D.C.I.T. CIR 7(1), MUMBAI V. M/S. NARIMAN LAND DEVELOPERS P.LTD., MUMBAI

ITA 3695/MUM/2009

• Counselvise Citation: 369519914 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI R.K. PANDA, A.M. ITA NO.3695/MUM/2009 ASSESSMENT YEAR : 2006-07 D.C.I.T. CIR 7(1) 622, AAYAKAR BHAVAN, M. K. MARG, MUMBAI VS. M/S. NARIMAN LAND DEVELOPERS P. LTD. 10-D, EVEREST, TARDEO ROAD, MUMBAI-400 034 P.A. NO.: AABCN 9144 Q (APPELLANT) (RESPONDENT) & ITA NO.3748/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. NARIMAN LAND DEVELOPERS P. LTD. 10-D, EVEREST, TARDEO ROAD, MUMBAI-400 034 P.A. NO.: AABCN 9144 Q VS. D.C.I.T. CIR 7(1) 622, AAYAKAR BHAVAN, M. K. MARG, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ASHIMA GUPTA RESPONDENT BY : SHRI VIPUL JOSHI O R D E R PER R.K. PANDA, A.M. THESE ARE CROSS APPEALS. THE FIRST ONE FILED BY THE REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND ARE DIRECTED A GAINST THE ORDER DATED 31.03.2009 OF THE CIT(A)-VII, MUMBAI RELATING TO A. Y. 2006-07. FOR THE SAKE AND CONVENIENCE THESE WERE HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS COMMON ORDER. ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 2 2. THE APPEAL FILED BY THE ASSESSEE WAS EARLIER DIS MISSED BY THE TRIBUNAL FOR NON PROSECUTION. SUBSEQUENTLY, THE TRIBUNAL VID E ORDER DATED 27.08.2010 RECALLED ITS EARLIER ORDER. HENCE ITA NO. 3748/M/20 09 IS A RECALLED MATTER. 3. GROUNDS OF APPEAL NO. 1 BY THE REVENUE AND ALL T HE GROUNDS BY THE ASSESSEE RELATE TO THE PART RELIEF GIVEN BY THE CIT (A) BY SUSTAINING THE ADDITION OF ` 7,33,107/- AS AGAINST ` 64,40,800/- ADDED BY THE A.O. ON ACCOUNT OF SUPPRESSION OF SALE CONSIDERATION. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF REAL ESTATE AND IS STATED TO HAVE BEEN FOLLOWING COMPLETED-PROJECT METHOD FOR RECOGNIZIN G THE REVENUE. THE ASSESSEE COMPANY ENTERED INTO DEVELOPMENT AGREEMENT ON 02.04.2003 WITH SWATI MITRA CO-OP. HOUSING SOCIETY LTD. NO.6 JVPD S CHEME, ON ACCOUNT OF ADDITIONAL FSI BEING AVAILABLE TO THEM. AS PER THE AGREEMENT, THE ASSESSEE HAD TO PROVIDE ADDITIONAL BALCONY TO THE EXISTING 1 6 MEMBERS OF THE SOCIETY HAVING THEIR FLATS LOCATED FROM 1 ST TO 4 TH FLOORS AT FREE OF COST BESIDES REPAIRING AND PAINTING OF EXISTING BUILDING. THE NEW BUILDING CALLED B-WING IS SAID TO CONSIST OF STILT PLUS 7 FLOOR WITH ONE FLAT ON EACH FLOOR. 4.1. THE AO OBSERVED THAT THERE WAS A VAST DIFFERE NCE IN THE SALE PRICE OF THE FLATS WHEREAS THERE WAS NOT MUCH GAP IN THE TIM E SPAN IN THE SALE OF FLATS. HE NOTED THAT THE ASSESSEE HAD COMPLETED 90% OF THE PROJECT AND OFFERED THE ENTIRE SALE PROCEEDS OF `. 4,70,68,000/- FOR TAXATION. NO WORK IN PROGRESS OR STOCK IN TRADE HAD BEEN LEFT AT THE END OF THE YEAR . HE ANALYSED THE DETAILS AS PER THE FOLLOWING TABLE :- SR. NO. DATE OF AGREEMENT NAME OF THE BUYER AREA SOLD (SQ. MTRS) FLAT NO. AMOUNT (RS.) 1 21.02.2006 MR. BHUPENDRA KKUMAR DUTT & MRS. DUTT 96.23 101 64,00,000 2 21.02.2006 RAJAN B. MEHTA & MRS. MEHTA 99.09 401 81,00,000 3 01.03.2006 IHIR ASHWIN DRUVA 96.23 201 58,00,000 4 06.03.2006 SANJAY LEELA 99.09 601 83,00,000 ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 3 BHANSALI 5 06.03.2006 SANJAY LEELA BHANSALI 80.04 701 70,30,000 6 11.05.2006 ANIL SUNDERLAL MEHTA & TEJAS A. MEHTA 99.09 501 50,00,000 7 17.07.2006 CAPT. VIKRAM MALHOTRA 99.09 301 64,38,000 TOTAL 668.86 4,70,68,000 4.2. ACCORDING TO THE AO THERE WAS NO REASON AS TO WHY THE ASSESSEE SHOULD HAVE SOLD FLATS AT DIFFERENT RATES WITH VAST DIFFER ENCE IN THE SELLING PRICES. 4.3. THE AO GAVE INSTANCES OF THE HUGE VARIATIONS I N FLAT NOS. 101 AND 401 SOLD ON THE SAME DAY BUT SHOWING A VARIATION OF `. 14,66,213/- AFTER APPLYING THE RATE FOR EQUAL AREA, WHICH WAS UNIMAGINABLE EVE N IF SOME ESCALATION FOR FLOOR-RISE IS TAKEN INTO ACCOUNT. HE FURTHER OBSERV ED THAT FLAT NOS. 201, 601 AND 701 THOUGH SOLD WITHIN A SPAN OF 5 DAYS, HAD HU GE VARIATION IN THEIR RATES WHICH VARIED FROM `. 58,00,000/- TO `. 83,00,000/-. HE ALSO NOTED THAT FLAT NOS. 301 AND 501 HAVING THE SAME AREA WERE SOL D IN MAY 2006 AND JULY 2006 BUT THE VARIATION IN THEIR RATES WAS SIGNIFICA NT AMOUNTING `. 14,38,000/- . ACCORDING TO THE AO THE ASSESSEE HAD STARTED BOOK ING THE FLATS ONLY AFTER THE ENTIRE PROJECT WAS COMPLETED AND, THEREFORE, THERE WAS NO SCOPE FOR VARIATION IN RATES OF THE SALE OF PROPERTY. ACCORDINGLY, CONS IDERING THE MARKET POSITION IN REAL ESTATE FIELD AT THE RELEVANT TIME, THE A.O. AFTER MAKING SOME ADJUSTMENTS, PROCEEDED TO TAKE THE RATE OF SALE FOR THE FLAT NO. 601 AT `. 80,000/- PER SQ. METRE AS THE BASIS AND APPLIED THE SAME UNIFORMLY TO ALL OTHER FLATS AND THUS MADE AN ADDITION OF `. 64,40,800/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAD UNDERTAKEN THE DEVELOPMENT OF A BUILDING CONSISTING OF STILT PLUS 7 FLOORS WITH ONE FLAT ON EACH FLOOR. IT SOLD THESE FLATS TO DIFF ERENT PURCHASERS AT DIFFERENT RATES IN THE SAID BUILDING. IT FOLLOWS THE PROJECT COMPLETION METHOD FOR RECOGNIZING THE REVENUE. IT ALREADY HAD COMPLETED T HE PROJECT UP TO 90% AT THE YEAR END AND BOOKED 100% OF SALES DURING THE YE AR AMOUNTING TO ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 4 `. 4,70,68,000/- BY FOLLOWING THE PROJECT COMPLETION M ETHOD. THE GROSS PROFIT OF `. 1,80,80,132/- @ 38.41% AND THE NET PROFIT OF `. 87,81,788/- @ 18.65% HAD BEEN OFFERED DURING THE RELEVANT A.Y. 2006-07. 5.1. IT WAS FURTHER SUBMITTED THAT THE COPIES OF TH E WRITTEN AGREEMENTS AS WELL AS EACH OF THE LEDGER ACCOUNTS WERE DULY FURNI SHED TO THE AO DURING THE COURSE OF REGULAR ASSESSMENT PROCEEDINGS. THE ASSES SEE SUBMITTED THE DETAILS OF EACH OF THE FLATS SOLD DURING THE YEAR ALONG WIT H OTHER DETAILS SUCH AS THE EXACT DATE OF BOOKING AND THE RATE PER SQ. MT, WHIC H ARE AS UNDER:- SR. NO. ACTUAL DATE OF BOOKING/1 ST PAYMENT RECEIVED/DATE OF SALE AS TAKEN BY APPELLANT DATE OF AGREEMENT NAME OF THE BUYER FLAT NO. AREA SOLD (SQ. MTRS.) AMOUNT (RS.) RATE/ SQ.MTR. (RS.) 1 20.02.2005 11.05.2005 ANIL SUNDERLAL MEHTA & TEJAS A. MEHTA 501 99.09 50,00,000 50,439/- 2 17.07.2005 17.07.2005 CAPT. VIKRAM MALHOTRA 301 99.09 64,38,000 64,971/- 3 27.12.2005 01.03.2006 MIHIR ASHWIN DRUVA 201 96.23 58,00,000 60,272/- 4 21.02.2006 21.02.2006 MR. BHUPENDRA KUMAR DUTT & MRS. DUTT 101 96.23 64,00,000 66,507/- 5 21.02.2006 21.02.2006 RAJAN B. MEHTA & MRS. MEHTA 401 99.09 81,00,000 81,744/- 6 01.03.2006 06.03.2006 SANJAY LEELA BHANSALI 601 99.09 83,00,000 83,762/- 7 01.03.2006 06.03.2006 SANJAY LEELA BHANSALI 701 80.04 70,30,000 87,831/- TOTAL 668.86 4,70,68,000 5.2. IT WAS SUBMITTED THAT THE A.O.S REMARKS WERE INCORRECT IN STATING THAT ALL THE FLATS WERE SOLD WITHIN A SHORT PERIOD OF TI ME I.E. DURING THE SAME PERIOD ITSELF. THE A.O. HAS STATED IN-CORRECT FACTS IN TH E ASSESSMENT ORDER AND MADE INCORRECT ADDITION ON THE GROUND THAT ALL THE FLATS WERE SOLD DURING THE SAME PERIOD. REFERRING TO THE ABOVE TABLE, IT WAS SUBMI TTED THAT THEY WERE SOLD IN A GAP OF ALMOST ONE YEAR. EXPLAINING TO THE OBSERVATI ONS OF THE A.O. RELATING TO ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 5 THE SALE OF ALL THE FLATS AFTER THE COMPLETION OF T HE PROJECT, IT WAS SUBMITTED THAT FLAT NO. 301 AND 501 WERE SOLD ON 17.7.2005 AN D 20.02.2005 RESPECTIVELY WHEN THE PROJECT WAS AT INITIAL STAGE OF THE CONSTR UCTION, THEREFORE, THE CONTENTIONS OF THE A.O. WERE NOT SUSTAINABLE. REGA RDING VARIATION IN RATES OF SALE, IT WAS SUBMITTED THAT THERE WERE MANY REASONS FOR THE SAME LIKE TIMING OF BOOKING, HIGHER FLOOR AND THE AMOUNT PAID AT THE TIME OF BOOKING AND THE NEGOTIATION BETWEEN BUYER AND SELLER. IT WAS ACCORD INGLY SUBMITTED THAT THE ACTION OF THE A.O. IN APPLYING UNIFORM RATE FOR ALL THE FLATS WERE HIGHLY UNJUSTIFIED. IT WAS FURTHER SUBMITTED THAT THE A.O . HAD NEITHER CONDUCTED ANY INDEPENDENT INQUIRY NOR HAD COME ACROSS ANY COM PARABLE CASE BEFORE MAKING WILD ALLEGATIONS THAT THERE WERE SUPPRESSED SALES INVITING THE ADDITION OF ` 64.40 LACS ON THE GROUND OF PREPONDERANCE OF PROBA BILITY. IT WAS SUBMITTED THAT THE ASSESSEES ACCOUNTS WERE AUDITED AND THE A.O. HAD NOT POINTED OUT ANY DEFECT THEREIN. A NUMBER OF DECISI ONS WERE ALSO CITED ON BY THE ASSESSEE BEFORE THE CIT(A). 5.3. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E, THE CIT(A) GAVE PART RELIEF TO THE ASSESSEE. HE OBSERVED THAT A WRITTEN AGREEMENT SHOWING A PARTICULAR RATE OF SALE OF A FLAT CANNOT BE DISPUTE D MERELY ON THE GROUND OF PREPONDERANCE OF PROBABILITIES BY THE A.O. WITHOUT HAVING ANY DOCUMENTARY EVIDENCES TO PROVE TO THE CONTRARY OR ON INDEPENDEN T INQUIRIES THE A.O. FINDS EVIDENCES TO DISPROVE THE RATES MENTIONED IN SUCH W RITTEN AGREEMENTS. HE FURTHER NOTED THAT THERE ARE CERTAIN ERRORS IN THE ORDER OF THE A.O. BY STATING THAT ALL THE FLATS WERE SOLD WITHIN A SHORT PERIOD OF TIME, SINCE THE PERIOD OF BOOKING OF FLATS IN THE BUILDING SPANS OVER A YEAR AS THE FIRST FLAT WAS BOOKED IN 2005 WHERE AS THE LAST FLAT WAS BOOKED IN 2006. HE ALSO FOUND MERIT IN THE SUBMISSION OF THE ASSESSEE THAT VARIATION IN THE RA TES IN RESPECT OF FLAT NOS. 201, 601 AND 701 ARE ON ACCOUNT OF DIFFERENCE IN TH E TIMING OF BOOKING OF THE SAID FLATS AND ALSO BECAUSE OF HIGHER PREMIUM FETCH ED BY HIGHER FLOORS. CERTAIN FLATS WHICH WERE BOOKED DURING CONSTRUCTION PERIOD DID NOT FETCH MUCH PREMIUM. HE, ACCORDINGLY, HELD THAT THE ASSES SEE HAS SATISFACTORILY EXPLAINED THE VARIATION IN RATES BETWEEN FLAT NOS. 201, 601 AND 701. SO FAR AS THE OBSERVATION OF THE A.O. THAT THERE IS WIDE VARI ATION IN THE RATES FOR THE FLAT NO. 101 AND 401, WHICH WERE SOLD ON THE SAME DAY I. E. 21.2.06 FOR ` 64 LACS ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 6 AND ` 81 LACS RESPECTIVELY, HE NOTED THAT SUCH HUGE VARI ATION IS NOT JUSTIFIED. HE, THEREFORE, REJECTED THE CONTENTION OF THE ASSES SEE IN THIS REGARD. HOWEVER, GIVING SOME CREDIT FOR THE FLOOR RISE, HE ALLOWED A N AMOUNT OF ` 7,33,106/- BEING 50% OF ` 14,66,213/-. HE, THUS SUSTAINED AN AMOUNT OF ` 7,33,107/- AS AGAINST THE ADDITION OF ` 64,40,800/- MADE BY THE A.O. ON ACCOUNT OF SUPPRESSION OF SALE CONSIDERATION. 6. AGGRIEVED BY SUCH PART RELIEF, THE REVENUE AS WE LL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION HAS SOLD 7 FLATS AND HAS DECLARED THE ENTIRE SALE CONSIDERATION OF ` 4,70,68,000/- AS ITS RECEIPTS AND OFFERED THE SAME TO TAX. ACCORDING TO THE A.O., THERE WAS A HUGE DIFFERENCE IN THE SALE P RICE OF FLATS WHEREAS THERE IS NOT MUCH GAP IN THE TIME SPAN IN THE SALE OF FLATS. HE, THEREFORE, CONSIDERED THE HIGHER PRICE OF ` 83 LACS RECEIVED FOR AN AREA OF 99.09 SQ. MTRS. AS THE BASIS ACCORDING TO WHICH THE RATE PER SQ. FT. COMES TO ` 83762/-. AFTER GIVING SOME DISCOUNT FOR COST FOR FLOOR RISE AND OTHER NEG OTIATIONS, HE ADOPTED A ROUND FIGURE OF ` 80,000/- PER SQ. FT. AND CALCULATED THE SALE CONSI DERATION FOR 668.86 SQ. MTRS. AT ` 5,35,08,800/-. THUS, HE MADE AN ADDITION OF ` 64,40,800/- (BEING THE DIFFERENCE BETWEEN ` 5,35,08,800 AND 4,70,68,000/-) ON ACCOUNT OF SUPPRESSION OF SALES. WE FIND THE CIT (A) RESTRICTED THE ADDITION TO ` 7,33,107/- AFTER ANALYSING THE ACTUAL DATE OF BOOK ING, DATE OF AGREEMENT AND HIGHER FLOOR ETC. WHILE ANALYSING THE DETAILS F URNISHED BY THE ASSESSEE, HE NOTED THAT THE FINDING OF THE A.O. THAT THERE IS NO MUCH GAP IN THE TIME SPAN ON ACCOUNT OF SALE OF FLAT AND THAT ALL THE FLATS W ERE SOLD DURING THE SAME PERIOD IS INCORRECT. ACCORDING TO THE CIT(A) THE F LATS ON THE HIGHER FLOORS DEMANDED A HIGHER RATE. HE, HOWEVER, WAS NOT SATIS FIED WITH THE HUGE DIFFERENCE BETWEEN FLAT NOS. 101 AND 401 WHICH WERE BOOKED AND SOLD ON THE SAME DATE I.E. 26.2.06 FOR ` 64 LACS AND ` 84 LACS RESPECTIVELY. THE LD. D.R. ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 7 FAIRLY ADMITTED THAT THERE ARE SOME MISTAKES IN THE DATES AS MENTIONED BY THE A.O. IT IS ALSO THE SUBMISSION OF THE LD. D.R. THA T THE BUILDER HAS NOT MENTIONED THE FLAT-WISE RATE AND NOTHING WAS SUBMIT TED BEFORE THE A.O. OR CIT(A) TO SUBSTANTIATE THE FLOOR-WISE RATE OF FLATS . ACCORDING TO THE LD. D.R. SINCE THERE IS LACK OF CONSISTENCY IN THE RATE CHAR GED BY THE BUILDER AND SINCE THERE IS HUGE VARIATION IN THE RATE CHARGED PER PER SQ. MTR. AND SINCE TIME GAP BETWEEN FIRST SALE AND LAST SALE IS ONLY 12 MONTHS, THEREFORE, THE ADDITION MADE BY THE A.O. SHOULD BE SUSTAINED. HOWEVER, WE DO NOT FIND FORCE IN THE ABOVE ARGUMENTS ADVANCED BY THE LD. D.R. ADMITTEDLY , THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE BY CONDUCTING ANY IN DEPENDENT ENQUIRY WHEN HE CONSIDERED THE MARKET POSITION IN THE REAL ESTAT E FIELD DURING THE RELEVANT PREVIOUS YEAR. FURTHER, HE HAS NOT CONFRONTED ANY OF THE BUYERS TO FIND OUT WHETHER THEY HAVE PAID ANY EXTRA MONEY FOR BUYING F LATS. NO COMPARABLE RATE WAS ALSO CITED BY THE A.O. SHOWING THAT THE ASSESSE E HAS SOLD THE FLATS AT A HIGHER RATE THAN SOLD AS PER AGREEMENTS. THEREFORE , WE FIND MERIT IN THE OBSERVATIONS OF THE CIT(A) THAT A WRITTEN AGREEMENT SHOWING A PARTICULAR RATE OF SALE OF FLAT CANNOT BE DISPUTED MERELY ON THE GR OUND OF PREPONDERANCE OF PROBABILITIES BY THE A.O. UNLESS THERE ARE DOCUMENT ARY EVIDENCES TO DISAPPROVE THE RATES MENTIONED IN SUCH WRITTEN AGR EEMENTS. SINCE THE ASSESSEE IN THE INSTANT CASE HAS SOLD THE FLATS AS PER AGREEMENT AND SINCE THERE IS A TIME GAP BETWEEN THE INITIAL BOOKING AND LAST BOOKING AND SINCE IT IS QUITE POSSIBLE FOR HIGHER RATES ON ACCOUNT OF INCRE ASE IN FLOOR HEIGHTS, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROU GHT ON RECORD, THE A.O., IN OUR OPINION, SHOULD NOT HAVE MADE HUGE ADDITION ON MERE PRESUMPTION BASIS. IT IS THE SETTLED PROPOSITION OF LAW THAT PRESUMPTI ON AND SURMISES, HOWEVER, STRONG MAY BE, CANNOT BE THE BASIS FOR MAKING ADDIT ION WITHOUT HAVING ANY CORROBORATIVE EVIDENCE. GOING BY THE SAME LOGIC, WE ALSO DO NOT FIND ANY MERIT IN THE OBSERVATION OF THE LD. CIT(A) THAT WIDE VARI ATION OF ` 14,66,213/- ON ACCOUNT OF FLOOR RISE I.E. FROM IST FLOOR TO 4 TH FLOOR IS NOT JUSTIFIED. NO DOUBT FLAT NO. 101 AND 401 WERE SOLD ON THE SAME DAY I.E. ON 2 1.02.2006 FOR ` 64 LACS AND ` 81 LACS RESPECTIVELY. HOWEVER, WE FIND FORCE IN TH E SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT THE DIFFERENCE IN THE PRICE IS DUE TO HIGHER FLOOR LEVEL. THEREFORE, IN OUR OPINION, NO ADDITION ON TH IS ACCOUNT IS ALSO CALLED FOR. IN THIS VIEW OF THE MATTER, THE ADDITION OF ` 7,33,107 SUSTAINED BY THE CIT(A) ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 8 IS DELETED. GROUNDS OF APPEAL NO. 1 BY THE REVENU E IS ACCORDINGLY DISMISSED AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING ADDITION OF ` 60,50,000/- ON ACCOUNT OF PROVISION FOR EXPENSES OVERLOOKING THE FACT THAT TH E AMOUNT REPRESENTED A MERE UNASCERTAINED LIABILITY WHICH CA NNOT BE ALLOWED AS AN EXPENDITURE DURING THE YEAR. 8.1. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS MADE A PROVISION FOR EXPENSES AT ` 60,50,000/-. ON BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED THAT THERE ARE FURTHER EXPENSES TO BE INCURRED ON THE PROJECT FOR WHICH A PROVISION OF ` 60.50 LACS HAS BEEN MADE WHICH WOULD ONLY BE INCURRED IN THE SUBSEQUENT YEAR. IN ABSENCE OF ANY MATERIAL TO PROVE THE ASCERTAINABILITY OF THIS PROVISION, THE A.O. TREATE D THE SAME AS A MERE PROVISION WHICH IS NOT AN ASCERTAINED LIABILITY AND ACCORDINGLY DISALLOWED THE SAME. 8.2 BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE A SSESSEE IS FOLLOWING PROJECT COMPLETION METHOD AND DURING THE RELEVANT YEAR 90% OF THE PROJECT WAS ALREADY COMPLETED. HOWEVER, THE ASSESSEE HAS DECLA RED 100% OF THE SALE PROCEEDS. IT WAS SUBMITTED THAT AS PER THE PRINCIP LE OF MATCHING CONCEPT, THE TOTAL REVENUE GENERATED DURING THE ACCOUNTING PERIO D SHOULD MATCH WITH THE EXPENDITURE FOR GENERATING THE CORRESPONDING REVENU E. THEREFORE, THE ASSESSEE HAD RIGHTLY MADE A PROVISION FOR THE BALANCE 10% OF EXPENDITURE AGAINST 100% OF SALES INCOME. IT WAS SUBMITTED THAT WITHOU T INCURRING THE BALANCE OF 10% OF EXPENSES TO BE INCURRED, THE PROJECT CANNOT BE COMPLETED. ALTERNATIVELY, IT WAS ARGUED THAT IN CASE THE PROVI SION IS DISALLOWED THEN, THE SALES SHOULD BE RESTRICTED TO 90% AND BALANCE 10% S HOULD BE TAKEN TO THE SUBSEQUENT A.Y. IT WAS BROUGHT TO THE NOTICE OF TH E CIT(A) THAT DURING A.Y. 07-08 THE ASSESSEE HAS INCURRED AN EXPENDITURE OF ` 63,51,151/- AS AGAINST THE PROVISION OF ` 60,50,000/- AND HAD NOT MADE ANY CLAIM FOR ` 60,50,000/- BECAUSE THE SAME HAD ALREADY BEEN CLAIMED IN A.Y. 2 006-07. IT WAS ALSO ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 9 SUBMITTED THAT THE ASSESSEE MAINTAINS ITS ACCOUNT O N MERCANTILE BASIS AND THEREFORE THE DEVELOPMENT EXPENSES INCURRED IN RESP ECT OF SUCH PROJECT HAS TO BE ALLOWED DURING RELEVANT ASSESSMENT YEAR ITSELF. THE DECISION OF THE TRIBUNAL IN THE CASE OF HIRANANDANI INTERNATIONAL V S. DCIT IN ITA NO. 773/M/02 AND 810/M/02 WAS BROUGHT TO THE NOTICE OF THE CIT(A) ACCORDING TO WHICH THE ENTIRE EXPENDITURE RELATING TO A PROJE CT ARE TO BE ACCOUNTED FOR IN THE YEAR OF COMPLETION OF THE PROJECT IRRESPECTIVE OF THE FACT WHETHER THE ENTIRE SALES HAVE BEEN RECEIVED OR NOT. THEREFORE, EVEN T HOUGH ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE, IF THE SAME IS CAPABLE OF BEIN G ESTIMATED WITH REASONABLE CERTAINTY, IT CANNOT BE REGARDED AS AN UNASCERTAINE D LIABILITY. 8.3. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER:- 3.15 THE UNDERSIGNED HAS CAREFULLY PERUSED THROUGH THE RIVAL CONTENTIONS. 3.16. IT IS HELD THAT EITHER ONLY 90% OF SALES FIGU RE SHOULD BE TAXED AGAINST THE CLAIM OF ONLY 90% OF EXPENDITURE, OR 10 0% OF SALES SHOULD BE TAXED AGAINST THE CLAIM OF THE ENTIRE 100 % OF EXPENDITURE, RELATING TO A PARTICULAR PROJECT, ESPE CIALLY IN THE YEAR OF COMPLETION. 3.17. IN VIEW OF THE ABOVE MENTIONED DISCUSSION, OBSERVATIONS AND FINDINGS; THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE OF ` 60,50,000/- MADE DURING THE YEAR, AS IT IS NOT TREATED AS AN UNASCERTAINED LIABILITY AND ALSO IN VIEW OF THE FACT THAT THE APPELLANT HAS ACTUALLY INCURRED I N THE SUBSEQUENT YEAR MORE THAN ` 60.50 LACS BY WAY OF EXPENSES FOR THIS PROJECT. 3.18. THUS, THIS GROUND IS ALLOWED. 9. AGGRIEVED BY SUCH ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE A.O. AND THE CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 10 BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND ALSO FOLLOWS PROJECT COMPL ETION METHOD. THERE IS ALSO NO DISPUTE TO THE FACT THAT AS AGAINST 90% COM PLETION OF THE PROJECT, THE ASSESSEE HAS SHOWN 100% OF THE SALES DURING THE IMP UGNED ASSESSMENT YEAR. THERE IS ALSO NO DISPUTE TO THE FACT THAT AS AGAINS T PROVISION OF EXPENSES OF ` 60,50,000/- DURING THE IMPUGNED ASSESSMENT YEAR, TH E ASSESSEE HAS INCURRED EXPENDITURE OF ` 63,51,151/- IN THE SUBSEQUENT YEAR I.E. A.Y. 2007- 08 AND HAS NOT CLAIMED THE EXPENDITURE OF ` 60,50,000/- IN A.Y. 2007-08 WHICH HAS ALREADY BEEN CLAIMED ON PROVISIONAL BASIS DURING A.Y. 2006-07. THE LD. D.R. ALSO COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE CIT(A). WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE CIT(A) DELETING THE ADDITION OF ` 60,50,000/- MADE BY THE A.O. ON ACCOUNT OF PROVISI ON OF EXPENSES. THE GROUND RAISED BY THE REVENUE IS ACCO RDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF MAY, 2011. SD/- (R.V. EASVAR) HON'BLE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 20.05.2011 RK COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. (A) VII, MUMBAI 4. CIT -7, MUMBAI 5. THE DR, F - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ITA 3695/M/09 & 3784/M/09, NARIMAN LAND DEVELOPERS P. LTD. 11 DATE INITIALS DRAFT DICTATED ON 26/04/2011, 10.5.11, DRAFT PLACED BEFORE THE AUTHOR 27/04/2011, 12.5.11 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS KEPT FOR PRONOUNCEMENT ON. FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE ON WHICH FILE GOES TO THE AR DATE OF DISPATCH