TaxTMI 
TaxTMI 
2023 (1) TMI 177
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....lity and is an allowable expenditure under section 37 of the Act. By considering the above decision of the Hon'ble Supreme Court, the ld. CIT(A) has observed that the assessee has not been able to demonstrate in this appeal with reference to the facts despite the specific opportunity given, as to how it considered the provision of estimated loss on contract to be an ascertained liability. Instead, it has loaded its submissions with a plethora of judgments, which can only be helping the cause of the assessee if the assessee is able to demonstrate its applicability to the facts and circumstances of its own case. With the above observations, the ld. CIT(A) confirmed the order of the Assessing Officer. 5. On being aggrieved, the assessee is in appeal before the Tribunal. Before us, the ld. Counsel for the assessee has submitted that the loss estimated by the assessee is an ascertained liability and submitted that simply because the loss is estimated, it cannot be said that it is an unascertained liability. In his gist of submissions, ld. Counsel for the assessee has submitted that in assessee's own case in earlier assessment year 2005-06 vide order in I.T.A.No. 1697/Mds/2015 ....
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....all, it is an ascertained liability, it is the onus on the assessee to establish that the liability is an ascertained liability. No material was placed on record before the Tribunal. Under these facts and circumstances of the case, we are of the opinion that the provision made by the assessee for a loss on contract is not an ascertained liability and it is a simple provision made by the assessee which is not allowable under section 37 of the Act. 8. So far as case law placed by the assessee are concerned, the decision in the case of Rotork Controls India Limited v. CIT (supra) has no application to the facts of the present case. In the order passed by the Tribunal for the AY 2005-06 dated 03.08.2017, the issue dealt by the ITAT relates to provision of warranty and therefore, in our opinion, the issue under consideration need not be remitted back to the Assessing Officer. In view of the above, the ground raised by the assessee is dismissed." 2. Following substantial questions of law were framed for being answered in this appeal : (1)Whether, in law, the Tribunal was right in not allowing provision for estimated loss on contracts as a business expenditure under Section 37 of the....
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.... the loss. As this is an ascertained provision, the same is not been disallowed in the computation total income". The submission has been considered. The fact is that the said loss on an estimate, which is bound to vary due to variation in input costs. Accounting Standards are binding on the Company, in so far as the preparation of books are concerned but are not binding for Income Tax purposes. AS-7 in any case has not been notified by the Board and so reliance on the said code to claim deduction under the Income Tax Act is not permissible. In any case, the jurisdictional ITAT while deciding an exactly similar issue, has held that since there was no legal right on any person for claiming for claiming a cost which was still to be incurred, the said loss could not be allowed. This decision was rendered in the case of EDAC Engineering Limited [2013] 30 Taxmann.com 355 (Chennai - Trib.). Therefore, the provision created in this year of Rs.1,14,45,495 is disallowed. Disallowance : Rs.1,14,45,495 5. The above decision of the Assessing Officer was taken on appeal before the Appellate Commissioner in I.T.A.No.149/CIT(A)-6/2015-16. The Appellate Commissioner, vide his order, dated 13.....
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....the provision made in respect of non-performing assets if not allowable as a bad debt is allowable as a business loss?" 25. This Court rejected the appellant's contention placing reliance on T.N.Power Finance and Infrastructure Development Corporation Ltd. v. Joint CIT (2006) 280 ITR 491 (Mad) wherein it is held that merely because the Reserve Bank of India has given a direction to the assessee to provide for non-performing assets (NPA in short) the same cannot override the mandatory provisions of the Act as the provisions of NPA are predominantly capital in nature, and held that, there was no substantial question of law that arose for consideration. 26. In CIT v. Ahmedabad Electricity Co.Ltd. (2003) 262 ITR 97, the Gujarat High Court held that the debt in question had become a bad debt and whether the deduction was admissible in the context of section 36 (1) (vii) and sub-section (2) of section 36 of the Act and held that in most cases the debt is a bad debt should suffice, when there are circumstances or material to indicate the reasonableness of the decision. But to support the claim for deduction it is not enough that the debt is bad. The bad debt must also be actually ....
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.... 17. The pivotal issue to be answered in this appeal is whether the provision made by the appellant in its books of account regarding the estimated loss on the ongoing project can be allowed or not by applying Paras 21 and 35 of the Accounting Standard (AS) 7? 18. The law as to whether such projected loss can be allowed under Section 37 of the Income Tax Act, 1961 has now been settled in terms of the decision cited by the learned counsel for the appellant and the respondent. It can be allowed. However, it would require a proper explanation by an assessee. 19. Though the Assessing Officer has held that such an explanation cannot be allowed both the CIT(A) and the Tribunal has held that such an explanation may be considered provided the assessee is able to factually demonstrate as to how the impugned provision is an ascertained liability beyond a mere projection in the accounting statements. 20. To answer the point in issue, it will be useful to refer to Paras 21 and 35 Accounting Standard (AS) 7. They are extracted below:- Para 21 Para 35 When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the constructio....