M/S. BHAKTI ENTERPRISES,MUMBAI V. INCOME TAX OFFICER 3(1), KALYAN

ITA 3974/MUM/2024

AI Insights

The case involves M/s Bhakti Enterprises, a builder and developer, appealing against the order of the Commissioner of Income Tax (Appeals), which upheld the Assessing Officer's reconstruction of the profit and loss account for the assessment year 2012-13. The main contention was regarding the computation of net profit and the disallowance of certain cash payments under section 40A(3) of the Income Tax Act, 1961. The Tribunal found merit in the assessee's arguments that the sales and costs were not accurately accounted for in the year under consideration and that the cash payments might qualify for exceptions under the rules.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33045 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONIKA PANDE
• Assessee Lawyers: H.N.MOTIWALLA
• Keywords: Set aside
• Section: 143(3); 142(1); 143(2); 250; 40A(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 3974/MUM/2024 (Assessment Year : 2012–13) M/s Bhakti Enterprises, Jai Maharashtra Building, Opp. Namaskar Mandal, Agra Road, Kalyan West, Thane-421301 PAN: AAFFB8767 J ……………. Appellant v/s ITO 3(1), Kalyan, Maharashtra-421301. ……………. Respondent Assessee by :Mr. H.N. Motiwalla, AR Revenue by : Ms. Monika Pande, Sr.DR Date of Hearing – 05/02/2025 Date of Order – 11/02/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. In the present appeal against the impugned order dated 12/06/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2012-13. 2. In this appeal, the assessee has raised the following grounds: – “1. On the facts and in the circumstances of the case the learned Commissioner of Income tax (Appeal), National Faceless Appeal Centre, Delhi, erred in not considering the ground that the learned Assessing Officer erred in reconstructing the Trading Account and determining the ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 2 net profit of Rs. 98,19,345/- without considering the cost of land and TDR being stock in trade of the appellant. 2. On the facts and in the circumstances of the case the said learned Commissioner of Income tax (Appeal), National Faceless Appeal Centre, Delhi, has also erred in determining the net profit of Rs. 98,19,345/- by treating sale at Rs. 5,54,86,465/- as per agreement for sale without appreciating that the appellant follows 'Completed Contact Method' and offered the income for tax in the assessment year 2015/16 after completing the project, 3. On the facts and in the circumstances of the case the said learned Commissioner of Income tax (Appeal), National Faceless Appeal Centre, Delhi, has also erred in determining the net profit at Rs. 98,19,345/- by taking total cost of construction at Rs. 4,43,19,205/- only, without appreciating that as on March 31,2012 work-in-progress was Rs. 4,49,76,162/- as per certificate of Chartered Engineer and Govt. Approved valuer. 4. On the facts and in the circumstances of the case the said learned Commissioner of Income tax, NFAC, Delhi, has also erred in confirming the disallowance of Rs. 55,000/-under section 40A(3) in respect of cash paid to Mr. Prakash Shah having PAN of BLWPS 07068 and M/s. Vidyut Vaibhav.” 3. During the hearing, at the outset, grounds no.2 and 3 were not pressed by the learned Authorised Representative (“learned AR”). Accordingly, the same are dismissed as not pressed. 4. The brief facts of the case, pertaining to grounds no.1 and 4, raised in assessee’s appeal, are that the assessee is engaged in the business of builders and developers. For the year under consideration, the assessee filed its return of income on 25/09/2012, declaring a total income INR 3,43,625. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the scrutiny assessment proceedings, the assessee produced books of accounts and financial statements such as cash book, Ledger account, Journal, etc., which were checked on random basis. ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 3 Upon perusal of the audit report, it was observed that the assessee follows the Project Completion Method. The assessee also submitted the comments and certificate in completion certificate from the Kalyan Development and Municipal Corporation (“KDMC”) for the project. After perusal of the details filed by the assessee, the assessee was requested to explain the following points: – (a) The KDMC issued a completion certificate on 13/04/2010 and possession of the flats was also given to the purchaser. (b) The sales made by the assessee firm as on 31/03/2012 for various units are 23,026 ft² for an agreement value of INR 5,54,86,465. (c) The closing stock/and sold any of the units remaining with the assessee was calculated at 2094 ft² having cost value of INR 33,56,996. (d) The construction cost incurred per square feet was calculated at INR 1603.15. Since the KDMC certified the assessee’s project to be completed on 13/04/2010, the assessee was asked to show cause why the project's net profit was not worked out at INR 98,19,345 for the purpose of taxation. 5. In response, the assessee submitted that valuing sales at INR 5,54,86,465 is not as per Standard Accounting Practices and provisions of the Accounting Standards. The assessee further submitted that the agreements were entered but the amount was not fully received and the aforesaid amount can be considered as a sale consideration only in the assessment year 2015-16. Further, the assessee submitted that valuing the ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 4 closing stock at INR 33,56,996 is also not as per the Standard Accounting Practices and the provisions of the Accounting Standards, as the area of 1603.15 per square feet in the rate of INR 4619 per square feet both are hypothetical and baseless. The assessee also submitted that the project work has been carried out in the subsequent assessment years namely the assessment year 2013-14, 2014-15 and 2015-16. Therefore, the cost of construction should be taken on an actual basis instead of a hypothetical cost. The assessee submitted that it is following the Project Completion Method and has filed its return of income on the basis of books of accounts maintained up to the assessment year 2014-15. It was further submitted that the project was actually completed in the assessment year 2015-16, therefore it is improper to treat the project as completed in the year under consideration. The Assessing Officer (“AO”) vide order dated 31/03/2015 passed under section 143(3) of the Act disagreed with the submissions of the assessee and computed the net profit at INR 98,19,345 after considering the sale of INR 5,54,86,465 as per the agreements. The AO also made disallowance under section 40A(3) of the Act on the basis that the assessee has made payment in cash in excess of the limit as provided under section 40A(3) of the Act. 6. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the AO has rightly re-constructed the profit and loss account of the assessee, as the project was completed on 13/04/2010 vide Completion Certificate issued by the KDMC. The learned CIT(A) further held that the assessee’s contention that the project was ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 5 incomplete and was completed in subsequent years is not correct when there is a Completion Certificate issued by the KDMC. As regards the closing stock estimated by the AO at INR 23,56,996, the learned CIT(A) directed the AO to verify the contention of the assessee that the flats shown under the closing stock already got registered before March 2012, and if found to be correct, the net profits derived by the AO may be reduced to that extent. The learned CIT(A) also upheld the disallowance made under section 40A(3) of the Act on the basis that the cash payment does not come under any exception as provided under Rule 6DD of the Income Tax Rules, 1962. Being aggrieved, the assessee is in appeal before us. 7. We have considered the submissions of both sides and perused the material available on record. During the hearing, the learned AR, by referring to the details of flats and shops and the project as per the plan, forming part of the paper book from pages 5-7, submitted that the total consideration of INR 5,54,86,465 was received by the assessee till the assessment year 2015-16 and therefore, the lower authorities erred in considering the aforesaid sales till the assessment year under consideration for computation of net profit. Further, the learned AR referred to the consolidated profit and loss account as per the books of account of the assessee from 2004 to 2015 and submitted that after considering the sales as per the agreements till 2015 amounting to INR 5,54,86,465 and other costs incurred by the assessee, the net profit of the assessee is only INR 81,702. Thus, having considered the submissions of both sides and perused the material available on record, we are of the considered view that only the ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 6 sales completed till this year can be added in this year after examination of agreements entered into by the assessee. Accordingly, we set aside the impugned order and restore this issue to the file of the jurisdictional AO for de novo adjudication after verifying the actual sale consideration received by the assessee till the year under consideration, TDR and other expenses for computation of the net profit taxable in the year under consideration. Further, as regards the disallowance under section 40A(3) of the Act,we deem it appropriate to grant one more opportunity to the assessee, in the interest of justice, to prove that the expenditure incurred by it in cash falls within the exception as provided under Rule 6DD of the Rules. Accordingly, this issue is also restored to the file of the jurisdictional AO for de novo adjudication with a direction to the assessee to furnish all the documents in support of its claim. Needless to say, no order shall be passed without affording the reasonable and adequate opportunity of hearing to the assessee. Accordingly, with the above directions, the impugned order is set aside and the grounds no.1 and 4 raised by the assessee are allowed for statistical purposes. 8. In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 11/02/2025 Sd/- -AMARJIT SINGH ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 11/02/2025 S.K, Sr. P.S. ITA No. 3974 Mum 2024-M/s Bhakti Enterprises 7 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Assistant Registrar ITAT, Mumbai "