Business expenditure — Accrued or contingent liability — Provision for future expenses based on turnover — Amount set apart to meet future liabilities — Expenses in-built in the contract — Provision not contingent — Allowable deduction

58 Principal CIT vs. CEC SOMA CICI JV

[2023] 456 ITR 705 (Kar)

A.Ys.: 2011–12, 2012–13

Date of Order: 21st March, 2023

S. 37 of ITA 1961 Business expenditure — Accrued or contingent liability — Provision for future expenses based on turnover — Amount set apart to meet future liabilities — Expenses in-built in the contract — Provision not contingent — Allowable deduction. The assessee entered into a contract with BMCRL to design, construct tunnels and do other civil works. The total projected future expenses (non-billable expenses) included the reconstruction of roads damaged while constructing tunnels and during the other construction activities undertaken by the assessee. The non-billable expenses were in-built in the contract and payment for them was made by the assessee and not BMRCL. For the A.Ys. 2011–12 and 2012–13, based on the turnover, the assessee made provision for expenses and claimed deduction. The Assessing Officer disallowed the claim. The Commissioner (Appeals) allowed the assessee’s appeal on the grounds that the provision was not contingent in nature but based on the matching expenditure on ascertained liability. The Tribunal upheld his order. The Karnataka High Court dismissed the appeals filed by the Revenue and