Ambience Properties Limited, Secunderabad V. DCIT, Central Circle-2, Hyderabad

ITA 542/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59186 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: RAJIV DAVE
• Keywords: Revision of order; Opportunity of being heard; Set aside
• Section: 143(3); 142(1); 153A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM AND SMT. ASHA VIJAYARAGHAVAN, JM ITA NO.542/HYD/2011 ASSESSMENT YEAR 2005-06 M/S AMBIENCE PROPERTIES LIMITED, HYDERABAD. ( PAN AABCA 7248N) VS THE DCI T, CENTRAL CIRCLE 2, HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI RAJIV DAVE RESPONDENT BY : SMT. K. MYTHILI RANI DATE OF HEARING :14.12.2011 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INC OME- TAX(CENTRAL) , HYDERABAD DATED 11.3.2011 AND PERTAI NS TO THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM M/S AMBIENCE PROPERTIES PVT. LTD. HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 16.1.2009 ADMITT ING TOTAL INCOME OF RS.84,92,257/-. THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND HOUSING CONSTRUCTION. 3. THE COMMISSIONER OF INCOME-TAX BY THE IMPUGNED ORDER PASSED UNDER S.263 OF THE INCOME TAX ACT, 1961 HAS NOTED THAT THE ASSESSEE HAD SHOWN TURNOVER OF ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 2 RS.16,42,67,889/- AS INCOME AND COST OF THE PROJECT WAS DEBITED AT RS.14,62,21,250/- DURING THE FINANCIAL Y EAR RELEVANT TO THE ASSESSMENT YEAR 2005-06. THIS REVE NUE WAS FETCHED THROUGH 5 PROJECTS VIZ., CANTOR FORT. ANTHE M, R.H. CANTON AND OTHER PROJECTS. ACCORDING TO THE INFORM ATION, THE COMMISSIONER NOTED, THE REALISATION OF REVENUE AND INCURRING OF RELEVANT EXPENDITURE, PROJECT-WISE, WA S AS FOLLOWS: S.NO. NAME OF THE PROJECT INCOME (RS.) EXPENDITURE (RS.) 1 CANTON 91,76,000 83,23,169 2 FORT 5,24,06,306 4,74,96,876 3 ANTHEM 6,08,36,996 5,43,06,616 4 RH CANTON 4,18,47,987 5,53,67,012 5 OTHER PROJECTS - 7,23,607 TOTAL 16,42,67,889 1 4,62,26,280 3.1 THE COMMISSIONER NOTED THAT AS PER THE INFORMATION/STATISTICS GIVEN IN RESPECT OF ANTHEM PROJECT, THE TOTAL PROPOSED COST OF THE PROJECT WAS RS.26,33 ,31,037/- AND REVENUE WAS RS.29,57,21,996/-. THE COST AND SA LES OF THE PROJECT IS ACCOUNTED FOR ON PERCENTAGE COMPLETI ON METHOD FROM THE ASSESSMENT YEAR 2002-03 TO CURRENT ASSESSMENT YEAR 2005-06. FROM THIS PROJECT, THE EXPENDITURE INCURRED ON THE PROJECT TILL THE END OF 31.3.2005 WAS SHOWN AS RS.13,17,29,906/- WHICH WORKED OUT TO 50.02% OF THE TOTAL COST OF THE PROJECT. SIMILARLY , THE ACTUAL SALES UPTO 31.3.2005 SHOWN WAS RS.18,44,13,796/-, W HICH WORKED OUT TO 62.36% OF TOTAL REVENUE. ACCORDING TO AS7, THE SALES/COST SHOULD BE REFLECTED I.E. CREDITED/DE BITED TO P&L ACCOUNT ACCORDING TO ITS PERCENTAGE AS WORKED A BOVE ON THE ACTUAL REVENUE REALISED AND EXPENDITURE INCURRE D ON ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 3 REPORTING DATE I.E. 31.3.2005 AND THESE AMOUNTS SHO ULD BE APPORTIONED FOR RELEVANT ASSESSMENT YEARS. 3.2 IN VIEW OF THE ABOVE, THE COST OF THE PROJECT BASED ON THE PERCENTAGE SHOWN ABOVE WORKED OUT TO RS.6,58,91,299/- AS AGAINST WHICH THE ASSESSEE BOOK ED AS RS.8,21,47,464/- TOWARDS COST OF PROJECT. THIS RES ULTED IN EXCESS CLAIM OF EXPENDITURE OF RS.1,62,56,166/- WHI CH, ACCORDING TO THE COMMISSIONER, NEEDS DISALLOWANCE AS WORKED OUT IN THE FOLLOWING TABULATION. 2003 - 04 FY 2004-05 AY 2004 - 05 FY 2005-06 AY TOTAL SHOWN BY A IN PROFIT AND LOSS ACCOUNT 2,78,40,849 5,43,06,615 8,21,47,464 TO BE SHOWN BY ASSESSEE 2,78,40,849 3,80,50,450 6,58,91,299 DIFFERENCE/EXC ESS EXPENDITURE NIL 1,62,56,165 1,62,56,165 3.3. THE ASSESSEE SUBMITTED THAT THE COMPANY HAS RECOGNISED REVENUE AS PER REVISED GUIDELINES ISSUED BY THE I.C.A.I. AS AS-7 WHICH WAS APPLICABLE TO CONTRACTOR S WAS NOT APPLICABLE TO THE REAL ESTATE BUILDERS AND DEVELOPE RS. THE ASSESSEE THEREFORE, SUBMITTED THAT THERE IS A DIFFE RENCE BETWEEN REAL ESTATE DEVELOPERS AND CONTRACTORS AND FURTHER SUBMITTED THAT ICAI GUIDELINES FOLLOWED BY THE ASSE SSEE REVENUE IS RECOGNISED ONLY WHEN THE ASSESSEE ACHIEV ES A THRESHOLD LIMIT BOOKING SALES TO THE EXTENT OF 50% OF UNIT TO BE SOLD AND ALSO INCURRED EXPENDITURE TO THE EXTENT OF 30% OF TOTAL EXPENDITURE TO BE INCURRED. THE COMMISSIONER OF INCOME-TAX WAS OF THE VIEW THAT THE ASSESSEE HAS AD OPTED DIFFERENT THRESHOLD LIMIT OF INCOME AND EXPENDITURE AND DID ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 4 NOT ACCEPT THE OBJECTIONS OF THE ASSESSEE IN APPLYI NG AS7 GUIDELINES OF THE INSTITUTE. THE COMMISSIONER OF I NCOME-TAX ULTIMATELY, HELD AS FOLLOWS: IT IS CLEAR THAT THE ORDER PASSED FOR THE ASSESSME NT YEAR 2005-06 U/S 143(3) RWS 153A ON 31.12.2009 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE, JUSTIFYING THE REVISION OF ORDER U/S 263 OF THE IT ACT THOUGH THE ASSESSING OFFICER MADE ATTEMPT TO EXAMIN E THE ISSUE WHILE COMPLETING THE ASSESSMENT FAILED TO DISALLOW THE EXCESS EXPENDITURE OF RS.1,62,56,165/- AND BRING TO TAXATION. ACCORDINGLY, HE SET ASIDE T HE ORDER U/S 263 OF THE IT ACT, WITH A DIRECTION TO CO MPLETE THE ASSESSMENT BY DISALLOWING EXPENDITURE OF RS.1,62,56,165/- CLAIMED BY THE ASSESSEE COMPANY. BEFORE PASSING THE REVISED ORDER, THE ASSESSING OFF ICER IS DIRECTED TO ALLOW AN OPPORTUNITY OF BEING HEARD OF THE ASSESSEE COMPANY. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US A ND SUBMITTED THE FOLLOWING POINTS: 1. THE ASSESSEE COMPANY IS NOT A CONTRACTOR BUT REAL ESTATE BUILDER/DEVELOPER. 2. THE REVISED ACCOUNTING STANDARD 7(AS-7) WAS NOT APPLICABLE TO THE BUILDERS AND THE INSTITUTE CAME U P WITH A GUIDANCE NOTE ON RECOGNITION OF THE REVENUE BY THE REAL ESTATE DEVELOPERS WHICH HAS BEEN FOLLOWED BY THE ASSESSEE. 3. ONCE THE COMPANY ACHIEVE ITS THRESHOLD LIMIT IT RECOGNISES ITS REVENUE FOR THE SALES MADE ON THE BA SIS OF COST INCURRED AS A PERCENTAGE OF THE TOTAL COST INCURRED FOR THE PROJECT. 4. FOR THE ANTHEM PROJECT OF THE COMPANY WHICH HAS BEE N REFERRED BY THE HONBLE COMMISSIONER, THE COMPANY HAS ESTIMATED THE TOTAL PROJECT COST AT RS.26,33,31,037/-. THE ESTIMATED TOTAL PROJECT ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 5 REVENUE WAS RS.29,57,21,996/- THEREBY THE PROJECT PROFIT WAS ESTIMATED AT RS.3,23,90,956. THUS, THE PROJECT COST AS A PERCENTAGE OF THE PROJECT REVENUE WORKS OUT TO 89%. AS ON 31.3.2005, THE COMPANY HAS BOOKED SALES OF RS.18,44,13,796/- WHICH WAS 62.36% OF THE TOTAL ESTIMATED SALES OF THE PROJECT. THE C OST INCURRED FOR THE ENTIRE PROJECT WAS RS.13,17,29,906 /- THUS, THE COMPANY INCURRED 50.02% OF THE TOTAL PROJ ECT COST. ACCORDINGLY, APPLYING OUT ACCOUNTING POLICY, THE REVENUE RECOGNISED WAS ARRIVED AT 50.02% OF THE ACT UAL SALES BOOKED WHICH WORKS OUT TO RS.9,22,51,990/-. APPLYING MATCHING PRINCIPLES, THE COST TO BE CHARGE D AGAINST THIS REVENUE OF RS.9,22,51,990/- WOULD BE ABOUT 89% OF THE REVENUE RECOGNISED. IN OTHER WORD S, THE COST CHARGED TO PROFIT AND LOSS ACCOUNT WILL BE RS.8,21,47,464/- THUS, THE TOTAL REVENUE TO BE RECOGNISED AS ON 31.3.2005 IS RS. 9,22,51,990/- AND THE COST TO BE CHARGED FOR MATCHING THIS REVENUE IS RS.8,21,47,464/-. AGAINST THIS, WHATEVER REVENUE W E HAD RECOGNISED IN THE ASSESSMENT YEAR 2004-05 HAS T O BE REDUCED. SIMILARLY, THE COST CHARGED TO THE PRO FIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR 2004-05 ALS O HAS TO BE REDUCED. THE REVENUE RECOGNISED IN THE PROFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR 2003 - 05 WAS RS.3,14,14,993/- AND THE COST CHARGED WAS RS.2,78,40,850/-. THUS, THE REVENUE RECOGNISED IN THE PROFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR 2005 - 06 WAS RS.6,08,36,996/- AND THE COST CHARGED TO PRO FIT AND LOSS ACCOUNT WAS RS.5,43,06,614/- GIVING US A PROFIT OF RS.65,30,378/-. THE WORKING FOR THE ANTH EM PROJECT FOR THE RELEVANT YEAR WAS ALSO SUBMITTED BY THE ASSESSEE. 5. LEARNED COUNSEL FOR THE ASSESSEE, SHRI RAJIV DA VE, ALSO SUBMITTED THAT THERE IS NO INCONSISTENCY IN THE REC OGNITION OF REVENUE BY THE COMPANY FOR THE RELEVANT ASSESSMENT YEAR 2005-06 WHICH WAS ALSO IN AGREEMENT WITH THE METHOD RECOGNISING REVENUE IN EARLIER FINANCIAL YEAR 2003- 04 RELEVANT TO ASSESSMENT YEAR 2004-05 ON THE SAME PROJECT. IN THE ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 6 SUBSEQUENT ASSESSMENT YEARS ALSO THE ASSESSEE HAS F OLLOWED THE SAME ACCOUNTING POLICY AND BASIS FOR ARRIVING A T THE PROFITS OF THE ANTHEM PROJECT. IT WAS ALSO SUBMITT ED THAT THE ACCOUNTING POLICY IS BEING CONSISTENTLY FOLLOWED BY THE COMPANY AND ALSO, ALL THE OTHER GROUP OF COMPANIES OF AMBIENCE PROPERTY PVT. LTD. AND THERE WAS NEVER ANY OBJECTION DURING ANY OF THE ASSESSMENT YEARS MADE I N THE EARLIER YEARS IN OTHER GROUP OF COMPANIES. IT WAS FURTHER SUBMITTED THAT THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE SHOULD NOT BE DISTURBED UNLESS THERE IS AN INFERENCE OF UNDER STATEMENT OF INCOME WITH RESPECT TO BOOKS OF ACCOUNT. THE LEARNED COUNSEL SHRI RAJIV DAVE RELIE D ON THE DECISION IN THE CASE OF CIT VS. INDO NIPPON CHEMICA LS CO. LTD. (261 ITR 275) (SC). HE ALSO RELIED ON THE DE CISION IN THE CASE OF APOLLO TYRES LTD.(255 ITR 273) (SC) AND SUB MITTED THAT THE ACCOUNTS HAVE BEEN PREPARED UNDER THE ACCO UNTING STANDARDS AND HAVE BEEN ADOPTED BY THE EXTERNAL AUD ITORS, WHO HAVE NOT BEEN MADE ANY ADVERSE REMARK ON THE PR OFIT ARRIVED AT BY THE COMPANY AS PER ITS ACCOUNTING POL ICY. THEN IN SUCH A CASE THE AUDITED BOOK PROFITS AS CERTIFIE D BY THE STATUTORY AUDITORS AND ADOPTED BY THE GENERAL MEETI NG SHOULD BE ACCEPTED BY THE IT DEPARTMENT. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI D.D.GOYAL, ON THE OTHER HAND, RELIED ON THE ORDER O F THE COMMISSIONER OF INCOME-TAX. 7. WE HAVE HEARD BOTH THE PARTIES. WE ARE OF THE OPINION THAT THE COMMISSIONER OF INCOME-TAX ERRED I N PASSING AN ORDER U/S 263 AND HE OUGHT TO HAVE NOTED THAT THE COMPANY IS FOLLOWING THE ACCOUNTING POLICIES WH ICH ARE IN ACCORDANCE WITH THE ACCOUNTING GUIDELINES PRESCRIBE D BY THE ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 7 INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) AND THE SAME HAVE BEEN CONSISTENTLY FOLLOWED BY THE COMPANY AND EVEN ACCEPTED BY THE IT DEPARTMENT DURING THE RELEV ANT ASSESSMENT YEAR AS WELL AS PREVIOUS AND SUBSEQUENT ASSESSMENT YEARS. WE ARE FORTIFIED IN THIS BEHALF BY THE THIRD MEMBER OF THE DECISION IN THE CASE OF ACIT VS . MAGNUM INTERNATIONAL TRADING CO. LTD. (84 ITD 113) (DEL.) (TM) AND THE MUMBAI BENCH DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. OTIS ELEVATOR CO. (I) LTD. (99 IT D 73). IN THIS VIEW OF THE MATTER, WE FIND NO JUSTIFICATION F OR THE COMMISSIONER TO INVOKE THE PROVISIONS OF SECTION 26 3 OF THE IT ACT 1961, AND SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WITH SECTI ON 153A. 8. FURTHER, IN THIS CASE, THE ASSESSING OFFICER HA S ALREADY EXAMINED IN DETAIL THE METHOD OF ACCOUNTING FOLLOWE D BY THE ASSESSEE AND HAS NOT MADE ANY ADVERSE OBSERVATIONS AND CONSEQUENTLY, NO ADDITIONS WERE MADE IN THE ASSESSM ENT ORDER ON THIS COUNT. 9. IN THE CASE OF CIT VS. ARVIND JEWELLER, 259 I TR 502 (GUJ.), THE COURT HELD THAT THE ASSESSEE HAD PR ODUCED RELEVANT MATERIAL AND OFFERED EXPLANATIONS IN PURSU ANCE OF THE NOTICES ISSUED U/S 142(1) AS WELL AS U/S 143(2) OF THE ACT AND AFTER CONSIDERING THE MATERIALS AND EXPLANATION S, THE ITO HAD COME TO A DEFINITE CONCLUSION, AND MERELY B ECAUSE THE ITO HAD TAKEN A PARTICULAR VIEW WITH WHICH THE COMMISSIONER DID NOT AGREE, IT CANNOT FORM THE BASI S FOR AN ACTION U/S 263 OF THE ACT AND AS SUCH ORDER OF REVI SION WAS NOT JUSTIFIED. THE GUJARAT HIGH COURT, IN THA T CASE, APPLIED THE PRINCIPLES LAID DOWN BY THE SUPREME COU RT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., AND DECIDED TH E CASE IN ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 8 FAVOUR OF THE ASSESSEE. IN THIS CASE ALSO, A NOT ICE U/S 153A DATED 18.12.2008 WAS ISSUED TO THE ASSESSEE COMPANY FOR THE ASSESSMENT YEARS 2002-03 TO 2007-08. IN RESPON SE TO THE TO THE NOTICE THE ASSESSEE COMPANY HAD FILED IT S RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 DATED 16.1.2 009 BY ADMITTING TOTAL INCOME OF RS.84,92,257/-. SUBSEQUE NTLY, NOTICE U/S 143(2) DATED 7.8.2009 AND U/S 142(1) DAT ED 9.10.2009 WAS ISSUED TO THE ASSESSEE COMPANY WHERE CERTAIN INFORMATION WERE CALLED FOR THE PURPOSE OF ASSESSME NT. THE LEARNED COUNSEL FOR THE ASSESSEE APPEARED AND FURNI SHED THE INFORMATION AND THEREAFTER AN ORDER U/S 143(3) WAS PASSED BY THE ASSESSING OFFICER ON 31.12.2009. HENCE FOLL OWING THE RATIO OF THE DECISION OF THE HONBLE GUJARAT HIGH C OURT(SUPRA) THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME-TA X PASSED U/S 263 OF THE IT ACT CANNOT BE UPHELD. 10. IN THE LIGHT OF THE ABOVE DISCUSSION, WE CANCE L THE ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDER S.263 OF THE ACT, ALLOWING THE GROUNDS OF THE ASSES SEE IN THIS APPEAL. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT 3.2.2012 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 3 RD FEBRUARY, 2011 ITA NO.542/HYD/2011 M/S AMBIENCE PROPERTIES LTD., HYDERABAD 9 COPY FORWARDED TO: 1. M/S AMBIENCE PROPERTIES LIMITED, 810 TO 818, SWAPNALOK COMPLEX, 92/93, SD ROAD, SECUNDERABAD- 500003. 2. THE DCIT, CENTRAL CIRCLE, 2, HYDERABAD 3. THE COMMISSIONER OF INCOME-TAX, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/