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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
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 against 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 appeal:-
"1) On the facts & in the circumstances of the 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, and directing to delete the disallowance of Rs.39,46,705/- on account of provision for development expenses, without appreciating the fact that the said 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 the case, and in law, the Ld.CIT(A) has erred in directing to delete the disallowance of Rs.39,46,705/- on account of provision for development expenses, without appreciating the fact that the expenditure is allowable u/s.37 of the Act only of an ascertained amount and on actual payment basis, whereas provision for expenses, as is 2 ITA 5270/Mum/2016 in the case of the assessee is not allowable."
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
4 ITA 5270/Mum/2016 before the CIT(A). Before the CIT(A), the assessee has filed elaborate written submissions to reiterate its arguments taken before the AO that it has made provision for known liability of expenditure 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 deducting actual expenditure incurred for the project, the balance amount has been provided in the books by following the accounting standard issued by Institute of Chartered Accountants of India (ICAI). The assessee further submitted that the provision made for development cost is an ascertained liability as the resultant revenue from sale of plots is already booked in the books of account and hence, the corresponding expenditure relatable to such revenue needs to be provided in the books of account whether actually paid or not. The Ld.CIT(A), after considering relevant submissions of the assessee and also by relying upon the decision of Hon’ble Supreme Court in the case of Calcutta Co. Ltd 37 ITR 1 (SC), held that expenditure incurred under the head ‘provision for development cost’ is an ascertained liability, which accrued to the assessee as per the method of accounting followed to recognize income from 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 the books of account. Therefore, he opined that expenditure incurred 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 CIT(A), the revenue is in appeal before us.
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.
Therefore, keeping in view of the circular issued by the CBDT dated
6 ITA 5270/Mum/2016 11-07-2018, we are of the considered view that appeal filed by the revenue is not maintainable. Hence, we dismiss appeal 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 discussed, as it becomes merely academic in nature. 5. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 08th August, 2018.