ITO 6(2)(3), MUMBAI V. ENORA CONSTRUCTION, MUMBAI

ITA 6766/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9016 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M P KAKHIJA SHRI S M MAKHIJA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 6766/MUM /2011 ASSESSMENT YEAR : 2008-09 INCOME TAX OFFICER 6(2)(3), ROOM NO. 562, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S ENORA CONSTRUCTION PVT. LTD., PLOT NO. 66/98, TOUCHWOOD PLAZA, 33 ROAD, OLD KHAR, (WEST), MUMBAI - 400 052. PAN AABCE1794B (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI CHARANJIT SINGH ASSESSEE BY : SHRI M.P. KAKHIJA SHRI S.M. MAKHIJA DATE OF HEARING 06-9-2012 DATE OF PRONOUNCEMENT 14-9-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DTD. 1-7-2011 PASSED BY THE LD. CIT(A) 12 MUMBAI FOR THE A.Y. 2008-09. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDING, ON EXAMINATION OF DETAILS OF SUNDRY CREDITORS, THE A.O. OBSERVED THAT OUT OF ADVANCE FOR SALE OF S HOPS AMOUNTING TO RS. 2,14,67,767/- THE ASSESSEE VIDE AGREEMENT DTD. 15-3 -2007 HAS SOLD THE ITA NO. 6766/MUM/2011 2 ENTIRE FIRST FLOOR TO M/S STOP AND SELECT FOR SALE CONSIDERATION OF RS. 1,25,00,000/-. HE FURTHER OBSERVED THAT SIMILARLY ANOTHER PART WAS SOLD ON 7-11-2007 TO M/S DELITE FASHIONS (SPICE GIRL) FO R A CONSIDERATION OF RS. 88 LACS. THE A.O. TO UNDERSTAND THE GROUND REA LITY, DEPUTED THE WARD INSPECTOR TO VIST THE PLACE AND TO GIVE THE ST ATUS REPORT. THE WARD INSPECTOR VISITED THE PROPERTY ON 14-12-2010 AND HA S GIVEN THE FOLLOWING REPORT:- AS DIRECTED BY YOU I VISITED THE ABOVE PREMISE (THE PROPERTY) TODAY I.E. 14-12-2010. DURING MY VISIT, I OBSERVED THAT THE S AID BUILDING WAS SITUATED IN CLOTH MARKET OF KHAR. (I) ON GROUND FLO OR THERE WAS A WAY FOR THE BASEMENT WHEREIN THERE WAS A GODOWN FOR CLOTHS ROLLINGS (BALES), (II) ON FIRST FLOOR THERE WAS ASSESSEE COMPANYS OFFICE, (III) A SHOP OF CLOTHS IS SITUATED IN SECOND FLOOR, (IV) ON THE LAST FLOOR TH ERE WAS A OPEN TERRACE , (V) THE OFFICES AND SHOPS WERE OPEN DURING MY VISIT. IN VIEW OF THIS THE ASSESSEE WAS ASKED TO SHOW CAUS E AS TO WHY PROPORTIONATE PROFIT ON THE ABOVE SALE SHOULD NOT B E TAXED. IN RESPONSE THE ASSESSEE FILED HIS SUBMISSIONS DTD. 10-12-2010 WHICH HAS BEEN REPRODUCED BY THE A.O. AT PAGE 4 TO 6 OF THE ASSESS MENT ORDER. THE A.O. HAS ALSO SUMMARISED THE ASSESSEES SUBMISSION AS UN DER:- (A) AN UNDER CONSTRUCTION PROJECT WAS ACQUIRED ON 26 TH AUG. 06 WITH SOME STRUCTURE THEREON AS WELL AS OPEN LAND WHICH W AS PROPOSED TO BE FURTHER DEVELOPED. (B) FOR SOME LEGAL HITCHES THE PROJECT GOT STRUCK AND I N F.Y. 2007-08 SOME EXPENSE WAS INCURRED AND ESTIMATED PROFIT AT R S. 1,06,200/- DECLARED FOR TAX PURPOSE. (C) THE PROJECT IS NOT COMPLETE AND EVEN BASIC AMENITIE S LIKE TOILETS AND OUTSIDE ROADS ETC. DO NOT EXISTS AND THE PROPER TY IS NOT FIT FOR LIVING. (D) HANDING OVER OF POSSESSION IS ONLY TOKEN BECAUS E EVEN AS PER LAW THE PROPERTY CANNOT BE OCCUPIED FOR WANT OF OCCUPAT ION CERTIFICATE. ITA NO. 6766/MUM/2011 3 PROPERTY HAS BEEN OCCUPIED ILLEGALLY AND IN UNAUTHO RISED MANNER AND CANNOT BE HELD TO BE LEGALLY OCCUPIED. (E) TO BUY PEACE AND AVOID LITIGATION AND SUBJECT T O NON-LEVY OF PENALTY THE RETURNED INCOME IS REVISED TO RS. 17,88 ,600/- WHICH IS 8% OF THE TOTAL WIP SHOWN BY THE ASSESSEE WITH THE RIDER THAT NO PENAL PROVISIONS SHOULD BE INVOKED. THE A.O. AFTER CONSIDERING THE SAME APPLIED THE RAT IO OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S CHAMPION CONSTRUCTI ON COMPANY (5 ITD 495) HELD THAT THE ASSESSEE IS LIABLE TO PAY TAX ON PROPORTIONATE BASIS ON THE ABOVE SALE. ACCORDINGLY THE A.O. ON THE SALES O F RS. 2,13,00,000/- WORKED THE PROPORTIONATE PROFIT AT RS. 67,06,049/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE A.O. AND IN RELYING ON THE DECISION OF THE TRIBUNAL IN D CIT VS. JOGINDER CONSTRUCTION COMPANY PVT. LTD. FOR A.Y. 1996-97 ORD ER DTD. 10-5-2005, APPLIED NET RATE AT 10% OF PROFIT ON THE SALES OF R S. 2,13,00,000/- AND WORKED OUT THE INCOME OF THE ASSESSEE AT RS. 21,30, 000/- AND ACCORDINGLY ALLOWED A RELIEF OF RS. 46,82,250/-. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS OF AP PEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN REDUCING THE ADDITION OF RS. 68 ,12,250/- TO RS. 21,30,000/- IGNORING THE INABILITY OF THE ASSESSEE TO GIVE DETAILS OF EXPENDITURE AND FAILING TO APPRECIATE THAT THE ASSE SSEE HAD RECEIVED THE ENTIRE CONSIDERATION OF RS. 2,13,00,000/- AND HAD G IVEN POSSESSION OF THE PROPERTY SOLD TO THE PURCHASERS. ITA NO. 6766/MUM/2011 4 2. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 5. AT THE TIME OF HEARING THE LD. D.R. SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER, THE LD. CIT(A) W AS NOT JUSTIFIED IN REDUCING THE ADDITION OF RS. 68,12,250/- TO RS. 21, 30,000/-. HE, THEREFORE, SUBMITS THAT THE ADDITION MADE BY THE A. O. BE RESTORED. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT THE PROJEC T IS NOT YET COMPLETED INASMUCH AS ASSESSEE IS YET TO INCUR SUBSTANTIAL EX PENSES ON COMPLETION OF THE PROJECT FOR WHICH EXPENSES HAD TO BE APPORTI ONED TO THE ENTIRE BUILDING INCLUDING THE PORTION YET TO BE CONSTRUCTE D SOME OF WHICH ITEMS ARE AS UNDER:- (I) TILL DATE NO COMPLETION/OCCUPATION CERTIFICATE HAS BEEN RECEIVED IN RESPECT OF THE BUILDING. (II) WHEN A BUILDER APPLIES FOR CERTIFICATE HE IS A SKED TO MAKE VARIOUS CORRECTIONS/ADDITIONS/ALTERATIONS IN THE BU ILDING AS A WHOLE INCLUDING THE SOLD PORTIONS. (III) NO INTERNAL ROAD WITHIN THE BOUNDARY WALL HAS BEEN CONSTRUCTED, NO TOILETS/DRAINAGE SYSTEM AND SEWERAG E INCLUDING SEPTIC TANKS AND SOAK ETC. ARE YET TO PRO VIDED. (IV) OVERHEAD AND UNDER GROUND WATER STORAGE TANKS, WATE R PIPES, WATER METERS, PUMP ROOM WITH PUMPS AND ACCESSORIES ARE TO BE PROVIDED. (V) ELECTRIC COMMON LOAD WIRING, STARTERS, SWITCHES AND ALL COMMON WIRING ARE TO BE PROVIDED. (VI) COMMON LIGHTS IN STAIRCASES, LANDINGS, GATES, TERRA CE AND COMPOUND. (VII) UNALLOTTED OPEN BATHROOM SPACE HAS TO BE PROVIDED. ITA NO. 6766/MUM/2011 5 (VIII) COMPOUND GATES AND COMMON COMPOUND WALLS HAVE TO BE CONSTRUCTED. (IX) LIFTS HAVE TO BE PROVIDED. HE FURTHER SUBMITS THAT SINCE THE A.O. HAS NOT CONS IDERED THE PROPORTIONATE COST ATTRIBUTABLE TO THE ABOVE AMENIT IES, THE LD. CIT(A) WAS FULLY JUSTIFIED IN APPLYING NET RATE OF PROFIT AT 1 0% OF THE SALE CONSIDERATION AND HENCE THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD. WE FURTHER FI ND THAT AS PER THE AGREEMENT DTD. 15-3-2007 THE ENTIRE FIRST FLOOR WAS SOLD TO M/S STOP AND SELECT FOR A CONSIDERATION OF RS. 1,25,00,000/- AND ANOTHER PART WAS SOLD ON 7.11.2007 TO M/S DELITE FASHIONS (SPICE GIRL) FO R A CONSIDERATION OF RS. 88 LACS. IT IS ALSO NOT IN DISPUTE THAT THE PO SSESSION OF THE PROPERTY WAS ALSO GIVEN BY THE ASSESSEE. ON A SPECIFIC QUERY AS TO HOW THE SALE CONSIDERATION OF RS. 1,25,00,000/- AS PER AGREEMENT DTD. 15-3-2007 HAS BEEN CONSIDERED IN THE YEAR UNDER CONSIDERATION, BO TH PARTIES HAVE NOT ADDRESSED ON THIS ISSUE. BE THAT AS IT MAY, WE FIN D THAT THERE IS NO DISPUTE THAT THE A.O. HAS DETERMINED THE PROFIT OF RS. 67,06,049/- ON ESTIMATED BASIS. ON APPEAL, THE LD. CIT(A) WHILE HO LDING THAT THE A.O. WAS JUSTIFIED IN APPLYING THE PERCENTAGE COMPLETION MET HOD, HOWEVER, HELD THAT THE APPELLANT MUST HAVE INCURRED CERTAIN AMOUN T OF EXPENSE BEFORE ITA NO. 6766/MUM/2011 6 SELLING THE UNITS AND ACCORDINGLY SHE APPLIED A NET RATE OF PROFIT AT 10% ON THE AMOUNT OF SALE CONSIDERATION OF RS. 2,13,00, 000/- VIDE FINDINGS RECORDED IN PARA 7 OF THE ORDER WHICH ARE REPRODUCE D AS UNDER:- AS STATED IN THE SUBMISSION OF THE APPELLANT THE RE LEVANT PORTION OF WHICH HAS BEEN REPRODUCED ABOVE, IT IS SEEN THAT TH E APPELLANT HAS SUBMITTED THAT THE APPELLANT BE GIVEN A BENEFIT OF THE EXPENSES IT HAS INCURRED TO BRING THE PROPERTY IN QUESTION AT A POS ITION OF SALE. IT HAS FURTHER BEEN STATED THAT THE ASSESSING OFFICERS ME THOD IS FAULTY AND LEGALLY NOT TENABLE IN RESPECT OF ESTIMATING THE CO ST OF CONSTRUCTION AS BENEFITS OF EXPENSES INCURRED HAVE NOT BEEN GIVEN. I FIND THAT THIS SUBMISSION CARRIES WEIGHT. IT IS LOGICAL TO PRESUM E THAT THE APPELLANT MUST HAVE INCURRED A CERTAIN AMOUNT OF EXPENSE BEFO RE SELLING THE UNITS. HOWEVER, IT IS ALSO SEEN THAT THE APPELLANT HAS PLE ADED AN INABILITY TO GIVE THE DETAILS OF THE EXPENDITURE INCURRED AS IT IS FO LLOWING A PROJECT COMPLETION SYSTEM OF ACCOUNTING. UNDER THESE CIRCUM STANCES, I FIND THAT WHAT NEEDS TO BE CONSIDERED HERE IS THE APPLICATION OF NET PROFIT RATE IN THE CASE OF APPELLANT TO ARRIVE AT THE FIGURE OF IN COME FOR THE CONCERNED ASSESSMENT YEAR THAT NEEDS TO BE TAXED. THE APPELL ANT HAS RELIED ON THE CASE OF DCIT VS. JOGINDER CONSTRUCTION COMPANY PVT. LTD. FOR A.Y. 1996- 97, WHEREIN THE HONBLE ITAT I BENCH, MUMBAI HAS IN ITS ORDER DATED 10/05/2005 UPHELD THE ACTION OF THE CIT(A) IN ADOPT ING A NET RATE OF PROFIT AT 10%. AS THE CASE RELIED UPON IS IN RESPE CT OF THE JURISDICTIONAL COURT PLACING RELIANCE ON THE SAME, I FIND THAT IT WOULD BE JUSTIFIED A NET PROFIT RATE OF 10% WAS APPLIED IN THE CASE OF THE A PPELLANT AS FAR AS THE SALES ARE CONSIDERED AS BY DOING SO IT WOULD COVER UP FOR THE COST INCURRED BY THE APPELLANT FOR THE UNITS SOLD. THE ASSESSING OFFICER IS TO COMPUTE THE INCOME OF THE APPELLANT BY TAKING 10% O F SALE CONSIDERATION THAT IS RS. 21,30,000/- (2,13,00,000 X 10 /100) AS THE PROFIT OF THE APPELLANT IN THE CONCERNED YEAR IN RESPECT OF THE S ALES MADE IN THIS YEAR. THE APPELLANT WOULD, THEREFORE, GET A RELIEF OF RS. 46,82,250/- (RS. 68,12,250 21,30,000). 8. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED O N RECORD BY THE REVENUE AGAINST THE AFORESAID FINDING OF THE LD. CI T(A) AND KEEPING IN VIEW THE ASSESSEES PLEA THAT HE HAS INCURRED SUBST ANTIAL AMOUNT OF EXPENSES ON COMPLETION OF THE PROJECT AS STATED HER EINABOVE WHICH WAS NOT CONTROVERTED BY THE REVENUE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN APPLYING THE NET RATE OF PRO FIT AT 10% ON THE SALE ITA NO. 6766/MUM/2011 7 CONSIDERATION AND ACCORDINGLY THE ORDER PASSED BY T HE LD. CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. THE GROUNDS TAKEN BY TH E REVENUE ARE, THEREFORE, REJECTED. 9. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED ON 14-9-2012. SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 14-9-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 12, MUMBA I 4. COMMISSIONER OF INCOME TAX 6 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI