Nirmala Homes Pvt.Ltd, Hyderabad V. DCIT, Hyderabad

ITA 1520/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66536 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Section: 143(3); 234B; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1520/HYD/2010 ASSESSMENT YEAR: 2007-08 NIRMALA HOMES (P) LTD., APPELLANT SECUNDERABAD. (PAN AABCN2107M) VS. DY. COMMISSIONER OF INCOME TAX, RESPONDENT RANGE 16(1), HYDERABAD APPELLANT BY : SHRI S. RAMA RAO RESPONDENT BY : SHRI NARAHARI BISWAL DATE OF HEARING : 09/10/2012 DATE OF PRONOUNCEMENT : 27/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 17/09/2010 F OR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS KN OWN AS MEGHADRI HEIGHTS AT YAPRAL VILLAGE NEAR. THE ASSESSEE FOLLO WED THE CONSTRUCTION POLICY OF RECOGNIZING REVENUE ON THE B ASIS OF ACTUAL RECEIPTS RECEIVED FROM VARIOUS CUSTOMERS. HOWEVER, WITH RESPECT TO ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 2 THE FOLLOWING 5 CUSTOMERS, THE RECEIPTS WERE NOT SH OWN AS INCOME, BUT SHOWN AS LIABILITY: DATE NAME AMOUNT (RS.) 16/09/06 WG. CDR. KUS PHANI 14,72,000 31/12/06 SQN. LDR. N.S. PANNU 15,62,950 28/02/07 CAPT. DANDU VIJAY REDDY 9,46,803 27/03/07 SRI S. SRIKANTH IYENGER 30,00,000 31/03/07 WG. CDR. R.S. WAHI (RETD) 12,00,000 3. ON BEING QUESTIONED BY THE AO, THE ASSESSEE STAT ED THAT THE AFOREMENTIONED AMOUNTS WERE RECEIVED FROM 5 CUSTOME RS, WHO TOLD THEM NOT TO PROCEED WITH THE CONSTRUCTION AND, THER EFORE, THE AMOUNTS WERE KEPT AS LIABILITY. THE AO OBSERVED THA T THERE WAS NO EVIDENCE WITH REGARD TO THE ABOVE ASSERTION AND, TH EREFORE, ADDED THE AFOREMENTIONED AMOUNTS AS INCOME OF THE CURRENT YEAR HOLDING AS UNDER:- 3.2 FROM THE ABOVE EXPLANATION FURNISHED, IT CAN BE OBSERVED THAT THE ABOVE PARTIES HAVE GONE AHEAD WITH THE TRA NSACTIONS AND HAVE TAKEN POSSESSION OF THE FLATS. THE ASSESSE E HAS TO RECOGNIZE INCOME ON THE BASIS OF A REGULAR METHOD E MPLOYED BY IT. ONCE A METHOD HAS BEEN ADOPTED, THERE CANNOT BE DEVIATION FROM THE METHOD. OTHERWISE, IT RESULTS IN DEVIATION FROM THE ACCOUNTING STANDARDS PRESCRIBED UNDER THE PROVISIONS OF COMPANIES ACT AND ALSO UNDER THE PROVISIONS OF S EC. 145. THE ACCOUNTING STANDARD I & II HAVE BEEN PRESCRIBED UNDER THE PROVISIONS OF SEC. 145 ALSO OF THE IT ACT. CONSISTE NCE IS ONE OF THE PRINCIPLES ENUMERATED UNDER AS-1. THE POLICY AD OPTED BY THE ASSESSEE IN TREATING THE SUM OF RS. 81,81,753/- AS LIABILITY IS INCONSISTENT WITH THE REGULAR ACCOUNTING PRACTIC E OF THE ASSESSEE. SINCE THE PARTIES HAVE GONE AHEAD WITH TH E PURCHASE AND SINCE NO PROOF HAS BEEN FURNISHED IN REGARD TO THE EXPLANATION GIVEN BY THE ASSESSEE, THE SUM OF RS. 8 1,81,753/- WILL HAVE TO BE TREATED AS PART OF SALES AND ACCORD INGLY ADDED TO INCOME AND BROUGHT TO TAX. ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 3 4. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE STATED THAT ALL THE CUSTOMERS IN QUESTION WERE ARMY OFFICERS WHO HAD BEEN TRANSFE RRED TO BORDER AREAS AND, THEREFORE, THE AMOUNTS RECEIVED WERE KEP T AS ADVANCES, JUST AND IN CASE THE ARMY OFFICERS DECIDED TO CANCE L THE CONTRACTS. 6. THE AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT( A) THAT THE ASSESSEE RECEIVED THE SAID AMOUNT AND SPENT IN CONS TRUCTION AND THE SAME HAD ALSO BEEN REFLECTED IN WORK-IN-PROGRES S AS ON 31 ST MARCH, 2007, SINCE THE SAID RECEIPT AMOUNT HAS NOT BEEN DECLARED AS SALE. FURTHER, IT WAS SUBMITTED THAT DURING THE NEXT AY 2008-09, THE ASSESSEE CONVINCED THE ABOVE CUSTOMERS BY GIVIN G CERTAIN SPECIFICATIONS IN THEIR RESPECTIVE FLATS AND CONVIN CED THEM TO PURCHASE THE CONCERNED FLATS. IT WAS ALSO SUBMITTED THAT IN ADDITION THE ASSESSEE HAD ALSO PROMISED ALL THE FIVE CUSTOME RS THAT THEIR FLATS WILL BE WELL LOOKED AFTER BY WAY OF GETTING R ENTAL INCOME DURING THE PERIOD OF THEIR POSTING IN FORWARD AREAS. THERE FORE, THE FIVE CUSTOMERS WERE CONVINCED WITH THE SAID ASSURANCES A ND FINALLY DECIDED TO PURCHASE THE FLATS. THE ASSESSEE HAD RE CEIVED THE BALANCE CONSIDERATION FROM THE RESPECTIVE CUSTOMERS AND HAD SHOWN AS SALE/RECEIPT IN AY 2008-09. THEREFORE, THE AR O F THE ASSESSEE ARGUED THAT THE ORDER OF THE AO PASSED U/S 143(3) O F THE ACT WAS NOT CORRECT AS THE ASSESSEE HAS PROVED THAT THE ASS ESSEE HAD SHOWN AS EXPENDITURE ON THE CONSTRUCTION OF THE ABOVE MEN TIONED 5 APARTMENTS IN WORK-IN-PROGRESS ACCOUNT FOR THE AY 2 007-08 AND SUBSEQUENTLY, DURING THE AY 2008-09 THE SAID FIVE F LATS SALE AMOUNT HAD BEEN REFLECTED IN THE SALE OF FLATS ACCOUNT. TH E AR OF THE ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 4 ASSESSEE SUBMITTED THAT THE AO HAD TREATED THE ENTI RE GROSS AMOUNT OF ADVANCE AS INCOME AND NOT CONSIDERED ANY EXPENDI TURE TOWARDS CONSTRUCTION. IT WAS POINTED OUT THAT THE ASSESSEE WILL GET ONLY SOME PERCENTAGE PROFIT ON SALE AND NOT THE ENTIRE S ALE RECEIPT AMOUNT. 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE ASSESSEE HAD BEEN CONSISTENTLY FO LLOWING THE POLICY OF RECOGNIZING THE REVENUE AT THE POINT OF R ECEIPTS OVER THE YEARS IN EACH AND EVERY CASE, THEREFORE, IT CANNOT ARBITRARILY DEVIATE FROM CONSISTENCY. HE FURTHER OBSERVED THAT THE EXPL ANATION GIVEN BY THE ASSESSEE WAS ABSOLUTELY WITHOUT ANY BASIS OR AN Y EVIDENCE WHATSOEVER AND DURING THE APPEAL PROCEEDINGS, NO AG REEMENTS WERE FURNISHED WITH RESPECT TO THE PERSONS IN QUESTION. IT WAS OBSERVED THAT NO PROOF WAS GIVEN TO SHOW THAT THE CUSTOMERS HAD CANCELLED THEIR ALLOTMENT, NOTHING AT ALL WAS PROVIDED TO SUB STANTIATE ANY OF ITS CLAIMS. 8. THE CIT(A) OBSERVED THAT THE CUSTOMERS IN QUESTI ON ACTUALLY PAID THE LAST INSTALMENTS AND, THEREFORE, THE FLATS WERE REGISTERED UNDER THEIR NAMES AND POSSESSION GIVEN AND THIS FAC T ALSO CLEARLY REFUTES THE STORY GIVEN BY THE ASSESSEE. FURTHER, H E OBSERVED THAT THERE IS NO TRUTH EVEN IN THE STORY THAT THE 5 OFFI CERS WERE TRANSFERRED TO THE BORDER AREAS, FIRSTLY, THE PERSO N WHO GAVE 12 LAKHS I.E. WING COMMANDER, R.S. WAHI, WAS A RETIRED PERSON AND, THEREFORE, THERE WAS NO WAY HE COULD HAVE BEEN TRAN SFERRED OUT. SECONDLY, SRI SRIKANT IYENGER IS NOT FROM ARMED FOR CES. ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 5 9. FROM THE ABOVE OBSERVATIONS, THE CIT(A) HELD THA T THE ASSESSEE HAS NOT MAINTAINED CONSISTENCY IN ACCOUNTI NG PRACTICE. REFERRING TO THE AS-1 WITH REGARD TO CONSISTENCY IN ACCOUNTING PRACTICE, THE CIT(A) HELD THAT AS-1 CLEARLY MENTION S CONSISTENCY IN ACCOUNTING PRACTICE AS A FUNDAMENTAL POSTULATE AND, HENCE, HE UPHELD THE ACTION OF THE AO IN MAKING AN ADDITION O F RS. 81,81,738/- TREATING THE ADVANCE RECEIPTS AS PART O F SALES IS CORRECT AND NEEDS NO INTERFERENCE. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOT H ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APP ELLANT IS NOT CONSISTENT IN MAINTAINING THE BOOKS OF ACCOUNT WITH OUT CONSIDERING THE FACT THAT THE APPELLANT HEREIN IS R ECOGNIZING THE INCOME BASED ON THE RECEIPTS TOWARDS SALE OF FL ATS. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE AMOUNTS AGGREGATING TO RS. 81,81,753/- RECEIVED FROM FIVE PERSONS DURING THE PREVIOUS YEAR COULD NOT BE TREAT ED AS RECEIPTS AGAINST THE SALE OF FLATS AND THEREFORE, C OULD NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE INCOM E. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT TH AT THE SAID PERSONS REQUIRED THE APPELLANT HEREIN NOT TO ADJUST THE SAID AMOUNT TOWARDS SALE CONSIDERATION OF THE FLATS. 4. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THE SUCCEEDING YEAR WHEN THE PERSONS CONCERNED REQU IRE THE APPELLANT TO TREAT THE AMOUNT AS CONSIDERATION AGAI NST THE PURCHASE OF THE FLATS AND THE INCOME THERE FROM WAS ADMITTED. THE LEARNED CIT(A), OUGHT O HAVE SEEN THAT THE SAID AMOUNT WAS SUBJECTED TO DOUBLE TAXATION BOTH IN THE YEAR U NDER CONSIDERATION AND FOR THE IMMEDIATELY SUCCEEDING YE AR, WHEN THE SAID INCOME WAS ADMITTED BY THE APPELLANT. 5. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE A PPELLANT SUBMITS THAT THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE ENTIRE RECEIPT OF SALE CONSIDERATION OF FLATS CANNO T BE ASSESSED ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 6 TO TAX. THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED O NLY THAT PART OF THE INCOME IMBEDDED IN THE SAID AMOUNT IS O NLY TAXABLE AND NOT THE ENTIRE AMOUNT. 6. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE C LOSING STOCK WAS ARRIVED AT WITHOUT CONSIDERING THE SALE O F THE SAID FIVE FLATS AND THAT WHEN THE SALE CONSIDERATION IS INCREASED; THE CORRESPONDING AMOUNT OF CLOSING STOCK SHOULD HA VE BEEN DIRECTED TO BE REDUCED. 7. THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THAT T HE INCOME ADMITTED FOR THE IMMEDIATELY SUCCEEDING YEAR BE RED UCED. 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE CHARG ING OF INTEREST U/S 234B OF THE IT ACT. 11. WE HAVE HEARD THE ARGUMENTS OF THE LEARNED COUN SEL FOR THE ASSESSEE SHRI S. RAMA RAO AND THE LEARNED DR SHRI N ARAHARI BISWAL. 12. WE FIND THAT THE ASSESSEE HAS RECEIVED AN AMOUN T OF RS. 81,81,753/- FROM THE FIVE ARMED FORCE OFFICERS AGAI NST SALE OF FLATS DURING THE YEAR CONSIDERATION I.E. AY 2007-08 AND S HOWN AS ADVANCE. THE EXPLANATION OF THE ASSESSEE TO SHOW TH E AMOUNTS AS ADVANCE WAS THAT THE CUSTOMERS WERE BEING ARMED FOR CE OFFICERS, WHO COULD BE POSSIBLE TRANSFERS TO THE BORDER AREAS AND, HENCE, THEY CONTEMPLATED EVEN CANCELLATION OF THEIR BOOKIN G. THE ASSESSEE STATED THAT BECAUSE OF THE SAID REASON THE ASSESSEE COMPANY SHOWED THE AMOUNT IN CURRENT LIABILITIES UNDER THE HEAD OTHER CUSTOMERS AND THE SAME HAS ALSO BEEN REFLECTED IN WORK-IN- PROGRESS AS ON 31/03/2007 AND THE RECEIPT AMOUNT HA S NOT BEEN DECLARED AS SALE. 13. THE FURTHER SUBMISSION OF THE ASSESSEE WAS THAT DURING AY 2008-09 THE ASSESSEE COMPANY CONVINCED THE 5 OFFICE RS TO PURCHASE OF THE FLATS AND THE ASSESSEE COMPANY HAD RECEIVED THE BALANCE ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 7 CONSIDERATION FROM THE SAID 5 CUSTOMERS AND HAS SHO WN SALE/RECEIPT IN THE AY 2008-09. 14. THE ASSESSING OFFICER WHILE PASSING AN ORDER U/ S.143(3) DT.24.12.09 HAS TREATED THE ENTIRE ADVANCE AGAINST RS.81,81,753/- AS INCOME SUBJECT TO TAX. IT IS NOT CLEAR AS TO HO W THE ENTIRE RECEIPT, EVEN IF IT IS CONSIDERED AS A SALE OF FLAT S HAVE BEEN SOLD CAN BE BROUGHT TO TAX WITHOUT DEDUCTING THE CORRESPONDI NG EXPENDITURE INCURRED BY THE ASSESSEE FOR THE CONSTRUCTION OF TH E FLAT. IT IS NOT AS IF THIS AMOUNT IS OVER AND ABOVE THE AGREED PRICES FOR THE FLATS AND HENCE THE EXPENDITURE ON CONSTRUCTION NEED NOT BE A LLOWED ONCE AGAIN. WHAT IS TO BE BROUGHT TO TAX IS ONLY THE NET INCOME AFTER DEDUCTING THE EXPENDITURE INCURRED FOR EARNING THE INCOME FROM THE GROSS RECEIPTS. IN THIS CASE WHAT THE ASSESSING OF FICER HAS CHOSEN TO DO IS TO TAX ONLY THE GROSS RECEIPTS AS INCOME I GNORING THE EXPENDITURE INCURRED FOR CONSTRUCTION OF FLAT. FUR THER, IT WOULD APPEAR THAT THE ENTIRE PROFIT ARISING FROM SALE OF THESE FLATS, INCLUDING THIS PAYMENT OF RS. 81,91,753/- HAS BEEN OFFERED FOR TAX FOR THE ASSESSMENT YEAR 2008-09 AND ACCEPTED. HENC E, THE ADDITION MADE BY ASSESSING OFFICER AMOUNTS TO DOUBLE TAXATIO N. THE ISSUE TO BE CONSIDERED IS WHETHER THE SALE HAS BEEN COMPLETE D THIS YEAR OR IT CAN BE CONSIDERED HAVING BEEN COMPLETED ONLY THE NE XT YEAR. IN EITHER CASE ONLY THE PROFIT ON SALE OF FLATS CAN BE BROUGHT TO TAX. THE ASSESSEE HAD SUBMITTED THAT THE PURCHASERS BEIN G MEMBERS OF OUR ARMED FORCES WERE NOT CERTAIN WHETHER TO PURCHA SE THESE FLATS OR NOT IN VIEW OF THE POSSIBILITY OF THEIR TRANSFER TO REMOTE AREAS. ONLY AFTER THE ASSESSEE CONVINCING THEM, THEY HAD A GREED AND COMPLETED THE PURCHASE IN THE NEXT YEAR. THE DEPAR TMENT HAS NOT BROUGHT OUT ANYTHING TO SHOW THAT THIS WAS NOT THE CASE. THEREFORE, ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 8 WE GIVE THE BENEFIT OF DOUBT TO THE ASSESSEE AND AC CEPT THEIR EXPLANATION THAT PURCHASERS WERE NOT CERTAIN ABOUT PURCHASING THE FLATS DURING THE CURRENT ASSESSMENT YEAR 2007-08. THAT BEING SO, THE PROFIT ON SALE OF SUCH FLATS CANNOT BE BROUGHT TO TAX IN THE YEAR UNDER APPEAL. IN THIS VIEW OF THE MATTER, WE SET AS IDE THE ORDER OF CIT(A) ON THIS GROUND AND ALLOW THE GROUNDS 2,3 & 4 RAISED BY THE ASSESSEE NAMELY SUM OF RS.81,81,753/- IS NOT TAXABL E IN THIS YEAR. WE MAY HOWEVER DIRECT THE ASSESSING OFFICER TO VERI FY THAT WHILE COMPUTING THE PROFIT AND SALE OF THESE FOUR FLATS O FFERED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09, THIS SUM OF RS.81,81,753/- HAS ALSO BEEN TAKEN INTO ACCOUNT IN COMPUTING THE PROFIT ON SALE OF FLATS. 15. AS WE HAVE ALLOWED THE GROUNDS 2,3 & 4 RAISED BY THE ASSESSEE THAT SUM OF RS.81,81,753/- IS NOT TAXABLE IN THIS YEAR, WE ARE NOT ADJUDICATING UPON ALTERNATIVE GROUNDS RAISE D BY THE VIDE GROUND NOS. 5, 6 & 7 AS IT IS INFRUCTUOUS. 16. GROUND NO. 8 IS WITH REGARD TO CHARGING OF INTE REST U/S 234B OF THE ACT. SINCE CHARGING OF INTEREST U/S 234B IS CON SEQUENTIAL IN NATURE, THE AO IS DIRECTED TO REWORK THE INTEREST U /S 234B. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 27/11/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 27 TH NOVEMBER, 2012. ITA NO. 1520/HYD/2010 NIRMALA HOMES (P) LTD. 9 KV COPY TO:- 1) NIRMALA HOMES PVT. LTD., C/O SHRI S. RAMA RAO, ADVOCATE, FLAT NO. 103, H.NO. 3-6-542/4, INDIRADEVI NILAYAM, ST. NO. 7, HIMAYAT NAGAR, HYDERABAD 500 020. 2) DCIT, RANGE 16(1), HYDERABAD. 3) THE CIT (A)-V, HYDERABAD 4) THE CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER