Assessee's appeal on expense provisions disallowance dismissed under percentage of completion method The Tribunal dismissed the appeal filed by the assessee regarding the disallowance of provisions for expenses, affirming the decision of the Commissioner ...
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Assessee's appeal on expense provisions disallowance dismissed under percentage of completion method
The Tribunal dismissed the appeal filed by the assessee regarding the disallowance of provisions for expenses, affirming the decision of the Commissioner of Income Tax (Appeals) and finding the disallowance to be justified under the percentage of completion method followed by the builder.
Issues: Allowability of provision for expenditure in case of a builder following the percentage of completion method for recognition of income.
Analysis:
Issue 1: Allowability of provision for expenditure The appellant, a partnership firm engaged in the business of builders, filed an appeal against the order of the Commissioner of Income Tax for the assessment year 2015-16. The Assessing Officer disallowed provisions for expenses amounting to Rs. 42,11,245 and Rs. 55,02,281 made towards common emanates and expenses of building 'A' and 'B', respectively. The appellant contended that the provisions were based on an architect's certificate and should be allowed as deductions. However, the Commissioner dismissed the appeal, stating that the appellant failed to prove the actual incurrence of these expenses. The appellant further argued that the Assessing Officer exceeded the guidelines for limited scrutiny assessment. The Tribunal held that when an assessee follows the percentage of completion method, recognizing revenue expenses in proportion to work completed, provisions for future expenses are unnecessary. Citing the Supreme Court decisions in Rotork Controls India (P.) Ltd. vs. CIT and Bharat Earth Movers Ltd., the Tribunal concluded that the provisions for expenses were rightly disallowed by the Assessing Officer. The Tribunal upheld the Commissioner's order, stating it was based on a proper understanding of the facts and did not require interference.
Conclusion: The Tribunal dismissed the appeal filed by the assessee regarding the disallowance of provisions for expenses, affirming the decision of the Commissioner of Income Tax (Appeals) and finding the disallowance to be justified under the percentage of completion method followed by the builder.
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