VRUTTI DEVELOPERS LLP, MUMBAI V. PR.CIT-29, MUMBAI

ITA 1085/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3643 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 26-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAMLD
• Assessee Lawyers: PARESH SHAPARIA LD
• Section: 143(3); 142(1); 263

Judgement Text

ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.1085/MUM/2019 ( / ASSESSMENT YEAR: 2014-15) VRUTTI DEVELOPERS LLP 4 TH FLOOR, NEPTUNE MAGNET MALL NEAR MANGATRAM PETROL PUMP LBS MARG, BHANDUP (W) MUMBAI-400 078. / VS. PR.CIT - 29 C-10, 3 RD FLOOR PRATYAKSHKAR BHAVAN BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. '# ./ ./PAN/GIR NO. AAJFV-2326-H ( !#% /APPELLANT ) : ( &'#% / RESPONDENT ) ASSESSEE BY : SHRI PARESH SHAPARIA-LD. AR REVENUE BY : SHRI GAURAV BATHAM-LD. CIT-DR / DATE OF HEARING : 17/12/2020 / DATE OF PRONOUNCEMENT : 03/03/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. BY WAY OF THIS APPEAL, THE ASSESSEE CHALLENGES V ALIDITY OF REVISIONAL JURISDICTION U/S 263 AS EXERCISED BY LEARNED PR. CO MMISSIONER OF INCOME TAX -29 [PR.CIT ] FOR ASSESSMENT YEAR (AY) 2014-15 VIDE ORDER DATED 17/01/2019. THE EFFECTIVE GROUND READ AS UNDER: - ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 2 1. THE LEARNED PR. CIT ERRED IN TREATING THE ORDE R PASSED BY A.O. U/S.143(3) DATED 28.12.2016 AS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. 2. THE LEARNED PR. CIT OUGHT NOT TO HAVE TREATED ORDER PASSED U/S. 143(3) AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE . 3. THE ORDER PASSED U/S. 263 IS BAD IN LAW. 2. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING SUBMISSIONS M ADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS DURING REVISIONAL PROCEEDINGS. THE VARIOUS JUDICIAL PRECED ENTS AS CITED DURING THE COURSE OF HEARING HAVE DULY BEEN DELIBERATED UP ON BY US. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 3. THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING R ESIDENT LLP WAS ASSESSED FOR THE YEAR UNDER CONSIDERATION U/S 143(3 ) ON 28/12/2016 ACCEPTING RETURNED LOSS OF RS.2.44 LACS. THE ASSESS MENT ORDER TAKES NOTE OF THE FACT THAT THE ASSESSEE IS A BUILDER & D EVELOPER ENGAGED IN THE CONSTRUCTION OF BUILDING. THE PROJECTS WERE IN PRELIMINARY STAGE AND THE ASSESSEE HAS NOT SOLD ANY FLAT DURING THE YEAR UNDER CONSIDERATION BUT RECEIVED ADVANCES AGAINST SALE OF FLATS. 4.1 SUBSEQUENTLY, LD. PR. CIT, UPON PERUSAL OF CASE RECORDS, OPINED THAT THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO REV ENUE AND HENCE, WOULD REQUIRE REVISION U/S 263. ACCORDINGLY A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE DURING THE COURSE OF REVISIO NAL PROCEEDINGS WHICH WAS DULY RESPONDED TO BY THE ASSESSEE. THE AL LEGATIONS WERE TWO FOLDS- (I) THE ASSESSEE FOLLOWING PERCENTAGE OF COM PLETION METHOD, DID NOT RECOGNIZE ANY REVENUE AND NOT OFFERED INCOME FR OM THE PROJECT; (II) THOUGH IT PAID INTEREST ON BORROWED LOANS AND CLAIM ED INTEREST ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 3 EXPENDITURE UNDER WORK-IN-PROGRESS (WIP) BUT IT DID NOT CHARGE ANY INTEREST ON CAPITAL WITHDRAWN BY THE PARTNERS DURIN G THE YEAR. 4.2 THE ASSESSEE DEFENDED THE ASSESSMENT ORDER, INT ER-ALIA, BY SUBMITTING THAT ALL THE REQUISITE DETAILS WERE PLAC ED BEFORE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND LD.AO ACCE PTED THE SAME AFTER DUE CONSIDERATION. THEREFORE, THE ORDER WAS P ASSED WITH DUE APPLICATION OF MIND. REGARDING REVENUE RECOGNITION, IT POINTED OUT THAT THE SOLE PROJECT BEING UNDERTAKEN BY THE ASSESSEE W AS IN INITIAL STAGES AND EXPENDITURE ON CONSTRUCTION WAS ONLY 4.25% DURI NG THE YEAR. THE CONDITION THAT CONSTRUCTION COST SHOULD NOT BE LESS THAN 25% OF ESTIMATED COST TO RECOGNIZE THE REVENUE WAS NOT MET. SIMILARL Y, THE CONDITION THAT 25% SALEABLE PROJECT AREA IS TO BE SECURED BY CONTR ACTS / AGREEMENTS WERE ALSO NOT FULFILLED SINCE PERCENTAGE OF AREA BO OKED BY THE ASSESSEE WAS LESS THAN 18% DURING THE YEAR. REGARDING CHARGI NG OF INTEREST ON PARTNERS CAPITAL BALANCES, THE ATTENTION WAS DRAWN TO THE FACT THAT THE ASSESSEE RECOVERED INTEREST OF 12% FROM PARTNERS FO R AYS 2014-15 TO 2017-18 AND SUO-MOTO REDUCED CLOSING WIP IN AY 2017 -18 AND THEREFORE, ULTIMATELY THERE WOULD BE NO IMPACT ON A SSESSEES PROFITABILITY. 4.3 HOWEVER, THE AFORESAID PLEAS WERE REJECTED IN T HE LIGHT OF THE OBSERVATION THAT LD. AO DID NOT INQUIRE INTO EVIDEN CES AND ARCHITECTS CERTIFICATES IN ORDER TO EXAMINE THE PERCENTAGE OF CONSTRUCTION DURING AY 2014-15. NO SUCH RECORD WAS PLACED BY THE ASSESSEE IN SUPPORT OF THE SAME. SIMILARLY, LD.AO FAILED TO MAKE INQUIRY ON TH E INTEREST ASPECT. THEREFORE, IT WAS CONCLUDED THAT THE ASSESSMENT WAS COMPLETED WITHOUT MAKING REQUISITE INQUIRIES OR VERIFICATIONS WHICH S HOULD HAVE BEEN MADE. ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 4 FINALLY, INVOKING THE PROVISIONS OF SEC.263, LD. AO WAS DIRECTED TO FRAME THE ASSESSMENT DE-NOVO. AGGRIEVED AS AFORESAID, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US ASSAILING INVOCATION OF REVISIONAL JURISDICTION U/S 263. 5. UPON CAREFUL CONSIDERATION OF MATERIAL ON RECORD , WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE S U/S 142(1) WERE ISSUED ON 07/11/2016 & 30/11/2016 WHEREIN VARIOUS D ETAILS WERE CALLED FROM THE ASSESSEE. IN NOTICE DATED 07/11/2016, THE ASSESSEE WAS ASKED, INTER-ALIA, TO FILE A NOTE ON BUSINESS ACTIVITIES W ITH PROJECT UNDER IMPLEMENTATION AND PERCENTAGE OF COMPLETION AS ON 3 1/03/2014 DULY CERTIFIED BY THE ARCHITECT. PARTY-WISE DETAILS OF I NTEREST & FINANCE EXPENSES WERE ALSO CALLED FROM THE ASSESSEE. IN POI NT NO.13, A SPECIFIC QUERY WAS RAISED REGARDING CHARGING OF INTEREST ON OVERDRAWN CAPITAL OF THE PARTNERS. IN RESPONSE THERETO, IT WAS SUBMITTED THAT THERE WERE NO SALES DURING THE YEAR. THE COPIES OF PARTNERS CAPI TAL ACCOUNT AS WELL AS DETAILS OF UNSECURED LOANS WERE FURNISHED. PARTY-WI SE DETAILS OF INTEREST & FINANCES EXPENSES WERE ALSO SUBMITTED. IN SUBMISS ION DATED 30/11/2016, A NOTE ON BUSINESS ACTIVITY WITH DETAIL OF PROJECT UNDER IMPLEMENTATION AND COMMENCEMENT CERTIFICATE WAS FIL ED. IT WAS SUBMITTED THAT INTEREST ON CAPITAL WAS NOT CHARGED AS PER PARTNERSHIP DEED. IT WAS REITERATED THAT NO SALES WERE MADE DU RING THE YEAR. IN NOTICE DATED 30/11/2016, THE ASSESSEE WAS DIRECT ED TO FILE DETAILS OF TOTAL SALEABLE AREA, BUILT UP AREA AND SUPER BUILT UP AREA. THE PERCENTAGE OF WORK COMPLETED IN EACH YEAR FROM THE COMMENCEMEN T OF PROJECT WAS ALSO CALLED FOR. THE ASSESSEE WAS DIRECTED TO FURNI SH A CERTIFICATE FROM ARCHITECT REGARDING PERCENTAGE COMPLETED BACKED BY DETAILED WORKING. ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 5 IN RESPONSE THERETO VIDE SUBMISSIONS DATED 05/12/20 16, THE ASSESSEE FILED DETAILS OF SALEABLE AREA AS CALLED FOR BY LD. AO. THE ATTENTION WAS DRAWN TO THE FACT THAT THE SOLE PROJECT BEING CARRI ED ON BY THE ASSESSEE IN THE NAME OF NEPTUNE LOTUS PROJECT WAS IN INITIAL STAGES. THE CERTIFICATE FROM ARCHITECT STATING THAT EXCAVATION WORK WAS IN PROGRESS WAS ALSO FILED. IT WAS SUBMITTED THAT THERE WERE NO SALES DU RING THE YEAR AND THE ASSESSEE MERELY RECEIVED ADVANCES, THE DETAILS OF W HICH WERE FURNISHED. IN SUBSEQUENT SUBMISSIONS DATED 09/12/2016, IT WAS EXPLAINED THAT ARCHITECTS CERTIFICATE WAS NOT OBTAINED AS COMMENC EMENT CERTIFICATE WAS RECEIVED ON 07/10/2013 AND APPROVAL OF FLOORS W AS GRANTED ONLY ON 16/02/2015. DURING THIS PERIOD, THE WORK COMPLETED WAS ONLY EXCAVATION AND PILING WORK WHICH WAS REFLECTED UNDER WIP. THE STAGE OF PERCENTAGE OF COMPLETION WAS STATED TO BE NOT APPLICABLE SINCE THE PROJECT WAS IN INCEPTION STAGE. FINALLY, AFTER DUE CONSIDERATION OF ASSESSEES SUBM ISSIONS AS ABOVE, AN ASSESSMENT WAS FRAMED ON 28/12/2016 WHEREIN LD. CHO SE TO ACCEPT ASSESSEES RETURN OF INCOME WITHOUT DISTURBING THE SAME. 6. ALL THE AFORESAID FACTS WOULD SHOW THAT LD. AO W AS CLINCHED WITH THE SPECIFIC ISSUES OF PERCENTAGE OF COMPLETION ACH IEVED BY THE ASSESSEE DURING THE YEAR AS WELL AS CLINCHED WITH T HE ISSUE OF INTEREST EXPENDITURE. THE REQUISITE DETAILS AS WELL AS DOCUM ENTARY EVIDENCES WERE FURNISHED BY THE ASSESSEE AS CALLED FOR BY LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SINCE THE SUBMISS IONS / EXPLANATIONS WERE FOUND TO BE SATISFACTORY, NO FURT HER INFORMATION WAS CALLED FROM THE ASSESSEE WHICH IS ALSO EVIDENT FROM THE FACT THAT THE RETURNED LOSS HAS BEEN ACCEPTED BY TAKING NOTE OF T HE FACT THAT THE ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 6 PROJECT WAS IN PRELIMINARY STAGE AND THE ASSESSEE H AS NOT SOLD ANY FLAT DURING THE YEAR UNDER CONSIDERATION BUT RECEIVED ME RE ADVANCES. IN VIEW OF THE FOREGOING, IT COULD BE CONCLUDED THAT THE VI EW OF LD AO, COULD NOT BE SAID TO BE CONTRARY TO LAW, IN ANY MANNER, ON BO TH THE ISSUES AS ALLEGED BY LD. PR. CIT. THERE WAS PROPER APPLICATIO N OF MIND BY LD. AO ON BOTH THE ISSUES. 7. ANOTHER PERTINENT FACT TO BE NOTED IS THAT NOTIO NAL INTEREST ON OVERDRAWN CAPITAL FOR AYS 2014-15 TO 2017-18 HAS AL READY BEEN REDUCED BY THE ASSESSEE FROM FINANCIAL EXPENSES IN AY 2017- 18 WHICH HAVE ULTIMATELY REDUCED THE CLOSING WIP HELD BY THE ASSE SSEE FOR THAT YEAR. THE CASE FOR AY 2017-18 HAS ALREADY BEEN ASSESSED U /S 143(3) ON 29/12/2019 AND THE ASSESSEES CLOSING WIP HAS NOT B EEN DISTURBED IN THAT YEAR. THIS BEING THE CASE, EVEN OTHERWISE THER E WOULD BE NO LOSS TO THE REVENUE. 8. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. V/S CIT (243 ITR 83 10/02/2000) HAS HELD THAT THE PHRASE 'P REJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNC TION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS O F REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CA NNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EX AMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMI SSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE SAID PRINCIPAL HAS BEEN REITERATED BY ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 7 HONBLE COURT IN ITS SUBSEQUENT JUDGMENT TITLED AS CIT V/S MAX INDIA LTD. (295 ITR 282). SIMILAR PRINCIPAL HAS BEEN FOLLOWED BY JURISDICTIONAL HIGH COURT IN GRASIM INDUSTRIES LTD. V/S CIT (321 ITR 92 ). THE HONBLE DELHI HIGH COURT, CIT V/S VIKAS POLYMER S (194 TAXMAN 57 16/08/2010) OBSERVED THAT AS REGARDS THE SCOPE AND AMBIT OF THE EXPRESSION 'ERRONEOUS', HONBLE BOMBAY HIGH COURT I N CIT VS. GABRIEL INDIA LTD. [1993 203 ITR 108 (BOMBAY)], HELD WITH R EFERENCE TO BLACK'S LAW DICTIONARY THAT AN 'ERRONEOUS JUDGMENT' MEANS ' ONE RENDERED ACCORDING TO COURSE AND PRACTICE OF COURT, BUT CONT RARY TO LAW, UPON MISTAKEN VIEW OF LAW; OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES' AND THUS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS 'ERRONEOUS' UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS 'ERRONEOUS' BY THE COMMISSIONER SIMPLY B ECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN DIFFEREN TLY OR MORE ELABORATELY. THE SECTION DOES NOT VISUALIZE THE SUB STITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME -TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION IS NOT IN ACCO RDANCE WITH LAW. 9. THEREFORE, ON THE FACTS AND CIRCUMSTANCES, THE R EVISIONAL JURISDICTION COULD NOT BE HELD TO BE VALID UNDER LA W. BY QUASHING THE ORDER DATED 17/01/2019, WE ALLOW ASSESSEES APPEAL. 10. THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED ON 03 RD MARCH, 2021 SD/- SD/- (AMARJIT SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA NO.1085 /MUM/2019 VRUTTI DEVELOPERS LLP ASSESSMENT YEAR: 2014-15 8 MUMBAI; DATED : 03/03/2021 S R.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !#% / THE APPELLANT 2. &'#% / THE RESPONDENT 3. - ( ! ) / THE CIT(A) 4. - / CIT CONCERNED 5. ./& 0 , ! 0 , / DR, ITAT, MUMBAI 6. /12 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.