NARSINHA J. GHATE, MUMBAI V. ITO WD 29(2)(3), MUMBAI

ITA 1256/MUM/2009

• Counselvise Citation: 125619914 RSA 2009
• Duration Of Justice: 5 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-01-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 24-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Reopening of assessment; Reason to believe; Reassessment proceedings
• Section: 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI I.P. BANSAL, (JM) AND B.R.BASKARAN (AM) . . , . . , ./ I.T.A. NO.1256/MUM/2009 ( / ASSESSMENT YEAR : 2004-05) MR.NARSINHA J GHATE, 21, VEENA BEENA, GROUND FLOOR, OPP BANDRA RLY STATION, BANDRA (W), MUMBAI-400050 / VS. INCOME TAX OFFICER WARD 22(2)(3), VASHI RAILWAY STATION BUILDING, VASHI, NAVI MUMBAI-400703 ( / APPELLANT) .. ( / RESPONDENT) ./ !' ./PAN/GIR NO. :AACPG9377L # / ASSESSEE BY: SHRI M SUBRAMANIAN $ # / REVENUE BY:: SHRI S J SINGH % & $ ' ( / DATE OF HEARING :8.1.2015 )* $ ' ( / DATE OF PRONOUNCEMENT : 18.2.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 12.10.2008 PASSED BY THE LD. CIT(A)-22, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE LD. COUNSEL APPEARING FOR THE ASSESSEE INVIT ED OUR ATTENTION TO THE ADDITIONAL GROUND OF APPEAL FILED BY THE ASSESS EE, WHEREIN INITIATION OF REASSESSMENT PROCEEDINGS IS BEING QUESTIONED. ITA NO.1256/M/09 2 3. WE HAVE HEARD THE PARTIES ON THIS PRELIMINARY IS SUE AND PERUSED THE RECORD. THE ASSESSEE HAS FURNISHED A COPY OF REASO NS RECORDED BY THE AO FOR REOPENING OF ASSESSMENT AT PAGE 18 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE REASONS RECORDED BY THE AO READ AS U NDER: SHRI NARASINHA J GHATE : ASSESMETN YEAR 2004-05 IN THIS CASE INCOME TAX RETURN FOR THE AY 2004-05 W AS FILED ON 1.11.2004 DECLARING TOTAL INCOME AT RS.2,79,690/-. THE RETURN IS ACCOMPANIED WITH TAX AUDIT REPORT WHICH SHOWS THE A SSESSEE IS PROPRIETOR OF M/S ORIENT ASSOCIATES DOING THE BUSIN ESS AS BUILDERS AND DEVELOPERS. THE ASSET SIDE OF THE BALANCE SHEET SHOWS WIP AT RS.14,42,034/- AND VARIOUS PLOTS OF LAND AT ULVE AN D KAMOTHE. THE ASSESSEE HAS ALSO SHOWN ADVANCE AGAINST BOOKING AT RS.29,00,556/-. HOWEVER, ON EXAMINATION ASSESSEES RETURN FOR AY 2005-06, IT IS SEEN THAT THE ASSESSEE HAS SHOWN SAL ARY INCOME OF RS.2,36,925/-. NO BALANCE SHEET IS ENCLOSED WITH TH E RETURN. IT IS THEREFORE, PRESUMED THAT THE ASSESSEE HAS SOLD THE WORK-IN-PROGRESS IN THE AY 2004-05 ITSELF. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF TH E CASE I HAVE REASON TO BELIEVE THAT INCOME TO THE TUNE OF R S.14,42,034/- AND FURTHER INCOME ON SALE OTHER ASSETS, CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE AY 2004-05 WITHIN THE M EANING OF SUB- SECTION (B) OF SECTION 147 OF THE IT ACT. ACCORDI NGLY, THIS IS A FIT CASE FOR ISSUE OF NOTICE UNDER SECTION 148 OF THE I T ACT, 1961 4. THE LD. COUNSEL SUBMITTED THAT THE AO HAS REOPEN ED THE ASSESSMENT ON PRESUMPTION WITHOUT POINTING OUT THE INCOME WHIC H HAS ESCAPED ASSESSMENT. HE FURTHER SUBMITTED THAT THE AO HAS MA DE REFERENCE TO THE INCOME RELATING TO WIP AMOUNTING TO RS.14.42 LAKHS, BUT HE HAS FAILED TO MAKE ANY ADDITION WITH REGARD TO THE SAME IN THE RE -ASSESSMENT PROCEEDINGS. ACCORDINGLY HE CONTENDED THAT, IN VIE W OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS . JET AIRWAYS (I) LTD.(331 ITA NO.1256/M/09 3 ITR 336(BOM . ) , THE AO IS NOT ENTITLED TO MAKE ANY OTHER ADDITI ON, IF HE FAILS TO MAKE ADDITION IN RESPECT OF ITEMS ON WHICH THE ASSESSMENT WAS REOPENED. 5. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE A O HAS REOPENED THE ASSESSMENT NOT ONLY WITH REGARD TO THE WIP BUT ALSO WITH REGARD TO THE OTHER INCOME RELATING TO THE SALE OF ASSETS. FURTH ER, THE AO HAS MADE REFERENCE TO THE ADVANCE RECEIVED BY THE ASSESSEE T OWARDS BOOKING OF FLATS. ACCORDINGLY, THE LD. DR SUBMITTED THAT THE AR WAS NOT RIGHT IN PRESUMING THAT THE AO HAS REOPENED THE ASSESSMENT W ITH REGARD TO WIP ONLY. THE LD. DR FURTHER SUBMITTED THAT THE AO HA S ADDED THE SUM OF RS.1,36,525/- RELATING TO CAPITAL GAIN ARISING ON S ALE OF ASSETS. ACCORDINGLY, HE SUBMITTED THAT THE AO HAS MADE ADDI TION WITH RESPECT TO THE ONE OF THE POINTS ON WHICH THE IMPUGNED ASSESSM ENT WAS REOPENED. 6. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THERE IS NO MERIT IN THE CONTENTIONS OF THE ASSESSEE. AS POI NTED OUT BY THE LD. DR THAT THE AO HAS REOPENED THE ASSESSMENT, INTER-ALIA , WITH REGARD TO THE INCOME ARISING ON SALE OF OTHER ASSETS. THE AO HAS ALSO MADE ADDITION WITH REGARD TO THE SALE OF ASSETS, AND HENCE, WE AR E OF THE VIEW THAT THE REOPENING HAS BEEN DONE IN ACCORDANCE WITH LAW. AC CORDINGLY, WE REJECT THE CONTENTION OF THE ASSESSEE IN THIS REGARD. ITA NO.1256/M/09 4 7. OTHER GROUNDS URGED BY THE ASSESSEE ARE RELATING TO THE FOLLOWING ISSUES: A) DISALLOWANCE OUT OF ELECTRICITY CHARGES; B) DISALLOWANCE OF TELEPHONE EXPENSES; C) ASSESSMENT OF PROFIT ON PLOT NO.12 AND D) ASSESSMENT OF PROFIT AT 11 %. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DISALL OWED ELECTRICITY EXPENSES TO THE TUNE OF RS.2,83,485/-, WHICH PERTAI NED TO PLOT NO.21 (CIT(A) HAS STATED AS 200) AND PLOT NO.132B. THE A SSESSEE DID NOT OFFER ANY INCOME DURING THE INSTANT YEAR FROM PLOT NO.21 AND PLOT NO. 132B HAPPENED TO BE THE RESIDENCE OF THE ASSESSEE. HENC E THE AO DISALLOWED THE ABOVE SAID SUM OF RS.2,83,485/-. 8. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE CONSTRUCTION ON PLOT NO.200 HAD ALREADY BEEN COMPLETED AND POSSE SSION OF FLATS WERE ALSO GIVEN IN THE IMMEDIATELY PRECEDING YEAR. IT W AS SUBMITTED THAT THE ASSESSEE RECEIVED A BILL FOR AN AMOUNT OF RS.2,81,0 34/- DURING THE YEAR UNDER CONSIDERATION FROM THE ELECTRICITY DEPARTMENT AND THE SAME WAS PAID BY THE ASSESSEE AND CLAIMED AS DEDUCTION. ACCO RDINGLY IT WAS SUBMITTED THAT THE ELECTRICITY EXPENSES IS RELATED TO THE YEAR UNDER CONSIDERATION. THE ASSESSEE FURTHER SUBMITTED THAT HE HAS INCURRED A SUM OF RS.7980/- TOWARDS THE ELECTRICITY CHARGES OF HIS RESIDENCE AND CLAIMED THE SAME AS EXPENDITURE, SINCE HE WAS CARRYON THE B USINESS ACTIVITIES FROM HIS RESIDENCE. THE LD. CIT(A), BY ACCEPTING THE CO NTENTION OF THE ASSESSEE ITA NO.1256/M/09 5 WITH REGARD TO THE ELECTRICITY CHARGES PERTAINING TO PLOT NO.200, GRANTED RELIEF TO THE TUNE OF RS.2,81,034/-. HOWEVER, THE LD. CIT(A) CONFIRMED THE ELECTRICITY CHARGES OF RS.7980/- PERTAINING TO RES IDENCE. AGGRIEVED BY THE DECISION OF THE LD.CIT(A) IN CONFIRMING THE ADDITIO N OF RS.7980/- TOWARDS ELECTRICITY CHARGES THE ASSESSEE IS IN APPEAL BEFOR E US. 9. WE NOTICE THAT THE ELECTRICITY CHARGES OF RS.79 80/-PERTAIN TO RESIDENCE OF THE ASSESSEE. THOUGH THE ASSESSEE HAS CONTENDED THAT HE WAS USING THE RESIDENCE AS HIS OFFICE, YET NO PROOF WHATSOEVER WAS PLACED BEFORE US TO SUBSTANTIATE THE SAME. UNDER THESE CIR CUMSTANCES, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFI RMING THE ADDITION OF RS.7980/- TOWARDS ELECTRICITY CHARGES. 10. THE NEXT ISSUE RELATES TO DISALLOWANCE OF TELEP HONE EXPENSES. THE AO DISALLOWED 20% OF TELEPHONE EXPENSES TOWARDS PER SONAL USAGE AND THE LD. CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE . BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN USING THE TELE PHONE FOR OFFICIAL PURPOSES ONLY AND THE PERSONAL USAGE WAS NEGLIGIBLE . 11. WE HAVE HEARD THE LD. DR ON THIS ISSUE. WE NOTI CE THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.1,03,939/- IN AGGREGATE AS TELEPHONE EXPENSES, WHICH INCLUDED RESIDENTIAL PHONE ALSO AND THE AO HA S DISALLOWED 20% OF THE SAME TOWARDS PERSONAL USE. CONSIDERING THE ACT IVITY OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF 20% OF THE AGGREGATE AMOUNT ITA NO.1256/M/09 6 OF TELEPHONE EXPENSES IS ON HIGHER SIDE. ACCORDING LY, WE MODIFY THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RE STRICT THE DISALLOWANCE TO 10% OF THE TELEPHONE EXPENSES CLAIMED BY THE ASSESS EE. 12. THE NEXT ISSUE RELATES TO ASSESSMENT OF PROFIT ON PLOT NO.42. THE AO NOTICED THAT THE ASSESSEE HAS CARRIED OUT THE CONST RUCTION WORK ON THREE PLOTS VIZ PLOT N.42, 57 AND 76. THE AO FURTHER NOT ICED THAT THE PROJECT ON PLOT NO.42 HAS BEEN COMPLETED DURING THE YEAR UNDER CONSIDERATION AND THE PROJECTS ON REMAINING TWO PLOTS WERE IN PROGRES S. THE ASSESSEE HAS NOT FURNISHED PROJECT WISE PROFIT AND LOSS ACCOUNT AND HENCE THE AO PROCEEDED TO WORK OUT THE PROFIT FROM EACH OF THE P ROJECT. THOUGH THE AO ALLOCATED DIRECT EXPENSES TO THE CONCERNED PROJECT, THE INDIRECT OR COMMON EXPENSES WERE ALLOCATED EQUALLY @ 1/3 EACH BETWEEN THE THREE PROJECTS REFERRED ABOVE. IN THIS PROCESS, THE AO ARRIVED AT PROFIT FROM THE PROJECT CARRIED OUT AT PLOT NO.42 AT RS.10,95,869/- AND ASS ESSED THE SAME. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD ON THIS ISSUE. ACCORDING TO THE ASSESSEE, HE WAS PREPARING CONSOLIDATED PROFIT AND LOSS ACCOUNT. THE LD A.R SUBMITTED THAT THE AS SESSEE HAS COMPLETED THE PROJECT IN PLOT NO.42 AND THE OTHER PROJECTS AR E ONLY AT INFANCY STATE. ACCORDINGLY HE SUBMITTED THAT THE AO WAS NOT JUSTIF IED IN PREFERRING PROFIT AND LOSS ACCOUNT PROJECT WISE. ACCORDINGLY, THE L D. AR SUBMITTED THAT THE ITA NO.1256/M/09 7 PROFIT DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. IN THE ALTERNATIVE, HE SUBMITTED THE ALLOCATION OF ADMINISTRATIVE EXPENSES ON THE PROJECT CARRIED OUT IN PLOT NO.42 IS ON THE LOWER SIDE. ON THE CON TRARY, THE LD DR STRONGLY DEFENDED THE ORDERS OF AUTHORITIES BELOW ON THIS IS SUE. 14. THE UNDISPUTED FACTS REMAINS THAT THE ASSESSEE HAS COMPLETED THE PROJECT CARRIED ON PLOT NO.42. HOWEVER, WHILE ESTI MATING THE PROFIT ON THE SAID PROJECT, THE AO ALLOCATED ADMINISTRATIVE EXPEN SES EQUALLY ON ALL THE THREE PROJECTS VIZ PLOT NO.42 (WHICH IS COMPLETED), PLOT NO.57 AND PLOT NO.76 (UNDER PROGRESS). WE NOTICE FROM THE ASSESSM ENT ORDER, THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.95,85,736/- ON SA LE OF FLATS CONSTRUCTED ON PLOT NO.42 AND THE TOTAL EXPENSES INCURRED WAS R S.82,03,672/-. HOWEVER AMOUNT SPENT ON PLOT NO.57 AND 76 WAS RS.9, 71,227/- AND 2,40,497/- ONLY. THUS IT IS SEEN THAT THE PROJECTS CARRIED IN PLOT NO.57 AND 76 ARE COMPARATIVELY LOWER IN SIZE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN ALLOCATING TH E ADMINISTRATIVE EXPENSES EQUALLY BETWEEN ALL THE THREE PROJECTS. SINCE THE A SSESSEE HAS BEEN SELLING FLATS CONSTRUCTED ON PLOT NO.42, NATURALLY HE WOULD HAVE SPENT MORE TIME AND ENERGY IN RESPECT OF THIS PROJECT. ACCORDINGLY , WE ARE OF THE VIEW THAT THE MAJOR PORTION OF THE ADMINISTRATIVE EXPENSES SH OULD BE ALLOCATED TO PLOT NO.42. CONSIDERING THE STATUS OF EACH OF THE PROJECT, WE ARE OF THE CONSIDERED VIEW THAT THE ALLOCATION OF ADMINISTRATI VE EXPENSES WOULD MEET ENDS OF JUSTICE, IF IT IS ALLOCATED IN THE FOLLOWIN G MANNER: ITA NO.1256/M/09 8 A) PLOT NO.42 70% B) PLOT NO.57 20% AND C) PLOT NO.76 10% ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON THIS ISSUE AND DIRECT THE AO TO RECOMPUTE THE PROFIT ON CONSTRUCT ION OF FLATS ON PLOT NO.42 BY ADOPTING THE ADMINISTRATIVE EXPENSES IN TH E RATIO CITED ABOVE. 15. THE NEXT ISSUE RELATE TO ASSESSMENT OF PROFIT F ROM CONSTRUCTION ON FLATS ON PLOT NOS. 57 AND 76. THE AO ESTIMATED THE PROFIT AT 11% OF WIP AND THE LD. CIT(A) ALSO CONFIRMED THE SAME. BEFORE US, THE LD.AR SUBMITTED THAT BOTH THE PROJECTS ARE AT INITIAL STA GES AND HENCE NO PROFIT NEED TO BE ESTIMATED. HOWEVER, THE LD. AR FAILED TO SHOW ABOUT THE STAGE OF COMPLETION OF PROJECT. IN THE ABSENCE OF THE DE TAILS, WE ARE NOT ABLE TO APPRECIATE THE CONTENTION OF THE LD. AR. AT THE SA ME TIME, WE NOTICE THAT THE ESTIMATE OF PROFIT FROM WIP MADE BY THE AO AT 1 1% IS ON THE HIGHER SIDE. ACCORDINGLY, WE MODIFY THE ORDER OF LD. CIT (A) AND DIRECT THE AO TO ESTIMATE THE PROFIT FROM WIP OF PLOT NOS.57 AND 76 AT 8% OF THE WIP. WHILE COMPUTING THE WIP, THE AO SHOULD ADOPT THE FI GURE OF ADMINISTRATIVE EXPENSES AS PER OUR DIRECTION GIVEN IN THE EARLIER PARAGRAPH. ITA NO.1256/M/09 9 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH FEB, 2015. )* % + , -18TH FEB, 2015 * $ 2& 3 SD SD ( . . /I.P. BANSAL ) ( . . ,/ B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % & MUMBAI: 18TH FEB,2015. . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. % 6' ( ) / THE CIT(A)- CONCERNED 4. % 6' / CIT CONCERNED 5. 6. 78 2 '9 , ( 9 , % & / DR, ITAT, MUMBAI CONCERNED 2 : ; & / GUARD FILE. < % / BY ORDER, TRUE COPY = ! (ASSTT. REGISTRAR) ( 9 , % & /ITAT, MUMBAI