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

CO 166/MUM/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6000 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 30-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJIV AGARWAL
• Assessee Lawyers: V B MEHTA
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A,MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI V. DURGA RAO (JM ) I.T.A.NO.141/MUM/2010 (A.Y. 2006-07) ASST.COMMR. OF INCOME-TAX-25(2), C-11, 1 ST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA (E), MUMBAI-51. VS. LEELA ESTATE, 13/A, DATTANI TOWERS, S.V.RD., BORIVLI (W), MUMBAI-400 092. PAN: AAAFV0187H APPELLANT RESPONDENT C.O.NO.166/MUM/2010 (ARISING OUT OF ITA NO.141/MUM/2010) (A.Y. 2006-07) LEELA ESTATE, 13/A, DATTANI TOWERS, S.V.RD., BORIVLI (W), MUMBAI-400 092. PAN: AAAFV0187H VS. DY. COMMR. OF INCOME-TAX-25(2), C-11, 1 ST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA (E), MUMBAI-51. CROSS OBJECTOR RESPONDENT DEPARTMENT BY SHRI RAJIV AGARWAL. ASSESSEE BY SHRI V.B. MEHTA O R D E R PER R.S. SYAL, AM : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 30-10-2009 IN RELATION TO THE ASSTT. YEAR 2006-07. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS AS BUILDER & DEVELOPER. A SUM OF RS.3, 44,59,100 WAS DEBITED TO THE P & L A/C. UNDER THE HEAD PROVISION FOR COST OF TD R FOR VORA RESIDENCY-I AT RS.98,08,500/- AND VORA RESIDENCY-II AT RS.2,46,50, 600/- AGGREGATING TO RS.3.44 CRORES AND ODD. THE AO NOTED THAT BMC ISSUE D COMMENCEMENT ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 2 CERTIFICATE TO THE ASSESSEE ON 22-11-1994 GRANTING APPROVAL TO A BUILDING PROJECT FOR STILT SLAB IN VORA RESIDENCY-I. SUBSEQUENTLY, O N 2-9-1996, THE COMMENCEMENT CERTIFICATE WAS EXTENDED FOR FURTHER S TILT + 3 UPPER FLOORS. FOR VORA RESIDENCY-II, THE ASSESSEE GOT COMMENCEMENT CE RTIFICATE ON 13-9-1996 FOR STILT SLAB LEVEL + 1 ST FLOOR. THE ASSESSEE STARTED CONSTRUCTION FOR BOTH VORA RESIDENCY-I AND VORA RESIDENCY-II WHICH WAS COMPLET ED IN ASSTT. YEAR 2005-06. THE ASSESSEE CONSTRUCTED 7 FLOORS IN BOTH THE BUILD INGS WITHOUT GETTING PERMISSION FOR EXTENSION FROM BMC BEYOND WHAT WAS A PPROVED. AFTER COMPLETING CONSTRUCTION, IT SOLD ALL THE FLATS IN VORA RESIDEN CY-II AND SOME OF THE FLATS IN VORA RESIDENCY-I. THE REMAINING FLATS WERE INCLUDED IN THE CLOSING WORK IN PROGRESS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPLETED SALE OF ALL THESE FLATS IN BOTH THE BUILDINGS. ON BEING CALLED UPON TO EXPLAIN WHY DISALLOWANCE BE NOT MADE FOR A SUM OF RS.3.44 CRORE S TOWARDS PROVISION FOR COST OF TDR, THE ASSESSEE SUBMITTED THAT IT WAS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING AND THE INCOME WAS DECLARED BY FOLLOWING THE PROJECT COMPLETION METHOD. IT WAS STATED THAT THE ASSESSEE HAD ALREADY COMPLETED ITS PROJECTS WITHOUT REQUISITE PURCHASE OF TDR, WHICH WAS NECESS ARY FOR THE COMPLETION OF PROJECT, THUS MAKING CERTAIN PORTION OF IT AS ILLEG AL. THE ASSESSEE CLAIMED THAT AS THE INCOME WAS OFFERED ON PROJECT COMPLETION METHOD BASIS, IT WAS NECESSARY THAT A PROVISION BE MADE FOR TDR REQUIRED, THOUGH N OT PURCHASED. NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE AO OBSERVED TH AT PROVISION FOR TDR WAS MADE PRIMARILY ON ESTIMATE BASIS WHICH COULD NOT B E ALLOWED AS DEDUCTION. THE ARGUMENT OF THE ASSESSEE THAT IN MERCANTILE SYSTEM OF ACCOUNTING SUCH DEDUCTION WOULD BE ALLOWABLE, DID NOT FIND FAVOUR WITH THE AO AS, IN HIS OPINION, THE ASSESSEE NEITHER INCURRED ANY EXPENDITURE NOR OBTAI NED PERMISSION FROM BMC FOR SUCH COST OF TDR DURING THE RELEVANT PREVIOUS YEAR. IT WAS SEEN BY THE AO THAT ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 3 THE SALE OF THE ENTIRE PROJECT WAS COMPLETED IN 200 6 AND EVEN AFTER LAPSE OF 2 YEARS, BEING THE DATE OF FINALIZATION OF THE ASSESS MENT, THE ASSESSEE HAD NOT PURCHASED TDRS AND RESULTANTLY THE APPROVAL FROM BM C WAS WANTING TILL DATE. HE, THEREFORE, DISALLOWED THE AMOUNT. 3. WHEN THE MATTER CAME UP BEFORE THE LD. FIRST APP ELLATE AUTHORITY, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT A SUM OF R S.1.5 CRORE WAS ALREADY PAID AS DEPOSIT TO THE BUILDING SOCIETY FOR PROCUREMENT OF TDR, WHICH FACT WAS ALSO BROUGHT TO THE NOTICE OF THE AO AS WELL. IT WAS OPI NED BY THE LD. FIRST APPELLATE AUTHORITY THAT THE ASSESSEE WAS UNDER A CONTRACTUAL OBLIGATION TO PURCHASE THE TDR AND OBTAIN APPROVAL FROM BMC FOR THE PURPOSE OF REGULARIZING THE BUILDING. AS THE COST OF TDR DEBITED BY THE ASSESSEE IN ITS P & L A/C. BY WAY OF PROVISION WAS BASED ON THE CERTIFICATE GIVEN BY THE ARCHITECT , THE LD. CIT(A) HELD THAT IT WAS AN ASCERTAINED LIABILITY THOUGH THERE MAY BE SLIGHT VARIATION IN THE QUANTUM OF SUCH LIABILITY. HE, THEREFORE, ORDERED FOR THE DELE TION OF ADDITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE GOT PERMISSION FROM BMC IN RESPECT OF VORA RESIDENCY-I FOR GROUND FLOOR + 3 FLOORS AND IN RESP ECT OF VORA RESIDENCY-II FOR GROUND FLOOR +1 ST FLOOR. AS AGAINST THAT, 7 FLOORS WERE CONSTRUCTED IN EACH OF VORA RESIDENCY-I AND VORA-RESIDENCY-II, THE SALE IN RESP ECT OF WHICH WAS COMPLETED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION. AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD, T HE INCOME WAS REQUIRED TO BE RECOGNIZED AND OFFERED FOR TAXATION IN THE YEAR IN QUESTION ITSELF. THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF A LIABILITY OF RS.3 .44 CRORES IN ITS P & L A/C. TOWARDS TDRS REQUIRED TO BE PURCHASED. THERE IS NO DISPUTE ON THE FACT THAT IN ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 4 THE CASE OF MERCANTILE SYSTEM OF ACCOUNTING, MATCH ING CONCEPT HAS TO BE APPLIED UNDER WHICH THE COSTS AND REVENUES ARE TO BE BOOKED SIMULTANEOUSLY. IF THERE IS A REVENUE, THE COST INCURRED FOR EARNING SUCH REV ENUE, EVEN IF NOT PAID DURING THE YEAR, HAS TO BE ALLOWED AS DEDUCTION. WE ARE IN AGREEMENT WITH THE LD. A.R. TO THAT EXTENT. BUT, IT NEEDS TO BE EXAMINED AS TO WHETHER THERE WAS ANY LIABILITY OF RS.3.44 CRORES ATTACHED TO THE INCOME OFFERED BY THE ASSESSEE BY WAY OF SALE OF FLATS. ORDINARILY, TDRS ARE REQUIRED TO BE PURCH ASED BEFORE CONSTRUCTING BUILDING. AS IN THE INSTANT CASE, THE ASSESSEE HAD SANCTION FOR LESSER CONSTRUCTION, BUT , IN FACT, IT CONSTRUCTED GROUND FLOOR + 7 FLOO RS IN RESPECT OF EACH BUILDING, THEREBY EXCEEDING THE APPROVAL GRANTED BY BMC. IT WAS INCUMBENT UPON THE ASSESSEE TO PURCHASE TDRS AND SEEK APPROVAL FROM BM C BEFORE MAKING SUCH CONSTRUCTION TO THE EXTENT, IT WAS NOT APPROVED. I N SUCH A CASE, THE RULES OF BMC IN THIS REGARD ASSUME SIGNIFICANCE. IT IS REQUIRED TO BE SEEN AS TO WHETHER SUCH RULES PERMIT THE PURCHASE OF TDRS AFTER THE COMPLET ION OF PROJECT. IF, AT ALL, SUCH PURCHASE OF TDRS POST-CONSTRUCTION IS PERMITTED, WH ETHER THERE IS ANY TIME LIMIT WITHIN WHICH SUCH TDRS ARE REQUIRED TO BE PURCHASED . IT IS FURTHER REQUIRED TO BE ASCERTAINED THE CONSEQUENCES OF SUCH ILLEGAL CONST RUCTION AS PER BMC RULES. THERE IS NO REFERENCE TO SUCH BMC RULES EITHER IN T HE ASSESSMENT ORDER OR IN THE IMPUGNED ORDER. NONE OF THE PARTIES BEFORE US HAS P LACED ON RECORD THE RELEVANT PART OF SUCH BMC RULES THROWING LIGHT ON THE ABOVE REFERRED ASPECTS. IF THERE IS A PROVISION FOR PURCHASE OF TDRS, AS PER SUCH RULES, AFTER THE COMPLETION OF THE PROJECT ALSO, THEN, IN THAT CASE, THE ASSESSEE CAN LEGITIMATELY CLAIM APPROPRIATE AMOUNT OF DEDUCTION TOWARDS PROVISION FOR SUCH TDRS . AT THE SAME TIME, IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.3.44 CRORES BASED ON THE CERTIFICATE OF SOME ARCHITECT. IN OUR CONSIDERED OP INION, CERTIFICATE OF ARCHITECT MAY NOT, IN ITSELF, BE A RELIABLE SOURCE FOR ASCER TAINING THE ESTIMATED COST OF ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 5 PURCHASING TDRS. IF THE AO, AFTER CONSIDERING THE B MC RULES, FINDS THAT PURCHASING OF TDRS IS PERMISSIBLE POST-CONSTRUCTION AND THE REQUISITE CONDITIONS, AS LAID DOWN IN SUCH RULES, HAVE BEEN SATISFIED BY THE ASSESSEE, THEN, IN THAT CASE, DEDUCTION HAS TO BE ALLOWED FOR THE LIKELY AM OUNT THAT MAY BE REQUIRED FOR THE PURCHASE OF SUCH TDRS. IN THAT CASE, THE QUANTU M OF THE PROVISION FOR TDRS WOULD NEED TO BE ASCERTAINED PROPERLY ON THE BASIS OF SOME RELEVANT EVIDENCE. THE CERTIFICATE OF ARCHITECT, IN ITSELF, CANNOT BE CONSIDERED AS SOLE BASIS FOR QUANTIFICATION OF THE AMOUNT PAYABLE TOWARDS TDRS. IF, HOWEVER, ON EXAMINATION OF THE BMC RULES, THE AO FINDS THAT THERE IS NO PR OVISION FOR OBTAINING APPROVAL FROM BMC FOR PURCHASE OF ANY TDRS POST-CONSTRUCTION , IN THAT CASE, IT WOULD MEAN THAT THE ASSESSEE IS NOT ENTITLED TO PURCHASE SUCH TDRS AS PER LAW AND HENCE DEDUCTION CANNOT BE GRANTED. WE, THEREFORE, S ET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO FOR TAKING APPROPRIATE DECISION IN THE LIGHT OF ABOVE DISCUSSION. 5. THE ASSESSEES CROSS OBJECTION HAS ONLY ONE EFF ECTIVE GROUND, AS PER WHICH THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT INCOM E IN RELATION TO SALE OF FLATS TO THE EXTENT OF TDRS TO BE ACQUIRED, DID NOT ACCRUE T O THE ASSESSEE AND HENCE COULD NOT HAVE BEEN BROUGHT TO TAX. THE LD. A.R. CO NTENDED THAT THE PROJECT COULD NOT BE SAID TO HAVE BEEN COMPLETED UNTIL THE OBLIGA TION OF LOADING OF TDRS AND REGULARIZATION DID NOT TAKE PLACE. HE SUBMITTED THA T THE PROJECT SHOULD BE CONSIDERED AS INCOMPLETE UNTIL THE TDRS ARE ACTUALL Y PURCHASED AND IN SUCH A SITUATION THE INCOME TO THAT EXTENT BE NOT RECOGNIZ ED. IT WAS ARGUED THAT THIS GROUND WOULD SURVIVE IF GROUND NO.1 OF THE REVENUE S APPEAL IS ACCEPTED. ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 6 6. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, WE FIND THAT THIS CONTENTION URGED BY THE LD. A.R., IS BEREFT OF ANY FORCE. IT IS A MATTER OF RECORD THAT THE ASSESSEE WAS FOLLOWING `P ROJECT COMPLETION METHOD. THE ENTIRE SALE WAS COMPLETED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE INCOME WAS VOLUNTA RILY OFFERED BY THE ASSESSEE FOR TAXATION UNDER SUCH PROJECT COMPLETION METHOD. ONCE SALE OF ALL THE FLATS IS MADE, POSSESSION OF FLATS GIVEN TO THE BUYERS AND S ALE CONSIDERATION RECEIVED, THERE IS NO QUESTION OF TREATING THE PROJECT AS INC OMPLETE TO THE EXTENT OF THE PROVISION FOR TDRS. THE LD. A.R. HAS NOT PLACED ON RECORD ANY MATERIAL OR COPIES OF AGREEMENT WITH THE BUYERS OF THE FLATS SHOWING A NY LIABILITY ON THE PART OF THE ASSESSEE TO REFUND ANY PART OF THE SALE CONSIDERATI ON IN THE EVENT OF NON- PURCHASE OF TDRS. UNLESS IT IS SHOWN THAT A PARTICU LAR PART OF THE SALE CONSIDERATION WAS EARMARKED FOR THIS PURPOSE, IT CA NNOT BE HELD THAT THE PROJECT WAS NOT COMPLETE TO THAT EXTENT. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE CROSS OBJECTION OF THE ASSESSEE. 7. THE ONLY OTHER GROUND IN THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.54,02,156/- MADE BY THE AO U/S.41(1) OF THE ACT. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE HAD SHOW N ADDITION TO UNSECURED LOANS AT RS.62.52 LAKHS, OUT OF WHICH A SUM OF RS.54,02,1 56/- WAS REFLECTED UNDER THE HEAD ADVANCES AGAINST FLAT BOOKING FOR EARLIER ASS ESSMENT YEARS. ON BEING CALLED UPON TO EXPLAIN THE NATURE OF RS.54.02 LAKHS , THE ASSESSEE STATED THAT IN EARLIER YEARS IT HAD ACCEPTED ADVANCES AGAINST THE FLATS, WHICH WERE TRANSFERRED TO UNSECURED LOANS DURING THE YEAR AS LOANS. IT WAS ALSO STATED BEFORE THE AO THAT : IT IS NOT POSSIBLE TO PRODUCE THEM FOR VERI FICATION AS THESE AMOUNTS HAVE ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 7 BEEN ACCEPTED SINCE LONG. IN THE ABSENCE OF SUCH D ETAILS, THE AO TREATED RS.54.02 LAKHS AS INCOME U/S.41(1) OF THE ACT. 8. THE LD. CIT(A) ORDERED FOR THE DELETION OF ADDIT ION ON THE GROUND THAT THE PRE-REQUISITE CONDITION FOR APPLICATION OF SEC. 41( 1), BEING ALLOWANCE OF DEDUCTION OF SUCH AMOUNT IN AN EARLIER YEAR, WAS NOT SATISFIE D IN THIS CASE. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE CLAIMED TO HAVE TRANSFERRED A SUM OF RS.54.02 LAKHS FROM ADVANCES AGAINST THE FLATS TO UNSECURED LOANS IN THIS YEAR. DESPITE THE REQUEST MADE BY THE AO, THE ASSESSEE DI D NOT PRODUCE ANY DETAILS OF SUCH ALLEGED ADVANCES IN EARLIER YEARS. WHEN A PART ICULAR QUERY IS RAISED BY THE AO, IT BECOMES THE DUTY OF THE ASSESSEE TO FURNISH DETAILS IN RESPECT OF SUCH QUERY AND SATISFY HIM. HERE IS A CASE IN WHICH THE ASSESSEE CLAIMED TO HAVE TRANSFERRED A SUM OF RS.54.02 LAKHS EARLIER APPEARI NG AS ADVANCES AGAINST THE FLATS TO UNSECURED LOANS IN THIS YEAR BUT WITHOUT F URNISHING ANY DETAILS OR NATURE OF SUCH AMOUNT AND THE REASONS AS TO WHY THE SAID AMOUNT, IF AT ALL AN ADVANCE IN AN EARLIER YEAR, WAS NOT ADJUSTED AGAINST THE SA LE PRICE OF FLATS. FROM THE ASSESSMENT ORDER, IT IS NOTED THAT THE SALE OF ALL THE FLATS WAS COMPLETED IN THIS YEAR IN RESPECT OF BOTH THE PROJECTS, BEING VORA RE SIDENCY-I AND VORA RESIDENCY- II. IF A SALE WAS COMPLETED, THEN SUCH ADVANCE OUGH T TO HAVE BEEN ADJUSTED AGAINST THE SALE PRICE. BE THAT AS IT MAY, UNLESS T HE FACTS ABOUT THE DETAILS OF SUCH ADVANCES AND NATURE ARE PERUSED, IT IS DIFFICU LT TO REACH ANY CONCLUSION. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISS UE AND REMIT THE MATTER TO THE FILE OF AO FOR TAKING A FRESH DECISION AS PER LAW A FTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLES S TO SAY, THE ASSESSEE WILL BE ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 8 UNDER OBLIGATION TO FILE NECESSARY DETAILS IN SUPPO RT OF ITS CLAIM AND THE AO, AFTER GOING THROUGH SUCH DETAILS, WILL DECIDE THE MATTER AS PER LAW. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSE D. ORDER PRONOUNCED ON THE 11TH DAY OF MAY, 201 1. SD/- SD/- (V. DURGA RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 11TH MAY, 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-35,MUMBAI. 4 CIT-25,MUMBAI. 5.DR,A BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO.141 & CO NO.166/M/10 LEELA ESTATE 9 DETAILS DATE INITIALS DESIGN ATION 1. DRAFT DICTATED ON 05-05-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 05-05-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER *