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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI SANJAY GARG & SHRI RAJESH KUMAR
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 16.03.2015 of the Principal Commissioner of Income Tax [hereinafter referred to as the Pr.CIT] relevant to assessment year 2010-11 passed under section 263 of the Act.
The brief facts of the case are that the assessee is a builder and developer. The assessee started its maiden project at Virar. The assessee followed the project completion method up to financial year 2008-09 relevant to A.Y. 2009-10 and entire cost of project was carried forward. In the financial year 2009-10 relevant to A.Y. 2010-11, the building was partly completed and 28 flats out of 32 flats were sold during the said year. The project was, however, completed in financial year 2010-11 relevant to A.Y. 2011-12 and the remaining four flats were sold during
2 M/s. Aavaas Realtors the said A.Y. 2011-12. The assessee offered the 100% sale price of the 28 flats sold as revenue during the A.Y. 2010-11. However, the project was not completed during the A.Y. 2010-11 and certain expenditure was estimated by the assessee which was required to be incurred to complete the construction and provide the amenities, which was estimated at Rs.29,89,414/- and a provision for the same was made in the books of accounts. The Assessing Officer (hereinafter referred to as the AO), after considering the above details, allowed the said provision. The Ld. Pr. CIT, however after examining the records of the assessee, observed that the AO had not made any enquiry about the estimated expenditure and that the said liability of the assessee had neither accrued nor ascertained during the year. He, therefore, held that the action of the AO in allowing the assessee’s claim of deduction of Rs.29,89,414/- was erroneous and prejudicial to the interest of the Revenue. He accordingly set aside the assessment order and directed the AO to make a fresh assessment. Aggrieved by the order of the Ld. Pr. CIT, the assessee has come in appeal before us.
The Ld. A.R. of the assessee, before us, has submitted that during the assessment proceedings, the assessee had demonstrated the working of the expenditure and it was also brought to the notice of the Ld. Pr. CIT that during the financial year 2010-11 relevant to A.Y. 2011-12, the assessee had actually incurred the total expenditure of Rs.77,52,228/- which was much more than the provision made of Rs.29,89,414/-. The details have been examined by the AO and after examining the said details, the AO had allowed the provision made for an estimated expenditure for A.Y. 2010-11. He has further submitted that the provision made was not in relation to any contingent nature of expenses
3 M/s. Aavaas Realtors rather it was clear and ascertained liability in respect of the work to be carried out and the incurring of the expenditure was also ascertained. He, in this respect, has relied upon the decision of the Hon’ble Delhi High Court in the case of “CIT vs. Triveni Engineering & Industries Ltd.” ITA No.346 of 2009 vide order dated 29.11.10 and further of the decision of the Hon’ble Supreme Court in the case of “Calcutta Co. Ltd. vs. CIT” (1959) 37 ITR 1 (SC) wherein Hon’ble Supreme Court has held that in a case where the assessee is engaged in the business of land and property development and is following the mercantile system of accounting, expenditure actually incurred but not during the relevant year is still allowable, if such expenditure has been incidental to the carrying on of the business.
On the other hand, the Ld. D.R. has relied upon the finding of the Ld. Pr. CIT.
After considering the relevant submissions, we find that in this case the assessee had sold 28 flats during the year and had offered the 100% income for taxation. However, the project was completed during the subsequent year. The assessee had made provision of a reasonable expenditure which was likely to be incurred by the assessee towards certain work of furnishing and providing of amenities etc. The liability of the assessee then was crystallized and ascertained. Even the assessee had demonstrated before the AO that in fact the assessee had incurred much more amount than that, provision for which was made by the assessee for the year under consideration. We, therefore, do not find justification on the part of the Ld. Pr. CIT in invoking provisions of section 263 of the Act and thereby setting aside the assessment order.
In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the open court on 16.03.2016.