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TMI Blog2020 (8) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... ndards expect that assessee should write back such amounts in later years. FAA has overlooked the fact that out of the provisions made by the assessee, ₹ 3. 70 Crores were actually spent by the assessee in the subsequent years to complete the unfinished projects or to render further services. Therefore, in our opinion, he was not justified in confirming the disallowance. Method of accounted under Percentage of Completion Method - HELD THAT:- CIT(A) while upholding the addition in question had not given any independent finding and had merely relied upon his order passed while disposing off the appeal of the assessee for the immediately preceding year i. e A. Y 2006-07[ 2019 (4) TMI 873 - ITAT MUMBAI] . We have perused the order passed by the Tribunal while disposing off the appeal of the assessee for A. Y 2006-07 wherein identical facts were involved, and finding ourselves to be in agreement with the view therein taken, respectfully follow the same. Resultantly, the order passed by the CIT(A) is set aside and the addition made by the A. O is vacated . Disallowance of Excess of Progress Billings on completed contracts project - HELD THAT:- As the assessee has accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctified by Accounting Standards. 7. The learned Deputy Commissioner of Income Tax - 10(3) failed to consider that the addition made of ₹ 79, 15, 01, 432/- has resulted in taxing gross receipts, without allowing deduction for expenditure required to earn such receipts. 8 Without prejudice to ground Nos. 5 to 7 above, the Assessing Officer erred in not allowing deduction (following his own method) where the sale proceeds recognized by the Appellant were higher than the billings done during the year. 9. The appellant submits the finding of the learned Dispute Resolution Panel - II that the appellant has not proved/ explained that it has followed AS - 7 for accounting its revenue, is with due respect, a perverse finding. 10. The learned Deputy Commissioner of Income Tax - 10(3) erred in not deleting excess of progress billings over sales recognized in respect of contracts accounted under the Percentage of Completion Method- amounting to ₹ 4, 38, 30, 330/- which has been taxed in the immediately preceding assessment year, and which were offered to tax as sales in the current year. 11. The learned Deputy Commissioner of Income Tax - 10(3) erred in confirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has filed the present appeal before us. ISSUE NOS. 1 2 4. Under these issues the assessee has challenged the disallowance of the provisions for costs completed and contracts. At the outset, the Ld. Representative of the assessee has argued that the issue has squarely been covered by the decision of the Hon ble ITAT in the assessee s own case for the A. Y. 2005-06 bearing ITA. No. 1690/M/2012 dated 04. 07. 2014. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the DRP. Before going further, we deem it necessary to advert the finding of the Hon ble ITAT in the assessee s own case for the A. Y. 2005-06 Bearing ITA. No. 1690/M/2012 dated 04. 07. 2014. The relevant finding has been given as under. :- 2. 5. We have heard the rival submissions and perused the material before us. In our opinion PCCC is based on identified liability, though it is only an estimate. In the year under appeal the assessee had made provisions for eleven unfinished projects and in subsequent two years after completing the projects wrote off the provisions and offered the balance for taxation. We further find that in those yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicta is not applicable to income tax proceedings and every year is an independent unit, but rule of consistency contemplates that the AO should not suddenly disallow any item without assigning some reason. From the order of the AO/FAA we are unable to find as how the facts and circumstances for the year 2001-02 were different from the facts for the year under consideration. Assessee was following the same system of making provisions for uncompleted projects for last so many years. There in nothing in the order of the FAA that could prove that provisions made by the assessee were not based on estimate given by experts. We have perused the paper book-it is found that internal memos are signed by one person, but the estimate of provision was prepared by three/four competent authorities, dealing with financial and technical sides of the projects(page 83, 89, 124, 138 of the PB). In short, the assessee was following some system in estimating provisions. Therefore, without pointing out major defects it was not proper on part of the FAA to state that system was . FAA has given his finding without giving the reasons. In our opinion writing off of provisions in subsequent years cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king provisions for certain expenses. It is a normal feature of business world that at the end of a particular AY. , it may not be possible for an assessee to determine the probable future expenditure of an ongoing project or scheme. If it recongnises income from such project in that year, it will have to make some reasonable provisions for the expenditure to be incurred in subsequent year. Provision will vary from project to project and from year to year. It would also depend on stage of completion of the project. For that purpose assessee will have to rely on earlier years‟ experience and report of the technical personnel. Question of provisions for warranty was discussed at length by the Hon‟ble Apex Court in the matter of Rotork Controls India P. Ltd. (314 ITR62). We are aware that warranty cannot be equated with provisions made for the projects to be completed by an assessee, but the principle laid down by the Hon‟ble Court are applicable to the case under consideration. Provision after all is only an estimation of probable expenditure to be incurred after the end of a particular year. Besides, in our opinion travelling cost of the engineers and technical sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in confirming the disallowance of ₹ 8. 14 Crores, without analysing the terms and conditions of the projects threadbare for which provisions were made during the year under apppel. Reversing his order we decide first effective ground of appeal (ground no. 1-3) in favour of the assessee. 7. Thereafter, the issue has been decided in favour of the assessee in the assessee s own case for the A. Y. 2006-07 2007-08 bearing ITA. No. 1691/M/2012 dated 09. 04. 2019 and bearing ITA. No. 1904/M/2012 dated 08. 06. 2020 for the A. Y. 2007-08 respectively. However, these appeals has been decided on the basis of the decision in the assessee s own case for the A. Y. 2005-06 bearing ITA. No. 1690/M/2012 dated 04. 07. 2014. There is no need to advert the finding of the Hon ble ITAT in these cases also because the main reason has been given which has been discussed and relied by the Hon ble ITAT in the assessee s own case for the A. Y. 2005-06. Since the case of the assessee has duly been covered by its own case (supra), therefore, in the said circumstances, the issue is decided in favour of the assessee against the revenue. ISSUE NO. 4 7. Under this issue the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Simply because progress billing was more than the stage of percentage of completion, the same, in itself, could not be the basis to usurp the consistent method of accounting being followed by the assessee. Therefore, the additions made by the revenue, under the circumstances, could not be sustained. We order so. Accordingly, ground Nos. 7 to 11 of assessee‟s appeal stands allowed. As observed by us hereinabove, the issue involved in the present appeal remains the same as was there before the Tribunal in the assesse s own case for the immediately preceding year i. e A. Y 2006-07. At this stage, it would be relevant to point out that the CIT(A) while upholding the addition in question had not given any independent finding and had merely relied upon his order passed while disposing off the appeal of the assessee for the immediately preceding year i. e A. Y 2006-07. We have perused the order passed by the Tribunal while disposing off the appeal of the assessee for A. Y 2006-07 wherein identical facts were involved, and finding ourselves to be in agreement with the view therein taken, respectfully follow the same. Resultantly, the order passed by the CIT(A) is set aside and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te authority, is under appeal before us. 2. 6. 2 Th Ld. Sr. Counsel submitted that the costs as well as revenues are recognized under these projects on completed contract method. These revenues as well as costs were accumulated in the similar manner for AYs 2004-05 2005-06 also which has been accepted by the revenue and therefore, there was no reason to disturb the same in this AY. Per contra, Ld. CIT-DR submitted that, upon change of method of accounting, the revenues from such projects were to be offered to taxation. 2.6.3 Upon careful consideration, we find that the assessee has accumulated cost as well as revenue under these projects in the Balance Sheet by following completed contract method. The revenue has accepted such accumulation during AYs 2004-05 2005-06 and this is the third year of accumulation under the projects. It is not the case of the revenue that the income under these projects have not been offered to tax in subsequent years. No case of revenue leakage has been established before us. Therefore, the action of revenue in disturbing the consistent method of accounting being followed by the assessee could not be held to be justified. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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