DCIT, CHENNAI V. M/s. Mayflower Properties (P) Ltd., CHENNAI

ITA 146/CHNY/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86346 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR NISCHAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Bad and doubtful debts; Tax effect

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! , ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A. NOS.146 & 147 /MDS/2011 ( / ASSESSMENT YEARS : 2005-06 & 2006-2007) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV( 1), CHENNAI ( %& /APPELLANT) VS M/S. MAYFLOWER PROPERTIES (P) LTD, SHARANYA APARTMENTS, 38, RUCKMANI ROAD, KALASHETRA COLONY, CHENNAI 600 090. [PAN:AAACM 6618B] ( !'%& /RESPONDENT) / APPELLANT BY : DR. NISCHAL, JCIT. / RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 19.03.2015. ! /DATE OF PRONOUNCEMENT : 19.03.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS ARE FILED BY REVENUE IN RESPECT O F ABOVE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 AND 2006- 07. SINCE BOTH THE APPEALS ARE RELATED TO SAME ASSESSEE, THESE APP EALS ARE CLUBBED, I.T.A.NOS.146 &147/MDS/2011. :- 2 -: HEARD AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP ITA NO.146/MDS/2011. THE REVENUE RAISED THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRAR Y TO LAW AND FACTS OF THE CASE. 2.1 THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF BAD DEBTS. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE IMMOVAB LE PROPERTIES TRANSACTION HAVE ONLY BEEN ACCOUNTED AS INVESTMENTS IN ASSESEES BOOKS OF ACCOUNTS. 2.3 THE TRANSACTION DID NOT FORM PART OF THE P & L A/C. AND CLOSING SOCK VALUE WORK IN PROGRESS WERE NOT ACCOU NTED AND HENCE CANNOT BE CLAIMED AS BAD DEBTS. 2.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE AS PER LETTER DATED 05.05.2008 STATED THAT F7,92, 000/- WAS RECEIVED FROM BALI MEADOWS WHEREAS BEFORE THE CIT(A ) THE ASSESSEE CLAIMED THAT THIS MONEY WAS RECEIVED FROM SHRI. LT. GEN. M.N. BATRA AGAINST TRANSFERRING RIG HTS UNDER AN AGREEMENT WITH M/S. RAJA HOUSING. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCTED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF TH E LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REC ORD. WE ARE OF THE OPINION THAT TAX EFFECT INVOLVED IN THIS APP EAL IS LESS THAN RUPEES FOUR LAKHS AND IN VIEW OF THE CBDT CIRCULAR NO.5/2014, DATED I.T.A.NOS.146 &147/MDS/2011. :- 3 -: 10 TH JULY, 2014, THE REVENUE IS PRECLUDED FROM FILING T HE APPEAL BEFORE THE TRIBUNAL. 4. ACCORDINGLY, THIS APPEAL IS DISMISSED AS NON-ADMIT TED. 5. COMING TO THE ITA NO.147/MDS/2011, THE REVENU E RAISED A GROUND THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DELETING THE ADDITION OF F48,90,475/- WHICH THE AS SESSEE SHOWED AS ADVANCE RECEIVED FOR JOINT DEVELOPMENT OF VELACHERY LAND. 6. THE FACTS OF THE CASE ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT TH E ASSESSEE HAS RECEIVED F48, 90 , 475/- TOWARDS JOINT DEVELOPMENT PROPERTY RECEIPTS FROM M/S SURESH & CO AND SHOWN AS VELACHERY LAND AD VANCE . THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME WAS NOT OFFERED TO TAXATION DURING THE FY 2005-2006. THE ASSESSEE COMP ANY HAS REPLIED THAT THE COMPANY HAS ENTERED INTO A JOINT DEVELOPME NT AGREEMENT WITH M/S SURESH AND COMPANY FOR THE DEVELOPMENT OF THE VELACHERY PROPERTY . 6.1 AS AGAINST THE ENTIT L EMENT OF 40 % OF TOTAL SALE PROCEEDS OF THE JOINT DEVELOPMENT, THE COMPANY HAS RECEIVED A S UM OF I.T.A.NOS.146 &147/MDS/2011. :- 4 -: F48, 90 , 475/- BEING THEIR SHARE DU R ING THE YEAR ENDED 31.03.2006. AS THE COMPANY COULDN ' T ARRIVE AT THE CLEAR PROFIT AND LOSS ON THIS J OI N T DEVELOPMENT , THE AMOUNT RECEIVED WAS KEPT AS ADVANCE RECEIVED AGA I NST THE SALE OF LAND AS THE TRANSACTION WAS NOT COM P L ETED IN FULL I . E. THE ENTIRE PRO J ECT WAS NOT SOLD BEFORE 31.03 . 2006 . SO THE ABOVE CONTENT I ON OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OF FICER ON THE GROUND T HAT , THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 6.2 IN THE COURSE OF FIRST APPELLATE PROCEEDINGS, THE A UTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE OWNED A PIECE OF LAND AT VELACHERY WHICH WAS GIVEN ON DEVELOPMENT BASIS T O ONE M/S.SURESH & CO., WHERE AS PER THE TERMS OF UNDERSTANDING THE ASSESSEE SHOULD RECEIVE 40% SALE PROCEEDS OF THE PROPERTY DEVELOPED BY THE DEVELOPER AND DURING THE COURSE OF THE ASSESSMENT YEAR 2006-0 7, A SUM OF RS . 4B,90 , 475/- WAS RECEIVED AS ADVANCE . IN FACT AS PER THE COVENANTS OF THE AGREEMENT, THE ASSESSEE SHOULD RECEIVE A MINIMUM SALE CONSIDERATION OF F 60 , 00,0001- AS ITS SHARE AND THIS AMOUNT IS RECEIVABLE ONLY ON COMPLETION OF THE PROJECT AND IN FACT THE PROJECT WAS COMPLETED DURING THE ASSESS MENT YEAR 2007 08 AND THE ASSESSEE OFFERED THE ENTIRE INCOME TO TAX IN THE SAID I.T.A.NOS.146 &147/MDS/2011. :- 5 -: ASSESSMENT YEAR 2007 -08. HAVING OPTED TO TREAT THE ADVANCE RECEIVED AS THE INCOME OF THE APPELLANT THE ASSESSING OFFICE R OUGHT TO HAVE ALLOWED THE PROPORTIONATE COST CORRESPONDING TO THE ADVANCE RECEIVED AS A DEDUCTION, AGAINST THE ADVANCE RECEIVED . WITHOUT ALLOWING SUCH COST AS DEDUCTION THE ASSESSING OFFICER HAS OPTED T O NOTIONALLY TAX THE ADVANCE RECEIVED AS INCOME WHICH IS HIGH L Y IRRATIONAL AND COMPLETELY UNJUSTIFIED . 6.3 THE AUTHORIZED REPRESENTAT I VE HAS ALSO SUBMITTED AN EXTRACT OF THE BALANCE SHEET FOR THE AY 2006-2007 W HERE IT IS CLEARLY SHOWN THAT UNDER THE CURRENT LIABILITIES, F48, 90 , 475/- IS SHOWN AS VELCHERY LAND SALES ADVANCE AND UNDER THE HEAD CURR ENT ASSETS F54 , 20,204/- TOWARDS COST FOR JOINT VENTURE DEVELOPMENT . ALSO EXTRACT OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2007 -2008 SUBMITTED SHOWING G R OSS RECEIPTS FROM VELACHERY JOINT DEVELOPMENT FOR F 67 , 45 , 6301 - AS INCOME AND F 54 , 20 , 2041- AS EXPENDITURE TOWARDS JOINT DEVELOPMEN T. THUS SHOWING A CLEAR PROFIT OF F 13,25 , 426/-ON THIS ACCOUNT, HE ALSO S U BM I TTED A NOTE OFFER I NG THIS AS AN INCOME FOR THE A Y 2007 -2008. AGGRIEVED BY THIS ACTION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCO ME TAX (APPEALS). I.T.A.NOS.146 &147/MDS/2011. :- 6 -: 7. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED TH E ADDITION BY OBSERVING THAT THE ASSESSEE HAS FOLLOWE D COMPLETE CONTRACT METHOD ACCOUNTING IN TERMS OF AS-7 ISSUED BY THE ICAI, NEW DELHI. THE ASSESSING OFFICER HAS COMPLETELY IGNORE D THE JOINT DEVELOPMENT COST INCURRED TOWARDS THE PROPERTY. AS THIS TRANSACTION IS PROPERLY ACCOUNTED AND OFFERED FOR TAXATION IN T HE ASSESSMENT YEAR 2007-2008, THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION. AGAINST THIS, REVENUE IS IN APPEAL. 8. WE HAVE HEARD BOTH PARTIES AND PERUSED THE RE CORD. IN THIS CASE, THERE IS NO DISPUTE THAT THE ASSESSEE, FOLLOW ING COMPLETE CONTRACT METHOD, TREATED THE AMOUNT RECEIVED AS ADV ANCE ONLY IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND OFFERED TO TAX IN THE ASSESSMENT YEAR 2007-2008 AS INCOME. THERE IS NO IN COME ACCRUED FOR THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERA TION, THOUGH THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFI ED IN DELETING THE ADDITION AND THE SAME IS CONFIRMED. THE GROUND RAI SED BY THE REVENUE IS DISMISSED. 9. IN THE RESULT, BOTH APPEALS OF THE REVENUE IN I TA NOS.146 & I.T.A.NOS.146 &147/MDS/2011. :- 7 -: 147/MDS/2011 ARE DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT AT THE TIM E OF HEARING ON THURSDAY, THE 19 TH OF MARCH, 2015 AT CHENNAI. SD/- SD/- ( ! ) (CHALLA NAGENDRA PRASAD) ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER '# /CHENNAI. $% /DATED:19.03.2015. KV %& '( )( /COPY TO: 1. * APPELLANT 2. / RESPONDENT 3. + ( )/CIT(A) 4. + /CIT 5. (,- . /DR 6. -/ 0 /GF.