M/s Mahalaxmi Builders, Baroda V. The Income Tax Officer, ward-5(4), Baroda

ITA 2691/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0347 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-09-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 2691/AHD./2004 ASSESSMENT YEAR : 2001-2002 M/S. MAHALAXMI BUILDERS, BARODA -VS.- INCOME TA X OFFICER, WARD-5(4), BARODA (P.A. NO. AADFM 1839 Q) (APPELLANT) (R ESPONDENT) & I.T.A. NO. 2856/AHD./2004 ASSESSMENT YEAR : 2001-2002 INCOME TAX OFFICER, WARD-5(4), BARODA -VS.- M /S. MAHALAXMI BUILDERS, BARODA (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR DEPARTMENT BY : SHRI M.C. PANDIT, SR. D .R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THESE CROSS APPEALS, ONE BY ASSESSEE AND OTHER BY REVENUE, ARE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-V, BARO DA BOTH DATED 21 ST JULY, 2004 FOR THE SAME ASSESSMENT YEAR 2001-02. 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS AP PEAL READS AS UNDER :- THE FIRST APPELLATE AUTHORITY HAS ERRED IN FACTS A ND IN LAW BY ASSESSING THE INCOME OF RS.28,96,530/- ON SUBSTANTIAL COMPLETION BASIS. THE SAID ADDITION OF RS.28,96,530/- DESERVES TO BE DELETED. 3. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN RE STRICTING THE TAXABLE PROFIT FROM SALE OF NON-ELIGIBLE PROJECT AT RS.28,96,530/- AS AGAINST RS.65,51,539/- DETERMINED BY THE ASSESSING OFFICER ON THE BASIS OF PERCENTAGE COMPLETION METHOD. THE DECISION OF THE LEARNED 2 COMMISSIONER OF INCOME TAX(APPEALS) IS NOT ACCEPTAB LE BECAUSE HE HAS ACCEPTED THE PERCENTAGE COMPLETION METHOD. HOWE VER, WITHOUT GIVING ANY REASONS, HE HAS DIRECTED TO ASSESS THE T AXABLE PROFIT AT R.28,96,530/- BEING 46.53% OF RS.62,03,594/- CERTIF IED BY ARCHITECT. MOREOVER, ON SIMILAR ISSUE, IN THE CASE OF M/S. JAI JALARAM DEVELOPERS FOR A.Y. 2001-02, THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) HIMSELF HAS UPHELD THE ADDITION MADE BY THE ASSESSI NG OFFICER ON THIS ACCOUNT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PA RTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPER AND BUILDER OF TOWNSHIP NAMELY VRUNDAVAN HOUSING PROJECT. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARI NG NIL INCOME BECAUSE IT WAS FOLLOWING PROJECT COMPLETION METHOD AND SECONDLY WAS ELIGIBLE FOR DED UCTION UNDER SECTION 80IB(1) OF THE INCOME TAX ACT, 1961. THE A.O. FRAMED THE ASSESSMEN T UNDER SECTION 143(3) ON 31.03.2004, THOUGH ACCEPTED THE ELIGIBILITY OF ASSESSEE FOR 80I B(10 DEDUCTION BUT WITHOUT ANY REASON DENIED THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSES SEE. THE A.O. APPLIED PERCENTAGE COMPLETION METHOD AND ASSESSED THE TOTAL INCOME AT RS.65,51,539/- ASSUMING IT AS PROFIT FROM CONSTRUCTION OF SHOPS, ETC. 5. ON APPEAL BY THE ASSESSEE, IN THE IMPUGNED ORDER , THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DID NOT CONSIDER THE ASSESSEES INCOME FROM CERTAIN SHOP/ GODOWNS, WHICH WERE CONSTRUCTED THROUGH AN AGREEMENT WHICH RESULTED IN ANCILLARY CONSTRUCTION WITH THE HOUSING PROJECT BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(1). HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ACCEPTED THE VALIDITY OF PRO JECT COMPLETION METHOD. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RELYING ON THE DECISION OF THE HON'BLE ITAT, BOMBAY IN THE CASE OF PAREKH PROPERTIES (P) LTD. V S.- ACIT [2003 SOT 124] ACCEPTED THE METHOD OF ACCOUNTING. IN THE CASE OF THE ASSESSEE, A SUBSTANTIAL PORTION WAS COMPLETED AND IT WOULD BE PROPER TO ESTIMATE PROFIT ADOPTING PERCENT AGE COMPLETION METHOD. THE PERCENTAGE COMPLETION METHOD USED TO DETERMINE REVENUE TO BE R ECOGNIZED IN THE FINANCIAL STATEMENTS IS MEASURED AN APPROPRIATE MANNER WHERE THE COMPLETION IN TERMS OF PERCENTAGE IS QUITE SUFFICIENT WHICH MAY DEPEND UPON THE TOTALITY OF THE PROJECT. THE ITAT HELD THAT THOUGH THERE IS NO GENERAL RULE FOR THE SPECIFIC PERCENTAGE OF THE TOTAL AREA OF THE PROJECT, WHICH SHOULD BE CONSIDERED TO BE SUBSTANTIALLY COMPLETED, AND ASSUMED THE PROJECT OF THE ASSESSEE WAS SUBSTANTIALLY COMPLETED AND SO BIFURCATED THE INCOME OF RS.62,03,594/- SHOWN IN THE COMPLETION OF PROJECT YEAR, I.E. FOR 3 ASSESSMENT YEAR 2003-04, WHICH RESULTED COMPUTATION OF INCOME OF RS.28,96,530/- IN THE ASSESSMENT YEAR UNDER APPEAL. THE REVENUE IS IN APP EAL AGAINST DELETION OF THE BALANCE ADDITION OF RS.33,07,064/- (R.62,03,594/- MINUS 28,96,530/-) . 6. AT THE TIME OF HEARING, ON BEHALF OF THE ASSESSE E SHRI S.N. SOPARKAR APPEARED AND CONTENDED THAT ONCE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ACCEPTED THE FACT OF VALIDITY OF PROJECT COMPLETION METHOD AND ITS CONSI STENTLY FOLLOWANCE BY THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WITHOUT ANY COGENT REASONS TURNED ON TO PERCENTAGE OF COMPLETION METHOD SIMPLY RELYING ON T HE DECISION OF PAREKH PROPERTIES (P) LTD. (SUPRA). THE LD. COUNSEL OF THE ASSESSEE EXPLAINED THAT IN THE CASE OF PAREKH PROPERTIES (P) LTD. RELIED BY THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) THE PROJECT WAS SUBSTANTIALLY COMPLETED BUT IN ASSESSEES CASE IT WAS NOT SO. IN THE CASE OF PAREKH PROPERTIES (P) LTD., THE TRIBUNAL HAS HELD THAT WHEN 75% OF THE PROJECT IS C OMPLETED, IT COULD BE SAID THAT PROJECT IS SUBSTANTIALLY COMPLETE. IN THE CASE OF ASSESSEE, TH E TOTAL COST INCURRED ON THE PROJECT AS A WHOLE TILL MARCH, 2003 IS RS.25,42,38,516/-. WHILE THE DE TAILS OF COST INCURRED TILL MARCH, 2001 IS AS UNDER :- OPENING BALANCE OF WORK-IN- PROGRESS AS ON 1.4.2000 ADDITIONS (RS.) CLOSING BALANCE OF WORK-IN- PROGRESS TOTAL COST OF PROJECT TILL COMPLETION PERCENTAGE OF TOTAL COST 7,75,16,052/- 9,23,88,019/- 16,99,04,071/- 25,42,38 ,516/- 66.8% FROM THE ABOVE, IT CAN BE SEEN THAT TILL MARCH, 200 1, THE ASSESSEE HAS INCURRED ONLY 66.8% OF THE TOTAL EXPENSES. THEREFORE, ON THE FACTS AND CIRCUMS TANCES OF THE CASE, THE DECISION OF PAREKH PROPERTIES RELIED BY THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) IS DISTINGUISHABLE. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAS HIMSELF OFFERED THE ENTIRE INCOME OF THE PROJECT IN QUESTION IN THE ASSESSMENT YEAR 2003-04 WHEN PROJECT WAS SUBSTANTIALLY COMPLETED AS PER THE ARCHITECT CERTIFICATE. IN THE ASSESSMENT YEAR 2003-04, THE A.O. FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 28.03.2003, WHER EIN THE INCOME DECLARED ON PROJECT COMPLETION METHOD AT RS.62,03,590/-. IN THE ASSESSM ENT ORDER FOR ASSESSMENT YEAR 2003-04, THE A.O. ACCEPTED THE PROJECT COMPLETION METHOD BY OBSE RVING THAT PROJECT IS SUBSTANTIALLY 4 COMPLETED ON 31.03.2003 AND COMPUTED THE INCOME ACC ORDINGLY. INCOME OF THIS PROJECT CAN BE TAXED TWICE, THEREFORE, ON THIS GROUND ALSO ADDITIO N BE DELETED. 7. ON THE OTHER HAND, SHRI M.C. PANDIT, LD. DEPARTM ENTAL REPRESENTATIVE RELIED ON THE DECISION OF ITAT, A BENCH, DELHI IN THE CASE OF G REATER ASHOKA LAND & DEVELOPMENT CO. (P) LTD. VS.- ACIT REPORTED IN 98 ITD 595 (DELHI) FOR THE PROPOSITION THAT INCOME ACCRUING IN ONE YEAR CANNOT BE DEFERRED TO FUTURE YEARS BY ADOPTING INCORRECT METHOD OF ACCOUNTING WITH A VIEW TO POSTPONE TAX LIABILITY. THE LD. D.R. SUBMITTED T HAT IN THIS JUDGMENT, THE TRIBUNAL HAS HELD THAT ONCE INCOME HAS ACCRUED TO ASSESSEE IN A PARTICULAR YEAR, IT HAS TO BE ASSESSED IN THAT VERY YEAR IRRESPECTIVE OF THE METHOD ADOPTED BY THE ASSESSEE. THE METHOD OF ACCOUNTING MUST BE SUCH BY WHICH INCOME OF EACH YEAR ACCRUING TO ASSESSEE CAN BE PROPERLY DETERMINED. AS PER THIS JUDGMENT, ANY METHOD WHICH ALLOWS ASSESSEE TO DEFER ACCRUED INCOME OF A PARTICULAR YEAR TO FUTURE YEAR CANNOT BE SAID TO BE A PROPER METHOD UN DER SECTION 145. THE LD. D.R. SUBMITTED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) IN THE IMPUGNED ORDER IS CORRECT AND IN CASE, THE INCOME IS TAXED BY THE A.O . ON PROJECT COMPLETION BASIS IN THE ASSESSMENT YEAR 2003-04, THE A.O. WILL RECTIFY THE SAME. 8. IN REPLY, THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT THE DECISION OF ITAT, A BENCH, DELHI IN THE CASE OF GREATER ASHOKA LAND & DEVELOPM ENT CO. (P) LTD. (SUPRA) RELIED BY THE LD. D.R. IS NOT APPLICABLE TO THE FACTS OF ASSESSEES C ASE. IN THAT CASE, THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND SALE OF PLOTS. NO PROFIT ON SALE OF PLOTS WAS SHOWN BY THE ASSESSEE ON THE GROUND THAT IT WAS FOL LOWING SINGLE VENTURE METHOD OF ACCOUNTING AND ACCORDINGLY PROFIT IN RESPECT OF SUCH VENTURE S HOULD BE DETERMINED ONLY IN THE YEAR IN WHICH VENTURE IS COMPLETED. IN THE INSTANT CASE, THE SAID DECISION IS NOT APPLICABLE IN THE ASSESSEES CASE BECAUSE THE ASSESSEE IS ENGAGED IN A HOUSING PROJEC T. THE LD. COUNSEL SUBMITTED THAT IN THE CASE OF A HOUSING PROJECT, PROJECT COMPLETION METHOD IS A RECOGNIZED METHOD OF ACCOUNTING EMPLOYED BY THE BUILDERS ENGAGED IN THE CONSTRUCTION OF MULT I-STOREYED BUILDINGS/ FLATS AND OFFICE COMPLEXES. THIS VIEW WAS HELD BY THE ITAT, B BENC H, AHEMEDABAD IN THE CASE OF ACIT VS.- VISION BUILDERS, ORDER DATED 11.05.2000 IN I.T.A. N O. 2180/AHD./1995 FOR THE ASSESSMENT YEAR 1988-89. IN THE SAID CASE, THE TRIBUNAL HAS RELIED ON THE FOLLOWING DECISIONS :- (I) SHAPOORJI PALLONJI & CO. (RAJKOT) (P) LTD.[ ( 1994) 49 ITD 479 (BOM.)]; 5 (II) ITO VS.- W.D. ESTATE PVT. LTD. [(1993) 45 IT D 473 (BOM.)]; (III) D.K. ENTERPRISES VS.- ITO [(1992) 39 ITD 39 4 (BOM.)]; (IV) CHAMPION CONSTRUCTION CO. VS.- FIRST ITO (5 ITD 495). THE LD. COUNSEL OF THE ASSESSEE FURTHER REITERATED THAT THE A.O. RIGHTLY ASSESSED THE INCOME OF ENTIRE PROJECT IN THE ASSESSMENT YEAR 2003-04 UNDER SECTION 143(3). THEREFORE, HE SUGGESTED THAT THE A.O. BE DIRECTED TO DELETE THE ADDITION MADE ON SUBSTANTIVE COMPLETION METHOD. 9. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE A.O. COMPLETED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04 IN ASSES SEES OWN CASE, WHEREIN THE ASSESSEE HAS ACCEPTED THE INCOME OF ENTIRE PROJECT DECLARED BY T HE ASSESSEE ON PROJECT COMPLETION METHOD. AGAIN TAXING THE SAME PROFIT BY SELF-MADE ARITHMETI CAL FORMULA BY A.O. WILL AMOUNT TO DOUBLE TAXATION WHICH IS NOT PERMISSIBLE UNDER THE LAW. TH E PROJECT COMPLETION METHOD HAS BEEN APPROVED IN THE FOLLOWING CASES :- (I) SHAPOORJI PALLOONJI & CO. LTD. VS.- ITO [19 I TD 479]; (II) NORMAL COMMERCIAL LTD. VS.- CIT [96 CTR 54 ( MUM.) HIGH COURT]; (III) D.K. ENTERPRISE VS.- CIT [39 ITD 394 (MUM.) ]; (IV) H.M. CONSTRUCTION VS.- JCIT (84 ITD 428); (V) MADHUVANA HOUSE BUILDING CO. OP. SOCIETY VS.- ACIT (76 ITJ 968) (VI) ACIT VS.- VISION BUILDERS IN ITA NO. 2180/AH D./1995. WE ALSO FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE DECISION OF THE ITAT, A BENCH, DELHI IN THE CASE OF GREATER ASHOKA LAND & DEVELOPMENT CO. (P) LTD. (SUPRA) RELIED BY HIM IS N OT APPLICABLE TO THE FACTS OF ASSESSEES CASE BECAUSE IN THAT CASE, THE ASSESSEE-COMPANY WAS ENGA GED IN THE BUSINESS OF DEVELOPMENT OF LAND AND SALE OF PLOTS. WHEREAS, IN THE PRESENT CASE, TH E ASSESSEE-COMPANY IS ENGAGED IN THE CONSTRUCTION AND SALE OF MULTI-STOREYED BUILDINGS/ FLATS, SHOPS AND OFFICE COMPLEXES. WE ACCORDINGLY DIRECT THE A.O. TO TAX THE INCOME OF TH E PROJECT IN QUESTION ON PROJECT COMPLETION METHOD AND RE-COMPUTE THE INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF REVENUE IS DISMISSED BECAUSE THE SAME IS RENDERE D INFRUCTUOUS IN VIEW OF DIRECTION GIVEN BY US IN THE ASSESSEES APPEAL. THE ORDER WAS PRONOUNCED IN THE COURT ON 09.10.200 9 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09 / 10 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) M/S. MAHALAXMI BUILDERS, VRUNDAVAN RESIDENTIAL PROJ ECT, OPP. NAGESHWAR TEMPLE, HARNI ROAD, BARODA. (2) ITO, WARD-5(4), BARODA. 3) CIT(A)- ,BARODA, (4) CIT- ,BARODA . (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER LAHA/SR.P.S. DEPUTY REGISTRAR, ITAT, AHMEDA BAD