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2023 (4) TMI 519 - AT - Income TaxDisallowance of “Provision for foreseeable loss” - Claim was made as per Accounting Standard 7 relating to Construction Contracts - AO held it to be a contingent liability and accordingly disallowed the claim - CIT(A) also confirmed the disallowance - HELD THAT:- When the onshore supply portion of the revenue in the contract was fixed at Rs.44.56 crores, the assessee would have estimated the cost lesser than the above said revenue. However, the cost has been claimed to have been escalated to Rs.110.39 crores within a period of 18 months, which is almost 300%. The claim that the cost has escalated by 300% within a period of eighteen months is unheard and accordingly, shall raise doubt in the minds of any prudent person, though it may be probable also. Accordingly, it is the obligation of the assessee to explain before the AO as to how the cost has escalated by 300% from the original estimate. The burden of the assessee is further increased on the reason that the contract has been obtained by the assessee from its promoter, a related concern. As noticed earlier, there was no occasion for the AO to examine these factual aspects, as he had disallowed the claim holding it as contingent liability. This issue needs to be restored to the file of AO for examining the computation of the loss claimed by the assessee. Accordingly, we restore this issue to the file of the AO with the direction to examine the claim of the assessee by calling for the relevant details. Appeal filed by the assessee is treated as allowed for statistical purposes.
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