Dy.CIT,Cir.3, Pune, Pune V. M/s Sai Prestige Developments, Pune

ITA 161/PUN/2012

• Counselvise Citation: 16124514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Commercial expediency
• Section: 37(1); 145; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 161/PN/2012 (ASSESSMENT YEAR 2008-09) DY.CIT,CIRCLE-3, PUNE .. APPELLANT VS. M/S. SAI PRESTIGE DEVELOPMENTS, PRESTIGE ICON, 14 TH LANE CORNER, PRABHAT ROAD, ERANDWANE, PUNE-411004 .. RESPONDENT PAN NO.ABBFS 0202N APPELLANT BY : SHRI KISHORE PHADKE RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 16-09-2013 DATE OF PRONOUNCEMENT : 18-09-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 24-10-2011 OF THE CIT(A) II, PUNE RELATING TO ASSE SSMENT YEAR 2008-09. 2. GROUNDS OF APPEAL NO.1, 2, 14, AND 15 BEING GENE RAL IN NATURE ARE DISMISSED. 3. GROUNDS OF APPEAL NO.3, 4 AND 5 BY THE REVENUE R EAD AS UNDER : 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF LOSS ON NON-RECOVE RABLE ADVANCES IN RESPECT OF MOHAMMEDWADI AND BANER LAND WITHOUT APPRECIATING TH AT NOT ONLY THAT THE SAID CLAIM WAS NOT ADMISSIBLE EITHER U/S. 36(1)(VII ) OR U/S. 37(1) BUT ALSO THAT IN RESPECT OF BOTH THE ADVANCES THE ASSESSEE HAD LEGAL RECOURSE AVAILABLE AND THE CLAIMS WERE LEGALLY JUSTICEABLE; AND, IN THE CIRCUM STANCES, THE IMPUGNED ADVANCES COULD BY NO MEAN BE RECORDED AS NON-RECOVE RABLE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ALLOWING THE ASSESSEE'S CLAIM BY APPLYING CERTAIN C ASE LAWS INCLUDING THE DECISION IN THE CASE OF BADRIDAS DAGA VS. CIT (1958 ) 34 ITR 10 (SC) WITHOUT APPRECIATING THAT THE FACTS IN THE ASSESSEE'S CASE ARE DISTINGUISHABLE AND HENCE THE RATIO OF THE AFOREMENTIONED DECISION WOULD NOT APPLY. 2 5. WITHOUT PREJUDICE TO THE FOREGOING, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF LOSS IN RESPECT OF THE BANER LAND WITHOUT APPRECIATING THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE AMOUNTED TO VIOLATION OF THE INJUNC TION ORDER PASSED BY THE HONBLE BOMBAY HIGH COURT AND, ACCORDINGLY, THE LOS S OF RS.15.85 LAKHS WOULD FALL UNDER THE EXPLANATION TO SEC. 37(1) OF THE ACT . 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN BUILDING, PROMOTING AND DEVELOPIN G ACTIVITIES. IT HAS DEVELOPED PLOTS AND CONSTRUCTED RESIDENTIAL AND A C OMMERCIAL BUILDING IN THE PREVIOUS YEAR AND THE YEARS PRIOR TO THAT. IT FILED ITS RETURN OF INCOME ON 27-09-2008 DECLARING TOTAL INCOME OF RS.2,58,85,920 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OB SERVED FROM THE PROFIT AND LOSS ACCOUNT THAT UNDER THE GROUPING OF INDIREC T EXPENSES AN AMOUNT OF RS.30,06,748/- HAS BEEN DEBITED AS BUSINESS LOSS ON NON-RECOVERABLE LOAN ADVANCES. FROM THE DETAILS FURNISHED BY THE ASSESS EE THE ASSESSING OFFICER OBSERVED THAT THE CLAIM IS ON ACCOUNT OF THE FOLLOW ING : A. LOSS IN MOHAMMEDWADI DEAL RS.11.73 LAKHS B. LAND AT BANER RS.15.83 LAKHS C. LAND NEAR AUNDH RS.2.51 LAKHS (SPICER COLLEGE) 3.2 THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUS TIFY THE CLAIM OF SUCH BUSINESS LOSS. IT WAS SUBMITTED BY THE ASSESSEE THA T IN THE CASE OF MOHAMMADWADI DEAL AN AMOUNT OF RS.11.73 LAKHS WAS P AID TO VARIOUS WADKAR FAMILY MEMBERS ALLEGED TO HAVE BEEN HOLDING LAND AT MOHAMMADWADI, PUNE. THE AGREEMENT TOOK PLACE IN NO VEMBER 2005 AS PER WHICH THE WADKAR FAMILY MEMBERS ALONGWITH ANOTH ER STAKE HOLDER, NAMELY MR. NAIR AGREED TO SELL THEIR LAND HOLDINGS TO THE ASSESSEE. HOWEVER, IN THE YEAR 2007-08, THE SAID WADKAR FAMIL Y MEMBERS REFUSED TO HONOUR THEIR RESPECTIVE COMMITMENT OF SALE. THEREA FTER THE MATTER HAS BECOME SUBJUDICE AND THE ASSESSEE HAD LOST THE HOPE OF GETTING ANY RETURNS OUT OF THE SAID TRANSACTION. RECENTLY, THE SUIT HA S BEEN FILED BY THE SAID 3 WADKAR FAMILY MEMBERS AGAINST MR. NAIR WHO HAD MADE CLAIM OF MIS- REPRESENTATION ETC. AS SUCH IT TRANSPIRES THE ADVA NCE GIVEN HAS BECOME A LOSS AND AS SUCH CLAIMED AS BUSINESS LOSS. 3.3 SO FAR AS THE LAND AT BANER IS CONCERNED IT WAS SUBMITTED THAT THE ASSESSEE WAS INTERESTED IN 2 PLOTS OF LAND SITUATED AT BANER, PUNE AT SY.NO.287/9 ADMEASURING 0.46 ARES AND SY.NO.3/1 ADM EASURING 1 HECTARE AND 24 ARES BOTH TOTALLING TO 1 HECTARE AND 67 ARES . THE SAID LAND WAS AT A PRIME LOCATION AND HAS A GOOD SALES POTENTIAL. ON BEING APPROACHED BY KNOWN GROUP OF BROKERS THE ASSESSEE ENTERED INTO A DEAL AND AN ADVANCE OF RS.15 LAKHS WAS PAID TO 6 PERSONS. SUBSEQUENTLY, I T CAME TO LIGHT THAT THERE IS SOME LITIGATION GOING ON AND THE HONBLE BOMBAY HIGH COURT HAD PASSED AN ORDER OF INJUNCTION ON THE SAID LAND. THE ASSESS EE THEREAFTER APPROACHED THE BROKER GROUP FOR REFUND OF THE MONEY. HOWEVER, THE SAME DID NOT MATERIALISE AND ON THE ADVICE OF THE LAWYERS THE AS SESSEE ABANDONED THE WHOLE PROCESS. THE ASSESSEE THEREAFTER WROTE OFF T HE SAME. 3.4 SO FAR AS THE ADVANCE FOR AUNDH LAND IS CONCERN ED IT WAS SUBMITTED THAT THE SAME WAS PAID TO ONE MR. KARADE DATTATRAY SHANKAR FOR A LAND SITUATED NEAR SPICER COLLEGE. HOWEVER, THE ASSESSE E EXPRESSED ITS INABILITY TO PRODUCE ANY DOCUMENTARY EVIDENCE ON THE GROUND T HAT THE SAME ARE MISPLACED. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ROSE SERVICES APARTMENT INDIA PVT. LTD. REP ORTED IN 326 ITR 100 WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER TO THE PROPOSITION THAT SUCH ADVANCES CAN BE WRITTEN OFF AS A BUSINESS LOSS . 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THA T THE ASSESSEE HAS NOT MENTIONED AS TO HOW AND UNDER WHICH SPECIFIC SECTIO N OF THE ACT LOSS ON 4 PURCHASE OF LAND HAS BEEN CLAIMED BY THE ASSESSEE. HE NOTED THAT IN THE CASE OF LOSS CLAIMED IN MOHAMMADWADI DEAL THE MATTE R HAS BECOME SUBJUDICE DUE TO REFUSAL TO SELL THE LAND BY THE ME MBERS OF WADKAR FAMILY. FURTHER, THERE IS SOME DISPUTE BETWEEN WADKAR FAMIL Y AND MR. NAIR. SINCE THE MATTER IS UNDER SUBJUDICE THE NOTION OF THE ASS ESSEE THAT IT TRANSPIRES THAT THE MONEY ADVANCED HAS BECOME A LOSS HAS NO LEGAL O R FACTUAL BASIS. 4.1 SO FAR AS THE BANER LAND IS CONCERNED HE NOTED THAT THE ASSESSEES ACTION OF ENTERING INTO AN AGREEMENT WITHOUT DUE DI LIGENCE, WHEN THERE WAS ALREADY AN INJUNCTION BY THE HONBLE HIGH COURT OF BOMBAY, IS AGAINST THE NORMAL WAY OF DOING THE BUSINESS AND AGAINST THE PR OPER BUSINESS PRUDENCE. NOTHING HAS BEEN MENTIONED ABOUT THE LEGAL RECOURSE THAT HAS BEEN TAKEN BY THE ASSESSEE FOR RECOVERY OF SUCH ADVANCES FOR MIS- REPRESENTATION OF FACTS. SO FAR AS THE AUNDH PROPERTY IS CONCERNED THE ASSES SEE HAS NOT GIVEN ANY DETAILS ON THE GROUND OF MISPLACEMENT OF THE SAME. DISTINGUISHING THE DECISION RELIED ON BY THE ASSESSEE BEFORE HIM THE A SSESSING OFFICER HELD THAT SUCH CLAIM OF THE ASSESSEE IS NOT TENABLE IN T HE EYES OF LAW. HE ACCORDINGLY DISALLOWED AN AMOUNT OF RS.30,16,748/- CLAIMED BY THE ASSESSEE AS BUSINESS LOSS. 5. IN APPEAL THE LD.CIT(A) SUSTAINED THE DISALLOWAN CE OF BUSINESS LOSS ON ACCOUNT OF ADVANCE PAID FOR LAND AT AUNDH AMOUNT ING TO RS.2.51 LAKHS. HOWEVER, SO FAR AS THE ADVANCE PAID FOR LAND AT MOH AMMEDWADI AND BANER AMOUNTING TO RS.11.73 LAKHS AND RS.15.83 LAKHS RESP ECTIVELY HE ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: 4. IN GROUND NO. 2 THE APPELLANT HAS CONTESTED THE ADDITION MADE BY THE A.O. OF RS.30,16,748/- ON ACCOUNT OF DISALLOWAN CE OF NON- RECOVERABLE LAND ADVANCES CLAIMED AS BUSINESS LOSS. THE FACTS OF THE MATTER IS THAT THE ASSESSEE BEING IN A BUSINESS OF BUILDING, PROMOTING AND DEVELOPING PROPERTIES ADVANCES CERTAIN SUMS OF MONEY FOR THE 5 PURCHASE OF NEW LAND. HOWEVER, THE FINAL CONVEYANCE OR AGREEMENT FOR SALE TAKES PLACE ONLY AFTER THE RELEVANT DOCUMENTS AND OTHER RELATED FACTS PERTAINING TO THE LAND ARE ENQUIRED AND VERIF IED. THE APPELLANT DURING THE EARLIER YEARS HAD PAID FOLLOWING ADVANCE S TO THE PARTIES WHICH HAVE BEEN CLAIMED AS BUSINESS LOSS IN THE CUR RENT YEAR AS THE STIPULATED DEALS DID NOT MATERIALIZE. THE DETAILS O F THE THREE ADVANCES IN WHICH THE SAID BUSINESS LOSS HAS INCURRED ARE AS FO LLOWS : THE AFORESAID ADVANCES BEING NON-RECOVERABLE LAND A DVANCES WERE WRITTEN OFF BY THE APPELLANT IN ITS BOOKS OF ACCOUN T AND CLAIMED AS BUSINESS LOSS IN THE PROFIT AND LOSS ACCOUNT. THE A .O. HAS DISALLOWED THE BUSINESS LOSS CLAIMED BY THE APPELLANT ON THE GROUN D THAT THE DEDUCTION WAS NOT AN ALLOWABLE EXPENDITURE EITHER U/S 36(1)(V II) OR SECTION 37(1) AS THE LOSS CLAIMED AS DEDUCTION DID NOT FULFILL THE C RITERIA TO BE ALLOWED AS A DEDUCTION UNDER THE ABOVE CITED SECTIONS. THE APPEL LANT HAS STATED THAT THE LAND LOSSES HAD NOT BEEN CLAIMED AS DEDUCTION A S A BAD DEBT WRITTEN OFF RATHER THE SAME HAS BEEN CLAIMED U/S 28 OF THE IT. ACT, 1961. THE APPELLANT HAS ALSO EXPLAINED THAT THE LAND LOSSES I S A TYPICAL FEATURE OF A REAL ESTATE INDUSTRY AND THAT TOKEN ADVANCES ARE RE QUIRED TO BE PLACED BEFORE ENTRY INTO ANY LARGE DEAL IS TO BE FINALIZED AND IF SUCH DEAL BECOME UNVIABLE DUE TO LIKELY LITIGATION OR SUCH OTHER PRO BLEMS, SUCH PROJECTS ARE GIVEN UP AND THE SUMS ADVANCED BECOME BUSINESS LOSS ES IN THE YEAR OF SUCH DECISION. THE A.O. HAS ALSO HELD THAT THE ASSE SSEE HAS NOT STATED THE SECTIONS UNDER WHICH SUCH LOSSES COULD BE ALLOWE D AND ALSO THAT THE ISSUE OF LAND RIGHTS IN THE MOHAMMADWADI AND B ANER LANDS WITH THE WADKAR FAMILY AND KARANDE D. SHANKAR FAMILY RESPECT IVELY, HAD BECOME SUBJUDICE AND, THEREFORE, ASSESSEE'S STAKE IN THE L AND HAS SOME VALUE AND HENCE, NOT A LOSS. THE APPELLANT IN THIS REGARD HAS SUBMITTED THAT THE LAND LOSSES HAVE BEEN CLAIMED AS BUSINESS LOSS AND SUCH LOSSES ARE ALWAYS ALLOWED U/S 28 OF THE IT. ACT, 1961. THE APP ELLANT HAS CONTENDED THAT MERE NON-MENTION OF SECTION DOES NOT AND OUGHT NOT TO HAMPER THE DEDUCTIBILITY ASPECT OF BUSINESS LOSS. REGARDING TH E LAND RIGHTS IN MOHAMMADWADI, THE APPELLANT HAS STATED THAT THE WAD KAR FAMILY ARE REFUSING TO SELL THEIR LANDS AND THERE ARE CLAIMS O F MISREPRESENTATION AGAINST THE APPELLANT, AND THE MATTER IS LIKELY TO TAKE LONG TIME AND THE WADKAR FAMILY ARE HAVING MANY MEMBERS, IT BECOMES D IFFICULT TO GET ALL THE MEMBERS IN AGREEMENT TO SELL THE LAND TO THE AP PELLANT. THE APPELLANT HAS THUS CONTENDED THAT IN VIEW OF THE COMMERCIAL REALITY OF THE SITUATION IN SUCH LITIGATED CASES, THE LOSS IS CLAIMED AND MERE REASON OF MATTER BEING SUB-JUDICE IS NOT OF MUCH RELEVANCE . 4.1 REGARDING THE PROPERTY AT SPICER COLLEGE, AUNDH, PU NE THE A.O. HAS MENTIONED THAT AS NO DETAILS HAVE BEEN SUBMITTE D DURING THE ASSESSMENT PROCEEDINGS EXCEPT FOR THE FACT THAT THE PAYMENT BEING SR. NO. NAME OF THE LAND NAME OF THE PARTY AMOUNT REASON 1. MOHAMMADWADI WADKAR FAMILY 11.73 DISPUTE BETWEEN WADKAR FAMILY AND ANOTHER STAKE HOLDER MR. NAIR. 2. BANER PLOT RANAWARE FAMILY 15.83 LITIGATION BETWEEN RANAWARE FAMILY AND PREVIOUS DEVELOPER MR. ANIL BAFNA, INJUNCTION ORDER PASSED BY BOMBAY HIGH COURT 3. AUNDH (SPICER COLLEGE) MR. KARADE DATTATRAY SHANKAR 2.51 TOKEN AMOUNT GIVEN RECEIPT AND OTHER DOCUMENTS MISPLACED BY ASSESSEE. PARTY REFUSE TO HONOUR THE CONTRACT. 6 MADE ON 05.05.2006. THE ASSESSEE HAD MENTIONED AT THE ASSESSMENT STAGE THAT THE 'VISAR PAVATI' (TOKEN RECEIPT) AND O THER RELATED DOCUMENTS HAVE BEEN MISPLACED BY THE ASSESSEE AND, THEREFORE, THE A.O. DISALLOWED THE CLAIM OF LOSS OF RS. 2.51 LACS IN RESPECT OF TH E LAND. 4.2 DURING THE APPELLATE STAGE THE APPELLANT HAS NOT BE EN ABLE TO BRING ON RECORD ANY EVIDENCE TO SUBSTANTIATE THE CL AIM OF LOSS MADE. THE APPELLANT HAS REITERATED THE SAME SUBMISSION AS MAD E DURING THE ASSESSMENT STAGE THAT THE APPELLANT WAS NOT ABLE TO LOCATE THE 'VISAR PAVATI' AND OTHER DOCUMENTS OF THE AUNDH PROPERTY A ND THAT THE ASSESSEE WAS DUPED WITH REGARD TO THE MONEY PAID TO THE BROKERS. THE LOSS THUS CLAIMED BY THE APPELLANT WITH RESPECT TO THE PROPERTY AT AUNDH COULD NOT BE ALLOWED AS A DEDUCTION IN VIEW OF THE SPECIFIC FINDING MADE BY THE A.O. AND ALSO THAT THE APPELLANT HAVING FAIL ED TO ADDUCE THE RELEVANT DETAILS AND EVIDENCES EVEN AT THE APPELLAT E STAGE AND, THEREFORE, THE DISALLOWANCE MADE BY THE A.O. OF RS.2.5 LACS IS UPHELD. 4.3 SO FAR AS THE LOSSES ON THE PROPERTY/LAND AT MOHAMM ADWADI AND BANER ARE CONCERNED, THE APPELLANT HAS SUBMITTE D THAT THE ADVANCES FOR THE PLOTS AT ABOVE MENTIONED PLACES IS NOT RECOVERABLE ANY MORE AS THE APPELLANT HAS ALREADY MADE LONG DRAWN E FFORTS TO SALVAGE THE SITUATION AND ONLY THEREAFTER, THE SAID LOSSES WERE CLAIMED. 4.4 THE APPELLANT HAS RELIED ON THE DELHI HIGH COURT DE CISION IN THE CASE OF CIT VS. ROSE SERVICES APARTMENT INDIA (P) L TD. (2010) 326 ITR 100 (DEL), WHEREIN THE DELHI HIGH COURT HELD THAT THE T RIBUNAL WAS JUSTIFIED IN ALLOWING THE CLAIM OF LOSS OCCASIONED DUE TO SHO RT RECOVERY OF ADVANCE GIVEN BY THE ASSESSEE UNDER AN AGREEMENT FOR PURCHASE OF LAND FOR ITS REAL ESTATE BUSINESS CONSIDERING IT TO BE A BUSINESS LOSS INSTEAD OF BAD DEBT. THE RATIO OF THE JUDGEMENT IS CLEARLY APPLICABLE TO THE CASE OF THE APPELLANT AS THE ADVANCES HAVE B EEN GIVEN IN THE NORMAL COURSE OF BUSINESS. 4.5 BUSINESS LOSS HAS NECESSARILY TO BE DEDUCTED T HOUGH IT IS NOT ONE OF THE ITEMS LISTED FOR DEDUCTIONS. IT IS B ECAUSE IT IS ALLOWABLE EVEN UNDER SECTION 28, ITSELF AT THE THRE SHOLD. IN THE CASE OF CIT VS MAHENDRA M. SHAH (2006) 280 ITR 462 (GUJ) IT WAS HELD THAT WHERE THE LOSS WAS NOT QUESTIONED ON THE GROUND OF GENUINENESS, SUCH LOSS BEING CONSEQUENT ON DISHONOR OF CHEQUE ISSUED BY THE NON-RESIDENT, IT WAS HELD THAT THERE WAS NO CASE FOR DISALLOWANCE REJECTING THE ARGUMENT THAT IT IS NOT ALLOWABLE AS ASSESSEE'S CLAIM AGAINST THE BANK, WHEN A COURT SUI T WAS PENDING. THE DECISION FOLLOWED THE ONLY TEST WHETHER SUCH LO SS WAS INCURRED IN THE COURSE OF BUSINESS. INCOME HAS TO BE COMPUTE D UNDER ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING. THIS LAW HAS BEEN SETTLED. AS OTHERWISE, WHAT WILL BE ASSESSABLE WILL NOT BE REAL PROFITS. THIS HAS BEEN POINTED OUT IN VARIOUS CASES , EVEN LOSSES WHICH ARE VOLUNTARILY UNDERTAKEN, THOUGH NOT CONTRA CTUAL OR OTHERWISE OBLIGATORY WAS FOUND ADMISSIBLE IN CIT VS NAINITAL BANK LTD. (1966) 62 ITR 638 (SC). IT, THEREFORE, STANDS TO REASONS THAT, IF THE ASSESSEE IS NOT ABLE TO ESTABLISH THAT IT IS IN THE COURSE OF BUSINESS OR PROMPTED BY COMMERCIAL EXPEDIENCY OR IT IS LOSS OF CAPITAL ASSET, IT MAY NOT BE ALLOWABLE WHERE AN AMO UNT DUE FROM CUSTOMERS FOR SALE OR ADVANCES IN THE COURSE OF MON EY LENDING BECOMES IRRECOVERABLE THEY ARE ALLOWED AS BAD DEBT U/S.36(1)(VII). HOWEVER, TRADE ADVANCES MADE BY THE ASSESSEE FOR SU PPLY OF GOODS, BUT BECOME IRRECOVERABLE WITH SUPPLY NOT HAV ING BEEN RECEIVED, SUCH LOSS IS NOT DEDUCTIBLE U/S 36(1)(VII ) IN VIEW OF THE 7 LANGUAGE OF THE STATUTE. THIS COULD NOT BE THE REAS ON FOR DISALLOWING SUCH LOSS INCURRED DURING THE COURSE OF BUSINESS. IT MAY BE AN ITEM OF A TRADING ACCOUNT REQUIRING SET O FF FROM TRADING PROFIT U/S 28 OR AS BUSINESS LOSS INCURRED SOLELY A ND EXCLUSIVELY FOR BUSINESS LOSS, SO AS TO BE DEDUCTIBLE AS TRADING LO SS U/S 37, IF THE FACTS WARRANT SUCH AN INFLUENCE, WAS POINTED OUT BY THE TRIBUNAL IN MINDA (HUF) LTD. VS. JCIT (2006) 285 ITR (AT) 88 (DEL). IN THE CASES OF BADRIDAS DAGA VS. JCIT (1958) 34 ITR 10 (S C), IT HAS BEEN HELD THAT THERE IS NO NEED FOR ANY SPECIFIC PROVISI ON FOR EVERY PARTICULAR ITEM OF DEDUCTION IN COMPUTATION OF TAXA BLE INCOME. THE ISSUES OF THE PRESENT CASE CLEARLY POINT OUT TO THE FACT THAT THE APPELLANT IS ENGAGED IN A BUSINESS WHICH WARRANT SU CH INVESTMENTS, 'THE APPELLANT MAY SUCCEED IN SOME AND FAIL IN OTHER. THE A.O. HAS NEVER QUESTIONED AS TO THE GENUINENESS OF THE TRANSACTIONS AND THE APPELLANT HAS BEEN ABLE TO EST ABLISH AND DEMONSTRATE THAT THE SAID ADVANCES HAVE BEEN MADE I N THE COURSE OF BUSINESS AND HAVE BEEN PROMPTED BY COMMER CIAL EXPEDIENCY AND, THEREFORE, THERE STANDS NO REASON T O HOLD THAT THE SAME IS NOT ALLOWABLE. 4.6 IN VIEW OF THE ABOVE FACTS, OUT OF THE TOTAL LOSS DISALLOWED BY THE A.O., LOSS TO THE EXTENT OF RS.2.51 LACS IS UPHELD AND THE REMAINING BUSINESS LOSS IS ALLOWED. GROUND NO. 2 IS , THEREFORE, PARTLY ALLOWED. 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ISSUE TO BE DECIDED IN THE INSTANT CASE IS WITH REGARD TO CLAIM OF LOSS OF IRRECOVERABLE ADVANCE IN RESPECT OF MOHAMMADWADI AND BANER LAND AMOUNTING TO RS.11.73 L AKHS AND RS.15.83 LAKHS RESPECTIVELY REGARDING MOHAMMADWADI LAND IN WHICH SELLER IS WADKAR FAMILY, THE REASON FOR LOSS IN QUESTION HAS BEEN STATED TO BE DISPUTE BETWEEN WADKAR FAMILY AND ONE MR. NAIR. THERE IS N OTHING ON RECORD TO SUGGEST THAT DISPUTE WITH REGARD TO THE LAND IN QUE STION HAS ACHIEVED FINALITY AT ANY STAGE OF THE TIME. THE LD. AUTHORISED REPRE SENTATIVE IS NOT IN A POSITION TO SAY WHETHER THE ASSESSEE HAS MADE CIVIL OR CRIMINAL CLAIMS 8 AGAINST THE ABOVE SAID PARTIES IN ANY MANNER. ACCO RDING TO HIM IT IS ONLY THE WADKAR FAMILY AND MR.NAIR WHO CAN STATE WHETHER ANY DISPUTE IS EXISTING OR NOT WITH REGARD TO THE SAID TRANSACTION ON BEHALF OF THE ASSESSEE. THERE IS NOTHING ON RECORD TO SUGGEST THAT ANY EFFO RT HAS BEEN MADE BY ASSESSING OFFICER/CIT(A) TO SUMMON THE ABOVE SAID P ARTIES TO THE TRANSACTION TO ASCERTAIN WHETHER DISPUTE IS SUBSIST ING OR IT HAS REACHED FINALITY SO AS TO ASCERTAIN WHETHER LOSS IS CRYSTAL LISED. EVEN THE ASSESSEE HAS MADE NO EFFORT TO PRODUCE THE ABOVE SAID PARTIES BE FORE THE AUTHORITIES BELOW SO AS TO ENABLE THEM TO ASCERTAIN THE FINALIT Y OF CRYSTALLISATION OF THE LOSS IN QUESTION. WE FIND THE LD.CIT(A) WITHOUT GO ING THROUGH THESE FACTS HAS ALLOWED THE CLAIM OF THE ASSESSEE WHICH IN OUR OPINION IS NOT PROPER. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE CRYSTALLISATION OF T HE LOSS IN LIGHT OF OUR ABOVE DISCUSSION. 6.1 REGARDING TRANSACTION OF BANER PLOT ENTERED WIT H RANAWARE FAMILY MEMBERS, THE SELLER, IT HAS BEEN STATED THAT THERE IS A LITIGATION BETWEEN RANAWARE FAMILY AND PREVIOUS DEVELOPER MR.ANIL BAFN A AND THERE IS AN INJUNCTION ORDER PASSED BY THE HONBLE HIGH COURT O F BOMBAY IN THIS REGARD. THERE IS NOTHING ON RECORD TO SUGGEST THAT ASSESSEE WAS NOT AWARE OF ABOVE LITIGATION WHEN HE ENTERED INTO THE TRANSA CTION WITH RANAWARE FAMILY. THERE IS ALSO NOTHING ON RECORD TO SUGGEST THAT ASSESSEE HAS MOVED BEFORE THE CONCERNED CIVIL OR CRIMINAL COURT FOR IL LEGAL ACT OF RANAWARE FAMILY. EVEN THERE IS NOTHING ON RECORD TO SUGGEST THAT ANY EFFORT HAS BEEN MADE BY THE ASSESSEE TO IMPLEAD ITSELF AS NECESSARY PARTY IN SUBJUDICE HIGH COURT PROCEEDINGS MENTIONED ABOVE. WE ARE AWARE TH AT AFTER INJUNCTION, 9 INTERIM OR OTHERWISE, TRANSACTION CANNOT BE PROCEE DED WITH ON BEHALF OF THE ASSESSEE WITH RANAWARE FAMILY. THE ASSESSEE HAS AL SO NOT BROUGHT TO OUR KNOWLEDGE THE FINALITY OF THE LITIGATION OF RANAWAR E FAMILY WITH MR. ANIL BAFNA AS STATED ABOVE. THERE IS NOTHING ON RECORD TO SUGGEST THAT ASSESSEE HAS ABANDONED ITSELF THE CLAIM WITH REGARD TO THE B ANER PLOT IN ANY MANNER. IT IS ONLY THE RANAWARE FAMILY WHICH CAN THROW SOME LIGHT WITH REGARD TO EXISTENCE OF DISPUTE WITH SAID FAMILY ON BEHALF OF ASSESSEE. REVENUE AUTHORITIES HAVE NOT BOTHERED TO SUMMON THE ABOVE S AID PARTIES TO ASCERTAIN WHETHER ASSESSEES CLAIM WITH REGARD TO BANER PROPE RTY IS EXISTING AGAINST THE RANAWARE FAMILY AT ANY POINT OF TIME OR NOT. W E FIND THE CIT(A) WITHOUT PROPERLY APPRECIATING THE FACTS HAS ALLOWED THE CLAIM OF THE ASSESSEE, WHICH IN OUR OPINION IS NOT PROPER. CONS IDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, W E SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND REMIT THE MATTER TO THE FI LE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN LIGHT OF OUR ABOVE DISCUSSION. NEEDLESS TO SAY, THE AO SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ABOVE GROUNDS BY THE RE VENUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. GROUNDS OF APPEAL NO.6 TO 9 BY THE REVENUE RELAT E TO THE ORDER OF THE CIT(A) IN SUSTAINING AN AMOUNT OF RS.5,01,302/- OUT OF RS.17,60,539/- DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF N OTIONAL INTEREST BEING INTEREST FREE ADVANCE GIVEN TO SISTER CONCERNS. 8. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESSI NG OFFICER DISALLOWED AN AMOUNT OF RS.17,60,539/- BEING DIVERSION OF INTE REST BEARING FUNDS TO SISTER CONCERNS AS INTEREST FREE LOANS AND ADVANCES . IN APPEAL THE LD.CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE 10 FOR A.Y. 2007-08 SUSTAINED AN AMOUNT OF RS.5,01,302 /- AND DELETED THE BALANCE AMOUNT BY HOLDING AS UNDER : 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND MATERIAL ON RECORD AS WELL AS THE APPELLATE ORDER FOR A.Y. 2007 -08 IN APPELLANT'S OWN CASE. SIMILAR GROUND WAS RAISED FOR A.Y. 2007-08 WHICH HA S BEEN DECIDED BY MY PREDECESSOR AS UNDER VIDE PARAS 5.2 & 5.3 OF APPELL ATE ORDER NO.PN/CIT(A)- II/ACIT CIR.3 PUNE/227/09-10 DATED 28.12.2010: '5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT OU T OF THE TOTAL INTEREST EXPENDITURE OF RS.69,91,766/-, THE INTERES T AMOUNTING TO RS.7,03,317/- ONLY WAS CLAIMED AS EXPENDITURE IN TH E PROFIT AND LOSS ACCOUNT, WHICH RELATED TO BINDU PROJECT WHICH WAS S OLD DURING THE YEAR AND REVENUE WAS RECOGNISED. THE REMAINING AMOU NT OF INTEREST OF RS. 62, 88, 4497- WAS ALREADY CAPITALIZED TOWARD S THE COST OF VARIOUS PROJECTS, DEPENDING ON THE PROJECT COMPLETI ON METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT. HOWEVER, THE ASSESSING OFFICER HAS GONE ON TO MAKE A PRESUMPTIVE DISALLOWA NCE OF INTEREST AMOUNTING TO RS.23,22,000/-, WHICH IS IMPROPER. THE APPELLANT HAS A/SO EXPLAINED THAT THERE WAS AVAILABILITY OF NON-I NTEREST BEARING FUNDS WHICH WAS SUFFICIENT TO ADVANCE THE AMOUNT FO R SYNERGY PROJECT TOTALING RS.1.29 CRORES. FURTHER, THE APPEL LANT HAS EXPLAINED THAT THERE WAS DEEP COMMERCIAL INTEREST OF THE APPE LLANT IN THE SYNERGY PROJECT, AND RELYING ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF S.A.BUILDERS VS. CIT, 288 ITR 1 (2007) (CITATION GIVEN WRONGLY IN THE APPELLANT'S SUBMISSION); NO IN TEREST DISALLOWANCE WAS CALLED FOR. DUE TO AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS, AGAIN, NO DISALLOWANCE WAS CALLED FOR I N VIEW OF THE HON'BLE JURISDICTIONAL HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. RELIANCE UTILITY AND POWER LTD. (201 0)31 3 ITR 340 (BOM.). 5.3 HOWEVER, IN THE SUBMISSION DID.22.12.2010, IT W AS EXPLAINED THAT AS AGAINST THE AMOUNT OF RS.7,03,317/- WHICH W AS CLAIMED AS EXPENDITURE PERTAINING TO BINDU PROJECT, THE ACTUAL CLAIM SHOULD HAVE BEEN RESTRICTED TO RS.5,69,060/- BASED ON THE REVIS ED ALLOCATION MADE BY THE APPELLANT FILED WITH THE SUBMISSION DTD.14.1 2.2010. THEREFORE, IT IS HELD THAT THERE WAS AN EXCESS CLAIM OF EXPEND ITURE PERTAINING TO BINDU PROJECT AMOUNTING TO RS.1,34,257/- (RS.7,03,3 17/- (-) RS.5,69,060/-). THE DISALLOWANCE OF INTEREST IS, TH EREFORE, RESTRICTED TO RS.1,34,257/- AS AGAINST THE AMOUNT OF RS.23,22,000 /- MADE BY THE ASSESSING OFFICER. GROUND OF APPEAL NO. 2 IS THEREF ORE, PARTLY ALLOWED.' 5.3 MOREOVER, ON ANALYZING THE WORKING OF THE INTEREST SUBMITTED BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS AND THAT GIVEN AT THE APPELLATE STAGE, IT IS SEEN THAT THE BASIS OF APPORTIONMENT O F INTEREST IN THE RATIO OF OPENING WIP FOR ALL THE ABOVE MENTIONED PROJECTS; O NGOING AS WELL AS COMPLETED WORKS OUT TO RS.5,01,302/- WHICH HAS ALSO BEEN ADMITTED BY THE APPELLANT IN THE SUBMISSION DATED 19.08.2011. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE APPELLANT AND FOLLOWING THE DECISION TAKEN IN THE EARLIER YEAR BY MY PREDECESSOR, THE DISALLOWANCE OF INTERES T IS RESTRICTED TO RS.5,01,302/- PERTAINING TO THE SYNERGY PROJECT AS AGAINST THE AMOUNT OF RS.17,60,539/- MADE BY THE ASSESSING OFFICER. GROUN D OF APPEAL NO. 3 IS, THEREFORE, HELD TO BE PARTLY ALLOWED. 11 8.1 WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 VIDE ITA NO.270/PN/2011 ORDER DATED 26-06-2012 HAS DISMI SSED THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 19 OF THE ORDER READ AS UNDER : 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THIS CASE, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.23,22 ,000/- OUT OF INTEREST EXPENDITURE ON THE GROUND THAT THE SAME WAS NOT INC URRED FOR BUSINESS PURPOSE. THE SOLE BASIS FOR THE DISALLOWANCE IS THE FACT THA T THE ASSESSEE WAS FOUND TO HAVE ADVANCED A SUM OF RS.1.29 CRORES TO ITS SISTER CONCERN M/S SYNERGY DEVELOPMENT CORPORATION. FOR THE DISALLOWANCE, THE ASSESSING OFFICER COMPUTED INTEREST AT THE RATE OF 18% OF RS.1,29,00,000/-. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE FACTS EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW, IT IS QUITE CLEAR THAT THE ASSESSING OFFICER PROCEEDED TO MAKE THE DISALLOWANCE WITHOUT TAKING COGNIZANCE OF THE FACTUAL POSITION BEING SOU GHT TO BE MADE OUT BEFORE HIM. IN FACT, THE UNREASONABLENESS OF THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER CAN BE GAUGED FROM THE FACT THAT WHEREAS TH E EXPENDITURE OF INTEREST CLAIMED IN THE PROFIT & LOSS ACCOUNT IS MERELY RS.7 ,03,717/-, THE DISALLOWANCE IS PROJECTED AT RS.23,33,000/- BY THE ASSESSING OFFICE R. IN ANY CASE, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CULLED OUT AND APPRECIATED THE FACTS PUT-FORTH BEFORE HIM TO WHICH THERE IS NO NEGATION FROM THE SAID OF THE REVENUE, AND WE FIND THAT THE DISALLOWANCE HAS BEEN RIGHTLY RESTRICTED TO RS.1,34,257/- AS AGAINST RS.23,32,000/- MADE BY THE ASSESSING OFFICE R, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS MADE A LUCID DISCUSSION AN D REASONINGS CONTAINED THEREIN HAVE ALREADY BEEN ADVERTED TO BY US IN EARL IER PART OF THE ORDER AND THE SAME IS NOT REPEATED FOR THE SAKE OF BREVITY. IN T HIS VIEW OF THE MATTER, WE HEREBY AFFIRM THE ACTION OF THE COMISSONER OF INCOM E-TAX(APPEALS) FOR THE REASONS CONTAINED THEREIN WHICH, IN OUR VIEW, ARE L OGICAL AND ON SOUND FOOTING. THUS, IN THIS GROUND, THE REVENUE FAILS. 8.2 SINCE FACTS FOR THE IMPUGNED ASSESSMENT YEAR AR E IDENTICAL TO THAT OF THE FACTS FOR A.Y. 2007-08, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-0 8 AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE SAM E IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED 9. GROUNDS OF APPEAL NO.10 TO 13 BY THE REVENUE REA D AS UNDER : 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) GROSSLY ERRED IN DELETING THE ADDITION OF RS.2,70,73,000/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF PROFIT ATTRIBUTABLE TO REVENUE POSTPONEM ENT INSTEAD OF CONFIRMING THE SAID ADDITION. 12 11. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY EARED IN FAILING TO APPRECIATE THAT THE ASSESSEE HAD VIRTUAL LY COMPLETED PROJECT 'ATRIA' DURING THE RELEVANT YEAR IN AS MUCH AS 99.24% OF TH E COST HAD BEEN INCURRED BY 31/03/2008 AND ONLY A MEAGER 0.76% WAS INCURRED IN THE LATER TWO YEARS; AND, IN THE CIRCUMSTANCES, THERE WAS NO JUSTIFICATION WH ATSOEVER FOR THE ASSESSEE TO BOOK SALES TO THE EXTENT OF 69.47% ONLY, MORE SO WH EN SUBSTANTIAL ADVANCES HAD BEEN ALREADY RECEIVED, AGREEMENTS HAD BEEN ENTERED INTO AND THE ASSESSEE DID NOT HAVE TO PERFORM ANY MORE SIGNIFICANT TASK IN PU RSUANCE OF SUCH AGREEMENTS. 12. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY EARED IN FAILING TO APPRECIATE THAT WHETHER UNDER ACCOUNTING STANDARD 7 OR UNDER ACCOUNTING STANDARD 9, THE ASSESSEE HAD NO JUSTIFIC ATION FOR POSTPONING REVENUE RECOGNITION AND THUS IN MAKING DISTORTED PRESENTATI ON OF PROFITABILITY FOR THE RELEVANT YEAR WHEN THERE WERE NO UNCERTAINTIES WHAT SOEVER REGARDING THE AMOUNT OF CONSIDERATION TO BE RECEIVED AND ALSO IT WAS NOT UNREASONABLE TO EXPECT THE ULTIMATE COLLECTION FROM THE BUYERS. 13. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN FAILING TO APPLY THE RATIO OF THE DECISION OF THE H ONBLE BOMBAY ITAT IN THE CASE OF CHAMPION CONSTRUCTION CO. VS. ITO, 1983 ITD (BOM ) 495 TO THE CASE OF THE ASSESSEE IN WHOSE CASE THERE WAS NO IMPOSSIBILITIES WHATSOEVER TO ASCERTAIN AND COMPUTE THE PROFIT OF THE RELEVANT YEAR REASONABLY AND, THEREFORE, ACCEPTANCE OF POSTPONEMENT OF REVENUE RECOGNITION AS HAS BEEN RES ORTED TO BY THE ASSESSEE WOULD AMOUNT TO GIVING THE ASSESSEE A LICENSE TO P UT OFF HIS TAX LIABILITY . . . . . 9.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THAT T HE ASSESSEE HAD SHOWN WIP (CLOSING) OF RS.11,49,27,514/- AND THE ADVANCES FOR BOOKING AS ON 31.03.2008 AT RS 1.73 CRORES IN THE FORM OF CURRENT LIABILITIES. THEREFORE, THE A.O. ASKED THE ASSESSEE TO GIVE A COMPARATIVE W ORKING OF THE TOTAL COST AND WORKING AS PER AS-7 OF THE CORRESPONDING PROFIT ABILITY. THE ASSESSEE CONTENDED BEFORE THE A.O. THAT THE AS-7 WAS NOT FOL LOWED BY IT, SINCE IT WAS A DEVELOPER AND NOT A CONTRACTOR. ON THE CONTRA RY ASSESSEE WAS FOLLOWING A METHOD OF RECOGNIZING PROFITS ON HANDIN G OVER OF POSSESSION. THE A.O. HOWEVER FOUND THE CONTENTIONS OF THE ASSES SEE NOT ACCEPTABLE AND ADDED THE PROFIT EARNED BY THE ASSESSEE FROM A.Y. 2 009-10 AMOUNTING TO RS.2,70,73,000/- ON THE PLEA THAT THE ASSESSEE HAS POSTPONED THE PROFIT PERTAINING TO THE PROJECT 'ATRIA' BY SHOWING PROFIT S FROM THE PROJECT IN SUBSEQUENT ASSESSMENT YEARS WHEREAS MAJORITY OF THE COST WAS INCURRED TILL 31 ST MARCH, 2008. THE A.O. FURTHER HELD THAT THE METHOD ADOPTED BY THE 13 ASSESSEE IS INCORRECT AS THERE WAS NO UNCERTAINTY O F SALES /POSSESSION EVENTUALLY. IN SHORT THE A.O. HELD THAT THE COMPL ETED CONTRACT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE REGARDING RECOG NITION OF PROFIT IS INCORRECT AND THAT THE ASSESSEE NEEDS TO FOLLOW PER CENTAGE COMPLETION METHOD OF ACCOUNTING. 9.2 THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE M ETHOD OF ACCOUNTING FOLLOWED IS BASED ON THE BASIC CONCEPT THAT INCOME IS RECOGNIZED ONLY WHEN SUBSTANTIAL RISKS AND REWARDS ARE TRANSFERRED FROM THE ASSESSEE TO THE CLIENT AND THE ASSESSEE THUS SUBMITS THAT TILL THE POINT O F SALE IS REACHED, THE CLOSING STOCK OF WIP IS VALUED AT COST OR NRV WHICH EVER IS LOWER. IT WAS CONTENDED THAT SALE IS RECORDED ONLY WHEN POSSESSIO N IS TRANSFERRED TO THE BUYER AND THAT RECEIPT OF ADVANCE IS ONLY A COMMERC IAL ISSUE OF FINANCIAL CAPACITY. PROFIT RECOGNITION IS AN ISSUE OF PRINCIP LE, WHICH OUGHT TO BE LINKED TO TRANSFER OF RISKS AND REWARD AND NOT THE RECEIPT OF ADVANCE. HOWEVER, THE AO WAS NOT SATISFIED WITH THE ABOVE AR GUMENTS OF THE ASSESSEE AND REACHED THE CONCLUSION THAT THE ASSESS EE HAD ADOPTED THE METHOD WHICH DOES NOT GIVE THE TRUE PICTURE OF PROF IT AND HAS RESULTED IN DEFERMENT OF TAX LIABILITY. THE AO DISCUSSED THE ACCOUNTING STANDARDS AS- 7 AND AS-9. RELYING ON VARIOUS JUDICIAL DECISIONS THE AO HELD THAT AFTER HAVING COMPLETED THE FULL PROJECT IN THE YEAR ENDIN G 31-03-2008 THE ASSESSEE HAS NOT RECOGNIZED THE REVENUE AND HAS POS TPONED THE SAME. ACCORDING TO HIM GIVING POSSESSION IS NOTHING BUT A FORMALITY BETWEEN THE BUYERS OF THE FLAT AND THE ASSESSEE, AND THEREBY TH E ASSESSEE IS POSTPONING THE REVENUE RECOGNITION AND CONSEQUENT PAYMENT OF T AXES. THUS, THE A.O. WORKED OUT THE PROFIT AT RS. 2,70,73,000/- AND ADDE D THE SAME TO THE TOTAL INCOME. THE A.O. RELIED ON THE FOLLOWING JUDICIAL D ECISIONS: 14 1. CHAMPION CONSTRUCTION CO. VS. ITO, 5 ITD 495 (BO M). 2. SUKHDEO D. JALAN (1954) 26 ITR 617 (PAT) 3. P.M. MOHAMMAD MEERAKHAN (1969) 73 !TR 735 (SC) 9.3 BEFORE CIT(A) IT WAS EXPLAINED THAT THE FACT OF THE CASES RELIED UPON BY THE AO ARE DISTINGUISHABLE. IT WAS SUBMITTED TH AT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTE D BY THE DEPARTMENT TILL A.Y. 2006-07 AND THAT FOR A.Y. 2007-08, THE SA ID METHOD HAS ALSO BEEN UPHELD BY THE CIT(A)-II, PUNE VIDE APPELLATE ORDER FOR A.Y. 2007-08 AND, THEREFORE, THERE IS NO REASON TO DEVIATE FROM THE C OMPLETED CONTRACT METHOD. 10. BASED ON THE ARGUMENTS MADE BEFORE HIM THE LD.C IT(A), FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 2007-08, HELD THAT THE ASSESSEE HAS FOLLOWED A RECOGNISED METHOD OF ACCOUNTING BEING TH E PROJECT COMPLETION METHOD WHEREIN THE SALES ARE RECOGNISED WHEN THE PO SSESSION IS HANDED OVER AFTER RECEIPT OF THE CONSIDERATION. WE FIND W HEN THE REVENUE CHALLENGED THE ORDER OF THE CIT(A) FOR A.Y. 2007-08 THE TRIBUNAL DISMISSED THE APPEAL FILED BY THE REVENUE BY HOLDI NG AS UNDER : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THIS CASE, THE ASSESSEE IS UNDISPUTABLY ENGAGED IN THE BUSINESS OF DEVELOPER/BUILDER. THE ASSESSEE WAS UNDERTAKING SEVERAL PROJECTS, NAMELY, ATRIA, BINDU, JYONEESH, SERENITY, MOHAMMADWADI, BALEWADI. THE ASSESSEE WAS ACCOUNTING FOR THE INCOME OF SUCH PROJECTS ON PROJECT COMPLETION METHO D, I.E. REVENUE WAS BEING RECOGNIZED AT THE TIME OF GIVING OVER POSSESSION OF THE FLATS IN RECEIPT OF THE ENTIRE AMOUNT TOWARDS CONSIDERATION. THE ASSESSEE E XPLAINED THAT IT IS THE POINT OF EXECUTION OF THE AGREEMENT WHEN THE RISKS OF THE BUILDER GETS TRANSFERRED TO THE BUYER AND THE REWARDS BECOME ELI GIBLE TO THE ASSESSEE BUILDER, WHICH WAS DULY IN ACCORDANCE WITH ACCOUNTI NG STANDARD-9 ISSUED BY THE ICAI. THE ASSERTION OF THE ASSESSEE TO THE EFFE CT THAT SUCH METHOD OF ACCOUNTING WAS BEING REGULARLY FOLLOWED AND ACCEPTE D BY THE DEPARTMENT HAS BEEN ACCEPTED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS) VIDE PARA 4.5 OF HIS APPELLATE ORDER. 9. THE ASSESSING OFFICER, HOWEVER, HAS FOUND FAULT WITH THE METHOD OF ACCOUNTING, INASMUCH AS ACCORDING TO HIM, THE ASSES SEE HAD RECEIVED SUBSTANTIAL ADVANCES AGAINST FLAT BOOKINGS AND COUP LED WITH THE FACT THAT CLOSING WORK-IN-PROGRESS HAS BEEN VALUED AT COST, W HICH SHOWED THAT THE ASSESSEE WAS POSTPONING ITS TAX LIABILITY AND THAT SUCH METHOD DID NOT GIVE TRUE PICTURE OF THE PROFITS, INASMUCH AS IT TENDED TO DE LAY THE DISCLOSURE OF PROFITS. 15 10. SECTION 145(3) OF THE ACT, INTER ALIA, PERMITS THE ASSESSING OFFICER TO MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT IN T HE MANNER AS PROVIDED IN SECTION 144 OF THE ACT, WHERE HE IS SATISFIED THAT THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION-(1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB- SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. FURTHER, RECOURSE TO THE BEST JUDGMENT ASSESSMENT PROVIDED UNDER SECT ION 144 IS ALSO AVAILABLE TO THE ASSESSING OFFICER WHERE HE IS NOT SATISFIED ABO UT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF AN ASSESSEE. IN THI S CASE, COMPLETENESS OR CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE HAVE NO T BEEN DOUBTED BY THE ASSESSING OFFICER, AS IS EVIDENT FROM THE DISCUSSIO N IN THE ASSESSMENT ORDER. THEREFORE, IT IS ONLY IN THE CIRCUMSTANCE WHERE MET HOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIF IED UNDER SUB-SECTION (2) OF SECTION 145 OF THE ACT HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE WHICH ALONE CAN BE THE JUSTIFICATION FOR THE ASSESSING OF FICER TO MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT IN TERMS OF SECTION 144 OF THE ACT. NOW, THE DISCUSSION IN THE ASSESSMENT ORDER IS BEREFT OF ANY REASONING ON THESE TWO COUNTS AND THEREFORE, IN OUR VIEW, THE ASSESSING OF FICER WAS NOT JUSTIFIED IN REJECTING THE PROFITS DECLARED AND TO EFFECTUATE TH E ASSESSMENT TO THE BEST OF HIS JUDGMENT AS PROVIDED UNDER SECTION 144 OF THE A CT CLEARLY THE ASSESSING OFFICER HAS ERRED IN INVOKING SECTION 145(3) OF THE ACT IN THIS CASE. 11. BE THAT AS IT MAY, BEFORE US THERE IS NO CONTRO VERSION TO THE FACT THAT THE METHOD OF ACCOUNTING IN QUESTION IS REGULARLY F OLLOWED BY THE ASSESSEE IN THE PAST AND ACCEPTED BY THE DEPARTMENT, AS FOUND B Y THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PARA 4.5 OF HIS IMPUGNED OR DER. THEREFORE, IN THE FACE OF SUCH UNDISPUTED FACT-POSITION, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RIGHTLY RELIED UPON THE FOLLOWING OBSERVATIONS OF THE HON'BLE APEX COURT N THE CASE OF CIT V. REALEST BUILDERS & SERVICES LTD. 307 ITR 202: 'IN CASES WHERE THE DEPARTMENT WANTS TO FAX AN ASSESSEE ON THE GROUND OF THE LIABILITY ARISING IN A PARTICULAR YEAR, IT SHOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE PAST AND WHETHER CHARGE IN METHOD OF ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFIT IS BEING UNDER-ESTIMATED UNDER THE IMPUGNED METHOD OF ACCOUNTING. IF THE AO COMES TO THE CONCLUSION THAT THERE IS WIDER- ESTIMATION OF PROFITS, HE MUST GIVE FACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT THE IMPUGNED METHOD O F ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER-ESTIMATION OF PROFITS AND IS THEREFORE REJECTED. OTHERWISE, THE PRESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IN THIS CASE, THAT EXERCISE HAS NEVER BEEN UNDERTAKEN. THE AO WAS REQUIRED TO DEMONSTRATE BOTH THE METHODS, ONE ADOPTED BY THE ASSESSEE AND THE OTHER BY THE DE PARTMENT, IN THE CIRCUMSTANCES, THERE IS NO REASON TO INTERFERE WITH THE CONCLUSION GIVEN BY THE HIGH COURT AND THE TRIBUNAL.' AND HELD THAT THE ACTION OF THE ASSESSING OFFICER O F INFERRING THAT THERE WAS A POSTPONEMENT OF TAX LIABILITY WAS NOT JUSTIFIED. 12. APART THEREFROM, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO ADDRESSED THE ISSUE OF VALIDITY AND THE JUSTIFICATION OF THE ASSESSEE'S METHOD OF ACCOUNTING TO RECOGNIZE REVENU E ON COMPLETION OF THE PROJECTS WHEN THE FLATS WERE SOLD, I.E. WHEN THE LE GAL TITLE PASSES TO THE BUYER OR WHEN SELLER ENTERS INTO AGREEMENT AND GIVES POSSESS ION TO THE BUYER UNDER THE AGREEMENT. THE AFORESAID METHOD ADOPTED BY THE ASSE SSEE WAS FOUND BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN ACCORDANCE WITH THE DECISION MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF AWADHESH BUILD ERS (SUPRA). ON THIS ASPECT ALSO, THERE IS NO CREDIBLE AND COGENT REASONING BRO UGHT OUT BY THE REVENUE SO 16 AS TO NEGATE THE CONCLUSIONS DRAWN BY THE COMMISSIO NER OF INCOME-TAX (APPEALS). 13. CONSIDERED IN THE AFORESAID LIGHT, WE THEREFOR E FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAK E IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWI NG 5% OF THE CLOSING STOCK OF WORK-IN-PROGRESS WHICH' APPEARS TO BE ILLOGICAL AND BASED ON IRRELEVANT CONSIDERATIONS. THEREFORE, ON THIS GROUND, THE REVE NUE FAILS. 11. SINCE THE LD.CIT(A) DELETED THE ADDITION BY REL YING ON THE ORDER OF HIS PREDECESSOR FOR A.Y. 2007-08 WHICH HAS BEEN UPH ELD BY THE TRIBUNAL IN ASSESSEES OWN CASE, THEREFORE, IN ABSENCE OF ANY C ONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.2,70,73,000/-. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMI SSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 18 TH DAY OF SEPTEMBER 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 18 TH SEPTEMBER 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE