TMI Blog2019 (11) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of provision of ₹5.75 crores claimed by the assessee as deduction and has raised queries and the assessee has duly replied and the AO has accepted the claim of the assessee. Since the provision the assessee claimed is an ascertained liability, there was no question that AO could have disallowed the same neither in the normal computation nor while computing book profit u/s 115JB of the Act. So the AO has discharged his duty as an investigator as well as an adjudicator and allowed the claim which is a plausible view, which cannot at any rate be called as an unsustainable view. So the Ld. Pr. CIT failed to make out a case that the order of AO is erroneous as well as prejudicial to the interest of the revenue, which was a condition precedent for invoking jurisdiction u/s 263 of the Act. Therefore the impugned order of Ld. Pr. CIT is without jurisdiction and null in eyes of law. - Decided in favour of assessee. - I.T.A. No. 578/Kol/2019 - - - Dated:- 22-11-2019 - Shri A. T. Varkey, JM And Dr. A.L. Saini, AM For the Appellant : Shri Manish Tiwari, AR For the Respondent : Dr. P.K. Srihari, CIT(DR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Hence the aforesaid liability was to be disallowed. 3. Pursuant to the aforesaid SCN, the assessee submitted its reply and thereafter the Ld. Pr. CIT after considering the submissions of the assessee held as under: I have carefully considered the material available on record and found that the issues pointed out in the show cause needs verification as merely accepting submission during the course of assessment proceedings the A.O. failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c) below section 263(1) of the Act. Accordingly, the issue is set aside to the table of AO on specific point mentioned in para 2 above. The A.O. is directed to provide reasonable opportunity to the assessee company to produce documents evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Pursuant to the aforesaid query of the AO during assessment proceedings, the assessee had given detailed reply to the AO vide reply letter dated 21.12.2016 which is seen placed from page 79 to 88 of the Paper Book. Thus, according to the Ld. AR the AO had raised the query on this issue and after going through the detailed reply of the assessee, the AO has accepted the contention of the assessee that the amount of ₹5.75 crores is an ascertained liability and therefore, he was pleased to allow the same and therefore, while calculating the book profit u/s 115JB of the Act did not prefer to add the same which view is a plausible view taken by the AO. Further, the Ld. AR also pointed out that it was explained before the AO vide this reply that the assessee had filed along with reply also brought to the notice that the assessee had filed a copy of the certificate issued by the architect supervising the Elgin Road Project by M/s. Saha Associates that since the construction of the building was substantially completed, the company could legally handover the possession of the units to the flat purchasers. Taking note of the same, and that since the assessee was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards fulfilling its contractual obligation was higher than the provision created on conservative basis this year and therefore taking note of all these facts and since the assessee in this assessment year has booked its revenue following the principles of matching concepts that the expenditure need to be allowed as deduction which claim was accepted by the AO after going through the architect s report as well as the site engineer s report (as well as the expenses on this issue which had taken place in subsequent years). Therefore according to the Ld. AR that the view taken by the AO was a plausible view and he cited the order of the coordinate Bench of this Tribunal in ITA No. 714/Kol/2018 in the case of DCIT vs. M/s. Ashiana Housing Limited wherein the question was whether deduction can be given for provision in respect of ascertained liability wherein the Tribunal has held as under: 6. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case is carrying on the business of real estate development and revenue from the said business was being recognised by it by follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that the AO could not appreciate the claim of the assessee in the light of method of accounting followed by the assessee perspective and disallowed the claim of the assessee on the ground that the provision made by the assessee represented unascertained liability which was not allowable as deduction in the case of the assessee following mercantile system of accounting. He however ignored the fact that the provision was made by the assessee for the expenses in relation to the projects completed of which the revenue was recognised and since such expenses were duly identified by the assessee in respect of each and every projects and details of the same were also furnished before the AO, the provision made by the assessee represented ascertained liability. Moreover, the expenditure so provided was to be incurred in respect of the projects substantially completed, the entire revenue of which was duly recognised by the assessee in the year under consideration. The said expenditure thus was related to the revenue already recognised by the assessee in the year under consideration by following the project completion method and the same was allowable as deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order. Therefore, according to Ld. AR, the issue which has been already enquired/examined and looked into by the AO during assessment proceedings could not have been held to be erroneous and cited the judgment of the Hon ble Supreme Court in the case of M/s. The Malabar Industrial Co. Ltd. Vs. CIT and want us to quash the impugned order of Ld. Pr. CIT, since the condition precedent for invoking revisional jurisdiction is absent in the facts of the case. 8. Per contra, the Ld. CIT(DR) supporting the order of the Ld. Pr. CIT submitted that though the AO had asked the assessee about this issue, however has simply accepted the reply of the assessee without verifying whether the provision claimed by the assessee as deduction is ascertained liability or not, which makes the order erroneous and prejudicial to the revenue, so Ld. Pr. CIT rightly invoked the jurisdiction u/s 263 of the Act and relied on the judicial precedent cited by Pr. CIT as well as the reasons given by Ld. Pr. CIT. So he does not want us to interfere with the order of the Ld. Pr. CIT. 9. Having heard both the parties, and on a careful consideration of the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 10. We note that the sheet anchor on which the ld. CIT has found fault with the AO's order in the present case is the lack of enquiry/verification on the part of the AO to have simply accepted the version of assessee and allowed deduction of provision which is an un-ascertained liability, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the notice of AO the architects certificate, Site Engineer/architect s estimation, and that the actual expenditure was more than the amount shown as provision was taken note by the AO before allowing the Provision of ₹5.75 crores as deduction while computing total income under normal provision of the Act as well as did not to add the same while calculating book profit u/s 115JB of the Act. However, the ld Pr CIT after going through the aforesaid submission of assessee has finally concluded by stating that in his opinion the AO s order is erroneous as well as prejudicial to the interest of Revenue in accordance with the Explanation 2(c) below Section 263 of the Act. So we reproduce Explanation 2(c) below Section263 of the Act which reads as under: the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119 12. We note that in the impugned order, the Ld. CIT has fortified his usurpation of revisionary jurisdiction u/s 263 of the Act, by relying on the amendment to Section 263 whereby second Explanation to sub-section (1) of sec. 263 of the Act was inserted with effect from 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20; (b) record [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matterof any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this subsection shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily has to be a finding of fact in the following four events. Then legal consequence follows, if not it does not. So, the CIT has to make a finding of fact in the following: (a) the assessment order passed by the Assessing Officer is without inquiry or verification, (b) the Assessing Officer allowed a claim without enquiry, (c) the Assessing Officer passed the order not in accordance with any order, directions or instructions issue by the CBDT u/s 119 of the Act, (d) theAssessing Officer passed the order not in accordance to the decision of the Hon ble Jurisdictional High Court or the Hon ble Supreme Court, which is prejudicial to the assessee, which is rendered either in the assessee s case or any other person. 14. So, the amendment brought by the Finance Act, 2015, by way of insertion of Explanation-2, can come to the aid of the ld. Pr. CIT or ld. CIT only when any of the four conditions is satisfied and there is a clear finding of fact to that effect is recorded by the Ld. CIT, then only the legal consequence that AO s order is erroneous insofar as prejudicial to the revenue can be deemed or el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as held by the Hon ble Supreme Court in Bihta Cooperative Development Cane Marketing Union Ltd. Vs. Bank of Bihar, AIR 1967 SC 389 and M/s. Oblum Electrical Industries Pvt. Ltd., Hyderabad vs. Collector of Customs, Bombay - AIR 1997 SC 3467 at page 3471 and also see Justice G. P. Singh, Principal of Statutory Interpretation 234 Lexus 2016. It has to be kept in mind that while the Commissioner is exercising his revisional jurisdiction over the assessment order, he has to exercise his power in an objective manner and not arbitrarily or subjectively since he is discharging quasi-judicial powers vested in him while doing so. Thus according to us, Explanation (2) inserted by the Parliament u/s. 263 cannot override the main section i.e. sec. 263(1) of the Act. The Ld. PrCIT can exercise his revisional jurisdiction in the event the assessment order is erroneous as well as prejudicial to the interest of the Revenue as discussed above and not otherwise. 16. So when we look at Explanation-2, we note that deeming fiction of law that the order of the Assessing Officer is deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue only if in the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire saleable area in F.Y. 2013-14, in arriving at taxable income of the Company; it was also necessary to make appropriate provision for expenses which the Company had not incurred till 31.03.2014, but the Company had obligation to incur such expenses in discharging its contractual obligations under the Agreements executed with the flat purchasers. As submitted in the foregoing the construction of the building was substantially completed in F.Y.2013-14 when the building had reached a stage where the residential units were certified by the project architect to be in habitable condition though completion certificate was not obtained. In terms of the Agreement for Sale the Company had agreed to provide host of amenities, facilities to the residents of the building for their common use and enjoyment. Considerable part of the common area and common amenities in the building were not complete till 31.03.2014 even though civil construction within the individual apartments/units was complete. As per the Company s understanding with the flat purchasers, once the Company handed over possession of the individual flats/units to the purchasers it was the individual ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss revenue from sale of constructed spaces in its accounts for the year ended 31.03.2014. In the month of March 2014 the Company was granted a Certificate by M/s. M/s. Saha Associates represented by its proprietor Mr. Bichitresh Saha who were the present Architect supervising the Elgin Road Project. The Certificate was given after they carried out physical inspection of the project Site. In the said Certificate the Architect had declared that the construction of the building was substantially complete and the building was fit for human habitation. The Architect had also certified that since the construction of the building was substantially complete; the Company could legally handover possession of the units/flats to the flat purchasers. It was on the basis of this Certificate the Company had come to conclusion that the gross revenue of Elgin Road project was required to be recognized in the accounts for the year ended 31.03.2014 under the project completion method since the construction of the building was certified to be substantially complete. At the time of inspection of the project the said Architect also certified that although the building was in a sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for. We further submit that merely because the company did not actually defray the expenses of ₹ 5.75 crores in F.Y. 2013-14; such fact by itself cannot negate the fact that the liability for such expenditure was not incurred by the Company in connection with earning of the income which the Company derived from the Elgin Road Project. We submit that since the gross revenue from the said Elgin Road Project was credited to the Company s Profit 8s Loss A/c for the year ended 31.03.2014 in arriving at true and correct income in respect of such project it was necessary that the deduction was granted to all such expenses, outgoings costs for which the Company had incurred obligation under the Agreements with the flat purchasers. The Company s claim in this regard is supported by the judgment of the Supreme Court in the case of Calcutta Company Ltd Vs CIT (37 ITR 1). 18. We also note that the principle of law laid in respect of claim of provision as in the present case of assessee before us, has been laid by the Hon ble Supreme Court in Calcutta Company (supra) which was relied upon by the co-ordinate Bench of this Tribunal (Pune) in page 85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimation thereof did not convert the accrued liability into contingent one since it is always open to tax authority to arrive at a proper estimate having regard to all the circumstances of the case. Under the Mercantile System, it is an accepted commercial practice and trading principle that the estimated amount which would have been expended in arrying on business and incidental to its business, would be a allowable deduction in arriving at profit gain of the business. The liability in present though to be discharged in future is not a contingent one. If it is shown to be a business liability and if it arises in the accounting year, the liability is eligible for deduction. If the provision is made for meeting the liability incurred then it would be allowed as a deduction. Just as receipts thought not actually received but accrued due are brought in for income tax assessment, so also liabilities accrued due would be taken into account while working out the profit and gain. A mere possibility of reduction or even extinguishment of the liability would not have the effect of converting liability into a contingent one. In computing its taxable profits of a particular year the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in support. We, therefore, find no infirmity in the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue and upholding the same. We dismiss this appeal filed by the revenue. 20. Therefore, we note that the AO had taken note of the issue of provision of ₹5.75 crores claimed by the assessee as deduction and has raised queries and the assessee has duly replied (supra) and the AO has accepted the claim of the assessee. Since the provision the assessee claimed is an ascertained liability, there was no question that AO could have disallowed the same neither in the normal computation nor while computing book profit u/s 115JB of the Act. So the AO has discharged his duty as an investigator as well as an adjudicator and allowed the claim which is a plausible view, which cannot at any rate be called as an unsustainable view. So the Ld. Pr. CIT failed to make out a case that the order of AO is erroneous as well as prejudicial to the interest of the revenue, which was a condition precedent for invoking jurisdiction u/s 263 of the Act. Therefore the impugned order of Ld. Pr. CIT is without jurisdiction and null in eyes of l ..... 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