ITO 14(3)(2), MUMBAI V. TRENDSETTER CONSTRUCTION P. LTD, MUMBAI

ITA 2539/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2214 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARIDR
• Assessee Lawyers: F B ANDHYARUJINA LD
• Keywords: Business income
• Section: 143(3)

Judgement Text

ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI JOGINDER SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.2539/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) INCOME TAX OFFICER-14(3)(2) 458, 4 TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020. / VS. TRENDSETTER CONSTRUCTION PVT.L TD. 1, RAJKAMAL OPP. UNIVERSITY CAMPUS CST ROAD, KALINA MUMBAI-400 098 ./ ./PAN/GIR NO. AAACT 2606 C ( '# /APPELLANT ) : ( $%'# / RESPONDENT ) ASSESSEE BY : SHRI F.B. ANDHYARUJINA- LD. AR REVENUE BY : SHRI D.G. PANSARI-DR / DATE OF HEARING : 23/10/2018 / DATE OF PRONOUNCEMENT : 16/11/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-22 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-22/IT/288/2015-16 DATED 18/01/2017 BY RAISING THE FOLLOWING SOLE GROUND OF APPEAL:- ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,55,00,000/- RECEIVED BY THE ASSESSEE ON A/C OF PROFESSIONAL FEES U/S 194 J OF THE I.T. ACT FOR RE NDERING THE SERVICES TO M/S. A.A. ESTATE PRIVATE LIMITED DURING THE YEAR WHICH CLEARLY INDIC ATES THE FACTS THAT THE ASSESSEE IS ONLY A SERVICE PROVIDER. BY ADOPTING PROJECT COMPLE TION METHOD THE ASSESSEE IS NOT SHOWING PROFIT IN A PARTICULAR YEAR THEREBY POSTPON ING THE TAX LIABILITY WHICH IS INCORRECT ON THE PART OF THE ASSESSEE. THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR [AY ] WAS FRAMED BY LD. INCOME TAX OFFICER 14 (3)(2) , MUMBAI [AO] U/S 143(3) ON 06/03/2015 WHEREIN THE INCOME OF THE ASSESSEE WAS A SSESSED AT RS.81.19 LACS AFTER CERTAIN ADJUSTMENTS AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 24/09/2012. DURING IMPUGNED AY, THE ASS ESSEE BEING RESIDENT CORPORATE ENTITY WAS ENGAGED AS BUILDER AND DEVELOPERS . 2. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE DID NOT REFLECTED ANY INCOME FROM BUSINESS WHEREAS IT H AD INCURRED ADMINISTRATIVE EXPENDITURE OF RS.74.68 LACS OUT OF WHICH IT HAD TRANSFERRED AN AMOUNT OF RS.74.34 LACS TO WORK-IN-PROGRESS AAEPL PROJECT ACCOUNT. THE PERUSAL OF FORM 26AS REVEALED RECEIPTS OF RS.155 LACS STATED TO BE RECEIVED BY THE ASSESSEE FROM AN ENTITY NAMELY A.A.ESTATE PRIVATE LIMITED [AAEPL] AS ADVANCE AMOUNT AGAINST THE PROJECTS. THE SAME WAS NOT OFFERED TO TAX IN VIEW OF THE FACT THE ASSESSEE FOLLOWED PROJECT COMPLETION METHOD OF ACCOUNTING TO OFFER THE PROJECT INCOME TO TAX. HOWEVER, UPON PERUSAL OF TER MS OF THE AGREEMENT, LD. AO CONCLUDED THAT THE ASSESSEE WAS MERELY RENDE RING PROFESSIONAL / TECHNICAL SERVICES TO THE AFORESAID ENTITY AND THER EFORE, THE PLEA OF THE ASSESSEE COULD NOT BE ACCEPTED PARTICULARLY WHEN TH E SAME WAS REJECTED IN PRECEDING YEARS ALSO AND THE MATTER FOR THOSE YEARS WAS PENDING BEFORE THE TRIBUNAL. FINALLY, THE AFORESAID RECEIPTS WERE TREATED ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 3 AS BUSINESS RECEIPTS AGAINST WHICH THE EXPENDITURE OF RS.74.34 LACS AS TRANSFERRED BY THE ASSESSEE TO WIP ACCOUNT WAS ALLOWED AND THE NET DIFFERENTIAL I.E. RS.80.65 LACS WAS TREATED AS BUSINESS INCOME. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 18/01/2017 WHE REIN LD. CIT(A) DELETED THE IMPUGNED ADDITIONS BY FOLLOWING THE ORD ERS OF ITS PREDECESSOR FOR AYS 2006-07 TO 2010-11 AS CONFIRMED BY THE TRIBUNAL BY OBSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. IT IS SEEN THAT IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDE D IN FAVOUR OF THE APPELLANT BY MY ID. PREDECESSORS IN THE APPEALS FOR A.Y.S 2006-07 T O 2011-12. IN THE APPEAL FOR A.Y. 2006-07, MY ID. PREDECESSOR HAD OBSERVED AND HELD A S UNDER: 'THUS AS PER MOU, M/S. A.A. ESTATE P. LTD. WAS THE BUILDERS AND DEVELOPERS WHO OBTAINED THE SERVICES OF THE APPELLANT FOR WORKS AS MENTIONED ABOVE. IN OTHER WORDS, THE APPELLANT WAS NOT ACTING AS A BUILDER AND DEVEL OPER BUT WAS ONLY RENDERING PROFESSIONAL AND TECHNICAL SERVICES IN RESPECT OF A BOVE IDENTIFIED WORK/ACTIVITIES TO M/S. A.A. ESTATE P. LTD. THE TERMS AND CONDITION OF THE MOU SHOWS THAT THE APPELLANT WAS REQUIRED TO RENDER CERTAIN SERVICES I N RESPECT OF PARTICULAR PROJECT OR PROJECTS AND THE APPELLANT WAS TO RECEIVE REMUNERAT ION (FOR THE SERVICES RENDERED) NOT IN PROPORTION TO SERVICES RENDERED BUT IN PROPO RTION TO CERTAIN PERCENTAGE (I.E. 20%) OF THE PROFITS OF THE PROJECT. SINCE THE EXECU TION/COMPLETION OF PROJECT WAS SPREAD OVER TO NUMBER OF YEARS, THEREFORE, THE PROF IT ON SUCH PROJECTS COULD NOT HAVE BEEN WORKED OUT IN PARTICULAR EACH YEAR AND THEREFO RE, THE APPELLANT'S REMUNERATION (FOR THE SERVICES RENDERED) COULD NOT HAVE BEEN WOR KED OUT IN EACH PARTICULAR YEAR. THE APPELLANT'S REMUNERATION COULD ONLY BE WORKED O UT/ASCERTAINED ONLY ON COMPLETION OF THE PROJECT. IT IS ALSO WORTH TO MENT IONED HERE THAT AS PER CLAUSE 9 OF THE MOU, REMUNERATION WAS NOT REQUIRED TO BE PAYABL E IN THE EVENT OF LOSSES IN RESPECT OF PROJECT. THUS, EVEN THOUGH THE APPELLANT WOULD HAVE RENDERED SERVICES FOR A PARTICULAR PROJECT, NO REMUNERATION WAS PAYAB LE TO APPELLANT IN THE EVENT OF LOSSES IN THE PROJECT. IN THE FACTS AND CIRCUMSTANC ES, THE APPELLANT'S CLAIM APPEARS TO BE CORRECT THAT THE AMOUNT RECEIVED IN A PARTICU LAR YEAR (THOUGH THE PAYER I.E. M/S. A.A. ESTATE P. LTD. SHOWS THE SAME IN THE TDS CERTI FICATE AS FEES FOR PROFESSIONAL OR TECHNICAL SERVICES), THE SAME WAS IN THE NATURE OF ADVANCE ONLY.' THE ABOVE DECISION OF MY ID. PREDECESSOR WAS ALSO U PHELD BY THE HON'BLE ITAT IN ITS ORDER DATED 18.12.2015 IN ITA NO.7579/M/2011 WHEREI N IT HAS BEEN HELD AS UNDER: '8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HA VE ALSO GONE THROUGH THE RECORDS. WE FIND THAT THE ID. CIT(A) HAS PASSED A V ERY DETAILED AND ELABORATIVE ORDER WHEREIN AFTER VERIFICATION OF THE RECORDS IT HAS BE EN POINTED OUT THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS INCLUDING THE EXPENDIT URE INCURRED BY THE ASSESSEE WHICH WAS PAID BY M/S. A.A. ESTATE PVT. LTD. THE AM OUNT PAID TO THE ASSESSEE HAS ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 4 NOT BEEN CLAIMED BY THE M/S. A.A. ESTATE PVT. LTD. AS EXPENDITURE BUT HAS ONLY BEEN SHOWN AS WORK IN PROGRESS. SO THERE WAS A CONSISTEN CY IN THE ACCOUNTS OF BOTH THE PAYER AND THE PAYEE. THE SERVICES RENDERED BY THE A SSESSEE WERE ALSO RELATING TO THE ACTIVITIES OF THE BUILDERS AND DEVELOPERS AND A S PER THE MOU, THE QUANTIFICATION OF THE REMUNERATION OF THE ASSESSEE WAS DEPENDANT O N THE COMPLETION OF THE PROJECT AND UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WAS JUST IFIED TO FOLLOW THE PROJECT COMPLETION METHOD OF ACCOUNTING. ON THE COMPLETION OF THE PROJECT, THE AMOUNT QUANTIFIED AS THE REMUNERATION OF THE ASSESSEE WAS OFFERED BY THE ASSESSEE FOR TAXATION AND THE SAME WAS ACCORDINGLY CLAIMED AS EX PENDITURE BY THE BUILDER. TILL THE COMPLETION OF THE PROJECT, THE AMOUNT WAS NOT C LAIMED BY THE BUILDER AS EXPENDITURE. THE LD. CIT(A) HAS ALSO TAKEN INTO CON SIDERATION THE ACCOUNTING METHOD IN RELATION TO DIFFERENT PROJECTS AND IT WAS FOUND THAT WHEREIN THERE WAS A RESULTANT LOSS, NO INCOME WAS OFFERED BY THE ASSESS EE; AND WHERE THERE WAS A PROFIT, THE ASSESSEE HAD SHOWN INCOME BEING THE REM UNERATION RECEIVED BY HIM ON CERTAIN FIXED PERCENTAGE OUT OF THE PROFITS OF THE PROJECT. THERE WAS NO DISCREPANCY EITHER IN THE ACCOUNTS OF THE ASSESSEE NOR OF THE B UILDER. THE LD.CIT(A) THEREFORE AFTER PROPER APPRECIATION OF THE EVIDENCE ON THE FI LE HAS CONCLUDED THAT THE AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR WAS AN ADV ANCE AND THE ACTUAL REMUNERATION WAS TO BE QUANTIFIED AT THE COMPLETION OF THE PROJECT. THE ASSESSEE THEREFORE WAS JUSTIFIED IN NOT OFFERING THE SAID AM OUNT AS INCOME FOR THE YEAR. HE THEREFORE UPHELD THE ADDITIONS SO MADE BY THE AO. W E DO NOT FIND ANY INFIRMITY IN THE ABOVE WELL REASONED ORDER OF THE LD. CIT(A) AND THE SAME IS ACCORDINGLY UPHELD. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. SINCE THE ISSUE INVOLVED IN ALL THE OTHER APPEALS IS ALSO IDENTICAL, HENCE IN VIEW OF OUR OBSERVATIONS MADE ABOVE ALL THE ABOVE CAPTIONED APPEALS OF THE REVENUE ARE HERE BY DISMISSED.' FACTS AND CIRCUMSTANCES OF THE ISSUE IN THE INSTANT APPEAL BEING IDENTICAL WITH THAT OF THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECIS ION OF MY ID. PREDECESSORS AND THE HON'BLE ITAT, THE APPELLANT'S GROUNDS OF APPEAL ARE ALLOWED. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. SENIOR COUNSEL APPEARING FOR ASSESSEE, SHRI F.B.ANDHYARUJINA, AT THE OUTSET, SUBMITTED THAT THE ISSUE STOOD SQUAR ELY COVERED IN ASSESSEES FAVOR BY THE ORDER OF THIS TR IBUNAL FOR AYS 2006-07 TO 2011-12, THE COPIES OF WHICH HAS BEEN PLACED ON RECORD. EXPLAINING THE NATURE OF TRANSACTION, LD. SR. COUNSEL SUBMITTE D THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES, RESORTS, MALLS AND CONSTRUCTION OF BUILDINGS. IT HAD ALL THE NECESSARY EXPERTISE, KNOWLEDGE AND SKILLS FOR THE PURPOSE OF ACQUISITION AND UTILIZATION OF DEVELOPMENT RIGHTS AND TO RENDER RELATED SERVICES. ACCORDINGLY, IT ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 5 ENTERED INTO AN AGREEMENT TO RENDER SERVICES OF VAR IED NATURE VIDE AGREEMENT DATED 12/06/2002, SUPPLEMENTARY AGREEMENT DATED 13/06/2002 WITH AN ENTITY NAMELY AAEPL. THE TERMS OF THE AGREEMENT WERE RENEWED FROM TIME TO TIME UP-TO 10/06/2017. AS PER THE TERMS OF THE CONTRACT, THE ASSESSEE WAS TO BE REMUNERATED WI TH A COMMISSION EQUIVALENT TO 20% OF PROFITS AND GAINS DERIVED FROM THE PROJECTS UNDERTAKEN BY HIM WITH AAEPL AND NO COMMISSION WAS PAYABLE TO ASSESSEE, IN THE EVENT OF LOSSES. THE ASSESSEE CONT INUED TO RENDER THE SERVICES TO AAEPL AND PENDING COMPLETION OF THE PROJECT, THE ASSESSEE WAS RECEIVING ADHOC PAYMENTS EVERY MONTH FROM AAEPL FOR THE VARIOUS PROJECTS UNDERTAKEN. THEREFORE, THE AFORESAID PAYME NTS RECEIVED BY THE ASSESSEE WERE MERE ADVANCE PAYMENTS WHICH NEVER ACC RUED TO THE ASSESSEE AS INCOME DURING IMPUGNED AY. OUR ATTENTIO N IS DRAWN TO THE FACT THAT THE AFORESAID PAYMENT HAS NOT BEEN CLAIME D AS EXPENDITURE BY AAEPL AND SIMILAR TREATMENT HAS BEEN GIVEN BY AAEPL TO THE IMPUGNED PAYMENTS IN ITS BOOKS OF ACCOUNTS. IT HAS ALSO BEEN SUBMITTED THAT PROFITS / LOSSES ARISING FROM THE PROJECTS HAVE BEEN CHARGE D TO PROFIT & LOSS ACCOUNT IN THE YEAR OF COMPLETION OF THE PROJECT. P ER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI D.G.PANSARI ALTHOUGH SUPPORTED THE STAND OF LD. AO BUT COULD NOT BRING ON RECORDS ANY CONTRARY JUDGMENT. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE NATURE OF THE TRAN SACTIONS AS EXPLAINED BY LD. SR. COUNSEL IS NOT IN DISPUTE SINCE SIMILAR FACTS HAVE BEEN NOTED BY THE TRIBUNAL IN EARLIER YEARS. UPON PERUSAL OF I MPUGNED ORDER, WE FIND THAT FIRST APPELLATE AUTHORITY HAS PROVIDED RELIEF TO THE ASSESSEE BY RELYING ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 6 ON THE ORDER OF THIS TRIBUNAL FOR AYS 2006-07 TO 20 09-10. NOTHING ON RECORD SUGGESTS THAT THE AFORESAID ORDER HAS EVER B EEN OVER-RULED OR NEGATED BY THE ORDERS OF ANY HIGHER JUDICIAL AUTHOR ITY. FURTHER, FOLLOWING THE SAME ORDER, THE APPEAL OF THE REVENUE HAS BEEN DISMISSED BY THE TRIBUNAL FOR SUBSEQUENT AYS 2010-11 & 2011-12 VIDE ITA NOS. 7022- 23/MUM/2014 DATED 24/06/2016, THE COPIES OF WHICH A RE ON RECORD. THEREFORE, WE FIND NO REASON TO DEVIATE FROM THE SA ME AND INCLINED TO CONFIRM THE IMPUGNED ORDER. HOWEVER, THE SAME SHALL BE SUBJECT TO VERIFICATION OF THE FACT THAT SIMILAR TREATMENT HAS BEEN GIVEN TO THE AFORESAID PAYMENTS BY AAEPL IN ITS BOOKS OF ACCOUNTS AND THE STATED PAYMENTS HAVE NOT BEEN CLAIMED AS EXPENDITURE THERE IN. THE LD. AO IS DIRECTED TO DELETE THE ADDITIONS AFTER VERIFYING TH E AFORESAID FACT, IF FOUND CORRECT. THE ASSESSEE IS DIRECTED TO PROVIDE DOCUME NTARY EVIDENCES TO SUBSTANTIATE THE SAME. 6. RESULTANTLY, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2018. SD/- SD/- (JOGINDER SINGH) (MAN OJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 16.11.2018 SR.PS:-THIRUMALESH/JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT 3. ! !, ( ) / THE CIT(A) ITA.NO.2539/MUM/2017 TRENDSETTER CONSTRUCTION PRIVATE LIMITED ASSESSMENT YEAR-2012-13 7 4. ! !, / CIT CONCERNED 5. -!$'. , !!. , / DR, ITAT, MUMBAI 6. /01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.