M/S. NIRMITI BUILDERS,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 3,, PUNE

आदेश / ORDER

PER S.S. VISWANETHRA RAVI, JM :

3. Heard both the parties and perused the material available on record. We note that the assessee is a firm engaged in the business of promoter and builder. The assessee conducts its business under the name and style as “M/s. Nirmiti Builders”. The AO, on verification of audited accounts in respect of provision for purchases to an extent of Rs.20,00,000/-, asked the assessee to justify the claim for making the said provision. The assessee made its submissions which is evident from para 4 of the assessment order. On an examination of the same, the arguments of ld. DR, we note that the assessee in its business followed project completion method for recognizing income. During the year under consideration, the assessee debited expenses under the head provision which are probable to be incurred in subsequent financial year. According to the assessee, the said provision is ascertained liability can be verified from subsequent years payment. According to the AO the said provision is not allowable as it was not ascertainable on the last date of financial year concerning the assessment order. Accordingly, the AO disallowed an amount of Rs.20,00,000/- and added the said amount to the total income of the assessee.

4. Before the CIT(A), it was contended that work in project still to be completed and the assessee made reliable estimation for such expenses through this provision. We note that the CIT(A) discussed the said contention in paras 7 and 8 of the impugned order, but however, confirmed the order of AO in disallowing the said provision by holding the expenditure that may incur through this provision is not ascertained liability. On perusal of page 5 of the impugned order, we note that the assessee furnished the details of provision for A.Y. 2007-08 which is reproduced by the CIT(A). It is observed that the assessee claimed estimated amount that may be incurred in subsequent year on account of Sewage Treatment Plant, Electrical Work, Club House ACP Panneling, Painting of Compound Wall & Club House, Battery Backup, Transformer & Cabeling and Civil Work Club House & STP. The ld. AR drew our attention to pages 7, 8 and 9 of the paper book, wherein, it is observed that the assessee incurred expenditure on various items relating to the details provided before the CIT(A). On verification of the details of expenditure on the said items which are at page 5 of the impugned order and also provided at pages 7 to 10 of the paper book, we note that the said expenditure incurred is more than the provision made which is evident from page 10 of the paper book i.e. Rs.21,85,089/-. There is no prohibition in the law for making the provision, which is a liability, could be made on estimation. We find before the AO as well as the CIT(A), the assessee furnished details of the works to be done in its project that may spread over to subsequent financial year. The AO and the CIT(A) disallowed the amount made under the provision only on the ground that it is not ascertained and is a contingent liability.

5. It is also noted that the assessee contended before the CIT(A) that the assessee incurred the expenditure in completing the remaining work in its project more than the provision made which is evident from purchase ledger placed at pages 7 to 18. We find that the assessee could not complete some works in its ongoing project by the financial year concerning the present assessment year and by making estimation created provision of Rs.20,00,000/- to meet the expenditure in completing the remaining work in the subsequent financial year. As discussed above, the purchase ledger at pages 7 to 18 clearly shows that the assessee incurred more than the provision in completing the remaining work in its project. The ld. DR did not dispute the list of items of works to be completed mentioned at page 5 of the impugned order and purchase ledger placed on record at pages 7 to 10 of the paper book. Therefore, considering the facts and circumstances of the case, we are of the opinion that the order of CIT(A) is not justified in confirming the order of AO in disallowing the provision made for the expenditure for completion of remaining works in the project. Therefore, the order of CIT(A) is set aside and the addition by disallowing the provision of Rs.20,00,000/- is deleted. Thus, the grounds raised by the assessee in this regard are allowed.

Order pronounced in the open court on 21st December, 2022.