By TIOL News Service

BANGALORE, DEC 01, 2016: THE ISSUE IS - Whether a provision for estimates of expenditure made for upcoming years, can be claimed as deduction, without adducing any evidences/bills/receipts in respect of the same. NO IS THE ANSWER.

Facts of the case:

The assessee engaged in the business of real estate development. The assessee filed its return declaring a total income of Rs.3,65,85,350. The assessee was developing a project Ananda Bhairavi comprising of 122 units. During the year under consideration, the assessee has declared income from sale of 87 units. The AO accepted total income declared by the assessee while passing assessment order u/s 143(3). Subsequently, the CIT proposed to revise the assessment by issuing a notice u/s 263 on the issue that a sum of Rs.2,07,75,951 representing the provision for expenses towards cost of completion of flats has been wrongly allowed by the AO without proper application of mind to the facts of the case and the relevant provisions of the Act. Consequently, the CIT set aside the assessment order vide revision order and directed the AO to make fresh assessment after verification of relevant records and facts and giving an opportunity of hearing to the assessee. In pursuant to the directions of the CIT, the AO called for necessary details and consequently disallowed the said claim of Rs.2,07,75,951 on the ground that the provisions debited to the P & L Account is not an allowable claim as per the provisions of the Income Tax Act.

On appeal, the ITAT held:

++ We find that though the assessee has given the details of the expenditure which was allocated against income declared during the year on estimate basis and creating a provision however, nothing has been brought on record either before the authorities below or before us to show that this expenditure was actually having any direct or indirect nexus with the 87 units sold during the year under consideration...We find that the claim of the assessee is not supported by any evidence as the work order in respect of this expenditure itself was issued by the assessee after the end of the financial year relevant to the assessment year under consideration....Despite a specific question raised by the CIT(A) that the assessee has not furnished any documentary evidence to show that the flats sold during the year were incomplete and were required to be completed as per the agreement with the buyers.

++ The assessee has not furnished any such document or sale document before us to show that these 87 flats sold during the year were incomplete and the assessee was to complete the incomplete work after the sale of these flats. Therefore in the absence of any material to establish the nexus between the expenditure in question and the flats sold during the year the claim of apportionment of the expenditure against the income from sale of these flats cannot be allowed.... Therefore factually it cannot be revenue neutral as claimed by the assessee. In view of the facts and circumstances of the case as well as above discussion, we do not find any error or illegality in the orders of the authorities below in disallowing the provision of expenditure.

(See 2016-TIOL-2092-ITAT-BANG)