PARADISE & BHOOMI DEVELOPERS, MUMBAI V. ACIT 15(3), MUMBAI

ITA 73/MUM/2012

• Counselvise Citation: 7319914 RSA 2012
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHLIP
• Assessee Lawyers: K GOPAL

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./ I.T.A. NO.73/MUM/2012 ( / ASSESSMENT YEAR :2007-08) PARADISE & BHOOMI DEVELOPERS, 102-A,BLDG. NO.29, PARADISE ARCADE, TILAK NAGAR, CHEMBUR, MUMBAI-400089 / VS. ASSTT. COMMISSIONER OF INCOME TAX 15(3), MUMBAI. ( / APPELLANT) .. ( ! / RESPONDENT) ./ #$ ./ PAN/GIRNO.:AAIFP4078K % / ASSESSEE BY : SHRI K GOPAL ! & % /RESPONDENT BY : SHRI NEIL PHLIP. ' ( & ) * / DATE OF HEARING : 29.12.2014 +, & ) * /DATE OF PRONOUNCEMENT : 07.01.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.10.2011 PASSED BY LD CIT(A)-26, MUMBAI AND IT RELATES TO TH E ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE FOLLOWING ADDITIONS : A) DISALLOWANCE OF UNADJUSTED PROFIT TAXED IN AY 20 05-06 RS.3,48,712; B) ADDITION ON ACCOUNT OF REVISED VALUE OF UNUTILIZ ED FSI RS.3,74,716/-; C) DISALLOWANCE OF LABOUR EXPENDITURE RS.2,81,600/- D) DISALLOWANCE OF EXPENDITURE INCURRED ON RENT RS. 2,52,000/- E) DISALLOWANCE OF EXPENDITURE INCURRED ON PURCHASE OF RAW MATERIAL RS.4,78,000/- 3. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGE D IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATES. IT FILED ITS RETURN O F INCOME ON 2.10.2007 DECLARING A TOTAL INCOME OF RS.37,47,327/-. THEREAFTER, TH E ASSESSEE REVISED THE RETURN OF ITA NO.73/M/12 2 INCOME TWICE. THE AO COMPLETED THE ASSESSMENT BY MA KING VARIOUS ADDITIONS. IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) AL LOWED THE APPEAL PARTLY. STILL AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFOR E THE TRIBUNAL. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF U NADJUSTED PROFIT TAXED IN ASSESSMENT YEAR 2005-06 AMOUNTING TO RS.3,48,712/-. THE FACTS RELATING TO THE SAME ARE THAT IN THE ASSESSMENT PROCEEDINGS RELEVAN T TO THE ASSESSMENT YEAR 2005-06, THE AO HAS ENHANCED THE PROFIT DECLARED B Y THE ASSESSEE BY RS.3,48,712/-. ACCORDING TO LD A.R, THE ASSESSEE WAS OFFERING INCOME FROM EXECUTION OF BUILDING PROJECTS ON PERCENTAGE COMPLE TION METHOD AND HENCE, ANY VARIATION OF INCOME MADE IN ONE YEAR WOULD HAVE CAS CADING EFFECT ON THE PROFIT TO BE ASSESSED IN THE FINAL YEAR OF THE PROJECT. ACCOR DING TO THE LD. AR, THE RELEVANT PROJECT GOT COMPLETED DURING THE YEAR UNDER CONSIDE RATION AND HENCE, THE ASSESSEE CLAIMED SET OFF OF THE ABOVE SAID AMOUNT O F RS.3,48,712/- AGAINST THE FINAL PROFIT DECLARED BY THE ASSESSEE. HOWEVER, BO TH THE TAXING AUTHORITIES DISALLOWED THE SAID CLAIM. 5. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERU SED THE MATERIAL AVAILABLE ON RECORD. ACCORDING TO THE ASSESSEE, IT HAS CARR IED OUT A PROJECT AND PROFIT WAS DECLARED EVERY YEAR ON SOME BASIS, PENDING COMPLETI ON OF THE PROJECT. HOWEVER, IN ASSESSMENT YEAR 2005-06, THE AO HAS ENHANCED THE PROFIT DECLARED BY THE ASSESSEE BY RS.3,48,712/-. THERE CANNOT BE ANY DOU BT THAT THE PROFIT OF THE PROJECT PER SE ARE ONLY SPREAD OVER THE PERIOD OF T HE PROJECT ON SOME BASIS. HENCE IF ANY ADJUSTMENT IS MADE WITH RESPECT TO THE PROFIT DECLARED IN ANY ONE OF THE YEAR, THE SAME SHALL HAVE CASCADING EFFECT ON THE REMAINING AMOUNT OF THE PROFIT TO BE DECLARED IN THE FINAL YEAR OF COMPLETI ON OF PROJECT. SINCE THE AGGREGATE OF PROFIT CANNOT CHANGE UNDER THIS PRINC IPLE, IF THE PROFIT DECLARED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS EN HANCED, THEN EQUIVALENT AMOUNT OF ENHANCEMENT IS REQUIRED TO BE SET OFF AGA INST THE PROFIT COMPUTED IN THE FINANCIAL YEAR OF THE PROJECT, I.E., THE NET EF FECT OF THIS ADJUSTMENT IS THAT THE NET PROFIT FROM THE PROJECT LESS THE AMOUNT OF PROF IT ALREADY ASSESSED IN THE PRIOR YEARS IS REQUIRED TO BE ASSESSED IN THE FINAL YEAR OF THE PROJECT. THOUGH THE LD. AR SUBMITTED THAT THE YEAR UNDER CONSIDERATION IS T HE YEAR IN WHICH THE PROJECT WAS COMPLETED, YET THE SAID FACT IS NOT DISCERNIBLE FROM THE ORDER OF THE ITA NO.73/M/12 3 ASSESSING OFFICER. HENCE THE FACT RELATING TO THE C OMPLETION OF THE PROJECT REQUIRES EXAMINATION AT THE END OF THE AO. ACCORDI NGLY, WE SET ASIDE THE ORDER OF LD.CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ASCERTAIN ABOUT THE COMPLETION OF PROJ ECT AND DECIDE THIS ISSUE IN ACCORDANCE WITH THE DISCUSSION MADE SUPRA. 6. THE NEXT ISSUE RELATES TO THE VALUATION OF UNUT ILIZED FSI. THE AO NOTICED THAT THE ASSESSEE HAS VALUED THE UNUTILIZED FSI AT RS.7,50,000/-. ON MAKING INQUIRY ABOUT THE VALUATION, THE AO NOTICED THAT TH E ASSESSEE HAS VALUED UNUTILIZED FSI ON ITS BASE VALUE WITHOUT INCLUDING OR CONSIDERING RELATED EXPENDITURE INCURRED IN ACQUIRING THE FSI. THE AO ACCORDINGLY REVALUED THE VALUE OF UNUTILIZED FSI AT RS.11,24,716/- BY INCLUD ING ALL DIRECT EXPENSES INCURRED IN ACQUIRING THE FSI. ACCORDINGLY, HE MADE AN ADDI TION OF RS.3,74,716/-. THE LD. CIT(A) ALSO CONFIRMED THE SAID ADDITION. 7. WE HEARD THE PARTIES ON THIS ISSUE. DURING THE C OURSE OF HEARING, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AO, WHILE MO DIFYING THE VALUE OF CLOSING STOCK OF UNUTILIZED FSI, SHOULD HAVE ALSO REVALUED THE OPENING VALUE OF UNUTILIZED FSI. AT THE TIME OF HEARING, THE LD. AR SUBMITTE D THAT THE ASSESSEE HAS NOT ROUTED THE VALUE OF FSI THROUGH THE PROFIT AND LOS S ACCOUNT. HOWEVER, THE LD. DR POINTED OUT THAT THE AO HAS RECORDED A FINDING THAT THE ASSESSEE HAS CREDITED THE VALUE OF UNUTILISED FSI TO THE PROFIT AND LOSS ACCOUNT. 8. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE AS SESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CREDITED VALUE OF UN UTILIZED FSI AMOUNTING TO RS.7,50,000/- TO ITS PROFIT AND LOSS ACCOUNT. HENC E THE SUBMISSION OF LD. AR IN THIS REGARD DOES NOT APPEAR TO BE CORRECT. HOWEVER , IN OUR VIEW, THERE IS SOME MERIT IN THE CONTENTION OF LD A.R THAT THE VALUE OF OPENING STOCK OF UTILIZED FSI SHOULD ALSO HAVE BEEN REVALUED BY THE AO ON IDENTIC AL MANNER. ADMITTEDLY, THE AO HAS NOT DISTURBED THE OPENING VALUE OF UNUTILIZE D FSI. HENCE, IN OUR VIEW THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE T HE SAME TO THE FILE OF AO WITH A DIRECTION TO CONSIDER THE CLAIM OF THE ASSESSEE WIT H REGARD TO THE OPENING STOCK OF UNUTILIZED FSI AND DECIDE THE ISSUE AFRESH IN A CCORDANCE WITH LAW. ITA NO.73/M/12 4 9. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RS.2,81,600/- MADE OUT OF LABOUR EXPENSES OF RS.99,16,248/-. WE NOTICE THAT THE DISALLOWANCE WAS MADE FOR THE DEFICIENCIES NOTICED IN THE VOUCHERS. AT T HE TIME OF HEARING, THE LD A.R SUBMITTED THAT THE LABOURERS WERE EMPLOYED AT THE W ORK SITE BY ENGAGING LOCAL PEOPLE AND HENCE THERE BOUND TO BE SOME DEFICIENCY IN THE PREPARATION OF VOUCHERS. ACCORDINGLY HE SUBMITTED THAT THE DISALL OWANCE MAY BE SUSTAINED TO A REASONABLE EXTENT. AFTER HEARING LD D.R, WE ARE OF THE VIEW THAT THIS ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE DISALLOWANCE IS SU STAINED TO THE EXTENT OF RS.1,50,000/-. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO SUSTAIN THE DISALLO WANCE TO RS.1,50,000/-. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RENT EXPENDITURE CLAIM OF RS.2,52,000/-. AS PER THE REDEVELOPMENT AGREEMENT, THE ASSESSEE WAS REQUIRED TO PAY THE RENT OF ALTERNATIVE ACCOMMODATION PROVID ED TO THE MEMBERS OF THE SOCIETY. OUT OF THE CLAIM OF RENT, THE ASSESSEE CO ULD NOT PRODUCE RECEIPT FOR PAYMENT TO THE EXTENT OF RS.2,52,000/-. HENCE THE AO DISALLOWED THE SAME AND THE LD CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. BEFORE US ALSO, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SUBSTANT IATE THE CLAIM OF PAYMENT OF RENT OF RS.2,52,000/-. HENCE, WE HAVE NO OTHER OPTION BUT TO CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 11. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RS.4,78,000/- MADE OUT OF RAW MATERIAL (BUILDING MATERIAL) PURCHASE EXPENSES. SINCE THIS EXPENDITURE WAS SUPPORTED BY SELF MADE VOUCHERS, THE AO DISALLOWED A SUM OF RS.4,78,000/- AND THE SAME WAS CONFIRMED BY LD CIT(A). THE LD A.R SU BMITTED THAT THE ASSESSEE WAS CONSTRAINED TO DEAL WITH UNORGANIZED SECTOR PEO PLE FOR PURCHASE OF RAW MATERIAL LIKE SAND, BRICKS ETC. CONSIDERING THE DI FFICULTIES EXPRESSED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THIS ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE DISALLOWANCE IS RESTRICTED TO RS.4,00,000/-. ACCOR DINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRI CT THE DISALLOWANCE ON THIS ISSUE TO RS.4,00,000/-. ITA NO.73/M/12 5 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OP EN COURT ON 7TH JAN,2015 . +, ' - ./ 0 1 7TH JAN 2015 , & 2( 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER . ' ( MUMBAI: 7TH JAN, 2015. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. ' 7) ( ) / THE CIT(A)- CONCERNED 4. ' 7) / CIT CONCERNED 5. 6. 89 2 ): , * : , . ' ( / DR, ITAT, MUMBAI CONCERNED 2 ; < ( / GUARD FILE. = ' / BY ORDER, TRUE COPY > # (ASSTT. REGISTRAR) * : , . ' ( /ITAT, MUMBAI