ITO 13(1)(2), MUMBAI V. EVEREST ASSOCIATES, MUMBAI

ITA 534/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49341 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 14-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND T.R.SOOD(A.M ) ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER WD-13(1)(2), ROOM NO.419, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S EVEREST ASSOCIATES, 3 RD FLOOR, NATWAR HOUSE, 42, ABDUL REHMAN STREET, MUMBAI-400003. PAN: AABFE1065G APPELLANT V/S RESPONDENT APPELLANT BY : SHRI T.T. JACOB RESPONDENT BY : SHRI PRAMOD KUMAR PARIDA O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23.11.2009 PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE- FIRM IS ENGAGED IN THE BUSINESS AS DEVELOPER AND BU ILDER, FILED RETURN DECLARING A TOTAL INCOME AT RS. NIL. D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF WORK-IN-PROGRESS (WIP) ALONGWITH A COPY OF ARCHITECTS CERTIFICATE REGARDING THE ST ATUS OF THE PROJECT WITH PERCENTAGE OF COMPLETION AS ON 31.3.20 06. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO OBSERVED THAT IT IS ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 2 2 CLEAR THAT THE SUBSTANTIAL PART OF THE CONSTRUCTI ON WAS COMPLETED AS ON 31.3.2006. HENCE, THE ASSESSEE WA S ASKED TO FURNISH THE EXPLANATION AS TO WHY THE INCO ME SHOULD NOT BE ASSESSED BY APPLYING PERCENTAGE COMPLETION METHOD. IN RESPONSE, IT WAS INTERALIA SUBMITTED BY THE ASS ESSEE THAT THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION ME THOD RECOGNISED AS ACCOUNTING STANDARD-9, THEREFORE, THE PROFIT IS NOT ASSESSABLE IN THE YEAR UNDER CONSIDERATION. HO WEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. HE WAS OF THE VIEW THAT SINCE 60% OF THE TOTAL WORK HAS B EEN COMPLETED AS ON 31.3.2006, THE AO ESTIMATED THE G ROSS PROFIT OF THE ASSESSEE AT 10% OF THE VALUE OF WI P, WHICH HE WORKED OUT AT RS.37,47,030/- (3,74,70,308 X 10%) AN D AFTER ALLOWING DEDUCTION OF INDIRECT EXPENSES OF RS.5,61 ,290/-, THE AO DETERMINED THE NET INCOME FROM THE BUSINESS OF T HE ASSESSEE AT RS.31,85,740/- AND THEREBY COMPLETED THE ASSESSMENT ON THE SAME INCOME VIDE ORDER DATED 31.12.2008 PASSED UNDER SECTION 143(3) OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT). ON APPEAL, THE LEARN ED COMMISSIONER OF INCOME TAX (A), FOLLOWING THE APPEL LATE ORDER FOR THE ASSESSMENT YEAR 2005-06, WHEREIN IT H AS BEEN HELD THAT THE AO WAS NOT JUSTIFIED IN REJECTING TH E APPELLANTS ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 3 3 METHOD OF ACCOUNTING OF PROJECT COMPLETION METHOD, DELETED THE ADDITION MADE BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE REVENUE IS IN A PPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL: (1). (I) THE LD. CIT(A), ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN DELETING THE ADDITION MADE BY AO REJECTING THE PROJECT COMPLETION FOLLOWED BY THE ASSESSEE. (II) THE LD. CIT(A), ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN NOT APPRECIATING THE FACT THAT THE AO HAS FOLLOWED YEAR TO YEAR PERCENTAGE /PROGRESSIVE COMPLETION METHOD AS PER ACCOUNTING STANDARD AS-7 FOR COMPUTING THE INCOME. (2). THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSMENT ORDER BE RESTORED 4. AT THE TIME OF HEARING, THE LEARNED D.R. SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER, T HE LEARNED COMMISSIONER OF INCOME TAX (A) WAS NOT JUST IFIED IN DELETING THE ADDITION MADE BY THE AO AND THEREFORE , THE ADDITION MADE BY THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE IS FOLLOWING PR OJECT ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 4 4 COMPLETION METHOD SINCE THE ASSESSMENT YEAR 2004-0 5, THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX ( A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY T HE AO FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YE AR 2005- 06. HE FURTHER SUBMITS THAT THE AO IN THE ASSESSM ENT YEAR 2004-05 HAS ALSO ACCEPTED THAT THE ASSESSEE IS FOL LOWING PROJECT COMPLETION METHOD AND IN SUPPORT HE PLACE D ON RECORD THE COPY OF THE ASSESSMENT ORDER DATED 12.1 2.2006 FOR THE ASSESSMENT YEAR 2004-05. HE FURTHER SUBMIT S THAT IN THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAS COMP LETED MOST OF THE PROJECTS AND OFFERED INCOME ON THE BASI S OF TOTAL WORK COMPLETED AND THE SAME WAS ACCEPTED AND ASSESS ED BY THE AO VIDE ASSESSMENT ORDER DATED 22.12.2010 FOR THE ASSESSMENT YEAR 2008-09. HE, THEREFORE, SUBMITS T HAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) IN DELETING THE ADDITION MADE BY THE AO BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD. IN THE ASSESS MENT YEAR 2004-05, THE AO HAS ACCEPTED THE PROJECT COMPLETIO N METHOD ADOPTED BY THE ASSESSEE AND ASSESSED THE INC OME AT ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 5 5 RS. NIL AFTER DETERMINING THE WIP AS ON 31.3.2004 A T RS.91,33,092/- ALLOWED TO BE CARRIED FORWARD AS OP ENING WIP FOR THE NEXT ASSESSMENT YEAR. IN THE ASSESSMEN T YEAR 2005-06, THE AO REJECTED THE APPELLANTS ACCOUNTIN G OF FOLLOWING PROJECT COMPLETION METHOD AND ESTIMATED T HE PROFIT AT 10% OF THE ADVANCES RECEIVED ON FLAT BOOKING AN D THEREBY WORKED OUT THE NET PROFIT AT RS.3,83,865/- AFTER ALLOWING INDIRECT EXPENSES OF RS.2,78,135/- OUT OF RS.6,62, 000/- BEING 10% OF THE ADVANCES RECEIVED OF RS.66,62,000 /-. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(A) WHILE OBSERVING THAT THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE PROJECT COMPLETION METHOD DELETED THE ADDITION MADE BY THE AO VIDE ORDER DATED 5.6.2009. IN THE YEAR UNDER A PPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) FOLLOWING TH E SAID APPELLATE ORDER FOR ASSTT. YEAR 2005-06 AGAIN DELET ED THE ADDITION MADE BY THE AO. SINCE THERE IS NO DISPUT E THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING PROJECT COMPLETI ON METHOD WHICH IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTI NG AND KEEPING IN VIEW THAT NO FAULT HAS BEEN POINTED OUT BY THE AO IN THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED B Y THE ASSESSEE, WE ARE OF THE VIEW THAT THE AO WAS NOT JU STIFIED IN REJECTING THE BOOKS OF ACCOUNTS MAINTAINED BY THE A SSESSEE AND IN ESTIMATING THE INCOME AT RS.31,85,740/- AND THE ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 6 6 LEARNED COMMISSIONER OF INCOME TAX (A) WAS FULLY JU STIFIED IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 7. IN THE RESULT, THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH JUNE, 2011. SD/- SD/- (T.R.SOOD) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 24TH JUNE, 2011. SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER ASSTT.REGISTRAR,ITAT,MUMBAI. ITA NO.534/MUM/2010 (ASSESSMENT YEAR: 2006-07) 7 7 DATE INITIALS 1. DRAFT DICTATED ON 14.6.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 15.6.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5. APPROVED DRAFT COMES TO THE SR. PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER