DCIT 22(3), NAVI MUMBAI V. MAYURESH DEVELOPERS, NAVI MUMBAI

ITA 5047/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56276 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-12-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, MUMBAI. BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NOS. 5046 & 5047/ MUM/2010 ASSESSMENT YEAR: 1998-99 DY. CIT, 22(3) .. APPELLANT 3 RD FLOOR, TOWER NO.6, VASHI RLY STATION COMPLEX, VASHI, NAVI MUMBAI VS M/S. MAYURESH DEVELOPERS, .. RESPONDENT 14, MAHAVIR CENTRE, SECTOR-17, VASHI, NAVI MUMBAI. PA NO.AABPM 3889 LFS APPEARANCES: V.V.SHASTRI , FOR THE APPELLANT NONE, FOR THE RESPONDENT DATE OF HEARING : 19.12.2011 DATE OF PRONOUNCEMENT : 28 -12-2011 O R D E R PER PRAMOD KUMAR: ITA NO.5046/M/2010: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.3.2010 OF THE CIT(A)-33, MUMBAI, IN THE MATTER O F ASSESSMENT UNDER SECTION 143(3) R.W.S. 254 OF THE I.T.ACT, 1961 FOR THE ASSESSMEN T YEAR 1998-99. 2. GROUND RAISED IN THIS APPEAL READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN REDUCING THE LOSS OF RS.20,58,198 ON ESTIMA TE BASIS FROM I.T.A NOS. 5046 & 507/ MUM/2010 ASSESSMENT YEARS 1998-99 2 THE DISALLOWANCE OF RS.68,78,552 MADE BY THE AO WITHO UT APPRECIATING THE FACT THAT THE AO MADE THE SAID ADDI TION SINCE THE ASSESSEE FAILED TO JUSTIFY THE LOSS CLAIMED DURING THE CO URSE OF ASSESSMENT PROCEEDINGS. 3. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE LI KE THIS. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION. THE ASSESSMENT WA S COMPLETED UNDER SECTION 143(3) OF THE I.T.ACT, ON 28.2.2001 DETERMIN ING THE TOTAL INCOME AT RS.3,74,95,010 AS AGAINST THE RETURNED INCOME OF RS.27, 75,730. THE MATTER TRAVELED UPTO THE ITAT AND ONCE AGAIN THE ADDITIONS MADE ON A CCOUNT OF PAYMENTS TO M/S. ABHISHEK ENTERPRISES AT RS.1.36 CRORES AND ADDITION IN R ESPECT OF SHAILESH TOWERS AT RS.1,01,78,552 WAS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. PURSUANT TO ITATS ORDER, THE AO COMPLETED THE ASSESSMEN T UNDER SECTION 143(3) R.W.S. 254 OF THE I.T.ACT ON 31.12.2007, INTER ALIA, DISALLOWING THE ADDITION OF RS.68,78,552 IN RESPECT OF THE LOSS ON THE PROJECT COMP LETED UNDER THE NAME OF SHAILESH CLAIMED BY THE ASSESSEE. AGGRIEVED, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), IT W AS, INTER ALIA, SUBMITTED THAT ALTHOUGH ESCALATION CHARGES IN RESPECT OF OTHER PROJEC TS HAS BEEN SEPARATELY RECEIVED BUT IN RESPECT OF SHAILESH PROJECT, NO SUCH E SCALATION CHARGES HAS BEEN RECEIVED AS IT IS ALREADY INCLUSIVE OF IN THE AMENITIE S CHARGES OF RS.1,20,34,750, WHICH COMES TO 14.52% OF THE SALE AMOUNT OF FLATS. TH E OTHER REASON FOR NOT CHARGING THE ESCALATION CHARGES WAS ON ACCOUNT OF HIGH RISE BUILDING. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, THE CIT(A) WAS OF TH E OPINION THAT THE DIRECTIONS OF THE ITAT HAVE NOT BEEN FOLLOWED BY THE AO IN THE PROPER PERSPECTIVE AND, ACCORDINGLY, REDUCED THE DISALLOWANCE IN RESPECT OF LOSS ON SHAILESH PROJECT TO RS.20,58,198 AS AGAINST RS.68,78,552 MADE BY THE AO. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), ASSESSING OFFICER IS IN APPEAL BEF ORE US. 4. NO APPEARED ON BEHALF OF THE ASSESSEE, WHEN THE MATT ER WAS CALLED ON FOR HEARING INSPITE OF SEVERAL NOTICES. WE, THEREFORE, PR OCEED TO DECIDE THE APPEAL EXPARTE QUA THE ASSESSEE AFTER HEARING LEARNED DEPARTM ENTAL REPRESENTATIVE AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 5. HAVING HEARD LEARNED DEPARTMENTAL REPRESENTATIVE , WE FIND THAT THE ASSESSEE HAS CLAIMED LOSS ON SHAILESH TOWER PROJECT AT RS.6 8,78,552. THE MAIN I.T.A NOS. 5046 & 507/ MUM/2010 ASSESSMENT YEARS 1998-99 3 REASON OF THE LOSS INCURRED AS NARRATED BY THE ASSESSEE BEF ORE THE CIT(A) WAS THAT THE SHAILESH TOWER PROJECT WAS IN PROGRESS FROM AROUND 1993 TO 1997 AND SINCE IT WAS THE FIRST PROJECT OF THE ASSESSEE, THE BOOKING AMOUNT WAS VERY LOW AND THE QUALITY OF CONSTRUCTION WAS EXTREMELY GOOD. IT WAS IN THIS BACKDROP THAT THE COST ESCALATED WELL BEYOND EXPECTATION. IT WAS ALSO STATED THAT THE ASSESSEE HAS MADE PROFIT IN OTHER PROJECTS AND OFFERED THE INCOME TO T AX. WE ALSO FIND THAT THE CIT(A) AFTER TAKING INTO CONSIDERATION ALL ASPECTS, REDUCED T HE ADDITION TO RS.20,58,198, INTER ALIA, OBSERVING AS FOLLOWS: 7.5 FROM THE ABOVE, IT TRANSPIRES THAT THE APPELL ANT DID RAISED ESCALATION CHARGES WHICH WERE NOT DISCLOSED AS INCOME IN HIS B OOKS OF ACCOUNT. THE APPELLANT IS NOW TRYING TO USE THE AMENITIES CHARGE S IT HAS COLLECTED TO COVER UP FOR THE SAID UNDISCLOSED INCOME. HOWEVER, THIS CAN NOT BE ACCEPTED IN TOTAL. THE APPELLANT HAS ITSELF CLAIMED THAT FOR SHAILESH TOWE R AMENITIES PROVIDED WERE DIFFERENT AND MORE THAN THAT OF THE OTHER PROJECTS. IT THEREFORE STANDS TO REASON THAT IF THIS IS TO THE AMENITIES CHARGED WOULD BE D IFFERENT AND MORE TOO. HOWEVER, LACK OF DETAILS MAKES IT IMPOSSIBLE TO QUA NTIFY THE AMOUNT THAT WOULD FALL UNDER THE HEAD AMENITIES AND THAT WOULD BE ESC ALATION CHARGES IN THE SHAILESH TOWER PROJECT. AS NO COMPARISON HAS BEEN PROVIDED BY THE APPELLANT TO ARRIVE AT THE COMPONENT OF ESCALATION CHARGE THA T HAS BEEN RECEIVED AS CLAIMED IN THE FORM OF AMENITIES CHARGES IT CANNOT BE ACCEPTED THAT THE APPELLANT DECLARED THE COMPLETE RECEIPT IN HIS TOTA L INCOME. 7.6 THIS VIEW IS FURTHER STRENGTHENED BY THE FACT T HAT THE APPELLANT DID RECEIVE UNDECLARED INCOME IN THE FORM OF CASH DURING ITS CO URSE OF BUSINESS AND IT WAS THIS CASH THAT WAS OFFERED FOR TAXATION IN THE VDIS SCHEME. KEEPING THIS IN VIEW ALONG WITH THE SUBMISSIONS MADE, IT IS CLEAR THAT T HE APPELLANT HAS RECEIVED A CERTAIN AMOUNT OF MONEY AS ESCALATION CHARGES FROM THE BUYERS OF THE FLAT WHICH HAS NOT BEEN OFFERED FOR TAXATION. IN THE LA TER PROJECTS, THE PERCENTAGE OF THIS CHARGE VIS--VIS IS APPROXIMATELY 4.5%. THEREF ORE, IT IS LOGICAL TO PRESUME THAT THE APPELLANT WOULD HAVE CHARGED ATLEAST A SIM ILAR AMOUNT IN THE SHAILESH TOWER PROJECT ALSO. AS THE APPELLANT HAD DECLARED THAT THE PROJECT WAS MAINLY TAKEN UP IN THE LAST TWO YEARS IT CAN BE PRESUMED T HAT MAJOR SALES AND HANDING OVER OF POSSESSION OF FLATS WAS MADE THEN, THEREFOR E, ESCALATION CHARGES WOULD HAVE BEEN RECEIVED IN THESE YEARS ONLY AS THEY WOUL D HAVE BEEN QUANTIFIED THEN. THEREFORE, BRING THEM TO TAX IN AY 1998-99 WOULD IN NO WAY CAUSE DOUBLE TAXATION. 7.7 IT IS CLEAR THAT ESCALATION CHARGES ARE A PROV ISION IN THE CONTRACT WHICH CALLS FOR AN INCREASE IN PRICE IN EVENT OF AN INCRE ASE IN CERTAIN COSTS. IN THIS CASE, AS THE PROJECT CONTINUED FOR A PERIOD OF 5 YE ARS, IT IS NATURAL THAT PRICES INCREASED AND THE APPELLANT CHARGED THE BUYERS FOR THE SAME AS ADMITTED. ESCALATION CHARGES AT 4.5% WOULD REPRESENT THE PERI OD FOR AY 1998-99 AND CAN BE SAID TO HAVE BEEN INCLUDED IN THE AMENITIES CHAR GES RECEIVED IN THAT YEAR FROM THE BUYERS. BUT THE SHAILESH TOWER PROJECT, I T IS SEEN BEYOND STARTED MUCH BEFORE THE VIGHNAHAR PROJECT WHICH HAS BEEN USED BY THE APPELLANT FOR I.T.A NOS. 5046 & 507/ MUM/2010 ASSESSMENT YEARS 1998-99 4 COMPARISONS EVEN THOUGH BOTH CONCLUDED ALMOST AT TH E SAME. THEREFORE, FOR THE PERIOD 1993-1997 IT CAN BE SAID THAT THE ESCALA TION CHARGES THAT WAS CHARGED WERE NOT DECLARED IN THE TOTAL INCOME OF TH E APPELLANT IN THOSE YEARS EVEN THOUGH FLATS WERE SOLD AS FINAL QUANTIFICATION FOR THESE SALES WAS DONE LATER, WHEREIN, THE ESCALATION WAS INVOLVED. THE S AME NEEDS TO BE NOW TAKEN INTO ACCOUNT AND IS CALCULATED AT 2.5% OF THE SALE PROCEEDS BASED ON THE INFLATION DATA AVAILABLE AS PER THE GOVERNMENT OF I NDIA FIGURES, AS RECORDS SHOW THAT AT LEAST HALF OF THE FLATS WERE SOLD DURING TH E PERIOD EVEN THOUGH POSSESSION WAS HANDED OVER AT A LATER DATE AND AS PER THE APPE LLANTS OWN SUBMISSION THE CHARGES WERE RECEIVED THEN. 7.8 AS THE SALES OF THE APPELLANT ARE AT RS.8,23,27 ,920, THE UNDECLARED ESCALATION CHARGES RECEIVED ARE ESTIMATED AT RS.20, 58,198. THE LOSS DECLARED IN THE PROJECT IS REDUCED BY THIS AMOUNT. THE AO IS D IRECTED TO CALCULATE TOTAL INCOME ACCORDINGLY. 6. WE SEE MERITS IN LEARNED CIT(A)S STAND. WHILE REMI TTING THE MATTER TO THE FILE OF THE ASSESSING OFFICER, A COORDINATE BENCH OF TH IS TRIBUNAL HAD OBSERVED THAT THE ASSESSING OFFICER SHALL ALSO BE AT LIBERTY TO MAKE INDEPENDENT ENQUIRIES AND CONFRONT WITH THE ASSESSEE WITH SUCH MATERIAL. HOWEVER , THE ASSESSING OFFICER ONCE AGAIN PROCEEDED ON SURMISES AND CONJECTURES WITHOUT MAK ING ANY SERIOUS EFFORTS TO ASCERTAIN FACTS. HE HAS PROCEEDED ON SUCH GENERALISATI ONS AS WHILE EXECUTING THE PROJECT, THE SALES RATE ADOPTED BY THE ASSESSEE WOULD HAV E DEFINITELY TAKEN INTO ACCOUNT THE NORMAL PROJECT EXECUTION TIME, THE COST INFLATION DURING THAT PERIOD AND THE PROFIT ELEMENT THAT THE ASSESSEE WOULD LIKE TO EARN FROM THAT PROJECT AND THATWHILE THE PROJECT MAY HAVE GOT DELAYED BEYOND EXPECTED EXECUTION TIME, THE COST INFLATION DURING THE DELAY BEYOND EXPECTED TIM E CANNOT BE ACCEPTED TO BE LARGE ENOUGH TO WIPE OF EXPECTED PROFITS AND RESULT IN A L OSS. SUCH AN APPROACH IS CERTAINLY NOT AN OBJECTIVE AND JUDICIOUS APPROACH TH AT THE ASSESSING OFFICER IS EXPECTED TO HAVE. UNDER THESE CIRCUMSTANCES, THE CIT (A) WAS INDEED JUSTIFIED IN REJECTING THE STAND OF THE ASSESSING OFFICER AND, FOR T HE REASONS SET OUT ABOVE, PARTIALLY ACCEPTING ESCALATION LOSS. IN THIS VIEW OF THE MATTER AND BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS ARRIV ED AT BY THE CIT(A) AND SEE NO NEED TO INTERFERE IN THE MATTER. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED. ITA NO.5047/M/2010: I.T.A NOS. 5046 & 507/ MUM/2010 ASSESSMENT YEARS 1998-99 5 8. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALL ENGED THE ORDER DATED 29.3.2010 OF THE CIT(A), IN THE MATTER OF DELETION OF PENALTY OF RS.29,28,130 IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT, 1961 FOR THE ASSESSMENT YEAR 1998-99. 9. THE ASSESSING OFFICER LEVIED THE PENALTY UND ER SECTION 271(1)(C) OF THE ACT IN RESPECT OF FOLLOWING ADDITIONS: I) LOSS ARISING FROM SHAILESH TOWER PROJECT : RS.68,78 ,552 II) DISALLOWANCE OF EXPENDITURE OF FIXTURES & CAPITAL RENOVATION : RS.43,15,054 III) DISALLOWANCE OF EXCESS PROVISION ON VIGHNAHAR PROJECT & SAME ON SHREE GANESH PROJECT. : RS.30,53,046 10. HAVING HEARD THE LD DEPARTMENTAL REPRESENTAT IVE AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW TH AT THE CONCLUSION ARRIVED AT BY THE CIT (A) DO NOT CALL FOR ANY INTERFERENCE. WE F IND THAT THE IMPUGNED PENALTY HAS BEEN LEVIED FOR ASSESSEES HAVING BEEN FURNISHED INACCU RATE PARTICULARS OF INCOME BUT WHAT HAS BEEN TERMED AS INACCURATE AND FURNISHING PARTICULARS OF INCOME, IS IN FACT THE CLAIM ON LOSS ARISING FROM SALE OF PROJECT, EXPENDITURE OF FIGURES AND CAPITAL RENOVATION AND EXCESS PROVISION ON PROJECTS, WHICH HAV E BEEN HELD TO BE INADMISSIBLE. IN RESPECT OF PENALTY LEVIED ON ACCOUNT OF LOSS ARISING FROM SHAILESH TOWER PROJECT, VIDE OUR ORDER OF EVEN DATE, WE HAVE UPHELD THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS.68,78,552. THE AO HAS LE VIED THE PENALTY IN RESPECT OF DISALLOWANCE OF EXPENDITURE OF FIGURES & CAPITAL RENO VATION RELYING ON THE EARLIER YEARS FINDINGS TOTALLY IGNORING THE ASSESSEES CONTENTION. WHETHER AN EXPENSE IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE IS A FAIR LY SUBJECTIVE AREA AND THE LINE OF DEMARCATION BETWEEN CAPITAL AND REVENUE EXPENDITURE IS NOT ALWAYS DISTINCT AND FREE FROM AMBIGUITY. THE EXPLANATION OF THE ASSESSEE MAY OR MAY NOT BE ACCEPTABLE SO FAR AS QUANTUM PROCEEDINGS ARE CONCERNED BUT THERE IS NOTHING IN THE PENALTY ORDER SO AS TO JUSTIFY THE PENALTY, BEYOND A REFERENCE TO QUANTUM PROCEEDINGS. IT IS WELL SETTLED IN LAW THAT A QUANTUM ADDITION, BY ITSEL F, IS NOT ENOUGH TO JUSTIFY THE IMPOSITION OF PENALTY, BUT THEN THERE IS NOTHING MORE THAN QUANTUM ADDITION TO JUSTIFY THE PENALTY IN THE PRESENT CASE. IN RESPECT O F ADDITION OF RS.30,53,046 I.T.A NOS. 5046 & 507/ MUM/2010 ASSESSMENT YEARS 1998-99 6 REGARDING EXCESS PROVISION ON VIGHNAHAR PROJECT & SAME ON SHREE GANESH PROJECT, THE POSITION IS THE SAME. THERE IS NOTHING MORE THAN Q UANTUM ADDITION TO JUSTIFY THE PENALTY. WHAT HAS BEEN DISALLOWED AS PROVISION, AS NOTE D BY THE CIT(A), HAS BEEN ALLOWED IN THE SUBSEQUENT YEAR. ON THESE FACTS, IT CAN NOT BE SAID TO FURNISHING OF INACCURATE PARTICULARS AS HAS BEEN HELD BY THE ASSESSING O FFICER. THEREFORE, THE LEVY OF PENALTY UNDER SECTION 271(1)(C), ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, IS INDEED INAPPROPRIATE AND UNJUSTIFIED. WE, THEREFOR E, UPHOLD THE ORDER OF THE CIT(A). 11. IN THE RESULT, APPEAL IS DISMISSED. TO SUM UP, BOTH THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER, 2011 SD/- (N.V.VASUDEVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 28 TH DECEMBER 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-33 4. COMMISSIONER OF INCOME TAX, 22 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI