TMI Blog2017 (9) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... whom. The liability would crystallize only when the Collector Mumbai Suburban District considers the matter and determines the amount to be paid by the assessee as Government‟s share of unearned income. This is supported by the fact that the assessee itself has not made any provision in its accounts for the liability. The Auditor has stated that the assessee has not made the provision in the absence of a specific demand from the Collector. It is clear from the above that the liability neither accrued nor crystallised nor paid nor accounted by the assessee during the year under consideration. The Bench specifically asked the assessee to furnish any documentary evidence indicating the actual accrual and/or payment of liability till today, however, the assessee was unable to produce any evidence to this fact. Thus the deduction of expenditure cannot be allowed. In the interest of justice, we restore this matter back to the file of the A.O. with a direction to communicate directly to the Collector of Mumbai so as to find out if any liability is payable by the assessee towards this project and to decide the same afresh as per law. Disallowance made u/s. 14A as per Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty and not a statutory liability. 3. Re: Disallowance u/s 14A of the LT. Act, 1961 amounting to ₹ 5,39,175/- 3.1. The learned CIT (Appeals) has erred in directing the assessing officer to adopt the disallowance u/s 14A at ₹ 5,39,175 when the appellant has incurred direct expenses in form of PMS charges of ₹ 3,77,605 only. 3.2. Without prejudice to the contention that disallowance u/s 14A should be only ₹ 3,77,605, the learned CIT(A) has erred in directing the assessing officer to adopt the disallowance u/s 14A at ₹ 5,39,175 instead of ₹ 5,17,543 as under: Sr.No. Particular Amount (Rs.) Remarks 1 Direct Expenditure PMS Charges Paid to Enam Securities Pvt. Ltd., 3,77,605 2 Interest Expenses Nil CIT(A) has opined at para 5.3 of her order that no disallowance was called for out of interest claimed. Despite this, it appears erroneously interest of ₹ 21,093 has been still considered while directing disallowance at ₹ 5,39,175/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to Mema. The said land was allotted to Mema by the Addl. Collector of Bombay, Bombay Suburban District on the terms and condition stated in Form HH-1 dated 3rd July, 1964 in pursuance to order dated 31st December 1959 of the Addl. Commissioner of Bombay and as modified by the letter dated 28th May 1964 from the under secretary to the Government of Maharashtra, Revenue and Forest Department. The said reversion was made effective by the District Collector Bombay, Bombay Suburban District; vide his order dated 30th August, 2003 with an obligation to make payment of the 50% of unearned income based on market value from future transfer after development of the property, at respective time. The Government of Maharashtra, Revenue and Forest department has issued a notification dated 21.05.2006 to enforce use of Ready Recknor value for land valuation for use of Government Land on lease or rent, and to include the improved methods of valuation of Govt. land in respective cases. Since company has developed the property as commercial complex and have transferred substantial portion of the property during the year the company is liable to pay 50% of increment in the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 21, 2006 stated to enforce use of Ready Recknor value for land valuation for use of Government Land on lease or rent and to include the improved methods of valuation of Government Land in respective cases. During the relevant Previous Year, the assessee had completed the development of the commercial building and has offered the profits on sale of commercial units at Shah Industrial Estate. Further, the assessee had claimed deduction of liability to Collector towards 50% of the unearned increase amounting to ₹ 2,41,15,599/-. This liability was computed based on Ready Recknor as per the above referred notification. The assessee did not account this liability in the books of account for the year ended March 31, 2007. A disclosure is made as notes to accounts, inter alia, that in the absence of any specific demand letter from the Collector, the assessee had not provided such liability in their books of accounts. Indeed, the Auditors have qualified the Audit report to state that the assessee has understated the income the extent of ₹ 2,41,15,559/- as the amount payable to the Collector has not been debited in the books of accounts. 10. As per ld. AR Collector's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to follow the policy of Prudence . A copy of the said notification was handed over at the time of hearing. On the other hand, the ld. DR relied on the evidence recorded by the lower authorities to the fact that it was the contingent liability which did not accrue nor paid by the assessee either during the year under consideration or even in the subsequent year. Accordingly, the A.O. was justified in adding the provision made by the assessee while computing its taxable income with respect to the account which did not accrue nor paid by the assessee. With regard to Rule 14A disallowance, the contention of the ld. DR was that the A.O. had computed disallowance as per Rule 8D, according to which even in the years falling to A.Y. 2008-09 reasonable disallowance is required to be made in respect of expenditure incurred for earning exempt income. 14. We have considered rival contentions and carefully gone through the orders of the authorities below and deliberated the jurisdictional pronouncement cited by the ld. AR and DR before us. From the record, we found that the assessee had obtained the right of reversion for land at 15, Shah Industrial Estate by purchase from M/s. Mema Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of a specific demand from the Collector. 16. It is clear from the above that the liability neither accrued nor crystallised nor paid nor accounted by the assessee during the year under consideration. The Bench specifically asked the assessee to furnish any documentary evidence indicating the actual accrual and/or payment of liability till today, however, the assessee was unable to produce any evidence to this fact. Under these facts and circumstances, the deduction of expenditure cannot be allowed. In the interest of justice, we restore this matter back to the file of the A.O. with a direction to communicate directly to the Collector of Mumbai so as to find out if any liability is payable by the assessee towards this project and to decide the same afresh as per law. 17. With regard to the disallowance made u/s. 14A as per Rule 8D, we observe that in view of the decision of Hon‟ble Bombay High Court in case of Godrej and Boyce, Rule 8D is applicable w.e.f. A.Y. 2008-09. However, the assessment year under consideration is A.Y. 2007-08 wherein Rule 8D is not applicable. As per the facts and figures placed on record we direct the A.O. to restrict the disallowance u/s. ..... 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