M/s. Shivam Estate, Amritsar. V. The Asstt.Commissioner of Income-tax, Amritsar.

CO 19/ASR/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7329 (ITAT-AMRITSAR)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Assessee Lawyers: P N ARORAADV
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.446(ASR)/2011 ASSESSMENT YEAR:2008-09 PAN :ABGFS1234F ASSTT. COMMR. OF INCOME TAX VS. M/S. SHIVAM ESTATE , CIRCLE-IV, AMRITSAR. SHOP NO.3, AMRITSAR. (APPELLANT) (RESPONDENT) C.O. NO.19(ASR)/2011 (ARISING OUT OF I.T.A. NO.446(ASR)/2011) ASSESSMENT YEAR:2008-09 PAN :ABGFS1234F M/S. SHIVAM ESTATE, VS. ASSTT. COMMR. OF INCOME-T AX, AMRITSAR. CIRCLE IV, AMRITSAR. ASSESSEE BY: SH. P.N. ARORA,ADV. DEPARTMENT BY: SH. AMRIK CHAND, DR DATE OF HEARING:26/06/2012 DATE OF PRONOUNCEMENT:28/06/2012 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), AMRITSAR DATED 31.05.2011 FOR THE ASSESSMENT YEAR 2 008-09. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A), AMRITSAR HAS IGNORED THE FACT THAT THE PROV ISION OF THE EXPENDITURE ON DEVELOPMENT HAD BEEN DEBITED IN THE TRADING ACCOUNT WITHOUT ANY ACTUAL EXPENDITURE. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A), AMRITSAR HAS IGNORED THE FACT THAT THE PROV ISION OF THE EXPENDITURE ON DEVELOPMENT HAD BEEN ADDED TO THE CL OSING STOCK OF LAND WITHOUT ANY BASIS. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR HAS IGNORED THE FACT THAT THE CONS TRUCTION EXPENSES OF RS.9,32,176/- HAS NOT BEEN DEBITED PROP ORTIONATELY ON THE BASIS OF AREA OF LAND SOLD AS DIVIDED BY THE TOTAL AREA OF COLONY. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR HAS IGNORED THE FACT THAT PUDA FEE S OF RS.6,07,339/- HAS NOT BEEN DEBITED ON THE BASIS OF PROPORTIONATELY ON THE BASIS OF AREA OF LAND SOLD A S DIVIDED BY THE TOTAL AREA OF THE COLONY. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), AMRITSAR HAS IGNORED THE FACT THAT NON SALE ABLE AREA IN TOTAL LAND MEASURING 3440.25 SQ.YD HAD BEEN DEDUCTE D OUT OF TOTAL LAND INSTEAD OF DEDUCTING COST OF NON-SALEABL E AREA OF LAND ON PROPORTIONATE BASIS OF LAND SOLD VIZ-VIZ TOTAL A REA OF LAND. VI. THE APPELLANT CRAVES TO LEAVE TO AMEND OR ADD ANY O R MORE GROUNDS OF APPEAL. 3. IN C.O. NO.19(ASR)/2011, THE ASSESSEE HAS RAISE D FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A), AMRITSAR, WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 2. THAT THE ORDER OF THE LD. CIT(A), AMRITSAR MAY B E CONFIRMED AS THE LD. CIT(A) HAS VERY ELABORATELY ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 3 DISCUSSED THE WHOLE ISSUE AND AFTER GOING THROUGH A LL THE FACTS & MERITS OF THE CASE HAS PASSED THE ORDER AND DELETED THE ADDITION MADE BY THE AO. 3. THAT THE DEPARTMENT HAS COME IN APPEAL AGAINST T HE ORDER OF THE LD. CIT(A), WITHOUT ANY RHYME & REASON AND T HE DEPARTMENT HAS NOT BEEN ABLE TO PLACE ANY MATERIAL & JUSTIFICATION ON RECORD FOR COMING IN APPEAL BEFORE THE TRIBUNAL. AS SUCH THE APPEAL OF THE DEPARTMENT MAY BE DISMISSED AS IT IS NOT BASED ON ANY FACTS AND MATER IAL. RATHER THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMEN T ARE WITHOUT ANY BASE AND JUSTIFICATION. AS SUCH THE APP EAL OF THE DEPARTMENT MAY BE DISMISSED. 4. THE BRIEF FACTS IN THE APPEAL OF THE REVENUE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF REAL ESTATE AND BY ACTING A S LAND DEVELOPERS & COLONIZERS. THE ASSESSEE FIRM HAS DEVELOPED A COLON Y UNDER THE NAME AND STYLE OF M/S. GARDEN GREEN IN VILLAGE KHANKOT WHIC H HAS BEEN GOT APPROVED FROM PUNJAB URBAN PLANNING & DEVELOPMENT AUTHORITY AS PER APPROVED PLAN WHICH WAS FILED BEFORE THE AO. DURIN G THE YEAR, THE ASSESSEE HAS SOLD PLOTS IN THE SAID COLONY AS PER COPIES OF SALE DEEDS PLACED ON ASSTT. RECORD. OUT OF THE AVAILABLE STOCK, THE ASSESSEE FI RM HAD SOLD 8738.24 SQ.YD. OF LAND FOR A CONSIDERATION OF RS.1,79,59,484/-. TH E AO OBSERVED THAT CORRECT GROSS PROFIT EARNED FROM SALE OF PLOTS IN S HIVAM ESTATE HAS NOT BEEN CORRECTLY REFLECTED THEREIN. BY RECASTING THE ASSESSEES TRADING ACCOUNT IN RESPECT OF LAND-HOLDINGS IN SHIVAM ESTATE, IT WAS P OINTED OUT TO THE ASSESSEE AS AGAINST THE DECLARED GROSS PROFIT OF RS.23,35,13 2/-, THE GROSS PROFIT ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 4 ACTUALLY WORKS OUT AT RS.71,07,640/- AS IS EVIDENT FROM THE RECASTED TRADING ACCOUNT AND HE PROPOSED TO MAKE TRADING ADDITION OF RS.47,52,508/- REPRESENTING SUPPRESSION OF GROSS PROFIT. AFTER CO NSIDERING THE ASSESSEES REPLY DATED 27.12.2010 AND HOLDING IT UNTENABLE ON APPROPRIATING THE PROVISION FOR FUTURE DEVELOPMENT AMOUNTING TO RS.63 ,57,825/- ON BOTH SIDES OF THE TRADING ACCOUNT, AND FURTHER APPROPRIATING PROPORTIONATE CONSTRUCTIONS EXPENSES AS WELL AS PUDA FEE ATTRIBUTABLE TO THE SA LE OF PLOTS OF LAND DURING THE YEAR : INTO THE ENTIRE EXPENSES UNDER BOTH THES E ACCOUNTS PERTAINING TO THE ASSESSEES ENTIRE LAND-HOLDINGS AND ACCORDINGLY, TH E AO ARRIVED AT ASSESSABLE GROSS PROFIT OF RS. 71,07,640/- AS AGAI NST DECLARED BY ASSESSEE AT RS.23,55,132/- AND BY INVOKING THE PROVISIONS OF SE CTION 145(3) AND REJECTING THE BOOK RESULTS, MADE A TRADING ADDITI ON OF RS.47,52,508/- REPRESENTING SUPPRESSION OF GROSS PROFIT. 5. BEFORE THE LD. CIT(A), THE ASSESSEES COUNSEL MA DE THE DETAILED SUBMISSIONS MAINLY ARGUING THAT THE AO HAS COMPLETE LY IGNORED THE ACCEPTED PAST HISTORY OF THE CASE AND THERE IS NO R EASON FOR DEPARTING FROM THE ACCEPTED PAST HISTORY. HE FURTHER STATED THAT T HE CLOSING STOCK HAS BEEN TAKEN AT 8196.13 SQ.YDS WHEREAS THE CLOSING STOCK S HOULD HAVE BEEN TAKEN AT 4255.87 SQ.YDS AND THE WASTAGE OF 3440 SQ.YDS @ 40. 3% SHOULD HAVE BEEN ALLOWED WHICH IS UNDENIABLE AS PER THE PRESCRIBED P UDA PROVISIONS. IT WAS ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 5 ALSO STATED THAT PUDA FEE IS FULLY ALLOWABLE ON MER CANTILE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE IRRESPECT IVE OF THE FACT THAT SALE OF PLOT IS IN HUGE EXTENT OR IN SMALL SCALE. THE ASSES SEES COUNSEL ARGUED THAT CONSTRUCTION CHARGES ARE ACTUALLY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF RUNNING THE BUSINESS ARE ALLOWABLE IN FU LL. HE SUBMITTED THAT THE AO OUGHT TO HAVE ALLOWED THE VALUE OF UN-SALEABLE L AND I.E. WASTAGE AND THERE IS NO JUSTIFICATION IN DEVIATING IT PROPORTIO NATELY. FINALLY, HE STATED THAT THE AO IS NOT JUSTIFIED IN REJECTING THE PROVISION S FOR DEVELOPMENT EXPENSES TO THE TUNE OF RS.63,57,825/- WHEREAS THESE HAVE AC TUALLY BEEN INCURRED AS PER YEAR-WISE DETAILS SUBMITTED. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEES COUNSEL AND ON PERUSAL OF THE FACTS OBSERVED THAT T HE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK VERSION WITHOUT POINTING OUT ANY DEFECTS AND DEFICIENCY IN ITS DULY AUDITED BOOKS OF ACCOUNT MAINTAINED BY IT WHEREIN IT HAS CONSISTENTLY BEEN FOLLOWING MERCANTILE SYSTEM OF A CCOUNTING. THE AUDITORS HAVE NOT POINTED OUT ANY DEFECTS OR DEVIATION IN TH E FINANCIAL NOTES ANNEXED WITH THE AUDIT REPORT UNDER SECTION 44AB OF THE ACT . THE COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISIONS OF VARIOUS COURT S OF LAW IN THIS REGARD. IT WAS OBSERVED BY THE LD. CIT(A) THAT THE LD. COUNSEL HAS FURNISHED THE GUIDING NOTES FOR CONSIDERING THE PROVISION MADE FO R DEVELOPMENT CHARGES IN ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 6 A CASE OF LAND DEVELOPERS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING. A COPY OF THE ARCHITECT CERTIFICATE OF MALHOTRA & MALHOTRA ASSOCIATES, WAS ALSO SUBMITTED BEFORE THE A.O. AS PER PUDA RULES WASTAGE OF LAND @ 40.33% HAS TO BE ACCEPTED. THE AO HAS NOT CITED ANY COMPAR ABLE CASE WHERE SUCH PROVISIONS HAVE BEEN CLAIMED BUT NOT ALLOWED BY THE DEPARTMENT. THE AO HAS FAILED TO SEEK VERIFICATION FROM THE PUDA REGAR DING THE PRESCRIBED NORMS FOR SETTING APART THE WASTAGE OF LAND. HE SH OULD HAVE CORRECTLY WORKED OUT THE CLOSING STOCK BY ALLOWING WASTAGE AT THE PRESCRIBED NORMS OF 40.33% BY PUDA. HE SHOULD HAVE CORRECTLY WORKED OUT PROPORTIONATE CONSTRUCTION CHARGES, PROPORTIONATE PUDA FEE AS WEL L. IT WAS OBSERVED THAT BY DEBITING RS.63,57,825/- AS DEVELOPMENT CHARGES I N THE TRADING ACCOUNT AND CREDITING THE SAME IN THE STOCK ACCOUNT DOES NO T AFFECT THE REVENUE. THEREFORE, THE LD. CIT(A) FOUND THAT THERE WAS NO INFIRMITY AND IRREGULARITY WITH REGARD TO ASSESSEES CLAIM IN RESPECT OF PROV ISION FOR DEVELOPMENT CHARGES WHICH DULY HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AT RS.63,57,825/-. THE ASSESEE IS FOLLOWING METHOD CON SISTENTLY AND THE AO IS NOT JUSTIFIED IN ENFORCING ANY DEVIATION FROM THE CONSISTENT METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. HE RELIE D UPON THE DECISIONS OF VARIOUS COURTS OF LAW IN THE CASE OF BHARAT EARTH MOVERS VS. CIT REPORTED IN (2000) 162 CTR 325 (SC) , CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 7 (SC), M/S. BERGER PAINTS INDIA PVT. LTD. 206 ITR 99 AND CIT VS. J.K. CHEMICAL TRUST, 308 ITR 161 (SC), WHICH ARE SQUAREL Y APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. ACCORD INGLY, THE LD. CIT(A) REVERSED THE ORDER OF THE AO FOR INVOKING THE PROVI SIONS OF SECTION 145(3) OF THE ACT AND ACCORDINGLY DELETED THE TRADING ADDITIO N OF RS.47,52,508/- MADE BY THE A.O. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. DR APPEARING FOR THE REVENUE RELIED UPON TH E ORDER OF THE ASSESSING OFFICER. LD. COUNSEL FOR THE ASSESSEE, S H. P.N. ARORA, RELIED UPON THE ORDER OF THE LD. CIT(A) AND ARGUED THAT THE AO HAS COMPLETELY IGNORED THE PAST HISTORY OF THE CASE WHERE MERCANTILE SYSTE M OF ACCOUNTING HAD BEEN ADOPTED AND THE A.O. IS NOT AUTHORIZED TO DEVIATE F ROM THE RULE OF CONSISTENCY IN THE ABSENCE OF ANY CHANGE IN FACTS O R CHANGE IN LAW IN THE IMPUGNED ORDER AS COMPARED TO THE PRECEDING YEAR. T HE A.O. IS NOT FURTHER JUSTIFIED IN REJECTING THE PUDA RULES WHERE WASTAGE OF LAND FOR THE DEVELOPER HAS BEEN FIXED AT 40.33% AND THE ASSESSEE CANNOT SELL EVEN INCH OF LAND MORE THAN BALANCE OF THE LAND AFTER ACCOUNTING FOR THE WASTAGE AS PRESCRIBED BY THE PUDAS PROVISIONS. PUDA FEES AND CONSTRUCTION CHARGES ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 8 HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS WHICH HAS COMPLETELY BEEN IGNORED BY THE A.O. 7.1. WE ARE FULLY CONVINCED WITH THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, MR. P.N. ARORA, ADVOCATE AND WE C ONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE A.O. HAS IGNORED THE RULE O F CONSISTENCY WHEN THE ASSESSEE HAD BEEN ADOPTING MERCANTILE SYSTEM OF ACC OUNTING AND DEVELOPMENT EXPENSES HAVE BEEN ACCOUNTED FOR ON MER CANTILE SYSTEM BASIS AND HAVE BEEN ACCEPTED BY THE DEPARTMENT IN THE PRE CEDING YEAR. THOUGH BY DEBITING DEVELOPMENT EXPENSES IN THE TRADING ACCOUN T AND CORRESPONDINGLY BY CREDITING AMOUNT TO THE CLOSING STOCK DOES NOT A FFECT THE REVENUE. AS PER PUDA RULES, A DEVELOPER HAS TO ACCOUNT FOR 40.33% A S WASTAGE IS NOT UNDER DISPUTE. PUDA FEES AND CONSTRUCTION CHARGES HAVE B EEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE ABSENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNT, THE AO IS NOT JUSTIFIED IN I NVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND THEREFORE NO ADDITION IS CALLED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THEREFORE, WE F IND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DIRECTED TH E A.O. DELETE THE ADDITION OF RS.47,52,508/-. THUS, ALL THE GROUNDS OF THE RE VENUE ARE DISMISSED. ITA NO.446(ASR0/2011 & C.O.19(ASR)/2011 9 8. AS REGARDS GROUNDS IN C.O. NO.19(ASR)/2011 OF TH E ASSESSEE, THE SAME ARE SUPPORTIVE IN NATURE, IN SUPPORT OF THE ORDER O F THE LD. CIT(A) AND THEREFORE, THE SAME ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.446(AS)/2011 AND C.O. NO.19(ASR)/2011 OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH JUNE, 2012 SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28TH JUNE, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SHIVAM ESTATE, AMRITSAR. 2. THE ACIT CIR.IV, ASR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.