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2022 (1) TMI 878 - AT - Income TaxDisallowance of claim of provision for losses - AO has disallowed the provision made by the assessee on the ground that it is not an actual expenditure and not in conformity with the prudent accounting principles - CIT(A) upholding the disallowance of provision for losses holding the same as contingent in nature even though the provision was made following Accounting Standard - 7 - whether CIT(A) has failed to appreciate that disallowance of provision for losses results in taxability of income which does not exist thereby ignoring the principle of taxability and real income - HELD THAT:- Assessee has not given any scientific basis for the provision made either before the Assessing Officer or before the ld. CIT(A) or even before the Tribunal. The main argument of the assessee is that due to various unforeseen events which occurred during the course of project execution, certain unplanned costs had to be incurred by the assessee to complete the project. These costs including significant increases in material, labour and other costs to address these unplanned events, the provision of loss has been created. This is the only submission made before us. The above submission was neither placed before AO nor before the ld. CIT(A). In so far as the above statement is concerned, the ld. Counsel has not explained any basis as to how the material cost and labour cost are increased. Except stating the above, the ld. Counsel for the assessee has not explained any scientific basis for which the assessee is going to incur such huge expenditure as a loss. There is no change in the terms and conditions of the contract entered into and subsequently executed and same amount has been received. The assessee has not placed any material on record to show that any increase in the cost of material and cost of labour and other services to anticipate future loss. Apart from the above, the assessee has not incurred any loss and the assessee gain profit much more in the subsequent years. In fact, the assessee reversed the provision made in this year under consideration in subsequent two financial years. Therefore, the above facts clearly show that there is no basis for the assessee to make the provision and it is only an estimation made by the assessee. Thus estimation of future loss was neither based on any actuarial or any scientific method of determination of its liability and thus, we confirm the orders of authorities below that the losses could not be allowed on a projected basis unless they are actually incurred and verifiable with proper accounting methods. Thus, the ground raised by the assessee stands dismissed.
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