ITO 22(3)(2), NAVI MUMBAI V. MITKAR CONSTRUCTION, NAVI MUMBAI

ITA 6777/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9970 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K AGARWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.6777 /MUM/2014 (ASSESSMENT YEAR: 2009-10) INCOME TAX OFFICER - 22(3)(2) VS. M/S. MITKAR CONSTRUCTION ROOM NO. 307, TOWER NO. 6 VASHI RLY. STATION COMPLEX VASHI, NAVI MUMBAI 400703 OFFICE NO. 9, PLOT NO. 120 ORION BLDG., SECTOR 50E SEAWOODS, NERUL NAVI MUMBAI 400706 PAN AALFM1336Q APPELLANT RESPONDENT APPELLANT BY: SHRI V.K. AGARWAL RESPONDENT BY: SHRI PRAKASH PANDIT DATE OF HEARING: 29.05.2017 DATE OF PRONOUNCEMENT: 10.07.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-33, MUMBAI DATED 28.08.2014 PERTAINING TO A. Y. 2009-10. 2. THE ONLY ISSUE IN THE APPEAL IS WITH REGARD TO DELE TION OF PENALTY LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE INC OME TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM FOLLOWING THE PERCENTAGE COMPLETION METHOD CONSISTE NTLY SINCE ITS INCEPTION FOR ASCERTAINING ITS PROFIT. DURING THE Y EAR UNDER CONSIDERATION THE ASSESSEE HAS DECLARED PROFIT OF ITS PROJECT ON A PLOT OF LAND SITUATED BEING PLOT NOS. 110 AND 110A AT NAVI MUMBAI FROM A. Y. 2009-10 TO 2012- 13 AT ` 1,32,67,807/-. AS PER THE SANCTIONED PLAN THERE WER E 34 FLATS TO BE CONSTRUCTED. THE SAID PLOTS WERE PURCHASED BY THE A SSESSEE IN THE ASSESSMENT YEARS 2007-08 AND 2008-09. DURING A.Y. 2 008-09 THE ASSESSEE RECEIVED CERTAIN ADVANCES. HOWEVER, THE CONSTRUCTIO N OF THE BUILDING DID NOT REACH THE STAGE OF 25% COMPLETION. THE ASSESSEE THEREFORE DISCLOSED NIL ITA NO. 6777/MUM/2014 M/S. MITKAR CONSTRUCTION 2 PROFIT DURING THAT ASSESSMENT YEAR BUT IN THE SUBSE QUENT ASSESSMENT YEAR THE ASSESSEE HAS DISCLOSED THE PROFIT AS UNDER: - A.Y. WORK IN PROGRESS IN ` PERCENTAGE OF COMPLETION PROFIT 2008 - 09 2,08,40,060/ - LESS THAN 25% NIL 2009 - 10 1,29,68,000/ - 70% 13,60,559/ - 2010-11 40,00,540/- 95% 46,60,455/- 2011-12 NIL 100 NIL IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE SOLD 1 7 FLATS, REGISTERED THE AGREEMENTS AND RECEIVED THE ENTIRE CONSIDERATION. T HE ASSESSEE ALSO RECEIVED COMPLETION CERTIFICATE. THE REMAINING FLAT S WERE SOLD IN THE A.Y. 2010-11. THE PROJECT, HOWEVER, AS PER THE ASSESSEE, CONTINUED AND COULD NOT BE COMPLETED AS ITS OUTER PLASTERING AND TILES WORK WERE IN FULL SWING. THE ASSESSEE HAS DISCLOSED THE COST OF SUCH EXPENDI TURE TO THE EXTENT OF ` 1,79,88,493/- IN THE A.Y. 2010-11. THE AO WAS OF TH E VIEW THAT THE PROFIT OF THE ENTIRE PROJECT COMPLETED ON PLOT NOS. 110 AN D 110A SHOULD BE TAXED IN A.Y. 2009-10 AS THE ASSESSEE HAS RECEIVED OCCUPA TION CERTIFICATE AND EXECUTED SALE AGREEMENTS FOR 50% OF THE FLATS. THE ASSESSEE EXPLAINED TO THE AO THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD AND UNTIL AND UNLESS THE PROJECT IS COMPLETE D THE ASSESSEE CANNOT DISCLOSE THE PROFIT ON THE BASIS OF THE SALE OF FLA TS. THE AO DID NOT AGREE WITH THE ASSESSEE AND ULTIMATELY THE MATTER TRAVELL ED TO THE TRIBUNAL. 4. THE TRIBUNAL IN PARA 8 OF ITS ORDER HELD THAT THE ASSESSEE HAS RECEIVED FULL SALE CONSIDERATION IN RESPECT OF 31 F LATS OUT OF 34 FLATS MAKING THE ENTIRE PROJECT 91.17% COMPLETE. THEREFORE THE ASSES SEE OUGHT TO BE TAXED FOR THE 91.17% OF THE PROJECT IN THE YEAR UNDER CONSIDE RATION . BUT THE FACT REMAINS THAT THE TOTAL PROFIT OF THE ENTIRE PROJECT AT RS.1,32,67,807/- HAS BEEN ACCEPTED. THE AO ACCORDINGLY FOR THE IMPUGNED ASSESSMENT YEAR DETERMINED THE PROFIT AT RS.1,20,96,260/- AGAINST T HE RETURNED PROFIT OF RS.13,60,559/- AND INITIATED PENALTY UNDER SECTION 271(1)(C). IN REPLY THE ASSESSEE SUBMITTED THAT THE ENTIRE CONSIDERATION AS WELL AS THE PROFIT OF THE PROJECT HAS NOT BEEN DISPUTED. THE ASSESSEE WAS FOL LOWING THE PROJECT COMPLETION METHOD AND NOT SALES COMPLETION METHOD A ND ASSESSEES CASE ITA NO. 6777/MUM/2014 M/S. MITKAR CONSTRUCTION 3 IS REVENUE NEUTRAL AS THE INCOME RETURNED BY THE AS SESSEE DURING A.Y. 2010-11 AND 2011-12 HAS ALREADY BEEN ASSESSED. THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. REAL CAST BUILDERS & SERVICES LTD. 307 ITR 202. THE AO DID NO T AGREE BUT LEVIED PENALTY ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. 5. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE PENALTY BY OBSERVING AS UNDER: - 2.9 I HAVE GONE THROUGH THE SUBMISSIONS AND PERSUA DED THE MATERIAL ON RECORD IN THE FORM OF ASSESSMENT ORDER PASSED BY THE A.O. IN PURSUANCE OF THE DIRECTIONS OF ITAT. AFTER GOING TH ROUGH THE RECORDS, UNDOUBTEDLY THE PROFIT OF THE ENTIRE PROJECT IS RS. 1,32,67,807/. WHAT WAS DISPUTED WAS THE YEAR OF TAXABILITY OF TAXING T HE SAID INCOME. ALL MATERIAL FACTS HAVE BEEN DISCLOSED IN THE RETURN OF INCOME AND IN ASSESSMENT PROCEEDINGS AS WELL. THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. IT WOULD BE IMPROPER TO PENA LIZE THE ASSESSEE FOR NOT OFFERING THE SAID AMOUNT OF RS. (1,20,96,26 0 - 13,60,559) 1,08,89,561/- IN THE ASSESSMENT YEAR 2009-10. ACCOR DINGLY PENALTY LEVIED OF RS. 36,78,878/- IS HEREBY DELETED BECAUSE OF THE FACTUAL MATRIX OF THE CASE WHICH PROVES THAT THE ASSES SEE HAS NEITHER CONCEALED THE INCOME NOR HAS FURNISHED INACCURATE P ARTICULARS OF INCOME. FOR THAT PURPOSE, I ALSO RELY UPON THE JUDG MENT OF SUPREME COURT IN RELIANCE PETRO PRODUCTS LTD. 322 LTR PG. 1 58, METAL ROLLING WORKS 339 ITR PG. 373, JAIN ASSOCIATES (2012) 19 IT R PG. 824, OTIS ELEVATOR (2013) 27 1TR (TRIBUNAL) 303. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW. IT IS NOT DISPUTED THAT THE TOTAL PROFIT DURING VARIOUS ASSESSMENT YEARS HAVE BEEN DETERMINED IN THE CASE O F THE ASSESSEE AT ` 1,32,67,807/-. IT IS ALSO NOT DISPUTED THAT THE ASS ESSEE WAS FOLLOWING PROJECT COMPLETION METHOD. IN OUR OPINION THERE IS DIFFERENCE IN THE PROJECT COMPLETION METHOD AND SALES COMPLETION METHOD. THE ASSESSEE, WE NOTED, HAS ULTIMATELY BEEN ASSESSED ON THE BASIS OF SALES COMPLETION WHILE THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE PROJECT COM PLETION METHOD. A PROJECT WILL SAID TO BE COMPLETED WHEN IT GOT COMPL ETED IN ALL RESPECT. ANYHOW, THE METHOD OF DETERMINATION OF PROFIT IN TH E CASE OF THE ASSESSEE DURING THE ASSESSMENT YEAR WAS DEBATABLE. WE HAVE G ONE THROUGH THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF C IT VS. REAL CAST ITA NO. 6777/MUM/2014 M/S. MITKAR CONSTRUCTION 4 BUILDERS & SERVICES LTD. 307 ITR 202 ON WHICH THE L EARNED A.R. HAS VEHEMENTLY RELIED UPON. WE NOTED THAT IN THIS CASE THE HON'BLE SUPREME COURT HAS HELD AS UNDER: - IT SHOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTIN G FOLLOWED BY THE ASSESSEE IN THE PAST AND WHETHER CHANGE IN METHOD O F ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFIT IS BEING ES TIMATED UNDER THE IMPUGNED METHOD OF ACCOUNTING. IF THE AO COMES TO C ONCLUSION THAT THERE IS UNDER ESTIMATION OF PROFIT, HE MUST GIVE F ACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT IMPUG NED METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER ESTIMATION OF PROFIT AND IS THEREFORE, REJECTED. OTHERWISE THE PR ESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. 7. RESPECTFULLY FOLLOWING THE SAID DECISION, IN OUR OP INION THE CASE OF THE ASSESSEE IS DULY COVERED BY THE AFORESAID DECIS ION AS THE ENTIRE EXERCISE IN THE CASE OF THE ASSESSEE IS ALSO REVENUE NEUTRAL . IN VIEW OF THE AFORESAID DECISION OF THE HON'BLE SUPREME COURT IN OUR VIEW N O INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) AND THE CIT(A) HAS RIGHT LY DELETED THE PENALTY LEVIED UNDER SECTION 271(1)(C). 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 10 TH JULY, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -33, MUMBAI 4. THE CIT - 22, MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.