LEELA ESTATE DEVELOPERS, MUMBAI V. DCIT 25(2),

CO 110/MUM/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7520 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA S INGH, A.M. ITA NO.5252/MUM/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX -25(2) BLDG. NO.C-11, 1 ST FLOOR ROOM NO.108, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. M/S. LEELA CREATORS 13A, DATTANI TOWERS S.V. ROAD, BORIVALI (W) MUMBAI-400 092. PAN NO. AAAFV 0190 Q (APPELLANT) VS. (RESPONDENT) CROSS OBJECTION NO.109/M/2011 (ARISING OUT OF ITA NO.5252/M/2010) ASSESSMENT YEAR : 2007-08 M/S. LEELA CREATORS MUMBAI-400 092. ASSTT. COMMISSIONER OF INCOME TAX -25(2) MUMBAI-400 051. (CROSS OBJECTOR) VS. (APPELLANT IN APPEAL) ITA NO.5253/MUM/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX -25(2) BLDG. NO.C-11, 1 ST FLOOR ROOM NO.108, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. M/S. LEELA ESTATE DEVELOPERS 13A, DATTANI TOWERS S.V. ROAD, BORIVALI (W) MUMBAI-400 092. PAN NO. AAAFV 1396 G (APPELLANT) VS. (RESPONDENT) ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 2 CROSS OBJECTION NO.110/MUM/2011 ARISING OUT OF ITA NO.5263/MUM/2010 ASSESSMENT YEAR : 2007-08 M/S. LEELA ESTATE DEVELOPERS MUMBAI-400 092. ASSTT. COMMISSIONER OF INCOME TAX -25(2) MUMBAI-400 051. (CROSS OBJECTOR) VS. (APPELLANT IN APPEAL) DEPARTMENT BY : SHRI D.S. SUNDER SINGH ASSESSEE BY : SHRI VIJAY MEHTA DATE OF HEARING : 23.5.2012 DATE OF PRONOUNCEMENT : 01.6.2012 O R D E R PER RAJENDRA SINGH, AM: THESE APPEALS AND CROSS OBJECTIONS ARE DIRECTED AGAINST DI FFERENT ORDERS BOTH DATED 13.4.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007- 08 IN CASE OF THE TWO ASSESSEES UNDER REFERENCE. AS THE DISP UTES RAISED IN THE APPEALS AND CROSS OBJECTIONS ARE IDENTICAL, THESE ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. 2. WE FIRST TAKE UP THE APPEALS OF THE REVENUE IN ITA NO.5252/M/2010 AND ITA NO.5253/M.2010 FOR ASSESSMENT YEAR 2007-08 . ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 3 2.1 IN BOTH THE APPEALS, THE ONLY DISPUTE RAISED BY T HE REVENUE IS REGARDING DISALLOWANCE OF CLAIM OF DEDUCTION ON ACCOUNT O F PROVISION FOR TDR WHILE COMPUTING INCOME FROM THE PROJECTS. THE F ACTS IN BRIEF ARE THAT BOTH THE ASSESSEES WHO WERE ENGAGED IN BUSINESS AS BUILDER AND DEVELOPER, WERE EXECUTING BUILDING PROJECTS. THE B RIHANMUMBAI NAGARPALIKA IN BOTH THE CASES HAD ISSUED COMMENCEMENT CERTI FICATES AS PER WHICH THE ASSESSEE HAD GOT APPROVAL FOR A AND B WING WITH STILT AND 4 UPPER FLOORS. HOWEVER, THE ASSESSEE IN THE CASE OF M/S. LEELA CREATORS HAD COMPLETED CONSTRUCTION OF STILT PLUS 8 FLOORS WHEREAS LEELA ESTATE DEVELOPERS, HAD COMPLETED CONSTRUCTI ON OF LEELA STERLING A & B WING WITH STILT PLUS 7 UPPER FLOORS. TH E BUILDING HAD BEEN COMPLETED AS ON 31.3.2007 AND THE ASSESSEES HAD ALSO SO LD ALL THE FLATS DURING THE YEAR. THE ASSESSEES WERE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND WERE DECLARING PROFIT ON THE BA SIS OF PROJECT COMPLETION METHOD. SINCE DURING THE RELEVANT YEAR, AS SESSEES HAD OFFERED INCOME FROM THE ENTIRE PROJECT, WHILE COMPUTIN G INCOME, DEDUCTION HAD BEEN CLAIMED FOR A SUM OF RS.1,78,70,000/ - IN CASE OF LEELA CREATORS AND A SUM OF RS.2,47,60,000/- IN CASE OF LEELA ESTATE DEVELOPERS ON ACCOUNT OF PROVISION FOR COST OF TDR. THE ASSESSEE SUBMITTED THAT SINCE INCOME FROM ENTIRE PROJECT HAD BE EN DECLARED AND TDRS HAD BEEN USED IN THE CONSTRUCTION, THE PROVISION FO R TDR HAS TO BE ALLOWED AS PER MATCHING PRINCIPLE. THE AO HOWEVER, DID NOT ACCEPT ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 4 THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD CLAIMED EXPENSES BASED ON ESTIMATE AS PER ARCHITECTS CERTIFI CATE AND EXPENSES WERE NOT ASCERTAINED LIABILITIES AND WERE OF TH E NATURE OF CONTINGENT LIABILITY. THE AO FURTHER OBSERVED THAT T HE ASSESSEE HAD NOT EVEN OBTAINED THE APPROVAL FOR TDR FROM THE MUNICIPA L AUTHORITIES EVEN AFTER LAPSE OF TWO YEARS FROM THE SALE OF MOST OF THE FLATS. THEREFORE, LIABILITY ON ACCOUNT OF TDR WAS NOT CERTAIN AND THUS, HAD NOT ACCRUED DURING THE YEAR. THE AO ACCORDINGLY DISALLO WED CLAIMS ON DEDUCTION. 3. BOTH THE ASSESSEES DISPUTED THE DECISION OF AO AND SUBMI TTED BEFORE CIT(A) THAT LIABILITY ON ACCOUNT OF TDR WAS AN ASCERTAINED LIABILITY AS TDRS HAD BEEN USED IN CONSTRUCTION, THE INCO ME FROM WHICH HAD BEEN FULLY ACCOUNTED DURING THE YEAR. IT WAS ALSO SUBMITTED THAT MUNICIPAL AUTHORITIES HAD NOT GRANTED APPROVAL OF TD R ONLY BECAUSE OF THE FACT THAT TDR HAD NOT BEEN PROCURED AND SUBMITTED TO THEM. THOUGH TDR WAS BASED ON ESTIMATE OF THE ARCHITECT, THE L IABILITY HAD INCURRED AND HAD TO BE ALLOWED. IT WAS ALSO SUBMITTED T HAT IN CASE THE PROVISIONS WERE FOUND TO BE LESS, THE BALANCE AMOUNT COUL D BE ALLOWED IN SUBSEQUENT YEAR AND IN CASE PROVISION WAS MORE, THE EX CESS AMOUNT COULD BE OFFERED AS INCOME UNDER SECTION 41(1) OF THE INCOME TAX ACT . THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE HAD TO PROCURE TDR AND SU BMIT ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 5 THE SAME TO BMC TO OBTAIN APPROVAL. THUS THE ASSESSEES WE RE UNDER CONTRACTUAL OBLIGATION TO PURCHASE TDR WHICH WAS REQUIRE D TO BE FULFILLED IN THE NEAR FUTURE. LIABILITY ON ACCOUNT OF TDR WAS AN ASCERTAINED LIABILITY THOUGH QUANTIFICATION MAY HAVE T O BE DONE LATER. CIT(A) ACCORDINGLY ALLOWED THE CLAIMS OF THE ASSESSEES AGGRI EVED BY WHICH, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL IN BO TH THE APPEALS. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE SAME ISSUE HAD ARISEN IN CASE OF LEELA ESTATE (ITA NO.141/M/2010 DATE D 11.5.2011) AN ASSESSEE FROM THE SAME GROUP, IN WHICH CASE ALSO APPROVAL HAD BEEN GRANTED FOR CONSTRUCTION OF STILT LEVEL PLUS 1 ST FLOOR BUT THE ASSESSEE HAD MADE CONSTRUCTION UP TO 7 TH FLOOR AFTER USING TDRS WITHOUT GETTING APPROVAL FROM BMC. IN THAT CASE ALSO, ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND PROJECT COMP LETION METHOD. THE ASSESSEE LIKE IN THESE CASES HAD ALSO CLAIMED PRO VISION FOR TDR RS.3,44,59,100/- WHICH HAD BEEN DISALLOWED BY THE AO BUT IN APPEAL THE SAME HAD BEEN ALLOWED BY CIT(A) AGGRIEVED BY WHICH REVENUE WAS IN APPEAL BEFORE THE TRIBUNAL . THE TRIB UNAL AFTER DETAILED EXAMINATION OBSERVED THAT THE MATCHING CONCEPT HAD TO BE APPLIED AS PER WHICH IF THERE IS REVENUE, THE COST INCURRED FOR SUCH REVENUE IF NOT PAID DURING THE YEAR HAS TO BE ALLOWED. HOWEVER, THE TRIBUNAL ALSO OBSERVED THAT IT WAS REQUIRED TO BE EXAMINED WHETHER THERE WAS ANY ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 6 LIABILITY ON ACCOUNT OF TDR ATTACHED TO THE INCOME OFFE RED BY THE ASSESSEE BY WAY OF SALE OF FLATS. THE TRIBUNAL HELD THAT THE ISSUE HAD TO BE EXAMINED AFTER CAREFUL CONSIDERATION OF THE BMC RULES. IN CASE AS PER BMC RULES, PURCHASING OF TDRS WAS PERMISSIBLE POST CONSTRUCTION AND REQUISITE CONDITIONS AS LAID DOWN IN SUCH RULES WERE SATISFIED, THE DEDUCTION HAD TO BE ALLOWED FOR THE LI KELY AMOUNT THAT MAY BE REQUIRED FOR THE PURCHASE OF SUCH TDR. IN THAT CASE, QUANTUM OF PROVISION FOR TDR HAS TO BE ASCERTAINED PROPERLY ON THE BASIS OF SOME RELEVANT EVIDENCE AND CERTIFICATE OF ARCHITECT COUL D NOT BE CONSIDERED AS SOLE BASIS OF QUANTIFICATION OF TDR. THE TRI BUNAL ALSO OBSERVED THAT IN CASE ON, EXAMINATION OF BMC RULES, TH E AO FOUND THAT THERE WAS NO PROVISION FOR PURCHASE OF TDRS POST CONSTRUCTI ON, IN THAT CASE, IT WOULD MEAN THAT THE ASSESSEE WAS NOT ENTITLED TO SUCH TDR AS PER LAW AND HENCE DEDUCTION CAN NOT BE GRANTED. THE TR IBUNAL, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE MATTER TO THE FILE OF AO FOR TAKING FRESH DECISION AFTER NECESSARY EXA MINATION. THE FACTS IN CASE OF PRESENT ASSESSEES ARE IDENTICAL AND THEREFOR E, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL (S UPRA) WE SET ASIDE THE ORDERS OF CIT(A) AND RESTORE THE MATTER TO THE FI LE OF AO FOR PASSING FRESH ORDERS AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. CROSS OBJECTION NO.109/M/2011 AND 110/M/2011 ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 7 5.1 IN THE CROSS OBJECTIONS, THE ONLY EFFECTIVE GROUND RA ISED BY THE TWO ASSESSEES IS THAT INCOME ON ACCOUNT OF SALE OF FLATS TO THE EXTENT OF TDR ACQUIRED DID NOT ACCRUE TO THE ASSESSEE. THE LD. AR FOR THE ASSESSEE ARGUED THAT THE PROJECT COULD NOT BE SAID TO BE CO MPLETED UNTIL THE OBLIGATION OF LOADING OF TDRS AND REGULARI SATION DID NOT TAKE PLACE. IT WAS ALSO SUBMITTED THAT THE PROJECT SHOULD BE CONSIDERED AS INCOMPLETE UNTIL TDRS WERE ACTUALLY PURCHASED AND IN SUC H A SITUATION INCOME TO THAT EXTENT SHOULD NOT BE RECOGNIZED. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE ISSUE RAISED IN CROSS OBJECTIO NS IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN CASE OF LEELA ESTATE (SUPRA) IN WHICH THE TRIBUNAL DID NOT FIND ANY FORCE IN THE CONTENTIONS RAISED BY THE ASSESSEE. THE TRIBUNAL OBSERVED THAT THE ASSESSEE WA S FOLLOWING PROJECT COMPLETION METHOD AND PROJECT HAD BE EN COMPLETED AND THE ENTIRE SALES HAD TAKEN PLACE DURING THE YEAR. THEREFORE, ONCE ALL FLATS WERE SOLD AND POSSESSION OF FLATS GIVEN TO BUYE RS AND SALE CONSIDERATION RECEIVED, THERE WAS NO QUESTION OF TREATIN G THE PROJECT AS INCOMPLETE TO THE EXTENT OF PROVISION FOR TDR. THE TRIBUNAL FURTHER OBSERVED THAT THERE WAS NO MATERIAL TO SHOW THAT THERE WAS ANY LIABILITY ON PART OF THE ASSESSEE TO REFUND ANY PART OF SALE CONSIDERATION IN THE EVENT OF NON-PURCHASE OF TDRS. THE TRIBUNAL THE REFORE DID NOT ITA NO.5252 & 5253/M/10 & COS 109 & 110/M/11 A.Y.07-08 8 FIND ANY MERIT IN THE CROSS OBJECTIONS RAISED BY THE ASSE SSEE AND ACCORDINGLY SAME WERE DISMISSED. FACTS IN THESE CASES ARE IDENT ICAL. WE THEREFORE, DISMISS THE CROSS OBJECTIONS RAISED BY THE ASSE SSEE FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA). 7. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1.6.2012. SD/- SD/- (B.R. MITTAL ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 1.6.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.