Shri Shailesh Ramniklal Patel, Baroda V. The Income tax Officer, Ward-2(5), Baroda

CO 17/AHD/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4641 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-08-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 02-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALIT P SHAH
• Keywords: Capital asset converted into stock in trade; Search and seizure; Reassessment proceedings
• Section: 143(3)

Judgement Text

ITA NO.1135/AHD/2014 & CO NO.17/AHD/2017 ASSESSMENT YEAR: 2007-08 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VICE PRESIDENT AND MADHUMITA R OY JM] ITA NO.1135/AHD/2014 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER, WARD 2(5), BARODA. .......... APPELLANT VS. SHAILESH RAMNIKLAL PATEL, RESPONDENT B-3, MANGALDEEP APARTMENT, ALKAPURI, BARODA 390 007. [PAN: ACPPP 3031 P] C.O. NO.17/AHD/2017 (IN ITA NO.1135/AHD/2014) ASSESSMENT YEAR: 2007-08 SHAILESH RAMNIKLAL PATEL, APPELLANT B-3, MANGALDEEP APARTMENT, ALKAPURI, BARODA 390 007. [PAN: ACPPP 3031 P] VS. INCOME TAX OFFICER, WARD 2(5), BARODA. .......... RESPONDENT APPEARANCES BY LALIT P. SHAH FOR THE REVENUE SAKAR SHARMA FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 30.07.2018 DATE OF PRONOUNCEMENT : 22.10.2018 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. THIS APPEAL FILED BY THE ASSESSING OFFICER, AS A LSO CROSS OBJECTION FILED BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 6 TH DECEMBER 2013 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UNDER S ECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007-08. ITA NO.1135/AHD/2014 & CO NO.17/AHD/2017 ASSESSMENT YEAR: 2007-08 PAGE 2 OF 5 2. LEARNED COUNSEL FOR THE ASSESSEE STATES THAT HE DOES NOT WISH TO PURSUE THE CROSS OBJECTION. THE CROSS OBJECTION IS, ACCORDING LY, DISMISSED FOR WANT OF PROSECUTION. 3. GRIEVANCE RAISED IN THE APPEAL FILED BY THE ASSE SSING OFFICER IS AS FOLLOWS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN DELETING THE ADDITION OF RS.2,26,56,250/- MADE ON ACCOUNT OF PROFIT ESTIMATED ON GROSS RECEIPTS WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS INTO THE BUSINESS OF CONSTRUCTION AND HIS INCOME SHOULD BE DETERMINED ON THE BASIS OF PERCEN TAGE COMPLETION METHOD AS PER THE PROVISIONS OF A.S.-7 4. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN CONSTRUCTION ACTIVITY AND ALSO DERIVES PROPERTY REN TAL INCOME AND INCOME FROM OTHER SOURCES. THIS IS A REOPENED ASSESSMENT. THE ASSES SING OFFICER NOTED THAT, ACCORDINGLY TO HIM, THE ASSESSEE IS FOLLOWING THE P ROJECT COMPLETION METHOD, AND AS PER THE LAW LAID DOWN BY THE TRIBUNAL IN THE CASE O F PARAM ANAND BUILDERS PVT. LTD. VS. ITO (29 ITD 29), THE ASSESSEES CLAIM IS LIABLE TO BE REJECTED AND 25% OF TOTAL RECEIPT SHOULD BE BROUGHT TO TAX. HE FURTHER NOTED THAT DURING THE RELEVANT FINANCIAL PERIOD, THE ASSESSEE HAS RECEIPTS AGGREGATING TO RS .8,30,35,246/-, AND ACCORDINGLY, 25% THEREOF, I.E. RS.2,07,58,812/-, SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE. IT WAS NOTED THAT OUT OF RECEIPTS OF SECURED LOAN OF R S.6,24,40,702/-, THE AMOUNT OF RS.6,03,78,996/- WERE PERTAINING TO THE ONGOING PRO JECTS AND SOME OF THESE PROJECTS WERE COMPLETED IN THE IMMEDIATELY FOLLOWING FINANCI AL YEAR, AND THAT OUT OF SUNDRY CREDITORS OF RS.4,62,52,991/-, THE AMOUNT OF RS.2,2 6,56,250/- PERTAINED TO ADVANCE RECEIVED AGAINST SALE OF PROPERTY WHICH WAS EXECUTE D DURING THE IMMEDIATELY FOLLOWING FINANCIAL YEAR. IT WAS NOTED THAT ONE OF THE CONDITIONS OF THE LOAN AGREEMENT WAS THAT THE ASSESSEE WAS TO GIVE VACANT AND PEACEFUL POSSESSION OF PROPERTY ON OR BEFORE 15.03.2007 WHICH SHOWED THAT THE PROPERTY WAS INDEED HANDED OVER TO THE LENDER. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER FINALLY CONCLUDED AS FOLLOWS :- THE ASSESSEE HAS OBTAINED SECURED LOAN OF RS.6,25, 40,702/- OUT OF WHICH RS.6,03,78,996/- HAS BEEN USED FOR ONGOING PR OJECTS AND ALSO RECEIVED RS.2,26,56,250/- WHICH IS INCLUDED IN THE SUNDRY CREDITORS. BOTH THESE AMOUNTS ARE UTILISED IN HIS BUSINESS BUT HAS NOT RECOGNISED ANY INCOME ON ACCOUNT OF HIS BUSINESS OF PROPERTY D EVELOPMENT. SINCE THE ASSESSEE IS REQUIRED TO MAINTAIN HIS BOOKS OF A CCOUNT ON PERCENTAGE COMPLETION METHOD WHICH HE HAS FAILED TO DO SO. AS PER ACCOUNTING STANDARD (AS7 CONSTRUCTION CONTRACT) T HE ASSESSEE IS REQUIRED TO MAINTAIN BOOKS OF ACCOUNT ON PERCENTAGE COMPLETION METHOD. FURTHER, HONBLE MUMBAI ITAT IN CASE OF PA RAM ANAND BUILDERS PVT. LTD. VS. ITO 59 ITD 29 (MUM) HAS HELD THAT ASSESSEE HAS TO RECOGNISE HIS REVENUE ON THE BASIS OF PERCENTAGE C OMPLETION METHOD AND NOT ON PROJECT COMPLETION METHOD. THE ASSESS EE WAS SPECIFICALLY ASKED TO SHOW CAUSE WHY HIS INCOME SHOULD NOT BE ES TIMATED ON PERCENTAGE COMPLETION METHOD BUT ASSESSEE HAS NOT OFFERED ANY EXPLANATION WHY PROVISION OF SECTION 145(2) SHOULD NOT BE APPLIED IN HIS CASE. I, THEREFORE, HEREBY, REJECT HIS BOOKS OF AC COUNTS AND ESTIMATE HIS ITA NO.1135/AHD/2014 & CO NO.17/AHD/2017 ASSESSMENT YEAR: 2007-08 PAGE 3 OF 5 NET INCOME @ 25% OF TOTAL RECEIPTS. IN CONSIDERING THE NET PROFIT @ 25%, I HAVE CONSIDERED THE FACT THAT THE ASSESSEE HAS CL AIMED INTEREST EXPENSES 11,19,048/- AT THE SAME TIME ASSESSEE HAS CASH ON HAND OF RS.1,19,92,373/- AS ON 31.03.2007. THE SAME IS WOR KED OUT AS UNDER : SECURED LOAN UTILISED IN THE PROJECT - RS.6,03,78 ,996/- ADD: ADVANCE RECEIPT RS.2,26,56,250/- TOTAL RS.8,30,35,246/- NET PROFIT @ 25% OF RS.2,07,58,812/- RS.8,30,35,246/- 5. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) WHO REVERSED THE STAND OF THE ASSESSING OFFICER ON THE BASIS OF FOLLOWING REASONS:- 4.3.1. I HAVE CONSIDERED THE SUBMISSION OF THE LEA RNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. THE ASSESSING OFFICER HAS CALCULATED THE NET PROFIT ON ESTIMATED RATE OF 25% OF RS.8,30,35,246/-(SECURED LOAN AMOUNT OF RS.6,03,78, 996/- & ADVANCE RECEIPT FOR SALE OF PROPERTY FOR RS.2,26,56,250/-) BY REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED ASSESSEE'S N ET INCOME ON PERCENTAGE COMPLETION METHOD AS MENTIONED IN AS-7 ' CONSTRUCTION CONTRACT'. 4.3.2. WITH THE SUBMISSIONS MADE BY LEARNED AUTHORI ZED REPRESENTATIVE OF THE ASSESSEE, COPY OF SALE DEED DATED 07-04-2007 HAS BEEN SUBMITTED FOR THE PROPERTY SITUATED AT GROUND FLOOR, MANGALDE EP-LL, OPP. NEW POLICE STATION, VARACHHA, SURAT ALONG WITH COMPUTAT ION OF INCOME FOR THE A. Y. 2008-2009 AND COPY OF ASSESSMENT ORDER FO R A Y 2008-2009. IN THE AY 2008-2009, ASSESSEE HAS OFFERED THE CAPITAL GAIN FOR SALE OF PROPERTY SITUATED AT ABOVE ADDRESS AND ASSESSING OF FICER IN HIS ASSESSMENT ORDER MADE U/S 143(3) HAS ACCEPTED THE C LAIM OF THE APPELLANT. MOREOVER, THE AUTHORIZED REPRESENTATIVE HAS ALSO SUBMITTED IDS REGISTER & 26AS OF THE ASSESSEE FOR THE PERIOD FROM AY 2006-07 TO AY 2012-2013, COMPUTATION OF INCOME FOR THE AY 2006 -07 TO AY 2008-09 AND COPIES OF LEASE AGREEMENTS FOR OTHER PROPERTIES OWNED BY HIM WHICH SHOWS THAT MAIN SOURCE OF INCOME OF THE ASSES SEE IS RENT INCOME. ASSESSEE DERIVES RENT INCOME FROM VARIOUS T ENANTS. 4.3.3. ON THE BASIS OF THE SUBMISSIONS MADE BY THE APPELLANT AND VARIOUS DOCUMENTS PRODUCED BEFORE ME AS DISCUSSED I N PARA ABOVE, IT IS HELD THAT THE MAIN ACTIVITY OF ASSESSEE IS RENTI NG OF COMMERCIAL PROPERTIES. ASSESSEE IS NOT INVOLVED IN THE ACTIVIT Y OF CONSTRUCTION IN THE CAPACITY OF BUILDERS AS ITS MAIN STREAM OF ACTIVITY . FROM THE BALANCE SHEET OF THE ASSESSEE, IT TRANSPIRES THAT THE ASSES SEE BUYS THE LAND, CONSTRUCTS THE PROPERTY ON HIS OWN AND RETAINS THE PROPERTY AS FIXED ASSETS. MOST OF THE PROPERTIES ARE RETAINED FOR YEA RS AND ASSESSEE HAS SHOWN RENTAL INCOME FROM SUCH PROPERTIES FOR SEVERA L YEARS. THIS HAS BEEN ACCEPTED BY THE AOS IN PAST. IN THE PRESENT AY ALSO, INITIALLY, ASSESSING OFFICER ACCEPTED THE RETURN OF INCOME UND ER SECTION 143(3) OF ITA NO.1135/AHD/2014 & CO NO.17/AHD/2017 ASSESSMENT YEAR: 2007-08 PAGE 4 OF 5 THE ACT AND ASSESSED THE INCOME AT RS.14,32,020/-, WHEREAS THE RETURNED INCOME WAS RS.13,72,020/-. THE ASSESSING OFFICER RE OPENED THE ASSESSMENT FOLLOWING THE RATIO LAID BY ITAT, MUMBAI IN THE CASE OF M/S. PARAM ANAND BUILDERS (P) LTD. VS. ITO [1996] 59 ITD 29 (MUMBAI). AS SUBMITTED BY THE ASSESSEE BEFORE THE AO DURING THE REASSESSMENT PROCEEDINGS AS WELL AS DURING THE APPELLATE PROCEED INGS, THE FACTS OF M/S. PARAM ANAND BUILDERS ARE DIFFERENT FROM THE CA SE OF THE APPELLANT. THIS IS CLEARLY REFLECTED FROM THE BALANCE SHEETS O F THE APPELLANT WHERE ALL PROPERTIES ARE SHOWN AS FIXED ASSETS AND THESE ARE GIVEN ON RENT. THE ASSESSING OFFICER HAS COMPLETELY IGNORED THESE FACT S OF THE CASE AND BORROWED THE CONCEPT OF 'PERCENTAGE COMPLETION METH OD' AND APPLIED TO THE LOANS AND ADVANCES SHOWN BY THE ASSESSEE IN HIS BALANCE SHEET OBSERVING THAT THE ASSESSEE IS FOLLOWING THE PROJEC T COMPLETION METHOD, WHICH IS INCORRECT. AS MENTIONED IN THIS PARA THE A SSESSEE HIMSELF CONSTRUCTS THE PROPERTY AND THERE MAY BE SOME CREDI TORS IN THE BOOKS OF ASSESSEE. IT IS NOT THE BUSINESS OF THE ASSESSEE TO CONSTRUCT & SELL THE PROPERTY. AS FAR AS ADVANCE OF RS.2,26,56,250/- IS CONCERNED THE ASSESSEE HAS SOLD THE FLOOR OF HIS PROPERTY 'MANGAL DEEP' AT SURAT AND INCOME FROM CAPITAL GAIN FROM SUCH SALE HAS BEEN OF FERED BY THE APPELLANT IN THE SUBSEQUENT ASSESSMENT YEAR WHICH H AS BEEN ACCEPTED BY THE ASSESSING OFFICER UNDER 143(3) ORDER WHICH W AS PASSED SUBSEQUENT TO THE REOPENING OF THE CURRENT YEAR'S A SSESSMENT BY THE ASSESSING OFFICER. THE PURCHASER M/S PUSHTI ENTERPR ISES PVT. LTD. HAD PAID THE ADVANCE OF RS.2,26,56,250/- TO THE ASSESSE E. AFTER SELLING OF GROUND FLOOR, POSSESSION OF FIRST & SECOND FLOOR WA S RETAINED BY ASSESSEE AND GIVEN ON RENT TO TENANTS. APPELLANT HA S SUBMITTED COPIES OF RENT AGREEMENTS OF PROPERTIES AT FIRST FLOOR & S ECOND FLOOR GIVEN ON RENT TO TENANTS BY HIM ASSESSEE DURING THE COURSE O F ASSESSMENT PROCEEDINGS. THIS ITSELF PROVES THAT MAIN ACTIVITY OF ASSESSEE IS TO EARN RENT INCOME AND NOT THE CONSTRUCTION IN THE CAPACIT Y OF BUILDERS. INCOME FROM SUCH RENTED PROPERTY HAS BEEN SHOWN AS THE REN T INCOME FROM THE FIRST FLOOR OF MANGALDEEP COMPLEX IN IMMEDIATE SUCC EEDING FINANCIAL YEAR. IN PRECEDING FINANCIAL YEARS OR IN THE SUCCEE DING FINANCIAL YEAR, ASSESSEE HAS NOT CARRIED ON ANY ACTIVITY OF CONSTRU CTION CONTRACT. THE SALE OF GROUND FLOOR PROPERTY WAS REFLECTED IN IMME DIATE SUCCEEDING YEARS' BOOKS OF ACCOUNT ON WHICH CAPITAL GAIN WAS D ULY OFFERED IN THE RETURN OF INCOME. 4.3.4. SINCE IT IS HELD THAT THE MAIN ACTIVITY OF T HE ASSESSEE IS RENTING OF IMMOVABLE PROPERTIES AND NOT THE CONSTRUCTION CONTR ACTOR, THE ACTION OF ASSESSING OFFICER REJECTING BOOKS OF ACCOUNTS OF AS SESSEE & CALCULATION OF NET PROFIT ON ESTIMATION BASIS BY CONSIDERING UT ILIZATION OF SECURED LOAN & ADVANCE RECEIPTS FOR SALE OF PROPERTY WITHOU T VERIFYING THE FACTS WAS UNWARRANTED & THE SAME IS DIRECTED TO BE DELETE D. THIS GROUND OF THE APPELLANT SUCCEEDS. 6. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE LEARNED CIT(A) AND IS IN APPEAL BEFORE US. ITA NO.1135/AHD/2014 & CO NO.17/AHD/2017 ASSESSMENT YEAR: 2007-08 PAGE 5 OF 5 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 8. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICERS RELIANCE ON PARAM ANAND BUILDERS (SUPRA), FOR ESTIMATING 25% PROFITS, WAS WHOLLY IRRELEVANT. THAT WAS A CASE IN WHICH ADMITTEDLY ASSESSEE HAS TAKEN 17.5% O N MONEY AND THE CO-ORDINATE BENCH WAS OF THE VIEW THAT THE ASSESSEE WOULD REASO NABLY SHOW A BOOK PROFIT OF 7.5% ANYWAY. IT WAS A CASE OF SEARCH AND SEIZURE O PERATION IN WHICH INCRIMINATING MATERIAL WAS FOUND. THESE FACTS ARE SIMPLY NOT PRE SENT IN THE CASE BEFORE US. THE VERY STARTING POINT OF THE PRESENT PROCEEDINGS IS D EVOID OF LEGALLY SUSTAINABLE BASIS. THERE WAS ALSO AN INORDINATE DELAY, IN THE SAID CAS E, IN BRINGING RELATED PROFITS TO TAX. WHEREAS THE PROJECT HAD STARTED IN 1980, THERE WERE NO PROFITS SHOWN TILL 1985-86. IN THE PRESENT CASE, IN THE VERY NEXT YEAR THE SALE TR ANSACTION HAS TAKEN PLACE AND THE RELATED PROFIT, ACCORDINGLY, BROUGHT TO TAX. WE HA VE ALSO NOTED THAT PREDOMINANT ACTIVITY OF THE ASSESSEE IS TO LET OUT THE PROPERTY AND EARN RENTAL INCOME. IN THESE CIRCUMSTANCES, THE ACTION AND THE GRIEVANCE OF THE APPELLANT ASSESSING OFFICER CLEARLY LACKS MERIT AND IT CANNOT MEET JUDICIAL APP ROVAL. LEARNED CIT(A) WAS, THEREFORE, INDEED JUSTIFIED IN HIS CONCLUSIONS. WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN T HE MATTER. 9. IN THE RESULT, THE APPEAL IS DISMISSED, AND, FOR THE REASONS SET OUT EARLIER, THE CROSS OBJECTION HAS ALSO BEEN DISMISSED. PRONOUNCE D IN THE OPEN COURT TODAY ON THE 22 ND DAY OF OCTOBER, 2018. SD/- SD/- MADHUMITA ROY PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, DATED THE 22 ND DAY OF OCTOBER, 2018 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD