VIJAY PROPINVEST P.LTD, MUMBAI V. ACIT CC 15 & 16,

ITA 2231/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0456 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE
• Assessee Lawyers: SHAILESH PARMAR PRATIK JAIN
• Keywords: Difference of opinion

Judgement Text

1 , INCOME - TAX APPELLATE TRIBUNAL IBENCH MUMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./ I.T.A./2231/MUM/2015 , / ASSESSMENT YEAR: 2006 - 07 M/S. VIJAY PROPINVEST PVT.LTD. 205, MARINE CHAMBERS 43, NEW MARINE LINES MUMBAI - 400 020. PAN:AAACV 4024 A. VS. ACIT - CC - 15 & 16 MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAURABH DESHPANDE - DR ASSESSEE BY: S/SHRI SHAILESH PARMAR, PRATIK JAIN / DATE OF HEARING: 08/11/2017 / DATE OF PRONOUNCEMENT: 3 1 / 0 1 / 2018 , 1961 254(1) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) , / PER RAJENDRA, AM - CHALLENGING THE ORDER, DATED 16/02/2015 OF THE CIT(A) - 51 ,MUMBAI,THE ASSESSEE HAS FILED PRESENT APPEAL. A SSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF INVESTMENT AND DEVELOPMENT OF PROPERTIES, FILED ITS RETURN OF INCOME ON 30/11/2006,DECLARING TOTAL INCOME AT RS.45,27,270/ - .ASS ESSMENT ORDER U/S.143(3)WAS PASSED ON 3/5/2007.SUBSEQUENTLY CASE WAS RE - OPENED ON 12/2/ 2013.THE ASSESSING OFFICER(AO)COMPLETED ASSESSMENT,ON 31/01/2014,U/S.143(3) R.W.S. 147 OF THE ACT, DETERMINING THE INCOME OF THE ASSESSEE AT RS.91.47 LAKHS. 2.THE ASSES SEE HAS TWO GROUND OF APPEALS IN THE REVISED GROUNDS.ONE OF THEM IS ABOUT JURISDICTION I.E. ABOUT NOTICE ISSUED U/S.148 OF THE ACT AND THE OTHER IS ON MERITS. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE WAS DEVELOPING WIMBLEDON PARK PROJECT, THAT IT HAD TREATED BUILDINGS 2 TO 7 (EXCEPT BU ILDING NUMBER SIX) IS COMPLETE, THAT IT BOOK ED PROFIT WITH RESPECT TO ALL THE BUILDINGS, EXCEPT BUILDING NUMBER 6, THAT IT HAD DEBITED ESTIMATED COST OF RS. 46.20 LAKHS CLAIMING THAT SAME WAS PROVISION AGAINST THE PROFIT . ON BEING QUERIED ABOUT IT, THE ASSESSEE EXPLAINED THAT IT HAD RECOGNISED FULL REVENUE IN RESPECT OF THE FLAT SOLD AND DEBITED RS. 46.20 LAKHS ON ACCOUNT OF ESTIMATED COST TO BE INCURR ED FOR T OTAL CONSTRUCTED FLATS. HOWEVER, THE AO REJECTED THE EXPLANATION AND HELD THAT THE PROFITS WERE BOOKED ONLY WITH RESPECT TO BUILDING 2 - 7 (EXCLUDING BUILDING 6), THAT ALL THE BILLS WERE IN THE NATURE OF WIMBLEDON PARK WITHOUT MENTIONING THE BUILDING NUMBER, T HAT BUILDING NUMBER SIX WAS COMPLETED MUCH 2 LETTER, THAT IT WAS NOT ASCERTAINABLE WHETHER THE EXPENSES WERE MADE WITH RESPECT TO BUILDINGS NO. 2 - 5 AND 7 ONLY, THAT THE ASSESSEE WAS FOLLOWING THE PROJECT COMPLETION METHOD, THAT THE EXPENSES CLAIMED UNDER THE HEAD PROVISION WERE NOT ALLOWABLE. REFERRING TO THE PROVISIONS OF SECTION 40A OF THE ACT, HE HELD THAT NO PRODUCTION WAS TO BE ALLOWED IN RESPECT OF ANY PROVISION MADE WITHOUT ACTUAL PAYMENTS MADE. 3. AGGRIVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND DETAILED SUBMISSIONS.AFTER CONSIDERING THE SAME ALONG WITH THE ASSESSMENT ORDER,HE HELD THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE AO HAD ASKED FOR CERTAIN INFORMATION ABOUT ALL PROVISIONS MAD E/DEBITED TO THE P&L ACCOUNT, THAT THE ASSESSEE HAD STATED THAT NIL PROVISION WAS MADE/DEBITED TO THE P&L ACCOUNT, IT HAD FAILED TO DISCLOSE FULLY AND TRULY THE MATERIAL FACTS , THAT THE AO WERE JUSTIFIED IN REOPENING THE ASSESSMENT. HE FURTHER HELD THAT THE ASSESSEE WAS FOLLOWING THE PROJECT COMPLETION METHOD, THAT BUILDING NUMBER SI X WAS UNDER CONSTRUCTION, THAT NO DETAILS HAD BEEN FURNISHED BY IT TO EXAMINE WHETHER THE ESTIMATED EXPENDITURE PERTAIN ED TO BUILDING SIX OR NOT, THAT NO MATERIAL WAS PLACED BEFOR E HIM TO SUBSTANTIATE THE CLAIM THAT SALE CONSIDERATION ON THE BASIS OF AGREEMENTS WERE SHOWN IN THE REGULAR BOOKS OF ACCOUNTS, THAT THE ASSESSEE HAD NOT DISCHARGE THE BURDEN THAT AS PER THE MATCHING PRINCIPLES THE AMOUNTS RECEIVABLE AS PER AGREEMENTS HAD B EEN FULLY RECOGNISED AS SALES. FINALLY, HE UPHELD THE ORDER OF VIEW 4. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR)STATED THAT AS PER THE PRINCIPLES OF MERCANTILE ACCOUNTING METHOD IF SALES WERE BOOKED CORRESPONDING EXPENSES INCURRED/EXPECTED TO BE INCURRED WERE TO BE ACCOUNTED FOR, THAT THE ASSESSEE HAD RECOGNISED THE SALES ON THE BASIS OF AGREEMENTS ENTERED INTO AND AFTER AVAILING THE COST OF BALANCE UNSOLD STOCK, THAT THE ESTIMATED COST OF PENDING WORK TO BE COMPLETED HAD BEEN, THAT WHEN SALES HAD BEEN ARR IVED AT AFTER INCORPORATING THE AMOUNTS AMOUNT RECEIVED FROM THE BUYERS THE EXPENDITURE THAT HAVE TO BE SUBSEQUENTLY INCURRED HAD TO BE ALLOWED, THAT PART OF THE ESTIMATED COST WAS ALREADY INCLUDED IN THE CLOSING STOCK WHILE ARRIVING AT THE VALUE OF THE CL OSING STOCK, THAT THE EXPENSES WERE REVENUE NEUTRAL . THE ASSESSEE ALSO OBJECTED TO REOPENING OF THE ASSESSMENT. THE DEPARTMENTAL REPRESENTATIVE (DR)SUPPORTED THE ORDER OF THE AO AND THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD NEARLY COMPLETED BUILDINGS NO.2 TO 7 (EXCEPT BUILDING NO.6)OF WIMBELDON PARK 3 PROJECT ,THAT THERE IS DIFFERENCE OF OPINION BETWEEN THE DEPARTMENTAL OFFICERS AND THE ASSESSEE ABOUT THE METHOD OF ACCOUNTING FOLLOWED BY THE IT,THAT AS PER THE ASSESSEE IT WAS FOLLOWING PERCENTAGE COMPLETION METHOD , THAT THE AO AND FAA HAD HELD THAT THE ACCOUNTS OF THE ASSESSEE WERE MAINTAINED AS PER PROJECTION COMPLETION METHOD,THA T IT HAD BOOKED ESTIMATED EXPENDITURE OF RS.46. 20 LAKHS AGAINST THE PROFITS FOR THE YEAR UNDER APPEAL.WE FIND THAT IN THE REPLY FILED BEFORE THE AO AND IN THE SUBMISSIONS MADE BEFORE THE FAA THE ASSESSEE HAD CATEGORICALLY STATED THAT IT WAS FOLLOWING PERC ENTAGE COMPLETION METHOD.THE AO HAD ADMITTED THE FACT.EVEN THEN HE AS WELL AS THE FAA HELD THAT THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD.IN OUR OPINION,IT WAS A BASIC FACTUAL MISTAKE. ONCE IT IS RECOGNISED THAT IT WAS FOLLOWING PERCENTAGE COMPL ETION METHOD,THEN MATCHING PRINCIPLES OF INCOME AND MANDATE OF AS - 1 WILL HAVE TO BE CONSIDERED.FOR THE YEAR UNDER CONSIDERATION IT HAD OFFERED ENTIRE SALE PROCEED FOR TAXATION.SO,IT WAS ENTITLED TO CLAIM CORRESPONDING ESTIMATED EXPENSES.IT HAD SUBMITTED TH E DETAILS OF EXPENSES INCURRED IN THE SUBSEQUENT AY.S.THERE IS NO EVIDENCE TO PROVE THAT THE EXPENSES RELATED TO BUILDING NO.6.IT WAS CLAIMED THAT THE SAID BUILDING WAS AT PLINTH LEVEL AND CONTINUED TO BE SHOWN AS WORK IN PROGRESS IN AY.2016 - 17.NOTHING HAS BEEN BROUGHT ON RECORD TO PROVE THAT THE CLAIM MADE BY IT WAS FACTUALLY INCORRECT.IF THE BILLS SUBMITTED BY THE ASSESSEE BEFORE THE AO HAD THE FAA ARE LOOKED AT ONE THING BECOMES CLEAR THAT SAME ARE FOR FINAL FINISHING WORK I.E PAINTING,P O P, PLUMBING,ELE CTRIC WORK AND MARBLING.IT IS ALSO FOUND THAT THE SALES WERE ARRIVED AT AFTER INCORPORATING THE AMOUNTS NOT RECEIVED FROM THE BUYERS.THE ASSESSEE HAD RECOGNISED SUNDRY DEBTORS OF RS. 44.04 LAKSH AS WELL AS CLOSING STOCK OF RS.59.99 LAKHS.THESE ENTRIES PROV E THAT EVEN THOUGH ACTUAL AMOUNT RECEIVED WAS LOWER THE AMOUNT RECEIVABLE ON AGREEMENTS WAS RECOGNISE D IN SALES FIGURES AND WAS OFFERED FOR TAXATION.IT IS ALSO A FACT THAT IT HAD INCURRED AN EXPENDITURE OF RS.45.73 LAKHS AS AGAINST THE PROVISION OF RS.46.2 0 LAKHS.A PART OF THE ESTIMATED COST WAS APPEARING IN THE CLOSING STOCK.THUS,THESE ENTIRES ARE REVENUE NEUTRAL. IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD OFFERED RS.2.40 CRORES AS PROFIT ON THE PROJECT ON A TOTAL SALE OF RS.29.40 CRORES WHICH WORKED OUT TO 8.17% OF THE SALES.IT IS MORE THAN ESTIMATED PROFIT RATE OF CONSTRUCTION BUSINESS,AS ENVISAGED BY SECTION 44D OF THE ACT.ON A QUERY BY THE BENCH, IT WAS SUBMITTED THAT IN ANY OF THE SUBSEQUENT YEARS THE ASSESSEE HAD NOT CLAIMED THESE EXPENSES. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE UNABLE TO PERSUADE OURSELVES TO ENDORSE THE ORDER OF THE FAA.SO,REVERSING HIS ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL,ON MERITS,IN FAVOUR OF THE ASSESSEE.AS WE HAVE DECIDED THE APPEAL ON MERITS,SO,THERE IS NO 4 NEED TO DEAL WITH THE JURISDICTIONAL ISSUE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY , 201 8 . 31 201 8 SD/ - SD/ - ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; / DATED : 31.01 .201 8 . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.