2019 (1) TMI 1343 - HC - Income Tax

Disallowance of provision made for project expenses - contingent liability - assessee had pointed out that the provision had been made in view of the work done by the contractor in its on-going project and work had been completed by the contractor, but bills were not raised in wake of some dispute with the contractor for the quality of construction - Held that - The liability in respect of work already done had been determined on the basis of contract/prevalent rates and past experience, asserted the assessee. In view of the facts obtaining in the present case, as long as as work done is not in dispute, the assessee was justified in making estimation of work already done and make a provision in this regard. It is also to be noticed that the said amount of ₹ 4.87 crores has duly been included in the closing stock of the assessee. As such the amount of ₹ 4.87 crores, which had been debited in the profit and loss account, as provision for project expenses has duly been credited in the profit and loss account in the closing stock at ₹ 12,47,37,972/- under the caption of building project expenses, which stood increased as a result of inclusion of this amount. That apart the assessee had deducted TDS on the amount/provision made, hence it cannot be said that the liability was a contingent liability. - Decided against revenue

Summary

Issues:
- Appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal regarding the disallowance of provision made for project expenses.

Analysis:
The appellant appealed under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal regarding the deletion of the disallowances of provision made for project expenses amounting to ?4,87,00,000. The Assessing Officer disallowed the provision made by the assessee for project expenses, considering it a doubtful contingent liability not allowable under the Income Tax Act. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, stating that the provision could not be deemed a contingent liability and had been included in the closing stock, thus not impacting the profit. The Tribunal upheld the Commissioner's order, leading to the appellant's challenge.

The appellant contended that the provision made by the assessee was an estimation without a crystallized liability, hence not permissible as an expense. The appellant argued that the Assessing Officer was correct in adding the amount as it was a contingent liability. However, upon review, it was found that the provision was made based on work already completed by the contractor for the ongoing project, even though bills were not raised due to a dispute. The liability was determined based on contract rates and past experience. The provision was justified as long as the work done was not disputed, and the amount was included in the closing stock of the assessee. Additionally, TDS was deducted on the provision made, indicating it was not a contingent liability.

The Court found no merit in the appeal, stating that there was no substantial question of law involved. The appeal was dismissed as frivolous without further consideration.