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TMI Blog2024 (9) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... s would exceed total contract revenue despite being specifically asked to explain. The assessee merely relied on AS-7. However, in the present case, the assessee has recognized the revenue as well as expenses on same methodology. The claim is supported by computations / workings. The provision has been reversed in subsequent years as per estimation made in subsequent year. Therefore, this case law would not render any assistance to the case of the revenue. The case law of Hon'ble Delhi High Court in Triveni Engg Industries Ltd [ 2010 (11) TMI 90 - DELHI HIGH COURT] is on similar facts. The assessee recognized the income from the projects and also made provision for expenses to be incurred up-to the stage of completion. AO termed the provision as contingent liability and accordingly, disallowed the same. However, Hon ble Court confirmed the order of Tribunal allowing such deduction. Therefore, we would hold that the impugned provision would be an allowable deduction. The question of adding the same to Book-Profit do not arise. Assessee appeal allowed. - Hon ble Shri Aby T. Varkey, JM And Hon ble Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri Ashik Shah (CA)-Ld.AR For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim of provision of losses. 2. The Ld. AR advanced arguments and placed on record financial statement for various years. It has been submitted that the losses have been created as per applicable Accounting Standards and the provision has been reversed in subsequent years. If the same is disallowed then it would amount to double taxation. The Ld. CIT-DR, on the other hand, supported the orders of lower authorities and submitted that no deduction could be allowed for mere provisions. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3. The assessee being resident corporate assessee is stated to be engaged in providing dredging and marine engineering services. The assessee claimed provision for expected losses on contract for Rs. 1137.26 Lacs. However, the assessee did not furnish the basis for the same during the course of assessment proceedings and accordingly, the same were disallowed by Ld. AO while computing income under normal provisions as well as while computing Book Profits u/s 115JB. Appellate Proceedings 4.1 During appellate proceedings, the assessee submitted that the losses have been claimed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated duration of the contract was around 2 to 3 years. This contract concluded in FY 2017-18. The total revenue earned form the project was Rs. 312.75 Crores and total cost was Rs. 398.03 Crores. Accordingly, the assessee ultimately suffered loss of Rs. 85.28 Crores in the project. It has further been submitted that the assessee was contractually obligated to complete the said contract. The assessee recorded revenue and contract cost based on Percentage of Completion Method ( POCM ) as mandated by AS-7 issued by ICAI. The standard mandates that the in a scenario where it is probable that the total contract costs are expected to exceed the total contract revenue, the expected contract loss is to be immediately recorded as an expense. Following the same, the assessee has estimated the total contract cost to be Rs. 238.72 Crores as against contract revenue of Rs. 218.74 crores which leads to an expected loss of Rs. 19.98 crores. During this year, the assessee has incurred actual contract cost of Rs. 102.86 crores and has also recorded contract revenue of Rs. 94.25 crores (based on POCM) thereby booking an actual loss of Rs. 8.61 crores. The Ld. AR submitted that though actual re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Total cost estimated to be incurred for the project A 238,72,81,680 Total revenue estimated to be earned from the project B 218,74,51,975 Total estimate loss from the project C=A-B 19,98,29,705 Actual Cost incurred during the year D 102,86,41,580 Percentage of project completed (based on cost) E=D/A*100 43.09% Percentage of project to be completed F=100%-E 56.91% Actual revenue booked during the year based on POCM G=B*E 94,25,38,149 Actual revenue billed during the year H 47,26,32,913 Revenue booked as per POCM I=G-H 46,99,05,236 Loss already recognized during the current year J=D-H 8,61,03,431 Balance loss to be recorded as provision K=C-J 11,37,26,274 It could be seen that though the actual billed revenue is less, the assessee, following POCM, has offered additional revenue of Rs. 46.99 Crores. The assessee has followed same methodology to recognize the costs. As mandated by AS-7, any probable losses arising out of such contracts are to be recognized immediately. The assessee has done exactly like that. The losses from the contract were estimated at Rs. 19.98 Crores, out of which an amount of actual loss of Rs. 8.61 Crores was already recognized. The balance loss of Rs. 11.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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