JCIT, New Delhi V. M/s Malibu Estate Pvt. Ltd., New Delhi

ITA 2278/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4790 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KEYAS PATEL
• Assessee Lawyers: V K GARG
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

ITA NO. 2278/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2278/DEL/2011 A.Y. : 200 7 - 0 8 JT. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), ROOM NO. 413, CR BLDG., NEW DELHI 110 002 VS. M/S MAILBU ESTATE PVT. LTD., 38, DDA COMMERCIAL COMPLEX, KAILASH COLONY EXTN., NEW DELHI 110 048 (PAN:- AAACM1120F) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. V.K. GARG, ADVOCATE DEPARTMENT BY : SH. KEYAS PATEL, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-IX, NE W DELHI DATED 14.1.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 34,20,797/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVANCES FROM CUSTOMERS/ BUYERS. ITA NO. 2278/DEL/2011 2 (III) THE LD. CIT(A) IGNORED THE FINDINGS RECORDED BY THE ASSESSING OFFICER AND THE FACT THAT FOLLOWING OF A- 7 STANDARD OF ACCOUNTING IS MANDATORY FOR THE ASSESSEE. (IV) THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, O R AMEND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. IN THIS CASE ASSESSEE IS CONDUCTING THE BUSINESS OF COLONIZER AND REAL ESTATE, DEVELOPER AND DEVELOPING COLONY KN OWN AS MALIBU TOWN AT GURGAON, HARYANA. THE ASSESSEE FILED ITS R ETURN OF INCOME ON 30.10.2007 DECLARING A TOTAL INCOME OF RS. 1,61, 88,518/- AGAINST WHICH THE ASSESSING OFFICER DETERMINED TAXABLE INCO ME AT RS. 2,05,11,315/- AS PER ORDER U/S. 143(3) OF THE ACT. THE ASSESSING OFFICER MADE THE ADDITION OF RS. 34,20,797/- AS DEE MED SALE IN RESPECT OF 22 SPECIFIC PROPERTIES. 3.1 THE IMPUGNED ADDITION WAS MADE BY THE ASSESSIN G OFFICER BECAUSE ACCORDING TO HIM AS PER THE METHOD OF REVEN UE RECOGNITION AS PER ACCOUNTING STANDARD-7 OF THE INSTITUTE OF CH ARTERED ACCOUNTANT PERCENTAGE COMPLETION METHOD HAS TO BE MANDATORILY FOLLOWED BY ALL DEVELOPERS. THE ASSESSING OFFICER, THEREFORE, RECOMPUTED INCOME BY TREATING ADVANCES AGAINST PROP ERTIES WHICH ACCORDING TO HIM HAD NIL OUTSTANDING BALANCES, AS S ALES AND CONSEQUENTLY THE INCOME OF THE ASSESSEE. AS MENT IONED EARLIER, THE ADDITION RELATES TO 22 SPECIFIC PROPERTIES SHOW ING NIL BALANCES IN RESPECT OF WHICH THE ENTIRE SALE CONSIDERATION AGGR EGATING TO RS. 2,66,75,492/- WAS RECEIVED. THE ASSESSING OFFICER A FTER ALLOWING PROPORTIONATE COST AGGREGATING TO RS. 2,32,54,695/- , TAXED BALANCE OF RS. 34,20,797/- AS INCOME OF THE ASSESSEE FOR T HE A.Y. 2007-08. ITA NO. 2278/DEL/2011 3 4. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT THE ABOVE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER FOL LOWING THE ORDER OF ASSESSING OFFICERS PREDECESSOR IN ASSESSMENT YE AR 2006-07 WHEREIN A SIMILAR ADDITION WAS MADE. FROM THE PERU SAL OF THE APPELLATE ORDER OF THE A.Y. 2006-07, LD. CIT(A) FOU ND THAT SIMILAR ADDITION MADE IN THAT YEAR WAS DELETED BY THE LD. C IT(A). LD. CIT(A) FURTHER REFERRED TO THE RELEVANT PORTION OF HIS P REDECESSORS ORDER FOR THE ASSTT. YEAR 2006-07 AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEAR NED AR OF THE APPELLANT COMPANY. IT IS A MATTER OF RE CORD THAT THE APPELLANT COMPANY HAS BEEN FOLLOWING A PARTICULAR SYSTEM OF ACCOUNTING FOR REVENUE RECOGNI TION WHICH HAS BEEN DULY MENTIONED BY IT IN 'ACCOUNTING POLICIES' FILED ALONG WITH THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION AS WELL FOR THE EARLIER YEARS. I DO AGREE WITH THE LEARNED AR THAT IT HAS BEEN FOLLOWIN G THE SAME METHOD OF ACCOUNTING AS FAR AS REVENUE RECOGNI TION IS CONCERNED. SCHEDULE 19 OF THE BALANCE SHEET I.E. SCHEDULE FORMING PART OF THE FINANCIAL STATEMENTS F OR THE YEAR ENDED ON 31.03.2004 SAYS:- '3. REVENUE RECOGNITION I) SALE OF LAND PLOTS AND OTHER CONSTRUCTED PROPERT IES ARE RECOGNIZED IN FINANCIAL YEAR IN WHICH THE TRANSFER IS MADE BY REGISTRATION OF SALE DEEDS IN FAVOUR OF THE CUST OMERS. II) REVENUE FROM SERVICES IS RECOGNIZED IN ACCOUNTS ON ACCRUAL BASIS EXCEPT WHERE THE ULTIMATE COLLECTION IS CONSIDERED UNCERTAIN AND IS SHOWN NET FOR SELLING, ADMINISTRATIVE AND OTHER EXPENSES. 11 ITA NO. 2278/DEL/2011 4 SCHEDULE 20 FILED WITH THE BALANCE SHEET FOR THE YE AR ENDING 31.03.2005 SAYS AS FOLLOWS:- '3. REVENUE RECOGNITION I) SALE OF LAND, PLOTS AND OTHER CONSTRUCTED PROPER TIES ARE RECOGNIZED IN THE FINANCIAL YEAR IN WHICH THE TRANS FER IS MADE BY REGISTRATION OF SALE DEEDS IN FAVOUR OF THE CUSTOMERS. II) DURING THE YEAR, THE COMPANY CHANGED THE POLICY FOR RECOGNITION OF REVENUE FROM SALE OF PERSONAL FLOORS AND VALUE FLOORS FROM CONVEYANCING TO THE TIME OF POSSE SSION. PURSUANT TO THE HARYANA GOVERNMENT DECLINING THE REGISTRATION OF SALE DEEDS OF SUCH PROPERTIES, MANAGEMENT BELIEVES THAT RISK AND REWARD ARE EFFECT IVELY TRANSFERRED TO THE CUSTOMERS WHEN HANDING POSSESSIO N AND NOT ON CONVEYANCING. HAD THE COMPANY CONTINUED TO FOLLOW EARLIER POLICY OF RECOGNIZING REVENUE ON REGISTRATION OF SALE DEEDS IN RESPECT OF THESE FLOO RS, THE PROFIT FOR THE YEAR WOULD HAVE BEEN LOWER BY RS. 29 , 886/- THOUSANDS, CURRENT ASSETS WOULD HAVE BEEN HIGHER BY RS.285,010 THOUSAND, AND CURRENT LIABILITIES WOULD HAVE BEEN HIGHER BY RS.314,896 THOUSANDS. III) REVENUE FROM SERVICES IS RECOGNIZED IN THE ACC OUNTS ON ACCRUAL BASIS EXCEPT WHERE THE ULTIMATE COLLECTI ON IS CONSIDERED UNCERTAIN AND IS SHOWN NET FROM SELLING, ADMINISTRATIVE AND OTHER EXPENSES. JJ FOR THE PRESENT YEAR UNDER CONSIDERATION, THE SIGNI FICANT ACCOUNTING POLICIES ARE GIVEN IN SCHEDULE 20 OF THE BALANCE SHEET AND SAYS AS FOLLOWS:- ITA NO. 2278/DEL/2011 5 3. REVENUE RECOGNITION I) REVENUE IN RESPECT OF SALE AND LAND, PLOTS AND O THER CONSTRUCTED PROPRIETIES (EXCEPT FLOOR) ARE RECOGNIZ ED IN THE FINANCIAL YEAR IN WHICH THE TRANSFER IS MADE BY THE REGISTRATION OF SALE DEEDS IN FAVOUR OF THE CUSTOME RS. II) IN RESPECT OF PERSONAL FLOORS AND VALUE FLOORS, REVENUE IS RECOGNIZED WHEN POSSESSION IS GIVEN TO CUSTOMERS . (PURSUANT TO THE HARYANA GOVERNMENT DECLINING THE REGISTRATION OF SALE DEEDS OF SUCH PROPERTIES, MANAGEMENT BELIEVES THAT RISK AND REWARD ARE EFFECT IVELY TRANSFERRED TO THE CUSTOMERS WHEN POSSESSION IS GIV EN). III) REVENUE FROM SERVICES IS RECOGNIZED IN THE ACC OUNTS ON ACCRUAL BASIS EXCEPT WHERE THE ULTIMATE COLLECTI ON IS CONSIDERED UNCERTAIN AND IS SHOWN NET FROM SELLING, ADMINISTRATIVE AND OTHER EXPENSES. THE ABOVE CLEARLY SHOWS THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING A PARTICULAR SYSTEM OF ACCOUNTING AND HENCE THERE IS NO CAUSE FOR THE AO T O DEVIATE FROM THE EARLIER STAND TAKEN BY THE DEPARTM ENT ON THE ISSUE AT HAND. ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 HAVE ALSO BEEN PERUSED WHERE THERE IS NO MENTION ABOUT ANY SORT OF ADDITION LIKE THIS. IN FACT, THE A 0 HAS CLEARLY ME NTIONED IN BOTH THE YEARS THAT 'THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE COMPANY IS THE SAME AS IN EARLIER YEARS. IF THE APPELLANT HAS OFFERED THE I NCOME IN LATER YEARS ON THE BASIS OF PARTICULAR SYSTEM OF ACCOUNTING FOLLOWED BY IT THEN THERE IS NO GROUND F OR THE AO TO MAKE ANY ADDITION AFTER RESORTING TO AS-7. ITA NO. 2278/DEL/2011 6 4.6 REGARDING AS-7, I HAVE PERUSED THE SAID ACCOUNT ING STANDARD AND AM OF THE VIEW THAT THE SAID ACCOUNTIN G STANDARD IS NOT APPLICABLE TO THE APPELLANT'S CASE FOR THE REASON THAT THE APPELLANT IS NOT A CONTRACTOR. THE OBJECTIVE OF AS-7 IS TO PRESCRIBE THE ACCOUNTING TR EATMENT OF REVENUE AND COSTS ASSOCIATED WITH CONSTRUCTION CONTRACTS I. E. THE ALLOCATION OF CONTRACT REVENUE AND CONTRACT COSTS TO THE ACCOUNTING PERIODS IN WHICH CONSTRUCTION WORK IS PERFORMED. THE SCOPE OF THIS ACCOUNTING STANDARD CLEARLY SHOWS THAT IT IS MADE APPLICABLE TO THE ACCOUNTING FOR CONSTRUCTION CONTR ACTS IN THE FINANCIAL STATEMENTS OF CONTRACTORS. 4.7 IN THE ADDITIONAL EVIDENCE FILED BY THE APPELLA NT, THE APPELLANT HAS GIVEN DETAILS OF ITEMS SHOWN AS SALES IN FUTURE YEARS WHICH FROM PART OF ADDITIONS OF RS.809 .68 LACS. THE DETAILS ARE SHOWN AT PAGE NO.1,2,3 OF THE PAPER BOOK FILED ALONG WITH THE ADDITIONAL EVIDENCE BUT A S MENTIONED ABOVE, THE ASSESSING OFFICER, IN REMAND PROCEEDINGS TOTALLY RELIED ON THE ASSESSMENT ORDER AND ON THE REASONS MENTIONED HEREIN ABOVE IN PARA 3.3, I DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 809. 68 LACS AS THE APPELLANT HAS BEEN REGULARLY FO LLOWING A PARTICULAR METHOD OF ACCOUNTING FOR RECOGNIZING I TS REVENUE I.E. AT THE TIME OF CONVENING FOR THE FLAT! PLOT AND AT THE TIME OF HANDING OVER OF POSSESSION FOR INDIV IDUAL FLOORS/VALUE FLOORS TO THE BUYERS. THIS GROUND OF A PPEAL IS ACCORDINGLY TAKEN AS ALLOWED TO THE APPELLANT.' 5, CONSIDERING THE ABOVE, LD. CIT(A) HELD THAT ASS ESSEE HAS BEEN FOLLOWING PARTICULAR SYSTEM OF ACCOUNTING FOR REVENUE RECOGNITION WHICH HAS BEEN DULY MENTIONED BY IT IN THE ACCOUNTING ITA NO. 2278/DEL/2011 7 POLICIES FILED ALONGWITH THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION AS WELL AS FOR THE EARLIER YEARS. LD . CIT(A) NOTED THAT IT IS A MATTER OF RECORD THAT IN RESPECT OF MOST OF TH E PROPERTIES FOR WHICH ADDITION HAS BEEN MADE IN THIS YEAR, SALES HA VE BEEN RECOGNIZED IN SUBSEQUENT YEARS. HE FURTHER OBSERVED THAT THE FACTS IN THIS YEAR ARE SIMILAR TO THE FACTS IN THE EARLIE R YEARS INCLUDING THE ASSTT. YEAR 2006-07 WHEREIN SIMILAR ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. ACCORDINGLY, LD. CIT(A) DEL ETED THE ADDITION MADE BY THE ASSESSING OFFICER. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. AT THE OUTSET LD. COUNSEL OF THE ASSESSEE CONTENDED TH AT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN AS MU CH AS LD. CIT(A) HAS DELETED THE SIMILAR ADDITION FOR ASSTT. YEAR 20 06-07 IN ASSESSEES OWN CASE. IN THIS VIEW OF THE MATTER HE CONTENDED THAT LD. CIT(A)S ORDER MAY BE UPHELD. LD. DEPARTMENTAL REPRESENTATI VE ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFIC ER. HOWEVER, HE COULD NOT CONTRADICT THE SUBMISSION THAT IN THE EARLIER YEAR SIMILAR ADDITION WAS DELETED BY THE LD. CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IT IS UNDISPUTED THAT ASSES SEE HAS BEEN FOLLOWING PARTICULAR SYSTEM OF ACCOUNTING FOR REVEN UE RECOGNITION WHICH HAS BEEN MENTIONED IN THE ACCOUNTING POLICIES FILED ALONGWITH THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON AS WELL AS FOR EARLIER YEARS. THE SAME HAS BEEN REPRODUCED IN THE ORDER OF THE LD. CIT(A) QUOTED ABOVE. WHEN ASSESSEE HAS BEE N FOLLOWING THE PARTICULAR SYSTEM OF ACCOUNTING CONSISTENTLY, ASSES SING OFFICER HAS CHOSEN TO DEPART FROM THE ACCEPTED METHOD OF ACCOUNTING OF THE ITA NO. 2278/DEL/2011 8 ASSESSEE WITHOUT PUTTING FORTH THE COGENT REASONING . FURTHERMORE, IT IS ALSO UNDISPUTED THAT IN RESPECT OF PROPERTIES FOR WHICH THE ADDITION HAS BEEN MADE IN THIS YEAR, THE SALES HAS BEEN RECOGNISED IN THE SUBSEQUENT YEARS. MOREOVER, IN THE PRECEDIN G ASSESSMENT YEAR LD. CIT(A) HAS DELETED THE SIMILAR ADDITION. T HE DELETION BY THE LD. CIT(A) WAS AFFIRMED BY THE TRIBUNAL IN ITA NO. 4085/DEL/2009 VIDE ORDER DATED 20.4.2012. 9. IN THIS REGARD, WE REFER TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES IN C IVIL APPEAL NO. 125 OF 2013 VIDE ORDER DATED 8.10.2013. IN THIS CASE T HE HONBLE APEX COURT HAS INTER-ALIA HELD THAT WHEN IN EARLIER AS STT. YEARS THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOU R OF THE ASSESSEE, THEN REVENUE CANNOT BE ALLOWED TO FLIP FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TA X PAYERS MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. HONBLE COURT HAS FURTHER EXPOUNDED THAT IN THE SUBSEQUENT ACCOUNTING YEAR, ASSESSEE HAS DISCLOSED THE INCOME AND PAID TAX THEREON AND IF TH E RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSTT. YEAR AS WEL L AS IN THE SUBSEQUENT ASSTT. YEAR, THE DISPUTE RAISED BY THE REVENUE WAS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX E FFECT. 10. IN VIEW OF THE AFORESAID DISCUSSION AND PRECEDE NT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND ACCORDINGLY, WE UPHOLD THE SAME. ITA NO. 2278/DEL/2011 9 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2013. SD/- SD/- [ [[ [DIVA SINGH DIVA SINGH DIVA SINGH DIVA SINGH] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/12/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 2278/DEL/2011 10