2017 (4) TMI 251 - HC - Income Tax

Disallowance of provision for expected loss/defect liability - Held that - Considering the fact that the assessee accumulated loss of ₹ 16.50 Crores as on 31st March 2005 and has got total carried forward loss of ₹ 25.59 Crores at the end of A.Y 2006-2007, as rightly observed by the learned CIT A , no motive of reduction tax liability can be assigned to the assessee for the change in the method of accounting of provision for liability. It is not in dispute that the assessee had no tax liability even in the subsequent year. Under the circumstances and even otherwise in the facts and circumstances of the case, it cannot be said that the learned ITAT has committed any error in deleting the disallowance made by the Assessing Officer. - Decided against revenue

Summary

Issues:
Disallowance of provision for expected loss/defect liability for Assessment Year 2005-2006.

Analysis:
The case involves an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the disallowance of a provision for expected loss/defect liability amounting to a specific sum. The Assessing Officer had disallowed this provision on the grounds that it was not ascertained and contingent in nature. The CIT [A] allowed the appeal and deleted the disallowance, a decision upheld by the Tribunal. The Revenue contended that the Tribunal erred in relying on a specific Supreme Court decision without remanding the matter for further consideration. The Revenue argued that the provision was not based on scientific grounds and should have been disallowed. However, the Court noted that the provision was made as per agreements and that the assessee had significant accumulated losses. The Court found no motive for reducing tax liability and concluded that the Tribunal did not err in deleting the disallowance. As a result, the Court dismissed the Tax Appeal, stating that no substantial question of law arose in the case.