ACIT, UDAIPUR V. Shri Bhupendra Singh Babel, UDAIPUR

ITA 381/JODH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78112 (ITAT-JODHPUR)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: NIL
• Keywords: Business income; Business expenditure; Corroborative evidences; Bonafide mistake
• Section: 143(3); 37(1); 148; 139

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.381/JODH/2013 (A.Y. 2006-07) ACIT, CIRCLE-1, VS. SHRI BHUPENDRA SINGH BABEL, UDAIPUR. PROP. M/S. MAHENDRA & CO., 3-TOWN HALL, LINK ROAD, UDAIPUR. PAN NO. AAYPB 9655 N (APPELLANT) (RESPONDENT) ASSESSEE BY : NIL DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 26/03/2014. DATE OF PRONOUNCEMENT : 11/04/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 28/03/2013 OF LD. CIT(A), UDAIPUR. DURING THE COUR SE OF HEARING, NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE, HOWEVER, WRI TTEN SUBMISSIONS HAS BEEN FURNISHED BY THE ASSESSEE WHICH WE HAVE CONSID ERED ALONG WITH THE SUBMISSIONS OF THE LEARNED D.R. 2 2 THE ONLY GROUND RAISED BY THE DEPARTMENT IN THIS A PPEAL READS AS UNDER:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 19,45,450 /- MADE ON ACCOUNT OF PROVISIONS FOR DEVELOPMENT EXPENSES IGNORING THE FA CT THAT THE ASSESSEE HAS FAILED TO PROVE THAT LIABILITY HAS ACTUALLY ACCRUED IN FY 2005-06 AND RATHER THE BILLS FOR EXPENSES WERE RECEIVED IN SUBSEQUENT YEAR. 3. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASS ESSEE FILED THE RETURN OF INCOME ON 31/10/2007 DECLARING TOTAL INCO ME RS. 33,04,782/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE I.T . ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) ON 27/06/2007. THEREAFTER, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO T HE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE STATED TH AT THE RETURN FILED UNDER SECTION 139 OF THE ACT VIDE RECEIPT NO. 136 D ATED 31/10/2006 SHOWING TOTAL INCOME OF RS. 32,05,120/- MAY BE TREA TED AS RETURN FILED INCOMPLIANCE TO THE SAID NOTICE. LATER ON, CASE WA S TAKEN UP FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED EXPENSES IN PROFIT & LOSS ACCOUNT FOR RS. 19,45,450/- MERELY ON ACCOUNT OF CR EATING PROVISIONS FOR DEVELOPMENT EXPENSES WHILE THE ASSESSEE HAD NOT INC URRED THOSE EXPENSES ACTUALLY. THE ASSESSING OFFICER WAS OF TH E VIEW THAT A MERE 3 PROVISION DID NOT ALLOW THE CLAIM OF EXPENDITURE IN THE PROFIT & LOSS ACCOUNT. HE, ACCORDINGLY MADE THE ADDITION OF RS. 19,45,450/-. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- (A) AS THE ASSESSING OFFICER HAS NOT REJECTED OUR DETAILS AND SUPPORTING EVIDENCES FILED TO HIM WITH OUR WRITTEN SUBMISSIONS DATED 16-08-2010 AND 22-09-2010. IT MEANS HE HAS NOT REJECTED OUR BOOKS MAINTAINED ON MERCANTILE SYSTEM OF ACCOUNTING. (B) APPELLANT HAS PROMISED TO BUYER'S OF PLOTS TO P ROVIDE ROAD, DRAINAGE, ELECTRICITY & LAND LEVELING WORK, APPELLANT HAS CRE DITED THE TOTAL SALES AT RS. 12841510/- AGAINST WHICH EXPENSES FOR DEVELOPME NT OF ROAD, ELECTRICITY, DRAINAGE AND LAND LEVELING WORK IS TO BE EXECUTED FOR WHICH PROVISION FOR DEVELOPMENT EXPENSES RS. 1945450/- IS DEBITED TO TRADING, P&L A/C AS 'ACCRUED LIABILITY' OF THE BUSINESS. THE RE ARE EVIDENCES FOR SUCH PROMISES WITH PURCHASERS, THE COPY OF SUCH LETTERS ARE ENCLOSED WITH ANNEX-1. THERE IS NO CONTRARY EVIDENCE WITH A.O. FOR SAID AC CRUED LIABILITY. A.O. HAS NOT CONSIDERED OUR SAID EVIDENCES PRODUCED BEFORE H IM ON 16-8-2010 (ANNEX-1). A.O. HAS NOT REJECTED OUR SAID REPLY DAT ED 16-08-2010 AND ALSO BOOKS OF ACCOUNTS WERE NOT REJECTED U/S 145(3). AS PER SECTION 37(1) OF I.T. ACT 1961, THE WORDS 'L AID OUT OR EXPENDED' CLEARLY POINT OUT THE IDEA OF WHAT IS PAID OUT OR A WAY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLE. HOWEVER, IN THE CASE OF MERCANTILE SYSTEM OF ACCOUNTING THE WORD 'EXPENDED' IS CAPABLE OF BEING INTERPRETED AS 'EXPENDITURE' OR 'TO BE EXPENDED' CASE: CALCUTTA CO.LTD. V/S CIT (1959) 37ITR1 (S.C.) THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DEF INITELY 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. CASE: BHARAT EARTH MOVERS VIS. CIT (1959) 37ITR1 (S .C.) 4 WE ARE ENCLOSING HEREWITH COPY OF VARIOUS JUDGMENTS OF HON'BLE S.C., H.C. & ITAT WHICH MAY BE APPLICABLE OR REFERRED IN THE A BOVE CASE. (C)THE APPELLANT HAS INCURRED ACTUAL EXPENSES OF RS .1945450/- IN NEXT A.Y. 2007-08, WHERE IN THE APPELLANT HAS TOTAL EXPENDITU RE AS FOLLOWS:- TOTAL EXP. NATURE OF WORK (I) NAKODA PURAM-LAND DEVELOPMENT 2031334 LAND LEVELING WORK EXP. LESS: EXPENSES OF A.Y. 2006-07 IS (1400000) TRANSFERRED TO PROVISION A/C _________ NET CLAIMED EXP IN A.Y. 2007-08 RS. 631334 (II) NAKODA PURAM-ROAD DEVELOPMENT 1170372 EXP LESS: EXPENSES OF A.Y. 2006-07 545450 TRANSFERRED TO PROVISION A/C ____________ NET EXPENSES CLAIMED IN A.Y 2007-08 R S. 624922 TOTAL EXPENDITURE RS. 2031334 RS. 1170372 RS. 3201706 LESS: EXPENSES RELATING TO A.Y 2006-07 RS. 1945450 EXPENSES ALLOWED IN A.Y. 2007-08 (U/S RS. 1256 256 143(3) THEREFORE, THE EXPENSES INCURRED OF RS 1945450/- IS 'NEITHER ALLOWED IN A.Y. 2007-08 AND NOR ALLOWED IN A.Y. 2006-07'. SO, YOUR HONOR IS KINDLY REQUESTED TO ALLOW THE ACT UAL EXPENSES OF RS 1945450/- IN A.Y. 2006-07 AND IN ALTERNATIVE IN A.Y . 2007-08. THESE BUSINESS EXPENSES ARE ALLOWABLE EXPENDITURES HON. S UPREME COURT IN CALCUTTA CO. LTD 37 ITR-1 (SC) HELD THAT UNDER A ME RCANTILE SYSTEM OF ACCOUNTING THE 'EXPENDED' MEANS TO BE EXPENDED' ALS O COVERED IN THE SECTION 37(1) OF IT ACT 1961. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 5 1. CALCUTTA CO. LTD. VS. CIT 37 ITR 1 (SC) 2. BHARAT EARTH MOVERS VS. CIT (2000) 112 TAXMAN 61. ( SC) 3. TRF LTD. VS. CIT (TAX APPEAL NOS. 42 TO 46 OF 2001) (JHARKHAND HC) 4. FFE MINERALS INDIA (P) LTD. VS. JCIT (142 TAXMAN 11 0) 5. CIT VS. TRIVENI ENGG. & INDUSTRIES LTD. (TAX APPEAL NOS. 42 TO 46 OF 2001) (DELHI HC) 5. THE LD. CIT(A) ALSO ASKED REPORT FROM THE ASSESSIN G OFFICER ON THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSING OFFICER IN HIS REMAND REPORT STATED AS UNDER:- THE LD. AR STATED THAT THE ASSESSEE HAS MADE TYPOGR APHICAL MISTAKE IN MENTIONING THE HEAD FOR DEVELOPMENT EXPENSES PAYABL E IN TRADING, P&L A/C. AS 'PROVISION FOR DEVELOPMENT EXP'. WHILE IT W AS AN ACCRUED LIABILITY FOR DEVELOPMENT OF ROADS, DRAINAGE & LAND LEVELING EXPE NSES FOR PLOTS ALREADY SOLD IN NAKODA PURAM-1. FURTHER, THE ACCRUED LIABIL ITY FOR DEVELOPMENT ROADS , DRAINAGE AND LEVELING OF LAND IS OF COMPULS ORILY IN NATURE, AS THE LOCAL AUTHORITY U.I.T, HAS MADE IT IS NECESSARY. AFTER CONSIDERING THE SUBMISSIONS OF THE AR SUBMITT ED BEFORE YOUR HONOUR AS WELL AS SUBMISSION FILED DURING THE ASSESSMENT P ROCEEDINGS IT IS NOTICED THAT THE ASSESSEE HAD RECEIVED BILLS FROM VARIOUS P ARTIES AGAINST THE ROADS, DRAINAGE AND LAND DEVELOPMENT CHARGES IN F Y 2006-0 7 RELEVANT TO AY 2007- 08 ONLY, IT IS FURTHER NOTICED THAT THESE PARTIES H AD ALSO DONE THE SAID WORK IN THE FY 2006-07 RELEVANT TO AY 2007-08 . IN LIGHT OF THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAS DEBITED IN P & L ACCOUNT DEVE LOPMENT EXPENSES OF RS. 19,45,450/- ONLY , ON PRESUMPTION BASIS AND THERE W AS NO ACCRUED LIABILITY OF RS. 19,45,450/- FOR DEVELOPMENT EXPENSES IN AY 2 006-07. THEREFORE, THE ASSESSEE WAS ONLY ENTITLED TO CLAIM THESE EXPENSES IN THE AY 2007-08. IN VIEW OF THE ABOVE IT IS REQUESTED THAT THE ADDITION OF RS. 19,45,450/- MAY KINDLY BE SUSTAINED.' 6 6 . LD. CIT(A) AGAIN ASKED COMMENTS OF THE ASSESSEE O N THE REMAND REPORT FURNISHED BY THE ASSESSING OFFICER AND THE A SSESSEE VIDE LETTER DATED 13/03/2013 STATED AS UNDER:- WE HAVE RECEIVED COPY OF A.O.'S COMMENTS VIDE THEIR LETTER NO. 1223 DATE 1-3-2013 WHICH IS FILED TO YOUR HONOUR. HON'BLE SIR, THE LD. A.O. HAS ADMITTED IN HIS REPOR T DT. 1-3-2013 THAT 'AS SUBMISSION FILED DURING THE ASSESSMENT PROCEEDINGS IT IS NOTICED THAT THE ASSESSEE HAD RECEIVED BILLS FROM VARIOUS PARTIES AG AINST THE ROADS, DRAINAGE AND LAND DEVELOPMENT CHARGES IN THE F.Y. 2006-07 RE LEVANT TO A.Y. 2007-08 ONLY'. 'IN THE LIGHT OF ABOVE IT IS CLEAR THAT THE ASSESSEE HAD DEBITED IN P&L A/C DEVELOPMENT EXPENDITURE OF RS. 19,45,450/- ONLY ON PRESUMPTION BASIS AND THERE WAS NO ACCRUED LIABILITY OF RS. 19,45,450 /- FOR DEVELOPMENT EXPENSES IN A.Y. 2006-07. THEREFORE THE ASSESSEE WA S ONLY ENTITLED TO CLAIM THESE EXPENSES IN THE A.Y. 2007-08'. OUR SUBMISSIONS ON ABOVE COMMENTS ARE AS FOLLOWS- SIR, THE A.O. HAS NO COMMENTS ON ABOVE ACCRUED LIAB ILITY FOR THE DEVELOPMENT OF ROADS, DRAINAGE AND LAND LEVELING EX PENSES FOR PLOTS ALREADY SOLD IN NAKODA PURAM-L WHICH WAS AN ACCRUED LIABILI TY OF THE ASSESSEE DUE TO COMPULSORY IN NATURE, AS THE LOCAL AUTHORITY UIT HAS MADE IT COMPULSORY FOR DEVELOPER TO PROVIDE THE ABOVE SERVICES. IT MEA NS THE A.O. WAS AWARE OF SAID FACTS, WHICH WE HAVE ALREADY NOTICED/MENTIONED IN OUR REPLY DT. 16.08.2010 FILED TO THE A.O., IN PARA-8., THE APPELLANT IS FOLLOWING THE 'MERCANTILE SYSTEM OF ACCOUNTING' THEREFORE EXPENDITURE ALREADY INCURRED DURING THE P REVIOUS YEAR AND ALSO EXPENDITURE FOR WHICH LIABILITY ARISED IN PREVIOUS YEAR BUT WHICH HAS BEEN PAID IN NEXT YEAR, IS TO ACCOUNTED FOR, IN THIS CAS E ALSO RS. 19,45,450/- WAS NOT PAID/INCURRED IN A.Y.2006-07 BUT THE LIABILITY HAS ALREADY BEEN ACCRUED 7 DUE COMPULSORY IN NATURE AND TO FIND TRUE AND CORRE CT PROFIT FOR THE YEAR UNDER ASSESSMENT, THE EXPENDITURE HAS TO BE DEBITED ON THE BASIS OF ACCRUED LIABILITY. AT LAST, THE A.O. HAS MENTIONED IN REPORT DT.01.03. 2013 THAT DEVELOPMENT EXPENDITURE OF RS. 19,45,450/- SHOULD BE CLAIMED OR ENTITLED IN A.Y.2007-08. SIR, IN THIS REF. I HAVE ALREADY MENTIONED IN OUR S UBMISSION FILED BEFORE YOUR GOODSELF THAT WE HAVE NOT CLAIMED THE SAID EXPENDIT URE IN A.Y.2007-08 ALTHOUGH INCURRED IN A.Y. 2007-08 AND OUR RETUNED I NCOME WAS ACCEPTED U/S 143(3) FOR A.Y.2007-08, WHILE A.O ALLOWING IN H IS REPORT TO ALLOW THE SAID EXPENDITURE OF RS. 19,45,450/- IN A.Y. 2007-08 , WHICH IS TECHNICALLY NOT RIGHT. UNDER THE MERCANTILE SYSTEM THE LIABILITY OF PREVIOUS YEARS MAY BE PAID OR INCURRED IN NEXT YEAR BUT ALLOWED IN THE PR EVIOUS YEAR FOR WHICH IT IS INCURRED. HON'BLE SUPREME COURT HAS ALSO PRONOUNCED IN THEIR VERDICT, COPY OF JUDGMENT HAS ALREADY FILED TO YOUR GOODSELF IN PREV IOUS REPLY. KINDLY ACCEPT OUR APPEAL AND ALLOW THE EXPENDITURE IN A.Y.2006-07.' 7 . THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE AND THE REMAND REPORT OF THE ASSESSING OFF ICER, OBSERVED THAT THE MENTIONING OF ACCRUED LIABILITY OF RS. 19,45,45 0/- AS PROVISIONS FOR EXPENSES WAS A BONAFIDE MISTAKE DUE TO TYPOGRAPHICAL ERROR OF THE HEAD OF EXPENSES AND IT WAS DISCERNABLE THAT CLAIM OF TH E ASSESSEE WAS GENUINE WHICH HAD BEEN PROVIDED BY THE ASSESSEE IN HIS BOOK S OF ACCOUNTS AS PER THE ACCOUNTING STANDARD I.E. MERCANTILE SYSTEM OF A CCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE. THE CIT(A) FURTHER OBSER VED THAT THE ASSESSEE 8 HAD NEITHER CLAIMED THESE EXPENSES NOR THE ASSESSIN G OFFICER HAD ALLOWED THE SAME IN SUCCEEDING ASSESSMENT YEAR AND MOREOVER , THE ASSESSEE HAD PROVED THE ACTUALLY INCURRED THOSE EXPENSES FOR THE PURPOSE HIS REAL ESTATE BUSINESS. THE LD. CIT(A), ACCORDINGLY HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE EXPENS ES OF RS. 19,45,450/- AS THOSE WERE BUSINESS EXPENSES UNDER SECTION 37(1) OF THE ACT. NOW THE DEPARTMENT IS IN APPEAL. 8 . LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSM ENT ORDER DATED 27/09/2010. 9 . IN HIS WRITTEN SUBMISSIONS, LEARNED COUNSEL FOR T HE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A) AND ALSO STAT ED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT, THEREFO RE, PROVISION FOR DEVELOPMENT EXPENSES WAS DONE FOR ACCRUED LIABILITY AND AFTER CONSIDERING THE ABOVE FACTS AND LAW, THE LD. CIT(A) HAS ACCEPTED THE APPEAL. 10 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF 9 ACCOUNTING AND THE EXPENSES RELATING TO THE YEAR UN DER CONSIDERATION WERE DEBITED IN THE PROFIT & LOSS ACCOUNT ON ACCRUA L BASIS AND THOSE EXPENSES WERE PAID IN THE NEXT YEAR. SINCE THE EXP ENSES WERE RELATED TO THE YEAR UNDER CONSIDERATION AND PROVIDED ON ACCRUA L BASIS, THEREFORE, THESE WERE TO BE ALLOWED IN THE YEAR TO WHICH IT RE LATED. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AND THE LD. CIT(A) RIGHTL Y DELETED THE SAME. WE, THEREFORE, DO NOT SEE ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A) ON THIS ISSUE. 11 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMIS SED. (ORDER PRONOUNCED IN THE COURT ON 11 TH APRIL, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH APRIL, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.