M/s. Mahalaxmi Builders, Baroda V. The Income tax Officer,Ward-5(4), Baroda

CO 93/AHD/2009

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6297 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-08-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 21-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: P M MEHTA
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SHRI R.C.SHARMA, A.M.) I.T.A. NO. 1046/AHD./2009 : ASSESSMENT YEAR : 1999-2000 I.T.O., WARD-5(4), BARODA VS- M/S. MAHALAXMI BUILDERS, BARODA (PAN : AADFM 1839Q) (APPELLANT) (RESP ONDENT) C.O. NO.93/AHD./2009 : ASSESSMENT YEAR : 1999-2000 (ARISING OUT OF ITA NO.1046/AHD/2009) M/S. MAHALAXMI BUILDERS, BARODA -VS- I.T.O ., WARD-5(4), BARODA (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI S.K.MEENA, SR.D.R. ASSESSEE BY : SHRI P.M. MEHTA, A.R. DATE OF HEARING : 09/08/2011 DATE OF PRONOUNCEMENT : 12/08/2011 O R D E R PER BENCH : THIS APPEAL FILED BY THE REVENUE AND THE CROSS OBJ ECTION FILED BY THE ASSESSEE ARE AGAINST THE ORDER DATED 12-01-2009 OF LEARNED C OMMISSIONER OF INCOME TAX(APPEALS)-V, BARODA FOR THE ASSESSMENT YEAR 1999 -2000. 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE INCOME DETERMINED BY THE ASSESSING OFFICER ON THE BASIS OF PERCENTAGE COMPLETION METHOD AS AGAINST PR OJECT COMPLETION METHOD ADOPTED BY THE ASSESSEE. 3. BRIEF FACTS RELATING TO THE CONTROVERSY INVOLVED IN THE AFORESAID APPEAL ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F DEVELOPMENT AND CONSTRUCTION OF HOUSING/COMMERCIAL PROJECT. THE COMPANY HAS BEEN FO LLOWING PROJECT COMPLETION METHOD FOR RECOGNISING REVENUE ARISING OUT OF SUCH PROJECT. FOR THE ASSESSMENT YEAR ITA NO.1046-AHD-09 & C.O.93-AHD-09 2 UNDER APPEAL, IT FILED THE RETURN OF INCOME SHOWING TOTAL INCOME AT RS. NIL ON 30.08.1999. THIS RETURN OF INCOME WAS PROCESSED UND ER SECTION 143(1) ON THE SAME INCOME SHOWN IN THE RETURN. SUBSEQUENTLY, NOTICE UN DER SECTION 148 WAS ISSUED AND THEREAFTER THE AO FRAMED THE ASSESSMENT UNDER SECTI ON 143(3) R. W. S. 147 ON 22.12.2006 AT A TOTAL INCOME OF RS.6,57,720/-. IN T HIS ASSESSMENT ORDER THE AO HELD THAT SINCE IN THE YEAR UNDER CONSIDERATION, THE WOR K TO THE EXTENT OF RS.92,73,864/- HAS BEEN SHOWN, IT IS CLEAR THAT 4.67% OF THE WORK HAS BEEN CARRIED OUT. ON THIS BASIS, THE AO HELD THAT 4.67% OF THE TOTAL NET PROFIT HAS ACCR UED DURING THE YEAR UNDER CONSIDERATION, ON THE BASIS OF PERCENTAGE COMPLETIO N METHOD. SINCE 18.021% BUILT UP AREA IS UNDER COMMERCIAL PORTION OF THE PROJECT AND HENCE 18.021% OF THE PROFIT WHICH IS ACCRUED IN THE YEAR UNDER CONSIDERATION IS RELAT ABLE TO THE COMMERCIAL PORTION OF THE PROJECT. THUS, THE NET PROFIT OF RS.36,49,744/- (4. 67% OF RS.7,81,36,667/-) HAS ACCRUED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, F OR THE YEAR UNDER CONSIDERATION, THE PROFIT OF RS.6,57,720/- WORKS OUT RELATABLE TO THE COMMERCIAL PORTION OF THE PROJECT WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0IB(10) OF THE I.T. ACT. 4. ON APPEAL BEFORE THE LD. CIT(A), IT WAS CONTENDE D BY THE ASSESSEE THAT IT WAS FOLLOWING PROJECT COMPLETION METHOD. AS PER ACCOUNT ING STANDARD-7, UNLESS 20 TO 25% OF THE PROJECT IS COMPLETED, THE PROPORTIONATE PROFIT OF THE PROJECT IS NOT ESTIMATED. IN THE PRESENT CASE, ONLY 4.67% WORK HAS BEEN COMPLETED, HENCE, QUESTION OF RECOGNISING PROFIT OF THE HOUSING PROJECT IN QUE STION, FOLLOWING PERCENTAGE COMPLETION METHOD, CANNOT ARISE. IN SUPPORT OF THIS , RELIANCE WAS PLACED ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF PAREK H PROPERTIES PVT. LTD. VS- ACIT REPORTED IN 2003 SOT 124. 4.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE FOR THE DETAILED REASONS GIVEN IN PARA 4.0 AND 4.10, WHICH READ AS UNDER: 5.9 I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE, SUBMISSION MADE BY THE AR AND ALSO THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER. THE APPELLANT HAS OBJECTED TO PERCENTAGE COMPLETION METHOD ADOPTED BY THE ASSESSING OFFICER. IT IS NOT A DISPUTE THAT APPELLANT IS A DEVELOPER AND NOT A CONTRACTOR. THE AO HAS APPLIED ACCOUNTING STANDARD - 7 IN CASE OF APPELLAN T, WHICH IS APPLICABLE ONLY ITA NO.1046-AHD-09 & C.O.93-AHD-09 3 FOR THE CONSTRUCTION CONTRACTS. I HAVE GONE THROUGH THE REVISED ACCOUNTING STANDARD - 7 WHEREIN PROJECT COMPLETION METHOD HAD BEEN WITHDRAWN. HOWEVER, AS-7 IS APPLICABLE FOR CONSTRUCTION CONTRA CTS FOR CONSTRUCTION OF ASSETS SUCH AS BRIDGE, BUILDINGS, DAMS, PIPELINES, ETC., AND IT HAS BEEN CLEARLY MENTIONED IN AS-7 THAT IT APPLIES TO CONTRACTORS AN D NOT TO ENTERPRISES THAT ARE CONSTRUCTING PROPERTIES ON THEIR OWN ACCOUNT AS BUI LDERS AND DEVELOPERS. IT IS MENTIONED IN A RESPONSE TO QUERY BY ICAI THAT IN CA SE OF BUILDERS AND DEVELOPERS, REVENUE RECOGNITION SHOULD BE MADE IN A CCORDANCE WITH AS-9. IT IS FURTHER CLARIFIED THAT AS-7 WOULD' APPLY WHEN THEY ARE BEING CONSTRUCTED UNDER CONTRACT ON BEHALF OF A THIRD PARTY; WHEREAS IN THE CASE OF APPELLANT, FACTS ARE THAT APPELLANT FIRM ITSELF IS ENGAGED IN DEVELOPMEN T AND CONSTRUCTION OF PROPERTY ON ITS OWN AND SOLD SUCH HOUSING UNITS. FR OM THE ABOVE, IT IS CLEAR THAT AS-7 IS NOT APPLICABLE TO THE CASE OF APPELLAN T AND, THEREFORE, THE PERCENTAGE COMPLETION METHOD ADOPTED BY AO FOR DETE RMINING CURRENT YEAR PROFIT ON THE BASIS OF PROFIT DECLARED AND DETERMIN ED UNDER COMPLETION METHOD IN A.Y. 2003-04 IS NOT JUSTIFIED. I FURTHER FIND FO RCE IN THE ARGUMENT OF APPELLANT THAT DURING THE YEAR ONLY 4.63% OF TOTAL WORK IS CO MPLETED AND EVEN SUCH PERCENTAGE OF COMPLETION OF WORK IS NOT DISPUTED BY THE AO. THE ENTIRE PROJECT OF HOUSING AND BUILDING IS UNDER INITIAL STAGE IN C URRENT ASSESSMENT YEAR AND AT THIS STAGE, THE INCOME OF APPELLANT CANNOT BE ESTIM ATED AND CONSEQUENTLY, ADDITION MADE BY AO BY ADOPTING PERCENTAGE COMPLETI ON METHOD IS NOT JUSTIFIED AND HENCE DELETED. 5.10 THE AR HAD ALTERNATIVELY STATED THAT INCOME DETERMINED IN CASE OF IT FOR CURRENT YEAR HAS LEAD TO DOUBLE TAXATION, AS THE EN TIRE INCOME OF PROJECT WAS ALREADY OFFERED FOR TAX IN A.Y. 2003-2004 AND ASSES SED AS SUCH. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER FOR A.Y. 2003-2004 ON 28 TH MARCH, 2006 AND MY PREDECESSOR C.I.T. (APPEAL)'S ORDER FOR THE SAID A.Y. DATED 29 TH OCTOBER, 2007 (APPEAL NO. CAB/(A)- V/59/06-07) AND I FIND THAT THE APPELLANT HAS OFFER ED ENTIRE INCOME OF THE PROJECT ON PROJECT COMPLETION METHOD IN A.Y. 2003-2 004, WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND TAXED AS SUCH. IN TH E RELEVANT ASSESSMENT YEAR, THEN; WAS NO DISPUTE REGARDING QUANTUM OF INC OME OFFERED UNDER PROJECT COMPLETION METHOD BUT DISPUTE WAS WITH REGARD TO QU ANTUM OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT, WHICH CAN BE SUMMARIZE D IN THE CHART GIVEN AS UNDER: PARTICULARS ' AMOUNT SHOWN IN RETURN OF INCOME FOR A.Y. 2003 -04 ASSESSMENT ORDER FOR A.Y. 2003-04 GROSS TOTAL INCOME 7,79,94,475 7,79,94,475 LESS: ELIGIBLE DEDUCTION U/S 80IB(10) 7,17,90,881 6,41,83,089 TOTAL INCOME 62,03,593 1,38,11,386 ITA NO.1046-AHD-09 & C.O.93-AHD-09 4 ADD: DISALLOWANCE UNDER SECTION 36(1)(3) 3,19,800 TOTAL 62,03,593 141,31,186 IT IS UNDISPUTED FACT THAT THE AO WHILE DETERMINING INCOME FOR A.Y. 2003-2004, HAS TAXED AND ADOPTED GROSS TOTAL INCOME DECLARED B Y THE APPELLANT UNDER PROJECT COMPLETION METHOD. AS ENTIRE INCOME OF APPE LLANT IS TAXED IN A.Y. 2003- 04, THERE IS NO JUSTIFICATION ON THE PART OF AO TO ADOPT PROPORTIONATE INCOME OF A.Y. 2003-04 IN THE CURRENT ASSESSMENT YEAR FOR DET ERMINING CURRENT YEAR'S TOTAL INCOME OF APPELLANT ON PERCENTAGE COMPLETION METHOD. HENCE THE ADDITION MADE BY AO IS ALSO DELETED ON THE GROUND O F DOUBLE TAXATION OF SAME INCOME TWICE IN. THE CASE OF APPELLANT AS INCOME DE TERMINED IN CURRENT ASSESSMENT IS ALREADY INCLUDED IN INCOME DETERMINED IN CASE OF APPELLANT FOR ASSESSMENT YEAR 2003-04 FOR WHICH AO HAS NO DISPUTE . ACCORDINGLY, I DIRECT THE AO TO DELETE THE ENTIRE ADDITION OF RS.6,57,720 /- MADE BY HIM. THUS, THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE REVENUE, SHRI S.K.MEENA APPEARED AND, RELYING ON THE REASONING GIVEN BY THE AO IN THE ASSESSMENT ORDER, CONTENDED THAT AS PER AGREEMENT WITH THE UNIT HOLDE R, THE ASSESSEE HAS RECEIVED MONEY IN THE FORM OF ADVANCE WHICH CORRESPONDS TO THE VAL UE OF WORK DONE, WHICH PROVES THAT REVENUE IS BEING GENERATED ON DAY TO DAY BASIS . THE ASSESSEE HAS SHOWN BOOKING ADVANCES WHICH ARE, IN FACT, THE PART PAYMENT OF UN ITS PROPOSED TO BE SOLD TO THE UNIT BUYERS. 7. ON THE OTHER HAND, SHRI P.M.MEHTA, APPEARING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). T HE COUNSEL OF THE ASSESSEE ALSO PRODUCED A COPY OF THE DECISION DATED 25.03.2011 OF THE ITAT D BENCH, AHMEDABAD IN ITA NO.161/AHD/2008 FOR THE ASSESSMENT YEAR 2003-04, WHEREIN THE ASSESSEE HAS DECLARED THE ENTIRE INCOME OF THE VRIN DAVAN RESIDENTIAL PROJECT AT BARODA IN THE ASSESSMENT YEAR 2003-04. THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER, THE LD. CIT(A), IN ITA NO.1046-AHD-09 & C.O.93-AHD-09 5 PARA 5.9, HAS MENTIONED THAT AS-7 IS NOT APPLICABLE IN CASE OF THE ASSESSEE AND THEREFORE PERCENTAGE COMPLETION METHOD ADOPTED BY T HE AO FOR DETERMINING CURRENT YEAR PROFIT ON THE BASIS OF PROFIT DECLARED AND DET ERMINED UNDER PROJECT COMPLETION METHOD IN THE ASSESSMENT YEAR 2003-04 IS NOT JUSTIF IED. ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION, ONLY 4.63% OF THE TOTAL WORK I S COMPLETED. THEREFORE, THE ENTIRE PROJECT OF HOUSING AND BUILDING IS UNDER INITIAL ST AGE. AT THIS STAGE, THE INCOME OF THE ASSESSEE CANNOT BE ESTIMATED AND CONSEQUENTLY, IN O UR CONSIDERED OPINION, THE ADDITION MADE BY THE AO BY ADOPTING PERCENTAGE COMP LETION METHOD WAS NOT JUSTIFIED AND THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN DELETING THE SAME. 8.1 IN THE IMPUGNED ORDER IN PARA 5.10, THE LD. CIT (A) HAS ALSO MENTIONED THAT IN THE ASSESSMENT YEAR 2003-04, THE AO FRAMED THE ASSE SSMENT UNDER SECTION 143(3) ON 28 TH MARCH, 2006, WHEREIN HE HAS ACCEPTED THE PROJECT C OMPLETION METHOD. ON THIS GROUND ALSO, WE ARE OF THE VIEW THAT THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN DELETING THE ADDITION MADE BY THE AO ON THE GROUND OF DOUBLE TAXATION OF THE SAME INCOME TWICE I.E. IN THE CURRENT ASSESSMENT YEAR AS WELL AS IN THE EARLIER ASSESSMENT YEAR. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED. 8.2 COMING TO THE CROSS OBJECTION FILED BY THE ASSE SSEE RELATING TO LD. CIT(A)S REJECTION OF ASSESSEES GROUND NO.1 WHICH WAS TAKEN BEFORE HIM FOR CLAIMING THAT THE IMPUGNED ORDER U/S.143(3) R.W.S. 147 OF THE I.T. AC T WAS BAD IN LAW AND DESERVED TO BE CANCELLED, THE LD. COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE, AT THE TIME OF HEARING, HAS NOT PRESSED THE ABOVE CROSS OBJECTION. THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS NOT BEING PRE SSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. THE ORDER PRONOUNCED IN THE COURT ON 12.08.201 1 SD/- SD/- (R.C.SHARMA) (T.K. SHARM A) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12/08/2011 ITA NO.1046-AHD-09 & C.O.93-AHD-09 6 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.