DCIT- CC- 2(3), MUMBAI V. SHREEPATI CASTLE, MUMBAI

ITA 2650/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8091 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2016
• Court: TRIBUNAL
• Department Lawyers: LATA PARULEKAR
• Assessee Lawyers: BEENA SANTOSH
• Keywords: Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI BEFORE SHRI C . N . PRASAD , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 2 650 /MUM/201 6 : (A.Y : 20 10 - 1 1 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(3), OLD CGO BUILDING 8 TH FLOOR, M.K.ROAD MUMBAI 400 0 20 ( / APPELLANT) VS. M/S SHREEPATI CASTLE 4 TH FLOOR, SHREEPATI ARCADE PREMISES NO. 1&2 AUGUST KRANTI, NANA CHOWK MUMBAI - 400 036 PAN : AAETS8995E ( / RESPONDENT) / A PPELLANT BY : SMT BEENA SANTOSH / REVENUE BY : MS. LATA PARULEKAR / DATE OF HEARING : 26 / 1 2 /201 6 DATE OF PRONOUNCEMENT : 06/ 03 / 2017 / O R D E R PER C.N.PRASAD (J.M.) : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 4 8 , MUMBAI DATED 2 8 . 0 1 .201 6 FOR THE ASSESSMENT YEAR 20 10 - 1 1 ARISING OUT OF THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT . THE SOLE GROUND OF THE REVENUE IS AS UNDER : 'ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING ADDITION OF RS.44, 64,432/ - BEING 42% OF THE AMOUNT TRANSFERRED TO DEFERRED SALES AS THE SAID RECEIPT DOES NOT FORM PART 2 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 OF THE SALE PROCEEDS OF THE ASSESSEE AND IS IN NATURE OF REIMBURSEMENT OF CONSTRUCTION COST ALREADY INCURRED DURING THE YEAR IN REDEVELOPING THE OLD BUILDING AND PROVIDING BETTER AMENITIES TO THE OCCUPANTS/TENANTS AND PERCENTAGE COMPLETION METHOD IS NOT APPLICABLE TO SUCH TYPE OF RECEIPTS.' 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF REDEVELOPMENT OF OLD BUILDINGS AND PROVIDING ALTERNATE ACCOMMODATION TO OLD TENANTS. THE ASSESSEE IS ALSO SELLING SURPLUS PERMISSIBLE AREA TO THE PEOPLE IN THE OPEN MARKET. THEREFORE, T HE MAIN REVENUE OF THE ASSESSEE IS SALE PROCEEDS FROM FREE SALES AND DIFFERENTIAL COST OF CONSTRUCTION WHEREVER COLLECTED FROM OCCUPANTS FOR PROVIDING AMENITIES BETTER THAN THE STANDARD AMENITIES PROVIDED IN THE RE HAB BUILDINGS. 3. IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS UNDERTAKEN HOUSING PRO J ECT SHREEPATI CASTLE IN A PHASED MANNER. HE NOTICED THAT IN THE FIRST PHASE, THE ASSESSEE CLAIMED TO HAVE UNDERTAKEN REDEVELOPMENT ON THREE PLOTS AND LATER ON THREE ADDITIONAL PLOTS WERE PURCHASED AND AMALGAMATED WITH THE SAME. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN THAT IT HAD COMPLETED 58% OF THE CONSTRUCTION WORK ON THE ABOVE AMALGAMATED PLOT AND AS SUCH OFFERED TOTAL INCOME AT RS.27,56,6 53/ - AGAINST THE TOTAL REVENUE RECOGNITION AT RS.6,60,08,698/ - WHICH WAS FURTHER ADJUSTED AGAINST THE BROUGHT FORWARD LOSSES PERTAINING TO PRECEDING YEARS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RECEIVED RS.1,06,29,600/ - AS CONSTRUCTION COST AND THE SAME WAS CONSIDERED AS SALE PROCEEDS DURING THE CURRENT ASSESSMENT YEAR AND A T THE SAME TIME, 42% OF THE SAID REVENUE WAS TRANSFERRED TO D EFERRED S ALES S USPENSE A CCOUNT. 3 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 4. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID AMOUNT OF RS.44,64,332/ - BEING 42% OF THE REVENUE WAS REDUCED FROM THE SALES THOUGH THE NATURE OF SUCH RECEIPT WAS BASICALLY REIMBURSEMENT OF EXPENSES INCURRED DURING THE YEAR AND AS SUCH, THE PROFIT FOR THE YEAR SHOULD HAVE BEEN INCREASED BY THE AMOUNT O F SALE TRANSFERRED TO D EFERRED S ALES SUSPENSE A CCOUNT. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED ITS REPLY STATING THAT ASSESSEE FOLLOWS PERCENTAGE COMPLETION METHOD FOR RECOGNIZING ITS REVENUE BASED ON THE WORK COMPLETION CERTIFIED BY THE ARCHITECTS. IT WAS ALSO THE SUBMISSION OF THE ASSESSEE THAT ON AGREEMENT WITH OCCUPANTS F OR COST OF CONSTRUCTION, THE COST OF CONSTRUCTION RECEIVED ACCOUNT UNDER SALES IS CREDITED AND THE OCCUPANT ACCOUNT IS DEBITED. IT WAS HOWEVER SUBMITTED THAT THE CONSIDERATION FOR THE S AID WORK IS RECEIVED AS WORK PROGRESS ES OR AS AGREED BETWEEN THE PARTI ES. THEREFORE, IT WAS SUBMITTED THAT THE NATURE OF REVENUE ACCOUNTED IN COST OF CONSTRUCTION RECEIVED ACCOUNT IS NOT IN THE NATURE OF REIMBURSEMENT OF THE COST ACTUALLY INCURRED BUT IT IS THE CONSIDERATION AGREED BETWEEN THE OCCUPANT AND DEVELOPER TOWARDS EXTRA AMENITIES ALREADY PROVIDED OR LIKELY TO BE PROVIDED. IT WAS FURTHER SUBMITTED THAT AS PER THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE ITS REVENUE IS RECOGNIZED ON PERCENTAGE COMPLETION METHOD ON PROJECT AS A WHOLE AND NOT ON THE BASIS OF COMPLET ION OF INDIVIDUAL UNIT. THEREFORE, IT WAS SUBMITTED THAT ASSESSEE HAS TRANSFERRED 58% OF THE AMOUNT FROM THE COST OF CONSTRUCTION RECEIVED ACCOUNT TO THE SALES FOR THE YEAR AND 42% AMOUNTING TO RS.44,64,432/ - HAS BEEN CARRIED OVER AS DEFERRED SALES SUSPEN SE ACCOUNT IN ACCORDANCE WITH THE ACCOUNTING POLICY AND METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER TREATED 4 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 THE SAID AMOUNT OF RS.44,64,432/ - AS INCOME OF THE ASSESSEE FOR THE CURR ENT ASSESSMENT YEAR. ON APPEAL, THE LD. CIT (APPEALS) DELETED THE DISALLOWANCE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 5 . THE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER IN TREATING THE AMOUNT TRANSFERRED TO DEFERRED SALES S USPENSE ACCOUNT AS INCOME OF THE CURRENT YEAR. THE LD. AR VEHEMENTLY SUPPORTED THE ORDERS OF THE LD. CIT (APPEALS). 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THIS ASPECT OF THE MATTER HAS BEEN ELABORATELY CONSI DERED BY THE LD.CIT (APPEALS) WITH REFERENCE TO THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE CONTENTIONS OF THE ASSESSING OFFICER AND DELETED THE DISALLOWANCE HOLDING THAT THIS METHOD OF ACCOUNTING I.E. THE PERCENTAGE COMPLETION METHOD IS FOLLOWED B Y THE ASSESSEE CONSISTENTLY AND S IMILAR CLAIMS WERE ACCEPTED BY THE REVENUE IN THE PREVIOUS ASSESSMENT YEARS AND ALSO IN THE SUBSEQUENT ASSESSMENT YEARS AND THEREFORE IT WAS HELD BY THE LD. CIT (APPEALS) THAT FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE ADD ITION SHOULD BE DELETED. WHILE HOLDING SO, THE LD. CIT (APPEALS) OBSERVED AS UNDER : '2.5 I HAVE CAREFULLY CONSIDERED SUBMISSIONS OF APPELLANT AND ORDER OF AO, CASE RECORDS I OTHER MATERIAL ON RECORD THE APPELLANT RECEIVED RS 1,06,29,600/ - FROM HIS OLD TENANT OCCUPANTS AS PER TERMS OF AGREEMENTS WITH THEM AS PER APPELLANT, THIS AMOUNT IS RECEIVJ IT FOR PROVIDING BETTER AMENITIES IN PROJECT WHICH IS BEING DEVELOPED WITH CONSENT OF SO TENANTS. FURTHER SUCH TENANTS HAD TO BE PROVIDED FREE OF COST NEW FLATS AND TENANTS HAD TO P TO APPELLANT 5 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 AT COST SOME EXTRA MONEY FOR PROVIDING BETTER AMENITIES / FACILITIES IN NEW FLATS . 2.6 ACCORDING TO APPELLANT SUCH PROCEEDS REPRESENTS REVENUE RECEIPTS AND HAD TO ACCOU NTED AS PER ACCOUNTING POLI C Y ADOPTED BY APPELLANT. THE APPELLANT FOLLOWS PERCENT AGE COMPL ETION METHOD OF PROJECT AS A WHOLE AND ACCOUNTED FOR 58% OF SUCH RECEIPTS AS REVENUE RECEI PT AND BAL ANCE 42% WAS TRANSFERRED TO DEF E R RED SALES SUSPENSE ACCOUNT AND ACCOUNTED THE SAME IN SUBSEQUENT YEAR BASED ON STAGE O F CONSTRUCTION OF PROJECT. ON THE OTHER HAND, THE AO CONTENDED THAT SUCH RECEIPTS REPRESENTED REIMBURSEMENT OF COST AND SAME HAD TO BE COUNTED IN FULL AND COULD NOT BE DEFE R RED IN PART IN SUBSEQUENT YEAR. 2.7 THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING RECOGNISED PROVISIONS OF ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA RELATING TO PERCENTAGE COMPLETION METHOD OF REVENUE RECOGNITION. IN SUCH METHOD OF ACCOUNTING, THE COST INCURRED IN REACHING THE STAGE OF COMPLETION OF PROJECT IS TAKEN AS A WHOLE AND IS NOT BASED ON INDIVIDUAL UNIT AND THE SAME IS MATCHED WITH THE REVENUE RESULTING THEREON WHILE REPORTING THE RESULTS ATTRIBUTABLE TO THE PROPORTION OF WORK COMPLETED. THUS, IN PRESENT CASE 58% OF WORK RELATING TO PROJECT W AS COMPLETED AND APPELLANT ACCOUNTED 58% PERCENTAGE OF REVENUE RECEIPTS AND BALANCE AMOUNT WAS TRANSFERRED TO DEFE R RED SALES SUSPENSE ACCOUNT AND ACCOUNTED FOR IN SUBSEQUENT YEAR BASED ON STAGE OF CONSTRUCTION OF PROJECT. THE APPELLANT WAS ALLOWED TO DEVEL OP THE PROJECT ONLY BECAUSE OF CONSENT GRANTED BY TENANTS OR OCCUPANTS AS PER DEVELOPMENT AGREEMENTS ENTERED INTO WITH THEM. THE ACCOUNTING OF EXPENSES AND INCOME IN A YEAR HAS TO BE CONSIDERED ON BASIS OF PROJECT AS A WHOLE AND NOT ON BASIS 'OF INDIVIDUAL UNITS. SO THE AMOUNT RECEIVED FROM TENANTS / OCCUPANTS FOR EXTRA FACILITIES OR AMENITIES REPRESENTS REVENUE RECEIPTS AND THE SAME HAS TO BE ACCOUNTED FOR ON BASIS OF PERCENTAGE COMPLETION METHOD. IT MAY BE MENTIONED THAT THE APPELLANT HAD BEEN FOLLOWING THI S METHOD OF ACCOUNTING CONSISTENTLY FROM INITIATION OF THE PROJECT I.E. FROM A.Y.2009 - 1 0. 6 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 2.8 IN APPELLANT'S CASE, FROM INITIAL ASSESSMENT YEAR I.E. AY 2009 - 10 AND ONWARDS ALL ASSESSMENT ORDERS HAVE BEEN PASSED US 143(3) AFTER SCRUTINY AND IN ALL THESE YEARS NO ADDITION WAS MADE ON THE IMPUGNED ISSUE MAINLY BECAUSE APPELLANT HAD BEEN FOLLOWING RECOGNISED METHOD OF ACCOUNTING I.E. PERCENTAGE COMPLETION METHOD THEREFORE, IN MY OPINION FOLLOWING THE PRINCIPLE OF CONSISTENCY, ADDITION DESERVES TO BE DELETED. 7 . ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE OF THE CASE AND THE FINDINGS OF THE LD. CIT (APPEALS), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS). THE LD. DR COULD NOT REBUT THE FINDINGS OF THE LD. CIT (APPEAL S) IN HOLDING THAT THE ACCOUNTING OF EXPENSES AND INCOME IN A YEAR HAS TO BE CONSIDERED ON THE BASIS OF PROJECT AS A WHOLE AND NOT ON THE B A SIS OF INDIVIDUAL UNITS. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE FROM TENANTS / OCCUPANTS FOR EXTRA FACILITIES OR AMENITIES REPRESENTS REVENUE RECEIPTS AND THE SAME IS TO BE ACCOUNTED FOR ON THE BASIS OF PERCENTAGE COMPLETION METHOD WHICH WAS CONSISTENTLY FOLLOW ED BY THE ASSESSEE RIGHT FROM THE BEGINNING AND THE REVENUE HAS ACCEPTED SUCH ACCOUNTING OF PE RCENTAGE COMPLETION METHOD ON SUCH PROJECTS IN THE PREVIOUS ASSESSMENT YEARS AND ALSO IN THE SUBSEQUENT ASSESSMENT YEARS AND THEREFORE FOLLOWING THE PRINCIPLE OF CONSISTENCY THERE IS NO JUSTIFICATION IN BRINGING TO TAX THE AMOUNT TRANSFERRED TO DEFERRED SA LES SUSPENSE ACCOUNT F OR WHICH NO WORK HAS BEEN CARRIED OUT BY THE ASSESSEE IN THE CURRENT ASSESSMENT YEAR . IN VIEW OF THE ABOVE FINDINGS OF THE LD. CIT (APPEALS), WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE LD CIT (APPEALS) . 8 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . 7 M/S SHREEPATI CASTLE ITA NO.2650/MUM/2016, A.Y.2010 - 11 ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH DAY OF MARCH 2017 . SD/ - SD/ - RAJESH KUMAR C.N.PRASAD / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 06 / 0 3 / 2017 LR, SPS / COPY OF THE ORDER FORWARDED TO : / BY ORDER , ( ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /