ACIT, Bangalore V. M/s CEC SOMA CICI JV, Bangalore

ITA 126/BANG/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7353 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 04-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR PRA DEEP KUMAR
• Assessee Lawyers: V SRINIVASAN
• Section: 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.126 & 1822/BANG/2016 ASSESSMENT YEARS : 2011-12 & 2012-13 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(2)(1), BENGALURU. VS. M/S CEC. SOMA CICI JV OPP.: GATE NO. 20, NEAR M CHINNASWAMY STADIUM, M.G ROAD, BENGALURU-560 001. PAN AAAAC 8081E. APPELANT RESPONDENT APPELLANT BY : DR. PRADEEP KUMAR, CIT(DR) RESPONDENT BY : SHRI V SRINIVASAN, ADVOCATE DATE OF HEARING : 26.04.2019 DATE OF PRONOUNCEMENT : 03.05.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT BOTH THESE APPEALS ARE BY THE REVENUE AGAINST 2 ORD ERS DATED 30/10/2015 AND 18/7/2016 OF CIT(A)-1, BENGALURU R ELATING TO ASST. YEARS 2011-12 AND 2012-13. 2. THE COMMON ISSUE INVOLVED IN BOTH THESE APPEALS IS AS TO WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION M ADE BY THE AO BY HOLDING THAT THE PROVISION MADE FOR FUTURE EXPENSES ARE CON TINGENT IN NATURE AND CANNOT BE ALLOWED AS A DEDUCTION. ITA NOS.126 & 1822/BANG/2016 PAGE 2 OF 13 3. THE GROUNDS RAISED BY THE ASSESEE ARE IDENTICAL IN BOTH THE APPEALS. FOR THE SAKE OF READY REFERENCE WE GIVE BELOW THE G ROUNDS OF APPEAL RAISED FOR ASST. YEAR 2012-13 WHICH READS AS FOLLOW S:- 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE , IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROVISION MADE FOR FUTURE EXPENSES ARE ALLOWABLE, WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED T O PRODUCE ANY CLEAR BASIS DURING ASSESSMENT PROCEEDINGS OR ESTABLISH THE CERTAINTY OF EXPENDITU RE AND ON WHAT IT WOULD BE EXPENDED, THUS, PROVING THE PROVISION MADE TOWARDS THE FUTURE EXPENSES TO BE CONTINGENT IN NATURE. 3. THE LEARNED CIT(A) ERRED IN GIVING RELIEF 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 U/S.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 T HAT THE ORDER OF THE CIT(A) 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 3 E NTITIES FORMED WITH SPECIFIC PURPOSE OF PARTICIPATING IN THE TENDER FLO ATED BY BANGALORE METRO, RAIL CORPORATION LTD., (BMRCL) FOR LAYING METRO LIN E ALONG WITH INFRASTRUCTURE FACILITIES BETWEEN CRICKET STADIUM AND KEMPE GOWDA BUS STATION (MAJESTIC) IN BANGALORE. FOR ASST. YEAR 20 11-12, THE ASSESSEE FILED A RETURN OF INCOME ON 29/9/2011 DECLARING A TOTAL I NCOME OF RS.76,77,270/-. ITA NOS.126 & 1822/BANG/2016 PAGE 3 OF 13 IN THE COURSE OF ASST. PROCEEDINGS ON VERIFICATIONS OF THE DETAILS FILED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE HAD CLAI MED DEDUCTION OF A SUM OF RS.6,66,64,500/- ON ACCOUNT OF PROVISION FOR EXPENSES. THE ASSESSEE EXPLAINED CLAIM FOR DEDUCTION OF THE AFORE SAID EXPENSES AS FOLLOWS. THAT IT HAD BID FOR LAYING UNDERGROUND ME TRO LINE FOR BMRC. AS PER THE AGREEMENT WITH BMRC, BILLS WILL BE RAISED O N THE BASIS OF COMPLETION OF WORK UPTO A STAGE. THESE WILL BE ON THE BASIS OF ACTUAL. THERE ARE CERTAIN EXPENSES THAT NEED TO BE INCURRED OVER THE ENTIRE PROJECT THAT CANNOT BE BILLED FOR THE TIME BEING BECAUSE OF ITS NON COMPLETION. THE STRUCTURAL DESIGN AT VARIOUS STAGES HAVE TO BE OBTA INED FROM PROFESSIONALS AND THESE CANNOT BE BILLED BECAUSE OF CONTINUOUS RU NNING ACTIVITY OVER THE COMPLETION OF THE ENTIRE PROJECT. SIMILARLY, DIGGI NG OF THE ROAD HAS TO BE DONE AND LATER REFILLED. THE COST OF REFILLING IS ALSO PART OF THE TENDER BUT THE WORK HAS TO BE DONE IN FUTURE. SUCH COSTS TO BE IN CURRED IN FUTURE ARE ESTIMATED AND THESE EXPENSES WHICH ARE CERTAIN TO B E INCURRED AND WHICH ARE ESTIMATED SCIENTIFICALLY ARE CLAIMED BASED ON T HE TOTAL PROJECT COST DIVIDED BY THE AMOUNT BILLED FOR EACH YEAR OF THE P ROJECT MULTIPLIED BY THE TOTAL OF THE UNBILLED FUTURE EXPENSES TO BE INCURRE D. THE DETAILS OF THE SAME ARE B ASED ON THE TOTAL TENDER VALUE AND BILLED AMOUNT UP TO 31/03/2011 THE PROVISION THAT IS REQUIRED TO BE MADE AS ON 31/03/2 011 IS RS.6,66,64,500/- OUT OF THE TOTAL EXPENDITURE OF RS. 58,62,00,000/- TO BE INCURRED BY THE END OF THE PROJECT. ITA NOS.126 & 1822/BANG/2016 PAGE 4 OF 13 5. THE AO ON PERUSAL OF THE AFORESAID EXPLANATIONS GIVEN BY THE ASSESSEE ASKED THE ASSESSEE TO EXPLAIN WHAT IS UNBI LLABLE AMOUNT OF RS.58,62,00,000/- (OF WHICH THE SUM OF RS.6,66,64, 500 CLAIMED AS DEDUCTION UNDER THE PROVISION BY THE ASSESSEE IS FO RMING PART) AS CLAIMED BY THE ASSESSSEE AS ABOVE WHICH WAS TO BE SPREAD OV ER FOR THE PERIOD FOR WHICH THE CONTRACT WAS TO BE EXECUTED FOR BMRCL. A CCORDING TO THE AO, THE ASSESSEE WAS NOT IN A POSITION TO EXPLAIN WHAT WAS UNBILLABLE AMOUNT. THE AO, EXAMINED THE COMMERCIAL MANAGER OF THE AOP AND IN HIS SWORN STATEMENT HE HAD EXPLAINED THAT THE UNBILLABLE AMOU NT ARE MONIES WHICH NEED TO BE SPENT FOR CONSTRUCTION OF ROADS AFTER CO MPLETION OF THE PROJECT. THE AO THEREAFTER MADE A REFERENCE OF PROVISION OF SEC. 37 OF THE INCOME- TAX ACT (THE ACT) AND WAS OF THE VIEW THAT UNDER TH E AFORESAID PROVISION, THE ONLY EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE WHICH IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE THAT CAN BE ALLOWED AS DEDUCTION AN EXPENDITURE CLAIMED BY THE WAY OF P ROVISION TO MEET A LIABILITY IN A FUTURE DATE CANNOT BE ALLOWED AS A D EDUCTION U/S 37 OF THE ACT. 6. THE ASSESSEE IN A LETTER DATED 14/11/2013 EXPLAI NED THE BASIS ON WHICH THE DEDUCTION WAS CLAIMED. THE BASIS ON WHICH PROVISION WAS MADE ALONG WITH A LETTER THE ASSESSEE HAD GIVEN A TECHNI CAL ESTIMATE BASED ON WHICH PROVISION FOR UNBILLABLE FUTURE EXPENSES OF R S.58.62 CRORES WAS ITA NOS.126 & 1822/BANG/2016 PAGE 5 OF 13 MADE. THE ASSESSEE ALSO SUBMITTED THAT PROVISION F OR LIABILITY IN FUTURE EXPENSES ARE ALLOWABLE EXPENDITURE BY RELYING ON TH E FOLLOWING JUDICIAL PRONOUNCEMENTS:- 1. CALCUTTAL CO. LTD VS CIT (REPORTED IN 37 ITR 1, SC) 2. ROTROK CONTROLS INDIA (F) LTD. (REPORTED IN 314 ITR 62 SC) 3. SIEMENS PUBLIC COMMUNICATIONS NETWORKS LTD. VS C IT (REPORTED IN 318 ITR PAGE 13 BANGALAORE ITAT) 4. BHARATH EARTH MOVERS VS CIT (245 UR 428 SC) IN PARTICULAR ATTENTION WAS DRAWN TO THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P LTD. ( SUPRA) AT PAGE 71 ON PARA 11 WHEREIN IT WAS OBSERVED THAT APROVISION IS A LIA BILITY WHICH CAN BE MEASURE ONLY BY USING SUBSTANTIAL DEGREE OF ESTIMA TION. A PROVISION IS RECOGNIZED WHEN (A) AN ENTERPRISE HAS A PRESENT OBL IGATION AS A RESULT OF A PAST EVENT (B) IT IS PROBABLE THAT AN OUTFLOW OF RE SOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IT WAS SUBMITTED THAT THE PROVIS ION FOR FUTURE WORKS MADE BY THE ASSESSEE BASED ON WHICH THE ABOVE DEDUCTION WAS CLAIMED FITS IN TO THE MEANING OF PROVISION AND IT IS AN ASCERTAINED L IABILITY. THE PROVISION IS MADE ON THE BASIS OF RELIABLE ENGINEERING ESTIMATE FOR POSSIBLE OUTFLOW OF RESOURCES TO SETTLE THE OBLIGATION ARISING ON ACCOU NT OF CONTRACTUAL OBLIGATIONS AS A WHOLE AND HENCE, THE SAME IS ALLOW ABLE. THE ASSESSEE ALSO SUBMITTED THAT THE PROVISION MADE IS CONSISTEN T WITH THE METHOD OF ACCOUNTING UNDER SECTION 145 OF THE ACT AND ACCOUNT ING STANDARDS 7 OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE ASSESSEE THEREFORE PRAYED THAT THE PROVISION FOR EXPENSES OF RS. 6,66, 64,500/, PROVIDED TO MEET THE DEFINITE FUTURE OBLIGATIONS SHOULD BE ALLO WED AS DEDUCTION. ITA NOS.126 & 1822/BANG/2016 PAGE 6 OF 13 7. THE AO HOWEVER HELD THAT THE CLAIM FOR DEDUCTION MADE BY THE ASSESSEE WAS ONLY ON THE BASIS OF ESTIMATE AND THAT INCURRING OF EXPENDITURE BY THE ASSESSEE WAS PURELY CONTINGENT A ND THEREFORE THE DEDUCTION CLAIMED CANNOT BE ALLOWED. FOR THE AFORE SAID REASONS THE AO DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTI ON. 8. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED T HE AO TO ALLOW THE CLAIM FOR DEDUCTION MADE BY THE ASSESSEE. THE CIT( A) FOUND THAT THE ASSESSEE AOP WAS REQUIRED TO EXECUTE THE ENTIRE WOR K STARTING FROM THE DESIGN TO THE EXECUTION OF THE WORK AND THEREAFTER IT WAS ALSO REQUIRED TO UNDERTAKE RESTORATION WORK WITH A VIEW TO RESTORIN G ROADS, FOOT PATHS AND OTHER AMENITIES THAT WERE DISTURBED OR DIVERTED AT THE TIME OF EXECUTION OF THE PROJECT. THE AOP COMMENCED OPERATION DURING TH E FINANCIAL YEAR 2009-10 AND THE FIRST BALANCE SHEET WAS DRAWN FOR T HE YEAR ENDED 31/3/2010. NO INCOME WAS OFFERED DURING THE AFORES AID ASST. YEAR SINCE THE EXTENT OF WORK HAD NOT PROGRESSED FOR RECOGNIZI NG THE REVENUE. THE AOP FIRST RECOGNIZED REVENUE ONLY DURING THE FINANC IAL YEAR 2010-11 RELEVANT TO ASST. YEAR 2011-12. THE ASSESSEE FOLLO WED PERCENTAGE COMPLETION METHOD OF RECOGNIZING REVENUE. THE CIT( A) FOUND THAT THE FOLLOWING WAS THE BASIS OF MAKING PROVISIONS BY THE ASSESSEE. A SUM OF RS.29,69,40,875/- WAS EXPENSES FOR FINISHING WORK I N THE FORM OF LAYING ROADS AFTER COMPLETION OF THE CONSTRUCTION. THE CI T(A) ALSO FOUND THAT A SUM OF RS.28,91,13,042/- WAS TOWARDS COST OF DESIG NING ON THE ENTIRE CONTRACT WHICH WAS PAID TO DIFFERENT PARTIES OVER T HE PERIOD OF EXECUTION OF THE WORK. THE SUM TOTAL OF THE AFORESAID 2 EXPENSE S WAS SUM OF RS.58.62 CRORES (FIGURES ROUNDED OFF). THE COST OF DESIGN WO RK WAS FIXED AT 3% OF PROJECT VALUE WHICH WAS 995.2 CRORES. THE TOTAL FUT URE EXPENSES ANTICIPATED FOR COMPLETING OF THE PROJECT FOR RS.58.62 CRORES W AS CLAIMED ON THE BASIS ITA NOS.126 & 1822/BANG/2016 PAGE 7 OF 13 OF THE RUNNING BILLS RAISED (TURNOVER TILL THE YEA R END) TO THE TOTAL PROJECT COST MULTIPLIED BY THE PROJECTED FUTURE EXPENSE. THE C IT(A) ON THE BASIS OF THE ABOVE DETAILS HELD THAT THE INCURRING OF THE EXPENS ES IN QUESTION WAS A CERTAINTY AND THAT THE BASIS ON WHICH THE LIABILITY WAS ESTIMATED WAS REASONABLE AND THEREFORE THE EXPENDITURE IN QUESTIO N WAS NOT A CONTINGENT EXPENDITURE AND HAD TO BE ALLOWED AS DEDUCTION. 9. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A) R EVENUE HAS PREFERRED PRESENT APPEAL BEFORE THE TRIBUNAL. 10. THE LD DR PLACED RELIANCE ON THE ORDER OF THE A O AND SUBMITTED THAT THE CIT(A) HAD NOT GIVEN THE BASIS ON WHICH HE HAS COME TO THE CONCLUSION THAT EXPENDITURE IN QUESTION WAS NOT A CONTINGENT A ND WAS CERTAIN LIABILITY. 11. THE LD AR ON THE OTHER HAND BROUGHT TO OUR NOTI CE VARIOUS EVIDENCE FILED TO EXPLAIN AS TO HOW THE EXPENDITURE IN QUEST ION WAS NOT CONTINGENT IN NATURE. 12. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSION. AS WE HAVE ALREADY NOTICED THE PROJECTED FUTURE EXP ENSES WAS 58.62 CORES AND THIS COMPRISES OF A SUM OF RS.29.69 CRORES WHIC H HAS TO BE SPENT FOR LAYING ROADS AFTER COMPLETION OF THE TUNNELING WORK AT VARIOUS POINTS. THE OTHER COMPONENT OF THE PROJECT OF FUTURE EXPENSES I S THE COST OF PROVIDING DESIGN TO THE ENTIRE PROJECT. AS FAR AS THE ESTIMA TION OF EXPENSES FOR LAYING OF ROADS AFTER COMPLETION OF THE TUNNELING WORK IS CONCERNED, THE BASIS OF ESTIMATE HAS BEEN GIVEN