TMI Blog2019 (10) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... e in over considered view entire liability is contingent in nature and its outcome depends upon the event in future. However, we further note that in the case of Navjivan Roller Flour Pulse Mills Ltd. Vs. DCIT [2009 (3) TMI 132 - GUJARAT HIGH COURT] has allowed deduction for such kind of liability. We hold that the assessee is entitled for the deduction of the liability raised by the MPT despite the fact that the same is pending in the court of law. Hence, the ground of appeal of the assessee is allowed. Additional royalty payment which was treated as prior period expenses - whether the assessee is eligible for deduction under section 37(1) of the Act for the liability pertaining to the year 2003-04 on account of the royalty but paid/ crystallized in the year under consideration to the Department of Geology and Mining? - HELD THAT:- Admittedly, the demand was raised by the Department of Geology and Mining of Gujarat upon the assessee vide letter dated 13-11-2006 which was pertaining to the earlier year 2003-04. Thus, it is inferred that the liability was crystallized in the year under consideration. As such, the liability for the royalty was provided by the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is entitled to claim the deduction of the impugned expenses Nature of expenses - expenditure incurred on exploratory/evaluation studies - revenue or capital expenditure - HELD THAT:- Study conducted on the existing business in the given facts and circumstances cannot be treated as capital expenditure. The auditor in his report has held that such expenditure is capital in nature. However, in this regard we note that the audit report cannot replace the provisions of law and the principles laid down by the Hon ble Court s. we hold that the assessee is entitled for the deduction of the expenses incurred on the study/feasibility report on the existing business being revenue in nature. Hence the ground of appeal of the assessee is allowed. - I.T.A. No.184/Rjt/2011 - - - Dated:- 22-10-2019 - Shri Rajpal Yadav, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Appellant : Shri Vimal Desai, A.R For the Respondent : Shri Jitender Kumar, CIT.D.R ORDER PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,282.24 1373.94 15-09-1973 to 14-09-2003 Up to 14-09-88 ₹ 4760.70 15-09-1988 to 14-9-2003 ₹ 5,951.45 3.1 However, the assessee claimed that it, vide letter dated 7th April, 1998 had handed over the possession of the plots of land to the MPT as the impugned plots were encroached by the slum dwellers in unauthorized manner. 3.2 The assessee also submitted that its financial position was not good and subsequently it was declared as the sick company by the BIFR vide order dated 6th September, 2000. In view of the above the assessee claimed that it has not provided the lease rental in its books of accounts from October 1998. 3.3 However, the Estate Office of MPT raised a demand towards the outstanding amounting to ₹ 2,02,45,000.00 along with the interest vide order dated 28th February, 2007. The assessee against such order of MPT carried the matter to the civil court but no success. Accordingly the assessee carried the matter before the Hon ble Bombay High Court which is pending therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the preceding paragraph and there is no dispute regarding the same. Therefore we are not inclined to repeat the same for the sake of brevity and convenience. 8.1 There is no dispute that there was a demand raised by the estate officer of the Mumbai port trust amounting to ₹ 2,02,45,000.00 vide order dated 28th February, 2007 for the rent not paid by the assessee for the period beginning from October, 1998 till the end of February, 2007. The details of the outstanding rent are placed on page-B of the paper book. 8.2 The assessee subsequently has challenged the order of the estate officer of the Mumbai port trust to the Civil Court in its petition which was dismissed. The assessee further carried the matter before the Hon ble Bombay High Court which is pending as on date. 8.3 However the assessee in pursuance to the order of the estate officer of the Mumbai port trust has provided/accounted its liability in its books of accounts and accordingly claimed the deduction against its profit on the ground that the liability has been crystallized in the year under consideration though the same ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 224 CTR 55 has allowed deduction for such kind of liability. The relevant extract of the judgment reads as under: Held that on 28-5-1987 when the Trade Association made an award for damages for breach of contract, the liability to pay such damages had already been incurred by the assessee. Merely because the award was challenged in appeal by the assessee, that could not be a ground for holding that the liability had not been incurred. The Tribunal was not justified in holding that the liability arose only on 22-3-1989, when the appellate forum confirmed the award. Thus, the liability to make payment arising under the arbitration award declared in the relevant accounting period for the assessment year 1988-89, had accrued in that year. In view of the above, we hold that the assessee is entitled for the deduction of the liability raised by the MPT despite the fact that the same is pending in the court of law. Hence, the ground of appeal of the assessee is allowed. 9. The 2nd issue raised by the assessee is that the Ld. CIT (A) erred in upholding the addition made by the AO for ₹ 31,29,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the earlier year 2003-04. Thus, it is inferred that the liability was crystallized in the year under consideration. As such, the liability for the royalty was provided by the assessee in the books of accounts in the previous year 2003-04 but some part of it crystallized in the year under consideration. Therefore we are of the view that, the assessee was not in a position to ascertain such liability in that relevant year. Accordingly, it was not possible for the assessee claimed the deduction of such liability in the year 2003-04. 15.1 Now the question arises whether the assessee can claim the deduction of such liability crystallized in the year under consideration. There is no ambiguity to the fact that it was not possible for the assessee to claim the deduction for the differential amount of the royalty paid/ crystallized in the year under consideration pertaining to the year 2003- 04. Thus, there was no fault of the assessee to claim the deduction and moreover it was not possible to do so. Therefore, we hold that the deduction pertaining to the earlier year but claimed in the year under consideration cannot be denied in the given facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced hereunder; A liability to an assessee may either be arising out of contractual obligation or it may arise under a statutory provision. Statutory liability is generally ascertainable and can be determined by applying the provisions of law and could be allowed as a deduction either in the year to which the transaction pertains has occurred, namely, taxable event has happened or it may be allowed in the year in which a demand was raised on the assessee by the statutory authority. It could also be claimed and allowed when it is finally settled by due process of law. The dispute raised by an assessee for its nonlevy cannot deter its allowability in any of the three situations. 15.3 We also note that the genuineness of the expenses and proximity of such expenses with the business of the assessee has not been doubted by the authorities below. Thus it can be inferred that the impugned expenses were incurred wholly and exclusively by the assessee for the purpose of its business. But the only drawback is that the same was not claimed in the year to which it pertains. However, we also note that there was no change in the rate of tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture nor any benefit of enduring nature out of such expenditure. 18. However the AO found that the auditor of the company in his audit report has clearly remarked in clause No. 17 that the impugned expenditures are in the nature of capital expenses. On question by the AO about the auditor remark for treating such expenditure as capital in nature, the assessee could not explain. Accordingly the AO disallowed the same by treating as capital expenditure after allowing the depreciation at the rate of 25% on such expenditure. Aggrieved assessee preferred an appeal to the Ld. CIT (A). 19. The assessee before the Ld. CIT (A) submitted that the impugned expenditure are not generating any enduring benefit and therefore the same needs to be treated as revenue expenses. 19.1 The assessee also claimed that the AO has not given the benefit of the depreciation on such expenditure though it was recorded in his assessment order. 19.2 However, the Ld. CIT (A) observed that the impugned expenditure was incurred on the preparation of techno economic feasibility report which will benefit to the assessee for a long tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en facts and circumstances cannot be treated as capital expenditure. 23. We are also conscious to the fact that the auditor in his report has held that such expenditure is capital in nature. However, in this regard we note that the audit report cannot replace the provisions of law and the principles laid down by the Hon ble Court s. In this regard we find support and guidance from the judgment of Hon ble Supreme Court in the case Sutlej Cotton Mills Ltd. Vs. CIT reported in 116 ITR 1 wherein it was held as under: It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. In view of the above, we hold that the assessee is entitled for the deduction of the expenses incurred on the study/feasibility report on the existing business being revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
