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TMI Blog2023 (8) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... owing questions of law have been proposed: "(i) Whether on the facts circumstances of the case and in law, ld. ITAT erred in deleting the addition of Rs. 3,19,98,632/- made by the Assessing officer on account of provision for warranty? (ii) Whether on the facts and circumstances of the case ld. ITAT erred in deleting of Rs. 17,61,99,671/- made by Assessing officer on account of provision for liquidated damages claimed in the profit and loss account by the Assessee even when the provisions are unascertained liabilities, hence were not admissible under the provision of Income Tax Act, 1961? (iii) Whether on the facts and circumstances of the case ld. ITAT erred in deleting of Rs. 17,61,99,671/- made by Assessing officer on account of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above submissions, LD. CIT (A) has not dealt with the contract in the relevant clauses based on which he has agreed with the submissions of assessee that revenues and liabilities are capable of being estimated with reasonable level of certainty. Hon'ble Supreme Court in the case of Rotork Controls India (supra) has held that a provision is recognised when an enterprise has a president obligation as a result of past event; that is it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made on the amount of the obligation. If these conditions are not met no provision could be recognised. 18. Although the Ld. CIT (A) pointed out that obligation has to be seen on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich turned down the Revenue's contention that such provisions are "contingencies" or "unascertained liabilities. It is submitted that having regard to the restricted nature of the claim which is more by way of appreciation of the precedents, the course adopted by the ITAT was not appropriate; rather it should have decided the issue. Learned counsel for the respondent urges that the issue with respect to such provision - i.e. for liquidated damages and warranty is pending adjudication before the ITAT for another year in the assessee's case. Having regard to the statements made, the Court is of the opinion that the impugned order of the ITAT requires to be modified; instead of the remand to the CIT(A), the Court hereby directs the ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 046,185 226,427,392 24,959,667 AY 2006- 07 226,427,392 59,373,585 44,391,108 79,030,343 162,379,526 14,982,477 AY 2007- 08 162,379,526 102,684,554 70,272,572 50,392,194 144,399,314 32,411,982 10.1 A perusal of the chart would show that in a given AY, there is an opening balance, followed by the amount provided towards liquidated damages in a given AY and the amount utilized in the very same period. The table also adverts to the closing balance under the provision made for liquidated damages. 10.2 The figures which are in the last column concern amounts which are debited towards liquidated damages in the profit and loss account of the respondent/assessee. 10.3 In the AY in issue, the record shows that it is this amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 weeks, and thereafter, the rate would stand enhanced to 0.7% of the value of the delayed supply for each week of delay or part thereof for another 10 weeks of delay. [Clause 15.2 of the contract executed between the respondent/assessee and BSNL captures this aspect of the matter]. (iii) The AO disallowed the provision amounting to Rs. 17,61,99,671/-, which was the difference between the provision created during the year i.e., Rs. 19,66,51,910/- and the amount actually utilized i.e., Rs. 2,04,52,238/-; although the actual difference is Rs. 17,61,99,672/-. According to the AO, the said amount i.e., Rs. 17,61,99,671/- represented unascertained liability. (iv) The CIT(A), via the order dated 26.02.2014, reversed this view, which, as indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee was following this method consistently. We, therefore, do not see any valid ground to interfere with the factual findings given by the learned CIT(A) and accordingly do not see any merit in the ground raised by the Department." [Emphasis is ours] 14. A careful perusal of the said paragraph would show that the Tribunal has made no reference to either the clause relating to liquidated damages or the agreement which was operable between the respondent/assessee and BSNL, nor did it clearly formulate as to whether Rs. 17,61,99,672/- represented the ascertained liability under the head "Provision for Liquidated Damages". 14.1 To our minds, the flaw in the Tribunal's formulation is found in the following part of paragraph 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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