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TMI Blog2018 (10) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... .43/32003 are framed as follows: 1. Whether the Tribunal was justified in confirming the additions made by the assessing authority under Section 115J of the Income Tax Act, 1961 by adding back the foreseeable loss, which is an ascertainable liability and is reflected in the Profit And Loss account accepted by the Registrar of Companies? 2. Whether the Tribunal was correct in having affirmed the addition made by the Assessing Officer going by the decision of the Hon'ble Supreme Court in Apollo Tyres v. Commissioner of Income Tax [(2002) 255 ITR 273 (SC)]? 2. The assessee through one of its divisions called FEDO enters into contracts,the profit and loss of which are ascertained, according to the learned Counsel, in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax [(2000) 245 ITR 428]. 4. The specific contention of the assessee as is noticed from the order of the Tribunal is that at the finalisation of accounts, the Company was aware of the loss going to be incurred on the completion of the existing contracts in its hand and therefore such loss worked out on the basis of the technical analysis has to be provided for in the accounts by way of provision for anticipated loss. This is a permissible deduction under Schedule VI of the Companies Act, 1956. The Tribunal on facts found that the contracts having not been completed or terminated during the previous year, amounts computed by the assessee were only anticipatory loss and could be actually ascertained only on the closure of the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to the stage at which it has been completed. This cannot be said to be an ascertained liability especially since the contract is not completed and the loss or profit can be finally determined only on completion of the contract, at which point, definitely the assessee can claim it. 7. Apollo Tyres(supra) also would not be of any assistance since in the present case, absolutely no rowing enquiry is carried out by the Assessing Officer nor does he go behind the computation made under the Companies Act. The addition made is on the basis of the Explanation under sub-section (1A) of Section 115J. We need only extract paragraph of the decision of Apollo Tyres(supra)which is as follows: 8. Therefore, we are of the opinion, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nevertheless made for the entire loss on the contract. 13.2 When a contract is of such magnitude that it can be expected to absorb a considerable part of the capacity of the enterprise for a substantial period, indirect costs to be incurred during the period of the completion of the contract are sometimes considered to be directly attributable to the contract and included in the calculation of the provision for loss on the contract. 13.3 If a provision for loss is required, the amount of such provision is usually determined irrespective of: (I) whether or not work has commenced on the contract; and (ii)the stage of completion of contract activity; and (iii) the amount of profits expected to arise on other unrelated contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the legislature, is to ensure payment of a minimum corporate tax on the profits as declared in its own accounts. The Explanation permits additions to be made so that the actual profits derived is taxed. What is not reflected for reasons only of provisions made with respect to contingent liabilities, are also brought to tax. 11. In this context we garner support from Bharat Earth Movers(supra) and the following paragraph. 4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee and against the Revenue and we direct the Assessing Officer to determine the income under Section 115J without making addition of the provision for gratuity. 14. The question arising in ITA 2/2007 is with respect to whether the provision for bad and doubtful debts could be added back for the purpose of determining the income under Section 115JA. Admittedly the provision was made, subsequently as clause (g) which read as under: "(g) The amount or amounts set aside as provision for diminution in the value of any asset" 15. The issue is covered by the judgment of the Hon'ble Supreme Court in [(2008) 305 ITR 409 (SC)] Commissioner of Income Tax v. HCL Comnet Systems and Services Ltd In fact we had followed the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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