M/S SHANTIPUSHPA ASSOCIATES, BILASPUR(CG) V. I.T.O. Ward 1(1), BILASPUR(CG)

ITA 102/BIL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4424 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 09-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V B SARGAR
• Assessee Lawyers: LAKSHMI SHARMA
• Keywords: Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH : RAIPUR BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.102/RPR/2015 ASSESSMENT YEAR: 2010-11 SHANTIPUSHPA ASSOCIATES, OPP. BANK OF BARODA, LINK ROAD, BILASPUR (CG). PAN : AAFFS5574B VS. ITO, WARD 1(1), AYAKAR BHAVAN, VYAPA VIHAR, BILASPUR (CG). (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL KUMAR AGRAWAL, CA & MS LAKSHMI SHARMA REVENUE BY : SHRI V.B. SARGAR, DR DATE OF HEARING : 10.08.2018 DATE OF PRONOUNCEMENT: 22.10.2018 ORDER PER R.K. PANDA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12 TH JANUARY, 2015 OF THE CIT(A), BILASPUR, RELATING TO ASSESSMEN T YEAR 2010-11. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONTRACTOR AND BUILDER. I T FILED ITS RETURN OF INCOME ON 25 TH MARCH, 2011 DECLARING TOTAL INCOME AT RS.4,17,820/- . THE ASSESSING OFFICER COMPLETED ITA NO.102/RPR/2015 2 THE ASSESSMENT U/S 143(3) DETERMINING THE TOTAL INC OME AT RS.1,22,94,010/- WHEREIN HE MADE ADDITIONS OF RS.2,50,000/- BY DISALLOWING AN A MOUNT OF RS.2,50,000/- ON ESTIMATE BASIS OUT OF THE AGGREGATE EXPENDITURE OF RS.9,41,721/- IN RESPECT OF SALARY, COOLIE, CARTAGE, PURCHASE EXPENSES AND TRAVELLING E XPENSES FOR WANT OF COMPLETE VOUCHERS. SIMILARLY, HE MADE ADDITION OF RS.2,20,7 28/- BEING THE DIFFERENCE IN THE VALUE OF INVESTMENT DECLARED BY THE ASSESSEE TOWARD S CONSTRUCTION OF BUILDING AT RS.97,46,803/- AND THE VALUE DETERMINED BY THE DVO AT RS.99,67,531/-. THE ASSESSING OFFICER FURTHER MADE ADDITION OF RS.1,14, 05,462/- BEING THE AMOUNT DEBITED BY THE ASSESSEE ON ACCOUNT OF EXPENSES TO BE INCURR ED ON THE SOLD AREA ON THE GROUND THAT THE PROVISION DEBITED BY THE ASSESSEE IS NOT A N ALLOWABLE EXPENDITURE. 3. IN APPEAL, THE LD.CIT(A) DELETED THE ADDITION OF RS.2,20,728/- FOR WHICH THE REVENUE IS NOT IN APPEAL, THEREFORE, WE ARE NOT CON CERNED WITH THE SAME. SO FAR AS THE ADDITION OF RS.2,50,000/- MADE BY THE ASSESSING OFF ICER OUT OF VARIOUS EXPENSES CLAIMED IN THE P&L ACCOUNT, THE LD.CIT(A) RESTRICTE D THE SAME TO RS.1,25,000/-. SO FAR AS THE ADDITION OF RS.1,14,05,462/- DISALLOWED BY THE ASSESSING OFFICER OUT OF THE PROVISIONS MADE FOR EXPENSES INCURRED IN THE SOLD A REA IS CONCERNED, THE LD.CIT(A) ALLOWED ONLY RS.18 LAKHS AND SUSTAINED THE BALANCE AMOUNT. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING REVISED GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID CIT(A) HAS ERRED IN NOT ADJUDICATING THE ISSUE THAT THE LD AO HAS DISALLOWED THE EXPENSES AT RS.2,50,000, WHILE THE A SSESSEE HAS INCURRED ITA NO.102/RPR/2015 3 EXPENSES AT RS.9,41,721, OUT OF WHICH ONLY RS.2,44, 108 HAS BEEN CLAIMED IN THE P&L ACCOUNT AND THE REMAINING OF RS. 6,97,613 HAS BEEN CAPITALIZED AND INCLUDED IN BUILDING WIP ACCOUNT AS ON 31-3-10, AND HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE AT RS.1,25,000 ON ADHOC BASIS WITHOUT REJECTING THE BOOKS OF ACCOUNT U/S 145(3), AND HENCE, ADDITION SUSTAINED AT RS.1,25,000 IS LIABLE TO BE D ELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF PROVISION OF EXPENSES AT RS.96,05,462, WITHOUT CONSIDERING THE FACT THAT, THE ASSESSEE HAS EXPENSED ALL THE AMOUNTS OF RS.1,14,05 ,462/- IN BETWEEN 1.4.2010 TO 30.6.2011 RELATING TO THE PROVISION OF EXPENSES MADE ON 31.3.2010 AND THERE IS NO BALANCE OUTSTANDING AS ON 31.3.2011 IN THE ACCOUNT OF PROVISION FOR EXPENSES, IN SPITE OF TH E FACT THAT, THE DVO HAS ALSO VERIFIED & CERTIFIED THAT THE ASSESSEE HAS EXP ENSED TOTAL COST AT RS.10,57,06,781 FOR THE TOTAL SALEABLE AREA OF 68,6 92 SQ. FEET (I.E., SOLD AREA OF 17,806 SQ. FEET AND REMAINING AREA OF 50,88 6 SQ. FEET) UP TO 30-6- 2011 AND THIS COST OF RS.10,57,06,781 OF TOTAL ARE A OF 68,692 SQ. FEET, HAS ALSO NOT BEEN OBJECTED/ REFUTED BY THE LD AO, A ND HENCE, ADDITION SUSTAINED AT RS.96,05,462 IS LIABLE TO BE DELETED. 3. WITHOUT PREJUDICE TO THE ABOVE, ALTERNATIVELY, T HE ID CIT(A) HAS ERRED IN NOT ADJUDICATING THE ISSUE THAT THE REVENU E RECOGNITION IN CASE OF BUILDER & DEVELOPER, MAY BE ADOPTED AS PER THE ACC OUNTING STANDARD-9 & PERCENTAGE OF COMPLETION METHOD BY ADOPTING 50% COMPLETION AS ON 31-3-2010 (I.E., AS CERTIFIED BY THE DVO) AND ACCOR DINGLY, THE REVENUE (I.E., SALE PROCEEDS) WILL BE RECOGNIZED (SCALED DO WN) AT RS.1,13,88,512 (I.E., AT 50% COMPLETION AS ON 31-3-2010) IN PLACE OF RS.2,27,77,025 AND THUS, THERE IS NO REQUIREMENT OF MAKING PROVIS ION FOR EXPENSES OF RS. 1,14,05,462, AND THUS, THE ADDITION SUSTAINED A T RS.96,05,462 IS LIABLE TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID CIT(A) HAS ERRED IN ESTIMATING THE LIABILITY FOR FUTURE EX PENSES AT RS.18,00,000 FOR COST OF TRANSFORMER, INTERNAL ELECTRICITY CONNE CTION, COMMON TOILETS AND PARKING SPACE, AND FOR SUCH ARBITRARY AND UNFAI R ESTIMATION, HE HAS NOT GIVEN ANY VALID/ ADMISSIBLE BASIS, AND HE FURTH ER ERRED IN NOT ESTIMATING THE LIABILITIES FOR FUTURE EXPENSES FOR THE COMMON AREA IN THE COMMERCIAL COMPLEX, FACILITIES LIKE- LIFTS, FLOORIN G, PLASTERING, PAINTING, WATER FITTINGS, SECURITY SYSTEM EXPENSES, COMMON CO RRIDORS, WATER HEAD TANKS ETC. WHICH IS ESSENTIAL PART OF THE COMMERCIA L COMPLEX, AND FOR THE LEGAL OBLIGATION TAKEN TO COMPLETE THE REMAINING W ORKS MENTIONED IN ITA NO.102/RPR/2015 4 THE ALLEGED SALE DEEDS FOR THE SOLD AREA OF SHOPS, HALLS & OFFICES OF 17,806 SQ. FEET. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) HAS ERRED IN CONCLUDING THAT CONSTRUCTION CO ST OF SOLD AREA OF 17,806 SQ.FEET WOULD BE AT RS.716 PER SQ.FEET (I.E. , RS. 1,09,53,743 ACTUALLY INCURRED PLUS RS.18,00,000 ACCEPTED AS LIA BILITY FOR FUTURE EXPENSES), WHILE THE AVERAGE CONSTRUCTION COST COME S TO RS. 1,538 PER SQ.FEET (I.E., RS. 10,57,06,781 AS TOTAL COST INCUR RED FOR THE WHOLE AREA OF 68,692 SQ.FEET) WHICH WAS DULY CERTIFIED BY THE DVO AND IT WAS ALSO NOT OBJECTED/ REFUTED BY THE LD AO AS WELL AS THE ID CI T(A). 5. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SO FAR AS THE GROUND NO.1 IS CONCERNED, THE SAME RELATES TO ORDER OF THE CIT(A) IN SUSTAINING THE DISALLOWAN CE AT RS.1,25,000/- AS AGAINST RS.2,50,000/- DISALLOWED BY THE ASSESSING OFFICER. WE FIND, THE ASSESSING OFFICER, AFTER VERIFICATION OF THE DETAILS OF EXPENSES SUCH AS SALARY, COOLIE, CARTAGE, PURCHASE EXPENSES AND TRAVELLING EXPENSES FOUND THAT THE EXP ENSES ARE SUPPORTED BY INTERNAL VOUCHERS ONLY AND DETAILS LIKE NAME AND ADDRESS OF EMPLOYEE, DESIGNATION, WORKS ASSIGNED, ETC. ARE NOT PROPERLY MAINTAINED AGAINST THE PAYMENT OF SALARY. THE SALARY DISBURSEMENT REGISTER WAS NOT PROVIDED AND THE COMP ONENT OF PERSONAL EXPENSES CANNOT BE RULED OUT FOR WANT OF PROPER BILLS AND VO UCHERS AGAINST TRAVELLING EXPENSES. THEREFORE, THE ASSESSING OFFICER ON AD HOC BASIS MADE DISALLOWANCE OF RS.2,50,000/-. WE FIND THE LD.CIT(A), AFTER CONSIDERING THE TOTALI TY OF THE FACTS, RESTRICTED SUCH DISALLOWANCE TO RS.1,25,000/-. THE ACTION OF THE C IT(A), IN OUR OPINION, IS JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. IT I S AN ADMITTED FACT THAT THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, COULD NOT PRODUCE THE VOUCHERS WITH FULL ITA NO.102/RPR/2015 5 SUPPORTING EVIDENCES. IN OUR OPINION, WHENEVER AN EXPENDITURE IS CLAIMED, THE ONUS IS ALWAYS ON THE ASSESSEE TO SUBSTANTIATE THE SAME WIT H EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER REGARDING THE ALLOWABILITY OF THE SAME. SINCE THE ASSESSEE, IN THE INSTANT CASE, HAS FAILED TO DISCHARGE THE ONUS CAST ON IT BY ADDUCING NECESSARY CORROBORATIVE PROOF, ESPECIALLY WHEN THE PAYMENTS A RE MADE IN CASH, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ) SUSTAINING AN ADDITION OF RS.1,25,000/- OUT OF THE DISALLOWANCE OF RS.2,50,00 0/- MADE BY THE ASSESSING OFFICER. THE GROUND RAISED BY THE ASSESSEE IS, ACCORDINGLY, DISMISSED. 6. SO FAR AS THE REMAINING FOUR GROUNDS ARE CONCERNED, THEY ALL RELATE TO THE ORDER OF THE CIT(A) GIVING RELIEF OF ONLY RS.18 LAKHS OUT OF THE ADDITION OF RS.1,14,05,462/- MADE BY THE ASSESSING OFFICER OUT OF THE PROVISION FOR EXPENSES. 7. THE FACTS, IN BRIEF, ARE THAT THE ASSESSING OFFICER , ON VERIFICATION OF THE AUDIT REPORT SUBMITTED BY THE ASSESSEE FOUND THAT THE ASS ESSEE FIRM HAS DEBITED AN AMOUNT OF RS.1,14,05,462/- TO PROFIT & LOSS ACCOUNT UNDER THE HEAD PROVISION FOR EXPENSES TO BE INCURRED ON SOLD AREA. ON BEING ASKED BY THE AS SESSING OFFICER TO EXPLAIN THE BASIS OF CALCULATION OF THE EXPENSES, THE ASSESSEE SUBMIT TED THAT THE PROVISIONS FOR THE EXPENSES ARE DEBITED TO MEET OUT THE EXPENSES TO BE INCURRED PROPORTIONATELY FOR THE COMMON AREA OF THE COMMERCIAL COMPLEX. ACCORDING T O THE ASSESSING OFFICER, A PROVISION IS RECOGNISED WHEN: (I) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF THE PAST EVENT; (II) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION AND (III) A RELIABLE ESTIMATION CAN BE MADE OF THE AMOUNT OF THE ITA NO.102/RPR/2015 6 OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PR OVISION CAN BE RECOGNIZED. THE ASSESSING OFFICER OBSERVED THAT THERE IS NO DOUBT T HAT THERE IS AN OBLIGATION AS A RESULT OF THE PAST EVENT AND AN OUTFLOW OF RESOURCES WILL BE REQUIRED. HOWEVER, THE QUESTION IS AS TO WHETHER THE ESTIMATE MADE BY THE ASSESSEE IS RELIABLE OR NOT. HE NOTED THAT THE ASSESSEE HAS MADE AN ESTIMATION OF THE CONSTRUCTION WORK TO BE DONE IN THE COMING YEARS OUT OF THE SALE RECEIPT OF THE CURRENT YEAR. HE NOTED FROM THE NATURE OF THE WORK TO BE DONE BY THE ASSESSEE IN THE COMING YEARS THAT THE COST WILL VARY FROM TIME TO TIME AND, THEREFORE, IT IS NOT CRYSTAL CLEAR. SINCE THE RE IS A DOUBT REGARDING THE ESTIMATION OF THE COST TO BE DONE IN THE FUTURE AND NOW, THE RELI ABILITY IN THE ESTIMATION IS ALSO DOUBTFUL AND THE CONDITION TO RECOGNISE A PROVISION IS NOT FULFILLED, THEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD OF THE PROVISION IS NOTHING BUT ONLY A DEFERMENT OF PROFIT AND TAX. HE, THEREFORE, DISALL OWED THE PROVISION FOR EXPENSES OF RS.1,14,05,462/- AND MADE ADDITION OF THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE. 8. BEFORE THE CIT(A), THE ASSESSEE MADE ELABORATE SUBM ISSIONS. IT WAS SUBMITTED THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION S OLD 17,806 SQ. FT. OF SHOPS IN THE LOWER GROUND FLOOR AND THIRD FLOOR AND RECEIVED NET SALE CONSIDERATION OF RS.2,27,77,025/-. IT WAS SUBMITTED THAT THE ASSESS EE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND PERCENTAGE COMPLETION METHOD FOR REC OGNITION OF REVENUE. IT RECOGNIZED THE REVENUE BY WAY OF REGISTERED SALE DE EDS AND GAVE PHYSICAL POSSESSION TO THEM ON THAT OCCASION. RECEIPTS WERE RECOGNIZED AS REVENUE RECEIPTS AGAINST THE SALE OF SOME CONSTRUCTED SHOPS WHICH CAN BE VERIFIE D FROM THE SALE DEEDS AND THE ITA NO.102/RPR/2015 7 ASSESSEE HAD THE LEGAL OBLIGATION TO COMPLETE THE R EMAINING CONSTRUCTION WORK MENTIONED IN THE SAID DEEDS AND FOR THIS LEGAL LIAB ILITY INCLUDING DEVELOPMENT OF COMMON AREA PERTAINING TO THE SOLD AREA, A RELIABLE ESTIMATE OF THE LIABILITIES OF RS.1,14,05,462/- WAS MADE AND DEBITED TO THE P & L ACCOUNT UNDER THE HEAD PROVISION OF EXPENSES ON SOLD AREA. IT WAS ARGUED THAT THE PROVISION WAS MADE FOR COMPLETING THE FACILITIES LIKE ELECTRICITY WORK, LI FTS, FLOORING, PLASTERING, PAINTING, WATER FITTINGS, SECURITY SYSTEM EXPENSES, COMMON CORRIDOR S, COMMON TOILETS, WATER TANKS, ETC., ON A SCIENTIFIC AND REASONABLE BASIS ON PAST DATA AVAILABLE FOR COST OF CONSTRUCTION AND FUTURE ESTIMATES ON THE BASIS OF PRICE QUOTATIO N OF MATERIAL AND ON THE BASIS OF ACTUAL EXPENSES INCURRED BETWEEN 01.04.2010 AND 30. 09.2010. THEREFORE, THERE IS NO REASON FOR THE ASSESSING OFFICER FOR COMPUTING THE METHOD ADOPTED FOR ESTIMATES CREATED ON 31 ST MARCH, 2010. IT WAS FURTHER SUBMITTED THAT THE AS SESSEE HAD ACTUALLY INCURRED THE EXPENSES IN THE FINANCIAL YEAR 2010-11 . THE ONLY DISPUTE IS REGARDING THE DATE ON WHICH THE LIABILITY WAS CRYSTALISED. IT WA S ARGUED THAT AN AMOUNT OF RS.4,92,89,579/- WAS ACTUALLY INCURRED AS COST OF C ONSTRUCTION IN FINANCIAL YEAR 2010- 11 OUT OF WHICH THE AMOUNT OF RS.1,14,05,462/- WAS PROVIDED IN THE YEAR SINCE IT WAS RELATED TO THE SOLD AREA OF SHOPS AND OFFICES IN TH E MONTH OF OCTOBER, 2009 AND MARCH, 2010. IN OTHER WORDS, IT WAS ALLOCATED PROPORTIONA TELY ON SOLD AREA TO THE TOTAL CONSTRUCTED AREA. THE BALANCE OF RS.3,78,84,117/- WAS CAPITALIZED AS WORK-IN-PROGRESS IN FINANCIAL YEAR 2010-11. IT WAS ARGUED THAT THE ASSESSEE INVESTED RS.1,41,39,845/- IN THE FINANCIAL YEAR 2011-12 AND, THUS, THE TOTAL FIN ISHED COST OF COMMERCIAL COMPLEX OF REMAINING 50886 SQ. FT. AND COMMON AREA OF 24645 SQ . FT. IN VARIOUS PLOTS IS ITA NO.102/RPR/2015 8 RS.8,33,47,576/-. IT WAS ARGUED THAT THE COST OF C ONSTRUCTION STANDS AT RS.1638/- PER SQ. FT. OF SALABLE AREA OF SHOPS AND OFFICES IN THE COMMERCIAL COMPLEX. THE ASSESSEE ALSO FILED THE DETAILS OF PERCENTAGE OF SOLD AREA T O DIFFERENT PURCHASERS WITH TOTAL PROJECTED AREA OF CONSTRUCTION, TERMS AND CONDITION S MENTIONED IN THE CONVEYANCE DEED AND THE FUTURE LIABILITY OF THE ASSESSEE ON UNFINIS HED CONSTRUCTION ON SOLD AREA, YEARWISE ANALYSIS OF PERCENTAGE OF CONSTRUCTION WOR K COMPLETED, ETC. 9. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE A RGUMENTS ADVANCED BY THE ASSESSEE. AFTER GOING THROUGH THE VARIOUS DETAILS FILED BY THE ASSESSEE, HE OBSERVED THAT THE ASSESSEE GROSSLY FAILED TO FURNISH ANY IOT A OF EVIDENCE REGARDING THE BASIS OF PROVISION MADE BY THE ASSESSEE TOWARDS THE UNFINISH ED WORK. HOWEVER, CONSIDERING THE FACT THAT ESTIMATING THE CHARGES OF INTERNAL EL ECTRICITY CONNECTION WITH PROPORTIONATE ESTIMATED LIABILITY ON SOLD AREA WILL BE AROUND RS.3 LAKHS AND ESTIMATED EXPENDITURE FOR USE OF COMMON TOILETS AND PARKING S PACE TOWARDS THE FUTURE LIABILITY AT RS.15 LAKHS, THE LD.CIT(A) ALLOWED THE AMOUNT TO TH E EXTENT OF RS.18 LAKHS AS PROVISIONS ON SUCH FUTURE LIABILITIES. THUS, THE L D.CIT(A) GAVE RELIEF OF RS.18 LAKHS TO THE ASSESSEE OUT OF THE DISALLOWANCE OF RS.1,14,05, 462/- MADE BY THE ASSESSING OFFICER AND SUSTAINED RS.96,05,462/- OUT OF SUCH PR OVISION OF EXPENSES. 10. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HIMSELF HAS ADMITTED THAT 43.58% CONSTRUCTION IS COMPLETED UPTO 31.03.2010 AND HE WAS OF THE ITA NO.102/RPR/2015 9 OPINION THAT THE ASSESSEE BEING A BUILDER AND DEVEL OPER AND FOLLOWS ACCOUNTING STANDARD-9 AND APPLIED PERCENTAGE COMPLETION METHOD FOR ARRIVING TRUE AND FAIR VIEW OF ITS FINANCIAL STATEMENTS. HE SUBMITTED THAT GOI NG BY THE FINDING OF THE CIT(A), IF THE ASSESSEE HAS COMPLETED 50% COMPLETION AS ON 31. 03.2010, THEN THE REVENUE SHOULD HAVE BEEN RECOGNIZED AT RS.1,13,88,512/- IN PLACE O F RS.2,27,77,025 WHICH IS THE FULL VALUE OF CONSIDERATION AND, THEREFORE, THERE IS NO REQUIREMENT OF MAKING PROVISION FOR EXPENSES AT RS.1,14,05,462/- THE LD. COUNSEL FOR TH E ASSESSEE FILED THE FOLLOWING THREE TABLES TO SUBSTANTIATE HIS CASE AND SUBMITTED THAT ANY OF THE METHODS MAY BE FOLLOWED AND ULTIMATELY IT WILL BE REVENUE NEUTRAL WHEN THE PROJECT IS COMPLETED:- METHOD-1 AY 10-11 AMT. SALES OF SHOPS AND OFFICES: RS.2,27,77,025 LESS: COST OF CONSTRUCTION UPTO 31.3.10 (PROPORTIONATELY FOR 17,806 SQ. FEET) (RS.4,22,77,3 57 X 17,806 SQ. FEET/68,692 SQ. FEET) (-) 1,09,53,743 LESS: PROVISION MADE FOR EXPENDITURE TO BE INCURRED IN FUTURE FOR PRESENT OBLIGATION FOR COMPLETION OF THE ALLEGED AREA OF 17,806 SQ. FEET, AS MENTIONED IN TH E CONVEYANCE DEED AND MUTUALLY DECIDED BY THE PARTIES. (-) 1,14,05,462 PROFIT ON SALE OF 17,806 SQ. FEET (AS PER AUDITED ACCOUNTS) RS.4,17,820 METHOD-2 FY 09-10 (AY 10-11) AMT. IN