ASST CIT CIR 21(3), MUMBAI V. SHREE LAKSHMI DEVELOPERS, MUMBAI

ITA 3822/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100822 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARSHAD VENGURLEKAR
• Keywords: Opportunity of being heard
• Section: 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , , BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 5609/MUM/2010 ( / ASSESSMENT YEAR : 2007 - 08 A N D / I .T.A. NO. 3822/MUM/2012 ( / ASSESSMENT YEAR : 2008 - 09 THE DCIT, CIRCLE - 21(3), C - 11 BLDG., 5 TH FLOOR, PRATYAKSH KAR BHAVAN, BKC, BANDRA (E), MUMBAI - 400 051 / VS. M/S. SHREE LAXMI DEVELOPERS, 407, GATEWAY PLAZA, HIRANANDANI GARDENS, POWAI, MUMBAI - 400 076 ./ ./ PAN/GIR NO. : ABEFS 7370Q ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI HARSHAD VENGURLEKAR / RESPONDENT BY : SHRI DR. K. SHIVARAM SHGRI RAHUL K. HAKANI / DATE OF HEARING : 13 . 0 8 .2015 / DATE OF PRONOUNCEMENT : 19 .0 8 .2015 / O R D E R PER N.K. BILLAIYA, AM: TH ESE TWO APPEALS BY THE REVENUE ARE PREFERRED AGAINST TWO SEPARATE ORDER S OF THE LD. CIT(A) - 32 , MUMBAI PERTAINING TO ASSESSMENT YEAR S 2007 - 08 & 2008 - 09. THE GRIEVANCE OF THE REVENUE IS COMMON FOR ITA. NO . 5609/M/10 ITA NO. 3822/M/12 2 BOTH THE YEARS, THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS A BUILDER AND DEVELOPER OF REAL ESTATE. THE RETURNS FOR THE YEARS UNDER CONSIDERATION WERE TAKEN UP FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THERE WAS A PIECE OF LAND BELONGING TO MAHARASHTRA HOUSING & AREA DEVELOPMEN T AUTHORITY(MHADA) WHO ENTERED INTO LEASE AGREEMENT ON 10.12.2005 WITH ONE M/S. DREAM ENTERPRISES FOR 30 YEARS. THE AO FURTHER NOTICED THAT THE ASSESSEE FIRM HAD ENTERED INTO DEVELOPMENT AGREEMENT WITH M/S. DREAM ENTERPRISES. THE RELEVANT CONDITIONS STAT ED IN THE AGREEMENT AS HIGHLIGHTED BY THE AO READ AS UNDER: IT IS ENVISAGED IN THE AGREEMENT THAT THE ASSESSEE FIRM WOULD CONSTRUCT THE PROJECT ON THE ABOVE PLOT OF LAND MANAGE ALL EXPENSES COST, AMENITIES, PREMIUM/PROFIT FIXED AT THE RATE OF RS. 1700/ - PER CONTRACTUAL AREA OF SQ. FT AND RS. 700/ - PER SQ. FT FOR STILT/ BASEMENT AREA. FURTHER CONDITIONS LAID DOWN IN THE DEVELOPMENT AGREEMENTS ARE AS UNDER: 5. THE DEVELOPER SHALL BE ENTITLED TO REIMBURSEMENT OF THE AMOUNT SPENT EITHER BY WAY OF ADJUSTMEN T OR SELLING THE COMMERCIAL UNITS SO CONSTRUCTED FOR AND ON BEHALF OF THE LESSEES BUT THE AMOUNT SO RECEIVED WOULD BE IN THE NAME OF THE DEVELOPER WHO SHALL BE ENTITLED TO RECEIVE AND GIVE CREDIT TO THE SAID AMOUNT AND AN ACCOUNT SHALL BE DRAWN BY THE PAR TIES EITHER DURING THE DEVELOPMENT OR ON COMPLETION OF PROJECT AS BOTH THE PARTIES MAY MUTUALLY AGREE. 6. THE CINEMA HALL AND THE INFRASTRUCTURE ATTACHED TO THE SAID CINEMA HALL CANNOT BE ENCUMBERED OR SOLD BY THE DEVELOPER AS IT WOULD BE RETAINED BY THE LESSEES AND THE SOLD PROPERTY OF THE LESSEES WHO SHALL BE ENTITLED TO DEAL WITH THE SAME AS THEY WISH. ITA. NO . 5609/M/10 ITA NO. 3822/M/12 3 3. THE AO OBSERVED THAT THE ASSESSEE HAS GOT SOLE RIGHT TO SELL THE PREMISES, RECEIVE MONEY AND FIX THE PRICE WITH PURCHASERS AND ENTER INTO SALE AGRE EMENTS. THE AO FURTHER OBSERVED THAT AS PER THE AGREEMENT , THE ASSESSEE WOULD EFFECT THE SALES EXCEPT MULTIPLEX THEATER. 3.1. ON THE PERUSAL OF THE AUDITED STATEMENT OF ACCOUNTS, THE AO NOTICED THAT THERE IS NOTHING TO INDICATE EITHER ANY ACCOUNT OF M/ S. DREAM ENTERPRISES REGARDING RECEIPT OF MONEY OUT OF WORK IN PROGRESS OR ADVANCE AMOUNT RECEIVED FROM BOOKING OF SHOPS OR ANY ENTRY FOR COST OF LAND IN THE PROJECT UPTO 31.3.2007 PROPORTIONATE OF WORK IN PROGRESS. 3.2. SUMMONS U/S. 131 OF THE ACT WERE ISSUED TO M/S. DREAM ENTERPRISES ASKING THE TREATMENT OF ACCOUNTS RELATED TO THIS PROJECT IN THEIR BOOKS OF ACCOUNTS. THE AO FOUND THAT THOUGH THE COST OF THE LAND HAS BEEN SHOWN IN THE BALANCE SHEET OF M/S. DREAM ENTERPRISES BUT THERE IS NO MENTION OF WO RK IN PROGRESS, RECEIPTS OF ADVANCE AGAINST SALE OF PREMISES OF PROJECT ETC. 3.3. ON FURTHER ANALYZES OF THE CONTRACTUAL AND SALEABLE AREA OF THE IMPUGNED PROJECT, THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS NOT FURNISHED PROPER AND CORRECT INFORMATION IN THIS CONNECTION. ACCORDING TO THE CALCULATION OF THE AO, THE SUPER BUILT UP A REA COMES TO 105391 SQ. FT WHEREAS THE ASSESSEE HAS SHOWN IN ITS STATEMENTS SALEABLE AREA AT 73855 SQ. FT. THUS, THE ASSESSEE HAS SHOWN 31536 SQ.FT LESS AND ACCORDING TO THE AO, THE SAME WOULD BE SOLD BY THE ASSESSEE OR MUST HAVE BEEN SOLD. APPLYING THE AVERAGE RATE OF RS. 2,700/ - , THE AO CALCULATED THE VALUE OF SUPPRESSED AREA OF THE PROJECT SOLD DURING THE YEAR AT RS. 4,25,73,600/ - AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 AND RS. 5,67,64,800/ - IN A.Y 2008 - 09. ITA. NO . 5609/M/10 ITA NO. 3822/M/12 4 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) EXPLAINING THE FACTUAL MATRIX. IT WAS STRONGLY CONTENDED THAT THE SALEABLE AREA AT 105391 SQ. FT ADOPTED BY THE AO IS BASED ON HIS OWN IMAGINATION. THE LD. CIT (A) FOUND THAT TH E BASIS OF THE CALCULATION MADE BY THE AO WAS NOT CLEAR THEREFORE THE MATTER WAS REMANDED BACK TO THE FILE OF THE AO CALLING FOR REMAND REPORT. 4.1. IN HIS REMAND REPORT, THE AO FURNISHED THE BASIS OF CALCULATION OF THE BUILT UP AREA AND SUPER BUILT UP A REA AND THE SAME HAS BEEN CALCULATED AS UNDER: 1. PLOT AREA AS PER CHART GIVEN BY THE ASSESSEE 2864 SQ. MTR. 2.PERMISSIBLE BUILT UP AREA 5715.02 SQ. MTR 61493.61 SQ. FT. 3.BASEMENT AREA 1640.64 SQ. MTR 18934 SQ. FT. TOTAL BUILT UP AREA COMES TO 79146 SQ. FT. LESS: BUILT UP AREA OF THE MULTIPLEX 13803 SQ. FT BUILT UP AREA OF THE PROJECT FOR SALE OTHER THAN MULTIPLEX 65343 SQ.FT. ACCORDINGLY TAKING THE BUILT UP AREA OF THE PROJECT AT 62% OF THE SUPER BUILT UP AREA, WE CALCULATED THE SUPER BU ILT UP AREA OF THE PROJECT AT 105391 SQ.FT WHICH IS WORKED OUT AS UNDER : BUILT UP AREA OF THE PROJECT FOR SALE OTHER THAN MULTIPLEX BEING IT 62% OF THE SUPER BUILT UP ARE 65343 SQ. FT. SUPER BUILT UP AREA/SALEABLE ARE OF THE PROJECT= 65343.62X100 105391 SQ. FT. 4.2. AFTER PERUSING THE REMAND REPORT OF THE AO, THE LD. CIT(A) OBSERVED THAT AS PER ASSESSEES OWN CALCULATION, THE FIGURES OF PERMISSIBLE BUILT UP AREA OF 61493 SQ. FT, BASEMENT AREA OF 18934 SQ. FT AND BUILT UP ITA. NO . 5609/M/10 ITA NO. 3822/M/12 5 AREA OF THE MULTIPLEX A T 13803 SQ. FT ARE NOT IN DISPUTE. ACCORDING TO THE LD. CIT(A), WHAT IS EFFECTIVELY IN DISPUTE IS THAT THE AO HAS INCLUDED BASEMENT AREA OF 18934 SQ. FT IN WORKING OUT THE TOTAL BUILT UP AREA OF THE PROJECT WHEREAS THE SAME HAS BEEN EXCLUDED BY THE ASSE SSEE IN ITS CALCULATION. THE LD. CIT(A) WAS CONVINCED THAT THE AO HAS ADDED BASEMENT AREA OF 18934 SQ.FT AND HAS APPLIED THE APPLICABLE SALE RATE AND COMPUTED THE ADDITION. ACCORDING TO THE LD. CIT(A), THE ISSUE TO BE CONSIDERED IS WHETHER THE BASEMENT A REA IS TO BE INCLUDED IN THE TOTAL SALEABLE AREA OR NOT FOR THE PURPOSE OF CALCULATION OF UNIT AREA RATE AND WHETHER THE DIFFERENCE ON THIS BASIS WOULD BE THE ADDITIONAL INCOME FOR THE YEARS UNDER CONSIDERATION AND ALSO OF ANY OF THE SUBSEQUENT YEARS AND L ASTLY WHETHER THE INCOME CAN BE CONSIDERED IN THE HANDS OF THE ASSESSEE. THE LD. CIT(A) EXAMINED THE FACTS IN ISSUE IN THE LIGHT OF THE AGREEMENT BETWEEN THE ASSESSEE AND M/S. DREAM ENTERPRISES. THE LD. CIT(A) WAS CONVINCED THAT THE CONSTRUCTED AREA INCL UDES MULTIPLEX AND MALL AND THE BASEMENT HAS TO BE UTILIZED FOR PARKING AND THEREFORE THE BASEMENT AREA CANNOT BE INCLUDED IN THE SALEABLE AREA. ACCORDING TO THE LD. CIT(A), THE AGREEMENT OF SALE NEEDS TO BE CONSIDERED WITH REFERENCE TO OWNERSHIP OF BASE MENT AREA. THE LD. CIT(A) ACCORDINGLY DIRECTED THE AO TO DELETE THE IMPUGNED ADDITIONS. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR THAT THE AUDITED ANNUAL ACCOUNTS OF THE ASSESSEE DO NOT DEPICT THE CORRECT PICTURE AS THE ACCOUNTS ARE NOT QUANTIFIED. ITA. NO . 5609/M/10 ITA NO. 3822/M/12 6 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL ALSO FILED A FACTSHEET AND REFERRED TO THE VARIOUS RELEVANT CLAUSES. IT IS THE SAY OF THE LD. COUNSEL THAT THE BASEMENT IS NOT FOR SALE AND IT IS MEANT FOR CAR PARKING AREA ONLY. THE LD. COUNSEL FURTHER STATED THAT THE AO HAS MADE NOTIONAL ADDITIONS WITHOUT ANY BA SIS AS THE AO ON HIS OWN NOTIONS CALCULATED THE SUPER BUILT UP AREA @ 60% OF THE BUILT UP AREA WITHOUT ANY BASIS. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD BEFORE US. WE HAVE ALSO CONSIDERED THE FACTSHEET FILED BY THE LD. COUNSEL. THE UNDISPUTED FACT IS THAT ON A PIECE OF LAND BELONGING TO MHADA, AN AGREEMENT WAS EXECUTED BETWEEN MHADA AND ONE M/S. DREAM ENTERPRISES. IT IS ALSO AN ADMITTED FACT THAT SUBSEQUENTLY M/S. DREAM ENTERPRISES ENTERED INTO A DEVELOPMENT AGREEMENT WITH THE ASSESSEE. THE SAID DEVELOPMENT AGREEMENT IS EXHIBITED AT PAGES 42 TO 54 OF THE PAPER BOOK. THE AREA STATEMENTS FOR THE SAID PROJECT OF ZOOM PLAZA CAN BE UNDERSTOOD PROPERLY IN THE FOLLOWING MANNER. FLOOR BUILDT UP AREA AS PER MCGM (SQ. MT.) CARPET AREA AS PER MCGM PER FLOOR IN SQ. FT. SQ. MT. SALEABLE (SQ. FT.) GROUND 1,157.72 8,365 778.11 18,031 FIRST 1,205.18 8,956 832.88 19,152 SECOND 1,247.81 8,815 819.09 19.021 THIRD 821.50 4,924 457.65 17,651 FOURTH 963.26 13,808 1,282.81 22,000 319.55 5,715.02 44,868 4170.54 95,855 ITA. NO . 5609/M/10 ITA NO. 3822/M/12 7 PARTICULARS/FLOOR SALEABLE AREA CONTRACTUAL AREA GROUND FLOOR 18,031 17,484 FIRST FLOOR 19,152 17,671 SECOND FLOOR 19,021 18,132 THIRD FLOOR 17,651 17,664 FOURTH FLOOR 22,000 TOTAL 73,855 92,951 BASEMENT 18,934 8.1. IT CAN BE SEEN THAT THE BASEMENT AREA IS NOT INCLUDED IN THE SALEABLE AREA. BEFORE GETTING INTO THE DISPUTE RELATING TO THE BASEMENT AREA, LET US CONSIDER THE ANNUAL STATEMENT OF ACCOUNTS OF THE ASSESSEE. IN THE PRO FIT AND LOSS ACCOUNT, THE ASSESSEE HAS SHOWN CLOSING WORK IN PROGRESS AT RS. 3,92,42,141/ - . SINCE THIS IS THE FIRST YEAR OF BUSINESS, THERE IS NO OPENING WORK IN PROGRESS AS EVIDENCED FROM SCHEDULE - F TO THE ACCOUNT. UNDER THE HEAD CURRENT LIABILITIES IN SCHEDULE C, THE ASSESSEE HAS SHOWN AS RECEIVED FROM CUSTOMERS RS. 4,11,15,272/ - . A CLOSE SCRUTINY OF THE ANNUAL ACCOUNTS OF THE ASSESSEE SURPRISINGLY DO NOT SHOW ANY REFERENCE TO ANY ENTRY IN RESPECT OF M/S. DREAM ENTERPRISES. IF THE ASSESSEE HAS RECE IVED MONEY FOR AND ON BEHALF OF M/S. DREAM ENTERPRISES AND IF THE ADVANCES RECEIVED BY THE ASSESSEE ARE ONLY TO SECURE ITS CLAIM OVER M/S. DREAM ENTERPRISES, THERE HAS TO BE SOME REFLECTION IN THE STATEMENT OF ACCOUNTS WHETHER M/S. DREAM ENTERPRISES IS OWI NG ANY MONEY TO THE ASSESSEE OR ASSESSEE IS OWING ANY SUM TO M/S. DREAM ENTERPRISES. THE ENTIRE AMOUNTS RECEIVED FROM THE PROBABLE BUYERS HAVE BEEN ACCOUNTED FOR BY THE ASSESSEE WITHOUT SHOWING THE SAME AS LIABILITY TOWARDS M/S. DREA M , ENTERPRISES. ITA. NO . 5609/M/10 ITA NO. 3822/M/12 8 8.2. A PERUSAL OF THE NOTE ON PROJECT EXHIBITED AT PAGES 55 AND 56 OF THE PAPER BOOK SHOW THE WORKING OF PROJECT AS THE FIRM IS DEVELOPING THE PROJECT ZOOM PLAZAMALL IN JOINT VENTURE WITH M/S. DREAM ENTERPRISES AND THEN UNDER THE HEAD OWNERSHIP, IT IS MENTI ONED JOINT VENTURE CO - DEVELOPER. UNDER THE HEAD NOTE ON AGREEMENT, IT IS MENTIONED THAT THE PROJECT WAS UNDERTAKEN BY THE FIRM (ASSESSEE) AS A DEVELOPER TO CARRY OUT THE WORK OF CONSTRUCTION & DEVELOPMENT OF CINEMA HALL AND COMMERCIAL PREMISES FOR AND ON BEHALF OF M/S. DREAM ENTERPRISES. 8.3. COMING BACK TO THE ANNUAL STATEMENT OF ACCOUNTS IN THE LIGHT OF THE OBSERVATIONS MENTIONED HEREINABOVE, FOR THE SAKE OF REPETITION WE HAVE TO SAY THAT THE ANNUAL ACCOUNTS OF THE ASSESSEE DO NOT REFLECT THE TRUE NATURE OF TRANSACTION. SURPRISINGLY, THE AO HAS MADE NO ENQUIRIES IN RESPECT OF THESE TRANSACTIONS WITH M/S. DREAM ENTERPRISES AND ALSO NO ENQUIRY HAS BEEN MADE WITH MHADA IN RESPECT OF THIS PROJECT. NOWHERE IN ITS STATEMENT OF ACCOUNTS, THE ASSESSEE HAS GIVEN PER SQ. FT DETAILS. IT IS NOT CLEAR WHETHER THE WORK IN PROGRESS SHOWN BY THE ASSESSEE IS IN RESPECT OF THE ENTIRE AREA OF THE PROJECT OR THE WORK IN PROGRESS IS ONLY RESTRICTED TO THE AREA OF THE WORK UNDERTAKEN DURING THE IMPUGNED YEARS ,A S NO PROP ER ENQUIR IES HAVE BEEN MADE BY THE AO NOR BY THE LD. CIT(A) . T HERE IS NO CLARITY IN SO FAR AS FACTS ARE CONCERNED. IF THE ENTIRE PROJECT IS UNDERTAKEN BY THE ASSESSEE FOR AND ON BEHALF OF M/S. DREAM ENTERPRISES AND ONLY FOR THE SAKE OF ITS SECURITY, THE ASSESSEE IS RECEIVING THE MONIES FROM THE PROBABLE CUSTOMERS THAN THE ENTIRE PROJECT SHOULD HAVE REFLECTION IN THE BOOKS OF M/S. DREAM ENTERPRISES AND THE ASSESSEES PROFIT IS ONLY TO BE RESTRICTED TO THE AGREED TERMS AND CONDITIONS AS PER THE DEVELOPMENT AGREEMENT. ALL THESE FACTS HAVE TO BE BROUGHT ON RECORD BY THE AO, WE THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, RESTORE THE IMPUGNED ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO MAKE ENQUIRIES AFRESH ITA. NO . 5609/M/10 ITA NO. 3822/M/12 9 IN RELATION TO THE OWNERSHIP OF THE PROJECT. THE AO MUST ALSO MAKE NECESSARY ENQUIRIES FROM MHADA. THE AO IS ALSO EXPECTED TO MAKE ENQUIRIES FROM THE PURCHASERS AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE INVESTIGATIONS MADE BY HIM. NEEDLESS TO MENTION, THE AO SHALL GIVE REASONABLE AN D SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, THE IMPUGNED APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. OR DER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST , 2015 SD/ - SD/ - ( VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 19 TH AUGUST , 2015 . . ./ RJ , SR. PS / 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