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

This appeal filed by the revenue is directed against order of the CIT(A)-28, Mumbai dated 17-06-2016 and it pertains to AY 2012-13.

The brief facts of the case are that the assesse is a partnership firm, engaged in the business of land purchase and development, filed its return of income for AY 2012-13 on 22-09-2012 declaring total income at Rs.62,71,230. The case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has made provision for development cost of Rs.39,46,705 and accordingly called upon the assessee to explain as to why provision for development cost being contingent in nature, shall not be disallowed. In response to notice, the assessee has filed details of expenses incurred under the head ‘development cost’ and also explained how provision for development cost has been made in the books of account. According 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 firm 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, the total expenses have been allocated at the ratio of 47.57% being share 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 assessee has filed a computation chart explaining the details of works to be undertaken in the project, total project expenditure for the total project and proportionate pending work to be done for 7,866 sq.mts sold during the year. The assessee also explained the reasons for making such provision in its books of account. The AO, after considering submissions of the assessee and also relying upon the decision of Hon’ble Bombay High Court in the case of CIT vs Morarji Goculdas Spinning & 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 liability actually existing in the year of account. Contingent liability did not constitute expenditure and cannot be subject matter of deduction, even under the mercantile system of accounting. Since, the expenditure incurred by the aassessee towards provision for cost of development is not an ascertained liability, which according to the assessee 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.

Aggrieved by the assessment order, assessee preferred appeal

We have heard both the parties and perused the materials 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 monetary limits prescribed by the CBDT vide its circular F.No.279/Misc. 142/2007-ITJ (Pt) dated 11-07-2018 wherein monetary limits for filing appeal before the ITAT has been enhanced to Rs.20 lakhs. We further notice that in the said circular, the CBDT has explained the meaning of tax effect and also exceptions provided for filing appeal before the 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 effect on such disputed addition is less than Rs.20 lakhs. We further notice that this case does not fall under any of the excep6tion as provided in par 10 of the circular.