DCIT 22(3), NAVI MUMBAI V. SHREE MUKUND ASSOCIATES, NAVI MUMBAI

ITA 5781/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0559 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 17-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: M SUBRAMANIYAM
• Keywords: Assessment record; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ./ I.T.A. NO. 5781/MUM/2014 ( / ASSESSMENT YEAR: 2010 - 11) DY. CIT - 22(3), 3 RD FLOOR, TOWER NO. 6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI - 400 703 / VS. M/S. SHREE MUKUND ASSOCIATES 1 - SHAKTI ARCADE, PLOT NO. 5, SECTOR - 19D, VASHI, NAVI MUMBAI - 400 705 ./ ./ PAN/GIR NO. ABFFS 7517 N ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI V. JUSTIN / RESPONDENT BY : SHRI M. SUBRAMANIYAM / DATE OF HEARING : 29.11.2017 / DATE OF PRONOUNCEMENT : 07.02 .2018 / O R D E R PER S HAMIM YAHYA , A. M.: THIS A PPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 20.06.2014 AND PERTAINS TO THE A SSESSMENT YEAR 2010 - 11. 2. T HE GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED BY OBSERVING THAT THE VALUATION OF BOOKED BUT NOT SOLD UNITS HAS TO BE CONSIDERED AT A CONTRACTED RATE AND NOT AT ANY OTHER RATE, WITHOUT APPRECIATING THE FACT THAT THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF WORKING OF CLOSING WORK SUBMITTED BY THE ASSESSEE. 2 ITA NO. 5781/MUM/2014 (A.Y. 2010 - 11) DY. C IT VS. M/S. SHREE MUKUND ASSOCIATES 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRONEOUSLY OBSERVED THAT IN TOTALITY THIS WAY OF VAL UATION OF WIP WILL NOT AFFECT THE TAX EFFECT, HE HAS FAILED TO APPRECIATE THAT THE INCOME HAS TO BE TAXED IN THE ASSESSMENT YEAR WHEREIN IT ACCRUES OR ARISES AND NOT IN THE SUBSEQUENT YEARS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT( A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAD VALUED CLOSING STOCK AT DIFFERENT RATES. THE AS SESSEE WAS ACCORDINGLY REQUESTED TO SUBMIT AN EXPLANATION REGARDING' VALUATION OF CLOSING STOCK. IN RESPECT TO THE ABOVE, THE ASSESSEE HAS SUBMITTED LETTER DATED 21.02.2013, EXPLAINING THE METHOD OF VALUATION OF CLOSING STOCK AS UNDER : 'THE WORKING OF CLOS ING STOCK FOR THE AMBIENCE COURT PROJECT HAS BEEN SUBMITTED. THE SALEABLE PART OF THE PROJECT I.E. AMBIENCE COURT BLDG. A IS COMPLETE AND THE O.C. THEREOF HAS BEEN RECEIVED IN MARCH, 2010. THE AGREEMENTS THAT HAVE BEEN DONE UPTO 31 ST MARCH, 2010 HAVE BEE N ACCOUNTED AS SALES DURING F.Y.2009 - 2010. THE UNSOLD AREA HAS BEEN TREATED AS A PART OF CLOSING STOCK AND IS VALUED AT COST WHICH IS RS. 3,950/ - PER SQ.FT. OF SALEABLE AREA. THE PART OF THE AREA WHEREIN BOOKINGS ARE DONE AND THE ADVANCES ARE RECEIVED AND WH EREIN THE AGREEMENTS COULD NOT BE DONE AS THE BALANCE MONEY WAS NOT PAID BY THE FLAT OWNERS HAS BEEN ACCOUNTED AS CLOSING STOCK AT THE VALUE FOR WHICH THE SAID FLATS HAVE BEEN AGREED TO BE SOLD. SUCH SALEABLE AREA IS 51420 SQUARE FEET UPTO 31 ST MARCH, 2010 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS YOU HAD OBSERVED THAT THIS SALABLE AREA SHOULD ALSO BE VALUED AT COST AND NOT AT BOOKING RATE. WE RESPECTFULLY SUBMIT THAT THIS IS A MATTER OF OPINION AND BY VALUING THIS AREA AT BOOKING RATE, YOUR ASSESSEE HAS IN NO WAY TRIED TO SUPPRESS THE VALUE OF CLOSING STOCK BUT HAD TRIED TO VALUE THE CLOSING STOCK AT COST OR REALIZABLE VALUE WHICHEVER IS LESS. HOWEVER, WITHOUT PREJUDICE, IF YOUR VIEW IS REPRESENTED WHILE MAKING THE ASSESSMENT ORDER, THEN THE ASSESSEE SHO ULD BE ALLOWED TO APPROPRIATELY ADJUST THE OPENING AND CLOSING STOCK FOR THE SUCCEEDING YEARS'. 4. IN ADDITION TO THE ABOVE SUBMISSIONS, THE ASSESSEE'S REPRESENTATIVE HAS ALSO SUBMITTED THE WORKING OF THE CLOSING STOCK VALUED ON THE BASIS OF RS.3950/ - PE R SQ.FT. OF SALEABLE AREA FOR FLATS WHICH HAVE BEEN AGREED TO BE SOLD. FROM THE ABOVE, THE 3 ITA NO. 5781/MUM/2014 (A.Y. 2010 - 11) DY. C IT VS. M/S. SHREE MUKUND ASSOCIATES ASSESSING OFFICER INFERRED THAT O N THE BASIS OF THE ABOVE WORKING, THE ASSESSEE HAS STATED THAT THERE WILL BE ADDITION OF RS.1,15,76,580/ - FOR WHICH HE HAS REQUESTED THAT THE SAME SHOULD BE ALLOWED TO BE ADJUSTED IN THE SUCCEEDING YEARS. HENCE, THE ASSESSING OFFICER HELD THAT A FTER CONSIDERING THE ASSESSEE'S SUBMISSION, AN AMOUNT OF RS.1,15,76,580/ - IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE THE LD. COMM ISSIONER OF INCOME TAX (APPEALS), T HE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE PARTNERSHIP WAS FORMED IN THE YEAR 2005. ASSESSEE IS ENGAGED IN THE CONSTRUCTION OF A BUILDING KNOWN AS AMBIENCE COURT. THE SAID CONSTRUCTION STARTED IN THE FINANCIAL YEAR 2005 - 2006 AND WAS IN PROGRESS. ACCORDING TO ASSESSEE , IT HAS BEEN DECLARING INCOME FROM PROJECT FOR THE PAST 3 YEARS AT 5% OF EXPENSES INCURRED. IT WAS PLEADED THAT ASSESSING OFFI CER WITHOUT GIVING ANY REASONS REJECTED THE VALUATION OF THE ASSESSEE. IT WAS THEREFORE PRAYED THAT VALUE ADOPTED BY THE ASSESSEE SHOULD BE RESTO RED AND ADDITIONAL VALUE OF RS. 1,15,76,580 / - CONSIDERED BY THE ASSESSING OFFICER SHOULD BE DELETED. 6. CONSI DERING THE ABOVE , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED T HE ADDITION BY HOLDING AS UNDER: 2.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT CAREFULLY. IN IS SEEN FROM THE ASSESSMENT RECORD THAT AO HAS VALUED THE AREA ACTUALLY SOLD AT RS.3,950/ - WHEREAS ASSESSEE HAD VALUED THE SAME AT A CONTRACTED RATE OF RS.3,725/ - . THUS, DISPUTE IS MAINLY ON ACCOUNT OF VALUING THE 51,420 SQ. FEET AREA SOLD BY THE APPELLANT. DURING THE COURSE OF THE APPELLATE PROCEEDIN GS, IT IS SEEN THAT APPELLANT HAS BEEN CONSISTENTLY DECLARING THE INCOME AT COST PLUS 5% MARGIN . THIS FACT IS ALSO NOT DISPUTED BY THE 4 ITA NO. 5781/MUM/2014 (A.Y. 2010 - 11) DY. C IT VS. M/S. SHREE MUKUND ASSOCIATES APPELLANT. HOWEVER, IT IS W ORTH NOTING HERE THAT THIS VALUATION METHOD CAN BE APPLIED TO THE CLOSING WORK IN PRO GRESS WHI CH HAS REMAINED UNSOLD IN THE HANDS OF THE CONTRACTOR/DEVELOPER . IN CASE OF SOLD AREA, THE VALUATION OF CLOSING WIP HAS TO BE DONE AT THE CONTRACTED RATE, AS THIS IS THE ONLY INCOME WHICH CONTRACTOR/DEVELOPER IS GOING TO REALIZE FROM CUSTOMERS. THEREFORE, VALUATION OF SOLD UNITS HAS TO BE CONSIDERED AT A CONTRACTED RATE AND NOT AT ANY OTHER RATE. A.O. HAS NOT DISPUTED THE FACT THAT AREA OF BOOKED UNITS IS SOLD AT A PRICE HIGHER THAN RS.3,725/ - . IN VIEW OF THIS, FOLLOWING THE PRUDENT ACCOUNTING PRINCIPLE, I HOLD THAT AREA OF THE SOLD UNITS I.E. 51,420/ - SQ. FT. IS RIGHTLY VALUED BY THE APPELLANT AT RS.3,725/ - AS AGAINST RS.3,950/ - CONSIDERED BY THE A.O. I, THEREFORE, DIRECT THE A.O. TO CONSIDER THE VALUE AS ADOPTED BY THE APPELLANT IN HIS RETURN OF INCOME. 7. AGAINST THE ABOVE ORDER , THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE THE ASSESSING OFFICER HAS NOTED THAT ASSESSEE HAS VALUED THE CLOSING STOCK AT DIFFERENT RATES. SOME PART W HERE SALE WAS ALMOST COMPLETE HAVE BEEN VALUED AT SALE PRICE , WHILE FOR SOME PART WHERE SALE HAS NOT BEEN MADE HAD BEEN VALUED AT COST. ON ASSESSING OFFICER S ENQUIRY IN THIS REGARD , THE ASSESSEE HAD EXPLAINED THESE FACTS AND HAS GIVEN THE WORKING THAT IF THE UNSOLD STOCK WERE ALSO VALUED AT SALE PRICE THERE WOULD BE AN ADDITION OF THE VALUE OF CLOSING STOCK BY RS.1,15,76,580/ - . THE ASSESSEE HAD FURTHER STATED THAT ASSESSEE CANNOT BE FORCED TO VALUE CLOSING STOCK AT SALE PRICE. HOWEVER , IT WAS SUBMITTED THA T IF THE ASSESSING OFFICER'S SO INSISTED , APPROPRIATE ADJUSTMENT IN OPENING AND CLOSING STOCK SHOULD BE GRANTED. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN WRONGLY INTERPRETED BY THE ASSESSING OFFICER THAT ASSESSEE HAS AGREED FOR AN ADDITION OF RS.1,15,76,5 80/ - . WE FIND THAT BY NO STRETCH OF IMAGINATION , ASSESSEE CAN BE FORCED TO VALUE THE CLOSING STOCK AT SALE PRICE. IT IS SETTLED LAW THAT CLOSING STOCK HAS TO BE VALUED AT COST OR MARKET PRICE , WHICHEVER IS LOWER. THERE IS NO 5 ITA NO. 5781/MUM/2014 (A.Y. 2010 - 11) DY. C IT VS. M/S. SHREE MUKUND ASSOCIATES CASE THAT THERE IS ANY VARIATIO N IN THE METHOD OF VALUATION OF CLOSING STOCK BY THE ASSESSEE AS COMPARED TO EARLIER YEARS. IN SUCH CIRCUMSTANCES , IN OUR CONSIDERED OPINION , THE LEARNED CIT - A HAS CORRECTLY APPRECIATED THE MATTER. THERE WAS NO CASE OF ENHANCEMENT IN THE VALUATION OF CLOSI NG STOCK BY PUTTING THE VALUE ON THE BASIS OF SALE PRICE. HENCE , IN OUR CONSIDERED OPINION , THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT - A. ACCORDINGLY WE UPHOLD THE SAME 10. I N THE RESULT , THIS APPEAL FILED BY THE R EVENUE STANDS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 07.02.2018 SD/ - SD/ - ( AMARJIT SINGH ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT M EMBER MUMBAI ; DATED : 07.02.2018 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONC ERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI