TMI Blog2019 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... d. of ₹ 17,91,36,000 has also been noticed in this chart. It has been claimed by the assessee before us that the amount received has been included in the total contract receipts and this may be verified by the AO and to the extent the receipt is not offered as income to treat the same as income because the deduction of expenses on account of provision is to be allowed as per order of the CIT (A), with which we are agreement for the reasons to be given in subsequent paragraphs. The agreement with Mott Macdonald Pvt. Ltd., for providing design work and the related cost. The variation contract with Mott Macdonald Pvt. Ltd is at page 251. The CECI Design Consultant and details of their design work are at page 253. The details of design charges payable to Spar Geo infra Pvt. Ltd., at a page 256. In the light of the complete details filed by the assessee to show that the expenditure in question was not contingent liability at a certain liability, it was not proper on the part of the Assessing Officer to have ignored these documents. Though CIT (Appeals) has not made a reference to these documents but has taken note of the fact that the basis of projected future expenses as cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee without appreciating that the assessee had not incurred any such expenditure during previous year and such liability to be incurred on a future date was a contingent liability and therefore, could not be allowed under section 37(1) of the Income-tax Act. 4. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the Commissioner of Income-tax (Appeals) be reversed and that of the Assessing Officer be restored. 5. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of appeal. 4. The assessee is an association of persons of three entities formed with specific purpose of participating in the tender floated by Bangalore Metro Rail Corporation Ltd., (BMRCL) for laying metro line along with infrastructure facilities between cricket stadium and Kempe Gowda Bus Station (Majestic) in Bangalore. For the assessment year 2011-12, the assessee filed a return of income on September 29, 2011 declaring a total income of ₹ 76,77,270. In the course of assessment proceedings on verifications of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to explain what is unbillable amount of ₹ 58,62,00,000 (of which the sum of ₹ 6,66,64,500 claimed as deduction under the provision by the assessee is forming part) as claimed by the assessee as above which was to be spread over for the period for which the contract was to be executed for Bangalore Metro Rail Corporation Ltd. According to the Assessing Officer, the assessee was not in a position to explain what was unbillable amount. The Assessing Officer, examined the commercial manager of the association of persons and in his sworn statement he had explained that the unbillable amount are monies which need to be spent for construction of roads after completion of the project. The Assessing Officer thereafter made a reference of provision of section 37 of the Income-tax Act (the Act) and was of the view that under the aforesaid provision, the only expenditure which is incurred by the assessee which is wholly and exclusively for the purpose of business of the assessee that can be allowed as deduction an expenditure claimed by the way of provision to meet a liability in a future date cannot be allowed as a deduction under section 37 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction claimed cannot be allowed. For the aforesaid reasons the Assessing Officer did not allow the claim of the assessee for deduction. 8. On appeal by the assessee, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to allow the claim for deduction made by the assessee. The Commissioner of Income-tax (Appeals) found that the assessee-association of persons was required to execute the entire work starting from the design to the execution of the work and thereafter it was also required to undertake restoration work with a view to restoring roads, foot paths and other amenities that were disturbed or diverted at the time of execution of the project. The association of persons commenced operation during the financial year 2009-10 and the first balance-sheet was drawn for the year ended March 31, 2010. No income was offered during the aforesaid assessment year since the extent of work had not progressed for recognizing the revenue. The association of persons first recognized revenue only during the financial year 2010-11 relevant to the assessment year 2011-12. The assessee followed the percentage completion method of recognizing revenue. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletion of the tunnelling work is concerned, the basis of estimate has been given by the assessee to the Assessing Officer in the letter dated November 14, 2013 filed before the Assessing Officer along with all supporting and technical documents. A perusal of the aforesaid documents show that complete technical details was provided by the assessee. The breakup of the expenses on laying of roads given by the assessee to the Assessing Officer is as follows : Sl. No. Description Unit Qty. Rate Amount (Rs.) Remarks 1. East Ramp LS 1. 27,408,437 27,408,437 2. Cricket Stadium LS 50,959,163 50,959,163 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at 135 to 140. For pocket track workings are at pages 144 to 149 and for west ramp the workings at pages 191 to 197. 14. For escalation of cost at 25.86 per cent. the workings are at pages 154 and 155 of the assessee's paper book. Similarly for design work the workings are at page 216 of the paper book and the same is as follows : Sl. No. Particulars BOQ Paid/received Payable/receivable Receipts 1. BMRCL BOQ 29,85,60,000 17,91,36,000 11,94,24,000 Payments 1. Mott MacDonald Pvt. Ltd. 18,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these documents but has taken note of the fact that the basis of projected future expenses as claimed by the assessee was reasonable and cannot be regarded as contingent expenditure. 18. As far as the law with regard to allowing deduction on account of a provision the same is well settled. The hon'ble Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) has laid down that under the mercantile system of accounting an estimate of accrued liability to be discharged at a future date is an allowable expenditure. In that case the assessee bought lands and sold them in plots for constructing buildings. The assessee undertook development by laying roads, providing drainage system and installing lines. The sale was completed without the development work being completed but the assessee claimed expenses to be incurred in future for carrying out development as an expenditure. The hon'ble Supreme Court held that the liability of the assessee was unconditional and was therefore an accrued liability. The estimated expenditure to be incurred in future was to be allowed as a deduction. The hon'ble Supreme Court in the case of Bharat Earth Movers [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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