DCIT CIRCLE- 6(3)(2), MUMBAI V. M/S KOHINOOR PLANET CONSTRUCTION PVT LTD., MUMBAI

ITA 292/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1784 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 09-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect; Set aside
• Section: 147; 148; 11; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 292/MUM/2020 (ASSESSMENT YEAR: 2011-12) Deputy Commissioner of Income Tax, Circle 6(3)(2), Mumbai, Aaykar Bhavan, Room No. 576, M.K. Road, Mumbai - 400020 M/s Kohinoor Planet Construction Pvt. Ltd., 3, Kohinoor Corporate Office, Senapati Bapat Marg, Dadar (West), Mumbai - 400028 [PAN: AABCR6994E] .................. Vs ................... Appellant Respondent Appearances For the Appellant/Department For the Respondent/ Assessee : : Smt. Neelam Shukla Shri Jayesh Dadia Date of conclusion of hearing Date of pronouncement of order : : 22.02.2022 19.05.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Department has challenged the order, dated 25.09.2019, passed by the Ld. Commissioner of Income Tax (Appeals)–12, Mumbai [hereinafter referred to as ̳the CIT(A)‘] in appeal [CIT(A)-12/DCIT- 6(3)(2)/10026/19-20] for the Assessment Year 2011-12, whereby the CIT(A) had partly allowed the appeal filed by the Assessee against the Assessment Order, dated 05.04.2019, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ̳the Act‘]. 2. Revenue has raised the following grounds of appeal: ITA. No. 292/Mum/2020 Assessment Year: 2011-12 2 ―1. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 48,31,22,083/- as unrecognized profit. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 48,31,22,083/- made to Book Profit as unrecognized sales. 3. The appeal is filed because it is covered by exception mentioned in para 10(e) of the CBDT Circular No. 3/2018 dated 11.07.2018 as subsequently clarified by Board letter dated 20.08.2018 vide No. 279/misc./142/2007-ITJ(Pt.) which is effective as on date. 4. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.‖ Ground No. 1 3. Brief facts of the case are that the Assessee is a private limited company engaged in the business of property development, construction of building and wind power generation. The original assessment for the Assessment Year 2011-12 was completed under Section 143(3) of the Act on 25.03.2014 determining total income at INR 27,02,84,762/-. Subsequently, information was received from DDIT (Investigation), Unit-2, Mumbai that the Assessee has sold 2 units to National Stock Exchange (NSE) for a total consideration of INR 43,69,06,600/- along with 36 car parking for INR 1,80,00,000/-, and the possession of the same has been handed over on 17.10.2010 falling within previous year relevant to the Assessment Year 2011-12. Assessing Officer reopened the assessment on 17.03.2018 after recording reasons and following due procedure by issue of notice Under Section 148 of the Act. The reassessment was completed on 05.04.2019 assessing the total income at INR 13,05,30,257/- after making addition of unrecognized profit/sale of INR 48,31,22,083/- while computing income under the normal ITA. No. 292/Mum/2020 Assessment Year: 2011-12 3 provisions of the Act as well as while computing book profits under Section 115JB of the Act. 4. Being aggrieved, the Assessee filed the appeal before CIT(A) challenging the validity of re-assessment proceedings as well as additions made by the AO on merits. The CIT(A) held that the reassessment proceedings were valid. However, on merits, the CIT(A) granted relief to the Assessee while deleting the addition of INR 48,31,22,083/- made by the AO under normal provisions of the Act as well as while computing book profit. 5. Being aggrieved with the above relief granted by the CIT(A), the Revenue filed the present appeal before us. 6. The Ld. Departmental Representative appearing before us submitted that the CIT(A) has granted relief to the Assessee without appreciating the facts of the case as brought out by the Assessing Officer in the Assessment Order. She submitted that the Assessing Officer had made the addition after noting the following facts. The Assessee had sold unit Nos. 15 and 16 on 5 th and 6 th Floor in Tower No. 2 of the office building/wing along with 36 covered car parking spaces in the property bearing CTS No. 637/B, Kurla II, Mumbai to NSE vide registered agreement entered on 28.07.2009. Vide letter dated 25.03.2017 filed during the assessment proceedings, the Assessee had admitted that part occupancy certificate was obtained by the Assessee on 30.06.2010 and thereafter, possession was given to NSE on 17.10.2010. However, the Assessee had shown the amount received from NSE as advance in its books of account and did not offer to tax the Revenue received on account of the aforesaid sales made to NSE despite receiving consideration and handing over the possession of the property to NSE. In view of the aforesaid, the Assessee was asked to provide details of similar transactions where possession has been handed over to the buyers after receiving sale ITA. No. 292/Mum/2020 Assessment Year: 2011-12 4 consideration. On the basis of which the Assessing Officer computed unrecognized sales/profits and made an addition of INR 48,31,22,083/- towards the same. 7. Per contra, the Ld. Authorised Representative for the Assessee reiterated the submissions made before CIT(A) which have also been noted by the CIT(A) in paragraph 4.5 & 4.6 of the order. Ld. Authorised Representative for the Assessee pointed out that the Assessee has been consistently following the completed contract method [hereinafter referred to as ̳the Project Completion Method‘] for computing profits which has been accepted in all the assessments framed on the Assessee Under Section 143(3) of the Act from the Assessment Year 2008-09, which was a 1 st year of the commercial project till 2017-18, the final year in which project profits were offered to tax on completion of the project. The only exception being the Assessment Year 2011-12, for which the assessment framed Under Section 143(3) of the Act was reopened leading to the filing of present appeal by the Revenue. He submitted that entire profits of the project have already been offered to tax in Assessment Year 2017-18 and the same has been accepted by the Revenue. Therefore, the additions made by the Assessing Officer have resulted in double taxation. Without prejudice to the aforesaid, the Ld. Authorised Representative for the Assessee submitted that Assessing Officer had incorrectly computed the construction cost and other expenses while excluding the cost/expenses pertaining to basement and service floors. If the same are taken into account then even by the method adopted by the Assessing Officer, the net result would be a loss of INR 2,91,89,468/- for the relevant previous year. The Ld. Authorised Representative for the Assessee, in conclusion, submitted that the CIT(A) was justified in allowing the appeal of the Assessee following the principle of consistency as laid down by the Hon‘ble Supreme Court in the case of Radhasoami Satsang vs. CIT: 193 ITR 321 (SC), and the judgment of Hon‘ble Supreme Court in the case of ITA. No. 292/Mum/2020 Assessment Year: 2011-12 5 Bilahari Investments (P) Ltd.: 299 ITR 1 (SC) wherein the Project Completion Method has been accepted and approved. 8. We have considered the rival contentions and perused the material on record. The Assessee is engaged in the business of construction and property development. The Assessee had a project on a plot of land bearing CST No. 637/B-II, at village Kurla II, Kurla West, Mumbai which consisted of a residential project and a commercial project. The residential project was completed during the previous year 2009-10 and the profits arising from the same were offered to tax in the Assessment Year 2010-11 after claiming deduction Under Section 80IB(10) of the Act. The commercial project known as ̳Kohinoor City Commercial‘ started in the year 2007-08 and was expected to take 9 to 10 years for completion. This project was divided into two wings i.e. A Wing and B Wing. The units sold to NSE were located in Tower I of B Wing comprising of 2 level basement, ground floor and 1 st to 6 th upper floors. In respect of the same, part occupancy certificate was obtained by the Assessee on 30.06.2010 and thereafter, possession was given to buyers including NSE. It is admitted fact that the Assessee has been consistently following ̳Project Completion Method‘ from the commencement of the project to its completion. Scrutiny assessments were framed on the Assessee under Section 143(3) of the Act for the Assessment Years 2008-09 to Assessment Year 2017-18. The Revenue has accepted the profits offered to tax by the Assessee pertaining to the project accepting the project completion method for all the years except for Assessment Year 2011-12 in relation to which Revenue is in appeal before us. In the Assessment Year 2011-12 also, the Revenue had initially accepted the profits as offered to tax by the Assessee following the project completion method in the assessment framed on the Assessee vide order, dated 25.03.2014 passed Under Section 143(3) of the Act. Subsequently, the assessment was reopened based upon the information received from Investigation Wing. In the facts and ITA. No. 292/Mum/2020 Assessment Year: 2011-12 6 circumstances of the present case, we are of the view that CIT(A) was justified in granting relief to the Assessee by placing reliance on the judgment of Hon‘ble Supreme Court in the case of Radhasoami Satsang vs. CIT (supra) wherein it was held as under: ―13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 14. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter— and if there was no change it was in support of the assessee— we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12.‖ 9. Further, the Project Completion Method has been recognized as one of the methods for determining profits/income by the Hon‘ble Supreme Court, in the case of CIT Vs. Bilahari Investments (P) Ltd.:299 ITR 1 (SC) wherein it has been held as under: ―15. Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method. Similarly, percentage of completion method is another such method. 16. Under completed contract method, the revenue is not recognised until the contract is complete. Under the said ITA. No. 292/Mum/2020 Assessment Year: 2011-12 7 method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to P & L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. 18. The above indicates the difference between completed contract method and percentage of completion method. 19. In the judgment of the Bombay High Court in Taparia Tools Ltd.'s case (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time. 20. As stated above, we are concerned with assessment years 1991-92 to 1997-98. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessees, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the ITA. No. 292/Mum/2020 Assessment Year: 2011-12 8 method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court.‖ (Emphasis Supplied) 10. The judgment of the Hon‘ble Supreme Court is applicable to the facts of the present case as the Revenue has accepted the Project Completion Method followed by the Assessee in the earlier years. Further, there is no allegation that the adoption of the method followed by the Assessee lead to the distortion of profits for particular year. To the contrary the approach adopted by the Assessing Officer would lead to distortion of distortion of profits as the Assessing Officer has excluded the cost of construction and other costs related to basement and service floors. Further, as noted by the CIT(A) in paragraph 4.16 of the order, the Assessing Officer has failed to point out any defect in the books of accounts or distortion in the profits warranting change of accounting method. As stated by the Assessee the profits of the projects have been offered to tax in Assessment Year 2017-18 and therefore, the additions made by the Assessing Officer would result in double taxation. 11. In our considered view that the CIT(A) has passed a well reasoned order bringing our correct facts which does not call for any interference. Accordingly, Ground No. 1 raised by the Revenue is dismissed. Ground No. 2 12. While disposing Ground No. 1 above, we have confirmed the order of CIT(A) of deleting addition of unrecognized profit/sale of INR ITA. No. 292/Mum/2020 Assessment Year: 2011-12 9 48,31,22,083/- made by the Assessing Officer under normal provisions of the Act, and therefore, basis on which addition was made by the Assessing Officer to the book profits does not survive. Further, we note the CIT(A) has granted relief to the Assessee by following the judgment of Hon‘ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (255 ITR 273) and judgment of Hon‘ble Bombay High Court in the case of Forever Diamonds Pvt. Ltd. The relevant extract of the order passed by the CIT(A) read as under: ―5.3 I have considered the assessment order and the submissions of the appellant including the case laws cited. I have gone through the decision and find that same are squarely applicable to the facts of the case. Appellant in its written submissions stated that the AO failed to appreciate that where the P & L Account has been prepared in accordance with part II and part III of Schedule VI to the Companies Act and which has been scrutinized and certified by the statutory auditors and relevant authorities, the AO has no power to alter the net profit in the P & L Account except to the extent provided in the Explanation to Section 115JB. 5.4 In the case of Apollo Tyres Ltd. v/s CIT 2545 ITR 273 the Hon‘ble Supreme Court held that the Assessing Officer, while computing the income under Section 115JB, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been property maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JB. The act of the assessing officer, in the present case, is ultra vires and goes beyond the power vested in him by the Income Tax Act, 1961. The adjustments made to the book profits is beyond his powers. The same view was also taken by the Hon‘ble Jurisdictional Bombay High Court in the case of CIT vs. Forever Diamonds Pvt. Ltd. as under:- ITA. No. 292/Mum/2020 Assessment Year: 2011-12 10 ―.........In the case of Apollo Tyres Ltd. (supra), it has been clearly held that the AO has only power of examination whether books of account prepared under the Companies Act have been certified by the authorities under the Companies Act and, therefore, he could only make adjustments as provided in explanation to Section 115JB(2) of the Act. It is thus clear that once accounts are prepared under the Companies Act and have been certified by the authorities, the AO cannot AO tinker with the accounts and make any changes while computing book profit except making adjustments as provided in Explanation to Section 115JB. The addition made by AO and confirmed by CIT(A) on account of profit on sale of asset not disclosed in the P& L Account prepared under the Companies Act cannot, therefore, be sustained. We, therefore, set aside the order of CIT(A) and delete the addition made.‖ 5.5 Based on the above observations and perusal of facts in the appellant‘s case, it is clear that the addition made by the Assessing Officer during the assessment cannot be added to the book profit Under Section 115JB of the Act. Therefore, the assessing officer is hereby directed to delete the addition of made to the book profit. Assessee gets relief. This ground of appeal is allowed.‖ (Emphasis Supplied) 13. We are in agreement with the order passed by CIT(A) reproduced in paragraph 12 above, and therefore, decline to interfere with the same. Accordingly, Ground No. 2 raised by the Revenue is dismissed. 14. Ground No. 3 and 4 are disposed as being general in nature. 15. In the result, appeal is dismissed. Order pronounced on 19.05.2022. Sd/- Sd/- (Pramod Kumar) Vice President (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 19.05.2022 Alindra, PS ITA. No. 292/Mum/2020 Assessment Year: 2011-12 11 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai