provided in that explanation. The Ld. CIT(A) confirmed the action of

the Assessing Officer.

22.3 Before us the Ld. Counsel of the assessee submitted that

issue in dispute is covered in the favour of the assessee by the

decision of the Tribunal in the case of the assessee for assessment

year 2000-01, wherein it is held that when such income is not to be

taxed as per DTAA, it cannot be brought to tax indirectly under the

deeming fiction under section 115JB of the Act.

22.4 The Ld. DR, on the other hand relied on the order of the

lower authorities.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 83 2234/Del/2005 & 3805/Del/2008

22.5 We have heard rival submission and perused the relevant

material on record. The Tribunal in ITA No. 2596/del/2004 in the

case of the assessee for assessment year 2000-01 has adjudicated

on the identical issue in dispute involved as under:

“9. We considered the above heard the rival submissions made by the parties in respect of Ground No.7 and it is seen that income earned from permanent establishment in foreign countries is liable to be excluded from the computation of book profit in view of the decision in the case of the bank of Tokyo-Mitsubishi UFJ Ltd vs. ADIT 152 1TD 796 (Del.), which has been affirmed by Hon’ble High Court of Delhi. When such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section115JA Accordingly, this ground of appeal is decided in favor of the appellant.” 22.6 The issue in dispute involved in the present ground of the

appeal, being identical to the issue adjudicated by the Tribunal

(supra) above, respectfully following the finding of the Tribunal

(supra), we direct the Assessing Officer to exclude the income which

is subject matter of dispute under this ground of the appeal from

the ambit of the computation of book profit under section 115JB of

the Act. The ground of the appeal is according allowed.

23.1 In ground No. 14 of the appeal, the assessee has

disputed denial of exclusion of profit on sale of fixed assets

amounting to Rs. 6,77,97,458/-in computing book profit under

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 84 2234/Del/2005 & 3805/Del/2008

section 115JB of the Act. It was the contention of the assessee that

profit on sale of fixed assets was in the nature of capital receipts.

The Ld. Assessing Officer disallowed the claim based on the

decision of the Hon’ble Supreme Court in the case of Apollo Tyres

limited (supra). The Ld. CIT(A) upheld the finding of the Assessing

Officer in view of the Hon’ble Bombay High Court in the case of

Veekaylal Investment Company Private Limited reported in (2001)

249 ITR 597(Bombay).

23.2 Before us, the Ld. Counsel of the assessee clearly

conceded that issue in dispute is covered against the assessee by

the decision of the Hon’ble Bombay High Court in the case of Vee

Kay Lal Investment Company Private Limited (supra) and the

decision of the Hon’ble Kerala High Court in the case of NJ Jose

and Company Private Limited Vs CIT (2010) 321 ITR 132 (ker.).

23.3 We have heard the rival submission and perused the

relevant material on record. The hon’ble Bombay High Court in the

case of Veekaylal Investment Company Private Limited (supra) held

that while computing the book profit under the companies Act, the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 85 2234/Del/2005 & 3805/Del/2008

assessee has to include capital gains for computing the book profit

under section 115J of the Act. The relevant finding of the Hon’ble

High Court is reproduced as under :

“7. We find merit in this appeal. According to s. 1153(1), in the case of an assessee being a company if the total income is less than 30 per cent of its book profits then the total income of such company shall be deemed to be an amount equal to 30 per cent of such book-profit and such income shall be chargeable to tax. That, the assessee has to first compute the total income in accordance with the IT Act and if the total income is less than 30 per cent of the book profit then the assessee has to prepare a P&L a/c for the previous year in accordance with Part II and III of Sch. VI to the Companies Act. In other words, a plain reading of s. 1153 shows that if the assessee is a company and its total income under the IT Act is less than 30 per cent of its book profits then, fictionally, it will be deemed that its total income chargeable to tax would be an amount equal to 30 per cent of such book profits. Hence, in such a case, the total income of the assessee is first required to be computed under the IT Act and if the total income so computed is less than 30 per cent of the book profits then the P&L a/c shall have to be prepared in accordance with Part II and Part III of Sch. VI of the Companies Act. The important thing to be noted is that while calculating the total income under the IT Act, the assessee is required to take into account income by way of capital gains under s. 45 of the IT Act. In the circumstances, one fails to understand as to how in computing the books profits under the Companies Act, the assessee-company cannot consider capital gains for the purposes of computing book profits under s. 115J of the Act. Further, under cl. (2) of Part II of Sch. VI to the Companies Act where a company receives the amount on account of surrender of leasehold rights, the company is bound to disclose in the P&L a/c the said amount as non-recurring transaction or a transaction of an exceptional nature irrespective of its nature i.e. whether capital or revenue. That, it would be inappropriate to directly transfer such amount to capital reserve [see Companies Act by A. Ramaiya, p. 1669 (Fourteenth Edn.]. Such receipts are also covered by cl. 2(b) of Part II of Sch. VI of the Companies Act which, inter alia, states that P&L a/c shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. Lastly, even under cl. 3(xii)(b) profits or losses in respect of transactions not usually undertaken by the Company or undertaken in circumstances

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 86 2234/Del/2005 & 3805/Del/2008

of exceptional or non-recurring nature shows clearly that capital gains should be included for the purposes of computing book profits. That, capital gains would certainly be one of the various items whose information is required to be given to the share holders under the said cl. 3 (xii)(b). So also, the disclosure is required to be made in respect of investment in the capital of a partnership firm if the company is a partner on the date of the balance sheet (see p. 1651 of the Companies Act by A. Ramaiya [Fourteenth Edn.]. Similarly, profits or losses on such investments are also required to be disclosed. [See cl. 3(xii)(a) of Part II of Sch. VI of the Companies Act].” 23.4 As the Ld. CIT(A) has followed a binding precedent on the

issue in dispute, we do not find any error in the order of the Ld.

CIT(A) on the issue in dispute and accordingly, we uphold the same.

The ground No. 14 of the appeal of the assessee is accordingly

dismissed.

24.1 The ground No. 15 of the appeal of the assessee relates to

disallowance of claim of deduction under section 80HHC of the Act

amounting to Rs.28.97 crores while computing the book profit

under section 115JB of the Act.

24.2 The Assessing Officer disallowed the claim of deduction

under section 80HHC of the Act under normal business income and

consequently he held that the assessee cannot be allowed deduction

under section 80HHC for the purpose of section 115JB ( MAT

provisions) of the Act. The Ld. CIT(A) held that the issue is

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 87 2234/Del/2005 & 3805/Del/2008

consequential in nature to the disallowance of deduction section

80HHC under normal provisions of business income.

24.3 The Ld. Counsel of the assessee submitted that Tribunal

in the assessment year 2000-01 has allowed the benefit of

deduction under section 80HHC under normal provisions of the Act

and therefore in view of the clause (iv) of explanation to section

115JB of the Act, the assessee is entitled to benefit of deduction

under section 80HHC under the provisions of the MAT.

24.4 On the other hand, the Ld.DR relied on the order of the

lower authorities.

