SAI SHIRDI CONSTRUCTIONS, NAVI MUMBAI V. ITO WD 22(3)(4), NAVI MUMBAI

ITA 2822/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75569 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 14-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: S C TIWARI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENC H, MUMBAI .. , %, BEFORE S/SHRI B. R. BASKARAN, AM & AMIT SHUKLA, JM ./ ITA NO. 2822/MUM/2013 ( ' ' ' ' ' ' ' ' / / / / ASSESSMENT YEAR 2009-10) SAI SHIRDI CONSTRUCTIONS 429 ARNEJA CORNER SECTOR 17 VASHI NAVI MUMBAI 400 705 / VS. THE INCOME TAX OFFICER WARD 22(3)(4), NAVIMUMBAI ./PAN : ABFFS1404G ( * /APPELLANT ) ( +,* / RESPONDENT ) * - / APPELLANT BY : SHRI S C TIWARI +,* - / RESPONDENT BY : SHRI ASHOK SURI, DR - / /DATE OF HEARING : 14 TH FEB 2014 - / / DATE OF PRONOUNCEMENT : 19 TH FEB2014 / O R D E R PER B R BASKARAN,AM: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 7.2.2013 PASSED BY THE LD CIT(A)- 33, MUMBAI AND IT RELATES TO THE AY 2009-10. 2. THE SOLITARY ISSUE URGED IS WHETHER THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE AMOUNT OF NET PROFIT ESTIMATED BY THE AO AT RS. 39, 40,884/- FOR THE YEAR UNDER CONSIDERATION. 3 THE FACTS RELATING TO THE ISSUE ARE STATED IN BRI EF: THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND SALE OF APARTMENTS. DURING THE FINANCIAL YEAR 2006-07 IT HAD ACQUIRED A PLOT OF LAND ADMEASU RING 12000.60 SQ.MTRS. AS PER THE APPROVED PLAN, IT PROCEEDED TO CONSTRUCT 212 FLATS . THE ASSESSEE FOLLOWED PERCENTAGE SAI SHIRDI CONSTRUCTION 2 COMPLETION METHOD FOR THE PURPOSE OF ESTIMATING PRO FIT FROM THE ABOVE SAID PROFIT. IN THE FINANCIAL YEAR ENDING 31.3.2007 (ASSESSMENT YEAR 2007-08), THE ASSESSEE INCURRED EXPENDITURE TO THE TUNE OF RS.7,12,03,190/- AND THE PROFIT THEREON WAS ESTIMATED AT 11.69%, I.E. AT RS. 83.30 LACS. HOWEVER, FOR THE YEAR ENDI NG 31.3.2008 AND 31.3.2009, THE ASSESSEE DID NOT OFFER ANY INCOME, THOUGH IT INCURRED FURTHE R EXPENDITURE ON CONSTRUCTION ACTIVITIES. THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE HAVE BEEN TABULATED BY THE AO IN PARA 3 OF THE ASSESSMENT ORDER AS UNDER: PARTICULARS 31.03.2007 31.3.2008 31.3.2009 OPENING BALANCE - 7,95,33,600 18,71,75,088.00 ADD: PURCHASES 5,48,16,116.00 7,33,24,664.00 23,98,547.00 DIRECT EXPENSES 81,59,397.00 1,28,87,045.00 8,28,099.00 INDIRECT EXPENSES 82,27,677.70 2,14,29,779.00 3,04,56,124.00 TOTAL 7,12,03,190.70 10,76,41,488.00 3,36,82,770.00 PROFIT 83,30,409.30 -- -- CLOSING BALANCE 7,95,33,600.00 18,71,75,088.00 22,08,57,858.00 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2009-10, I.E., THE YEAR UNDER CONSIDERTION, THE AO ASKED THE ASSESSEE AS TO WHY I T DID NOT OFFER ANY PROFIT FOR THE YEAR ENDING 31.3.2008 AND 31.3.2009. THE ASSESSEE SUB MITTED THAT THERE WAS A SLUMP IN THE REAL ESTATE MARKET DURING THAT PERIOD AND THE BOOKI NGS WERE POOR. AS A RESULT THEREOF, IT FACED HUGE SHORTAGE OF WORKING CAPITAL. HENCE, TO CONTINUE THE PROJECT, THE ASSESSEE AVAILED A LOAN OF RS.15 CRORES FROM A BANK NAMED M/ S COSMOS BANK LTD, VASHI BRANCH. THE INTEREST OUTFLOW ON THE ABOVE SAID LOAN FOR THE YEA R ENDING ON 31.3.2008 WAS AT RS. 1.86 CRORES AND FOR THE YEAR ENDING 31.3.2009, IT WAS RS . 2.75 CRORES. THE ASSESSEE FURTHER SUBMITTED THAT THE PROJECT GOT STALLED UP DUE TO WO RKING CAPITAL SHORTAGE DURING THE COURSE OF THESE YEARS AND IT WAS NOT SURE ABOUT THE COMPLE TION OF PROJECT. HENCE, IN VIEW OF THE HEAVY INTEREST LIABILITY AND UNCERTAINTY, THE ASSES SEE DID NOT OFFER ANY INCOME FOR THE YEAR SAI SHIRDI CONSTRUCTION 3 ENDING 31.3.2008 AND 31.3.2009. THE ASSESSEE ALSO SUBMITTED THAT THE MARKET PICKED UP IN THE SUBSEQUENT YEARS AND HENCE THE BO OKING OF THE FLATS ALSO PICKED UP, WHICH RESUSLTED IN A COMFORTABLE WORKING CAPITAL POSITION AND HENCE, SUBSTANTIAL PROGRESS WAS MADE IN THE PROJECT DURING THE YEAR ENDING 31.3.2010 AND 31.3.2011. THE ASSESSEE ALSO SUBMITTED THAT IT HAS OFFERED INCOME @ 9.53% FOR THE AY 2010- 11 AND AT 9.73% FOR THE AY 2011-12. 2.2 THE AO DID NOT ACCEPT THE SUBMISSIONS MADE BY THE ASSESSEE. SINCE THE ASSESSEE WAS FOLLOWING PERCENTAGE COMPLETION METHOD, THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE OFFERED INCOME FOR THE ASSESSMENT YEAR 2009-10 IN RESPECT OF EXPENDITURE INCURRED IN THAT YEAR. THE ASSESSEE HAD INCURRED A SUMOF RS.3. 36 CRORES TOWARDS AND DIRECT AND INDIRECT EXPENSES DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2009-10. ACCORDINGLY THE AO ESTIMATED THE INCOME FOR THE AY 2009-10 BY APPL YING THE RATE OF 11.70% (I.E., THE RATE ADOPTED BY THE ASSESSEE FOR THE AY 2007-08) ON RS.3 .36 CRORES, CITED ABOVE AND ACCORDINGLY ARRIVED AT THE NET PROFIT AT RS.39,40,884/- AND ASS ESSED THE SAME AS INCOME OF THE ASSESSEE. THE LD CIT(A) ALSO CONFIRMED THE INCOME ESTIMATED B Y THE AO. AGGRIEVED BY THE ORDER OF THE LD CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFOR E US. 3. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS A PARTNERSHIP FIRM AND HENCE IT IS NOT MANDATORY FOR THE ASSEESSE E TO FOLLOW THE ACCOUNTING STANDARDS. YET THE ASSESSEE PREFERRED TO OFFER THE INCOME UNDER PERCENTAGE COMPLETION METHOD. ACCORDINGLY, THE ASSESSEE ESTIMA TED THE NET PROFIT FOR THE AY 2007-08 BY APPLYING A PROFIT RATE OF 11.70% AND OFF ERED THE SAME FOR AS ITS INCOME FOR INCOME TAX PURPOSES. THE LD COUNSEL SUBMITTED THAT, DUE TO SLUMP IN THE MARKET, THE BOOKINGS DID NOT TOOK PLACE AS EXPECTED BY THE ASSESSEE AND HENCE THE ASSESSEE, SAI SHIRDI CONSTRUCTION 4 IN ORDER TO CONTINUE THE PROJECT AVAILED HEAVY LOAN OF RS 15 CRORES FROM BANK. ON THE ABOVE SAID LOAN THE ASSESSEE HAD TO PAY HEAVY I NTEREST OF RS RS. 1.86 CRORES AND RS 2.76 CRORES RESPECTIVELY FOR THE YEAR ENDING 31. 3.2008 AND 31.3.2009. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE DID NOT MAKE M UCH PROGRESS DURING THE YEAR ENDING 31.3.2009. THOUGH THE TOTAL AMOUNT INCURRED DURING THE YEAR ENDING 31.3.2009 WAS RS.3.36 CRORES, IT MAINLY CONSISTED OF INDIRECT EXPENSES OF RS.3.04 CRORES. THE SAID INDIRECT EXPENSES MAINLY CONSISTE D OF INTEREST EXPENDITURE OF RS.2.76 CRORES PAID TO THE BANK. HE SUBMITTED THAT THE IN TEREST EXPENDITURE CITED ABOVE IS EXCLUDEDN, THEN IT CAN BE FOUND THAT THE ASSESSEE H AS INCURRED A SUM OF ABOUT RS. 60 LACS DURING THAT YEAR. FURTHER, THE ASSESSEE HAD I NCURRED EXPENSES ON MATERIALS ONLY TO THE TUNE OF ABOUT RS.24 LACS, WHICH WAS FAR LESSE R THAN THE AMOUNTS SPENT IN THE IMMEDIATELY PRECEEDING YEAR. ACCORDINGLY, HE SUBMIT TED THAT THERE WAS PRACTICALLY NO PROGRESS IN THE PROJECT DURING THE YEAR ENDING 31.3 .2009. HE FURHER SUBMITTED THAT THERE WAS HEAVY INTEREST BURDEN ON BANK LOANS ALSO. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE DID NOT OFFER ANY INCOME FOR THE AY 20 09-10. THE LD A.R FURTHER SUBMITTED THAT, IN THE SUBSEQUENT YEARS THE MARKET GOT REVIVED AND HENCE, THE ASSESSEE COULD GENERATE WORKING CAPITAL THROUGH NEW B OOKING OF FLATS. HENCE THE ASSESSEE COULD MAKE CONSIDERABLE PROGRESS IN THE IM PLEMENTATION OF THE PROJECT AND HENCE, THE ASSESSEE HAS ALSO OFFERED INCOME FOR THE AY 2010-11 AND 2011-12. IN SUPPORT OF HIS SUBMISSIONS, THE LD AR INVITED OUR A TTENTION TO THE DETAILS EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR ENDING 31. 3.2010 AND 31.3.2011, WHICH ARE TABULATED AS UNDER IN THE PAPER BOOK FILED BY THE ASSESSEE:- SAI SHIRDI CONSTRUCTION 5 YEAR OPENING WIP PURCHASE ACCOUNT DIRECT EXPENSES INDIRECT EXPENSES 2009-2010 22,08,57,858 3,20,48,179 86,80,110 3,67,62,302 2010-2011 30,57,30,199 9,67,79,039 34,47,599 1,11,60,810 2011-2012 42,73,11,671 12,50,95,091 71,53,978 1,33,43,675 2012-2013 58,41,26,456 7,24,92,311 4,49,10,617 2,73,39,265 TOTAL 32,64,14,619 6,41,92,305 8,86,06,052 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSEE HAS INCURRED EXPENDITURE DURING THE YEAR UNDER CONSIDERATION TOWARDS IMPLEME NTATION OF PROJECT. SINCE THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD, THE ASSESS EE WAS REQUIRED TO OFFER INCOME FOR THE YEAR UNDER CONSIDERATION ALSO AND HENCE THE AO WAS RIGHT IN ESTIMATING INCOME. 5. WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAD INCURRED A SUM OF RS.7.12 CRORES, RS.1 0.76 CRORES AND RS.3.36 CRORES RESPECTIVELY DURING THE YEAR ENDING 31.3.2007, 31.3 .2008 AND 31.3.2009, ON IMPLEMENTATION OF THE PROJECT. ACCORDING TO THE ASSESSEE, THE AMO UNT OF RS.3.36 CRORES INCURRED DURING THE YEAR ENDING 31.3.2009 INCLUDED INTEREST ELEMENT OF RS.2.75 CRORES, MEANING THEREBY, THE ASSESSEE HAS EFFECTIVELY INCURRED A SUM OF ABOUT RS .60 LAKHS ONLY DURING THE YEAR UNDER CONSIDERATION ON IMPLEMENTATION OF PROJECT. HOWEVE R DURING THE SUBSEQUENT PERIODS, I.E., DURING THE YEAR ENDING 31.3.2010, 31.3.2011, 31.3.2 012 AND 31.3.2013, THE ASSESSEE CLAIMS TO HAVE INCURRED RS.7.74 CRORES, 11.13 CRORES, 14.5 1 CRORES AND 14.35 CRORES RESPECTIVELY TOWARDS IMPLEMENTATION OF THE PROJECT. 6. A CAREFUL PERUSAL OF THE DETAILS OF PROJECT E XPENSES, REFERRED ABOVE, WOULD SHOW THAT THE ASSESSEE WAS MAKING PROGRESS IN THE IMPLEMENTATION OF THE PROJECT IN ALL THE YEARS EXCEPT DURING THE YEAR ENDING 31.3.2009, WHEREIN THE PROGR ESS WAS VERY NEGLIGIBLE. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING PROJECT COMP LETION METHOD AND HENCE THE ASSESSEE IS NORMALLY REQUIRED TO ESTIMATE THE PROFIT FOR EACH O F THE YEARS COMPRISED IN THE PROJECT PERIOD. SAI SHIRDI CONSTRUCTION 6 HOWEVER, IN OUR VIEW, THE SAID RULE CANNOT BE BLIND LY APPLIED BY TOTALLY DISREGARDING THE GOUND REALITIES. THE LD COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE COULD HAVE ALSO FOLLOWED PROJECT COMPLETION METHOD ALSO, SIN CE IT WAS NOT MANDATORY FOR THE ASSESSEE TO FOLLOW THE ACCOUNTING STANDARDS. 7. IT IS PERTINENT TO NOTE THAT THE CHOICE OF T HE METHOD OF ACCOUNTING, I.E., EITHER PROJECT COMPLETION METHOD OR PERCENTAGE COMPLETION METHOD WOULD NOT ALTER THE QUANTUM OF PROFIT GENERATED FROM THE PROJECT ON ITS COMPLETION . UNDER THE FIRST METHOD CITED ABOVE, THE ENTIRE AMOUNT OF PROFIT WOULD BE OFFERRED AS THE IN COME OF THE YEAR IN WHICH THE PROJECT WAS COMPLETED. UNDER THE PERCENTAGE COMPLETION METHOD IS FOLLOWED, THE AMOUNT OF PROFIT IS DISTRIBUTED BETWEEN THE FINANCIAL YEARS COMPRISED I N THE PROJECT PERIOD AND ACCORDINGLY THE INCOME WOULD BE OFFERED FOR ALL THE YEARS ON SOME E QUITABLE BASIS. THE EXCESS OR SHORTAGE, IF ANY, IN THE INCOME SO OFFERED OVER THE YEARS WOU LD FINALLY BE EVENED OUT IN THE YEAR IN WHICH THE PROJECT IS COMPLETED, I.E., IN THE LAST Y EAR OF THE PROJECT, THE BALANCE AMOUNT OF PROFIT (TOTAL PROFIT GENERATED OUT OF THE PROJECT L ESS THE PROFIT ALREADY OFFERED IN EARLIER YEARS) WOULD BE OFFERED AS INCOME. IN EFFECT, EVEN IF THE ASSESSEE FAILS TO OFFER INCOME FOR ANY OF THE YEARS COMPRISED IN THE PROJECT PERIOD, THE SAME WOULD BE OFFERED AS INCOME IN THE LAST YEAR OF THE PROJECT. THUS THE EXCESS OR SHORTAGE O F INCOME, IF ANY, OFFERED IN A PARTICULAR YEAR WOULD HAVE CASCADING EFFECT IN THE FINAL YEAR OF THE PROJECT. 8. HOWEVER, IN THE INSTANT CASE, THE YEAR WIS E EXPENDITURE INCURRED BY THE ASSESSEE SHOWS THAT THE PROGRESS MADE BY THE ASSESSEE IN THE IMPLEMENTATION OF THE PROJECT FOR THE YEAR UNDER CONSIDERATION WAS VERY LITTLE. THE ASSE SSEE HAS ALSO POINTED OUT THAT IT HAS INCURRED EXPENDITURE OF RS.2.75 CRORES TOWARDS THE BANK LIABILITY. THE ASSESSEE HAS ALSO SUBMITTED THAT IT HAD TO FACE HEAVY WORKING CAPITAL SHORTAGE DUE TO POOR BOOKING OF FLATS AS SAI SHIRDI CONSTRUCTION 7 A RESULT OF SLUMP IN THE REAL ESTATE MARKET. TH E YEAR WISE EXPENDITURE DETAILS, IN OUR VIEW, SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT I T DID NOT MAKE MUCH PROGRESS IN THE ASSESSMENT YEAR 2009-10. UNDER THESE CIRCUMSTANCES , IT WAS SUBMITTED BY THE ASSESSEE THAT IT DID NOT PREFER TO OFFER ANY INCOME FOR THE ASSESSMENT YEAR 2009-10, AS IT WAS NOT SURE OF COMPLETION OF PROJECT AT THAT RELEVANT POINT OF TIME. THE LD A.R HAS ALSO SUBMITTED THAT THE ASSESSEE HAS MADE CONSIDERABLE PROGRESS IN THE SUBSEQUENT YEARS AND IT HAS ALSO OFFERED INCOME IN ASSESSMENT YEARS 2010-11 TO 2012-13. THE SE SUBMISSIONS, IN OUR VIEW, SHOW THAT THERE WAS A VALID REASON FOR NOT OFFERRING INCOME I N ASSESSMENT YEAR 2009-10. UNDER THE ABOVE SAID SET OF FACTS, IN OUR VIEW, THE ASSESSEE WAS JUSTIFIED IN NOT OFFERING ANY INCOME FOR THE ASSESMENT YEAR 2009-10. 9. HOWEVER, THE ACCOUNTING FIGURES RELATING TO THE ASSESSMENT YEARS 2010-11 TO 2013-14 HAVE BEEN FURNISHED FOR THE FIRST TIME BEFORE US AN D THE AO DID NOT HAVE OCCASION TO APPRECIATE THE SAME. HENCE, THE CLAIM OF THE ASSES SEE THAT IT HAS MADE CONSIDERABLE PROGRESS IN SUBSEQUENT YEARS AND IT HAS ALSO OFFERE D INCOME IN THOSE YEARS REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER, S INCE WE HAVE EXPRESSED OUR VIEW BY CONSIDERING THE SAID CLAIM PUT FORTH BY THE LD A.R. HENCE, IN OUR VIEW, THESE FACTS AND FIGURES REQUIRES EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE FEEL IT PROPER TO SET ASIDE THE ISSUE CONTESTED BEFORE US TO THE FILE OF THE AS SESSING OFFICER FOR THE LIMITED PURPOSE OF EXAMINING THE ACCOUNTING FIGURES RELATING TO THE SU BSEQUENT YEARS THAT WERE FURNISHED BEFORE US. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT (A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINATION OF DETAILS DISCU SSED ABOVE. IF ON EXAMINATION, THE AO FINDS THAT THE CLAIM MADE AND ACCOUNTING FIGURES SU BMITTED BY THE ASSESSEE TO BE CORRECT, THEN THE AO SHOULD DELETE THE INCOME OF RS.39,40,88 4/- ASSESSED DURING THE YEAR UNDER CONSIDERATION. IF THE CLAIM MADE AND FIGURES SUBMI TTED WERE FOUND TO BE INCORRECT, THEN THE SAI SHIRDI CONSTRUCTION 8 AO IS FREE TO ESTIMATE THE INCOME OF THE ASSESSEE I N THE LIGHT OF DISCUSSIONS MADE SUPRA. WITH THESE OBSERVATIONS, WE SET ASIDE THE O RDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, THE APPEAL OF THE ASSESSEE ALLOWED F OR STATISTICAL PURPOSES. 2 '2 - 4- 67 - ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEB 2014 . - < 19 TH FEB 2014 - SD/- SD/- ( AMIT SHUKLA ) ( B R BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; < DATED 19 TH ,FEB 2014 .../ RAJ , SR. PS - +C DC - +C DC - +C DC - +C DC/ COPY OF THE ORDER FORWARDED TO : 1. * / THE APPELLANT 2. +,* / THE RESPONDENT. 3. E() / THE CIT(A)- 4. E / CIT 5. C +, , / DR, ITAT, MUMBAI 6. ' / GUARD FILE. / BY ORDER, ,C + //TRUE COPY// / // / ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI