The DCIT, Visakhapatnam V. M/s Kiran Krishna Real Estates & Constructions Pvt Ltd, Visakhapatnam

ITA 369/VIZ/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7106 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Section: 143(3)

Judgement Text

ITA NO 369 OF 2010 KIRAN KRISHNA REAL ESTATES AND CON STRUCTIONS PVT LTD VIZAG PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 369/VIZAG/2010 ASSESSMENT YEAR: 2006-07 DCIT CIRCLE-3(1) VISAKHAPATNAM VS. KIRAN KRISHNA REAL ESTATES & CONSTRUCTIONS PVT LTD., VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AABCK 2477 M APPELLANT BY: SHRI D.S.SUNDER SINGH, SR.DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.03.2010 PASSED BY LEARNED CIT(A), VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE IS CHALLENGING THE DECISION OF THE L EARNED CIT (A) IN ESTIMATING THE INCOME OF THE ASSESSEE AT 8% OF THE GROSS SALES IN SUBSTITUTION OF INCOME DETERMINED BY THE ASSESSING OFFICER BY MAKING SPECIFIC ADDITIONS. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE, I.E. BUYING LAND AND DEVELOPING THEM INTO RESIDENTIAL PLOTS. FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INC OME DECLARING A LOSS OF RS.84.72 LAKHS. SINCE THE ASSESSEE DID NOT FILE THE DETAILS CALLED FOR, THE ASSESSING OFFICER, COMPLETED THE ASSESSMENT BY ADDI NG WORK IN PROGRESS AMOUNT OF RS.99,30,649/- AND ADVANCE COMMISSION PAY MENT OF ITA NO 369 OF 2010 KIRAN KRISHNA REAL ESTATES AND CON STRUCTIONS PVT LTD VIZAG PAGE 2 OF 4 RS.26,32,009/-, BY TREATING THESE TWO EXPENDITURES AS PRIOR PERIOD EXPENSES. ACCORDINGLY, THE ASSESSING OFFICER DETERM INED THE TOTAL INCOME OF THE ASSESSEE AT RS.40.90 LAKHS. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LEARNED CIT (A) AND EXPLAINED THAT THESE TWO EXPENSES HAVE BEEN BOO KED IN THE YEAR UNDER CONSIDERATION ON THE BASIS OF MATCHING PRINCIPLES I .E. THESE EXPENSES HAVE BEEN WRITTEN OFF OVER THE YEARS IN PROPORTION TO TH E SALES. ALTERNATIVELY IT WAS CONTENDED THAT THE INCOME DETERMINED BY THE ASS ESSING OFFICER WORKS OUT TO 62.46% OF THE TOTAL TURNOVER WHICH IS UNREAL ISTIC. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT(A) THAT IN THE PRE CEDING FOUR ASSESSMENT YEARS (RE-OPENED ASSESSMENTS) AND IN THE SUCCEEDING ASSESSMENT YEAR THE INCOME OF THE ASSESSEE WAS ESTIMATED AT 8% OF THE T URNOVER BY REJECTING THE BOOK RESULTS. CONSIDERING THESE FACTS, THE LEA RNED CIT (A) ESTIMATED THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSI DERATION ALSO AT 8% OF THE TURNOVER. THE OBSERVATIONS OF THE LEARNED CIT (A) ARE EXTRACTED BELOW: 4. I HAVE EXAMINED THE ABOVE FACTS OF THE CASE, APP ELLANTS SUBMISSION AS WELL AS ASSESSING OFFICERS CONTENTIO NS. NO DOUBT THERE IS MERITS IN THE APPELLANTS CONTENTIONS THAT BASED ON THE MATCHING CONCEPT, THE EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SHOULD BE ALLOWED TO BE SET OFF AGAINST THE INCOME EARNED. BUT NO PROPER MATERIAL HAS BEEN BROUGHT ON RECORD BY THE APPELLANT COMPANY WHICH COULD LEAD TO CONCLUSIO N BASED ON MATCHING PRINCIPLES OF REVENUE VIS--VIS EXPENSE S. SINCE THE APPELLANT HAS FAILED TO ESTABLISH THE EXPENDITURE I NCURRED RELATING TO THE INCOME EARNED DURING THE YEAR OR IN THE EARLIER YEARS, THEREFORE, THE MATCHING PRINCIPLE AS CLAIMED BY THE APPELLANT COMPANY CANNOT BE ACCEPTED. WHEN THE EXPE NSES RELATED TO WORK COMPLETED IS CHARGED TO PROFIT & LO SS ACCOUNT, BY NECESSARY COROLLARY, THE APPELLANT SHOULD HAVE E ITHER RECOGNIZED THE REVENUE IN RESPECT OF EXPENSES CLAIM ED AS SUCH ON MATCHING PRINCIPLE SO THAT THE PICTURE OF REVENU E RECOGNITION IS NOT DISTORTED, WHICH THE APPELLANT H AS FAILED TO DO SO. UNDER THE CIRCUMSTANCES, THE APPELLANT COMPA NY CLAIM OF REVENUE RECOGNITION MATCHING PRINCIPLE, CANNOT B E ACCEPTED, AS SUCH NO LOSS SHALL BE ALLOWED OR ALLOWED TO BE C ARRIED FORWARD. ITA NO 369 OF 2010 KIRAN KRISHNA REAL ESTATES AND CON STRUCTIONS PVT LTD VIZAG PAGE 3 OF 4 4.1 FURTHER IT IS FOUND THAT IN THE EARLIER/SUBSEQU ENT ASSESSMENT YEARS I.E. 2002-03, 2003-04, 2004-05 200 5-06 AND 2007-08, WHILE COMPLETING THE ASSESSMENT UNDER SECT ION 143(3) OF THE INCOME TAX ACT 1961, THE ASSESSING OF FICER HAS ESTIMATED THE INCOME @ 8% ON THE TURNOVER EXCEPT IN THE ASSESSMENT YEAR UNDER CONSIDERATION WHERE IN CONSEQ UENCE TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE INCOME HAS SHOT UP TO RS.40,90,240/- AS AGAINST THE RETURN ED LOSS WHICH WORKS OUT TO 62.46% OF THE TOTAL TURNOVER OF RS.65,48,950/- WHICH IS UNREASONABLE. THERE IS MERI TS IN THE APPELLANTS CONTENTIONS THAT EVEN IN A CASE IN WHIC H BOOKS OF ACCOUNT ARE NOT AVAILABLE OR THEY ARE NOT AMENABLE TO VERIFICATION, INCOME HAS TO BE ESTIMATED BUT SUCH E STIMATION SHOULD NOT BE ARBITRARY AND EXCESSIVE. IT MAY BE MEN TIONED HERE THAT IN THE EARLIER YEARS AS WELL AS IN THE SU BSEQUENT YEAR, THE ASSESSING OFFICER HAS HIMSELF DETERMINED THE IN COME @ 8% ON THE TURNOVER. WITH REGARD TO THE WORK IN PROG RESS AMOUNTING TO RS.99,30,649/- WRITTEN OFF, THE ASSESS ING OFFICER HAS HIMSELF IN THE SUBSEQUENT ASSESSMENT YEAR I.E. 2007-08 AFTER EXAMINING THE APPELLANTS EXPLANATION HAS COM E TO THE CONCLUSION THAT THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE TOWARDS DEVELOPMENT OF THE LAND AS CLAIMED BY IT IN THE RETURN OF INCOME AND EVEN IF THE EXPENDITURE IS INCURRED A S CLAIMED BY THE APPELLANT, PRIOR PERIOD EXPENDITURE CANNOT B E ALLOWED AS AN EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. FURTHER, THE APPELLANT HAS NOT SUBSTANTIATED THE REMAINING E XPENDITURE CLAIMED IN SUCH CIRCUMSTANCES, THE BOOK RESULTS CAN NOT BE RELIED UPON AND THE INCOME SHOULD BE ESTIMATED AT A REASONABLE RATE. IN THE REAL ESTATE BUSINESS, THERE IS EVER LIKELIHOOD TO OBTAIN A PROFIT OF MORE THAN 8%. ACCO RDINGLY, THE INCOME OF THE APPELLANT COMPANY IS ESTIMATED @ 8% O N GROSS SALES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y CONSIDERED THE ORDER OF THE LEARNED CIT (A). WE NOTICE THAT THE F IRST APPELLATE AUTHORITY, ON APPRECIATION OF ACCOUNTING PRINCIPLES FOLLOWED B Y THE ASSESSEE, HAVE FOUND MERIT IN THE CONTENTION OF THE ASSESSEE THAT BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER CANNOT BE TREATED AS PRIOR PERIOD EXPENDITURE. HOWEVER, SINCE THE ASSESSEE COULD NOT SUBSTANTIATE VARIOUS EXPENSES CLAIMED BY IT, THE LEARNED CIT DID NOT ACCEPT THE M ATCHING PRINCIPLE CLAIMED TO HAVE BEEN FOLLOWED BY THE ASSESSEE. HOWEVER, CO NSIDERING THE FACT THAT ITA NO 369 OF 2010 KIRAN KRISHNA REAL ESTATES AND CON STRUCTIONS PVT LTD VIZAG PAGE 4 OF 4 THE INCOME OF THE EARLIER FOUR YEARS WAS ESTIMATED AT 8% OF THE TURNOVER IN THE REOPENED ASSESSMENT AND ALSO AT THE SAME RATE I N THE SUCCEEDING ASSESSMENT YEAR, THE LEARNED CIT (A) THOUGHT IT JUS TIFIABLE TO ESTIMATE THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION ALSO AT 8% OF THE TURNOVER OF THE ASSESSEE. WE, THUS NOTICE THAT THE LEARNED CIT (A) HAS TAKEN THE DECISION WHICH IS CONSISTENT WITH THE INC OME DETERMINED IN THE OTHER YEARS IN THE HANDS OF THE ASSESSEE. HENCE, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) HAS DECIDED THE ISSUES IN PROPE R PERSPECTIVE AND HENCE WE DO NOT FIND ANY INFIRMITY IN HER ORDER. ACCORDI NGLY WE UPHOLD THE SAME. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 07-03-2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CIRCLE-3(1) VISA KHAPATNAM 2 M/S KIRAN KRISHNA REAL ESTATES & CONSTRUCTIONS PV T. LTD., 50-40-13/A TPT COLONY, SEETHAMMADHARA, VISAKHAPATNAM 3 4. THE CIT 1, VISAKHAPATNAM THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM