THE ITO 25(3)(1), MUMBAI V. SHRI MANISH BUILDERS, MUMBAI

ITA 4921/MUM/2008

• Counselvise Citation: 492119914 RSA 2008
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PRAVIN VARMA
• Keywords: Recovery proceedings; Business income; Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO. 4421/MUM/2008 ASSESSMENT YEAR 2005-2006 M/S. MANISH BUILDERS 102, AKANSHA ARCADE 60, TRIKAMDAS ROAD, KANDIVLI (WEST), MUMBAI 400 067 PAN AAGEM12163 VS. ITO 25 (3) (1) MUMBAI (APPELLANT) (RESPONDENT) ITA. NO. 4921/MUM/2008 ASSESSMENT YEAR 2005-2006 ITO 25 (3) (1) MUMBAI VS. M/S. MANISH BUILDERS 102, AKANSHA ARCADE 60, TRIKAMDAS ROAD, KANDIVLI (WEST), MUMBAI 400 067 PAN AAGEM12163 FOR ASSESSEE : SHRI PRAVIN VARMA FOR REVENUE : SHRI SATISH R. MODY ORDER PER SHRI N.V.VASUDEVAN, J.M. 1. ITA.NO.4421/MUM/08 IS AN APPEAL BY THE ASSESSEE, WHILE ITA NO.4921/MUM/2008 IS AN APPEAL BY THE REVENUE. BOTH THE APPEALS ARE DIRECTED AGAINST THE ORDER DT.29.5.2008 OF CIT(A)-X XV, MUMBAI, RELATING TO AY 05-06. 1.1 GR.NO.1 TO 3 RAISED BY THE ASSESSEE IN ITS APPE AL AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE CAN BE DEALT WITH TOGE THER. THEY READ AS FOLLOWS: GROUNDS 1 TO 3 RAISED BY THE ASSESSEE: ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 2 1. THE LEARNED A.O. HAS ERRED IN DISALLOWING AN AMOUNT OF RS.3,00,07,557/- BEING THE AMOUNT OF EXPENSES PROVI DED BY WAY OF OUTSTANDING LIABILITIES ON ACCOUNT OF THE OBLIGATIONS OF YOUR PETITIONER IN RESPECT OF PROVIS IONS OF ALTERNATE RESIDENTIAL ACCOMMODATION TO EIGHT EXISTI NG TENANTS FREE OF COST AND PAYMENT OF ALL MUNICIPAL T AXES, FEES, PREMIUMS, SCRUTINY FEES ETC., FOR OBTAINING T HE APPROVAL OF BUILDING PLANS IN RESPECT OF BUILDING N O.2 IN ITS PROJECT. THE LEARNED A.O. HAS ERRED IN STATING THAT THE LIA BILITY UNDERTAKEN BY YOUR PETITIONER UNDER THE LEGALLY VAL ID AND REGISTERED DOCUMENTS FOR GIVING ALTERNATE RESIDENTI AL ACCOMMODATION TO THE EXISTING TENANTS WAS A CONTING ENT LIABILITY AND IT WAS ONLY ESTIMATE AND NOT ACTUAL A CCRUED LIABILITY. 2. THE LEARNED A.O. HAS ERRED IN HOLDING THAT THE A SSESSEE HAD DEBITED ITS PROFIT & LOSS ACCOUNT WITH ONLY EST IMATION OF EXPENDITURE AND NOT ACCRUED EXPENDITURE. YOUR PETITIONER SUBMITS THAT IT HAD UNDERTAKEN REAL LIFE LIABILITY TO PROVIDE ALTERNATE ACCOMMODATION TO EIGHT EXISTIN G TENANTS AND ITS VALUATION OF SUCH LIVE LIABILITY HA S BEEN MADE ON THE DOCUMENTARY EVIDENCES. YOUR PETITIONER STATES THAT THIS ACCRUED LIABILITY WAS CRYSTALISED DURING THE YEAR. 3. THE LEARNED A.O. HAS FURTHER ERRED IN HOLDING TH AT THE LIABILITY UNDERTAKEN BY THE ASSESSEE FOR PAYMENT OF ALL MUNICIPAL TAXES, CESSES, LEVIES, DEPOSITS, SCRUTINY FEES, ARCHITECTS FEES AND NORMAL DAY TO DAY BUSINESS EXPE NSES FOR GETTING THE APPROVAL OF PLANS FOR 2 ND BUILDING WAS NOT THE ACTUAL LIABILITY BUT ONLY ESTIMATION OF LIABILI TY. 1.2. GROUNDS RAISED BY THE REVENUE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LEARNED CIT (A) ERRED IN DIRECTING THE ASS ESSING OFFICER TO ASSESS THE INCOME ON PROTECTIVE BASIS IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND TAX THE INC OME RELATED TO THE PROJECT IN THE ASSESSMENT YEAR 2009- 10, SINCE THE PROJECT IS EXPECTED TO BE COMPLETED BY MA RCH, 2009. ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 3 1(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED CIT (A) ERRED IN DIRECTING THE ASS ESSING OFFICER NOT TO ENFORCE ANY RECOVERY OF TAXES ON PRO TECTIVELY ASSESSED INCOME IN THE YEAR UNDER CONSIDERATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LEARNED CIT (A) ERRED IN DIRECTING THE ASS ESSING OFFICER TO TAX THE INCOME ON PROTECTIVE BASIS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A ) ON THE ABOVE GROUNDS TO BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN T HE BUSINESS OF BUILDERS AND REAL ESTATE DEVELOPERS. THE ASSESSEE WAS THE OWNER OF THE PLOT OF LAND BEARING CST NO.2640, 2641 & 2641/1 TO 6 OF VILLAGE EKSAR ADM. 7175 SQ. MTS. THE LAND WAS SITUATED IN BORIVLI (EAS T). THE LAND WAS ENCROACHED UPON BY VARIOUS ILLEGAL STRUCTURES IN WH ICH VARIOUS TENANTS WERE RESIDING. THE ASSESSEE HAD ACQUIRED THIS LAND NUMBE R OF YEARS BACK. THE ASSESSEE WANTED TO DEVELOP A RESIDENTIAL COMPLEX OV ER THE LAND OWNED BY IT, INVOLVING THE CONSTRUCTION OF BUILDING NO.I AND II WHICH WAS NAMED AS SHREE KRISHNA COMPLEX. THE ASSESSEE HAD SPENT UPT O 31-3-2004, TOTALLING RS.1,30,68,930/- FOR DEVELOPMENT OF THE LAND AND GE TTING THE APPROVAL OF BUILDING PLANS, ETC. THE SAID AMOUNT WAS CAPITALIS ED IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE DID NOT HAVE THE FINANCIAL M EANS TO COMPLETE THE PROJECT. THE ASSESSEE THEREFORE ENTERED INTO A REG ISTERED DEVELOPMENT AGREEMENT DT. 11.4.2003 WITH M/S. AUDUMBER CONSTRUC TION CO. (HEREINAFTER ALSO REFERRED TO AS SUB-DEVELOPER). 3. AS PER THE TERMS OF THE DEVELOPMENT AGREEMENT D ATED 11.4.2003, THE ASSESSEE HAD TO VACATE THE EXISTING OCCUPANTS OF TH E LAND AND BUILDINGS THEREON TO ENABLE CARRYING OUT DEVELOPMENT. SOME O F THE OBLIGATIONS OF THE ASSESSEE (WHO IS REFERRED AS DEVELOPER) AND THE SU B-DEVELOPER REGARDING CARRYING OUT DEVELOPMENT OVER THE PROPERTY AS PER T HE AGREEMENT DT.11.4.2003, RELEVANT FOR DECISION IN THIS APPEAL, WERE AS FOLLOWS: ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 4 A) AS PER CLAUSE 2 OF THE AGREEMENT DT. 11.4.2003, THE TOTAL FSI WHICH MAY BE AVAILABLE IN RESPECT OF THE SAID PROPERTY, WAS T O BE PROPORTIONATELY DIVIDED AMONGST THE DEVELOPERS AND THE SUB-DEVELOPE RS HEREIN IN EQUAL SHARES. HOWEVER, THE TDR WHICH MAY BE ACQUIRED FROM THE OPEN MARKET, AT THE COSTS AND EXPENSES OF THE SUB-DEVELOPERS, FOR C ONSUMPTION ON THE SAID PROPERTY FOR PUTTING UP ADDITIONAL FLOORS ON THE PR OPOSED BUILDINGS AND ALL THE BENEFITS OF SUCH CONSTRUCTED AREA SHALL BELONG TO THE SUB-DEVELOPER ONLY. IT WAS ALSO AGREED THAT IN THE EVENT OF GRANT OF PERMISSION FOR CONSTRUCTION OF THE COMMERCIAL AREA IN THE SAID PRO POSED BUILDINGS THE SAME SHALL BE EARMARKED ONLY FOR THE BENEFITS OF TH E SUB-DEVELOPERS OUT OF THEIR 50% SHARE IN THE CONSTRUCTED AREA ON CONSUMPT ION OF FSI WHICH IS AVAILABLE IN RESPECT OF CONSUMPTION OF FSI WHICH IS AVAILABLE IN RESPECT OF THE SAID PROPERTY. B) AS PER CLAUSE 4 OF THE AGREEMENT DT.11.4.2003, THE DEVELOPER HAS TO NEGOTIATE WITH THE EXISTING OCCUPANTS/TENANTS OF TH E STRUCTURES IN ORDER TO VACATE THE RESPECTIVE PREMISES IN THEIR OCCUPATION, TO ENABLE THE SUB- DEVELOPER TO DEMOLISH THE EXISTING STRUCTURES STAND ING ON THE SAID PROPERTY, IN ORDER TO FACILITATE THE PROPOSED DEVELOPMENT THE REON AND THE SETTLE THEIR RESPECTIVE CLAIMS BY PROVIDING THEM PERMANENT ALTER NATIVE ACCOMMODATION IN THE PROPOSED BUILDINGS AND/OR ON ANY OTHER TERMS AND CONDITIONS AS THEY MAY DEEM FIT AND PROPER. IN THE EVENT OF MAKING SUC H PROVISION OF THE PERMANENT ALTERNATIVE ACCOMMODATION FOR THE OCCUPAN TS IN THE PROPOSED BUILDINGS, THE DEVELOPER HAS TO ALLOT AND PROVIDE, ALTERNATE ACCOMMODATION OUT OF THE CONSTRUCTED AREA WHICH WILL BE EARMARKED FOR THE DEVELOPERS SHARE AS PER THIS MUTUAL AGREEMENT. C) AS PER CLAUSE 7 OF THE AGREEMENT, THE DEVELOPER ALSO, AGREED TO DEM OLISH THE EXISTING OLD TOILET STRUCTURE OF MHADA STANDING ON THE SAID PROPERTY AND TO CONSTRUCT THE NEW TOILET STRUCTURE ON OTHER LOCA TION, AS PER THE MCGM APPROVAL, AT THEIR OWN COSTS AND EXPENSES, IN ORDER TO FACILITATE THE DEVELOPMENT OF THE SAID PROPERTY. D) CLAUSE 8 OF THE AGREEMENT, THE DEVELOPERS HAVE ALREADY OBTA INED APPROVAL OF LAYOUT, UNDER FILE NO. CHE/18521/LOR DA TED 27 TH AUGUST, 2002IN RESPECT OF THE SAID PROPERTY FROM THE CONCER NED AUTHORITIES AND ALSO GOT I.O.D., COMMENCEMENT CERTIFICATES UPTO PLINTH L EVEL ISSUED BY MCGM AT THEIR OWN COSTS AND EXPENSES, FOR COMMENCING THE CO NSTRUCTION WORK OF THE PROPOSED BUILDINGS I.E., BUILDING NO.1 UNDER I.O.D. NO. CHE/A- 2719/BP(WS)/AR DATED 29 TH MARCH, 2001 AND REVISED ON 27 TH FEBRUARY, 2002 AND THE COMMENCEMENT CERTIFICATE DATED 13 TH JUNE, 2002 UPTO PLINTH LEVEL AND BUILDING NO.2 UNDER I.O.D.NO.CHE/A-2720/B P(WS)/AR DATED 29 TH ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 5 MARCH, 2001 AND REVISED ON 27 TH FEBRUARY, 2002 AND THE COMMENCEMENT CERTIFICATE DATED 20 TH JUNE, 2002 UPTO PLINTH LEVEL GRANTED BY MCGM ON TH E SAID PROPERTY, WHICH WILL ALWAYS BE KNOWN AS SHREE KRISHNA COMPLEX. IT WAS AGREED THAT HEREAFTER ALL THE COST S AND EXPENSES FOR CARRYING OUT THE CONSTRUCTION WORK OF THE SAID BUIL DINGS ON THE SAID PROPERTY, AS PER THE SPECIFICATIONS AND AMENITIES, AS DETAILED IN THE LIST ANNEXED AND MARKED AS ANNEXURE-II TO THE AGREEMEN T AND IN ACCORDANCE WITH THE APPROVED AND/OR SANCTIONED PLAN BY MCGM UP TO THE BUILDING COMPLETION CERTIFICATE/OCCUPATION CERTIFICATE OF TH E SAID BUILDINGS SHALL BE BORNE AND PAID BY THE SUB-DEVELOPERS ALONE. HOWEVER, ALL REFUNDABLE DEPOSITS, TAXES, RATES, DEVELOPMENT CHARGES, PREMIU MS, ARCHITECTS FEES WILL BE PAID BY THE DEVELOPERS ALONE. E) AS PER CLAUSE 10 OF THE AGREEMENT, IT WAS AGREED THAT DEVELOPMENT CHARGES TO BE PAID FOR OBTAINING NECESSARY APPROVAL S/SANCTIONS IN RESPECT OF THE PROPOSED BUILDINGS TO MCGM SHALL BE INITIALLY P AID BY THE DEVELOPERS ONLY. HOWEVER, THE SAID AGGREGATE AMOUNT SHALL BE P ROPORTIONATELY DIVIDED AMONGST THE FLATS/UNITS HOLDERS OF THE PROPOSED BUI LDINGS ON PRO-RATA BASIS FOR THE REIMBURSEMENT OF THE SAME TO THE SUB-DEVELO PERS. 4. THE TOTAL FSI INVOLVED IN CONSTRUCTION OF TWO B UILDINGS WAS 124291 SQ. FT. BUILDING NO.1 INVOLVING 39741 SQ. FT. OF FSI WAS AL READY CONSTRUCTED AND COMPLETED DURING THE FINANCIAL YEAR AND BUILDING NO .2 INVOLVING FSI 84550 SQ. FT. WAS IN PROGRESS. BUILDING NO.1 HAD THREE WI NGS VIZ., A, B & C WHILE BUILDING NO.2 HAS TWO WINGS VIZ., D & F. AS A RESUL T OF REVISION, TOTAL FSI FOR THE BUILDINGS WAS 130,855 SQ. FT. AS AGAINST 124291 SQ. FT. AS STATED EARLIER. FIRST BUILDING HAVING WINGS A, B & C WAS ALREADY CO MPLETED HENCE BALANCE FSI WOULD BE 91113 SQ. FT. FOR BUILDING NO.2 HAVING WINGS OF D & F. BUILDING NO.1 HAD 7 STOREYS WHILE BUILDING NO.2 (D & F WINGS) WAS TO BE OF 14 STOREYS. THUS, THE ASSESSEE GOT IN ALL 42 RESI DENTIAL FLATS AS PER AGREEMENT DATED 11.4.2003. AS PER SUPPLEMENTARY AGR EEMENT DATED 6.4.2004, APPELLANT GOT ONE MORE FLAT IN BUILDING N O.2. ALL THE FLATS IN BUILDING NO.1 WERE CONSTRUCTED WHILE BUILDING NO.2 WAS STILL UNDER CONSTRUCTIONS. FLAT OF ASSESSEES SHARE IN BUILDING NO.2 IS ALSO BOOKED FOR RS.13,02,000/-FOR WHICH IT RECEIVED ADVANCE PAYMENT OF RS.1,37,000/- AND ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 6 BALANCE OF RS.11,65,000/- WAS APPEARING IN THE BALA NCE SHEET AS RECEIVABLE AT THE ASSET SIDE. 5. SINCE AS PER THE AGREEMENT WITH THE SUB-DEVELOPE R, THE ASSESSEE GOT ITS SHARE OF BUILT-UP AREA AND ALSO SOLD THOSE AREA S, THE ASSESSEE TREATED THE PROJECT AS COMPLETE AS FAR AS THE ASSESSEE IS CONCE RNED. THE CONSTRUCTION IN BUILDING NO.2 WHICH WAS TO GO TO THE SHARE OF THE S UB-DEVELOPER WAS HOWEVER GOING ON. THE ASSESSEE DECLARED PROFIT FROM THE PROJECT SHRI KRISHNA COMPLEX IN THE ROI FILED FOR ASSESSMENT YEAR 2005-2 006. THE ASSESSEE HAD SHOWN INCOME OF RS.8,59,530/-WHICH HAD BEEN DETERMI NED BY THE ASSESSEE AS FOLLOWS : TOTAL AREA AVAILABLE FOR SALE (CARPET AREA) 21475. 00 SQ.FT. COST OF LAND AND EXPENSES ESTIMATED FUTURE COST OF TENANT COMPENSATION ETC., 16847808 30007557 46855365 TOTAL AREA SOLD AS ON 31-3-05 (CARPET AREA) SALE PROCEEDS OF AREA SOLD AS ON 31-3-05 LESS: TOTAL ESTIMATE COST OF CONSTRUCTION & LAND ESTIMATED PROFIT OF ENTIRE PROJECT 21475.00 SQ.FT. 47316125 47316125 46855365 460760 %ESTIMATE PROFIT ON ACTUAL SALES TOTAL ESTIMATED PROFIT IN RESPECT OF SALES EFFECTED UPTO31-3-05 I.E., 460760*100.00% 100.00% 460760 460760 MISC. CHARGES INTEREST TOTAL PROFIT 215000 183770 859530 6. THE DISPUTE RAISED BY THE ASSESSEE IN GROUND NO . 1 TO 3 OF ITS APPEAL RELATES TO THE ALLOWABILITY OF DELETION OF R S.3,00,07,557 SHOWN AS ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 7 EXPENSES BY WAY OF OUTSTANDING LIABILITIES ON ACCOU NT OF OBLIGATION OF THE ASSESSEE IN PROVIDING ALTERNATE ACCOMMODATION TO TE NANTS OF THE OLD BUILDING, MUNICIPAL TAXES FOR PREMISES, STAMPING FE E ETC., FOR OBTAINING APPROVAL OF BUILDING PLANS IN RESPECT OF BUILDING N O.2 OF SHRI KRISHNA COMPLEX. THE ASSESSEE SUBMITTED BEFORE THE AO THA T THE LAND WAS INHABITED BY VARIOUS STRUCTURES IN WHICH THE VARIOU S TENANTS WERE RESIDING. THE TERMS OF DEVELOPMENT AGREEMENT DT. 11.4.2003 CO NTEMPLATED THAT THE ASSESSEE SHOULD NEGOTIATE WITH THE OCCUPANTS AND GE T VACANT POSSESSION SO THAT THE SUB-DEVELOPER CAN CARRY ON DEVELOPMENT. A CCORDINGLY THE ASSESSEE NEGOTIATED WITH THE TENANTS OF THE STRUCTURES AND A GREED WITH THEM THAT EACH TENANT WILL BE GIVEN ALTERNATIVE ACCOMMODATION CONSISTING OF 420 SQ. FT. CONSTRUCTED SALEABLE AREA. THE TENANTS WERE GIVEN T EMPORARY ACCOMMODATION IN THE SAID PLOT BY GIVING TEMPORARY TENEMENT. THE STAMP DUTY AND REGISTRATION AGREEMENT CHARGES IN RESPECT OF AGREEMENTS WITH TENANTS TO GIVE THEM OWNER-SHIP RIGHTS IN THE NEW T ENEMENT ARE TO BE BORNE BY THE BUILDERS. THE ASSESSEE POINTED OUT THAT 8 TE NANTS WHO WERE TO BE GIVEN ALTERNATIVE ACCOMMODATION OF 420 SQ. FT. OF S ALEABLE AREA COULD NOT BE PROVIDED THE SAID ALTERNATIVE IN THE BUILDING NO.1. THE MAIN REASON FOR NOT GIVING THEM THE AREA WAS THAT THE SETTLEMENT WAS AR RIVED MUCH LATER ON AND THE AREA SCHEDULED TO BE RESOLVED FOR THEM HAD BEEN MEANWHILE SOLD OFF. THE ASSESSEE HAS ESTIMATED THE COST OF PROVIDING TH EM ALTERNATIVE ACCOMMODATION AT THE PRESENT MARKET RATES INCLUDING STAMP DUTY, LEGAL CHARGES, ETC. AT PS. 4460/- PER SQ.FT. LE. FOR 420 SQ.FT. PS. 1,50,00,000/- HAS BEEN PROVIDED AS LIABILITY FOR FURTHER EXPENSES. T HE ASSESSEE HAS PROVIDED RE.1 CRORE UNDER THE HEADING MCGM EXPENSES DETAI LED AS UNDER:- ASSESSMENT OF THE PROPERTY UNDER CONSTRUCTION DEVELOPMENT CHARGES WATER & S.IWERAGE CHARGES SCRUTINY FEES MCGM NON REFUNDABLE DEPOSITS. LAND REVENUE NON AGRICULTURAL TAX THE ASSESSEE HAD PROVIDED RE.1 CRORE TOWARDS THE AB OVE MENTIONED ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 8 EXPENSES TO BE PAID TO MCGM FOR THE PURPOSE OF OBTA INING THE NECESSARY APPROVAL. FOR REMAINING CONSTRUCTION WHICH HAD TO B E UNDERTAKEN AS PER THE DEVELOPMENT AGREEMENT, THE ASSESSEE WAS REQUIRE D TO MAKE THE PAYMENT OF THE FOLLOWING FEES: RCC CONSULTANT ARCHITECT LICENCE PLUMBER THE ASSESSEE HAS PROVIDED RS. 25 LAKHS AS CONSULTA NCY CHARGES WHICH WILL BE PAYABLE. THE ASSESSEE HAS ALSO PROVIDED PS. 10,4 5,186/- IN RESPECT OF SALARIES, MISCELLANEOUS SITE EXPENSES, CHARGES, ETC . THE TOTAL LIABILITY PROVIDED RS.3,00, 07,556/- WAS EXPLAINED THUS BY T HE ASSESSEE AS LIABILITY TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF PROFIT FOR THIS YEAR. 7. THE ASSESSEE POINTED OUT THAT THE METHOD OF ACC OUNTING AS PER NOTE ON ITEM NO.11 ON FORM NO. 3CD ANNEXED TO THE TAX AUDIT REPORT WAS AS UNDER: THE ASSESSEE HAS FOLLOWED ACCOUNTING ME THOD WHEREBY TO ASCERTAIN THE PROFIT AS FOLLOWS: A) THE TOTAL COST OF CONSTRUCTION INCLUDING COST OF LAND, ETC. IS ESTIMATED. B) THE TOTAL AMOUNT RECEIVED ON ACCOUNT OF THE SALE OF THE AREA IS TAKEN INTO ACCOUNT. C) ESTIMATED PROFIT OF THE ENTIRE 1 BROJECT IS ASCERTAINED. D) MISC, CHARGES AND INTEREST RECEIVED BY THE ASSESSEE IS ADDED TO SUCH ESTIMATED PROFITS IN RESPECT OF BUILDING ACTIVITIES TO ARRIVE AT TOTAL ESTIMATED PROFIT FOR THE YEAR. (E) AS THE CONSTRUCTION WORK OF THE ENTIRE PROJECT HAS BEEN SPREAD OVER FOR NUMBER OF YEARS, THE ASSESSEE HAS TAKEN INTO ACCOUNT, THE COST OF UNFINISHED WORN I.E. LIABILITY IN RESPECT OF COST O F ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 9 THE WORKS WHICH ARE REQUIRED TO BE FIXED AFTER THE END OF THE YEAR SUCH LIABILITY IS TERMED AS WORK- IN-PROGRESS AND IS SHOWN IN THE LIABILITY SIDE OF THE BALANCE SHEET AS WELL AS THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT. 8. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE PECULIAR NATURE OF SUCH TYPE OF ACCOUNTING AND TO FURNISH THE JUSTIFICATION FOR EXPENSES ON ESTIMATE BASIS. THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE WH Y THIS ESTIMATE OF RS. 3,00,07,557/- BE NOT DISALLOWED BECAUSE IT BEING DE BITED FROM THE P & L A/C. ON ESTIMATE BASIS WHICH IS NEITHER ACTUALLY IN CURRED BY THE ASSESSEE NOR ACCRUED TO THE ASSESSEE DURING THE YEAR AND IS NOT IN NATURE OF ASCERTAINED LIABILITY. THE AO ALSO POINTED OUT THA T AS PER THE NOTES ON ACCOUNTS REPRODUCED ABOVE, BREAK UP OF THIS ESTIMAT ION WAS AS UNDER:- PROVISIONS FOR EXPENDITURE ON TENANTS RS.1,50,00,000/- PROVISIONS FOR EXPENDITURE TO BE PAID TO MCGM RS.1,00,00,000/- PROVISIONS FOR CONSULTANCY CHARGES RS. 25,00,000/- PROVISIONS FOR SALARIES, MISC. ETC., RS. 10,45,186/- TOTAL RS.2,85,45,186/- AS AGAINST THE CLAIM FOR DEDUCTION OF RS.3,00,07,55 7/- IN THE PROFIT AND LOSS ACCOUNT THE BREAK UP AS ABOVE WAS ONLY RS.2,85,45,1 86. THUS, THERE WAS DIFFERENCE OF RS. 14,62,371/- ON THE PROVISION AL ESTIMATE GIVEN BY THE ASSESSEE. THE ASSESSEE, SUBSEQUENTLY REVISED PROVIS IONAL PAYMENT TO MCGM AS UNDER:- A NOTE ON PROVISION OF RS.1,01,29,368/- TOWARDS PROPOSEDMUNICIPAL CORPORATION OF GREATER MUMBAI EXPESNES. THE TOTAL F.S.I. INVOLVED IN THE CONSTRUCTION OF TWO RESIDENTIAL BUILDINGS IS 14? 4291 SQ.FT.. THE ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 10 CONSTRUCTION OF THE FIRST RESIDENTIAL BUILDING INVO LVING ME CONSUMPTION OF P.5.1. OF 39741 SQ.FT. IS OVER AS OF TODAY. THE BALANCE FSI TO BE CONSTRUCTED 84550 SQ. FT. THE ASSESSEE INCURRED TOTAL EXPENSES OF RS. 47,61,051/- FOR GETTING THE APPROVAL PLANS FOR THE FIRST BUILDING INVOLVING THE CONSUMPTION OF 39741 SQ.FT. ON THE SAME BASIS, THE ASSESSEE HAS ESTIMATED THE LIAB ILITY ON ACCOUNT OF PAYMENTS WHICH ARE REQUIRED TO BE MAD E FOR CONSTRUCTION OF THE SECOND BUILDING TO THE EXTE NT OF RS. 1,01,29,368/-. EVEN AFTER SUCH REVISION BY THE ASSESSEE STILL THER E WAS A DIFFERENCE OF RS. 13,33,003/- ON ACCOUNT OF PROVISIONAL ESTIMATION WH ICH IS NOT FURNISHED BY THE ASSESSE. 9. THE AO WAS OF THE VIEW THAT WHAT THE ASSESSEE IS DOING NOT THE ESTIMATION OF PROFIT BUT THE ESTIMATION OF EXPENSES . THE LIABILITY WAS NOT EVEN AN ASCERTAINED LIABILITY BUT ONLY ESTIMATION. THE ASSESSEES NEGOTIATIONS WITH THE TENANTS WERE GOING ON WITH TH E TENANTS EVEN BEFORE THE MOU WAS SIGNED. WHAT ASSESSEE IS DEBITING FROM THE P & L A/C. IS ONLY ESTIMATION OF EXPENDITURE AND NOT ACCRUED EXPENDIT URE. AS PER THE PRINCIPLE OF ACCOUNTANCY ONLY THE ACCRUED LIABILITY WHICH HAS CRYSTALLIZED DURING THE YEAR, CAN BE DEBITED FROM THE P & L A/C., IF THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE HAS N OT PROVED THAT THIS EXPENDITURE HAS ACTUALLY ACCRUED AND CRYSTALLIZED D URING THE YEAR. IN FACT, THE MANNER OF ACCOUNTING IN THE BOOKS OF ACCOUNTS O F THE ASSESSEE IS NOT DETERMINATIVE OF THE FACTOR, WHAT CONSTITUTES INCOM E AND WHAT CONSTITUTES EXPENDITURE, THE AO THEREFORE HELD THAT HE IS NOT S ATISFIED WITH THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. THEREFORE, THE PROVISIONS OF SECTION 145(3) BECOME APPLICABLE. 10. THE AO FURTHER HELD THAT EVEN IF THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM THEN IT HAS TO SHOW LIABILITY FOR SUCH EXPEN SES WAS INCURRED ON 31/03/2005. THE ASSESSEE HAS SIGNED MODIFIED MOU WI TH M/S AUDUMBER ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 11 CONSTRUCTION CO. IN THE YEAR 2001, WHEREIN THE ASSE SSEE HAD COMMITTED ITSELF FOR PROVIDING EITHER COMPENSATION OR ALTERNA TE ACCOMMODATION TO THE TENANTS. THEREFORE, THE LIABILITY COULD HAVE BEEN A CCOUNTED FOR IN ITS BOOKS ON 31-03-2001 ALSO I.E. A.Y. 2001-02 AT THE RATES P REVAILING ON 31.03.2001. BUT, IN THE CASE OF TENANTS ASSESSEE HAS ENTERED IN TO AGREEMENT WITH THESE 8 TENANTS ONLY ON 26-11-2003. EVEN IF THIS DATE IS TA KEN THEN LIABILITY WAS TO BE INCURRED ON 31-03-2004 AND NOT 31-03-2005 AS CLA IMED BY THE ASSESSEE. IN VIEW OF THE ABOVE, MANY DISCREPANCIES ARE FOUND IN THE SUBMISSIONS MADE BY THE ASSESSEE. IT HAS BEEN CLAIMED BY THE AS SESSEE THAT TENANTS WERE RESIDING IN THE PLOT WHEN IT WAS PLOT ACQUIRED BY THE ASSESSEE IN 1980S. IT WAS ALWAYS KNOWN TO ASSESSEE THAT IT HAD TO PAY COMPENSATION TO THE TENANTS OR TO GIVE THEM AN ALTERNATE ACCOMMODAT ION IN THE SAID PLOT. AS PER THE DETAILS FURNISHED BY THE ASSESSEE THE PROJE CT WAS COMMENCED ON 29- 03- 001 AND PHASE-I WAS COMPLETED ON 04-10-2004. TH EREFORE, EVEN IF THE TENANTS WERE TO BE GIVEN ALTERNATE ACCOMMODATION IT COULD HAVE GIVEN THEM IN THE PHASE- I ITSELF. JUST AS THE ASSESSEE HAS EN TERED INTO MOU WITH M/S. AUDUMBER CONSTRUCTIONS CO., IT COULD HAVE ALSO SIGN ED AGREEMENTS WITH THE TENANTS REGARDING ALTERNATE ACCOMMODATION OR COMPEN SATION, THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO PROVIDE FLATS TO TH EM ONLY PHASE-IL. AS PER CLAUSE 5, ASSESSEE HAS TO PROVIDE ALTERNATE ACCOMMO DATION TO THE TENANT OUT OF ITS OWN SHARE I. E. DEVELOPERS SHARE. BUT THE A SSESSEE HAS SOLD OFF ALL FLATS IN BLDG.-1 KNOWING FULLY WELL THAT IT IS ENTITLED T O SELL ONLY ONE FLAT IN BLDG- 2 AND OTHER FLATS ARE TO BE SOLD BY M/S. AUDUMBER CON STRUCTION CO. BUT THE ASSESSEE HAS SIGNED AGREEMENT WITH THESE 8 TENANTS ONLY ON 26/11/2003. THEREFORE, IF AT ALL THE RATE AT WHICH TENANTS TO BE PROVIDE A LTERNATE ACCOMMODATION IS TO BE CALCULATED, IT HAS TO BE ON THE DATE OF MOU WITH M/S. AUDUMBER CONSTRUCTION CO. OR IT SHOULD BE THE SAME RATE AT WHICH COMPENSATION WAS GIVEN TO THE OTHER TENANT SHRI R. BOSE, WHICH IS RS. 4 LACS. BUT THE ASSESSEE HA CALCULATED THE RATE PREVA ILING AS ON 31-03-2005. THE AO HELD THAT EVEN THE DOCUMENTS GIVEN IN SUPPOR T OF THIS RATE OF RS.4500/- IS NOT BACKED BY FACTS. IN VIEW OF THE ABOVE, THE AO HELD THAT ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 12 EVEN IF COMPENSATION TO TENANTS IS TO BE PROVIDED I N THE BOOKS OF THE ASSESSEE, THEN IT HAS TO BE AT THE RATE RS. 4 LACS WHICH WAS PAID TO THE TENANT SHRI R. BOSE OR MAXIMUM AT THE RATE PREVAILI NG ON THE DATE OF FIRST NIOU I.E. 21-03-2001. THERE CAN BE THIRD ALTERNATIV E ALSO WHICH IS TO DETERMINE THE RATE OF ALTERNATE ACCOMMODATION AT TH E SAME RATE AT WHICH THE FLATS OF THIS BUILDING NO.1 WERE SOLD. AS PER T HE DETAILS FURNISHED BY THE ASSESSEE THE LOWEST RATE OF BOOKING OF FLAT IS RS. 1,000/-PER SQ.FT. THIS RATE HAS BEEN TAKEN FOR THE FLAT NO. C-201 AND C-604, WH ICH WERE BOOKED ON 11- 07-2004 AND 21-01-2004 RESPECTIVELY. THEREFORE ON T HIS COUNT AL HE VALUE OF ALTERNATE ACCOMMODATION OF FLAT OF 420 SQ.FT. SHOUL D BE RS. 4,20,000/-. 11. REGARDING THE PAYMENT TO MCGM ASSESSEE THE AO HELD THAT THE ASSESSEE HAS NOT FURNISHED THE BREAKUP OF EXPENSES WHICH WERE TO BE BORNE BY THE ASSESSEE AND WHICH WERE TO BE BORNE BY NI/S. AUDUMBER CONSTRUCTION CO. AS PER CLAUSE- 10 IF EXPENSES ARE TO BE DIVIDED PROPORTIONATELY, THEN ASSESSEE HAS ONLY ONE FLAT TO SELL IN BLDG.- 2. IN FACT, SUCH TYPE ESTIMATED EXPENDITURE CANNOT BE ALLOWED T O BE DEDUCTED FROM THE ASSURED PROFITS OF THE BUSINESS. 12. FOR THE ABOVE REASONS, THE AO HELD THAT THE AC COUNTS OF THE ASSESSEE SUFFER FROM DEFECT AND CANNOT BE SAID TO B E CORRECT OR COMPLETE THEREBY PROVISIONS OF SECTION 145(3) ARE A PPLICABLE. THEREFORE, THE AO HELD THAT THE ESTIMATED EXPENSES OF RS.3,00,07,557/- CANNOT BE NOT ALLOWED TO BE DEBITE D TO THE P & L A/C. AND WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSE. 13. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD AS FOLLOWS: 3.22. I HAVE GONE THROUGH THE SUBMISSIONS IN THE LIGHT OF THE FACTS OF THE CASE AND VARIOUS JUDICIAL PRONOUNCEMENTS AND FIND T HAT ONLY REAL INCOME SHOULD BE TAXED. AS PER PROVISIONS OF ACT GROSS REC EIPTS ARE NOT TAXABLE. INCOME IS TAXABLE AFTER ALLOWING ASCERTAINED LIABIL ITY. THE PROVISIONS OR ESTIMATION ARE NOT ALLOWABLE EXPENSES. ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 13 3.23. IN THE CASE OF THE APPELLANT IT HAS FILED RETURN BY OFFERING THE GROSS RECEIPTS , EVEN THOUGH THE PROJECT IS NOT YET COMPLETE. AS PER DECISION OF ITAT, MUMBAI IN THE CASE OF CHAMPIO N CONSTRUCTION CO. VS. ITO 5 LTD 495. INCOME FROM A C ONSTRUCTION PROJECT IS TAXABLE IN THE YEAR WHEN THE PROJECT IS SUBSTANTIALLY COMPLETE( ABOVE 90%). IN THE LIGHT OF ABOVE JUDGMEN T, IT IS TO BE SEEN WHETHER THE INCOME OF THE APPELLANT FROM CONST RUCTION PROJECT IS TAXABLE IN THE YEAR UNDER CONSIDERATION OR NOT( IRRESPECTIVE OF THE FACT THAT APPELLANT OFFERED ALL THE RECEIPTS IN THIS YEAR AND CLAIMED EXPENSES.) THE PROJECT CONSISTS OF 2 BUILDINGS HAVING A,B,C,D & E WINGS BUILDING NO.1 HAVING WINGS A,B & C IS COMPLETED DURING THE PERIOD RELEVANT TO A.Y. 2005-0 6 WHILE CONSTRUCTION OF BUILDING NO.2 COULD NOT BE CONTINUE D DUE TO PETITION FILED BY SOME PEOPLE IN MUMBAI HIGH COURT. WORK OF CONSTRUCTION OF BUILDING NO.2 OF PROJECT CONSISTING WING D & E COULD START AFTER CLOSE OF THE ACCOUNTING YEAR. WIN GS 0 & E WILL HAVE 14 STOREYS. CONSTRUCTION OF WORK OF 0 WING IS COMPLETED UPTO 5 STOREYS TILL NOW AND UPTO PLINTH LEVEL OF E WING. COUNSEL OF THE APPELLANT FILED THAT CONSTRUCTION WORK OF D & E WIN GS WILL ALSO BE OVER BY MARCH 2009. APPELLANT IS FOLLOWING MERCANTI LE METHOD OF ACCOUNTING. SAME METHOD WOULD BE APPLICABLE FOR REC EIPTS AND EXPENSES. APPELLANT WILL HAVE 42 FLATS IN BUILDING NO.1 AND ONLY ONE FLAT IN BUILDING NO.2 WHILE HE HAS TO BEAR ALL THE EXPENSE RELATED TO PROVIDING ALTERNATIVE ACCOMMODATION TO T ENANTS FOR GETTING LAND OF THE PROJECT VACATED AND ALSO TAXES CESS AND DUES PAYABLE TO MCGM. HE HAS ALSO TO PAY FEE TO ARCHITEC T AND CONSULTANCY RELATING TO BOTH THE BUILDINGS. IN THE CASE OF THE APPELLANT RECEIPTS RELATING TO BOOKING OF 43 FLATS AND EXPENSES RELATED TO BUILDING NO.1 ARE ASCERTAINED BUT EXPENS ES RELATED TO BUILDING NO.2 ARE NOT ASCERTAINED. AS PER PROVISION S OF ACT REAL INCOME WOULD BE TAXABLE. REAL INCOME CAN BE CALCULA TED AFTER ALLOWING ALL THE EXPENSES RELATED TO EARNING OF INC OME. 3.24. THERE IS NO DOUBT THAT THE APPELLANT HAS TO BEAR CERTAIN EXPENSE! RELATED TO PROJECT BUT A.O. TAXED GROSS RECEIPTS OF THE PROJECT AND DID NOT ALLOW EXPENSES WHICH APPELL ANT HAS TO INCUR FOR COMPLETION OF PROJECT. ACCORDING TO THE A .O. CALCULATION OF EXPENSES DONE BY IT IS BASED ON EXPENSES INCURRE D ON BUILDING NO.1. 3.25. THE HONOURABLE SUPREME COURT IN THE CASE O F BHARAT EARTH MOVERS VS. CIT 245 HR 428 HELD AS UNDER : IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN T HE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWS ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 14 DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE C APABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF T HESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS PRESENTING THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MA KE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIAB ILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 14. THEREAFTER THE CIT(A) PROCEEDED TO DECIDE THE ISSUE REGARDING THE CLAIM OF THE ASSESSEE AND ALSO THE YEAR OF TAXABILITY OF INCOME FROM THE PROJECT: 3.31. IT IS WORTHWHILE TO MENTION THAT APPELLANT ITSELF OFFERED ALL RECEIPTS IN THE YEAR UNDER CONSIDERATION EVEN THOUGH THE PROJECT IS COMPLETE. THE COUNSEL OF THE APPELLANT ARGUED BEFORE THE UNDERSIGNED THAT EITHER EXPENSE/LIABILITIES RELATED TO THE PROJECT BE ALLOWED IN THE YEAR UNDER CONSIDERATION AS ALL THE RECEIPTS ARE OFFERED IN TH E YEAR OR THE RECEIPTS RELATED TO PROJECT BE ALSO TAX ED IN THE YEAR WHEN ITO ALLOWS EXPENSES AGAINST THE RECEIPTS. HE ARGUED THAT IF EXPENSES RELATED TO PRO JECT ARE NOT ALLOWED IN THE YEAR UNDER CONSIDERATION, TH IS WILL NEVER BE ALLOWED IN THE SUBSEQUENT YEARS AS THERE COULD BE NO RECEIPTS RELATED TO PROJECT IN SUBSEQUENT YEARS. APPELLANT CONTENTED THAT ONCE RECEIPTS ARE TAXED BY THE A.O. AND EXPENSES RELATED TO ALTERNATE ACCOMMODATION TAXES LEVIES AND FEE RELATED TO PROJECT ARE NOT ALLOWED BY THE A.O. ,THE N IT WOULD BE GREAT SUFFERERS AS THESE EXPENSES CAN NEVE R BE ALLOWED IN FUTURE IN THE ABSENCE OF RECEIPTS FRO M THE PROJECT. IN VIEW OF ABOVE COUNSEL OF THE APPELL ANT AGAIN AND AGAIN REITERATED THAT JUSTICE WOULD BE DENIED TO THE APPELLANT IF ALL THE RECEIPTS RELATED TO PROJECT ARE TAXED BUT CORRESPONDING EXPENSES ARE NO T ALLOWED. 3.32. I HAVE GONE THROUGH THE CONTENTION AND FIND THAT THE APPELLANT HAS PREMATURELY OFFERED ALL THE RECEIPTS AS INCOME IN THE YEAR UNDER CONSIDERATION, IT APPEARS THAT IT DID SO UNDER THE IMPRESSION THAT WINGS AB & C ARE COMPLETED HENCE. ITO WOULD ALLOW ALL THE EXPENSES ILIABILITY RELATED BUILDING NO.2 A LSO AS THE CALCULATION OF EXPENSES WAS METHOD BASED ON ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 15 SCIENTIFIC METHOD TREATING THEM ASCERTAINED LIABILI TY. 3.33. I PARTLY AGREE WITH THE APPELLANT. NATURE OF LIABILITIES VIZ, PROVIDING ALTERNATIVE ACCOMMODATIO N TO 8 TENANTS, TAXES, DUES AND LEVIES TO MCGM AND FEE O F ARCHITECT AND RCC CONSULTANCY IS PAYABLE AGAINST TH E RECEIPTS OF PROJECT BUT LIABILITY CANNOT BE TREATED FULLY ASCERTAINED TILL 31.3.2005. APPELLANT HAS ENTERED I NTO SEPARATE AGREEMENT WITH EACH OF 8 TENANTS AND THEY HAVE BEEN ALLOTTED FLATS IN BUILDING NO.2 AS UNDER: - MR. GOPINATH PAL 103A MR. RAMURT D. YADAV 103A MR. SHYAM R. MORIYA 230A MR. RAMMUTI J. YADAV 203A MR. JAYRAM GUPTA 205A SHRI AMARDEO YADAV 205B SHRI ASHOK S. GOLE 301A SHRI PUSHPARANI R. BOSE 303A APPELLANT PAID RS. 50 LAKHS TO MIS. AUDUMBER CONSTRUCTION CO. AGAINST BOOKING OF FLATS FOR TENAN TS. APPELLANT ALSO PAID RS.17,69 LAKHS TO MCGM TILL DAT E OF PASSING OF THIS ORDER AGAINST DUES FOR CONSTRUCT ION OF BUILDING NO.2. ALL THESE SHOW THAT THE APPELLANT IS DISCHARGING ITS LIABILITY AS AND WHEN THE PROJECT I S IN PROGRESS. THE COUNSEL OF THE APPELLANT HAS GIVEN IN WRING THAT THE PROJECT WOULD BE COMPLETED BY MRCH 2009 AND ALL THE LIABILITIES OF THE SHARE OF APPELL ANT RELATED TO RECEIPTS WOULD BE DISCHARGED BY THAT TIM E. LOOKING TO THE ABOVE FACTS, I AM OF THE OPINION THA T INCOME OFFERS BY THE APPELLANT IN A.Y. 2005-06 IS PREMATURE AND ITS CORRECT QUANTIFICATION IS NOT POSSIBLE. THE VERSION OF THE ITO IN REMAND REPORT THAT THE APPELLANT DID NOT OFFER FULL CONSIDERATION IN RECEIPTS RELATED TO BOOKING OF FLATS IS INCORRECT A S APPELLANT GOT ADVANCE PAYMENT OF RS. 1.37,000/- AGAINST FULL CONSIDERATION RECEIVABLE OF RS. 13,02,000/ OF THE FLAT OF HIS SHARE IN BUILDING NO. 2. APPELLANT OFFERED FULL AMOUNT OF RS. 13,02,000/- IN THE RECEIPTS WHILE OFFERING THE INCOME IN THE YEAR UNDER CONSIDERATION, EVEN THOUGH THE FIATS IS YET N OT COMPLETED. 3.34. THOUGH THE APPELLANT HAS SHOWN ALL THE RECEIPTS AND LIABILITIES IN THE BOOKS OF ACCOUNTS OF ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 16 THE YEAR UNDER CONSIDERATION, STILL THERE IS NO DIS PUTE ON THE ESTABLISHED PRINCIPLE THAT MERE ENTRIES IN T HE BOOKS OF ACCOUNT ARE NOT DETERMINATIVE FACTOR TO DECIDE REAL NATURE OF TRANSACTION. IN VIEW OF ABOVE DISALLOWANCE OF EXPENSES RELATED T O UNASCERTAINED LIABILITY IN THE YEAR UNDER CONSIDERATION IS CONFIRMED BUT A.O. IS DIRECTED TO ASSESS INCOME PROTECTIVELY IN THE YEAR UNDER CONSIDERATION. A.O. IS FURTHER DIRECTED TO TAX INCO ME RELATED TO PROJECT IN A.Y. 2009-10 AS THE PROJECT I S EXPECTED TO COMPLETE BY MARCH 2009. TILL THEN A.O WILL NOT ENFORCE RECOVERY OF TAXES ON PROTECTIVELY ASSESSED INCOME IN THIS YEAR. 15. AGGRIEVED BY THE ORDER OF THE CIT(A) HOLDING TH AT THE INCOME DECLARED BY THE ASSESSEE BE PROTECTIVELY ASSESSED IN THIS YE AR AND SUBSTANTIVELY IN AY 09-10 WHEN THE PROJECT GETS COMPLETED, THE REVENUE AND THE ASSESSEE (GR.NO. 5) HAVE FILED THE APPEAL BEFORE THE TRIBUNA L. AGGRIEVED BY THE ORDER OF THE CIT(A) UPHOLDING DISALLOWANCE OF EXPENSES RE FERRED TO IN GROUND NO.1 TO 4 OF THE ASSESSEES APPEAL, THE ASSESSEE HAS RAI SED GR.NO.1 TO 4 BEFORE THE TRIBUNAL. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEAR NED D.R. RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR TH E ASSESSEE REITERATED SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. I T WAS HIS SUBMISSION THAT AS FAR AS THE ASSESSEE IS CONCERNED, INCOME FR OM THE PROJECT IS COMPLETE AND THAT IT HAD OFFERED THE SALE VALUE OF ALL FLATS AND CLAIMED EXPENSES BY WAY OF PROVISION. IT WAS HIS SUBMISSION THAT INCUR RING OF LIABILITY WHICH WERE CLAIMED AS DEDUCTION BY WAY OF PROVISION WAS C ERTAIN. IT WAS ONLY A QUESTION OF QUANTIFICATION. IT WAS HIS SUBMISSION THAT THE QUANTIFICATION AS DONE BY THE ASSESSEE WAS REASONABLE AND HAD TO BE A CCEPTED. IN THIS REGARD HEAVY RELIANCE WAS PLACED ON THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF BHARAT EARTHMOVERS (SUPRA). OUR ATTENT ION WAS ALSO DRAWN TO THE FACT THAT IN THE SUBSEQUENT ASSESSMENT YEARS, T HE EXPENSES WHICH WERE CLAIMED BY WAY OF PROVISION IN THE PREVIOUS YEARS, WERE ACTUALLY INCURRED ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 17 AND WERE MUCH MORE THAN WHAT WAS CLAIMED BY THE ASS ESSEE BY WAY OF PROVISION. THE FOLLOWING DETAILS WERE PROVIDED BY HIM IN THIS REGARD. THE ASSESSEE SPENT VARIOUS AMOUNTS TO COMPLETE THE BUILDING PROJECT UPTO 31-03-2005, TOWARDS THE DISCHARGE OF LIABILITY BY MAKING FOLLOWING PAYMENTS AS UNDER : A/CING YEAR A/SMENT YEAR AMOUNT RS. REMARKS 31-03-2006 2006-2007 RS.1,001,161 THE ASSESSMENT HA S BEEN COMPLETED U/S. 143(3) OF INCOME TAX ACT, 1961. 31-03-2007 2007-2008 RS.7,.16,452/- RETURN FILED 30/11/2007 31-3-2008 2008-2009 RS.1,599,270/- RETURN FILED 29/09/2008 31-03-2009 2009-2010 RS.16,277,299/- RETURN FILED 02/09/2009 UPTO 30-09-2009 2010-2011 RS.92,60,600/- RETURN FILED 02/09/2009 TOTAL RS.3,32,54,782/- IN FACT IN OCTOBER, 2009 AND NOVEMBER, 2009 ADDITIO NAL AMOUNTS HAVE BEEN SPENT TOWARDS DISCHARGE OF LIABILITY FOR INCOM PLETE PROJECT PROVIDED FOR IN THE ACCOUNTS FOR THE YEAR ENDED 31-03-2005. THE XEROX COPIES OF PROFIT AND LOSS A/C AND BALANCE SHEET FOR EACH YEAR ARE ALSO FILED IN THE PAPER BOOK. 17. IT IS THUS CLEAR THAT THE ACTUAL EXPENDITURE DE TAILS ARE NOW AVAILABLE AND WOULD AFFORD A GUIDE TO DECIDE THE REASONABLENE SS OF THE CLAIM FOR DEDUCTION MADE DURING THE PREVIOUS YEAR BY THE ASSE SSEE BY WAY OF A PROVISION FOR EXPENSES. THIS WOULD OF COURSE BE S UBJECT TO THE UPPER LIMIT OF WHAT IS CLAIMED AS DEDUCTION BY WAY DEDUCTION BY THE ASSESSEE DURING THE PREVIOUS YEAR. ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 18 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST ISSUE WHICH WE SHOULD RESOLVE IS WHICH IS THE ASSESSMENT YEAR IN WHICH INCOME FROM THE PROJECT SHOULD BE TAXED IN THE HANDS OF TH E ASSESSEE ? IN THIS REGARD, WE FIND, AS FAR AS THE ASSESSEE IS CONCERNE D, THAT HIS SHARE OF THE BUILT UP AREA IN BUILDING NO.1 WAS COMPLETED AND DE LIVERED AND THERE IS NO DISPUTE ON THIS ASPECT. IN FACT THIS WAS THE REASO N WHY THE ASSESSEE OFFERED INCOME FROM THE PROJECT TO TAX IN THIS ASSESSMENT Y EAR. THE AO HAS ACCEPTED THE OFFER TO TAX THE INCOME. THE CIT(A) H AS HOWEVER GONE ON THE PRESUMPTION THAT IT IS ONLY WHEN BOTH THE BUILDINGS VIZ., BUILDING NO.1 AND 2 ARE COMPLETE CAN IT BE SAID THAT THE PROJECT IS C OMPLETE. THIS APPROACH IS NOT ACCEPTABLE. ONCE THE INCOME FROM THE PROJECT I S TAXED, THE ASSESSEE WILL HAVE NO OCCASION TO CLAIM EXPENSES RELATING TO THAT PROJECT IN A LATER ASSESSMENT YEAR. IN THIS REGARD, WE ALSO FIND THAT THE CIT(A) HAS ACCEPTED THAT FACT THAT THE ASSESSEE HAS GOT HIS SHARE OF FL ATS IN BUILDING NO.1 AND ONE FLAT IN BUILDING NO.2 ALSO AND BOTH HAVE BEEN S OLD AND THE SALE PROCEEDS SHOWN IN THE PROFIT AND LOSS ACCOUNT. AS FAR AS BU ILDING NO.2 IS CONCERNED, THE ASSESSEE NO LONGER HAS ANY INTEREST IN THE SAME . IT IS FOR M/S.AUDUMBER CONSTRUCTION CO. TO COMPLETE BUILDING NO.2 AND DEAL WITH IT. THE ASSESSEE HAS NOTHING TO DO WITH THAT BUILDING. IN THAT VIEW OF THE MATTER, WE HOLD THAT INCOME FROM THE PROJECT, AS FA R AS THE ASSESSEE IS CONCERNED, HAS TO BE ASSESSED IN THIS ASSESSMENT YE AR VIZ., AY 05-06 ON A SUBSTANTIVE BASIS, BY TREATING THE PROJECT, AS FAR AS THE ASSESSEE IS CONCERNED, AS COMPLETE. 19. THE NEXT QUESTION IS ALLOWING THE EXPENSES CLA IMED BY THE ASSESSEE BY WAY OF PROVISION. AS FAR AS THE EXPENS ES WHICH ARE IN DISPUTE ARE CONCERNED, WE ARE OF THE VIEW THAT THESE EXPENS ES REPRESENT LIABILITY WHICH THE ASSESSEE HAS TO INCUR AND IS BORNE OUT BY THE VARIOUS TERMS OF THE AGREEMENT. THERE WERE EIGHT TENANTS WHO WERE TO BE GIVEN ALTERNATIVE ACCOMMODATION CONSISTING OF 420 SQ. FT. OF SUPER BU ILT-UP CONSTRUCTING SALEABLE RESIDENTIAL AREA TO EACH ONE OF THEM. IN S UPPORT OF THIS LIABILITY, THE FOLLOWING DOCUMENTS ARE ON RECORD: ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 19 1. REGISTERED DEVELOPMENT AGREEMENT CLEARLY INDICATING THAT THE ASSESSEE HAD UNDERTAKEN THE LIABILITY TO REHABILITA TE THE EXISTING TENANTS BY GIVING ALTERNATE ACCOMMODATION TO EACH ONE OF THEM. 2. SUPPLEMENTARY AGREEMENT WITH THE ABOVE MENTIONED SU B- DEVELOPERS, M/S. AUDUMBER CONSTRUCTION CO. 3. EIGHT REGISTERED AGREEMENTS WITH EIGHT TENANTS. EAC H OF THE AGREEMENT VERY CLEARLY SHOWS THAT THE ASSESSEE HAD UNDERTAKEN THE LIABILITY TO REHABILITATE EACH TENANT BY OFFERING THEM ALTERNATIVE RESIDENTIAL ACCOMMODATION AT THE S AME PLACE. 4. THE CERTIFICATE OF THE ARCHITECTS ESTIMATING THE CO ST OF EACH SQ.FT OF ALTERNATIVE ACCOMMODATION TO BE GIVEN TO T HE EXISTING TENANTS AT RS4500/- PER SQ.FT. 5. LETTER FROM M/S. AUDEMBER CONSTRUCTION CO. WHO INDI CATED THE PRICE AT RS.4,260/- PER SQ. FT. OF ALTERNATE AC COMMODATION. 6. LETTER FROM M/S. AUDUMBER CONSTRUCTION CO. REGARDIN G THE ALLOTMENT OF 8 RESIDENTIAL FLATS TO 8 TENANTS IN TH E BUILDING NO.II WHICH IS UNDER CONSTRUCTION. 7. TRIADIC AGREEMENT BETWEEN THE ASSESSEE, M/S. AUDUMB ER CONSTRUCTION CO. AND THE TENANTS REGARDING THE CONF IRMATION OF THE ALLOTMENT OF ALTERNATE ACCOMMODATION TO EACH OF THE TENANT IN THE BUILDING NO.II UNDER CONSTRUCTION. THE AGREE MENT IS SIGNED BY THE ASSESSEE M/S. AUDUMBER CONSTRUCTION C O. AND ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 20 EACH OF THE TENANT. 20. BASED ON THE ABOVE MENTIONED DOCUMENTS, THE A SSESSEE HAD ESTIMATED THE COST OF GIVING ALTERNATE ACCOMMODATIO N AT RS.1,50,000I-. ON THE BASIS OF THIS, THE ASSESSEE PASSED A JOURNAL EN TRY IN ITS BOOKS OF ACCOUNTS AS ON 31-3-2005 IN ORDER TO TAKE INTO ACCO UNT THE OUTSTANDING LIABILITY. IT MAY BE MENTIONED THAT THE ASSESSEE MA INTAINS ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS ONLY. 21. THE ASSESSEE ALSO MADE A PROVISION FOR RE.1 CR ORE UNDER MCGM EXPENSES DETAILED AS UNDER : (1) DEVELOPMENT CHARGES (2) WATER & SEWERAGE CHARGES (3) SCRUTINY FEES (4) MCGM NON-REFUNDABLE DEPOSITS (5) LAND REVENUE NON AGRICULTURE TAX. 22. THE TOTAL AREA TO BE CONSTRUCTED IN RESPECT O F TWO BUILDINGSI.E., BUILDING NO.1 AND BUILDING NO.2 WAS 124291 SQ. FT. THE FIRST BUILDING HAVING THE WINGS, A, B AND C WAS ALREADY CONSTRUCTED WHICH CONSUMED 39741 SQ. FT. LEAVING THE BALANCE FSI OF 84550 SQ. FT. TO BE CONSUMED IN CONSTRUCTION OF BUILDING NO.2 HAVING WINGS OF D & F AND CONSISTI NG OF14 FLOORS. THEREAFTER, THE TOTAL BUILDING FSI AVAILABLE TO THE ASSESSEE WAS FOUND AT 130855 SQ. FT. AS A RESULT, THE BALANCE FSI TO BE C ONSUMED IN THE COURSE OF THE CONSTRUCTION OF BUILDING NO.2 WAS ALSO INCREASE D TO THE EXTENT OF 91113 SQ. FT. 23. THE ASSESSEE HAD INCURRED UPTO 31-3-2005, RS.4 7,61,051/- FOR GETTING THE APPROVED PLANS FOR THE FIRST BUILDING I NVOLVING CONSTRUCTION OF 39741 SQ. FT. I.E., ROUGHLY RS.119.80 PER SQ. FT. ON THE BASIS OF THE ABOVE ACTUAL REAL EXPENDITURE PAID OUT, THE ASSESSEE CALC ULATED ITS FUTURE LIABILITY ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 21 IN RESPECT OF PAYMENT OF MUNICIPAL TAXES, CHARGES, CESSES, FEES, ETC. AT RS.1,0L,29,258/-. ACCORDINGLY, A PROVISION OF RS. 1 CRORE WAS MADE IN THE ACCOUNTS OF THE ASSESSEE ON 31/03/2005. THE SUMMARY OF THE WORKING OF THE PROVISION IN RESPECT OF MUNICIPAL TAXES WAS AS UNDER : 1. STAIR-CASE PREMIUM RS.26,00,000 2. BMC ASSESSMENT TAX RS.12,00,000 3. DEVELOPMENT CHARGES RS.16,29,292 4. BALCONY PREMIUM RS.10,86,000 5. OPEN SPACE DEFICIENCY PREMIUM RS.13,10,400 6. AMOUNT ALREADY PAID AFTER 31/3/05 RS.17,69,595 7. DEPOSITS & PAYMENTS FOR OPENING WATER CONNECTION, SEWERAGE CONNECTION, ROAD DIGGING CHARGES, DEBRIS REMOVAL CHGS. ETC., RS. 5,34,081 24. ALONG WITH THIS DETAILED WORKING, THE ASSESSE E ALSO SUBMITTED THE CERTIFICATE OF THE ARCHITECTS M/S. TEE ARCH ARC HITECTS & CONSULTANTS PVT. LTD. AND THE BOOKLET PUBLISHED BY TEE ENGINEERS, AR CHITECTS AND TOWN PLANNERS ASSOCIATION. THIS BOOKLET GIVES COMPLETE D ETAILS OF THE VARIOUS CHARGES PAYABLE TO THE MUNICIPAL CORPORATION, THE B ASIS AND THE WORKING OF SUCH CHARGES IS ALSO GIVEN IN THE BOOKLET. THE ASSE SSEE HAD MADE PROVISION FOR CONSULTANCY CHARGES MAINLY ARCHITECTS FEES OF RS.25,00,000/-. A COPY OF THE ARTICLES OF AGREEMENT FOR ENGAGEMENT OF ARCHITE CTS EXECUTED ON 22-12- 2000, WAS PLACED ON RECORD. THE SAID NOTE GIVES THE DETAILS ABOUT THE SCOPE OF WORKING OF ARCHITECTS/SURVEYORS AND ALSO GIVES T HE DETAILS OF THE PROFESSIONAL FEES TO BE PAID TO THE ARCHITECTS. ON THE BASIS OF THIS, THE ASSESSEE ESTIMATED ITS COST PAYABLE TO THE ARCHITEC TS AT RS.25,00,000/-. ROUGHLY THE ASSESSEE HAS WORKED OUT THE ARCHITECTS AND PLUMBERS FEES AT RS.20/- PER SQ. FT. BASED ON ITS EXPERIENCE IT HAD IN THE PAST. THE TOTAL PROFESSIONAL FEES PAYABLE TO THE ARCHITECTS ON THE BASIS OF THE BALANCE AREA ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 22 WHICH REQUIRED TO BE CONSTRUCTED AT 91123 SQ. FT. W AS RS.25,51,164/- AGAINST WHICH A PROVISION OF RS.25,00,000/- WAS MAD E. THE ASSESSEE ALSO ESTIMATED ITS MONTHLY EXPENSES, SALARY AND OTHER OF FICE EXPENSES AT RS.15,40,000/-. HOWEVER, IT HAD MADE A PROVISION OF RS.10,45,186/- ONLY. THE ASSESSEE HAD TAKEN INTO ACCOUNT AS ITS INCOME A LL ITS SALES PROCEEDS OF THE VARIOUS RESIDENTIAL FLATS IT WAS ENTITLED TO IN THE BUILDING NO.1 WHICH WAS ALREADY CONSTRUCTED AND IN RESPECT OF ONE FLAT IN B UILDING NO.2 WHICH WAS UNDER CONSTRUCTION. IN FACT, THE ASSESSEE HAD CREDI TED ITS PROFIT AND LOSS ACCOUNT WITH THE TOTAL SALES PROCEEDS OF RS.4,73,16 ,125/- BEING THE SALES PROCEEDS OF SALE OF FLATS AND PERMANENT PLACE TO WH ICH IT WAS ENTITLED TO IN THE BUILDING NO.1 WHICH WAS ALREADY CONSTRUCTED AND IN RESPECT OF ONE RESIDENTIAL FLAT AGREED TO BE SOLD AT RS.13,02,000/ -IN THE BUILDING NO.II WHICH WAS UNDER CONSTRUCTION. THE ASSESSEE HAD BOOK ED ALL ITS INCOME FROM THE CONSTRUCTION ACTIVITIES IN THE YEAR UNDER ACCOU NT, WHILE ITS EXPENSES AS HEREIN ABOVE MENTIONED HAD TO BE BOOKED IN ORDER TO ARRIVE AT CORRECT PROFIT. IN ORDER TO ARRIVE AT CORRECT PROFITS, THE OUTSTAND ING LIABILITIES BASED ON VOLUMINOUS DOCUMENTARY EVIDENCES PLACED ON RECORD H AS TO BE TAKEN INTO ACCOUNT. WE ARE OF THE VIEW THAT IN RESPECT OF PRO VIDING ALTERNATE ACCOMMODATION, IT IS FOR THE ASSESSEE TO CHOOSE THE MANNER IN WHICH IT GIVES THE OLD OCCUPANTS OF THE LAND, ALTERNATE ACCOMMODAT ION. THE AO CANNOT SIT IN JUDGMENT OVER THE BUSINESS DECISION OF THE ASSES SEE AND SAY THAT THE ASSESSEE SHOULD HAVE GIVEN ALTERNATE ACCOMMODATION TO THE OLD OCCUPANTS OF THE LAND ONLY FROM HIS SHARE OF BUILT UP AREA RE CEIVED FROM THE SUB- DEVELOPER. THERE CAN ALSO BE NO DISPUTE THAT THE E XPENDITURE CLAIMED BY THE ASSESSEE AS DEDUCTION BY WAY OF PROVISION, WERE TO BE BORNE BY THE ASSESSEE AS PER THE TERMS OF THE SUB-DEVELOPMENT AGREEMENT W ITH THE SUB-DEVELOPER. THESE OBLIGATIONS SPRING FROM THE TERMS OF THE AGRE EMENT AND WERE THE BASIS ON WHICH THE ASSESSEE COULD HIS SHARE OF BUILT UP A REA, WHICH WERE SOLD AND INCOME THEREFROM OFFERED TO TAX BY THE ASSESSEE. T HE LAW WITH REGARD TO THE QUESTION WHETHER THE ASSESSEE CAN EXPENDITURE BY WA Y OF PROVISION IS WELL SETTLED AND IS TO THE EFFECT THAT THE INCURRING OF THE LIABILITY SHOULD BE CERTAIN ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 23 AND THE QUANTIFICATION OF THE SAME SHOULD BE ON A S CIENTIFIC BASIS. IN THIS REGARD, WE NOW HAVE THE BENEFIT OF THE ACTUAL FIGUR ES OF EXPENDITURE AND WE FEEL THAT IT WOULD BE JUST AND PROPER TO DIRECT THE AO TO EXAMINE THE ACTUAL EXPENDITURE CLAIMED TO HAVE BEEN INCURRED BY THE AS SESSEE, WHICH WERE CLAIMED BY WAY OF PROVISION IN THIS ASSESSMENT YEAR . THE AO WILL EXAMINE THE EXPENSES AND ON THE ASSESSEE SHOWING CORRELATIO N OF THE ACTUAL EXPENSES WITH THE EXPENSES ACTUALLY CLAIMED BY WAY OF PROVISION DURING THE PREVIOUS YEAR, THE AO WILL THEM AS DEDUCTION. AS A LREADY STATED THE CLAIM FOR DEDUCTION CANNOT EXCEED THE AMOUNT CLAIMED AS D EDUCTION BY WAY OF PROVISION BY THE ASSESSEE. WITH THESE OBSERVATIONS , THE ISSUE IS RESTORED TO THE AO FOR THE LIMITED PURPOSE AS DIRECTED ABOVE. THUS GROUND NO.5 RAISED BY THE ASSESSEE AND THE GROUND OF APPEAL OF THE REV ENUE ARE ALLOWED. GROUND NO.1 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 25. GROUND NO.6 TO 10 RAISED BY THE ASSESSEE READS AS FOLLOWS: 6. THE LEARNED A.O. HAS ERRED IN HOLDING THAT AN A MOUNT OF S.1,09,100/- GIVEN AS DONATION WAS NOT THE BUSINESS EXPENSES OF YOUR PETITIONER. YOUR PETITIONER SUBMITS THAT THESE MONEYS WERE GIVEN TO KRISHNA COMPLEX UTSAV MANDAL & PRAVESH MAG AZINE IN ORDER TO CULTIVATE FRIENDLY ATMOSPHERE AND SOCIAL H ARMONY WITH THE RESIDENTS AND PURCHASERS OF THE FLATS. YOUR PET ITIONER SUBMITS THAT THIS EXPENDITURE HAS BEEN INCURRED IN VIEW OF THE COMMERCIAL EXPEDIENCY. 7. THE LEARNED A.O. HAS ERRED IN DISALLOWING THE AM OUNT OF RS.14,114/- U/S. 40(A)(IA). 8. THE LEARNED A.O. HAS ERRED IN DISALLOWING AN AMO UNT OF RS.14,114/- U/S. 40(A)(IA). 9. THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.1,09,100/- BEING THE BUSINESS EXPENSES INCURRED BY YOUR PETITIONER OUT OF BUSINESS NECESSITIES IN RESPECT O F EXTENDING FINAICIAL HELP TO KRISHNA COMPLEX UTSAV MANDAN & PR AVESH MAGAZINE TO MAINTAIN AND CULTIVATE FRIENDLY ATMOSPH ERE AND SOCIAL HARMONY WITH THE RESIDENTS AND PURCHASERS OF THE FLAT. ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 24 10. THE LEARNED CIT (A) HAS ERRED IN NOT CONSIDERIN G THE DISALLOWANCE OF RS.1,05,200/- AND RS.14,114/- MADE BY THE A.O. Y OUR PETITIONER STATES THAT THOUGH IT HAS NOT SUBSEQUENT LY TAKEN UP THIS GROUND IN THE APPEAL MEMO, HOWEVER, IT HAD CLA IMED RELIEF IN RESPECT OF BOTH THESE ADDITIONS ALSO. 26. AS FAR AS GROUND NO.7 AND 9 IS CONCERNED, NO GROUND OF APPEAL WAS RAISED BY THE ASSESSEE BEFORE CIT(A). EVEN BEF ORE US, NO EVIDENCE REGARDING ACTUAL PAYMENT TO BMC OR REASONS WHY TAX WAS NOT DEDUCTED ON PAYMENT OF FEES TO CONSULTANT HAVE BEEN GIVEN. IN THESE CIRCUMSTANCES, WE DISMISS GR.NO.7 AND 9. 27. AS FAR AS GROUND NO.8 IS CONCERNED, WE ARE OF THE VIEW THAT THE PAYMENT OF RS.16,000 TO KRISHNA COMPLEX UTSAV MANDA L ALONE CAN BE CONSIDERED AS ONE INCURRED OWING TO COMMERCIAL EXPE DIENCY. KRISHNA COMPLEX IS THE PROJECT DEVELOPED BY THE ASSESSEE AN D IT WOULD BE GUIDED BY COMMERCIAL CONSIDERATIONS WHEN THE PAYMENT IN QUEST ION IS GIVEN TO GAIN GOODWILL. CONSIDERING THE QUANTUM OF PAYMENT, WE A RE OF THE VIEW THAT THE SAME CAN BE ALLOWED AS DEDUCTION. AS FAR AS THE OT HER ITEMS OF DONATIONS ARE CONCERNED, WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(A). GR.NO.8 IS ACCORDINGLY PARTLY ALLOWED. 28. IN THE RESULT, THE APPEAL BY THE REVENUE IS AL LOWED, WHILE THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH DAY OF DEC.2011. SD/- (PRAMOD KUMAR) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIALMEMBER MUMBAI, DATE 30 TH DECEMBER, 2011 VBP/- ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 25 COPY TO 1. M/S. MANISH BUILDERS, 102, AKANSHA ARCADE 60, TR IKAMDAS ROAD, KANDIVLI (WEST), MUMBAI 400 067 PAN AAGEM1216 3. 2. INCOME TAX OFFICER, 25 (3) (1), MUMBAI. 3. CIT (A)-XXV, MUMBAI 4. CIT, M.C.25, MUMBAI 5. D.R.B BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI. ITA NO. 4421/MUM/2008 ITA. NO. 4921/MUM/2008 26 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 26/12/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 27/12/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER