L.K. EARTH DEVELOPERS P.LTD ( FORMERLY KNOWN AS EXCELLENT EXPORTS P.LTD), MUMBAI V. DCIT 3(1), MUMBAI

ITA 7122/MUM/2012

• Counselvise Citation: 712219914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Assessee Lawyers: VIMAL PUNMIYA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) .. , , ./I.T.A. NO.7122/MUM/2012 ( / ASSESSMENT YEAR : 2009-10) L.K.EARTH DEVELOPERS PVT. LTD., (FORMERLY KNOWN AS EXCELLENT EXPORTS PVT.LTD), 142-B, MITTAL TOWER, 210, NARIMAN POINT, MUMBAI-400021. / VS. DY. COMMISSIONER OF INCOME TAX 3(1), MUMBAI. ( ! / APPELLANT) .. ( '# ! / RESPONDENT) ./ $% ./PAN/GIR NO. :AAACE0897L ! & / APPELLANT BY : SHRI VIMAL PUNMIYA '# ! ' & /RESPONDENT BY : SHRI M RAJAN ( ) ' *+ / DATE OF HEARING : 12.8.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 20.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 1.10.2012 PASSED BY LD CIT(A)-6, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF 29.23 LAKHS MADE BY THE AO AS PRI OR PERIOD EXPENSES. 3. THE FACTS RELATING TO THE ABOVE CITED ISSUE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRAD ING IN STEEL, FINANCING AND BUILDING CONSTRUCTION. THE RETURN OF INCOME FILE D BY THE ASSESSEE FOR THE YEAR I.T.A. NO.7122/MUM/2012 2 UNDER CONSIDERATION WAS TAKEN UP FOR SCRUTINY. FR OM THE TAX AUDIT REPORT, THE AO NOTICED THAT THE TAX AUDITOR HAS REPORTED THE FO LLOWING ITEMS OF EXPENSES AS PRIOR PERIOD EXPENSES : PARTICULARS AMT. (RS.) CAR HIRE CHARGES 40,000/ - CONSTRUCTION WORK - IN - PROGRESS 1,98,300/ - MOTOR CAR EXPEN SES 15,420/ - COST OF CONSTRUCTION 29,23,276/ - TOTAL 31,76,996/ - HOWEVER, WHILE COMPUTING THE TOTAL INCOME, THE ASSE SSEE HAD DISALLOWED THE FIRST THREE ITEMS SHOWN IN THE TABLE ABOVE, BUT DID NOT ADD BACK THE AMOUNT OF RS.29.23 LAKHS RELATING TO THE COST OF CONSTRUCTION TO THE TOTAL INCOME. THE AO CALLED FOR EXPLANATION FROM THE ASSESSEE IN THIS RE GARD. THE ASSESSEE SUBMITTED FOLLOWING EXPLANATION : 'WITH REFERENCE TO THE ABOVE, IT IS SUBMITTED THAT THE CONTRACTOR A M CONSTRUCTION DID NOT DO JUSTICE TO HIS JOB. T HERE WERE LOTS OF DEFECTS IN THE JOBS EXECUTED BY HIM, LIKE THE PLAST ER OF THE WALLS WAS UNEVEN, THERE WERE WAVES AND MAJOR CRACKS HERE AND THERE. SO THERE WAS A DISPUTE AND THE COMPANY REFUSED TO MAKE ANY FURTH ER PAYMENT TO A M CONSTRUCTIONS. THIS BEING THE FIRST PROJECT, THE C OMPANY WAS VERY MUCH WORRIED ABOUT ITS IMAGE AND COMPANY WAS DECIDING TO HAND OVER THE WHOLE WORK TO BE REDONE BY SOME OTHER CONTRACTOR. I N THE MEANTIME, WITH THE EFFORT OF R D BUILDERS, THE CONTRACTOR VIZ . A M CONSTRUCTIONS CAME AROUND AND AGREED TO REDO THE ENTIRE WORK AGAI N TO OUR SATISFACTION. SO HE THEN REDID THE ENTIRE WORK TO OUR COMPLETE SA TISFACTION. ULTIMATELY AMOUNT PAYABLE TO HIM WAS SETTLED AND HE RAISED THE BILL FOR THE SAME WHICH IS ALREADY ON RECORD. ACCORDINGLY, THE BILL W AS BOOKED AND THE PAYMENT WAS MADE AFTER DEDUCTING APPLICABLE TDS. DE AR SIR, THOUGH THIS LIABILITY WAS IN EXISTENCE IN THE LAST YEAR I.E. A. Y. 2008-09, BUT IT WAS NOT POSSIBLE TO ASCERTAIN OR QUANTIFY THE LIABILITY DUE TO DISPUTE. IT WAS QUANTIFIED ONLY IN THE A. Y 2009-10. YOUR HONOUR, P LEASE, NOTE THAT THESE BILLS WERE BOOKED IN JUNE 2008 WHEREAS THE BALANCE SHEET FOR THE A. Y. 2008-09 WAS FINALIZED AND SIGNED BY THE AUDITORS ON 27 TH AUGUST 2008, DUE TO THESE REASONS, WE WERE ADVISED NOT TO BOOK T HESE BILLS IN THE LAST YEAR I.E. A. Y 2008-09. ON THE CONTRARY, BY NOT BOO KING THESE BILLS IN THE LAST YEAR THE ASSESSEE COMPANY HAS DECLARED MORE INCOME AND PAID MORE TAXES AND THERE IS NO REVENUE LOSS TO THE GOVERNMENT. SO, DUE TO THE REASON I.T.A. NO.7122/MUM/2012 3 THAT THE ABOVE LIABILITY WAS ASCERTAINED AND QUANTI FIED IN THE YEAR UNDER CONSIDERATION SO THE LIABILITY ACCRUED IN THE SAID ACCOUNTING YEAR 2008-09 AND THE ASSESSEE BECAME ENTITLED TO CLAIM DEDUCTION FOR THAT YEAR IN RESPECT OF THAT QUANTIFIED AMOUNT. I WOULD ALSO LIKE TO MENTION THAT THE SAME HAS BEEN HELD BY THE GUJARAT HIGH COURT IN THE CASE OF GUJARAT FINANCIAL STATE C ORPN. VS. CIT (195 ITR 518) THAT 'EARLIER YEARS EXPENSES, THOUGH LIABILITY EXISTED IN THE PAST YEAR, THERE WAS NO ASCERTAINED LIABILITY AND IT IS ALLOWA BLE IN THE ONLY YEAR WHEN THE SAME GOT QUANTIFIED AND ASCERTAINED. THEREFORE, SINCE THE LIABILITY ACCRUED IN THE YEAR WHEN IT GOT ASCERTAINED, THE AS SESSEE BECAME ENTITLED TO CLAIM DEDUCTION IN THAT YEAR' I WOULD ALSO LIKE TO MENTION THAT EVEN DELHI HIGH C OURT - IN THE CASE OF CIT V/S VISHNU INDUSTRIAL GASES PVT LTD (ITR NO 229/198 8) AND IN THE CASE OF CIT V/S SHRI RAM PISTONS AND RINGS LTD (ITR NO.133 /1991) HAS HELD - BY REFERRING BOMBAY HIGH COURT CASE (33 ITR 681) THAT: 'MERELY BECAUSE AN EXPENSE RELATES TO AN TRANSACTIO N OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTIL E BASIS' FURTHER, ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THE AC COUNTS ARE MAINTAINED ON THE MERCANTILE BASIS AND IT RELATED TO THE TRAN SACTION OF THE PREVIOUS YEAR 4. THE AO, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS MADE BY THE ASSESSEE. THE AO PLACED RELIANCE ON THE DECISION RENDERED BY THE DELHI BENCH OF ITAT IN THE CASE OF EVEREADY INDUSTRIES INDIA LTD., 78 ITD 175, WHEREIN THE DELHI TRIBUNAL HAD HELD THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING, THE EXPENDITURE RELATABLE TO THE PRIOR PERIOD CANNOT BE ALLOWED AS DEDUCTION. THE AO FURTHER EXPRESSED THE VIEW THAT THE ASSESS EE COULD HAVE BOOKED THESE EXPENSES IN THE IMMEDIATELY PRECEDING YEAR ITSELF, SINCE THE ACCOUNTS OF THAT YEAR WERE FINALIZED SUBSEQUENT TO THE RECEIPT OF THE APPEAL. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF RS.29.2 3 LAKHS REFERRED ABOVE. IN I.T.A. NO.7122/MUM/2012 4 THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) CO NFIRMED THE DISALLOWANCE. HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US . 5. THE LD. AR REITERATED THE SAME SUBMISSIONS AS MA DE BEFORE THE AO. HE SUBMITTED THAT THE LIABILITY RELATING TO THE WORK C ARRIED OUT BY THE CONTRACTOR, M/S A.M. CONSTRUCTIONS FINALLY GOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND HENCE THE SAID CONTRACTOR HAS RAISED THE BILLS ALSO IN THE INSTANT YEAR ONLY. ACCORDINGLY, HE SUBMITTED THAT THE IMPUGNED EXPENDI TURE SHOULD BE TAKEN AS EXPENDITURE RELATING TO THE YEAR UNDER CONSIDERATIO N. HE FURTHER SUBMITTED THAT THE OPINION EXPRESSED BY THE TAX AUDITOR IN THE TAX AUDIT REPORT CANNOT BE CONSIDERED AS SOLE DETERMINATIVE FACTOR IN DECIDING THE YEAR TO WHICH THE IMPUGNED EXPENDITURES RELATES. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO DEDUCTED TDS FROM THE ABOVE SAID PAYMENT D URING THE CURRENT YEAR. THE LD. AR FURTHER SUBMITTED THAT EVEN IF THE IMPUG NED EXPENDITURE IS CONSIDERED AS RELATING TO IMMEDIATELY PRECEDING YEAR FOR A MOM ENT, THE SAME IS LIABLE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT SINCE THE ASSES SEE HAD NOT DEDUCTED TAX AT SOURCE FROM THE SAID PAYMENT AND IT IS REQUIRED TO BE ALLOWED DURING THE CURRENT YEAR, SINCE THE ASSESSEE HAD DEDUCTED THE TDS DURIN G THE CURRENT YEAR ONLY. THE LD. AR ALSO INVITED OUR ATTENTION TO THE CORRES PONDENCE EXCHANGED BETWEEN THE ASSESSEE AND THE CONTRACTOR TO SUBSTANTIATE HIS CLAIM THAT THERE WAS DISPUTE BETWEEN THE ASSESSEE AND THE CONTACTOR. 6. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE T AX AUDITOR HAS CLASSIFIED THE IMPUGNED EXPENDITURE AS PRIOR PERIOD ITEMS IN T HE TAX AUDIT REPORT FURNISHED BY HIM. FURTHER, THE ASSESSEE HAS ALSO A CCEPTED THAT THE CONTRACTOR CARRIED OUT THE WORK IN THE IMMEDIATELY PRECEDING Y EAR. ACCORDINGLY HE I.T.A. NO.7122/MUM/2012 5 SUBMITTED THAT RELEVANT BILLS SHOULD HAVE BEEN ACCO UNTED FOR BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, HE SU BMITTED THAT THE AO WAS JUSTIFIED IN DISALLOWING THE IMPUGNED AMOUNT BY TRE ATING THE SAME AS EXPENDITURE RELATED TO THE PRIOR PERIOD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE ISSUE BEFORE US IS WHETHER THE AMOUNT OF RS.29.23 L AKHS CAN BE CLAIMED AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION. BEF ORE US, THE LD A.R HAS FURNISHED A PAPER BOOK, WHEREIN HE HAS INCLUDED COR RESPONDENCES EXCHANGED BETWEEN THE ASSESSEE AND THE CONTRACTOR ABOUT THE Q UALITY OF WORK. THE ASSESSEE HAS WRITTEN A LETTER DATED 24.02.2008, WHE REIN IT HAS CATEGORICALLY STATED THAT IT WILL NOT PAY ANY AMOUNT TO THE CONTR ACTOR. IN THE LETTER DATED 22.02.2008, THE CONTRACTOR HAD ACKNOWLEDGED THE DEF ECTS IN HIS WORKS AND HAS SOUGHT FOR A PAYMENT OF RS.10.00 LAKHS. ACCORDING TO LD A.R, THE WORK WAS REDONE BY THE CONTRACTOR AND HE HAS FINALLY RAISED THE BILL ON 30-06-2008. THUS, IT IS SEEN THAT THE ASSESSEE DID NOT ACKNOWLEDGE IT S LIABILITY TO PAY THE AMOUNT TO THE CONTRACTOR, VIDE ITS LETTER DATED 24.02.2008. WHEN THE ASSESSEE IS DISPUTING HIS LIABILITY TO PAY THE AMOUNT, IN OUR VIEW, IT IS NOT CORRECT ON THE PART OF THE TAX AUTHORITIES TO IMPOSE THE SAID LIABILITY ON THE ASS ESSEE, UNLESS IT IS SHOWN THAT THE ASSESSEE HAD ACKNOWLEDGED THE LIABILITY BY 31.3.200 8. IN THE INSTANT CASE, THERE IS NO MATERIAL TO SHOW THAT THE ASSESSEE HAD ACKNOW LEDGED THE LIABILITY BY 31.3.2008. SINCE THE CONTRACTOR HAS RAISED THE BIL L ON 30-06-2008 AND BOTH THE PARTIES HAVE AGREED FOR THE SAID AMOUNT BY THAT DAT E, THE LIABILITY RELATING TO THE ABOVE BILL GETS CRYSTALLIZED ONLY ON 30-06-2008 AND ACCORDINGLY, IN OUR VIEW, IT CANNOT BE CONSIDERED AS PRIOR PERIOD EXPENSES. I.T.A. NO.7122/MUM/2012 6 8. WE FIND MERIT IN THE ALTERNATIVE CONTENTION OF THE LD A.R ALSO, I.E., EVEN, IF IT IS CONSIDERED AS AN ITEM OF PRIOR PERIOD EXPENSE S, THE SAME IS REQUIRED TO BE ALLOWED AS DEDUCTION DURING THE INSTANT YEAR ONLY S INCE THE ASSESSEE HAS DEDUCTED TDS DURING THE CURRENT YEAR. 9. DURING THE COURSE OF HEARING, THE ASSESSEE SU BMITTED THAT IT IS DECLARING INCOME ON COMPLETION OF FLATS FOR ACCOUNTING THE IN COME FROM BUILDING ACTIVITIES. IF THAT BE THE CASE, THE CONSTRUCTION EXPENSES WILL HAVE BEEN SHOWN AS WORK IN PROGRESS ONLY IN THE IMMEDIATELY PRECEDING YEAR AND THE SAME WOULD HAVE BEEN ALLOWED AS DEDUCTION ONLY IN THE YEAR IN WHICH THE FLATS ARE SOLD. IN THAT ANGLE ALSO, THE IMPUGNED EXPENSES MAY NOT FALL IN THE CAT EGORY OF PRIOR PERIOD EXPENSES. 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E UNABLE TO SUSTAIN THE ORDER OF THE LD CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE IMPUGNED ADDITION. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20TH AUG , 2014. ,- ( . / 0 20TH AUG, 2014 - ' 1) 2 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( ) MUMBAI: 20TH AUG,2014. . . ./ SRL , SR. PS I.T.A. NO.7122/MUM/2012 7 !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 51 '* 6 , + 6 , ( ) / DR, ITAT, MUMBAI CONCERNED 6. 17 8) / GUARD FILE. 9 ( / BY ORDER, TRUE COPY : $ (ASSTT. REGISTRAR) + 6 , ( ) /ITAT, MUMBAI