By TIOL News Service

CHENNAI, JULY 02, 2018: THE ISSUE BEFORE THE BENCH IS - Whether the HC can entertain an issue by exercising its power u/s 260A(6) when such issue was neither raised before the ITAT nor determined by the ITAT. AND THE ANSWER IS NO.

Facts of the case:

The assessee company, had returned income for the relevant AY. During the assessment proceeding, the AO noted that the assessee had entered into a MoU with one M/s Prime Developers for developing the property at Chennai. The MoU provided that the assessee would sell a minimum of 33,571 sq.ft., out of the total extent of the land and the developer would construct in the portion retained by the assessee. Further, in addition to the said construction, the assessee insisted upon a payment of Rs.3.50 crores since, in the said property, there was a factory run by the assessee which it had to shift to a new location. However, the vacant possession was not handed over to the developer within the cut-off date and thus, the assessee had to pay liquidated damages as mentioned in the MoU. The assessee had claimed the said liquidated damages as revenue expenditure. However, the AO disallowed the assessee's claim. Again, the AO found that the assessee had paid certain amount towards Provident Fund and Employees State Insurance and claimed the same. But, while completing the assessment, the AO disallowed the assessee's claim by stating that the relevant remittances were paid after the due date prescribed under the respective statutes i.e., the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 and the Employees State Insurance Act.

On assessee's appeal, the CIT(A) granted partial relief. On further appeal, the ITAT decided the issues in favour of the assessee.

High Court held that,

++ the delay was in respect of contributions to the ESI Corporation and that too there was a delay of five days, which was within the grace period provided under the statute. The Revenue, having not preferred any appeal as regards the findings of the CIT(A), allowing the deduction in respect of PF payments made, it cannot agitate on the said issue in this appeal. Secondly, the question was decided in favour of the assessee by the Tribunal, taking note of two factors viz., (a) the payment was made within the grace period and (b) the payment being made during the FY. Thus, the question of law as framed does not arise for consideration. Apart from that, even if the Court takes into consideration that the question of law has to be allowed as it is belated payment to ESI Corporation, then also we find that there is no error committed by the Tribunal in taking the decision and allowing the deduction on the ground that it was made within the grace period provided under the statute and before filing the returns under the I-T Act;

++ the necessity to frame a substantial question of law does not arise as we are convinced that the entire issue is only factual. As regards PF contribution is concerned, the deduction was permitted by CIT(A), which was not challenged by the Revenue before the Tribunal. In such circumstances, if we read Sec. 260A(2), the Revenue cannot be stated to be aggrieved over the order passed by ITAT on the said aspect, as it was not aggrieved by the of order of CIT(A), which allowed the deduction. Furthermore, Sec. 260A(6) would have no application, as such, the question was never raised by the Revenue before ITAT, and for this Court to take up the issue for consideration. In other words, unless the question was raised before ITAT and was not determined by ITAT, then this Court exercising its power u/s 260A(6) would have power to deal with the substantial question of law. In the instant case, such issue was never raised by ITAT and therefore, the question of invoking proviso to sub-section 4, 5, and 6 of Sec. 260A does not arise;

++ after going through the relevant clauses of MoU and supplementary MoU, it is clear that the assessee and the developer agreed that the assessee will pay a sum of Rs.421.70 lakhs, made up of Rs.199 lakhs for the period ending 31.3.98 and the balance Rs.221.70 lakhs for the period ending with the date of delivery of vacant possession to the developer. It is not disputed by the Revenue that vacant possession of the property was handed over only in the year 2001. This fact has been noted by CIT(A) in its order. Thus, the stand taken by the Revenue that the liquidated damages is uncertain and not quantified and there is no adjudication, is factually incorrect, the liability stood determined as the assessee and the developer have entered into a supplementary MoU. Bearing this in mind namely the undisputed factual position, if the law as laid by the Supreme Court in the case of Bharat Earth Movers s applied, it has to be seen whether the liability has definitely arisen in the accounting year and what is required to be certain is incurring the liability and it should also be capable of remitting with reasonable certainity though the actual quantification may not be possible and if these requirements are satisfied, the liability is not a contingent;

++ in the assessee's case, the liability has been quantified and the same has been recorded in the supplementary MoU, as noted by the Tribunal. That apart, the fact that the possession of the land in question was not handed over in terms agreed to MoU is evident from the order passed by CIT(A), which has admitted that the possession of the property was handed over sometime in the year 2001. That apart, this fact has also been noted by the AO, while completing the assessment for the AY 2004-2005 vide order dated 28.12.2006. We agree with the view of the High Court of Delhi in the case of Kaushalya Devi V. CIT. We are required to accept the discretion exercised by the assessee, who has incurred the expenditure and if any inference is made by the Court without reference to the factual matrix or on subjective basis, it will lead to absurd results, which are not called for.

(See 2018-TIOL-1225-HC-MAD-IT)