M/s. Unity Construction Co.,, Bharuch v. The Income tax Officer,Ward-1,, Bharuch

ITA 1577/AHD/2008 | 2004-2005
Pronouncement Date: 28-07-2011 | Result: Allowed

Appeal Details

RSA Number 157720514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 1577/AHD/2008
Duration Of Justice 3 year(s) 2 month(s) 21 day(s)
Appellant M/s. Unity Construction Co.,, Bharuch
Respondent The Income tax Officer,Ward-1,, Bharuch
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 04-12-2008
Date Of Final Hearing 09-06-2011
Next Hearing Date 09-06-2011
Assessment Year 2004-2005
Appeal Filed On 07-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL HONBLE VICE-PRESIDENT (AZ) AND SHRI D.K. TYAGI HONBLE JUDICIAL MEMBER ITA NO.1577 & 1551/AHD/2008 ASSESSMENT YEAR:2004-05 DATE OF HEARING:9.6.11 DRAFTED:12.7.11 M/S. UNITY CONSTRUCTION CO. 108 B.G. TRADE CENTRE PANCHBATTI BHARUCH PAN NO.AAFU3753G INCOME TAX OFFICER WARD-1 BANK OF BARODA BUILDING STATION ROAD BHARUCH V/S . V/S . INCOME TAX OFFICER WARD-1 BANK OF BARODA BUILDING STATION ROAD BHARUCH M/S. UNITY CONSTRUCTION CO. 108 B.G. TRADE CENTRE PANCHBATTI BHARUCH (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI P.M. MEHTA AR REVENUE BY:- SHRI PRAKASH DUBEY SR-DR O R D E R PER D.K. TYAGI JUDICIAL MEMBER:- THESE ARE CROSS-APPEALS FILED BY ASSESSEE AND REVE NUE AGAINST THE COMMON ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI B ARODA IN APPEAL NO.CAB/VI- 432/06-07 FOR ASSESSMENT YEAR 2004-05. FIRST WE WILL TAKE UP ASSESSEES APPEAL IN ITA NO.1 577/AHD/2008. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE REJECTION OF METHOD OF ACCO UNTING AND ESTIMATION OF INCOME. ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 2 (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE RELIEF OF RS.34 800/- OUT OF DISALLOWANCE OF RS.69 978/- MADE BY THE ASSESSING OFFICER IN RESPECT OF INTERES T. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) SHOULD HAVE DELETED THE WHOLE OF THE ADDITION OF RS .69 978/- IN RESPECT OF INTEREST. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.5 15 933/- M ADE BY THE ASSESSING OFFICER IN RESPECT OF G.P ON ADVANCES. (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING PROPORTIONATE ESTIMATE OF INCOM E ON PERCENTAGE COMPLETION METHOD. (6) WITHOUT PREJUDICE TO WHATEVER STATED ABOVE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON. CIT(A) OUGHT TO HAVE GIVEN DIRECTION FOR CREDIT OF GROSS PROFIT ESTIMATED AND/OR VALUATION I N THE GROSS PROFIT ACTUALLY TAXED AND ADMITTEDLY ACCEPTED BY THE DEPARTMENT IN THE SUBSEQUENT YEARS. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION DEVELOPERS OF LAND ESTATE PROPERTY ETC. THE RETURN OF INCOME WA S FILED BY HIM DECLARING TAXABLE INCOME AT NIL AFTER CLAMING DEDUCTION U/S 80IB OF T HE INCOME-TAX ACT 1961 OF RS.13 14 927/- AND THE RETURN WAS PROCESSED U/S. 14 3(3) OF THE ACT ACCEPTING RETURN OF INCOME. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON A TOTAL INCO ME OF RS.73 81 510/-. 