Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method Of Accounting - Change of Project completion Method Where assessee was a non-resident company carrying on business of construction, erection and commissioning of liquid waste treatment plants and was following complete contract method of accounting and as regards its claim towards provision for expenditure, Tribunal remanded issue back to Assessing Officer to determine stage to which project was completed during relevant year and allow expenditure accordingly on ground that as per clause 21 of AS-7 expenditure could be allowed depending on stage up to which contract work was completed, Tribunal was justified in doing so [In favour of assessee] [Assessment year 2001-02] CIT v. Secit SPA Societa Ecologica [2009] 316 ITR 378 (Mad.) The assessee was a non-resident company carrying on the business of construction, erection and commissioning of liquid waste treatment plants and was following the completed contract method of accounting. The assessee filed its return for the assessment year 2001-02 declaring a loss and claimed a sum towards provision for expenditure. The Assessing Officer disallowed the provision for expenditure on the ground that the amount claimed by the assessee was based on estimates by the management in proportion to the state of completion and that the AS-7 does not permit any negative work-in-progress to be allowed, but the claim made by the assessee was as negative work-in-progress and the assessee was following the completed contract method of accounting. The Tribunal remanded the issue back to the Assessing Officer to determine the stage up to which the project was completed during the relevant year and allow the expenditure accordingly on the ground that as per clause 21 of the AS-7 expenditure could be allowed depending on the stage up to which the contract work was completed. Held that as per clause 21 of the AS-7, expenditure could be allowed depending on the stage to which contract work was cumulated. The authorities below had rightly rejected the claim of the assessee on the estimated loss. The Tribunal was justified in remanding the claim of the Assessing Officer with a direction to…

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