Indian Kanoon - Search engine for Indian Law

3. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A) the assessee filed written submissions and the contents of which were extracted by the CIT(A) in his order are reproduced below:-

"a) As noted above in the statement of facts, the revised return was filed in accordance with the surrender of income estimated @8% of the gross turnover viz., the actual amount of sale consideration received during the financial year 2006-08 relevant for assessment year 2007-08. Since the original return of income was filed on 31/10/2007 as a valid return, the revised return filed on 10/03/2008 is also a M/s Goodwill Homes (P) Ltd.

Liability on accrual basis has to be recognized when the appellant is following the mercantile system of accounting, in accordance with Accounting Standard-1, which is recognized in section 145 of the Income-tax Act, 1961. In the absence of any defects found by the AO in the accounts of the appellant, rejection of only one item from the P&L a/c has no basis. Similarly, the AO could not ignore the revised return filed validly.

M/s Goodwill Homes (P) Ltd.

1,48,45,000/- made in the assessment order is liable to be deleted. He, However, held that the revised return filed on 10/03/2008 being valid, the income of the assessee for the AY 2007-08 is to be adopted at Rs. 51,69,667/- as per the revised return.

7. Aggrieved by the order of the CIT(A), the revenue is in appeal before us raising the following grounds of appeal:-

"1. The CIT(A) erred in facts and in law in ignoring the fact that the assessee had not produced any evidence to substantiate the provisional site development expenditure of Rs. 1,48,45,000/-.

the decision of Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd. (supra), on which reliance placed by the assessee, held that the provisional cost of site development debited to the P&L a/c is to be treated as an admissible expenditure as the cost of site development is held to be an ascertained liability. He, however, held that the revised return filed by the assessee being valid, the income of the assessee for the AY 2007-08 is to be adopted at Rs. 51,69,667/- as per the revised return. The Hon'ble Supreme Court in the case of Rotork Controls India(P) Ltd. (supra) held that "a provision is recognized when an enterprise has a present obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made for the amount of obligation". It was explained that whenever the amounts are actually spent, appropriate reversal entries are made for adjustment in the provision for site development account. The issue for consideration is whether this expenditure is a crystalised or a contingent liability. We are of the opinion that liability on accrual basis has to be recognized when the assessee is following the mercantile method of account in accordance with AS-I, which is recognized in section 145 of the IT Act. The expenditure committed to be incurred in terms of sale agreement besides the regulations prescribed by the local authorities are expenditures, which are partly actually incurred and partly to be incurred. It is not a mere provision but liability in praesenti.