BY THE ASSESEE TO AO IN THE LETTER DATED 14/11/2013 FILED BEFORE THE AO ALONG WITH ALL SUPPO RTING AND TECHNICAL DOCUMENTS. A PERUSAL OF THE AFORESAID DOCUMENTS SH OW THAT COMPLETE TECHNICAL DETAILS WAS PROVIDED BY THE ASSESSEE. TH E BREAKUP OF THE EXPENSES ON LAYING OF ROADS GIVEN BY THE ASSESSEE T O THE AO IS AS FOLLOWS:- ITA NOS.126 & 1822/BANG/2016 PAGE 8 OF 13 SN 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 3 VIDHANA SOUDHA STATION 60,166,620 60,166,620 4 CENTRAL COLLEGE 21,402,059 21,402,059 5 CITY RAILWAY STATION 24,429,048 24,429,048 6 POCKET TRACK 17,917,276 17,917,276 7 WEST RAMP 22,412,164 22,412,164 SUB TOTAL 224,694,766 WEIGHEAGES TO BE ADDED FOR FINISHED ITEMS AT 5% 11,234,738 SUB TOTAL 235,929,505 ADD 25.86% FOR ESCALATION 61,011,370 SUB TOTAL 296,940,875 ITA NOS.126 & 1822/BANG/2016 PAGE 9 OF 13 13. THE DETAILED WORKINGS FOR LAYING OF ROADS ON EA ST RAMP IS AT PAGES 84 TO 90. THE DESCRIPTION LIKE QUANTITY OF WORK TO BE DONE IN TERMS OF MEASUREMENT AND RATES WERE ALSO GIVEN IN THIS WORKI NG. SIMILARLY FOR CRICKET STADIUM SUCH DETAILED WORKINGS IS AT PAGE 100 TO 107. FOR VIDHANA SOUDHA STATION THE WORKINGS ARE AT 112-199 . FOR NATIONAL COLLEGE WORKINGS IS AT PAGE 124 TO 131. FOR CITY RAILWAY ST ATION WORKINGS ARE AT 135 TO 140. FOR POCKET TRACK WORKINGS ARE AT PAGE 144 TO 149 AND FOR WEST RAMP THE WORKINGS AT PAGE 191 TO 197. 14. FOR ESCALATION OF COST AT 25.86% THE WORKINGS ARE AT PAGE 154 AND 155 OF THE ASSESSEES PAPER BOOK. SIMILARLY FOR DE SIGN WORK THE WORKINGS ARE AT PAGE 216 OF THE PAPER BOOK AND THE SAME IS A S FOLLOWS:- SN PARTICULARS BOQ PAID/ RECEIVED PAYABLE/RECEIVABLE RECEIPTS 1 BMRCL BOQ 29,85,60,000 179136000 11,94,24,000 PAYMENTS 1 MOTT MACDONALD PVT. LTD., 18,50,00,000 113978500 18,50,00,000 2 MOTT MACDONALD PVT. LTD., VARIATION 1,17,85,522 0 1,17,85,522 ITA NOS.126 & 1822/BANG/2016 PAGE 10 OF 13 CECI DESIGN CONSULTANT USD 5,12,000 2,74,17,600 2,74,17,600 SPAR GEO INFRA PVT. LTD. 6,49,09,920 6,49,09,920 28,91,13,042 11,39,78,500 17,51,34,542 15. PERUSAL OF THE ABOVE SHOWS THAT THE AMOUNTS REC EIVED FROM BMRCL OF RS. 17,91,36,000 HAS ALSO BEEN NOTICED IN THIS C HART. IT HAS BEEN CLAIMED BY THE ASSESSEE BEFORE US THAT THE AMOUNT R ECEIVED HAS BEEN INCLUDED IN THE TOTAL CONTRACT RECEIPTS AND THIS MA Y BE VERIFIED BY THE AO AND TO THE EXTENT THE RECEIPT IS NOT OFFERED AS INC OME TO TREAT THE SAME AS INCOME, BECAUSE THE DEDUCTION OF EXPENSES ON ACCOUN T OF PROVISION IS TO BE ALLOWED AS PER ORDER OF CIT(A), WITH WHICH WE A RE AGREEMENT FOR THE REASONS TO BE GIVEN IN SUBSEQUENT PARAGRAPHS. 16. THE AGREEMENT WITH MOTT MACDONALD PVT. LTD., F OR PROVIDING DESIGN WORK IS AT PAGE 221 AND THE RELATED COST ARE AT PAG E 249. THE VARIATION CONTRACT WITH MOTT MACDONALD PVT. LTD IS AT PAGE 25 1. 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. 16. IN THE LIGHT OF THE COMPLETE DETAILS FILED BY T HE ASSESEE TO SHOW THAT EXPENDITURE IN QUESTION WAS NOT CONTINGENT LIABILIT Y AT A CERTAIN LIABILITY, IT WAS NOT PROPER ON THE PART OF THE AO TO HAVE IGNORE D THESE DOCUMENTS. THOUGH THE CIT(A) HAS NOT MADE A REFERENCE TO THESE DOCUMENTS BUT HAS ITA NOS.126 & 1822/BANG/2016 PAGE 11 OF 13 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. 17. AS FAR AS LAW WITH REGARD TO ALLOWING DEDUCTION ON ACCOUNT OF A PROVISION THE SAME IS WELL SETTLED. THE HONBLE SUP REME COURT IN THE CSE OF CALCUTTA COMPANY LTD., VS. CIT 37 ITR PAGE 1 HAS L AID DOWN THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AN ESTIMATE OF ACCRUED LIABILITY TO BE DISCHARGED AT A FUTURE DATE IS AN ALLOWABLE EXPENDI TURE. 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 COMPLETE D WITHOUT THE DEVELOPMENT WORK BEING COMPLETED BUT ASSESSEE CLAME D EXPENSES TO BE INCURRED IN FUTURE FOR CARRYING OUT DEVELOPMENT AS AN EXPENDITURE. THE HONBLE SUPREME COURT HELD THAT THE LIABILITY OF TH E ASSESSEE WAS UNCONDITIONAL AND WAS THEREFORE AN ACCRUED LIABILIT Y. THE ESTIMATED EXPENDITURE TO BE INCURRED IN FUTURE WAS TO BE ALLO WED AS A DEDUCTION. THE HONBLE SUPREME COURT IN THE CASE OF BEML LTD., 245 ITR 428 TAKEN A VIEW THAT PROVISION CAN BE ALLOWED AS A DEDUCTION P ROVIDED 2 CONDITIONS ARE SATISFIED NAMELY. 1) THE INCURRING OF THE LIABILITY MUST BE CERTAIN A ND 2) THE BASIS OF QUANTIFICATION OF THE FUTURE EXPENS ES SHOULD BE SCIENTIFIC AND REASONABLE. 18. IN OUR VIEW BOTH THE CONDITIONS LAID DOWN BY TH E HONBLE SUPREME COURT HAVE BEEN SATISFIED IN THE PRESENT CASE AND THEREFORE THE EXPENDITURE IN QUESTION SHOULD BE ALLOWED AS A DEDU CTION AND WAS RIGHTLY ALLOWED AS DEDUCTION BY THE CIT(A). WE FIND NO GRO UNDS TO INTERFERE WITH ITA NOS.126 & 1822/BANG/2016 PAGE 12 OF 13 THE ORDERS OF THE CIT(A) AND ACCORDINGLY APPEAL OF THE REVENUE IS DISMISSED. 19. AS FAR AS ASST. YEAR 2012-13 IS CONCERNED, THE FACTS ARE IDENTICAL TO ASST. YEAR 2011-12 AND THE ORDERS PASSED FOR ASST. YEAR 2011-12 HAVE BEEN FOLLOWED BY THE AO AND THE CIT(A). IN VIEW OF OUR CONCLUSIONS ON THIS ISSUE FOR THE ASST. YEAR 2011-12, WE ARE OF THE VIE W THAT THERE IS NO MERIT IN THE APPEAL OF THE REVENUE FOR ASST. YEAR 2012-13. A CCORDINGLY THE SAME IS LIABLE TO BE DISMISSED. 20. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2019 . SD/- SD/- ( JASON P BOAZ ) ( N.V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, 3RD MAY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA NOS.126 & 1822/BANG/2016 PAGE 13 OF 13 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..