OM DEVELOPERS, Pune V. ACIT CIR- 3 PUNE, Pune

ITA 206/PUN/2011

• Counselvise Citation: 20624514 RSA 2011
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: NIKHIL PATHAK SUHAS BORA
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.206/PN/2011 (ASSESSMENT YEAR : 2005-06) OM DEVELOPERS, PLOT NO.35, LAXMI PARK SOCIETY, ABOVE HOTEL SANGAM, NAVI PETH, PUNE 411 030. PAN : AAAFO2068A . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 3, PUNE. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK/ SUHAS BORA DEPARTMENT BY : MR. B. C. MALAKAR DATE OF HEARING : 09-02-2015 DATE OF PRONOUNCEMENT : 31-03-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE D ATED 20.12.2010 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.12.2007 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A) HAS ERRED IN DISMISSING THE APPEAL, WITHOUT APPRECIATING THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT. 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE A DDITION OF RS.1,07,48,442/- MADE BY THE A.O. ON ACCOUNT OF EST IMATED PROFIT ON THE ALLEGED SALES IN THE CURRENT YEAR ON THE GROUND THAT APPELLANT HAS COMPLETED THE PROJECT AND ALSO HANDOVER THE POSSESS ION TO THE UNIT PURCHASERS. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T - ITA NO.206/PN/2011 A) THE WORK OF THE APPELLANT WAS STOPPED BY THE PMC ON THE GROUND THAT THE CONSTRUCTION CARRIED OUT BY THE APP ELLANT ON BUILDING A & C WAS ILLEGAL, B) COMPLETION CERTIFICATE FROM THE PMC WAS NOT RECE IVED TILL LAST WEEK OF THE MARCH 2005, C) WATER CONNECTION TO THE BUILDING A & C WAS RECEI VED ON 04.04.2005, D) AFFIDAVITS SUBMITTED BY THE FLAT PURCHASERS, CAT EGORICALLY STATED THAT THE POSSESSION WAS TAKEN BY THEM FOR CARRYING OUT FURNITURE ACTIVITY. 4. AS A CONSEQUENCE TO THE ABOVE, THE LEARNED CIT(A ) ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST U/SEC. 234B AND 234C OF THE INCOME TAX ACT, 1961. 5. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND, MODI FY OR DELETE ANY OF THE GROUNDS OF THE APPEAL, IF DEEMED NECESSARY. 3. THE APPELLANT BEFORE US IS A PARTNERSHIP FIRM WH ICH IS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. ASSESSEE FIRM FILED A RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06 DECLARING TOTAL INCOME OF RS.26,17,220/- WHICH WAS PRIMARILY DERIVED FROM A PROJECT AT PUNE STYLED AS OM MEGASPARSH, BIBVEWADE, PUNE. THE ASSESSING OFFICER ASSESSED TH E TOTAL INCOME AT RS.1,33,65,662/- WHICH, INTER-ALIA, INCLUDED AN ADD ITION OF RS.1,07,48,442/-. THE STAND OF THE ASSESSING OFFICER WAS THAT THE INC OME LIABLE TO BE ASSESSED FROM THE PROJECT IN QUESTION WAS SHORT COMPUTED BY THE ASSESSEE BY A SUM OF RS.1,07,48,442/-. THIS ASPECT OF THE CONTROVERSY H AS ALSO BEEN UPHELD BY THE CIT(A) AND THEREFORE THE ASSESSEE IS IN FURTHER APP EAL BEFORE US. 4. THE SHORT POINT INVOLVED IS THE MANNER IN WHICH ASSESSEE HAS COMPUTED ITS INCOME FROM PROJECT - OM MEGASPARSH. THE ASSESSEE IS MAINTAINING ITS ACCOUNTS ON PROJECT COMPLETION METH OD AND IT IS RECOGNIZING INCOME ON THE BASIS OF HANDING OVER OF POSSESSION O F FLATS TO THE CUSTOMERS. PERTINENTLY, THE AFORESAID METHOD OF ACCOUNTING ADO PTED BY THE ASSESSEE IS NOT IN DISPUTE. AT THE TIME OF HEARING, THE LD. RE PRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR METHOD OF ACCOUNTING HAS B EEN ACCEPTED BY THE REVENUE IN THE PAST. ITA NO.206/PN/2011 5. IN THIS BACKGROUND, THE DIFFERENCE IN THE STAND OF THE ASSESSEE AND THE REVENUE CAN BE APPRECIATED IN THE FOLLOWING MANNER. THE APPELLANT FIRM HAD THREE WINGS, NAMELY, A, B & C IN THE PROJECT, OM M EGASPARSH. THE DEVELOPMENT AND EXECUTION OF THE PROJECT WAS IN PRO GRESS DURING THE YEAR UNDER CONSIDERATION. SO FAR AS THE FLATS IN WING B ARE CONCERNED, ASSESSEE HAD RECOGNIZED INCOME ON THE SALE OF SUCH FLATS AND IT WAS OFFERED FOR TAX DURING THE YEAR UNDER CONSIDERATION IN TERMS OF THE METHOD OF ACCOUNTING FOLLOWED BY IT. SO FAR AS THE FLATS CONSTRUCTED IN WINGS A & C WERE CONCERNED, ASSESSEE DID NOT RECOGNIZE INCOME THEREFROM. IN OT HER WORDS, THE INCOME FROM FLATS IN WING A & C WERE ACCOUNTED FOR AND OFF ERED FOR TAX IN THE SUBSEQUENT ASSESSMENT YEAR. THE ASSESSING OFFICER CARRIED OUT A VERIFICATION EXERCISE WITH THE CUSTOMERS WHO HAD CONTRACTED FOR THE FLATS IN WINGS A & C. SUCH VERIFICATION EXERCISE REVEALED THAT THE FLATS IN A & C WINGS WERE ALSO TAKEN POSSESSION BY THE CUSTOMERS BEFORE THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . THE LIST OF 20 SUCH CUSTOMERS FROM WHOM THE VERIFICATION WAS CARRIED OU T IS ANNEXED AS ANNEXURE A TO THE ASSESSMENT ORDER. ON THIS BASIS, THE AS SESSING OFFICER CONCLUDED THAT INCOME FROM FLATS IN WINGS A & C WAS ALSO TO B E RECOGNIZED DURING THE YEAR UNDER CONSIDERATION ITSELF AND THEREFORE HE BR OUGHT TO TAX A SUM OF RS.1,07,48,442/- ON ACCOUNT OF THE CORRESPONDING PR OFITS ON SUCH SALES. THE AFORESAID ASPECT HAS ALSO BEEN AFFIRMED BY THE CIT( A). 6. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE VEHEMENTLY POINTED OUT THAT THE VERIFICATION EXERCISE CARRIED OUT BY T HE ASSESSING OFFICER HAS BEEN WRONGLY USED TO SAY THAT ASSESSEE HAD HANDED-OVER P OSSESSION OF THE FLATS IN WINGS A & C TO THE RESPECTIVE BUYERS. IT WAS POINT ED OUT THAT, BEFORE THE LOWER AUTHORITIES ASSESSEE SUBMITTED THAT THE POSSE SSION REFERRED TO BY THE RESPECTIVE BUYERS WAS ONLY A TEMPORARY POSSESSION G IVEN IN ORDER TO COMPLETE THE FURNITURE WORK, ETC. AND THAT THE FINAL POSSESS ION WAS HANDED-OVER TO THE FLAT-HOLDERS OF WINGS A & C ONLY IN THE MONTH OF AP RIL, 2005. IT WAS CONTENDED ITA NO.206/PN/2011 THAT THE SALES WITH REGARD TO THE FLATS IN WINGS A & C WERE LIABLE TO BE RECOGNIZED IN THE PREVIOUS YEAR FROM APRIL, 2005 TO MARCH, 2006 CORRESPONDING TO THE NEXT ASSESSMENT YEAR 2006-07. IT WAS ALSO P OINTED OUT THAT ASSESSEE HAD OBTAINED AFFIDAVITS FROM SUCH PERSONS STATING T HAT ONLY TEMPORARY POSSESSION OF FLATS WAS TAKEN FOR CARRYING OUT FURN ITURE WORK DURING THE YEAR UNDER CONSIDERATION. 7. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE APPEARING FOR THE REVENUE CONTENDED THAT THE CIT(A) HAS APPROPRIA TELY DEALT WITH THE SUBMISSIONS PUT-FORTH BY THE ASSESSEE IN THIS REGAR D AND FOUND THE SAME TO BE UNTENABLE. BY REFERRING TO THE DISCUSSION IN PARA 3.7 TO 3.10 OF THE IMPUGNED ORDER OF THE CIT(A), IT WAS SUBMITTED THAT THE AFFI DAVITS OBTAINED BY THE ASSESSEE WERE UNCONVINCING. ACCORDING TO THE LD. D EPARTMENTAL REPRESENTATIVE, THE CIT(A) APPRECIATED THAT IT WAS HIGHLY UNLIKELY THAT MOST OR ALL THE FLATS OWNER WOULD HAVE TAKEN POSSESSION FOR INTERIOR WORK TOGETHER. MOREOVER, IT WAS POINTED OUT THAT IN THE COURSE OF THE VERIFICATION EXERCISE CARRIED OUT BY THE ASSESSING OFFICER SUCH CUSTOMERS DID NOT SAY THAT THEY HAD TAKEN POSSESSION ON A TEMPORARY BASIS IN THE YEAR 2 003 OR DURING THE YEAR UNDER CONSIDERATION. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CRUX OF THE CONTROVERSY IS THE INCOME DEDUCED BY THE ASSESSEE O N APPLICATION OF ITS METHOD OF ACCOUNTING TO ACCOUNT FOR SALES ON THE BA SIS OF HANDING OVER OF POSSESSION TO THE CUSTOMERS. THERE IS NO DISPUTE B ETWEEN THE ASSESSEE AND THE REVENUE THAT ASSESSEE RECOGNIZES SALE OF A FLAT ON HANDING OVER OF ITS POSSESSION TO THE CUSTOMERS. THE VERIFICATION EXER CISE CARRIED OUT BY THE ASSESSING OFFICER REVEALED THAT EVEN WITH RESPECT T O THE FLATS IN WINGS A & C ASSESSEE HAD HANDED-OVER POSSESSION TO THE CUSTOMER S WHEREAS IN THE RETURN OF INCOME FILED, SUCH TRANSACTIONS WERE NOT RECOGNI ZED AS SALES DURING THE YEAR ITSELF. THE ASSESSEE FIRM HAS SOUGHT TO REPUD IATE THE AFORESAID ITA NO.206/PN/2011 CONCLUSION OF THE ASSESSING OFFICER BY ATTEMPTING T O DEMONSTRATE THAT THE POSSESSION GIVEN TO THE CUSTOMERS WAS ONLY A TEMPOR ARY POSSESSION WHEREAS THE FINAL POSSESSION WAS TO BE GIVEN ONLY AFTER OBT AINING THE COMPLETION CERTIFICATE FROM THE LOCAL AUTHORITY, WHICH HAPPE NED IN THE MONTH OF APRIL, 2005, WHICH CORRESPONDS TO THE NEXT ASSESSMENT YEAR . IN OUR CONSIDERED OPINION, THE CASE BEING SET-UP BY THE ASSESSEE IS Q UITE SUPERFLUOUS AND IS DEVOID OF MERIT. WE FIND THAT AT NO STAGE IT WAS T HE CASE OF THE ASSESSEE THAT IT IS RECOGNIZING SALE OF FLATS ON THE BASIS OF FIN AL HANDING OVER OF POSSESSION. IN-FACT, THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT ASSESSEE HAS DIFFERENTIATED BETWEEN A TEMPORARY POSSESSION AND F INAL POSSESSION SO AS TO RECOGNIZE INCOME ON SALE OF FLATS. THEREFORE, THE VERIFICATION EXERCISE CARRIED OUT BY THE ASSESSING OFFICER WHICH REVEALED THAT EV EN WITH RESPECT TO THE FLATS IN WINGS A & C ASSESSEE HAD HANDED-OVER POSSESSION OF CERTAIN FLATS WOULD JUSTIFY ASSESSMENT OF SUCH INCOME DURING THE YEAR I TSELF, HAVING REGARD TO THE METHODOLOGY ADOPTED BY THE ASSESSEE CONSISTENTLY OV ER A PERIOD OF TIME. THUS, WE UPHELD THE ACTION OF THE REVENUE IN-PRINCI PLE. 9. AT THIS STAGE, LD. REPRESENTATIVE FOR THE ASSESS EE MADE AN ALTERNATE PLEA TO THE EFFECT THAT THE ASSESSING OFFICER HAD C ARRIED OUT VERIFICATION EXERCISE ONLY WITH RESPECT TO 20 CUSTOMERS AS DETAI LED IN ANNEXURE A TO THE ASSESSMENT ORDER. ACCORDING TO THE LD. REPRESENTAT IVE, ONLY THE TRANSACTIONS WITH SUCH 20 CUSTOMERS BE CONSIDERED FOR RECOGNIZIN G SALE OF SUCH FLATS DURING THE YEAR ITSELF AND NOT WITH RESPECT TO THE OTHER F LATS IN WINGS A & C FOR WHICH THERE IS NO EVIDENCE TO SUGGEST THAT ASSESSEE HAS H ANDED-OVER POSSESSION TO THE RESPECTIVE BUYERS DURING THE YEAR ITSELF. THE LD. REPRESENTATIVE POINTED OUT THAT THE CASE OF THE ASSESSEE IS THAT IN THE AB SENCE OF ANY ADVERSE EVIDENCE OTHER THAN THE AFORESAID 20 CASES, FOR OTH ER FLATS IN WINGS A & C, NO ADDITION IS MERITED IN THE YEAR UNDER CONSIDERATION . ITA NO.206/PN/2011 10. IN OUR VIEW, THE ALTERNATE PLEA RAISED BY THE A SSESSEE IS QUITE JUSTIFIED. WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BAC K TO THE FILE OF THE ASSESSING OFFICER TO RE-QUANTIFY THE ADDITION LIABL E TO BE MADE ON THE BASIS OF THE EVIDENCE AVAILABLE WITH THE ASSESSING OFFICER W HICH DEMONSTRATES THAT THE POSSESSION WAS HANDED-OVER BY THE ASSESSEE TO THE R ESPECTIVE BUYERS IN WINGS A & C IN THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER SHALL COMPUTE THE PROFIT RELATABLE TO THE 20 FLATS AS ENUMERATED IN ANNEXURE A TO THE ASSES SMENT ORDER AND DELETE THE BALANCE OF THE ADDITION. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT-FORTH ITS SAY ON THE AMOUNT OF PROFIT ASSESSABLE IN THIS YEAR ON THE ABOVE BASIS. THE ASSESSING OFFICER SHALL CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND THEREA FTER RE-COMPUTE THE TOTAL INCOME OF THE ASSESSEE ACCORDINGLY, AS PER LAW. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 31 ST MARCH, 2015. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST MARCH, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE