Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI DUVVURU RL REDDY]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
In this appeal filed by the Revenue, it is aggrieved that the ld. Commissioner of Income Tax (A)-6, Chennai, through his order dated 24.10.2016 deleted �1,25,00,000/- out of a total disallowance of �1,33,41,882/- made by the ld. Assessing Officer on what has been termed as provision for contract loss.
ITA No.3440 /2016 :- 2 -:
Facts apropos are that assessee a company engaged in real 2. estate and property development had filed its return of income for the impugned assessment year disclosing income of �8,54,06,673/-.
During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had created a provision of �1,35,05,446/- against contract loss. Ld. Authorised Representative of the assessee through a letter dated 13.3.2015 filed with the ld. Assessing Officer stated that such provision was created considering arbitration proceedings filed by one M/s. Garabandal Constructions Pvt. Ltd against it. Ld. Assessing Officer however was of the opinion that provision created was only contingent in nature. According to him, such provision was written back in the subsequent years. A sum of �1,33,41,882/- out of the total provision of �1,35,05,446/- was disallowed by the ld. Assessing Officer.
Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that the provision was created through a journal entry No.1052, dated 31.12.2011 and the corresponding ledger page produced by the assessee read as under:-
ITA No.3440 /2016 :- 3 -:
‘’Provision for project completion expenses- Sitaria Ledger Account (1.12.2011 to 31.03.2016).
Date Particulars Vch Type Vch No/ Debit Credit Excise Inv. No. 31.12.2011 Dr. (as per details) Journal 1052 1,40,00,000 Project completion expenses – 85,00,000 Dr SITARA Rental Compensation 55,00,000 Dr - SISTARA Being provision for completion of project – Garabandal �70 lakhs, Elmach �2 lakhs,ETA star elevators �3 lakhs, Contigencies �10 lakhs and Renta compensation 55 lakhs 31.03.2012 Dr. Project 1058 20,61,000 Completion Expenses – SITARA
Being completion of project – Garabandal revised cost as per final estimates given by the contractor by our contracts dept. Cr. Rental 1514 28,40,000 Compensation – SITARA
Being excess provision reversed, revised rental compensation estimate by Waheeda works out to �26,60,000/- ( as per payment schedule and actual payments made- worked out)
Cr. Closing Balance 28,40,000 1,60,61,000 1,32,21,000 ----- 1,60,61,000 1,60,61,000
ITA No.3440 /2016 :- 4 -:
As per the assessee, M/s. Garabandal Constructions Pvt. Ltd. had filed a petition u/s.11(6) of the Arbitration and Conciliation Act, 1996 before the Hon’ble Madras High Court on 19.03.2013. Contention of the assessee was that the sole arbitrator through his order dated 25.01.2016 approved a joint settlement memo, between assessee and M/s. Garabandal Constructions Pvt. Ltd, whereby assessee agreed to pay a sum of �75,00,000/- in final settlement. Further, as per the assessee a sum of �55,00,000/- out of the total provision was rental compensation payable to the customers on account of delayed delivery of flats.
Ld. Commissioner of Income Tax (Appeals) after verification 4. of the details filed by the assessee arrived at the breakup of provision made by the assessee as under:-
Sl.No Party Amount (�) 1 Contractor Builder 70,00,000/- 2 ELMACH 2,00,000/- 3 ETA Star Elevations 3,00,000/- 4 Contiguou 10,00,000/- 5 Rental Compensation 55,00,000/- Total 1,40,00,000/- ITA No.3440 /2016 :- 5 -:
According to ld. Commissioner of Income Tax (Appeals) only provisions which could be considered for allowance was the sum of �70,00,000/- due to M/s. Garabandal Constructions Pvt. Ltd., and the sum of �55,00,000/- due as rental compensation. According to him, provision made against the dues to M/s. Garabandal Constructions Pvt. Ltd. was estimated on a sound basis since assessee had an obligation to the said contractor. Further, according to him, the rental compensation of �55,00,000/- was required to be paid to the customers of the assessee on account of delay in handing over the flat and this was also a crystallized liability. Thus, ld. Commissioner of Income Tax (Appeals) allowed the claim to the extent of �1,25,00,000/- while sustaining the disallowance of �8,41,882/-.
Now before us, the ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that, before the ld. Assessing Officer assessee had claimed the provision to be arising out of arbitration proceedings filed by M/s. Garabandal Constructions Pvt. Ltd. As per the ld. Departmental Representative, before the ld. Commissioner of Income Tax (Appeals) assessee gave a completely different break-up of the provision. According to the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) had accepted the fresh claim without verifying the facts. Contention of the ld. Departmental
ITA No.3440 /2016 :- 6 -:
Representative was that there was no evidence filed by the assessee with regard to provision for rental compensation of �55,00,000/-. As for the liability of �70,00,000/- shown as payable to M/s. Garabandal Constructions Pvt. Ltd, contention of the ld. Departmental Representative was that there was no crystallization of any such dues but it was only a wishful estimate. In any case, as per ld. DR, ld. Commissioner of Income Tax (Appeals) had considered records filed by the assessee which were never made available to the ld. Assessing Officer.
Per contra, ld. Authorised Representative strongly supporting the order of ld. Commissioner of Income Tax (Appeals) submitted that existence of arbitration proceedings, which were initiated by M/s. Garabandal Constructions Pvt. Ltd could never be disputed. Relying on the application for appointing an Arbitrator filed by M/s. Garabandal Constructions Pvt. Ltd before Hon’ble Jurisdictional High Court, placed at paper book pages 28 to 36, ld. Authorised Representative submitted that final bills submitted by M/s. Garabandal Constructions Pvt. Ltd on 07.12.2011, which fell during the relevant previous year, was for a value of �7,44,54,318/-. According to him, the contract value was only �6,20,00,000/-. Thus, as per the ld. Authorised Representative, M/s. Garabandal Constructions Pvt. Ltd had a claim against the assessee for a sum of �1,24,54,318/- which was in ITA No.3440 /2016 :- 7 -:
excess of contracted amount. As per the ld. Authorised Representative, para 9 of the said application clearly indicated a sum of �1,40,92,288/- as due from the assessee to M/s. Garabandal Constructions Pvt. Ltd. Thus, according to him, there was an existing liability at the end of the relevant previous year and provisioning was correctly done by the assessee. Ld. Authorised Representative also pointed out the settlement finally entered by the assessee with M/s.
Garabandal Constructions Pvt. Ltd placed at paper book pages 38 to 42 which put the final amount payable by the assessee as �75,00,000/-.
Thus, according to him, ld. Commissioner of Income Tax (Appeals) had rightly considered the sum of �70,00,000/- as ascertained liability payable to M/s. Garabandal Constructions Pvt. Ltd on 31.03.2012. In so far as rental compensation was concerned, ld. Authorised Representative submitted that assessee was obliged to pay such compensation due to delay in handing over the flats to its customers. This also as per the ld. Authorised Representative was a crystallized liability. Thus, according to him, ld. Commissioner of Income Tax (Appeals) was justified in allowing the claim to the extent of �1,25,00,000/-
We have considered the rival contentions and perused the orders of the authorities below. Sum of �1,25,00,000/- allowed by the ld. Commissioner of Income Tax (Appeals), out of the total claim of ITA No.3440 /2016 :- 8 -:
�1,35,05,446/- comprised of two items. First is amount of �70,00,000/- claimed as due to M/s. Garabandal Constructions and second is rental compensation of �55,00,000/- claimed as payable to its customers. It is interesting to note the version of ld. Assessing Officer on what the assessee had stated before him with regard to the provision of �1,35,05,446/-. This is reproduced hereunder:-
‘’The assessee has created a sum of �1,35,05,446/- as provision for contract loss. On being queried on this point, the Authorised Representative in her letter dated 13.03.2015 stated that this provision was created on account of arbitration proceedings filed against the assessee company in the High Court of Madras. She also started that the said sum was written back in the subsequent years. Hence she stated that the said provision is allowable’’ .
Before ld. Commissioner of Income Tax (Appeals) assessee however submitted a different breakup for the provision. Said break-up has been reproduced by us at para 4 above. The ledger page called ‘’provision for project completion expenses’’, is reproduced by us at para 3 above. This ledger page indicate that a sum of �85,00,000/- was provision in relation to the project of SITARA and the sum of �55,00,000/- was provision for rental compensation on the very same project. The question before us is whether these amounts were crystallized liability as on 31.03.2012. Application for appointment of ITA No.3440 /2016 :- 9 -:
Arbitrator was filed by M/s. Garabandal Constructions Pvt. Ltd on 1st day of July, 2013. No doubt in the said application, it is stated that M/s. Garabandal Constructions Pvt. Ltd had submitted its final bills valued at �7,44,54,318/- as on 07.12.2011 against which they claimed receipt of �6,38,26,100/- only. Relevant paras of the application is reproduced hereunder:-
‘’9. The petition submits that the final bills were submitted for the value of the ₹7,44,54,318.60/- on 07.12.2011 and the final bill for the external work for the value of Rs.34,36,003.42/- submitted on 4th June 2012. Thus the total bill value is Rs. 7,78,90,322.02/- whereas the petitioner have received so far only ₹6,38,26,100/-. Thus the balance to be payable to the ₹1,40,92,288.02/-. respondent is In the meeting held on 21at: December 2012 and 21at: January 2013. The respondent requested time for the payment of the final bill 10. However the respondent have issued a notice on 18.03.2013 claiming liquidated damages for the delay in construction work of Rs.31,00,000/- for which .the reply was in on 28.03.2013. Since there was a dispute and difference the' petitioner made a . request to the respondent to refer the matter to an arbitrator as per class 61 of the agreement.
However ·the respondent has failed to act as required under the procedure agreed between, the parties for appointment of arbitrators. In such a situation,. the petitioner has no other alternative remedy except to approach this Hon'ble Court praying for the appointment of an Arbitrator to resolve the disputes between the parties. 12.. I state that the cause of action for the present petition arose between the parties when the nomination appointing the petitioner as a Civil Contractor, was issued by the respondent on 06.06.2009 and the contract was entered into between the parties on 31.07.2009 and the building was completed on 31.09.2011 and when the building handed over' to the respondent on 31.07.2011 and the final bill were submitted to the respondent on 07.12.2011 and 4th June 2012 and the demand notice was issued by the respondent on 19.03.2013 and the reply was sent by ITA No.3440 /2016 :- 10 -:
the petitioner requesting for the appointment of arbitrator ,on21.03.2013 and the respondent on 30.04.2013 sent a rejoinder stating that he is ready to face the arbitration proceedings’’.
There is nothing on record to show that M/s. Garabandal Constructions Pvt. Ltd had preferred any such claim on the assessee during the course of the relevant previous year or to show that assessee had agreed to such claim. On the other hand assessee had claimed liquidated damages from M/s. Garabandal Constructions Pvt. Ltd. No doubt, on 19.01.2016, there is a settlement entered by the assessee with M/s. Garabandal Constructions Pvt. Ltd whereby it agreed to pay a sum of �75,00,000/- to M/s. Garabandal Constructions Pvt. Ltd. However, none of these, in our opinion would show that there was any crystallized liability to M/s. Garabandal Constructions Pvt. Ltd as on 31.03.2012. Just because a claim was filed by the contractor of the assessee, would not mean that assessee was legally bound to pay such amount. The maxim ‘’debitum in praesenti solvendum in futuro’’ relied on by the ld. Authorised Representative, can apply only if there is an ascertained liability for which amount is to be crystallized and paid later, and not to a situation where there is only a claim, with no acknowledged liability. In our opinion, ld. Commissioner of Income Tax (Appeals) fell in error in taking cognizance of the arbitration proceedings initiated well after the end of the relevant previous year, and coming to a conclusion that there was a crystallized liability of ITA No.3440 /2016 :- 11 -:
�70,00,000/- due from the assessee to M/s. Garabandal Constructions Pvt. Ltd as at the end of the relevant previous year. As for the rental compensation of �55,00,000/- nothing is available on record to show how it was computed or the basis on which assessee claimed itself to be liable to pay such compensation. In these circumstances, we are of the opinion that ld. Commissioner of Income Tax (Appeals) fell in error in allowing the claim of the assessee to the extent of �1,25,00,000/-. Order of the ld. Commissioner of Income Tax (Appeals) is set aside.
In the result, the appeal of the Revenue stands allowed. 8.
Order pronounced on Monday, the 3rd day of September, 2018, at Chennai.