Tata Projects Limited Vs DCIT (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) disposed of cross-appeals filed by Tata Projects Limited and the Revenue, along with the assessee’s cross objection, arising from the CIT(A)’s order dated 13.03.2025 for Assessment Year 2018-19. The assessment had been completed under Section 143(3) read with Section 144B of the Income-tax Act. The assessee challenged the disallowance of Rs.1,08,77,906 relating to expenditure incurred during the Defect Liability Period (DLP) of completed projects, while the Revenue challenged relief granted by the CIT(A) concerning bad debts of Rs.2,19,99,037 and employees’ contribution of Rs.8,40,782 under Section 36(1)(va).
The assessee, engaged in executing projects and turnkey contracts in India and abroad, had reported total income of Rs.123,62,85,510. The Assessing Officer made a total disallowance of Rs.3,16,35,781 on account of contractual provisions, comprising Rs.2,19,99,037 towards bad debts written off and Rs.1,08,77,906 towards DLP expenditure. A further disallowance of Rs.8,40,782 was made under Section 36(1)(va) read with Section 2(24)(x) concerning employees’ contributions to PF/ESIC.
Regarding DLP expenditure, the assessee explained that servicing during the DLP was an integral part of its construction contracts. Defects, imperfections or poor workmanship falling within its contractual responsibility could require rectification after completion of a project, and the liability arose only when such defects were identified and rectified. The assessee contended that these were business expenses allowable under Section 37(1), rather than prior-period expenses or contingent liabilities. The AO had treated the expenditure as relating to projects whose revenue had already been recognized and therefore as prior-period expenses. The CIT(A) sustained the disallowance because the assessee had not furnished sufficient documentary evidence demonstrating accrual of the liability during the DLP.
