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TMI Blog2016 (7) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... en the project is likely to yield a profit, while booking the loss where not so, and which in the present case, as we understand, has been provided for on a proportionate basis. The reliability of the estimate is indeed very relevant and crucial to the claim for loss, lest any amount could be claimed under the garb of the likely loss, and which brings us to the next aspect of the matter. We uphold the assessee’s claim in principle, i.e., qua the provision for loss on contracts likely to arise on its ongoing projects, which though would have to be substantiated. Further, the fact that the assessee did not contest the claim for loss, similarly made, while computing its’ book profit, though surprising, cannot by itself prevail so as to be regarded as conclusive of the matter, and can at best provide a clue to the Revenue that the assessee’s claim with regard to cost escalation/s may require a closer examination, which the AO is even other obliged to, even as to be fair to the assessee the loss stands provided for in the audited accounts, so that it has been subject to both internal as well as external scrutiny. The same though cannot bind the A.O. We decide accordingly. The appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e so with reference to the losses stated (by the assessee before him) to arise on the said projects for A.Ys. 2009-10 to 2011-12. The assessee had filed different cost estimates for these years, so that the estimation of expenses has been changing from year to year, not only for one project but for the several projects. The assessee s claim to have made the estimation of loss on scientific basis, thus, did not hold. Besides, only the provision for liabilities which had not crystallized during the year, and which was evident from the fact that the assessee did not contest the addition for the same amount made while computing its book profit u/s. 115JB. The case law relied to by the assessee was found distinguishable by him on facts. Aggrieved, the assessee is in second appeal. 3. We have heard the parties, and perused the material on record. 3.1 The assessee is a manufacturer of heavy industrial machinery, which has a gestation period of two to three years. It follows accrual system of accounting, which is mandatory for it under its governing Act, i.e., the Companies Act, 1956. It follows percentage completion method for recognition of revenue. The fundamental accounting pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he estimates. The Revenue can no doubt, and it is indeed duty bound to, verify the assessee s claim qua both the cost and the revenue estimates. Why, in a given case, the actual costs, incurred subsequently, may itself form a valid ground or basis to verify the veracity of the assessee s claim/s, even as we have clarified that the estimates are bound to undergo change with time in light of the available information and experience, so that the principle involved would be that the estimate or assessment as made is explainable with reference to the available information . 3.2 The Revenue misdirects itself when it, relying on the decision Rotork Controls India Private Ltd. vs. CIT [2009] 314 ITR 62 (SC), refers to the statement of law by the Hon ble Apex Court in respect of claim for deduction qua a liability. The two, i.e., a liability and loss , though para materia from the stand-point of prudence, may not be so as regards provision therefor. The provision of loss would be justified on a factual basis to arrive at the conclusion that the estimated expenditure (for the work to be undertaken or the services to be rendered), together with the actual cost already incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the rate obtaining as on 31.12.1974, i.e., in principle. Further, however, as the goods had not been received by December 31, 1974, so that there was no closing stock as on that date, the Hon ble Court held that the reduction in the price with reference to the contract date even as on 31.12.1974 also could not allowed. Further, even though the value of the raw material cost may have decreased, the firm may stand to earn profit on the basis of the net realizable value of the finished goods, i.e., on the basis of the ruling price less cost of realization thereof. The prices of finalized goods may or may not move in sympathy with that of the raw materials, depending upon the demand and supply forces in the relevant market. Two, even the raw material price may stand to reverse, and may not be irreversible so as to conclude that the loss had indeed been incurred. Thirdly, and most importantly, it is the profit (or loss) for the relevant year that is to be assessed and brought to tax for that year each year being an independent unit of assessment. The decline in the market price, even where relevant and material, i.e., with reference to the price obtaining as at the year-end, would t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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