The ITO, Ward-4(1), Baroda V. M/s Meeti Investment & Consultancy Services Pvt. Ltd., Baroda

ITA 2152/AHD/2008

• Counselvise Citation: 215220514 RSA 2008
• Duration Of Justice: 3 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Assessee Lawyers: M K PATEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.C.GUPTA, VICE-PRESIDENT (AZ) AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.2152/AHD/2008 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER, WARD-4(1), BARODA / V/S . M/S MEETI INVESTMENT & CONSULTANCY SERVICES PVT. LTD. 301, PANCHSHEEL, 72, SAMPATRO COLONY, ALKAPURI, BARODA PAN NO.AABCM3425B / APPELLANT .. / RESPONDENT /APPELLANT BY SHRI B.L. YADAV, SR-DR /RESPONDENT BY SHRI M.K PATEL, AR / DATE OF HEARING 01-02-2012 / DATE OF PRONOUNCEMENT 03 -02-2012 !' !' !' !' / // / ORDER PER B.P. JAIN, ACCOUNTANT MEMBER:- THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F LD. COMMISSIONER OF INC-TAX (APPEALS)-III, BARODA DATED 24-03-2008 F OR THE ASSESSMENT YEAR 2005-06. THE REVENUE HAS RAISED THE GROUNDS OF APPE AL:- 1. THE CIT(A) ERRED IN LAW AND ON FACTS, IN DIRECT ING ASSESSING OFFICER TO DELETE THE ADDITION OF RS.10,92,000/-, IN HOLDING T HAT THE ASSESSEE WAS NOT A CONTRACTOR AND THE ASSESSEE WAS NOT GOVERNE D BY AS-7 OF THE GUIDELINES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IGNORING THE UNDERLYING FACT THAT THE ASSESSEE HAD PERFORMED AND UNDERTAKEN ALL ACTIONS AS A CONTACTOR AND CAMOUFLAGED THE PERFORMA NCE AS DEVELOPER. ITA NO.2152/AHD/2008 A.Y. 2005-06 ITO WD-4(1) BRD V. M/S MEETI INVESTMENT & CONSULT ANCY SERVICES P. LTD. PAGE 2 2. THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING INTEREST DISALLOWANCE OF RS.10,94,313/- WITHOUT SPECIFYING ANY REASONS, O VERLOOKING THE FACT THAT THE COMPANY HAD DIVERTED THE FUNDS FOR THE DIR ECTORS OF THE COMPANY, WHICH CAUSED DELAYED PAYMENT TO AND CHARGI NG OF INTEREST BY THE MUNICIPAL CORPORATION. 2. IN GROUND NO.1 OF THE REVENUE, THE BRIEF FACTS A RE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND TRADING OF TRANSFER OF DEVELOPMENT RIGHTS (TDR). DURING THE YEAR, THE GROS S RECEIPTS DECLARED WERE RS.3,02,94,479/- AGAINST WHICH EXPENDITURE OF RS.3, 00,96,691/- WAS CLAIMED, LEAVING TAXABLE PROFIT OFRS.1,97,788/-. THE ASSESSE E-COMPANY ENTERED INTO AN AGREEMENT WITH HILL CRESTS CO-OPERATIVE HOUSING SOC IETY LTD. (HILL CREST, IN SHORT) FOR RE-DEVELOPMENT OF THE SOCIETY BY CONSTRU CTING ADDITIONAL FLOORS ON THE EXISTING BUILDING. THE SAID DEVELOPMENT AGREEME NT WAS ENTERED INTO ON 10-11-2003, IT WAS NOTED BY THE ASSESSING OFFICER T HAT AS PER CLAUSE-16 OF THE SAID AGREEMENT. THE ENTIRE WORK WAS TO BE COMPLETED WITHIN A PERIOD OF 24 MONTHS FROM THE DATE OF COMMENCEMENT. IT WAS FURTHE R NOTED THAT THE ASSESSEE HAD RECEIVED BOOKING ADVANCES OF RS.1,36,5 0,00/- DURING THE YEAR. HOWEVER, NO SALE OF UNITS WAS DISCLOSED. IT WAS OBS ERVED THAT THE ASSESSEES SUBMISSION TO THE EFFECT THAT NO SALES WERE AFFECTE D DURING THE YEAR AND THEREFORE, NO INCOME WAS RECOGNIZED SINCE THE ASSES SEE FOLLOWED THE COMPLETED CONTRACT METHOD OF ACCOUNTING, WAS NOT AC CEPTED BY THE AO. IT WAS NOTED BY THE AO THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHO D OF ACCOUNTING WHICH HAD BEEN PRESCRIBED IN ACCOUNTING STANDARED-7 (AS-7). IT MAY BE NOTED THAT AS-7 HAS SINCE BEEN REVISED IN 20 02 WITH EFFECT FROM 1-4- 2003. REVISED AS-7 COMPLETELY DOES AWAY WITH THE CO MPLETED CONTACT METHOD OR PROJECTION COMPLETION METHOD AND THE ONLY METHOD NOW RECOGNIZED IS THE PERCENTAGE OF COMPLETION METHOD. ACCORDINGLY, THE AO ESTIMATED THE PROFIT OF THE ASSESSEE FROM HILL CREST PROJECT @ 8% OF THE BOOKING ADVANCES RECEIVED I.E. RS.10.92 LAKH (8% OF RS.1,36,50,000/- ). THIS AMOUNT WAS ADDED BACK TO THE RETURNED INCOME. ITA NO.2152/AHD/2008 A.Y. 2005-06 ITO WD-4(1) BRD V. M/S MEETI INVESTMENT & CONSULT ANCY SERVICES P. LTD. PAGE 3 3. BEFORE LD. CIT(A) THERE WERE TWO ISSUES TO BE DE CIDED WHETHER THE ASSESSEE WAS A CONTRACTOR AS CONTEMPLATED UNDER ACC OUNTING STANDARD- AS-7 AND THE OTHER ISSUE WAS REGARDING METHOD OF RECOGNI ZING THE REVENUE. IT WAS OBSERVED BY LD. CIT(A) THAT ACCOUNTING STANDARD AS- 7 REFERS TO THE METHOD OF ACCOUNTING TO BE FOLLOWED IN RESPECT OF CONSTRUCTIO N CONTRACTS AWARDED TO THE CONTRACTOR. THE ASSESSEE IS NOT A CONTRACTOR BUT IS A DEVELOPER WHO IN TURN AWARDS CONTRACT TO DIFFERENT CONTRACTORS. THEREFORE , ACCOUNTING STANDARD AS-9 WILL BE APPLICABLE WHICH HAS BEEN DISCUSSED EXTENSI VELY BY THE LD. CIT(A) IN HIS ORDER. IT WAS OBSERVED BY THE LD. CIT(A) THAT W HATEVER METHOD MAY BE HELD TO BE APPLICABLE AS PER AS-9, NO REVENUE CAN B E RECOGNIZED DURING THE YEAR SINCE NO CONSTRUCTION ACTIVITY HAD TAKEN PLACE DURING THE YEAR AND NO SALES HAVE BEEN AFFECTED DURING THE YEAR. EVEN COMM ENCEMENT OF PLINTH WORK CERTIFICATE WAS GIVEN ON 10 TH JUNE, 2005 AND PERMISSION FOR STARTING THE WORK FOR OTHER FLOORS WAS GIVEN ON 18-04-2006. THEREFORE , THE AO WAS NOT JUSTIFIED IN DISREGARDING THE BOOK RESULTS AND TREATING 8% OF GROSS RECEIPTS AS INCOME OF THE ASSESSEE. ACCORDINGLY, LD. CIT(A) DELETED TH E ADDITION MADE BY THE AO. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT IN THE PRESENT CASE, THE ASSESSEE WAS NOT A CONTRACTOR BUT WAS A DEVELOPER W HO AWARDS CONTRACTS TO DIFFERENT CONTRACTORS FOR EXECUTING CIVIL, ELECTRIC AL, PLUMBING WORK ETC. THEREFORE, ACCOUNTING STANDARD IN THE PRESENT CIRCU MSTANCES AND FACTS OF THE CASE I.E. AS-7 CANNOT BE MADE APPLICABLE. ACCOUNTIN G STANDARD AS-9 WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) AND HAS BEEN DISCUSSED AT PAGES 4-8 OF HIS ORDER IS APPLICABLE IN THE PRESENT CIRCUMSTA NCES AND FACTS OF THE CASE. MOREOVER, IT HAS NOT BEEN CONTROVERTED BY THE LD. D R APPEARING FOR THE REVENUE THAT THE ASSESSEE HAD AWARDED THE CONTRACTO RS TO VARIOUS OTHER CONTRACTORS. ALSO IT HAS NOT BEEN CONTROVERTED THAT THERE IS NO CONSTRUCTION ACTIVITY CARRIED OUT BY THE ASSESSEE DURING THE YEA R AND THERE WAS A DISPUTE OF THE PARTIES WHO HAD FILED CIVIL SUIT IN MUMBAI CIVI L COURT. THE ASSESSEE HAD RECEIVED THE ADVANCES WHICH ARE DULY REFLECTED IN T HE BALANCE-SHEET OF THE ITA NO.2152/AHD/2008 A.Y. 2005-06 ITO WD-4(1) BRD V. M/S MEETI INVESTMENT & CONSULT ANCY SERVICES P. LTD. PAGE 4 ASSESSEE. THERE IS NO CERTAINTY OF THE REVENUE RECO GNITION AT THIS STAGE. MOREOVER, ALL THE SIGNIFICANT RISKS AND THE OWNERSH IP AT THIS JUNCTURE VEST IN THE HANDS OF THE OWNER I.E THE ASSESSEE AND THEY HAVE N OT BEEN TRANSFERRED TO THE BUYER OR THE PROPOSED BUYER. THEREFORE, IN THE CIRC UMSTANCE AND FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT( A), WHICH APPEARS TO BE QUITE REASONED ONE AND HE HAS JUSTIFIED IN REVERSING THE ORDER OF THE AO ON THE ISSUE. THUS, GROUND NO.1 OF THE REVENUE IS DISMISSE D. 5. AS REGARDS GROUND NO.2, THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD INCURRED LIABILITY O F RS.15 LAKHS BY WAY OF INTEREST PAYABLE TO MUNICIPAL CORPORATION OF GRATER MUMBAI (MCGM). AT THE SAME TIME IT WAS OBSERVED THAT THE ASSESSEE HAD GIV EN LOANS AND ADVANCES TO THE TUNE OF RS.99,61,593/-. DETAILS IN THIS REGA RD HAVE BEEN NOTED AT PAGES 8-9 OF THE ASSESSMENT ORDER. THE AO HELD THAT WHILE INTEREST WAS BEING PAID TO MCGM, NO INTEREST WAS CHARGED ON ADVANCES OF APP ROXIMATELY RS.72,95,422/-. ACCORDINGLY, INTEREST @ 15% ON RS.7 2,95,422/- I.E. RS.9,94,313/- WAS TREATED AS INTEREST RECEIVABLE BY THE ASSESSEE. THE SAME WAS REDUCED FROM THE INTEREST LIABILITY OF RS.15 LA KHS PAYABLE. 6. THE LD. CIT(A) VIDE PARA-6.3 OF HIS ORDER OBSERV ED THAT THERE ARE NO BORROWINGS ON WHICH INTEREST HAD BEEN PAID. THE INT EREST HAS BEEN PAID ON DELAYED PAYMENTS OF INSTALLMENTS PAYABLE BY THE ASS ESSEE TO MCGM FOR OFFICE PREMISES. ACCORDINGLY, THE LD. CIT(A) REVERS ED THE ORDER OF ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AD MADE THE PAYMENT OF INTEREST ON THE DELAYED PAYMENT OF INSTALLMENTS PAY ABLE BY THE ASSESSEE TO MCGM FOR THE OFFICE PREMISES. THE ASSESSEE HAD NOT RAISED ANY BORROWINGS ON WHICH INTEREST IS PAYABLE. THEREFORE, THERE IS N O QUESTION OF DIVERSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES. I N THE CIRCUMSTANCES AND ITA NO.2152/AHD/2008 A.Y. 2005-06 ITO WD-4(1) BRD V. M/S MEETI INVESTMENT & CONSULT ANCY SERVICES P. LTD. PAGE 5 FACTS OF THE CASE, WE FIND NO ERROR IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY REVERS ING THE ORDER OF ASSESSING OFFICER ON THE ISSUE. THUS, GROUND NO.2 OF THE REVE NUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. # !' $!%& 03 / 02 /201 2 * + , - THIS ORDER PRONOUNCED IN OPEN COURT ON 03/02/ 201 2. SD/- SD/- ( G.C.GUPTA ) ( B.P. JAIN ) (VICE PRESIDENT) (ACCOUNTANT MEMBER) $!%&- 03/02/2012 /!! - DKP* !' !' !' !' 001 001 001 001 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. %%05 6 / CONCERNED CIT 4. 6- / CIT (A) 5. 19, 0005, 05, /!! / DR, ITAT, AHMEDABAD 6. ,<= ># / GUARD FILE. BY ORDER/ !' , /TRUE COPY/ ?// %@ 05, /!! -