OM SHARMA BUILDERS, MUMBAI V. ITO 5(2)(1), MUMBAI

ITA 2803/MUM/2009

• Counselvise Citation: 280319914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V S SAMUEL
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Charitable institution; Bonafide belief
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 2803 & 5486/MUM/2009 (ASSESSMENT YEARS: 2004-05) M/S. OM SHARMA BUILDERS P LTD. INCOME TAX OFFICER - 5(2)(1) OM SHARMA HOUSE AAYAKAR BHAVAN, M.K. ROAD 24 CARMICHAEL ROAD VS. MUMBAI 400020 MUMBAI 400026 PAN - AAACO 1782 A APPELLANT RESPONDENT APPELLANT BY: SHRI V.G. GINDE RESPONDENT BY: SHRI V.S. SAMUEL O R D E R PER B. RAMAKOTAIAH, A.M. THESE TWO APPEALS ARE BY THE ASSESSEE AGAINST THE O RDERS OF THE CIT(A)- V, MUMBAI WHO WHILE DELETING THE ADDITION MADE BY A O ENHANCED THE INCOME VIDE ORDER DATED 20.02.2009 AND LEVIED PENA LTY UNDER SECTION 271(1)(C) VIDE ORDER DATED 31.08.2009. 2. THE FACTUAL MATRIX INVOLVING THESE APPEALS ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY ESTABLISHED WITH THE OBJECT OF CARRYING ON THE BUSINESS AS BUILDERS AND DEVELOPERS, ENTERED INTO A N AGREEMENT TO PURCHASE PROPERTY GLASS BUNGALOW SITUATED AT TARDEO FROM Z OROASTRIAN BUILDING FUND, A CHARITABLE TRUST ON 01.07.1986. THERE WERE PROBLEMS IN EXECUTING THE PURCHASE DEED AND THEREFORE THE MATTER WAS CARR IED TO COURT AND IN A CONSENT SETTLEMENT BEFORE THE HON'BLE BOMBAY HIGH C OURT THE TRUST AGREED TO SELL THE PROPERTY FOR A CONSIDERATION OF ` 1.96 CRORES AND THE PROPERTY WAS CONVEYED TO THE ASSESSEE ON 21.07.2003. DUE TO CONS IDERABLE DELAY IN THE DEVELOPMENT OF THE PROPERTY DUE TO LONG DRAWN LITIG ATION, ASSESSEE IN TURN ENTERED INTO AN AGREEMENT WITH M/S. SHALIBHADRA GRU H NIRMAN PVT. LTD. (SGNPL) VIDE AGREEMENT DATED 01.08.2003 AND GRANTED DEVELOPMENT RIGHTS TO THE SAID COMPANY. ASSESSEE RECEIVED AN AMOUNT OF ` 2,40,00,000/- FROM ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 2 THE SAID CONCERN FOR TRANSFERRING THE DEVELOPMENT R IGHTS IN CASH AND TO RECEIVE SALEABLE CONSTRUCTED AREA TO THE EXTENT OF 30% IN THE BUILDING BEING DEVELOPED. THERE ARE CERTAIN TERMS AND CONDITIONS I N THE AGREEMENT AND ACCORDING TO THE ASSESSEE THERE IS NO ACCRUAL OF IN COME DURING THE YEAR AND SHOWN THE PURCHASE PRICE AND OTHER INCIDENTAL EXPEN SES AS WORK-IN- PROGRESS IN THE BOOKS OF ACCOUNT WHILE REFLECTING T HE RECEIVED CONSIDERATION AS A LIABILITY. THE A.O., IN THE SCRUTINY ASSESSMEN T CONSIDERED THAT THE ASSESSEES METHOD OF ACCOUNTING IS NOT APPROPRIATE AND ESTIMATED THE INCOME ON PERCENTAGE COMPLETION METHOD AT 8% OF THE WORK-IN-PROGRESS THEREBY BRINGING TO TAX AN AMOUNT OF ` 17,29,622/-. ASSESSEE CARRIED THE MATTER TO THE CIT(A) WHO AFTER EXAMINING THE ISSUES DID NOT APPROVE THE PERCENTAGE COMPLETION METHOD ADOPTED BY THE A.O. BU T ENHANCED THE INCOME BY TREATING THAT ASSESSEE HAS SOLD 70% OF TH E AREA TOWARD DEVELOPMENT RIGHTS AND RECEIVED A CONSIDERATION OF ` 240 LAKHS AND ACCORDINGLY HE WORKED OUT THE INCOME TAKING THE COS T OF PURCHASE AT 70% OF THE PURCHASE PRICE AND OTHER INCIDENTAL AND BUSINES S EXPENSES AND DETERMINED THE INCOME AT ` 1,13,94,342. AS THERE WAS A MISTAKE IN TAKING THE RECEIPT ON ACCOUNT OF SALE AT ` 2.70 CRORES BY THE CIT(A) THE SAID ORDER WAS MODIFIED BY ANOTHER ORDER UNDER SECTION 154 WHE RE THE TOTAL INCOME WAS DETERMINED AT RS.83,94,344/-. IN ADDITION TO TH E ABOVE THE ACTION OF THE A.O. IN TREATING THE INTEREST RECEIVED CONSEQUENT T O THE CONSENT TERMS ON THE AMOUNT PAID EARLIER TO THE TRUST OF ` 20,11,254 AS OTHER SOURCE INCOME WAS ALSO UPHELD BY THE CIT(A). ACCORDINGLY ASSESSEE IS CONTESTING THE TWO ISSUES OF DETERMINING THE BUSINESS INCOME AND ASSESSMENT O F INTEREST INCOME IN THE GROUNDS RAISED. THE CIT(A) ALSO LEVIED PENALTY UNDER SECTION 271(1)(C) OF ` 30,11,471/- CONSEQUENT TO HIS ACTION OF ENHANCEMENT , WHICH THE ASSESSEE IS CONTESTING IN THE SECOND APPEAL. ITA 2803/MUM/2009 3. AS BRIEFLY STATED ABOVE, THE FIRST ISSUE IN THIS AP PEAL IS ASSESSMENT OF BUSINESS INCOME. EVENTHOUGH THE ASSESSEE RAISED THE GROUND CONTESTING THE AMOUNT OF ` 1,13,94,342/- CONSEQUENT TO THE ORDER UNDER SECTION 154 BY THE CIT(A) THE AMOUNT ULTIMATELY DETERMINED WAS ONLY ` 83,94,343/-. ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 3 ACCORDINGLY THE GROUNDS ARE MODIFIED TO THAT EXTENT . IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT THE CIT(A) HAS ERRED IN ENHANCING THE INCOME TREATING THE DEVELOPMENT RIGHTS ASSIGNED TO THE SAI D SGNPL AS SALE DURING THE YEAR AND INCOME ACCRUED THERE ON. IT WAS HIS SU BMISSION THAT ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD AND THERE AR E RISKS INVOLVED IN ASSIGNING THE DEVELOPMENT OF THE PROJECT IN THE SEN SE THAT THE VACATION OF TENANTS AND COMPLETION OF THE PROJECT IS SUBJECT TO VARIOUS CONDITIONS. IT WAS HIS SUBMISSION THAT SINCE THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD, THE INCOME HAS NOT ACCRUED. HE REFERRED TO VARIOUS TERMS OF THE AGREEMENT, WHICH ARE PLACED ON RECORD AND ALSO THE FACT THAT PART OF THE PROJECT MEANT FOR TENANTS WAS COMPLETED IN THE LATE R YEAR VIDE THE COMMENCEMENT CERTIFICATE GRANTED BY THE BMC ON 03.0 6.2004 AND FURTHER IT WAS SUBMITTED THAT THE BMC HAS NOT GRANTED COMPLETI ON CERTIFICATE OF THE ENTIRE PROJECT EVEN AS OF NOW. THEREFORE ASSESSEE H AS NOT OFFERED ANY INCOME ON THE PROJECT SO FAR AS THE PROJECT WAS NOT YET CO MPLETE AND THERE WERE DISPUTES. IT WAS HIS SUBMISSION THAT ONCE THE ASSES SEE FOLLOWED PROJECT COMPLETION METHOD THE ACCRUAL OF REVENUES ARE TO BE GUIDED BY THE GUIDANCE NOTE OF ICAI AS-9 AND BY THE JUDICIAL PRINCIPALS, P ARTICULARLY ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF E D SASSOO N 86 ITR7576. IT WAS SUBMITTED THAT THERE WAS NO INCOME ACCRUED DURING T HE YEAR AND ADVANCE RECEIVED IS ACCOUNTED AS LIABILITY IN THE BOOKS OF ACCOUNT AND THE PURCHASE PRICE PAID WERE SHOWN AS PART OF WORK-IN-PROGRESS. IT WAS FURTHER SUBMITTED THAT EXCEPT ENTERING INTO DEVELOPMENT AGREEMENT DUR ING THE YEAR ASSESSEE HAS NOT DONE ANY ACTIVITY. THEREFORE, THERE WAS NO INCOME ACCRUED DURING THE YEAR. FURTHER IT WAS SUBMITTED THAT ASSESSEE IS ALSO A JOINT DEVELOPER OF THE PROJECT AND ULTIMATE ASSESSABILITY OF INCOME WI LL INCLUDE NOT ONLY THE CASH PORTION RECEIVED BUT ALSO THE 30% OF THE BUIL T UP AREA. AS THERE ARE RISKS IN ASCERTAINING THE VALUE THAT ULTIMATELY BEI NG RECEIVED, ASSESSEE HAS NOT RECOGNISED ANY INCOME. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS LEARNED COUNSEL ALSO SUBMITTED THAT THE CIT(A) HAS ERRED IN NOT CONSIDERING THE OTHER DIRECT COST OF ` 8,17,330/- AND EXPENDITURE INCLUDED IN THE WORK- IN-PROGRESS. THEREFORE EVEN THE COMPUTATION IS NOT CORRECT. ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 4 4. THE LEARNED D.R., HOWEVER, SUBMITTED THAT AS PER TH E AGREEMENT ASSESSEE HAS HANDED OVER THE DEVELOPMENT RIGHTS TO THE EXTENT OF 70% AND RECEIVED AN AMOUNT OF ` 2.40 CRORES WHICH IS NOT REFUNDABLE, THEREFORE, THE CIT(A) IS RIGHT IN TREATING THAT THIS PORTION OF TH E TRANSACTION AS COMPLETE. WITH REFERENCE TO 30% DEVELOPMENT RIGHTS IT WAS SUB MITTED THAT THE SAME CAN BE QUANTIFIED ONCE ASSESSEE RECEIVES THE BUILT UP AREA AFTER FULFILLING THE OTHER TERMS AND CONDITIONS AND SUBMITTED THAT ASSES SEE HAS NOT OFFERED ANY INCOME EVEN NOW. THEREFORE THE SYSTEM OF ACCOUNTING COULD NOT BE ACCEPTED. HE RELIED ON THE ORDER OF THE CIT(A). 5. IN REPLY THE LEARNED COUNSEL SUBMITTED THAT THE CIT (A) WAS WRONG IN TREATING IT AS TRANSFER AS THE DEFINITION OF TRANSF ER UNDER SECTION 45 IS NOT APPLICABLE IN THIS CASE AS THE PROPERTY IS IN STOCK IN TRADE AND THE NORMAL COMMERCIAL PRACTICES ARE TO BE CONSIDERED AND THE C ONTRACT WOULD BE COMPLETE ONLY WHEN THE MUTUAL OBLIGATIONS ARE FULFI LLED. SINCE THE ASSESSEE HAS NOT DONE ANYTHING DURING THE YEAR UNDER CONSIDE RATION, THERE IS NO ACCRUAL OF INCOME. THEREFORE THE ORDER OF THE CIT(A ) IS NOT CORRECT. 6. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE AGREEM ENT PLACED ON RECORD ALONG WITH OTHER DOCUMENTS IN THE PAPER BOOK . IT IS A FACT THAT ASSESSEE INTENDED TO DEVELOP THE PROPERTY AND ENTER ED INTO AN AGREEMENT AS EARLY AS 01.07.1986 FOR PURCHASE OF THE PROPERTY. T HE ASSESSEE ALSO PURSUED LITIGATION AND ULTIMATELY SUCCESSFUL IN SETTLING TH E DISPUTE BY SIGNING CONSENT TERMS ON 03.03.2003 BEFORE THE HON'BLE BOMB AY HIGH COURT. THE PROPERTY WAS CONVEYED TO THE ASSESSEE ON 21.07.2003 AND IMMEDIATELY ON 1 ST AUGUST 2003 ASSESSEE IN TURN ENTERED INTO A DEVELO PMENT AGREEMENT WITH THE SAID SGNPL, ANOTHER COMPANY. AS PER THE TERMS O F AGREEMENT ASSESSEE IS SHOWN AS THE OWNER OF THE PROPERTY AND THE SAI D COMPANY AS DEVELOPER. AS RIGHTLY POINTED OUT BY THE CIT(A) IN HIS ORDER I T CANNOT BE CONSIDERED AS JOINT DEVELOPMENT AS THE TERMS OF AGREEMENT NOWHERE PERMITS SAID INTERPRETATION AND THE RIGHTS OF THE OWNER IS LIMIT ED TO HANDING OVER THE POSSESSION AND RECEIVING 30% OF CONSTRUCTED AREA LA TER. ASSESSEE INITIALLY RECEIVED AN AMOUNT OF ` 2.40 CRORES AFTER FULFILLING CERTAIN CONDITIONS AS STATED IN CLAUSE 1 OF THE AGREEMENT. THIS CLAUSE IN DICATES THAT THE MONEY ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 5 WAS TO BE KEPT IN ESCROW ACCOUNT CONTROLLED BY THE SOLICITORS M/S. JEHANGIR GULABBHAI & BILIMORIA & DARUWALLA. THERE IS NO DISP UTE WITH REFERENCE TO RECEIPT OF ` 2.40 CRORES DURING THE YEAR AFTER FULFILLING THE CO NDITIONS STATED IN CLAUSE 1 OF THE AGREEMENT. CLAUSE 2 OF THE AGREEMEN T STATES THAT THE DEVELOPMENT OF THE PROPERTY SHALL BE IN TWO PHASES. IN THE FIRST PHASE THE DEVELOPER WILL CONSTRUCT WITHIN FOUR MONTHS OF OBTA INING COMMENCEMENT CERTIFICATE BUILDING OF 8,000 SFT AREA FOR ACCOMMOD ATION OF TENANTS. CLAUSE 3 INDICATES THAT IN THE CASE OF ANY DISPUTE WITH REFE RENCE TO THE CONSTRUCTION OR PROVIDING ALTERNATE ACCOMMODATION TO THE TENANTS THE DEVELOPERS SHALL HAVE AN OPTION TO SHIFT THE TENANTS AND FAILING WHI CH THE DEVELOPER IS ENTITLED TO DISPOSE OF THE BUILDING CONSTRUCTED BY THEM IN T HE REAR SIDE OF THE PROPERTY AND RECOVER THE INTEREST AT 15% FROM THE O WNER. AS PER THE AVAILABLE INFORMATION ON RECORD THIS PART OF AGREEM ENT WAS FULFILLED AND THE COMMENCEMENT CERTIFICATE WAS ALSO GRANTED BY THE BM C ON 03.08.2004 SO THAT THE RISK INVOLVED WITH TENANTS WAS NOT A RISK AS SUCH. CLAUSE 4 INDICATES THAT IN ADDITION TO THE MONETARY CONSIDER ATION PAYABLE BY THE DEVELOPERS TO THE OWNER THE DEVELOPER SHALL ALSO AL LOT THE OWNER 30% OF CONSTRUCTED SALEABLE AREA IN THE FORM OF RESIDENTIA L FLATS. THE SECOND PHASE IS DEVELOPING THE BUILDING WHERE ASSESSEE HAS 30% S HARE IN CONSTRUCTED AREA. THUS THE AGREEMENT INDICATES THAT THERE IS A CASH PORTION OF CONSIDERATION AND CONSTRUCTED SALEABLE AREA OFFERED TO THE OWNER. SINCE THE ASSESSEE IS IN THE BUSINESS AND THE RECEIVED SUBSTA NTIAL PORTION OF AMOUNT TO AN EXTENT OF ` 2.40 CRORES, WE ARE OF THE OPINION THAT THE ACTION OF THE CIT(A) IN BRINGING TO TAX THIS LARGE PORTION OF INC OME AS ACCRUED DURING THE YEAR IS APPROPRIATE ON THE FACTS OF THE CASE. FIRST OF ALL THE AGREEMENT DOES NOT INDICATE THAT IT IS A JOINT DEVELOPMENT, SO THE ASSESSEE IS NOT IN THE PROJECT. HENCE THE PROJECT COMPLETION METHOD STATED TO HAVE BEEN ADOPTED BY THE ASSESSEE AND RELIED UPON IS NOT CORRECT ON T HE FACTS OF THE CASE. AS SEEN FROM THE ANNUAL REPORT OF THE COMPANY THE METH OD OF ACCOUNTING IS STATED AS UNDER: - A.1 ACCOUNTING CONVENTION THE FINANCIAL STATEMENTS ARE PREPARED UNDER HISTOR ICAL COST CONVENTION AND THE APPLICABLE MANDATORY ACCOUNTING ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 6 STANDARDS HAVE BEEN COMPLIED WITH EXCEPT AS STATED OTHERWISE IN THE FOLLOWING NOTES. A.2 METHOD OF ACCOUNTING THE COMPANY MAINTAINS ITS ACCOUNTS ON ACCRUAL BASI S. HOWEVER, CERTAIN ITEMS OF EXPENSES/INCOME, THE AMOU NT WHEREOF CANNOT BE PRECISELY DETERMINED OR IS NOT MA TERIAL, ARE NOT TAKEN INTO ACCOUNT. A.3 GOING CONCERN BASIS THE COMPANY IS HOPEFUL OF COMMENCING COMMERCIAL AC TIVITY IN THE NEAR FUTURE AND HENCE THE FINANCIAL STATEMENTS ARE PREPARED ON THE ASSUMPTION OF GOING CONCERN BASIS. 7. THIS INDICATES THAT THE COMPANY MAINTAINS ITS ACCOU NT ON ACCRUAL BASIS AND NOWHERE IT INDICATED THAT IT IS FOLLOWING PROJECT COMPLETION METHOD. IN FACT THE NOTE A.3 INDICATE THAT COMMERC IAL ACTIVITY HAS TO COMMENCE IN NEAR FUTURE. THE LEARNED COUNSEL RELIED UPON THE NOTE B. 8 AND B.9 WHICH ARE AS UNDER: - B.8 THE PRICE PAID FOR ACQUIRING A PLOT OF LAND AN D OTHER EXPENSES INCURRED IN RELATION THERETO AND RELATING TO CONSTR UCTION WORK IN PROGRESS AFTER ADJUSTING INCOME EARNED DURING CONST RUCTION PERIOD HAVE BEEN CARRIED FORWARD. B.9 PART CONSIDERATION RECEIVED IN RESPECT OF DEVEL OPMENT RIGHTS IS SHOWN UNDER CURRENT LIABILITIES SINCE THE DEVELOP MENT WORK IS STILL IN PROGRESS. 8. EVEN THOUGH ASSESSEE HAS TREATED THE RECEIPTS AS PA RT OF CONSTRUCTION WORK THERE IS NO SUCH CONSTRUCTION WORK UNDERTAKEN BY ASSESSEE AS PER THE AGREEMENT. IT IS THE RESPONSIBILITY OF THE DEVELOPE R TO UNDERTAKE CONSTRUCTION WORK AND HANDOVER 30% OF THE COMPLETED SALEABLE ARE A, WHICH INDICATES THAT THE ASSESSEE HAS RIGHT ONLY TO THE EXTENT OF CONSID ERATION IN KIND BUT NO PARTICIPATION IN THE DAY-TO-DAY CONSTRUCTION ACTIVI TY AT ALL. IN FACT, FROM THE TIME THE POSSESSION IS HANDED OVER TILL IT IS CONST RUCTED, IT WAS SPECIFICALLY AGREED THAT THE DEVELOPER ALONE SHALL BEAR, INCUR A ND PAY THE ENTIRE COST OF PROPERTY INCLUDING FEES OF THE ARCHITECTS, ENGINEER S, CONSULTANTS, ETC. VIDE CLAUSE 19 OF THE AGREEMENT. VIDE CLAUSE 20 OF THE A GREEMENT THE OWNER HAS TO EXECUTE AN IRREVOCABLE POWER OF ATTORNEY TO DO A LL ACTS, DEEDS, MATTERS AND THINGS FOR THE DEVELOPMENT OF THE SAID PROPERTY AS MAY BE REQUIRED BY THE DEVELOPER AND THESE POWERS SHALL NOT BE REVOKED DURING THE SUBSISTENCE ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 7 OF THESE PRESENTS. THIS INDICATES THAT THE ASSESSEE AS OWNER HAS NO ROLE TO PLAY IN THE PROJECT COMPLETION. AS ALSO POINTED OUT BY THE CIT(A) THIS AGREEMENT CANNOT BE CONSTRUED AS PARTNERSHIP AS SPE CIFIED IN CLAUSE 23. IN VIEW OF THIS SINCE ASSESSEE HAS RECEIVED CONSIDERAT ION OF ` 2.40 CRORES AS PART OF HANDING OVER THE DEVELOPMENT RIGHTS TO THE BUILD ER, WE ARE OF THE OPINION THAT THE CIT(A) IS RIGHT IN BRINGING THE SAME TO TA X. AS PER THE AGREEMENT THE ASSESSEE HANDED OVER THE PROPERTY FOR DEVELOPMENT B Y GIVING IRREVOCABLE POWER OF ATTORNEY. THE CONSIDERATION RECEIVED WAS A LSO NOT REFUNDABLE. THEREFORE WE SEE NO REASON TO INTERFERE WITH THE OR DER OF CIT(A). ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A). 9. THE ALTERNATE CONTENTION RAISED BY THE ASSESSEE IS WITH REFERENCE TO NON-CONSIDERATION OF CERTAIN EXPENDITURES WHILE CAL CULATING THE INCOME. IT IS THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE HAS IN CURRED AN AMOUNT OF ` 8,17,330/- AS DIRECT COST RELATING TO THE PROPERTY. AS SEEN FROM THE ANNUAL REPORT ASSESSEE HAS INCURRED ` 8,17,330/- TOWARDS PAYMENTS TO TENANTS, LEGAL EXPENDITURE AND BROKERAGE AND FURTHER AN AMOU NT OF ` 12,20,653/- TOWARDS OTHER EXPENDITURE. THE CIT(A) HAS NOT CONSI DERED AN AMOUNT OF ` 7,31,373/- PERTAINING TO TRAVELLING AND BUSINESS EX PENDITURE. SINCE THE ASSESSEE HAS INCURRED THESE EXPENDITURES DURING THE YEAR, WE ARE OF THE VIEW THAT WHILE WORKING OUT THE INCOME ON THE SALE OF DE VELOPMENT RIGHTS THE RELEVANT EXPENDITURE ALSO IS TO BE ALLOWED PROPORTI ONATELY. THEREFORE, THE A.O. IS DIRECTED TO TAKE INTO CONSIDERATION THE ABO VE TWO AMOUNTS OF INCIDENTAL EXPENDITURE OF ` 8,17,330/- AND OTHER EXPENDITURE OF ` 12,20,654/- IN THE SAME PROPORTION AND WORKOUT THE INCOME ACCOR DINGLY. WITH THIS DIRECTION GROUND NOS. 1.6 AND 1.7 ARE CONSIDERED AL LOWED TO THAT EXTENT. GROUNDS ARE PARTLY ALLOWED. 10. NEXT ISSUE IS WITH REFERENCE TO ASSESSMENT OF INTER EST INCOME OF ` 20,11,254/-. AS CAN BE SEEN FROM THE FACTS OF THE C ASE ASSESSEE HAS EARNED AN INTEREST OF ` 20,11,254/- ON THE ADVANCES PAID FOR PURCHASE OF PR OPERTY AS PER THE COURT ORDERS. THIS AMOUNT WAS ADJUSTED IN T HE ULTIMATE CONSIDERATION BEING PAID TO THE SELLER OF THE PROPE RTY. ASSESSEE REDUCED THIS AMOUNT OUT OF THE TOTAL EXPENDITURE WHILE WORKING O UT THE CONSTRUCTED ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 8 WORK-IN-PROGRESS IN THE BOOKS OF ACCOUNT. THE A.O. TREATED IT AS PART OF OTHER SOURCE INCOME. CIT(A), AFTER DISCUSSION VIDE PARA 3 .3, CONFIRMED THE SAME. 11. BEFORE US IT WAS THE SUBMISSION THAT THE RECEIPT OF INTEREST HAS INEXTRICABLY LINKED TO THE ACQUISITION OF THE PROPE RTY, THEREFORE, SEPARATE ADDITION OF RS.20,11,254/- SHOULD NOT HAVE BEEN MAD E. 12. WE HAVE CONSIDERED THE ARGUMENTS OF THE RIVAL PARTI ES AND THE ACTION OF THE A.O. AND CIT(A) IN THIS REGARD. AS SEEN FROM THE ORDER OF THE HON'BLE HIGH COURT OF JUDICATURE AT BOMBAY IN WRIT PETITION NO. 3597 OF 1989, VIDE THE CONSENT TERMS ASSESSEE WAS GRANTED INTEREST ON THE DEPOSITS MADE TOWARDS CONSIDERATION. NOT ONLY THAT THE CHARITY CO MMISSIONER VIDE ITS ORDER DATED 01.07.2003 ALSO ALLOWED INTEREST ACCRUE D ON THE PRINCIPAL ON DEPOSITS WITH THEM MADE BY THE ASSESSEE WAY BACK IN MARCH 1990 TOWARDS THE CONSIDERATION. THEREFORE THIS INTEREST HAS ACCR UED TO THE ASSESSEE NOT ONLY BY THE COURT ORDER BUT ALSO BY THE ORDER OF TH E CHARITY COMMISSIONER. ASSESSEE AGREED TO CONSIDER THE AMOUNT OF INTEREST RECEIVED TOWARDS PART PAYMENT AND WAS ADJUSTED ACCORDINGLY AS PAYMENT TO THE TRUST. SINCE THE AMOUNT WAS FIRST RECEIVED AS INCOME WHICH WAS DISCH ARGED TOWARDS PAYMENT OF SALE CONSIDERATION, WE ARE OF THE OPINIO N THAT BOTH THE A.O. AND THE CIT(A) IS CORRECT IN TREATING THE INTEREST RECE IPT AS INCOME OF THE YEAR. EVENTHOUGH THE INCOME WAS ASSESSED AS INCOME FROM O THER SOURCES, WE ARE OF THE OPINION THAT THIS IS TO BE TREATED AS BUSINE SS INCOME AS ASSESSEE HAS EARNED THE INTEREST TOWARDS PURCHASE CONSIDERATION PAID AS PART OF ITS BUSINESS. THEREFORE THIS INCOME IS DIRECTED TO BE A SSESSED AS BUSINESS INCOME. NECESSARY EXPENDITURE IN EARNING THE INCOME IS TO BE ALLOWED. HOWEVER, THERE IS NO CLAIM FOR ANY EXPENDITURE TO B E ALLOWED ON THIS EITHER BEFORE THE A.O. OR BEFORE THE CIT(A) OR BEFORE US. THEREFORE THIS INTEREST INCOME IS ASSESSABLE AS BUSINESS INCOME DURING THE YEAR WHICH WAS RECEIVED IN THE COURSE OF BUSINESS ACTIVITIES OF THE ASSESSE E. ASSESSEES GROUND IS REJECTED AND ORDERS OF THE A.O. AND CIT(A) ARE UPHE LD WITH THE DIRECTION THAT THE INCOME BE TREATED AS BUSINESS INCOME. 13. WITH THESE DIRECTIONS THE APPEAL IS CONSIDERED PART LY ALLOWED. ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 9 ITA NO. 5486/MUM/2009 14. THIS IS AN APPEAL AGAINST THE ORDER OF THE CIT(A) L EVYING PENALTY UNDER SECTION 271(1)(C). AS STATED ABOVE THE FACTS ARE TH AT THE A.O. INVOKED PERCENTAGE COMPLETION METHOD WHILE ESTIMATING THE I NCOME. THE CIT(A) HAS ENHANCED IT BY TAKING 70% OF THE DEVELOPMENT RIGHTS HANDED OVER DURING THE YEAR. FURTHER, HE INITIATED PENALTY PROCEEDINGS UND ER SECTION 271(1)(C). HE LEVIED PENALTY UNDER SECTION 271(1)(C) ON THE REASO N THAT ASSESSEE HAS NOT DISCLOSED INCOME OF ` 83,99,342/- IN THE RETURN OF INCOME BY CLAIMING TH AT THERE IS NO TRANSFER OF DEVELOPMENT RIGHTS. IT WAS THE CONTENTION OF THE CIT(A) THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND ACCORDINGLY PENALTY UNDER SECTION 271(1)(C) IS WARR ANTED. HE LEVIED PENALTY OF ` 30,11,471/-. 15. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT T HERE WAS NO FURNISHING OF INACCURATE PARTICULARS AND ALL THE DE TAILS WERE AVAILABLE ON RECORD. IN FACT THE A.O. HAS EXAMINED THE METHOD OF ACCOUNTING AND REJECTED THE PROJECT COMPLETION METHOD AND INVOKING THE PERC ENTAGE COMPLETION METHOD ESTIMATED THE INCOME AT 8% WHICH THE CIT(A) HAS MODIFIED AND TOOK IT IN AN ALL TOGETHER DIFFERENT WAY AND ESTIMATED T HE INCOME. IT WAS SUBMITTED THAT IT WAS THE BONAFIDE ACTION OF THE AS SESSEE TREATING THE RECEIPT AS PROJECT RECEIPTS WHEREAS THE CIT(A) TREATED AS I NCOME DURING THE YEAR. SINCE THE CLAIM OF THE ASSESSEE WAS NOT ALLOWED AND BEING A BONAFIDE CLAIM THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME C OURT IN THE CASE OF RELIANCE PETROCHEMCIALS PVT. LTD. 322 ITR 158 WILL APPLY TO THE FACTS OF THE CASE. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS FU RNISHED ALL THE DETAILS AND THE QUESTION HERE IS NOT ESCAPEMENT OF INCOME B UT ONLY YEAR OF TAXABILITY. THE LEARNED COUNSEL RELIED UPON VARIOUS DECISIONS AND ALSO THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF C IT VS. HIND RAJASTHAN CONSTRUCTION CO. 116 ITR 304. 16. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDER OF T HE LEARNED CIT(A). 17. WE HAVE CONSIDERED THE ISSUE. AS DISCUSSED ABOVE IN THE ORDER ORN QUANTUM ASSESSMENT, ASSESSEE HAS DISCLOSED ALL THE PARTICULARS, FURNISHED THE AGREEMENT AND IN FACT THE A.O. TOOK IT AS PERCE NTAGE COMPLETION ON THE ITA NOS. 2803 & 5486/MUM/2009 M/S. OM SHARMA BUILDERS P LTD. 10 WORK-IN-PROGRESS DISCLOSED BY THE ASSESSEE. THE CIT (A), WHO EXAMINED THE AGREEMENT WAS OF THE OPINION THAT ASSESSEE HAS SOLD THE DEVELOPMENT RIGHTS FOR A CONSIDERATION WHICH ACCRUED DURING THE YEAR, THEREFORE THE CLAIM OF THE ASSESSEE IS A BONAFIDE CLAIM. IT IS AN ALL TOGETHER DIFFERENT ISSUE THAT THE CLAIMS ARE NOT ALLOWED AND THE INCOME HAS BEEN BROU GHT TO TAX BUT IN OUR VIEW, THIS CANNOT RESULT IN LEVY OF PENALTY AS THER E IS NEITHER CONCEALMENT OF INCOME NOR FURNISHING INACCURATE PARTICULARS ON THE FACTS OF THE CASE. IT IS ONLY THE YEAR OF TAXABILITY AND ACCRUAL OF INCOME W HICH WAS IN DISPUTE. THIS BEING A BONAFIDE BELIEF ON THE PART OF THE ASSESSEE , WE ARE OF THE OPINION THAT THERE IS NO NEED TO LEVY ANY PENALTY UNDER SECTION 271(1)(C). ACCORDINGLY THE PENALTY LEVIED UNDER SECTION 271(1)(C) IS HEREBY CA NCELLED. 18. IN THE RESULT, APPEAL IN ITA NO. 2803/MUM/2009 IS P ARTLY ALLOWED AND ITA NO. 5486/MUM/2009 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 15 TH JULY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) V, MUMBAI 4. THE CIT V, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.