24.5 We have heard rival submissions and perused the

relevant material on record. While adjudicating the ground No. 3,

we have allowed the deduction under section 80HHC of the Act

following the decision of the Tribunal in the case of the assessee for

assessment year 2000-01. Further, as per the clause (iv) of

explanation 115JB of the Act which was in operation during

relevant period, the deduction under section 80HHC of the Act was

to be reduced from the book profit as per the Companies Act for the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 88 2234/Del/2005 & 3805/Del/2008

purpose of computation of book profit under section 115JB of the

Act. The relevant provision is reproduced as under:

“Omitted by the Finance Act, 2011, w.r.e.f. 1.4.05. Prior to their omission, clauses (iv), (v) and (vi) read as under :

(iv). The amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or

(v). …………………

(vi). ………………….. 24.6 As the assessee was entitled for reducing the deduction

under section 80HHC out of the book profit during relevant period,

we direct the Assessing Officer to allow the benefit in view of clear

provision of clause (iv) below explanation of section 115JB of the

Act. The ground No. 15 of the appeal of the assessee is allowed.

26.1 The ground No.1(one) of the appeal of the Revenue relates

to deduction of Rs.1.42 Crs. under section 80HHB(A) allowed to the

assessee.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 89 2234/Del/2005 & 3805/Del/2008

26.2 This claim of deduction was made for the first time before

the Ld. CIT(A). It was submitted that if deduction under section

80IA of the Act is denied to the assessee, then the deduction under

section 80HHB(A) of the Act might be allowed as the assessee fulfils

all the requisite condition of the said provision. The assessee

submitted that three projects namely “APSH 1A Hazurabad” ,

“APSH 1B Kareem Nagar”and “APSH 3 Kamalapuram” totalling Rs.

2,03,55,02,091/-which were funded by the World Bank, were

eligible for claim of deduction at the rate of 40% of such profit,

which was worked out to Rs.1,42,00,837/-. The assessee submitted

that all the required conditions including maintenance of separate

books of accounts, furnishing of audit report of chartered

accountant certificate in prescribed form 10CCAA, creation of a

special reserve etc have been fulfilled, and hence the assessee is

eligible for the deduction.

26.3 The Ld. CIT(A) called for the remand report from the

Assessing Officer, wherein he submitted that the two conditions of

furnishing of a certificate in form No. 10CCAA and creation of

housing project reserve account were not satisfied.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 90 2234/Del/2005 & 3805/Del/2008

26.4 Regarding creation of a special reserve the Ld. CIT(A) ,

followed the decision of jurisdictional High Court in the case of

continental construction Ltd. versus CIT 185 ITR 230. Regarding

filing of the chartered accountant certificate in form No. 10CCAA,

the ld. CIT(A) followed the decision of the Hon’ble Calcutta High

Court in the case of CIT Vs. Berger paints India Ltd 254 ITR 503.

The Ld. CIT(A) also placed reliance on CIT vs. Shivanand

Electronics 209 ITR 63 and CIT versus Gujarat Oil and Allied

Industries 201 ITR 325. In view of the decisions relied upon, the Ld.

CIT(A) found the claim of the assessee in order and allowed the

claim accordingly.

26.5 Before us, the Ld. DR relied on the submission of the

Assessing Officer made during the remand proceedings and

submitted that the assessee has not fulfilled the required conditions

for eligibility of deduction in dispute.

26.6 On the other hand, the Ld. Counsel of the assessee

submitted that deduction under section 80 HHB(A) of the Act was

claimed as alternative to the deduction under section 80IA of the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 91 2234/Del/2005 & 3805/Del/2008

Act. He submitted that the Tribunal in ITA No. 2596/Del/2004 for

assessment year 2000-01 has already allowed the claim of

deduction under section 80IA of the Act, and thus the assessee is

not pressing for the deduction under section 80HHB(A) of the Act.

26.7 We have heard the rival submissions and perused the

relevant material on record. Before the Ld. CIT(A), the assessee

claim deduction under section 80HHB(A) of the Act as alternative

claim that if the deduction under section 80IA of the Act is denied

to it, then the assessee might be allowed deduction under section

80 HHB(A) of the Act. Since the assessee has already been allowed

deduction under section 80IA of the Act by us while adjudicating

the ground No. 2 of the appeal of the assessee, this alternative

claim of deduction under section 80HHB(A) cannot be allowed in

addition to the claim under section 80IA of the Act. The assessee

has also not insisted for this claim before us. Accordingly, the

ground of the appeal of the Revenue is allowed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 92 2234/Del/2005 & 3805/Del/2008

27.1 The ground No. 2 of the appeal of the Revenue relates to

alternative claim of deduction under section 80HHB amounting to

Rs. 12.66 crores, which has been allowed by the Ld. CIT(A).

27.2 Before us, the ld. counsel of the assessee submitted that

it was an alternative ground for deduction under section 80HHB of

the Act, in the unlikely event, the disallowance of deduction under

section 80HHC is upheld in appeal. He submitted that the Tribunal

in the assessee’s own case for assessment year 2000-01 has

allowed the deduction under section 80HHC of the Act, thus, the

assessee is not insisting for claim under section 80HHB of the Act.

The ld. DR, on the other hand, has not objected to the

withdrawal of the claim by the assessee.

27.3 We have heard the rival submissions and perused the

relevant material on record. We have already allowed claim of the

assessee for deduction under section 80HHC of the Act, while

adjudicating, the ground No. 3 of the appeal of the assessee, and

thus, this alternative claim cannot be allowed to the assessee. The

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 93 2234/Del/2005 & 3805/Del/2008

assessee has also withdrawn this claim before us. Accordingly this

ground of the appeal of the Revenue is allowed.

28.1 The ground No.3(three) of the appeal of the Revenue

relates to the grant of deduction under section 80HHB in respect of

foreign project without allocating corporate office expenses.

28.2 The Ld. Counsel of the assessee before us submitted

that the claim of deduction under section 80HHB of the Act was

made as an alternative claim under section 80HHC of the Act. He

submitted that the claim of the assessee under section 80HHC of

the Act has been allowed by the Tribunal in assessment year 2000-

01, therefore the claim of deduction under section 80 HHB of the

Act is not insisted. However, it was submitted that the issue in

dispute was covered in favour of the assessee by the decision of the

Tribunal in the case of Telecommunication Consultant India Ltd

versus DCIT (ITA No. 333/Del/1990) wherein it is held that

expenses not connected with the activity of the assessee i.e.

exclusion of foreign project cannot be taken into consideration,

while computing the income derived from such activity and

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 94 2234/Del/2005 & 3805/Del/2008

consequently the head office expenses cannot be apportioned in the

present case for setting off the same against the income of the

foreign projects.

28.3 The Ld. DR, on the other hand, submitted that when the

main claim of the assessee has been allowed by the Tribunal in

earlier years, the assessee is not entitled for deduction under

section 80 HHB of the Act during the year under consideration.

28.4 We have heard the rival submission of the parties. We

find that this claim of deduction under section 80HHB was made

only as alternative claim before the Ld. CIT(A). Since we have

already allowed the main claim of the assessee under section

80HHC of the Act while adjudicating the ground No. 3 of the appeal

of the assessee, and thus this claim of deduction under section

80HHB is denied to the assessee. Before us, the assessee has also

not insisted for allowing this claim. Accordingly, the ground of the

appeal of the Revenue is allowed.

29.1 The ground No.4(four) of the appeal of the Revenue

relates to deduction of Rs. 12.51 lakhs under section 35DDA of the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 95 2234/Del/2005 & 3805/Del/2008

Act being 1/5th amount of Rs.62,54,482/-paid to the employees

under the Voluntary Retirement Scheme (VRS) as applicable in the

assessee company. The Ld. Assessing Officer disallowed the claim

in view of no details filed. The assessee filed detail before the Ld.

CIT(A), who remanded the matter to the Assessing Officer. The

Assessing Officer has objected on the ground that it was not evident

that the deduction claimed pertained to those employees who had

actually resigned during the concerned period. The Ld. CIT(A)

allowed the claim of the assessee considering that -

(i) The assessee is a government of India undertaking, whose accounts are audited by the statutory and government auditors. (ii) All the details are available in the audited balance sheet and the assessee has also submitted all the details of the VRS before him and also before the Assessing Officer in remand proceedings.

29.2 Before us, the Ld. DR relied on the order of the

Assessing Officer and submitted that requisite details of employees

resigned were not filed by the assessee, and therefore deleting the

disallowance by the Ld. CIT(A) was not justified.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 96 2234/Del/2005 & 3805/Del/2008

29.3 We have heard the rival submissions in view of the order

of the lower authorities and other material on record. We find that

the Ld. CIT(A) has allowed the claim of the deduction of the

assessee observing as under:

“7.2.3 In the rejoinder filed by the appellant counsel vide letter dated 09- 02-2005, it has been submitted that it is obvious that the employees who resigned and are eligible for VRS are only those who are covered under the VRS scheme as is applicable to the company. It is not possible under any circumstances that expenditure incurred under the head voluntary retirement scheme may pertain to employees who are not covered under the VRS scheme or has resigned when the scheme was not in operation. The appellant is a government undertaking and its accounts are being statutorily audited by the statutory auditor? and again audited by CAG and placed before the Parliament for approval thereof. 7.3 Taking into consideration that the appellant is the government of India undertaking, there is no doubt, its accounts are audited both by statutory and government auditors. It is also a fact that all the details were available in the audited balance sheet and the appellant has also submitted all the details of voluntary retirement scheme vide its letter dated 22-01-2004. It is also a fact that during the course of remand proceedings, the appellant has also filed the copy of the voluntary retirement scheme and its ratification by the Board of Directors. Taking all the above facts into consideration, no disallowance is called for and the addition made by the AO is deleted.”

29.4 We find that all the requisite details of the voluntary

retirement scheme and the expenses incurred of Rs. 62, 54, 482/-

towards said scheme have already been filed by the assessee and

thus the contention of the Ld. DR that no details of the employee

resigned were filed, cannot be made a basis for disallowance of the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 97 2234/Del/2005 & 3805/Del/2008

claim of the assessee. In our opinion, the finding of the Ld. CIT(A)

on the issue in dispute is well reasoned and we do not find any

error in the same. The ground of the appeal of the Revenue is

dismissed.

30.1 The ground No. 5 of appeal of the Revenue relates to

deduction of corporate office expenses by the Assessing Officer

while granting exclusion of income from foreign projects under

DTAA.

30.2 The assessee has computed income earned under the

DTA agreement from Bangladesh and Malaysia at Rs.2,96,13,866/-

and Rs. 73, 84, 03, 831/-respectively. According to the Assessing

Officer those incomes have been determined without deducting the

corporate office expenses. In view of the Assessing Officer

appropriation of the corporate office expenses was necessitated by

the rational of section 14, which prescribed that no deduction of

expenditure shall be allowed in relation to income which do not

form part of the total income. In view of this observation, the Ld.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 98 2234/Del/2005 & 3805/Del/2008

Assessing Officer allocated Rs. 51,68,697/-and Rs.3,15,44,520/-

towards DTA income from Bangladesh and Malaysia respectively.

30.3 Before the Ld. CIT(A), the assessee submitted that all

corporate office expenses attributable to permanent establishment

outside India had been charged to the related projects. According to

the assessee, separate books of accounts were maintained for each

project at the project site itself and all the expenses were debited to

profit and loss account. It was submitted that even the expenditure

relating to any visit of an executive from corporate office and/or any

expenditure incurred by the corporate office has been directly

booked in the accounts of the project itself.

30.4 The Ld. CIT(A) deleted the allocation of corporate office

expenses towards the DTAA income observing as under:

“9.2.4. In the preceding assessment years 1999-00 and 2000-01, it was allowed in favour of the appellant. 9.3. The adjustment made by the A.O. was deleted by my ld. Predecessors on the ground that as the entire expenditure attributable to foreign projects have been duly considered in the P & L account prepared for the foreign projects, no part of the corporate office expenditure could be attributable to the foreign projects and, hence, the same was deleted. I agree with the decision of my ld. Predecessors and following the same for the same reasons, the adjustment made by the A.O. is deleted.”

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 99 2234/Del/2005 & 3805/Del/2008

30.5 Before us, the Ld. DR relied on the finding of the

Assessing Officer. On the contrary, Ld. Counsel of the assessee

reiterated the submission made before the ld. CIT(A) and submitted

that all the expenses attributable to the project, whether corporative

or administrative have already been debited to the respective profit

and loss account of the projects and therefore no further allocation

of corporate expenses are justified. The Ld. Counsel submitted that

issue in dispute has been decided in favour of the assessee by the

Ld. CIT(A) in its own case in assessment year 1999-2000 and

2000-2001 on the basis of the decision of the Delhi Tribunal in the

case of telecommunication Consultant India Ltd versus DCIT in ITA

No. 333/Del/1990.

30.6 We have heard rival submissions and perused the

relevant material on record. The income of the foreign projects

through their permanent establishment, is chargeable in the

respective country and in such a situation, reducing of promotional

corporate office expenses in working out the income of the

permanent establishment in the foreign country excludable while

computing income chargeable to tax in India, cannot be justified.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 100 2234/Del/2005 & 3805/Del/2008

We do not find any error in the order of the Ld. CIT(A) in following

the order of the Tribunal in the case of Telecommunication

Consultant India Ltd. (supra), which is a binding precedent.

Accordingly, the finding of the Ld. CIT(A) on the issue in dispute is

upheld. The ground of the appeal of the Revenue is accordingly

dismissed.

