ACIT, Pune V. Shri S.Balan, Pune

ITA 1621/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84885 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA SHRI A K M ODI
• Keywords: Capital asset; Business income; Earning of tax free income; Proportionate interest; Capital expenditure
• Section: 143(3); 14A; 37(1); 32; 131; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 1398 /PN/20 1 2 ASSESSMENT YEAR : 200 5 - 06 BALKRISHNAN SHANMUGHAM CHETTIAR A LIAS S. BALAN, NIRANKAR 1133, SHIVAJINAGAR, FERGUSSON COLLEGE ROAD, PUNE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, 1(2), PUNE (APPELLANT) (RESPONDENT) PAN NO. AALPC5158J ITA NO. 1422/PN/2012 ASSESSMENT YEAR : 2005 - 06 BALKRI SHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN, SAI CHAMBERS PUNE - MUMBAI ROAD, WAKDEWADI, PUNE VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 3, PUNE (APPELLANT) (RESPONDENT) PAN NO. AALPC5158J ITA NO S. 1620 , 1621 & 1622 /PN/2012 ASSESSMENT YEAR S : 2005 - 06 , 2006 - 07 & 2007 - 08 ACIT, CEN. CIR. 1(1), PUNE VS. SHRI S. BALAN, 1133/5, NIRANKAR, F.C. ROAD, SHIVAJINAGAR, PUNE (APPELLANT) (RESPONDENT) PAN NO. AALPC5158J A SSESSEE BY: SHRI M.R. BHAGWAT RE VENUE BY: SMT. S. PRAVEENA/ SHRI A.K. M ODI DATE OF HEARING : 24 - 0 6 - 2014 DATE OF PRONOUNCEMENT : 25 - 08 - 2014 2 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE ORDER P ER R.S. PADVEKAR , JM : - IN THIS BATCH OF FIVE APPEALS, TWO APPEALS ARE FILED BY THE ASSESSEE AND THREE APPEALS ARE FILED BY THE REVENUE. IN SOME OF THE APPEALS , THE I SSUES ARE COMMON HENCE, FOR THE SAKE OF CONVENIENCE , THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 1422/PN/2012 (A.Y. 2005 - 06) 2. THIS APPEAL PERTAINS TO THE A.Y. 2005 - 06 AND THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS IN THE APP EAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT PROFIT ARISING FROM SALE OF LAND SITUATED AT S.NO. 215 BSK III STAGE, BANAGALORE WAS TAXABLE UNDER THE HEAD 'INCOME FROM BUSINESS' AND THEREBY SUSTAINING AN ADDITION OF RS.25,62 ,797/ - TO ASSESSEE'S TOTAL INCOME. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST PAID TO S. BALAN (HUF) ON THE AMOUNTS BORROWED AS UNDER DATE AMOUNT 21 - 09 - 2004 23,00,000/ - 3. THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE UNDER SECTION 14A AT RS.1,00,000/ - . 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.16,237/ - OUT OF CONSULTANCY CHARGES. 3. THE LD. COUNSEL SUBMITTED THAT AS PER THE INSTRUCTION S OF THE ASSESSEE , HE IS NOT PRESSING GROUND NOS. 2 AND 4 OF THE ABOVE GROUNDS HENCE, ABOVE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NO. 1 IS IN RESPECT OF THE TREATMENT OF THE PROFIT ON THE SALE OF PLOT OF LA ND WHICH WAS DECLARED AS A CAPITAL GAIN BUT THE ASSESSING OFFICER ASSESSED THE SAME UNDER THE HEAD BUSINESS INCOME. THE FACTS WHICH ARE REVEALED 3 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE FROM THE RECORD AS UNDER. THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME FOR THE A.Y. 2005 - 06 D ECLARING TOTAL INCOME OF RS.1,85,65,244/ - . THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT ON 28 - 12 - 2007. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DECLARED THE SHORT T ERM CAPITAL GAIN IN RESPECT OF THE SALE OF LAND AT S. NO. 215, BSK III STAGE, BANGALORE AS WELL AS SALE OF FIXED ASSETS AT UNIT NO. 101 TO 105 SAI CHAMBER, PUNE AND ALSO SALE OF MOTOR CAR. SO FAR AS GROUND NO. 1 IS CONCERNED IT IS IN RESPECT OF THE SALE O F LAND AT BANGALORE. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS DECLARED THE TOTAL SHORT TERM CAPITAL GAIN AT RS.62,37,638/ - WHICH ALSO COMPRISES THE SHORT TERM CAPITAL GAIN ON THE SALE OF LAND AT BANGALORE TO THE EXTENT OF RS.30,58,599/ - . THE ASSESSEE HAD UNABSORBED SHORT TERM CAPITAL LOSS PERTAINING TO A.Y. 2001 - 02 WHICH WAS BROUGHT FORWARD AND SET OFF AGAINST THE SHORT TERM CAPITAL GAIN. THE ASSESSING OFFICER ASKED FOR THE COPIES OF THE PURCHASE DEED AND THE SALE DEED IN RESPECT OF THE P LOT OF LAND AT BANGALORE. AS OBSERVED BY THE ASSESSING OFFICER AFTER EXAMINING THE RETURN FILED BY THE ASSESSEE FOR A.YS. 2003 - 04 AND 2004 - 05 , IT WAS NOTICED THAT IN THE A.Y. 2003 - 04 THE ASSESSEE HAS SHOWN WORK - IN - PROGRESS IN RESPECT OF MANY PROJECTS ONE OF WHICH WAS A PROJECT NAMED MEENAKSHI ARCADE. 4. THE ASSESSING OFFICER HAS NOTED THAT ANNEXURE G OF THE AUDIT REPORT FOR A.Y. 2003 - 04 SHOWED WORK - IN - PROGRESS (WIP) OF DIFFERENT PROJECTS OF THE ASSESSEE FOR THAT FINANCIAL YEAR AS ON 31 - 03 - 2003. THE PLOT OF LAND BEARING S. NO. 215 BSK III STAGE, BANGALORE WAS SHOWN AS WORK - IN - PROGRESS FOR MEENAKSHI ARCADE PROJECT. THE ASSESSING OFFICER HAS GIVEN THE BREAKUP OF WIP IN WHICH THE AMOUNT PAID FOR LAND AT RING ROAD SITE NO. 215 BK III STAGE, BANGALORE W AS SHOWN AT RS.25,00,000/ - . THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT THE LAND AT BANGALORE WAS A PART OF THE BUSINESS ASSET OF THE ASSESSEE AND NOT A PERSONAL 4 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE ASSET. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE INCOME EARNED FROM SAID LAND H AS TO BE TREATED AS A BUSINESS INCOME OF THE ASSESSEE AND NOT AS A CAPITAL GAIN. THE ASSESSEE FILED THE REPLY JUSTIFYING HIS STAND THAT THE SAID LAND CANNOT BE TREATED AS A PART OF HIS BUSINESS ASSET AS IT WAS IN THE NATURE OF THE INVESTMENT. AS PER THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER DURING THE F.Y. 2002 - 03 THE ASSESSEE PAID AN ADVANCE OF RS.25,00,000/ - TOWARDS PURCHASE OF THE ABOVE LAND. THE SAID ADVANCE WAS PAID OUT OF THE BORROWINGS. DURING THE F.Y. 2002 - 03, INTEREST OF RS.269971/ - WAS DEBITED TO MEENAKSHI ARCADE ACCOUNT. IT WAS A CONTENTION OF THE ASSESSEE THAT NO PURCHASE DEED WAS EXECUTED NOR THE POSSESSION OF THE SAID LAND WAS RECEIVED AT THAT TIME AND NO DEVELOPMENT WORK OR ANY EXPENDITURE WAS INCURRED DURING THE F. Y. 2002 - 03. 5. IN SUM AND SUBSTANCE THE F.Y. 2002 - 03 , SAVE THE ADVANCE PAYMENT TOWARDS THE CONSIDERATION FOR PURCHASE OF THE SAID PLOT OF LAND THERE WAS NO OTHER EXPENDITURE ON DEVELOPMENT. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT ON 01 - 04 - 2003 , THE ASSESSEE TRANSFERRED FROM WIP THE ADVANCE OF LAW AND INTEREST TO THE EXTENT OF RS.27,69,971/ - TO HIS PERSONAL ACCOUNT AS A PERSONAL ASSET. SUBSEQUENTLY, ON 08 - 09 - 2003 THE ASSESSEE EXECUTED THE PURCHASE DEED OF THE SAID LAND AND ALSO PAID STA MP DUTY, REGISTRATION FEES AND TRANSFER CHARGES FROM HIS PERSONAL ACCOUNT. LAND TAX WAS ALSO PAID AND DEBITED TO HIS PERSONAL ACCOUNT. IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT HE WAS HOLDING THE SAID LAND AS CAPITAL ASSET AND NOT AS A BUSINESS ASSET. THE ASSESSEE ALSO PLACED HIS RELIANCE IN THE STATEMENT OF ACCOUNT FOR THE F.Y. 2003 - 04 , IN WHICH AS STATED BY THE ASSESSEE THE SAID LAND WAS SHOWN AS HIS PERSONAL INVESTMENT AND NOT A PART OF THE WI P. 6. DURING THE F.Y. 2004 - 05 RELEVANT TO THE A .Y. 2005 - 06 , THE ASSESSEE SOLD THE SAID LAND FOR RS.60 LACS AND OFFERED THE SAME INCOME AS INCOME FROM SHORT TERM CAPITAL GAIN. THE ASSESSEE HAS BROUGHT FORWARD LOSSES 5 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE FROM THE A.Y. 2001 - 02 WHICH WAS SET OFF AGAINST THE SHORT TERM CAPITAL GAIN WORKED OUT BY THE ASSESSEE AT RS.25,62,797/ - . THE ASSESSEE ALSO CLAIMED BEFORE THE ASSESSING OFFICER THAT HIS INTENTION WAS TO HOLD THE SAID LAND AS A CAPITAL ASSET AND NOT AS A BUSINESS ASSET. THE ASSESSING OFFICER REFERRED TO THE RETURN OF INCOME FILED BY THE ASS ESSEE FOR THE A.Y. 2003 - 04 AND HAS OBSERVED THAT THE ASSESSEE HAS SHOWN THE SAID LAND AS A PART OF WORK - IN - PROGRESS FOR THE PROJECT NAMED AS MEENAKSHI ARCADE. ON THE BASIS OF TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT TO THE SAID LAND THE A SSESSING OFFICER CONCLUDED THAT IT WAS A PART OF THE BUSINESS ASSET AND HENCE, THE PROFIT/GAIN ON THE SALE OF THE SAID LAND IS TO BE ASSESSED AS A BUSINESS INCOME ONLY. THE ASSESSING OFFICER, ACCORDINGLY, REJECTED THE CLAIM OF THE ASSESSEE TREATING THE GA IN ON THE SALE OF LAND AS A SHORT TERM CAPITAL GAIN AND BROUGHT TO TAX AS A BUSINESS INCOME DENYING THE BENEFIT OF THE SET OFF OF THE BROUGHT FORWARD CAPITAL LOSS . THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE TOOK A CONTENTION THAT HE HAD INTENDED TO HOLD THE SAID LAND FOR CONSTRUCTION OF RESIDENTIAL BUNGAL OW FOR HIMSELF AND HENCE, THE SAID LAND WAS TRANSFERRED TO THE ASSET SITE IN HIS BALANCE SHEET TO HIS CAPITAL GAIN IN THE F.Y. 2003 - 04. HE ALSO TOOK A CONTE NTION THAT THE ASSESSEE HAS NEVER INTENDED TO CONSTRUCT ANY COMMERCIAL BUILDING ON THE SAID LAND AND THE SAID PLOT OF LAND WAS INTENDED FOR HIS PERSONAL USE. THE LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA NOS. 6 .3 TO 6.11. THE REASONS GIVEN BY THE LD. C IT(A) ARE AS UNDER: 6.3 THE FACT OF THE ISSUE AS BROUGHT OUT ON RECORD REVEALS THAT DURING F.Y. 2002 - 03, THE APPELLANT HAD PAID AN ADVANCE OF RS.25 LACS TOWARDS PURCHASE OF LAND OUT OF THE LOAN TAKEN FOR THE PURPOSES AND THE INTEREST AMOUNTING TO RS. 2,69, 971/ - ACCRUED ON ACCOUNT OF THE SAID LOAN WAS DEBITED TO 'MEENAKSHI ARCADE' ACCOUNT. THIS ASPECT HAS BEEN EXAMINED BY THE A.O. FROM THE RETURN OF INCOME FOR A.Y. 2003 - 04 WHEREIN THE APPELLANT HAD SHOWN WORK - IN - PROGRESS IN RESPECT OF A PROJECT NAMED 'MEENAK SHI ARCADE' AND THE ADVANCE FOR LAND ALONG WITH THE INTEREST ON LOAN WAS REFLECTED AS WORK - IN - PROGRESS OF RS.27,69,971/ - FOR THE YEAR ENDING 31 - 3 - 2003. THUS IT IS 6 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE A UNDISPUTED FACT THAT THE SAID ASSET WAS SHOWN AS A 'BUSINESS ASSET BY THE APPELLANT FOR A PROJECT ENVISAGED AS PLANNED AND ALSO NAMED BY THE APPELLANT AS MEENAKSHI ARCADE. HOWEVER, THE APPELLANT SUBSEQUENTLY DURING F.Y. 2003 - 04 RELEVANT TO A.Y. 2004 - 05 DECIDES TO CONVERT THE STOCK - IN - TRADE INTO INVESTMENT AND THE ENTIRE SUM OF RS.27,69,971/ - ( COST OF LAND OF RS.25 LACS AND INTEREST ON LOAN OF RS.2,69,971/ - ) WAS TRANSFERRED TO THE PERSONAL ACCOUNT AS A PERSONAL ASSET. THE APPELLANT HAS, THEREAFTER, EXECUTED A PURCHASE DEED OF THE SAID LAND ON 8.9.2003 AND PAID THE REQUISITE STAMP DUTY OF RS.3,25 ,320/ - , REGISTRATION AND TRANSFER FEES OF RS.44,510/ - . THE APPELLANT, SUBSEQUENTLY HELD THE LAND FOR 9 MONTHS AND SOLD THE SAME ON 21 - 7 - 2004 FOR A SUM OF RS.75,00,000/ - ON WHICH THE SHORT TERM CAPITAL GAINS HAVE BEEN DISCLOSED. THERE IS NO DENYING THAT FA CT THAT THE LAND WAS PURCHASED BY THE APPELLANT FOR THE PURPOSES OF THE BUSINESS, THAT IS, BUSINESS OF CIVIL CONSTRUCTION, AS IS CLEARLY REVEALED BY THE NOTINGS MADE IN ANNEXURE 'G' OF THE AUDIT REPORT FOR A.Y. 2003 - 04 FILED ALONG WITH THE RETURN OF INCOME FOR THE SAID YEAR. THE SAID LAND WAS APPEARING AS WORK - IN - PROGRESS FOR THE 'MEENAKSHI ARCADE PROJECT', ONE OF THE MANY PROJECTS UNDERTAKEN BY THE APPELLANT. THEREFORE, THE CONTENTION RAISED BY THE APPELLANT THAT THE SAME WAS ERRONEOUSLY BOOKED UNDER THE H EAD WIP PRIMA FACIE DOES NOT APPEAR TO BE VERY CONVINCING. THE APPELLANT BEING A BUILDER AND DEVELOPER HAD PURCHASED THE LAND FOR A PROJECT AS 'MEENAKSHI ARCADE' AS DONE IN OTHER SIMILAR PROJECTS UNDERTAKEN. THE LD. COUNSEL OF THE APPELLANT HAS ALSO CONTEN DED THAT THE INTEREST PAID FOR ACQUISITION OF THE LAND WAS CAPITALIZED ONLY BECAUSE THE SAID AMOUNT WAS A CAPITAL ASSET AND THAT HAD IT BEEN STOCK - IN - TRADE THE INTEREST WOULD HAVE GONE TO THE P & L A/C. HOWEVER, THE CONTENTION RAISED DOES NOT HAVE MUCH FOR CE BECAUSE OF THE FACT THAT THE APPELLANT IS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING FOR RECOGNIZING THE REVENUE OF THE BUILDING PROJECTS AND ANY EXPENSES INCURRED ON ACCOUNT OF INTEREST HAS BEEN HELD BY THE SB DECISION OF BOMBAY ITAT IN THE CASE OF WALL STREET CONSTRUCTION LTD. VS JCIT (ITAT, MUM - SB) 101 TTD 156 THAT INTEREST IDENTIFIABLE WITH A PROJECT BE ALLOWED ONLY WHEN THAT PROJECT IS COMPLETED AND INCOME OFFERED FOR TAX. THE SPECIAL BENCH IN COMING TO THE AFORESAID CONCLUSION RELIED ON THE BOMBAY HIGH COURT DECISION OF TAPARIA TOOLS LTD VS CIT (2003) 260 ITR 102 (BOM) THUS THE CONTENTION OF THE APPELLANT REGARDING CAPITALIZATION OF INTEREST ON ACCOUNT OF THE ASSET BEING A CAPITAL ASSET DOES NOT HOLD GOOD. 7 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 6.4 THE APPELLANT DURING THE APPELL ATE PROCEEDINGS HAS CONTENDED THAT IMPUGNED LAND WAS HELD BY THE ASSESSEE FOR CONSTRUCTION OF A BUNGALOW AND, THEREFORE, THE SAID ASSET WAS TRANSFERRED FROM THE BALANCE SHEET TO THE CAPITAL ACCOUNT. THE APPELLANT HAS FOR THE FIRST TIME RAISED THE AFORESAID PLEA OF THE UTILIZATION OF THE LAND FOR THE PURPOSES OF CONSTRUCTION OF BUNGALOW TO BE USED FOR SELF USE BY THE APPELLANT, HOWEVER, NO SUCH CLAIM WAS MADE BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS BEFORE THE A.O. THE CONTENTION NOW RAISED BY THE APPELLANT, HOWEVER, DOES HAVE MUCH FORCE BECAUSE THE SAME IS NOT BACKED BY ANY EVIDENCE AND THE VERY FACT THAT THE LAND/INTENDED FOR THE CONSTRUCTION OF BUNGALOW WAS HELD FOR MORE THAN 2 YEARS/WITHOUT EVEN A BRICK BEING ADDED FOR CONSTRUCTION OF THE SAID B UNGALOW AS CONTEMPLATED BY THE APPELLANT AS NO MATERIAL IN THIS REGARD HAS BEEN BROUGHT ON RECORD. ON THE OTHER, THE INTENTION OF THE APPELLANT OF A PROPOSED SEPARATE PROJECT IS CLEARLY REVEALED FROM THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME FOR A.Y. 2003 - 04 THAT OF 'MEENAKSHI ARCADE' - INCIDENTALLY FEW OTHER PROJECT OF THE APPELLANT ALSO USES THE NAME 'MEENAKSHI SUCH AS MEENAKSHI RESIDENCY PHASE I AND PHASE II, WHICH INDICATES THAT A SEPARATE PROJECT HAD DEFINITELY BEEN PLANNED BY THE APPELLAN T. IN THE CASE OF RAJA J. RAMESHWAR RAO VS CIT (SC) 421 ITR 179 IT WAS HELD THAT WHEN A PERSON ACQUIRES LAND WITH A VIEW FOR SELLING IT LATER AFTER DEVELOPING IT, HE IS CARRYING ON ACTIVITY RESULTING IN PROFIT AND THE ACTIVITY CAN ONLY BE DESCRIBED AS A BU SINESS VENTURE. BUSINESS MAY RELATE TO A CAPITAL ASSET, BUT FOR THAT REASON IT DOES NOT CEASE TO BE BUSINESS. THEREFORE, CONSIDERING THE FACT THAT THE APPELLANT HIMSELF IS A CONTRACTOR AND A BUILDER, THE INFERENCE OF THE A.O. THAT THE ENTIRE AMOUNT IS BUSI NESS PROFIT SHOULD NOT BE FAULTED BECAUSE THE ENTIRE TRANSACTION HAD PRIMA FACIE BUSINESS CHARACTER APART FROM THE FACT THAT SUCH ACTIVITIES WERE IN THE COURSE OF APPELLANT'S REGULAR BUSINESS. 6.5 THE LD. COUNSEL HAS PLACED, RELIANCE ON THE CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007 WITH RESPECT TO THE POSSIBILITY FOR A TAXPAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT PORTFOLIO AND A TRADING PORTFOLIO AND, THEREFORE, ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAIN AS WELL AS BUSINESS INCOME. IN THIS REGARD IT IS RELEVANT TO POINT OUT THAT THE CONTEXT FOR THE CIRCULAR WAS WITH RESPECT TO SHARES AND SECURITIES AND THE CBDT IN ITS INSTRUCTION NO. 1827 DATED 31.08.1989 HAD LAID DOWN CERTAIN TESTS TO DISTINGUISH BETWEEN SHARES HELD AS STOCK - IN - TRA DE AND SHARES HELD 8 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE AS INVESTMENT. THE SAID TESTS WERE NEARLY 15 IN NUMBER AND IT WAS ALSO ADVISED THAT NO SINGLE CRITERION LISTED IS DECISIVE AND TOTAL EFFECT OF ALL THE 15 CRITERIA SHALL BE CONSIDERED TO DETERMINE THE NATURE OF ACTIVITY. 6.6 IN THE CASE OF CIT VS. MALABAR INDUSTRIAL CO. LTD. (2010) 320 ITR 486 (KER) IT WAS HELD THAT IN A CASE OF AN INVESTMENT COMPANY, WHICH MAINLY DEALS IN INVESTMENTS, SUCH PROFITS OR LOSS IN SHARES SHOULD ORDINARILY BE ON BUSINESS ACCOUNT, THOUGH IT IS NOT INDICATING THA T THEY MAY HOLD SOME SHARES AS J INVESTMENT. 6.7 IN THE CASE OF CIT VS. NEHA BUILDER P. LTD. (2008) 296 ITR 661 (GUJ), THE ASSESSEE WAS ENGAGED IN DEVELOPMENT, CONSTRUCTION, SALE AND LEASE OF IMMOVABLE PROPERTY AND TREATED PROPERTY AS STOCK - IN - TRADE, IT W AS HELD THAT INCOME FROM PROPERTY SHOULD BE ASSESSED AS BUSINESS INCOME. THEREAFTER, IN THE CASE OF CIT VS ROSE SERVICES APARTMENT INDIA P. LTD. (2009) 309 ITR 1491 (KER) SEVERAL ADDITIONS WERE MADE BY THE A.O. ON THE GROUND THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS IN REAL ESTATE BUSINESS AND HELD THAT INCOME AND LOSS ARE LIABLE TO BE TAXED UNDER OTHER SOURCES. BUT THE HIGH COURT HELD IN ASSESSEE'S FAVOUR AS IT WAS FOUND THAT CONVERSION OF PLOT OF LAND PURCHASED WAS SHOWN AS STOCK - IN - TRADE IN PAST YE ARS AND ALLOWED THE CLAIM OF LOSS FROM BUSINESS. 6.8 THE WORD 'STOCK - IN - TRADE' IN COMMERCIAL SENSE MEANS ALL THOSE GOODS OR COMMODITIES IN WHICH THE PARTICULAR INDIVIDUAL DEALS I.E. BUYS OR IN THE COURSE OF HIS BUSINESS ACTIVITIES. THE APPELLANT BEING IN THE BUSINESS OF CONSTRUCTION AND A BUILDER HAS BOUGHT A LAND, FOR THE PROJECT PLANNED AND, THEREAFTER, CONTEMPLATES CONSTRUCTION OF A BUNGALOW FOR SELF USE, CONVERTS THE STOCK - IN - TRADE TO INVESTMENT AND THEN WITHIN A PERIOD OF LESS THAN TEN MONTHS SELLS THE LAND AND SETS OFF THE ENTIRE CAPITAL LOSS BROUGHT FORWARD FROM THE EARLIER YEARS AGAINST THE PROFIT EARNED ON ACCOUNT OF SUCH SALE THEREBY REDUCING THE INCOME UNDER CAPITAL GAIN TO NIL. THE ENTIRE PROCESS UNDERTAKEN BY THE APPELLANT PRIMA FACIE POINT O UT TOWARDS A COLORABLE DEVICE TO AVOID TAX LIABILITY. THE APPELLANT HAS PURCHASED THE AFORESAID ASSET I.E. THE LAND FOR WHICH FUNDS HAVE BEEN BORROWED AND ON WHICH, INTEREST HAS ALSO ACCRUED WHICH HAS BEEN TAKEN TO THE COST WHILE COMPUTING THE CAPITAL GAI NS. THE LAW PROVIDES FOR THE CONTINGENCY OF A CAPITAL ASSET CONVERTED INTO STOCK - IN - TRADE U/S 45(2), BUT THERE IS NO PROVISION AS TO THE TREATMENT OF STOCK - IN - TRADE BEING CONVERTED 9 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE INTO INVESTMENTS, HOWEVER, THERE ARE PRECEDENTS WHICH WOULD ANSWER THE ISSUE WELL. 6.9 A SINGLE SPARROW MAY NOT MAKE A SUMMER. BUT A SINGLE ACTIVITY OF PURCHASE AND SALE MAY BE TREATED AS BUSINESS, IF THE PURCHASE WAS INTENDED FOR RESALE AND NOT AN INVESTMENT. IT WAS SO DECIDED IN G. VENKATASWAMI NAIDU & CO VS CIT (1959) 351 ITR 594 (SC). THE HON. COURT ALSO OBSERVED THAT THE CONDUCT OF THE ASSESSEE SUBSEQUENT TO THE PURCHASE OF THE ASSET IS IMPORTANT IN DETERMINING WHETHER THE INCOME IS FROM BUSINESS OR NOT. COURTS HAVE HELD THAT SALE AFTER LONG PERIOD OF HOLDING WAS NOT BUS INESS. FOR INSTANCE IN THE CASE OF CIT VS DR. INDU BALA CHABRA (2002) 258 ITR 111 (DEL) THE HIGH COURT FOUND THAT THE SALE WAS AFTER TWENTY YEARS OF ACQUISITION AND THE SAME WAS HELD THAT IT COULD NOT BE TREATED AS AN ADVENTURE IN THE NATURE OF TRADE. IN T HE CASE OF THE APPELLANT, THE PERIOD OF HOLDING IS LESS THAN 10 MONTHS WHICH ALSO REVEALS THE INTENTION AND MOTIVE OF THE APPELLANT. I AGREE WITH THE FINDING OF THE A.O. THAT THE APPELLANT HAD AVOIDED THE PAYMENT OF TAX ON ACCOUNT OF SET OFF OF THE UNABSOR BED SHORT TERM CAPITAL LOSS CARRIED FORWARD FROM A.Y. 2001 - 02 AND THE ENTIRE PROCESS OF CONVERSION OF LAND INTO STOCK - IN - TRADE TO ITS FINAL SALE PRIMA FACIE INDICATES THAT THE INTENTION OF THE APPELLANT WAS OF AVOIDING THE TAX. WHAT CONSTITUTES PERMISSIBLE TAX PLANNING AND WHAT DOES NOT THE LINE BETWEEN TAX AVOIDANCE AND TAX EVASION IS OFTEN TOO THIN. A CYNICAL VIEW IS THAT SUCCESSFUL TAX EVASION IS TAX AVOIDANCE, WHILE UNSUCCESSFUL TAX AVOIDANCE MAY BE CONSTRUED AS TAX EVASION. IN THE CASE OF TWINSTAR HOLD INGS LTD. VS A. KEDIA DCIT (2003) 260 ITR 6 (BOM) THE COURT HELD THAT THE SOLE OBJECT OF THE ALLEGED CONVERSION WAS TO AVOID TAX ON THE INFERENCE THAT DEFINITION OF ASSETS WOULD NOT INCLUDE STOCK - IN - TRADE. THE HIGH COURT IN CONCLUSION REFERRED TO THE JUDGM ENT OF THE SC IN MC DOWELL AND CO LTD VS ITO (1985) 154 ITR 148(SC) AND POINTED OUT THAT EVEN IF THE TRANSACTION IS GENUINE, IT COULD BE IGNORED, IF THE OBJECT IS TAX AVOIDANCE AND THE METHOD ADOPTED IS A COLORABLE DEVICE. THE PRINCIPLE IN W T RAMSAYS LTD VS IRC (1981) 2 WLR 449 (HL) WAS INVOKED, SO AS TO CONSIDER THE FISCAL CONSEQUENCES OF A PRE PLANNED SERIES OF TRANSACTIONS AND NOT MERELY THE RESULTS OF SEPARATE STAGES OF THIS PLAN. 6.10 IT IS SETTLED IN LAW THAT IT IS FOR THE REVENUE TO ESTABLISH THAT THE PROFIT EARNED IN A TRANSACTION IS WITHIN THE TAXING PROVISION AND IT HAS TO SHOW THAT THE NATURE OF THE TRANSACTION IS SUCH AS IS NORMALLY ENTERED INTO BY PERSONS CARRY ON TRADING ACTIVITY. IN THE 10 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE CASE OF SAROJ KUMAR MUJUMDAR VS CIT 371 ITR 242 (SC) IT WAS HELD THAT THE BURDEN CAN BE DISCHARGED BY POINTING! CIRCUMSTANCES WHICH LEAD TO THE CONCLUSION THAT THE TRANSACTION IS AN ADVENTURE I IN THE NATURE OF TRADE. THUS IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT! FACTORS AND CIRCUMSTANCES THAT D ETERMINES THE CHARACTER OF THE TRANSACTION AND AMONGST THE RELEVANT FACTS TO BE SEEN IS, WHETHER THE TRANSACTION IN DISPUTE WAS OR WAS NOT IN THE LINE OF BUSINESS OF THE ASSESSEE. THE A.O. HAS DISCUSSED AND BROUGHT OUT SUFFICIENT MATERIAL ON RECORD WITH RE SPECT TO THE CONTENTION AND IN TREATING THE INCOME EARNED AS 'BUSINESS INCOME' AND, THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE A.O. AND THE DISALLOWANCE OF RS.25,62,792/ - IS UPHELD. 6.11 IN VIEW OF THE ABOVE FACTS, THE GROUNDS OF APPEAL NO. 5 & 5.1 RAISED BY THE APPELLANT ARE LIABLE TO BE DISMISSED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE MAIN PLANK OF THE ARGUMENT OF THE LD. COUNSEL IS THAT THE SAID PLOT WAS NEVER INTENDED FOR THE BUSINESS PU RPOSE AS IT WAS A VERY SMALL PLOT ADMEASURING 4700 SQ. FT. IT IS ARGUED THAT THE ASSESSEE IS NOT A DEALER IN LAND AND IT IS A SOLITARY INCIDENT THAT THE ASSESSEE HAS SOLD THE PLOT OF LAND AND HE ALSO REFERS TO COMPILATION FILED BEFORE US AND SUBMITS THAT IT WAS ONLY THE ADVANCE TOWARDS THE PURCHASE OF PLOT OF LAND . O N 01 - 04 - 2003 THE SAID AMOUNT WAS TRANSFERRED TO THE ASSESSEES CAPITAL ACCOUNT. HE, THEREFORE, VEHEMENTLY ARGUED THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE THE INVESTMENT IN THE SAID PLOT AND NOT TO DO THE BUSINESS. 8. PER CONTRA, THE LD. DR SUBMITS THAT THE ASSESSEE HAS USED BORROWED FUNDS AND INTEREST PAID ON THE BORROWED FUNDS HAS BEEN ALSO CLAIMED. HE SUBMITS THAT IF THE ASSESSEE HAS PURCHASED THE PLOT FOR HIS PERSONAL USE THEN THE RE WAS NO REASON FOR THE ASSESSEE TO SHOW THE COST OF THE SAID PLOT AS WIP IN RESPECT OF HIS PROJECT MEENAKSHI ARCADE AND THE ADVANCE FOR THE LAND ALONG WITH THE INTEREST OF THE LAND AS REFLECTED IN THE WORK - IN - PROGRESS. HE SUBMITS THAT THE STAND TAKEN BY THE ASSESSEE IS AFTER THOUGHT AS THE ASSESSEE FILED HIS RETURN OF INCOME FOR 11 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE THE A.Y. 2004 - 05 AFTER THE DATE OF SALE OF PLOT OF LAND. HE SUBMITS THAT THE ASSESSEE SHOWED THE SAID LAND ON 21 - 07 - 2004 AFTER HOLDING FOR THE 10 MONTHS AND THE RETURN FOR THE A.Y. 2004 - 05 WAS FILED ON 27 - 10 - 2004 AND HENCE, AT THE TIME OF FILING THE RETURN OF INCOME FOR THE A.Y. 2004 - 05 THE ASSESSEE WAS FULLY AWARE OF THE FACT OF CARRY FORWARD CAPITAL LOSS. HE SUBMITS THAT MERELY PASSING A DOUBLE ENTRY IN THE BOOKS OF ACCOUNT AT THE TIME OF FILING THE RETURN OF INCOME IS NOT DIFFICULT AND HENCE, THE ASSESSEES CLAIM OF SET OFF OF BROUGHT FORWARD CAPITAL LOSS IS NOT BONAFIDE. 9. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE FACTS BEFORE US WE ARE OF THE OPINION THAT THIS ISSU E HAS TO BE DECIDED AGAINST THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE USED THE BORROWED F UNDS FOR PURCHASE OF THE SAID PLOT IN BANGALORE ON WHICH INTEREST WAS ALSO PAID BY THE ASSESSEE. WHEN THE PLOT WAS PURCHASED THE ASSESSEE HAD A PROJECT IN HIS MIND IN BANGALORE WHICH NAME WAS GIVEN AS MEENAKSHI ARCADE. IT IS TRUE THAT IN RESPECT OF THE SAID PROJECT NO DEVELOPMENT WAS STARTED IN THE F.Y. 2002 - 03 RELEVANT TO THE A.Y. 2003 - 04. IT IS ALSO TRUE THAT THE FINAL SALE DEED OF THE SALE OF PLOT AS WELL AS T HE POSSESSION WAS NOT WITH THE ASSESSEE ON 31 - 03 - 2003. THE PURCHASE DEED WAS EXECUTED IN 08 - 09 - 2003 AND THE ASSESSEE ALSO GOT THE POSSESSION. NOW, SO FAR AS THE ASSESSEES INTENTION IS CONCERNED IT IS TO BE GATHERED FORM THE OVERALL CIRCUMSTANCES. IN TH IS CASE IF THE ASSESSEE HA D PURCHASED THE SAID PLOT FOR HIS PERSONAL USE THEN HE SHOULD NOT HAVE TREATED THE SAME AS A PART OF HIS BUSINESS ASSET FORMING THE PART OF THE WIP OF PROJECT MEENAKSHI ARCADE. THE SUBSEQUENT TREATMENT BY THE ASSESSEE MAY NOT H AVE MUCH MORE BEARING ON DETERMINING THE HEAD UNDER WHICH THE GAIN OR INCOME IS TO BE ASSESSED. THE ASSESSEE IS A BUILDER AND DEVELOPER AND MERELY BECAUSE HE WAS NEVER ENGAGED INTO THE DEVELOPMENT AND SALE OF THE LAND , IT CANNOT BE SAID THAT THE SALE OF T HE PLOT IN BANGALORE CANNOT BE TREATED AS A PART OF THE BUSINESS ACTIVITY. ANOTHER FACT WHICH GOES AGAINST HIM IS THAT, TO OUR UNDERSTANDING , AS PER THE ASSESSEE , HE TRANSFERRED THE COST 12 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE OF THE SAID LAND TO HIS CAPITAL ACCOUNT ON 01 - 04 - 2003 THEREBY REDUCI NG THE WIP I.E. IN THE F.Y. 200 3 - 04 RELEVANT TO THE A.Y. 2004 - 05 AND THE RETURN OF INCOME FOR THE A.Y. 2004 - 05 WAS FILED ON 27 - 10 - 2004 AND THE SAID LAND WAS SOLD ON 21 - 07 - 2004. THIS FACT IS ALSO MENTIONED BY THE LD. CIT(A) THAT THE ASSESSEE WAS AWARE AT T HE TIME OF FILING OF HIS RETURN OF INCOME FOR THE A.Y. 2004 - 05 THAT HE HAD BROUGHT FORWARD CAPITAL LOSS AND IF THE SALE OF THE LAND IS SHOWN AS AN INVESTMENT THEN WE CAN GET THE BENEFIT OF THE BROUGHT FORWARD CAPITAL LOSS. IN OUR OPINION THERE IS NOTHING WRONG LEGALLY CLAIMING THE SET OFF BUT AT THE SAME TIME SO FAR AS FACTS BEFORE US ARE CONCERNED WE FIND THAT THE ASSESSEE PURCHASED THE SAID LAND FOR HIS BUSINESS NEEDS BUT SUBSEQUENTLY GIVEN THE COLOUR AS INVESTMENT AND CLAIMED THE SET OFF. WE, THEREFORE , CONCUR WITH THE FINDING OF THE LD. CIT(A) THAT THE INCOME/GAIN ON THE SALE OF THE PLOT IS TO BE ASSESSED AS A BUSINESS INCOME AND THE ASSESSEE CANNOT GET THE BENEFIT OF THE SET OFF OF BROUGHT FORWARD CAPITAL LOSS. WE, ACCORDINGLY, CONFIRM THE ORDER OF T HE LD. CIT(A) AND DISMISS THE GROUND NO. 1. 10. GROUND NO. 3 IS IN RESPECT OF THE DISALLOWANCE U/S. 14A. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS DECLARED THE FOLLOWING EXEMPT INCOME S : DIVIDEND RS.2,57,198/ - LONG TERM CAPITAL GAIN EXEMPTED U/S. 36 RS.35,73,110/ - THE ASSESSING OFFICER WAS OF THE VIEW THAT 10% OF THE ABOVE AMOUNT IS TO BE TREATED AS AN EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME WITHIN MEANING OF SEC. 14 A OF THE INCOME - TAX ACT AND HE, ACCORDINGLY, DISALLOWED RS.3,83,031/ - AND MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A). THE LD. CIT(A) SUSTAINED THE ADDITION RS.1 LAC. THE LD. CIT(A) H AS GIVEN THE FOLLOWING REASON FOR SUSTAINING THE ADDITION OF RS.1 LAC: 7.2 THE SUBMISSION MADE BY THE APPELLANT HAS BEEN CAREFULLY CONSIDERED AND ALSO THE MATERIAL ON RECORD. THE CONSTITUTIONAL 13 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE VALIDITY OF SECTION 14A WAS CHALLENGED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT (2010) 328 CTR 81 (BOM). THE HON'BLE COURT HELD THAT SECTION 14A DISALLOWS EXPENDITURE RELATING TO AN EXEMPT INCOME AGAINST TAXABLE INCOME. VALIDITY OF THIS PROVISION WAS UPHELD W.R.T. THE PRINCIPLE S SET OUT BY THE SUPREME COURT IN CIT VS WALFORT SHARE AND STOCK BROKERS (P) LTD. (2010) 326 ITR 1 (SC), WHICH HAD INCIDENTALLY REFERRED TO SECTION 14A, WHILE DECIDING AN ISSUE ARISING OUT OF SECTION 94(7) OF THE IT. ACT. THE PRINCIPLE GOVERNING SECTION 14 A TO DISALLOW EXPENDITURE, WHICH DOES NOT RELATE TO THE ASSESSED INCOME AND THE PRINCIPLE OF ALLOCATION OF COMMON EXPENSES RELATING TO TAXABLE INCOME, WHEN SUCH EXPENDITURE RELATES TO BOTH TAXABLE AND NON - TAXABLE INCOME, ARE WELL UNDERSTOOD AS PART OF SETT LED LAW. THE HON'BLE HIGH COURT ALSO HELD THAT 'EVEN PRIOR TO A.Y. 2008 - 09 WHEN 8D RULE WAS NOT APPLICABLE; THE A.O. HAS TO ENFORCE THE PROVISIONS OF SUB - SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHIC H HAS BEEN INCURRED IN RELATION TO INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE A.O. MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES. 7.3 IN THE PRESENT CASE THE UNDISPUTED FACT IS TH AT THE APPELLANT IS IN RECEIPT OF EXEMPT INCOME OF RS.2,57,198/ - ON ACCOUNT OF DIVIDEND AND LONG - TERM CAPITAL GAIN OF RS.35,73,110/ - AND THE PROVISIONS OF SECTION 14A ARE CLEARLY ATTRACTED, THOUGH RULE 8D IS NOT APPLICABLE FOR APPORTIONING THE EXPENDITURE, STILL AS PER THE DECISION OF THE HON'BLE BOMBAY HIGH COURT THE EXPENDITURE HAS TO BE DETERMINED ON A REASONABLE BASIS AND THE EXPENSES HAS TO BE WORKED OUT. THE A.O. HAS DISALLOWED A SUM OF RS.3,83,035/ - WHICH IS NEARLY 10% OF THE TOTAL EXEMPT INCOME UNDE R QUESTION OF RS.38,30,308/ - WHICH APPEARS TO BE SLIGHTLY ON A HIGHER SIDE AFTER CONSIDERING THE EXPLANATION AND SUBMISSION MADE BY THE APPELLANT AND ALSO LOOKING TO THE NATURE AND AMOUNT OF EXPENSES CLAIMED, THEREFORE, THE SAME IS ESTIMATED AT RS.1,00,000 / - AFTER TAKING INTO ACCOUNT THE EXPENSES CLAIMED BY THE APPELLANT. THUS OUT OF TOTAL DISALLOWANCE OF RS.3,83,035/ - , THE APPELLANT GETS RELIEF OF RS.2,83,035/ - (3,,83,035 - 1,00,000). THEREFORE, OUT OF THE TOTAL DISALLOWANCE MADE, DISALLOWANCE TO THE EXTEN T OF RS.1,00,000/ - IS UPHELD AND THE REMAINING AMOUNT OF RS.2,83,035/ - IS DIRECTED TO BE DELETED. 14 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE NOW, THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE AD HOC DISALLOWANCE. THE ASSESSMEN T YEAR BEFORE US IS A.Y. 2005 - 06 AND ADMITTEDLY RULE 8D OF THE I.T. RULE IS NOT APPLICABLE TO THIS ASSESSMENT YEAR WHICH IS APPLICABLE FROM A.Y. 2008 - 09. IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 CTR 81 (BOM) THE HON'BLE HIGH COURT HAS HELD THAT THE REASONABLE ESTIMATION IS TO BE MADE. IN OUR OPINION THE AD HOC DISALLOWANCE WAS NOT JUSTIFIED BY THE ASSESSING OFFICER AND THE APPROACH OF THE LD. CIT(A) IS VERY MUCH REASONABLE SUSTAINING DISALLOWANCE AT RS. 1 L AC . WE FIND NO REASON TO INTERFE RE WITH THE ORDER OF THE LD. CIT(A). ACCORDINGLY, SAME IS CONFIRMED. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED. ITA NO. 1 620 /PN/2012 (A.Y. 2005 - 06) 1 2 . THIS IS THE CROSS APPEAL FILED BY THE REVENUE FOR THE A.Y. 2005 - 06. GROUND NO. 1 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TO INCOME FROM HOUSE PROPERTY [NEAR MAHABALESHWAR] AT RS.1,80,000/ - AS AGAINST RS.25,000/ - DISCLOSED IN THE RETURN. 1 3 . AS OBSERVED BY THE ASSESSING OFFICER THE ASSESSEE HAS SHOWN THE LOSS OF RS.4,40,232/ - UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE HAS TWO PROPERTIES, ONE AT LOUKIK, MODEL COLONY, PUNE AND THE SECOND AT MAHABALESHWAR, DISTT. - SATARA. IT WAS NOTICED BY THE ASSESS ING OFFICER THAT THE ASSESSEE HAS TAKEN ANNUAL VALUE OF HOUSE AT MAHABALESHWAR ONLY AT RS.25,000/ - AND HAS CLAIMED THE DEDUCTION OF PROPERTY TAX AND 30% TOWARDS REPAIRS AND THE NET INCOME FROM THE SAID PROPERTY WAS SHOWN AT RS.11,900/ - . THE ASSESSEE EXPLA INED TO THE ASSESSING OFFICER THAT THE PROPERTY AT MAHABALESHWAR WAS PURCHASED BY HIM ON 23 - 03 - 2004 WHICH WAS HAVING THE PLOT OF LAND ADMEASURING 1092 SQ. MTRS. WITH A STRUCTUR E ON IT OF 136.458 SQ. MTRS. THE ASSESSING OFFICER ESTIMATED THE ANNUAL VALUE O F THE SAID PROPERTY AT RS.1,80,000/ - 15 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE BY TAKING RS.15,000/ - AS A RENT FOR EVERY MONTH AND ACCORDINGLY WORKED OUT THE INCOME FROM THE HOUSE AT MAHABALESHWAR AFTER ALLOWING THE STATUTORY DEDUCTION TO THE ASSESSEE. IN SUM AND SUBSTANCE THE ASSESSING OFFICER H AS CLAIMED THE NET INCOME IN RESPECT OF THE HOUSE AT MAHABALESHWAR AT RS.11,900/ - WHICH WAS ENHANCED TO RS.1,20,400/ - . THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND RESTRICTED THE ANNUAL VALUE AT RS.25,000/ - ACCEPTING THE WORKING GIVEN BY THE ASSESSEE. 1 4 . WE HAVE HEARD THE PARTIES. UNDER THE HEAD INCOME FROM HOUSE PROPERTY , IT IS THE OPTION WITH THE ASSESSING OFFICER TO DETERMINE NOTIONAL ANNUAL LETTING VALUE OF THE PROPERTY OR TO TAKE ACTUAL RENT RECEIVED WHICHEVER IS HIGHER. IN THE P RESENT CASE, AS PER THE FACTS ON RECORD THE SAID PROPERTY IS SITUATED OUT OF THE LOCAL LIMITS OF THE MAHABALESHWAR MUNICIPAL COUNCIL AND IT IS WITHIN THE GRAMPANCHYAT OF NAKINDA VILLAGE. THE PROPERTY IS NOT L ET OUT AND THEREFORE, AS RIGHTLY OBSERVED BY TH E LD. CIT(A) WHAT COULD BE RELEVANT IS ONLY PROVISION OF SEC. 23(1)(A) OF THE ACT. THE LAW IS ALSO WELL SETTLED THAT IF THE PROPERTY IS NOT L ET OUT THEN IT IS A FAIR RENT TO BE ESTIMATED AS PER THE RENT CONTROL ACT. CONSIDERING THE LOCATION OF THE PROPER TY IN OUR OPINION THE LD. CIT(A) HAS RIGHTLY HELD THAT RS.25,000/ - IS A REASONABLE ANNUAL LETTING VALUE OF THE SAID PROPERTY. WE ALSO FIND THAT THE LD. CIT(A) HAS ALSO CONSIDERED THIS ISSUE IN THE BACKDROP THE LEGAL PRINCIPLES LAID DOWN BY THE HON'BLE HIG H COURT AS WELL AS THE ITAT IN OUR OPINION NO INTERFERENCE IS CALLED FOR. ACCORDINGLY, GROUND NO. 1 IS DISMISSED. 1 5 . GROUND NO. 2 READS AS UNDER: 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER AT RS.2,66,269/ - BEING INTEREST PAID TO S. BALAN (HUF). 16 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 1 6 . THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS SHOWN THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES OF RS.43, 42,836/ - WHICH COMPRISES ALSO THE INTEREST INCOME AND DIVIDEND. THE ASSESSEE HAS SHOWN THE RECEIPT OF INTEREST OF RS.59,79,834/ - FROM DIFFERENT PARTIES AND AFTER DEDUCTING PAYMENT OF INTEREST OF RS. 29,10,137/ - , THE NET INTEREST INCOME HAS BEEN SHOWN AT RS .30,69,697/ - . THE ASSESSING OFFICER VERIFIED THE RATE OF INTEREST CHARGED BY THE ASSESSEE TO THE DIFFERENT PERSONS TO WHOM ADVANCES HAVE BEEN GIVEN AS WELL AS THE RATE OF INTEREST PAID BY THE ASSESSEE TO THE PERSONS F ROM WHOM LOANS HAVE BEEN TAKEN. AS NO TED BY THE ASSESSING OFFICER THE ASSESSEE HAS PAID INTEREST @ 10% TO ITS HUF I.E. S. BALAN (HUF) TOTALING TO RS.1,57,790/ - . IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CHARGED INTEREST ONLY AT 5% TO MANY PARTIES NAMELY MRS. I.B. CHETTIAR , NITIN INGALE, SHIVANI R. DATTA AND RAJESH DATTA. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSEE WHY THE PROPORTIONATE INTEREST SHOULD NOT BE DIS ALLOWED. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT THOUGH HE HAS CHARGED INTEREST @ 5% FRO M SOME OF THE RELATIVES AND FRIENDS BUT THE AVERAGE RATE OF INTEREST PAID BY THE ASSESSEE ON BANK LOAN WAS ONLY 4.30% AND ULTIMATELY HE HAS EARNED NET INTEREST. 1 7 . IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR M AKING THE ADVANCES TO THE PERSONS FROM WHOM HE HAS CHARGED THE LESSER RATE. THE ASSESSING OFFICER ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE LOAN TAKEN BY THE ASSESSEE FROM S. BALAN (HUF) WAS USED FOR EARNING THE INTEREST INCOME. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE ENTIRE INTEREST OF RS.2,66,269/ - CLAIMED BY THE ASSESSEE AS INTEREST PAYMENT TO S. BALAN (HUF) BY GIVING THE REASON THAT THE ASSESSEE HAS EARNED THE INTEREST ON THE ADVANCES GIVEN IN THE EARLIER YEARS BUT SO FAR AS LOAN FROM S. BALAN (HUF) IS CONCERNED THE SAID LOAN WAS TAKEN IN THE A.Y. 2005 - 06. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT(A). THE LD. CIT(A) PARTLY ALLOWED THE 17 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE RELIEF TO THE ASSESSEE BY HOLDING THAT THERE WERE TWO LOANS ONE RS.23,00,000/ - ON 21 - 09 - 2004 AND RS.10,00,000/ - TAKEN ON 03 - 03 - 2005 WHICH HAS NOT BEEN UTILIZED FOR EARNING INTEREST INCOME. THE LD. CIT(A) ACCORDINGLY D IRECTED THE ASSESSING OFFICER TO WORK OUT THE INTEREST DISALLOWANCE . THE OPERATIVE PART OF THE FINDING OF THE LD. C IT(A) IS AS UNDER: 5.5 THE CHART AND THE LEDGER ACCOUNT OF S BALAN (HUF) FURNISHED BY THE APPELLANT GIVING THE DATE - WISE RECEIPT AND UTILIZATION OF THE BORROWED FUNDS FROM THE HUF IS AS FOLLOWS: CHART SHOWING UTILISATION OF LOAN TAKEN FROM S.BALAN (HUF) DA TE AMOUNT BORROWED FROM HUF DEPOSITED IN BANK UTILISATION REMARKS 14.09.2004 25,00,000 BANK OF INDIA GIVING DEPOSIT TO SAI CONSTRUCTION PVT. LTD. INTEREST INCOME OF RS.16,31,692/ - FROM SAI CONSTRUCTION PVT. LTD. INCLUDED IN TOTAL INCOME HENC E NO DISALLOWANCE 21.09.2004 23,00,000 BANK OF INDIA TO CLEAR LOAN FROM ABUDHABI COMMERCIAL BANK LTD. LOAN FROM ABU DHABI BANK TAKEN FOR BUSINESS PURPOSE. HENCE PAYING OFF THIS LOAN RESULTED IN REDUCING INTEREST DEDUCTION FROM BUSINESS INCO ME HENCE NO DISALLOWANCE REQUIRED 03.03.2005 10,00,000 PUNE PEOPLE'S COOP. BANK NO SPECIFIC UTILISATION INTEREST ON RS.10,00,000/ - FOR 28 DAYS MAY BE DISALLOWED. 14.03.2005 2,00,000 PUNE PEOPL'S COOP. BANK PAID RS.2,10,000/ - TO SHIBANI RA JA DATTA INTEREST INCOME OF RS. 460/ - FROM SHIBANI RAJA DATTA OFFERED TO TAX THE LOANS TAKEN OF RS.25 LACS AND RS.2 LACS HAVE BEEN UTILIZED FOR EARNING INTEREST INCOME ASSESSABLE UNDER INCOME FROM OTHER SOURCES, HOWEVER, FROM THE ABOVE TABLE IT CAN BE SEEN THAT THE UTILIZATION OF RS.23,00,000/ - TAKEN ON 21.9.2004 IS FOR THE PURPOSES OF CLEARING THE LOAN TAKEN BY THE APPELLANT FROM ABUDHABI COMMERCIAL BANK LTD. THE SAID LOAN IS STATED TO BE FOR THE PURPOSES OF BUSINESS AND IS STATED TO HAVE RESULTED IN REDUCING INTEREST DEDUCTION FROM BUSINESS INCOME AND RS.10,00,000/ - TAKEN ON 3 - 3 - 2005 HAD NOT BEEN UTILIZED FOR EARNING ANY INCOME FROM INTEREST. 18 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 5.6 SECTION 57 CLAUSE (III) ALLOWS DEDUCTION FOR EXPENSES (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LA ID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THUS THE TWO CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED BEFORE AN EXPENDITURE CAN BE ALLOWED UNDER CLAUSE (III) AS DEDUCTION IN C OMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEY ARE: 1. THE EXPENDITURE SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE. 2. THE EXPENDITURE SHOULD HAVE BEEN WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF MAKING OR EAR NING OF SUCH INCOME. IN THE PRESENT CASE THE APPELLANT HAS BORROWED FUNDS FROM THE HUF AND AS STATED BY THE APPELLANT HAVE BEEN UTILIZED FOR EARNING INTEREST INCOME. HOWEVER, THE AFORESAID TWO LOANS TAKEN OF RS.23,00,000/ - ON 21 - 09 - 2004 AND RS.10,00,000/ - ON 03 - 03 - 2005 HAVE NOT BEEN UTILIZED FOR THE PURPOSES OF EARNING INTEREST INCOME AS IS CLEARLY EVIDENT FROM THE CHART SUBMITTED BY THE APPELLANT. THE LOAN TAKEN BY THE APPELLANT OF RS.23 LACS HAD BEEN UTILIZED TO REDUCE THE INTEREST BURDEN UNDER BUSINESS I NCOME AND, THEREFORE, IT CANNOT BE BY ANY EXTENT BE HELD TO BE UTILISED FOR EARNING INTEREST INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IN THE CASE OF PADMAVATI JAYKRISHNA VS CIT (1987) 166 ITR 176 (SC), AFFIRMED THE GUJARAT HIGH COURT'S DECISION I N THE SAME CASE (1975) 101 ITR 153 (GUJ) THAT IN SEC. 37(1) THE WORDS USED ARE 'FOR THE PURPOSE OF BUSINESS AND PROFESSION', THOSE WORDS HAD WIDER IMPLICATIONS THAN THE EXPRESSION 'FOR THE PURPOSE OF MAKING OR EARNING INCOME' USED IN SEC. 57(III). THUS THE PURPOSE CONTEMPLATED BY SECTION 57(III) IS MORE SPECIFIC IN CHARACTER IN AS MUCH AS IT POINTS TO A PRECISE AND SPECIFIC OBJECT OF MAKING OR EARNING INCOME. MOTIVE WITH WHICH EXPENDITURE IS INCURRED IS IRRELEVANT UNDER THIS CLAUSE. ON THE ISSUE OF INTEREST ON LOAN FOR PAYMENT OF TAX LOAN FOR REPAYMENT OF EARLIER LOAN WAS HELD NOT TO BE DEDUCTIBLE IN THE CASE OF VIMAL SIDDARTHBHAI VS CIT (2000) 242 ITR 171 (GUJ) FOLLOWING THE DECISION OF PADMAVATI JAYKRISHNA (CITED SUPRA). THE BORROWING OF THE AFORESAID LOAN WAS FOR THE PURPOSE OF BUSINESS AND IF ANY INTEREST WOULD HAVE BEEN ALLOWABLE AS DEDUCTION IT WOULD BE FROM BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. SIMILAR VIEW HAS BEEN HELD IN THE CASE OF CIT VS DR. V P GOPINATHAN (2001) 248 ITR 449 (SC) WHER EIN IT WAS HELD THAT WHERE TAX PAYER RECEIVES INTEREST FROM FIXED DEPOSITS FROM BANK ASSESSABLE AS INCOME FOR EARNING SUCH INCOME CAN BE ALLOWED U/S 19 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 57. THE ASSESSEE IN THIS CASE HAD CLAIMED, INTEREST ON LOAN TAKEN AGAINST FIXED DEPOSITS AS DEDUCTION U/S 5 7 AGAINST INCOME ADMITTEDLY ASSESSABLE UNDER INCOME FROM OTHER SOURCES. THUS, IN VIEW OF THE ABOVAJACT AND CIRCUMSTANCES, OUT OF THE TOTAL INTEREST DISALLOWED OF RS.2,66,269/ - THE PROPORTIONATE INTEREST RELATING TO THE AFORESAID TWO LOANS OF RS.23 LACS AND 10 LACS TAKEN ON 21 - 9 - 2004 AND 3 - 3 - 2005, WHICH HAS NOT BEEN UTILIZED FOR EARNING INTEREST INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WILL HAVE TO BE WORKED OUT AND THE SAID AMOUNT IS LIABLE TO BE CONFIRMED AND THE INTEREST RELATING TO THE OTHER TWO LOANS OF RS.25 LACS AND RS.2 LACS TAKEN ON 14 - 09 - 2004 AND 14 - 3 - 2005 IS LIABLE TO BE ALLOWED. 5.7 IN VIEW OF THE ABOVE FACTS THE GROUND OF APPEAL NO. 4 RAISED BY THE APPELLANT IS PARTLY ALLOWED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 1 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. AS PER THE CHART GIVEN IN THE IMPUGNED ORDER , IT IS SEEN THAT THE LOAN OF RS.23 LACS TAKEN BY THE ASSESSEE ON 21 - 09 - 2004 IS FOR THE PURPOSE OF CLEARING THE LOAN TAKEN BY THE ASSESSEE FROM ABUD HABI COMMERCIAL BANK LTD. AND THE SAID LOAN WAS TAKEN FOR THE BUSINESS PURPOSE. IT IS ALSO SEEN THAT THE ASSESSEE HAS TAKEN ONE MORE LOAN OF RS.10 LACS ON 03 - 03 - 2005 WHICH IS ALSO NOT USED FOR MAKING THE ADVANCE ON WHICH THE ASSESSEE HAS EARNED THE INTERE ST. IN OUR OPINION THE APPROACH OF THE LD. CIT(A) ON THE FACTS OF THIS CASE CANNOT BE DISTURBED. WE, ACCORDINGLY, CONFIRM THE SAME AND GROUND NO. 2 IS DISMISSED. 1 9 . GROUND NO. 3 READS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO RS.1 LAKH AS AGAINST RS.3,83,035/ - MADE BY THE ASSESSING OFFICER U/S. 14A OF THE ACT. 20. THIS GROUND IS A CROSS GROUND IN RESPECT OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON AD HOC BASIS INV OKING THE PROVISION OF SEC. 20 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 14A IN RESPECT OF EXEMPT INCOME. THE LD. CIT(A) SUSTAINED THE DISALLOWANCE TO RS.1 LAC. THE ASSESSEE HAS ALSO CHALLENGED THE ORDER OF THE LD. CIT(A) SUSTAINING RS.1 LAC. WE HAVE DISMISSED THE ASSESSEES GROUND CONFIRMING THE ORDER OF THE LD. CIT(A). WE, THEREFORE, FOLLOWING OUR REASONS FOR DISMISSING GROUND NO. 3 IN THE ASSESSEES APPEAL AND ALSO DISMISS THE GROUND NO. 3 IN THE REVENUES APPEAL. ACCORDINGLY, GROUND NO. 3 IS DISMISSED. 21. GROUND NO. 4 READS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF SALE OF 23 FLATS SITUATED IN THE ASSESSEES PROJECT RAJ PRAKRUTI WHEN THE ASSESSEE HAD NOT SHOWN THE RESPECTIVE SALE TO POSTPONE THE TAX LIABILITY. 2 2 . THE ISSUE IS IN RESPECT OF THE TAXABILITY OF THE PROFIT ON THE SALE OF 23 FLATS IN THE HOUSING PROJECT RAJ PRAKRUTI. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT AS PER ANNEXURE 'C' ATTACHED TO THE RETURN OF INCO ME SHOWED ADVANCES RECEIVED AND OUT OF THESE ADVANCES TO THE TUNE OF RS.17,06,05,203/ - WERE RECEIVED AGAINST THE PROJECT NAMED RAJ PRAKRUTI I AND NO SALE OR INCOME IN RESPECT OF SAID PROJECT WAS SHOWN BY THE ASSESSEE. IT WAS THUS HELD BY THE ASSESSING OFFI CER THAT IT WAS HIGHLY IMPROBABLE THAT A BUILDER RECEIVED ADVANCES FOR FLATS TO SUCH HUGE EXTENT I.E. RS.17 CRORES AS AGAINST THE WORK - IN - PROGRESS OF ONLY RS.11 CRORES AND THEREFORE, THERE WAS A POSSIBILITY THAT THE ENTIRE SALE CONSIDERATION FOR THE RESPEC TIVE FLATS FROM THE CUSTOMERS WERE RECEIVED BUT WERE NOT SHOWN IN THE YEAR UNDER CONSIDERATION, THEREBY POSTPONING THE TAX LIABILITY. THE ASSESSING OFFICER CONDUCTED AN ENQUIRY AT THE BANGALORE OFFICE OF THE ASSESSEE. DURING THE COURSE OF ENQUIRY, THE DAT E OF REGISTRATION OF SALE DEED FOR ALL THE FLATS OF THIS PARTICULAR PROJECT WERE COLLECTED, THE DETAILS OF SAME HAVE BEEN ANNEXED AS ANNEXURE - L TO THE ASSESSMENT ORDER BY THE ASSESSING OFFICER . IT IS OBSERVED THAT 41 FLATS IN THE BUILDING WERE SOLD BY THE ASSESSEE AND IN 21 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE 23 CASES THE DATE OF REGISTRATION OF SALE DEED WAS PRIOR TO 31.03.2005 I.E. F.Y. 2004 - 05. A STATEMENT U/S 131 OF THE I.T. ACT, 1961 WAS RECORDED OF SHRI K.P. YOGENDRA KUMAR, GENERAL MANAGER IN THE 'BUILDING DIVISION' OF THE ASSESSEE. THE G .M. STATED THAT POSSESSION WAS HANDED OVER TO THE PURCHASERS OF THE FLATS AFTER RECEIVING FULL CONSIDERATION AND ONLY AFTER GIVING POSSESSION, REGISTRATION OF THE FLAT WAS DONE. THEREFORE, THE ASSESSING OFFICER HELD THAT IT WAS CLEAR THAT IN THE CASE OF 23 FLATS ASSESSEE HAD ACTUALLY GIVEN THE POSSESSION TO THE FLAT HOLDERS BEFORE 31.03.2005 AND HAD ALSO RECEIVED FULL CONSIDERATION BEFORE THAT DATE. THE ASSESSEE HAD NOT RECOGNIZED THE SALE IN THE F.Y. 2004 - 05 BECAUSE HE HAD EARNED THE SAID INCOME WITHIN THE RELEVANT PREVIOUS YEAR. A SHOW CAUSE IN THIS REGARD WAS ISSUED TO THE ASSESSEE. THE ASSESSEE'S CONTENTIONS WERE (I) THE FLATS IN QUESTION WERE NOT COMPLETE IN ALL RESPECT OF ESSENTIAL SERVICES AND WERE NOT HABITABLE AS ON 31.03.2005 , (II) SHRI K.P. YOGEND RA KUMAR, G.M. WAS NEW AND HAD JOINED ONLY ON 02.01.2006 (III) THE STANDARD CLAUSE IN THE SALE DOCUMENT REGARDING POSSESSION WAS GENERALLY INCLUDED BUT THE ACTUAL POSSESSION WAS GIVEN AFTER PROVIDING ESSENTIAL AMENITIES. THE ABOVE CONTENTIONS OF THE ASSES SEE WERE NOT ACCEPTED BY THE ASSESSING OFFICER. 2 3 . THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION BY GIVING THE FOLLOWING REASONS: 7.4 THEREFORE, ASSESSEES MAIN CONTENTIONS ARE AS BELOW: - (I) THE FLATS IN QUESTION WERE NOT COMPLETE IN RESPECT OF ESSENTIAL SERVICES AND WERE NOT HABITABLE AS ON 31.3.2005. (II) THE GENERAL MANAGER, SHRI K.P. YOGENDRA KUMAR WAS NEW AND JOINED THE ASSESSEE ONLY ON 2.1.06. (IV) THE STANDARD CLAUSE IN THE SALE DOCUMENT REGARDING POSSESSION WAS GENERALLY INCLUDED BUT THE ACTUAL POSSESSION IS GIVEN AFTER PROVIDING ESSENTIAL AMENITIES. 22 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE THE ABOVE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE BECAUSE OF THE FOLLOWING REASONS: (I) THE FIRST ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE SALE DEED CONTAINS THIS SPEC IFIC CLAUSE AT PAGE NO.5 OR 6 OF 'THE DEED WHICH CLEARLY STATES THAT THE PURCHASER HAS TAKEN THE POSSESSION OF THE APARTMENT AND BEFORE TAKING THE POSSESSION OF THE SAME, THE PURCHASER HAS VERIFIED AND IS SATISFIED ABOUT THE COMPLETION OF ALL THE WORKS IN THE APARTMENT AND IT IS FIT FOR OCCUPATION AND THE PURCHASER HAS NO CLAIM AGAINST THE SELLER IN RESPECT OF THE APARTMENT. ON A SAMPLE BASIS THE SALE DEED DT.30.3.2005 IN RESPECT OF FLAT C - 202 OF 'JACARANDA BLOCK' OF 'RAJAPRAKRUTI - I' PROJECT WAS COLLECTED. THIS FLAT WAS PURCHASED BY MR. G.S. RAMESH & MRS. ARTI RAMESH, THE RELEVANT CLAUSE IS REPRODUCED HEREBELOW FOR REFERENCE : 'THE PURCHASERS HAVE TAKEN POSSESSION OF THE SCHEDULE 'C' APARTMENT AND BEFORE TAKING POSSESSION OF THE CASE THE PURCHASERS HAVE VERI FIED AND SATISFIED AS TO COMPLETION OF ALL THE WORKS IN THE APARTMENT AND IN THE BUILDING AND ITS FITNESS FOR OCCUPATION AND THE PURCHASERS HAVE NO CLAIMS AGAINST THE SELLERS AND /OR BUILDER IN RESPECT OF THE SCHEDULE 'C' APARTMENT, INCLUDING THE FOLLOWING : A) CORRECTNESS OF THE AREA OF THE SCHEDULE 'C' APARTMENT AND THE AREA OF THE CAR PARKING ALLOTTED. B) SPECIFICATIONS AND AMENITIES PROVIDED IN THE SCHEDULE 'C' APARTMENT. C) QUALITY OF CONSTRUCTION IN 'JACARANDA' AND OF THE SCHEDULE 'C' APARTMENT. D) ELECTRIFICATION AND PLUMBING ETC. IN THE SCHEDULE 'C' APARTMENT AND IN THE BUILDING 'JACARANDA'. E) FACILITIES AND SERVICES PROVIDED IN SCHEDULE 'C' APARTMENT AND THE BUILDING IN 'JACARANDA'. F) CONSTRUCTION IN SCHEDULE 'C' APARTMENT & IN 'J ACARANDA' BEING IN CONFORMITY WITH SANCTIONED BUILDING PLANS.' IT IS SPECIFICALLY WRITTEN IN THE ABOVE CLAUSE THAT THE RESPECTIVE APARTMENT WAS COMPLETE IN ALL RESPECTS LIKE ELECTRIFICATION, PLUMBING, CAR PARKING, OTHER MAINTENANCE ETC. IT IS ALSO WRITTEN THAT AFTER THIS 23 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE DATE OF SALE AGREEMENT, THE PURCHASER WILL NOT HAVE ANY CLAIM AGAINST THE BUILDER IN RESPECT OF THE ABOVE SAID FACILITIES. THE ABOVE CLAUSE IS AVAILABLE IN ALL THE SALE AGREEMENTS FOR THESE 23 FLATS. THIS FACT CLEARLY PROVES THAT ALL THESE APARTMENTS WHERE SALE DEED IS REGISTERED BEFORE 31.3.2005 WERE COMPLETED IN ALL RESPECTS BY THE BUILDERS. THE MANAGER, SHRI K.P. YOGENDRA KUMAR HAS CONFIRMED THIS FACT IN ANSWER 10 TO HIS STATEMENT WHERE HE HAS ALSO CONFIRMED THAT ALL THE SALE DEEDS RELATE D TO SALE OF 41 FLATS OF THIS PROJECT CONTAINED THE SAME CLAUSE AS STATED ABOVE. HE HAS FURTHER INFORMED THAT BEFORE THE DATE OF REGISTRATION, POSSESSION TO THE PURCHASER WAS GIVEN. IT IS IMPORTANT TO NOTE HERE THAT SALE DEED IS A LEGAL DOCUMENT AND CONTEN TS WRITTEN THEREIN CANNOT BE TAKEN LIGHTLY BY ANY PERSON. ANY CUSTOMER WHO IS PURCHASING THE FLAT WORTH RS.50 TO 60 LAKHS WOULD NOT SIGN THE SALE DEED UNLESS HE IS FULLY SATISFIED ABOUT THE CORRECTNESS OF THE DEED. THIS PROVES THAT ON THE DATE OF REGISTRAT ION OF SALE DEED, THE RESPECTIVE CUSTOMER WAS SATISFIED ABOUT THE COMPLETION OF THE UNIT PURCHASED BY HIM. THE SPECIFIC MENTION IN THE CLAUSE THAT AFTER THIS DATE THE PURCHASER WILL HAVE NO CLAIM AGAINST THE BUILDER IN RESPECT OF THAT UNIT IS VERY IMPORTAN T HERE. NO CUSTOMER WOULD HAND OVER THE AMOUNT OF RS.60 LAKHS IF THE UNIT IS INCOMPLETE. BESIDES, IT IS A NORMAL PRACTICE BY THE BUILDERS TO PROVIDE WATER BY GETTING WATER TANKERS IN THE PROJECT TILL THE WATER SUPPLY COMES. IN EVERY CITY THERE ARE AMPLE NUMBER OF PROJECTS WHERE NO MUNICIPALITY WATER CONNECTION IS INSTALLED BUT THE ENTIRE PROJECTS HAVE BEEN SOLD AND PEOPLE ARE STAYING FOR YEARS. SIMILARLY, TILL THE TIME OF INSTALLATION OF TRANSFORMER, ELECTRICITY IS SUPPLIED BY THE BUILDER BY USING GENERAT OR. IT MAY BE SEEN FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT ASSESSEE HAS PURCHASED GENERATOR OF RS.8,04,912/ - IN THE F.Y. 2004 - 05 ITSELF. DURING THE COURSE OF ENQUIRY AT BANGALORE OFFICE OF THE ASSESSEE, THE DETAILS LIKE COMMENCEMENT CERTIFICATE, SA NCTIONED PLAN, BROACHER OF THE PROJECT, COMPLETION CERTIFICATE ETC WERE COLLECTED FOR DIFFERENT PROJECTS. THERE WAS ONE COMPLETION CERTIFICATE DT.22.11.2004 ISSUED BY ONE REGISTERED ARCHITECT V. NARASIMHAN FROM VENKATARAMANAN ASSOCIATES. A COPY OF THE CERT IFICATE IS ENCLOSED AS ANNEXURE II TO THIS ORDER. AS PER THIS CERTIFICATE NO.VA/ADM/22272004 DT. NOVEMBER 22, 2004. THE ARCHITECT HAS CERTIFIED THAT ERECTION OF THE RESIDENTIAL APARTMENT AT KATHA NO. 157, SY. NO. 28/1, 28/2. 37 & 36/1, 4 TH CROSS. 1 ST BLOC K, JAYANARAR, 24 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE BANGALORE, HAS BEEN SUPERVISED BY HIM AND HAS BEEN COMPLETED ON 16.11.2004 ACCORDING TO THE SANCTIONED PLAN DATED 18.09.02. HE HAS ALSO CERTIFIED THAT THE WORK HAS BEEN COMPLETED, AND THE RESIDENTIAL APARTMENT IS FIT FOR USE. HE HAS ALSO REQU ESTED TO ISSUE THE OCCUPANCY CERTIFICATE FOR THIS BUILDING. PROBABLY THIS CERTIFICATE WAS TAKEN BY THE ASSESSEE FOR SUBMITTING TO THE BANGALORE MUNICIPAL CORPORATION ALONG WITH THE APPLICATION FILED FOR ISSUE OF OCCUPANCY CERTIFICATE FOR THIS PROJECT. BY S UBMISSION DATED 9.12.07, ASSESSEE HAS FILED A COPY OF THE SANCTIONED LAYOUT OF 'RAJAPRAKRUTI - I' PROJECT IN COMPLIANCE TO THIS OFFICE LETTER DATED 30.11.07. AS PER THIS SANCTIONED LAYOUT PLAN, APPROVED ON 18.9.02, THIS PROJECT 'RAJAPRAKRUTI - I' IS CONSTRUCTE D ON KATHA NO.157. S.NO.28/1. 28/2. 37 & 36/1. 4 TH CROSS, FIRST BLOCK, JAVA NAGAR, BANGALORE. THIS HAS ALSO BEEN CONFIRMED DURING ENQUIRY AT BANGALORE OFFICE. THIS FACT CLEARLY SHOWS THAT THE BUILDING WAS COMPLETE AND FIT FOR USE A ON 16.11.2004 AND ACCORD INGLY, THE CLAIM OF THE ASSESSEE THAT THE BUILDING WAS NOT FIT FOR OCCUPATION AS ON 31.3.2005 IS NOT ACCEPTABLE. IT IS IMPORTANT TO MENTION HERE THAT A SIMILAR 'COMPLETION CERTIFICATE' FROM THE SAME ARCHITECT DATED 7.12.04 HAS BEEN ATTACHED BY THE ASSESSEE WITH RETURN OF INCOME WITH REGARD TO 'MEENAKSHI CLASSIC' PROJECT WHICH HAS BEEN SHOWN AS SOLD BY THE ASSESSEE DURING THIS YEAR AND ENTIRE PROFIT HAS BEEN CLAIMED AS DEDUCTION U/S 80IB(10) OF I.T.ACT. A COPY OF THIS CERTIFICATE IS ATTACHED TO THIS ORDER AS 'ANNEXURE - IIF. WHEN THE ABOVE COMPLETION CERTIFICATE FOR 'MEENAKSHI CLASSIC' PROJECT IS AN EVIDENCE FILED BY THE ASSESSEE FOR PROVING THE COMPLETION AND SALE OF THIS PROJECT, THEN OBVIOUSLY, ANOTHER SIMILAR COMPLETION CERTIFICATE FOR 'RAJAPRAKRUTI - I' PROJ ECT IS ALSO AN EVIDENCE TO PROVE THE COMPLETION AS WELL AS SALE OF THAT PROJECT. (II) THE SECOND CONTENTION OF THE ASSESSEE MAY BE PARTIALLY CORRECT IN THE SENSE THAT THE MANAGER WAS APPOINTED AFTER THE END OF THE RELEVANT PREVIOUS YEAR. ASSESSEE HAS GIVEN AN APPOINTMENT LETTER TO THIS PERSON DATED 2.1.2006. HOWEVER, AS PER ANSWER NO.2 OF HIS STATEMENT, THE MANAGER HAS INFORMED THAT HE HAS JOINED THIS CONCERN IN DECEMBER 2005 AS GENERAL MANAGER. ASSESSEE HAS CLAIMED THAT THE MANAGER HAD GIVEN THE INFORMATIO N ON THE BASIS OF THE STANDARD CLAUSE IN THE SALE DOCUMENT AND HE HAD NO PROPER INFORMATION FOR THIS PROJECT FOR THE PERIOD OF F.Y.2004 - 05. IT IS IMPORTANT TO NOTE HERE THAT THE MANAGER HAS GIVEN DIFFERENT INFORMATIONS IN RESPECT OF THE PROJECTS WHICH WERE CONSTRUCTED BY THE ASSESSEE DURING THE PERIOD I.E. 'MEENAKSHI CLASSIC', 'MEENAKSHI 25 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE MANOR' AND 'RAJAPRAKRUTI - I'. ALL THE INFORMATIONS GIVEN BY THE MANGER IN RESPECT OF ALL THE THREE PROJECTS ARE FOUND CORRECT WHEN VERIFIED WITH THE INFORMATION GIVEN IN THE RETURN OF THE ASSESSEE. IN HIS STATEMENT, THE MANAGER HAS GIVEN THE INFORMATION ABOUT DATE OF COMMENCEMENT OF THE PROJECT, THE DETAILS OF OCCUPANCY CERTIFICATE, NUMBER OF FLATS IN DIFFERENT APARTMENTS, THE COPIES OF SANCTIONED PLANS, ETC. WHEN HE HAD FULL AND CORRECT INFORMATION IN RESPECT OF EVERY ASPECT OF ALL THESE THREE PROJECTS, HOW ASSESSEE CAN CLAIM THAT HE WAS NOT IN THE PROPER KNOWLEDGE OF THE PROJECTS. BY QUESTION NO. 10, HE WAS SPECIFICALLY ASKED ABOUT WHEN AND HOW THE POSSESSION IS HANDED OVER TO THE PURCHASER IN ALL THE THREE PROJECTS. IN REPLY, HE HAS INFORMED THAT ONLY AFTER RECEIVING FULL CONSIDERATION OF THE FLAT REGISTRATION IS DONE AND BEFORE THAT POSSESSION IS HANDED OVER. THE PERSON CONCERNED IS WORKING FOR THE ASSESSEE FOR ALMOST TWO Y EARS AND HE IS THE MAIN PERSON AND INCHARGE OF THE BANGALORE OFFICE OF THE ASSESSEE. IT MAY BE MENTIONED HERE THAT NORMALLY A BUILDER ADOPTS A PARTICULAR METHOD FOR ALL THE PROJECTS IN HIS HANDS. ASSESSEE IS STILL CONSTRUCTING 4 TO 5 OTHER PROJECTS TILL DA TE AND THE SAME MANAGER IS HANDLING ALL THE AFFAIRS OF THE ASSESSEE AS FAR AS HIS 'BUILDING DIVISION' IN BANGALORE IS CONCERNED. THEREFORE, THE MANAGER IS IN THE KNOWLEDGE OF THE WAY THE FLATS ARE SOLD IN ALL THE PROJECTS OF THE ASSESSEE, WHETHER OLD OR NE W. HE HAS GIVEN THE INFORMATION ABOUT THE STANDARD CLAUSE IN THE SALE DEED ON THE BASIS OF HIS EXPERIENCE WITH THE ASSESSEE NOT ONLY IN RESPECT OF THE RELEVANT PROJECT BUT ALSO FOR ALL THE OTHER PROJECTS. THEREFORE, THIS CONTENTION OF THE ASSESSEE IS ALSO NOT ACCEPTABLE. (III) THE ASSESSEE CANNOT CHALLENGE THE VALIDITY OF A LEGAL DOCUMENT I.E. SALE DEED BY SAYING THAT THE RELEVANT CLAUSE WAS PUT IN THE SALE DEED GENERALLY AND ACTUALLY ITS CONTENTS ARE NOT CORRECT. 'SALE DEED' IS A LEGAL DOCUMENT AND ONLY AF TER THIS, THE PURCHASER BECOMES THE LEGAL OWNER OF THE FLAT. DIFFERENT CLAUSES MENTIONED IN THE SALE DEED ARE TO BE INTERPRETED IN THE MANNER IN WHICH THEY ARE WRITTEN. ASSESSEE OR FOR THAT MATTER, ANY CUSTOMER CANNOT CHALLENGE THE CORRECTNESS OF THE CONTE NTS OF SALE DEED. IF IT IS WRITTEN IN THE SALE DEED THAT POSSESSION HAS BEEN HANDED OVER AND THE ENTIRE CONSIDERATION HAS BEEN RECEIVED, THEN THESE ARE THE ACTUAL FACTS AND SHOULD BE ACCEPTED AS SUCH. IT IS AN AUTHENTICATED LEGAL AND REGISTERED DOCUMENT. I T IS ALSO IMPORTANT TO MENTION HERE THAT ASSESSEE HAS NOT ISSUED SEPARATE 'POSSESSION LETTER' TO THE FLAT PURCHASERS AS INFORMED BY HIS MANAGER. IN SUCH A SCENARIO, SALE DEED IS THE ONLY DOCUMENT WHICH LEGALIZES THE TAKING OVER OF 26 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE POSSESSION OF FLAT BY THE CUSTOMER. SIGNIFICANTLY, A SIMILAR CLAUSE IS THERE IN ALL SALE DEEDS OF FLATS IN 'MEENAKSHI CLASSIC' PROJECT AND ASSESSEE HAS SHOWN TOTAL SALES OF THIS PROJECT DURING THIS FINANCIAL YEAR ITSELF. THIS ALSO SHOWS THE CORRECTNESS AND SERIOUSNESS OF ABOVE CLA USE. IN VIEW OF THE ABOVE DISCUSSION, THE EXPLANATION GIVEN BY THE ASSESSEE IS NOT ACCEPTABLE . 24. THE ASSESSING OFFICER FINALLY HELD THAT THE ASSESSEE HAS EARNED THE PROFIT OF RS.1,86,52,819/ - @ 16.82% ON THE SALE OF 23 FLATS FOR A TOTAL CONSIDERATION OF RS.11,08,96,664/ - . THE ASSESSING OFFICER, THEREFORE, MADE THE ADDITION TO THE EXTENT OF RS.1,86,52,819/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE SAID ADDITION BEFORE THE LD. CIT(A) AND LD. CIT(A) WITH HIS WELL - REASONED ORDER D ELETED THE ADDITION. THE OPERATIVE PART OF THE REASONING OF THE LD. CIT(A) ARE AS UNDER: 8.7 SALE IS RECORDED ONLY WHEN POSSESSION IS TRANSFERRED TO THE BUYER AND THE BELIEF OF THE A.O. APPEARS TO BE EMANATING FROM THE FACT THAT AS THE ADVANCES WERE RECEI VED FROM THE CUSTOMERS AND THE REGISTRATION DONE SALES HAD BEEN EFFECTED. HOWEVER, RECEIVING ADVANCE IS ONLY A COMMERCIAL ISSUE OF FINANCIAL CAPACITY. PROFIT RECOGNITION IS AN ISSUE OF PRINCIPLE WHICH OUGHT TO BE LINKED TO TRANSFER OF RISKS AND REWARD NOT THE RECEIPTS OF ADVANCE AGAINST THE SAME. THE ASSESSEE HAS BEEN CONSISTENTLY RECOGNIZING THE REVENUE ON PROJECT COMPLETION METHOD I.E. RECOGNIZING REVENUE ON HANDING OVER THE POSSESSION OF TENEMENT/UNIT TO THE CUSTOMER AND THE SAID METHOD HAS BEEN CONSISTE NTLY FOLLOWED AND ACCEPTED BY THE DEPARTMENT. COURTS HAVE HELD THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENT UNLESS THE METHOD ADOPTED RESULTS IN DISTORTION OF PROFITS. THE A.O. HAS NO T REJECTED THE METHOD OF ACCOUNTING ADOPTED BY THE APPELLANT AND HAS ALSO NOT DOUBTED THE TRANSACTION WITH RESPECT TO THE ONGOING PROJECT RAJPRAKRUTI. THE FACT AS BROUGHT ON RECORD BASED ON THE MATERIAL AVAILABLE BY THE AO PRIMA FACIE DO NOT PROVE THAT THE POSSESSION HAD ACTUALLY PASSED ON THE CUSTOMERS. IN A CASE OF RECOGNITION OF PROFIT BY BUILDERS, FOLLOWING POSSESSION AS THE TOMBSTONE HAS BEEN ACCEPTED BY THE COURTS AND IN THE CASE OF CIT VS MOGHUL BUILDERS & PLANNERS (2001) 252 ITR 488 (AP) ON THE ISSU E OF ACCRUAL OF INCOME, THE AP HIGH COURT HELD THAT PROFITS AND 27 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE GAINS ARISING OUT OF CONSTRUCTION AND SALE OF FLATS BY THE ASSESSEE BUILDER HAD TO BE COMPUTED ON THE BASIS OF HANDING OVER THE POSSESSION OF THE FLAT TO THE RESPECTIVE BUYERS. THEREFORE, THE CRUCIAL FACTOR IS HANDING OVER THE POSSESSION WHICH THE AO HAS NOT BEEN ABLE TO CONCLUSIVELY PROVE. 8.8 THE RELIANCE PLACED BY THE A.O. ON THE CASE LAWS BASICALLY PERTAINS TO THE CASES OF CONTRACTORS AND NOT BUILDERS. IN THE PRESENT CASE THE APPELLANT IS A BUILDER WHEREAS IN THE CASE OF SUKHDEODAS JALAN VS CIT 26 ITR 617 RELIED UPON BY THE A.O., THE ASSESSEE WAS A CONSTRUCTION CONTRACTOR AND HAD TAKEN UP CONSTRUCTION CONTRACTS FROM PWD AND MILITARY DEPARTMENT AND ABOUT 90% OF TOTAL' WORK WAS COMPLETED YET T HE ASSESSEE PREFERRED NOT TO DISCLOSE PROFIT/INCOME OUT OF THE CONTRACT REVENUE. IN THE PRESENT CASE, THE APPELLANT IS A DEVELOPER AND RISKS AND REWARDS OF A DEVELOPER GET SHIFTED WHEN POSSESSION OF FLATS IS EXTENDED TO THE CUSTOMERS. IN THE CASE SUKHDEO J ALAN SUPRA, THERE WAS NO ANY CONCEPT OF SHIFTING RISKS AND REWARDS BEING A CONSTRUCTION CONTRACTOR WHO DOES NOT HAVE TO EXTEND POSSESSIONS, ETC SINCE THE POSSESSION OF THE SITE ALWAYS VESTS WITH THE PRINCIPAL. THE CONSTRUCTION CONTRACTOR KEEPS ON RAISING R UNNING: BILLS AND THE WORK INVOLVED KEEPS ON GETTING CHARGED TO THE PRINCIPAL. BASED ON THESE FACTS, THE COURT RULED THAT THE ASSESSEE CAN'T WAIT FOR ENTIRE COMPLETION OF THE PROJECT .WHEREAS IN THE PRESENT CASE, FACTS ARE COMPLETELY DIFFERENT (DEVELOPER V S CONTRACT) AND THE APPELLANT IS REGULARLY OFFERING INCOME TO TAX ON POSSESSION BASIS, THE CASE CITED BY THE A.O. HAS NOT BEEN ABLE TO CONCLUSIVELY PROVE THAT THE INCOME HAS ACCRUED TO THE ASSESSEE AND HAS ALSO DISREGARDED THE METHOD OF ACCOUNTING FOLLOWED FOR RECOGNIZING REVENUE I.E. THE PROJECT COMPLETION METHOD AS NO DISCUSSION IN THIS REGARD HAS BEEN BROUGHT ON RECORD BY THE A.O. BEFORE COMING TO THE CONCLUSION. HENCE, THE ABOVE CASE LAWS RELIED UPON DO NOT APPLY TO THE FACT OF THE PRESENT CASE. THE CAS E OF TIRATHRAM AHUJA P. LTD VS CIT, 186 ITR 428 WAS ALSO A CASE OF A CONSTRUCTION CONTRACTOR. THE A.O. HAS DISREGARDED MANY FACTS AND EVIDENCES PRODUCED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS BEFORE ARRIVING AT THE CONCLUSION OF TAXABILITY AND PREPONEMENT OF THE INCOME DURING THE CURRENT YEAR I.E. A.Y. 2005 - 06.THE AO HAS ALSO OBSERVED THAT AS THE ENTIRE WORK RELATING TO THE 23 FLATS HAD ALREADY BEEN DONE AND PAYMENT RECEIVED BY THE APPELLANT, THE PROFIT OF THE PROJECT RELATING TO THE SALE OF 23 FLATS HAD DELIBERATELY NOT SHOWN BY THE APPELLANT THEREBY POSTPONED THE TAX LIABILITY, THE AO HAS ALSO RELIED ON THE SUPREME COURT DECISION IN THE CASE OF ASHOKBHAI CHAMANBHAI VS CIT 56 ITR 42 (SC) THAT 28 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE MERELY BECAUSE AN AMOUNT IS CATEGORIZED AS ADVANCE, I T NEED NOT NECESSARILY LACK THE CHARACTER OF INCOME AND ALSO ON THE MADRAS HIGH COURT DECISION OF CIT VS SHAIKH MOHAMED ROWTHER SHIPPING & AGENCY PVT LTD 246 ITR 161 (MAD) THAT ADVANCE DO NOT NORMALLY HAVE CHARACTER OF INCOME, BUT MERE DESCRIPTION OF A REC EIPT AS AN ADVANCE MAY NOT AVOID TAX. WHERE A CONTRACTOR RECEIVES ADVANCE, THIS CANNOT BE TREATED AS A CONTRACT RECEIPT TILL IT IS ADJUSTED TOWARDS DUES. IN CIT VS SHAH CONSTRUCTION CO LTD (1999) 237 ITR 814 (BOM) THE ASSESSEE HAD RECEIVED ADVANCE FROM A N ON - RESIDENT IN FOREIGN CURRENCY IN RESPECT OF A CONTRACT WORK IN THE MIDDLE EAST, WHICH WAS CONSIDERED BY THE AC) TO BE PART OF CONTRACT RECEIPTS AND IN HIS VIEW BECAME TAXABLE. THE HIGH COURT FOUND THAT MERE CONVERSION OF FOREIGN EXCHANGE TO INDIAN RUPEES WOULD NOT HAVE THE EFFECT OF CONVERTING ADVANCE INTO A CONTRACT RECEIPT BECAUSE TILL IT IS; ADJUSTED AGAINST RUNNING BILLS, IT DID NOT BELONG TO THE ASSESSEE. IN THE PRESENT ALSO THE ENTIRE PAYMENTS, AS IT HAS BEEN SEEN , HAS NOT BEEN RECEIVED BY THE APPE LLANT IN ALL THE 23 FLATS APART FROM THE FACT THAT POSSESSION HAS NOT PASSED TO THE BUYERS AS THE CONSTRUCTION WAS STILL ON - GOING AS EVIDENT FROM THE EXPENSES INCURRED DURING F.Y. 2005 - 06 AND THE CERTIFICATES ISSUED BY THE MUNICIPAL CORPORATION AND ELECTRI CITY AUTHORITY WITH RESPECT TO THE PROJECT WERE ISSUED ONLY IN F.Y. 2005 - 06. IN THE CASE OF LAKSHMINARAYANA FILMS VS CIT (2000) 244 ITR 344 (MAD) IT WAS HELD THAT WHERE THE RIGHT TO RECEIVE DEPENDED ON PERFORMANCE OF A CONDITIONAL OBLIGATION AS PER AGREEME NT , THE ADVANCE CANNOT HAVE THE CHARACTER OF INCOME TILL SUCH OBLIGATION IS DISCHARGED. THE CASE LAWS RELIED UPON BY THE AO DO NOT PERTAIN TO THE CASE OF A DEVELOPER WHERE THE METHOD OF ACCOUNTING IS DIFFERENT FOR RECOGNISING THE REVENUE AS CERTAIN TIME P ERIOD IS INVOLVED FOR DELIVERY OF GOODS , HENCE THE CASES RELIED UPON BY THE AO ARE NOT APPLICABLE TO THE FACT OF THE PRESENT CASE. 8.9 AN ADVANCE AMOUNT SHOULD NOT ORDINARILY HAVE THE CHARACTER OF INCOME. WHERE A DEALER IN REAL ESTATE HAD RECEIVED MONIES IN ADVANCE FROM PROSPECTIVE BUYERS, IT WAS FOUND THAT SUCH ADVANCE MONEY COULD NOT BE TREATED AS INCOME TILL DATE OF MATURITY IN CIT VS FAIR DEAL TRADERS (2010) 326 ITR 670 (P&H). A MERE ADVANCE OR RECEIPTS OF EARNEST MONEY IN REAL ESTATE TRANSACTION COULD NOT CONSTITUTE INCOME IN THE YEAR THEY ARE RECEIVED. SUCH AMOUNT RECEIVED BY A REAL ESTATE DEALERS DURING COLONIZATION BUSINESS IS REQUIRED TO BE ADJUSTED AS AND WHEN POSSESSION IS GIVEN TO THE CUSTOMERS, THOUGH SALE MAY NOT BE REGISTERED. IT WAS SO HELD IN CIT VS DHIR & CO, COLONIZERS P LTD (2007) 288 ITR 561 (P&H). THE COURT 29 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE ALSO HELD THAT A COMMERCIAL TRANSACTION GETS COMPLETED ON THE ASSESSEE DISCHARGING THE OBLIGATION UNDER HIS CONTRACT BY HANDING OVER POSSESSION OF THE GOODS TO HIS CUSTOMERS AFTER H AVING RECEIVED THE BALANCE OF CONSIDERATION , SO AS TO REQUIRE ADJUSTMENT OF ADVANCE OR EARNEST MONEY UNDER THE AGREEMENT OF SALE MADE BY THE ASSESSEE. AT THE STAGE OF CONCLUSION OF THE TRANSACTION, THE AMOUNT PAID AS ADVANCE OR EARNEST MONEY CEASES TO BE SO. WHAT IS TAXABLE IS INCOME, SO THAT WHERE MONEYS ARE RECEIVED IN ADVANCE , SUCH AMOUNT WOULD NOT ASSUME THE CHARACTER OF INCOME TILL THE DUTY RELATING TO THE RECEIPT IS PERFORMED OR IS NO LONGER REQUIRED TO BE PERFORMED. 8.10 IN THE CASE OF CIT VS REALE ST BUILDERS & SERVICES LTD (2008) 307 ITR 202 (SC), THE APEX COURT OBSERVED AS UNDER: 'IN CASES WHERE THE DEPARTMENT WANTS TO TAX AN ASSESSEE ON THE GROUND OF THE LIABILITY ARISING IN A PARTICULAR YEAR, IT SHOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTING F OLLOWED 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 ASSESSING OFFICER COMES TO THE CONCLUSION THAT THERE IS UNDER - ES TIMATION OF PROFITS, HE MUST GIVE FACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT THE IMPUGNED METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER - ESTIMATION OF PROFITS AND IS THEREFORE REJECTED. OTHERWISE, THE PRESUMPTION WOUL D BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IN THIS CASE, THAT EXERCISE HAS NEVER BEEN UNDERTAKEN. THE ASSESSING OFFICER WAS REQUIRED TO DEMONSTRATE BOTH THE METHODS, ONE ADOPTED BY THE ASSESSEE AND THE OTHER BY THE DEPARTMENT. IN THE CIRCUMSTANCES, THERE IS NO REASON TO INTERFERE WITH THE CONCLUSION GIVEN BY THE HIGH COURT AND THE TRIBUNAL.' 8.11 IN THE APPELLANT'S CASE ALSO, IT IS NOTICED THAT THE ASSESSING OFFICER HAS NOT CONCLUDED BASED ON FACTS AND FIGURES THAT THE METHOD OF ACCOUNTING REGULARLY ADOPTED BY THE ASSESSEE HAS RESULTED IN UNDER ESTIMATION OF PROFITS. FOR REJECTING THE PROJECT COMPLETION METHOD OF ACCOUNTING WHICH IS A RECOGNIZED METHOD, THE ASSESSING OFFICER SHOULD HAVE ALSO ANALYSED THE METHOD OF ACCOUNTING FOLLOWED FOR DIFFERENT PRO JECTS OVER A NUMBER OF YEARS SO AS TO ARRIVE AT A CONCLUSION THAT ANY DISTORTION IN PROFITS HAD OCCURRED. THIS HAS NOT 30 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE BEEN DONE. THEREFORE, ON THIS BASIS ITSELF THE ASSESSING OFFICER'S METHOD OF PREPONEMENT OF INCOME, CANNOT BE UPHELD. 8.12 SINCE THE APPE LLANT HAS FOLLOWED A RECOGNIZED METHOD OF ACCOUNTING BEING THE PROJECT COMPLETION METHOD, AND THE SALES HAVE BEEN RECOGNIZED WHEN THE POSSESSION HAVE BEEN HANDED OVER AFTER RECEIPT OF THE CONSIDERATION, THERE IS; NO JUSTIFICATION IN ASSESSING OFFICER TINKE RING WITH THE METHOD,AND THE PREPONING THE PROFITS IN THE A.Y. 2005 - 06 WHEN THE ENTIRE PROFITS HAVE BEEN DISCLOSED BY THE APPELLANT IN THE NEXT A.Y. 2006 - 07. MOREOVER, THE HON'BLE APEX COURT IN THE CASE CITED SUPRA HAS ALREADY LAID DOWN THE LAW AS TO WHEN THE METHOD OF ACCOUNTING CAN BE CHANGED BY THE DEPARTMENT. MOREOVER, THE BASIS OF THE ADDITION RESORTED TO BY THE ASSESSING OFFICER HAS NOT BEEN PROVED IN VIEW OF THE MATERIAL ON RECORD AND THE FACT AND CIRCUMSTANCES OF THE CASE. 8.13 I N VIEW OF THE ABOVE FACT AND THE RATIO OF THE JUDICIAL DECISIONS THE DISALLOWANCES MADE BY THE A.O. IS DIRECTED TO BE DELETED AND GROUND OF APPEAL NO. 7 RAISED BY THE APPELLANT IS LIABLE TO BE ALLOWED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 2 5 . WE HAVE HEARD THE RIVAL SU BMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE FACTS ARE ALREADY NARRATED IN DETAIL HERE - IN - ABOVE. THE RESERVATION OF THE ASSESSING OFFICER IN RESPECT OF 23 FLATS WHICH ACCORDING TO HIS IS THAT THE SALE DEEDS WERE REGISTERED IN THE F .Y. 200 4 - 05. T HE ASSESSEES CONTENTION WAS REJECTED BY THE ASSESSING OFFICER THAT (I) THE FLATS WERE NOT COMPLETED IN RESPECT OF ESSENTIAL SERVICES AND WERE ALSO NOT HABIT ABLE AS ON 31 - 03 - 2005 AND (II) EVEN THOUGH THERE WAS A CLAUSE IN THE SALE DOCUMENT BUT IT IS THE STANDARD CLAUSE AND POSSESSION OF THE FLATS TO THE CUSTOMER IS GIVEN ONLY AFTER ENTIRE PAYMENT IS MADE. ACCORDING TO THE ASSESSEE HE IS FOLLOWING THE CONSISTENT METHOD FOR RECOGNIZING THE SALE ONLY AFTER THE PHYSICAL POSSESSION OF THE FLATS WAS GIVEN TO T HE CUSTOMERS AND TILL THE PHYSICAL POSSESSION IS GIVEN THE AMOUNT RECEIVED TOWARDS THE SALE PRICE OF THE FLAT WAS SHOWN AS ADVANCES. WE FIND THAT THE ASSESSING OFFICER HIMSELF HAS ADMITTED THAT THE FLATS WERE NOT COMPLETED IN ALL RESPECT. WE ALSO FIND TH AT IN PAST THE 31 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE ASSESSING OFFICER HAS NEVER QUESTIONED THE METHOD OF ACCOUNTING FOR RECOGNIZING THE REVENUE ON THE SALE OF FLAT S. T HERE SHOULD BE THE CONSISTENCY IN THE APPROACH OF THE ASSESSING OFFICER. THOUGH IT IS BROUGHT ON RECORD THAT IN RESPECT OF S OME OF THE FLATS EVEN IF THE SALE WAS NOT RECORDED BUT AGREEMENT TO SALES WERE EXECUTED IN THE F.Y. 2004 - 05 I.E. RELEVANT TO THE A.Y. 2005 - 06 BUT AT THE SAME TIME WE HAVE ALSO TO CONSIDER ALL OTHER CONDITIONS WHICH WERE ALSO BINDING TO BOTH THE PARTIES I.E . THE ASSESSEE AND ITS CUSTOMERS WHETHER THOSE CONDITIONS WERE FULFILLED OR NOT. THE LD. CIT(A) HAS CATEGORICALLY RECORDED THAT THE CONCERN FLATS WERE NOT READY IN ALL RESPECT AS THE ASSESSEE HAS FILED DOCUMENTARY PROOF TO SHOW THAT THERE WERE NO WATER CO NNECTIONS, THERE WERE NO POWER CONNECTIONS AND NO DRAINAGE CONNECTIONS . A S PER THE FACTS ON RECORD THE ASSESSEE FILED THE APPLICATION FOR DRINKING WATER CONNECTIONS ON 28 - 06 - 2005 AND ALSO FOR APPROVAL OF SANITARY CONNECTIONS ON THE SAME DATE. THE CONTRAC T BETWEEN TWO PERSONS IS TO BE SEEN IN THE ENTIRE TERMS AND CONDITIONS AND NOT TO DECIDE WHETHER THE SALE WAS COMPLETED OR NOT ON THE BASIS OF MERELY THE CLAUSE THAT POSSESSION WAS GIVEN EVEN IF THE FLAT WAS NOT COMPLETED FOR HABITATION. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE ENTIRETY OF THE FACTS WE CONCUR WITH THE FINDING OF THE LD. CIT(A) DELETING THE ADDITION. ACCORDINGLY, GROUND NO. 4 IS DISMISSED. 2 6 . GROUND NO. 5 READS AS UNDER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN ALLOWING DEDUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF THE ASSESSEES PROJECT MEENAKSHI CLASSIC IGNORING THE FACT THAT SOME OF THE FLATS IN THE PROJECT EXCEEDED THE PRESCRIBED BUILT UP AREA OF 1500 SQ. FT. AND THEREBY VIOLATED ONE OF TH E CONDITIONS FOR CLAIM OF DEDUCTION U/S. 80IB(10). 2 7 . THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA NO. 9 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S. 80IB(10) OF THE ACT TO THE EXT ENT OF 32 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE RS. 2,87,67,850/ - . AS OBSERVED BY THE ASSESSING OFFICER ENQUIRY WAS MADE AT THE ASSESSEES OFFICE AT BANGALORE. AS PER THE BUILDING PLANS FILED BY THE ASSESSEE PHYSICAL INSPECTION OF THE FLATS IN THE BUILDING NAMELY MEENAKSHI CLASSIC WAS CARRIED OUT. THE SAID PROJECT HAS TWO SEPARATE BUILDINGS NAMELY ELITE AND ELEGANT. THE ASSESSING OFFICER HAS NOTED THAT TILL 7 TH FLOOR BOTH THESE BUILDINGS HAVE SEVEN FLATS ON EACH FLOOR. HOWEVER, ON THE TOP FLOOR THE ASSESSEE HAS PROVIDED 5 FLATS WITH THE OPEN TERRACE/BALCONY. THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT THERE WAS A VIOLATION OF THE CONDITION IN RESPECT OF THE BUILT UP AREA AS IN RESPECT OF THE FLATS ON THE TOP FLOOR THE BUILT UP AREA WAS MORE THAN 1500 SQ. FT. THE ASSESSING OFFICER R EFERRED TO THE DEFINITION OF THE BUILT UP AREA IN SEC. 80IB(14 )( A) AND AFTER ADDING THE AREA COVERED BY BALCONY , DENIED THE ENTIRE CLAIM OF THE ASSESSEE U/S. 80IB(10) OF THE ACT TO THE EXTENT OF RS.2,87,67,850/ - THAT WAS SPECIFICALLY IN RESPECT OF THE PROJ ECT MEENAKSHI CLASSIC. THE ASSESSEE CHALLENGED THE SAID FINDING OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A) AND LD. CIT(A) DELETED THE ADDITION. 2 8 . WE HAVE HEARD THE PARTIES. AS PER THE FACTS ON RECORD THE ASSESSEES PROJECT RECEIVED APPROVAL FROM THE LOCAL AUTHORITY ON 13 - 03 - 2002. AS STATED BY THE ASSESSEE IN ACCORDANCE WITH THE BYE - LAW S 9.103(D) OF THE BUILDING BYE - LAWS OF BANGALORE CORPORATION, AREA COVERED IN OPEN BALCONY IS EXECUTED FROM THE CALCULATION OF THE FSI IN A PARTICULAR BUILDING AS DEFINED IN THE INCOME - TAX ACT. SO FAR AS THE APPLICABILITY OF THE NEW DEFINITION OF THE EXPRESSION BUILT UP AREA WHICH IS INSERTED IN SEC. 80IB(10) R.W.S. ( 14 )( A ) IS CONCERNED , SAME MADE APPLICABLE W.E.F. 01 - 04 - 2005 . P RIOR TO THE INSERTION OF THE DEFIN ITION OF THE BUILT UP AREA , THERE WAS NO DEFINITION IN THE INCOME - TAX ACT HENCE, THE JUDICIAL APPROACH IS THAT PRIOR TO 01 - 04 - 2005 THE DEFINITION OF THE BUILT UP AREA IS TO BE CONSIDERED IN THE CONTEXT OF BYE - LAWS FRAMED BY THE LOCAL AUTHORITY GIVING APPRO VAL TO THE BUILDING PLANS. IN THE PRESENT CASE 33 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE AS PER THE BANGALORE CORPORATION BYE - LAWS THE BUILT UP AREA DOES NOT INCLUDE AREA OF THE OPEN BALCONY. MOREOVER, WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE ITAT, PUNE IN THE CASE OF OPEL SH ELTER AND D.S. KULKARNI ITA NOS. 219 & 17/PN/2009 DATED 31 - 05 - 2010 FOR THE A.Y. 2005 - 06. WE, THEREFORE, HOLD THAT AS THE ASSESSEES PROJECT IS APPROVED PRIOR TO THE 01 - 04 - 2005 , THE DEFINITION INSERTED TO SEC. 80IB(10) WILL NOT HAVE THE APPLICATION AND HEN CE , THE AREA OF THE OPEN BALCONY OR TERRACE CANNOT BE TREATED AS A PART OF THE BUILT UP AREA. SAME WAY AS PER BYE - LAWS OF THE BANGALORE CORPORATION GIVING THE SANCTION TO THE BUILDING PLANS AS MENTIONED HERE - IN - ABOVE THE BUILT UP AREA EXCLUDES AREA COVERE D UNDER THE OPEN BALCONY. AS PER THE CHART PREPARED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ONLY AFTER INCLUDING THE AREA OF THE OPEN BALCONY AND TERRACE THE BUILT UP ARE IS SHOWN AS MORE THAN 1500 SQ. FT. WE, THEREFORE, CONCUR WITH THE FINDING O F THE LD. CIT(A) THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE DEDUCTION TO THE ASSESSEE ON THE REASON THAT THE BUILT UP AREA EXCEED 1500 SQ. FT. WHEN AS PER THE APPLICABLE LAW , S AID CONDITION HAS NOT BEEN VIOLATED. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT(A) AND GROUND NO. 5 IS DISMISSED. GROUND NOS. 6 AND 7 ARE GENERAL IN NATURE. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ITA NO. 1 621 /PN/2012 (A.Y. 200 6 - 07 ) 2 9 . THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE RESPEC TIVE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 29 - 03 - 2012 FOR THE A.Y. 2006 - 07. THE GROUND NO. 1 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TO INCOME FROM HOUSE PROPERTY [N EAR MAHABALESHWAR] AT RS.1,80,000/ - AS AGAINST RS.25,000/ - DISCLOSED IN THE RETURN. 30 . THE ISSUE IS IN RESPECT OF THE ANNUAL LETTING VALUE OF THE ASSESSEES PROPERTY AT VILLAGE - NAKINDA IN MAHABALESHWAR, DISTT. - SATARA. THE IDENTICAL ISSUE HAS BEEN DEC IDED BY US CONFIRMING THE ORDER OF THE LD. 34 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE CIT(A) IN ITA NO. 1620/PN/2012, A.Y. 2005 - 06 FOLLOWING OUR REASONS IN THE SAID ORDER, IN THIS YEAR ALSO CONFIRM THE ORDER OF THE LD. CIT(A). ACCORDINGLY, GROUND NO. 1 IS DISMISSED. 3 1 . GROUND NO. 2 READS AS UN DER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF THE ASSESSEES PROJECT MEENAKASHI CLASSIC IGNORING THE FACT THAT SOME OF THE FLATS IN THE PROJECT EXCEEDED THE PRESC RIBED BUILT UP AREA OF 1500 SQ. FT. AND THEREBY VIOLATED ONE OF THE CONDITIONS FOR CLAIM OF DEDUCTION U/S. 80IB(10). 3 2 . IN THIS YEAR THE ASSESSEE HAS CLAIMED THE DEDUCTION TO THE EXTENT OF RS.10,51,270/ - U/S. 80IB(10) IN RESPECT OF THE PROJECT AT BANGAL ORE NAMELY MEENAKSHI CLASSIC. IN THIS YEAR ALSO THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS VIOLATED ONE OF THE CONDITIONS OF SEC. 80IB(10) MORE SPECIFICALLY THE CONDITION PERTAINING TO THE BUILT UP AREA OF THE FLAT OR UNIT I.E. WHICH SHOULD NOT BE MORE THAN 1500 SQ. FT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE DEFINITION INSERTED TO SEC. 80IB(10) R.W.S. ( 14 )( A ) OF THE ACT , T HE OPEN TERRACE AND THE PROJECTION FORM THE PART OF THE BUILT UP AREA AND ON THIS REASON THE ASSESSING OFFICER DENIED THE ENTIRE CLAIM OF THE ASSESSEE MADE U/S. 80IB(10) OF THE ACT. THE IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO. 1620/PN/2012, A.Y. 2005 - 06 . F OLLOWING OUR REASONS IN THE SAID ORDER, IN THIS YEAR ALSO WE CONFIRM THE ORDER OF THE LD. C IT(A). ACCORDINGLY, GROUND NO. 2 IS DISMISSED. ACCORDINGLY, REVENUES APPEAL IS DISMISSED. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ITA NO. 1 622 /PN/2012 (A.Y. 200 7 - 08 ) 3 3 . THIS APPEAL IS ALSO FILED BY THE REVENUE CHALLENGING THE IMPUGNED O RDER OF THE LD. CIT(A) - II, PUNE DATED 29 - 03 - 2012 FOR THE A.Y. 2007 - 08. THE GROUND NO. 1 READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TO INCOME FROM HOUSE 35 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE PROPERTY [NEAR MAHABALESHW AR] AT RS.1,80,000/ - AS AGAINST RS.25,000/ - DISCLOSED IN THE RETURN. 34 . THE SOLITARY ISSUE IS IN RESPECT OF ANNUAL LETTING VALUE ACCEPTED BY THE LD. CIT(A) IN PLACE OF RS.1,80,000/ - WHICH WAS ESTIMATED BY THE ASSESSING OFFICER. THIS ISSUE IS IN RESPEC T OF THE PROPERTY OF THE ASSESSEE AT MAHABALESHWAR. THE IDENTICAL ISSUE HAS BEEN DECIDED BY US IN THE A.Y. 2005 - 06 IN ITA NO. 1620/PN/2012. AS THE FACTS ARE IDENTICAL WE, THEREFORE, FOLLOWING OUR REASONS IN THE A.Y. 2005 - 06 CONFIRM THE ORDER OF THE LD. C IT(A) AND GROUND TAKEN BY THE REVENUE IS DISMISSED. IN THE RESULT, THE REVENUES APPEAL I S DISMISSED. ITA NO. 1398 /PN/2012 (A.Y. 200 5 - 06 ) 3 5 . THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - CENTRAL, PUNE DATED 20 - 0 3 - 2012 FOR THE A.Y. 2005 - 06 AND THIS APPEAL IS ARISING OUT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IN COMPLIANCE WITH THE DIRECTIONS GIVEN BY THE LD. CIT, PUNE U/S. 263 OF THE INCOME - TAX ACT. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN SUSTAINING THE ESTIMATION OF RENT OF ASSESSEE'S PROPERTY AT 481/B, MODEL COLONY, PUNE - 411016 AT RS.2,00,000/ - PER MONTH AND THEREBY UPHOLDING AN ADDITION OF RS.1,40,000/ - TO THE TOTAL INCOME OF THE A SSESSEE. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT APPLYING THE PROVISIONS OF SECTION 23(1) (C) OF THE INCOME TAX ACT, TO THE FACTS OF THE CASE. 3. THE ADDITIONS MADE AS ABOVE BE DELETED AND THE INCOME OF THE ASSESSEE BE REDUCED TO THAT EXTENT. 3 6 . THE ASSESSEE HAS NOT CHALLENGED THE ORDER PASSED BY THE CIT U/S. 263 OF THE ACT. NOW, WE HAVE TO DECIDE THIS ISSUE ON MERIT. THE LD. CIT - II, PUNE VIDE HIS ORDER U/S. 263 DIRECTED THE ASSESSING OFFICER TO ASCERTAIN THE REASONABLE RENT OF THE HOUSE PROPERTY O F THE ASSESSEE SITUATED IN THE MODEL COLONY, PUNE FOR THE PURPOSE OF COMPUTING INCOME 36 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER HAS ACCEPTED THE RENT OF RS.1 LACS PER MONTH IN RESPECT OF THE SAID PROPERTY U/S. 23(1) OF THE ACT. THE ASSESSMENT ORDER WAS SET ASIDE ON THIS ISSUE WITH DIRECTION TO THE ASSESSING OFFICER THAT THE ASSESSING OFFICER SHOULD ASCERTAIN REASONABLE RENT OR FAIR RENT AS COMPARED TO THE ANNUAL RENT AND HIRE R OF THE TWO SHOULD BE ADOPTED FOR THE PURPOSE OF COMPUTIN G THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER CONDUCTED THE ENQUIRY AND HE FOUND THAT IN THE SAID LOCALITY THE REASONABLE RENT OF THE PROPERTY OF THE ASSESSEE SHOULD BE RS.2 LACS PER MONTH. THE ASSESSING OFFICER ADOPTED RS .2 LACS PER MONTH AS REASONABLE RENT AND ACCORDINGLY COMPUTED THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 3 7 . WE HAVE HEARD THE PARTIES. THE ASSESSEE HAD HOUSE PROPERTY AT 481/B, MODEL COLONY, PUNE - 411016 WHICH IS ONE OF THE PRIME RESIDENTIAL LOCATION. THE ASSESSEE STATED BEFORE THE LD. CIT(A) THAT SAID PROPERTY WAS LET OUT FOR THE PERIOD OF TWO MONTHS ONLY AND THEREFORE, TH E ASSESSING OFFICER WAS ERRED IN NOT APPLYING THE PROVISIONS OF SEC. 23(1)(C) OF THE I.T. ACT. AS PER THE FACTS ON RECORD SINCE , 2002 THE ASSESSEE LET OUT THE RESIDENTIAL BUNGALOW CONSIST OF GROUND AND FIRST FLOOR AND WAS ENTIRELY L ET OUT TO MR. UDAY VAID YA ON THE RENT OF RS.3 LACS PER MONTH . THE TENANT MR. UDAY VAIDYA STARTED USING ONLY THE GROUND FLOOR FROM 1 ST JANUARY, 2004 IN WHICH THE RENT WAS NEGOTIATED AT RS.1 LACS PER MONTH. MR. VAIDYA USED THE SAID BUNGALOW TILL MAY, 2004 AND THEREAFTER THE BUNG ALOW WAS VACANT . AS PER THE ASSESSEE THE BUNGALOW WAS L ET OUT ONLY FOR 2 MONTHS DURING THE F.Y. 2004 - 05 AND THE ASSESSEE HAS ACTUALLY RECEIVED RS.2 LACS AS A RENT. THE ASSESSEE ALSO STATED THAT RS.1 LAC WHICH WAS ACTUALLY RECEIVED BY THE ASSESSEE FROM TH E TENANT IN RESPECT OF THE USE OF THE GROUND FLOOR. IN THIS CASE THE ASSESSING OFFICER HAS ONLY 37 ITA NO S. 1398, 1422, 1620, 1621 & 1622/PN/2012, BALKRISHNAN SHANMUGHAM CHETTIAR ALIAS S. BALAN PUNE CONSIDERED THE RENT FOR THE 2 MONTHS AND AFTER ALLOWING THE DEDUCTION @ 30% FOR THE REPAIRS U/S. 24 AND BANK INTEREST , THE LOSS AT RS.3,12,132/ - WAS DETERMINED . NOTHING HAS BEEN PLACED BEFORE US EXCEPT THE ORAL ARGUMENT TO CONTROVERT THE FINDING OF THE LD. CIT(A) . IN OUR OPINION NO INTERFERENCE IS CALLED FOR IN THE ORDER THE LD. CIT(A). ACCORDINGLY, SAME IS CONFIRM. IN THE RESULT, THE ASSESSEES APPEAL IS DI SMISSED. 3 8 . ACCORDINGLY ALL THE FIVE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25 - 0 8 - 201 4 SD/ - SD/ - ( G . S . PAN NU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 25 TH AUGUST, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - CENTRAL, PUNE 4 THE CIT - CENTRAL, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE