M/S.MONARCH & QURESHI BUILDERS, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX-33, MUMBAI

ITA 2714/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2962 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 03-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GIMSON
• Keywords: Revision of order; Opportunity of being heard; Principle of natural justice; Revised return; TDS
• Section: 131; 145; 263; 63; 43CA; 143(3); 142(1); 133A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM ITA NO. 2714 /MUM/ 2018 (ASSESSMENT YEAR: 2014 - 15 ) M/S. MONARCH & QURESHI BUILDERS 1 ST FLOOR, LAXMI PALACE, 76, MATHUDRADAS ROAD, KANDIVALI (WEST), MUMBAI - 400 067 VS. PCIT - 33, C - 12, ROOM NO. 501, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051 PAN/GIR NO. AAHFM 6954 A ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI NARESH JAIN RESPONDENT BY : SHRI AWUNGSHI GIMSON DATE OF HEARING : 05.12.2018 DATE OF PRONOUNCEMENT : 01.03 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX - 33, MUMBAI ( PR.CIT FOR SHORT) DATED 30.03.2018 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2014 - 15. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. C I T - 33 U/S 263,MERELY ON PRESUMPTIONS WITHOUT ANY MATERIAL EVIDENCES, IS BAD IN LAW AND IS LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT - 33 ERRED IN EXERCISING REVISIONARY POWERS UNDER SECTION 263 WITHOUT GIVING AN}' FINDING AS TO HOW THE ORDER PASSED BY THE ASSESSING OFFICER IS 'ERRONEOUS' AS WELL AS 'PREJUDICIAL TO THE INTEREST O F THE REVENUE AND AS SUCH, THE ORDER PASSED U/S 263 IS BAD IN LAW AND IS LIABLE TO BE SET ASIDE IN VIEW OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT (243 ITR 83). 3. THAT, ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEI. CIT - 33 ERRED IN HOLDING THAT THE ASSESSMENT ORDER DATED 30.12.2016 PASSED U/S 143(3)OF THE ACT BY THE ASSESSING OFFICER WAS 'ERRONEOUS' AND 'PREJUDICIAL TO THE INTEREST OF THE REVENUE' AND ALSO ERRED IN PARTIALLY SETTING ASIDE THE SAME AND DIRECTING THE ASSESSING OFFICER TO IOLLOW THE DIRECTIONS AS PER PARA 6.4 OF THE IMPUGNED ORDER. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CITERRED IN EXERC ISING REVISIONARY POWERS WITHOUT CONSIDERING THE FACT THAT THE RECOURSE TO SECTION 263 CANNOT BE INVOKED WHERE TWO VIEWS ARE POSSIBLE, AS DECIDED IN THE CASE OF MALABAR 2 ITA NO. 2714/MUM/2018 INDUSTRIAL CO. LTD. (SUPRA), AND AS SUCH, THE ORDER PASSED IS BAD IN LAW AND IS LIABLE TO BE QUASHED. 5. 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT NOT CONSIDERING THE FACT THAT DETAILED EXAMINATION HAD ALREADY BEEN DONE BY THE LD. ASSESSING OFFICER AT THE TIME OF ORIGINAL PROCEEDINGS U/S 143(3), AND AS SUC H, THE LD. CIT WOULD NOT BE JUSTIFIED IN EXERCISING REVISIONARY POWERS UNDER SECTION 263 OF THE ACT. 5.2 WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THE ENQUIRY WAS INADEQUATE, THE LD. CIT WOULD NOT BE JUSTIFIED IN EXERCISING REVISIONARY POWERS UNDER SECTION 263 OF THE ACT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT ERRED IN CHANGING THE METHOD OF ACCOUNTING DIVIDING THE PROJECT INTO TWO PHASES ON THE BASIS OF CONSENT 3. I N THIS CASE , THE PR.CIT OBSERVED AS UNDER: THE FIRM IS IN THE BUSINESS OF CONSTRUCTION. IT HAS TAKEN SRA PROJECT FOR DEVELOPMENT OF BEHRAMBAUG, OSHIWARA, ANDHERI - WEST. THE FIRM HAS CONSTRUCTED SLUM BUILDINGS FOR THE SLUM DWELLERS TO BE HANDED - OVER TO THEM FREE OF COST. THE FIRM HAS CONSTRUCTED ITO 6 REHAB BUIL DINGS FOR THE SLUM DWELLERS AND HANDED OVER TO THEM FREE OF COST. THE FIRM ENTERED INTO AN AGREEMENT WITH EVER SHINE BUILDERS PVT LTD FOR CONSTRUCTION OF SALE BUILDINGS (EVER SHINE BUILDING) COMPRISING OF 3 WINGS OF 26 STORIES. AS PER THE AGREEMENT, THE RI GHT TO CONSTRUCT & SALE SOLELY LIES WITH THE EVERSHINE BUILDERS PVT LTD AND THE AMOUNT RECEIVED ON SALE SHALL BE SHARED EQUALLY. ON 10.12 2000 A SURVEY HAD TAKEN PLACE AT THE ASSESSEE'S PREMISE. DURING THE SURVEY STATEMENT OF SHRI KETAN SHAH PARTNER WAS RE CORDED. HE INFORMED IN THE STATEMENT THAT EVERSHINE BUILDERS PVT LTD WILL CONSTRUCT THE UNITS ON 18 TH TO 21 ST FLOOR OF SALE BUIL DING AGAINST THE RATE OF RS 2300 PER SQ FT OF SALEABLE AREA. PROJECT GAURAV LEGEND IS STILL TO BE STARTED FULL FLEDGE. IT IS AT PLINTH LEVEL AND EVERSHINE IS CONSTRUCTED UP TO 17 TH FLOOR. THE SALE PROCEEDS EVERSHINE IS TO SHARE @ 50 PERCENT WITH THE ASSESSEE FROM 1 ST TO 17 TH FLOOR. HOWEVER, A DISPUTE TOOK PLACE BETWEEN EVERSHINE BUILDERS PVT LTD AND THE ASSESSEE. THEREFORE , EVERSH INE AND THE ASSESSEE REACHED TO THE CONSENT TERMS DATED FEB 2014 IN PURSUANCE TO THE SUIT NO 1335 DATED 2010 WHICH THEY FILED IN THE HON HIGH COURT OF BOMBAY. AS PER THIS DOCUMENT ASSESSEE WOULD GET FOLLOWING: 10 FLATS IN A WING HAVING SALEABLE AREA 16115 SQ.FT IN EVERSHINE UPTO 17 TH FLOOR. SHOPS 1,2,3 & 6 IN A WING AND SHOP 18 IN C WING AND RS. 87,51,56 , 000 2.2 ONCE AGAIN A SURVEY WAS CONDUCTED AT THE BUSINESS PREMISE OF THE ASSESSEE ON 27.09.2016. DURING THE SURVEY STATEMENT OF JAYESH SHAH PARTNER WAS RECORDED. SUBSEQUENTLY, IT WAS OBSERVED THAT THE ASSESSEE HAS HAD TOTAL RECEIPTS OF RS 115.64 CRORES. THE DETAILS ARE AS FOLLOWS - TOTAL RECEIPTS FROM EVERSHINE RS 87.51 CR 10 FLATS RETAINED BY THE ASSESSEE CONSISTING OF TOTAL AREA 1 6,115 SQUARE, ASSESSEE HAS SOLD FOR RS 6.70 CR 5 SHOPS RETAINED BY THE ASSESSEE OUT OF WHICH 4 SHOPS WERE SOLD AMOUNTING TO RS 16.03 CR. ACCORDINGLY SALE PRICE OF 5 SHOPS IS ESTIMATED AT RS 20.04 TOTAL TDRSRS 5.38 CR 2.3 THIS BEING THE POSITION, IN AY 2014 - 15 IN VIEW OF CONSENT TERMS ENTERED INTO BETWEEN THE ASSESSEE AND EVERSHINE BUILDERS PVT LTD, APPROVED BY THE HON HIGH COURT OF BOMBAY, THE AMOUNT RECEIVED AND RECEIVABLE RS 115.64 CRORES BY THE ASSESSEE AND EXPENDITURE ON CONSTRUCTION OF 1 TO 6 R EHAB BUILDINGS FOR THE SLUM DWELLERS AND HANDED OVER TO SRA FREE OF COST SHOULD BE TAKEN INTO CONSIDERATION AND INCOME SHOULD BE 3 ITA NO. 2714/MUM/2018 COMPUTED. THE ASSESSEE IS DELIBERATELY DEFERRING THE COMPUTATION OF INCOME ON THIS PROJECT ON THE GROUND THAT PROJECT IS YET NO T OVER. 2 .3.1 THE ADVANTAGE OF PROJECT COMPLETION METHOD IN ANY CASE OF A BUILDER IS THAT ON COMPLETION ALL REVENUE RECEIPTS AND EXPENDITURES ARE KNOWN AND THE PROFIT EARNED BY THE BUILDER CAN BE ASCERTAINED IN NO UNCERTAIN TERMS. IN MY VIEW FOLLOWING DISP UTE SETTLEMENT BETWEEN THE ASSESSEE AND EVERSHINE BUILDER PVT LTD UNDER THE AEGIS OF HON HIGH COURT OF BOMBAY IN AY 2014 - 15, THERE IS A CLEAR DEMARCATION IN THE CONSTRUCTION HISTORY OF THE PROJECT. THE PROJECT CAN BE DIVIDED INTO TWO STAGES ON THE BASIS OF FACTS EXISTING IN THIS CASE. IN PHASE ONE THAT HAS COME TO AN END WITH THE SETTLEMENT OF DISPUTE UNDER THE AEGIS OF THE HON HIGH COURT OF BOMBAY ASSESSEE HAS ALREADY BUILT SIX REHAB BUILDINGS AND HANDED OVER TO SRA. IN THIS PHASE 17 FLOORS HAVE BEEN CONST RUCTED BY EVERSHINE BUILDERS PVT LTD AND ASSESSEE HAS NOT ONLY RECEIVED ITS SHARE ON R E SOLUTION OF DISPUTE BUT ALSO HUGE MONEY ON SALE OF TDRS. IN SECOND PHASE, EVERSHINE BUILDERS PVT LTD WOULD CONSTRUCT FLOORS FROM 18 TO 21 AS CONTRACTOR ON BEHALF OF THE ASSESSEE FIRM @RS 2300 PER SQ.FT. IT IS THUS A SECOND PHASE WHILE DETERMINING PROFIT ON SALE OF FLATS IN THIS PROJECT FROM 18 TH TO 21 SI FLOOR EXPENDITURES INCURRED BY THE ASSESSEE W.E.F 1.4.2014 RELATED TO REHAB PROJECT MAY BE TAKEN INTO CONSIDERATION AND INCOME MAY BE DETERMINED. 2.4 THUS THE ASSESSEE HAS ALREADY BUILT AND TRANSFERRED SIX REHAB BUILDINGS AND TRANSFERRED TO SRA IN FIRST PHASE OF THE PROJECT. FURTHER, THE ASSESSEE HAS RECEIVED IN THIS PHASE RS 115.64 CRORES. IT IS FULL AND FINAL RECEIPT. TH E DISPUTE WITH EVERSHINE BUILDERS PVT LTD IS ALREADY SETTLED UNDER THE AEGIS OF HON HIGH COURT OF BOMBAY AND THEREFORE, IT MUST BE TAKEN INTO CONSIDERATION FOR COMPUTATION OF TOTAL INCOME. 3. THUS, ON THE BASIS OF EXAMINATION OF RECORDS IT IS FOUND THAT T HE ASSESING OFFICER WITHOUT MAKING PROPER INQUIRY OR VERIFICATION HAS PASSED THE ASSESSMENT ORDER. THE ORDER PASSED BY THE AO IS THEREFORE ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. 4. IN VIEW OF ABOVE, A SHOW CAUSE NOTICE DATED 2.08.2017 WAS ISSUED AND SERVED UPON THE ASSESSEE FIRM ON 7.8.2017 TO EXPLAIN AS TO WHY ASSESSMENT ORDER FOR AY 2014 - 15 SHOULD NOT BE REVISED U/S. 2 63 OF THE INCOME TAX ACT, 1961. 4. T HE PR. CIT NOTED THE RESPONSE OF THE ASSESSEE AS UNDER : 4.1 IN RESPONSE TO THE NOTICE U/S 263 DATED 16.06.2017 SHRI ASHOK LADHA CA ATTENDED FROM TIME TO TIME. HE FILED WRITTEN SUBMISSIONS DATED 4.12.2017 AND 2.01.2018. HE IS ALSO HEARD AT LENGTH. 4.2 IN THE REPLY DATED 4.12.2017 THE ASSESSEE HAS NOT CONTRADICTED THE BASIC FACTS BROUGHT ON RECORD. BUT THE ASSESSEE HAS SUBMITTED THAT THE ORDER PASSED U/S 143(3) OF THE ACT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSEE SUBMITS THAT THE AO HAS PASSED ORDER AFTER MAKING THE PROPER AND REQUISI TE ENQUIRIES. THE ASSESSEE SUBMITS THAT WHERE THE AO HAS APPLIED HIS MIND TO THE FACTS OF THE CASE AND TAKEN A POSSIBLE VIEW, RECOURSE TO SECTION 263 FOR THE PURPOSE OF TAKING ANOTHER VIEW WOULD NOT BE PERMISSIBLE IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LIMITED VS CIT [(2000)109 TAXMAN 66 (SC)]. THE ASSESSEE HAS ALSO SUBMITTED THAT ASSESSEE IS CONSISTENTLY FOLLOWING ITS METHOD OF ACCOUNTING AND OFFERING INCOME @ 9% OF WORK DONE DURING THE YEAR. THIS METHOD OF ACCOUNTIN G HAS BEEN ACCEPTED BY THE REVENUE FOR THE PRIOR YEARS AS WELL AS SUBSEQUENT YEARS. THEREFORE, THE METHOD OF ACCOUNTING CONSISTENT FOLLOWED BY THE ASSESSEE NEED NOT BE CHANGED. THE ASSESSEE HAS ALSO SUBMITTED THAT IT WOULD NOT BE POSSIBLE TO DIVIDE THE PRO JECT UPTO 17 LH FLOOR AS COMPLETE AND COMPUTE PROFIT THEREON. THIS 4 ITA NO. 2714/MUM/2018 IS SO BECAUSE THE FACILITIES IN THE PROJECT SUCH AS COMMON AREA LIFT FIRE SERVICES WATER ETC ARE COMBINED SERVICES AND CANNOT BE POSSIBLE TO COMPUTE INCOME AND OFFER TAX UP TO THE 17THE FLOO R. WITHOUT PREJUDICE TO THE SAME, THE ASSESSEE FURTHER SUBMITS THAT THE PROJECT UNDER TAKEN BY THE APPLICANT IS ELIGIBLE FOR DEDUCTION 80 I (10). 5. H OWEVER , THE PR. CIT WAS NOT CONVINCED. HE HELD THAT FOR 11 YEARS IN THE PAST , THE ASSESSEE HAS NOT OFFERE D ANY INCOME. IT WAS ONLY AFTER SURVEY THAT ASSESSEE STARTED OFFERING INCOME FROM A.Y. 2012 - 13 TO 2013 - 14. HE FURTHER OBSERVED THAT THE ACCOUNTING METHOD OF APPLYING 9% IN THESE THREE YEARS IS NOT A RECOGNISED METHOD. HE FURTHER OBSERVED THAT THE A.O. HAS ACCEPTED THIS DUBIOUS METHOD OF REDUCING THE RE VENUE RECEIPT FROM WORK IN PROGRESS AND ADVANCES AND APPLYING THE RATE OF 9% ON NET EXPENDITURE TO ARRIVE AT TAXABLE INCOME FOR A.Y. 2014 15 . HE HELD THAT THE A.O. HAS ACCEPTED TH E WRONG METHOD. THE PR. CIT PROCEEDED TO REFER TO THE SURVEY PROCEEDING S. HE PROCEEDED TO OBSERVE THAT OVER THE YEARS , THE ASSESSEE HAS INFLATED THE EXPENDITURE WHICH NEED TO BE SCRUTINIZED PROPERLY . IN THIS REGARD , HE REFERRED TO FIGURES FROM THE A.Y. 2013 - 14. IN PARAGRAPH 5.4 HE OB SERVED AS UNDER : 5.4 IN THE BALANCE SHEET AS AT 31.03.2014 ADVANCES RECEIVED AGAINST FLATS ARE AT 143.78 CRS. AS AGAINST IT WIP IS ONLY 28.48 CRORES. THUS ADVANCES MORE THAN 5 TIMES OF WIP HAVE BEEN RECEIVED BY THE ASSESSEE AS AT 31.03.2014. IT SHOW THAT EXORBITANT PR OFI T MARGIN IS INVOLVED IN THIS PROJECT WHICH ASSESSEE IS ATTEMPTING TO REDUCE BY INFLATING COSTS SUCH AS ADDITIONAL LAND COST. OTHER ITEMS REFLECTED IN BALANCE SHEET WHICH NEED SCRUTINY IS LOANS AND ADVANCES RS 84.22 CRORES. IT MUST BE CAREFU LLY LOOKED INTO WHETHER THESE ADVANCES ARE FOR THIS SRA PROJECT. IF NOT THEN IT IS NOTHING BUT SIPHONING OFF THE SURPLUS PROFIT BY WAY OF LOANS AND ADVANCES. WHY ADVANCES HAVE BEEN GIVEN TO RAVI DEVELOPMENTS RS.66.92 CRORES ? IN THE SRA CONSTRUCTION PROJEC T SUCH A HUGE ADVANCE IS NOT REQUIRED TO BE GIVEN. THEREFORE WHY IT IS G IVEN AND ITS CONNECTION WITH THE SRA PROJECT MUST BE LOOKED INTO. 6. TH EREAFTER , THE PR. CIT REFERRED THAT ASSESSEE HAS NOT PROPERLY MAINTAINED BOOKS OF ACCOUNTS. FINALLY , THE PR. CIT CO NCLUDED AS UNDER : 6.1 THOUGH THE ASSESSEE CLAIMS THAT IT HAS FOLLOWED ITS METHOD OF ACCOUNTING CONSISTENTLY AND OFFERING INCOME @9 % OF WOK DONE DURING THE YEAR BUT AS DISCUSSED ABOVE THE ASSESSEE HAS STARTED OFFERING INCOME @ 9% OF WORK DONE FROM 2012 - 13 ONLY. BEFORE THAT THOUGH HUGE WORK WAS DONE AND THE ASSESSEE HAD REVENUE RECEIPTS ALSO BUT NO INCOME WAS OFFERED FOR TAXATION. FOR INSTANCE THOUGH THE ASSESSEE COMPANY RECEIVED RS 43.70 CRORES FROM EVERSHINE BUILDERS PVT LTD IN AY 2008 - 09 BUT ASSESSEE REDUCED 19.11 CR OF OP ENING WORK IN PROGRESS. RS 23.65 CRORES TOWARDS LAND COST, RS 0.90 CRORES TOWARDS CONSTRUCTION COST AND RS 0,02 CRORES TOWARDS ADMINISTRATIVE EXPENSES AND NO INCOME WAS OFFERED FOR TAXATION. LIKEWISE, ASSESSEE DID NOT OFFER ANY INCOME IN AY 2009 - 10, 2010 - 1 1 AND 5 ITA NO. 2714/MUM/2018 2011 - 12 THOUGH THERE WERE REVENUE RECEIPTS AND AS WELL AS CONSTRUCTION DONE IN THESE AYS. THE DETAILS ARE AS FOLLOWS - FY AY DATE OF RETURN CL OSING WIP (IN CRS.) INCOME AS PER RETURN (IN CRS.) @ 9% OF NET EXPENDITURE ADVANCE PAID FOR THE PREOPERLY (CUMULATIVE) (IN CRS.) REVENUE RECEIPTS, ADJUSTED AGAINST WIP AND ADVANCES (IN CRS.) 2008 - 09 2009 - 10 26.09.09 00.00 00.00 00.00 5.08 2009 - 10 2010 - 11 28.09.10 05.95 00.00 00.00 2.26 2010 - 11 2011 - 12 21.09.11 13.81 (10.110 24.52 2.53 6.2 THEREFORE, IT IS WRONG SUBMISSION BY THE ASSESSEE THAT IS HAS OFFERED INCOME ON ACCRUAL BASIS@ 9 PERCENT CONSISTENTLY. FURTHER, THE WRONG METHOD OF ACCOUNTING EVEN IF FOLLOWED CONSISTENTLY AND EVEN IF NOT DISTURBED BY THE DEPARTMENT EARLIER DOES NOT BECOME AN ACCEPTABLE METHOD. THE RATIONALE OF REDUCING REVENUE RECEIPTS FROM THE WIP AND THE ADVANCE FOR LAND AND APPLYING 9% RATE ON NET BALANCE OF EXPENDITURE TO COMPUTE INCOME ON ACCRUAL BASIS IN AY 2012 - 13, 2013 - 14 AND 2014 - 15 HAS NOT BEEN EXPLAINED BY THE A SSESSEE NEITHER DURING ASSESSMENT PROCEEDINGS NOR DURING THE REVISION PROCEEDINGS. THE METHOD FOLLOWED BY THE ASSESSEE IS NOT A RECOGNIZED METHOD. FURTHER, IT DOES NOT LEAD TO TRUE AND FAIR COMPUTATION OF TOTAL INCOME. 6.3 THOUGH THE ASSESSEE HAS OBJECTED DETERMINATION OF PROFIT FROM THE SRA PROJECT IN AY 2014 - 15 ON THE GROUND THAT PROJECT IS NOT COMPLETE. IN REVISION PROCEEDINGS THIS AVERMENT OF THE ASSESSEE HAS NOT BEEN OBJECTED BUT AS DISCUSSED IN THIS ORDER ABOVE, THERE IS A DISTINCT DIVIDE IN THE HISTO RY OF SRA DEVELOPMENT PROJECT UNDER TAKEN BY THE ASSESSEE. THE FIRST PHASE ENDS IN AY 2014 - 15. THIS PHASE ENDS WITH, THE CIVIL SUIT SETTLED BY THE ORDER DATED 20.02.2014 PASSED BY THE HON HIGH COURT OF BOMBAY. DURING THIS PERIOD REVENUE RECEIPTS FOLLOWING THE HIGH COURT ORDER COMPUTED AT RS 115.64 CRORES HAVE ACCRUED TO THE ASSESSEE COMPANY IN AN IRRETRIEVABLE MANNER. THEN WHY INCOME SHOU LD NOT BE COMPUTED D UR IN G THE RELEVANT PREVIOUS YEAR AND SUBJECTED TO TAX IN AY 2014 - 15? HAD THE HON. HIGH COURT ORDER H AD NOT BEEN PASSED ON 20.02.2014 THERE COULD HAVE BEEN DOUBT IN COMPUTATION OF INCOME ON THE GROUND THAT REVENUE RECEIPTS ARE IN THE NATURE OF ADVANCES AND INCOME HAS NOT ACCRUED T HEREON. BUT SINCE ORDER HAS BEEN PASSED BY THE HON HIGH COURT OF BOMBAY, THE RE IS NO DOUBT ON INCOME ACCRUING TO THE ASSESSEE AND THEREFORE THE A.O. IS DIRECTED TO COMPUTE ON ACCRUAL BASIS THE INCOME AND ASSESS TO TAX. 6.4 THEREFORE THE AO IS ALSO DIRECTED TO COMPUTE APART FROM DETERMINATION OF INCOME ON ACCRUAL BASIS IN AY 2014 - 15 INCOME ON THE BASIS OF GIVEN FACTS FOR THE FIRST PHASE OF THE PROJECT IS ALSO AND THEREFORE, INCOME SHOULD BE DETERMINED FOR THIS PHASE BY TAKING INTO CONSIDERATION THE REVENUE RECEIPTS ON ACCRUAL BASIS AND CORRESPONDING EXPENDITURES ON MATCHING P RINCIPAL BASI S. THE METHOD OF ACCOUNTING AND DETERMINATION OF INCOME FOLLOWED BY THE ASSESSEE IS NEITHER CONSISTENT NO R WORTHY OF TRUE AND FAIR INCOME. THEREFORE, THE ASSESSING OFFICER SHOULD EXAMINE THE BOOKS OF ACCOUNT PROPERLY FOR ALL THE YEARS IN CLUDED IN FIRST PHASE AND DETERMINE PROFIT FROM SRA PROJECT. IN CASE THE AO IS OF THE OPINION THAT IT NECESSARY HAVING REGARD TO THE NATURE AND COMPLEXITY OF ACCOUNTS, VOLUME OF ACCOUNTS, DOUBTS ABOUT CORRECTNESS O F ACCOUNTS, MULTIPLICITY OF TRANSACTIONS IN THE ACCOUNTS OR THE SPECIALI ZED NATURE OF BUSINESS ACTIVITY OF THE ASSESSEE AND THE INTEREST OF REVENUE THAT THE CASE MAY BE REFERRED FOR SPECIAL AUDIT AS PER THE PROVISIONS OF THE SECTION 142(2A) OF INCOME TAX ACT 1961 THE AO MAY DO SO FOLLOWING DUE PROCEDURE IN THIS REGARD. 7. THE AO TO FOLLOW DIRECTION GIVEN IN PARA 6 ABOVE. THE ORDER PASSED BY THE AO IS PARTLY SET ASIDE WITH THIS LIMITED PURPOSE TO ENABLE THE AO TO FOLLOW THE DIRECTIONS AND APPLY THEM WHILE PASSING THE ORDER U/S 143(3) OF THE ACT FOLLOWING REVISION ORDER. IT IS RELEVANT TO BEAR I N MIND THAT A.O. SHOULD GIVE PROPER OPPORTUNITY OF BEING HEARD AND OTHER PRINCIPALS OF NATURAL JUSTICE. THE REVISION ORDER IS PASSED U/S. 263 OF THE ACT ACCORDINGLY. 7. A GAINST THE ABOVE ORDER , THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LEARNED COUNSEL OF THE ASSESSEE STATED THAT ASSESSEE HAS BEEN OFFERING 9% OF INCREMENTAL WORK IN PROGRESS. 6 ITA NO. 2714/MUM/2018 HE CLAIMED THAT THIS IS A KIND OF PERCENTAGE COMPLETION METHOD AND THE SAME HAS BEEN ACCEPTED FOR THE PAST THREE YEARS . THE L EARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE A.O. HAS DULY CONSIDERED THE ISSUE AND A PPLIED HIS MIND . I N THIS REGARD , HE REFERRED TO THE PAPER BOOK PAGE NUMBER 33 TO 43 FO R A.O.S QUESTION AND THE ASSESSEES RESPONSE IN PAPER BOOK PAGE NUMBER 44 AND 45. HE SUBMITTED THAT AFTER DULY EXAMIN ING TH E ISSUE , THE A.O. HAS FORMED AN OPINION WHICH IS A PERMISSIBLE ONE. IN THIS REGARD , HE REFERRED TO SEVERAL CASE LAWS. HE FURTHER SUBMITTED THAT ASSESSEE HAS BEEN APPLYING THE METHOD OF ACCOUNTING IN THE PAST AND HAS FOLLOWED IN SUBSEQUENT YEARS . H E SUBMITTED THAT IN THE PRECEDING YEARS THE ASSESSMENT WAS COMPLETED U /S. 143 (3). IN THIS REGARD , HE ALSO REFERRED TO SEVERAL CASE LAWS IN SUPPORT OF MERITS OF ASSESSEES METHOD. 9. HE FURTHER SUBMITTED THAT THE PR. CIT HAS DIRECTED FOR EXAMINATION OF BOOKS OF ACCOUNTS OTHER THAN THE YEAR UNDER CONSIDERATION . THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PR. CIT H AS CLEARLY EXCEEDED H IS JURISDICTION. THE LEARNED COUNSEL OF THE ASSESSEE FURTHER REFERRED TO SEVERAL CASE LAWS AS UNDER: S R. NO. PARTICULARS 1. CIT VS. ADITYA BUILDERS (94 CCH 113) (BOMBAY HC) 2. ADITYA BUILDERS VS. C IT (25 ITR(TRIB) 77) (MUMBAI IT AT) 3. MALABAR INDUSTRIAL CO. LTD. VS. CIT(243 ITR 83) (SC) 4. CIT (A) VS. BILHARI INVESTMENT (P) LTD - (299 ITR 1) (SC) 5. CIT VS. BOKARO STEEL LTD. - 236 ITR 315 (SC) 6. I TO VS. MURLIDHAR BHAGWAN DAS - 52 ITR 335 (SC) 7 M/S SKY STAR VS. DCIT(ITA 2124/M/2011) (MUM ITAT) 8. CIT VS. SKY STAR (ITA 416 OF 2013)(BOMBAY HC) 9. UCO BANK VS. CIT (240 ITR 355) 10. CIT VS. HDFC BANK (52 TAXMANN.COM 333)(BOMBAY HC) 11. PCIT VS. A2Z MAINTENANCE & ENGINEERING SERVICES LTD. (79 TAXMANN.COM 7) (DELHI HC) 12. GAHLOT CONSTRUCTION VS. PCIT(2017 (11) TMI 1564) (MUM ITAT) 13. CIT V. M/S SHREEPATI HOLDINGS FINANCE PVT. LTD. 2015(10) TMI 1751 (BOMBAY HC 1 4. CIT V. GABRIEL INDIA PVT. LTD. (1993 ) 203 ITR 108 15. M/S SANTHA BUILD - TECH INDIA PVT. LTD. V. DCIT 2016 (7) TMI 9 16. ITO - 16(2) (2), MUMBAI V. M/S MATUSHREE BUILDERS & DEVELOPERS 2016 (12) TMI 1538 - (ITAT MUM) 17. SHRI SOHANLAL M. JAIN V. ITO 2 (1) 2018 (3) TMI 1584 - (ITAT MUM) 7 ITA NO. 2714/MUM/2018 10. PER CONTRA, THE LD. CIT(DR) RELIED UPON THE ORDER OF THE LD. CIT. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE PRECEDENTS RELIED UPON. WE FIND THA T IN THIS CASE THE ASSESSEE IS A BUILDER AND DEVELOPER. IT HAS BEEN OFFERING RETURN OF INCOME ON THE BASIS OF 9% OF THE INCREMENTAL WORK - IN - PROGRESS. THIS SYSTEM HAS BEEN FOLLOWED IN THE PRIOR YEARS AS WELL AS IN SUBSEQUENT YEARS. THE LD. CIT IN HIS ORDER U/S. 263 HAS HELD THAT THE ASSESSEE IS NOT FOLLOWING THE CORRECT METHOD OF OFFERING THE INCOME. THAT IT HAS STARTED OFFERING THAT INCOME ALSO VERY RECENTLY. THE LD. CIT HAS ALSO REFERRED TO THE HON'BLE BOMBAY HIGH COURT DECISION BETWEEN THE ASSESSEE AND ITS CO - DEVELOPER. REFERRING TO THE R EVENUE RECEIPT FROM THE CO - DEVELOPER, PURSUANT TO THE HON'BLE BOMBAY HIGH COURT DECISION, THE LD. CIT HAS OPINED THAT THE PROJECT SHOULD BE ACCORDINGLY BIFURCATED BETWEEN THE TWO STAGES , ONE UPTO THE DATE OF RECEIPT AS PER THE HON'BLE HIGH COURT ORDER AND ONE FOR SUBSEQUENT PERIOD. THE LD. CIT HAS DIRECTED THAT THE A.O. SH OULD EXAMINE THE BOOKS OF ACCOUNTS PROPERLY FOR ALL THE YEARS. HE HAS ALSO DIRECTED THAT IF THE AO IS OF THE OPINION THAT IT IS NECESSARY HAVING REGARD TO THE NATURE AND COMPLEXITY OF ACCOUNTS, VOLUME OF ACCOUNTS, DOUBTS AB OUT CORRECTNESS OF ACCOUNTS, MULTIPLICITY OF TRANSACTIONS IN THE ACCOUNTS OR THE SPECIALIZED NATURE OF BUSINESS ACTIVITY OF THE ASSESSEE AND THE INTEREST OF REVENUE THAT THE CASE MAY BE REFERRED FOR SPECIAL AUDIT AS PER THE PROVISIONS OF THE SECTION 142(2A ) OF THE ACT. IN THIS REGARD, WE NOTE THAT THE ISSUE OF ASSESSEES RECEIPT OF INCOME PURSUANT TO HON'BLE HIGH COURT FROM THE CO - DEVELOPER O R RATE OF INCOME BEING OFFERED BY THE ASSESSEE, HAVE ALL BEEN NOTED BY THE A.O. THE A.O. HAS DULY RAISED QUESTIONNAI RES AS SUBMITTED IN PB REFERRED ABOVE . IN THIS REGARD, WE MAY GAINFULLY REFER TO THE RELEVANT PORTION OF THE NOTICE ISSUED BY THE A.O.: [PB PG. NOS. 33 TO 37] 8 ITA NO. 2714/MUM/2018 SUB: SCRUTINY ASSESSMENT PROCEEDINGS FOR A.Y 2014 - 15: REG: - PLEASE REFER TO THE ABOVE. DURING THE SCRUTINY PROCEEDINGS, FOLLOWING ISSUES HAVE BEEN EMERGED: 1) THE ASSESSEE IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE AND DEVELOPING ON E SRA PROJECT CONSISTING OF THREE BUILDINGS I.E. EVERSHINE COSMIC, GAURAV LEGEND A ND SLUM BUILDINGS. THE EVERSHI NE COSMIC HAS BEEN COMPLETED TILL 17 TH FLOOR AND F URTHER CONSTRUCTION UPTO 21 ST FLOOR COMPLETED. SECOND SAURAV LEGEND RCC WORK COMPLETED UPTO 8 TH FLOOR. THIRD PTC BUILDING IS ALSO UNDER CONSTRUCTION AND COMPLETED TILL 8 TH FLOOR . THE ASSESSEE HAS COMPLETED CONSTRUCTION OF 6 REHABILITATION BUILDING OF GROUND + 7 TH FLOOR AND POSSESSION HAS ALREADY GIVEN TO UNIT HOLDERS. IN RESPECT OF EVERSHINE COSMIC, ASSESSEE HAD ENTERED INTO JOINT DEVELOPMENT AGREEMENT WITH M/S. EVERSHINE BUILDERS PRIVATE LIMITED. THE TERMS OF THE AGREEMENT IS THAT CONSTRUCTION OF SALEABLE BUILDING EVERSHINE COSMIC WILL BE DON E BY EVERSHINE BUILDERS PVT. LTD AND CONSTRUCTION OF REHABITATION BUILDING WILL BE DONE BY ASSESSEE. THE SALE PROCEEDS SHALL BE DIVIDED EQUALLY AMON G THE TWO CONCERNS. THE GAURAV LEGEND BUILDING IS DEVELOPING B Y ASSESSEE ITSELF. THE REHAB BUILDINGS ARE ALREADY COMPLETED AND POSSESSION HAS BEEN HANDED OVER TO THE TENANTS. DURING THE COURSE OF SURVEY ACTION CONDUCTED U/S. 133A (1) OF THE ACT DATED 27/09 /2016, FOLLOWING ISSUES HAVE BEEN EMERGED: AS PER CONSENT TERM SUIT BETWEEN ASSESSEE AND EVERSHINE BUILDERS PVT. LTD, I R IS FOUND THAT ASSESSEE HAD RECEIVED TOTAL RECEIPTS OF RS. 11 5,64,90,713/ - WHICH IS AS UNDER. THESE CONSENT TERMS ARE FOR EVERSHINE COSMI C BUILDING UP TO 17 TH FLOORS ONLY. FROM 17 TH FLOOR ONWARDS, THE ASSESSE ON ITS OWN CONSTRUCTING THE BUILDING: (I) TOTAL RECEIPTS FROM M/S. EVERSHINE BUILDERS PRIVATE LIMITED RS.87,51,56,000/ - . (II) 10 FLATS RETAINED BY ASSESSEE CONSISTING TOTAL AREA OF 16,115 SQUARE FEET WHICH ASSESSEE HAD BEEN SOLD FOR RS.6,70,96,000/ - . (III) 5 SHOPS RETAINED BY ASSESSEE. OUT OF WHICH 4 SHOPS HAD BEEN SOLD AMOUNTING TO RS.L6,03,49,600/ - AND ONE SHOP NO. 18 IN C WING IS NOT SALEABLE UNIT AND THIS IS AMENITIES SPACE PROVIDED FOR THE SOCIETY. (IV) TOTAL TDR SOLD AMOUNTING TO RS.5,38,89,113/ - . ASSESSEE IS FOLLOWING PERCENTAGE COMPLETION METHOD FOR DISCLOSING PROFIT ON THE PROJECT. DURING POST SURVEY PROCEEDINGS A SUMMONS U/S. 131 OF THE IT. ACT,1961 WAS ISSUED VIDE DATED 18/10/2016 TO PARTNERS OF M/S. MONARCH & QUERESHI BUILDERS REQUESTING TO PERSONALLY ATTEND ON 21/10/2016 AND EXPLAIN THE RECEIPTS OF SUM OF RS.87,51,56,000/ - RECEIVED FROM M/S. EVERSHINE BUILDERS PVT. LTD. OFFERED FOR TAXATION( YEAR WISE) AND ALSO CONSTRUCTION COST INCURRED AND CLAIMED AGAINST THESE RECEIPTS WITH NECESSARY DOCUMENTARY EVIDENCE LIKE COPY OF ROI, AUDITED ACCOUNTS AND EXPENSES DETAILS FOR VERIFICATION. THERE IS NO COMPLIANCE TO THE SUMMONS AND ASSESSEE ONLY FILED LETTER DATED 19/10/2016 REQUESTING ADJOU RNMENT. FURTHER, A SHOW CAUSE WAS ISSUED TO YOU BY UNDERSIGNED ON 28/10/2016 ON WHY A PENALTY U/S. U/S. 274 R.W.S. 272(A) (I) (C) OF THE ACT, 1961 SHOULD NOT BE LEVI ED IN YOUR CASE. AGAIN A GENERAL REPLAY WAS RECEIVED FROM YOUR SIDE. HENCE A PROPOSAL WAS S ENT TO JT. CIT - RANGE 33(2),MUMBAI FOR LEVY OF PENALTY U/S. 274 R.W.S. 272(A)(I)(C) OF THE ACT,1961. IT IS NOTED THAT YOU DID NOT APPEAR EVEN BEFORE HIM TO EXPLAIN WHY THE PENALTY SHOULD NOT BE LEVIED A PENALTY U/S. 272A(1)( C) R.W.S. 272A(3)( C ) OF THE IN COME TAX ACT ,1961 VIDE HIS ORDER DATED 25/11 /2016( COPY MARKED TO ME). . DURING THE POST SURVEY PROCEEDINGS AND SCRUTINY PROCEEDINGS, ASSESSE HAS TEEN REQUESTED TO FURNISH DOCUMENTARY EVIDENCES OF ABOVE RECEIPTS OFFERED FOR TAXATION AND DETAILS OF EXPENSE S INCURRED BY IT ON CONSTRUCTION OF REHAB BUILDINGS SO AS TO VERIFY THE 9 ITA NO. 2714/MUM/2018 PROFIT ON THE PROJECT. THE ASSESSE HAS NOT COMPLIED THE NOTICES ISSUED. EVEN DURING THE SURVEY PROCEEDINGS, THE BOOKS OF ACCOUNTS FOR A.Y. 2002 - 03 TO A.Y. 2009 - 10 WERE NOT PRODUCED FOR VERIFICATION. DURING THE SURVEY PROCEEDINGS THE ASSESSEE HAS ESTIMATED THE COST AT FLS.100/ - CRORES AND PROFIT @ RS.9% ON TOTAL RECEIPTS OF RS. 115,64,90,713/ - WHICH COMES TO RS.10,40,84,164/ - . OUT OF THIS, ASSESSEE HAD ALREADY DECLARED PROFIT OF RS.1,66, 32,900/ - IN A.Y. 2012 - 13 TO A.Y. 2014 - 15. HENCE BALANCE TAXABLE PROFIT ( ARRIVED AT RS.9,33,67,010/ - HAS OFFERED FOR TAXATION IN A.Y. 2015 - 16. THIS PROFIT IS NOT ACCEPTABLE AS ASSESSE HAS ESTIMATED ITS PROFIT AT 9%, HOWEVER, CONSTRUCTION COST INCURRED BY IT WERE NOT SUBSTANTIATED WITH ANY DOCUMENTARY EVIDENCES. SO WITHOUT SUBSTANTIATING THE COST, ITS PROFIT ESTIMATES @ 9% IS NOT ACCEPTABLE. FURTHER, PROFIT OF 10 FLATS AND 4 SHOPS WHICH WERE SOLD BY THE ASSESSEE WERE NOT DISCLOSED IN ITS ROI FILED. ASSESSEE HAS OFFERED ONLY RECEIPTS OF LS.87,56,51,000/ - UNDER PERCENTAGE METHOD. THE ASSESSEE HAS FAILED TO RECOGNIZE R EVENUE ON ACCOUNT OF THESE F LATS/SHOPS IN TERMS OF REVISED ACCOUNTING STANDARD, WHEREIN REVENUE HAS TO BE RECOGNIZED IN THE YEAR I N WHICH IT HAS EARNED AND THE SA ME CANNOT BE POSTPONED TO FUTURE. THIS WAS SUFFICIENT REASONS TO HOLD THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE UNRELIABLE, INCORRECT AND INCOMPLETE. THEREFORE, IT IS PROPOSED TO REJECT THE BOOKS ACCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) FOR A.Y. 2014 - 15. 2. DURING POST SURVEY PROCEEDINGS, A SUMMONS WERE ISSUED TO M/S. EVERSHINE CONSTRUCTION. PVT. LTD FOR VERIFICATION OF TRANSACTION MADE WITH ASSESSEE. THE COMPANY HAS FURNISHED THE DATE WISE PAYMENTS OF RS.87,51,55,999/ - CRORES MADE TO THE ASSESSEE. THE COMPANY STATED THAT CONSTRUCTION OF EVERSHINE COSMIC UP TO 17TH FLOOR MADE BY IT AND CONSTRUCTION COST OF RS.234,05,01,832/ - ( A.Y. 2005 - 06 TO A.Y. 2016 - 17) REFLECTED IN ITS PAL ACCOUNT. THE SALE UPTO 17 TH FLOOR EXCEPT FLATS/ /SHOPS RETAINED BY ASSESSE WERE OFFERED IN ITS BOOKS OF ACCOUNTS. IT MEANS 87 C ORES RECEIPTS AND INCOME ON 10 FLATS PLUS 4 SHOPS ARE ASSE SSES PROFIT ON E ERSHINE COSMIC BUILDING UPTO 17TH FLOOR. 3. DURING THE A.Y. 2014 - 15, THE ASSESSEE HAS DISCLOSED WIP OF :S.25,03,52,730/ - ( EVERSHINE COSMIC, GAURAV LEGEND, SLUM BUILDING) AND CONSTRUCTION COST DURING THE YEAR IS RS.71,393,416/ - , PROJECT COST SALE OF S.181,674,266/ - PROFIT @ 9% RS.64,25,407/ - AND CLOSING WIP IS AT S.284,817,893/ - . THE TOTAL ADVANCES RECEIVED AS ON 31/03/2014 FOR EVERSHINE COSMIC B UILDING IS RS.72,12,68,808/ - AND FOR GAURAV LEGE ND IS RS.75,24,08,122/ - . A NET PROFIT OF 9% OFFERED FOR TAXATION ON CONSTRUCTION COST INCURRED DURING THE YEAR. VIDE NOTICE ISSUED U/S. 142(1) DATED 24/10/2016, ASSESSEE HAS BEEN REQUESTED TO FURNISH THE DETAILS OF ADVANCES RECEIVED OF EVERSHINE COSMIC BUILDING TOWARDS BOOKING OF FLATS FROM 18 TH AND ABOVE FLOORS AND ADVANCES RECEIVED OF G AURAV LEGEND BUILDING AND EXPENSES INCURRED TOWARDS CONSTRUCTION COST INCURRED F ROM 18 TH FLOORS AND ABOVE AND CON STRUCTION COST INCURRED TOWARDS G AURAV LEGEND. DE TAILS HAVE ALSO BEEN CALLED FOR CONSTRUCTION COST INCURRED TOWARDS SLUM BUILDINGS. I T IS ALSO REQUESTED TO EXPLAIN THE BASIS OF COMPUTING PROFIT ON PERCENTAGE C OMPLETION METHOD AT 9% DECLARED. HOWEVER, YOU DID NOT ATTEND ON THE SAID DATE A ND THROUGH COURIER SOUG HT ADJOURNMENT OF 11 DAYS ON THE GROUND THAT STAFF WAS BUSY DUE TO DIWALI. IN YOUR REPLAY, YOU STATED GENERAL COMMENT LIKE 'DETAILS OF CONSTRUCTION COST HAVE BEEN SUBMITTED AT THE TIME OF ASSESSMENT U/S. 143(3) FO R THE YEAR ENDED 31/03/2008 TO 31/03/2014' NO OTHER DETAILS HAVE BEEN FI LED. SINCE ASSESSEE HAS NOT FURNISH ESTIMATED PROJECT COST OF THE PROJECT AND AL SO NOT SUBSTANTIATED PROJECT COST INCURRED, ITS WORKING OF 9% NET PROFIT OFFERED F OR TAXATION IS NOT FOUND ACCEPTABLE. THE PROFITS OF 2 0% IN THIS LINE OF BUSINESS IS VE RY MUCH SURE AND HENCE 10 ITA NO. 2714/MUM/2018 PLEASE EXPLAIN AS TO WHY PROFIT OF 20% ON PROJECT COST IN CURRED DURING THE YEAR AS PER PERCENTAGE COMPLETION METHOD SHOULD NOT BE IMPUTED WHILE ASSESSING THE TOTAL INCOME OF THE ASSESSE. (4) THE ASSESSEE CLAIMED COMPENSATION PAI D OF RS.1,32,91,740/ - IN ITS P&L AC COUNT FILED FOR A.Y. 2014 - 15. IN THIS REGARD, PLEASE FURNISH FOLLOWING DETAILS FOR VERIFICATION: A. COPY OF ORIGINAL AGREEMENT MADE WITH THE PARTY; B. DETAILS OF ADVANCE RECEIVED FROM THE PARTY TILL ! C ANCELLATION OF PURCHASE ( DATE WISE AMOUNT RECEIVED); C. COPY OF CANCELLATION DEED, D. PROOF OF REFUND OF ADVANCE TO THE PARTY. E. TREATMENT GIVEN IN YOUR BOOKS OF ADVANCE RECEIVED, F. DETAILS OF PRESENT PURCHASER AND COPY OF NEW PURCHASE AGREEMEN T MADE; PLEASE NOTE THAT IN ABSENCE OF JUSTIFICATION WITH DOCUMENTARY EVIDENCES, YOUR C LAIM WILL BE DISALLOWED AS PER PROVISION OF SECTION 37(1) OF THE ACT. (5) COPY OF INDIVIDUAL TRANSACTION STATEMENT RELATED TO YOUR PAN IS ENCLOSED HEREWITH FOR YOUR RECONCILIATION. PLEASE RECONCILE AND FURNISH THE REPLAY ALON G WITH D OCUME NTARY EVIDENCES. (6) DURING THE SCRUTINY PROCEEDINGS, DETAILS OF FLATS REGISTERED WITH STAMP A UTHORITY WERE RECEIVED. ON VERIFICATION OF THE INDEX, IT IS NOTICE THAT MARKET VAL UE ADOPTED BY STAMP DUTY AUTHORITY IS MORE THAN THE AGREEMENT VALUE OF THE P ROPERTY. THE DETAILS OF THE SAME ARE GIVEN AS UNDER: 12. THEREAFTER, THE A.O. HAS GIVEN THE DETAILS AND FINALLY OBSERVED AS UNDER: P LEASE EXPLAIN WHY THE VALUE ASSESSED BY STAMP DUTY AUTHORITY SHALL NOT BE TREATED AS YOUR SALE VALUE FOR COMPUTING PROFIT A GAINS FROM SUCH SALE AS PER THE PROVISION OF SECTION 43CA OF THE ACT. (7) FURNISH DETAILS OF TDS MADE ON BROKERAGE PAID RS. 1 ,13,2755 2/ - (PERSON WISE DETAILS OF TDS MADE AND DEPOSITED SHOULD BE FURNISH). ( 8) FURNISH CONSTRUCTION COST INCURRED RS.13,44,94,531/ - , LABOUR CHARGES RS.1,17,54,908/ - , SRA PAYMENT RS.1,00,00,000 / - FOR VERIFICATION. YOU ARE THEREFORE REQUESTED TO FURNISH THE ABOVE INFORMATION WITHIN 5 DAYS OF RECEIPT OF THIS NOTICE. IN CASE, IF YOU FAIL TO SUBMIT THE REQUISITE DETAILS, THE A SSESSMENT WILL BE FINALIZED ON THE BASIS OF MATERIAL AVAILABLE WITH THIS OFFICE WITHOUT GIVING FURTHER INTIMATION. A NOTICE U/S. 142( 1) OF THE ACT IS ENCLOSED HEREWITH FOR YOUR COMPLIANCE. 13. THE ASSESSEE DULY RESPONDED TO THE SAME. IT GAVE THE NECESSARY DETAILS AND INTER ALIA MENTIONS THAT THE FIRM HAS BEEN OFFER ING 9% OF THE PROFIT OF WORK DONE DURING THE YEAR. THAT THE SAID METHOD IS FOLLOWED CONSISTENTLY AND IT HAS BEEN ACCEPTED BY THE INCOME TAX DEPARTMENT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. V. S. DEMPO & CO. PVT. LTD. 11 ITA NO. 2714/MUM/2018 REPORTED IN 131 CTR 203 AND ALSO ON THE DECISION OF ITAT, MUMBAI BENCH C IN ITA NO. 2704/BOM/1982 FOR A.Y. 1976 - 77 IN THE CASE OF MALAD SHOPPING CENTRE PVT. LTD. VS. ITO REPORTED IN 17 TTJ (BOM) 125 (1983). THE ASSESSEE FURTHER STATED THAT SECTION 145 STATES THAT THE INCOME ASSESSABLE WOULD BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE ABOVE METHOD IS REGULARLY FOLLOWED AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THAT THE CHOICE OF METHOD OF ACCOUNTING LIES WITH THE ASSESSEE WHICH SHOULD BE REGULARLY FOLLOWED. THE DEPARTMENT CANNOT COMPEL TO CHOOSE A PARTICULAR METHOD OF ACCOUNTING JUGGILAL KAMPLAPAT BANKERS VS. CIT [1975] 101 ITR 40 (ALL.). THAT IN ORDER TO REJECT THE ABOVE METHOD, THE DEPARTMENT MUST MAKE A STRONG CASE TO SHOW THA T THE EARLIER METHOD WAS ERRONEOUSLY ACCEPTED AS CORRECT. THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 145, THE DEPARTMENT MUST SHOW THERE IS INCOME ACCRUED DURING THE YEAR WHICH CANNOT BE ASCERTAINED. [1994] 49 ITR 479 (BOM)(AT) SHAPOORJI PALLONJI & CO. P. LTD. THE ASSESSEE ALSO MA DE REFERENCE TO THE OTHER CASES FROM THE HON'BLE APEX COURT AND THE OTHER HIGH COURTS AND SUBMITTED THAT THE METHOD OF ACCOUNTING PROFIT 9% ON COST INCURRED DURING THE YEAR IS CORRECT AND THE PROPOSED 20% ESTIMATION OF PROF IT BY THE A.O. WAS TO BE NOT APPLIED. IN THIS REGARD, WE MAY GAINFULLY REFER TO THE ASSESSEES RESPONSE REPRODUCED IN PAPER BOOK PAGE NOS. 44 TO 4 5 AS UNDER: 1 . COPY OF BALANCE SHEET, PROFIT & LOSS A/C WITH SCHEDULE, TAX AUDIT REPORT U/S 44AB WITH 3CD AND COPY OF IT ACKNOWLEDGEMENT, COMPUTATION OF TOTAL INCOME FOR THE A.Y. 2003 - 04, 2004 - 05, 2005 - 06, 2006 - 07, 2007 - 08, 2008 - 09, 2009 - 10, 2010 - 11, 2011 - 12, 2012 - 13, 2013 - 14, 2014 - 15,A.Y.15 - 16. (13 YEARS) HAVE ALREADY BEEN S UBMITTED VIDE LT.DT.08.12.2016. 2. COP Y OF LEDGER A/C. OF EVERSHINE BUILDERS SINCE INCEPTION FROM A.Y.03 - 04 TILL A.Y.15 - 16., SUBMITTED VIDE TTDT.08.12.2016, SHOWING YEARWISE ACCOUNTING EFFECT GIVEN. 3. CALCULATION CHART WHICH WAS MADE AT THE TIME OF SURVEY ON WHICH DECLARATION WAS MADE OF RS. 9,33,67,010/ - I S ENCLOSED. THE SAME WAS SUBMITTED VIDE L T. DT. 01.11.2016. 12 ITA NO. 2714/MUM/2018 ALSO DECLARATION OF RS. 3 CRORES WAS MADE U/S. 43 CA - THUS THE TOTAL DECLARATION MADE WAS RS.L2,33,67,010/ - .0NLY,AFTER ACCEPTANCE THE SURVEY WAS CONCLUDED. 3 COPY OF INCOME TAX ORDER S U/S.!43(3) FOR A.Y.08 - 09,10 - 11,11 - 12,12 - 13,13 - 14 ARE ENCLOSED WHEREIN AT THE TIME OF SCRUTINY ;ALL ISSUES WERE EXAMINED/DISCUSSED AND REQUIRED DETAILS SUBMITTED. 4 COPY OF STATEMENT U/S.131 DT.10.12.2012, PERTAINING TO SURVEY CONDUCTED U/S.133A IS ENCLOS ED. PI. REFER THE SAME AND ALSO REFER Q.33 WHEREIN THERE WAS NO PROFIT IN THE PROJECT AND IN Q..34 WE HAVE ALREADY SHOWN 9% PROFIT ON WIP DURING THE YEAR FOR WHICH WE HAD FILED REVISED RETURN FOR A.Y.12 - 13 , COPY ENCLOSED. ALSO, THE SAME ISSUE WAS EXAMINED AT THE TIME OF SCRUTINY U/S. 143(3), COPY OF ORDER SUBMITTED VIDE PT.3 ABOVE. THE SAID METHOD OF ACCOUNTING IS CONTINUING TILL DATE AND DULY ACCEPTED BY THE DEPARTMENT. ALSO,THE SAID METHOD ACCOUNTING IS STATED IN OUR NOTES TO ACCOUNTS. 5. THE SALE OF 10 FLATS & 4 SHOPS HAVE BEEN DULY DISCLOSED IN THE BALANCE SHEET FOR A.Y.13 - 14,A.Y.14 - 15 UNDER HEAD ANNEXURE - 1. PI. REFER BALANCE SHEETS AS PER OUR LT.DT.08.12.2016.SO,WE HAVE ALREADY OFFERED RECEIPTS FOR THE SAME WHEREIN REVENUE IS RECOGNIZED AND NOT POSTPON ED. SO, THE BOOKS CAN'T BE REJECTED ON THIS GROUN D. 6 . DETAILS OF ADVANCES RECEIVED FROM CUSTOMERS ABOVE 18 FLOORS HA VE ALREADY BEEN SUBMITTED VIDE L T. DT . 11.08.2016,ANNEXURE - 4,PT.5.DETAILS OF CONSTRUCTION COST IS AS PER SCH.9 OF B/S.PARTY WISE BREAK - UP O F PURCHASES ALONGWITH CONFIRMATION IS SUBMITTED AS PER ANNEXURE - 7,PT,9. LETTER COPY ENCLOSED FOR YOUR RECORD. SO, T HE BOOKS CAN'T BE REJECTED ON THIS GROUND. 7. THE,FIRM HAS BEEN ACCRUING 9% OF PROFITS OF WORK DONE DURING THE YEAR .THE SAID METHOD IS FOLLO WED CONSISTENTLY AND IT IS ACCEPTED BY THE INCOME TAX DEPARTMENT. RELIANCE IS PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS.V.S.DEMPO & CO.PVT.LTD. REPORTED IN 131 CTR 203 AND ALSO ON THE DECISION OF HON'BLE ITAT,MUMBAI BENCH 'C IN ITA NO.2704/BOM/1982 A.Y.1976 - 77 IN THE CASE OF MALAD SHOPPING CENTRE PVT.LTD VS.LTO REPORTED IN 17 TTJ(BOM) 125(1983). SEC.145 STATES THAT THE INCOME ASSESSABLE WOULD BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE A SSESSEE. THE ABOVE METHOD IS REGULARLY FOLLOWED AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THE C HOICE OF METHOD OF ACCOUNTING LIES WITH THE ASSESSEE WHICH SHOULD BE REGULARLY FOLLOWED. CITV.MCMILLAN & CO.{1958) 33 ITR 182 (SC).THE DEPARTMENT CANNOT COMPEL TO CHOOSE A PARTICULAR METHOD OF ACCOUNTINGJUGGIIAL KAMLAPAT BANKERS V.CIT (1975) 101 ITR 40 (ALL.). IN ORDER TO REJECT THE ABOVE METHOD THE DEPARTMENT MUST MAKE A STRONG CASE TO SHOW THAT THE EARLIER METHOD WAS ERRONEOUSLY ACCEPTED AS CORRECT.IN ORDER TO INVOKE THE PROVISIONS OF SECL45 THE DEPARTMENT MUST SHOW THERE IS INCOME ACCRUED DURING THE YEAR WHICH CANNOT BE ASCERTAINED. (1994) 49 ITD 479 (BOM) (AT) SHAPOORJ'I PALLQNJI&CO.P.LTD. AS PER THE PROVISIONS OF THE ACT, REAL INCOME WOULD BE TAXABLE. REAL INCOME CAN BE CALCULATED AFTER ALLOWING ALL THE EXPENSES RELATED TO EARNING OF INCOME.NOT LESS THAN AN AUTHORITY IN THE CASE OF STATE BANK OF TRAVANCORE VS.CIT (1986) 158 ITR 1029 SC) THAT 'IT IS THE INCOME WHICH HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE THAT IS TAXABLE,AND WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE THAT IS TAXABLE ,AND WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THEIR LIGHT OF THE REALITY OF THE SITUATION.' 13 ITA NO. 2714/MUM/2018 THE SAME RATIO HAS BEEN REITERATED BY THE HON'BLE SUPREME COURT IN RECENT CASE OF CIT VS.SHRL PRAKASH JANAK RAJ & CO. (P) LTD,(1996) 222 ITR 183{SC).THE HON'BLE GUJRAT HIGH COURT HAS ALSO BEEN OBSERVED IN THE CASE OF RAJKOT DIST.GOPALAK CO - OP MILK INDUSTRIES U NION LTD VS.CIT (1983) 204 ITR 590 THAT ' TRUE NATURE OF THE OBLIGATION MUST BE LOOKED INTO.WHAT IS TAXABLE IS THE REAL INCOME; IT IS THAT INCOME WHICH REACHED THE ASSESSEE THAT HAS TO BE REGARDED AS THE REAL INCOME.' OUR, METHOD OF ACCOUNTING PROFIT @9%ON COST INCURRED DURING THE YEAR IS CORRECT WE, DI SAGREE YOUR CONTENTION OF ESTIMATING PROFIT @ 20% OF COST INCURRED DURING THEYEAR AS YOU ARE REQUESTED TO GIVE DETAILS OF ASSESSEE TO WHICH YOU RELY ON HOW 20% PROFIT IS ARRIVED WHEREIN THE FACTS ARE IT IS AN SRA PROJECT, STARTED SINCE 2003 BY AN PARTNERSHIP FIRM,NOT YET COMPLETED T 28 STOREY TOWER, MAJOR FLATS SOLD AT AN EARLY DATE, CHANGES IN DCR RULES, NO LOANS TAKEN FROM FINANCIAL INSTITUTIONS, DEMONETIZATION LOSS ETC. TO, BE PRECISE OUR METHOD OF ACCOUNTING PROFIT @ 9% ON COST INCURRED DURING THE YEAR IS CORRECT AND WE DISAGREE YOUR ESTIMATION OF PROFIT @ 20% ON COST INCURRED AS STATED FROM THE ABOVE FACTS. 14. FROM THE ABOVE, WE FIND THAT THE ISSUE OF RECEIPT OF INCOME BY THE ASSESSEE PURSUANT TO THE HON'B LE HIGH COURT ORDER, THE METHOD OF ACCOUNTING AND THE RATE OF PROFIT OFFERED BY THE ASSESSEE WERE ALL ENQUIRED BY THE A.O. THE ASSESSEE HAS DULY GIVEN THE RESPONSE MAKING THE PROPOSITION THAT THE SYSTEM REGULARLY ADOPTED CANNOT BE TINKERED WITH WITHOUT GIV ING THE FINDING TO THE CONTRARY. SEVERAL CASE LAWS FROM THE HON'BLE JURISDICTIONAL HIGH COURT AND HON'BLE APEX COURT AND OTHER HIGH COURTS WERE QUOTED. NOW CONSIDERING THE ABOVE , THE A.O. HAS ACCEPTED THE INCOME OFFERED BY THE ASSESSEE. HERE WE OBSERVE THA T T HE DIRECTION OF THE LD. CIT(A) THAT STAGE UPTO THE RECEIPT OF AMOUNTS PURSUANT TO THE HON'BLE HIGH COURT ORDER SHOULD BE TREA TED AS FIRST STAGE IGNORING ALL THE EXPENDITURE LIKELY TO BE INCURRED SUBSEQUENTLY ON THE PROJECT CANNOT BE SAID TO BE A SACROSA NCT V IEW. IN THESE CIRCUMSTANCES, THE ACCEPTANCE OF THE ASSESSEES EXPLANATION BY THE A.O. CANNOT BE SAID TO BE EX - FACIE BAD . THE ASSESSEES EXPLANATION AND THE A.O.S ACCEPTANCE THEREOF CANNOT BE SAID TO BE A NOT POSSIBLE VIEW. IT IS SETTLED LAW THAT IF THERE ARE TWO POSSIBLE VIEWS AND THE LD. CIT(A) IS NOT IN AGREEMENT WITH THE VIEW ADOPTED BY THE A.O., HE CANNOT EXERCISE HIS JURISDICTION U/S. 263 OF THE ACT, UNLESS THE VIEW ADOPTED BY THE 14 ITA NO. 2714/MUM/2018 A .O. IS NOT A LEGALLY PE RMISSIBLE ONE. IN THIS REGARD, WE PLACE RELIANCE UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) AND CIT VS. MAX INDIA LTD . (2007) 295 ITR 282 (SC) IF THERE ARE TWO VIEWS POSSIBLE AND THE A.O. HAS ADOPTED ONE VIEW, WITH WHICH THE LD. CIT IS NOT IN AGREEMENT, THE ORDER CANNOT BE SAID TO BE LIABLE TO BE VISITED WITH THE REVISIONARY ORDER BY THE LD. CIT. 15. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE ARE OF THE CONSIDERED OPINION THAT THE ME THOD OF ACCOUNTING AND THE RATE OF INCOME APPLIED BY THE ASSESSEE HAS BEEN DULY EXAMINED BY THE A.O. AND HE HAS TAKEN A LEGALLY PERMISSIBLE VIEW . HENCE, THE LD. CIT IS NOT WITHIN THE JURISDICTION TO PASS AN ORDER U/S. 263 OF THE ACT. 16. ANOTHER LIMB OF THE ASSESSEES CHALLENGE IS THAT THERE IS NO FINDING BY THE LD. CIT AS TO HOW THE ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARD, WE NOTE THAT THOUGH THE LD. CIT HAS REFERRED THAT THE ASSESSEES MET HOD OF ACCOUNTING IS NOT CORRECT . H OWEVER, BY REFERENCE TO WHAT STANDARD OR PARAMETER HE HAS COME TO THE CONCLUSION THAT HAS NOT BEEN SPECIFIED. IT IS ADMITTED THAT THIS METHOD OF ACCOUNTING WAS ACCEPTED BY THE DEPARTMENT IN EARLIER AND SUBSEQUENT A SSESSME NT YEAR. I T IS NOT THE CASE THA T THE LD. CIT HAS REFERRED TO S O ME ACCOUNTING STANDARD OR S O ME METHOD OF ACCOUNTING OR ANY GUIDELINE S TO COME TO THE CONCLUSION THAT THE ASSESSEES METHOD OF ACCOUNTING IS NOT CORRECT. IN FACT, THE LD. CIT IS NOT SURE ABOUT H IS DIRECTION HIMSELF , AS HE HAS DIRECTED THAT THE A.O. MAY CONSIDER A SPECIAL AUDIT ALSO. HENCE, THE ASSESSEE SUCCEEDS ON THIS LIMB ALSO THAT IN THE ORDER PASSED U/S. 263, THE LD. CIT HAS NOT GIVEN A FINDING AS TO WHAT IS THE ERROR AND PREJUDICE IN THE A.O .S ORDER. FURTHERMORE, WE FIND THAT THE LD. CIT HAS CERTAINLY EXCEEDED HIS JURISDICTION WHEN HE 15 ITA NO. 2714/MUM/2018 DIRECTED THE A.O. TO EXAMINE THE ASSESSEES ACCOUNTS FOR YEARS OTHER THAN THE ONE , SUBJECT MATTER OF THE A.OS CONSIDERATION DURING THE ASSESSMENT YEAR. IN TH ESE CIRCUMSTANCES, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, IN OUR CONSIDERED OPINION, THE EXERCISE OF JURISDICTION U/S. 263 OF THE ACT IS LIABLE TO BE QUASHED. WE DIRECT ACCORDINGLY. 17. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STA NDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.2019 SD/ - SD/ - ( SANDEEP GOSAIN ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 01.03.2019 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI