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TMI Blog2016 (9) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... 961; in short 'the Act'. 2. We come to Revenue's pleadings first in the two instant appeals. It raises as many substantive ground in ITA No.86/Ahd/2008 pertaining to the former assessment year 2005-06. Its first substantive ground seeks to restore disallowance of gift, boni & chandla expenses of Rs. 2,17,622/- made by the Assessing Officer and deleted in the lower appellate order. Its latter substantive ground assails correctness of the lower appellate order deleting disallowance of defect liability provision amounting to Rs. 2,37,99,162/-. It appears from Revenue's latter appeal ITA No.2566/Ahd/2009 for assessment year 2006- 07 that its sole substantive grievance is identical to latter ground hereinabove since the only distinction is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved against the lower appellate order. 5. We have heard rival contentions. Both the learned representatives reiterate their respective stands in support of and against the impugned disallowances. The Revenue fails to place on record any material before us rebutting CIT(A)'s findings as above that the assessee has already filed all necessary details and evidences along with proof of payment. There can hardly be any doubt that this assessee is carrying out his multiple construction projects wherein such expenses are undertaken on auspicious occasion of commencement of construction activity etc. We find no reason to interfere with CIT(A)'s finding under challenge. This first substantive ground is declined. 6. We come to the latter issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit & Loss account after disclosing defect liability period subject to the condition that its clients certified the bills, defect liability was over, performance guarantee stood returned and all amounts were released by the clients. The assessee's further case was that the impugned provision has been made on the basis of past experience in books. The Assessing Officer did not agree to the same for the reason that neither the assessee's provision for the impugned defect liability was for any ascertained liability nor the same had been raised on past experience of short fall/surpluses. He accordingly disallowed the sum in question of Rs. 2,37,99,162/- in question. 7. The CIT(A) deletes the defect liability provision disallowance in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1% of the turnover is reasonable and has been made on a scientific basis and therefore, the same is held allowable. 4.3 The facts of the appellant's case are similar to that in the case of C.I.T. V. Vinitec Corporation Pvt. Ltd. (278 ITR 337) (Delhi). As in that case here also the appellant had made changes to its accounting system to include the provision made by it in each year for future liability to customers under the warranty clause. In that case the A.O. had disallowed the claim. The Tribunal accepted the assessee's claim, holding that the liability was definite and certain, the quantification alone being based on estimate, and observing that from the data furnished by the assessee for past years of the percentage of warran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the accounting year and deduction claimed as business expenditure" was unduly excessive and was intended to evade taxation. Here also there is nothing to show that the change in method of accounting was motivated and there is direct nexus between the claim of the appellant and its obligation arising from warranty. 4.4 Even otherwise as the appellant has accumulated loss of Rs. 16.50 crores as on 31-3-05 and has got total carried forward loss of Rs. 25.59 crores at the end of A.Y.2006-07, no motive of reduction tax liability can be assigned to the appellant for the above change in the method of accounting of provision for liability. The appellant has no tax liability even hi the subsequent year. 4.5 On consideration of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. vs. CIT (2009) 314 ITR 62 (SC) settle the law regarding such a liability provision. Their lordships hold that the same is allowable under section 37 of the Act provided this estimation is as per nature of the business, sales, product manufactured/sold as followed by a scientific method of accounting being adopted. We proceed to deal with the instant issue keeping in mind these vital parameters. The factual position is very much admitted that the assessee company has to keep a portion of its contractual money with its clients for sufficiently long period ranging between 12 to 18 months in the form of cash retention or bank guarantee. The same is released only after this defect clause period is over without involving any correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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