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TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 277
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....of various contracts was completely ad hoc in nature, not supported by relevant of details and documents regarding contract-wise delays. 2. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 10,22,90,817/- made by the Assessing Officer on account of disallowance of provisions for warranties, ignoring the settled principles of law that Warranty Provisions can be allowed only if they are proved to be computed on a scientific or rational basis and their quantification is demonstrably robust, based on historical trends & experience. 2. a) Whether, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of Provision for Post-Sales Support and Warranties, ignoring the findings recorded by the AO that given the wide fluctuations in the amount of provisions made by the assessee from year to year, the quantification of provision was neither rational nor reliable. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) had erred in deleting the disallowance of Rs. 33,02,179/- claimed by the assessee as deduction on account of 'advances and deposits written of....
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....dated damages and the write back amount has been offered to tax by the assessee. Whence a provision is arising out of a contractual obligation and the basis of providing the provision is based on past experience and such a reasonable basis of estimation has been regularly followed by the assessee in the past, then ostensibly it cannot be held that the basis of estimation or working of the provision is not correct. Further, once it is brought on record that assessee on the year of reversal has paid taxes on excess provision and similar feature appeared in the earlier years and assessee had payments for liquidated damages on delay in delay of deliverables, then no adverse view can be taken, because it is not the charge of the Assessing Officer that assessee has made some kind of excessive provision in this year in relation to past. The finding and observations of the ld. CIT(A), are based on correct appreciation of facts and law, hence we confirm the order of CIT(A) on this score and accordingly, ground No. 1 by the Revenue is dismissed." 7. Since, the provision for liquidated damages has been made regularly and allowed in P&L account and since the unutilized portion has been revers....
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....h of ITAT vide combined order dated June 11, 2018 for AY 2010-11 & AY 2011-12, has dismissed the Revenue's appeal filed against the directions of ld. DRP allowing the deduction of provision for warranty, following their order for AY 2008-09. The relevant extract from the order is as follows: For AY 2010-11 "12.2 Ground No. 3 challenges the direction of the Ld. DRP in allowing the provision for warranty amounting to Rs. 288,112,854/-. We find that the Ld. DRP had held the issue in a similar issue had arisen in AY 2008-09 wherein the Ld. CIT(A) had deleted the disallowance. The Ld. DRP has noted that the facts were identical in AY 2008-09 and the year under consideration and, therefore, the disallowance was to be deleted.... The Department has not been able to bring out any distinguishing factor with respect to the facts in the proceedings before us. In the circumstances, we find no reason to interfere and dismiss ground no. 3." For AY 2011-12 "13.3 Ground No. 4 challenges the direction of the Ld. DRP in deleting the disallowance pertaining to provision of warranty amounting to Rs. 187,687,197/-. We find that a similar issue had come up in Assessment Years 2008-09 and 201....
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....ritten off are concerned, it is seen that the assessee had written off of Rs. 10,50,092/- pertaining to deposits and allowances and the disallowance was made on the ground that party wise details were not provided by the assessee. The Ld. DRP directed deletion of disallowance by observing that from the material available on record, the same appeared to be revenue in nature. Thus, it is not the case of the department that issue was not examined. The Ld. DRP has returned a categorical finding in this regard and accordingly, we find no reason to interfere on this issue also. Ground No. 2 also stands dismissed." 16. The ITAT vide combined order dated April 7, 2021 for AY 2012-13 and AY 2013-14, has allowed the deduction for advances and deposits written off. The relevant extract from the order is as follows: "24. On going through the facts and circumstances of the instant case, keeping in view the judgments of Hon'ble Supreme Court since the amount has been incurred during the regular course of business, the same is allowed to be claimed under expenses for the year. 25. As a result, both the appeals of the revenue are dismissed and the Cross Objections of the assessee are allo....
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.... 33,02,179/- as business loss u/s. 28 of the Act. Therefore, conditions prescribed under section 36(1)(vii)/36(2) of the Act are not applicable to the case of assessee. However, Since, the assessee has offered such amounts as income in earlier years and have been written off in the subject year since the assessee has became un-entitled. 23. Therefore, the DEPB license and DEPB receivable written off of Rs. 33,02,179/- debited to the P&L A/c as business loss u/s. 28 of the Act for AY 2009-10 is an allowable deduction. 24. It is generally accepted principle that losses, other than capital losses, which arise out of and are incidental to the business of assessee must be necessarily deducted in the ascertainment of profits of the business u/s. 28 of the Act. On the basis of various judgments of the Hon'ble Courts, in order that an item of loss can be taken into account in computing the profits of the business, it should fulfill the following conditions: * It should be a real loss, not notional or fictitious; * It should be a loss on revenue account and not on capital account; * It must have actually arisen and been incurred, not merely anticipated as certain to occur in fut....
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....red towards vendors on cancellation of contracts and purchases made which after providing for scrap value has to be written off is allowable as business expenditure. Basis of creating the provision: 29. The assessee has claimed provision of Rs. 41,64,92,017/- during the subject year since there was cancellation/suspension of some contracts by customers who are unable to obtain financing for those contracts. As the customers had not accepted claims for realization of cost incurred on such contracts, there were significant uncertainties in recovery of such costs. In such an event, assessee had either to cancel order and face penalties or to take delivery of goods and scrap the same as they were customized to each customer. 30. Thus, the assessee suffered business loss in the process of placing and cancelling contracts. Hence assessee created provision in respect of costs incurred in relation to contracts entered into by assessee with its customers i.e. Dalmia Cements, JSW and Star and which were cancelled/suspended during the FY 2008-09. 31. The assessee submitted details on the basis of which it had created provision of Rs. 41,64,92,017/- during the instant year. 32. Upon cance....
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.... control". A perusal of the communication would show that even the customers have acknowledged that the assessee has incurred contractual liability for material cost/compensation for cancellation of contracts with vendors (e.g. Letter from Dalmia Cement dated November 17 and 27, 2008) on the customer contracts which have been cancelled/suspended. 33. The assessee has enclosed details of cost of cancellation of Rs. 12,41,59,090/- in respect of PO already placed by assessee with vendors. Such details include project code, vendor name PO no., item description, PO value and cost of cancellation. 34. The assessee has enclosed minutes of meeting with vendors which shows cost of cancellation which assessee incurred in respect of cancelled/suspended contracts with customers. 35. Since, this amount represents compensation for not taking delivery of equipment, this cost is a normal business expense and should be allowed as deduction. 36. Cost of Rs. 29,23,32,927/- in respect of material fully/partly/processed/delivered by vendors after adjusting material cost already recognized in books and reducing realizable value of material. 37. The assessee has enclosed details of cost Rs. 29,23,....