4. THE FIRST AND FIFTH GROUNDS OF ASSESSEES APPEAL RELATE TO REJECTION OF METHOD OF ACCOUNTING AND ESTIMATION OF INCOME. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER QUESTIONED THE METHOD OF ACCOUNTI NG FOLLOWED BY THE ASSESSEE OF UNIT COMPLETION METHOD WHICH WAS ACCEPTED BY THE RE VENUE IN EARLIER YEARS. THE AO WAS OF THE VIEW THAT A DECISION GIVEN IN ASSESSM ENT FOR EARLIER YEAR IS NOT BINDING ON THE REVENUE. IN A SUBSEQUENT YEAR AND AS PER REV ISED ACCOUNT STANDARD-7 (AS7) WITH EFFECT FROM 01-04-2003 THE ONLY RECOGNIZED MET HOD WAS THE PERCENTAGE OF COMPLETION METHOD AND THEREFORE THE METHOD FOLLOWED BY THE ASSESSEE WAS NOT A RECOGNIZED METHOD. THE AO THEREFORE RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES CHEMICAL AND FERTILIZER LTD. V C IT (1997) 227 ITR 17 (SC) AND HONBLE DELHI HIGH COURT IN THE CAS E OF UTTAM SINGH DUGGAL & CO. PVT. LTD. V. CIT 127 ITR 21 (DEL) REJECTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 3 ASSESSEE AND COMPUTED THE TOTAL INCOME AS PER PERCE NTAGE OF COMPLETION OF PROJECT. TAKING INTO CONSIDERATION THE WORK-IN-PROGRESS/CLOS ING STOCK AND THE PERCENTAGE OF INCOME WITH RESPECT OF ADVANCE RECEIVED. 5. BEFORE LD. CIT(APPEALS) THE CONTENTION OF THE AS SESSEE WAS THAT ASSESSING OFFICER HAS REJECTED THE UNIT COMPLETION METHOD OF ACCOUNTING FOLLOWED BY HIM FOR PAST MANY YEARS AND THE SAME WAS ACCEPTED IN THOSE YEARS BY THE REVENUE. IT WAS FURTHER ARGUED THAT DURING ASSESSMENT YEAR 2000-01 A SURVEY OPERATION U/S. 133A OF THE ACT WAS CONDUCTED AND DURING THE SURVEY OPERATI ON NOTHING ABNORMAL WAS FOUND AND THE RELEVANT ASSESSMENT FOR ASSESSMENT ORDER 20 00-01 WAS COMPLETED ACCEPTING THE ASSESSEES METHOD OF ACCOUNTING. IT W AS ALSO ASSERTED THAT THE ASSESSEE HAD BEEN MAINTAINING REGULAR BOOKS OF ACCO UNT WHICH WERE AUDITED AND IT HAD FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING WITH F AIR REVENUE RECOGNITION METHOD. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE I S IN ACCORDANCE WITH ACCOUNTING STANDARD ISSUED BY ICAI. IT WAS THUS ARG UED BY ASSESSEE THAT THE ADOPTION OF PERCENTAGE COMPLETION METHOD BY AO WAS INCORRECT AND WRONG. HOWEVER THE LD CIT(APPEALS) CONFIRMED THE ACTION O F AO IN REJECTING THE METHOD EMPLOYED BY THE ASSESSEE AND RECASTING THE PROFIT A ND LOSS ACCOUNT OF THE ASSESSEE. 6. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT ASSESSEE WAS NOT ENGAGED IN THE WORK OF CARRYING OUT CONSTRUCTION WORK. IN FACT HE WAS A BUILDER AND WAS ENGAGED IN CONSTRUCTION AND SALE OF IMMOVABLE PROPE RTY HENCE REVISED AS7 WAS NOT APPLICABLE IN HIS CASE. IN FACT IN CASE OF BUILDER REVENUE NEEDS TO BE RECOGNIZED ON THE BASIS OF AS-9 WHICH UPHOLDS THE METHOD FOLLOWED BY THE ASSESSEE AS INCOME IS RECOGNIZED ONCE THE SALES OF UNIT IS COMPLETED. THE UNIT COMPLETION METHOD REFERS TO RECOGNIZING OF PROFIT AT EARLIER POINTS OF TIME AS SOON AS UNIT IS DISPOSED OFF. THIS METHOD OF ACCOUNTING IS IN CONSONANCE WITH AS-9 ISS UED BY ICAI. IT IS RATHER IN SOME CASES RECOGNIZING INCOME EARLIER THAN PERCENTAGE CO MPLETION METHOD. THUS REJECTION OF METHOD OF ACCOUNTING FOLLOWED BY THE A SSESSEE WAS WITHOUT ANY VALID REASONS AND HENCE NOT SUSTAINABLE IN LAW. IT WAS AL SO ARGUED THAT SINCE THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE IN EARLIER AND ALSO IN SUBSEQUENT YEAR FOLLOWING THE RULE OF CONSI STENCY THE SAME SHOULD BE ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 4 ACCEPTED DURING THE YEAR UNDER APPEAL AND RETURN OF INCOME SHOWN BY THE ASSESSEE BE ACCEPTED AND PROPORTIONATE ESTIMATE OF INCOME ON PERCENTAGE COMPLETION METHOD BE DELETED. 7. LD. DR ON THE ORDER HAND RELIED ON THE ORDER OF LOWER AUTHORITIES. 8 AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE SUBMISSION OF THE ASSESSEE THAT UNIT COMPLETION MET HOD FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS A S WELL AS SUBSEQUENT YEAR HAS NOT BEEN DISPUTED BY THE REVENUE AT THE TIME OF HE ARING BEFORE US. THIS METHOD OF ACCOUNTING HAS ALSO BEEN FOUND TO BE CORRECT OF ARR IVING AT TAXABLE INCOME OF THE ASSESSEE WHO IS ENGAGED IN CONSTRUCTION AND SALE OF IMMOVABLE PROPERTY BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. ASHALAND CORPORATION (1982) 133 ITR 55 (GUJ) AND IN THE CASE OF CIT. V. MOTILAL C PATEL AND CO. (1988) 173 ITR 666 (GUJ). WE FURTHER FIND THAT IT IS A SETTLED POSITION OF LAW THAT ONCE THE METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS IT CANNOT BE REJECTED IN THE SUBSEQUENT YEAR WITHOUT B RINGING ANYTHING ON RECORD TO SHOW THAT FACTS WERE DIFFERENT DURING THAT YEAR. IN VIEW OF THIS WE HAVE NO HESITATION IN HOLDING THAT LOWER AUTHORITIES WERE NOT JUSTIFIE D IN REJECTING THE UNIT COMPLETION METHOD ADOPTED BY THE ASSESSEE. WE FURTHER HOLD THA T PROPORTIONATE ESTIMATE OF INCOME DONE BY THEM BY FOLLOWING THE PERCENTAGE OF COMPLETION METHOD WAS NOT CALLED FOR IN THIS CASE. THESE GROUNDS OF ASSESSEE S APPEAL ARE ALLOWED. 9. GROUND NO.2 AND 3 RELATE TO DISALLOWANCE OF RS.6 9 978/- MADE BY THE ASSESSING OFFICER IN RESPECT OF INTEREST WHICH HAS BEEN REDUCED BY THE LD. CIT(APPEALS) TO RS.34 800/-. 10. ON VERIFICATION OF BALANCE-SHEET IT WAS OBSERVE D BY ASSESSING OFFICER THAT ASSESSEE HAD GIVEN FOLLOWING LOANS AND ADVANCES:- AJAYKUMAR BHARATKUMAR & CO RS.10 00 000/- EXOTIC HOTELS & RESORTS PVT. LTD. RS. 80 000/- LAXMI NARAYAN MANDIR TRUST RS. 1 60 000/- SHRI MANHARSING R PARMAR RS. 50 000/- ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 5 THE ASSESSEE WAS REQUESTED TO FURNISH VARIOUS DETAI LS IN RESPECT OF THESE ADVANCES AND ALSO HIS EXPLANATION WHY NO INTEREST WAS CHARGE D ON THESE AMOUNTS. THE ASSESSEES SUBMISSION WAS THAT IT HAD INTEREST FREE UNSECURED LOAN OF RS.33.47 LAKH AND THEREFORE NO INTEREST DISALLOWANCE SHOULD BE MA DE. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE COULD NOT FURNISH THE DIRECT NEXUS BETWEEN INTEREST FREE ADVANCES GIVEN AND ITS RESOURCES. HE ALSO OBSERVED THAT ASSESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF FINANCIAL CHARGES OF RS.4 55 740/- AND INTEREST ON PARTNERS CAPITAL ACCOUNT OF RS.4 22 523/- AND OPIN ED THAT WHEN THE ASSESSEE WAS PAYING INTEREST ON BORROWED FUNDS THERE WAS NO JUST IFICATION FOR GRANTING OF INTEREST FREE LOANS AND ADVANCES AND DISALLOWED INTEREST AT THE PREVAILING RATE OF 12% ON ABOVE ADVANCES AMOUNTING TO RS.69 978/-. 11. BEFORE LD. CIT(APPEALS) THE CONTENTION OF ASSES SEE WAS THAT TRANSACTION WITH FOUR PARTIES WERE NOT LOAN TRANSACTIONS BUT WERE TR ANSACTION DURING THE COURSE OF BUSINESS ON WHICH NO INTEREST WAS REQUIRED TO BE CH ARGED. IT WAS STATED THAT THE AMOUNT OUTSTANDING IN THE NAME OF LAXMINARAYAN MAND IR TRUST OF RS.1.60 LAKH WAS PAYMENT MADE FOR PURCHASE OF LAND AND IT WAS NEITHE R A LOAN NOR AN ADVANCE. FURTHER IT WAS AN OLD BALANCE CARRIED FORWARD IN TH E BALANCE-SHEET. IN REGARD TO PAYMENT OF RS.80 000/- TO EXOTIC RESORTS PVT. LTD. IT WAS STATED THAT THIS WAS AN OLD BALANCE CARRIED FORWARD FROM EARLIER BALANCE-SHEET AND WAS TOWARDS MEMBERSHIP DEPOSITS SO CHARGING OF INTEREST DID NOT ARISE ON S UCH AMOUNT. AMOUNT OF RS.50 000/- TO SHRI MANHARSINH R PARMAR WAS TOWARDS PURCHASE OF AGRICULTURAL LAND. AS REGARDS RS.10 LAKH TO M/S. AJAY BHARATKUMAR & CO. IT WAS ST ATED THAT THE AMOUNT WAS ISSUED BY WAY OF CHEQUE TOWARDS A LAND DEAL WHICH DID NOT MATERIALIST AND THAT IN THE NEXT YEAR THE AMOUNT WAS RETURNED TO THE ASSESSEE. THERE FORE THERE IS NO QUESTION OF CHARGING ANY INTEREST. IT WAS FURTHER ARGUED THAT T HE ASSESSING OFFICER COULD NOT ESTABLISH ANY NEXUS BETWEEN INTEREST BEARING FUND A ND THE MONEY ADVANCED AND THAT HE HAD MISDIRECTED HIMSELF COMING TO THE CONCL USION THAT INTEREST WAS CHARGED ON SUCH AMOUNTS AND THE ADDITION OF RS.69 978/- MAY BE DELETED. 12. TAKING INTO CONSIDERATION THIS SUBMISSION OF TH E ASSESSEE LD. CIT(APPEALS) AGREED WITH THE ASSESSEE THAT AMOUNT PAID TO LAXMIN ARAYAN MANDIR TRUST OF RS.1.60 LAKH FOR PURCHASE OF LAND AND M/S. EXOTIC HOTELS & RESORTS PVT. LTD. OF RS.80 000/- TOWARDS MEMBERSHIP AND RS.50 000/- TO MANHARSINH R PARMAR TOWARDS PURCHASE OF ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 6 AGRICULTURAL LAND WERE NOT IN THE NATURE OF LOAN OR ADVANCES BUT WERE TRANSACTION IN LINE WITH THE ASSESSEES BUSINESS AND INVESTMENT IN LAND WAS THE KEY FEATURE OF ASSESSEES BUSINESS AND WAS IN THE NATURE OF STOCK- IN-TRADE FOR CURRENT BUSINESS. HOWEVER HE AGREED WITH THE ASSESSING OFFICER THAT DEPOSIT OF RS.10 LAKH WITH MR. AJAYKUMAR BHARATKUMAR & CO. COULD NOT BE SHOWN TOWA RDS A LAND DEAL AND THAT NO BUSINESS NEXUS COULD BE SHOWN BY THE ASSESSEE IN RE GARD TO SAID DEPOSITS. THEREFORE PROPORTIONATE DISALLOWANCE OF INTEREST WA S CALLED FOR AND HE DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE OF I NTEREST ON THE DEPOSIT OF RS.10 LAKH TO MR. AJAYKUMAR BHARATKUMAR & CO. 13. FURTHER AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. 14. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSION AS MADE BEFORE LOWER AUTHORITIES AND FUR THER SUBMITTED THAT LD. CIT(APPEALS) HAS ERRED IN IGNORING VITAL FACT THAT THE INTEREST FREE ADVANCES DID NOT EXCEED THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE NO DISALLOWANCE OF INTEREST COULD BE MADE. FOR MAKING THIS SUBMISSION HE PLACED RELIANCE ON THE CASE LAW OF TORRENT FINANCIERS V. CIT 73 TTJ 624 (AHD) DECIDED BY THIS TRIBUNAL. CONCLUDING HIS ARGUMENT HE SUBMITTE D THAT DISALLOWANCE OF RS.34 800/- SUSTAINED BY LD. CIT(APPEALS) DESERVES TO BE DELETED. 15. HEARD BOTH THE PARTIES AND PERUSED THE RECORD WE FIND THAT AT THE TIME OF HEARING REVENUE DID NOT DISPUTE THE FACT THAT ASSES SEE HAS INTEREST FREE SECURED LOAN OF RS.33.47 LAKH AVAILABLE TO HIM. THE ASSESSE ES CASE IS THAT HE HAS GIVEN A SUM OF RS.10 LAKH TO MR. AJAYKUMAR BHARATKUMAR & CO . OUT OF THIS INTEREST FREE UNSECURED LOAN AVAILABLE TO HIM. UNLESS NEXUS IS ES TABLISHED THAT RS.10 LAKH WERE GIVEN TO MR. AJAYKUMAR BHARATKUMAR & CO. OUT OF INT EREST BEARING LOAN THE PLEA TAKEN BY ASSESSEE BEFORE US CANNOT BE IGNORED AND I NTEREST CLAIMED BY ASSESSEE CANNOT BE DISALLOWED. THE SAME HAS NOT BEEN DONE IN THIS CASE. THEREFORE THE ADDITION OF RS.34 800/- SUSTAINED BY LD. CIT(APPEAL S) IS HEREBY DELETED. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 16. GROUND NO.4 RELATE TO GROSS PROFIT ADDITION OF RS.5 75 953/- MADE BY ASSESSING OFFICER IN RESPECT OF GP ADVANCES WHICH H AS BEEN CONFIRMED BY LD. ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 7 CIT(APPEALS). DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS RECEIVED ADVANCES OF RS.22 26 097/- AN D RS.2.20 LAKH FOR ARUNODAY BUNGALOWS AND UPVAN RESIDENCY PROJECT RESPECTIVELY AND ASSESSING OFFICER WORKED OUT THE GP ON PERCENTAGE COMPLETION METHOD AS UNDER :- PROJECT ADVANCES % COMPLETION G.P. ARUNODAY BUNGLOWS RS.22 26 097 92% RS.5 72 828 UPVAN RESIDENCY RS. 2 20 000 5% RS. 3 105 TOTAL RS.5 75 933 THE ASSESSING OFFICER THUS MADE ADDITION OF RS.5 75 933/- ON ACCOUNT OF GP ON ADVANCES RECEIVED. LD. CIT(APPEALS) CONFIRMED THIS ACTION OF ASSESSING OFFICER. 17. BEFORE US THE CONTENTION OF THE ASSESSEE WAS TH AT ASSESSEE WAS FOLLOWING UNITE-WISE COMPLETION METHOD FOR RECOGNIZING THE RE VENUE. TILL COMPLETION OF UNIT THE RECEIPT FROM THE CUSTOMER WAS SHOWN AS ADVANCE IN T HE BALANCE-SHEET. PROFIT ONLY ARISES ON TRANSFER OF TITLE AND ANY AMOUNT TOWARDS ADVANCE IN INSTALLMENTS COULD NEVER BE TREATED AS TAXABLE INCOME IN THE YEAR OF R ECEIPT AS DECIDED IN THE CASE OF ASHA LAND CORPORATION (SUPRA). IT WAS ALSO SETTLED POSITION IN LAW THAT PROFIT WOULD ARISE ONLY ON COMPLETION OF SALE SO IT IS ASSESSABL E IN THE YEAR IN WHICH SALE TOOK PLACE AS DECIDED IN YET ANOTHER DECISION OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF MOTILAL C PATEL (SUPRA). IT WAS FURTHER ARGUED THAT THESE ADVANCES WERE OFFERED FOR TAXATION IN THE SUBSEQUENT YEAS FOLLOWING THE UNIT COMPLETION METHOD OF ACCOUNTING. HE THEREFORE PRAYED THAT THE ACTION OF LOWER AUTHOR ITIES OF TAXING GP OF RS.5 75 933/- ON PURE ADVANCES WAS UNCALLED FOR AND DESERVES TO B E DELETED. 18. LD. DR ON THE OTHER HAND RELIED ON THE ORDERS O F LOWER AUTHORITIES. 19. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT WHILE DECIDING GROUND NO.1 & 5 WE HAVE ALREADY UPHELD THE UNIT COMPLETION METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THEREFORE T HE ADDITION MADE BY ASSESSING OFFICER BY FOLLOWING PERCENTAGE COMPLETION METHOD I S NOT SUSTAINABLE AND THE SAME IS HEREBY DELETED. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 8 20. GROUND NO.6 & 7 GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 21. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. NOW COMING TO REVENUES APPEAL IN ITA NO.1551/AHD/2 008. 22. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEANED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION SECTION 80IB (10) SUBJECT TO VERIFICATION OF EXPENSES. THE LEARNED CIT(A) RELIED ON THAT ITAT S DECISION IN THE CASE OF M/S. RADHE DEVELOPERS. THE SAID DECISIONS HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL TO THE HIGH COURT HAS BEEN FILED. 2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T THE APPROVAL FOR DEVELOPING AND BUILDING HOUSING PROJECTS WAS GRANTE D TO THE ORIGINAL OWNERS OF THE LAND AND NOT TO THE ASSESSEE WHO ACTED ONLY AS AN AGENT FOR EXECUTION OF THE PROJECT OF ARUNODAY DUPLEX BUNGLOW PROJECT A ND ARUNODAY BUNGLOW PROJECT WHICH RIGHTS WERE OBTAINED BY THE ASSESSEE FIRM FROM THE ORIGINAL OWNERS. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LAND BEING AN ESSENTIAL AND INTRINSIC PART OF DEVELOPING AND BUILDING OF A HOUS ING PROJECT APPROVAL IS GRANTED BY THE LOCAL AUTHORITY TO THE OWNER OF THE LAND FOR DEVELOPING AND BUILDING HOUSING PROJECTS THEREON AND ANY OTHER PE RSON TO WHOM HE ENTRUSTS THE WORKS CONNECTED WITH THE EXECUTION OF THE PROJE CT INSTEAD OF TAKING IT UP HIMSELF CANNOT BE SAID TO BE AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY WITHIN THE MEANING OF SECTION 80IB(10) OF THE ACT. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IT IS THE OWNERS OF THE LAND WHO ENTERED INTO AGREEMENTS FOR SALE OF THE DEVELOPED U NITS TO THE BUYERS AND THE ASSESSEE ACTED ONLY AS A CONFIRMING PARTY WHICH REN DERS TO OWNERS OF THE LAND AND NOT THE ASSESSEE AS AN UNDERTAKING IN TERMS OF SECTION 80IB(10). 5. THE LEARNED CIT(A) ERRED IN ADOPTING LIBERAL INT ERPRETATION OF A BENEVOLENT PROVISION DESPITE THE SAME DOING VIOLENCE TO THE EX PRESS LANGUAGE USED IN THE PROVISION IN CONTRAVENTION OF THE RATIO SETTLED IN THE CASE OF PETRO ENGINEERING CONSTRUCTION . LTD. VS. C.B.D.T. 175 I TR 523 (SC) CIT VS. BUDHARAJA & CO 204 ITR 412 (SC) PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC) AND IPCA LABORATORIES LTD. VS. CIT 262 ITR 278 (SC) 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1 39 112/- BEING PROJECT ATTRIBUTABLE TO THE SALE OF UNUTILIZED FSI. ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 9 23. DURING THE ASSESSMENT PROCEEDINGS ASSESSING OFF ICER ASKED THE ASSESSEE TO FURNISH EXPLANATION AS TO WHY PROPORTIONATE MANAGER IAL ADMINISTRATION DEPRECIATION FINANCE INTEREST ON PARTNERS CAPITAL AND OTHER ALL OCABLE EXPENSES WERE NOT CONSIDERED WHILE CLAIMING DEDUCTION U/S 80IB. THE A SSESSEE SUBMITTED THAT ALL THE EXPENSES EXCEPT INTEREST PAID ON SECURED AND UNSECU RED LOANS WERE PROPORTIONATELY DISTRIBUTED AMONGST THE VARIOUS SCHEMES. THE ASSESS EE HAD ALSO FURNISHED EXPENSES INCURRED AND ITS ALLOCATION FOR 80IB SCHEM E ARUNODAY DUPLEX BUNGALOW WHICH WERE REPRODUCED BY AO IN PAGE NO.9 OF THE ASS ESSMENT ORDER. THE AO FOUND VARIOUS DISCREPANCIES IN THE DETAILS FURNISHED BY T HE ASSESSEE AND RE-WORKED THE COMMON EXPENSES AND ARRIVED AT A FIGURE OF RS.15 41 777/-. THIS FIGURE WAS APPORTIONED IN VARIOUS SCHEMES AND AO ARRIVED AT EL IGIBLE PROFIT FOR 80IB DEDUCTION AT RS.8 28 135/- AND DISALLOWED THE BALANCE CLAIM. 24. ASSESSING OFFICER FURTHER OBSERVED FROM THE COP Y OF APPROVED PLAN THAT TOTAL PERMISSIBLE FSI AVAILABLE WAS 1435.12 SQ.MT. AND TH E ASSESSEE HAD UTILIZED FSI ON 1.157.6 SQ.MT. THUS THERE WAS UNUTILIZED FSI OF 27 7.4 SQ.MT. THE UNUTILIZED FSI WAS DISPOSED OFF BY THE ASSESSEE ALONG WITH TENEMENT TO THE PROSPECTIVE BUYERS AND EARNED PROFITS. THE PROFIT EARNED FROM SALE OF UNTI LIZED FSI WAS BEYOND THE PROVISIONS OF SECTION 80IB(10) OF THE ACT. ON BEING ASKED TO SHOW-CAUSE THE ASSESSEE SUBMITTED THAT ALL THE CONDITIONS FOR EXEM PTION U/S. 80IB(10) WERE FULFILLED BY THE ASSESSEE AND THERE WAS NO MINIMUM OR MAXIMUM TOTAL CONSTRUCTION/TOTAL BUILD-UP WAS PRESCRIBED IN PROVISIONS OF SECTION 80 IB(10) OF THE ACT. HOWEVER THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AN D HE DID NOT ALLOW THE PROFIT ON UNUTILIZED FSI OF RS.1 39 912/- ALSO FOR DEDUCTION U/S 80IB(10) AND THUS RESTRICTED THE DEDUCTION U/S. 80IB(10) TO RS.6 88 223/- I.E.(8 28 135 RS.1 39 900). 25. BEFORE LD. CIT(APPEALS) IT WAS ARGUED THAT THE ASSESSEE SATISFIED ALL THE CONDITIONS LAID DOWN U/S 80IB(10) AND THAT THE ASSE SSEE HAD BEEN CONSISTENTLY FOLLOWING THE METHOD OF APPORTIONING THE EXPENSES S UCH AS ADMINISTRATIVE SELLING AND GENERAL EXPENSES IN PROPORTIONATE TO THE TURNOV ER. ACCORDINGLY SUCH EXPENSES WERE APPORTIONED IN THE RATIO OF RECEIPTS IN PROJEC T ARUNODAY BUNGALOWS SCHEME. IT WAS ALSO ASSERTED THAT BORROWED FUNDS WERE NEVER UT ILIZED FOR THE ELIGIBLE PROJECTS. FURTHER THERE WAS NO JUSTIFICATION TO ALLOW 7% OF THE EXPENSES RELATABLE TO UPVAN RESIDENCY FOR THE REASON THAT IN UPVAN RESIDENCY T HERE WAS NO SALE DURING THE YEAR ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 10 AND THAT ONLY OPENING AND CLOSING BALANCES WERE ACC OUNTED FOR. IT WAS THEREFORE EMPHASIZED THAT ALLOCATION OF EXPENSES BY ASSESSING OFFICER WAS ARBITRARY AGAINST PRINCIPLE OF NATURAL JUSTICE. WITH REGARD TO DISALL OWANCE OF UNTILIZED FSI OF RS.1.39 912/- IT WAS SUBMITTED THAT THE ASSESSEE W AS ENGAGED IN THE DEVELOPMENT AND CONSTRUCTION OF BUNGALOWS AND TENEMENT AND NOT APARTMENTS AND THERE WAS NO CONCEPT OF ANY SALE OF FSI IN THE CASE OF ASSESSEE AS THE ASSESSEE HAS RECEIVED MONEY FOR THE CONSTRUCTED PROPERTY AS PER THE APPRO VED PLAN BY THE COMPETENT AUTHORITY AND RELIANCE WAS PLACED ON A DECISION IN THE CASE OF M/S. RADHY DEVELOPERS & OTHERS DECIDED BY THE HONBLE ITAT AHMEDABAD BENCHES IN ITA NO.2482/AHD/2006 IN FAVOUR OF ASSESSEE. IT WAS THEREFORE PLEADED TH AT DISALLOWANCE U/S 80IB(10) BE DELETED. 26. LD. CIT(APPEALS) DELETED THE ADDITION ON ACCOUN T OF SALE OF UNUTILIZED FSI OF RS.1 39 112/- FOLLOWING THE DECISION IN THE CASE OF RADHY DEVELOPERS & OTHERS (SUPRA) HOWEVER AS REGARDS TO THE DISALLOWANCE OF PROPORTIONATE EXPENSES LD. CIT(APPEALS) OBSERVED AS UNDER:- I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE ADDITION ON ACCOUNT OF SALE OF UNTILIZED FSI OF RS.1 39 112/- IS DIRECTED TO BE DELETED AS THE FACTS OF THE APPELLANT CASE ARE SQUARELY COVERED BY THE JUDG EMENT OF THE HONBLE ITAT AHMEDABAD IN THE CASE OF M/S. RADHE DEVELOPER S & OTHERS. (SUPRA) AS REGARD THE DISALLOWANCE OF PROPORTIONATE EXPENSE S I AM IN AGREEMENT WITH THE ASSESSING OFFICER THAT THE PROPORTION OF SELLIN G AND OTHER ADMINISTRATIVE EXPENSES ARE TO BE PROPORTIONATELY ALLOCATED FOR CO MPLETED AND INCOMPLETE PROJECTS. ACCORDINGLY AS DIRECTED IN RESPECT OF GR OUND NO.4 5 & 7 ABOVE THE ASSESSING OFFICER MAY WORK OUT STAGE OF COMPLETION OF PROJECT AND ALLOCATE SELLING & OTHER ADMINISTRATIVE EXPENSES PROPORTIONA TELY TO ARUNODAYA DUPLEX SCHEME. THE EXPENDITURE MY THEREFORE BE RECOMPUTED BY ASSESSING OFFICER FOR WORKING OUT THE ELIGIBILITY OF DEDUCTION U/S.80 IB(10). GROUND IS THUS ALLOWED SUBJECT TO VERIFICATION. 27. AGGRIEVED BY THIS ORDER NOW THE REVENUE IS IN APPEAL BEFORE US. 28. AT THE TIME OF HEARING LD DR RELIED ON THE ORDE R OF ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMIS SION AS MADE BEFORE LD. CIT(APPEALS). ITA NO.1577 & 1551/AHD/2008 A.Y. 2004-05 M/S. UNITY CONST. CO. V. ITO WD-1 BHARUCH PAGE 11 29. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT LD. CIT(APPEALS) HAS DELETED THE DISALLOWANCE U/S.80IB( 10) OF THE ACT ON ACCOUNT OF SALE OF UNUTILIZED FSI OF RS.1 39 112/- BY FOLLOWIN G THE DECISION OF THIS TRIBUNAL IN THE CASE OF RADHY DEVELOPERS & OTHERS (SUPRA) BY HOLDING THAT THE FACTS OF THE ASSESSEE ARE SQUARELY COVERED BY THAT DECISION OF THE TRIBUN AL. THEREFORE WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(APPEALS) ON THIS ISSUE AND THE SAME IS HEREBY UPHELD. AS REGARDS TO DISALLOWANCE OF PROPOR TIONATE EXPENSES FOR WORKING OUT THE ELIGIBILITY OF DEDUCTION U/S 80IB(10) OF THE AC T IS CONCERNED THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THIS EXPENDITURE IN THE L IGHT OF OUR DECISION IN ASSESSEES APPEAL WHEREIN WE HAVE UPHELD THE UNIT COMPLETION METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. 30. IN THE RESULT ASSESSEES APPEAL IS ALLOWED AND THA T OF REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 28 TH JULY 2011 SD/- SD/- ( G.D.AGARWAL ) ( D.K. TYAGI ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 28/07/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-VI BARODA 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD