PRAM ANAND BUILDERS P. LTD, MUMBAI V. ITO WD 9(2)(4), MUMBAI

ITA 4023/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9415 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDIP GOYAL
• Assessee Lawyers: HARI S RAHEJA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 4023/MUM/2010 ASSESSMENT YEAR : 2005-06 PARAM ANAND BUILDERS PVT. LTD. 5 TH FLOOR, AGARWAL GOLDEN CHAMBER, PLOT NO.13/A, FUN REPUBLIC ROAD; OFF NEW LINK ROAD, ANDHERI (W) MUMBAI-400 053. PAN NO. AAACP 7613 D VS. INCOME TAX OFFICER WARD 9(2)(4) AAYAKAR BHAVAN MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARI S. RAHEJA RESPONDENT BY : SHRI SANDIP GOYAL DATE OF HEARING : 19.11.2012 DATE OF PRONOUNCEMENT : 21.11.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING ESTIMATION OF INCOME FROM CONSTRUCTION PROJECT. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS ENGAGE D IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL COMPLEX, HAD UNDER TAKEN TWO PROJECTS VIZ. RATAN NAGAR PROJECT AT BORIVALI (E) AND THE OTHER AGARWAL TOWERS AT GOREGAON. THE AO NOTED THAT THERE WAS OPENI NG WORK IN ITA NO.4023/M/10 A.Y. 05-06 2 PROGRESS (WIP) OF RS.2.09 CRORES AND CLOSING WIP OF RS.2.23 CRORES. THE AO ALSO OBSERVED THAT THE RATAN NAGAR PROJECT WAS 80% COMPLETE. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME FROM THE RATAN NAGAR PROJECT SHOULD NOT BE ESTIMATED @ 15% OF ADVANCE RECEIVED AS SUBSTANTIAL PART OF THE PROJ ECT WAS COMPLETE. THE ASSESSEE EXPLAINED THAT IT WAS FOLLOWING P ERCENTAGE COMPLETION METHOD AS PER WHICH INCOME WAS BEING DECLARED AS PERCENTAGE OF WIP. THE INCOME WILL BE DECLARED IN THE YEAR OF COMPLETION. THE AO HOWEVER, DID NOT ACCEPT THE EXPLANA TION GIVEN. IT WAS OBSERVED BY HIM THAT THE ASSESSEE SHOULD HAVE DECLARED PROFIT ON THE SALE RECEIPT/ADVANCE OF RS.1,02,21,289/- AS SUBSTANTIA L PART OF THE PROJECT WAS COMPLETE. HE ALSO REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF CHAMPION CONSTRUCTION COMPANY IN WHICH I T WAS HELD THAT 15% OF THE ADVANCE HAD TO BE TAXED. THE AO, THE REFORE, TAXED THE SALE RECEIPT/ADVANCE @ 15% WHICH CAME TO RS.15,33,193 /-. 3. THE ASSESSEE DISPUTED THE DECISION OF AO BEFORE CIT(A) AND REITERATED THE SUBMISSIONS MADE EARLIER THAT THE ASSESSE E WAS CAPITALIZING ALL DIRECT EXPENSES ON WHICH GROSS PROFIT WAS BEING ESTIMATED WHICH WAS ADJUSTED BY ADMINISTRATIVE AND FINAN CE EXPENSES AND SELLING EXPENSES TO ARRIVE AT NET PROFIT. IT WAS AL SO SUBMITTED THAT IN THE ASSESSMENT YEAR 2006-07 WHEN THE PROJECT WAS COMPLE TE, THE ASSESSEE HAD OFFERED INCOME BASED ON FINAL OUTCOME. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT IT WAS NOT CORRECT THAT THE ASSESSEE WAS FOLLOWING PERCENTAGE CO MPLETION METHOD AND THAT IT HAD DECLARED INCOME IN THE EARLIE R YEAR ON THE BASIS OF 20% OF WIP. CIT(A) ALSO DID NOT ACCEPT THE CONTE NTION THAT RATAN NAGAR PROJECT WAS COMPLETE IN ASSESSMENT YEAR 2006-0 7 IN WHICH THE ASSESSEE HAD OFFERED INCOME. IT WAS OBSERVED BY H IM THAT ITA NO.4023/M/10 A.Y. 05-06 3 RATAN NAGAR PROJECT WAS INCOMPLETE AND THAT THE INCOME OFFERED IN ASSESSMENT YEAR 2006-07 RELATED TO FLATS CONSTRUCTED FOR B RIHAN MUMBAI CORPORATION (BMC). CIT(A) THUS HELD THAT SALES ACCOUNTED DID NOT PERTAIN TO THE TWO PROJECTS UNDER CONSTRUCTION. HE T HEREFORE CONFIRMED THE ADDITION MADE BY AO AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT T HE CIT(A) WAS NOT CORRECT IN STATING THAT THE ASSESSEE WAS NOT FOLLOWI NG PERCENTAGE COMPLETION METHOD. IT WAS ARGUED THAT THE ASSESSEE HAD DECLARED THE INCOME ON THE BASIS OF PERCENTAGE COMPLETION METHOD IN THE EARLIER YEAR ON THE BASIS OF 20% GROSS MARGIN ON WI P. HE REFERRED TO THE COMPUTATION OF INCOME AND ACKNOWLEDGED RECEIPTS F OR THE RETURNS FILED FOR THE EARLIER YEARS WHICH ARE PLACED AS PART OF THE PAPER BOOK. THE LD. AR SUBMITTED THAT IN ASSESSMENT YEAR 2006 -07 ASSESSEE HAD DECLARED FINAL INCOME AFTER ADJUSTING INCOME DECLARE D EARLIER. IT WAS POINTED OUT THAT RATAN NAGAR PROJECT WAS NOTHING B UT PROJECT BEING EXECUTED ON BEHALF OF BMC AND THEREFORE, CIT(A ) WAS NOT CORRECT IN STATING THAT NET INCOME HAD BEEN DECLARED IN ASSESSME NT YEAR 2006-07 IN RELATION TO THE RATAN NAGAR PROJECT. AS RE GARDS OTHER PROJECT, THE LD. AR SUBMITTED THAT THE SAME HAD NOT ST ARTED AND THEREFORE NO INCOME HAD BEEN SHOWN IN RESPECT OF THAT P ROJECT. IT WAS SUBMITTED THAT ONLY LAND HAD BEEN PURCHASED. THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF AO AND CIT(A). 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATERI AL CAREFULLY. THE DISPUTE IS REGARDING ADDITION MADE BY A O @ 15% OF SALE RECEIPTS/ADVANCE RECEIVED IN RELATION TO THE PROJECT BE ING UNDERTAKEN. THE ASSESSEE WAS EXECUTING TWO PROJECTS I.E. RATAN NAGAR PR OJECT AND ITA NO.4023/M/10 A.Y. 05-06 4 AGARWAL TOWER. THE CASE OF THE ASSESSEE IS THAT RATAN NAGA R PROJECT WHICH WAS BEING EXECUTED ON BEHALF OF BMC WAS BEING AC COUNTED ON PERCENTAGE COMPLETION METHOD AND THE ASSESSEE HAD BEEN DE CLARING INCOME AT GROSS MARGIN OF 20% OF WIP IN EARLIER YEARS. IN CASE OF AGARWAL TOWERS IT WAS SUBMITTED THAT THE PROJECT HAD N OT BEEN STARTED. THE ASSESSEE FILED COPY OF P&L ACCOUNT AND BALANCE SHEET IN RESPECT OF EARLIER YEARS I.E. IN RESPECT OF ASSESSMENT YEAR 2003-04 TO 2004-05 AS WELL AS FOR 2006-07. FROM THE PERUSAL OF TH E P&L ACCOUNT FILED IT IS NOT CLEAR AS TO HOW INCOME WAS BEING DECLARE D @ 20% ON WIP. THE ASSESSEE HAS ALSO SUBMITTED A CHART WHICH SHOWS WIP OF RS.62.66 LACS AS ON 31.3.2003 AND RS.70.01 LACS AS ON 31.3. 2004 AND RS.82.12 LACS AS ON 31.3.2005 IN RESPECT OF AGARWAL TOWER S WHICH IS CONTRARY TO THE SUBMISSION MADE BEFORE US THAT AGARWAL TOWER PROJECT HAD NOT STARTED. THE ASSESSEE HAS ALSO FILED SIMILAR CHART IN RESPECT OF RATAN NAGAR PROJECT SHOWING COMPUTATION OF 20% GROSS MAR GIN ON WIP. IT IS NOT CLEAR HOW INCOME HAD BEEN COMPUTED IN EA CH YEAR ON THE BASIS OF SUCH GROSS MARGIN. SUCH CHART HAD ALSO NOT BEE N FILED BEFORE LOWER AUTHORITIES. THEREFORE, IN OUR VIEW, CL AIM OF THE ASSESSEE THAT INCOME WAS BEING ACCOUNTED ON PERCENTAGE COMPLETION METHOD IS REQUIRED TO BE EXAMINED IN DETAIL. THE ISSUE HAS NOT BEEN EXAMINED PROPERLY EITHER BY THE AO OR BY CIT(A). IN CASE INCOME WAS BEING ACCOUNTED ON PROJECT COMPLETION METHOD FROM YEAR TO YEA R AND FINAL INCOME HAD BEEN SHOWN IN YEAR OF COMPLETION, THE CASE OF THE ASSESSEE CAN BE ACCEPTED BUT NOT OTHERWISE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE IT TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION OF THE CLAIM OF THE A SSESSEE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE . ITA NO.4023/M/10 A.Y. 05-06 5 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.11.2012. SD/- SD/- (VIVEK VARMA ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 21.11.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.