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26.2. The AR placed reliance of the order of the CIT(A), who relied on the order of his predecessor on identical facts in A.Y. 2006-07. The CIT(A) deleted the addition made by the AO regarding the provision for defect liability expenses, citing consistent treatment in prior years (A.Y. 2005-06 and A.Y. 2006-07), where similar additions had been deleted. In A.Y. 2006-07, the CIT(A) observed that the assessee's contracts included a defect liability clause, requiring the assessee to rectify post-construction defects. The assessee created provisions for these liabilities at 0.75% of turnover, which were utilized as claims arose, and the CIT(A) deemed this method reasonable and based on past experience. The CIT(A) referenced judicial precedents, including Bharat Earth Movers v. CIT (245 ITR 428, SC), which upheld that if a business liability has arisen, it should be allowed as a deduction even if its quantification is deferred. Accordingly, following the prior year's decision JMC Projects (India) Ltd. vs. DCIT-ACIT (By assessee and Revenue) Asst. Years : 2007-08 to 2015-16 and observing that the provision was neither excessive nor tax-motivated, the CIT(A) deleted the disallowance, concluding that the assessee's method was justified, with liability estimation being fair and in line with accepted commercial practices.

27. During the course of hearing before us, the AR placed reliance on the decision of Co-ordinate Bench in assessee's own case of A.Y. 2006-07 (ITA No.86/Ahd/2008) which was challenged by the revenue in the jurisdictional high court and the same was dismissed by Hon'ble High Court of Gujarat (Tax Appeal No. 194 of 2017).

28. The DR relied on the order of AO and stated that the assessee has not demonstrated that any expenditure is debited to such provision.

29. Based on the factual matrix and judicial principles affirmed by higher courts, including the Hon'ble Gujarat High Court in the case of Principal Commissioner of Income Tax v. JMC Projects India Ltd. (Tax Appeal No. 194 of 2017), we find no merit in the Revenue's appeals regarding the disallowance of the defect liability provision. The crux of the Revenue's argument centres on the assertion that the provision represents a contingent liability, lacking crystallization and therefore ineligible for deduction. However, both the CIT(A) and the Tribunal have repeatedly upheld the provision as an allowable business expense, finding it to be based on a scientific estimation reflective of foreseeable obligations under defect liability clauses within the assessee's construction contracts. The Co-ordinate Bench's reliance on Rotork Controls India Pvt. Ltd. v. CIT (314 ITR 62) is well- founded, as it establishes that warranty-related provisions, when estimated JMC Projects (India) Ltd. vs. DCIT-ACIT (By assessee and Revenue) Asst. Years : 2007-08 to 2015-16 based on past experience and the nature of the business, qualify as deductible liabilities under Section 37 of the Act. Moreover, the Hon'ble Gujarat High Court in the aforementioned case confirmed that such provisions, being tied to contractual obligations and industry practices, cannot be classified as merely contingent, given the contractual retention requirements and the historical necessity of rectifying defects post-project completion. The High Court dismissed the Revenue's contention, underscoring that the absence of tax motivation further justified the assessee's approach.