2017 (10) TMI 829 - AT - Income Tax

Appeal dismissed for business loss claim; deductions not allowed for uncrystallized provisions.

The appeal challenging the addition of a business loss of Rs. 47,55,50,000 for A.Y. 2009-2010 was dismissed. The appellant's claim for excess expenditure ... Addition on account of Business Loss - higher amount has been spent on the project as against the total cost of expenditure - Held that: - The assessee failed to prove that liability/loss has been crystalized during assessment year under appeal and what is the basis thereof for making the claim of loss. It is very well clear under the Income Tax Act, deduction is not admissible on the basis of the mere provision or on the basis of event which has not crystalized on the date of its claim. There is no indication of loss in facts of case, so AS-7 will not apply. It is simply a case of delayed payment received from Delhi Government and Societies. There is also no denial by the Delhi Government as well as Societies for the claim of excess payment/ loss by the assessee which is also paid in subsequent year as per contention of the assessee. Therefore, disallowance of provision of loss was justified. Appeal dismissed - decided against assessee. Issues:Challenging addition of business loss of Rs. 47,55,50,000 for A.Y. 2009-2010.Analysis:The appellant contested the disallowance of the business loss by explaining that the additional liability arose due to the construction of Common Effluent Treatment Plants (CETPs) under the orders of the Hon'ble Supreme Court. The original cost estimated by NEERI was revised from Rs. 90 crores to Rs. 235 crores due to incomplete initial estimates. The appellant argued that the claim was legitimate as it was for the excess expenditure incurred on the project. However, the Ld. CIT(A) upheld the addition, stating that the loss had not been written off and was not shown as bad debt in the balance sheet. The Ld. CIT(A) concluded that the delay in payment did not signify a crystallized loss, and the claim was still pending with the concerned authorities.The Learned Counsel for the Assessee reiterated that the expenses were genuine and maintained on a mercantile system. The surplus expenses were considered as loss. The appellant received the amount in question in a subsequent year, and relied on a decision of the Delhi High Court to support their case. Additionally, an alternate contention was made for relief in the year of receipt of the amount.On the other hand, the Ld. D.R. argued that the accounting standard AS-7 did not apply as the loss was not crystallized during the assessment year under appeal. The appellant's failure to write off the amount and the subsequent recovery indicated that the claim of loss was premature. The Ld. D.R. emphasized that the matching concept of revenue and income should be considered, as per a decision of the Bombay High Court.The Tribunal considered the contentions and found that the claim of loss was premature as the amount was ultimately recovered in a subsequent year. The delay in payment did not signify a crystallized loss during the assessment year under appeal. The appellant failed to prove the crystallization of the liability and the basis for the claim of loss. It was emphasized that deductions are not admissible based on provisions or events that have not crystallized. The findings of the authorities below were upheld, dismissing the appeal but allowing the appellant to seek relief in subsequent years if advised.In conclusion, the appeal of the assessee was dismissed, with the order pronounced in the open court.