Principal Commissioner Of Income Tax, Jaipur-2, Jaipur v. M/S. Spytech Buildcon, Vth Floor, A Class Of Pearl, K-48

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 72 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s. Spytech Buildcon, Vth Floor, A Class of Pearl, K-48-49, Income Tax Colony, Durgapura, Tonk Road, Jaipur PAN : ABEFS 2767 H ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 24/10/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the assessee. 2.This Court while admitting the appeal on 05.07.2017framed following substantial question of law:- “Whether on the facts and in the circumstancesof the case and in law in ITAT has erred indeleting the addition of Rs.5,11,50,000/- madeby the Assessing Officer by disallowing provisionof direct expenses despite of the facts that itwas not an ascertained liability and provisionwas made on estimation without any rationalbasis.” Counsel for appellant has taken us to the judgment of AO, wherein it has been observed as under:- “5. Details of estimated cost of work remainingto be executed for common facilities on terms ofabove agreement as on 31[st] March, 2010amounting to Rs.5,11,50,000/- have alreadybeen submitted. 7. In certain business there may exist in additionto the cost of raw materials liability the incurringof which is inevitable pre-condition to theearnings of profits. Such a liability which hasaccrued though not precisely quantified at thedate of sale will have to be deducted to arrive atthe true profits.” and contended that the CIT (A) while considering the matter hasobserved as under:- 4. 1.“2.4.3 It has been stated by theAssessing Officer, in para 10 of the order u/s143(3) that out of the provision ofRs.5,11,50,000/-, the assessing has incurredexpenditure of Rs. 3,40,14,675/- in A.Y. 2011-12and expenditure of Rs.49,08,406/- in A.Y. 2012-13. The appellant has stated that furtherexpenditure of Rs.35,85,674/- has been incurredin A.Y. 2013-14 and expenditure ofRs.43,34,444/- has been incurred in A.Y. 2014-15. Therefore, expenditure of Rs.4,68,43,199/-has been incurred till 31.03.2014 against theabove provision. This shows that the estimate ofprovision made is accurate to the extent ofRs.4,68,43,199/-. Hence, the provision made isexcessive to the extent of Rs.43,06,801/- whichhas not been spent even till 31.03.2014 i.e. fouryears from the end of the year in which theprovision was made. Therefore, provision to theextent of Rs.43,06,801/- is considered to beexcessive and is disallowed. The balanceaddition of Rs.4,68,43,199/- on account ofdisallowance of provision, is directed to bedeleted. This ground is partly allowed.” However, the Tribunal in para 24 and 25, reads as “24. Here, it is seen that in spite of the assesseefollowing the mercantile system of accounting,the ld. CIT(A) held the provision made by theassessee to be justified. The ld. CIT(A) has heldthat since till 31/3/2014, there was incurrence ofexpenditure to the tune of Rs. 4,68,43,199/-and that the sum of Rs. 43,06,801/- remainedunspent even four years from the end of theyear in which the provision was made. It was onthis basis, that the provision made was taken tobe excessive to the extent of Rs. 43,06,801/-.The question is as to whether this action of theld. CIT(A) is justified. However, the Tribunal in para 24 and 25, reads as “24. Here, it is seen that in spite of the assesseefollowing the mercantile system of accounting,the ld. CIT(A) held the provision made by theassessee to be justified. The ld. CIT(A) has heldthat since till 31/3/2014, there was incurrence ofexpenditure to the tune of Rs. 4,68,43,199/-and that the sum of Rs. 43,06,801/- remainedunspent even four years from the end of theyear in which the provision was made. It was onthis basis, that the provision made was taken tobe excessive to the extent of Rs. 43,06,801/-.The question is as to whether this action of theld. CIT(A) is justified. 25. It remains undisputed that the provision wasmade by the assessee for certain expectedexpenditure. As such, the provision was madedue to the arising of the possibility of theexpenditure in future This was what hadprompted the estimation. Now, if the provisiondoes not stand exhausted even four years fromthe end of the year in which it was made, thisdoes not mean that the provision to that extentwas ill conceived. The details of the expenditureintended were duly made available. That suchincurrence of expenditure did not come about,cannot put to naught the provision which wasmade bona fide. The legal position remains thatthe amount unutilized would be available forbeing offered to tax in the next assessment year.The basis of the provision made has not beenobserved by the ld. CIT(A) to be irrational. Inthis regard, the decision of the Hon'ble SupremeCourt in the case of 'Bharat Earth Movers Vs.CIT, (2000) 245 ITR 428 (SC), which wasfollowed by the Hon'ble Delhi High Court in thecase of 'Yum Restaurants (I)(P) Ltd.', (2015)371 ITR 139 (Del), under similar circumstances,is directly attracted.” 5. We have heard Mr. Prateek Kedawat appearing on behalf of Mr. Mathur and counsel for respondent Mr. SanjayJhanwar. 6. In our considered view, observations made by the Tribunal in para 24 and 25 and liability which collected was not itsincome which liability in future consideration. Therefore, in ourconsidered opinion, the AO has committed error and disallowedthe expenses and would not be future liability. 7.In that view of the matter, observations made by theTribunal is correct. The issue is answered in favour of assesseeagainst the department. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Chouhan/51