VIREDNRA C. SHAH ( PROP. OF ODHAVRAM ENTERPRISES), THANE V. CIT-I ( THANE), THANE

ITA 3122/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4223 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: MADHUR G AGARWAL
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3122/MUM/2009 (ASSESSMENT YEAR: 2005-06) SHRI VIRENDRA C. SHAH COMMISSIONER OF INCOME TAX -I (PROP. OF ODHAVRAM ENTERPRISES) 1STFLOOR, VARDHAN BUILDING 102, PARSHWA NAGAR NO. 1 VS. MIDC, WAGLE INDL. ESTATE BHAYANDAR (W), THANE 401101 THANE PAN - AEGPS 2831 D APPELLANT RESPONDENT APPELLANT BY: SHRI MADHUR G. AGARWAL RESPONDENT BY: SHRI A.P. SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT-I, THANE UNDER SECTION 263 OF THE I.T. ACT DATED 19.03.2009. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT ERRED IN ISSUING A NOTICE UNDER SECTION 263 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT ERRED IN HOLDING THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT ERRED IN HOLDING THAT THE METHOD FOLLOWED BY THE APPELLANT I S NOT AN APPROPRIATE METHOD FOR DEVELOPERS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT IS BAD IN LAW AS THE CIT(A) HAS NOT GIVEN ANY FINDING AND MER ELY GIVEN A DIRECTION TO THE AO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT ERRED IN GIVING DIRECTION TO THE AO TO FOLLOW THE PERCENTAGE COMPLETION METHOD OF ACCOUNTING IN THE FRESH ASSESSMENT. 3. BRIEFLY STATED, THE ASSESSEE IS AN INDIVIDUAL AND H AS INCOME FROM HOUSE PROPERTY, COMMISSION AND DEVELOPMENT OF LAND AS BUILDER AND DEVELOPER. ASSESSEE FILED RETURN OF INCOME DECLARIN G TOTAL INCOME AT ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 2 ` 1,04,031/- AND IN THE ORDER UNDER SECTION 143(3) DA TED 12.03.2007 THE A.O. HAS GIVEN A FINDING THAT AS REGARDS, DEVELOPM ENT OF LAND THE ASSESSEE HAS OPTED PROJECT COMPLETION METHOD FOR OFFERING IN COME FOR TAXATION. AFTER DEBITING THE EXPENDITURE INCURRED DURING THE YEAR U NDER VARIOUS HEADS, THE CLOSING W.I.P. IS SHOWN AT RS.75,00,563/-. AFTER G IVING THE ABOVE FINDING THE A.O., HOWEVER, DISALLOWED AN AMOUNT OF ` 50,000/- OUT OF VARIOUS EXPENDITURES CLAIMED AND INCLUDED IN THE WORK-IN-PR OGRESS BUT IN THE ASSESSMENT ORDER THE SAME WAS DISALLOWED AND ADDED BACK TO THE INCOME RETURNED THEREBY MAKING TAXABLE INCOME AT ` 1,54,031/- IN THE ORDER. THE CIT, THANE ISSUED NOTICE THAT THE ASSESSEE HAD RECE IVED AN AMOUNT OF ` 67,61,000/- DURING THE YEAR TOWARDS INSTALMENT OF S ALE PRICE FROM FLAT PURCHASERS AND SINCE THE ASSESSEE HAS NOT OFFERED A NY INCOME, HAS INVOKED PROVISIONS OF SECTION 263 AND ISSUED A SHOW CAUSE N OTICE VIDE LETTER DATED 02.03.2009. THE ASSESSEE OBJECTED TO THE PROCEEDING S BY THE CIT STATING THAT: (I) THE ASSESSEE WAS FOLLOWING PROJECT COMPL ETION METHOD OF ACCOUNTING WHICH IS IN CONFORMITY WITH THE ACCOUNTING STANDARD S AS PER THE GUIDELINES ISSUED BY THE ICAI SO THE QUESTION OF ADOPTING PERC ENTAGE COMPLETION METHOD OF ACCOUNTING DOES NOT ARISE, (II) ON FACTS THE AMOUNT RECEIVED AT ` 67,61,000/- WAS ADVANCE FROM PROSPECTIVE BUYERS AND THE PROJECT WAS NOT COMPLETE AND, (III) ASSESSEE HAS OFFERED INCOME IN THE FINANCIAL YEAR 2005-06 RELEVANT FOR A.Y. 2006-07 WHEN THE PROJECT WAS COMP LETE AND THE ENTIRE SALE RECEIPTS WERE ACCOUNTED FOR IN THAT YEAR. THE CIT, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO WHILE AGREEING WITH PROJECT COMPLETION METHOD AS A RECOGNISED METHOD OF ACCOUNTING, OPINED THAT THE A.O. IS NOT CONSTRAINED BY THE METHOD OF ACCOUNTING AND HE IS N OT BOUND TO ADHERE TO THEM IN ORDER TO DETERMINE THE TAXABILITY OF THE TR UE INCOME OF THE ASSESSEE IN AN ASSESSMENT PROCEEDINGS. HE WAS OF THE OPINION THAT SINCE LARGE AMOUNT OF ADVANCES WERE RECEIVED, A CERTAIN PERCENT AGE OF THE INCOME WAS TO BE ESTIMATED ON THE BASIS OF PERCENTAGE COMPLETION METHOD AND SINCE THESE ISSUES WERE NOT EXAMINED BY THE A.O. HE HELD THAT T HE ORDER UNDER SECTION 143(3) DATED 12.03.2007 FOR A.Y. 2005-06 WAS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HE THEREFORE SET ASIDE T HE ORDER WITH THE DIRECTION ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 3 TO REFRAME THE SAME DE NOVO AFTER GIVING PROPER OPP ORTUNITY TO THE ASSESSEE AND EXAMINING THE RELEVANT DETAILS. 4. THE LEARNED COUNSEL SUBMITTED THAT THERE IS NO DISP UTE THAT THE ASSESSEE WAS FOLLOWING THE PROJECT COMPLETION METHO D AND THE A.O. HAS EXAMINED THIS ISSUE AND ACCEPTED THE METHOD OF ACCO UNTING BY STATING THE SAME IN THE BODY OF THE ASSESSMENT ORDER. IT WAS HI S CONTENTION THAT SINCE THE ASSESSEE HAS ADOPTED PROJECT COMPLETION METHOD AS A METHOD OF ACCOUNTING, WHICH IS ALSO AN APPROVED METHOD OF ACC OUNTING, CIT THANES OPINION THAT THE A.O. SHOULD HAVE INVOKED PERCENTAG E COMPLETION METHOD DOES NOT APPLY TO THE FACTS OF THE CASE. IT WAS FUR THER SUBMITTED THAT CITS REFERENCE TO CHAMPION CONSTRUCTIONS 5 ITD 495 AND B HAGYANAGAR CONSTRUCTION 46 ITR 236 TO INVOKE PERCENTAGE COMPLE TION METHOD OF ACCOUNTING IS NOT CORRECT AS THE SAME WERE GIVEN IN THE CONTEXT OF CONTRACTORS WHOSE WORK IS DIFFERENT FROM ASSESSEES BUILDING AND DEVELOPING WORK. IT IS ALSO FURTHER SUBMITTED THAT THE ASSESSE E HAS COMPLETED THE PROJECT IN THE NEXT YEAR AND OFFERED THE INCOME IN THE NEXT YEAR AND IT WAS ALSO ACCEPTED BY THE DEPARTMENT, THE FACT OF WHICH WAS BROUGHT TO THE NOTICE OF THE CIT VIDE LETTER DATED 09.03.2009 FILE D BEFORE HIM IN RESPONSE TO NOTICE UNDER SECTION 263. HENCE, THERE IS NO PREJUD ICE CAUSED TO THE REVENUE. IT WAS HIS CONTENTION THAT THE PRINCIPLES FOR INVOKING THE JURISDICTION HAVE NOT BEEN COMPLIED WITH BY THE CIT AND ACCORDINGLY THE ORDER UNDER SECTION 263 IS BAD IN LAW. 5. THE LEARNED D.R. IN REPLY SUBMITTED THAT THE ASSESS EE SHOULD HAVE FOLLOWED REVISED AS-7 METHOD, WHICH IS EFFECTIVE FR OM 01.04.2003 AND ACCORDING TO THAT PERCENTAGE COMPLETION ALONE IS TH E ACCEPTED METHOD OF ACCOUNTING AND PROJECT COMPLETION METHOD WAS NOT CO RRECT. THEN HE REFERRED TO THE IMPORTANT GUIDELINES UNDER THE PROVISIONS OF AS-7 AND SUBMITTED THAT PERCENTAGE COMPLETION METHOD WOULD BE APPLICABLE IN THE CASE OF A BUILDER EVEN UNDER THE REVISED ACCOUNTING STANDARD PROVIDED THE ABOVE STATED CONDITIONS ARE FULFILLED. HE ACCORDINGLY SUPPORTED THE ORDER OF THE CIT(A) IN INVOKING THE JURISDICTION OF PROVISIONS OF SECTION 263. ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 4 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF MRS. KHAT IZA S. OOMERBHOY V. ITO (2006) 101 TTJ (MUM.) 1095, ANALYSED IN DETAIL VARI OUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 2 43 ITR 83 AS WELL AS HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C IT V. GABRIEL INDIA LTD. (1993) 203 ITR 108 AND HAS PRONOUNCED THE FOLLOWING BROADER PRINCIPLES TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. 'THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE AB OVE CASES MAY BE SUMMARISED BELOW.' I. THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. II. SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND E VERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACT ED. III. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT AP PLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. IV. IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. V. EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTE D ONE OF THE COURSE PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIB LE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UND ER LAW. VI. IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFIC ER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263 IS NOT PERMI TTED TO SUBSTITUTE HIS ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 5 ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. VII. THE ASSESSING OFFICER EXERCISES QUASI-JUDICIAL POWE R VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CO NCLUSION. VIII. THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S ECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. IX. IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING A ND THE ASSESSING OFFICER ALLOWS THE CLAIM ON BEING SATISFIED WITH TH E EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT M AKE AN ELABORATE DISCUSSION IN THAT REGARD.' 7. KEEPING IN VIEW ALL THE ABOVE PRINCIPLES ESTABLISHE D BY VARIOUS JUDICIAL PRONOUNCEMENTS, THE ISSUE IN THIS CASE IS EXAMINED. THERE IS NO DISPUTE AS FAR AS THE METHOD OF ACCOUNTING BEING FOLLOWED BY T HE ASSESSEE. EVENTHOUGH THE CIT IN THE SHOW CAUSE NOTICE HAS OBJECTED TO TH E METHOD OF ACCOUNTING AND SHOW CAUSED THAT PERCENTAGE COMPLETION METHOD S HOULD BE FOLLOWED, HE HOWEVER, HAS ACCEPTED THAT PROJECT COMPLETION METHO D IS A RECOGNISED METHOD OF ACCOUNTING. HIS OBJECTION IS WITH REFEREN CE TO THE FACT THAT THE A.O. IS NOT CONSTRAINED BY THE METHOD OF ACCOUNTING . THE LEARNED D.R.S RELIANCE ON AS-7 TO SUPPORT THE ORDER OF THE CIT IS NOT CORRECT AS THE CIT ALSO ACCEPTED THAT PROJECT COMPLETION METHOD IS A R ECOGNISED METHOD OF ACCOUNTING. NOT ONLY THAT EVEN WITH REFERENCE TO TH E CLAIM OF DEDUCTION UNDER SECTION 80IB(10) IN RESPECT OF UNDERTAKING DE VELOPING, BUILDING AND HOUSE PROJECTS, THE CBDT AS LATE AS 30.06.2009 VIDE INSTRUCTION NO. 4 OF 2009 ALSO ACCEPTS THAT THE CLAIM CAN BE MADE ON AN YEAR TO YEAR BASIS WHERE THE ASSESSEE IS SHOWING PROFIT ON PERCENTAGE COMPLETION METHOD OR IT WAS AVAILABLE ON COMPLETION OF THE PROJECT IF THE S AID CONDITIONS ARE SATISFIED. THUS THERE IS A RECOGNITION TO THE METHOD OF ACCOUN TING BY THE CBDT WHICH ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 6 ALSO REFERS PARTIAL COMPLETION OF PROJECT, I.E. PER CENTAGE COMPLETION METHOD OR PROJECT COMPLETION METHOD EVEN WHILE CLAIMING DE DUCTION UNDER SECTION 80IB(10). AS SUBMITTED BY THE ASSESSEE BEFORE THE C IT THE ASSESSEE HAS SHOWN THE PROJECT AS COMPLETED IN THE NEXT FINANCIA L YEAR, I.E. A.Y. 2006-07 AND THE ENTIRE ADVANCES RECEIVED DURING THE YEAR HA VE BEEN ACCOUNTED FOR IN THAT YEAR. ON THESE FACTS IT CAN BE STATED THAT THE DIRECTION OF THE CIT TO THE A.O. TO INVOKE PERCENTAGE COMPLETION METHOD CAN BE CERTAINLY STATED AS A CHANGE OF OPINION BY THE CIT AS THE A.O., WHILE COM PLETING THE ASSESSMENT UNDER SECTION 143(3) HAS ALREADY EXAMINED THE METHO D OF ACCOUNTING AND GAVE A FINDING THAT THE ASSESSEE WAS FOLLOWING PROJ ECT COMPLETION METHOD AND ALSO EXAMINED THE WORK-IN-PROGRESS IN THAT YEAR . EVENTHOUGH HE HAS DISALLOWED AN AMOUNT OF ` 50,000/- OUT OF WORK-IN-PROGRESS FOR NON- FURNISHING OF VOUCHERS, HE WAS NOT CORRECT IN TREAT ING IT AS INCOME OF THE YEAR RATHER THAN REDUCING THE W.I.P. BE THAT AS IT MAY THE FACT WAS THAT THE A.O. HAS EXAMINED THE METHOD OF ACCOUNTING AND ACCE PTED PROJECT COMPLETION METHOD WHILE COMPLETING THE ASSESSMENT U NDER SECTION 143(3). HENCE, THE DIRECTION GIVEN BY THE CIT TO INVOKE PER CENTAGE COMPLETION METHOD WILL CERTAINLY FALL WITHIN THE REALM OF CHAN GE OF OPINION BY THE CIT AND ACCORDINGLY IT DOES NOT GIVE ANY JURISDICTION T O THE CIT AFTER A.O. HAS TAKEN ONE OF THE OPINION AT THE TIME OF COMPLETION OF THE ASSESSMENT ON THE FACTS OF THE CASE. NOT ONLY THAT THE CIT WAS NOT AB LE TO DEMONSTRATE THAT THE ORDER OF THE A.O. WAS PREJUDICIAL TO THE INTERESTS OF REVENUE. IT IS NOT THE CASE OF THE CIT THAT THE A.O. ERRED IN TAKING THE A MOUNT DISALLOWED OUT OF THE WORK-IN-PROGRESS AS INCOME OF THE YEAR. SINCE H E HAS BROUGHT AN AMOUNT OF ` 50,000/- TO TAX MORE THAN REQUIRED, THERE IS NO PRE JUDICE TO THE INTERESTS OF THE REVENUE. NOT ONLY THAT THE ENTIRE SALES RECEIVED AS ADVANCES DURING THE YEAR HAVE BEEN OFFERED IN THE NEXT ASSES SMENT YEAR AND THE ASSESSEE HAS OFFERED INCOME OF THE PROJECT. SINCE T HE INCOME WAS OFFERED IN THE LATER YEAR AND TAX RATES BEING SAME IT CANNOT B E CONSIDERED THAT PREJUDICE WAS CAUSED TO REVENUE BY POSTPONING THE I NCOME TO THE LATER YEAR. SINCE THE ORDER OF THE CIT DOES NOT ESTABLISH THAT THE ORDER OF THE A.O. IS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, ON THE JUDICIAL PRINCIPLES ESTABLISHED ABOVE, IT HAS TO HELD THAT T HE CIT THANE HAS NO ITA NO. 3122/MUM/2009 SHRI VIRENDRA C. SHAH 7 JURISDICTION TO INVOKE PROVISIONS OF SECTION 263. I N VIEW OF THIS, HIS ORDER UNDER SECTION 263 IS SET ASIDE AND THE GROUNDS OF T HE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 20 TH OCTOBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT I, THANE, 4. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.