PRAFUL M PATEL ( KAPUPARA), NAVI MUMBAI V. ACIT 22(3), NAVI MUMBAI

ITA 2170/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2904 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2012
• Court: TRIBUNAL
• Assessee Lawyers: D C SEJPAL
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM ./ ITA NO. 2170 / MUM/20 1 2 ( / ASSESSMENT YEAR : 200 8 - 2009 ) SHRI PRAFUL M PATEL (KAPUPARA), PROP.: M/S RAJ CONSTRUCTION & M/S RAJ ENTERPRISES, PLOT NO.B - 25, SECTOR - 29, AGROLI VILLAGE, AT/POST - KONKAN BHAVAN, NAVI MUMBAI - 400614 VS. ACIT - 22(3), MUMBAI ./ ./ PAN/GIR NO. : A GGPP 3391 P ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI D.C.SEJPAL /REVENUE BY : SHRI GANESH BARE / DATE OF HEARING : 2 9 /0 9/2015 / DATE OF PRONOUNCEMENT 21/10 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , DATED 29 - 2 - 2012, FOR THE ASSESSMENT YEAR 2008 - 09 , IN THE MATTER OF ORDER PASS ED U/S.14 3 (3) OF THE I.T.ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS AN INDIVIDUAL, WHO IS ENGAGED IN THE BUSINESS OF BUILDING, DEVELOPING AND IS A CIVIL & LABOUR CONTRACTOR. THE ASSESSEE IS DOING THE BUSINESS IN THE NAME AND STYLE OF M/S RAJ CONSTRUCTION AND M/S RAJ ENTERPRISES. DURING THE COURSE OF SCRUTINY ITA NO.2170/2012 2 ASSESSMENT, THE AO MADE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK, EXPENSES INCURRED ON CONSTRUCTION, DISALLOWANCE OF INTEREST EXPENSE S AND ON ACCOUNT OF TELEPHONE AND CAR MAINTENANCE EXPENSES. 3. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH TH E ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS COMPLETED THE PROJECT RAJSHREE IN M/S RAJ ENTERPRISES AND HAS OFFERED THE PROFITS FOR TAXATION. INCOME HAS BEEN DECLARED UNDER THE PROVISIONS OF SEC.44 AD OF THE ACT, IN THE OTHER PROPRIETORY CON CERN M/S RAJ CONSTRUCTION DECLARING 8% PROFITS ON GROSS RECEIPTS OF RS.39,52,146/ - . THE AO OBSERVED THAT THE ASSESSEE HAS CREDITED GROSS RECEIPTS OF RS.39,52,146/ - IN THE BOOKS OF THIS PROPRIETORY CONCERN AND OFFE RED NET PROFITS OF RS.3,16,171/ - U/S.44AD OF THE ACT. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT AN AMOUNT OF RS.10,00,000/ - RECEIVED FROM M/S REKHI SAI REALTY AND CREDITED IN THE BOOKS OF ACCOUNTS, WAS NOT BEEN CREDITED IN THE P&L ACCOUNT FOR THE YEAR UNDER CONS IDERATION TH OUGH THE ASSESSEE HAS MADE A CLAIM FOR TDS OF RS.11,330/ - ON SUCH AMOUNTS. FURTHER IN THE EXPENSES DEBITED IN THE BOOKS OF ACCOUNTS , IT IS ALSO SEEN THAT THOUGH THE ASSESSEE HAS DEDUCTED TDS OF RS.25,569/ - ON PAYMENTS OF RS.22,1 0,000/ - TO SUBCONTRACTOR M/S GANGOTRI CONSTRUCTION, THE ASSESSEE HAS ONLY DEBITED AN AMOUNT OF RS.11,50,000/ - IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE WAS ASKED TO GIVE ITA NO.2170/2012 3 EXPLANATION WITH REGARD TO DISCREPANCIES IN THE BOOKS OF ACCOUNTS AND OMISSION TO REFLE CT THESE AMOUNTS IN THE PROFIT AND LOSS ACCOUNT. 5. IN RESPECT OF INCOME FROM M/S RAJ ENTERPRISES, THE ASSESSEE HAS OFFERED NET PROFITS OF RS.21,58,351/ - AS PER THE AUDITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 - 3 - 2008 IN THIS PROPRIETORY CONCERN. THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN TOTAL SALES IN ITS BOOKS OF ACCOUNT AT RS. 3,14,38,600/ - AND HAS BIFURCATED THE SALES AS UNDER : - 1. SALE OF SHOPS RS.8,00,500/ - SALE OF FLATS RS.82,47,400/ - OUT OF STOCK AVAILABLE RS. 90,47,900/ - 2 . SAL E OUT OF PROJECT RAJSHREE COMPLETED DURING THE YEAR RS.2,21,75,000/ - RS.3,12,22,900/ - THE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE BETWEEN TOTAL SALES CREDITED IN THE BOOKS OF ACCOUNT OF RS.3,14,38,600/ - AND TOTAL SALES AS ABOVE OF RS.3,12 ,21,900/ - , THE ASSESSEE HAS SUBMITTED THE SAME AS OTHER RECEIPTS. THUS, THE OTHER RECEIPTS OF RS.2,15,700/ - FORMS PART OF CREDITS IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. 6 . THE AO OBSERVED THAT AS PER BOOKS OF ACCOUNT ASSESSEE HAD SHOWN RECEIPTS FR OM SALE OF FLAT OUT OF STOCK AVAILABLE IN THE BOOKS AT RS.82,47,400/ - . THE AO FURTHER OBSERVED THAT SUCH RECEIPT HAS BEEN CREDITED IN THE BOOKS FROM OPENING STOCK OF RS. 6,97,900/ - ON EARLIER PROJECT SHRI KUTIR REFLECTED IN THE BOOKS OF ACCOUNT AND SALE OF FOUR OTHER FLATS IN THE PROJECTS RUHI WHICH HAS NOT BEEN REFLECTED IN THE OPENING STOCK OF THE YEAR UNDER CONSIDERATION. ON THE BASIS OF THESE OBSERVATIONS, THE AO MADE ADDITION OF RS. 10 ,61,870/ - ON ACCOUNT OF VALU ATION OF CLOSING STOCK. THE AO ALSO DISALLOWED EXPENSES OF RS.97,23,107/ - INCURRED ON ITA NO.2170/2012 4 PURCHASES OF MATERIAL AND CONTRACT EXPENSES AS DEBITED IN THE BOOKS OF ACCOUNT. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF AO. 7 . WITH REGARD TO DISALLOWANCE OF EXPENSES ON THE PLEA THAT EXPEN SES WERE DEBITED IN BOOKS AFTER OBTAINING OCCUPATION CERTIFICATE FROM NMMC, IT WAS CONTENDED BY LD. AR THAT THE DATES OF COMPLETION OF THE PROJECT I.E. THE DATE OF OCCUP ATION CERTIFICATE RECEIVED FROM NAVI MUMBAI MUNICIPAL CORPORATION ('THE NMMC') CIDCO LTD. MAY BE CONSIDERED AS CORRECT AS FAR AS THE STRUCTURAL, ENGINEERING AND PRO CEDURAL WORKS OF THE CONSTRUCTIONS TO THE EXTENT OF INVOLVEMENT OF THESE TWO AGENCIES ARE CONCERNED. BUT IT IS RESPECTFULLY SUBMITTED THAT THE DATES OF COMPLETION IN T HE RECORDS OF NMMC AN D CIDCO ARE FAR DIFFERENT FROM THE DATES OF ACTUAL COMPLETION OF THE PROJECTS FOR NUMEROUS REAS ONS GIVEN BELOW WHICH THE CLT(A) HAS FAILED TO CONSIDER. ALSO, IT WAS OBLIGATORY ON THE PART OF THE ASSESSEE TO INCUR THE AFORESAID EXPENSES IN ORDER TO MEET THE CONDITION WITH RESPECT TO SALE OF FLAT. IT WAS FURTHER SUBMITTED THAT THE DATES OF CO MPLETION MENTIONED BY THE CIT(A) IN THE ORDER ARE ONLY THE DATES OF ISSUING OCCUPATION CERTIFICATES ('OC'). IN FACT THE RECEIPT OF SUCH OCCUPATION CERTIFICATES IN THE HAN DS OF THE ASSESSEE IS THE STARTING POINT FOR NUMEROUS FURTHER AND SUBSEQUENT VITAL AND UNAVOIDABLE WORKS THAT FOLLOW AS WELL AS FOR RECOVERY OF BALANCE DUES FROM THE CUSTOMERS AND ALSO FOR CLOSING THE ACCOUNTS OF THE RESPECTIVE PROJECTS. MOREOVER, GETTING THE OC IN THE HANDS OF THE BUILDER IS VIRTUALLY AN INSTRUMENT FOR HIM TO SHOW IT TO THE CUSTOMERS/ALLOTTEES FOR RECOVERY OF SUBSTANTIAL OUTSTANDING BALANCES DUE TO THE BUILDER. AND TO THE CUSTOMERS/ALLOTTEES, THE OC IS AN ITA NO.2170/2012 5 INDUCEMENT TO THEM TO CLEAR THE OU TSTANDING BALANCES OF THE SALES PROCEEDS WITHOUT FURTHER LOSS OF TIME SO THAT THEY CAN TAKE EARLY POSSESSION OF THE PREMISES. THUS, THE BUILDER REALIZES A SUBSTANTIAL PART OF THE SALES PROCEEDS ONLY AFTER GETTING THE OC BECAUSE THE CUSTOMERS/ALLOTTEES WILL THEMSELVES MAKE EFFORTS TO CLEAR THE DUES TO TAKE POSSESSION OF THE PREM ISES. 8 . IT WAS FURTHER CONTENDED THAT EVEN AFTER GETTING THE OC AND THEREAFTER GIVING POSSESSION OF THE RESPECTIVE PREMISES, THE BUILDER WILL HAVE TO CARRY OUT VARIOUS REMAINING WO RKS ON THE RESPECTIVE PROJECTS SUCH AS COMPOUND WALLS, COMPOUND FLOORINGS, FIXING GATES, PARKING ARRANGEMENTS, ELECTRICAL METER ROOMS FITTINGS, FIXING GROUND FLOOR BOARD FOR ALL TELEPHONE CONNECTIONS ETC., AS WELL AS VARIOUS KINDS OF RECTIFICATIONS/REPAIRS IN THE CIVIL AND ELECTRICAL CONSTRUCTIONS ALREADY DONE. THES E ACTIVITIES WILL ALSO LEAD TO INCURRING OF SUBSTANTIAL EXPENDITURE. FOR ALL THESE REASONS, IT I S SUBMITTED THAT THE ASSESSEE CANNOT TAKE THE DATE OF THE OC AS THE DATE OF COMPLETIO N OF THE RESP ECTIVE PROJECTS UNDER ANY CIRCUMSTANCES. IT IS ALSO SUBMITTED THAT IT IS MOST UNREASONABLE ON THE PART OF THE DEPARTMENT TO EXPECT THAT THE BUILDER SHOULD CLOSE THE ACCOUNTS OF TH E PROJECTS AND WORK OUT THE PROFITS ON THE DATE OF RECEIPT OF THE OCCUPATION C ERTIFICATE FROM THE MUNICIPAL CORPORATION. 9 . ON THE BASIS OF DOCUMENTS AVAILABLE ON RECORD, WE FOUND THAT THERE WERE CERTAIN DEMANDS ON THE PART OF PURCHASERS OF THE FLAT WITH RESP ECT TO THE FOLLOWING WORKS WHICH WERE CARRIED OUT BY THE ASSESSEE AND INC URRED AN EXPENSE OF RS.58,44,357/ - ON ITA NO.2170/2012 6 FOUNDATION OF GENERATOR SET FOR SOCIETY AS WELL AS LIFT UNDER GROUND WATER TANK TILES IN PARKING PAINTING RELATED ISSUES EXTENSION OF MAIN WATER TANK BOUNDARY WALL. THE A S SESSEE HAD SUBMITTED THE CO PIES OF PURCHASE BILLS BEFORE THE A O DURING THE COURSE OF ASSESSMENT. ALSO, ALL THE PAYMENTS FOR PURCHASE OF MATERIAL AND CONTRACT CHARGES HAD BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSEE HAS NO OTHER PROJECTS ON HAND AND THUS IT CAN BE SAID THAT ALL THE ABOVE REFERRED EXPENSES HAVE BEEN INCURRED FOR THE CURRENT PROJECT AS ALL OF IT HAS ALSO BEEN UTILIZED. 10 . WE ALSO FOUND THAT T HE BILLS RAISED BY VARIOUS SUB - CONTRACTING AGENCIES HAVE BEEN SUBMITTED AND ALL THE PAYMENTS HAVE BEEN MADE AFTER DUL Y DEDUCTING TAX UNDER SECTION 194. THE ASSESSEE HAS SUBMITTED THE TDS RETURNS OF THE SUB - CONTRACTING CHARGES IN SUPPORT OF THE PAYMENTS MADE AS SEEN IN ANNEXURE 1. 1 1 . AFTER GOING THROUGH ENTIRE MATERIAL PLACED ON RECORD VIS - - VIS THE ORDER OF LOWER AUTHOR ITIES, WE FOUND THAT EVEN THOUGH ASSESSEE HAS INCURRED VARIOUS EXPENSES FOR COMPLETION OF THE PROJECT UNDERTAKEN BUT HAS NOT PROPERLY MAINTAINED ITS BOOKS OF ACCOUNTS, SO AS TO RECORD ITS EXPENSES INCURRED ON CONSTRUCTION ACTIVITY . THE VALUATION OF CONSTRU CTION WORK AT THE END OF THE FINANCIAL YEAR WAS ALSO NOT PROPERLY VALUED IN THE BOOKS OF ACCOUNT. THERE ALSO APPEARS SOME DISCREPANCIES IN THE FIGURE OF SALES SHOWN IN THE BOOKS OF ACCOUNT. UNDER THESE CIRCUMSTANCES , BOOKS OF ACCOUNTS DESERVE TO BE REJECT ED. ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THE PROFIT IS TO BE COMPUTED AFTER APPLYING NET PROFIT RATE ON THE ITA NO.2170/2012 7 GROSS RECEIPTS FOR COMPUTING BUSINESS INCOME OF THE ASSESSEE. KEEPING IN VIEW THE ENTIRETY AND FACTS OF THE CASE VIS - - VIS NATURE OF CONSTRUCTION ACTIVITY BEING CARRIED ON BY THE ASSESSEE, WE DIRECT THE AO TO APPLY 10% NP RATE ON THE GROSS RECEIPTS OF RS. 39,52,148/ - IN CASE OF M/S RAJ CONSTRUCTION AND RS.3,14,38,600/ - IN CASE OF M/S RAJ ENTERPRISES. TOTAL RECEIPTS OF BOTH CONC ERNS WORKS OUT TO RS.353.90 LAKHS. APPLYING 10% NET PROFIT RATE ON THE GROSS RECEIPTS GIVES NET PROFIT OF RS.3 5.40 LAKHS. ACCORDINGLY, WE DIRECT THE AO TO TAKE NET PROFIT AT RS.35.40 LAKHS IN PLACE OF INCOME DISCLOSED BY THE ASSESSEE WHICH IS AT RS.3, 1 6,17 1/ - IN CASE OF M/S RAJ CONSTRUCTION AND RS.2 1,58,351/ - IN CASE OF M/S RAJ ENTERPRISES . ACCORDINGLY, NET ADDITION OF RS. 10 . 6 6 LAKHS (RS.3 5 . 4 0 - 3.16 - 21.58 LAKHS) IS SUSTAINED. AFTER REJECTING THE BOOK RESULTS, WE HAD ESTIMATED N ET PROFIT ON THE GROSS RECE IPTS, A LL OTHER ADDITIONS MADE BY THE AO ARE DIRECTED TO BE DELETED UNDER THE HEAD INCOME FROM BUSINESS. WE DIRECT ACCORDINGLY. 1 2 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 21/10 / 201 5 . SD/ - SD/ - ( ) ( AMARJIT SINGH ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 10 /2015 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, M UMBAI 6. / GUARD FILE. ITA NO.2170/2012 8 / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI //TRUE COPY//