DCIT 8(2), MUMBAI V. KAYAB ENTERPRISES P. LTD, MUMBAI

ITA 6864/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62537 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINIVAS REDDY
• Assessee Lawyers: B N RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI I.P.BANSAL (J.M) & SHRI B.RAMAKOTAI AH(AM) ITA NO. 6864/MUM/2010(A.Y. 2007-08) THE DCIT 8(2), ROOM NO.216-A, AAYKAR BHAVAN, M.K.ROAD, MUMBAI - 20 (APPELLANT) VS. M/S. KAYFAB ENTERPRISES PVT. LTD., E-3, DHARAM BUILDING, PARASHWANATH NAGAR, JAI MANDIR ROAD, MULUND (W) MUMBAI - 400 080 (RESPONDENT) APPELLANT BY : SHRI SRINIVAS REDDY RESPONDENT BY : SHRI B.N.RAO DATE OF HEARING : 06/06/2012 DATE OF PRONOUNCEMENT : 20/06/2012 ORDER PER I.P.BANSAL, J.M THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-18, MUMBAI DATED 29/07/2010 FO R THE ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DELETING DISALLOWANCE OF RS 1,62 ,56,364/- RELATED TO THE PRIOR PERIOD EXPENSES OF MANAGEMENT FEES PAYME NT IGNORING THE FACT THAT THE ASSESSING OFFICER HAD RIGHTLY WORKED OUT THE SAME AS PER AGREEMENT @ 13.5% OF THE OPENING BALANCE OF ADVANCE S FROM THE CUSTOMERS WHICH WERE SHOWN AT RS 12,04,17,514/- AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THAT PROJECT MANAG EMENT FEES HAVE BEEN PAID @ 14.42%, EVEN THOUGH AS PER AGREEMENT TH E ASSESSEE WAS LIABLE TO PAY PROJECT MANAGEMENT FEES @ ONLY 13% OF GROSS SALES, AS THE PROJECT MANAGER FAILED TO COMPLETE THE PROJECT WITHIN 54 MONTHS FROM THE DATE OF AGREEMENT I.E. 23.08.2002, AS EVI DENT FROM THE FACT THAT THE PROJECT WENT ON UPTO 2009 ITA NO. 6864/MUM/2010(A.Y. 2007-08) 2 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAIMED PROJECT MANAGEMENT F EE OF RS.3,39,25,926/- WHICH WAS PAID TO M/S. KUMAR BUILDERS AS PER AGREE MENT DATED 22/8/02. AS PER THE AGREEMENT THE ASSESSEE APPOINTED M/S. K UMAR BUILDERS FOR THE PLANNING, MANAGEMENT, SUPERVISION AND EXECUTION OF ITS PROJECT AT GULTEKADI, PUNE AND M/S. KUMAR BUILDERS WERE TO BE PAID REMUNERATION @ 13.50% OF GROSS SALES PROCEEDS RECEIVED BY THE ASSE SSEE FROM PROSPECTIVE PURCHASERS OF FLATS/ SHOPS/ UNITS IN THE SAID PROJE CT. THE REMUNERATION WAS PAYABLE ON PRO-RATA BASIS AS AND WHEN THE INSTALLME NT TOWARDS AGREED SALE PRICE OF THE SAID FLATS/ SHOPS/ UNITS ARE RECEIVED FROM THE PURCHASER. IT WAS FURTHER NOTICED BY THE AO THAT AS ON 31/3/2007 THE OPENING BALANCE OF ADVANCES RECEIVED BY THE ASSESSEE FROM THE CUSTOMER S WERE SHOWN AT RS. 12,04,17,514/- AND PROJECT MANAGEMENT FEE RELATING TO THE SAME WAS NOT CHARGED IN THE BOOKS FOR A.Y 2006-07. BEING OF TH E VIEW THAT THE SAME SHOULD HAVE BEEN CHARGED IN A.Y 2006-07 ON PRO-RAT A BASIS THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROJECT MANAG EMENT FEE WAS NOT DEBITED IN EARLIER YEAR AND THE PROJECT MANAGEMENT FEE RELATED TO FINANCIAL YEAR 2006-07 ONLY BE ALLOWED FOR A.Y. 2007-08. THE REPLY OF THE ASSESSEE AS PER LETTER DATED 25/12/2009 WAS AS FOLLOWS: MANAGEMENT DECIDED THAT INITIAL PHASE OF PROJECT M ANAGEMENT FEES WOULD NOT BE LOADED AND SAME WILL BE PROVIDED IN N EXT YEAR. THIS IS IN RESPECT OF PREVIOUS YEAR ENDED 31/3/2006 OBSERVING FROM THE AGREEMENT THE AO OPINED THAT TH E PROJECT MANAGEMENT FEE WAS PAYABLE BY THE ASSESSEE ON ACCRUAL BASIS WH ICH COULD NOT BE ARBITRARILY POSTPONED. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, PROJECT MANAGEMENT FEE SHOUL D HAVE BEEN CLAIMED IN THE YEAR IN WHICH IT WAS INCURRED. ACCORDINGLY A. O COMPUTED AN AMOUNT OF RS. 1,62,56,364/- BEING 13.50% OF RS. 12,04,17,514/ - AND OBSERVED THAT SUCH AMOUNT HAS TO BE DISALLOWED. HOWEVER, WHILE M AKING THE COMPUTATION OF ASSESSABLE INCOME AO ADDED A SUM OF RS. 1,76,69 ,562/- INSTEAD OF RS. ITA NO. 6864/MUM/2010(A.Y. 2007-08) 3 1,62,56,364/-. THE AMOUNT OF RS.1,76,69,562/- WAS HELD TO BE ALLOWABLE BY THE AO FOR A.Y 07-08. 3. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE CONTENTION OF THE ASSESSEE BEFORE LD. CIT(A) WAS T HAT AS PER CLAUSE-15 OF THE AGREEMENT , THE PROJECT MANAGER WILL BE PENALIZED B Y 0.5% IF THE PROJECT IS NOT COMPLETED WITHIN 54 MONTHS FROM DATE OF COMPL ETION OF THE PROJECT AND THEY WILL BE ENTITLED 13% OF THE GROSS SALE PROCEE DS AS THEIR REMUNERATION. ON THE CONTRARY IF THE PROJECT IS COMPLETED WITHIN A PERIOD OF 36 MONTHS , PROJECT MANAGER WILL BE ENTITLED TO GET 0.5% MORE THAN THE AGREED PRICE OF 13.5% TO 14.00% OF THE GROSS SALE PROCEEDS SUMMARY OF THE PROJECT MANAGEMENT FEE BOOKED IN VARIOUS YEARS WAS SUBMITTE D IN THE FORM A CHART WHICH IS ALSO REPRODUCED BELOW: YEAR GROSS SALES(RS. IN LCAS) PROJECT MANAGEMENT GE ES IDENTIFIABLE TO THE GROSS SALES PROCEEDS MENTIONED IN SECOND COLUMN (RS. IN LACS) 2006 1032.89 NIL 2007 2730.92 33 9.26 2008 1236.96 165 .34 2009 193.82 22.04 REFERRING TO THE AFOREMENTIONED CHART IT WAS PLEADE D THAT NO PROJECT MANAGEMENT FEE WHATSOEVER RELATING TO GROSS SALES E FFECTED BY THE ASSESSEE IN A.Y 2006 WAS EVER PAID. DURING THE YEAR THE AS SESSEE HAD CLAIMED PROJECT MANAGEMENT FEE OF RS. 3,39,25,926/- AGAINST THE SALE PROCEEDS COLLECTED IN F.Y 2007 AMOUNTING TO RS.2730.92 LACS. THUS IT WAS PLEADED THAT AO IS INCORRECT IN ASSUMING THAT THE PROJECT MANAGEMENT FEE OF RS. 3,39,25,926/- CLAIMED DURING THE YEAR WAS PERTAINI NG TO TWO YEARS. 3.1 ON THESE SUBMISSIONS OF THE ASSESSEE LD. CIT(A ) HAS RECORDED A FINDING THAT THE POSITION OF GROSS SALES OF THE ASS ESSEE, PROJECT MANAGEMENT FEE IDENTIFIABLE TO GROSS SALES AND PERCENTAGE OF G ROSS PROCEEDS ARE AS UNDER: ITA NO. 6864/MUM/2010(A.Y. 2007-08) 4 YEAR GROSS SALES(RS. IN LCAS) PROJECT MANAGEMENT GEES IDENTIFIABLE TO THE GROSS SALES PROCEEDS MENTIONED IN SECOND COLUMN (RS. IN LACS) PERCENTAGE OF GROSS PROCEEDS 2006 1032.89 NIL NI L 2007 2730.92 339.26 14 .42% 2008 1236.96 165.34 13 .36% 2009 193.82 22.04 1 1.37% 3.2 LD. CIT(A) FURTHER OBSERVED THAT FROM THE P&L A CCOUNT FOR A.Y 2006-07 IT IS EVIDENT THAT NO PROJECT MANAGEMENT FEE WAS DE BITED TO P&L ACCOUNT. AN AMOUNT OF RS. 3,39,25,926/- WAS DEBITED IN A.Y 2007 -08. THE P&L ACCOUNT OF M/S. KUMAR BUILDERS HAS SHOWN THAT THE SAID AMOU NT WAS OFFERED BY THEM IN A.Y 2007-08 BEING PROJECT MANAGEMENT FEE OF RS. 3,39,25,926/- AND NO SUCH FEE WAS OFFERED BY THEM IN RESPECT OF A.Y 2 006-07. IT IS ALSO OBSERVED BY LD. CIT(A) THAT ASSESSEE HAS DEDUCTED T DS ON THE FEES PAID BY IT TO M/S. KUMAR BUILDERS. THE TDS OF RS. 18,99,853/- WAS DEDUCTED ON THE FEES OF RS. 3,39,25,926/- AND WAS PAID TO GOVERNME NT ACCOUNT BY 31/3/2007 AND IN VIEW OF THESE FACTS AND DETAILS LD . CIT(A) HAS RETURNED A FINDING THAT ASSESSEE DID NOT CLAIM ANY PROJECT MAN AGEMENT FEE PERTAINING TO A.Y 2006-07 AND THE ENTIRE FEE OF RS. 3,39,25,92 6/- PERTAINS TO A.Y 2007- 08 AND AS THE ASSESSEE HAS NOT CLAIMED ANY PRIOR PE RIOD EXPENDITURE, THE ADDITION WAS NOT WARRANTED AND THE DISALLOWANCE WAS DELETED. 4. AFTER NARRATING THE FACTS, RELYING UPON THE ASSE SSMENT ORDER IT WAS PLEADED BY LD. D.R THAT ADDITION WAS RIGHTLY MADE BY AO AND IT HAS WRONGLY BEEN DELETED BY THE LD. CIT(A). ITA NO. 6864/MUM/2010(A.Y. 2007-08) 5 5. ON THE OTHER HAND, RELYING UPON THE ORDER PASSED BY LD. CIT(A) AND DETAILS SUBMITTED BEFORE HIM, LD. A.R PLEADED THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. A FINDING HAS BEEN RECO RDED BY LD. CIT(A) THAT THE ENTIRE PROJECT MANAGEMENT FEE DEBITED BY THE AS SESSEE IN ITS P&L ACCOUNT FOR THE IMPUGNED ASSESSMENT YEAR AMOUNTING TO RS. 3,39,25,926/- WAS IN RESPECT OF IMPUGNED ASSESSMENT YEAR ONLY. T HE ASSESSEE DID NOT CLAIM ANY PROJECT MANAGEMENT FEE RELATING TO A.Y 20 06-07. THESE FINDINGS OF LD. CIT(A) HAVE NOT BEEN CONTROVERTED BY PLACING AN Y MATERIAL ON RECORD BY THE REVENUE. THE ASSESSEE HAS ALSO DEDUCTED TDS ON THE ENTIRE AMOUNT CLAIMED BY IT AS PROJECT MANAGEMENT FEE DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE DISALLOWANCE WAS NOT WARRANTED. KEEPING IN VIEW ALL THESE FACTS, WE ARE OF THE OPINION THAT AD DITION HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A). WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. CIT(A) TO THE ASSESSEE. 7. SO FAR AS IT RELATES TO GROUND NO.2 FILED BY THE REVENUE, IT IS NOTICED THAT THIS GROUND OF REVENUE IS MISCONCEIVED. AMOU NT OF RS. 3,39,25,926/- IS 12.42 % OF GROSS SALES OF RS. 27,30,92,000/- AND IT IS NOT 14.42% AS DESCRIBED IN TABLE OF LD. CIT(A). THUS THE PERCENT AGE CLAIMED BY THE ASSESSEE DOES NOT EXCEED 13% AND THE SECOND GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH DAY OF JUNE, 2012 SD/- SD/- ( B.RAMAKOTAIAH ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 2OTH JUNE, 2012 ITA NO. 6864/MUM/2010(A.Y. 2007-08) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R A BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.