ESKAYS CONSTRUCTIONS PRIVATE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 47, MUMBAI

ITA 7285/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3674 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Assessee Lawyers: MILIN BAKHAI
• Section: 271(1)(c)

Judgement Text

P A G E | 1 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI RAVISH SOOD , JUDICIAL MEMBER ITA NO.7285 /MUM/2017 (ASSESSMENT YEAR: 2010 - 11 ) M/S ESKAYS CONSTRUCTIONS PVT. LTD., 16 TH FLOOR, B WING, MITTAL TOWER, NARIMAN POINT, MUMBAI 400 021 VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50, ROOM NO. 514, 5 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 400 021 PAN AAACE1223E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MILIN BAKHAI, A.R RESPONDENT BY: SHRI RAJEEV GUBGOTRA, D.R DATE OF HEARING: 21.08 .2019 DATE OF PRONOUNCEMENT: 2 8 .08.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 50, MUMBAI, DATED 26.02.2016, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 27.09. 2017 FOR A.Y. 2010 - 11. THE ASSESSEE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS OF APPEAL BEFORE US: 1. THE LEARNED COMMI SSIONER OF INCOME TAX (APPEAL) { CIT(A)} HAS ERRED IN LE VYI NG PENALTY OF RS.25,55,610 / - UNDER SECTION 271( 1 )(C) OF THE INCOME TAX ACT, 1961 ('ACT.'). ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF P A G E | 2 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50 THE CASE, SAID ORDER IS OUGHT TO BE QUASHED OR PENALTY LEVIED OUGHT TO BE DELETED ON THE FOLLOWING GROUND: (A) THE ORDER IS PASSED BEYOND THE TIME ALLOWED U/S 275(1)(A) OF THE AC T AND IS INVALID. (B) THE QUANTUM ON WHICH PENALTY IS LEVIED DOES NOT RESULTED INTO ENHANCEMENT, THE ORDER PASSED IS INVALID. (C) THE APPELLANT HAS MADE F ULL DISCLOSURE IN T HE RETURN OF INCOME AND AT THE T IME OF ASSESSMENT PROCEEDINGS. (D) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR RESCIND ANY GROUNDS OF APPEAL DURING THE COURSE OF THE HEARING. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT HAD E - FILED ITS RETURN OF INCOME FOR A.Y. 2010 - 11 ON 28.09.2010, DECLARING ITS TOTAL INCOME AT RS.65,27,110/ - . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). THE A.O WHILE FRAMING THE ASSESSMENT MADE THE FOLLOWING ADDITIONS/DISALLOWANCES VIDE HIS ORDER PASSED UNDER SEC.143(3), DATED 28.03.2013: SR. NO. PARTICULARS AMOUNT 1. ADDITION ON ACCOUNT OF UNDERSTATEMENT OF SALE PROCEEDS IN RESPECT OF FLAT SOLD DURING THE YEAR. RS.4,00,00,000/ - 2. ADDITION TOWARDS PROFIT UNDER PERCENTAGE COMPLETION METHOD. RS.2,39,00,000/ - 3. DISALLOWANCE OF LOAN PROCESSING CHARGES. RS.1,40,77,082/ - ACCORDINGLY, THE INCOME OF THE ASSESSEE COMPANY WAS ASSESSED AT RS.8,45,04,190/ - . 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE CIT(A). THE CIT(A) AFTER NECESSARY DELIBERATIONS DELETED THE ADDITION OF RS.4,00,00,000/ - ON ACCOUNT OF UNDERSTATEMENT OF SALE PROCEEDS IN RESPECT OF A FLAT THAT WAS SOLD BY THE ASSESSEE. ALSO, THE DISALLOWANCE OF LOAN PROCESSING CHARGES O F RS.1,40,77,082/ - WAS VACATED BY HIM. AS REGARDS THE ADDITION OF RS.2,39,00,000/ - MADE BY THE A.O TOWARDS PROFIT UNDER PERCENTAGE COMPLETION METHOD IN THE HANDS OF THE ASSESSEE, THE BASIS ADOPTED BY THE A.O FOR WORKING OUT THE SAID ADDITION WAS NOT ACCEPTED BY THE CIT(A). AS A MATTER OF FACT , THE CIT(A) P A G E | 3 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50 ACCEPTED THE METHOD OF REVENUE RECOGNITION THAT WAS FOLLOWED BY THE ASSESSEE. HOWEVER, THE CIT(A) BY ADOPTING THE AVERAGE SALE PRICE OF THE UNSOLD AREA AT RS.28,808/ - (AS AGAINST RS.28,000/ - THAT WAS ADOPTED BY THE ASSESSEE) RECOMPUTED THE PROFIT AT RS.1,73,65,456/ - ( AS AGAINST THE PROFIT WORKED OUT BY THE ASSESSEE AT RS.88,46,754/ - ) . ACCORDINGLY, THE CIT(A) SUSTAINED THE ADDITION OF RS.85,18,702/ - [RS.1,73,65,456/ - ( - ) RS.88,46,754/ - ], AS AGAINST THE ADDITION OF RS.2,39,00,000/ - MADE BY THE A.O. THE CIT(A) ALSO INITIATED PENALTY PROCEEDINGS UNDER SEC. 271(1)(C) FOR FURNISHING OF INACCURATE PARTICULARS IN RESPECT OF THE AFORESAID ADDITION . 4. THE A.O AFTER RECEIVING THE ORDER OF THE CIT(A), DATED 26.02 .2016 IN THE QUANTUM APPEAL OF THE ASSESSEE , IMPOSED PENALTY UNDER SEC.271(1)(C) OF RS.25,55,610/ - AS REGARDS THE AFORESAID ADDITION OF RS.85,18,702/ - THAT WAS UPHELD BY HIM. 5. AGGRIEVED, THE ASSESSEE ASSAILED THE PENALTY IMPOSED UNDER SEC.271(1)(C) BEFOR E THE CIT(A). HOWEVER, THE CIT(A) NOT FINDING FAVOUR WITH THE CONTENTION S ADVANCED BY THE ASSESSEE UPHELD THE PENALTY OF RS.25,55,610/ - IMPOSED BY THE A.O UNDER SEC. 271(1)(C) OF THE ACT. 6. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT( A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE HAD SUBMITTED THAT THE ADDITION OF RS.85,18,702/ - AS REGARDS THE PROFIT IN RESPECT OF THE UNSOLD AREA THAT WAS SUSTAINED BY THE CIT(A) (BY A DOPTING THE AVERAGE SALE PRICE AT RS.28,808/ - ) WHILE DISPOSING OFF THE QUANTUM APPEAL OF THE ASSESSEE, VIDE HIS ORDER DATED 26.02.2016 , HAD BEEN DELETED BY THE TRIBUNAL VIDE ITS ORDER VIZ. DY. CIT, CENTRAL CIRCLE - 8(4), MUMBAI VS. M/S ESKAYS CONSTRUCTION P VT. LTD. (ITA NO. 3722/MUM/2016, DATED 10.07.2019) (COPY PLACED ON RECORD) . IT WAS SUBMITTED BY THE LD. A.R , THAT NOW WHEN THE QUANTUM ADDITION HAD BEEN VACATED BY THE P A G E | 4 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50 TRIBUNAL, THEREFORE, THE PENALTY IMPOSED UNDER SEC. 271(1)(C) CANNOT BE SUSTAINED AND H A S TO MEET THE SAME FATE. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) DID NOT CONTROVERT THE AFORESAID CLAIM OF THE COUNSEL FOR THE ASSESSEE. 8. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL WHILE DISPOSING OFF THE QUANTUM APPEAL OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2010 - 11 HAD VACATED THE ADDITION OF RS.85,18,702/ - THAT WAS CONFIRME D BY THE CIT(A). THE TRIBUNAL WHILE VACATING THE AFORESAID ADDITION HAD OBSERVED AS UNDER: 7.1. THE NEXT ASPECT TO BE DECIDED WITH REGARD TO THE ADDITION OF RS 2.39 CRORES IS WITH REGARD TO THE VALUATION OF UNSOLD FLATS AS ON 31.3.2010. THE ASSESSEE HAD VALUED THE UNSOLD FLATS THE LOWER OF COST OR MARKET VALUE AS ON 31.3.2010, WHICH IS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR VALUATION OF INVENTORIES. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM V S . CIT R EPORTED IN 24 ITR 481 (SC) AND UNITED COMMERCIAL BANK VS. CIT REPORTED IN 106 TAXMAN 601 (SC) HAD ACCEPTED THE BASIS OF VALUATION OF INVENTORIES AT LOWER OF COST OR MARKET VALUE AND HAD ALSO HELD THAT NO PROFIT COULD ARISE OUT OF VALUATION OF CLOSING STOCK . THEIR LORDSHIPS HELD THAT VALUATION OF UNSOLD STOCK AT THE CLOSE OF AN ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULTS OF THAT PERIOD AND CAN IN NO SENSE BE REGARDED AS THE SOURCE OF SUCH PROFITS. WE FIND THAT THE LD CITA BY VALUING UNSOLD FLATS AT THE AVERAGE OF SALE PRICE LD. CIT(A) HAD ASSESSED PROFIT ATTRIBUTABLE TO UNSOLD FLATS WHICH IS NOT PERMISSIBLE. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF HONBLE SUPREME COURT AND APPLYING THE SAME TO THE FACTS OF THE INSTANT CASE BEFORE US, WE DIRECT THE L D A . O . TO ACCEPT THE VALUATION OF UNSOLD FLATS AS ON 31.3.2010 AS DONE BY THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN THE QUANTUM ADDITION OF RS.85,18,702/ - HAD BEEN VACATED BY THE TRIBUNAL, THER EFORE, THE PENALTY OF RS.25,55,610/ - IMPOSED BY THE A.O UNDER SEC.271(1)(C) IN RESPECT OF THE SAID ADDITION CANNOT BE SUSTAINED AND IS ACCORDINGLY P A G E | 5 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50 DELETED. THE G ROUND OF APPEAL NO. 1 IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. 9. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 .08.2019 S D / - S D / - ( SHAMIM YAHYA ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 2 8 .08.2019 P.S ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . P A G E | 6 ITA NO. 7285/MUM/2017 A.Y. 2017 A.Y. 2010 - 11 M/S ESKAYS CONSTRUCTION PVT. LTD. VS. COMMISSIONER OF INCOME - TAX (APPEALS) - 50