SURELA INVESTMENT & TRADING P. LTD, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX (OSD)-2(3), MUMBAI

ITA 6031/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5865 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 26-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Keywords: Revenue expenditure
• Section: 143(3); 142(1); 143(1); 143(2); 13; 22

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JM & SHRI S . RIFAUR RAHMAN, AM ./ I.T.A. NO . 6031 / MUM/ 2017 ( / ASSESSMENT YEAR: 20 07 - 08 ) SURELA INVESTMENTS & TRADING PVT. LTD. MAKER CHAMBER - IV, 13 TH FLOOR, 222 NARIMAN POINT, MUMBAI - 400 021. / VS. A CIT (OAD) - 2(3) , AAYA KAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN NO. A A CCS 2358 C ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI JITENDRA JAIN, AR / RESPONDENTBY : SHRI V. VINOD KUMAR , DR / DATE OF HEARING : 23.01.2020 / DATE OF PRONOUNCEMENT : 23.03.2020 / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) : THE PRESENT A PPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMIS S IONER OF INCOME TAX (APPEALS) - 6 , MUMBAI, D ATED 02.08.2010 FOR AY 20 07 - 08 . 2 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. 2 . THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND IS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.07 DECLARING TOTAL INCOME AT RS. 12,14,340/ - . THE RETURN WAS PROCESSED U/S 143(1). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDIN GLY, NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE, AR OF THE ASSESSEE FILED THE RELEVANT INFORMATION AS CALLED FOR. AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, AO PASSED ASSESSMENT ORDER U/S 143(3) OF THE ACT THEREBY MAKING ADDITIONS, DETERM INING THE TOTAL INCOME AT RS.54,02,192 / - . 3 . AGGRIEVED BY THE ABOVE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE BY RELYING ON THE VARIOUS JUDICIAL PRONOUNCEMENTS AN D THE FINDINGS OF THE AO. ACCORDINGLY, LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 4 . NOW BEFORE US, THE ASSESSEE HAS PREFE RRED APPEAL BY RAISING THE GROUNDS OF APPEAL AS UNDER: - 3 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. 1. GROUND NO. 1 : (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE A.O OF DISREGARDING THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT CONSISTENTLY AND MAKI NG AN ADDITION OF RS. 41,29,176/ - TO THE RETURNED INCOME. (II) HE FAILED T O APPRECIATE THAT THE APPELLANT WAS FOLLOWING PROJECT COMPLETION METHOD REGULARLY AND HAD ON ITS OWN, OFFERED INCOME FOR TAXATION AS AND WHEN THE PROJECT GOT COMPLETED (III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS C IT(A)] ERRED IN CONFIRMING THE ACTION OF THE A.O OF MAKING HIS OWN JUDGMENT REGARDING METHOD OF ACCOUNTING FOLLOWED AND SUPER - IMPOSING HIS JUDGMENT OVER THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT AND TAXING THE APPELLANT ON AN ADD ITIONAL INCOME OF RS. 41,29,176/ - (WORKED OUT AT 3% OF THE EXPENDITURE INCURRED ON PROJECT DURING THE YEAR). (IV) THE APPELLANT PRAYS THAT SUCH AN AD - HOC ESTIMATION MADE BY THE A.O. AND CONFIRMED BY CIT(A) AND BLINDLY FOLLOWING THE VIEW TAKEN BY HIS PREDECESSORS IN THE PREVIOUS YEARS, WITHOUT APPRECIATING THE CURRENT 4 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. REALITY OF THE PROJECT IS TOTALLY UNJUSTIFIED AND THE ASSESSMENT OF INCOME MADE BY HIM ON SUCH AD HOC BASIS BE QUASHED. 2. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, VARY OR ALTER INCLUDING BY SUBSTIT UTION ANY OF THE GROUNDS OF APPEAL AS THEY OR THEIR REPRESENTATIVES MAY THINK FIT. 5 . AT THE OUTSET, LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBM ITTED BEFORE US TH AT THE GROUNDS RAISED BY ASSESSEE ARE SQUARELY COVERED BY THE CONSOLIDATED ORDER OF COORDINATE BENCH OF HONBLE ITAT IN ITA NO. 546/MUM/2009 FOR AY 2005 - 06 AND ITA NO. 3770/MUM/2013 FOR AY 2008 - 09 IN ASSESSEES OWN CASE ON MERITS. F OR THE SAKE OF CLARITY, WHICH IS REPRODUCED BELOW: - 6. WE HAVE HEARD THE RIVAL CONTENTION AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. ADMITTEDLY, THE ASSESSEE IS REGULARLY FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING FOR COMPUTATION OF ITS INCOME. ADMITTEDLY, THE ASSESSEE HAS ALSO NOT COM PLETED THE CONSTRUCTION, AS PER REVENUE, AS IT HAS COMPLETED THE CONSTRUCTION OF 4,244 SQ. METER OF AREA AS AGAINST THE AREA OF 50,089.63 SQ. METERS. THE AO ALSO ADMITTED THAT 5 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. THE RCC WORK IS COMPLETED UP TO 90%, FINISHING WORK IS COMPLETED UP TO 80% AND E XTERN DEVELOPMENT AND SERVICES WORK IS COMPLETED UP TO 70%.THE LEARNED COUNSEL FOR THE ASSESSEE FILED COMPLETE DETAIL OF CUMULATIVE AMOUNT RECEIVED FROM PARTIES AND CUMULATIVE EXPENDITURE INCURRED YEAR WISE FROM 1994 - 2005. THE ASSESSEE ALSO FILED DETAILS O F PROGRESS OF PROJECT YEAR WISE AND METHOD OF ACCOUNTING FOLLOWED. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS COMPLETED CONTRACT METHOD WHICH IS FOLLOWED THROUGHOUT AND THERE IS NO CHANGE AT ALL. EVEN THE REVENUE EITHER U/S 143(1) OR U/S 143(3) A LSO ACCEPTED THE COMPLETED CONTRACT METHOD ADOPTED BY THE ASSESSEE QUA THIS PROJECT ONLY. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A COMPLETE COMPUTATION OF INCOME AND ACCOUNTS FOR AY 1999 - 2000 TO 2004 - 05 AND ALSO ASSESSMENT ORDER COMPLETED U/S 143(3) FO R AY 2000 - 01. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO MADE A STATEMENT AT BAR THAT PROJECT WAS COMPLETED IN AY 2007 - 08 I.E. YEAR ENDING 31 - 03 - 2007 AND PROFIT FROM THIS PROJECT WAS DISCLOSED IN AY 2007 - 08. ACCORDING TO HIM, THE STOCK IN TRADE IN CASE OF N O SALE WAS CARRIED FORWARD IN AY 2008 - 09 AND 2009 - 10 AND THAT REMAINS AS STOCK IN TRADE. WE FIND THAT THE FACTS IN THESE CASE ARE UNDISPUTED THAT THE ASSESSEE ARE REGULARLY FOLLOWING COMPLETED PROJECT METHOD WHICH WAS NEVER DISTURBED EXCEPT IN AY 6 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. 2005 - 06 A ND 2008 - 09, THE YEARS UNDER DISPUTE. ON THIS PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. V.S. DEMPO AND CO. PVT. LTD. (1996) 131 CTR 203 (BOM) WHEREIN THE PRINCIPLE OF COMP LETE CONTRACT METHOD WAS ACCEPTED ON THE BASIS OF CONSISTENCY. THE RELEVANT FINDING OF HONBLE HIGH COURT ARE THAT ONCE THE COMPLETED PROJECT METHOD HAS BEEN CONSTANTLY FOLLOWED SINCE BEGINNING OF THE BUSINESS AND THE ASSESSING AUTHORITIES HAVE ACCEPTED TH E SAME IN THE PRECEDING YEARS, THE CONSTRUCTION OF PROJECTS IN HAND DURING THE RELEVANT ASSESSMENT YEARS WERE NOT COMPLETE AT ALL AND WERE AT THE VARIOUS STAGES OF CONSTRUCTION/DEVELOPMENT. THERE IS NO DISPUTE TO THE FACT THAT THE INCOME RETURNED WAS ONLY ON ACCOUNT OF OTHER RECEIPTS AND THE AO ADOPTED THE FIXED PERCENTAGE OF PROFIT METHOD IN RESPECT OF CONSTRUCTION PROJECTS AND ADDED TO THE INCOME. HONBLE HIGH COURT LAID DOWN THE PROPOSITION THAT THE COMPLETED CONTRACT METHOD FOLLOWED BY THE ASSESSEE WAS CORRECT AND RESORT TO SECTION 145(1) WAS NOT JUSTIFIED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BILHARI INVESTMENT PVT. LTD. (2008) 299 ITR 1 (SC) WHEREIN THE HONBLE SUPREME COURT HAS CONSIDERED THE ISSUE OF CHANGE OF METHOD FROM THE 7 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. COMPLETED CONTRACT METHOD TO DEFERRED REVENUE EXPENDITURE AND HELD THAT THE COMPLETED CONTRACT METHOD WAS NOT REQUIRED TO BE SUBSTITUTED BY THE PERCENTAGE COMPLETION METHOD DESPITE THE FACT THAT T HE ACCOUNTING STANDARD ENACTED BY THE ICAI TO BE ADOPTED FOR THE REASON THAT THE POSITION WOULD BE THE SAME AS THE DEVELOPMENTS WERE OF RECENT ORIGIN. HONBLE SUPREME COURT OBSERVED AS UNDER : - 20. AS STATED ABOVE, WE ARE CONCERNED WITH ASSESSMENT YEARS 1991 - 1992 TO 1997 - 1998. IN THE PAST, THE DEPARTMENT HAD ACCEPTED THE COMPLETED CONTRACT METHOD AND BECAUSE OF SUCH ACCEPTANCE, THE ASSESSEES, IN THESE CASES, HAVE FOLLOWED THE SAME METHOD OF ACCOUNTING, PARTICULARLY IN THE CONTEXT OF CHIT DISCOUNT. EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PR OFITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. FURTHER, IN THE PRESENT CASES, WE FIND FROM THE VARIOUS STATEMENTS PRODUCED BEFORE US, THAT THE ENTIRE EXERCISE, ARISING OUT OF CHANGE OF METHOD FROM COMPLETED CONTRACT METHOD TO DEFE RRED REVENUE EXPENDITURE, 8 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. IS REVENUE NEUTRAL. THEREFORE, WE DO NOT WISH TO INTERFERE WITH THE IMPUGNED JUDGMENT OF THE HIGH COURT. 21. BEFORE CONCLUDING, WE MAY POINT OUT THAT UNDER SECTION 211(2) OF THE COMPANIES ACT, ACCOUNTING STANDARDS ('AS') ENACTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS HAVE NOW BEEN ADOPTED [SEE: JUDGMENT OF THIS COURT IN J.K. INDUSTRIES CASE (SUPRA)]. SHRI TRIPATHI, LEARNED COUNSEL FOR THE DEPARTMENT, HAS PLACED RELIANCE ON AS 22 AS THE BASIS OF HIS ARGUMENT THAT THE COMPLETED C ONTRACT METHOD SHOULD BE SUBSTITUTED BY DEFERRED REVENUE EXPENDITURE (SPREADING THE SAID EXPENDITURE ON PROPORTIONATE BASIS OVER A PERIOD OF TIME). HE ALSO RELIED UPON THE CONCEPT OF TIMING DIFFERENCE INTRODUCED BY AS 22. IT MAY BE STATED THAT ALL THESE DE VELOPMENTS ARE OF RECENT ORIGIN. IT IS OPEN TO THE DEPARTMENT TO CONSIDER THESE NEW ACCOUNTING STANDARDS AND CONCEPTS IN FUTURE CASES OF CHIT TRANSACTIONS. WE EXPRESS NO OPINION IN THAT REGARD. SUFFICE IT TO STATE THAT, THESE NEW CONCEPTS AND ACCOUNTING ST ANDARDS HAVE NOT BEEN INVOKED BY THE DEPARTMENT IN THE PRESENT BATCH OF CIVIL APPEALS.. 9 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. 8. IN THE PRESENT CASE BEFORE US ALSO THE AO TRIED TO INVOKE AS - 7 OF THE ACCOUNTING STANDARD WHICH IS APPLICABLE TO THE CONTRACTS ENTERED INTO DURING ACCOUNTING PERIO D COMMENCING ON OR AFTER 01 - 04 - 2003. IN THE PRESENT CASE, THE CONTRACT WAS ENTERED IN 1993 BY WAY OF DEVELOPMENT AGREEMENT AND THE ASSESSEE HAS RETURNED THE WORKING PROGRESS FROM AY 1999 - 2000 AND DEPARTMENT HAS ACCEPTED CONSISTENTLY. IN VIEW OF THESE FACTS , WE DIRECT THE AO TO COMPUTE THE INCOME ON THE BASIS OF COMPLETED PROJECT METHOD AND NOT ON PERCENTAGE COMPLETION METHOD OF ACCOUNTING. THE APPEAL OF THE ASSESSEE IS ALLOWED. 6 . ON THE OTHER HAND, LD. DR FA IRLY CONCEDED THAT THESE GROUND IS COVERED BY THE ORDER OF ITAT. 7 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT THE IDENTICAL GROUND RAISED IN THE PRESENT APPEAL HAS ALREADY BEEN DECIDED BY THE CONSOLIDATED ORDER OF COO RDIN ATE BENCH OF ITAT IN ITA NO. ITA NO. 546/MUM/2009 FOR AY 2005 - 06 AND ITA NO. 3770/MUM/2013 FOR AY 2008 - 09 IN ASSESSEES OWN CASE ON MERITS . 10 I.T.A. NO. 6031 /MUM/201 7 SURELA INVESTMENTS & TRADING PVT. LTD. 8 . T HEREFORE , RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF ITAT WHICH IS APPLICABLE MUTATIS MUTANDIS IN THE PRESENT CASE, WE ARE INCLINED TO ACCEPT THE SUBMISSION OF LD. AR. ACCORDINGLY , WE ALLOW THE GROUND S RAISED BY THE ASSESSEE. 9 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 RD MARCH 2020 . SD/ - SD/ - (PAWAN SINGH ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 23 .03 .2020 SR.PS. DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI