TMI Blog2016 (9) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... sputing this factual position. He rejects assessee’s claim on two counts. The first one is that the assessee has not made provision for any ascertained liability. We find from page nos.35 to 37 of the paper book along with the corresponding agreement that the assessee’s computation of provision of defect liability is computed as per the specific logic therein. Cash retention by its clients is between 5 to 10%. The assessee has made the impugned provision @ 1% by following the above stated computation. Learned departmental representative fails to dispute correctness thereof in the course of hearing. We are of the opinion in these facts and circumstances that the assessee has satisfied both the Assessing Officer’s objections so as to support the lower appellate findings under challenge. The CIT(A) has already set out the corresponding figure forming the basis of estimation. The Revenue’s last argument that preceding assessment years involved different liabilities is also devoid of merits since it is only a difference of nomenclature vis-a-vis the naming of the liability head in the impugned assessment year. - Decided against revenue - ITA Nos.86/Ahd/2008 & 2566/Ahd/2009 - - - Dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced the relevant evidence. 4. The assessee preferred appeal. The CIT(A) deletes the impugned disallowance. He observes that these expenses are genuinely incurred for the purpose of the business having turnover of 237 crores from various construction projects on multiple sites. He goes on to hold that all these expenses have been paid by account payee cheques. This results in the Revenue being aggrieved against the lower appellate order. 5. We have heard rival contentions. Both the learned representatives reiterate their respective stands in support of and against the impugned disallowances. The Revenue fails to place on record any material before us rebutting CIT(A) s findings as above that the assessee has already filed all necessary details and evidences along with proof of payment. There can hardly be any doubt that this assessee is carrying out his multiple construction projects wherein such expenses are undertaken on auspicious occasion of commencement of construction activity etc. We find no reason to interfere with CIT(A) s finding under challenge. This first substantive ground is declined. 6. We come to the latter issue of defect liability provisions amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortant terms of the contract, defect liability period has been defined as 12 to 18 months from the date of completion or handing over of the projects. The defect liability clause can be seen from the specimen copies of 3 agreements filed by the A.R- The appellant has made provision for the first time in this year. The provision has been made @ 1% of the turnover. In the decision of Bangalore Bench of ITAT in the case of IBM India Ltd., vs. CIT reported in 290 ITR 183 (AT) (Bang) it has been held that though the exact amount of warranty cannot be quantified however, the sum is based on scientific approach and based on past experience. And accordingly, the Tribunal had allowed the provision made for warranty liability in that case. In the case of the appellant, the appellant has made the provision @ 1% of turnover on the basis of past experience. In fact in A.Y.2004-05, the liability of liquidated damages, contractual disputes and deduction from bills for quality problems was of ₹ 1,42,59,382/- on a turnover of ₹ 183.69 crores which comes to around 0.78% of the turnover, and in A.Y.2005-06 the actual such expenses were of ₹ 2,91,56,250/- on a turnover of ₹ 237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year and deduction claimed as business expenditure was unduly excessive and was intended to evade taxation. Here also there is nothing to show that the change in method of accounting was motivated and there is direct nexus between the claim of the appellant and its obligation arising from warranty. 4.4 Even otherwise as the appellant has accumulated loss of ₹ 16.50 crores as on 31-3-05 and has got total carried forward loss of ₹ 25.59 crores at the end of A.Y.2006-07, no motive of reduction tax liability can be assigned to the appellant for the above change in the method of accounting of provision for liability. The appellant has no tax liability even hi the subsequent year. 4.5 On consideration of the facts of the case and relying on the ratio of decisions cited by the Id. A.R. I am of the view that the disallowance of provision of warranty liability or defect liability made by the A.O. is not proper and justified, specialty when the liability has been made on a reasonable and scientific basis. Hence the disallowance is deleted. 8. Learned departmental representative strongly reiterates Assessing Officer s findings invoking the disallowance in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed departmental representative fails to dispute correctness thereof in the course of hearing. We are of the opinion in these facts and circumstances that the assessee has satisfied both the Assessing Officer s objections so as to support the lower appellate findings under challenge. The CIT(A) has already set out the corresponding figure forming the basis of estimation. The Revenue s last argument that preceding assessment years involved different liabilities is also devoid of merits since it is only a difference of nomenclature vis-a-vis the naming of the liability head in the impugned assessment year. We reject Revenue s second substantive ground as well. The CIT(A) s finding extracted hereinabove stands confirmed. 11. Revenue s appeal ITA No.86/Ahd/2008 fails. 12. We come to latter assessment year 2006-07 involving Revenue s ITA No.2566Ahd/2009 raising the sole substantive issue of defect liability provision amounting to ₹ 1,12,31,404/-. 13. Both the parties fairly state that our adjudication hereinabove on the very issue in former assessment year squarely covers the same. We appreciate this fair stand. This appeal also meets the same fate. 14. These two Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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