ENIGMA CONSTRUCTION PVT. LTD.(NOW MERGED WITH KEYSTONE RLATORS PVT. LTD.),MUMBAI vs. DCIT - CC- 2(4), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. The Hon'ble CIT(A) has erred in ignoring the fundamental accounting assumption of accrual which states that "revenues and cost are recorded when they are earned incurred (and not as money is received or paid) in the periods to which they relate". view of the above, the said order passed should be squashed and necessary direction should be given in this regard.

2. Without Prejudice to the Ground no. I the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance of selling and marketing expenses paid A.Y.2012-13 of Rs.1,20,19,260/- stating that the receipt from sale of FSI is not offered to tax, hence corresponding expenses also cannot be allowed for the year under consideration. It is therefore submitted that such disallowance of selling & marketing expenses is unreasonable and unjustified and therefore, such disallowance should be deleted.

3. Without Prejudice to the above, it is submitted that if the said expenses is disallowed for the year under consideration then the same should be allowed to take the deduction in the subsequent year when the revenue for sale of FSI is recognized.

4. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal.”

3. The brief facts of the case are that the assessee filed its return of income on 29.09.2012 declaring total loss at Rs. Nil for the A.Y.2012-13. The return was processed u/s 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the I. T. Act, 1961 were issued and served upon the assessee. The assessee company was incorporated to construct, purchase, acquire, hire, operate, manage and develop land of any real and personal estate property. During the year under consideration, the assessee company was engaged in the development of a real estate residential and commercial project in Virar, Thane. During the assessment year under consideration, the assessee company has shown the loss from its core business activity. The assessee company has claimed deduction of Rs.1,27,18,900/- on account of Selling and Marketing expenses. Out of it a sum of Rs.1,20,19,262/- was shown as commission expenses in the name of one Shri Soham Gopal Narang. The amount was shown outstanding in the Balance-Sheet as on 31.03.2012. Thereafter, notice was given and after the reply of the notice, the commission in sum of Rs.1,20,19,260/- was disallowed and added to the income of the assessee. The total income of the assessee was assessed as Nil. Feeling aggrieved, the A.Y.2012-13 assessee filed an appeal before the CIT(A) who confirmed the order of the AO, therefore, the assessee has filed the present appeal before us.

4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. In brief, the claim of the assessee was declined by the AO on the basis of this fact that the receipt from the sale of FSI was not offered to tax, therefore, the expenses was not liable to be allowed. The Ld. Representative of the assessee has argued that the assessee has paid 2% commission on sale of FSI 53.33 crores for the year under consideration and accordingly it is well-settled principle of the real estate sector/business that when the deals for sale of land/building/FSI or whatever named called takes place i.e. in A.Y.2012-13, at that time commission/brokerage was required to be paid by the assessee company to the broker irrespective of whether the sales agreement was registered or nor during the year under consideration. It is also argued that the commission or brokerage expenses are accrued and the liabilities towards such expenses are created as soon as the deal takes place between the assessee company and the party and accordingly the brokerage/commission is due, hence, the claim of the assessee is liable to be allowed. In support of these contention, the Ld. Representative of the assessee has placed reliance upon the decision of Bangalore Tribunal in the case of Mysore Tobacco Co. Ltd. Vs. CIT (1978) 115 ITR 698 (Kar). However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The factual position is not in dispute. The assessee company has paid 2% commission on sale of FSI 53.33 crores for the year under consideration. The commission has been booked against these transactions in the year under consideration. Since the FSI was not offered in the current year, therefore, the AO has declined the claim. It nowhere seems justifiable in A.Y.2012-13 view of the decision in the case of Mysore Tobacco Co. Ltd. Vs. CIT (1978) 115 ITR 698 (Kar) in which it is held that the accepting certain specific provisions relating to amortization of initial expenses in certain cases, there is no other statutory provision for allowing revenue expenses in a phased or spread out manner. On the other hand, the expenses are required to be claimed and allowed only in the year in which the expenses are incurred or the liability towards such expenses accrued. Revenue expenditure is essentially allowable in the year to which it pertains or in which it is incurred. However, to support his claim, the assessee has also relied upon the decision in the case of Calico Dyeing & Printing Works Vs. CIT (1958) 34 ITR 0265. In the said case, the claim of the assessee was allowed in similar circumstances. Taking into account of all the facts and circumstances, we are of the view that the declining of the claim of commission expenses is nowhere justifiable, hence, we set aside the finding of the CIT(A) on the issue. The claim is hereby allowed in the relevant year. Accordingly, we allowed the claim of the assessee.

Reasons for delay in pronouncement of order 6.1 Before parting, we would like to enumerate the circumstances which have led to delay in pronouncement of this order. The hearing of the matter was concluded on 07/02/2020 and in terms of Rule 34(5) of Income Tax (Appellate Tribunal) Rules, 1963, the matter was required to be pronounced within a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the bench could fix a future date of pronouncement of the order which shall not ordinarily be a A.Y.2012-13 day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and extraordinary circumstances. However, the extended period shall not ordinarily exceed a period of 30 days. 6.2 Although the order was well drafted as well as approved before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown was extended from time to time which crippled the functioning of most of the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices.

6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon’ble President and Hon’ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: - 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded A.Y.2012-13 on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5)The pronouncement may be in any of the following manners: — (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.