WHEATONS DESIGN PRIVATE LIMITED,JAIPUR vs. ACIT / DCIT, CIRCLE -6, JAIPUR, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR

Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k
BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 781/JPR/2025
fu/kZkj.k o"kZ@Assessment Years : 2014-15

Wheatons Design Private Limited
FE38 FE6, Malviya Nagar Industrial
Area, Jaipur.
cuke
Vs.
The ACIT/DCIT,
Circle-6,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACW3095J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, C.A.
jktLo dh vksj ls@ Revenue by : Mrs. Anita rinesh, JCIT-DR a lquokbZ dh rkjh[k@ Date of Hearing : 15/09/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 12/11/2025

vkns'k@ ORDER

PER DR. S. SEETHALAKSHMI, J.M.

This is an appeal filed by the assessee against the order of ld. CIT
(A), National Faceless Appeal Centre (NFAC), Delhi dated 06.05.2025
passed under section 250 of the I.T. Act, 1961, for the assessment year
2014-15. 2. The assessee has raised the following grounds of appeal :-

“1. That the learned CIT (Appeals), NFAC has erred on facts and in law in disallowing the claim of provision for future expenses of Rs. 34,60,713/- under section 37(1) of the IT Act by treating the same as contingent liability.
Wheatons Design Pvt. Ltd. Jaipur.
2

The assessee vide its letter dated 30.07.2025 has raised an additional ground under Rule 11 of the ITAT Rules, 1962 and requested to admission of the same. The additional ground is reproduced as under :-

“ That the Ld. CIT (A), NFAC has under the facts and in law in upholding the initiation of assessment proceedings u/s 148 and the consequent order passed u/s 147 of the Act.”

On perusal of record available with the Income-tax Department, it was gathered that the assessee has claimed deduction of Rs. 34,60,713/- on account of ‘Provision for future expense’ in its books. The AO was of the view that the ‘Provision for future expense’ being contingent in nature, the same was not allowable as per provisions of section 37(1) of the IT Act, 1961. The assessee company had made wrong claim of business expenditure of Rs. 34,60,713/- on account of ‘Provision for future expense’ under the head “Cost of construction contract” in its Wheatons Design Pvt. Ltd. Jaipur.
4
Books for the year under consideration. As per provisions of section 37(1) of the IT Act, 1961, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head
Profits and gains of business or profession. Since, the assessee has wrongly claimed Rs. 34,60,713/- for expense which is not ascertained and is contingent in nature, the same deserves to be disallowed and added back to total income of the assessee. The assessee has concealed the income of Rs. 34,60,713/- which has escaped assessment within the meaning of section 147 of the IT Act, 1961. Therefore, it is a fit case for initiation of assessment proceedings under section 148 of the IT Act,
1961 for escapement of income arising out from not allowable business expenditure. On this basis it is apparent that the assessee had claimed expenses of Rs. 34,60,713/- which made in violation of the provisions of Section 37(1) of the IT Act, 1961 accordingly the expenses not allowable and liable to be added back in total income of the assessee company. In view of the above, provisions of clause (c)[iv] of explanation 2 of section 147 are applicable to facts of this case as ‘this is the case of excessive loss or depreciation allowance or any other allowance under this Act has been Wheatons Design Pvt. Ltd. Jaipur.
5
computed’. Thus the instant case is deemed to be a case where income chargeable to tax has escaped assessment for AY 2014-15. Accordingly, after recording reasons to believe and obtaining necessary approval from the competent authority, the AO issued notice under section 148 of the IT Act, 1961 on 31.02.2021. In compliance, the assessee filed its return of income on 31.03.2021 declaring the total income at Rs. 1,80,74,400/-.
Subsequently notice under section 143(2) was issued on 24.06.2021. Notice under section 142(1) was issued on 29.11.2021. The assessee vide its letter dated 17.12.2021 filed its reply raising the objections against notice under section 148 which was disposed off by the AO by passing an order dated 15.02.2022. The AO could not found the explanation of the assessee acceptable. Accordingly, the AO framed the assessment under section 147 of the IT Act, 1961 by disallowing the claim of provision for future expenses of Rs. 34,60,713/- under section 37(1) of the IT Act by treating the same as contingent liability. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT (A), who dismissed the appeal of the assessee.

Now, aggrieved by the order of the ld. CIT (A), the assessee has come in appeal before the Tribunal on the grounds reproduced herein above.
Wheatons Design Pvt. Ltd. Jaipur.
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5. At the time of hearing before us, the ld. AR of the assessee submitted his written submission as under :-
“At the outset it is submitted that reassessment u/s 147 of the Act can be made when AO has reason to believe that the income of the assessee chargeable to tax has escaped assessment. First proviso to section 147 provides that where an assessment u/s 143(3) has been made for the relevant AY, no action shall be taken under this section after the expiry of 4 years from the end of the relevant
AY, unless any income chargeable to tax has escaped assessment for such AY by reason of the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment for that AY.

In the present case, AO during the course of original assessment proceedings required the assessee to file the details of expenses claimed. The assessee vide letter dt. 10.08.2016 filed the details where under the head ‘cost of construction contract’, expenditure of Rs.34,60,713/- was claimed as provision for future expenses. Thus when assessee has fully disclosed the fact relating to claim of provision for future expenses, it is not a case of failure on part of the assessee to disclose any material fact necessary for assessment. Even in the reasons recorded the AO has not alleged that there is failure on part of the assessee to fully & truly disclose all material facts necessary for assessment. In fact the AO after considering the details furnished has accepted the income declared by the assessee. Hence the reopening of assessment is illegal & bad in law. Reliance in this connection is placed on the following cases:- u/s 143(3), this was a case of change of opinion and thus reassessment proceedings could not be sustained.

Chowgule& Company (P) Ltd. Vs. JCIT &Anr. (2023) 224 DTR 295
(Bombay) (HC)
The reasons furnished do not even allege that there was a failure to disclose fully and truly all material facts necessary for the assessees assessment for AY
2012-13. Such failure is an essential juri ictional parameter that must be fulfilled before any notice can be issued for reopening the assessment proceedings after the expiry of four years from the end of the relevant assessment year. In the absence of any such allegation or a plain statement about compliance with this juri ictional parameter, the impugned notice cannot be ordinarily sustained. Besides, given revenue’s contention, even if some latitude is extended to the revenue by overlooking the absence of allegation about failure to disclose material facts, the record bears out that the assessee made complete disclosures in the present case. Consequently, even on facts, the revenue failed to establish any failure to disclose truly and fully all material facts necessary for its assessment for AY 2012-13. Nila Infrastructures Ltd. Vs. ACIT (2023) 223 DTR 401 (Gujarat) (HC)
There is no whisper in the impugned order as regards any failure on the part of assessee to disclose fully and truly all material facts. Grounds on which the AO has proposed to reopen the assessment were part of the scrutiny during the assessment and the AO having consciously taken a particular decision, the change of opinion cannot form the basis for reopening the assessment that too based on same set of facts.

Further in the reasons recorded AO has stated that on perusal of the record available with the office it is gathered that assessee has claimed deduction of Rs.34,60,713/- on account of provision for future expenses which is contingent in nature not allowable u/s 37(1) of the Act. Thus the reopening in the present case is not on the basis of any fresh material coming to the notice of AO but is on the basis of material already on record while completing the original assessment u/s 143(3) of the Act. Hence it is a case of change of opinion and not a reason to belief that income has escaped assessment. Reliance in this connection is placed on the following cases:-
AO having raised certain queries during the assessment proceedings and passed the assessment order after considering the assessee’s response thereto, the reasons recorded by the AO in support of notice u/s 148 concerning the same issue was based upon change of opinion and therefore, the impugned notice is not sustainable.

ACIT & Ors. Vs. Asian Paints Ltd. (2023) 231 DTR 105 (SC)
In view of categorical finding by the High Court that full material facts with regard to the expenditure in question were placed by the assessee before the AO during the course of the regular assessment proceedings, reopening of Wheatons Design Pvt. Ltd. Jaipur.
8
assessment after the expiry of four years from the end of the relevant assessment year is not valid.

ACIT & Ors. Vs. Ceat Ltd. (2022) 218 DTR 441 (SC)
There being no allegations of suppression of any material fact by the assessee, the conditions precedents for reopening of assessment beyond four years are not satisfied and therefore, the impugned notice u/s 148 seeking to reopen the assessment beyond the period of four years has been rightly set aside by the High Court.
Where AO had issued a notice u/s 148 seeking to reopen assessment on ground that CSR expenses claimed by assessee was not allowable as business expenditure, since notice providing reasons to believe itself was based on verification of P&L A/c and computation of income showing amount of CSR expenses debited under head ‘other expenses’ and said amount being added back and claimed as deduction under Chapter VIA as donation, reopening of assessment was purely on re-examination of very same material on basis of which original assessment order was passed and therefore impugned notice was liable to be quashed and set aside.

FramjiDinshaw Petit Parsee Sanatorium Vs. ITO(E) & Ors. (2023) 231
DTR 473 (Bom.) (HC)
Reasons recorded evince that the AO has come to the conclusion that income has escaped assessment ‘on the perusal of the records’. Consequently, there is no question of any failure to disclose any material fact necessary for assessment.
Impugned notice is clearly a case of change of opinion. AO’s reason to believe must be based on some new tangible material which was not available at the time of passing the original assessment order. Reopening was not therefore sustainable.
State Bank of India Vs. ACIT & Ors. (2018) 172 DTR 401 (Bom.) (HC)
Assessment orders passed in regular assessment proceedings do refer to examining the computation of income filed along with the return of income.
Moreover, the assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under sec. 143(3). Therefore, in the present facts, the AO has by necessary implication allowed the claim.
Moreover, the basic document for completing the assessment under sec. 143(3) is the computation of income. Therefore, to the extent the claims made for deduction in the computation of income were disallowed by the AO, discussion on the same is found in the assessment order. It is an accepted position that the Wheatons Design Pvt. Ltd. Jaipur.
9
assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. Where the AO accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings. Thus, issuing the impugned notices on the above ground would prima-facie amount to change of opinion. Admittedly no fresh material/information was obtained by the AO as the same does not find mention in the reasons recorded in support of the impugned notice. Hence, the impugned notices are without juri iction.

S.P. Mani & Mohan Diary Vs. ACIT (2019) 183 DTR 321 (Mad.) (HC)
Notice u/s 148 was issued by the AO after period of four years from the end of the relevant AY on the ground that written off cost of obsolete asset is a capital loss which cannot be allowed as expense and cash paid in respect of development expenses is in violation of sec. 40A(3) and thus the same is not allowable. It was held that when the assessee had shown those two heads under the P&L a/c filed along with the return, it cannot be said that there is failure on the part of the assessee to disclose fully and truly all material facts. Nothing prevented the AO to seek for clarification, if any, in respect of the above said two heads before making the assessment under sec. 143(3) if he has any doubt on those two heads. It is relevant to note that no fresh material, tangible in nature, has come to light before the AO. On the other hand, he wants to change his conclusion in relation to those two heads based on the materials already available. Undoubtedly, such attempt is only a change of opinion and nothing else. It is evident that the materials relevant to subject matter in issue for reopening are already on record before the AO. If the issue is not specifically raised in the assessment order, it cannot be automatically presumed that such issue was not at all considered in the original assessment order. Reopening was therefore not sustainable.

It is further submitted that in the reasons recorded the case of the assessee is considered as covered under clause (c)(iv) of Explanation 2 to section 147 of the Act. This clause applies when excessive loss or depreciation allowance or any other allowance under the Act has been computed. The claim of deduction of expenditure of Rs.34,60,713/- do not fall under clause (c)(iv) as it is neither a case of claim of excessive loss or depreciation allowance or any other allowance but simply a claim of business expenditure. Therefore, the reopening is bad in law.

All these contentions were not considered by CIT(A) NFAC while upholding the action of AO u/s 148 of the Act and thus the order passed by him is erroneous.

In view of above, order passed u/s 147 in consequence to the reasons recorded u/s 148 is illegal and bad in law and the same be quashed.

Ground No.1
Wheatons Design Pvt. Ltd. Jaipur.
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That the Ld. CIT(A), NFAC has erred on facts and in law in disallowing the claim of provision for future expenses of Rs.34,60,713/- under section 37(1) of the IT Act by treating the same as contingent liability.

Facts: -

During the year assessee has claimed deduction of Rs.34,60,713/- on account of ‘Provision for future expense’ under the head “Cost of construction contract” in its books. The assessee filed detailed reply vide letter dt. 17.12.2021 (PB 12-17) stating that the provision for future expenses made during the year has been actually incurred in the subsequent year and is set off against the actual expenditure incurred in the subsequent year. Thus, the expenditure claimed in the construction account under the head provision for future expenses is allowable u/s 37(1) of the Act.

The AO, however, observed that the expenditure which is deductible for income tax purposes is one which is towards a liability actually existing at the time but the putting aside of money which may become expenditure on the happening of an event is not an expenditure. The expenditure is allowable only at the time when expenditure is actually incurred or ascertained. Any liability which is contingent in nature cannot be allowed u/s 37(1) of the IT Act, 1961. Accordingly assessee vide show cause notice dt. 24.03.2022 (PB 18-22) was required to show cause as to why the claim of provision for future expense of Rs.34,60,713/- should not be disallowed and added to the total income of assessee.

In response to the show cause notice assessee filed the reply on 25.03.2022 (PB
23-25) where it relied on certain case laws. The AO, however, after reproducing the show cause notice at Pg 1-4 of the order concluded that assessee has relied upon the decision of Hon’ble Supreme Court in case of Bharat Earth Movers
Vs. CIT 245 ITR 428, however, the facts and circumstances of the case are different in assessee’s case and thereby disallowed the claim of provision for future expenses of Rs.34,60,713/- u/s 37(1) of the Act.

Ld. CIT(A), NFAC at para 4 of the order observed that expenditure is allowable only at the time when expenditure is actually incurred or ascertained. Any liability which is contingent in nature cannot be allowed u/s 37(1) of the Act,
1961. Accordingly he confirmed the disallowance made by AO treating the provision made for future expenses as a contingent liability.

Submission:-

It is submitted that assessee is following mercantile system of accounting which is continued to be followed on year to year basis. In respect of construction contract assessee follows percentage of completion method of accounting. In this connection Para 21 of AS 7- Accounting Standard for construction contract is relevant which reads as under:-
Wheatons Design Pvt. Ltd. Jaipur.
11
When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35. Similarly Para 17 of ICDS-III relating to construction contracts read as under:-

The recognition of revenue and expenses by reference to the stage of completion of a contract is referred to as the percentage of completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed.

Thus, from the combined reading of AS-7 and ICDS-III, it can be noted that in following the percentage of completion method when contract revenue is recognized, the cost associated with it should also be matched. Therefore, if revenue is recognized but the cost associated with it is still to be incurred, the provision for such expenses is required to be made to work out the correct income. In fact a provision is a liability which can be measured by using substantial degree of estimation whereas a contingency is a possible obligation the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of assessee. Hence, the provision for future expense is not a contingent liability but an existing liability which is discharged at a future date. The Income tax Act nowhere provides for disallowance of such provision for expenses which is to be discharged at a future date.

In the present case, assessee has carried out only one construction contract at Panchsheel Marg, New Delhi for construction of a residential house. The assessee started recognizing revenue from this contract from AY 2013-14 which continued in subsequent years also. The assessee recognized the revenue on the basis of running bill raised. Against this the cost estimated is 60%. Accordingly, wherever the actual cost incurred is more than 60% of the running bills raised, the excess cost instead of charging to P&L A/c is taken into work-in-progress and wherever the actual cost incurred is less than 60% of the running bills raised, the differential cost is provided for as provision for future expenses so that the revenue recognized is matched to the cost incurred. The statement showing the income recognized, cost actually incurred, cost that is recognized to match the revenue, the provision for future expenses and cost carried to WIP from FY 2013-14 to 2016-17 is at PB 17. From the same it can be noted that the provision for future expenses made during the year has been actually incurred in the subsequent year and is set off against the actual expenditure incurred in the subsequent year. Thus, the provision made by the assessee for the expenses is not contingent upon happening of the event in as much as event has already happened, the revenue is recognized and therefore, the provision for expenditure
Wheatons Design Pvt. Ltd. Jaipur.
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related to such revenue which is subsequently incurred cannot be said to be contingent liability. Hence, the provision so made is allowable u/s 37(1) of the Act for which reliance is placed on the following decisions:-
Para 4 of the order reads as under:-

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 reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.
Para 11 to 13 of the order reads as under:-

“11.What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized.

ITO Vs. M/s Ranka Colonizers Pvt. Ltd. ITA No.642/JP/17 & 232/JP/17
order dt. 05.12.2017 (Jaipur) (Trib.)
Assessee is a real estate developer. During the year it sold plots of 12534.42 sq.
yard on which it made provision for development expenses @ Rs.500/- per sq.
yard which comes to Rs.62,67,210/-. AO disallowed the provision stating that Wheatons Design Pvt. Ltd. Jaipur.
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Without prejudice to above, it is submitted that assessee has regularly made such provision during FY 2013-14 to 2016-17. In each year the provision made is set off against the actual expenditure and fresh provision is made which is actually incurred in the subsequent year. Finally in FY 2017-18 there did not remain any provision for future expenses. Therefore, if the provision is disallowed in the year under consideration, the same be directed to be allowed in the subsequent year. Further tax rate being the same, it makes no difference on the ex-chequer if the provision is disallowed in one year and allowed in the next year. In the connection reference is drawn to the decision of Hon’ble
457/358 ITR 295 where at Para 32 it is held as under:-

All these contentions were not considered by CIT(A) NFAC while deciding the appeal of the assessee and thus the order passed by him is erroneous.

In view of above, disallowance made by the AO is unjustified and the same be deleted.”

Paper Book

Case laws compilation index

S. No.
Particulars
Pg No.
1. Copy of decision of Hon’ble Madras High Court in case of Durr
1-16
2. Copy of decision of Hon’ble Delhi High Court in case of PCIT
Vs. South Delhi Promoters Ltd. (2023) 293 Taxman 123
17-20
3. Copy of decision of Hon’ble Bombay High Court in case
21-29
S. No.
Particulars
Page
No.
Filed before
AO/CIT (A)
1
Copy of submission filed before ld. CIT(A)
1-10
CIT (A)
2
Copy of Index of Paper Book filed before ld.
CIT(A)
11
CIT (A)
3
Copy of reply dt. 17.12.2021 filed during the course of reassessment proceedings along with the details of provision for future expenses
12-17
Both
4
Copy of show cause notice dt. 24.03.2022
18-22
Both
5. Copy of assessee’s reply dt. 25.03.2022 in response to above show cause notice
23-25
Both
Wheatons Design Pvt. Ltd. Jaipur.
15
ofChowgule& Company (P) Ltd. Vs. JCIT &Anr. (2023) 224
DTR 295
4. Copy of decision of Hon’ble Gujarat High Court in case ofNila
30-33
5. Copy of decision of Hon’ble Supreme Court in case of ACIT Vs.
Marico Ltd. (2020) 190 DTR 109
34-35
6. Copy of decision of Hon’ble Supreme Court in case of ACIT
&Ors. Vs. Asian Paints Ltd. (2023) 231 DTR 105
36-37
7. Copy of decision of Hon’ble Supreme Court in case of ACIT
&Ors. Vs. Ceat Ltd. (2022) 218 DTR 441
38-39
8. Copy of decision of Hon’ble Bombay High Court in case of FramjiDinshaw Petit Parsee Sanatorium Vs. ITO(E) &Ors.
(2023) 231 DTR 473
40-46
9. Copy of decision of Hon’ble Madras High Court in case of CIT
Vs. India Cements Ltd. (2019) 181 DTR 105
47-57
10. Copy of decision of Hon’ble ITAT, Jaipur Bench in case of ITO
Vs. M/s Ranka Colonizers Pvt. Ltd. ITA No.642/JP/17 &
232/JP/17 order dt. 05.12.2017
58-76

In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 12/11/2025. ¼ jkBkSM+ deys'k t;UrHkkbZ ½

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(RATHOD KAMLESH JAYANTBHAI)

(Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 12/11/2025
*Santosh
आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
1. vihykFkhZ@The Appellant- Wheatons Design Pvt. Ltd., Jaipur.
2. izR;FkhZ@ The Respondent- ACIT/DCIT, Circle-6, Jaipur.
2. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत.
6. xkMZ QkbZy@ Guard File { ITA No. 781/JPR/2025}

vkns'kkuqlkj@ By order

सहायक पंजीकार@Aेेज. त्महपेजतंत