Vimal Gandhi, VP - (1.) THESE cross appeals one by the assessee and the other by the revenue for the assessment year 1989-90 are directed against the order of the Commissioner of Income-tax (Appeals). The revenue has raised the following grounds :- "1. On the facts and in the circumstances of the case, the learned CIT(A) XIV, Bombay has erred in allowing relief for the addition made for provision for cost of construction of building No. 9 at Kalpak Estate (Wadala) to the tune of Rs. 23,73,685.
(2.) On the facts and in the circumstances of the case, the learned CIT(A) XIV, Bombay has further erred in allowing relief for the addition made under section 69 of the Income-tax Act, 1961 for Rs. 2,00,000." 2. The assessee-firm is a builder. On 09-04-1986; it entered into an agreement with M/s. Kalpak Development Corporation to construct building and flats for them in Wings B-8, B-9, B-11 & B-12 and also a shopping centre. The assessee was to take and appropriate sale proceeds of 57 flats and balance flats in Wings B-9, B-11 and B-12 and the shopping centre was to belong to the other party (hereinafter referred to as "owners"). 2.1 It is an admitted position that agreement was given effect to and assessee made investment in the construction of flats in accounting years 1986-87 and 1987-88. Most of the flats were ready in the period relevant to assessment year 1989-90 and the assessee sold 57 flats for total sum of Rs. 77,18,400. The other party was handed over 15 flats and 24 shops after completion. The assessee was yet to carry out and construct 24 flats for the owners as per the agreement at the end of the accounting period relevant to the assessment year 1989-90. The assessee estimated cost of above 24 flats at Rs. 30,13,200 and claimed the same as a liability while computing profit on sale of 57 flats. The learned Assessing Officer after examining agreement dated 9-4-1986 between the parties was of the view that "the liability to construct its flat free of cost by the assessee for the owners accrued/arose on the day it entered into an agreement with M/s. Kalpak Development Corporation. In this case, the agreement was made on 9-4-1987". Therefore, according to the Assessing Officer, the liability had accrued in the assessment year 1987-88 when the assessee accepted terms to construct certain portion of building free of cost for the owners. The liability was clear and ascertainable and could have been claimed in the aforementioned assessment year. As the liability pertained to the assessment year 1987-88, it was not deductible in assessment year 1989-90. The Assessing Officer accordingly disallowed the claim of deduction of Rs. 30,13,200.
(3.) THE assessee challenged the disallowance of liability in appeal before the CIT(A) and reiterated its submissions. THE learned CIT(A) examined the agreement, the actual construction carried on by the assessee in different years, the number of flats and shops built as also the number of flats the assessee was entitled to sell. THE CIT(A) also took into account number of flats which the assessee was liable to hand over to the owners. He noted submissions of the assessee at pages 6, 7, 8 & 9. He has observed that method of accounting followed by the assessee is mixed. THE learned CIT(A) noted that there was no doubt about validity or genuineness of agreement dated 9-4-1986 and about the liability of the assessee to construct flat for the owners. In his view there was logic in assessee's claim. THE assessee's income was held to be saddled with the liability. THE gross profit rate disclosed by assessee after taking into account the disputed liability was also found to be reasonable. After considering the decisions referred to in para 4 of his order, the learned CIT(A) held that the liability was to be allowed to the assessee in the period ending 31-3-1989 as flats were sold in that year. As regards the question as to what amount should be allowed towards the liability, the learned CIT(A) found that the assessee had actually spent Rs. 23,73,685 in the construction of the building immediately after this year before the injunction of the Court was issued and further work was stopped, the above amount should be allowed as a liability. Accordingly, the learned CIT(A) allowed liability of Rs. 23,73,685 in place of Rs. 30,13,200 claimed by the assessee. THE revenue is aggrieved on account of liability allowed by the CIT(A) whereas the assessee is in appeal for getting the balance amount of liability claimed.;