DCIT, CIRCLE-19(1), C.R. BUILDING, I.T.O. V. R D VARMA AND CO PVT. LTD., GOPAL DAS BHAWAN BARAKHAMBA

ITA 161/DEL/2024

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The case involves R.D. Varma & Co. Pvt Ltd, a real estate developer, which faced disallowance of a compensation provision amounting to Rs. 17,67,63,000 by the Assessing Officer. This provision was made for delayed possession of flats, as per the flat-buyer agreements, which stipulated a compensation of Rs. 5 per sq.ft. per month for delays beyond the agreed possession date. The Assessing Officer disallowed this amount considering it a contingent liability, as the company was contesting additional claims before the National Consumer Dispute Redressal Commission (NCDRC). The CIT(A) reversed this decision, leading to the Revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, emphasizing that the specific compensation amount was not under dispute and was a contractual obligation of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312249 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2017-2018
• Other Referred Cases: DLF Southern Homes Pvt Ltd. Civil Appeal No. 6239 of 2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: MAYANK THAKUR
• Section: 37

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘F’ BENCH, NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 161/DEL/2024 [A.Y 2017-18] The Dy .C.I.T Vs. R.D. Varma and Co. Pvt Ltd Circle - 19(1) Gopal Das Bhawan, 16th Floor New Delhi Barakhamba, New Delhi PAN: AAACR 3373 A (Appellant) (Respondent) Assessee By : Shri Mayank Thakur, AR Department By : Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing : 28.04.2025 Date of Pronouncement : 28.04.2025 ORDER PER NAVEEN CHANDRA, AM :- This appeal by the Revenue is directed against the order of the ld. CIT(A)-20, New Delhi dated 23.11.2023 for A.Y 2017-18. 2 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] 2. The revised grounds raised by the Revenue read as under: “(1) \"Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting disallowances of Rs. 17,67,63,000/- being contingent in nature made by the Assessing Officer as such liability was not ascertainable\" (ii) \"Whether on the facts and in the circumstances of the case. The Ld. CIT(A) has erred in deleting disallowances as the payment of compensation was under the dispute before the National Consumer Dispute Redressal Commission and the assessee had clearly taken a stand that the liability to pay compensation does not arise due to various reasons. The liability to pay compensation is an unascertained liability and so it is purely contingent in nature. Accordingly, the same is not allowable under section 37 of the IT Act, 1961 unless the liability becomes ascertainable, as the liability is still under dispute and has not been owned by the assessee.\" (iii) \"The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal.\" 3. Facts, in brief are that R.D. Varma & Co. Private Limited, the assessee, is a Real Estate Developer company and has developed a complex of multistoried residential flats on 11.44 acres of land in Sector- 52, Gurugram, Haryana on the land belonging to Ardee Infrastructure 3 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] Pvt. Ltd. and their associate companies. In terms of the development agreement, marketing of the flats was to be done by Ardee Infrastructure Pvt. Ltd. The flat-buyer agreements, in respect of the said flats, contained a clause that the developer (the assessee in the instant case) has to give possession of the flats within 30 months from the date of commencement of the construction of the flats and if the same is delayed beyond the stipulated period, then the developer shall pay compensation to the flat buyers @Rs. 5/-per sq.ft. per month for such a period of delay. 4. The assessee started the construction of the flats in the year 2006. However, the possession of the flats was handed over to the flat buyers only in the financial years 2015-16 to 2016-17. Since, the possession of the flats was delayed beyond the stipulated period, in terms of flat- buyer agreement a compensation @Rs.5/- per sq.ft. per month was payable to the flat buyers. The assessee provided for this liability in its books of accounts amounting to Rs.17,67,63,000/- which was disallowed by the Assessing Officer considering the same as unascertained and contingent liability. The Assessing Officer based his decision on the premise that the assessee company was contesting the amount claimed 4 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] by the flat buyers before the National Consumer Dispute Redressal Commission(\"NCDRC). 5. The assessee preferred an appeal before the ld. CIT(A)/NFAC for the entire amount of disputed addition by the learned Assessing Officer. The ld. CIT(A) has allowed the relief for the entire amount of disputed addition vide order dated 23.11.2023. 6. Now the department is in appeal before the us against the order of the Hon'ble CIT(A)/NFAC. 7. Before us, the ld. DR vehemently contended that the ld. CIT(A) wrongly deleted the disallowances as the payment of compensation was under the dispute before the National Consumer Dispute Redressal Commission and the assessee had clearly taken a stand that the liability to pay compensation does not arise due to various reasons. The liability to pay compensation is an unascertained liability and so it is purely contingent in nature. Accordingly, the same is not allowable under section 37 of the IT Act, 1961 unless the liability becomes ascertainable. The ld. DR prayed for upholding the Assessing Officer’s order as the liability is still under dispute and has not been owned by the assessee. 5 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] 8. On the other hand, the ld. counsel for the assessee submitted that the learned Assessing Officer has failed to appreciate the quantum of compensation claimed by the flat buyers before the NCDRC for late possession of the flats vis-a-vis the compensation provided by the assessee in the books of accounts. The flat buyers have claimed much more than what the assessee had to pay as a contractual obligation under the flat-buyers agreement. Apart from the compensation of Rs. 5/- per sq.ft. per month, the flat buyers are also claiming interest @ 21% per annum for the delay along with the compensation for shortfall in other amenities. 9. The ld. counsel for the assessee further submitted that it is not the case that the liability of Rs.5/- per sq. ft. per month is being denied by the assessee but the amount over and above this being demanded by the flat buyers is being challenged and denied by the assessee company before the NCRDC. This additional demand of flat buyers has not been provided in the books of accounts/financials of the assessee company. In the assessee’s reply to various claims filed by flat buyers before the NCDRC, the assessee has merely maintained that there is no willful default on its part, in the delayed handing of the possession of the Flats. Nowhere has the assessee denied that there has been no default on its 6 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] part. The ld. counsel for the assessee relied upon the judgment of the Hon'ble Supreme Court in the case of DLF Southern Homes Pvt Ltd. Civil Appeal No. 6239 of 2019. 10. We have heard the rival submissions and have perused the relevant material on record. The assessee has provided for compensation of Rs.5/- per sq. ft. per month amounting to Rs. 17,67,63,000/-. This amount is not contested before NCDRC. What is contested is the 21% per annum for delay demanded by the flat owners before the NCDRC. In view of the above stated facts and legal precedents, the liability determined @ Rs. 5/- per sq. ft per month for compensation payable is in accordance with the written agreements, duly recognized as per the system of accounting followed by the assessee, prescribed by the law, certified by the auditors. The above facts would confirm that it is an ascertained liability duly quantified and certified by the auditors and therefore is fully allowable under the provisions of the Income tax Act. The said contention of the assessee is further strengthened by the judgment of the Hon'ble Supreme Court of India in the case of DLF Southern [supra]. In view of the same, we see no reason to interfere with the decision of the ld. CIT(A). The ground of Revenue is, accordingly, dismissed. 7 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] 11. In the result, appeal of Revenue in ITA No. 161/DEL/2024 is dismissed. Order pronounced in open court on 28.04.2025. Sd/- Sd/- [SATBEER SINGH GODARA] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 28th APRIL, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi 8 ITA No. 161/DEL/2024 R.D. Varma & Co. [A.Y 2017-18] Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "