VINAYAK SAI DEVELOPERS, MUMBAI V. ITO 22(1)-4, NAVI MUMBAI

ITA 5413/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1287 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 29-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA JHA
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) VINAYAK SAI DEVELOPERS F1/103, VIKRAM APARTMENTS, NEW MANIKLALESTATE, GHATKOPAR MUMBAI-400086 PAN:AAFFV6894C APPELLANT VS INCOME TAX OFFICER WARD 22(1)(4), VASHI RAILWAY STN. VASHI NAVI MUMBAI .. RESPONDENT APPELLANT BY : SHRI KIRIT SANGHVI RESPONDENT BY : SHRI VIRENDRA JHA . O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28-07-2009 OF CIT(A)-XXII, MUMBAI FO R THE ASSESSMENT YEAR 2006-7. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL, HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONS IDERATION AND ADJUDICATION, WHETHER THE CIT(A) IS JUSTIFIED I N CONFIRMING THE ACTION OF THE AO OF REJECTING THE PROJECT COMP LETION ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 2 METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND MA KING THE ESTIMATION OF PROFIT AT THE RATE OF 5% OF THE GROSS RECEIPT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTR UCTIONS OF SHOPS AND FLATS AND DEVELOPERS. THE ASSESSEE FIRM FOLLOWED THE PROJECT COMPLETION METHOD OF ACCOUNTIN G. DURING THE FINANCIAL YEAR 2005-06 RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD STARTED T O CONSTRUCT BUILDING CALLED AS SWARAJYA BHAVAN CO- OPERATIVE HOUSING LTD. AT PAREL. THE ASSESSEE ENTERED INTO AN TRIPARTITE AGREEMENT DATED 02.05.2 005 BETWEEN MUNICIPAL CORPORATION OF GREATER MUMBAI, T HE FIRST PART AND SWARAJYA BHAVAN CO-OPERATIVE HOUSING LTD, THE SECOND PART AND VINAYAK SAI DEVELOPERS, (T HE ASSESSEE), THE THIRD PART WHEREBY MCGB ALLOWED AND PERMITTED THE SAID SOCIETY TO RE-DEVELOP THE LAND T HROUGH DEVELOPERS TO CONSTRUCT THE NEW BUILDING. APART F ROM THE TRIPARTITE AGREEMENT, THE MEMBERS OF THE SOCIETY HAVE ALSO ENTERED INTO A SEPARATE DEVELOPMENT AGREEMENT DATE D 02.01.2005 IN FAVOUR OF THE DEVELOPER. THE ASSESSEE CONSTRUCTED 35 FLATS AND 3 SHOPS. THE AO FOUND TH AT THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING NIL INCOME AND HAS NO T OFFERED ANY PROFIT ON THE GROUND THAT UNLESS AND UN TIL ALL THE ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 3 FLATS ARE SOLD AND THE BUILDING IS CONVEYED TO CO -OP SOCIETY TO BE FORMED BY ALL THE PURCHASER OF FLATS AND OTHE R SOCIETY MEMBERS. THE AO NOTICED THAT THE ASSESSEE HAS SOL D 21 FLATS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER CONSIDERATION AND RECEIVED ADVANCES OF RS.2,49,52,320/-. ACCORDINGLY, THE AO WAS OF THE V IEW THAT THE ASSESSEE HAS SOLD MORE THAN 90% OF THE FLATS AN D RECEIVED ADVANCES THEN WHY THE PROFIT SHOULD NOT B E CALCULATED ON THE BASIS OF ADVANCES RECEIVED BY THE ASSESSEE ON THESE FLATS. THE ASSESSEE OBJECTED T O THE SAID COMPUTATION OF INCOME ON THE BASIS OF THE ADVANCES RECEIVED, HOWEVER, THE ASSESSEE AGREED FOR REMISSIO N OF NET PROFIT AT THE RATE OF 3% OF THE ADVANCES RECEIVED FROM THE BUYERS. 4. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 5. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS FILED THIS APPEAL. 6. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THA T THE PROJECTION COMPLETION METHOD IS ONE OF THE RECOGNIZ ED ACCOUNTING METHOD AND THE REVENUE HAS NO POWER TO I NTERFERE WITH THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE. THE ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 4 LEARNED AR OF THE ASSESSEE FURTHER CONTENDED THAT T HE ASSESSEE DID NOT SELL ANY FLAT BECAUSE THE PROJECT WAS NOT COMPLETED AND CONSTRUCTION WORK WAS IN PROGRESS. T HE ADVANCES RECEIVED BY THE ASSESSEE IS ONLY TOWARDS B OOKING OF THE FLATS. HE HAS FURTHER CONTENDED THAT THE AS SESSEE HAS SHOWN THE WORK-IN-PROGRESS AT THE END OF THE PREVIO US YEAR ENDED ON 31.3.2006 AT RS.1,70,60,052/- AND IN THE SUBSEQUENT YEAR THE TOTAL SALE PROCEEDS WAS RS.3,42,46,733/-. THUS, THE ASSESSEE HAS OFFERED THE INCOME ON THE ENTIRE PROJECT IN THE SUBSEQUENT ASSE SSMENT YEAR I.E. 2007-08 WHICH WAS ACCEPTED BY THE AO VID E HIS ASSESSMENT ORDER DATED 18.11.2009. HE HAS POINTED OUT THAT THE ASSESSEE HAS OFFERED NET PROFIT AT THE RA TE OF 10.12% OF THE SALE PROCEEDS IN THE ASSESSMENT YEAR 2007- 08. THEREFORE, THERE IS NO JUSTIFICATION IN ESTIMA TING THE INCOME BY THE LOWER AUTHORITIES ON THE BASIS OF GRO SS RECEIPT. HE HAS FILED THE COPIES OF STATEMENT OF COMPUTATION OF TOTAL INCOME AS WELL AS THE ASSESSMENT ORDER FOR THE ASSE SSMENT YEAR 2007-08. HE HAS ALSO FILED PROFIT AND LOSS ACC OUNT FOR THE YEAR ENDED ON 31.3.2006, WHICH IS PLACED BEFORE US AND TAKEN ON RECORD. 7. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAS AGREED FOR ESTIMATION OF PROFIT AT THE RATE OF 3% ON THE B ASIS OF ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 5 ADVANCES RECEIVED, THEREFORE THE ESTIMATION MADE BY THE AO ON THE BASIS OF ADVANCES RECEIVED IS JUSTIFIED. HE HAS FURTHER CONTENDED THAT AFTER THE ASSESSMENT YEAR 2007-08 WH EN THE ASSESSEE HAS OFFERED THE INCOME ON THE ENTIRE PROJE CT, THE DIFFERENCE IS ONLY THE INTEREST ON THE TAX PAYABLE BY THE ASSESSEE. HE HAS RELIED UPON THE ORDERS OF THE LOWE R AUTHORITIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CONSIDER ED THE RELEVANT RECORD. THIS IS THE FIRST YEAR OF THE PROJ ECT UNDERTAKEN BY THE ASSESSEE AND THE DURATION OF THE PROJECT WAS 18 MONTHS. PRIOR TO THIS, THE ASSESSEE HAD NOT UNDERTAKEN ANY PROJECT FOR CONSTRUCTION WORK. WE H AVE GONE THROUGH THE RECORDS AND FIND THAT WHEN THE AO HAS ACCEPTED THE BOOKS OF ACCOUNT AND PROJECT COMPLETION METHOD FOR THE ASSESSMENT YEAR 2007-08 AND ASSESSED THE INCOME ON THE BASIS OF ENTIRE PROJECT RECEIPT, THEN NON-ACCEPTANC E OF THE SAID ACCOUNTING METHOD FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION IS NOT JUSTIFIED. EVEN, OTHERWISE, W HEN THE ASSESSEE HAS OFFERED THE INCOME ON THE COMPLETED PR OJECT FOR THE ASSESSMENT YEAR 2007-08 THEN, IF THE ESTIMA TED NET PROFIT AT THE RATE OF 5% IS ALLOWED FOR THE ASSESS MENT YEAR UNDER CONSIDERATION, WHICH WOULD AMOUNT TO DOUBLE T AXATION ON THE SAME INCOME. THEREFORE, ONCE, BOOKS OF ACCOU NT AND METHOD OF ACCOUNTING ARE ACCEPTED BY THE REVENUE FO R THE ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 6 ASSESSMENT YEAR 2007-08 THEN THERE IS NO JUSTIFIC ATION IN TAXING THE ASSESSEE ON THE BASIS OF PERCENTAGE OF G ROSS RECEIPT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION . ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHOR ITIES BELOW. . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 2 5.06.2010 SD SD (R.S.SYAL) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE 2010 SRL:18610 COPY TO: 1. VINAYAK SAI DEVELOPERS F1/103, VIKRAM APARTMENTS, NEW MANIKLALESTATE, GHATKOPAR MUMBAI-400086 2. INCOME TAX OFFICER WARD 22(1)(4), VASHI RAILWAY STN. VASHI NAVI MUMBAI 3.. CCIT -XII, MUMBAI. 4. CIT(A)-XXII, MUMBAI. 5. CIT CITY -XXII, MUMBAI 5. DR F BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO. 5413/MUM/2009 (ASSESSMENT YEAR 2006-07) 7