RAJNI CONSTUCTION vs. COMMISSIONER OF INCOME TAX-III

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 459/2013 . RAJNI CONSTUCTION ..... Appellant . Through Mr. S. Krishnan, Advocate. . . . versus . . . COMMISSIONER OF INCOME TAX-III ..... Respondent . Through Ms. Anshul Sharma, Advocate. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE SANJEEV SACHDEVA . O R D E R . 30.10.2013 . . . CM No.15140/2013 (delay in re-filing) . For the reasons stated in the application, the delay of 44 days in re-filing of the appeal is condoned and the application is allowed. . CM No.15139/2013 (delay in filing) and ITA No.459/2013 . 1. This is an application for condonation of delay of 12 days in filing of the appeal. However, before issuing notice on the application, we deem it appropriate to examine the merits of the appeal itself. . 2. The appeal pertains to Assessment Year 1999-2000. . 3. The assessee, a firm, was maintaining accounts on mercantile system and was following ?project completion method?. . 4. For the Assessment Year 1998-99, the assessee had booked profits in respect of two projects i.e. E-15, Panchsheel Park, New Delhi and C-84, Anand Niketan, New Delhi. Income earned upon construction and sale in the said two projects was computed and taxed in the said year i.e. Assessment Year 1998-99. It is an accepted and admitted case that no income from the said project has been booked in the Assessment Year 1999- 2000. The projects were completed and income was assessed in the Assessment Year 1998-99. . 5. The Tribunal, in the impugned order, has upheld the view taken by the Assessing Officer that purported expenditure of Rs.3 lakhs in respect of project E-15, Panchsheel Park, New Delhi and Rs.14 lakhs in respect of Project C-84, Anand Niketan, New Delhi, cannot be accounted for and reduced from the income for the Assessment Year 1999-2000, once the projects were completed and the accounts in respect of two projects are closed in the Assessment Year 1998-99. The view taken by the Assessing Officer and the Tribunal is that as per accountancy principles applicable to ?project completion method?, the expenditure to the extent of Rs.3 lakhs and Rs.14 lakhs could be only booked in the Assessment Year 1998- 99, as the income from the said projects was computed and calculated in the said year. . 6. Learned counsel for the appellant has submitted and relied upon the order of the Commissioner (Appeals). The Commissioner (Appeals) had held that sale deed in respect of first floor of property No.E-15, Panchsheel Park, New Delhi was registered on 30.04.1998, therefore, the security deposit was written off in the present assessment year. Our attention is drawn to the Property Development Agreement dated 22.04.1996 between the appellant and the owner. The said agreement provides a schedule for payment of additional consideration of Rs.35 lakhs in paragraph 5.2. It is a misnomer to call the said payments a security deposit. The said clause prescribes schedule for payment of Rs.35 lakhs. Last payment of Rs.5 lakhs was payable at the time of execution of the sale deed for the . first floor and the second floor. The appellant has not pointed out the date of execution of the sale deed. What is highlighted and pointed out to us is the date of registration of the sale deed, as mentioned in the order of the Commissioner (Appeals). Further, as noticed above, this payment was to be made as an additional consideration and was not a non- refundable security deposit. The amount mentioned in the document is Rs.5 lakhs and not the amount paid i.e. Rs.3 lakhs. The second agreement in respect of property No. C-84, Anand Niketan, New Delhi dated 31.01.1996 does not contain a clause for payment of consideration. Reliance placed on clause No.27 to justify the expenditure is completely misconceived. The said clause stipulates that the appellant had given one year warranty to the owner on his regaining physical possession of the entire ground floor, first floor, basement, front and rear garden in the event of leakage, sewage, drainage, etc. It is stipulated that the appellant shall pay all expenses to rectify the defects. We fail to understand how clause 27 justifies the claim for the said expenditure as mercantile expenditure accrued in the year in question. Neither does it explain reason and ground for payment of Rs.14 lakhs. . 7. Learned counsel for the appellant, at this stage, relies upon Commissioner of Income Tax vs. Excel Industries Ltd. (2013) 38 taxmann.com 100 (SC) and has referred to paragraph 32. In the said case, the Supreme Court noticed that the real question concerning was the year in which the assessee was required to pay the tax. It was observed that the rate of tax for the two years was the same and therefore the dispute raised by Revenue was entirely academic and of minor consideration. In the present case, the assessee had an option to and should have revised his return for the Assessment Year 1998-99, in which year the two projects were booked and taxed. The principle of matching applies to income and expenditure accounts for an assessment year. Facts and income disclosed for Assessment Year 1998-99 are not on record and would affect the profits declared from the two projects. The reasons for the alleged payments would remain under cover and unverified. . 8. In view of the aforesaid position, we are not inclined to issue notice on the application for condonation of delay and consequently, the said application and as a sequitur, the appeal is dismissed. . SANJIV KHANNA, J . . . . . SANJEEV SACHDEVA, J . OCTOBER 30, 2013 . st . . . $ 2 .