2017 (3) TMI 1741 - AT - Income Tax

Unascertained liability towards the Provision made for development expenses - in the year under consideration for the first time ignoring the rule of consistency the department has made such an addition by way of disallowance - HELD THAT - Though prima facie the assessee appears to have an arguable case as canvassed before us. However arguments have to be supported on facts and this is an area which is required to be considered. Since the evidence and supporting facts have not been taken into consideration by the ld. CIT(A) we deem it appropriate to set aside the impugned order. We are of the view that since facts were brought to the notice of the CIT(A) it was incumbent upon him to first address the facts and then proceed to consider the law applicable thereon. It is seen that the decision making process of the CIT(A) is flawed and open to the challenge of being perverse as he has straightway proceeded to decide the issue on the basis of legal precedence without first caring to marshal the facts. Legal precedent is available both for and against a general proposition of law and it is only when the facts are first addressed and the material facts are culled out that the conclusion can be supported by legal precedent. Considering the fact that it is a recurring issue for the assessee and the tax authorities we deem it appropriate to set aside the impugned order and restore the issue back to the file of the ld. CIT(A) with a direction to pass a speaking order in accordance with law by first marshalling the facts of the instant case and thereafter consider the precedent available on those set of facts. - Appeal of the Revenue is allowed for statistical purposes

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition of ?62,67,610/- made by the A.O. by disallowing the unascertained liability towards the 'Provision made for development expenses.'

Detailed Analysis:

1. Facts of the Case:
The assessee, a private limited company engaged in real estate, debited ?62,67,210/- to its Profit & Loss account under "development expenses." The Assessing Officer (A.O.) required the assessee to justify this provision. The assessee explained that the provision was for development expenses on plots sold during the year, as per norms of the Jaipur Development Authority (JDA). The A.O. rejected the explanation, stating no actual expenditure was incurred, and added the amount to the assessee's income.

2. Appeal Before CIT(A):
The assessee appealed to the CIT(A), citing various judicial precedents, including:
- Rotork Controls India (P) Ltd. Vs CIT (2009) 314 ITR 62 (SC): Provision for future expenses against current year’s sale is allowable.
- Bharat Earth Movers Vs. CIT (2009) 245 ITR 428 (SC): Business liability arising in the accounting year should be allowed even if quantified and discharged later.

3. CIT(A)'s Decision:
The CIT(A) granted relief, noting:
- The provision was made as per JDA norms and was part of the sale price.
- The provision was reasonable, honest, and fairly estimated.
- The A.O. did not show the provision was excessive or reject the books of account.
- Similar provisions were allowed in previous years.

4. Revenue's Appeal to ITAT:
The Revenue contended that no actual expenses were incurred and the CIT(A) granted relief without proper reasoning. The ITAT noted that the CIT(A) failed to consider the facts and evidence before applying legal precedents.

5. ITAT's Decision:
The ITAT set aside the CIT(A)’s order, directing the CIT(A) to:
- First marshal the facts of the case.
- Then apply the legal precedents.
- Provide a reasonable opportunity of being heard to the assessee.

Conclusion:
The appeal by the Revenue was allowed for statistical purposes, with directions to the CIT(A) to pass a detailed speaking order after considering the facts and applicable law. The ITAT emphasized the importance of addressing facts before applying legal precedents to ensure a fair and reasoned decision.