K. PATEL & CO., MUMBAI V. ASST CIT 25(2), MUMBAI

ITA 6776/MUM/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4267 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 18-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN LD
• Assessee Lawyers: YOGESH A THAR; GUNJAN KAKKAD LD ARS
• Section: 143(3)

Judgement Text

1 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6776/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) M/S. K. PATEL & CO. A-101, ALAKNANDA ANNASAHEB VARTAK MARG TPS III, BORIVALLI (WEST) MUMBAI-400 092. / VS. ACIT - 25(2) PRATYAKSHKAR BHAVAN BANDRA KURLA COMPLEX MUMBAI. ! ./ ./PAN/GIR NO. AAAFK-2315-A ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : YOGESH A THAR & GUNJAN KAKKAD - LD.ARS / RESPONDENT BY : M.RAJAN- LD. DR / DATE OF HEARING : 05/03/2019 / DATE OF PRONOUNCEMENT : 13/03/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2011-12 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX 2 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 (APPEALS)-44, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO.CIT(A)- 44/ACIT 32(2)/ITA-12/14-15 DATED 13/10/2016 ON VARIOUS GROUNDS OF APPEAL. ON PERUSAL OF THE SAME, IT TRANSPIRES THAT THE ASSESSEE IS AGGRIEVED BY ADDITION OF RS.38.89 LACS AS UNDISCLOSED INCOME BASED ON AIR INFORMATION. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESIDENT FIRM STATED TO BE ENGAGED AS BUILDERS & DEVELOPERS HAS BEEN ASSESSED IN SCRUTINY ASSESSMENT U/S 143(3) ON 10/03/2014 WHEREIN THE INC OME OF THE ASSESSEE HAS BEEN DETERMINED AT RS.90.32 LACS AFTER CERTAIN DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.50.95 LACS E-FILED BY THE ASSESSEE ON 24/09/2011. THE ADDITION OF RS.38.89 LACS MADE BY L D. AO AND AS CONFIRMED BY FIRST APPELLATE AUTHORITY IS THE SOLE SUBJECT MATTER OF PRESENT APPEAL BEFORE US. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE DID NOT TAKE INTO ACCOUNT FOLLOWING TRANSACTION / SALE WHILE COMPUTING ITS INCOME: - NO. DATE OF AGREEMENT SALE CONSIDERATION (RS.) ADDRESS OF THE PROPERTY 1. 30.03.2011 421500 202, JEEVANPREETI CHS LTD. 2. 30.03.2011 1752750 102, JEEVANPREETI CHS LTD. 3. 24.03.2011 372375 302, JEEVANPREETI CHS LTD. 4. 30.03.2011 544750 101, JEEVANPREETI CHS LTD. 5. 30.03.2011 797550 201, JEEVANPREETI CHS LTD. 38,89,125 THE ASSESSEE EXPLAINED THAT THE STATED PROJECT I.E. JEEVANPREETI CHS LTD. LOCATED AT GOREGAON WAS REDEVELOPMENT RESIDENTIAL PROJECT. AS PER RELEVANT 3 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 AGREEMENTS THERE WERE 10 EXISTING FLAT OWNERS IN TH E PROJECT OUT OF WHICH 5 EXISTING FLAT OWNERS WERE ALLOTTED ADDITIONAL AREA WITH ADDITIONAL CONSIDERATION AS PER THE TERMS OF INDIVIDUAL AGREEM ENTS WITH THEM AND OTHERS WERE ALLOTTED AREA EQUIVALENT TO THEIR EXIST ING AREA. THE ABOVE STATED AGREEMENTS WERE IN RESPECT OF ADDITIONAL AREA. THE CONSTRUCTION WORK FOR THE PROJECT WAS NOT COMMENCED DURING THE FINANCIAL YEAR. THE ASSESSEE PURCHASED TRANSFER DEVELOPMENT RIGHTS AND INCURRED OTHER EXPENSES DURING THE YEAR FOR THE PROJECT WHICH AGGREGATED TO RS.151.06 LACS AND THE SAME HAS BEEN CARRIED FORWARD AS WORK-IN-PROGRESS [WIP] UNDER THE HEAD CURRENT ASSETS. IT WAS FURTHER SUBMITTED THAT THE ACTUAL CONSTRUCT ION WORK STARTED ONLY DURING NEXT FINANCIAL YEAR I.E. 2011-1 2 AND THEREFORE, FOLLOWING CONSISTENT METHOD OF ACCOUNTING I.E. PROGRESSIVE METHOD FOR DECLARATION OF PROFIT, THE INCOME AS WELL AS EXPENDITURE OF THE PROJECT WA S NOT CONSIDERED FOR THE IMPUGNED AY. HOWEVER, NOT CONVINCED, LD. AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE. IT WAS OBSERVED BY LD. AO THAT THE ASSESSEE WAS NOT STRICTLY FOLLOWING THE PERCENTAGE COMPLETION METHOD TO RECOGNIZE THE REVENUE. THE STAND OF LD. AO, UPON CONFIRMATION BY FIRST APPELLATE AUTHORITY, IS UNDER APPEAL BEFORE US. 3. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI YOGESH THAR, DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN TH E PAPER-BOOK, SUBMITTED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOW ING THE SAME METHOD OF ACCOUNTING TO RECOGNIZE THE REVENUE FROM PROJECTS. IT WAS SUBMITTED THAT THE PROJECT WAS AT INITIAL STAGES ONLY DURING THE IMPUG NED AY AND THEREFORE, THE EXPENDITURE AS WELL AS REVENUE FROM THE PROJECT WAS DEFERRED TO 4 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 SUBSEQUENT YEARS KEEPING IN VIEW THE STAGE OF PROJE CT COMPLETION. TO BOLSTER THESE CONTENTIONS, OUR ATTENTION HAS BEEN D RAWN TO THE FINANCIAL STATEMENTS FOR SUCCEEDING AY 2012-13 TO SUBMIT THAT THE AFORESAID SALE HAS BEEN OFFERED TO TAXATION FOLLOWING THE SAME METHOD OF ACCOUNTING. AS AN ALTERNATIVE PLEA, LD. AR SUBMITTED THAT, IN ANY CAS E, ONLY PROFIT ELEMENT ARISING OUT OF THESE TRANSACTIONS WAS TO BE ADDED, IF AT ALL THE SAME WAS TO BE ADDED. THE LD. DR SUPPORTED THE STAND OF LOWER A UTHORITIES. 4.1 WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS A ND PERUSED RELEVANT MATERIAL ON RECORD. THE PERUSAL OF TAX AUDIT REPORT FOR IMPUGNED AY, AS PLACED ON RECORD, REVEAL THAT THE ASSESSEE WAS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING AND THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING DURING THE IMPUGNED AY. THE PERUSAL OF SCHEDULE-10 TO THE FINANCIAL STATEMENTS REVEAL THAT THE ASSESSEE FIRM HAS FOLLOWED PROGRESSIVE DECLARATION METHOD FOR ACCOUNTING PROFIT OF THE PROJECTS IN PROGRESS W HICH IS STATED TO BE NOTHING BUT PERCENTAGE OF COMPLETION METHOD . THIS FACT HAS ALSO BEEN RECOGNIZED IN THE QUANTUM ASSESSMENT ORDER U/S 143(3) FOR AY 2008 -09, AS PLACED ON RECORD, WHEREIN AT PARA 6, AN OBSERVATION HAS BEEN MADE BY LD. AO THAT THE ASSESSEE WAS FOLLOWING PERCENTAGE OF COMPLETION METHOD. UPON PERUSAL, THE UNDISPUTED POSITION THAT EMERGES IS TH AT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTIN G TO RECOGNIZE THE REVENUE IN THE BOOKS OF ACCOUNTS. 4.2 THE LD. AR HAS SUBMITTED THAT THE ASSESSEE HAS DEFERRED THE REVENUE AS WELL AS EXPENDITURE OF THE SAID PROJECT KEEPING IN VIEW THE FACT THAT THE PROJECT WAS ONLY AT INITIAL STAGES OF CONSTRUCTION AT WHICH FAIR ESTIMATION OF 5 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 PROBABLE PROFITABILITY COULD NOT BE ASCERTAINED AND SECONDLY, THE SAME WAS IN ACCORDANCE WITH PARA 5.3 OF GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IN TERMS OF THE SAID GUIDANCE NOTE, ONE OF THE CONDITIONS TO RECOGNIZE THE REVENUE UNDER PERCENTAGE OF COMPLETION METHOD IS THAT ALL THE NECESSARY APPROVALS FOR COMMENCEMENT OF THE PRO JECT WAS OBTAINED BY THE ASSESSEE AND THE PROJECT REACHES A REASONABLE L EVEL OF DEVELOPMENT. THE PERUSAL OF DOCUMENTS ON RECORD WOULD REVEAL THA T THE COMMENCEMENT CERTIFICATE FOR THIS PROJECT HAS BEEN GRANTED TO THE ASSESSEE BY THE MUNICIPAL AUTHORITIES ONLY ON 21/04/2011 AND THE PE RMISSION TO OCCUPY THE BUILDING HAS BEEN GRANTED ON 24/09/2012 WHICH LEND CERTAIN CREDENCE TO THE SUBMISSIONS OF LD. AR, IN THIS REGARD. IT IS AL SO UNDISPUTED FACT THAT THE EXPENDITURE OF RS.151.06 LACS INCURRED BY THE ASSES SEE ON THIS PROJECT HAS BEEN DEFERRED AS WIP IN THE BALANCE SHEET UNDER THE HEAD CURRENT ASSETS. THE PERUSAL OF NATURE OF THE EXPENDITURE, AS PLACED ON PAGE NO. 54 OF THE PAPER-BOOK, R EVEAL THAT MAJORITY OF THE SAME ARE IN THE NATURE O F TDR PURCHASE, DEVELOPMENT RIGHTS, MUNICIPAL CHARGES ETC . AND A VERY MINISCULE PORTION OF THE SAME HAS GONE TOWARDS CONSTRUCTION E XPENSES. 4.3 ANOTHER IMPORTANT ASPECT TO BE NOTED IS THAT LD . AR, ON THE STRENGTH OF FINANCIAL STATEMENTS / SALES TRANSACTIONS FOR SUCCE EDING YEAR, HAS DEMONSTRATED THAT THE AFORESAID SALES HAVE ALREADY BEEN ACCOUNTED FOR IN THE PROFIT & LOSS ACCOUNT AND OFFERED TO TAX BY THE ASSESSEE DURING AY 2012-13 AND THEREFORE, THE ADDITION OF THE SAME IN THIS AY WOULD AMOUNT TO 6 ITA NO.6776/MUM/2016 M/S. K. PATEL & CO. ASSESSMENT YEAR-2011-12 DOUBLE TAXATION. WE CONCUR WITH THE SAME SINCE THER E WAS NO REVENUE LEAKAGE AND THE TRANSACTION WAS TAX NEUTRAL. 4.4 KEEPING IN VIEW THE TOTALITY OF FACTUAL MATRIX, WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED ADDITION COULD NOT BE SUS TAINED. BY DELETING THE SAME, WE ALLOW THIS GROUND OF APPEAL. 4.5 THE SECOND GROUND QUA INTEREST U/S 234B/C IS MERELY CONSEQUENTIAL IN NATURE AND HENCE DO NOT REQUIRE ANY ADJUDICATION. 5. THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13/03/2019 SR.PS:-JAISY VARGHESE ! '! / 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