Bombay High Court
Grace Shelter vs The Assistant Commissioner Of Income ... on 26 February, 2019
Author: M.S.Sanklecha
Bench: Akil Kureshi, M.S.Sanklecha
itxa-1740-2016.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1740 OF 2016
Grace Shelter .. Appellant.
v/s.
The Assistant Commissioner of Income Tax
Range-21(2) .. Respondent.
Mr. Vipul Joshi with Ms. Narmrata Kasale, for the Appellant.
Mr. A. R. Malhotra with Mr. N. A. Kazi, for the Respondent.
CORAM: AKIL KURESHI &
M.S.SANKLECHA, JJ.
DATE : 26th FEBRUARY, 2019.
P.C:-
This appeal is filed by the Assessee, to challenge the judgment of the Income Tax Appellate Tribunal (in short "the Tribunal"). Following question is raised for our consideration:-
" Whether in the facts and the circumstances of the case and in law, the Tribunal erred in holding that the Appellant was not entitled for deduction of the provision of the liability with respect to construction of municipal staff quarters/ road depot and compound wall [Rs.1,22,10,000/-] while computing income from the project under the Slum Rehabilitation Scheme?"
2 Brief facts are as under:-
Appellant-Assessee is a partnership firm. Assessee was awarded a contract for slum re-development project by Slum Rehabilitation Authority. Under such contract, assessee in addition to developing assigned plot, would also construct 1140.52 sq. mtr of built-up premises for municipal staff quarters and 54.99 sq.mtrs towards road depot. The S.R.JOSHI 1 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 21/03/2019 18:09:51 ::: itxa-1740-2016.odt assessee claimed an expenditure of Rs. 1.22 Crores (rounded of) towards this liability on mercantile system of accounting, contending that, the liability had crystallized and that, the cost estimation was accurate. The Assessing Officer, CIT(A) and the Tribunal concurrently held that the liability in question was contingent and that, therefore, could not be claimed by way of an expenditure in the return filed by the assessee for the Assessment Year 2010-11. Thereupon, the assessee has filed the present appeal.
3 Appearing for the Appellant, learned Counsel submitted that, the assessee was under a legal obligation to provide construction free of costs. The Revenue Authorities did not dispute this liability of the assessee. Assessee had on the basis of scientific estimation arrived at the cost of said construction at Rs.1.22 Crores which was also not disputed by the Revenue. The assessee had offered the entire receipt to tax in the present year on accrual basis, though, the entire sum was not received. In that view of the matter, the assessee's claim of expenditure was fully justified in facts and in law. The Revenue Authorities has committed serious error in rejecting such a claim. Counsel relied on certain decisions, reference to which would be given at a later stage.
4 We have also heard learned Counsel for the Department. Having heard the learned Counsel for the parties and having perused the documents on record, we notice that the Revenue Authorities and the Tribunal disallowed assessee's claim of expenditure on the ground that, liability in question had not crystallized since the same was contingent upon the Slum Rehabilitation Authority, handing over the vacant possession of a part of land where such construction would be carried out.
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The Tribunal, in particular, noted that, till date, such possession was not handed over to the assessee. Thus, the view of the Tribunal was that, the liability was a contingent one, depending upon assessee being put in vacant possession of land where construction would be carried out. We do not find that, the Tribunal has committed any error. It is undoubtedly true that, in case of an assessee following mercantile system of accounting, any liability which even though may not have been discharged during the financial year relating to Assessment Year in question, would yet be an allowable expenditure as long as same is crystallized and the expenditure allowable to such liability can be estimated on the basis of some scientific estimation. However, it is well settled that, a liability which is contingent and which has not crystallized, would not be allowed as an expenditure. It is in this context, the Tribunal found that the assessee's liability to carry out construction, free of cost had not yet crystallized since it was contingent upon the authorities being able to give vacant possession of the portion of the plot on which, such construction would be carried out. The record suggests that such portion was occupied by the slum dwellers who were resisting their eviction. Whatever be the reason, the Slum Rehabilitation Authority was unable to put assessee of vacant possession in said area for years together.
5 We now refer to the decisions cited by the Counsel for the Appellant. In case of Calcutta Co. Ltd., v/s. CIT reported in 37 ITR 1, the facts were that the assessee was a land developer. He was providing infrastructure and basic facilities in the land which in the developed form be sold to interested parties. Portion of the work would continue and be completed even after the allotments were made and part payment received. The assessee offered the entire receipts to tax and also claimed S.R.JOSHI 3 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 21/03/2019 18:09:51 ::: itxa-1740-2016.odt expenditure which may not have yet incurred in the current year. It was under this back-ground, reversing the judgment of the High Court, the Supreme Court held that, the expenditure on the basis of accrual was allowable.
6 In case of Bharat Earth Movers v/s. CIT reported in 245 ITR 428, the issue was of estimation of liability which had already crystallized. It was in this back-ground observed that business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. This judgment would have no applicability for two reasons
- firstly Revenue does not dispute the quantification of the liability and secondly and more importantly, the question in case before us is one of crystallization of liability and not the estimation of the possible cost of discharging such liability.
7 For similar reasons, the decision of the Supreme Court in case of Rotork Controls India P. Ltd . v/s. CIT reported in 314 ITR 62 would not apply. It was a case in which, the assessee at the time of sale of goods had undertaken to provide free warranty for a specific period and claimed the expenditure on estimation basis. The Supreme Court accepted such estimation on basis of accuracy and allowed the claim. In the result, no question of law arises.
8 Appeal dismissed.
(M.S.SANKLECHA,J.) (AKIL KURESHI,J.)
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