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2015 (10) TMI 181 - AT - Income TaxDisallowance of foreseeable losses - whether represent ascertained liability - whether these expenses admittedly pertain to period April 2003 to November 2006? - CIT(A) held that the Assessing Officer was wrong in inferring that the assessee has offered income on receipt basis - Held that:- There is nothing to disagree with the CIT(A) on this aspect of the matter. Infact, the financial statements of the assessee company. Also point out that the assessee company is maintaining its accounts on a mercantile system. In so far as the issue of allowability of future foreseeable losses is concerned, a similar situation had come up in the case of ITD Cementation India Ltd. (2013 (11) TMI 223 - ITAT MUMBAI) wherein assessee was carrying on the business of infrastructure development and the work was executed on a contractual basis. The assessee therein was executing a fixed price contract and in terms of Accounting Standard-7 issued by Institute of Chartered Accountant of India (ICAI) made a Provision for future foreseeable losses and claimed deduction of such a Provision. The Revenue disallowed the Provision made for such foreseeable losses. The Tribunal concurred with the stand of the assessee that such a Provision was an allowable deduction. Therefore, in view of the aforesaid precedents in-principle, it has to be inferred that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognized following the rationale of AS-7 issued by ICAI, and such a Provision is an allowable deduction. In the present case, the estimate made by the assessee has been benchmarked against PWD notified rates and it appears to be reasonable. The fact that in the subsequent year, assessee has writtenback only a portion of the Provision does not indicate its unreasonableness, rather the facts indicate that assessee indeed incurred expenditure on maintenance work which is more that the receipts due to it as per the contract. Therefore, the judgement of the assessee that it was likely to incur loss on maintenance work after five years was indeed justified, as the factum of incurrence of such loss is not disputed. In sum and substance, we are in agreement with the CIT(A) that the Provision for foreseeable losses debited by the assessee in the Profit & Loss Account, is not a contingent liability so as to be disallowed while computing business income for the year under consideration. As a consequence, we hereby affirm the order of the CIT(A) and Revenue fails in its appeal. - Decided against revenue
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