DCIT 22(1), NAVI MUMBAI V. GAGANGIRI BUILDERS AND DEVELOPERS, MUMBAI

ITA 1066/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1497 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 31-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMEER KUMAR
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE T.R.SOOD, A.M & SHRI V.D.RAO, JM. I.T.A.NO.1066 /MUM/2009 - A.Y 2005-06 DY. COMMISSIONER OF I.T. 22(1), MUMBAI VS. M/S GAGANGIRI BUILDERS & DEVELOPERS, 303, GANGANGIRI COMPLEX, 3 RD FLOOR, ABOVE BHARAT CO-OP. BANK LTD., 18 TH RD., NEAR AMBEDKAR GARDEN, CHEMBUR (E), MUMBAI 400 071 PAN NO.AAAFG 2728 F AND I.T.A.NO.7165/MUM/2009 - A.Y 2005-06 M/S GAGANGIRI BUILDERS & DEVELOPERS, MUMBAI. DY. COMMISSIONER OF I.T. 22(1), MUMBAI (APPELLANT) (RESPONDENT) REVENUE BY : MR. SAMEER KUMAR. ASSESSEE BY : MR. RAJESH SHAH. O R D E R PER T.R.SOOD, AM: AS THESE CROSS APPEALS PERTAIN TO THE SAME ASSESSE E AND WERE HEARD TOGETHER, THEY ARE BEING DISPOSED OF BY WAY O F THIS CONSOLIDATED ORDER. 2. I.T.A.NO.1066/M/2009 [REVENUES APPEAL ]: THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT[A] HAS ERRED IN DIRECTING THE AO TO TREAT THE AMOUNT OF RS.1,11,00,000/- AS BUSINESS INCOME AND NOT AS I NCOME FROM OTHER SOURCES WITHOUT APPRECIATING THE FACT THAT THE SAID AMOUNT WAS DECLARED AS ADDITIONAL INCOME BY THE ASSESSEE 2 DURING THE COURSE OF SURVEY PROCEEDINGS AND THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF THE SAID CASH. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT[A] HAS ERRED IN DIRECTING THE AO TO ALLOW THE AMOUNT O F RS.1,20,000/- BEING SALARY/BONUS TO THE PARTNERS WITHO UT APPRECIATING THE FACT THAT THE SAID AMOUNT WAS ADDED BY THE AO SINCE HE TREATED THE AMOUNT OF RS.1,11,000/- DISCL OSED DURING THE COURSE OF SURVEY PROCEEDINGS AS INCOME FRO M OTHER SOURCES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT[A] HAS ERRED IN DELETING THE ADDITION OF RS.6,30,000/- MADE BY THE AO ON ACCOUNT OF SWIMMING POOL EXPENSES WITHOUT APPRECIATING THE FACT THAT THE SAID LIABILIT Y WAS NOT ASCERTAINED NOR FULFILLED EVEN AFTER 3 YEARS OF COMP LETION OF THE PROJECT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT[A] HAS ERRED IN DELETING THE ADDITION OF RS.4,54,936/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF CASH EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS UNABLE TO JUSTIFY THE GENUINENESS OF THE PAYMENTS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT[A] HAS ERRED IN DELETING THE ADDITION OF RS.1,99,488/- MADE BY THE AO U/S.40[A][IA] OF THE I.T.ACT ON ACCO UNT OF INSTALLATION CHARGES OF ALUMINIUM SLIDING WINDOWS WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE NEVER MADE ANY SUBMISSIONS DURING THE COURSE OF ASSESSMENT PROCEED INGS CLAIMING THE INSTALLATION CHARGES AS PURCHASES. 3. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT A SURVEY HAS BEEN CONDUCTED IN THE PREMISES OF THE AS SESSEE AND DURING THE SURVEY A SUM OF RS.1.11 CRORES WAS OFFERED AS I NCOME. DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ENTIRE AMOUNT DISCLOSED DURING THE SURVEY WAS ACCOUNTED IN THE BOOKS OF ACC OUNT ON THE RECEIPT SIDE. HE OBSERVED THAT NO CASH WAS FOUND DU RING THE SURVEY AND, THEREFORE, DISCLOSURE OF THE SURVEY FIGURE IN THE CASH BOOK SHOWED THAT INCOME DISCLOSED WAS ON ACCOUNT OF CASH RECEIP T FOR WHICH NO SOURCE WAS ESTABLISHED BY THE ASSESSEE. AO FURTHER OBSERVED THAT THE ASSESSEE HAS INFLATED SOME OF THE EXPENSES TO REDUC E THE INCOME DECLARED DURING THE SURVEY. IT WAS NOTICED THAT ASS ESSEE HAD GOT 3 BUILDING COMPLETION CERTIFICATE IN MARCH, 2004 BUT SOME EXPENSES WERE DEBITED LATER ON. ULTIMATELY, THE SUM OF RS.1.11 CR ORES WAS HELD TO BE INCOME FROM OTHER SOURCES AND ASSESSED ACCORDINGL Y. 4. ON APPEAL, IT WAS SUBMITTED BEFORE THE CIT[A] T HAT ASSESSEE HAD NO OTHER INCOME AND, THEREFORE, INCOME DECLARED DURING THE SURVEY HAS TO BE TREATED ONLY AS INCOME FROM BUSIN ESS. IT WAS FURTHER POINTED OUT THAT NO INCRIMINATING DOCUMENT OR MATER IAL WAS FOUND DURING THE SURVEY, TO SUGGEST THAT ASSESSEE HAS ANY OTHER INCOME. THE LD. CIT[A] AFTER EXAMINING THE SUBMISSIONS, OBSERV ED THAT ASSESSEE HAD OFFERED A SUM OF RS.1.11 CRORES AS CURRENT YEAR S FINANCIAL PROFIT TO COVER UP ANY OMISSION/COMMISSION THAT MAY BE THERE IN DECLARATION OF BUSINESS PROFITS. HE ALSO NOTICED THAT AO HAS NOT I NDICATED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAD ANY OTHER SO URCE OF INCOME AND, ACCORDINGLY, HE ACCEPTED THE PLEA OF THE ASSES SEE THAT THIS INCOME SHOULD BE TREATED ONLY AS INCOME FROM BUSINESS. 5. BEFORE US, THE LD. DR REFERRED TO THE ASSESSMENT ORDER AND POINTED OUT THAT CERTAIN EXPENSES HAVE BEEN INFLATE D. HE SUBMITTED THAT SINCE THE SUM OF RS.1.11 CRORES WAS SHOWN AS C ASH RECEIPT AND NOT AS INCOME, THIS FIGURE WAS DILUTED BY SHOWING T HESE BOGUS EXPENSES AND, THEREFORE, AO WAS JUSTIFIED IN ASSESS ING THE FIGURE DECLARED IN SURVEY AS INCOME FROM OTHER SOURCES. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE REFERRED TO PAGE-1 OF THE ASSESSMENT ORDER AND INVITED OUR ATTE NTION TO LAST THREE LINES OF THIS PAGE WHEREIN IT IS OBSERVED, SHRI PA RAG DEDIA, PARTNER HAS 4 FURTHER OFFERED AN ADDITIONAL INCOME OF RS.1.11 CRO RE AS BUSINESS INCOME FOR THE CURRENT FINANCIAL YEAR AND HAS PROMI SED TO PAY ADVANCE TAX FOR THE ASSESSMENT YEAR 2005-06, ON THE BASIS O F INCOME DECLARED. THIS CLEARLY SHOWS THAT THE AMOUNT WAS DECLARED AS BUSINESS INCOME ONLY. HE ALSO INVITED OUR ATTENTION TO A REPLY TO Q UESTION NO.8 WHICH IS REPRODUCED BY THE AO AT PAGE-2 OF HIS ASSESSMENT OR DER AND READS AS UNDER- Q.8 DO YOU WANT TO SAY ANYTHING? ANS: YES. AS STATED EARLIER THAT FIRM IS OFFERING PROFITS ON PHASE-WISE WORK IN PROGRESS METHOD. I HAD GONE THROUGH THE RECORDS AND WE EXPECT THE CURRENT FINANCIAL YEARS PROFIT ABOUT RS.1. 11 CRORES [ONE CRORE AND ELEVEN LACS ONLY] APPROX. AND WE ARE OFFERIN G THE SAME FOR TAXATION DURING THE F.Y 2004-04 AFTER CONSULTATION WITH THE OTHER PARTNER SHRI RAHUL VELANI. THIS INCOME IS OFFERED TO CO VER UP ANY OMISSION/COMMISSION IN OFFERING THE PROFIT OF THE FI RM AND ALSO TO BUY PEACE AND TO AVOID FURTHER LITIGATION. I WILL ALSO P AY THE ADVANCE TAX ON THIS AMOUNT IN THE MONTH OF MARCH 2005. HE ALSO INVITED OUR ATTENTION TO REPLY TO QUESTION NO.6 WHICH IS ALSO REPRODUCE AT PAGE-2 OF THE ASSESSMENT ORDER AND REA DS AS UNDER: Q.6 PLEASE STATE WHAT WILL BE PROFIT AS ON TODAY I. E. 23-2-2005 YOU MAY CONSULT YOUR ACCOUNTANT IN THIS REGARD. ANS: I HAVE CONSULTED THE ACCOUNTANT SHRI KISHORE U CHAT AND I HEREBY FURNISH THE CONSTRUCTED TRADING & PROFIT & LOSS A/C AS ON 23- 2-2005. THE NET PROFIT AS PER THIS CONSTRUCTED P&L A/ C IS RS.56,55,948/-. HOWEVER IT IS TO BE MENTIONED HERE THA T THE EXPENSES ON A/C OF INTEREST ON LOANS, DEPRECIATION AND CERTAIN PAYMENTS TO CONTRACTORS ARE YET TO BE ENTERED IN THE BOOKS OF A/C. FROM THE REPLY OF ABOVE TWO QUESTIONS, IT IS CLEAR THAT NO INCRIMINATING DOCUMENT OR MATERIAL WAS FOUND DURING THE SURVEY AN D THE ASSESSEE ON THE BASIS OF CURRENT YEARS PERFORMANCE HAD STAT ED THE PROFIT DURING THE YEAR IS LIKELY TO BE RS.1.11 CRORES AND ACCORDI NGLY THE SAME WAS SURRENDERED. THEN HE REFERRED TO PAGE-5 OF THE PAPE R BOOK, WHICH IS A 5 COPY OF THE PROFIT & LOSS ACCOUNT WHERE THE SUM OF RS.1.11 CRORES HAS BEEN SHOWN AND DULY ACCOUNTED FOR ON THE CREDIT SID E OF THE PROFIT & LOSS ACCOUNT. THUS, IT IS CLEAR THAT THE SUM OFFERE D DURING THE SURVEY WAS DULY REFLECTED AND IT WAS OFFERED AS BUSINESS I NCOME. FURTHER, ASSESSEE HAS NO OTHER SOURCE OF INCOME AND EVEN AO HAS NOT RECORDED ANY OTHER SOURCE OF INCOME AND THE SAME WAS REQUIRE D TO BE ASSESSED ONLY AS BUSINESS INCOME. HE ALSO SUPPORTED THE ORDE R OF THE AO. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. FROM THE LAST THREE LINES ON PAGE-1 OF THE ASSESSMENT ORDER, WHICH HAVE BEEN EXTRACTED ABOVE, WE FIND THAT THE SUM OF RS.1.11 CR ORES WAS DECLARED AS BUSINESS INCOME DURING THE SURVEY. THIS AMOUNT H AS BEEN DULY REFLECTED IN THE PROFIT & LOSS ACCOUNT WHICH IS CLE AR FROM PAGE-5 OF THE PAPER BOOK. MORE OVER, NO INCRIMINATING DOCUMENT OR CASH WAS FOUND DURING THE SURVEY AND SUM OF RS.1.11 CRORE WAS DECL ARED DURING SURVEY IS BUSINESS INCOME TO COVER UP OMISSIONS/COMMISSION . FURTHER, AO HAS NOT GIVEN ANY FINDING THAT THE ASSESSEE HAD ANY OTH ER SOURCE OF INCOME AND, THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT[A] HAS CORRECTLY HELD IT TO BE INCOME FROM THE BUSINESS AN D ACCORDINGLY WE CONFIRM HIS ORDER. 8. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT AO HAS NOT ALLOWED THE DEDUCTION ON ACCOUNT OF REMUNER ATION PAID TO THE PARTNERS; PERHAPS BECAUSE THERE WAS NO BUSINESS PRO FIT. BUT THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER. HOWEVER, LD. CIT[A] ALLOWED 6 THE REMUNERATION OF RS.1.20 LAKHS BECAUSE SUM OF RS .1.11 CRORES WHICH WAS ASSESSED AS INCOME FROM OTHER SOURCES BY THE AO, WAS HELD TO BE INCOME FROM BUSINESS BY THE CIT[A] . 9. BEFORE US, THE LD. DR RELIED ON THE GROUNDS OF A PPEAL AND SUPPORTED THE ORDER OF THE AO. 10. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE REFERRED TO PAGE-34 OF THE PAPER BOOK WHICH IS A COPY OF THE PA RTNERSHIP DEED WHEREIN UNDER CLAUSE [14] THE TWO PARTNERS VIZ., MR . PARAG RAVILAL DEDHIA AND MR. RAHUL DAMJI VELANI WERE ENTITLED TO A REMUNERATION OF RS.5,000/- P.M. HE FURTHER SUBMITTED THAT THE LD. C IT[A] WAS JUSTIFIED ALLOWING THE REMUNERATION BECAUSE SAME IS PROVIDED IN THE PARTNERSHIP DEED. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE TWO PARTNERS, NAMELY, MR. PARAG RAVILAL DEDHIA AND MR. RAHUL DAMJI VELANI WERE ENTITLED TO MONTHLY REMUNERATION OF RS.5,000/- P.M. SINCE WE HAVE ALREADY CONFIRMED THE ORDER OF THE LD. CIT[A] WHILE ADJUDICATING GROUND NO.{1} THAT INCOME OFFERED DURING SURVEY WAS RIGHTLY HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION, THE REMUNERATION OF PARTNERS HAS TO BE ALLOWED. ACC ORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT[A] IN THIS RESPEC T ALSO. 12. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE AO THAT NO SWIMMING POOL WAS CONSTRUCTED IN THE PREMISES AND ONLY EXCAVATION WAS DONE. IT WAS FURTHER NOTICED THAT A SUM OF RS.6.30 LAKHS HAD BEE N CLAIMED AS 7 PROVISION TOWARDS CONSTRUCTION OF THE SWIMMING POOL . HE OBSERVED THAT EVEN AFTER TWO YEARS OF THE COMPLETION OF THE PROJE CT, THIS SWIMMING POOL HAS NOT BEEN CONSTRUCTED AND, THEREFORE, THE EXPENDITURE WAS NOT ALLOWABLE. 13. BEFORE THE CIT[A] IT WAS SUBMITTED THAT PROVIS ION OF SWIMMING POOL WAS ONE OF THE AMENITIES WHICH WAS PROMISED TO BE PROVIDED TO THE VARIOUS FLAT OWNERS AND SO FAR THE SWIMMING POO L WAS NOT CONSTRUCTED. DUE TO CERTAIN REASONS BEYOND THE CONT ROL OF THE ASSESSEE THE SWIMMING POOL COULD NOT BE COMPLETED. COPY OF T HE BROCHURE WHEREIN SWIMMING POOL WAS MADE PART OF THE AMENITIE S WAS ALSO FURNISHED. IT WAS ALSO ARGUED THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY THE EXPENSES WHICH WERE STILL REQUIRED TO BE INCURRED, HAVE TO BE PROV IDED. SOME COPIES OF THE LEGAL SUITS FILED BY THE FLAT OWNERS FOR NON PR OVISION OF SWIMMING POOL WERE ALSO FILED. RELIANCE WAS ALSO PLACED ON T HE DECISION OF THE TRIBUNAL IN THE CASE OF M/S HAFIZI CONSTRUCTION CO. IN I.T.A.NO.5796/M/02. THE LD. CIT[A], AFTER CONSIDERI NG THE SUBMISSIONS, ALLOWED THE RELIEF VIDE PARAS 4.4. AND 4.5.5 WHICH ARE REPRODUCED AS UNDER- 4.4 I HAVE CAREFULLY CONSIDERED THE ORDER OF THE ASSES SING OFFICER , SUBMISSION MADE BY THE APPELLANT AND THE ORDER OF T HE HON'BLE ITAT IN THE CASE OF M/S HAFIZI CONSTRUCTION CO. I FIND TH AT THE APPELLANT HAS STATED THAT THEY WERE FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING AND THAT IS WHY IT IS NECESSARY IN THE SYSTEM OF ACCOUN TING THAT ENTRIES ARE POSTED IN THE BOOKS OF ACCOUNTS ON THE DATE OF TRANS ACTION. IT IS TRUE THAT IN MERCANTILE SYSTEM OF ACCOUNTING, IT IS NOT N ECESSARY THAT THE EXPENSES SHOULD HAVE BEEN REALLY INCURRED IN THE YEA R OF ASSESSMENT. BUT IT IS EQUALLY TRUE THAT THE LIABILITY MUST BE O NE WHICH CAN BE ENFORCED IN A COURT OF LAW. THE LAW IS VERY CLEAR ON THIS POINT AND HAD STATED THAT MERE PUTTING ASIDE MONEY FOR CONSTRUCTIO N IN THE ABSENCE 8 OF STIPULATION IN SALE DEED OF PLOTS, WOULD NOT CON STITUTE ALLOWABLE EXPENDITURE AS THE AMOUNTS WERE NEITHER INCURRED NOR DI D A DEFINITE LIABILITY EXIST ON THAT DATE IN RESPECT OF THAT EXPE NDITURE. IF THE APPELLANT MERELY MAKES ASSUMPTION OF EXPENDITURE THAT HE MIGHT INCUR AND SHOWS THIS AS RESERVE, THIS IS IN REALITY AN UNCERTAI NED CONTINGENT LIABILITY LIABLE FOR REJECTION AS ALLOWABLE. IN THE LIGHT OF THIS, THE FACTS OF THIS CASE, THE SUBMISSION MADE BY THE APPELLANT NEE DS TO BE EXAMINED. KEEPING THIS MIND, THE SUBMISSION MADE BY THE APPELLANT HAS BEEN EXAMINED. I FIND THAT IN THE COPY OF BROCH URE PLACED BEFORE ME, THE PLAN ENTAILS THE CONSTRUCTION OF THE SWIMMIN G POOL. I ALSO FIND THAT IN THE COMPLETION CERTIFICATE, THE ARCHITECT HA S MENTIONED THE INCOMPLETE WORK AND ESTIMATED THE COST OF SWIMMING POOL. IT IS ALSO SEEN THAT CERTAIN PURCHASERS OF FLATS HAVE ISSUED LEG AL NOTICE WHEREIN IT HAS BEEN STATED THAT AS PER SANCTIONED AND APPROV ED PLAN IN THE BUILDING, SWIMMING POOL HAS NOT BEEN PROVIDED, BESID ES NAME OTHER LACUNAE IN THE SAID COMPLEX. THESE LEGAL NOTICES FU RTHER STATE THAT THE APPELLANT US UNDER OBLIGATION TO COMPLETE THE INCOMP LETE WORK AT THE EARLIEST AND REMOVE THE DEFICIENCIES IN THE MENTIONED CLAUSES. A COPY OF THE SALE DEED SUBMITTED ALSO HAS A MENTION OF TH E SWIMMING POOL AS AN AMENITY. IN VIEW OF THESE FACTS, IT WOULD BE CORRECT TO PRESUME THAT SWIMMING POOL WAS A CERTAIN CONTINGENT LIABILI TY AND THE NOT UNCERTAINED CONTINGENT LIABILITY. IT WAS A LIABILITY THAT EXISTED AND COULD BE ENFORCED IN A COURT OF LAW. 4.5 I FIND THAT THE ASSESSING OFFICER ALSO IN HIS O RDER HAS RECORDED THAT THE BASIC EXCAVATION WORK OF SWIMMING POOL HAS BEEN CARRIED OUT AND TERMED IT AS PROVISIONAL EXPENSES. IN VIEW OF TH ESE FACTS AND HEEDING THE DIRECTIONS OF THE HON'BLE TRIBUNAL IN TH E CASE OF M/S HAFIZI CONSTRUCTION CO., IT IS HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS GROUND DESERVES TO BE DELETED AS THE SWIMMING POOL WAS AN EXISTING LIABILITY TO BE PROVIDED TO THE FLA T OWNERS WHICH WAS NOT READY BY THE TIME WHEN THE FLATS WERE HANDED OVER. THE REFORE THE PROVISION SO MADE FOR FUTURE EXPENSES WOULD BE DEDU CTED WHILE COMPUTING THE TOTAL INCOME. THIS IS BECAUSE FACTS RE VEAL THAT A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCO UNTING YEAR AND THE DEDUCTION IS THEREFORE ALLOWABLE EVEN THOUGH THE LI ABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. HERE WHAT IS TO BE SEEN IS THE CERTAINTY IN THE INCURRING OF THE LIABILITY W HICH IS CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IT WILL NOT MATTER EVEN IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERT AIN. IN THE CASE OF THE APPELLANT THE CONSTRUCTION OF THE SWIMMING POOL WAS A BUSINESS LIABILITY AND THEREFORE, THE ADDITION MADE ON THIS G ROUND OF DISALLOWING EXPENSES INCURRED ON IT IS DELETED AND THE GROUND OF APPEAL ALLOWED. 14. BEFORE US, THE LD. DR SUBMITTED THAT EVEN AFTER TWO YEARS OF COMPLETION OF THE PROJECT, THE SWIMMING POOL HAD NO T BEEN CONSTRUCTED AND, THEREFORE, THE PROVISION FOR EXPEN SES FOR SWIMMING POOL WAS ONLY A CONTINGENT LIABILITY AND THE SAME W AS NOT ALLOWABLE. 9 15. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE REFERRED TO PAGES 61-66 OF THE PAPER BOOK, AND SUBMITTED THAT U LTIMATELY THE SWIMMING POOL HAS BEEN CONSTRUCTED AND THESE PAGES GIVE DETAILS OF VARIOUS EXPENSES INCURRED LATER ON. THEREFORE, AO W AS NOT CORRECT IN OBSERVING THAT SWIMMING POOL HAS NEVER BEEN CONSTRU CTED. HE ALSO REFERRED TO PAGE-67 OF THE PAPER BOOK, WHICH IS A C OPY OF THE LAY-OUT PLAN OF THE MAP SHOWING THE DETAILS OF PROJECT FEAT URES, WHICH CLEARLY SHOWS THAT SWIMMING POOL WAS PART OF THE PROJECT. H E ALSO REITERATED THE SUBMISSIONS MADE BEFORE THE CIT[A] AND SUBMITT ED THAT ONCE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACC OUNTING, THEN ON MATCHING PRINCIPLE BASIS THE EXPECTED EXPENDITURE W AS ALSO REQUIRED TO BE CONSIDERED. IN THIS REGARD, HE RELIED ON THE FOL LOWING DECISIONS- A) CALCUTTA CO. LTD. V. CIT 37 ITR 1 [S.C] B) ACIT V. HAFIZI CONSTRUCTION CO. I.T.A.NO.5976/M/0 2 C) FREDERIC R.HARISH [I] P. LTD. VS.DCIT 81 ITD 227 [DEL] D) BHARAT EARTH MOVERS V. CIT 245 ITR 438 [S.C] E) AMRISH AND CO. V. CIT 257 ITR 180 [S.C] F) SDB CISCO [INDIA] LTD. V. ACIT 88 ITD 373 [CHHEN NAI] G) BHARAT BIJLEE LTD. V. DCIT 71 ITD 414 [MUM] H) A.P.L. [I] LTD. V. DCIT 96 ITD 227 [MUM] 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE HON' BLE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD. VS. CIT [SUPRA], W HEREIN THE HEAD NOTE READS AS UNDER: THE SUM OF RS.24,809 REPRESENTED THE ESTIMATED EXPEND ITURE WHICH HAD TO BE INCURRED BY THE APPELLANT IN DISCHARGING A LIABILITY WHICH IT HAD ALREADY UNDERTAKEN UNDER THE TERMS OF THE DEEDS OF SALE OF THE LANDS IN QUESTION AND WAS AN ACCRUED LIABILITY WHICH ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING THE APPELLANT WAS EN TITLED TO DEBIT IN 10 ITS BOOKS OF ACCOUNT FOR THE ACCOUNTING YEAR AS AGAI NST THE RECEIPTS OF RS.43,692-11-9 WHICH REPRESENTED THE SALE PROCEEDS OF THE SAID LANDS. EVEN UNDER S.10[2] OF THE IT ACT, IT MIGHT POSSIBLY BE URGED THAT THE WORD EXPENDED WAS CAPABLE OF BEING INTERPRETED AS E XPENDABLE OR TO BE EXPENDED AT LEAST IN A CASE WHERE A LIABILITY TO INCUR THE SAID EXPENSES HAD BEEN ACTUALLY INCURRED BY THE ASSESSEE WHO ADOPTED THE MERCANTILE SYSTEM OF ACCOUNTING AND THE DEBT OF RS.2 4,809 WAS THUS A PROPER DEBIT IN THE PRESENT CASE. THE SUM OF RS.24,809 REPRESENTED THE ESTIMATED AMOUNT WHICH WOULD HAVE TO BE EXPENDE D BY THE APPELLANT IN THE COURSE OF CARRYING ON ITS BUSINESS A ND WAS INCIDENTAL TO THE SAME AND HAVING REGARD TO THE ACCEPTED COMMER CIAL PRACTICE AND TRADING PRINCIPLES WAS A DEDUCTION WHICH, IF THE RE WAS NO SPECIFIC PROVISION FOR IT UNDER S.10[2] OF THE ACT, WAS CERTAI NLY ALLOWABLE DEDUCTION, IN ARRIVING AT THE PROFITS AND GAINS OF TH E BUSINESS OF THE APPELLANT UNDER S. 10[I] OF THE ACT THERE BEING NO PR OHIBITION AGAINST IT, EXPRESS OR IMPLIED, IN THE ACT. IT IS TO BE NOTED TH AT THE APPELLANT HAD LED EVIDENCE BEFORE THE I.T AUTHORITIES IN REGARD TO T HIS ESTIMATED EXPENDITURE OF RS.24,809 AND NO EXCEPTION WAS TAKEN T O THE SAME IN REGARD TO THE QUANTUM, THOUGH THE PERMISSIBILITY OF SU CH A DEDUCTION WAS QUESTIONED BY THEM RELYING UPON THE PROVISIONS OF S.10[2] OF THE ACT. IT, THEREFORE, FOLLOWS THAT THE CONCLUSION REACH ED BY THE HIGH COURT IN REGARD TO THE DISALLOWANCE OF RS.24,809 WAS WRONG. THEREFORE, THE SUM REPRESENTED THE ESTIMATED EXPENDITURE WHICH HAD TO BE INCURRED BY THE APPELLANTS IN DISCHARGING A LIABILITY WAS ALL OWABLE EXPENDITURE CALCUTTA CO. LTD. V. CIT (1953) 23 ITR 454 [CAL] REVER SED. FROM THE ABOVE, IT IS CLEAR THAT ONCE AN ASSESSEE I S DOING A PROJECT AND ALL THE RECEIPTS HAVE BEEN ACCOUNTED FOR ON GROSS B ASIS AND WHATEVER EXPENDITURE IS REQUIRED TO BE INCURRED FOR COMPLETI NG THE PROJECT HAS TO BE ALLOWED ACCORDINGLY. IN THE CASE BEFORE US, THE SWIMMING POOL WAS PART OF THE PROJECT AND ONCE RECEIPTS FROM VARIOUS FLAT OWNERS HAVE BEEN BOOKED, THEN EXPENDITURE ON CONSTRUCTION OF SW IMMING POOL HAS TO BE ALLOWED. IN ANY CASE, AO DOES NOT SEEM TO BE CORRECT THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE BECAU SE DETAILS OF EXPENSES INCURRED PLACED AT PAGES 61-66 OF THE PAPE R BOOK, CLEARLY SHOW THAT VARIOUS AMOUNTS WERE SPENT TOWARDS CONSTR UCTION OF SWIMMING POOL. EVEN AO HAS OBSERVED THAT EXCAVATION WAS DONE FOR THE SWIMMING POOL, WHICH CLEARLY SHOWED THAT ASSESS EE WAS BOUND TO 11 PROVIDE THE SWIMMING POOL AS IT WAS PART OF THE PRO JECT. UNDER THESE CIRCUMSTANCES, WE FIND NOTHING WRONG IN THE ORDER O F THE CIT[A] AND WE CONFIRM THE SAME. 17. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD INCURRED EXPENSES IN CASH FOR WHICH ONLY SELF MADE VOUCHERS WERE AVAILABLE; THOUGH HE OBSERVED THAT SUCH EXPENSES WERE NECESSAR ILY INCURRED FOR EARNING THE INCOME, BUT STILL FOLLOWING THE DECISIO N OF THE TRIBUNAL IN THE CASE OF ACIT VS. KAMAT ENTERPRISES I.T.A.NO.745 3/M/2002 WHEREIN 20% CASH EXPENSES CLAIMED THROUGH SELF MADE VOUCHER S WERE HELD TO BE NOT ALLOWABLE, HE DISALLOWED 20% OF THE EXPENSES . ACCORDING TO HIM, CASH EXPENSES WERE OF RS.32,29,253/- AND HE DI SALLOWED 25% OF THIS AMOUNT. 18. ON APPEAL, IT WAS POINTED OUT THAT ACTUAL CASH EXPENSE MADE THROUGH SELF MADE VOUCHERS WERE ONLY OF RS.9,53,225 /-. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD PRODUCED BILLS IN SUPPO RT OF THESE EXPENSES, WHEREVER THE SAME WERE AVAILABLE. HOWEVER , LD. CIT[A] CONFIRMED THE DISALLOWANCE OF 20%, BUT RESTRICTED THE DISALLOWANCE TO 20% OF RS.9,53,225/-. 19. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE OR DER OF THE AO. 20. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE REFERRED TO PAGE-68 OF THE PAPER BOOK WHICH GIVES DETAILS OF CA SH EXPENSES WHICH WERE ONLY OF RS.9,53,229/-. HE ALSO REFERRED TO VAR IOUS SAMPLE VOUCHERS WHICH ARE AVAILABLE AT PAGES 71 TO 141 OF THE PAPER BOOK AND 12 WHEREVER THE BILLS ARE AVAILABLE THE SAME ARE ATTAC HED. HE ACCORDINGLY SUBMITTED THAT IT IS NOT CORRECT TO SAY THAT THESE EXPENSES WERE CLAIMED ONLY ON THE BASIS OF SELF MADE VOUCHERS. 21. THE ASSESSEE HAS ALSO FILED APPEAL FOR THE DISA LLOWANCE OF CASH EXPENSES CONFIRMED BY THE CIT[A]. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THOUGH THE AO HIMSELF HAS OBSERVED THAT THESE EXPEN SES WERE INCURRED FOR THE PURPOSE OF BUSINESS, SINCE ONLY SELF MADE V OUCHERS WERE AVAILABLE, DISALLOWANCE OF 20% WAS MADE AMOUNTING TO RS.6,45,851/-. THIS DISALLOWANCE HAS BEEN RESTRICTED TO 20% OF RS. 9,53,225/- BY THE CIT[A] . BOTH THE REVENUE AS WELL AS THE ASSESSEE F ILED APPEAL ON THIS GROUND. WE FURTHER FIND THAT IF THE FIGURE WAS NOT OF RS.32,29,256/-, THEN THE CIT[A] SHOULD HAVE CALLED FOR REMAND REPO RT, WHICH HAS NOT BEEN DONE. FURTHER, AO HAS ALSO NOT EXAMINED THIS I SSUE PROPERLY BECAUSE AS POINTED OUT FROM SAMPLE VOUCHER COPIES A VAILABLE AT PAGES 71 TO 141 OF THE PAPER BOOK, IN MANY CASES PROPER B ILLS WERE AVAILABLE. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE AFTER PROVIDING ADEQUATE OP PORTUNITY OF HEARING TO THE ASSESSEE. 23. GROUND NO.5 : DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS PAID A SUM OF RS.5,96,488/- TO M/S. A TO Z ALUMINIUM FOR THE PURCHASE AND INSTALLATION OF SLIDING WINDOWS. O N ENQUIRY, IT WAS SUBMITTED THAT THE SAME WAS FOR PURCHASE OF MATERIA LS. AO EXAMINED 13 THE BILL AND NOTED THAT SUCH ALUMINIUM SECTIONS WER E ASSEMBLED BY THE SELLER AND WERE ALSO INSTALLED IN THE BUILDING. HE FURTHER NOTICED THAT ASSESSEE HAS PAID A SUM OF RS.1,99,488/- ON MAY 3, 2004 TOWARDS INSTALLATION CHARGES. SINCE TAX WAS NOT DEDUCTED, T HIS AMOUNT WAS HELD TO BE NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SE C.40[A][IA]. 24. BEFORE THE CIT[A] IT WAS SUBMITTED THAT THE SU M OF RS.1,99,488/- WAS ONLY FOR THE PURCHASE OF ALUMINIU M AND THE BILL FOR THE SAME WAS PRODUCED BEFORE THE AO. THEREFORE, THE RE WAS NO QUESTION OF DEDUCTION THE TAX. IT WAS FURTHER POINT ED THAT INSTALLATION CONTRACT WAS GIVEN TO A DIFFERENT PARTY KNOWN AS JI TESH ENTERPRISES FROM WHOM TAX WAS ALSO DEDUCTED. THE LD . CIT[A] AFTER GOING THROUGH THE SUBMISSIONS DELETED THE ADDITION VIDE PARA 6.3 WHICH IS AS UNDER: 6.3 AFTER CONSIDERATION OF THE ORDER OF THE ASSESSING OFFICER , THE SUBMISSION MADE BY THE APPELLANT, BILL NO.2 DATED 3 -5-2004 TO A TO Z ALUMINIUM, THE CONTENTION OF THE APPELLANT CAN BE A CCEPTED. IT IS SEEN THAT A TO Z ALUMINIUM IS SIMPLY A SELLER OF ALUMINI UM SECTIONS. THE INSTALLATION HAS BEEN DONE BY ONE JITESH ENTERPRISES . PAYMENT TO JITESH ENTERPRISES HAS BEEN MADE AFTER DEDUCTION OF T DS AND DEPOSITING THE SAME TO THE GOVERNMENT TREASURY. COPY OF BILL OF JITESH ENTERPRISES, TDS CHALLANS AND TDS CERTIFICATE ISSUED TO JITESH ENTERPRISES HAS BEEN PRODUCED AND SUBMITTED AS PROOF. IN VIEW OF THIS, THE ADDITION ON ACCOUNT OF NON DEDUCTION OF T AX AT SOURCE REGARDING A TO Z ALUMINIUM DOES NOT STAND GOOD AND I S ACCORDINGLY DELETED. IT WAS ALSO STATED BY THE APPELLANT THAT A SSESSING OFFICER HAS NOT DOUBTED AMOUNT OF RS.1,99,488/- PAID TO A TO Z ALUMINIUM. THE ONLY OBJECTION IN THIS CONCERN WAS GIVEN A CONTRACT A ND TDS HAS TO BE DEDUCTED FROM PAYMENT MADE TO CONTRACTOR. THE APPELL ANT SUCCESSFULLY PROVED THAT M/S. A TO Z ALUMINIUM WAS A N ORGANIZATION FROM WHICH ONLY PURCHASES HAVE BEEN MADE AND THAT THE CONCERN DID NOT FALL UNDER THE PURVIEW OF CONTRACTUAL OBLIGATION ATTRACTING SECTION 40[A][IA] OF THE I.T.ACT, 1961. THEREFORE, THE GROUNDS OF APPEAL ON THIS ISSUE IS ALLOWED AND THE ADDITION DELETED. 22. BEFORE US, THE LD. DR RELIED ON THE ORDER OF TH E AO. 14 25. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE WHILE SUPPORTED THE ORDER OF THE CIT[A] REFERRED TO PAGE 143 OF THE PAPER BOOK, WHICH IS A COPY OF THE LETTER ADDRESSED TO TH E ASSESSING OFFICER. THROUGH THIS LETTER, IT WAS SPECIFICALLY POINTED OU T THAT BILL FOR RS.1,99,488/- WAS FOR PURCHASE OF ALUMINIUM SECTION . IT WAS FURTHER POINTED OUT IN THAT LETTER THAT ASSESSEE HAD GIVEN A SEPARATE CONTRACT FOR RS.50,000/- TO JITESH ENTERPRISES FOR INSTALLAT ION OF THESE ALUMINIUM SLIDING WINDOWS ON WHICH TDS OF RS.1000/- WAS DEDUC TED ACCORDINGLY. HE ALSO REFERRED TO PAGE-144 WHICH IS A COPY OF THE BILL OF ALUMINIUM SECTION FROM M/S. A TO Z ALUMINIUM. AT PAGES 144-14 6 OF THE PAPER BOOK IS THE BILL FROM JITESH ENTERPRISES FOR RS.50, 000/- AND THE PAYMENT MADE HAS BEEN ONLY OF RS.49,000/- AFTER DED UCTING TAX OF RS.1000/-. AT PAGE 148 IS THE COPY OF TDS CERTIFICA TE ISSUED TO JITESH ENTERPRISES. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. PERUSAL OF PAGE 143, WHICH IS THE COPY OF THE LETTER DATED 24- 12-2007 ADDRESSED TO THE ASSESSING OFFICER, CLEARLY SHOWS THAT IT WA S CLEARLY SUBMITTED BEFORE THE AO THAT RS.1,99,488/- WERE FOR PURCHASE OF ALUMINIUM SECTION AND THIS FACT WAS BROUGHT TO THE KNOWLEDGE OF THE AO. FURTHER, WE FIND THAT ASSESSEE HAS GIVEN A SEPARATE CONTRACT FOR INSTALLATION OF WINDOWS TO JITESH ENTERPRISES FROM WHOM TAX OF RS.1 000 HAS BEEN DEDUCTED AND DEPOSITED TO THE GOVERNMENT AND EVEN T DS CERTIFICATE HAS BEEN ISSUED. THESE FACTS CLEARLY SHOW THAT FOR INSTALLATION SEPARATE AMOUNT WAS PAID AND THE SUM OF RS.1,99,488/- WAS ON LY FOR PURCHASE 15 OF ALUMINIUM SECTION AND NO TAX WAS DEDUCTIBLE ON T HIS AMOUNT. THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT[A] AND CONFIRM THE SAME. 27. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. 28. I.T.A.NO.7165/M/2006 [ASSESSEES APPEAL ]: IN THIS APPEAL, THE ONLY GROUND OF APPEAL RAISED BY THE ASS ESSEE IS AS UNDER: 1. THE CIT[A] ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,90,65 5/- BEING 20% OF CASH EXPENSES INCURRED AMOUNTING TO RS. 9,53,225/- BY THE APPELLANT ON ADHOC BASIS THOUGH THE FULL DETAIL S IN RESPECT OF THE SAME WERE PRODUCED BEFORE THE ASSESSING OFFICER AS W ELL AS COMMISSIONER OF INCOME TAX [A]. 29. THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY US W HILE ADJUDICATING THE REVENUES APPEAL THROUGH PARA-22 WHEREIN THE IS SUE REGARDING CASH EXPENSES HAS BEEN SET ASIDE TO THE FILE OF THE AO. FOR THE REASONS GIVEN IN PARA-22, WE REMIT THIS ISSUE TO THE FILE O F THE AO WITH SIMILAR DIRECTIONS. 30. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18TH DAY OF JUNE, 2010. SD/- SD/- (V.D.RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18 TH JUNE, 2010. P/-*