SWANANDA PROPERTIES P. LD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 9053/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4509 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 05-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Fair market value
• Section: 43CA; 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI BEFORE SHRI JOGINDER SINGH, JM AND SHRI RAJESH KUMA R, AM ./I.T.A. NO. 1011/MUM/2011 ( / ASSESSMENT YEAR: 2004-05) A.C.I.T. -9(3) 2 ND FLOOR, ROOM NO.229, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 40020 / VS. M/S. SWANANDA PROPERTIES PVT. LTD. 502-A, PATEL PARK, MILAN SUB WAY CROSS ROAD, SANTACRUZ (W), MUMBAI-400 054 ./ ./PAN/GIR NO. AABCS1072J ( REVENUE ) : ( ASSESSEE ) ./I.T.ANO.9053/MUM/2010 ( / ASSESSMENT YEAR: 2005-06) M/S. SWANANDA PROPERTIES PVT. LTD. 502-A, PATEL PARK, MILAN SUB WAY CROSS ROAD, SANTACRUZ (W), MUMBAI-400 054 / VS. A.C.I.T. -9(3) 2 ND FLOOR, ROOM NO.229, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 40020 ./ ./PAN/GIR NO. . AABCS1072J ( ASSESSEE ) : ( REVENUE ) 2 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. REVENUE BY : MS. KUSUM BANSAL, DR ASSESSEE BY : SHRI HIRO RAI, AR DATE OF HEARING : 10/09/2015 DATE OF PRONOUNCEMENT : 04/01/2016 / O R D E R PER RAJESH KUMAR, A. M: 1. THESE APPEALS BY THE ASSESSEE AND BY THE REVENUE FOR TWO DIFFERENT YEARS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS)-20, MUMBAI (HEREINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT Y EAR 2004-05 AND 2005-06 BOTH DATED 22-11-2010. SINCE BOTH THESE APPEALS RELATE T O THE SAME ASSESSEE AND THEREFORE THESE ARE CLUBBED TOGETHER, HEARD TOGETHER AND DISP OSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF BREVITY AND CONVENIENCE. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO 9053/MUM/2010 FOR THE ASSESSMENT YEAR 2005-06 IN WHICH THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE COMMISSIONER OF INCOME TAX (A)20, MUMBAI IN TH E ORDER DATED 22 ND NOVEMBER 2010 IN APPEAL NO. CIT(A)-20/9/(3)/I.T.205/2009-10 HAS ERRE D IN THE FACTS AND CIRCUMSTANCES AND IN LAW IN- 1. DETERMINING AND HOLDING ALLEGED UNDER CHARGE IN CAS E OF FLATS SOLD TO THE FOLLOWING PURCHASERS A. HARILAL SHAVJI PATEL B. AMBALAL PREMJI PATEL C. KANJI DHARAMSHI PATEL D. BHARAT NANJI PATEL 2. FAILING TO CONSIDER RELEVANCE OF TIME AND TERMS OF PAYMENT WITH REFERENCE TO EACH OF THE REGISTERED AGREEMENTS FOR SALE OF FLATS WHILE COMPA RING THE RATE OF REALIZATION FROM THE FLATS AND REPLACING IT BY APPLYING A UNIFORM RATE F OR SALE AT RS.8,990/- PER SQ.FT. FOR THE ENTIRE PROJECT OF 12 FLATS. 3. HOLDING THAT ANY FURTHER AMOUNT WAS REALIZED/REALIZ ABLE FROM SALE OF FLATS ACCOUNTED AS PER THE REGISTERED AGREEMENT OF SALE AND ASSUMING A FLAT RATE OF REALIZATION AT RS.8,990/- SQ. FT. 3 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. 4. HOLING THAT AGREEMENTS ENTERED INTO BY THE APPELLAN T AND RELIED UPON DO NOT REFLECT TRUE RATES AT WHICH THE APPELLANT SOLD 12 FLATS IN THE P ROJECT JOANNA VILLA. 5. HOLDING THAT THE APPELLANT HAS NOT CORRECTLY DECLAR ED OR DISCLOSED THE CONSIDERATION RECEIVED BY IT ON SALE OF 12 FLATS IN THE JOANNA VI LLA APARTMENT PROJECT COMPLETED DURING THE YEAR. 6. HOLDING AND ALLEGING THAT THE ENTIRE ACTIVITY OF TH E APPELLANT WAS PRE-MEDITATED WITH THE ONLY OBJECT OF UNDERSTATING THE PROFITS FROM THE PR OJECT. 7. HOLDING AND ALLEGING THAT THE CONTRACTS ON 28 TH MAY 2001 WITH THE FOUR PURCHASERS BEFORE THE DEVELOPMENT OF THE PROJECT UNDERTAKEN BY THE AP PELLANT IN OR AROUND 14 TH JULY 2001 WERE PRE-MEDIATED AND ILL CONCEIVED ONLY FOR UNDERS TATING THE INCOME OF THE PROJECT COMPLETED DURING THE YEAR. 8. CONFIRMING THAT THERE WAS SUPPRESSION OF SALES VALU E IN SIX OUT OF EIGHT FLATS SOLD BY THE APPELLANT. 9. HOLDING THAT THE APPELLANT UNDERSTATED THE SALES VA LUE OF ALL THE 12 FLATS. 10. HOLDING THAT THE ACCOUNTS OF THE APPELLANT ARE NOT CORRECT OR COMPLETE AND TRUE PROFITS OF THE PROJECT CANNOT BE DETERMINED BASED ON THEM. 11. INVOKING PROVISION OF SEC.145(3) AND ESTIMATING INC OME OF THE PROJECT OF JOANNA VILLA APPLYING BEST JUDGEMENT. 12. ESTIMATING THE INCOME OF THE PROJECT OF JOANNA VILL A. 13. APPLYING THE ESTIMATED AND DERIVED MARKET RATE FOR SALE OF FLATS IN PLACE OF THE ACTUAL CONSIDERATION RECEIVED BY THE APPELLANT AS DECLARED AND DISCLOSED. 14. ADOPTING MARKET RATE OF RS.8,990/- PER SQ. FT. FOR ESTIMATING INCOME FROM THE PROJECT OF JOANNA VILLA. 15. DETERMINING AND HOLDING THAT THERE IS UNDERSTATEMEN T OF SALE VALUE OF THE PROJECT OF JOANNA VILLA TO THE EXTENT OF RS.5,30,80,200/- 16. EACH OF THE ABOVE GROUND IS INDEPENDENT OF THE OTHE R. 2. THE ASSESSEE FILED CONCISE GROUND IN PLACE OF AL L THE GROUNDS TAKEN ABOVE IN FORM 36 WHICH IS REPRODUCED AS UNDER:- THE LD CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE A SSESSMENT AND HOLDING THAT THERE IS AN UNDERSTATEMENT OF SALE VALUES IN RESPECT OF JOAN NA VILLA PROJECT OF AN AMOUNT OF RS. 5,30,80,200/-. THE APPELLANT CHALLENGES THE SAID AD DITION. THE REASONS GIVEN BY THE CIT(A) IN THIS REGARD ARE INCORRECT , ERRONEOUS A ND BASED ON CONJECTURES AND SURMISES . 4 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. 3. THE ASSESSEE FILED CONCISE GROUND OF APPEAL OBJE CTING THE ENHANCEMENT OF ASSESSMENT BY RS. 5,30,80,200/- ON ACCOUNT OF SUPPR ESSION OF SALES IN RESPECT OF JOANNA VILLA PROJECT. THE BRIEF FACTS OF THE CASE A RE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND DURING THE YEAR IT HAD TWO PROJECTS IN HAND NAMELY, ONE AT PALI, DR. AMBEDKAR ROAD, BANDRA, MUM BAI AND OTHER GOANNA VILA, 28 TH ROAD, BANDRA (W), MUMBAI. THE ASSESSEE WAS FOLLOW ING PROJECT COMPLETION METHOD FOR ACCOUNTING THE INCOME FROM THESE PROJECT S. THE PROJECT AT PALI WAS STARTED IN JULY 1997 AND WAS SAID TO BE IN PROGRESS SINCE T HEN BUT THERE WAS HARDLY ANY ACTIVITY ON THE SAID PROJECT WHEREAS JOANNA VILLA P ROJECT WHICH WAS STARTED IN FINANCIAL YEAR 2001-02 WAS COMPLETED DURING THE YEAR. THE SA ID PROJECT COMPRISED OF TWELVE FLATS. THE ASSESSEE ACCOUNTED FOR THE INCOME FROM J OANNA VILLA PROJECT DURING THE CURRENT YEAR ON THE BASIS OF PROJECT COMPLETION MET HOD. THE WORK-IN-PROGRESS AS ON 31.03.2004 AND 31.03.2005 WERE 6,05,31,118/- AND 6, 73,63,991/- RESPECTIVELY AND GROSS SALES WERE RS 7,71,46,062/- THEREBY SHOWING A N INCOME AT RS. 96,76,871/- AND AFTER SETTING OFF BROUGHT FORWARD LOSS OF RS. 2,00, 222/- , RETURNED A TOTAL INCOME OF RS. 94,76,650/-. 4. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS OF THE CURRENT YEAR NOTICED THAT OUT OF TWELVE FLATS CONSTRUCTED IN THE SAID PROJECT, EIGHT FLATS WERE BOOKED IN THE F.Y. 2003-04 AND FULL SALE CONSIDERATIONS IN RESPECT OF SEVEN FLATS WERE RECEIVED DURING THE YEAR. AO FURTHER OBSERVED ON THE BASIS O F WIP AT THE YEAR END VIS--VIS PREVIOUS YEAR THAT 89% OF THE PROJECT WAS COMPLETE D AT THE END OF THE F.Y. 2003-04 AND, THEREFORE, CAME TO CONCLUSION THAT GOANNA VILL A PROJECT WAS COMPLETED IN ASSESSMENT YEAR 2004-05 AND NOT IN ASSESSMENT YEAR 2005-06 AS CLAIMED BY THE ASSESSEE. THE LD. AO REOPENED THE ASSESSMENT PROCE EDINGS FOR THE A.Y. 2004-05 AND FRAMED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS I N THAT YEAR ON ACCOUNT OF 5 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. SUPPRESSION OF SALES BY THE ASSESSEE AND ALSO COMPL ETED THE ASSESSMENT OF THE CURRENT YEAR ON THE PROTECTIVE BASIS BY ADDING A SUM OF RS. 15,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE PRE FERRED APPEALS BEFORE CIT(A) FOR BOTH ASSESSMENT YEAR I.E. 2004-05 AND 2005-06. LD. CIT(A) DELETED THE ADDITION MADE BY THE AO IN THE ASSESSMENT YEAR 2004-05 AND A GREED WITH THE CONTENTION OF THE ASSESSEE THAT THE PROJECT WAS COMPLETED DURING THE YEAR AND THE INCOME FROM THE SAID PROJECT WAS RIGHTLY SHOWN BY THE ASSESSEE IN THE CU RRENT YEAR AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED. HOWEVER, THE LD. CIT (A) DISAGREED WITH THE METHODOLOGY OF AO OF WORKING OUT SUPPRESSION OF SA LES AND ENHANCED THE ASSESSMENT OF CURRENT YEAR BY RS. 5,30,80,200/- AS SHOWN IN TA BLE C BY TAKING THE FAIR MARKET VALUE IN RESPECT OF ALL THE TWELVE FLATS AT THE RAT E OF RS. 8,990/- PER SQ. FT. WHILE DELETING THE ADDITION OF RS. 15,000/- MADE BY THE A O ON PROTECTIVE BASIS AND THUS ENHANCED THE ASSESSMENT ON SUBSTANTIVE BASIS. 6. THE LD. AR SUBMITTED BEFORE US THAT THE ADDITION MADE BY CIT(A) IS HYPOTHETICAL AND ON ESTIMATED BASIS AND THE SAME IS NOT SUSTAINABLE IN LAW. LD. COUNSEL SUBMITTED THAT THE JOANNA VILLA PROJECT WAS OWNED BY ROSE MARGARET DOROTHY NAZARETH NEE DSOUZA AND JOSEPH PETER FRANC IS DSOUZA (HEREINAFTER REFERRED TO AS ORIGINAL OWNERS) AND THE SAID ORIGINAL OWNER S OF THE PROPERTY GOT THE PLANS SANCTIONED FROM BMC VIDE ORDER DATED 31.03.2001 WHE REBY THE ORIGINAL OWNERS WERE PERMITTED TO CONSTRUCT AN ADDITIONAL FLOOR COMPRISI NG FOUR FLATS BEARING NO. 201, 202, 203, & 204 AND ENTERED INTO FOUR SEPARATE AGREEMENT S FOR SALE WITH SHRI AMBALAL PREMJI PATEL, HARILAL SABJI PATEL, KANJI DHARAMSI P ATEL HUF AND NANJI PATEL (HEREINAFTER REFERRED TO AS ORIGINAL PURCHASERS) RE SPECTIVELY, WHICH WERE DULY 6 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. REGISTERED IN THE OFFICE OF SUB-REGISTRAR OF ASSURA NCES, BANDRA AND THE SALE RATE WAS AGREED AT 3,000 PER SQ. FT. THE LD. COUNSEL FURTHER SUBMITTED THAT IT WAS ALSO STIPULATED IN THE SAID AGREEMENTS THAT IN CASE SOME ADDITIONAL AREAS WERE CONSTRUCTED, THE FOUR ORIGINAL PURCHASERS HAD THE OPTION TO TAKE MORE ARE A AT THE SAME RATE. HOWEVER, THE PROJECT DID NOT COME THROUGH AND FINALLY A MEMORAND UM OF INTENDED AGREEMENT FOR DEVELOPMENT DATED 14.07.2001 WAS ENTERED INTO WITH THE ASSESSEE BY THE SAID ORIGINAL OWNERS UNDER WHICH THE RIGHTS TO DEVELOP THE SAID P ROPERTY WERE TRANSFERRED TO THE SAID ASSESSEE FOR A TOTAL CONSIDERATION OF 2.70 CRORES. AS PER THE MOI, THE ASSESSEE WAS TO USE THE BALANCE FSI IF ANY AND ALSO TO USE ADDITION AL FSI BY PURCHASING THE TDR FROM OUTSIDE AT ITS OWN COST AND PUT UP ADDITIONAL CONST RUCTION ON THE EXISTING STRUCTURE AS DESCRIBED BEFORE. ALL THE LIABILITIES AND THE RESP ONSIBILITY OF THE ORIGINAL OWNERS QUA THE SAID PROPERTY INCLUDING THEIR COMMITMENT AND LI ABILITIES QUA FOUR AGREEMENTS TO SELL WERE ALSO TAKEN OVER BY THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT MOI WAS APPROVED BY APPROPRIATE AUTHORITY VIDE ORDE R DATED 05.10.2001. THEREAFTER THE ASSESSEE GOT THE BUILDING PLANS AMENDED AND OBT AINED SANCTION VIDE ORDER DATED 9.11.2001 TO CONSTRUCT FIVE ADDITIONAL FLOORS IN PL ACE OF SECOND FLOOR ABOVE THE OLD STRUCTURE AS GOT APPROVED BY THE ORIGINAL OWNERS. T HE LD. COUNSEL ARGUED THAT THE CIT(A) HAS GROSSLY ERRED IN IGNORING THE FACT THAT THE ASSESSEE UNDER MOI HAD UNDERTAKEN TO HONOUR THE COMMITMENT OF ORIGINAL OWN ERS MADE TO FOUR PERSONS WITH WHOM THEY HAD ENTERED INTO AGREEMENTS TO SELL. THE COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE ENTERED INTO SEPARATE MODIFICATORY AGREEME NTS FOR SALE WITH FOUR PURCHASERS. AGREEMENT WITH HARILAL SABJI PATEL WAS ENTERED INTO ON 24.07.2003 AND WITH OTHER THREE PURCHASERS, NAMELY, SHRI AMBALAL PREMJI PATEL , HARILAL KANJI DHARAMSI PATEL HUF AND NANJI PATEL WERE MADE 23.03.2004 WHEREBY TH E ASSESSEE AGREED TO SELL THE AREA TO THESE BUYERS AT THE RATES COMMITTED BY THE ORIGINAL OWNERS OF THE PROJECT AND ALSO AGREED THAT ADDITIONAL AREAS AS MENTIONED IN T HE RESPECTIVE AGREEMENTS WOULD BE 7 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. SOLD AT THE RATE OF RS. 6,000 PER SQ. FT. THE LD. C OUNSEL SUBMITTED THAT THE ASSESSEE ACCOUNTED FOR SALES ON THESE FLATS AS PER CONSIDERA TION RECEIVED FROM THE PURCHASERS AT THE AGREED RATE AND THE BALANCE FLATS WERE SOLD AT THE RATE RANGING BETWEEN RS. 6,750 PER SQ. FT. TO RS. 7034.22 PER SQ. FT. AND THUS SHO WING GROSS SALE FROM THE PROJECT AT 7,71,46,062/-, HOWEVER, THE LD. CIT(A) ENHANCED THE SALE BY APPLYING FAIR MARKET RATE OF 8,990 PER SQ. FT TO ALL THE TWELVE FLATS AND EST IMATED THE TURNOVER AT RS. 13,02,26,260/- AND THUS MADE THE ADDITION OF RS. 5, 30,80,200/- ON ACCOUNT OF SUPPRESSED SALES ON THE HYPOTHETICAL BASIS. THE LD. COUNSEL SUBMITTED THAT THE FAIR MARKET VALUE ON THE BASIS OF STAMP DUTY VALUATION T AKEN IN TERMS OF PROVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE TO THE AS SESSEE BUSINESS AS THE SAID SECTION APPLIES IN THE CASE OF TRANSFER OF CAPITAL ASSETS F OR THE PURPOSE OF CALCULATION OF CAPITAL GAIN AND NOT IN THE CASE OF THE ASSESSEE WHO IS DEA LING IN STOCK IN TRADE. THE LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE THAT THE SEC TION 43CA WHICH IS SPECIAL PROVISION FOR ASCERTAINING THE FULL VALUE OF CONSIDERATION OF AN ASSETS OTHER THAN A CAPITAL ASSETS IS APPLICABLE W.E.F. ASSESSMENT YEAR 20104-15. THUS , THE ACTION OF CIT(A) IN APPLYING THE FAIR MARKET VALUE WITHOUT ANY BRINGING MATERIAL ON RECORDS AND INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT WITHOUT POI NTING ANY DEFECTS IN THE BOOKS OF ACCOUNTS AND ESTIMATING THE SALES VALUE AND CONSEQU ENTIAL ENHANCEMENT OF ASSESSMENT WAS NOT CORRECT. HE THEREFORE PRAYED THAT THE APPEA L OF THE ASSESSEE BE ALLOWED. 7. LD. DR ON THE OTHER HAND, RELIED ON THE ORDER OF AO AND THAT PRAYED THAT SAME BE RESTORED BY SETTING ASIDE THE ORDER OF CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE RELEVANT MATERIAL ON RECORD. AFTER HEARING THE LD AUTHORIZED REPRESENTA TIVE AND THE DEPARTMENTAL REPRESENTATIVE WE FIND THAT MRS. ROSE MARGARET DO ROTHY NAZARETH NEE D'SOUZA AND 8 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. MR. JOSEPH PETER FRANCIS D'SOUZA (HEREINAFTER CALLE D, 'THE ORIGINAL OWNERS) OWNED THE PROPERTY CALLED 'JOANNA VILLA SITUATED AT 28TH ROA D, OFF TURNER ROAD, BANDRA, MUMBAI HAVING A STRUCTURE ON THE SAID PROPERTY CO MPRISING GROUND FLOOR AND AN UPPER FLOOR. THE ORIGINAL OWNERS INTENDED TO DEVELO P THE PROPERTY BY PUTTING UP ADDITIONAL CONSTRUCTION ABOVE THE EXISTING STRUCTUR E ON EXTERIOR COLUMNS ON ALL SIDES WITHOUT DEMOLISHING THE EXISTING STRUCTURE. THEY GO T PLAN SANCTIONED BY BMC VIDE ORDER DT.21-03-2001 PERMITTING THEM TO CONSTRUCT AN ADDITIONAL FLOOR, I.E., 2ND FLOOR COMPRISING 4 FLATS BEARING NOS.201, 202, 203 AND 20 4 AND RENAMED THE EXISTING BUILDING AS THE 'JOANNA APARTMENTS'. THE ORIGINAL O WNERS ENTERED INTO 4 SEPARATE AGREEMENTS FOR SALE ON 28-05-2001 WITH ORIGINAL BUY ERS OF THE PROPOSED 4 FLATS WHICH WERE REGISTERED WITH THE SUB-REGISTRAR OF ASSURANCE S, BANDRA, IN TERMS OF WHICH THE 4 FLATS WERE PROPOSED TO BE SOLD AS UNDER: TABLE -A FLAT NO. PURCHASER AREA (CARPET) (SQ. FT.) RATE (PER SQ.FT) CONSIDERATION 201 AMBALAL PREMJI PATEL 752.87 (500) RS.3,000 RS.22,58,610 202 HARILAL SHIVAJI PATEL 417.13 (600) RS. 3,000 RS.12,51,390 203 KANJI DHARAMSHI PATEL (HUF) 447.75 (600) RS. 3,000 RS.13,43,250 204 BHARAT NANJI PATEL 701.12 (500) RS. 3,000 RS.21,03,360 9 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. NOTE: FIGURES IN BRACKET REPRESENT ENTITLEMENT TO A DDITIONAL AREA CONSTRUCTED, IF ANY, AT THE SAME RATE OF RS.3, 000 PER SQ. FT. IT WAS ALSO AGREED THAT IN THE EVENT THE OWNERS PUTTING UP ADDITIONAL FLOORS BY UTILIZING THE FSI I F ANY AVAILABLE IN THE EXISTING PREMISES OR BY WAY OF PURCHASE OF TDR FROM OUTSIDE AT ANY TIME IN FUTURE, THE PURCHASERS SHALL HAVE OPTION TO TAKE FLATS ON ANY O F THE HIGHER FLOORS WITHOUT THE PURCHASERS BEING LIABLE TO PAY TO THE OWNERS ANY AD DITIONAL CONSIDERATION AND IF THERE IS ANY INCREASE IN AREA IN THE NEW CONSTRUCTION THE PURCHASERS SHALL BE LIABLE TO PAY TO THE OWNERS ADDITIONAL AMOUNT FOR THE SAID INCREASE D AREA UP TO 600 SQ.FT. OR 500 SQ.FT., AS THE CASE MAY BE, AT THE SAME RATE AT WHICH THE O WNERS AGREED TO SELL THE SAID FLATS. 9. WE FIND THAT THE PROJECT OF 2 ND FLOOR WAS THROUGH AND THE ORIGINAL OWNERS ENTERED INTO A MEMORANDUM OF INTENDED AGREEMENT (MO L) FOR DEVELOPMENT DT.14- 07-2001 WITH THE APPELLANT (CALLED IN THE AGREEMENT AS 'THE DEVELOPER) TRANSFERRING THE RIGHT TO DEVELOP THE SAID PROPERTY TO THE APPEL LANT AT TOTAL CONSIDERATION OF RS.2.7 CRORES. IN TERMS OF THE MOL THE APPELLANT WAS TO UT ILIZE THE BALANCE FSI, IF ANY, AVAILABLE ON THE SAID PROPERTY AND ALSO TO UTILIZE ADDITIONAL FSI BY PURCHASING TDR FROM OUTSIDE AT OWN COST AND PUT UP ADDITIONAL CONS TRUCTION ON THE EXISTING STRUCTURE AS DESCRIBED BEFORE. THE APPELLANT ALSO TOOK OVER A LL THE RESPONSIBILITIES AND THE LIABILITIES OF THE ORIGINAL OWNERS INCLUDING IN RES PECT OF THE 2ND FLOOR AGREEMENTS THAT THE ORIGINAL OWNERS HAD MADE WITH 4 ORIGINAL PURCHA SERS. THIS MOL WAS APPROVED BY THE APPROPRIATE AUTHORITY, MUMBAI VIDE ORDER DT.05- 10- 2001. PURSUANT THERETO, THE APPELLANT GOT THE BUILDING PLANS DULY AMENDED FOR C ONSTRUCTION OF 5 ADDITIONAL FLOORS IN PLACE OF ONLY 2ND FLOOR ABOVE THE EXISTING STRUC TURE AND ALSO OBTAINED THE COMMENCEMENT CERTIFICATE VIDE ORDER DT.09-11-2001.T HE OWNERS ENTERED INTO REGULAR AGREEMENT FOR DEVELOPMENT ON 21-12-2001, WITH THE A PPELLANT AND TRANSFERRED THE RIGHT TO DEVELOP THE SAID PROPERTY FOR A TOTAL CONS IDERATION OF RS.2.70 CRORES. IT WAS 10 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. STIPULATED THAT ALL THE FLATS TO BE CONSTRUCTED IN THE SAID PROPERTY SHALL BELONG TO THE APPELLANT WHICH SHALL BE ENTITLED TO DEAL WITH OR D ISPOSE THEM OFF IN OWN WAYS AND ALSO ENTITLED TO RECEIVE AND APPROPRIATE THE SALE P ROCEEDS THEREOF. THE APPELLANT, THEREFORE, ENTERED INTO SEPARATE MODIFICATORY AGREE MENTS FOR SALE WITH THE 4 ORIGINAL PURCHASERS. THE AGREEMENT WITH SHRI HARILA SAVJI PA TEL WAS ENTERED ON 24-07-2003 AND WITH OTHER THREE, NAMELY SHRI AMBALAL PREMJI PA TEL, KANJI DHARAMSHI PATEL AND BHARAT NANJI PATEL, ON 23-03-2004. IN TERMS OF THE MODIFICATORY AGREEMENTS ALL THE FOUR PURCHASERS OPTED FOR CHANGE OF ACCOMMODATION A ND ADDITIONAL SPACE IN THE NEW CONSTRUCTION. ACCORDINGLY THE FOLLOWING FLATS, ADDI TIONAL SPACE AND THE AGREED RATES WERE PROVIDED FOR IN THE MODIFIED AGREEMENTS: TABLE-B FLAT NO. PURCHASER AREA (CARPET) (SQ. FT.) RATE (PER SQ.FT) CONSIDERATION 501 HARILAL SHAVJI PATEL ORIGINAL SPACE ADD: ADDITIONAL SPACE TOTAL 417.13 600 343.87 1361.00 RS.3,000 RS.3,000 RS.6,000 RS.12,51,390 RS.18,00,000 RS.20,63,220 RS.50,51,390 502 AMBALAL PREMJI PATEL ORIGINAL SPACE ADD: ADDITIONAL SPACE 752.87 562.13 RS.3,000 RS.3,000 RS,22,58,610 RS.16,86,390 11 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. TOTAL 1315 RS.39,45,000 601 KANJI DHARAMSHI PATEL ORIGINAL SPACE ADD: ADDITIONAL SPACE TOTAL 447.75 489.53 473.23 1410.50 RS.3,000 RS.3,000 RS.6,000 RS.13,43,250 RS.14,68,590 RS.11,35,800 RS.39,47,640 602 BHARAT NANJI PATEL ORIGINAL SPACE ADD: ADDITIONAL SPACE TOTAL 701.12 146.65 529.28* 1377.05 RS.3,000 RS.3,000 RS.6,000 RS.21,03,360 RS.04,39,950 RS.12,70,260 RS.38,13,570 *REPRESENTS OPEN TERRACE AT 7TH FLOOR, VALUE WHICH WAS VALUED FOR ONLY 40% OF THE TERRACE AREA (E.G., FOR FLAT 601 TERRACE AREA OF 47 3.23 SQ. FT. , THE SAME FOR VALUATION WAS TAKEN AT 40%, I.E., 189.30 SQ.FT. X RS. 6, 000 = RS.11,35,800) 12 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. 10. ON COMPLETION OF THE PROJECT THE APPELLANT ACCO UNTED FOR THE SALES OF ALL THE 12 FLATS CONSTRUCTED IN THE FINANCIAL YEAR 2004-05 AND FURNISHED THE FLAT WISE STATEMENT OF SALES WHICH IS SUMMARIZED AS UNDER: TABLE-C PURCHASER &FLAT NO DATE OF AGREEMENT AREA (SQ.FT.) RATE (RS./SQ.FT.) CONSIDERATION (RS.) JAYESH DESAI 201 18-02-2004 1338.43 6,759.00 90,34,402 SS BAGCHI 202 13-04-2005 1315.00 7,224.33 95,00,000 HARESH BALLANI 301 12-04-2004 1338.43 7,097.87 95,00,000 MOHAN T BIJLANI 302 04-07-2004 1315.00 6,844.11 90,00,000 K. JOSHI 401 11-03-2004 1338.43 6,762.40 90,51,000 DINESH JAIN 402 08-07-2004 1315.00 7034.22 92,50,000 HARILAL SHAVJI PATEL 501 28-05-2001 24-07-2003 24-07-2003 417.13 600 343.87 RS.3,000.00 RS.3,000.00 RS.6,000.00 RS.12,51,390 RS.18,00,000 RS.20,63,220 13 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. TOTAL 1361.00 RS.50,51,390 AMBALAL PREMJI PATEL 502 28-05-2001 23-03-2004 TOTAL 752.87 562.13 1315 RS.3,000.00 RS.3,000.00 28,58,610 16,86,390 39,45,000 KANJI DHARAMSHI PATEL 601 28-05-2001 23-03-2004 23-03-2004 TOTAL 447.75 489.53 189.30 1126.58 RS.3,000.00 RS.3,000.00 RS.6,000.00 RS.13,43,250 RS.14,68,590 RS.11,35,800 RS.39,47,640 MANISH KANJI PATEL 601 A 23-03-2004 505.64 6,000.00 30,33,840 BHARAT NANJI PATEL 602 28-05-2004 23-03-2004 23-03-2004 TOTAL 701.12 146.65 211.71 1059.48 RS.3,000.00 RS.3,000.00 RS.6,000.00 RS.21,03,360 RS.04,39,950 RS.12,70,260 RS.38,13,570 DILIP NANJI PATEL 603 29-10-2002 556.19 3,516.16 19,56,000 14 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. TOTAL 7,71,46,062 11. THE APPELLANT CREDITED RS.7,71.46,062 TO THE P& L A/C AS SALES FROM THE JOANNA PROPERTY PROJECT BESIDES OTHER INCOME AMOUNTING TO RS.63,684. IT DEBITED RS.6,73,63,996 TOWARDS EXPENSES ON BUILDING CONSTRU CTION AND RS.80,717 AS OTHER EXPENSES THEREBY DECLARING NET PROFIT AT OF RS.97, 65,033. IT COMPUTED BUSINESS INCOME AT RS.96,76,871 AND AFTER SETTING OFF BROUGH T FORWARD BUSINESS LOSS OF RS.2,00,222 RETURNED TOTAL INCOME WAS RS.94,76,650 . HOWEVER THE AO ASSESSED INCOME FROM JOANNA VILLA PROJECT ON PROTECTIVE BASI S IN THE AY 2005-06. THE APPELLANT HAD ANOTHER PROJECT ON HAND AT PALI, BAND RA WHICH WAS IN PROGRESS DURING THE YEAR. THE AO OBSERVED THAT OPENING WORK IN PROG RESS IN RESPECT OF PALI PROJECT HAD GONE UP FROM RS.8,70,477/- TO RS.11,61,727/- AT THE END OF THE CURRENT YEAR. HE WAS OF THE VIEW THAT A PART OF THE OTHER EXPENSES D EBITED TO THE P&L A/C RELATED TO THE PENDING PALI PROJECT. IN THE ABSENCE OF PROJECT WIS E DETAILS, HE ASCRIBED A SUM OF RS.15,000/- OUT OF RS.80,717 TO THE PALI PROJECT AN D ADDED TO THE INCOME FROM JOANNA VILLA PROJECT. AFTER ALLOWING SET OFF OF BROUGHT FO RWARD LOSS OF RS.2,00,222, THE AO COMPUTED TOTAL INCOME AT RS.94,91,650/- AS AGAINST THE RETUNED INCOME OF RS.94,76,650/- .THUS THE ONLY ADDITION MADE TO THE RETURNED INCOME OF THE CURRENT YEAR WAS THE SUM OF RS.15,000. ON APPEAL BEFORE CIT (A) THE APPELLANT CONTESTED THIS APART FROM CHALLENGING THE VALIDITY OF PROTECTIVE A SSESSMENT OF INCOME FROM JOANNA VILLA PROJECT. THE AO IN THE REASSESSMENT PROCEEDI NGS FRAMED THE ASSESSMENT ORDER FOR THE AY 2004-05 BY ADDING OF RS.1,13,62,449/- AN D RS.1,37,23,455/- IN RELATION TO THE ABOVE PROJECT BY COMPUTING A TOTAL SUM OF RS.2 ,12,26,659 AS THE SALES VALUE OF THE FOUR FLATS INCLUDING THE ADDITIONAL SPACE AND AFTER ADJUSTING RS.1,13,62,449 ACCOUNTED FOR BY THE APPELLANT, THE AO TREATED THE DIFFERENCE OF RS.1,13,62,449 AS SUPPRESSED SALES VALUE FOR THESE 4 FLATS. REGARDING THE REMAIN ING TWO FLATS FOR WHICH THERE WERE 15 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. NO PRE-EXISTING AGREEMENTS, THE AO NOTED THAT THEY WERE ALLOTTED TO ITS DIRECTORS MANISH K PATEL (601A) AND DILIP N PATEL (603), RESP ECTIVELY AT RATES BELOW THE MARKET PRICE. NOTING THAT THEY ADMEASURED 1916.15 SQ. FT. AND 856.19 SQ. FT., RESPECTIVELY, THE AO APPLYING THE RATE OF RS.6,750 WORKED OUT TOTAL S ALES VALUE OF THE TWO FLATS AT RS.1,87,13,295. AFTER ADJUSTING THE SALES OF RS.49, 89,840 ACCOUNTED FOR BY THE APPELLANT, HE ADDED THE DIFFERENCE OF RS.1,37,23,45 5 AS SUPPRESSED SALES VALUE FOR THESE TWO FLATS. THUS THE AO MADE TOTAL ADDITION OF RS.2,50,85,904 (1,13,62,449 + 1,37,23,455) ON ACCOUNT OF SUPPRESSED SALES. WE NOT E THAT THE CIT(A) HELD THAT THE AO WAS RIGHT IN FORMING AN OPINION THAT THAT THER E WAS SUPPRESSION OF SALES VALUE BUT HE WAS WRONG IN CALCULATING THE SUPPRESSION ONLY T O 6 FLATS AND NOT FOR ALL THE 12 FLATS. IN OTHER WORDS, THE ACCOUNTS OF THE APPELLANT WERE NOT CORRECT OR COMPLETE AND THE TRUE PROFITS OF THE PROJECT COULD NOT BE DETERMINED BASE D ON THEM. ACCORDINGLY, CIT(A) INVOKED THE POWER GIVEN UNDER SECTION 145(3) AND PR OCEEDED TO ESTIMATE INCOME FROM THE PROJECT ON THE BASIS OF BEST OF MY JUDGME NT BY RELYING IN CASE OF CIT V. MCMILLAN AND CO 33 ITR 182 (SC) AND CIT VS A. KRIS HNASWAMI MUDALIAR 53 ITR 122 (SC) AND KACHWALA GEMS VS.JCIT 288 ITR 10 (SC)] AND ESTIMATED SALE VALUE AS PER TABLE C BELOW AND ENHANCED THE ASSEASSMENT BY RS. 5,30,80,200/- BY HOLDING THAT THE MARKET VALUE OF THE FLATS SOLD BY THE APP ELLANT DURING THE PERIOD FROM 30-10- 2002 AND 29-03-2004 RANGED BETWEEN RS.8,583.65 PER SQ. FT AND RS.8,992.56 PER SQ.FT. ADMITTEDLY, THE PROJECT WAS COMPLETED ON 01-04-2004 . THE PROJECT HAS TO BE VALUED ON THIS DATE. THE CIT(A) OBSERVED THE MARKET RATE N EAREST TO THIS DATE WAS RS.8,992.56 PER SQ.FT. CIT(A) THEREAFTER APPLIED AT THE RATE OF RS.8,990 PER SQ.FT. FOR ESTIMATING INCOME FROM THE PROJECT. THE SAME IS DONE BELOW: 16 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. TABLE C FLAT NO. AREA (SQ.FT.) SALES DECLARED SALES ASSESSE D 201 1338.43 90,34,402 1,20,32,485 202 1315.00 95,00,000 1,18,21,850 301 1338.43 95,00,000 1,20,32,485 302 1315.00 90,00,000 1,18,21,850 401 1338.43 90,51,000 1,20,32,485 402 1315.00 92,50,000 1,18,21,850 501 1361.00 50,51,390 1,22,35,390 502 1315.00 39,45,000 1,18,21,850 601 1410.51 39,47,640 1,26,80,485 601A 505.64 30,33,840 0,45,45,700 602 1377.05 30,13,570 1,23,79,680 603 556.19 19,56,000 0,50,00,150 TOTAL 7,71,46,062 13,02,26,260 12. ON THE BASIS OF COMPLETION CERTIFICATE IN RESPE CT JOANNA VILLA PROJECT, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) THAT THE PROJECT WAS COMPLETED IN THE ASSESSMENT YEAR 2005-06 AND THE ASSESSEE HAD RIGHTL Y ACCOUNTED FOR ITS INCOME ON PROJECT COMPLETION METHOD IN THE SAID YEAR AND NOT IN AY 2004-05. BUT THE ORDER OF CIT(A) ENHANCING THE ASSESSMENT BY RS. 5,30,80,200/ - ON THE BASIS OF FAIR MARKET PRICE OF RS. 8,990/-PER SQ.FT. ON ESTIMATED BASIS W HEN THE ACTUAL SALES DEEDS WERE ON RECORDS, APPEARS TO BE NOT CORRECT AND BASED ON SUR MISES AND CONJECTURES. THE CIT(A) OVERLOOKED THE FACT THAT THE ASSESSEE AS PER THE TE RMS OF MOI DATED 14.07.2001 TOOK OVER THE LIABILITIES AND COMMITMENTS OF THE ORIGINA L OWNERS TOWARDS THE 4 ORIGINAL PURCHASERS TO WHOM THE SALE OF FLATS WERE TO BE MA DE AT RS. 3,000/- PER SQ. FTS AS 17 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. REFERRED TO IN TABLE A. THE ASSESSEE WAS UNDER CONT RACTUAL OBLIGATION TO SELL THE FLATS TO THE ORIGINAL PURCHASERS AT THE PRICE AGREED TO BY T HE ORIGINAL OWNERS. NEITHER THE AO NOR THE CIT(A) BROUGHT ANY MATERIALS ON RECORDS TO SHOW THAT THE ASSESSEE RECEIVED MORE THAN WHAT HAD BEEN SHOWN IN THE SALE DEEDS. TH E LD CIT(A) ALSO FAILED TO BRING ANY COGENT MATERIALS ON RECORDS FOR ENHANCING THE A SSESSEMENT. NO DEFECTS WERE POINTED OUT IN THE RECORDS MAINTAINED BY THE ASSESS EE AND THEREFORE THE INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT TO ESTIMATE THE INCOME IS WRONG AND THE DECISIONS RELIED ON BY THE CIT(A) ARE NOT APPLICAB LE TO THE ASSESSEES CASE AS THE GUESS WORK IN ESTIMATION CAN ONLY BE MADE WHEN THER E DEFECTS IN THE RECORDS MAINTAINED BY THE ASSESSEE AND IT IS NOT POSSIBLE T O ARRIVE AT THE CORRECT INCOME BY THE AO ON THE BASIS OF THE SAID RECORDS. FURTHER ,WE A LSO FIND FORCE IN THE ARGUMENTS OF THE LD AUTHORIZED REPRESENTATIVE THAT THE PROVISION OF SECTION 50C ARE NOT APPLICABLE FOR ASCERTAINING THE FULL VALUE OF CONSIDERATION IN RESPECT OF BUSINESS ASSETS I.E INVENTORIES AS THE SAID PROVISIONS DEALS WITH ASCE RTAINING THE FULL VALUE OF CONSIDERATION IN CASE OF CAPITAL ASSETS FOR THE PU RPOSE OF CAPITAL GAIN. FURTHER OUR ATTENTION WAS DRAWN TO THE NEWLY INSERTED SECTION 4 3CA OF THE ACT WHICH DEALS WITH ASCERTAINING THE FULL VALUE OF CONSIDERATION IN CAS E OF ASSETS OTHER THAN CAPITAL ASSETS BUT THE SAID SECTION IS APPLICABLE W.E.F. 2014-15. AFTER TAKING INTO ACCOUNTS ALL THE FACTS, ARGUMENTS OF BOTH THE PARTIES AND RECORDS BE FORE US, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER PASSED BY THE LD.CIT(A) SUFFERE D FROM SEVERAL INFIRMITIES AND CANNOT BE SUSTAINED. WE THEREFORE DELETE THE ENHANC EMENT OF ASSESSMENT OF RS. 5,30,80,200/- BY THE CIT(A) BY ALLOWING THE APPEAL OF THE ASSESSEE. THE AO IS DIRECTED ACCORDINGLY. 18 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. ITA NO. 1011/MUM/2011 (ASSESSMENT YEAR 2004-05.) THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT (A) ERRED IN DELETING ADDITIONS AGGREGATING TO RS.3,19, 18,777 IGNORING THE FACT THAT THE ADDITIONS WERE MADE BASED ON THE FINDING THAT N EARLY 90% OF THE WORK IN PROGRESS WAS COMPLETED DURING THE RELEVANT PREVIOUS YEAR AND THAT THE PROJECT OF THE ASSESSEE, WHO WAS ENGAGED IN CIVIL CONSTRUCT ION, WAS COMPLETED DURING THE RELEVANT PREVIOUS YEAR AND THAT THE INCOME HAD ACCRUED TO THE ASSESSEE IN A.Y. 2004-05 ITSELF. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) B E SET ASIDE ON THE GROUNDS MENTIONED ABOVE AND THAT OF THE ASSESSING OFFICER B E RESTORED. 13. THE ISSUE RAISED BY THE REVENUE IS THAT SINCE T HE 90% OF THE PROJECT WAS COMPLETED IN THE A.Y. 2004-05 AND THEREFORE THE IN COME OF THAT PROJECT SHOULD BE ACCOUNTED IN THAT YEAR AND NOT IN THE A.Y. 2005-06 AS HELD BY THE CIT(A).WE HAVE ALREADY DECIDED THE ISSUE INVOLVED IN THIS APPEAL BY HOLDING THAT ACCEPTING THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAD RIGHTL Y SHOWN ITS INCOME IN THE AY 2005-06 ON THE BASIS OF PROJECT COMPLETION METHOD I N RESPECT JOANNA VILLA PROJECT AND IN VIEW OF OUR DECISION IN ITA NO 9053/MUM/2010 A.Y 2005-06 WE DISMISS THE APPEAL FILED BY THE REVENUE. THE AO IS DIRECTED AC CORDINGLY. 14. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. 19 ITA NO. 1011/MUM/2011&9053/MUM/2010 (A.Y.05-06 & 04-05) SWANANDA PROPERTIES PVT. LTD. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JANUARY, 2016 SD/- SD/- (JOGINDER SINGH) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.01. 2016 PS. ASHWINI GAJAKOSH. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT CONCERNED 5. / DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI