ITO WD 1(3), THANE V. CHANDRASHEKHAR D. LOTLIKAR, THANE

ITA 5060/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8340 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 16-10-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBODH RATNAPARKHI
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Business income; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 5060 / MUM/20 1 5 ( ASSESSMENT YEAR : 2010 - 11 ) ITO WD 1(3) ASHAR IT PARK, 6 TH FLOOR B WING, R.NO.10, WAGLE INDUSTRIAL ESTATE, ROAD NO.16Z, THANE (W) - 400604 VS. SHRI CHANDRASHEKHAR D LOTLIKAR 19, 1 ST FLOOR, SWARNA CO - OP HOUSING SOCIETY, PANCHPAKHADI THANE (W), THANE 400 602 PAN/GIR NO. ACEPL2911R APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI RAJAT MITTAL REVENUE BY SHRI SUBODH RATNAPARKHI DATE OF HEARING 11 / 09 /201 7 DATE OF PRONOUNCEME NT 29 / 11 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 1, THANE DATED 24/07/2015 IN THE MATTER OF O RDER PASSED U/S.143(3) WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT CONFIRMING THE ADDITION OF RS. 1,55,64,475/ - ON ACCOUNT OF PROFIT ON S ALE OF PLOTS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE ON THE BASIS OF FRESH EVIDENCES AND INCOME FIGURES OF A.YS 2013 - 14 AND 2014 - 15 WITHOUT CALLING FOR REMAND REPORT FROM THE A.O. SPECIALLY CONSIDERING THE FACT THAT THESE FIGURE WERE NOT AVAILABLE TO THE A.O. AT THE TIME OF PASSING THE ASSESSMENT ORDER. 3. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 2 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY GROUND OF APPEAL. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. FOR THE YEAR UNDER CONSIDERATION ASSESSEE FILED I TS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.13,37,940/ - . DURING THE COURSE OF ASSESSMENT, THE AO REJECTED ASSESSEES BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF SECTION 143(3) AND MADE AN ADDITION OF RS.1,55,64,475/ - AFTER OBSERVING AS UNDER: - 7 . IN V IEW OF THE INCONSISTENCY IN ACCOUNTS AND THE INABILITY OF THE ASSESSEE TO FURNISH THE DOCUMENTS REQUIRED DURING THE COURSE OF ASSESSMENT PROCEEDINGS COUPLED WITH THE FACTS OBSERVED ON PHYSICAL VERIFICATION AND SCRUTINY PROCEEDINGS, IT IS CLEAR THAT THE ASS ESSEE HAS DEFERRED THE ACTUAL PROFITS FROM THE ACTIVITY. ON THE BASIS OF FACTS OBSERVED AND JUXTAPOSING THE SAME AGAINST THE DETAILS FILED ALONGWITH THE RETURN THE ASSESSEES PROFIT ARE ARRIVED AS UNDER: SALES (SHOWN AS ADVANCES FROM CUSTOMERS) LESS: RS.6,98,38,150.52 WIP I) CLOSING STOCK : RS. 4,98,27,074.46 II) PROPERTY AT SAJAN : RS. 6,79,781.00 III) DEVELOPMENT OF LAND RS. 32,66,820.00 RS. 5,37,73,675.46 PROFIT ON SALE OF PLOTS RS. 1,55,64,475.46 7.1 THE PROFIT WORKED OUT AS ABO VE COMES TO RS. 1,55,64,475.46. THE SAME IS ACCORDINGLY ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. HOWEVER, SINCE THE TOTAL CLOSING STOCK HAS BEEN TAKEN INTO CONSIDERATION WHILE CALCULATING THE ABOVE NO SET - OFF FOR THE SAME SHALL BE J ALLOWABLE TO THE ASSESSEE IN SUBSEQUENT YEARS. THE ASSESSEE'S REPRESENTATIVE WAS ASKED TO SUBMIT HIS RESPONSE TO THE ABOVE PROPOSITION REGARDING THE BASIS OF ARRIVING AT THE PROFITS EARNED FROM THE PROJECT AS ON 31.03.2010. HE EXPRESSED HIS / C ONSENT FOR THE SAME. 5. BY THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 3 10. I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS, OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AND THE FACTS OF THE CASE. THE APPELLANT IS A RE AL ESTATE DEVELOPER. THE APPELLANT ACQUIRES LAND AND AFTER DEVELOPING THE INFRASTRUCTURE FACILITIES LIKE INTERNAL ROADS, LIGHTS, GARDEN, ETC., SELLS THE LAND IN THE FORM OF SMALLER PLOTS. THE AMOUNTS RECEIVED IN RESPECT OF VARIOUS PLOTS WERE BEING SHOWN BY THE APPELLANT AS ADVANCES ON THE GROUND THAT HE WAS FOLLOWING THE 'PERCENTAGE COMPLETION METHOD' WHICH WAS CONSISTENTLY FOLLOWED BY HIM. THIS CONTENTION OF THE APPELLANT HAS BEEN FOUND TO BE FACTUALLY IN CORREC T AS CAN BE SEEN FROM THE FOLLOWING TABLE A .Y . CLOSING STOCK OF WORK - IN - PROGRESS GROSS PROFIT INCOME ON ACCOUNT OF MAINTENANCE CHARGES. 2014 - 15 6,72,00,000 17,46,229 15,44,942 2013 - 14 6,32,00,000 21,43,874 16,80,538 2012 - 13 5,69,85,000 16,75,869 20,22,437 2011 - 12 5,38, 24,134 14,52,116 12,41,540 2010 - 11 4,98,27,074 24,35,569 16,68,860 11. WHILE WORKING OUT THE ABOVE GP, THE INCOME ON ACCOUNT OF MAINTENANCE CHARGES IS ALSO BEING TAKEN ON THE CREDIT SIDE ALONG WITH THE CLOSING STOCK. THE TOTAL OF THE GROSS PROFIT SHOWN BY THE APPELLANT FOR THE ABOVE MENTIONED 5 YEARS IS RS.94,53,657/ - WHEREAS THE APPELLANT HAS REC EIVED AN AMOUNT OF RS.81,58,362/ - ON ACCOUNT OF MAINTENANCE CHARGES ONLY. AFTER EXCLUDING THESE MAINTENANCE RECEIPTS FROM THE GROSS PROFIT IT IS SEEN THA T THE APPELLANT HAS HARDLY SHOWN ANY GROSS PROFIT FOR THE ABOVE MENTIONED 5 ASSESSMENT YEARS IN SPITE OF DOING SUBSTANTIAL WORK IN THESE YEARS. IN FACT IN AY 2012 - 13, IF INCOME ON ACCOUNT OF MAINTENANCE CHARGES IS TAKEN OUT, THERE WAS A GROSS LOSS TO THE A PPELLANT. THUS FROM A PERUSAL OF THE ABOVE TABLE IT IS SEEN THAT THE APPELLANT IS NOT SHOWING THE GP EITHER ON A PERCENTAGE OF THE CLOSING WORK - IN - PROGRESS OR ON AN Y OTHER CONSISTENT BASIS. THEREFORE, T H E CONTENTION OF THE APPELLANT THAT HE WAS FOLLOWING T HE PERC ENTAG E COMPLETION METHOD IS NOT CORRECT. 12. FURTHER, IT IS SEEN THAT IN RESPECT OF A MAJORITY OF THE PLOTS, THE APPELLANT HAD RECEIVED 100% OF THE SALE AMOUNT OF THE PLOTS WHICH FACT HAS BEEN ADMITTED BY THE APPELLANT HIMSELF IN THE DETAILS FILED D URING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS THE PRESENT PROCEEDINGS. THE TOTAL SALES WHICH THE APPELLANT HAD SHOWN AS ADVANCES IN HIS BOOKS OF ACCOUNTS TILL THE YEAR UNDER CONSIDERATION AMOUNTS TO RS.6,86,38,150 / - (MISTAKENLY TAKEN BY THE AO AT RS . 6,98,38,150 / - ). THEREFORE, THE AO HAD RIGHTLY ADOPTED THE FIGURE OF ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 4 ADVANCES AS SALE PROCEEDS OF THE PLOTS SOLD BY THE APPELLANT TILL THE YEAR UNDER CONSIDERATION. HOWEVER, WHILE WORKING OUT THE PROFIT ON THE SALE OF THESE PLOTS, THE SUBTRACTION OF THE F IGURE OF THE CLOSING STOCK AS ON 31.03.2010 BY THE AO WAS NOT CORRECT BECAUSE THE CLOSING STOCK INCLUDED EXPENSES INCURRED IN RESPECT OF PLOTS SOLD AS WELL AS THOSE PLOTS WHICH ARE YET TO BE SOLD. AS PER THE MATCHING PRINCIPLE OF ACCOUNTING, FOR ARRIVING A T THE CORRECT PROFIT, THE REVENUES HAVE TO BE MATCHED TO THE EXPENSES I.E. ONLY THOSE EXPENSES ARE TO BE ALLOWED W HICH HAVE BEEN INCURRED TO EARN THO SE REVENUES. THEREFORE, ONLY THOSE E XPENSES WERE REQUIRED TO BE DEDUCTED FROM THE RECEIPTS WHICH PERTAINED TO PLOTS WHICH HAD BEEN SOLD TILL THE YEAR UNDER CONSIDERATION. TO WORK OUT THESE FIGURES, THE APPELLANT WAS ASKED TO FILE DETAILS OF YEAR - WISE EXPENSES INCURRED AS WELL AS YEAR - WISE RECEIPTS OF AMOUNTS IN RESPECT OF VARIOUS PLOTS. THE APPELLANT FURNISHED THE FOLLOWING DETAILS: ASSESSMENT YEAR ADVANCES DURING THE YEAR SITE EXPENSES DURING THE YEAR PROFIT DECLARED 2005 - 06 10,50,000 34,83,931 47,250 2006 - 07 12,87,000 11,29,800 1,75,950 2007 - 08 2,53,96,647 1,81,49,117 16,19,844 2008 - 09 2 ,71,31,281 1,17,79,755 23,51,216 2009 - 10 80,00,259 1,02,72,576 46,68,661 2010 - 11 57,72,964 32,18,797 56,92,449 2011 - 12 26,96,644 33,08,353 63,81,156 2012 - 13 6,00,000 18,58,145 76,83,877 2013 - 14 35,71,699 57,37,449 82,08,678 201 4 - 15 12,99,001 33,49,132 88,59,546 EXPECTED 3,27,00,000 3,73,53,618 10,97,05,495 (EXPECTED TOTAL REVENUE) 9,96,40,673 (EXPECTED TOTAL COST) 13. FROM THE ABOVE CHART, IT IS SEEN THAT IN THE LAST ROW, THE APPELLANT HAS ADDED SOME EXPECTED RE CEIPTS AND EXPECTED EXPENSES. NO BASIS HAS BEEN GIVEN BY THE APPELLANT FOR ARRIVING AT THESE ESTIMATED FIGURES OF RECEIPTS AND EXPENSES. THEREFORE, THE PROFITS OF THE APPELLANT TILL THE YEAR UNDER CONSIDERATION ARE BEING ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 5 WORKED OUT AS UNDER AFTER IGNORING THE ESTIMATED FIGURES OF RECEIPTS AND EXPENSES MENTIONED IN THE LAST ROW BY THE APPELLANT. PARTICULARS AMOUNT (RS.) RECEIPTS IN RESPECT OF PLOTS SHOWN BY THE APPELLANT TILL A.Y. 2014 - 15 ON ACTUAL BASIS 7,68,05,495/ - ADD: INCOME ON ACCOUNT OF MAINTENA NCE CHARGES TILL AY 2014 - 15 81,58,362 / - TOTAL RECEIPTS ON ACTUAL BASIS TILL A.Y. 2014 - 15 8,49,63,857/ - ACTUAL RECEIPTS IN RESPECT OF PLOTS SOLD TILL THE A.Y. 2010 - 11 I.E. YEAR UNDER CONSIDERATION 6,86,38,150/ - ADD: CURRENT YEAR'S RECEIPTS OF MAINT ENANCE CHARGES 16,68,860 / - TOTAL RECEIPTS TILL THE YEAR UNDER CONSIDERATION 7,03,07,010/ - RECEIPTS OF THE CURRENT YEAR AS PERCENTAGE OF TOTAL RECEIPTS TILL A.Y. 2014 - 15 (7,03,07,010/8,49,63,857*100) 82.75% CLOSING STOCK OF WORK - IN - PROGRESS SHOWN BY THE APPELLANT IN THE A. Y. 20 14 - 15 6,72,00,000 / - ADD: PURCHASE PRICE OF LAND 6,79,781 / - ADD: DEVELOPMENT CHARGES OF THE LAND 32,66,820 / - TOTAL EXPENSES INCURRED TILL AY 2014 - 15 7,22,46,601/ - 82.75% OF THE ABOVE 5,88,73,812 / - 14. THEREFORE , THIS IS THE AMOUNT OF EXPENSES WHICH ARE RELATABLE TO THE SALE OF THE PLOTS BECAUSE THE RECEIPTS IN RESPECT OF SALE OF PLOTS ARE 82.75% OF THE TOTAL ACTUAL RECEIPTS TILL A.Y. 2014 - 15. THEREFORE, THE PROFIT OF THE APPELLANT TILL THE YEAR UNDER CONSIDERATI ON = RS.1,14,33,197 [I.E. RS.7,03,07,010 - RS.5,88,73,812 / - ]. AS THE APPELLANT HAS ALREADY DECLARED INCOME AMOUNTING TO RS.56,92,4497 - IN VARIOUS YEARS TILL THE YEAR UNDER CONSIDERATION, THIS AMOUNT IS REDUCED FROM THE PROFITS WORKED OUT AS ABOVE, WHICH ME ANS THE PROFITS OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION, EXCLUDING THE INCOME ALREADY OFFERED FOR TAXATION ARE RS.57,40,748 / - (I.E. RS. 1,14,33,197 / - - RS. 56,92,449/ - ) THIS AMOUNT IS THEREFORE, ADDED TO THE DECLARED INCOME OF THE APPELLANT AT RS . 1 3,37,940 / - . THE TAXABLE INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION IS THEREFORE, DETERMINED AT RS.70,78,688/ - . ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 6 5. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULLY GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT DURING THE COURSE OF APPELLATE PROCEEDINGS, ASSESSEE WAS ASKED BY CIT(A) TO FILE DETAILS OF YEAR - WISE EXPENDITURE INCURRED AS WELL AS YEAR WISE RECEIPT OF AMOUNT IN RESPECT OF VARIOUS PLOTS . T HE ASSESSEE HAS FURNISHED DETAILS WHICH ARE REPRODUCED BY CIT(A) AT PAGE 6. ON THE BASIS OF THESE DETAILS, THE CIT(A) REACHED TO THE CONCLUSION AND DELETED THE ADDITION PARTLY UNDER RULE 46A . T HE CIT(A) IS REQUIRED TO CALL FOR A REMAND REPORT IF A NY ADDITIONAL EVIDENCE IS BEING CALLED FOR DURING THE COURSE OF APPELLATE PROCEEDINGS AND SUBMITTED BY THE ASSESSEE. THE AO SHOULD BE GIVEN AN OPPORTUNITY TO COMMENT ON THOSE FACTS AND FIGURES AND REMAND REPORT IS REQUIRED TO BE CALLED FROM AO. AS THE CIT( A) HAS NOT CALLED FOR THE REMAND REPORT NOR GIVEN ANY OPPORTUNITY TO AO TO COMMENT ON THE DOCUMENTS FILED BEFORE HIM, WE SET ASIDE THE ORDER OF CIT(A) AND RESTRICT THE MATTER TO THE AO FOR DECIDING THE SAME AFRESH AFTER CONSIDERING THE DETAILS FILED BY ASS ESSEE BEFORE THE CIT(A). 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 29 / 11 /2017 SD/ - ( RAVISH SOOD ) SD/ - ( R.C.SHARMA ) JUDICI AL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 29 / 11 /201 7 KARUNA SR. PS ITA NO. 5060/MUM/2015 SHRI CHANDRASHEKHAR D. LOTLIKAR 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//