KAMALA LANDMARC INFRASTRUCTURE P. LTD, MUMBAI V. ACIT -8(OSD), MUMBAI

ITA 3612/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8986 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.3612/MUM/2011 ASSESSMENT YEAR: 2007-08 KAMALA LANDMARC INFRASTRUCTURE PVT LTD., SHANTI VIMAL, GROUND FLOOR, P.M.ROAD, VILE PARLE(E), MUMBAI-400 057 PA NO.AACCK 92578 M ACIT-8(OSD), MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY: MS NEERAJA PRADHAN DATE OF HEARING: 27.8.2012 DATE OF PRONOUNCEMENT: 14.9.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER DATED 29.12.2010 OF LD CIT(A)-17, MUMBAI ON FOLLOW ING GROUNDS: 1.THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDI TION OF RS. 1,42,80,150/- MADE BY THE ASSESSING OFFICER (I.E. 9 .25% OF 15,43,80,000/- BEING THE COST OF THE LAND) BY TREAT ING THE COST OF LAND AS PART OF WORK IN PROGRESS OF THE PROJECT FOR THE P REVIOUS YEAR UNDER CONSIDERATION. 2. THE CIT (A) FAILED TO APPRECIATED THAT THE ASSES SING OFFICER HAS NOT CHALLENGED THE ESTIMATE OF PERCENTAGE OF PROFIT ADO PTED BY THE APPELLANT AND THAT THE ASSESSING OFFICER HAS NOT REJECTED TH E BOOKS OR METHOD OF ACCOUNTING ADOPTED BY THE APPELLANT. 3. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE AP PELLANT HAS FAILED TO SUBSTANTIATE ITS CASE BY PROVIDING THE ESTIMATE AND CALCULATION TO SHOW THAT THE ADDITION WAS NOT CORRECT. THE LEARNED CIT (A) ERRED IN HOLDING SO SINCE SHE HAD NOT EVER CALLED UPON THE APPELLANT TO SUBSTANTIATE SUCH CLAIM NOR IT IS THE CASE OF THE ASSESSING OFFICER T HAT THE RATE ADOPTED BY ITA NO.3612/MUM/2011 ASSESSMENT YEAR: 2007-08 2 THE APPELLANT WAS INCORRECT OR THAT THE ASSESSING O FFICER HAD NOT REJECTED THE RATE ADOPTED BY THE APPELLANT AND BOOKS OF THE APPELLANT. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE INCOME RELATING TO LAND COST BY APPLYING THE RATE OF PROFIT AS DISCLOS ED BY THE ASSESSEE IS TO BE CONSIDERED IN THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. WHE N THE PROJECT IS INCOMPLETE OR IS TO BE CONSIDERED ON COMPLETION OF THE PROJECT. 3. THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT O F LAND AND CONSTRUCTION OF FLATS. ASSESSEE FOLLOWS PERCENTAGE COMPLETION METHOD. ASS ESSEE WHILE FILING THE RETURN OF INCOME DISCLOSED A PERCENTAGE OF EXPENSES INCURRED AND DEBITED TO PROFIT AND LOSS ACCOUNT AS INCOME. ASSESSEE IN THE RETURN FILED ST ATED THAT APPROXIMATELY 10% REVENUE IS DECLARED ON THE CLOSING WORK-IN-PROGRESS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. ASSESSEE HAS TAKEN ALL EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT TO PROPERTY DEVELOPMENT ACC OUNT INCLUDING PROFIT OF 9.25% ON THE TOTAL EXPENSES INCURRED DURING THE YEAR. IT IS RELEVANT TO STATE THAT LAND COST OF RS.15,43,80,000 IS SHOWN IN THE BALANCE SHEET IN TH E CURRENT ASSET. AO STATED THAT THE LAND COST SHOULD ALSO BE CONSIDERED FOR COMPUTING P ROFIT AS PER PERCENTAGE COMPLETION METHOD ADOPTED BY THE ASSESSEE. AO AFTER CONSIDERI NG THE SUBMISSIONS OF ASSESSEE STATED THAT ALL COSTS INCLUDING LAND COST SHOULD HA VE BEEN CONSIDERED FOR ARRIVING AT THE PROFIT FIGURE. ASSESSEE HAS CONSIDERED THE TDR C OST FOR COMPUTATION OF PROFIT. AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE THAT LAND COS T WILL BE DEBITED AGAINST SALE OF PROJECT AT THE TIME OF OCCUPATION OF BUILDING. THE REFORE, AO WHILE MAKING THE ASSESSMENT CONSIDERED ALL THE COSTS RELATING TO PRO JECT INCLUDING LAND COST FOR COMPUTATION OF PROFIT AND APPLIED 9.25%. BEING AGG RIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 4. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT ASS ESSEE HAD CALCULATED PERCENTAGE OF PROFIT ON THE BASIS OF COST OF CONSTRUCTION WHER EAS AO DID THE CALCULATION ON THE BASIS OF THE TOTAL COST OF THE PROJECT (INCLUDING LAND CO ST). IT WAS CONTENDED THAT WHEN A PROJECT IS UNDERTAKEN, PRIMARILY THE COST OF CONSTR UCTION IS FIRST ESTIMATED AND THE COST OF LAND IS ALSO FACTORED VIS-A-VIS AMOUNT THAT CAN BE REALIZED BY SELLING AVAILABLE CONSTRUCTED AREA. THE DIFFERENCE BETWEEN THE AMOUN T THAT CAN BE REALIZED ON SALE OF CONSTRUCTED AREA AND COST OF PROJECT (I.E. COST OF CONSTRUCTION PLUS COST OF LAND) IS ESTIMATED AS PROFIT OF THE PROJECT. THE FIGURES OF CONSTRUCTION COST, SALE VALUE AND THE ITA NO.3612/MUM/2011 ASSESSMENT YEAR: 2007-08 3 PROFIT ARISING THEREFROM ARE BASICALLY ESTIMATED BA SED ON REASONABLE ASSUMPTIONS IN RESPECT OF PREVAILING MARKET CONDITIONS AND CIRCUMS TANCES. SINCE THE CONSTRUCTION ACTIVITY EXTENDS TO MORE THAN ONE YEAR, FOR THE SAK E OF SIMPLICITY, THESE ARE REFERRED TO IN TERMS OF PERCENTAGES AND APPLIED ACCORDINGLY FRO M YEAR TO YEAR TO DETERMINE THE REVENUE ATTRIBUTABLE TO THE ACTIVITY FOR RESPECTIVE YEARS. THEREFORE, IN ORDER TO ARRIVE AT THE ACTUAL PROFIT, THE COST OF LAND IS TAKEN INTO C ONSIDERATION ONLY IN THE YEAR WHEN THE PROJECT IS COMPLETED. IN OTHER WORDS, THE COST OF LAND IS SAID TO HAVE BEEN FULLY UTILIZED ONLY IN THE YEAR WHEN THE PROJECT IS FULLY COMPLETE D. IT WAS SUBMITTED THAT BY INCLUDING THE ENTIRE COST OF LAND IN THE CURRENT YEARS WORK- IN-PROGRESS. HAS IMPLIED THAT SUBSTANTIAL WORK HAS BEEN COMPLETED WHEREAS THE FAC T IS THAT THE PROJECT HAD NOT BEEN INITIATED. THEREFORE, IT RESULTED IN TAXING THE EN TIRE PROJECT IN THE INITIAL YEAR ITSELF. IT WAS FURTHER CONTENDED THAT AO WHILE CHANGING THE BA SIS OF COMPUTING THE PERCENTAGE DID NOT CHANGE THE PERCENTAGE TO BE APPLIED FOR EST IMATING THE PROFIT. IT WAS CONTENDED THAT THE COST OF LAND SHOULD BE INCLUDED ON PROPORT IONATE BASIS WHILE ESTIMATING THE PROFIT. 5. LD CIT(A) AFTER CONSIDERING ABOVE SUBMISSION OF THE ASSESSEE STATED THAT WHEN ASSESSEE FOLLOWS THE PERCENTAGE COMPLETION METHOD, IT HAS TO ESTIMATE TO START WITH THE TOTAL PROJECT COST INCLUDING THE LAND COST AND THE PROBABLE REVENUE IT WOULD GENERATE BY SELLING THE CONSTRUCTED AREA AND THE PROBABLE PROFI T OR LOSS. LD CIT(A) HAS STATED THAT THERE IS NO INDICATION AS TO HOW ASSESSEE DECIDED T O APPLY THAT PARTICULAR PERCENTAGE I.E. 9.25% IN THE YEAR UNDER CONSIDERATION TO THE T OTAL EXPENSES. HE HAS HELD THAT IN THE ABSENCE OF SUCH AN EXPLANATION THE METHOD FOLLO WED BY THE ASSESSEE I.E. DECIDING THE INCOME BY CONSIDERING ONLY THE TOTAL EXPENSES I NCURRED DURING A YEAR AND APPLYING A PERCENTAGE TO IT, IS WITHOUT ANY BASIS. HE HAS HEL D THAT IF THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLETION METHOD WHICH IT CLAIMS IT HAS BEEN FOLLOWING, THEN NATURALLY THE LAND COST BECOMES A COST WHEN IT IS INCURRED. THER EFORE, ASSESSEE SHOULD HAVE CONSIDERED LAND COST ALSO AT THE STAGE WHEN IT HAS BEEN INCURRED BECAUSE IT IS A MAIN ITEM OF COST FOR A PROJECT OF THIS NATURE. LD CIT( A) CONFIRMED THE ACTION OF AO. HENCE, THIS APPEAL BY THE ASSESSEE. 6. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT THE TOTAL COST OF LAND OF RS.15,43,80,000 SHOULD BE APPORTIONED DURING THE TO TAL PERIOD OF CONSTRUCTION OF THE PROJECT AND THEN TO TAKE PROFIT RATE EACH YEAR ON P ERCENTAGE COMPLETION OF THE PROJECT. ITA NO.3612/MUM/2011 ASSESSMENT YEAR: 2007-08 4 HE SUBMITTED THAT THE ENTIRE COST OF LAND CANNOT BE CONSIDERED IN THE INITIAL YEAR OF THE CONSTRUCTION OF THE PROJECT AS THE ASSESSEE REALIZE D THE SALE PROCEEDS ONLY AFTER THE PROJECT IS COMPLETED. LD A.R. FILED A COST STATEME NT AND SUBMITTED THAT IN THE INITIAL YEAR I.E. 2007-08, THE LAND COST WAS RS.15,43,80,00 0 AND CONSTRUCTION COST WAS RS.7,82,77,995. HE FURTHER SUBMITTED THAT THE CONS TRUCTION OF THE PROJECT IS ESTIMATED BY THE ASSESSEE AT RS.77,67,82,705. HE SUBMITTED T HAT ASSESSEE HAS NO OBJECTION IF THE LAND COST IS APPORTIONED IN PROPORTIONATE TO THE TO TAL CONSTRUCTION COST IN EACH YEAR WHILE APPLYING THE PROFIT RATE ON THE BASIS OF PERCENTAGE COMPLETION METHOD. LD D.R. RELIED ON ORDER OF LD CIT(A). 5. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. ON CONSIDERATION OF THE FACTS O F THE CASE AND PERUSAL OF THE COST STATEMENT, WE FIND SUBSTANCE IN THE SUBMISSION OF L D A.R. THAT THE ENTIRE COST OF LAND IF, IS CONSIDERED IN THE INITIAL YEAR OF THE PROJECT CO NSTRUCTION, THE COST OF CONSTRUCTION WILL BE HIGH IN THE FIRST YEAR AND TO APPLY THE PERCENTA GE COMPLETION METHOD BY TAKING THAT COST IS NOT JUSTIFIED. IT IS A FACT THAT THE LAND COST IS REALIZED BY THE ASSESSEE ON SALE OF FLATS AS AND WHEN PROJECT IS COMPLETED. THEREFORE, WE FIND SUBSTANCE IN THE SUBMISSION OF LD A.R. THAT THE LAND COST SHOULD BE APPORTIONED OVER THE PERIOD OF CONSTRUCTION OF THE PROJECT AND THE SAID COST SHOULD BE TAKEN IN PROPOR TION TO THE PERCENTAGE OF COMPLETION OF THE PROJECT AND, ACCORDINGLY, THE SUITABLE PROFI T RATE BE APPLIED. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE MATTE R TO THE FILE OF AO TO MAKE AFRESH ASSESSMENT ON THE LINES AS INDICATED ABOVE. HENCE, WE ALLOW THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER, 2012 SD/- (B.RAMAKOTAIAH ) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 14 TH SEPTEMBER, 2012 PARIDA ITA NO.3612/MUM/2011 ASSESSMENT YEAR: 2007-08 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),17, MUMBAI 4. COMMISSIONER OF INCOME TAX, 8 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI