The Assistant Commissioner of Income Tax, Circle-1 (1), Panaji., Panaji V. M/s Heritage Princes Real Estate Developers., Goa

ITA 23/PAN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2102 (ITAT-PANAJI)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-05-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 19-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D E ROBINSON
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 2 3 /P A N/201 6 (ASST. YEAR : 2012 - 1 3 ) ACIT, CIRCLE - 1(1), PANAJI GOA. VS. M/S. HERITAGE PRINCES REAL ESTATE DEVELOPERS, B - 101, HERITAGE SYMPHONY , OPP. SYNDICATE BANK, CARANZALEM GOA. PAN NO. AAEFH 4796 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.E. ROBINSON ADV. DEPARTMENT BY : SHRI R.N. SIDDAPPAJI - D R DATE OF HEARING : 11 / 0 5 /201 6 . DATE OF PRONOUNCEMENT : 11 / 0 5 /201 6 . O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , PANAJI - 1 , DATED 2 3 / 11 /201 5 . 2. THE APPEAL FILED BY THE REV E NUE IS BARRED BY LIMITATION BY 06 DAYS. THE REVENUE HAS FILED CONDONATION PETITION FOR CONDONING THE DELAY IN FILING THE APPEAL. WE ARE OF THE VIEW THAT THERE WAS A REASONABLE CAUSE FOR DELAY IN FILING OF THE APPEAL. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS ALSO NOT OBJECTED TO THE CONDONING OF THE DELAY OF 06 DAYS IN FILING OF THE APPEAL BY THE REVENUE. WE, THEREFORE, CONDONE THE DELAY AND ADMI T THE APPEAL FOR HEARING. 3 . THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN D ELETING THE DISALLOWANCE MADE B Y THE 2 ITA NO. 23 /P A N/201 6 ASSESSING OFFICER OF 80 LAC ON ACCOUNT OF PROVISION FOR CONSTRUCTION EXPENSES . 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE A PROVISION FOR OUTSTANDING EXPENSES OF 80 LAC AS APPEARING IN THE BALANCE SHEET AND THE DETAILS OF WHICH , ARE AS UNDER: - DATE PARTICULARS AMOUNT 31/03/2012 LABOUR CHARGES CIVIL WORK E TC JOURNAL PROVISION FOR LABOUR CHARGES AND STEEL SUPPLIED AT SITE 31/03/2012 ELLANABAD STEELS AND OTHERS. PROVISIONS 31/03/2012 45,00,000 31/03/2012 LABOUR CHARGES CIVIL WORK E TC. JOURNAL PROVISION FOR LABOUR CHARGES AND CEMENT SUPPLIED AT SITE BY ASHOK AND OTHER 10,00,000 31/03/2012 LABOUR CHARGES CIVIL WORK ETC JOURNAL OUTSTANDING EXPENSES CEMENT AND EXPENSES FOR VISHAL PLUMBING WORKS ETC AS PER ESTIMATE 31/03/2012 25,00,000 THE ASSESSING OFFICER DISALLOWED DEDUCTION FOR THE SAME HOLDING TH A T THE PROVISIONS ARE CONTINGENT IN NATURE AND CANNOT BE ALLOWED DEDUCTION WHILE COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. 5 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE DEDUCTION TO THE ASSESSEE BY OBSERVING AS UNDER: - I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT . IN THIS CASE, THE APPELLANT IS A BUILDER AND PROMOTER. THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. FOR DISCLOSING INCOME, IT FOLLOWS PERCENTAGE OF COMPLETION METHOD. DURING THE YEAR THE PR O JECT HERITAGE PRINCESS WAS SHOWN AS COMPLETED. THE APPELLANT CLAIMED OUTSTANDING EXPENSES AMOUNTING TO RS.80,00,000/ - . DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE A.O. VERIFIED THE CLAIM OF THE APP ELLANT AND FOUND THIS CLAIM AS DISALLOWABLE FOR FOLLOWING REASONS. I) THE EXPENDITURE WAS BOOKED ON ESTIMATION BASIS. II) DURING THE YEAR UNDER CONSIDERATION LIABILITY TO PAY DID NOT EXIST. III) INITIALLY, THE ASSESSEE CLAIMED THAT THE OUTSTANDING EXPE NSES WAS TOWARDS LABOUR CHARGES - CIVIL WORK HOWEVER, SUBSEQUENTLY, IT WAS CONTENDED THAT THE SAME WAS TOWARDS MATERIAL PURCHASES. IV) THIS LIABILITY WAS A CONTINGENT LIABILITY, WHICH DID NOT CRYSTALLIZE AS ON 31.03.2012. V) THE EXPENDITURE COULD BE REL ATED TO EXOTICA, AN ONGOING PROJECT. 3 ITA NO. 23 /P A N/201 6 WHILE REACHING AT CONCLUSION, THE A.O. PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: I) SHRI SAJJAN MILLS LTD. VS CIT (1985) 156 ITR 585 (SC) II) INDIAN MOLASSES CO. (P) LTD. VS CIT (1959) 37 ITR 66 (SC) III) MAHADEO GANGAPRASAD VS SECOND ITO (1966) 61 ITR 384[BOM] IV) MYSORE LAMP WORKS LTD. VS. CIT (1990) 52 TAXMAN 260/185 ITR 96 (KAR) V) RAJASTHAN STATE MINES AND MINERALS LTD. VS. CIT 208 ITR 1010 VI) T N SMALL INDUSTRIES DEVELOPMENT COR P ORATION VS. CIT(MAD) 242 ITR 122. ON THE OTHER HAND THE APPELLANTS MAIN CONTENTION IS AS UNDER: I) OUTSTANDING CONSTRUCTION EXPENSES AMOUNTING TO RS.80,00,000/ - PERTAINS TO THE COMPLETED PROJECT HERITAGE PRINCESS ONLY TOWARDS CONSTRUCTION OF RETAINING WALL OF THE COMPLEX. II) THE EXPENSES ARE DULY SUPPORTED BY RELEVANT BILLS AND VOUCHERS, THOUGH PAID IN THE SUBSEQUENT YEAR. III) THE COST INCLUDES, STEEL, CEMENT, WINDOWS, PLUMBING MATERIAL AND ELEVATOR. IV) THEY FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, SINCE THE INCOME RELATING TO THE PROJECT HAS BEEN DISCLOSED DURING THE YEAR, THE OUTSTANDING EXPENSES SHOULD ALSO BE ALLOWED. V) IN SPITE OF THIS CLAIM, THE APPELLANT HAS DISCLOSED A PROFIT OF 34. 38%, WHICH IS SUBSTANTIALLY HIGH. TO SUPP O RT ITS CAUSE, THE APPELLANT HAS PLACED RELIANCE ON FOLLOWING JUD G M E NTS. I) CIT VS DEVELOPMENT TRUST (P) LTD. 189 ITR 504 (ALLAHABAD) II) CALCUTTA CO. LTD. VS ITO 87 ITR 1 (SC) III) RATORK CONTROLS INDIA (P) LTD. VS. CIT (2009) 314 ITR 62(SC). THE APPELLANT ALSO DISTINGUISHED THE FACTS OF JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE A.O. SHRI SAJJAN MILLS DECISION RELATES TO GRATUITY. WHICH HAS NOTHING T O DO WITH THE INSTANT CASE. SIMILARLY, IN INDIAN MOLASSES, THE ISSUE INVOLVED DEDUCTION IN RESPECT OF CONDITIONAL LIABILITY ON PAYMENTS MADE BY COMPANY TO INSURANCE COMPANY THROUGH A TRUST. THE APPELLANT CONTENDED THAT NO JUDICIAL PRONOUNCEMENT RELIED UPON BY THE A.O. WAS RELEVANT IN VIEW OF THE FACTS OF INSTANT CASE. THE FACTS WHICH ARE NOT DISPUTED, IS THAT THE APPELLANT HAS SHOWN INCOME FROM THE PROJECT HERITAGE PRINCESS ON COMPLETION OF THE PROJECT, THAT THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND OUTSTANDING EXPENSE OF RS.80,00,000/ - RELATES TO THIS PROJECT. THOUGH THE EXPENSE WAS NOT INCURRED DURING THE YEAR UNDER CONSIDERATION, THE LIABILITY HAD CRYSTALLIZED. IN CASE, THIS IS NOT ALLOWED IN THIS YEAR, IT WILL GIVE A VERY DISTORTED PROFITABILITY IN RESPECT OF COMPLETED AS WELL AS ONGOING PROJ ECT. THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS CIT, REPORTED IN (2009) 314 ITR 62 (SC) HAS PROVIDED THE PRINCIPLE THAT ANY PROVISION MADE FOR THE OBLIGATION OF EXPENSES TO BE INCURRED IN FUTURE AGAINST THE CU RRENT YEARS 4 ITA NO. 23 /P A N/201 6 SALE IS AN ALLOWABLE EXPENSE. FROM THE DETAILS ON RECORD, IT CAN BE SEEN THAT THESE EXPENSES WERE INCURRED IN THE MONTHS OF APRIL TO JUNE 2012, WHICH IS WITHIN 3 MONTHS OF THE YEAR END AND IN ALL LIKELINESS RELATED TO THE COMPLETED PROJECT. IN VIEW OF FACTS OF THIS CASE, AND VARIOUS JUDICIAL PRONOUNCEMENT DISCUSSED ABOVE, IN MY OPINION, THE OUTSTANDING EXPENSE OF RS.80,00,000/ - RELATED TO THE COMPLETED PROJECT IS AN ALLOWABLE EXPENSE AND THE ADDITION MADE ON THIS ACCOUNT IS HEREBY DELETED. THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 6 . DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7 . ON THE OTHER HAND, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 8 . AFTER CONSIDERING THE RIVAL SUBMISSION S AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER APPRECIATING THE ENTIRE FACTS OF THE CASE OF THE ASSESSEE, HAS DELETED THE DISALLOWANCE OF EXPENSES OF 8 0 LAC. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND, HENCE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , WHICH IS CONFIRM ED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON WEDNESDAY , THE 1 1 TH DAY OF MAY , 201 6 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 1 TH MAY , 201 6 . VR/ - 5 ITA NO. 23 /P A N/201 6 COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI