M/s. S.J. ASSOCIATES, MUMBAI v. ITO Wd. - 24(2)(2), MUMBAI

ITA 1309/MUM/2007 | 2002-2003
Pronouncement Date: 31-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 130919914 RSA 2007
Assessee PAN AACFS1260Q
Bench Mumbai
Appeal Number ITA 1309/MUM/2007
Duration Of Justice 3 year(s) 3 month(s) 17 day(s)
Appellant M/s. S.J. ASSOCIATES, MUMBAI
Respondent ITO Wd. - 24(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 31-05-2010
Date Of Final Hearing 29-03-2010
Next Hearing Date 29-03-2010
Assessment Year 2002-2003
Appeal Filed On 12-02-2007
Judgment Text
ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI D K AGARWAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER). ITA NO. 1309/MUM/07 ASSESSMENT YEARS 2002-03 S J ASSOCIATES .APPELLANT SHYAMA 11 KHANDELWAL LAYOUT LINK ROAD MALAD (WEST) MUMBAI 400 064 (PAN : AACFS1260Q) VS. INCOME TAX OFFICER - WARD 24(2)(2) MUMBAI . RESPONDENT APPELLANT BY : SHRI ASHOK J PATIL RESPONDENT BY : SMT MONIKA KHARE O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 27 TH NOVEMBER 2006 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT 1961 FOR THE ASSESSMENT YEAR 2002-03. GRIEVANCES RAISED BY THE A SSESSEE ARE AS FOLLOWS: 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN THE CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICER S ORDER THAT ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 2 OF 8 THE INCOME OF THE BUILDING CONSTRUCTION PROJECT IS TAXABLE IN THE ASSESSMENT YEAR 2002-03. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN THE CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICER S ORDER THAT INCOME TO THE EXTENT OF 15% OF SALE CONSIDERATION O F THREE FLATS BE TAXED IN THE ASSESSMENT YEAR 2002-03. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN NOT PASSING ORDER ON THE APPEAL GROUND THAT TAXABLE INC OME SHOULD BE ADDED TO THE CLOSING WORK IN PROGRESS AND EFFE CT SHOULD BE GIVEN TO SUCCEEDING ASSESSMENT YEAR 2003-04 BY WAY OF INCREASE IN COST TO AVOID DOUBLE TAXATION OF THE SAME AMOUN T. 2. THE RELEVANT MATERIAL FACTS GIVING RISE TO THIS APPEAL BEFORE US ARE LIKE THIS. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAG ED IN THE BUILDING CONSTRUCTION ACTIVITIES. ON 30 TH OCTOBER 2002 THE ASSESSEE FILED ITS INCOME TAX RETURN SHOWING NIL INCOME. THIS INCOME T AX RETURN WAS PICKED UP FOR SCRUTINY ASSESSMENT UNDER SECTION 143 (3). DURING THE COURSE OF THE ENSUING SCRUTINY ASSESSMENT PROCEEDIN GS IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS INVOL VED IN DEVELOPING BUILDING AT PLOT NO. 18 IN KHADELWAL LAYOUT AT MALA D (WEST) MUMBAI. THE ASSESSEE HAS CONSTRUCTED THE BUILDING STILTS AND SEVEN UPPER FLOORS. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS ALREADY SOLD ELEVEN FLATS SO FAR OUT OF WHICH THRE E FLATS WERE SOLD IN THE RELEVANT PREVIOUS YEAR AND THE REMAINING EIGHT SOLD IN THE IMMEDIATELY ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 3 OF 8 PRECEDING PREVIOUS YEAR. THE POSSESSION OF THESE FL ATS WAS ALSO HANDED OVER TO THE BUYERS. HOWEVER AS THE ASSESSEE CLAIMS TO BE FOLLOWING PROJECT COMPLETION METHOD AND AS ACCORDING TO THE ASSESSEE PROJECT WAS NOT FULLY COMPLETED NO PART OF INCOME ON SALE OF THESE FLATS WAS OFFERED TO TAX EITHER IN THIS YEAR OR IN THE IMME DIATELY PRECEDING YEAR. IN RESPONSE TO THE ASSESSING OFFICERS REQUIS ITION TO SHOW CAUSE AS TO WHY THE AMOUNTS SHOWN AS ADVANCES RECEIVED FR OM THE CUSTOMERS NOT BE TREATED AS SALES AND PROFIT ON SUCH SALE BE BROUGHT TO TAX IT WAS SUBMITTED BY THE ASSESSEE THAT THE PROJECT WAS NOT COMPLETED TILL THE END OF THE RELEVANT PREVIOUS YEAR AND AS SUCH NO PART OF INCOME ON ACCOUNT OF SUCH SALES CAN BE BROUGHT TO TAX IN THE PRESENT ASSESSMENT YEAR OR THE PRECEDING ASSESSMENT YEARS. THESE SUBM ISSIONS HOWEVER DID NOT IMPRESS THE ASSESSING OFFICER. HE NOTED THA T NOT ONLY THAT THE ASSESSEE HAS SOLD THE FLATS AND HANDED OVER POSSESS ION OF THE SAME THE ASSESSEE APPLIED FOR THE OCCUPATION CERTIFICATE FOR BUILDING ON 17 TH NOVEMBER 2000 AND THE SAME WAS ALSO ISSUED BY THE BOMBAY MUNICIPAL CORPORATION ON 17 TH JANUARY 2001. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION T HAT FOLLOWING DECISION OF THIS TRIBUNAL IN THE CASE OF CHAMPION C ONSTRUCTION CO VS FIRST INCOME TAX OFFICER (51 ITD 495) AND BEARING I N MIND THE FACT THAT PROJECT WAS ALREADY COMPLETED INCOME ON SALE OF THREE FLATS SOLD DURING THE YEAR WAS TO BE BROUGHT TO TAX ON ESTIM ATED BASIS @ 30% OF SALE CONSIDERATION IN THE CURRENT YEAR. THERE WER E CERTAIN OTHER ADDITIONS TO THE RETURNED INCOME AS WELL WHICH WER E MADE BY THE ASSESSING OFFICER BUT SINCE THOSE ADDITIONS ARE NO T SUBJECT MATTER OF THIS APPEAL WE ARE NOT DEALING WITH THE SAME. ACCO RDINGLY THE ASSESSING OFFICER INTER ALIA MADE AN ADDITION OF RS 14 10 000 TO THE INCOME RETURNED BY THE ASSESSEE. THE ONLY ISSUE TH AT WE ARE REQUIRED TO ADJUDICATE WITH REGARD TO THESE ADDITIONS IS THE QUESTION OF CONSEQUENTIAL DIRECTIONS ABOUT VALUATION OF CLOSING STOCK BUT WE WILL DEAL WITH THAT ASPECT SEPARATELY AGGRIEVED BY THE ADDITION OF RS ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 4 OF 8 14 10 000 ON ACCOUNT OF ESTIMATED INCOME ON SALE OF FLATS ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND THE CIT(A) RESTRICTED THE ADDITION TO ESTIMATED INCOME @ 15% O F SALE CONSIDERATION. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. THE MAIN THRUST OF LEARN ED COUNSELS SUBMISSIONS IS THAT THE OCCUPANCY CERTIFICATE ISSUE D BY THE BMC ON 17 TH JANUARY 2001 IS ONLY A CONDITIONAL CERTIFICATE AND THEREFORE IT COULD NOT BE CONCLUDED THAT THE PROJECT WAS COMPLET ED. OUR ATTENTION WAS INVITED TO THE FACT THAT THE CERTIFICATE WAS SU BJECT TO THE CONDITION THAT THE CERTIFICATE UNDER SECTION 270A OF THE BMC ACT SHALL BE OBTAINED FROM AEWWP NORTH AND A CERTIFIED COPY O F THE SAME SHALL BE SUBMITTED TO THIS OFFICE. IT IS POINTED OUT TH AT THE CERTIFICATE UNDER SECTION 270 A OF THE BMC ACT WAS FINALLY OBTAINED B Y THE ASSESSEE ON 13 TH NOVEMBER 2001 AND THAT THE FINAL COMPLETION CERTI FICATE WAS ISSUED BY THE MUNICIPAL CORPORATION ON 2 ND APRIL 2002. IT IS SUBMITTED THAT SINCE THE COMPLETION CERTIFICATE WAS ISSUED ON 2 ND APRIL 2002 WHICH FALLS IN THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR 2003- 04 THE PROJECT SHOULD BE TREATED AS COMPLETED IN T HE ASSESSMENT YEAR 2003-04. IT IS ALSO POINTED OUT THAT AS EVIDENT F ROM THE POSSESSION LETTERS ISSUED TO THE BUYERS OF THE FLATS COPIES OF WHICH WERE PLACED BEFORE US IN THE PAPER-BOOK THE POSSESSION WAS GIV EN ONLY FOR INTERIOR WORK ETC AS THE PERIPHERAL WORK LIKE PAV ING FLOORING OF LOBBY AND PART TERRACE FINISHING OF GATE PILLARS STAIRC ASE 7 TH FLOOR WORK TERRACE LANDING MID LANDINGS STILTS AND EXTERNAL PAINTING FINAL COAT ARE IN PROGRESS RENDERING THE BUILDING NOT HABITABL E. WE ARE THUS URGED TO HOLD THAT NO PART OF THE INCOME ON SALE OF FLATS IS TAXABLE IN THE PRESENT YEAR. WITHOUT PREJUDICE TO THIS ARGUMENT L EARNED COUNSEL ALSO ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 5 OF 8 SUBMITS THAT IN ANY EVENT THE PROFIT RATE OF 15% IS HIGHLY EXCESSIVE AND NOT IN CONSONANCE WITH GROUND REALITIES. WE ARE ALSO URGED TO AT LEAST SCALE DOWN THE ESTIMATED PROFIT RATE IN CASE WE ARE TO HOLD THAT TAXABILITY ARISES IN THE CURRENT YEAR. LEARNED DEPA RTMENTAL REPRESENTATIVE ON THE OTHER HAND HAS MAINLY RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IT IS AN A DMITTED POSITION THAT THE WORK OF THE BUILDING PROJECT WAS SUBSTANTIALLY COMPLETED AND AS SUCH FOLLOWING THE CONSISTENT VIEW TAKEN BY THE C OORDINATE BENCHES THE TAXABILITY OF PROFITS CANNOT BE DELAYED BEYOND THE YEAR IN WHICH THE PROJECT IS SUBSTANTIALLY COMPLETED. AS REGARDS THE RATE OF PROFIT IT IS POINTED OUT THAT THE ASSESSEE HAS NOT BROUGHT ON RE CORD ANY MATERIAL TO JUSTIFY THE LOWER PROFIT RATE AND THEREFORE CO NSISTENT WITH THE DECISIONS OF THE TRIBUNAL ESTIMATION OF PROFIT IS DONE @ 15% OF GROSS SALE PROCEEDS. WE ARE THUS URGED TO CONFIRM THE OR DER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 4. IN OUR CONSIDERED VIEW IT IS BEYOND ANY SERIOUS DISPUTE OR CONTROVERSY THAT THE PROJECT WAS SUBSTANTIALLY COMP LETED ON 17 TH JANUARY 2001 WHEN ASSESSEE WAS ISSUED A OCCUPATION CERTIFICATE BY THE BMC. NO DOUBT THIS OCCUPATION CERTIFICATE IS SU BJECT TO ANOTHER CERTIFICATE FOR WATER CONNECTION TO BE FILED BY THE ASSESSEE BUT THAT IS SOMEWHAT A PROCEDURAL COMPLIANCE REQUIREMENT IN NAT URE INASMUCH WHILE IT DOES SHOW THAT WATER CONNECTION CERTIFICAT E WAS TO BE FILED BY THE ASSESSEE IT DOES NOT ALSO SHOW THAT PROJECT WA S SUBSTANTIALLY COMPLETED . THE TAXABLE EVENT IS COMPLETION OF PROJ ECT AND NOT ITS OCCUPANCY AND THEREFORE THERE IS NOT MUCH SUBSTA NCE IN LEARNED COUNSELS REPEATED EMPHASIS TO THE POINT OF TIME WH EN FLATS WERE ACCORDING TO HIM ACTUALLY FIT TO BE OCCUPIED BY TH E BUYERS. WE THEREFORE APPROVE THE CONCLUSIONS ARRIVED AT BY TH E CIT(A) IN PRINCIPLE AND DECLINE TO INTERFERE SO FAR AS THE ASSESSMENT Y EAR OF TAXABILITY IS CONCERNED. HAVING SAID THAT HOWEVER WE DO SEE MER ITS IN LEARNED ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 6 OF 8 COUNSELS SUBMISSION THAT ESTIMATION @ 15% IS PUREL Y ADHOC IN NATURE AND THE ASSESSEE WAS NOT GIVEN A REASONABLE OPPORTU NITY TO MAKE HIS SUBMISSIONS ON THE CORRECT RATE TO BE ADOPTED FOR S O ADOPTING THE ESTIMATED PROFITS. WE THEREFORE DEEM IT FIT AND P ROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSES OF GIVING AN OPPORTUNITY TO THE ASSESSEE TO MAKE HIS S UBMISSIONS ON THE RATE AT WHICH PROFITS ARE TO BE COMPUTED. THE ASSES SING OFFICER WILL DEAL WITH THE SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE BY WAY OF A SPEAKING ORDER AND IN ACCORDANCE WITH THE LAW. IN C ASE THE ASSESSEE DOES NOT MAKE ANY SUBMISSIONS OR FAILS TO SHOW A RE ASONABLE BASIS FOR THE RATE OF PROFIT TO BE ADOPTED IT WILL BE OPEN T O THE ASSESSING OFFICER TO REPEAT THE SAME RATE FOR ESTIMATION OF PROFITS A ND TAKE SUCH ACTION AS THE ASSESSING OFFICER MAY DEEM FIT. WITH THESE D IRECTIONS THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFF ICER. GROUND NO. 1 IS THUS DISMISSED AND GROUND NO. 2 IS ALLOWED FOR STA TISTICAL PURPOSES. 5. THE ONLY OTHER ISSUE RAISED BEFORE US IN GROUND NO. 3 IS REGARDING SEEKING A DIRECTION THAT TAXABLE INCOME SHOULD NOT BE ADDED TO THE CLOSING WORK IN PROGRESS AND EFFECT SHOULD BE GIV EN TO SUCCEEDING ASSESSMENT YEAR 2003-04 BY WAY OF INCREASE IN COST TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. AS FAR AS THIS ISSUE IS CONCERNED WE HAVE NOTED THAT THE ASSESSING OFFICER HAD DISALLOWED CER TAIN EXPENSES AND GIVEN CERTAIN DIRECTIONS TO REDUCE THE SAME FROM CL OSING WORK IN PROGRESS. THE CIT (A) HAS DELETED THESE DISALLOWANCE AND WE A RE TOLD THAT THE REVENUE IS NOT IN APPEAL AGAINST THE ACTION OF THE CIT(A). IN THESE CIRCUMSTANCES AND HAVING ACCEPTED THE CIT(A)S DEL ETION OF DISALLOWANCES IT IS ONLY A NATURAL COROLLARY TO THIS POSITION THA T THE RELATED ADJUSTMENTS FROM THE WIP MUST ALSO GO. HOWEVER THAT POSITION W ILL BE RELEVANT WHEN PROFITS ARE COMPUTED IN THE SUBSEQUENT YEARS. THE G RIEVANCE CAN THEREFORE ARISE ONLY WHEN THE CAUSE OF ACTION ARIS ES. AS ON NOW THERE IS NO CAUSE OF ACTION OF THE ASSESSEES GRIEVANCE AND WE THEREFORE DECLINE ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 7 OF 8 TO DEAL WITH THE SAME ON MERITS. 6. WITH THESE OBSERVATIONS WE DISMISS THE GROUND N O. 3 AS INFRUCTUOUS AND HOLD THAT IT DOES NOT CALL FOR ANY ADJUDICATION BY US AT THIS STAGE. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN C OURT TODAY ON 31 ST DAY OF MAY 2010. SD/XX SD/XX (D K AGARWAL) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 31 ST DAY OF MAY 2010. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE J BENCH ITAT M UMBAI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI ITA NO . 1309/MUM/ 07 ASSESSMENT YEAR 2002-03 PAGE 8 OF 8 DATE INITIAL 1. DRAFT DICTATED ON 28.5.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 28.5.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 28.5.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 28.5.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 28.5.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 31.5.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 31.5.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER