2011 (12) TMI 346 - AT - Income Tax

Taxability of project - relevant assessment year - held that - Once the income from the project is taxed the Assessee will have no occasion to claim expenses relating to that project in a later assessment year. In this regard we also find that the CIT(A) has accepted that fact that the Assessee has got his share of flats in Building No.1 and one flat in Building No.2 also and both have been sold and the sale proceeds shown in the profit and Loss account. As far as Building No.2 is concerned the Assessee no longer has any interest in the same. It is for M/S.Audumber Construction Co. to complete Building No.2 and deal with it. The Assessee has nothing to do with that building. In that view of the matter we hold that income from the project as far as the Assessee is concerned has to be assessed in this assessment year viz. AY 05-06 on a substantive basis by treating the project as far as the Assessee is concerned as complete. Expenditure on account of providing alternate accommodation to tenants of the old building - outstanding liability - The AO was of the view that what the assessee is doing not the estimation of profit but the estimation of expenses. The liability was not even an ascertained liability but only estimation. - AO rejected the books of accounts - held that - in respect of providing alternate accommodation it is for the Assessee to choose the manner in which it gives the old occupants of the land alternate accommodation. The AO cannot sit in judgment over the business decision of the Assessee and say that the Assessee should have given alternate accommodation to the old occupants of the land only from his share of built up area received from the subdeveloper. - The AO will examine the expenses and on the Assessee showing correlation of the actual expenses with the expenses actually claimed by way of provision during the previous year the AO will allowe them as deduction. - Matter remanded back to AO.

Summary

Issues Involved:
1. Disallowance of expenses amounting to Rs.3,00,07,557 by the Assessing Officer (AO) as contingent liabilities.
2. Assessment of income on a protective basis by the CIT(A).
3. Disallowance of donation expenses amounting to Rs.1,09,100.
4. Disallowance under Section 40(a)(ia) of Rs.14,114.

Issue-Wise Detailed Analysis:

1. Disallowance of Expenses (Rs.3,00,07,557):
The Assessee claimed expenses for providing alternate accommodation to tenants, municipal taxes, fees, and other costs related to obtaining building plan approvals. The AO disallowed these expenses, considering them as contingent liabilities and not actual accrued liabilities. The AO argued that the expenses were based on estimates and not on actual incurrence or crystallization during the year.

The CIT(A) upheld the AO's decision, stating that only ascertained liabilities are deductible and not provisions or estimates. However, the CIT(A) directed the AO to assess the income on a protective basis for the year under consideration and substantively in AY 2009-10 when the project is expected to be completed.

The Tribunal found that the Assessee had offered income from the project in the current assessment year and that the project, as far as the Assessee is concerned, was complete. The Tribunal held that the expenses claimed by the Assessee represented liabilities that were certain to be incurred and were supported by various agreements and documents. The Tribunal directed the AO to examine the actual expenditure incurred by the Assessee in subsequent years and allow deductions up to the amount claimed as provision in the current year.

2. Assessment of Income on Protective Basis:
The CIT(A) directed the AO to assess the income on a protective basis for the current year and substantively in AY 2009-10. The Tribunal disagreed with this approach, stating that the Assessee had already offered the income from the project in the current year, and the project, as far as the Assessee is concerned, was complete. Therefore, the income should be assessed substantively in the current year.

3. Disallowance of Donation Expenses (Rs.1,09,100):
The AO disallowed the donation expenses, considering them not related to the business. The Assessee argued that the donations were made to cultivate a friendly atmosphere and social harmony with the residents and purchasers of the flats, thus incurred out of commercial expediency.

The Tribunal allowed the deduction of Rs.16,000 paid to Krishna Complex Utsav Mandal, considering it as incurred out of commercial expediency. However, the Tribunal upheld the disallowance of the remaining donation expenses.

4. Disallowance under Section 40(a)(ia) (Rs.14,114):
The AO disallowed Rs.14,114 under Section 40(a)(ia) for non-deduction of tax at source on payments made to consultants. The Assessee did not provide any evidence or reasons for non-deduction of tax.

The Tribunal upheld the disallowance, as no ground of appeal was raised before the CIT(A) and no evidence was provided before the Tribunal.

Conclusion:
The Tribunal allowed the Revenue's appeal and partly allowed the Assessee's appeal. The Tribunal directed the AO to assess the income substantively in the current year and to examine the actual expenditure incurred by the Assessee in subsequent years for allowing deductions. The Tribunal also allowed the deduction of Rs.16,000 paid to Krishna Complex Utsav Mandal but upheld the disallowance of the remaining donation expenses and the disallowance under Section 40(a)(ia).