2018 (6) TMI 286 - AT - Income Tax

Addition on account of contingent liability - Held that - As before the lower authorities the assessee s case was that it has provided 10% of the contract value as future expenses on defect liability by debiting to the profit and loss account. This has been held to be a contingent liability. It was not the case of the assessee before the lower authorities that it was a retention money by the contractor. The assessee is trying to build a new case which it could not do so at the time of second appeal hearing. - Decided against assessee

Summary

Issues involved:
1. Disallowance of contingent liability amounting to ?53,04,968.

Analysis:
The appeal was filed against the order of the CIT(A)- Ranchi for the assessment year 2012-13. The primary issue was the disallowance of ?53,04,968 on account of contingent liability. The Assessing Officer added this amount to the income of the assessee, stating that accounting practices cannot override provisions of the Income Tax Act. On appeal, the CIT(A) deleted the addition, emphasizing that the appellant treated the forfeited fixed deposit (FD) as an expense allowable under section 37(1) of the Act. The CIT(A) referred to the principles of law and accounting standards to justify the decision. The appellant argued that the amount was retention money to be paid by the contractor after project completion and defect rectification. However, the Tribunal found that the appellant's case before the lower authorities was different from the new argument presented during the appeal. The Tribunal upheld the CIT(A)'s decision, stating that no specific error was identified in the order. Thus, the appeal was dismissed, confirming the decision of the CIT(A).

In conclusion, the Tribunal's analysis focused on the treatment of the amount in question as a contingent liability and the discrepancy in the appellant's arguments before different authorities. The decision highlighted the importance of consistency in presenting cases and the need to establish clear grounds for appeal. The judgment underscored the significance of adhering to legal principles and accounting standards while determining the allowability of expenses under the Income Tax Act.