31.1 The ground No. 10 of the appeal of the Revenue relates to the

provision of gratuity allowed while computing book profit u/s

115JB by the Ld. CIT(A). According to the Ld. AO, it is

unascertained liability, whereas the Ld. CIT(A) held the provision of

the gratuity as ascertained liability in view of actuarial valuation,

following a binding precedent. The finding of the ld. CIT(A) is

reproduced as under:

“15B. The next issue of appeal taken by the appellant in Ground No.15(c) is that the AO is not justified and grossly erred in considering that the provision for gratuity amounting to Rs.44,39,494 is on account of liability other than ascertaining liability and adding it to the computation of book profit for the purpose of Section 115JB of the Act. 15B.1 The grounds taken for disallowing the provision for gratuity by the AO have already been summarized in the Ground No. 15(a). 15B.2 The submissions made by the appellant counsel on the issue during the course of appellate proceedings are summarized below:

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 101 2234/Del/2005 & 3805/Del/2008

(i) The company has set up a gratuity trust fund which is being administered by LIC of India. The annual gratuity liability is determined by LIC based on actuarial valuation under group gratuity scheme. During the previous year under consideration, the company provided for gratuity amounting to Rs.44,39,494 based on actuarial valuation.

(ii) Since the determination of the gratuity provision is by way of an actuarial valuation it cannot be said that the same is an unascertained liability. The appellant vide its letter dated 24-03-2004 has submitted before the AO that gratuity has been provided on the basis of actuarial valuation. The AO did not sought for actuarial valuation certificate, however, the same is enclosed herewith. This disallowance has never been made in any of the earlier years.

(iii) The Delhi ITAT in the case of GD Rathi Steels Ltd. Vs. DCIT, 56 ITD 103 has stated that gratuity which has been actuarially valued is an ascertained liability. Similar view has been expressed by Hon’ble Mumbai High Court in. the case Echjay Forging (supra).

15B.3 The provision for gratuity has been added by the appellant u/s 40A(7) because the gratuity trust fund which has been established and is being administered by LIC is not an approved gratuity trust fund. However, for the provision of Section 115JB of the Act, it is required to be seen whether the provision created is in respect of ascertained liability or unascertained liability. As in the case of the appellant, the provision has been created on the basis of actuarial valuation, the same is ascertained liability as per the ITAT Delhi decision in the case of GD Rathi Steel Ltd. and is allowable expenditure. Therefore, the addition made on this account for computing the income under the MAT provision is deleted.”

31.2 Before us the ld. DR relied on the order of the AO,

whereas the Ld. Counsel of the assessee relied on the order of ld.

CIT(A) and further relied on the following decisions in support of the

claim that provision based on actuarial valuation amounts to

ascertained liability:

(i). CIT vs. IIpea Paramount P. Ltd. (2010) 336 ITR 54 (Del)

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 102 2234/Del/2005 & 3805/Del/2008

(ii). Eastern India Powertech Ltd. V Addl. CIT (2013) 32 taxmann.com 11 (Del. Trib.)

31.3 We have heard rival submissions of the parties. The Ld.

CIT(A) has allowed the issue in dispute in view of the decision of the

Tribunal in the case of GD Rathi Steels Ltd Vs DCIT 56 ITD 103,

wherein it is held that gratuity which has been actually valued is an

ascertained liability. We don’t find any error in the finding of the Ld.

CIT(A) on the issue in dispute following a binding precedent on the

issue. Accordingly, we uphold the finding of the Ld. CIT(A) on the

issue in dispute and dismiss the ground No. 10 of the appeal of the

Revenue.

32.1 The ground No. 11 of the appeal of the Revenue relates to

amount of Rs. 9,00,77,782/- which has been reduced by the

assessee from the book profit for computation of MAT liability u/s

115JB of the Act in view of clause (i) of explanation below section

115JB(2) of the Act. According to the AO the assessee was required

to enhance the book profit of previous/ earlier years corresponding

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 103 2234/Del/2005 & 3805/Del/2008

to the reduction in book profit claimed on account of written back

liabilities.

32.2 The Ld. CIT(A) keeping in view the provisions of the Act

as amended and the decisions relied upon by the assessee restored

the issue partly for verification by the Assessing Officer observing as

under:

“18.2 The various submissions made by the appellant counsel during the course of appellate proceedings are as under:

(i) The observation of the AO is totally incorrect and contrary to the provisions of the Act. According to clause (i) of Explanation to Section 115JB of the Act, it is clear that any amount withdrawn from reserves or provisions which are created and/or provided in the previous year ended on or before 31-03-1996 should be allowed. The said clause imposes certain restrictions in respect of provisions created in the previous year relevant to the AY beginning on or after the 1st day of April 1997. However, as far as the provision created on or before 31-03-1996 is concerned, the provisions of the Act are very clear and there is no doubt that the same should be excluded in computing the book profit for the purpose of Section 115JB of the Act.

(ii) The clause (i) was amended with retrospective effect by the Finance Act, 2002 from 01-04-2001. In the original clause (i), when it was brought into force w.e.f. 01-04-2001, alongwith the new provisions of Section 115JB of the Act, instead of 1st day of April 1997, the term used in the statute was 1st day of April 2001 and, accordingly, it claimed the said deduction in relation to the provisions utilized and/or withdrawn, which were made prior to the previous year relevant to the AY under consideration. However,in view of the retrospective amendment, the amount of provisions utilized and/or withdrawn during the year under consideration, which were created in the FY 1995-96, and/or earlier FYs is Rs.87,90,316 only. Hence, it is stated that the same should be excluded in computing the book profit for the purpose of Section 115JB of the Act.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 104 2234/Del/2005 & 3805/Del/2008

(iii) Reliance has been placed on the decision of the following case laws: (a) J.K. Cotton Spinning & Weaving Mills Co. Ltd. Vs. ACJT, 60 ITD 99 (All); (b) SRF Ltd. Vs. ACIT, 47 ITD 504 (Del); (iv) The CIT(A) while passing the appellate order in the appellant’s own case for the AY 2000-01 has deleted the addition. 18.3 Taking into consideration that the provisions were amended from retrospective effect by the Finance Act, 2002 w.e.f. 01-04-2001, the claim allowable to the appellant as per the appellant’s own admission is only Rs.87,90,316 as against the claim made by the appellant of Rs.9,77,00,872 as per the provisions at the time of filing of the return. The AO is directed to verify that the sum of Rs.87,90,316 relates to provision or reserve created before first day of April 1997 and if found to be correct, the same should be allowed.”

32.3 Before us the Ld DR relied on the order of Assessing

Officer, whereas the Ld counsel of the assessee submitted that

issue is already decided in favour of the assessee in its own case in

assessment year 2000-01 by the Ld. CIT(A) and no appeal has been

preferred by the Department against the issue before the Tribunal.

32.4 We have heard rival submission of the parties and

perused the relevant material on record. The ld. CIT(A) has

explained the clause(i) of explanation to section 115JB of the Act

that it applies to any amount withdrawn from the reserves or

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 105 2234/Del/2005 & 3805/Del/2008

provision which are created and/or provided in the previous year

ended on or before 31/03/96 and should be allowed. In our

opinion, the Ld. CIT(A) has correctly appreciated the position of the

law into the facts of the instant case. We do not find any error in

the order of the Ld. CIT(A) on the issue and accordingly, we uphold

the same.

33.1 The ground No. 12 of the appeal of the Revenue relates to

allowance of claim for deduction under section 80HHB while

computing book profit under section 115JB of the Act.

33.2 Before us, the Ld. Counsel of the assessee submitted that

this ground was only taken as alternative ground in unlikely event

the disallowance under section 80IA and 80HHC is not allowed.

Since, we have already allowed the deduction under section 80IA

and 80HHC of the Act while computing book profit under section

115JB of the Act, this claim of the assessee is rendered infructuous

and accordingly, we allow the ground of the appeal of the Revenue.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 106 2234/Del/2005 & 3805/Del/2008

34.1 The ground No. 13 of the appeal of the revenue relates to

interest under section 234D of the Act amounting to

Rs.2,23,26,453/-.

34.2 The Ld. CIT(A) deleted the interest charged under section

234D of the Act on the ground that relevant section was introduced

with effect from 01/06/2003 and refund in the present case was

granted before the said date ( i.e. on 30/07/2002).

34.3 Before us, the Ld. DR submitted that in the instant case

assessment proceedings have been completed on 25/03/2004 and

therefore provision of section 234D is applicable.

34.4 We have heard rival submission of the parties. The

explanation -2 to section 234D has been inserted by way of Finance

Act 2012 which provides that provisions of section 234D would be

applicable for assessment year commencing before 01/06/2003 if

the proceeding for such assessment year is completed on or after

1.6.2003. It is undisputed that in the present case assessment

proceedings have been completed on 25/03/2004 and hence

provision of section 234D are applicable. Accordingly, the finding of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 107 2234/Del/2005 & 3805/Del/2008

the ld. CIT(A) are set aside and interest charged by the learned

Assessing Officer under section 234D is restored. The ground of the

appeal of the Revenue is accordingly allowed.

statistical purpose whereas the appeal of the Revenue is partly

allowed.

2002-03 and 2003-04 and appeal of the Revenue for A.Y. 2003-04.

The grounds raised by the assessee in its appeals for both the years

read as under :

Grounds raised by assessee in appeal for A.Y. 2002-03 1(a) That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as 'CIT(A)'], was not justified in upholding the disallowance of the appellant's claim for deduction of depreciation amounting to Rs. 18,30,937/- on the value of machinery spare parts capitalized during the year. 1(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 1(a) taken here in above, the Ld. CIT(A) grossly erred in holding that although depreciation is allowable on machineries in 'ready to use' condition but the same is not allowable on machinery spares which are also in 'ready to use 'condition.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 108 2234/Del/2005 & 3805/Del/2008

2(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in disallowing appellant's claim for deduction u/s 80-IA in respect of income earned from the business of development of infrastructure facilities amounting to Rs.19,03,52,236/-. 2(b) That on the facts and in the circumstances of the case and without prejudice to ground No. 2(a) taken here in above, the Ld. CIT(A) grossly erred in considering that the appellant's role in executing various infrastructure projects is that of a contractor which cannot be equated to the business of developing the infrastructure facilities and thereby disallowing the claim for deduction u/s 80-IA of the Act. 2(c). That on the facts and circumstances of the case and without prejudice to ground No. 2(a) and 2(b) taken here in above, the Ld. CIT(A) was not justified in not taking into consideration the decision of Hon'ble the case of Patel Engg. Ltd - vs. - Dy CIT (2005) 94 ITD wherein based on the identical facts as of the appellant the deduction u/s 80-IA of the Act has been allowed. 3(a). That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of the claim of the appellant tor deduction u/s 80HHC amounting to Rs. 17,09,53,587/- in respect of income earned from the business of export of goods. 3(b). That on the facts and in the circumstances of the case, and without prejudice to ground No. 3(a) taken here in above, the Ld. CIT(A) grossly erred in considering that the appellant entered into 'composite contract' which cannot be equated to the 'supply contract' thereby disallowing the claim for deduction u/s 80HITC of the Act. 3(c) That on the facts and in the circumstances of the case, and without prejudice to ground No. 3(a) and 3(b) taken here in above, the Ld. CIT(A) grossly erred in not allowing the alternate claim of the appellant u/s 80HHB in respect of supplies made to

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 109 2234/Del/2005 & 3805/Del/2008

Syria when under the similar circumstances alternate claim u/s 80HIIB was allowed to the appellant in respect of supplies made to Iran. 4(a). That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for demobilization amounting to Rs. 20,32,836/- out of the total claim for Rs 2,95,17,122/-. 4(b) That on the facts- and in the circumstances of the case and without prejudice to ground no. 4(a) taken here in above, the Ld. CIT(A) completed the appellate proceedings without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits. 5(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for maintenance expense amounting to Rs. 50,54,000/- out of the total claim for Rs. 87,33,107/-. 5(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 5(a) taken here in above, the Ld. CIT(A) completed the appellate proceedings without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits. 6(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in upholding the disallowance of the claim of the appellant towards provision for other expenses amounting to Rs 28,85,31 1/- out of the total claim for Rs 1,18,85,311 /-. 6(b) That on the facts and in the circumstances of flu* case and without prejudice to ground no. 6(a) taken here in above, the Ld. C1T(A) completed the appellate proceedings without affording

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 110 2234/Del/2005 & 3805/Del/2008

reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits. 7(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance made by the Ld. AO in respect of interest received vide intimation u/s 143(1) for the assessment year 2001-02 amounting to Rs 2,00,469/-. 7(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 7(a) taken here in above, the Ld. CIT(A) grossly erred in holding that the interest received by the appellant on provisional assessment u/s 143(1) for the assessment year 2001-02 was due and final, disregarding the fact that the same was subsequently withdrawn on finalization of assessment u/s 143(3) of the Act for the said assessment year 2001-02. 8(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in confirming the addition of Rs. 1,60,30,000/- towards interest income on accrual basis on the disputed dues with NBCC whose matter is pending before the Hon'ble Delhi High Court. 8(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 8(a) taken here in above, the Ld. CIT(A) grossly erred in holding that principal and interest amounts due from a Government Company cannot be considered to be doubtful or sticky unless the said company has gone into liquidation. 8(c) That on the facts and in the circumstances of the case and without prejudice to ground no. 8(a) and 8(b) taken here in above, the Ld. CIT(A) was not justified in upholding the addition of interest calculated @ 15% p.a. as awarded by the arbitration award instead of interest calculated @ 6% p.a. being actually paid by NBCC on outstanding dues, which has been duly offered to tax by the appellant in the assessment year 2003-04.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 111 2234/Del/2005 & 3805/Del/2008

9.0 That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of Rs. 13,37,89,617/- towards provision for bad & doubtful debts and Rs. 1,64,73,633/- towards provision for bad & doubtful advances for computing the book profits for the purpose of section 115JB of the Act. 10.0 That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for demobilization amounting to Rs 20,32,836/- out of the total claim for Rs 15,93,46,597/- for computing the book profits for the purpose of 115JB of the Act. 11.0 That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for maintenance expenses amounting to Rs 5,53,92,513/- out of the total claim for Rs 7,46,71,237/- for computing the book profits for the purpose of 115JB of the Act. 12.0 That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding the disallowance of the claim of the appellant towards provision for other expenses amounting to Rs 28,85,311/- out of the total claim for Rs 1,18,85,311/- for computing the book profits for the purpose of 115JB of the Act. 13.0 That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified and grossly erred in disallowing deduction of income earned from permanent establishment in foreign countries and not chargeable to tax under Double Taxation Avoidance Agreement amounting to Rs. 1,10,27,05,706/- in computing the book profit for the purpose of Section L15JB of the Act. 14.0 That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in upholding the disallowance of the claim of the appellant amounting to Rs. 2,24,79,738/- on

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 112 2234/Del/2005 & 3805/Del/2008

account of the profit on sale of fixed asset in computing the book profit for the purpose of Section 115JB of the 15.0 That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in disallowing Rs. 24,42,19,410/- towards the claim of deduction u/s 80HHC in computing the book profit for the purpose of Section L15JB of the Act.”

Grounds raised by assessee in appeal for A.Y. 2003-04:

1(a) That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as CTT(A)], was not justified in upholding the disallowance of the appellant's claim for deduction of depreciation amounting to Rs. 13,73,203/- on the WDV of machinery spare parts capitalized in the earlier years(Assessment year 2001-2002). 1(b) That on the facts and in the circumstances of the case and without prejudice to ground no.1(a) taken here in above, the Ld. CIT (A) grossly erred in holding that although depreciation is allowable on machinery in 'ready to use' condition but the same is not allowable on machinery spares which are also in 'ready to use 'condition. 1(c) That on the facts and in the circumstances of the case and without prejudice to ground no.1(a) and 1(b) taken here in above, the Ld.CIT (A)grossly erred in not following the decision of the Jurisdictional Delhi High Court in the case of Capital Bus Services (123 ITR 404) wherein depreciation on parts of machinery which is ready for use has been categorically allowed. 2(a) That on the facts and in the circumstances of the case,Ld. CIT(A) was not justified in disallowing the claim of the appellant

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 113 2234/Del/2005 & 3805/Del/2008

for deduction u/s 80IAin respect of income earned from the business of development of infrastructure facilities amounting to Rs.13,19,72,609/-. 2(b) That on the facts and in the circumstances of the case, and without prejudice to ground No. 2(a) taken here in above, the Ld. CIT (A) grossly erred in considering that the appellant's role in executing various infrastructure projects is that of a contractor which cannot be equated to the business of developing the infrastructure facilities and there by disallowing the claim for deduction under section 80IA of the Act. 2(c) That on the facts and in the circumstances of the case, and without prejudice to ground No. 2(a) and 2(b) taken here in above, the Ld. CIT (A) grossly erred in not considering that the appellant is an enterprise and not a person, who executes a work contract with an undertaking and thereby disallowing the claim for deduction u/s 80IA of the Act. 2(d) That on the facts and in the circumstances of the case, and without prejudice to ground No. 2(a) and 2(b) taken here in above, the Ld. CIT (A) was not justified in not taking into consideration the decision of Hon'ble Mumbai ITAT in the case of ACIT vs Bharat Udhyog Ltd., (ITA No 6137/Mum/2005) wherein based on the identical facts as that of the appellant, the benefit of deduction u/s 80-IA of the Act has been allowed. 3(a) That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified in confirming the disallowance of the claim of the appellant for deduction u/s 80HHC relating to the export of goods and supplies made to the Government of Syria amounting to Rs.1,60,34,887/- . 3(b) That on the facts and in the circumstances of the case, and without prejudice to ground No. 3(a) taken here in above, the Ld. CIT(A) grossly erred in considering that the appellant entered into 'composite contract' which cannot be equated to the "supply contract' thereby disallowing the claim for deduction u/s 80HHC of the Act.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 114 2234/Del/2005 & 3805/Del/2008

4(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in upholding the disallowance of the total claim of the appellant towards provision for other expenses amounting to Rs 4,30,61,843/- under normal provisions of the Act. 4(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 4(a) taken here in above, the Ld. CIT (A) completed the appellate proceedings in haste without affording Reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits. 5(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in confirming the addition made by the Assessing Officer towards interest received on provisional assessment u/s 143(1) amounting to Rs. 2,05,90,009/-. 5(b) That on the facts and the circumstances of the case and without prejudice to ground no. 5(a) taken herein above, the Ld. CIT (A) grossly erred in including the above interest income received on provisional basis which was subsequently withdrawn on finalization of assessment u/s 143(3). 6(a) That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified in confirming the addition of Rs.1,36,70,000/- towards interest income on accrual basis on the disputed dues with NBCC whose matter is pending before the Hon'ble Delhi High Court. 6(b) That on the facts and in the circumstances of the case, and without prejudice to ground no. 6(a) taken here in above, the Ld. CIT (A) grossly erred in holding that principal and interest amounts due from a Government Company cannot be considered to be doubtful or sticky unless the said company has gone into liquidation. 7(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in upholding the disallowance of

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 115 2234/Del/2005 & 3805/Del/2008

the claim of the appellant towards provision for demobilization and other expenses amounting to Rs. 99,12,075/- utilized during the year although the same has already been taxed in earlier years under the normal provisions of the Act. 7(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 7(a) taken here in above, the Ld. CIT (A) completed the appellate proceedings in haste without affording reasonable opportunity to the appellant for furnishing all the relevant documents and hence the impugned issue may be set aside for allowing the same on merits. 8(a) That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in not allowing assessee's claim of Rs. 25,56,813/- arising from withdrawal made by the department in the instant Assessment Year in respect of interest granted u/s 244A pertaining to Assessment Year 2000- 2001 which was already taxed in the Assessment Year 2001-2002. 8(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 8(a) taken here in above, the Ld. CIT (A) grossly erred in holding that the interest amounting to Rs. 25,56,813/- received by the appellant on provisional assessment u/s 143(1) for the assessment year 2000-01 to be due and final, disregarding the fact that the same was subsequently withdrawn on finalization of the appellant's case for the said assessment year u/s 143(3) of the Act. 9(a) That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified in making the additions while computing the book profits for the purposes of sec. 115JB, of the amounts of Rs. 1,70,85,297/- and Rs. 6,37,472/- respectively on account of provision for bad and doubtful debts and provision for bad and doubtful advances. 9(b) That on the facts and in the circumstances of the case and without prejudice to ground no. 9(a) taken here in above, the Ld. CIT (A) grossly erred in holding that addition be made to book profit on account of the provision for bad and doubtful debts

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 116 2234/Del/2005 & 3805/Del/2008

and provision for bad and doubtful advances on the ground that these are liability other than ascertained liability. 9(c) That on the facts and in the circumstances of the case and without prejudice to ground no. 9(a) and 9(b) taken here in above, the Ld. CIT (A) was not justified in not taking into consideration the decision of the Supreme Court in the case of CIT V. HCL Comnet Systems & Services [2008] 305 ITR 409 , wherein it was held that the provision for bad and doubtful debts is not for meeting a liabilities is not to be included in the book profits for the purposes of sec. 115JB. 10.0 That on the facts and circumstances of the case the Ld. CIT (A) was not justified in rejecting the appellant's claim for provision for other expenses amounting to Rs. 4,30,61,843/- in respect of non DTAA projects. The appellant claimed the said provisions as deductible expenditure while computing the book profits for the purposes of section 115JB of the Act, since the same were quantifiable and ascertained liabilities in the hands of the appellant. The Ld. Officers however, not accepting the contention of the appellant rejected the claim of the appellant on the ground that the said provision is on account of liability other than ascertained and/or accrued liability and hence, added back the same while computing the book profits for the purposes of section 115JB of the Act. 11.0 That on the facts and in the circumstances of the case the Ld. CIT (A) was not justified and grossly erred in disallowing deduction from income earned from permanent establishment in foreign countries and not chargeable to tax under Double Taxation Avoidance Agreement amounting to Rs. 84,82,65,351/- in computing the book profit for the purpose of Section 115JB of the Act. 12.0 That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in upholding the disallowance of the claim of the appellant amounting to Rs. 1,90,11,891/- on

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 117 2234/Del/2005 & 3805/Del/2008

account of the profit on sale of fixed asset in computing the book profit for the purpose of Section 115JB of the Act. 13.a) That on the facts and in the circumstances of the case, the Ld. CIT (A) grossly erred in not considering the claim of the appellant amounting to Rs.99,12,075/- towards provision for bad and doubtful debts, advances, demobilization expenses, maintenance expenses, etc., utilized during the year, which have already been taxed in the earlier years by the department, resulting taxation of the aforesaid provisions once again in the instant assessment year while computing the book profits. 13.b). That on the facts and in the circumstances of the case and without prejudice to ground no. 13(a) taken here in above, the Ld. CIT (A) completed the appellate proceedings in haste without affording reasonable opportunity to the appellant for furnishing all the relevant documents and details of the allowance/disallowances in earlier years. Hence the impugned issue may be set aside for allowing the same on merits. 14.0 That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in disallowing Rs. 3,20,69,774/- towards the claim of deduction u/s 80HLIC while computing the book profit for the purpose of Section 115JB of the Act. 15.0 That on the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in rejecting assessee's claim of excess levy of interest u/s 234D by Rs. 8,45,013/-.

Grounds raised by Revenue in appeal for A.Y. 2003-04 1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs. 69,58,033/- on account of deduction u/s 80HHB.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 118 2234/Del/2005 & 3805/Del/2008

and 2003-04, grounds Nos. 1(a) and 1(b) for A.Y. 2002-03 and 1(a),

1(b) & 1(c) for A.Y. 2003-04 are covered by our decision on ground

Nos. 1(a) & 1(b) in appeal of assessee for A.Y. 2001-02, which we

have dismissed as per our discussion made herein above.

Accordingly, these grounds of assessee’s both the appeals are

dismissed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 119 2234/Del/2005 & 3805/Del/2008

A.Y. 2002-03 and 2003-04 are covered by our decision on grounds

Nos. 2(a) &2(b) in appeal of assessee for A.Y. 2001-02. Accordingly,

ground No. 2(a),&2(b) of assessee’s appeals for both these years are

allowed. As regards ground No. 2(c) was raised without prejudice to

ground no. 2(a) and 2(b) only and not required to be adjudicated ,

when we have already allowed ground no. 2(a) and 2(b) of the

appeal.

assessee are covered by our decision on grounds Nos. 3(a) & 3(b) in

appeal of assessee for A.Y. 2001-02. Accordingly, these grounds of

assessee’s appeals for both these years, are allowed.

decision on ground Nos. 6(a) & 6(b) of assessee’s appeal for A.Y.

2001-02. Accordingly, these grounds of assessee are dismissed.

Similarly, ground Nos. 4(a) & 4(b) raised in A.Y. 2003-04, are

identical to grounds Nos. 7(a) and 7(b) raised in A.Y. 2001-02,

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 120 2234/Del/2005 & 3805/Del/2008

which we have decided against the assessee. Accordingly, these

grounds of appeal for A.Y. 2003-04 are also dismissed.

of maintenance expenses of Rs. 50,54,000/- upheld by the Ld.

CIT(A) , out of provision of Rs. 87,33,107/- disallowed by the

Assessing Officer. The Ld CIT(A) upheld the with detailed reasoning

in para 10.3 of the impugned order. The Ld CIT(A) has in principle

allowed the claim of the assessee that maintenance expenses are

required to be incurred as part of contract , however , in case

Fatwa-Patna project ( Rs. 20,54,000/-) and Raxul Birganj project (

Rs. 30,00,000/-) , no details were furnished before him and thus

he sustained the disallowance to the extent of Rs. 50,54,000/-.

Before us also no such details have been furnished by the assessee,

we uphold the disallowance as we have decided in other grounds of

the appeals of the assessee. The ground No. 5(a) and 5(b) of the AY

2002-03 are dismissed accordingly.

2003-04 are covered by our decision on ground No. 8(a) & 8(b)

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 121 2234/Del/2005 & 3805/Del/2008

raised in A.Y. 2001-02. Accordingly, these grounds are allowed for

statistical purposes in terms of our decision on ground No. 8 of

assessee’s appeal for A.Y. 2001-02.

A.Y. 2002-03 and grounds Nos. 6(a) & 6(b) raised in appeal for A.Y.

2003-04 are covered by our decision rendered on grounds Nos. 7(a)

& 7(b) and 9(a) & 9(b) of assessee’s appeal for A.Y. 2001-02

respectively, whereby the respective claims of the assessee have

been dismissed. Accordingly, these grounds Nos. 6(a) & 6(b) raised

by assessee in both the appeals for A.Y. 2002-03 and 2003-04 are

also dismissed.

A.Y. 2002-03 are covered by our decision rendered on grounds Nos.

8(a) & 8(b) in assessee’s appeal for A.Y. 2001-02, which have been

allowed for statistical purposes. Accordingly, these grounds of

appeal for A.Y. 2002-03 are also allowed for statistical purposes in

terms of our decision on grounds Nos. 8(a) and 8(b) in appeal for

A.Y. 2001-02. Similarly, grounds Nos. 7(a) & 7(b) raised in appeal

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 122 2234/Del/2005 & 3805/Del/2008

for A.Y. 2003-04are covered by our decision given on ground Nos.

6(a) and 6(b) of assessee’s appeal for A.Y. 2001-02, whereby the

identical claim of assessee has been dismissed. Accordingly, these

grounds for A.Y. 2003-04 are also dismissed.

similar to ground Nos. 9(a) and 9(b) of assessee’s appeal for A.Y.

2001-02, which have been dismissed. Accordingly, these grounds of

assessee for A.Y. 2002-03 are also dismissed.

03, which has been taken without prejudice to ground No. 8(a) and

8(b) is concerned, we are of the opinion that the assessee is not

entitled to deduction of interest on loans to NBCC as already held

by us. Accordingly, this ground no. 8(c) of the appeal for AY 2002-

03 is dismissed.

2003-04, pertain to interest u/s 244A of the Act. The issue in

dispute has been adjudicated while deciding the ground No. 8(a)

and 8(b) for assessment year 2001-02, wherein we have remitted

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 123 2234/Del/2005 & 3805/Del/2008

the issue in dispute to file of the assessing officer for deciding in

view of the decision of special bench in the case of Avada Trading

Company (P) Ltd. (supra). The issue in dispute being identical, the

ground No. 8(a) and 8(b) of the appeal for AY 2003-04 are also

allowed for statistical purpose.

03 and grounds Nos. 9(a), 9(b) and 9(c) raised in appeal for A.Y.

2003-04 are covered by our decision rendered on grounds Nos. 10

of assessee’s appeal for A.Y. 2001-02, which has been allowed for

statistical purposes. Accordingly, all these grounds of assessee for

both the years are allowed for statistical purposes in terms of our

relevant decision given on ground No. 10 for A.Y. 2001-02.

both the years, pertaining to disallowance of provision for

demobilization and disallowance of provision for other expenses

under MAT u/s. 115JB are covered by our decision given on

grounds Nos. 11 and 12for A.Y. 2001-02 respectively, whereby the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 124 2234/Del/2005 & 3805/Del/2008

respective claims of the assessee have been dismissed. Accordingly,

these grounds of appeal of assessee are also dismissed.

holding the same as unascertained liability as held in the case of

demobilisation expenses. As we have already upheld disallowance of

the similar nature, while adjudicating ground No. 11 of the appeal for assessment year 2001-02, the provision for maintenance of � 5,

53, 92, 513/- made under my provisions in the assessment year

2002-03, is also upheld. The ground No. 11 of the appeal for

assessment year 2002-03, is accordingly dismissed.

is similar to ground No. 13 of A.Y. 2001-02, which we have allowed

in the identical facts and circumstances. Accordingly, this ground of

appeal of assessee is also allowed.

to ground No. 12 of A.Y. 2001-02 and ground No. 12 of assessee’s

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 125 2234/Del/2005 & 3805/Del/2008

appeal for A.Y. 2003-04 is similar to ground No. 14 of assessee’s

appeal for A.Y. 2001-02. Since we have rejected the respective

claims of the assessee in A.Y. 2001-02, the ground Nos. 12 of

assessee’s appeals for A.Y. 2002-03 and 2003-04 are dismissed.

by our decision given on ground No. 13 of A.Y. 2001-02.

Accordingly, this ground of appeal of the assessee is dismissed.

04 pertain to disallowance of provision of Rs.99,12,075/-. The

assessee’s claim that relevant amount of provisions were disallowed

in assessment year 2001-02 and 2002-03, out of which the

assessee utilised in the previous year relevant to assessment year

2003-04, the amount of Rs. 20,15,350/-and Rs.78,96,725 from the

provision for demobilisation expenses and other expenses

respectively totalling Rs.2,99,12,075/-. We find that the identical

issue raised by the assessee before the Ld. CIT(A) in assessment

year 2002-03 has been restored to the assessing officer for

verification in para 16.3 of the order of the Ld. CIT(A) for

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 126 2234/Del/2005 & 3805/Del/2008

assessment year 2002-03. In our opinion, the issue needs

verification at the end of the assessing officer and accordingly, we

rest of this issue to the file of the assessing officer for verification

and deciding a fresh. The ground of the appeal is accordingly

allowed for statistical purposes.

disallowance on profit on sale of fixed asset Rs.2,24,79,738/- under

section 115JB of the Act. The issue being identical to ground No. 14

of the assessment in 2001-02, it is dismissed accordingly. The

ground No. 14 for assessment year 2003-04 relates to deduction

under section 80HHC of Rs.3,20,69,774/-under section 115 JB,

which being identical to ground No.15 of assessment year 2001-02,

it is dismissed accordingly.

deduction under section 80 HHC of Rs.24, 42, 19, 410/-under

section 115 JB of the Act, which being identical to ground No. 15

for assessment year 2001-02, is dismissed accordingly.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 127 2234/Del/2005 & 3805/Del/2008

has raised the issue of access levy of interest under section 234D by

Rs.8,45,013/-. The Ld. CIT(A) held that interest under section 234D

is consequential in nature and incorrect computation if any has to

be rectified under section 154 of the Act. The Ld. CIT(A) observed

that the assessee had not furnished any details/evidence of filing a

rectification petition under section 154 of the Act before the

assessing officer. Accordingly he rejected the claim of the assessee.

In our opinion, the Ld. CIT(A) has directed to avail the remedy

provided in the act. We do not find any error in the said finding of

the Ld. CIT(A), and accordingly we dismiss the ground of the appeal

of the assessee.

Revenue’s appeal for A.Y. 2003-04:

alternative claim of Rs.69,58,033 /- under section 80 HHB of the

Act . The identical claim of deduction under section 88HHB of the

Act in assessment year 2001-02 has been rejected by us while

adjudicating ground No.2, accordingly following our finding, the

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 128 2234/Del/2005 & 3805/Del/2008

ground No. one of the appeal of the Revenue for assessment year

2003-04 is allowed.

deduction of corporate office expenses of Rs.1,29,214/-from the

profit of the eligible projects for the purpose of computation of

deduction under section 80HHB of the Act. The identical issue

raised in ground No. 3 for assessment year 2001-02 has been

allowed, accordingly the ground No. two of the appeal of the

revenue for assessment year 2003-04 is also allowed .

Revenue’s appeal for A.Y. 2001-02, which as per our above decision,

has been dismissed. Accordingly, this ground of Revenue is also

dismissed.

rendered on ground No. 7 of Revenue’s appeal for A.Y. 2001-02,

which has been dismissed in the identical facts of the case.

Accordingly, this ground of Revenue is also dismissed.

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 129 2234/Del/2005 & 3805/Del/2008

Rs.1,28,77,257/-deleted by the Ld. CIT(A) on account of provision

for maintenance expenses. We find that the Ld. CIT(A) has verified

that the liability on account of maintenance expenses arisen in the

year under consideration. The Ld. DR could not rebut this factual

finding of Ld. CIT(A). Accordingly we do not find any error in the

order of the Ld. CIT(A) in deleting the disallowance. The ground of

the appeal of the Revenue is accordingly dismissed.

demoblization and provision for maintenance and other expenses, is

covered by our decision given on ground No. 9 of Revenue’s appeal

for A.Y. 2001-02, which we have dismissed vide our findings given

herein above. Accordingly, ground of Revenue is also dismissed.

adjudication.

2001-02, 2002-03 and 2003-04 are allowed partly for statistical

ITA Nos. 1825/Del/2005, 705/Del/2006 & 3804/Del/2008 AND ITA Nos. 130 2234/Del/2005 & 3805/Del/2008

purpose whereas both the appeals of the Revenue for A.Yrs. 2001-

02 and 2002-03 are partly allowed.

Order pronounced in the open court on 31/10/2019 Sd/- Sd/- (Bhavnesh Saini) (O.P. Kant) Judicial member Accountant Member

Dated: 31 Oct., 2019 *aks* Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi