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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Sh. N. K. Saini, AM and Sh. K. N. Chary, JM Asstt. Year : 2007-08 ACIT, Vs Sh. Jagdish Prasad Gupta, Circle-28(1), A-12, Friends Colony, New Delhi-110002 New Delhi (APPELLANT) (RESPONDENT) PAN No. AAHPG6016D Assessee by : Sh. Rajiv Saxena, Adv. Revenue by : Sh. S. P. Gupta, Sr. DR Date of Hearing : 13.09.2017 Date of Pronouncement : 19.09.2017 ORDER Per N. K. Saini, AM:
This is an appeal by the department against the order dated 23.02.2016 of ld. CIT(A)-X, New Delhi.
Following grounds have been raised in this appeal: “1. On the facts and circumstances of the case, the Ld. CIT(A), has erred in deleting the addition of Rs.2,60,53,488/- which was made by the AO on the ground of holding it a contingent liability.
2. On the facts and circumstances of the case, the Ld. CIT(A) ignored the finding recorded by the AO and the fact that the assessee received only notice from Northern Railways and no actual payment
2 Jagdish Prasad Gupta has been made by the assessee during the year under consideration. 3. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal."
3. From the above grounds, it is gathered that only grievance of the department in this appeal relates to the addition of Rs.2,60,53,488/- made by the AO by holding the same as a contingent liability.
Facts of the case in brief are that the assessee filed the return of income on 27.02.2008 declaring Nil income which was processed u/s 143(1) of the Income Tax Act, 1961. Later on, the AO initiated the proceedings u/s 147 of the Act and issued the notice u/s 148 of the Act after recording the reasons for the same. The AO noticed that the assessee while filing the return of income for the year under consideration debited a sum of Rs.2,60,53,488/- under the head rent which according to AO was contingent in nature. The reliance was placed on the following case laws: � Indian Molases Pvt. Ltd. 37 ITR 66 (SC) � Ms. P. Santikumar Vs CIT 32 ITR 138
3 Jagdish Prasad Gupta 5. The AO asked the assessee to show cause as to why the amount of Rs.2,60,53,488/- be not added back to his income. The assessee filed the reply vide letter dated 28.03.2013. However, the AO did not find merit in the said reply of the assessee and held that the assessee willfully debited in the profit and loss account an item of contingent liability which was also penal in nature, not allowable as per provisions of the Act. Accordingly, addition of Rs.2,60,53,488/- was made.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by following the decision of the ITAT Delhi Bench ‘D’ in to 3230/Del/2006 for the assessment years 1997-98 to 2002- 03, order dated 31.07.2009 wherein the issue of allowability of enhanced license fee was decided as per the directions of the Hon’ble Delhi High Court.
Now the department is in appeal.
During the course of hearing, the ld. Counsel for the assessee at the very outset stated that this issue is covered by the judgment of the Hon’ble Jurisdictional High Court in 4 Jagdish Prasad Gupta assessee’s own case in ITA No. 695/2010 vide order dated 18.08.2017 (copy of the said order was furnished which is placed on record). The aforesaid contention of the ld. Counsel for the assessee was not controverted by the ld. CIT DR.
We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the present controversy has now been settled by the Hon’ble Jurisdictional High Court in assessee’s own case vide aforesaid order darted 18.08.2017 and the relevant findings have been given in paras 47 to 51 of the said order which read as under: “47. In the arbitration proceedings, the claim of the Railways includes the claim for the enhanced licence fee as well as the arrears. The arbitration proceedings could end either in favour of the Railways or the Assessee. If it goes in favour of the Assessee it would then have no liability to pay such enhanced licence fee and in the year in which such final decision is rendered, the corresponding reversal of entries will have to take place in terms of Section 41(3) of the Act. All of this, in no way, extinguishes the liability of the Assessee to pay the licence fee. The Assessee would be justified in claiming the enhanced licence fee as deduction in the year in which such enhancement has accrued even though the 5 Jagdish Prasad Gupta Assessee has not paid such enhanced licence fee in that year. This legal proposition is well settled.
In these proceedings, the Court is not required to determine whether the Northern Railway validly enhanced the licence fee from time to time. That would be the subject matter of the arbitration proceedings that are pending. What is to be seen is whether the liability to make that payment arose during the AYs in question. If it did, it would have to be allowed in that very year in which it arose if the Assessee is, as in the present case, following the mercantile system. As already noted the Railways has already filed its claim before the Arbitrator for the arrears of licence fees and 'damages'. As rightly held by the CIT (A), and concurred with by the ITAT in its order dated 3 1st July 2009, the mere characterization by the Northern Railway of the amount claimed by it from the Assessee as 'damages' will not, in the context of the present case, make it any less an accrued liability. It is an expenditure incurred by the Assessee corresponding to the income he derives from using the land for the purposes of his business.
The Court is also not able to agree that the ITAT made a grievous error, in the order passed by it on 22nd November 2004, regarding the claim for enhanced licence fee as a deduction being allowable not in AY 1995-96 but in AY 1996-97. The argument that the ITAT may have exceeded its jurisdiction done not hold since the Revenue has, apart from not challenging the said order, 6 Jagdish Prasad Gupta implemented it fully by the consequent appeal effect order.
Mr. Manchanda is not right in contending that the said order dated 22nd November 2004 of the ITAT for AY 1995-96 is in favour of the Revenue. A careful reading of the said order in fact indicates to the contrary. The order dated 22nd July 2008 of the ITAT also does not help the Revenue any more since it has been set aside by this Court by the order dated 11th December 2008. The reason for the remand of the matters to the ITAT by the said order was that, according to this Court, the ITAT had not returned any finding on the issue whether the licence fee payable by the Assessee to the Railways for the use of the land could be regarded as an accrued liability or a contingent liability. This Court noted the specific plea of the Assessee that, for AY 1995-96, the ITAT had decided this issue in favour of the Assessee, by an order dated 25th November, 2004, construing the licence fee to be an accrued liability and, therefore, allowable as expenditure in the year of accrual.
For all of the above reasons the first issue is decided in favour of the assessee and against the Revenue by holding that the liability of the Assessee to pay enhanced licence fees for the AYs in question was an accrued liability which arose in the year in which demand was raised.”
Since, the issue has now been settled by the Hon’ble Jurisdictional High Court in assessee’s favour. We,
In the result, the appeal of the department is dismissed. (Order Pronounced in the Court on 19/09/2017)