RS. SALES: 44% OF TOTAL SALE VALUE OF RS.2,27,77,025 FOR THE S OLD AREA OF 17,806 SQ. FEET AS PER THE CONVEYANCE DEED (AS SCALED DOWN AS PER % COMPLETION METHOD, AS PER AS-9 1,00,21,891 LESS: (-) 1,09,53,743 ITA NO.102/RPR/2015 10 COST OF CONSTRUCTION ACTUALLY INCURRED/SHOWN AS PER THE P&L ACCOUNT (RS.4,22,77,357 X 17,806 SQ. FEET/68,692 SQ. FEET) PROFIT/(LOSS) ON SALE OF 17,806 SQ. FEET (-) 9,31, 852 METHOD-3 FY 09-10 (AY 10-11) AMT. IN RS. SALES: FULL SALE VALUE OF RS.2,27,77,025 FOR THE SOLD AREA OF 17,806 SQ. FEET AS PER THE CONVEYANCE DEED. 2,27,77,025 LESS: COST OF CONSTRUCTION ACTUALLY INCURRED/SHOWN AS PER THE P&L ACCOUNT (RS.4,22,77,357 X 17,806 SQ. FEET/68,692 SQ. FEET) 1,09,53,743 PROFIT ON SALE OF 17,806 SQ. FEET (I.E., BEFORE MAKING PROVISION OF EXP OF RS.1,14,05,462 IN THE BOOKS 1,18,23,282 SINCE, THE WHOLE PROJECT WAS 44% COMPLETE AS ON 31.3.2010 AND 25.92% OF THE FLOOR AREA HAS BEEN SOL D UPTO 31.3.2010, SO, PROFIT WOULD BE RESTRICTED TO 4 4% X 25.92% = 11.40% OF THE PROFIT OF RS.1,18,23,282 (I.E., BEFORE MAKING PROVISION OF EXP OF RS1,14,05,462 IN THE BOOKS): NET PROFIT WOULD BE RS.1,18,23,282 X 11.40% 13,47,854 12. RELYING ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA COMPANY LTD. VS. CIT REPORTED IN 37 ITR 1 AND VARIOUS OTHER DECISIONS AS FILED IN THE PAPER BOOK AND WRIT TEN SYNOPSIS HE SUBMITTED THAT THE EXPENDITURE WHICH IS INCIDENTAL TO THE BUSINESS ON ACCRUAL BASIS, THOUGH IT WAS NOT INCURRED DURING THE RELEVANT ACCOUNTING YEAR, SHOUL D BE ALLOWED AS A DEDUCTION. 13. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). ITA NO.102/RPR/2015 11 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THE A SSESSEE IN THE INSTANT CASE, HAS DEBITED AN AMOUNT OF RS.1,14,05,462/- ON ACCOUNT OF PROVISION FOR EXPENSES TO BE INCURRED ON THE SOLD AREA. WE FIND THE ASSESSING O FFICER DISALLOWED THE SAME ON THE GROUND THAT THE ESTIMATION OF COST TO BE DONE IN FU TURE IS NOT RELIABLE ALTHOUGH THERE IS AN OBLIGATION AS A RESULT OF THE PAST EVENT AND AN OUTFLOW OF RESOURCES WILL BE REQUIRED. WE FIND THE LD.CIT(A) RESTRICTED SUCH DISALLOWANCE TO RS.96,05,462/-, AFTER ALLOWING RELIEF OF RS.18 LAKHS TO THE ASSESSEE ON ACCOUNT OF PROPORTIONATE EXPENSES TOWARDS THE FUTURE LIABILITY ON ACCOUNT OF INTERNAL ELECTRICITY , COMMON TOILETS, PARKING SPACE, ETC. IT IS THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSE E THAT THE PROVISION FOR EXPENSES IS ONLY IN RESPECT OF AREA OF THE SHOPS SOLD AND THE A SSESSEE HAS AN OBLIGATION TO BEAR THE EXPENDITURE AS PER SALE DEED ON ACCOUNT OF THE UNFI NISHED WORK AND EXPENSES TOWARDS DEVELOPMENT/CONSTRUCTION OF THE COMMON AREA SUCH AS COMMON TOILETS, CORRIDORS, PARKING SPACE, LAWNS, ETC. 15. WE FIND THE HON'BLE SUPREME COURT IN THE CASE OF CA LCUTTA COMPANY LTD. (SUPRA) HAS OBSERVED AS UNDER:- 4. THE LAW IS SETTLED : IF A BUSINESS LIABILITY H AS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTUR E DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SH OULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH TH E ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIR EMENTS ARE \SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILIT Y IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MA KE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. ITA NO.102/RPR/2015 12 16. WE FURTHER FIND THE ASSESSING OFFICER HIMSELF IN TH E INSTANT CASE HAS ADMITTED THAT THE ASSESSEE HAS AN OBLIGATION AS A RESULT OF PAST EVENT AND OUTFLOW OF RESOURCES WILL BE REQUIRED. HE, HOWEVER, DID NOT ALLOW THE P ROVISION FOR EXPENSES TO BE INCURRED FOR SOLD AREA. ALTHOUGH THE LD. CIT(A) ACCEPTED A PART OF SUCH PROVISION, THE REVENUE IS NOT IN APPEAL FOR THE SAME MEANING THEREBY THAT SUCH PROVISION IS REQUIRED TO BE MADE. AFTER CONSIDERING THE TOTALITY OF THE FACTS O F THE CASE AND FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, WE ARE OF THE OP INION THAT THE THIRD METHOD WHICH HAS BEEN REPRODUCED AT PARA NO.8 APPEARS TO BE MORE SCI ENTIFIC AND RELIABLE WHICH IS AS UNDER:- FY 09-10 (AY 10-11) AMT. IN RS. SALES: FULL SALE VALUE OF RS.2,27,77,025 FOR THE SOLD AREA OF 17,806 SQ. FEET AS PER THE CONVEYANCE DEED. 2,27,77,025 LESS: COST OF CONSTRUCTION ACTUALLY INCURRED/SHOWN AS PER THE P&L ACCOUNT (RS.4,22,77,357 X 17,806 SQ. FEET/68,692 SQ. FEET) 1,09,53,743 PROFIT ON SALE OF 17,806 SQ. FEET (I.E., BEFORE MAKING PROVISION OF EXP OF RS.1,14,05,462 IN THE BOOKS 1,18,23,282 SINCE, THE WHOLE PROJECT WAS 44% COMPLETE AS ON 31.3.2010 AND 25.92% OF THE FLOOR AREA HAS BEEN SOL D UPTO 31.3.2010, SO, PROFIT WOULD BE RESTRICTED TO 4 4% X 25.92% = 11.40% OF THE PROFIT OF RS.1,18,23,282 (I.E., BEFORE MAKING PROVISION OF EXP OF RS1,14,05,462 IN THE BOOKS): NET PROFIT WOULD BE RS.1,18,23,282 X 11.40% 13,47,854 ITA NO.102/RPR/2015 13 17. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO VERI FY THE CALCULATION AS MADE ABOVE AND IF FOUND CORRECT TO ADOPT THE PROFIT AT R S.13,47,854/- FROM SUCH SOLD AREA. THE GROUNDS RAISED BY THE ASSESSEE ARE, ACCORDINGLY , PARTLY ALLOWED. 18. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 2.10.2018. SD/- SD/- (SUCHITRA KAMBLE) (R.K . PANDA) JUDICIAL MEMBER ACCOUNTANT MEMF BER DATED: 22 ND OCTOBER, 2018 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI