MOHAMMED SALIM YUSUF, MUMBAI V. PR. CIT 20, MUMBAI

ITA 3042/MUM/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2091 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Keywords: Set aside
• Section: 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, JM & SHRI M.BALAGANESH, AM ITA NO. 3042 /MUM/ 2019 ( ASSESSMENT YEAR : 2015 - 16 ) MOHAMMED SALIM YUSUF 4 TH FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012 VS. PR. C OMMISSIONER OF INCOME TAX - 20 MUMBAI PAN/GIR NO. AAKPY9942K (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI ASHOK MEHTA REVENUE BY SHRI B JAYA KUMAR DATE OF HEARING 16 /09 /2019 DATE OF PRONOUNCEMENT 06 / 12 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 3042/MUM/2019 FOR A.Y. 20 15 - 16 PREFERRED BY THE ORDER AGAINST THE REVISION ORDER OF THE LD. PRINCI PAL COMMISSIONER OF INCOME TAX - 20 , MUMBAI U/S. 263 OF THE ACT DATED 15/03 /2019 FOR THE A.Y. 20 15 - 16 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. PR. CIT WAS JUSTIFIED IN INVOKING REVISIONARY JURISDICTION U/S.263 OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 2 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND H E IS A BUILDER AND DEVELOPER. THE RETURN OF INCOME FOR THE A.Y.2015 - 16 WAS ELECTRONICALLY FILED BY THE ASSESSEE ON 01/10/2015 DECLARING TOTAL INCOME OF RS.1,54,96,400/ - . THE ASSESSMENT WAS COMPLETED BY THE LD. AO U/S.143(3) OF THE A CT ON 30/06/2017 DETERMINING THE TOTAL INCOME OF THE ASSESSMENT AT RS.1,59,20,900/ - . LATER THIS ASSESSMENT WAS SOUGHT TO BE REVISED BY THE LD. PR. CIT U/S.263 OF THE ACT ON THE GROUND THAT THE LEARNED ASSESSING OFFICER F A ILED TO CONDUCT APPROPRIATE ENQUIRIE S AND HAD NOT EXAMINED THE VALUATION OF CLOSING STOCK OF PROPERTIES WITH RESPECT TO THE COST INCURRED BY THE ASSESSEE THEREON. ACCORDINGLY, THE LD. CIT ISSUED SHOW - CAUSE NOTICE TO THE ASSESSEE. IN RESPONSE THERETO, THE ASSESSEE REPLIED THAT HE HAD SUBMITTE D THE CLOSING STOCK VALUATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 27/06/2017 BEFORE THE LD. AO. THE ASSESSEE ALSO POINTE D OUT BEFORE THE LD. AO THAT IT IS FOLLOWING PERCENTAGE COMPLETION METHOD IN RESPECT OF ITS REAL ESTATE PROJEC TS WHICH HAS BEEN CONSISTENTLY FOLLOWED YEAR AFTER YEAR. THE DETAILS OF CLOSING STOCK VALUED AS ON 31/03/2015 SUBMITTED BY THE ASSESSEE BEFORE THE LD. AO ARE AS UNDER: - ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 3 PARTICULARS SQ. FIT. RATE AMOUNT STOCK OF VRINDAVAN & VRINDAVAN SRISHTI 17800SQ FIT @ 1500 PER SQ. FT = 26700000/ - 50% COMPLETED 17800 1500 13350000 VARINDAVAN RESIDENCY (CONSTRUCTED IN 2008 - 09) STOCK OF UNSOLD PROPERTIES 7000 SQ. FT. @ 1000 PER SQ. FT. 7000 1000 7000000 USE AS SITE OFFICE {VRINDAVAN VALLE Y) CONSTRUCTED IN 2011 - 12 4000 SQ.FT. @ 1000 PER SQ.FT. 4000 1000 4000000 VRINDAVAN SHRISHTI ROAD USAGE CHARGES 10650000 TOTAL STOCK VALUE AS ON 31/03/2015 35000000 3.1. THE ASSESSEE SUBMITTED BEFORE THE LD. PR. CIT THAT TH E VALUATION OF CLOSING STOCK AS ON 31/03/2015 AS TABULATED SUPRA HAS BEEN THE SUBJECT MATTER OF VERIFICATION BY THE LD. AO AND HENCE, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE LD. AO TO MAKE ENQUIRY REGARDING THE SAME. 3.2. THE ASSESSE E ALSO BROUGHT TO THE NOTICE OF THE LD. PR. CIT THAT IN RESPECT OF PROJECTS IN VRINDAVAN RESIDENCY AND VRINDAVAN VALLEY, THE VALUE REFLECTED ABOVE WERE THE SAME VALUE S AS WERE CONSIDERED IN THE OPENING BALANCE AND HENCE, THERE CANNOT BE ANY FURTHER COST S T HAT COULD BE ATTRIBUTED TO THE SAID PROJECTS THEREON. ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 4 3.3. IN RESPECT OF VRINDAVAN SHRISTI PROJECT, THE SUM OF RS.1,06,50,000/ - WAS INCURRED TOWARDS ROAD USAGE CHARGES DURING THE A.Y. 2015 - 16 AND SINCE THIS PROJECT IS YET TO BE STARTED, THE ACTUAL AMOUNT SPENT IS REFLECTED IN WORK IN PROGRESS I.E IN CLOSING STOCK AS ON 31/03/2015. 3.4. IN RESPECT OF VRINDAVAN PALM S PROJECT, THE ASSESSEE SUBMITTED BEFORE THE LD. PR.CIT THAT CONSTRUCTION WAS CARRIED OUT IN KALYAN CATERING TO THE NEED S OF LOW INCOME GROUP PO PULATION. SINCE THE STANDARD OF LIVING OF PEOPLE IN THAT AREA IS VERY LOW, THE ASSESSEE CANNOT GET SALE PRICE AS IS AVAILABLE IN METRO CITIES OR IN MAIN MUMBAI AREA. THE ASSESSEE SUBMITTED THAT THE SELLING PRICE OF THESE RESIDENTIAL PROPERTIES DURING THE F .Y.2015 - 16 IN KALYAN AREA WAS AROUND RS.3000 - RS.3500/ - PER SQ.FT. THE ASSESSEES CLOSING STOCK OF THE PROJECT WAS VALUED BY TAKING DIRECT COST OF CONSTRUCTION AT RS.1500 PER SQ. FT CONSIDERING THE QUALITY OF CONSTRUCTION AND PAST EXPERIENCE OF THE ASSESSEE . THE ASSESSEE ALSO STATED BEFORE THE LD. PR.CIT THAT SINCE THE SAID PROJECT AT KALYAN HAD BEEN COMPLETED AT THE TIME OF 263 PROCEEDINGS, THE DETAILED COST CALCULATION GIVING COMPLETE BREAK - UP OF HEAD WISE EXPENSES WAS SUBMITTED WHICH COST ALMOST MATCH ED T HE ESTIMATED COST OF CONSTRUCTION ESTIMATED AT THE TIME OF VALUATION OF CLOSING STOCK AS ON 31/03/2015. ACCORDINGLY, THE ASSESSEE PLEADED THAT THERE CANNOT BE ANY PREJUDICE THAT COULD BE CAUSED TO THE INTEREST S OF THE REVENUE IN THE ESTIMATED VALUATION OF CLOSING STOCK BY THE ASSESSEE AS ON 31.3.2015 IN RESPECT OF KALYAN PROJECT. ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 5 4 . THE LD. PR.CIT DID NOT ADHERE TO THE AFORESAID CONTENTIONS OF THE ASSESSEE AND OBSERVED AS UNDER: - A. THE CLAIM OF THE ASSESSEE THAT PROJECT IS 50% COMPLETED IN RESPECT OF VRI NDAVAN PALMS AT KALYAN IS ONLY SELF - SERVING AND NOT SUPPORTED BY ANY ARCHITECTS CERTIFICATE EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR DURING THE COURSE OF REVISION PROCEEDINGS U/S.263 OF THE ACT. THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR EACH PROJECT. B. THE ASSESSEE HAS CONSIDERED ONLY THE DIRECT COST FOR VALUING THE CLOSING STOCK. SINCE THE ASSESSEE BEING THE BUILDER, THERE IS NO CONCEPT OF ANY DIRECT AND INDIRECT COST AND THAT ALL THE COSTS INCURRED WOULD FALL UNDER DIRE CT COST EXCEPT SOME ADMINISTRATIVE AND GENERAL EXPENSES. THE PROJECT WISE BIFURCATION OF EXPENSES BY THE ASSESSEE WERE ALSO NOT PRODUCED BY THE ASSESSEE. C. CERTAIN GENERAL AND ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE WOULD BE COMMON ACROSS ALL THE PROJECTS AND HENCE, IT TAKES THE CHARACTER OF DIRECT COST AND ACCORDINGLY NEED TO BE INCLUDED IN THE VALUATION OF CLOSING STOCK THEREON. 4.1 . WITH THESE OBSERVATIONS, THE LD. PR.CIT HELD THAT THE LD. AO DID NOT CONDUCT NECESSARY ENQUIRY WITH REGARD TO TH E VERIFICATION OF VALUE OF ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 6 CLOSING STOCK WITH RESPECT TO COST INCURRED FOR EACH PROJECT AND ACCORDINGLY SET ASIDE THE ASSESSMENT BY TREATING THE SAME AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE IT AC T. 5 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE DETAILS OF VALUATION OF CLOSING STOCK OF EACH PROJECT HAS INDEED BEEN FURNISHED BY THE ASSESSEE BEFORE THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 27/06/2017, ON WHICH FACT THERE IS NO DISPUTE. WE FIND THAT LD. AO HAD MERELY SOUGHT TO BRING TO TAX THE NOTIONAL RENTAL INCOME FROM THE CLOSING STOCK OF UN - SOLD FLATS IN TERMS OF SEC TION 23 OF THE ACT. 6.1. WE FIND THAT IN RESPECT OF VRINDAVAN PALMS PROJECT, WHICH IS ONLY PROJECT WHICH IS OPERATIONAL AS ON 31/03/2015, THE COST REQUIRES TO BE ALLOCATED. THE ASSESSEE HAS VALUED THIS PROJECT AT AN ESTIMATED COST OF CONSTRUCTION AT RS.15 00/ - PER SQ. FT. THIS ACCORDING TO THE ASSESSEE COVERS ALL THE COSTS INVOLVED / INCURRED FOR THIS PARTICULAR PROJECT AS ON 31.3.2015 . HENCE, THERE IS NO QUESTION OF ALLOCATION OF FURTHER COST S BE IT DIRECT OR INDIRECT OR GENERA L / ADMINISTRATIVE EXPENSES T O THE SAID PROJECT, WHILE VALUING THE CLOSING STOCK THEREON. WE ALSO FIND FROM THE SCRUTINY ASSESSMENT ORDER FRAMED IN ASSESSEES OWN CASE FOR THE A.Y.2014 - 15 U/S.143(3) OF THE ACT DATED 30/11/2016, SIMILAR VALUATION METHOD ADOPTED ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 7 BY THE ASSESSEE HAD BEEN ACCEPTED BY THE LD. AO AND NO ADDITION THEREON WAS MADE. REVENUE WAS NOT ABLE TO BRING ON RECORD ANY EVIDENCES THAT THE ASSESSMENT FOR A.Y.2014 - 15 WERE SUBSEQUENTLY SUBJECTED TO ANY REOPENING U / S 147 OF THE ACT OR REVISION PROCEEDINGS U/S.263 OF THE ACT. HENCE, IT COULD BE SAFELY CONCLUDED THAT THE LD. AO WHILE FRAMING THE ASSESSMENT FOR THE A.Y.2015 - 16 HAD MERELY ADOPTED THE SAME VALUATION METHOD ACCEPTED BY HIS PREDECESSOR FOR A.Y.2014 - 15 IN ASSESSEES OWN CASE. HENCE, THERE CANNOT BE ANY ERROR ON THE P ART OF THE LD. AO IN FRAMING A POSSIBLE VIEW THEREON. IN ANY CASE, WE WOULD LIKE TO HOLD THAT THE ASSESSEE HAD FURNISHED THE ACTUAL COST INCURRED IN RESPECT OF THIS PROJECT WHICH HAD BEEN SUBSEQUENTLY COMPLETED , BEFORE THE LD. CIT DURING THE REVISION PROC EEDINGS WHEREIN , THE ASSESSEE WAS ABLE TO PROVE THAT THE ESTIMATE MADE AS ON 31/03/2015 MATCHED CLOSER TO THE ACTUAL COST S INCURRED IN THE PROJECT SUBSEQUENTLY. HENCE, THERE CANNOT BE ANY PREJUDICE THA T COULD BE CAUSED TO THE INTEREST S OF THE REVENUE ALSO AS IT IS MERELY A TIMING DIFFERENCE . HENCE, IT COULD BE SAFELY CONCLUDED THAT THE LD. AO HAD DULY APPLIED HIS MIND BY ACCEPTING THE VALUATION METHOD ADOPTED BY THE ASSESSEE IN RESPECT OF VRINDAVAN PALMS AT RS.1500/ - PER SQ.FT ON AN ESTIMATED BASIS AS ON 3 1/03/2015 ON WHICH THERE CANNOT BE ANY INTERFERENCE AND THERE CANNOT BE ANY ATTRIBUTION OF ERROR ON THE PART OF THE LD. AO. HENCE, REVISION PROCEEDINGS U/S.263 OF THE ACT IN RESPECT OF THIS PROJECT DESERVES TO BE QUASHED. ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 8 6 .2. IN RESPECT OF PROJECTS AT VR INDAVAN RESIDEN CY AND VRINDAVAN VALLEY, THE VALUES REFLECTED AS ON 31/03/2015 WERE CARRIED OVER FROM THE EARLIER YEARS AS THEY WERE COMPLETED PROJECTS AND THE VALUE S REFLECTED THEREON REPRESENT UNSOLD STOCKS IN THE SUBJECT MENTIONED PROJECT. THERE NEED NOT BE ANY FURTHER ATTRIBUTION OF COST S IN RESPECT OF SUCH PROJECT. HENCE, NO ERROR COULD BE ATTRIBUTED ON THE PART OF THE LD. AO ACCEPTING TO THE SAID VALUATION MADE BY THE ASSESSEE. HENCE, 263 PROCEEDINGS INITIATED FOR DISTURBING THE SAID VALUATION DESERVES TO BE QUASHED. 6 .3. IN RESPECT OF VRINDAVAN SHRISHTI PROJECT, IT IS UNDISPUTED THAT AS ON 31/03/2015, THE ASSESSEE HAD ONLY SPENT ON ROAD USAGE CHARGES TO THE TUNE OF RS.1,06,50,000/ - AND SINCE THE SAID PROJECT IS NOT COMPLETED, THE SAME VALUE IS REFLECT ED IN THE CLOSING STOCK AS ON 31/03/2015. THERE CANNOT BE ANY ATTRIBUTION OF FURTHER COSTS THEREON. HENCE SECTION 263 PROCEEDINGS INITIATED FOR DISTURBING THE VALUATION DESERVES TO BE QUASHED. 6 .4. IN VIEW OF THE AFORESAID DETAILED OBSERVATIONS, WE HOLD T HAT THERE IS NO ERROR IN THE ORDER PASSED BY THE LD. AO IN ACCEPTING THE VALUATION OF THE ASSESSEE IN RESPECT OF PROJECTS AS ON 31/03/2015. ACCORDINGLY, THE LD. CIT HAD ERRED IN EXERCISING REVISION JURISDICTION U/S.263 O F THE ACT IN THE ITA NO. 3042/MUM/2019 MOHAMMED SALIM YUSUF 9 FACTS AND CIRCUMSTA NCES OF THE INSTANT CASE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 / 12 /201 9 SD/ - ( SAKTIJIT DEY ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 06 / 12 / 2019 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5 . DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//