Madhupirya Estates, Ganjam V. ITO, Berhampur

ITA 281/CTK/2012

• Counselvise Citation: 28122114 RSA 2012
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 11-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2012
• Court: TRIBUNAL
• Department Lawyers: N K NEB
• Assessee Lawyers: PK MISHRA ARS
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , HONB LE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO S 281,282 AND 430/CTK/2012 . ( / ASSESSMENT YEAR S 2003 - 04, 2004 - 05 AND 2005 - 06) MADHUPRIYA ESTATES, NH - 5, GIRISOLA, DIST. GANJAM, ODISHA PAN: AANFM 2717 P - - - VERSUS - IN COME - TAX OFFICER, BERHAMPUR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.K.MISHRA, ARS / FOR THE RESPONDENT: / SHRI . N.K.NEB , DR / DATE OF HEARING: 11.12.2012 / DATE OF PRONOUNCEMENT: 14.12.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THESE THREE APPEALS FOR THE AYS 2003 - 04, 2004 - 05 AND 2005 - 06 BY THE ASSESSEE ARE ON THE SOLE ISSUE WITH RESPECT TO BRINGING TO TA X DISALLOWANCE OF DEVELOPMENT EXPENDITURE FOR THE RESPECTIVE AYS WHEN THE ASSESSING OFFICER SOUGHT TO BRING TO TAX THE PROPORTIONATE DEVELOPMENT EXPENSES NOT TO BE ALLOWED ON THE BASIS OF THE ASSESSEE MAINTAINING ACCOUNTS FOR THE PURPOSE OF TAXATION ON PR OJECT COMPLETION METHOD INSOFAR AS THE REVENUE HAS TO BE RECOGNIZED ON THE BASIS OF ONLY THOSE PLOTS OF LAND ACTUALLY SOLD IN THE IMPUGNED AYS. 2. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT APART FROM THE ASSESSING OFFICERS EFFORT TO CONSIDER THE COST OF THE SALES FOR THE IMPUGNED AYS, THE ASSESSING OFFICER HAS ALSO DISALLOWED PORTION OF THE DEVELOPMENT EXPENSES ON AN ESTIMATE AT 10% IN THE IMPUGNED AYS WHICH I.T.A.NOS 281,282 AND 430/CTK/2012. 2 CAUSED THE CONTRADICTION IN THE MIND OF THE ASSESSING OFFICER FOR APPORTIO NING THE DEVELOPMENT EXPENSES ON THE BASIS OF ONLY THOSE PLOTS WHICH HAVE BEEN SOLD WORTHY OF ENHANCEMENT WITH THE DEVELOPMENT EXPENDITURE. 3. AS COMMON ISSUES HAVE BEEN RAISED FOR ALL THE AYS UNDER CONSIDERATION, WE PROPOSE TO DISPOSE OF ALL THE APPEALS B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 4. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT T HE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF DEVELOPMENT OF RESIDENTIAL SITES AND SALE OF THOSE SITES. THE ASSESSEE FIRM PURCHASED AGRICULTURAL LAND MEASURING AREA OF 20.919 ACRES IN DIFFERENT FINANCIAL YEAR COMMENCING FROM 1998 - 99 TO 2003 - 04 BY INVESTING A SUM OF 14, 44,332. THE SITE OF THE LAND IS LOCATED ON NH - 5, 10 K.M. AWAY FROM BERHAMPUR MUNICIPAL LIMIT. THE PATCH OF LANDS AFTER ACQUISITION AND DURING THE PROCESS OF ACQUISITION WERE DEVELOPED PHASE WISE IN DIFFERENT ASSESSMENT Y EARS FOR THE PURPOSE OF CONVERT ING THOSE LANDS FOR RESIDENTIAL PURPOSE BY THE PROSPECTIVE BUYERS AFTER OBTAINING NECESSARY APPROVAL AND SOLD THOSE RESIDENTIAL SITES TO DIFFERENT BUYERS IN DIFFERENT ASSESSMENT YEA RS. AS PER THE DRAWINGS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ENTIRE SITE MEASURING 9,66,215 SQ.FT WERE CONVERTED TO RESIDENTIAL SITE, OUT OF WHICH AREA MEASURING 7,59,395 SQ. FT. WERE CONVERTED TO 362 PLOTS AND BALANCE 2,06,820 SQ.FT. WER E LEFT OVER FOR ROADS ,DRAINS, CULVERTS AND OPEN SPACE. SINCE THE SITE IS LOCATED 10 K.M. AWAY FROM BERHAMPUR MUNICIPAL LIMIT, TO ATTRACT AND MOBILIZE THE CUSTOMERS FOR PURCHASING THE SITE, THE ASSESSEE FIRM LAUNCHED A MONTHLY INSTALLMENT SCHEME AND COLLECTED ADVANCES IN MONTHLY INSTALLMENT FROM DIFFERENT INTENDING PURCHASERS . AFTER RECEIPT OF THE FULL I.T.A.NOS 281,282 AND 430/CTK/2012. 3 DEVELOPED PATCH OF LAND WITH ROADS, CULVERTS AND DRAINS AND THEN CREATED DIFFERENT SIZE OF PLOTS AND SOLD THEM BY VIRTUE OF REGISTERED SALE DEEDS. THE DETAILS OF YEAR WISE DEVELOPMENT OF PATCH OF LAND AND SALE OF PLOTS EFFECTED BY THE ASSESSEE FIRM ARE GIVEN HERE BELOW . ASSESSMENT YEAR 2003 - 04 45 PLOTS AREA 81000 SQ.FT. ASSESSMENT YEAR 2004 - 05 68 PLOTS AREA 122400 SQ.FT. ASSESSMENT YEAR 2005 - 06 65 PLOTS AREA 117000 SQ.FT. ASSESSMENT YEAR 2006 - 07 51 PLOTS AREA 91800 SQ.FT. THE B ALANCE 132 PLOTS WHICH ARE NOT DEVELOPED ARE HELD AS CLOSING STOCK AS ON 31 . 03.2006. THE ASSESSEE FIRM FILED ITS RETURN OF INCOME (FOR THE ASSESSMENT YEARS 2003 - 04 & 2004 - 05 PURSUANT TO THE NOTICE ISSUED U/S. 147 OF THE ACT AND FOR THE ASSESSMENT YEAR 2005 - 06 IT FILED REGULAR RETURN DISCLOSING THE GROSS RECEIPTS FROM SALE OF PLOTS AND THE UNSOLD PLOTS WHICH WERE NOT DEVELOPED IS SHOWN AS CLOSING STOCK AT THEIR COST. THE COST OF DEVELOPMENT/IMPROVEMENT OF THE PLOTS INCURRED BY THE ASSESSEE DURING THE RELEVANT FINANCIAL YEAR FOR FULLY DEVELOPING THE PLOTS WHICH WERE SOLD DURING THE RELEVANT ASSESSMENT YEAR IS CHARGED TO THE PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE IN ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. THE ASSESSEE FOLLOWED UNIFORMLY THE PRINCIPLE OF AP PROPRIATING THE DEVELOPMENT COSTS INCURRED DURING THE RELEVANT ASSESSMENT YEARS AS REVENUE EXPENDITURE INCURRED FOR DEVELOPING THE RESPECTIVE PATCHES OF LAND SOLD DURING THE RELEVANT ASSESSMENT YEARS. SUCH PRINCIPLES FOLLOWED BY THE ASSES SEE FIRM WAS OBJEC TED BY THE A.O. AND AS PER THE ASSESSMENT ORDER, THE A.O DISTRIBUTED THE ENTIRE DEVELOPMENT COST INCURRED BY THE ASSESSEE FIRM DURING THE RELEVANT ASSESSMENTS YEAR ON A PRO - RATA BASIS OVER THE ENTIRE UNSOLD AREA OF THE LAND. THE ASSESSING OFFICER ACCORDING LY ADDED BACK THE SAME IN I.T.A.NOS 281,282 AND 430/CTK/2012. 4 THE CLOSING STOCK RESULTING HUGE TAX DEMAND OF 1,70,402 FOR THE ASSESSMENT YEAR 2003 - 04, 5,27,512.00 IN ASSESSMENT YEAR 2004 - 05 AND 3,32,201 IN ASSESSMENT YEAR 2005 - 06 RESPECTIVELY. 5. AGGRIEVED, THE ASSESSEE APPEALED BEFORE TH E FIRST APPELLATE AUTHORITY AND THE LEARNED CIT(A) UPHELD THE ASSESSMENTS ON THE GROUND THAT THE ASSESSEE IS NOT MAINTAINING THE PLOT - WISE ACCOUNTS AND THEREFORE ITS CLAIM IS UNACCEPTABLE. 6 . THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SU BMITTED THAT AUTHORITIES BELOW HAVE COMMITTED GROSS ERROR OF LAW IN NOT ACCEPTING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND DISTRIBUTING THE DEVELOPMENT EXPENDITURE OVER THE UNSOLD PLOTS SHOWN IN THE CLOSING STOCK. THE ACTION OF THE ASSESSING O FFICER IN DISTRIBUTING THE DEVELOPMENT EXPENDITURE OVER THE ENTIRE PLOT OF LAND IS NOT SUSTAINABLE IN THE EYE OF LAW BECAUSE THE COST OF DEVELOPMENT FOR SELLING OF PLOTS CANNOT BE DISTRIBUTED OVER THE ENTIRE PLOTS BECAUSE IT IS NOT A CASE THAT ALL THE PLOT S ARE DEVELOPED AND SOLD DURING ONE ASSESSMENT YEAR, RATHER IT IS A CASE WHERE THE ASSESSEE HAS DEVELOPED DIFFERENT PATCHES OF LAND IN DIFFERENT YEARS AND AFTER CREATING DIFFERENT SIZES OF PLOTS SOLD THEM. IF THE DEVELOPMENT COST INCURRED FOR DEVELOPED PLO TS WHICH ARE SOLD WAS TO BE DISTRIBUTED OVER THE UNSOLD PLOTS, THEN THE SAID DEVELOPMENT COST WILL BE REDUCED DRASTICALLY WHICH WILL AFFECT THE SALE PRICE. IF THE SAME IS COMPARED WITH THE ACTUAL SALE PRICE THEN THE ACTUAL SALE PRICE WOULD GO MUCH HIGHER W HICH IN FACT NOT HAPPENED AND THEN THE ASSESSEE WOULD HAVE REQUIRED RETURNING THE DIFFERENTIAL VALUE TO THE RESPECTIVE PURCHASERS EVEN THOUGH THE ASSESSEE HAS INCURRED THE SAID EXPENDITURE WHICH WILL LEAD TO HUGE LOSS. THE COST OF DEVELOPMENT WILL DIFFER F ROM ONE PATCH OF LAND TO ANOTHER PATCH OF LAND AS IT I.T.A.NOS 281,282 AND 430/CTK/2012. 5 DEPENDS ON DIFFERENT FACTORS, SUCH AS LOW AREA, HIGH AREA, DEPTH, NATURE OF SOIL, DEPTH OF SAND ETC. IF THE DEVELOPMENT COST WILL BE DISTRIBUTED AMONG THE UNSOLD AND UNDEVELOPED PLOTS AND AFTER DEVELOPME NT, IF THAT DEVELOPMENT COST WILL BE ADDED AGAIN, THEN ITS SALE PRICE WILL BE SO HIGH THAT NOBODY WILL COME FOR PURCHASE AND THE CLOSING STOCK WILL REMAIN UNSOLD. W HEN SOMEONE WILL COME FOR PURCHASE OF THE UNSOLD PLOTS, THE PRICE WILL DIFFER DUE TO ADDITIO N OF DEVELOPMENT COST AND AFTER VERIFICATION HE WILL DISPUTE THE DEVELOPMENT COST, BECAUSE NOBODY WILL PAY ANYTHING WHICH IS NOT ACTUALLY INCURRED. THAT APART THE ASSESSEE IS VALUING THE CLOSING STOCK AT THE COST PRICE AND THE DEVELOPMENT COSTS ARE THE EXP ENSES INCURRED FOR SELLING OF THE PLOTS WHICH ARE TO BE CHARGED AT THE TIME OF SALE. THEREFORE THE SAME CANNOT BE ADDED IN THE CLOSING STOCK. IT IS NOT A CASE OF ANY POSTPONEMENT OR PREPONED PAYMENT OF TAX, RATHER IT IS A CASE OF DETERMINATION OF INCOME AN D PAYMENT OF TAX ON ACTUAL PROFIT. THE LEARNED AR OF THE ASSESSEE CONTENDED THAT IF THE PRINCIPLE ADOPTED BY THE ASSESSING OFFICER IS ACCEPTED , THEN IT WOULD RESULT IN INCREASE OF THE COST OF CLOSING STOCK DURING THE RELEVANT ASSESSMENT YEAR AND HUGE PROFI T IN THE RELEVANT ASSESSMENT YEAR ON PEN AND PAPER ONLY , WHICH WOULD VITIATE THE PROFIT IN THE SUBSEQUENT ASSESSMENT YEARS. IT IS NOT A CASE THAT THE ASSESSING OFFICER IS QUESTIONING THE AUTHENTICITY OF THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE OR AU THENTICITY OF THE ACTUAL PROFIT, RATHER BEING UNABLE TO POINT OUT ANY MISTAKE IN THE BOOKS ADOPTED THIS METHOD ONLY TO BRING SOME REVENUE FOR THE DEPARTMENT. 6.1. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE GROUNDS TAKEN BY THE AUTHORITIES BELOW OF N ON MAINTENANCE OF PLOT WISE ACCOUNT CANNOT BE A GROUND AT ALL FOR REJECTION OF METHOD ADOPTED BY THE ASSESSEE , BECAUSE IT IS I.T.A.NOS 281,282 AND 430/CTK/2012. 6 NOT A CASE THAT THE ASSESSEE IS DEVELOPING PLOTS AND THEN SELLS IT, RATHER THE ASSESSEE IS DEVELOPING A PATCH OF LAND AND THEN AFTE R CREATING PLOTS SELLS THEM. THEREFORE QUESTION OF MAINTAINING OF PLOT WISE ACCOUNTS DOES NOT ARISE AT ALL. THE ACCOUNTS PRODUCED BEFORE THE AUTHORITIES BELOW SHOWS THE DETAILS OF PATCH WISE EXPENDITURE WHICH HAS BEEN ACCEPTED. IN THE INSTANT CASE, NOT THE PLOT WISE ACCOUNT, RATHER THE PATCH WISE ACCOUNTS WILL GIVE THE ACTUAL PROFIT BECAUSE IF PLOT WISE ACCOUNTS WILL BE MAINTAINED THEN THE ASSESSEE WOULD NOT BE ABLE TO CLAIM THE DEVELOPMENT EXPENSES INCURRED FOR ROADS, DRAINS AND SEWERAGES FROM ITS CUSTOMER S BECAUSE NO ONE WILL PURCHASE THE ROADS, DRAINS AND SEWERAGES, THEN IT WILL LEAD TO HUGE LOSS TO THE ASSESSEE BECAUSE THESE EXPE NDITURES WILL NOT BE REIMBURSED. THE SAID INFRASTRUCTURES WILL NOT BE USED BY THE ASSESSEE RATHER WILL BE USED BY THE PLOT OWNE RS UNIVERSALLY, BUT IF PATCH WISE ACCOUNTS WILL BE MAINTAINED THEN THE INFRASTRUCTURE DEVELOPMENT COST WILL BE ADDED IN THE PLOT VALUE AND WILL BE REIMBURSED FROM THE PLOT OWNERS WHICH WILL GIVE THE TRUE INCOME . I F PLOT WISE ACCOUNTS WILL BE MAINTAINED TH EN, THE COSTUMERS, WHO HAVE PAID THE COST OF PLOTS AND CONNECTING ROADS, DRAINS AND SEWERAGES, AFTER PURCHASE, THEY MAY NOT ALLOW FOR PUBLIC USE AND IF THE ROADS, DRAINS AND SEWERAGES WILL NOT BE USED PUBLICLY THEN NO ONE WILL PURCHASE THE INSIDE PLOTS AS THERE WILL BE NO ROADS TO GO TO THEIR PLOTS. IT IS NOT THE CASE THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT. RATHER, THE ASSESSING OFFICER IS ASKING FOR A PLOT WISE ACCOUNT WHICH IS NOT THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IS MAINTAININ G PATCH WISE ACCOUNT AS THE EXPENDITURE IS INCURRED FOR DEVELOPMENT OF PATCH WHICH INCLUDES THE EXPENSES FOR PLOTS ALONG WITH INFRASTRUCTURES. THE REASON AS TO WHY THE ASSESSEE IS MAINTAINING PATCH WISE ACCOUNT, EVEN THOUGH HE IS SELLING PLOTS IS THAT A PA TCH CONTAINS DIFFERENT I.T.A.NOS 281,282 AND 430/CTK/2012. 7 PLOTS AND FOR SELLING OF PLOTS , THE ASSESSEE HAS TO NECESSARILY DEVELOP CON NECTING ROADS , DRAINS SEWERAGES AND OPEN SPACE ETC. AND COST OF DEVELOPMENT FOR THE SAME ARE TO BE ADDED WITH THE COST OF PLOTS. THAT APART SINCE THESE ARE TO BE USED FOR CONSTRUCTION OF RESIDENTIAL UNITS NO ONE WILL COME FOR PURCHASE OF PLOTS FOR CONSTRUCTION OF RESIDENTIAL HOUSE IF INFRASTRUCTURE FACILITIES ARE NOT AVAILABLE. S INCE THE EXECUTION OF THE SALE DEEDS IN FAVOR OF THE BUYERS IS LINKED TO RECEIPTS O F FULL PAYMENT FROM THE INTENDING BUYERS, THERE IS NO BUSINESS PRUDENCE IN DEVELOPING THE ENTIRE SITE EVENLY BY SPENDING MONEY FOR PLOTS AGAINST WHICH NO PAYMENTS OR LESS PAYMENTS WERE RECEIVED. FURTHER, THERE IS NO LOGIC IN DEVELOPING THOSE SITES IN THE A SSESSMENT YEAR 2003 - 04, WHICH ARE SOLD IN THE SUBSEQUENT ASSESSMENT YEARS. I T IS NOT A CASE THAT THE ASSESSEE HAS DEVELOPED THE ENTIRE LAND BUT ONLY SOLD SOME OF THE PLOTS, RATHER IT IS THE CASE THAT THE ASSESSEE HAS DEVELOPED PATCH WISE LAND AND AFTER CRE ATING PLOTS SOLD THEM TO ITS COSTUMERS WHICH IS CLEARLY EVIDENT FROM THE DIAGRAM SUBMITTED BEFORE THE LEARNED AUTHORITIES BELOW. THEREFORE QUESTION OF DISTRIBUTION OF DEVELOPMENT COST OVER THE CLOSING STOCK DOES NOT ARISE AT ALL . THAT APART, THE REASON FOR DEVELOPMENT OF PATCH WISE LAND IS THAT THERE IS RISK OF BEING WASHED AWAY OF ANY LAND DEVELOPMENT WORKS DURING MONSOON SEASON. THEREFORE NO PRUDENT BUSINESSMAN WOULD INVEST IN DEVELOPING PLOTS WHICH ARE NOT DUE FOR IMMEDIATE SALE, THIS IS THE NORMAL PRACT ICE OF REAL ESTATE BUSINESS. IN THE INSTANT CASE THE ASSESSEE BEING INVOLVED IN LAND DEVELOPMENT/REAL ESTATE BUSINESS HAS RIGHTLY FOLLOWED IN APPROPRIATING THE COST OF DEVELOPMENT AGAINST THOSE PLOTS WHICH ARE DEVELOPED AND SOLD. IT IS NOT THE CASE OF THE REVENUE THAT THERE IS ANY UNDER ESTIMATION OF PROFIT SHOWN BY THE ASSESSEE BY ADOPTING THIS METHOD, RATHER THE ASSESSING OFFICER BY APPLYING HIS I.T.A.NOS 281,282 AND 430/CTK/2012. 8 METHOD TRIED TO DISTURB THE M ETHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE AND TO CREATE S OME ARTIF ICIAL PROFIT FOR THE S AKE OF REVENUE. IN THE INSTANT CASE THE ASSESSING OFFICER HAS NOT UTTERED A SINGLE WORD ABOUT THE UNDER ESTIMATION OF PROFIT MADE BY THE ASSESSEE. FROM THE ABOVE FACTUAL MATRIX, IT IS AMPLY CLEAR THAT BY REJECTING METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE THE ASSESSING OFFICE R HAS EXCEEDED HIS JURISDICTION, WHICH IS NOT PERMIS SIBLE IN THE EYE OF LAW. THE LEARNED AR OF THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER EVEN THOUGH DISPUTED THE METHOD OF ACCOUNTING ADOPTED BY ASSESSEE F OR THE ASST YEAR 2003 - 04 TO 2005 - 06 BUT ACCEPTED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FROM THE ASST YEAR 2006 - 07 ONWARDS. IN VIEW OF THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS ACTED CONTRARY TO THE FACTS ON RECORDS AND THE METHOD ADOPTED BY HIM FOR DERIVING THE NET PROFIT IS NOT SUSTAINABLE IN THE EYE OF LAW, THE SAME IS LIABLE TO BE REJECTED AND SINCE THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE GIVES TRUE AND CORRECT PROFIT THE SAME MAY BE ACCE PTED IN THE INTEREST OF JUST ICE. 6.2. FOR THE ABOVE PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THE MAP OF THE PROP OSED RESIDENTIAL AREA HAVING THE LAYOUT PLANS WHICH PLOTS OF LAND HAVE BEEN DEMARCATED BY THE ASSESSEE AND MARKED PLOT S ARE SOLD DURING THE RELEVANT AYS FOR THE THREE AYS . THE LEARED COUNSEL ALSO POINTED OU T THAT IN VIEW OF NO INCOME HAVING BEEN RENDERED OR COMPUTED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2003 - 04 THE ASSESSEES APPEALS MAY KINDLY BE TREATED AS N OT ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER WHICH HAS BEEN DEALT WITH PARTICULARLY ON THIS ISSUE BYTHE LEARNED CIT(A) BY WAY OF IDENTICAL ORDER FOR THE THREE AYS. THE ASSESSING OFFICER HAVING SPREAD OVER THE DEVELOPMENT COST OVER THE ENTIRE STOCK OF I.T.A.NOS 281,282 AND 430/CTK/2012. 9 LAND FOR THREE YEARS WERE SUSTAINED WAS IN FACT FOR THE ASSESSMENT YEAR 2003 - 04 WAS A S RETURNED BY THE ASSESSEE. 7. THE LEARNED DR POINTED OUT THAT HAVING VERIFIED THE THREE IMPUGNED AYS IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO HAVE ACCEPTED IN T HE ASSESSMENT YEAR 2006 - 07 THE SAME AMOUNT OF PROFIT FOR WHICH THE ASSESSING OFFICER CONSIDERED THE UNSOLD PLOTS NOT TO BE BURDENED WITH THE DEVELOPMENT COST. THEREFORE IT WAS NOT A CASE OF ENHANCING THE VALUE O F CLOSING STOCK WHICH IN OTHER WORDS WOULD BE COME THE VALUE OF OPENING STOCK BUT WAS THE CASE OF THE ASSESSING OFFICER TO COMPUTE THE REAL INCOME AGAINST THE PL O TS SOLD WHEN THE DEVELOPMENT COST FOR THE PARTICULAR PLOT OF LAND COULD ONLY BE ASCERTAINED. HE, THEREFORE, SUPPORTED THE ORDERS OF THE AUTH ORITIES BELOW FOR HIS PART OF SUBMISSIONS. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. ON CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED T O UPHOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE INSOFAR AS THE REVENUE HAS NOT BEEN ABLE TO ESTABLISH AS TO HOW SPLITTING THE DEVELOPMENT COST FOR THE ENTIRE AREA AND BRINGING THE ACTUAL COST OF SALES WITHOUT DEVELOPMENT COST ON THE PURPO RTED SALES OF PLOTS IN THE IMPUGNED ASSESSMENT YEARS WOULD GENERATE THE INCOME OF THE ASSESSEE FOR TAXATION IN THE IMPUGNED ASSESSMENT YEARS ONLY. IN OTHE R WORDS, THE ASSESSING OFFICER IRRESPECTIVE OF THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE , HAS TRIED TO STEP INTO THE SHOES OF THE ASSESSEE AS TO HOW THE EXPENDITURE SHOULD HAVE BEEN INCURRED TO GENERATE INCOME TO PAY TAXES. THE ASSESSEE IS IN BUSINESS OF DEVELOPMENT OF PLOTS AFTER ACQUIRING LAND AND PROCEEDING WITH DOCUMENTATION, CONSTRUCTION OF RO ADS, CULVERTS, LIGHTING, DRAINAGE AND OTHER I.T.A.NOS 281,282 AND 430/CTK/2012. 10 EXPENDITURE INCURRED FOR DEVELOPING THE LAND BY APPLYING FOR CONNECTION OF ELECTRICITY AND WATER AND OTHER NECESSARY EXPENDITURES TO ATTRACT CUSTOMERS WHO WOULD LIKE TO PURCHASE A PARTICULAR PLOT WHEN THE ASSESSE E HAS DEVELOPED THE WHOLE AREA. THE DEVELOPED PLOTS WHICH REMAINED UNSOLD CANNOT BE SAID TO HAVE NOT UNDERGONE DEVELOPMENT EXPENDITURES. THEREFORE, ON THE BASIS OF THE FACTS AND CIRCUMSTANCES AS BROUGHT O N RECORD, WE ARE UNABLE TO SATISFY OURSELVES AS TO W HAT COULD BE THE CONTENTION OF THE ASSESSING AUTHORITIES WAS TO DISTRIBUTE THE CLAIM OF EXPENDITURES ON THE BASIS OF SALES ALONE. IF THEY WERE TO DISALLOW THE EXPENDITURES IN ONE YEAR THEY ARE BOUND TO ALLOW THE SAME IN THE SUCCEEDING ASSESSMENT YEAR AS TH E COST OF SALES INCREASED . IN OTHER WORDS, THE ASSESSEE INSISTING IN CARRYING OUT THE DEVELOPMENT ACTIVITIES IN THE ENTIRE AREA CANNOT BE CERTIFIED TO HAVE BEEN INCURRED ONLY ON THE ACTUAL PLOTS OF LAND SOLD BY THE ASSESSEE. THE PLOT OF LAND CARRIED OVER F OR SALE IN THE SUBSEQUENT YEAR HAS BEEN IDENTIFIED BY THE ASSESSEE AND THE ASSESSING OFFICER HAVING ACKNOWLEDGED THE SAME HAS SIMPLY ARITHMETICALLY CALCULATED THE AMOUNT TO BE DISALLOWED IN A PARTICULAR YEAR IS ONLY A HYPOTHETICAL FIGURE INSOFAR AS HE HAS FURTHER CONSIDERED THAT THE ASSESSEE BE DISALLOWED 10% OF THE DEVELOPMENT EXPENSES INCURRED AGAINST WHICH THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED IS NOT BE AGITATED BY WAY OF ANOTHER GROUND SEPARATELY. HAVING ACCEPTED THE EXPENDITURES INCURRED ALLOWABLE AS REVENUE EXPENDITURE, THE ASSESSING OFFICER WAS TRYING TO PREPONE THE INCOME BY DISALLOWING THE COST OF SALES WHICH HAD BEEN ACTUALLY INCURRED WITHOUT INDENTIFYING AS TO WHICH PARTICULAR PLOT REMAINED UNDEVELOPED BUT ONLY SOLD . HE DISALLOWED T HE DEVELOPMENT EXPENSES FOR WANT OF VOUCHERS AND BILLS THEREFORE CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE ENTIRE EXPENDIT URE WAS INCURRED I.T.A.NOS 281,282 AND 430/CTK/2012. 11 FOR THE SPACE SOLD AND THEREFORE TO MAKE IT MORE ATTRACTIVE THE PLOTS WHICH WERE BOOKED FOR SALE IN VIEW OF THEIR LOCATION ETC., AND THE CUSTOMERS PREFERENCE AND NOT BECAUSE ONLY THEY COULD BE ASSIGNED THE DEVELOPMENT COST ALONE. IF THAT BE SO, THE ENTIRE DEVELOPMENT COST SHOULD HAVE BEEN ASSIGNED TO THOSE PLOTS WHICH WERE SOLD IN THE IMPUGNED A YS WOULD LEAD TO A FINDING THE ASSESSEE HAS ACTUALLY CLAIMED AND WAS ACCEPTABLE IN ASSESSMENT YEAR 2006 - 07. THEREFORE, THE CASE LAWS CITED BY THE LEARNED CIT(A) BEING THE APEX COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD., V. CIT (225 ITR 802) DOES NOT APPLY TO THE FATS OF THE ASSESSEES CASE WHEN HE NOTED THAT ALLOWING ENTIRE EXPENDITURE IN ONE YEAR MAY GIVE A DISTORT PICTURE OF A PARTICULAR YEAR. THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER ARE DIFFERENT INSOFAR AS HE HAS DISALLOWED ONLY 10% OF THE EXPENDITURE BEING DEVELOPMENT EXPENDITURE. THE VALUATION OF THE CLOSING STOCK IS ENTIRELY DIFFERENT THEN CONSIDERING THE COST OF SALES ON THE SALES OF THE YEAR. THE ASSESSEE HAD BOOKED THE ENTIRE DEVELOPMENT EXPENSES CANNOT BE IDENTIFIED WITH ONLY THE PLOTS SOLD WERE A MERE IMPRACTICAL WAY OF ANALYZING THE FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE TO ITS DETRIMENT BY ASSIGNING COST TO EACH CUSTOMER . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE SAME C LAIM FOR THE LATER YEARS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE INSOFAR AS THE ASSESSING OFFICER FOR THE IMPUGNED AYS HAS JUST TRIED TO COMPUTE THE PROFITS ON THE SALES OF PLOTS IN THE INTERVENING THREE YEA RS WHEN THE DEVELOPMENT TOOK PLACE AND THE ACTUAL EXPENDITURE INCURRED WAS FOR THE ENTIRE PROJECT. FINDING NO INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE INCOME ON THE BASIS OF RETURNS FILED F OR THE IMPUGNED ASSESSMENT YEARS ARE TO BE I.T.A.NOS 281,282 AND 430/CTK/2012. 12 ACCEPTED WITHOUT COMMITTING THE ERROR OF POSTPONING THE COST OF SALES FROM ONE YEAR TO ANOTHER WHICH ERROR HAS BEEN COMMITTED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDERS. IN VIEW OF THE ABOVE, ALL THE APPEAL S FOR THE IMPUGNED AYS ARE ALLOWED. 9. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.12.2012 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : MADHUPRIYA ESTATES, NH - 5, GIRISOLA, DIST. GANJAM, ODISHA 2 / THE RESPONDENT: INCOME - TAX OFFICER, BERHAMPUR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 12.12. 2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTAT ING MEMBER 12.12.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. D ATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.12.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSI STANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.