ACIT - 33 (2), MUMBAI V. PARMAR BUILD TECH , MUMBAI

ITA 3384/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4345 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 143(3); 13; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3384/MUM/2018 ASSESSMENT YEAR: 2011-12 ASSTT. COMMISSIONER OF INCOME TAX-33(2), R. NO. 608, 6 TH FLOOR, PRATAKSHYAKAR BHAVAN, BKC, MUMBAI-400051. VS. M/S PARMAR BUILD TECH, PARMAR ESTATE, PAREKH NAGAR, SWAMI VEVEKANAND SCHOOL, KANDIVALI (W), MUMBAI-400067 PAN NO. AAJFP2574F APPELLANT RESPONDENT REVENUE BY : MR. UODAL RAJ SINGH, DR ASSESSEE BY : NONE DATE OF HEARING : 26/10/2020 DATE OF PRONOUNCEMENT : 27/10/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-45, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX A CT 1961, (THE ACT). THOUGH THE CASE WAS FIXED FOR HEARING ON 23.01.2020 AND 26.10.2020, NEITHER THE ASSESSEE NOR ITS AUTHORIZED REPRESENTATIVE APPE ARED BEFORE THE TRIBUNAL ON THE ABOVE DATES. IN VIEW OF THE NON-COMPLIANCE BY T HE ASSESSEE, WE ARE M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 2 PROCEEDING TO DISPOSE OFF THIS APPEAL AFTER EXAMINI NG THE MATERIALS AVAILABLE ON RECORD AND AFTER HEARING THE LD. DEPARTMENTAL REPRE SENTATIVE (DR). 2. THE 1 ST GROUND OF APPEAL WHETHER THE LD. CIT(A) WAS RIGHT IN DELETING THE AD DITION OF RS.2,76,07,910/-BEING THE VALUE OF CONSIDERATION RECEIVED BY THE ASSESSEE WHEN IT WAS CLEAR THAT SUBSTANTIAL AMOUNTS HAVE BEEN RECEIVED BY THE ASSES SEE BEFORE SIGNING OF THE AGREEMENTS OF SALE DURING THE YEAR. THE 2ND GROUND OF APPEAL WHETHER THE LD. CIT(A) WAS RIGHT IN ACCEPTING THE D ATE OF POSSESSION LETTERS AS DATE OF SALES WHEN IT WAS CLEAR FROM THE FACTS THAT MAJO R AMOUNTS HAVE BEEN RECEIVED UPON SIGNING OF SALE AGREEMENTS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2011-12 ON 3 0.09.2011 DECLARING TOTAL INCOME OF RS.82,79,010/-. SUBSEQUENTLY, IT REVISED ITS RETURN OF INCOME AT RS.79,57,590/- ON 31.03.2013. THE ASSESSEE DERIVES INCOME FROM CONSTRUCTION OF BUILDING AND INDUSTRIAL GALA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER (AO) ASKED THE ASSESSEE TO PROVIDE A RECONCILIATION OF T RANSACTIONS REPORTED IN AIR INFORMATION WITH THE BOOKS OF ACCOUNTS AND OTHER DE TAILS. IN RESPONSE TO IT, THE ASSESSEE SUBMITTED VARIOUS DETAILS AND ALSO A LIST OF REGISTERED AGREEMENTS FOR SALE OF IMMOVABLE PROPERTIES AS REPORTED IN AIR STA TEMENT AND RECONCILIATION OF REVENUE RECOGNIZED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE SUBMITTED BEFORE THE AO THAT PROJECT COMPLETION METHOD WAS FO LLOWED FOR REVENUE RECOGNITION I.E. WHEN POSSESSION IS HANDED OVER TO THE PURCHASER OF THE PROPERTIES AND THAT OUT OF TOTAL OF RS.4,70,70,210/ - REPORTED IN AIR M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 3 INFORMATION, SALE RECEIPTS OF RS.1,76,02,300/- WERE RECOGNIZED IN FINANCIAL YEAR (FY) 2010-11, SALE OF RS.2,61,06,912/- IN FY 2 011-12 AND SALE OF RS.15,01,000/- IN FY 2012-13. HOWEVER, THE AO HELD THAT THE ASSESSEE WAS FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING BUT DEFERRING REVENUE RECOGNIT ION TO THE SUBSEQUENT YEARS AND MADE AN ADDITION OF RS.2,76,07,910/- BEIN G THE TOTAL OF SALES RECOGNIZED BY IT IN THE SUBSEQUENT TWO ASSESSMENT Y EARS. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF HEARING BEFORE THE CIT(A), THE ASSESSEE FILED POSSESSION LETTERS. THE SAME BEING AN ADDITIONAL EV IDENCE, THE CIT(A) REMANDED IT TO THE AO TO VERIFY IT AND SEND A REPOR T. AFTER RECEIPT OF THE REMAND REPORT FROM THE AO, THE CIT(A) FURNISHED A C OPY OF IT TO THE ASSESSEE TO FILE ITS REPLY. THE ASSESSEE FILED A REPLY TO TH E REMAND REPORT ON 07.02.2018. HAVING CONSIDERED THE FACTS OF THE CASE ALONG WITH THE REMAND REPORT SUBMITTED BY THE AO AND REPLY TO IT BY THE ASSESSEE , THE LD. CIT(A) HELD THAT (I) THE GROSS SALE RECEIPTS RECOGNIZED BY THE ASSESSEE IN FYS 2011-12 AND 2012- 13 HAVE BEEN SHIFTED BY THE AO TO FY 2010-11 WITHOU T SHIFTING THE EXPENDITURE INCURRED IN CONNECTION WITH COMPLETION OF THE SAID PROJECTS, (II) THE OVERALL EFFECT OF THE ASSESSMENT IS THAT THE AO HAS CHANGED THE ACCOUNTING METHOD REGULARLY FOLLOWED BY THE ASSESSEE OVER THE YEARS, (III) TO PROTECT THE INTEREST OF BUYERS, THE GOVERNMENT OF MAHARASHTRA H AS PASSED MOFA (MAHARASHTRA OWNERSHIP OF FLATS ACT, 1963) AND AS P ER IT UNLESS THE POSSESSION OF THE PREMISES IS HANDED OVER TO THE PU RCHASER, AS PER THE AGREED DATE IN THE AGREEMENT FOR SALE OR WITHIN FURTHER EX TENDED PERIOD OF 3 MONTHS M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 4 FROM THE AGREED DATE, THE PROMOTER/BUILDER IS LIABL E FOR REFUND OF AMOUNT COLLECTED FROM THE PURCHASER ALONG WITH INTEREST @ 9% PER ANNUM AND TILL THE DATE IT IS NOT REFUNDED, THE SAME REMAINS AS A CHAR GE ON THE PROPERTY OF THE PROMOTER/BUILDER/DEVELOPER; THEREFORE, A POSSESSIO N LETTER IS GIVEN BY THE BUILDER AFTER COMPLETION OF PROPERTY AS PER THE AGR EEMENT TO MAKE HIMSELF/ITSELF CLEAR FROM THE OBLIGATIONS OF AGREEM ENT OF SALE AND THE MOFA ; ACCORDINGLY, EFFECTIVELY RISK OF BUILDER IS TRANSFE RRED ONLY WHEN POSSESSION IS HANDED OVER TO THE PURCHASER, (IV) SALE IS COMPLETE D ONLY WHEN THE POSSESSION IS HANDED OVER TO THE PURCHASER, WHICH IS DONE BY A POSSESSION LETTER ON WHICH THE BUYER SIGNS AS AN ACKNOWLEDGEMENT OF RECE IVING THE FLAT/PROPERTY AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT FO R SALE; THEREFORE, THE FINDING OF THE AO THAT ALL RISKS AND REWARDS ARE TR ANSFERRED ON THE DATE OF SALE AGREEMENT IS NOT CORRECT, (V) THE AO HAS SIMPLY GON E BY THE AIR INFORMATION OF REGISTRATION OF AGREEMENTS OF SALE MADE DURING THE YEAR ; THE AO HAS NOT CALLED FOR BOOKS OF ACCOUNTS AND EXAMINED THE SAME. HOLDING AS ABOVE, THE LD. CIT(A) FURTHER OBSERVED THAT IN CONSTRUCTION BUSINESS THE GROSS RECEIPTS CANNOT BE NET INCOME, T HE CORRESPONDING EXPENDITURE IS TO BE REDUCED TO GET THE GROSS PROFI T AND EXAMINATION OF THE ACCOUNTS REVEALS THAT THE ASSESSEE HAS CARRIED FORW ARD PART OF EXPENDITURE AS WORK-IN-PROGRESS TO LATER YEARS AND SPENT FURTHER T HE COMPLETE THOSE PROJECTS. CONSIDERING THE ABOVE FACTS, THE LD. CIT(A) DIRECTE D THE AO TO DELETE THE ADDITION OF RS.2,76,07,910/-. 5. BEFORE US, THE LD. DR RELYING ON THE ORDER OF TH E AO SUBMITS THAT AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND CONSIDERING THE AGREEMENT FOR SALE, THE AO HAS RIGHTLY MADE AN AD DITION OF RS.2,76,07,910/-. M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 5 6. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIALS ON RECORD. THERE IS NO DISPUTE THAT OUT OF TOTAL RECEIPTS OF R S.4,70,70,210/- REPORTED IN AIR INFORMATION, THE ASSESSEE HAS RECOGNIZED SALE R ECEIPTS OF RS.1,76,02,300/- IN FY 2010-11, SALE RECEIPTS OF RS.2,61,06,910/- IN FY 2011-12 AND SALE RECEIPTS OF RS.15,01,000/- IN FY 2012-13. IN THE INSTANT CASE, THE AO HAS SIMPLY FOLLOWED THE AIR INFORMATION OF REGISTRATION OF AGREEMENTS OF SALE MADE DURING THE YEAR AND HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEFER THE RECEIPTS TO L ATER YEARS. THIS IS NOT THE CORRECT WAY TO MAKE AN ASSESSMENT. THE AO COULD HAV E CALLED FOR THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND EXAMINED IT . HE HAS NOT DONE SO. THERE IS NO FINDING BY THE AO THAT THE BOOKS OF ACC OUNTS MAINTAINED BY THE ASSESSEE ARE DEFECTIVE. ALSO WE FIND THAT THE AO HAS SHIFTED THE GROSS SAL E RECEIPTS RECOGNIZED BY THE ASSESSEE IN FYS 2011-12 & 2012-13 BACK TO FY 2010-11 WITHOUT SHIFTING THE EXPENDITURE INCURRED IN CONNECTION WIT H COMPLETION OF THE SAID PROPERTIES. THE ASSESSEE IS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING. IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (2) OF SECTION 145 OF THE ACT, THE CENTRAL GOVERNMENT HAS NOTIFIED ACCOUNTING STAN DARD I AND II TO BE FOLLOWED BY ALL ASSESSEES FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IT IS OPERATIVE FROM 01.04.1997. AS PER THE SAID ACCOUNTI NG STANDARD I ACCRUAL REFERS TO THE ASSUMPTION THAT REVENUE AND COSTS ARE ACCRUED, THAT IS, RECOGNIZED AS THEY ARE EARNED OR INCURRED (AND NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN THE FINANCIAL STATEMENTS OF T HE PERIODS TO WHICH THEY RELATE. IN THE INSTANT CASE, THE ADDITION MADE BY T HE AO OF RS.2,76,07,910/- BY SHIFTING BACK THE GROSS SALE RECEIPTS RECOGNIZED BY THE ASSESSEE IN FYS 2011- M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 6 12 & 2012-13 TO FY 2010-11, WITHOUT SHIFTING THE EX PENDITURE INCURRED IN CONNECTION WITH THE COMPLETION OF THE SAID PROJECT VIOLATES THE ACCOUNTING STANDARD I NOTIFIED U/S 145(2) OF THE ACT. THERE IS MERIT IN THE FINDING OF THE LD. CIT(A) THA T :- TO PROTECT THE INTERESTS OF THE BUYER, THE GOVERNM ENT OF MAHARASHTRA HAS PASSED MOFA (MAHARASHTRA OWNERSHIP OF FLATS ACT, 1963). AC CORDING TO THE PROVISIONS OF MOFA UNLESS THE POSSESSION OF THE PREMISES IS HANDE D OVER TO THE PURCHASER, AS PER THE AGREED DATE IN THE AGREEMENT FOR SALE OR WITHIN FURTHER EXTENDED PERIOD OF THREE MONTHS FROM THE AGREED DATE, THE PROMOTER/BUILDER I S LIABLE FOR REFUND OF AMOUNT COLLECTED FROM THE PURCHASER ALONG WITH INTEREST @9 % P.A. AND TILL THE DATE IT IS NOT REFUNDED THE SAME REMAINS AS A CHARGE ON THE PROPER TY OF THE PROMOTER/BUILDER/DEVELOPER. THEREFORE, A 'POSSESSIO N LETTER' IS GIVEN BY THE BUILDER AFTER COMPLETION OF PROPERTY AS PER AGREEME NT TO MAKE HIMSELF/ITSELF CLEAR FROM THE OBLIGATIONS OF AGREEMENT OF SALE AND THE M OFA. ACCORDING TO THE PROVISION OF THIS SECTION UNTIL THE POSSESSION IS HANDED OVER TO THE PURCHASER, THERE ALWAYS EXISTS A SITUATION THAT THE BUILDER/DEVELOPER MAY B ECOME LIABLE FOR REFUND OF AMOUNT RECEIVED FROM THE PURCHASER. ACCORDINGLY, TH E EFFECTIVE RISK OF BUILDER IS TRANSFERRED ONLY WHEN THE POSSESSION IS HANDED OVER TO THE PURCHASER. IN VIEW OF THE ABOVE FACTUAL SCENARIO, WE UPHOLD T HE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.2,76,07,910/- . THUS THE 1 ST AND 2 ND GROUNDS OF APPEAL ARE DISMISSED. 7. THE 3 RD GROUND OF APPEAL WHETHER THE LD. CIT(A) WAS RIGHT IN DELETING THE AD DITION OF RS.29,23,305/-BEING INTEREST / PREMIUM PAID ON CANCELLATION OF GALA BY ADMITTING FRESH EVIDENCES IN CONTRAVENTION OF RULE 46A OF IT RULES. M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 7 8. THE AO MADE AN ADDITION OF RS.29,23,305/- ON THE REASON THAT IN THE ADVANCE COLUMNS IN AUDITED ACCOUNTS, THE AMOUNT OF CANCELATION OF GALA DOES NOT FIGURE. IN APPEAL, THE LD. CIT(A) HAVING EXAMINED THE BALA NCE SHEET OF THE ASSESSEE AS AT 31.03.2010 (EARLIER YEAR), LEDGER AC COUNTS AND TDS CERTIFICATES, HAS ARRIVED AT A DEFINITE FINDING THAT THE AMOUNT W AS REPAID TO THE PARTIES AND TAX WAS ALSO DEDUCTED ON THE COMPENSATION/PREMIUM P AID ON CANCELLATION. A PERUSAL OF THE DETAILS FILED BY THE ASSESSEE BEF ORE THE AO CLEARLY INDICATES THAT THERE IS NO CONTRAVENTION OF RULE 46 A OF THE INCOME TAX RULES, 1962 BY THE LD. CIT(A). IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE 3 RD GROUND OF APPEAL. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/10/2020. SD/- SD/- ( VIKAS AWASTHY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 27/10/2020 RAHUL SHARMA, SR. P.S. M/S PARMAR BUILD TECH ITA NO. 3384/MUM/2018 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI