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2014 (9) TMI 313 - AT - Income TaxProvisions made for costs incurred on completed contracts – Held that:- PCCC is based on identified liability, though it is only an estimate - the assessee had made provisions for eleven unfinished projects and in subsequent two years after completing the projects wrote off the provisions and offered the balance for taxation - the AO cannot take two stands-he cannot tax the assessee in later years for a part of transaction for which provision has been made for earlier years - In the commercial world provisions are made for contingencies and court are of view that same have to allowed - AS-7 recongises the principal of making provisions for certain expenses - It is a normal feature of business world that at the end of a particular AY, it may not be possible for an assessee to determine the probable future expenditure of an ongoing project or scheme - If it recongnises income from such project in that year, it will have to make some reasonable provisions for the expenditure to be incurred in subsequent year. Provision will vary from project to project and from year to year - It would also depend on stage of completion of the project. For that purpose assessee will have to rely on earlier years’ experience and report of the technical personnel – following the decision in M/s. Rotork Controls India (P) Ltd. Versus Commissioner of Income Tax, Chennai [2009 (5) TMI 16 - SUPREME COURT OF INDIA] - travelling cost of the engineers and technical staff, testing cost, supplies of replacement spares, site related costs, cost of completion of punch list work, cost of modification for uncompleted projects has to be considered while making provisions when an assessee carries out a business of providing diversified engineering services - the assessee had to make provisions for additional cost if sustainable production capability is not demonstrated within the guarantee period. There is nothing in the order of the FAA that could prove that provisions made by the assessee were not based on estimate given by experts - the assessee was following some system in estimating provisions - without pointing out major defects it was not proper on part of the FAA to state that system was - writing off of provisions in subsequent years cannot be basis for disallowing it - Accounting standards expect that assessee should write back such amounts in later years - he was not justified in confirming the disallowance without analysing the terms and conditions of the projects thread bare for which provisions were made – Decided in favour of assessee. TDS credit not given – Held that:- The assessee is entitled to get credit of taxes paid in one of the years-either in year of payment or in the year of completion of contracts - AO is directed to verify the facts and give credit for taxes paid by the assessee – Decided in favour of assessee. Software maintenance expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee has filed details of expenses debited under the head software development - the expenses booked are software maintenance expenses and all the expenses are either in the, nature of annual maintenance contracts, up gradation and installation of anti-virus, which cannot be held to be enduring in nature and called capital expenses – thus, the expenditure incurred by the assessee for maintenance of software is to treated revenue expenditure – Decided in favour of assessee. Bad debts written off – Held that:- The assessee had entered into an agreement with SG, that it had agreed to render services to S.G. that SG had jointly signed the mechanical completion of certificate on 23.05.2002 that it had engaged an advocate for pursuing the matter of recovery from S.G. - as the amount was actually written off in the books of accounts, there was no justification for the disallowance made/ confirmed by the AO/ FAA under the head bad-debts - after the amendment to section 36 of the Act, it is clear that if an assessee writes off any amount in its books of accounts, it has not to prove any other thing – Decided in favour of assessee.
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