Maha Maya General Finance Co. Ltd., New Delhi V. DCIT, New Delhi

ITA 2873/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52942 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 09-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Audit objection; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings

Judgement Text

ITA NO. 2873/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2873/DEL/2010 A.Y. : 2003-04 M/S MAHA MAYA GENERAL FINANCE CO. LTD., 4/4-A, ASAF ALI ROAD, NEW DELHI AND AND AND AND RAJESH JAIN & ASSOCIATES, 49, PUSHPANJALI, OPP. ANAND VIHAR, VIKAS MARG EXTN., DELHI 110 092 (PAN: AACM0004D) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1), CR BUILDING, NEW DELHI (APPELLANT (APPELLANT (APPELLANT (APPELLANT ) )) ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RAJESH JAIN, CA DEPARTMENT BY : SH. R.S. NEGI, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 16.3.2 010 PERTAINING TO ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THAT THE LEARNED CIT(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW, ERRED IN UPHOLDING THE INITIATION OF PROCEEDING U/S-147/148 OF THE ACT. THAT THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE ORIGINAL ASSESSMENT PROCEEDIN GS WERE COMPLETED U/S143(3) OF THE ACT AND ITA NO. 2873/DEL/2010 2 REASSESSMENT IS MERELY BASED ON CHANGE OF OPINION ON THE SAME FACTS WHICH WERE EXAMINED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. (II) THAT THE REASSESSMENT PROCEEDINGS ARE MERELY BAS ED ON REASON TO BELIEVE ON AUDIT OBJECTION AS THE ASSESSING OFFICER, INITIALLY PROPOSED TO MAKE ADDITI ON OF ` 38,00,000/- BY ISSUANCE THE NOTICE U/S- 154 OF THE ACT. THE REASSESSMENT PROCEEDING BASED OF AUDIT OBJECTION ARE NOT PERMISSIBLE UNDER THE LAW AND THEREFORE ENTIRE REASSESSMENT BASED ON ILLEGAL INITIATION IS LIABLE TO BE QUASHED. (III) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING TH E DISALLOWANCE OF ` 38,00,000/- IN RESPECT OF BONAFID E PROVISIONS OF EXPENSES MADE BY THE APPELLANT, THE CLAIM OF WHICH WAS LEGALLY AND PROPERLY ALLOWABLE TO THE APPELLANT, AS PER LAW. (IV) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THA T THE PROVISIONS MADE ARE NOT ALLOWABLE, EVEN IF AN ASSESS EE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ONL Y THE EXPENDITURE INCURRED DURING THE YEAR IS ALLOWAB LE. (V) THAT INTEREST U/S -234B OF THE ACT IS NOT LEVIA BLE ON THE FACTS OF THE CASE AND AS PER LAW. WITHOUT PREJUDICE TO GROUND NO 'V' ABOVE, (VI) THAT INTEREST U/S -234B OF THE ACT IS EXCESSIV E AND THE SAME IS NOT IN ACCORDANCE WITH LAW. ITA NO. 2873/DEL/2010 3 (VII) THAT THE ORDERS OF THE ASSESSING OFFICER & CI T(APPEALS) ARE NOT BASED ON THE FACTS OF THE CASE & AS PER LAW AND HENCE ADDITIONS SUSTAINED BY THE CIT(APPEALS) A RE TOTALLY ILLEGAL. (VIII) THAT ALL THE GROUNDS OF APPEAL ARE INDEPENDE NT AND WITHOUT PREJUDICE TO RESPECTIVE GROUNDS OF APPEAL STATED ABOVE. 3. IN THIS CASE, ASSESSING OFFICER OBSERVED THAT ON GOING THROUGH THE RECORDS, IT WAS NOTICED THAT ASSESSEE MADE A PR OVISION OF ` 38,00,000/- TOWARDS EXPENSES ALAKNANDA APPARTMENTS . ASSESSING OFFICER OPINED THAT THIS AMOUNT WAS ONLY IN THE NA TURE OF A PROVISION AND NOT THE ACTUAL EXPENDITURE DURING THE YEAR, THE PROVISION WAS NOT ALLOWABLE AND WAS REQUIRED TO BE ADDED BACK. ON EN QUIRY ASSESSEE GAVE FOLLOWING EXPLANATION IN THIS REGARD. THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD F OR ACCOUNTING ITS REVENUE SUPPORTED BY MERCANTILE SYSTE M OF ACCOUNTS. DURING THE YEAR, THE ASSESSEE COMPLETED ITS PROJECT AT ALAKNANADA APARTMENT. HOWEVER, AS PER T HE EXPERIENCE AND PRACTICE SOME WORK NEEDED TO BE DONE BEFORE THE ACTUAL PHYSICAL POSSESSION OF FLATS OF T HE COMPLETED PROPERTIES. IT IS IN RESPECT OF SUCH UNC OMPLETED WORK THAT THE ASSESSEE HAD MADE THE PRACTICE. IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE HAD BEEN FOLLOWING THE SAME SYSTEM SINCE ITS INCEPTION THE P ROJECT COMPLETION METHOD IN RESPECT OF THE VARIOUS PROJECT . ALAKNANDA PROJECT HAS BEEN COMPLETED DURING THE YEAR AND EVEN SALE OF SOME FLATS HAS TAKEN PLACE FORM THIS PROJECT ITA NO. 2873/DEL/2010 4 AS PER DETAILS OF SALE ALREADY ON FILE. HOWEVER, BASED ON THE SYSTEM OF ACCOUNTING, WHICH IS MERCANTILE IN THE CASE OF THE ASSESSEE BEING A COMPANY, ALL THE EXPENSES WHICH ARE PENDING AND FOR WHICH WORK HAD TO BE COMPLETED FOR THE UNCOMPLETED ITEMS, A PROVISION SO CREATED IS IN RESP ECT OF THESE UNSOLD FLATS. THERE IS NOTHING IRREGULAR AND ILLEGAL ABOUT MAKING OF PROVISION AND IS PERFECTLY WITHIN TH E LEGAL RIGHTS OF THE ASSESSEE TO MAKE THE PROVISION FOR EXP ENSES ON ACCRUAL BASIS, WHICH SYSTEM OF ACCOUNTING HAD BE EN CONTINUOUSLY FOLLOWED BY THE ASSESSEE SINCE ITS IN CEPTION. IT IS FURTHER CLARIFIED THAT AGAINST THE PROVISION OF ` 38 LACS MADE BY THE ASSESSEE, A SUM OF ` 32,40,499/- HAD ALR EADY BEEN INCURRED TILL 31 ST MARCH, 2006 IN RESPECT OF ALAKNANDA APARTMENT OUT OF THE PROVISIONS MADE AND THE BALANCE AMOUNT IS ALSO LIKELY TO BE SPENT INDEPENDENTLY FROM SALE OF THE BALANCE UNSOLD FLATS. 3.1 ASSESSING OFFICER DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE. HE HELD THAT EVEN IF THE ASSESSEE IS FOLLOWING MERCA NTILE PRINCIPLE OF ACCOUNTING, HIS METHOD OF ACCOUNTING CANNOT OVER RIDE THE PROVISIONS OF THE IT ACT, 1961. EVEN THOUGH MOST COMPANIES FOLL OW MERCANTILE SYSTEM OF ACCOUNTING, ANY AMOUNT DEBITED AS PROVISION TO PROFIT AND LOSS IS NOT ALLOWED. HE FURTHER OBSERVED THAT SO LONG AS COMPUTATION OF INCOME UNDER THE INCOME TAX IS CONCERNED, INCOME T AX ACT IS A SPECIAL ACT AND THE PROVISIONS CONTAINED THEREIN NE ED TO BE COMPLIED WITH IF DEDUCTION PERMISSIBLE IS TO BE CLAIMED AS AL LOWABLE. HE FURTHER OBSERVED THAT AS PER THE IT ACT, 1961, ANY EXPENSE OR CLAIM WHICH IS IN THE NATURE OF A PROVISION AND IS DEBITED TO PROFIT AND LOSS IS NOT ITA NO. 2873/DEL/2010 5 ALLOWABLE. ACCORDINGLY, ASSESSING OFFICER ADDED A SUM OF ` 38,00,000/- HOLDING THAT THE PROVISION HAS ESCAPED ASSESSMENT AND IS ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON JURISDICTIONAL ISSUE AND ON MERITS OF THE CASE. ON THE ISSUE OF JURISDICTION, LD. COMMISSIONER OF INCOME TAX (APPEALS) DECIDED THIS ISSUE AGAINST THE ASSESSEE. ON THE MER ITS OF THE CASE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- MY LD. PREDECESSOR REMANDED THE CASE TO THE ASSESSI NG OFFICER WITH THE DIRECTIONS THAT SHE MAY CALL FOR B OOKS OF ACCOUNTS OF THE APPELLANT COMPANY I.E. LEDGER ACCOUN T, JOURNAL REGISTER, FULL DETAILS OF CLOSING STOCK AS APPEARING IN THE P&L ACCOUNT AND BALANCE SHEET TO VERIFY WHETHER THE PROVISION SO CREATED HAS ANY JUSTIFICATION OR NOT. THE ASSESSING OFFICER EXAMINED THE BOOKS OF ACCOUNTS AN D REPORTED THAT THE AMOUNT OF ` 38 LACS DEBITED TO TH E P&L ACCOUNT IS INDEED IN THE NATURE OF PROVISION AND TH E AMOUNT WAS NOT INCURRED DURING THE YEAR. IT IS AN ESTIMA TE MADE BY THE COMPANY FOR THE COSTS IT MAY INCUR OR LIKEL Y TO INCUR ON PROVIDING FINISHING TOUCH (ELECTRICITY, W ATER, WOOD WORK, ETC.) SHOULD THERE BE A SALE OF ITS FLATS. T HE ASSESSING OFFICER ALSO REPORTED THAT THE AUDITORS HAD SUBMITT ED A COPY OF ESTIMATES PROVIDED BY CIVIL CONTRACTORS, DEC ORATORS ETC. WHICH WERE RELIED UPON BEFORE MAKING THIS PROV ISION. FROM THE REPORT OF THE ASSESSING OFFICER IT IS CLEAR THAT THE AMOUNT DEBITED IS A PROVISION CREATED ON THE BASIS O F SOME ESTIMATES. IT IS NOT AN ASCERTAINED LIABILITY OF EXPENSES ITA NO. 2873/DEL/2010 6 THAT THE COMPANY NECESSARILY HAD TO INCUR DURING THE A.Y. 2003-04. INCOME TAX ACT DOES NOT ALLOW DEDUCTION OF EXPENSES WHICH HAVE NOT BEEN INCURRED OR LIABILITY WHICH IS NOT ASCERTAINED. IN VIEW OF THE CLEAR PROVISIONS OF THE ACT, THE ACCOUNTING SYSTEM OF THE APPELLANT CANNOT OVERR IDE THE STATUTE. HENCE, THE ACTION OF THE ASSESSING OFFICE R IN DISALLOWING PROVISION OF ` 38,00,000/- IS SUSTAINED . 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT ASSESSING OFFICER HAS NOT GIVEN COGENT REASONING IN MAKING THE DISAL LOWANCE IN THIS REGARD. ASSESSING OFFICER HAS HELD THAT THE PROVIS ION OF ` 38,00,000/- CANNOT BE ALLOWED. LD. COUNSEL OF THE ASSESSEE IN THIS REGARD HAS ARGUED THAT A SUM OF ` 38,00,000/- WAS NEVER DEBITED TO THE P&L ACCOUNT. HE CLAIMED THAT THE AMOUNT WAS DEBITED TO THE WORK IN PROGRESS ACCOUNT. HE HAS FURTHER CLAIMED THAT THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IS PERFECTLY JUST IFIED IN MAKING THE SAID PROVISIONS. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D CONTENDED THAT THIS AMOUNT WAS DEBITED TO THE P&L ACCOUNT AND IT WAS ONLY A PROVISION AND IT HAS BEEN RIGHTLY BEEN DISALLOWED. ITA NO. 2873/DEL/2010 7 6.2 WE HAVE CAREFULLY GONE THROUGH THE LEDGER ACCO UNT OF PROJECT ALAKNANAD EXECUTIVE SUBMITTED IN THE PAPER BOOK. AT PAGE NO. 50 OF THE PAPER BOOK, IN THE SAID LEDGER ACCOUNT, WE NOTE THAT THE AMOUNT OF ` 38,00,000/- WAS NOT DEBITED TO THE P&L ACCOUNT, B UT IT WAS MADE A PROVISION AND DEBITED TO THE PROJECT ACCOUNT AND TH E BALANCE OF THE PROJECT ACCOUNT ` 10551500.37 WAS CARRIED FORWARD. THUS, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT THIS AMOUNT WAS NEVER DEBITED TO THE P&L ACCOUNT. HENCE, THE QUESTION OF MAKING THE DISALLOWANCE DOES NOT ARISE. SECONDLY, WE FIND THA T ASSESSEE WAS PERFECTLY JUSTIFIED ON THE BASIS OF ITS METHOD OF A CCOUNTING IN MAKING THE PROVISION FOR THE EXPENSES IN THE PROJECT ACC OUNT. THE AUTHORITIES BELOW HAVE NOT EXAMINED THIS ISSUE IN THE PROPER PRO SPECTIVE. THE DETAIL OF THE PROVISION HAS NOT BEEN GONE INTO, ON LY THEORETICAL ANALYSIS HAS BEEN DONE. WE FIND THAT THE ASSESSEE HAS MADE THE PROVISION ON THE BASIS OF ESTIMATES PROVIDED BY THE CIVIL CONTRA CTORS AND DECORATORS ETC. HENCE, IT CANNOT BE SAID THAT THIS LIABILITY IS AN UNCERTAINED LIABILITY. HENCE, WE HOLD THAT THE AUTHORITIES BEL OW HAVE ERRED IN MAKING THE DISALLOWANCE OF ` 38,00,000/- IN HANDS O F THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSE E. ITA NO. 2873/DEL/2010 8 7. SINCE WE HAVE DECIDED THE ISSUE ON MERITS IN FAV OUR OF THE ASSESSEE, THE JURISDICTIONAL ISSUE HAVE BECOME ACAD EMIC AND ARE NOT BEING DEALT WITH. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/9/2011. SD/- SD/- [ [[ [RAJPAL YADAV] RAJPAL YADAV] RAJPAL YADAV] RAJPAL YADAV] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 30/9/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR,I TAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES