itxa 1740 2016.odt IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1740 OF 2016 Grace Shelter .. Appellant. v/s. Assistant Commissioner of Income Tax Range 21(2) .. Respondent. Mr. Vipul Joshi with Ms. Narmrata Kasale, for Appellant. Mr. A. R. Malhotra with Mr. N. A. Kazi, for Respondent. CORAM: AKIL KURESHI & M.S.SANKLECHA, JJ. DATE : 26th FEBRUARY, 2019. P.C: This appeal is filed by Assessee, to challenge judgment of Income Tax Appellate Tribunal (in short Tribunal ). Following question is raised for our consideration: Whether in facts and circumstances of case and in law, Tribunal erred in holding that Appellant was not entitled for deduction of provision of liability with respect to construction of municipal staff quarters/ road depot and compound wall [Rs.1,22,10,000/ ] while computing income from project under Slum Rehabilitation Scheme? 2 Brief facts are as under: Appellant Assessee is partnership firm. Assessee was awarded 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. S.R.JOSHI 1 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 01/03/2019 13:42:54 ::: itxa 1740 2016.odt assessee claimed expenditure of Rs. 1.22 Crores (rounded of) towards this liability on mercantile system of accounting, contending that, liability had crystallized and that, cost estimation was accurate. Assessing Officer, CIT(A) and Tribunal concurrently held that liability in question was contingent and that, therefore, could not be claimed by way of expenditure in return filed by assessee for Assessment Year 2010 11. Thereupon, assessee has filed present appeal. 3 Appearing for Appellant, learned Counsel submitted that, assessee was under legal obligation to provide construction free of costs. Revenue Authorities did not dispute this liability of assessee. Assessee had on basis of scientific estimation arrived at cost of said construction at Rs.1.22 Crores which was also not disputed by Revenue. assessee had offered entire receipt to tax in present year on accrual basis, though, entire sum was not received. In that view of matter, assessee's claim of expenditure was fully justified in facts and in law. Revenue Authorities has committed serious error in rejecting such claim. Counsel relied on certain decisions, reference to which would be given at later stage. 4 We have also heard learned Counsel for Department. Having heard learned Counsel for parties and having perused documents on record, we notice that Revenue Authorities and Tribunal disallowed assessee's claim of expenditure on ground that, liability in question had not crystallized since same was contingent upon Slum Rehabilitation Authority, handing over vacant possession of part of land where such construction would be carried out. S.R.JOSHI 2 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 01/03/2019 13:42:54 ::: itxa 1740 2016.odt Tribunal, in particular, noted that, till date, such possession was not handed over to assessee. Thus, view of Tribunal was that, liability was contingent one, depending upon assessee being put in vacant possession of land where construction would be carried out. We do not find that, Tribunal has committed any error. It is undoubtedly true that, in case of assessee following mercantile system of accounting, any liability which even though may not have been discharged during financial year relating to Assessment Year in question, would yet be allowable expenditure as long as same is crystallized and expenditure allowable to such liability can be estimated on basis of some scientific estimation. However, it is well settled that, liability which is contingent and which has not crystallized, would not be allowed as expenditure. It is in this context, Tribunal found that assessee's liability to carry out construction, free of cost had not yet crystallized since it was contingent upon authorities being able to give vacant possession of portion of plot on which, such construction would be carried out. record suggests that such portion was occupied by slum dwellers who were resisting their eviction. Whatever be reason, Slum Rehabilitation Authority was unable to put assessee of vacant possession in said area for years together. 5 We now refer to decisions cited by Counsel for Appellant. In case of Calcutta Co. Ltd., v/s. CIT reported in 37 ITR 1, facts were that assessee was land developer. He was providing infrastructure and basic facilities in land which in developed form be sold to interested parties. Portion of work would continue and be completed even after allotments were made and part payment received. assessee offered entire receipts to tax and also claimed S.R.JOSHI 3 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 01/03/2019 13:42:54 ::: itxa 1740 2016.odt expenditure which may not have yet incurred in current year. It was under this back ground, reversing judgment of High Court, Supreme Court held that, expenditure on basis of accrual was allowable. 6 In case of Bharat Earth Movers v/s. CIT reported in 245 ITR 428, issue was of estimation of liability which had already crystallized. It was in this back ground observed that business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at future date. This judgment would have no applicability for two reasons firstly Revenue does not dispute quantification of liability and secondly and more importantly, question in case before us is one of crystallization of liability and not estimation of possible cost of discharging such liability. 7 For similar reasons, decision of Supreme Court in case of Rotork Controls India P. Ltd . v/s. CIT reported in 314 ITR 62 would not apply. It was case in which, assessee at time of sale of goods had undertaken to provide free warranty for specific period and claimed expenditure on estimation basis. Supreme Court accepted such estimation on basis of accuracy and allowed claim. In result, no question of law arises. 8 Appeal dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.) S.R.JOSHI 4 of 4 ::: Uploaded on - 28/02/2019 ::: Downloaded on - 01/03/2019 13:42:54 ::: Grace Shelter v. Assistant Commissioner of Income-tax, Range-21(2)