- (1.) This reference under section 256(1) of the Income-tax Act, 1961 (for short, "the IT Act"), relating to the assessment year 1977-78, is answered on the following question referred to by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, "the ITAT") dated March 5, 1993: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the provision on account of contingency was an allowable deduction and, consequently, erred in deleting the disallowance of Rs. 87,224?" The brief facts, which can be noticed, are that the respondent-assessee is a limited company and was in the business of contract for supply of irrigation gates, job-work and transportation. The assessee made a provision for contingency amounting to Rs. 87,224 on the total amount of Rs. 13,40,070 of work executed at 6 1/2 per cent. It was contended on behalf of the assessee that the work of dam at Right Bank Dam Division, Hidkal Dam had not been completed and, therefore, a provision was made only on the supplies. However, the Assessing Officer (for short, "the AO") was of the view that the said amount is nothing but a provision made for future contingency not ascertained and, accordingly, held that the said amount, relatable to the subsequent year, cannot be allowed and, thus, disallowed the said amount.
(2.) The disallowance was assailed by the assessee before the Commissioner of Income-tax (Appeals), (for short, "the CIT(A)"). The Commissioner of Income-tax (Appeals), who in view of an order of the Income-tax Appellate Tribunal in the case of Instrumentation Ltd., allowed the claim.
(3.) The Revenue preferred an appeal before the Income-tax Appellate Tribunal and it was argued on behalf of the Revenue that the facts in the case of Instrumentation Ltd. vis-a-vis the present assessee are entirely distinguishable and, thus, the order of the Income-tax Appellate Tribunal in the case of Instrumentation Ltd. cannot be applied. The contention of the Revenue that it is only a contingent liability, as it has been created on an estimated basis, i.e., on a certain percentage of supplies made this year and, thus, cannot be allowed, did not impress the Income-tax Appellate Tribunal and it placed reliance on the order of the Instrumentation Ltd. which was decided on December 17, 1981. The Income-tax Appellate Tribunal further observed that the present matter is being decided on July 30, 1992, and despite of 11 years having been passed since the date of the order of the Income-tax Appellate Tribunal in the case of Instrumentation Ltd., the Revenue was unable to bring on record whether reference was filed in the case of Instrumentation Ltd. or otherwise and, thus, dismissed the appeal of the Revenue.;