ACIT 9(3), MUMBAI V. SMARAN DEVELOPERS P. LTD, MUMBAI

ITA 548/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78834 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 16-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K SAHU

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 548/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) DY. CIT, CIRCLE 9(3), 2 ND FLOOR, ROOM NO. 229, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 / VS. SMARAN DEVELOPERS PVT. LTD. 77, DHARMI NIWAS, RAMKRISHNA MISSION MARG, KHAR (W), MUMBAI-400 052 ' ./# ./PAN/GIR NO. AAGCS 9670 P ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI R. K. SAHU %&'$ ' ( / RESPONDENT BY : SHRI KESHAV B. BHUJLE )* + ' , / DATE OF HEARING : 11.03.2014 -./ ' , / DATE OF PRONOUNCEMENT : 02.05.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-20, MUMBAI (CIT(A) FOR SH ORT) DATED 15.11.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 27.12.2010. 2.1 THE SUBJECT MATTER OF THE DISPUTE IN THE INSTAN T CASE CONCERNS THE CORRECT QUANTUM OF INCOME AT WHICH THE ASSESSEE IS TO BE IN LAW AND THE FACTS OF THE CASE ASSESSED FOR THE RELEVANT YEAR. IT MAY BE RELEVANT TO RECOUNT THE BA CKGROUND FACTS OF THE CASE. THE 2 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. ASSESSEE-COMPANY, IN CONSTRUCTION BUSINESS, WAS SUB JECT TO SURVEY U/S.133A OF THE ACT ON 08.10.2007. THE ASSESSEE WAS DURING THE SAID YEAR E NGAGED IN SRA (SLUM REHABILITATION AUTHORITY) PROJECT BY THE NAME POOJA ENCLAVE, AT VILE PARLE (W), MUMBAI, BESIDES ANOTHER UNDER CONSTRUCTION. AS AT THE DATE OF SURVE Y, WHILE WING A OF THE POOJA ENCLAVE PROJECT STOOD COMPLETED, WING B THEREOF WAS COMPLET E UP TO 80%. THE DIRECTOR OF THE COMPANY (SHRI ISHWAR DIALANI) DECLARED THE ESTIMATE D INCOME ON THE SAID PROJECT AT RS.4.45 CRORES . A PROVISIONAL PROFIT AND LOSS ACCOUNT WAS PREPARE D FOR THE RELEVANT YEAR, I.E., UPTO THE DATE OF SURVEY, AND THE PROFIT WORKE D OUT AT RS.4,14,48,605/- . THE NET PROFIT FINALLY RETURNED BEING AT RS.2,45,44,352/-, THE ASS ESSEE WAS IN THE ASSESSMENT PROCEEDINGS CALLED UPON TO EXPLAIN THE DIFFERENCE OF RS.1,69,04 ,253/- . THE ASSESSEE ATTRIBUTED THE SAME TO SOME FINANCIAL MISCALCULATIONS, WHICH THOUG H IT WAS UNABLE TO SUBSTANTIATE, SO THAT THE INCOME STOOD ASSESSED AT RS.4,24,35,127/-, I.E., BY ADOPTING THE COST AT RS.1,550/- PER SQ. FT. AND RS.1,660/- PER SQ. FT. FOR THE AREA SOLD IN RELATION OF WING A (15856.95 SQ. FT.) AND WING B (1951 SQ. FT.) OF THE SAID PROJECT DURING THE YEAR, ENHANCING THE RETURNED INCOME OF RS.2,47,78,750/- BY RS.176.56 LACS. THE A SSESSEE HAD INFLATED THE OPENING WORK-IN-PROGRESS (WIP), I.E., AS ON 01.4.2007, CLAI MING IT AT RS.824.22 LACS AS AGAINST RS.674.22 LACS, AS CONFIRMED AT THE TIME OF SURVEY, WHEREAT THE BOOKS OF ACCOUNT WERE CONFIRMED AS COMPLETE, EXCEPT PERHAPS FOR ABOUT A W EEK OR SO PRIOR THERETO, AND THE COST OF CONSTRUCTION OF WINGS A & B DETERMINED AT RS.1,5 00/- PER SQ. FT. AND RS.1,600/- PER SQ. FT. RESPECTIVELY. 2.2 THE ASSESSEE CHALLENGED THE ENTIRE ADDITION IN APPEAL. THE LD. CIT(A) CALLED FOR THE REMAND REPORT; THE APPELLANT BEFORE HIM POINTIN G TO SOME ERRORS IN THE WORKING OF THE PROFIT COMPUTED AT THE TIME OF THE SURVEY, AND WHIC H STOOD THUS INCORPORATED IN THE ASSESSMENT ORDER. THE ERRORS WERE ON PRINCIPALLY TH REE COUNTS, VIZ.: A) OPENING WIP FOR THE YEAR, I.E., AS ON 31.03.2007 ; B) TOTAL SALEABLE AREA; AND C) AVERAGE COST OF PRODUCTION. 3 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. THE ASSESSING OFFICER (A.O.), AS CLAIMED BY HIM, HA VING ACCEPTED THE ERRORS INFLICTING THE ASSESSMENT, VIDE HIS REMAND REPORT D ATED 13.09.2011, THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL, HOLDING AS UNDER: 4.3 THE ASSESSING OFFICER HAS SUBMITTED HIS REMAND REPORT DATED 13.09.2011, WHICH HAS BEEN FORWARDED THROUGH ADDL. CIT DATED 19.09.2011. THE THREE ERRORS POINTED OUT BY THE APP ELLANT VIZ., I. OPENING WORK-IN-PROGRESS AS ON 31.03.2007. II. TOTAL SALEABLE AREA III. AVERAGE COST OF CONSTRUCTION THE ABOVE ERRORS HAVE BEEN FAIRLY ACCEPTED BY THE A SSESSING OFFICER IN THE REMAND PROCEEDINGS BY WAY OF SPEAKING ORDER. IN VIE W OF FACTUAL VERIFICATION CARRIED OUT BY THE ASSESSING OFFICER N OW THE APPELLANTS BOTH GROUNDS NEED TO BE ALLOWED AS THE ASSESSMENT ORDER DID SUFFER FROM ERRORS LEADING TO DETERMINING TOTAL INCOME OF RS.4,24,35,1 27/- AS AGAINST RETURNED INCOME OF RS.2,47,78,750/-. THE GROUND OF APPEAL NO S. 2 & 3 ARE ALLOWED. 3. BEFORE US, THE REVENUES CASE WAS THAT EVEN THE ACCEPTANCE OF THE REMAND REPORT, WHICH IS NOT DENIED, DOES NOT RESULT IN A TOTAL ACC EPTANCE OF THE ASSESSEES CLAIMS AND, THEREBY, IN BRINGING DOWN THE INCOME SUBJECT TO TAX TO THAT AS RETURNED BY THE ASSESSEE, I.E., RS.247.79 LACS. TOWARD THIS, THE LD. DEPARTME NTAL REPRESENTATIVE (DR) WOULD CAUSE TO PLACE ON RECORD A COPY OF THE STATEMENT OF PROFI T (UP TO THE DATE OF SURVEY) AT RS. 2,83,75,357/-, I.E., IN TERMS OF THE REMAND REPORT, SO THAT THE INCOME TO BE ASSESSED IS AT LEAST AT THAT SUM. THE ASSESSEE, ON THE OTHER HAND, WOULD INSIST THAT NO ADDITION WHATSOEVER COULD BE MADE AS THE REVENUES CASE, BASED AS IT IS ON THE W ORKING OF THE PROFIT AS AT THE DATE OF SURVEY, IS WITHOUT SUBSTANCE INASMUCH AS IT IS THE OPERATING RESULTS AND, THUS, THE INCOME FOR THE ENTIRE YEAR THAT IS TO BE ASSESSED. THE REV ENUES RELIANCE ON THE FIGURES OBTAINING AS ON THE DATE OF THE SURVEY, I.E., THE MID-YEAR, T HEREFORE, WOULD BE OF NO CONSEQUENCE OR RELEVANCE. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THERE IS NO DISPUTE ON THE PRINCIPLE THAT IT IS ONLY THE INCOME FOR THE ENTIRE YEAR AND NOT THAT FOR A PART OF THE YEAR OR A TRUNCATED PERIOD THEREOF, THAT COULD BE SUBJECT TO 4 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. TAX AS THE INCOME FOR THE RELEVANT ASSESSMENT YEAR, AND WHICH THEREFORE HAS TO BE FOR THE FULL YEAR. AT THIS STAGE, IT WOULD BE RELEVANT TO S TATE THE REVENUES GRIEVANCE AS PROJECTED PER ITS GROUNDS. THE SAME READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, WHETHER THE LD. CIT(A) IS CORRECT IN ALLOWING THE APPEAL OF THE ASSESSEE BY ACCEPTING THE INCOME RETURNED BY IT AT RS.2,47,78,750/- WHERE AS THE RETURNED INCOME AS PER ORDER U/S.143(3) OF I. T. ACT IS RS.2,83,75, 357/- AFTER CONSIDERING THE REVISED FIGURE OF COST OF CONSTRUCTION PER SQ. FT. BASED ON REMAND REPORT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. THE REVENUES FIRST GROUND STATES THAT THE INCOME O F THE ASSESSEE SHOULD BE ASSESSED AT THE AMOUNT OF THE PROFIT/INCOME ADMITTE DLY EARNED UPTO THE DATE OF SURVEY (I.E., 08.10.2007). A MEANINGFUL READING THERETO CA N ONLY BE ASCRIBED BY THE EMPLOYMENT OF THE WORDS AT-LEAST PRIOR TO THE WORDS AT THE AMOUNT, AND FOLLOWING THE WORD ASSESSED IN THE PRECEDING SENTENCE. THIS IS FOR T HE SIMPLE REASON THAT THERE IS NO GAIN- SAYING THAT, AS AFORE-STATED, IT IS ONLY THE INCOME FOR THE ENTIRE YEAR, I.E., FROM 01.04.2007 TO 31.03.2008, WHICH IS TO BE ASSESSED AS INCOME AND BROUGHT TO TAX. IN OTHER WORDS, IT COULD BE NOBODYS CASE AND IS INCONCEIVABLE THAT TH E REVENUE INTENDS TO OR WOULD BE SATISFIED WHERE THE INCOME FOR THE YEAR IS ASSESSED AT THE PROFIT OF COURSE WORKED CORRECTLY, UPON RECTIFYING THE MISTAKE/S THAT HAD I MBUED THE INITIAL WORKING, AND SINCE REMOVED PER THE REMAND REPORT, - UP TO THE SURVEY D ATE IS ONLY BROUGHT TO TAX, IGNORING THAT ARISING FOR THE BALANCE PART OF THE YEAR (I.E. , FROM 08.10.2007 TO 31.03.2007), AND WHICH WOULD IN ANY CASE BE WITHOUT ANY BASIS IN LAW . WE, ACCORDINGLY, REJECT THE ARGUMENT OF THIS REPRESENTING, OR WHOLLY SO, THE RE VENUES CASE, AS SOUGHT TO BE PROJECTED BEFORE US BY THE LD. AUTHORIZED REPRESENTATIVE (AR) DURING HEARING. 4.2 THE ASSESSEE HAVING NOT FURNISHED ANY EXPLANATI ON/S SUBSTANTIATING ITS CLAIMS DURING THE ASSESSMENT PROCEEDINGS, THE A.O. ASSESSE D ITS INCOME AT THE PROFIT AS DETERMINED AND ACCEPTED AT THE TIME OF SURVEY (RS.4 24.35 LACS), BEING ITSELF MUCH HIGHER THAN THAT RETURNED FOR THE ENTIRE YEAR. IN FACT, WE OBSERVE THAT HE DID NOT EVEN TAKE 5 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. COGNIZANCE OF THE DIFFERENCE OF RS. 2.35 LACS (RS. 247.79 LACS RS. 245.44 LACS) IN THE INCOME RETURNED AND THE PROFIT DECLARED ON THE POO JA ENCLAVE PROJECT. THE SAME (I.E., THE INCOME AS ASSESSED) WAS, THUS, ONLY A BEST ESTI MATE OF THE INCOME FOR THE YEAR IN THE ABSENCE OF ANY ASSISTANCE RENDERED OR EVIDENCE/S BE ING LED BY THE ASSESSEE. IT, HOWEVER, DOING SO IN THE APPELLATE PROCEEDINGS, THE ASSESSIN G AUTHORITY, ON THE MATTER BEING REMANDED TO HIM, ACCEPTED THE MISTAKES IN THE WORKI NG OF THE PROFIT AS MADE AT THE TIME OF SURVEY, SINCE ADOPTED FOR THE PURPOSE OF ASSESSM ENT, PER HIS REMAND REPORT, SO THAT THE WORKING OF THE PROFIT UPTO THE DATE OF THE SURVEY W OULD STAND TO BE CORRECTED TO RS.283.75 LACS. NOTHING MORE, AND, NOTHING LESS . THIS IS PRECISELY THE IMPORT OF THE REVENUES FIR ST GROUND, AS EVEN REMOVING THE DEFECTS PER THE REMAND REPORT WOULD RESTORE THE INCOME TO THAT EXTENT, AS AGAINST RS.247.79 LACS RETURNED BY THE ASSESSEE. THAT WOULD, HOWEVER, BY ITSELF HAVE NO BEARING ON THE INCOME, IF ANY, INURI NG TO THE ASSESSEE DURING THE LATTER PART OF THE YEAR, AND WHICH WOULD DEFINITELY WARRANT BEI NG ASSESSED AND SUBJECT TO TAX. THAT IS, THE SAME, POSITIVE OR NEGATIVE, CANNOT BE A MATTER OF PRESUMPTION, AND WHICH EXPLAINS THE REVENUES GROUND NO. 2, WHEREBY IT SEEKS TO RESTORE THE ASSESSMENT TO THE INCOME AS ORIGINALLY ASSESSED, I.E., RS. 424.35 LACS. WHY WOULD, ONE MAY ASK, SHOULD IT SO AGITATE, IF ALL THAT THE REVENUE SEEKS WHICH THOUGH IS WITHOU T ANY BASIS IN LAW, IS THE ASSESSMENT OF INCOME AT RS. 283.75 LACS, I.E., THE PROFIT UP TO T HE DATE OF SURVEY ? THE ASSESSEE HAVING ONLY POINTED OUT THE ERRORS IN THE COMPUTATION OF I NCOME UPTO THE DATE OF SURVEY, WHICH IT ITSELF CLAIMS AS NOT DETERMINATIVE OF ITS INCOME FO R THE YEAR, WHICH ONLY IS TO BE BROUGHT TO TAX, HOW COULD THE INCOME FOR THE ENTIRE YEAR ST AND TO BE ASSESSED AT THE RETURNED INCOME, WITH THAT UPTO THE DATE OF SURVEY, I.E., FO R A PART OF THE YEAR (ABOUT SIX MONTHS), BEING IN EXCESS OF THAT RETURNED FOR THE YEAR. THIS SUMS UP THE REVENUES CASE . THERE IS CONSEQUENTIALLY NO CASE FOR THE DELETION OF THE ENT IRE ADDITION AS MADE IN ASSESSMENT; THERE BEING NO FINDING QUA THE INCOME FOR THE SECOND HALF OF THE YEAR, MORE PA RTICULARLY CONSIDERING THAT THE CONSTRUCTION COST HAD CRYSTALL IZED, AND WHICH WOULD THEREFORE OBTAIN FOR THE SECOND HALF OF THE YEAR AS WELL, DURING WHI CH THERE HAS BEEN ECONOMIC ACTIVITY BY WAY OF SALES. THIS, IN FACT, WOULD BECOME MUCH MORE APPARENT AND STRIKING IN VIEW OF THE GLARING AND VAST UNEXPLAINED DIFFERENCES BETWEEN TH E RESULTS OBTAINING FOR THE TWO PARTS, 6 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. I.E., THE PRE AND POST SURVEY PERIODS OF THE RELEVA NT PREVIOUS YEAR, WHICH WE TABULATE AS UNDER (ON THE BASIS OF THE UNDISPUTED FIGURES ON RE CORD): SR. NO. PARTICULARS/PERIOD P1 P2 TOTAL A) SALES (RS. IN LACS) 701.35 (91.32) 610.03 B) AREA SOLD (SQ. FT.) 17,808 7,769 25,577 - WING A 15,857 4,005 19,862 - WING B 1,951 3,764 5,715 C) RATE PER SQ. FT. 3,938 (1,175) 2,385 D) COST (PER SQ. FT.) 2,345 2,345 2,345 E) PROFIT (PER SQ. FT.) (C D) 1,593 (3,520) 40 F) PROFIT AMOUNT (RS. IN LACS) (B X E) 283.68 (273.47) 10.21 NB: P1=> THE PERIOD 01.04.2007 TO 08.10.2007; P2 => FROM 09.10.2007 TO 31.03.2008; THE FIGURES IN BRACKETS REPRESENT NEGATIVE FIGURES. SEVERAL QUESTIONS ARISE. HOW COULD THE SALES BE AT A NEGATIVE SUM ? THAT APART, HOW AND UNDER WHAT CIRCUMSTANCES, PARTICULARLY CONSIDER ING THAT A SUBSTANTIAL AND SIGNIFICANT PART OF WINGS A AND B OF THE PROJECT RESPECTIVELY S TOOD ALREADY SOLD BY 08.10.2007, WAS THERE AN ABRUPT AND SHARP DECLINE IN THE SALE RATES ? IS IT ACCOMPANIED BY A SIMILAR DEPRESSION IN THE MARKET, COINCIDING (OR, NEARLY SO ) WITH THE SURVEY AT THE ASSESSEES PREMISES? THEN, AGAIN, THE NET PROFIT ON THE PROJEC T WORKS TO RS. 10.21 LACS, SO THAT HOW IS IT THAT THE INCOME STANDS DISCLOSED AT RS. 245.44 L ACS? THE DIFFERENCE WOULD DEFINITELY NEED TO BE EXAMINED FOR ITS GENESIS. CLEARLY, LACK OF APPLICATION BY THE LD. CIT(A) IN THE MATTER IS PATENT AND MANIFEST, NECESSITATING THE RE VENUES GROUND NO. 2, WITH THE A.O. IN THE REMAND PROCEEDINGS BEING CIRCUMSCRIBED AND CONS TRAINED TO ACT WITHIN THE PARAMETERS OF THE REMAND. 5. IN VIEW OF THE FOREGOING; THE MATTER BEING FACTU ALLY INDETERMINATE, WE ONLY CONSIDER IT FIT AND PROPER THAT THE ISSUE OF DETERM INATION OF INCOME FOR THE YEAR IS SET ASIDE TO THE FILE OF THE A.O. FOR BEING DETERMINED AFRESH . SO, HOWEVER, HE SHALL IN DOING SO ADOPT THE FINDINGS PER HIS REMAND REPORT DATED 13.0 9.2011 AND, FURTHER, ADJUDICATE THE INCOME FOR THE YEAR IN ACCORDANCE WITH LAW BY ISSUI NG DEFINITE FINDINGS OF FACT AND AFTER 7 ITA NO. 548/MUM/2012 (A.Y. 2008-09) DY. CIT VS. SMARAN DEVELOPERS PVT. LTD. ALLOWING DUE OPPORTUNITY TO THE ASSESSE TO STATE IT S CASE BEFORE HIM. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. 0/ 1 * ' 2' 345 6 * 7 ' 89 ORDER PRONOUNCED IN THE OPEN COURT ON MAY 02, 2014 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER :+ MUMBAI; ;) DATED : 02.05.2014 *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. >*? @ %)AB , , AB/ , :+ / DR, ITAT, MUMBAI 6. @ CD E + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , :+ / ITAT, MUMBAI