INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Loss foreseeable on project - Estimation of loss not crystalised

AO noted that assessee-company had debited expenditure towards 'loss foreseeable on project' under the Head 'Construction Cost'. The assessee-company was asked to explain why this foreseeable loss on project be not disallowed. Assessee-company filed reply stating therein that foreseeable loss on project was allowable under the Income Tax Act. The AO did not accept the contention of assessee-company. The expenditure on this account may increase or decrease, as such the same amount of loss was not ascertained. The AO accordingly added the same. DRP in this matter had again examined the issue. The DRP was, of the view that claim of assessee-company on this count was made merely on estimate. Moreover, if the taxpayer incurred such loss in a project, the same would be allowed to it in the assessment year when the loss was actually crystallized and such event had not taken place in the assessment year under appeal. The DRP accordingly upheld the addition.Held: The assessee merely submitted that assessee had given treatment in the accounts as per Accounting Standard-7 issued by ICAI. However, assessee was not able to rebut the findings of the DRP in this regard. It was not in dispute that the claim was made on mere estimate. It was also not disputed that the loss have not actually been crystallized during the assessment year under appeal. It was also not explained as to how the foreseeable loss have been calculated and what was the justification. It is well settled law that if assessee would have incurred actual loss, then the same would be allowed in the year when such loss have been incurred and crystallized. The DRP had specifically noted that even the loss have not taken place in assessment year under appeal. Mere making a claim on account of foreseeable loss on estimate is not an allowable deduction under the Act. Findings of the authorities below were, therefore, confirmed and the appeal of assessee was dismissed.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2007-08

INCOME TAX ACT, 1961

Section 37(1)

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