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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
against impugned order dated 6.8.2010 passed by the Ld. CIT(A), Ghaziabad for Assessment Year 2004-05. I.T.A. 4729/2010 has I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06 been preferred by the Department for the same year. C.O.
378/2010 is Cross Objection filed by the assessee against the Department’s appeal. I.T.A. 5236/Del/2014 has been preferred by the assessee against order dated 3.7.2014 passed by the Ld. CIT(A)-XXIV, New Delhi for Assessment Year 2005-06. Since all these appeals/C.O. were heard together, the same are being disposed of through this common order.
I.T.A. 4697/2010
At the outset, the Ld. AR submitted that ground nos. 2, 3 and 4 of the assessee’s appeal pertaining to interest paid on housing loan, interest paid to partners and disallowance u/s 40(A)(3) of the Act were not being pressed. Hence, the same are dismissed as not pressed. The only effective ground remaining for adjudication is ground no. 1 which is as under:-
“1. That the ld. CIT(A) erred in law by upholding the disallowance of Rs. 538042/- being earnest money forfeited by given observation that the same will be allowable in the A Y 2005-06 while the assessee firm correctly claimed the said expense.” 3. It was submitted that the assessee firm had debited Rs.
5,38,042/- in its Profit/Loss account on account of earnest money forfeited. It was submitted that the assessee had deposited the said earnest money for the work tendered, but had 2 I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06 not deposited performance guarantee of Rs.13,68,303/- with the P.W.D. (NCTD) as the partners of the assessee firm had decided to leave the work unfinished. It was submitted that the decision to let the security money be forfeited was taken by the partners on 29.03.2014 (date of the resolution) and hence this loss was debited in FY 2003-04. However, the Assessing Officer was of the opinion that the amount was forfeited by PWD only on 8.4.2004 when the assessee firm defaulted in depositing the performance guarantee. The Assessing Officer further opined that the determination of forfeiture was to be undertaken by the body awarding the contract and not by the contractor. Hence, as per the Assessing Officer, the expenditure accrued in FY 2004-05 only and hence was not deductible in the year under consideration. On appeal, the Ld. CIT (A) upheld the contention of the Assessing Officer and dismissed assessee’s appeal.
Ld. DR supported the orders of the authorities below. We have heard the rival submissions and carefully perused the relevant records. It is seen that the Ld. CIT (A) has adjudicated the issue on page 21 para 4 of the impugned order. The same is being reproduced herein under for ready reference:-
I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06
“Ground No.4 (b) against addition of Rs.5,38,042/-: On this issue, I hold that the forfeiture was effected vide letter of PWD (NCTD) dated 26.04.2004, produced by the assessee itself. After the default of performance guarantee scheme, the accrual of loss by way of forfeiture of earnest money would arise only on the date when the forfeiture has been effected by the PWD i.e. the body who awarded the contract. The mutual decision by the partners of the firm that the firm should be ready to forego the earnest money cannot decide the date of accrual of this loss; but only decide the event of happening of the loss. It is clear from the aforementioned letter dated 26.04.2004 of PWD, the principal decided to forfeit the earnest money of the assessee firm on 26.04.2004. Thus I have no doubt that although it is an allowable business loss but the same has to be claimed in assessment year 2005-06. It is the law of the land that not only the correct amount of income should be taxed but also it is imperative that the same is taxed in the appropriate assessment year as per the norms of accountancy and the law of accrual of liability.”
Having gone through the impugned order, we are of the considered opinion that the observations and the findings of the Ld. CIT (A) do not call for any interference. Hence, we confirm the disallowance in this year while agreeing with the observations of the Ld. CIT (A) that although the impugned disallowance was an allowable business loss, the same has to be claimed in Assessment Year 2005-06. We accordingly dismiss ground no. 1 I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06 of assessee’s appeal. Ground no. 5 is also dismissed as being premature. Accordingly, the appeal of the assessee is dismissed.
I.T.A. 4729/Del/2010
As far as I.T.A. 4729/Del/2010 is concerned, the Ld. AR submitted a chart submitting that the Department is in appeal for disputed deletions of only Rs.15,63,676/- on which the disputed tax will work out to approximately Rs. 4,70,000/-. Therefore, in view of CBDT Circular No. 21/2015 dated 10.12.2015 wherein the monetary limit for Departmental appeals was raised to Rs.10 lakh, this appeal ought to be dismissed. The Ld. DR could not controvert the submissions of the Ld. AR. We accordingly dismiss the department’s appeal as being below the prescribed monetary limit.
C.O. 378/Del/2010
The CO of the assessee having been filed against the Department’s appeal becomes in fructuous in view of the dismissal of the Department’s appeal. The CO of the assessee is dismissed.
I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06 I.T.A. 5236/Del/2014
The effective ground in this appeal of the assessee pertains to rejection of the assessee’s application u/s 154 of the Income Tax Act, 1961 seeking deduction of earnest money forfeited by the PWD which the assessee had claimed as a deduction in Assessment Year 2004-05 but which the Ld. CIT (A) had opined was to be allowed in Assessment Year 2005-06. The Assessing Officer refused to entertain the rectification application of the assessee u/s 154 of the Act on the ground that in the order of the Ld. First Appellate Authority for Assessment Year 2004-05, there was no direction u/s 251 of the Act to grant this expense to the assessee. The Ld. CIT (A) in the impugned order has also upheld the view of the Assessing Officer. However, in view of our findings in on this issue that the amount should be deducted in Assessment Year 2005-06 and in order to bring the entire controversy to a logical end, we direct the Assessing Officer to give benefit of this deduction to the assessee in Assessment Year 2005-06. The appeal of the assessee is accordingly allowed.
In the result, I.T.A. 4729/Del/2010 & C.O. 378/2010 are dismissed and ITA 5236/2014 is allowed. 6 I.T.A. 4729/D/10, 4697/D/10, 5236/D/14 C.O.378/D/10 Assessment Years: 2004-05, 2005-06 Order pronounced in the Open Court on 23rd May, 2016.