ITO, Hyderabad V. M/s Ganapati Ingots P Ltd., Hyderabad

ITA 1689/HYD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66159 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 24-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1689/HYD/2008 ASSESSMENT YEAR : 2005-06 INCOME-TAX OFFICER, WARD-2(2),HYDERABAD. .... APPELLANT VS. M/S.GANAPATI INGOTS PVT.LTD. HYDERABAD. RESPONDENT PAN:AACCG 1038 R APPELLANT BY : SMT. NIVEDITA BISWAS RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 19-06-2012 DATE OF PRONOUNCEMENT: 10-08-2012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 22-9-2008 PASSED IN ITA NO.0234/CIT(A)- III/07-08 AND IT PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. GROUND NO. 1 RELATES TO DELETION OF THE ADDITION OF RS. 37,48,900/- MADE ON ACCOUNT OF LOWER SALE RECEIPT SHOWN COMPARE D TO EARLIER YEAR. 3. BRIEFLY THE FACTS AS EMANATES FROM THE RECORDS A RE THAT THE ASSESSEE IS A PVT. LTD. COMPANY ENGAGED IN THE BUSINESS OF C ONSTRUCTION AND SALE OF FLATS. FOR THIS PURPOSE, THE ASSESSEE PURCHASED A L AND ADMEASURING 2650 2 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. SQ.YARDS FOR A CONSIDERATION OF RS. 1,22,94,861/- I N THE YEAR 1999 AT MUNICIPAL DOOR NO. 8-2-615/1, ROAD NO. 11, BANJARA HILLS, HYDERABAD. SINCE THE ASSESSEE COULD NOT CARRY ON THE DEVELOPME NT AND CONSTRUCTION ACTIVITY ON ITS OWN, IT ENTERED INTO A DEVELOPMENT AGREEMENT WITH ONE MEENAKSHI CONSTRUCTIONS PVT. LTD. ON 19/05/2001 WIT H THE UNDERSTANDING THAT IN EXCHANGE OF 50% OF THE LAND ADMEASURING 132 5 SQ. YARDS THE DEVELOPER SHALL GIVE THE ASSESSEE 7 NOS. OF FLATS B EARING NO. 207, 305, 308, 309, 310, 407 AND 408. IN THE ASSESSMENT YEAR 2004-05 ASSESSEE RECEIVED FLAT NO. 305,307, 308 & 310 AND ALSO SOLD THEM DURING THE ASSESSMENT YEAR 2004-05. WHILE COMPARING THE RECEIP TS FROM SALE FOR THE ASSESSMENT YEAR UNDER DISPUTE WITH ASSESSMENT YEAR 2004-05, THE AO FOUND THAT WHILE IN THE EARLIER ASSESSMENT YEAR THE ASSESSEE HAD SOLD FLATS ADMEASURING TO 11,025 SQ.FT. FOR RS. 1,30,70, 000/- WHICH WORKS OUT TO RS. 1185 PER SQ.FT., IN THE ASSESSMENT YEAR UNDE R CONSIDERATION THE ASSESSEE HAS SOLD FLATS ADMEASURING 6653 SFT. FOR R S. 49,00,000/- WHICH WORKS OUT TO RS. 737 PER SFT. THE AO HOLDING THE SA LE PRICE TO BE LOW ESTIMATED THE SALE PRICE AT RS. 1300 PER SFT AND AR RIVED AT THE TOTAL SALE PRICE OF RS. 86,48,900/-. THE DIFFERENCE IN SALE RE CEIPT OF RS. 37,48,900/- WAS ADDED TO THE INCOME. 4. THE ASSESSEE CHALLENGED THE ADDITION BY FILING A N APPEAL BEFORE THE CIT(A). IN COURSE OF HEARING OF APPEAL BEFORE THE C IT(A) IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE SALE PRICE FOR A SSESSMENT YEAR 2004-05 TAKEN INTO CONSIDERATION BY THE AO INCLUDED AN AMOU NT OF RS. 25,80,000/- RECEIVED TOWARDS FITTING OF ADDITIONAL FURNITURE AN D RS. 25,83,350/- TOWARDS EXTRA WORKS UNDERTAKEN. IF THESE TWO ITEMS WILL BE EXCLUDED FROM THE TOTAL AMOUNT RECEIVED THEN SALE PRICE FOR THE F OUR FLATS FOR THE ASSESSMENT YEAR 2004-05 WILL BE RS. 730.50 PER SFT. WHICH WILL BE LOWER THAN RS. 741 PER SFT. SHOWN FOR THE ASSESSMENT YEAR 2005-06. IT WAS FURTHER CONTENDED THAT THERE IS NO MATERIAL BEFORE THE AO THAT THE 3 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. ASSESSEE HAS SOLD THE FLATS AT A HIGHER RATE THAN W HAT HAS BEEN SHOWN IN THE SALE DEEDS AND BOOKS OF ACCOUNTS. 5. THE CIT(A) ON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE P&L A/C FOUND THE RECEIPTS FROM THE S ALE OF FLATS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 AS BELOW: ASSESSMENT YEAR 2004-05 SALE OF FOUR FLATS RS. 79,06,650/ - ADDITIONAL FURNITURE FITTED RS. 25,80,000/ - EXTRA WORKS UNDERTAKEN RS. 25,83,350/- RS.1,30,70,000/- ============ ASSESSMENT YEAR 2005-06 SALE OF FLATS RS. 49,00,000/- EXTRA WORKS RS. 5,50,300/- RS.54,50,300/- =========== ON ANALYZING THESE FACTS, THE CIT (A) HELD IN THE F OLLOWING MANNER: IT IS EVIDENT FROM THE ABOVE FACTS AND FIGURES THA T THE RATE ON WHICH THE FLATS WERE SOLD IN A.Y. 2005-06 WAS MORE THAN THE RATE SHOWN IN A.Y 2004-05. THE AO HAS ERRED IN COMPUTIN G THE SALE RATE WITHOUT REDUCING THE RECEIPTS OF FURNITURE AND EXTRA WORK UNDERTAKEN DURING THE RELEVANT YEARS. MOREOVER, TH E AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE AP PELLANT HAD RECEIVED EXTRA CONSIDERATION ON SALE OF FLATS OVER AND ABOVE THE AMOUNT MENTIONED IN THE SALE DEEDS AND IN THE BOOKS OF ACCOUNT. NO ADDITION ON ACCOUNT OF SUPPRESSED SALE CAN BE SU STAINED ON PRESUMPTIONS AND SURMISES. HENCE, THE ADDITION OF R S.37,48,900/- MADE BY THE AO IS DELETED. 4 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. A COMPARISON OF THE RECEIPT FROM SALE OF FL ATS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 REVEALS THAT WHILE IN ASS ESSMENT YEAR 2004- 05 THERE ARE MAJOR RECEIPTS TOWARDS FURNITURES AND EXTRA WORK, THERE IS NO SUCH MAJOR RECEIPT FOR THE ASSESSMENT YEAR 2005-06. THE AO WHILE WORKING OUT THE PER SFT. RATE FOR THE ASSESSMENT YE AR 2004-05 HAS ALSO NOT REDUCED THE COST OF FURNITURES AND EXTRA WORK. IT IS ALSO A FACT THAT THE ASSESSEE MAINTAINS BOOKS OF ACCOUNT AND ITS BOOKS O F ACCOUNT ARE AUDITED. IT IS EVIDENT FROM THE ASSESSMENT ORDER TH AT THE AO HAS MADE AN ESTIMATION OF THE SALE PRICE WITHOUT BRINGING ANY M ATERIAL ON RECORD TO PROVE THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT IS MENTIONED IN THE SALE DEED OR RECORDED IN THE BOOKS OF ACCOUNT. IN T HESE CIRCUMSTANCES, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS. 37,48,950/-. THE GROUND RAISED BY THE REVENUE I S DISMISSED. 7. GROUND NO. 2 RELATES TO CONSTRUCTION EXPENDITURE OF RS. 31,41,310/- ALLOWED BY THE CIT(A). 8. BRIEF FACTS OF THE ISSUE ARE THAT WHILE EXAMININ G THE AUDIT REPORT AND AUDITED STATEMENT OF ACCOUNTS THE AO FOUND THAT THE ASSESSEE HAS CLAIMED RS. 45,72,430/- AS EXPENDITURE ON CONSTRUCT ION ACCOUNT. THE AO OBSERVED THAT UNDER THE DEVELOPMENT AGREEMENT THE A SSESSEE HAD TRANSFERRED 1325 SQ.YARDS OF LAND AND RECEIVED 7 FL ATS FROM THE DEVELOPER. THE ASSESSEE HAD SOLD 6 FLATS BY THE END OF ASSESSM ENT YEAR 2005-06, WHICH CORRESPONDS TO 922 SQ.YARDS. ACCORDING TO TH E AO, THE ASSESSEE WAS HAVING BALANCE 403 SQ. YARDS OF LAND IN HIS POS SESSION. THE AO WORKED OUT THE PURCHASE PRICE OF 403 SQ. YARDS OF L AND AT RS. 18,69,920/- AND HELD THAT THE MINIMUM CLOSING WORK-IN-PROGRESS SHOULD BE RS. 18,69,920/- INSTEAD OF RS. 2,08,500/- SHOWN BY THE ASSESSEE. THE AO REJECTING THE CONSTRUCTION ACCOUNT OF THE ASSESSEE AS PER SCHEDULE 11 OF THE AUDIT REPORT RECASTED IT IN THE FOLLOWING MANNE R: 5 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. OPENING WORK-IN-PROGRESS OF UNSOLD LAND AS ON 01/04/2004 RS. 32,99,040/- LESS: COST OF UNSOLD LAND AS ON 31/03/2005 (CLOSING WORK-IN-PROGRESS) RS. 18,69,920/- COST OF LAND TRANSFERRED DURING THE YEAR RS. 14,30,120/- ============ 9. ON THE AFORESAID CALCULATION, THE AO RESTRICTED THE CONSTRUCTION EXPENDITURE TO RS. 14,30,120/- AND DISALLOWED THE B ALANCE AMOUNT OF RS. 31,42,310/-. 10. THE ASSESSEE CHALLENGED THE ADDITION IN APPEAL BEFORE THE CIT(A). IT WAS CONTENDED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE AO HAS ONLY CONSIDERED THE COST OF LAND WITHOUT TAKING INTO ACC OUNT OTHER COST OF CONSTRUCTION LIKE PROVIDING FURNITURE AND ADDITIONA L WORK UNDERTAKEN AGAINST RECEIPT OF EXTRA CONSIDERATION WHICH WAS AL SO REFLECTED IN THE BOOKS OF ACCOUNT. THE ASSESSEE SUBMITTED THAT THOUG H ALL THE DETAILS SUPPORTED BY BILLS AND VOUCHERS WERE SUBMITTED BEFO RE THE AO, HE HAS NOT CONSIDERED THE SAME BY SIMPLY OBSERVING THAT DETAIL S WERE NOT PRODUCED BY THE ASSESSEE. 11. FROM THE AUDITED STATEMENT OF ACCOUNTS AND OTHE R DETAILS PRODUCED BEFORE HIM THE CIT(A) FOUND THAT THE ASSESSEE HAD INCURRED EXPENDITURE ON FURNITURE AND EXTRA WORK OF AN AMOUNT OF RS. 41, 16,945/- AS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 AGAINST WHICH THE ASSESSEE RECEIVED AN AMOUNT OF RS. 57,13,350/- WHICH WAS NOT ONLY REFLECTED IN THE BOOKS OF ACCOUNT BUT A PROFIT OF RS. 15,96,405/- WA S SHOWN ON THE AFORESAID RECEIPT. THE CIT(A) ALSO FOUND THE COST O F UNSOLD LAND COMPUTED BY THE AO TO BE ERRONEOUS, AS THE CIT(A) OBSERVED T HAT AS PER THE APPROVED MUNICIPAL PLAN LAND TO THE EXTENT OF 468 S Q. YARDS WAS LEFT FOR ROAD WIDENING AND RECREATION, THUS, THE ASSESSEE WA S ELIGIBLE FOR 1091 SQ. YARDS. OUT OF THIS, THE ASSESSEE SOLD 6 FLATS ALONG WITH 925 SQ.YARDS OF 6 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. LAND. THE ASSESSEE, THEREFORE, WAS LEFT WITH ONLY 1 66 SQ.YARDS WHICH WAS SOLD WITH THE ONE FLAT REMAINING IN THE FINANCIAL Y EAR 2006-07. THE CIT(A) WORKED OUT THE VALUE OF 166 SQ. YARDS OF LAND AT RS . 7,70,168/-. CONSIDERING THE FACT THAT THE ASSESSEE HAS SHOWN TH E COST OF UNSOLD LAND AT RS. 2,08,500/- HE DIRECTED FOR ADDITION OF DIFFE RENTIAL AMOUNT OF RS. 5,61,668/- TO CLOSING STOCK WORK-IN-PROGRESS AND EN HANCE THE INCOME RETURNED TO THAT EXTENT. THE CIT(A) DELETED THE ADD ITION OF RS. 31,42,310/-. 12. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FULLY AGREE WITH THE CIT(A) THAT THE COS T OF CONSTRUCTION ARRIVED AT BY THE AO IS INCORRECT. THE AO HAS TOTAL LY IGNORED THE FACT THAT THE ASSESSEE HAS SHOWN THE RECEIPT OF RS. 57,13,350 /- AGAINST THE EXPENDITURE INCURRED ON FURNITURE AND EXTRA WORKS A MOUNTING TO RS. 41,16,945/- AND HAS OFFERED THE PROFIT OF RS. 15,96 ,405/- TO TAX. THE CIT(A) WAS ALSO CORRECT IN HOLDING THAT THE ASSESSE E WAS HAVING UNSOLD LAND OF 166 SQ. YARDS AND NOT 403 SQ. YARDS AS DETE RMINED BY THE AO. THE AO HAS NOT CONSIDERED THE FACT THAT LAND TO THE EXT NT OF 468 SQ. YARDS WAS LEFT FOR ROAD WIDENING AND RECREATION. CONSIDERING ALL THESE FACTS THE ORDER PASSED BY THE CIT(A) APPEARS TO BE MOST REASONABLE AND CALLS FOR NO INTERFERENCE. WE, THEREFORE, UPHOLD THE SAME AND RE JECT THE GROUND OF REVENUE. 14. GROUND NO. 3 RELATES TO ADDITION OF AN AMOUNT O F RS. 27,30,000/- MADE ON ACCOUNT OF COST OF UNSOLD FLAT, WHICH WAS D ELETED BY THE CIT(A). 15. BRIEFLY THE FACTS ARE THAT AS PER THE DEVELOPME NT AGREEMENT THE ASSESSEE WAS TO RECEIVE 7 FLATS IN EXCHANGE OF TRAN SFERRING 50% OF THE LAND. THE ASSESSEE BY THE END OF ASSESSMENT YEAR 20 05-06 RECEIVED AND SOLD 6 FLATS. THE AO CAME TO A FINDING THAT THE AS SESSEE SHOULD HAVE 7 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. SHOWN THE VALUE OF THE REMAINING UNSOLD FLAT IN THE CLOSING WORK-IN- PROGRESS. THE AO DETERMINED THE VALUE OF THE UNSOLD FLAT ADMEASURING 4550 SFT. AT RS. 27,30,000/- AND ADDED IT TO THE TO TAL INCOME. 16. THE ASSESSEE CHALLENGED THE ADDITION BY FILING AN APPEAL BEFORE THE CIT (A). BEFORE THE CIT (A) THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE ON ACCOUNT OF CONSTRUCT ION OF THE UNSOLD FLAT IN THE P&L A/C. THE EXPENSES INCURRED ON EXPENDITU RE WERE BY THE DEVELOPER AND IT IS ALSO REFLECTED IN THEIR BOOKS O F ACCOUNT. THE ASSESSEE BEING THE OWNER OF PROPERTY COST OF LAND IS ONLY RE FLECTED IN ASSESSEES BOOKS OF ACCOUNT. 17. THE CIT (A) AFTER CONSIDERING ALL THE FACTS AND MATERIAL HELD IN THE FOLLOWING MANNER: 4.3. I AGREE WITH THE AFORESAID CONTENTION OF THE A PPELLANT. AS PER THE DEVELOPMENT AGREEMENT, THE APPELLANT HAS EXCHAN GED 50% OF HIS LAND IN LIEU OF 7 FLATS. TILL THE FLAT IS RECE IVED AND THE CORRESPONDING LAND IS TRANSFERRED TO THE DEVELOPER, THE ONLY ASSET LYING WITH THE APPELLANT IS THE UNSOLD LAND WHICH I S TO BE VALUED AND TO BE INCLUDED IN THE CLOSING WORK IN PROGRESS. AS MENTIONED SUPRA, THE APPELLANT WAS LEFT ONLY WITH 166 SQ.YARD S OF LAND AT THE END OF RELEVANT PREVIOUS YEAR WHICH WAS VALUED AT R S.2,08,500/- BY THE APPELLANT BUT DIRECTED TO BE VALUED AT RS.7, 70,1688/- IN PARA 3.4 ABOVE. THERE IS NO SENSE IN VALUING THE C OST OF CONSTRUCTION OF THE 7 TH FLAT AND TO ADD THE SAME AS THE CLOSING WORK IN PROGRESS OF THE APPELLANT, OVER AND ABOVE THE CO ST OF UNSOLD LAND. ACCORDINGLY, THE ADDITION OF RS.27,30,000/- MADE ON THIS ACCOUNT IS DELETED. 18. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 19. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AFTER GOING THROUGH THE FINDING OF THE CIT (A) WE FIND NO INFIRMITY IN IT. THE ASSESSEE HAVING NOT INCURRED ANY EXPENDI TURE ON CONSTRUCTION AND NOT DEBITED TO THE P&L A/C.,THE AO WAS NOT JUST IFIED IN HOLDING THAT THE COST OF CONSTRUCTION SHOULD HAVE BEEN SHOWN IN THE WORK-IN-PROGRESS. 8 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD. APART FROM THIS, WE ALSO AGREE WITH THE CONTENTION OF THE LEARNED AR THAT THE AO HAS TWICE MADE THE ADDITION FOR THE STOCK OF ONE UNSOLD FLAT, ONCE WHILE DETERMINING THE COST OF LAND AS RS. 18,69,920 /- AND AGAIN ADDING THE AMOUNT OF RS. 27,30,000/- AS THE COST OF UNSOLD FLAT. WE, THEREFORE, HOLD THAT THE ADDITION MADE IS UNSUSTAINABLE AND TH E CIT (A) WAS JUSTIFIED IN DELETING THE SAME. THE GROUND RAISED BY THE REVE NUE IS DISMISSED. 20. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 10 - 8-2012. SD/- S D/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 10 TH AUGUST, 2012. COPY TO:- 1) ITO, WARD-2(2), HYDERABAD. 2) M/S GANAPATI INGOTS PVT. LTD.8-2-70/A, ROAD NO.1 2, BANJARA HILLS, HYDERABAD. 3) THE CIT (A)-III, HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 9 ITA NO. 1689 OF 2008 M/S. GANAPATI INGOTS PVT. LTD., HYDERABAD.