ACIT - 17(2), MUMBAI V. NARENDRA NANDLAL CHAUHAN, MUMBAI

ITA 5270/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4444 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 24-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDER SINGH
• Assessee Lawyers: B V JHAVERI
• Keywords: Tax effect
• Section: 142(1)

Judgement Text

1 ITA 5270/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5270 /MUM/2016 (ASSESSMENT YEAR: 2012-13) ACIT, CIR.17(2), MUMBAI VS MR. NARENDRA NANDLAL C HAUHAN 124-127, MEZZANINE FLOOR, NAVJIVAN MANDVI CHS LTD, KAZI SYED STREET, MUMBAI 400 003 PAN : AAHFN6797L APPELLANT RESPONDENT APPELLANT BY SHRI VIRENDER SINGH RESPONDENT BY SHRI B.V. JHAVERI DATE OF HEARING 14 -06-2018 DATE OF PRONOUNCEMENT 08-08-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-28, MUMBAI DATED 17-06-2016 AND IT PERTAINS TO AY 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- '1) ON THE FACTS & IN THE CIRCUMSTANCES OF TH E CASE, AND IN LAW, THE LD.CIT(A) HAS ERRED IN RELYING UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CALCUTTA CO LTD VS. CIT, 37 ITR 1, A ND DIRECTING TO DELETE THE DISALLOWANCE OF RS.39,46,705/- ON ACCOUNT OF PROVIS ION FOR DEVELOPMENT EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE SA ID DECISION IS NOT APPLICABLE TO THE MATRIX OF THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE OF THE ASSESSEE.' 2) 'ON THE FACTS & IN THE CIRCUMSTANCES OF T HE CASE, AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISA LLOWANCE OF RS.39,46,705/- ON ACCOUNT OF PROVISION FOR DEVELOPMENT EXPENSES, W ITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE IS ALLOWABLE U/S.37 OF TH E ACT ONLY OF AN ASCERTAINED AMOUNT AND ON ACTUAL PAYMENT BASIS, WHEREAS PROVISI ON FOR EXPENSES, AS IS 2 ITA 5270/MUM/2016 IN THE CASE OF THE ASSESSEE IS NOT ALLOWABLE.' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF LAND PURCHASE AND DEVELO PMENT, FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 22-09-2012 DECLA RING TOTAL INCOME AT RS.62,71,230. THE CASE HAS BEEN SELECTED FOR SCRUT INY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPO NSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CALLED FOR. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS M ADE PROVISION FOR DEVELOPMENT COST OF RS.39,46,705 AND ACCORDINGLY CA LLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY PROVISION FOR DEVELOP MENT COST BEING CONTINGENT IN NATURE, SHALL NOT BE DISALLOWED. IN RESPONSE TO NOTICE, THE ASSESSEE HAS FILED DETAILS OF EXPENSES INCURRED UND ER THE HEAD DEVELOPMENT COST AND ALSO EXPLAINED HOW PROVISION FOR DEVELOPMENT COST HAS BEEN MADE IN THE BOOKS OF ACCOUNT. ACCOR DING TO THE ASSESSEE, IT HAS DEVELOPED A PROJECT COMPRISING OF 32,918 SQ.MTRS AND ONE OF WHICH DURING THE YEAR UNDER CONSIDERATION, IT HAS SOLD 7,866 SQ.MTS. THE ASSESSEE FURTHER SUBMITTED THAT THE FI RM HAS ESTIMATED TOTAL DEVELOPMENT COST FOR THE PROJECT AT RS.2,91,23,150. SINCE, IT HAS SOLD 7,866 SQ.MTS DURING THE YEAR UNDER CONSIDERATION, T HE TOTAL EXPENSES HAVE BEEN ALLOCATED AT THE RATIO OF 47.57% BEING SH ARE OF AREA SOLD AND 3 ITA 5270/MUM/2016 AFTER CONSIDERING ACTUAL EXPENDITURE INCURRED UPTO 31-03-2012, THE REMAINING EXPENDITURE TO BE INCURRED FOR TOTAL AREA SOLD DURING THE YEAR HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNT. THE ASS ESSEE HAS FILED A COMPUTATION CHART EXPLAINING THE DETAILS OF WORKS T O BE UNDERTAKEN IN THE PROJECT, TOTAL PROJECT EXPENDITURE FOR THE TOTAL PR OJECT AND PROPORTIONATE PENDING WORK TO BE DONE FOR 7,866 SQ.MTS SOLD DURIN G THE YEAR. THE ASSESSEE ALSO EXPLAINED THE REASONS FOR MAKING SUCH PROVISION IN ITS BOOKS OF ACCOUNT. THE AO, AFTER CONSIDERING SUBMIS SIONS OF THE ASSESSEE AND ALSO RELYING UPON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MORARJI GOCULDAS SPINNI NG & WEAVING CO LTD 243 ITR 37 (BOM) HELD THAT THE LAW IS WELL SETTLED THAT EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSE IS TOWARDS A L IABILITY ACTUALLY EXISTING IN THE YEAR OF ACCOUNT. CONTINGENT LIABIL ITY DID NOT CONSTITUTE EXPENDITURE AND CANNOT BE SUBJECT MATTER OF DEDUCTI ON, EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. SINCE, THE EXPEND ITURE INCURRED BY THE AASSESSEE TOWARDS PROVISION FOR COST OF DEVELOPMENT IS NOT AN ASCERTAINED LIABILITY, WHICH ACCORDING TO THE ASSES SEE IS FOR THE YEAR UNDER CONSIDERATION, THE SAME CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS AND ACCORDINGLY MADE ADDITION OF RS.39,46,705. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL 4 ITA 5270/MUM/2016 BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS TO REITERATE ITS ARGUMENTS TAKE N BEFORE THE AO THAT IT HAS MADE PROVISION FOR KNOWN LIABILITY OF EXPEND ITURE TO BE INCURRED FOR PROJECT ON WHICH REVENUE HAS BEEN RECOGNIZED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS DEVELOPED 32,918 SQ.MTS AND SOLD 7,866 SQ.MTS OF PLOTS DURING THE YEAR. THE TOTAL EXPENDITURE TO BE INCURRED ON THE PROJECT HAS BEEN ALLOCATED ON THE BASIS OF PLOT SOLD DURING THE YEAR AND AFTER DEDUCT ING ACTUAL EXPENDITURE INCURRED FOR THE PROJECT, THE BALANCE AMOUNT HAS BE EN PROVIDED IN THE BOOKS BY FOLLOWING THE ACCOUNTING STANDARD ISSUED B Y INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE ASSESSE E FURTHER SUBMITTED THAT THE PROVISION MADE FOR DEVELOPMENT COST IS AN ASCERTAINED LIABILITY AS THE RESULTANT REVENUE FROM SALE OF PLOTS IS ALRE ADY BOOKED IN THE BOOKS OF ACCOUNT AND HENCE, THE CORRESPONDING EXPEN DITURE RELATABLE TO SUCH REVENUE NEEDS TO BE PROVIDED IN THE BOOKS OF A CCOUNT WHETHER ACTUALLY PAID OR NOT. THE LD.CIT(A), AFTER CONSIDE RING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELYING UPO N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA CO. L TD 37 ITR 1 (SC), HELD THAT EXPENDITURE INCURRED UNDER THE HEAD PROV ISION FOR DEVELOPMENT COST IS AN ASCERTAINED LIABILITY, WHICH ACCRUED TO THE ASSESSEE AS PER THE METHOD OF ACCOUNTING FOLLOWED TO RECOGNIZE INCOME F ROM SALE OF PLOTS. 5 ITA 5270/MUM/2016 THE ASSESSEE HAS BOOKED REVENUE IN RESPECT OF PLOTS SOLD AND CORRESPONDING EXPENDITURE NEEDS TO BE PROVIDED IN T HE BOOKS OF ACCOUNT. THEREFORE, HE OPINED THAT EXPENDITURE INC URRED TOWARDS DEVELOPMENT COST IS AN ASCERTAINED LIABILITY, WHICH ACCRUED TO THE ASSESSEE AND ACCORDINGLY, THE ASSESSEE HAS RIGHTLY MADE PROVISION IN THE BOOKS OF ACCOUNT. AGGRIEVED BY THE ORDER OF CI T(A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. ALTHOUGH, THE ISSUES HAVE BEEN HEARD ON MERIT FROM BOTH THE SIDES, WHILE DICTATING THE ORDER, WE FOUND THAT THE TAX EFFECT INVOLVED IN THIS APPEAL FILED BY THE REVENUE IS LESS THAN THE M ONETARY LIMITS PRESCRIBED BY THE CBDT VIDE ITS CIRCULAR F.NO.279/M ISC. 142/2007-ITJ (PT) DATED 11-07-2018 WHEREIN MONETARY LIMITS FOR F ILING APPEAL BEFORE THE ITAT HAS BEEN ENHANCED TO RS.20 LAKHS. WE FURT HER NOTICE THAT IN THE SAID CIRCULAR, THE CBDT HAS EXPLAINED THE MEANI NG OF TAX EFFECT AND ALSO EXCEPTIONS PROVIDED FOR FILING APPEAL BEFORE T HE ITAT, EVEN THOUGH TAX EFFECT IS LESS THAN RS.20 LAKHS. WE FIND THAT THE DISPUTED ADDITION INVOLVED IN THIS APPEAL IS RS.39,46,705 AND TAX EFF ECT ON SUCH DISPUTED ADDITION IS LESS THAN RS.20 LAKHS. WE FURTHER NOTI CE THAT THIS CASE DOES NOT FALL UNDER ANY OF THE EXCEP6TION AS PROVIDED IN PAR 10 OF THE CIRCULAR. THEREFORE, KEEPING IN VIEW OF THE CIRCULAR ISSUED B Y THE CBDT DATED 6 ITA 5270/MUM/2016 11-07-2018, WE ARE OF THE CONSIDERED VIEW THAT APPE AL FILED BY THE REVENUE IS NOT MAINTAINABLE. HENCE, WE DISMISS APP EAL FILED BY THE REVENUE, ON THIS GROUND. SINCE THE APPEAL HAS BEEN DISMISSED ON MONETARY LIMITS PRESCRIBED FOR FILING APPEAL BEFORE ITAT, THE ISSUE CHALLENGED BY REVENUE ON MERITS HAS NOT BEEN DISCUS SED, AS IT BECOMES MERELY ACADEMIC IN NATURE. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH AUGUST, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 08 TH AUGUST, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI