ITO 10(1)(3), MUMBAI V. TRENDSETTER CONSTRUCTION P.LTD, MUMBAI

ITA 8813/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1920 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 17-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: FIROZ B ANDHYARUJINA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 ASSESSMENT YEARS: 2006-07, 2007-08, 2008-09 & 2009- 10 THE INCOME TAX OFFICER- 10(1)(3), ROOM NO.457, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020 VS. M/S. TRENDSETTER CONSTRUCTION PVT. LTD., NO.1, RAJKAMAL, OPP. UNIVERSITY CAMPUS, C.S.T. ROAD, KALINA, MUMBAI 400 098 PAN: AAACT 2606C (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI FIROZ B. ANDHYARUJINA, A.R. REVENUE BY : MS. SURABHI SHARMA, D.R. DATE OF HEARING : 05.10.2015 DATE OF PRONOUNCEMENT : 18.12.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED FOUR APPEALS HAVE BEEN PREFERR ED BY THE REVENUE AGAINST THE DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2006-07, 2007-08, 2008-09 & 2009-10. SINCE THE FACTS AND IS SUES INVOLVED THEREIN ARE IDENTICAL, HENCE THE SAME ARE HEARD TOGETHER AND AR E BEING DISPOSED OF WITH THIS COMMON ORDER. 2. THE ONLY ISSUE INVOLVED IN ALL THE FOUR APPEALS IS REGARDING THE POSTPONEMENT OF INCOME RECEIVED AS REMUNERATION FOR PROFESSION/TECHNICAL SERVICES RENDERED. FOR THE SAKE OF CONVENIENCE, TH E FACTS HAVE BEEN TAKEN FROM ITA NO.7579/M/2011 FOR THE A.Y. 2006-07. 3. THE REVENUE, IN THIS APPEAL, HAS TAKEN THE FOLLO WING GROUNDS: '1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW , THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O., THE RECEIPT AS AN INCOME AND ALLOWED EXPENSES CLAIMED I N THE ACCOUNTS ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 M/S. TRENDSETTER CONSTRUCTION PVT. LTD. 2 FROM THE RECEIPTS IN ORDER TO DETERMINE THE PROFIT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY IS ONL Y SERVICE PROVIDER COMPANY ASSISTING M/ S. A.A. ESTATE PVT . LTD. IN THEIR BUSINESS AND FOR THAT PURPOSE ASSESSEE IS GETTING PROFESSIONAL FEES. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. C.I.T.(A) ERRED IN DELETING THE ADDITIONS M ADE BY THE A.O. OF RS.32 LAKHS PAID BY M/S. A.A. ESTATE PVT. LTD. ON A CCOUNT OF ADVANCE, WITHOUT APPRECIATING THE FACT THAT THE PAYMENT RECE IVED BY THE ASSESSEE IS IN THE FORM OF PROFESSIONAL FEES COVERE D U/S. 194J OF THE I.T. ACT, THE ASSESSEE IS ACTING AS A CONSULTANT AN D GETTING THE FEES FOR WORK. 3 . THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 4 . THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 4. THE FACTS IN BRIEF OF THE CASE ARE THAT FROM THE TDS DETAILS MENTIONED IN THE RETURN OF INCOME, THE ASSESSING OFFICER (HEREIN AFTER REFERRED TO AS THE AO) NOTICED THAT THE ASSESSEE HAD BEEN PAID A SUM OF RS .32 LAKHS BY M/S. A.A. ESTATE PVT. LTD., MUMBAI ON ACCOUNT OF PROFESSIONAL SERVICES RENDERED BY THE ASSESSEE. THE AO THEREFORE OBSERVED THAT THE ASSES SEE HAD INCOME BY WAY OF PROFESSIONAL FEES OF RS.32 LAKHS AND THE ASSESSEE H AD CLAIMED THE REFUND OF TDS MADE ON SUCH PAYMENTS IN THE RETURN OF INCOME. ON EXAMINATION OF ACCOUNTS, THE AO NOTED THAT THE ASSESSEE HAD NOT SH OWN ANY SUCH INCOME BY WAY OF PROFESSIONAL FEES. ON BEING ASKED TO EXPLAI N, THE ASSESSEE SUBMITTED THAT THERE WAS AN MOU BETWEEN ASSESSEE AND M/S. A.A . ESTATE PVT. LTD. WHICH HAS BEEN ENGAGED IN THE BUSINESS OF REAL ESTATE DEV ELOPER. AS PER MOU, ASSESSEE WAS TO BE PAID 20% OF THE PROFIT FROM THE PROJECT AND IN CASE OF LOSS, ASSESSEE HAS TO BEAR 20% OF LOSS. FURTHER, AS PER MOU, THE ASSESSEE WAS TO BE PAID FIXED REMUNERATION OF RS.2 LAKH PER MONTH UP T O JUNE 2007 WHICH WAS INCREASED TO RS.4 LAKH PER MONTH FROM JUNE 2007 ONW ARDS. THIS AMOUNT OF REMUNERATION PAID WAS TO BE ADJUSTED FROM THE ACTUA L REMUNERATION TO BE PAYABLE TO THE ASSESSEE ON COMPLETION OF PROJECT. THE ASSESSEE FURTHER EXPLAINED THAT THE AMOUNT RECEIVED OF RS.32 LAKHS W AS ONLY ADVANCE AND AS SUCH THE SAME HAD NOT BEEN OFFERED TO TAX. IT WAS EXPLAINED THAT AS PER MOU, IT WAS SETTLED THAT ONLY WHEN THE RESPECTIVE PROJEC T WOULD BE COMPLETED, THE PROFESSIONAL FEES PAYABLE TO THE ASSESSEE WOULD BE DETERMINED ON THE BASIS OF ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 M/S. TRENDSETTER CONSTRUCTION PVT. LTD. 3 PROFIT OR LOSS ON THE PROJECT AND ACCORDINGLY THE A SSESSEE WOULD BE EITHER ELIGIBLE FOR 20% OF THE PROFIT OR WOULD HAVE TO BEA R 20% OF THE LOSS. THE AMOUNT OF PROFESSIONAL FEES PAID AS ADVANCE WOULD B E ACCORDINGLY ADJUSTED. IT WAS EXPLAINED THAT ACCORDINGLY THE INCOME OR LOSS W AS BEING OFFERED IN THE YEAR OF COMPLETION OF VARIOUS PROJECTS FOR WHICH TH E ASSESSEE HAD RENDERED PROFESSIONAL SERVICES AS PER THE TERMS OF THE MOU. THE AO, HOWEVER, WAS OF THE VIEW THAT THE AMOUNT RECEIVED BY THE ASSESSEE F OR RENDERING PROFESSIONAL/TECHNICAL SERVICES ON WHICH THE PAYER HAD DEDUCTED TDS WAS THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. HE WAS OF THE VIEW THAT SINCE THE ASSESSEE WAS NOT A CONTRACTOR OR A B UILDER, HENCE HE WAS NOT SUPPOSED TO ADOPT PROJECT COMPLETION METHOD OF ACCO UNTING. HE, THEREFORE, MADE THE IMPUGNED ADDITIONS. 5. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THOUGH T HE SERVICES RENDERED BY THE ASSESSEE WERE OF THE NATURE OF PROFESSIONAL/TEC HNICAL SERVICES, HOWEVER, AS PER MOU, THE QUANTIFICATION OF THE ACTUAL AMOUNT PA YABLE TO THE ASSESSEE WAS POSSIBLE ONLY AT THE STAGE OF COMPLETION OF PROJECT . HE, THEREFORE, HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR, TH OUGH SUBJECTED TO TDS, WAS ONLY AN ADVANCE WHICH WAS ADJUSTED ON THE COMPLETIO N OF THE PROJECT. HE, THEREFORE, DELETED THE ADDITIONS SO MADE BY THE AO. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS COME IN AP PEAL BEFORE US. 6. THE FIRST CONTENTION OF THE LD. D.R. HAS BEEN TH AT THE AMOUNT PAID TO THE ASSESSEE DURING THE YEAR WAS SUBSTANTIALLY MUCH MOR E AS COMPARED TO THE AGREED PAYMENT OF RS.2 LAKH PER MONTH UP TO JUNE 20 07 AND RS.4 LAKH PER MONTH FROM JUNE 2007 ONWARDS. FURTHER THAT THE PAY MENTS MADE TO THE ASSESSEE HAVE BEEN SHOWN AS PAYMENT FOR PROFESSIONA L/TECHNICAL SERVICES RENDERED IN TDS CERTIFICATE. THE ASSESSEES NATURE OF BUSINESS BEING PROVIDING CONSULTANCY AND TECHNICAL SERVICES, IT SHOULD NOT H AVE ADOPTED PROJECT COMPLETION METHOD. AS PER THE TERMS OF THE MOU, T HE ASSESSEE HAD TO DO VARIOUS SERVICES/WORK WHICH WAS MUCH MORE THAN THE WORK OF CONSULTANCY AND THEREFORE IT SEEMED THAT THE M/S. A.A. ESTATE PVT. LTD. WAS ONLY THE FINANCER OF ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 M/S. TRENDSETTER CONSTRUCTION PVT. LTD. 4 THE PROJECT AND THE WHOLE OF THE RESPONSIBILITY FOR EXECUTION OF PROJECT WAS OF THE ASSESSEE COMPANY AND THAT THE MOU WAS A SHAM TR ANSACTION. WITHOUT PREJUDICE TO THE ABOVE, THE LD. D.R. SUBMITTED THAT WHEN THE ASSESSEE HAS NOT OFFERED THE CORRESPONDING TAX IN THE YEAR UNDER CON SIDERATION, THEN THE CLAIM OF THE TDS WAS LIABLE TO BE DISALLOWED. 7. ON THE OTHER HAND, THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT RECEIVED WAS CATEGORISED AS PROFESSIONAL/TEC HNICAL SERVICES ALTHOUGH THE NATURE OF THE AMOUNT WAS AN ADVANCE. THERE WERE ONGOING PROJECTS AND SINCE THE ADVANCE WAS PAID AS PER MOU, TDS WAS DEDU CTED U/S 194J OF THE ACT. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSE SSEE HAS CONSISTENTLY BEEN FOLLOWED ON THE BASIS OF COMPLETED PROJECT METHOD A ND THE PROFIT OR LOSS HAS BEEN DETERMINED ON THE COMPLETION OF EACH PROJECT. IT MAY BE NOTED THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT CLAIMED AS LOSSES OF EACH YEAR HAVE BEEN CAPITALISED TO WIP AND PROFIT/LOSS IS DETERMIN ED AT THE END OF THE COMPLETION OF PROJECT. IT MAY FURTHER BE NOTED THAT IF THERE IS A LOSS THEN THE LOSS IS TO BE BORNE BY THE ASSESSEE. HE HAS FURTHE R SUBMITTED THAT THE PROJECT COMPLETION METHOD IS FOLLOWED NOT ONLY BY THE ASSES SEE BUT ALSO BY THE PAYER (THE BUILDER). THAT ADVANCE HAS NOTHING TO DO WITH THE EXPENDITURE. TREATMENT IN ACCOUNTS IS CONSISTENT IN CASE OF BOTH THE ASSES SEES AS WELL OF THE PAYER AND HAS BEEN ACCEPTED IN THE PAST AND EVEN IN THE CURRE NT YEAR. HOWEVER THE APPEAL ARISES FROM REOPENING OF THE CASES UNDER SECTION 14 7/148 OF THE ACT. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E ALSO GONE THROUGH THE RECORDS. WE FIND THAT THE LD. CIT(A) HAS PASSED A VERY DETAILED AND ELABORATIVE ORDER WHEREIN AFTER VERIFICATION OF THE RECORDS IT HAS BEEN POINTED OUT THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN CLUDING THE EXPENDITURE INCURRED BY THE ASSESSEE WHICH WAS PAID BY M/S. A.A . ESTATE PVT. LTD. THE AMOUNT PAID TO THE ASSESSEE HAS NOT BEEN CLAIMED BY THE M/S. A.A. ESTATE PVT. LTD. AS EXPENDITURE BUT HAS ONLY BEEN SHOWN AS WORK IN PROGRESS. SO THERE WAS A CONSISTENCY IN THE ACCOUNTS OF BOTH THE PAYER AND THE PAYEE. THE SERVICES RENDERED BY THE ASSESSEE WERE ALSO RELATING TO THE ACTIVITIES OF THE BUILDERS AND ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 M/S. TRENDSETTER CONSTRUCTION PVT. LTD. 5 DEVELOPERS AND AS PER THE MOU, THE QUANTIFICATION O F THE REMUNERATION OF THE ASSESSEE WAS DEPENDANT ON THE COMPLETION OF THE PRO JECT AND UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WAS JUSTIFIED TO FOLLOW THE PROJECT COMPLETION METHOD OF ACCOUNTING. ON THE COMPLETION OF THE PRO JECT, THE AMOUNT QUANTIFIED AS THE REMUNERATION OF THE ASSESSEE WAS OFFERED BY THE ASSESSEE FOR TAXATION AND THE SAME WAS ACCORDINGLY CLAIMED AS EXPENDITURE BY THE BUILDER. TILL THE COMPLETION OF THE PROJECT, THE AMOUNT WAS NOT CLAIM ED BY THE BUILDER AS EXPENDITURE. THE LD. CIT(A) HAS ALSO TAKEN INTO CO NSIDERATION THE ACCOUNTING METHOD IN RELATION TO DIFFERENT PROJECTS AND IT WAS FOUND THAT WHEREIN THERE WAS A RESULTANT LOSS, NO INCOME WAS OFFERED BY THE ASSE SSEE; AND WHERE THERE WAS A PROFIT, THE ASSESSEE HAD SHOWN INCOME BEING THE REM UNERATION RECEIVED BY HIM ON CERTAIN FIXED PERCENTAGE OUT OF THE PROFITS OF T HE PROJECT. THERE WAS NO DISCREPANCY EITHER IN THE ACCOUNTS OF THE ASSESSEE NOR OF THE BUILDER. THE LD. CIT(A) THEREFORE AFTER PROPER APPRECIATION OF THE E VIDENCE ON THE FILE HAS CONCLUDED THAT THE AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR WAS AN ADVANCE AND THE ACTUAL REMUNERATION WAS TO BE QUANT IFIED AT THE COMPLETION OF THE PROJECT. THE ASSESSEE THEREFORE WAS JUSTIFIED IN NOT OFFERING THE SAID AMOUNT AS INCOME FOR THE YEAR. HE THEREFORE UPHELD THE ADDITIONS SO MADE BY THE AO. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE WELL REASONED ORDER OF THE LD. CIT(A) AND THE SAME IS ACCORDINGLY UPHELD. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. SINCE THE ISSUE INVOLVED IN ALL THE OTHER APPEALS IS ALSO IDENTICAL , HENCE IN VIEW OF OUR OBSERVATIONS MADE ABOVE ALL THE ABOVE CAPTIONED APP EALS OF THE REVENUE ARE HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2015. SD/- SD/- (N.K. BILLAIYA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.12.2015. * KISHORE, SR. P.S. ITA NOS.7579 & 8813/M/2011, 844 & 4921/M/2012 M/S. TRENDSETTER CONSTRUCTION PVT. LTD. 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.