ITO 25(3)(1), MUMBAI v. MANSI CONSTRUCTION, MUMBAI

ITA 3188/MUM/2010 | 2006-2007
Pronouncement Date: 27-07-2011 | Result: Dismissed

Appeal Details

RSA Number 318819914 RSA 2010
Assessee PAN AABFM0242R
Bench Mumbai
Appeal Number ITA 3188/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 3 day(s)
Appellant ITO 25(3)(1), MUMBAI
Respondent MANSI CONSTRUCTION, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 27-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 23-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI P.M. JAGTAP (AM) & SHRI VIJAY PAL RAO (JM) I.T.A.NO.3188/MUM/2010 (A.Y. 2006-07) INCOME-TAX OFFICER-25(3)(1) ROOM NO.307 C-11 3 RD FLOOR PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400 051. VS. M/S. MANSI CONSTRUCTIONS 44/A GOVT. INDUSTRIAL ESTATE OPP. GANESH HOTEL & IPCA LABORATORIES M.G.ROAD KANDIVLI (W) MUMBAI-400 067. PAN: AABFM0242R APPELLANT RESPONDENT APPELLANT BY SHRI V.V. SHASTRI. RESPONDENT BY SHRI V IJAY C. KOTHARI. O R D E R PER VIJAY PAL RAO JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 25-01-2010 OF THE CIT(A) FOR THE ASSTT. YEAR 2006-07. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF ESTIMATED PROFIT OF RS.25 64 387/- MADE BY INVOKING PROVISIONS OF SECTIONS 145(3) AND REJECTING THE MET HOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WITHOUT APPRECI ATING THE FACT THAT THE ASSESSEE WAS SHOWING RECEIPTS OF SUBSTANTIALLY COMPLETED PROJECTS AS ADVANCES INSTEA D OF SALES TO DELAY DECLARATION OF PROFITS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCES OF PROPORTIONATE INDIRECT EXPENSES OF RS.9 96 515/- MA DE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS INDULGING IN DELAYING DECLARATION OF TRUE PROFITS B Y DEBITING OF COST OF OTHER ONGOING PROJECTS AND NOT SEGREGATI NG IT PROJECT WISE. ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE MADE BY A.O. OF 20% OF WIP AMOUNTING TO RS.27 10 863/- WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HA S FAILED TO SUBMIT SUPPORTING EVIDENCES IN RESPECT OF EXPENS ES COMPRISED IN WIP. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF BUILDERS AND DEVELOPERS. THE ASSESSEE FILED ITS RETURN OF IN COME ON 11-12-2006 ADMITTING TOTAL INCOME OF RS.2 11 863/- WHICH WAS ACCEPTED U/ S.143(1). SUBSEQUENTLY THE AO SELECTED THE CASE FOR SCRUTINY AND COMPLETED THE ASSESSMENT U/S.143(3) DETERMINING THE TOTAL INCOME AT RS.44 78 610/- INT ER ALIA MAKING ADDITION ON ACCOUNT OF ESTIMATED PROFIT OF RS.25 64 387/- DISA LLOWANCE OF PROPORTIONATE INDIRECT EXPENSES OF RS.9 96 515/- AND ADDITION OF 20% OF WORK-IN-PROGRESS AMOUNTING TO RS.27 10 863/-. THE ASSESSEE FOLLOWS PROJECT COMPLETION METHOD OF ACCOUNTING. THIS SYSTEM OF ACCOUNTING IS STATED TO HAVE BEEN FOLLOWED BY THE ASSESSEE RIGHT FROM THE INCEPTION OF THE PARTNERSHI P FIRM. DURING THE PREVIOUS YEAR THE ASSESSEE WAS ENGAGED IN THE DEVELOPMENT A ND CONSTRUCTION OF 4 BUILDINGS NAMELY JALARAM KRUPA JALARAM JYOT (BEI NG A AND B WINGS) AND JALARAM DARSHAN. THE PROJECT IN RESPECT OF BUILDING JALARAM KRUPA WAS COMPLETED DURING THE PREVIOUS YEAR AND SALE OF COMP LETED UNITS HAD BEEN OFFERED FOR TAX. UNSOLD UNITS HAVE BEEN REFLECTED I N THE CLOSING STOCK. THE PROJECT IN RESPECT OF JALARAM JYOT (A-WING) WAS ALSO COMPLE TED DURING THE PREVIOUS YEAR. SALE OF COMPLETED UNITS WAS REFLECTED IN THE PROFIT & LOSS ACCOUNT AND UNSOLD UNITS WERE REFLECTED IN THE CLOSING STOCK. B -WING OF JALARAM JYOT WAS ALSO IN PROGRESS AND THE ACCUMULATED PROJECT COST WAS C ARRIED FORWARD IN THE BALANCE-SHEET. THE PROJECT IN RESPECT OF JALARAM DA RSHAN WAS NOT COMMENCED TILL THE END OF THE PREVIOUS YEAR. THE AO DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE REGARDING THE PROJECT COMPLETION METHOD. T HE ASSESSEE CHALLENGED THE ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 3 ACTION OF THE AO BEFORE THE CIT(A). THE CIT(A) ACCE PTED THE CLAIM OF THE ASSESSEE WHILE PASSING THE IMPUGNED ORDER. 4. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A. R. AND CONSIDERED THE RELEVANT RECORD. THE LD. D.R. HAS MAINLY RELIED UPO N THE ORDER OF THE AO. HE HAS ALSO RELIED UPON THE DECISION OF HONBLE HIGH COURT IN THE CASE OF UTTAM SINGH DUGGAL & CO. (P) LTD. VS. CIT (1981) 5 TAXMAN 175 ( DELHI) AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CASE OF CHAMPION CONSTRUCTIO N CO. VS. 1 ST ITO (1983) 5 ITD 495 (BOM). 5. ON THE OTHER HAND THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE IN ITO VS. M/S. M.D. ENTERPRISES IN ITA NO. 3186/MUM/2010 VIDE ORDER DAT ED 15-07-2011. THE LD. A.R. HAS POINTED OUT THAT IN THE CASE OF SISTER C ONCERN OF THE ASSESSEE SIMILAR DISALLOWANCE WAS MADE BY THE AO AND THE CIT(A) GRAN TED RELIEF ON IDENTICAL FACTS. THEREFORE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL (SUPRA). 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AT THE OUTSET WE NOTE THAT IN THE CASE OF ITO VS. M/S. M.D. ENTERPRISES (SUPRA) THE I SSUE BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL WAS IDENTICAL AS IN THE CASE OF THE ASSESSEE. THE GROUNDS RAISED BY THE REVENUE IN THE SAID CASE HAVE BEEN RE PRODUCED BY THE TRIBUNAL IN PARA-3 AT PAGE 4 AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ESTIMATED PROFIT OF RS.11 59 980/- MADE BY INVOKING PROVISIONS OF SECTIONS 145(3) AND REJECTING THE MET HOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WITHOUT APPRECI ATING THE FACT THAT THE ASSESSEE WAS SHOWING RECEIPTS OF ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 4 SUBSTANTIALLY COMPLETED PROJECTS AS ADVANCES INSTEA D OF SALES TO DELAY DECLARATION OF PROFITS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCES OF PROPORTIONATE INDIRECT EXPENSES OF RS.13 11 915/- M ADE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS INDULGING IN DELAYING DECLARATION OF TRUE PROFITS O F TRUE PROFITS BY DEBITING OF THE COST OF OTHER ONGOING PR OJECTS AND NOT SEGREGATING IT PROJECT WISE THEREBY EVADING TA XES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALL OWANCE MADE BY A.O. OF 20% OF WIP AMOUNTING TO 18 24 011/- WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HA S FAILED TO SUBMIT SUPPORTING EVIDENCES IN RESPECT OF EXPENS ES COMPRISED IN WIP. THUS IT IS CLEAR THAT THE ISSUE INVOLVED IN THE CA SE IN HAND AS WELL AS IN THE CASE OF SISTER CONCERN OF THE ASSESSEE (SUPRA) ARE IDEN TICAL. IN THE CASE OF UTTAM SINGH DUGGAL & CO. (P) LTD. (SUPRA) RELIED UPON BY THE LD. D.R. THE FACTS WERE ENTIRELY DIFFERENT BECAUSE IN THAT CASE THE ASSESSE E WAS DEBITING THE ENTIRE EXPENDITURE EACH YEAR BUT THE RECEIPTS WERE TREATED AS LOAN INSTEAD OF INCOME. THEREFORE IN OUR HUMBLE VIEW THE SAID DECISION OF HONBLE DELHI HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SI MILARLY THE FACTS OF THE CASE IN CHAMPION CONSTRUCTION CO. VS. 1 ST ITO (SUPRA) ARE ALSO DISTINGUISHABLE BECAUSE IN THE SAID CASE THE ASSESSEE EVEN AFTER COMPLETIO N AND SELLING OF MORE THAN 80% OF THE AREA DID NOT OFFER THE INCOME FOR TAX A ND DEFERRED THE SAME FOR THE NEXT ASSESSMENT YEAR WHICH IS NOT THE CASE IN HAND WHERE THE ASSESSEE HAS OFFERED THE INCOME IN RESPECT OF COMPLETED UNITS WH ICH WERE SOLD OUT DURING THE YEAR. THE TRIBUNAL HAS ADJUDICATED THE ISSUES IN TH E CASE OF THE SISTER CONCERN OF THE ASSESSEE (SUPRA) IN PARAS 5 TO 8 AS UNDER : 5. ADMITTEDLY THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND AS NOTED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER THE SAME WAS ACCEPTED IN THE EARLIE R YEARS AS WELL AS IN THE SUBSEQUENT YEARS. IN THESE CIRCUM STANCES THERE WAS NO REASONS FOR THE AO TO TREAT CHETAN PRO JECT AND ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 5 ANAND KUNJ PROJECT COMPLETED TO THE EXTENT OF 86% A ND 60% AS SUBSTANTIALLY COMPLETED AND BRING PROFIT OF THE S;AID PROJECT TO TAX IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ON ESTIMATED BASIS ESPECIALLY W HEN THE PROFITS OF THE SAID PROJECTS WERE OFFERED BY THE AS SESSEE TO TAX IN THE RESPECTIVE YEARS OF COMPLETION AND IN TH E A.Y. 2007-08 THE PROFIT IN RESPECT OF CHETAN PROJECT WA S ASSESSED TO TAX IN THE ASSESSMENT COMPLETED U/S.143 (3). IN OUR OPINION METHOD OF RECOGNIZING ITS INCOME FROM THE PROJECTS UNDERTAKEN THUS WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND THE AO WAS NOT JUSTIFIED IN DISTURBING THE SAME AS RIGHTLY HELD BY THE LD. CIT(A). WE THEREFOR E FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) D ELETING THE ADDITION MADE BY THE AO ON THIS ISSUE AND UPHOL DING THE SAME WE DISMISS GD. NO.1 OF THE REVENUES APPE AL. 6. AS REGARDS GROUND NO.2 IT IS OBSERVED THAT THE ADDITION OF RS.13 11 915/- MADE BY THE AO ON ACCOUN T OF DISALLOWANCE OF INDIRECT EXPENSES ATTRIBUTABLE TO W IP ON PRO RATA BASIS HAS BEEN DELETED BY HE LD. CIT(A) FOR TH E FOLLOWING REASONS IN PARAGRAPH 4.3 OF HIS IMPUGNED ORDER: I HAVE CONSIDERED THE SUBMISSION OF THE REPRESENTATIVE AND THE STAND TAKEN BY THE AO. THE AO APPORTIONED THE INDIRECT EXPENSES REPRESENTING ADMINISTRATIVE AND GENERAL EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT. AS CONTENDED BY THE REPRESENTATIVE ONLY PROJECT SPECIFIC EXPENDITURE COULD BE ADDED TO WORK-IN-PROGRESS AND NOT THE GENERAL AND ADMINISTRATIVE EXPENSES. AS PER THE PROJECT COMPLETION METHOD ONLY THE DIRECT COSTS ARE TO BE ADDED TO THE WORK IN PROGRESS AND NOT THE INDIRECT COST. THE AO WRONGLY APPORTIONED THE GENERAL AND ADMINISTRATIVE COST TO THE WORK IN PROGRESS AND MADE DISALLOWANCE BY ADDING TO THE TOTAL INCOME. EVEN OTHERWISE THE AMOUNT ADDED TO THE WORK IN PROGRESS AND DISALLOWED IN THIS YEAR HA S TO BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE PROJECT IS COMPLETED. BUT THE AO WHILE COMPLETING ASSESSMENT FOR A.Y. 2007-08 DID NOT CONSIDER THIS ASPECT WHICH MEANS THAT HE HIMSELF WAS SATISFIED TH AT THE ADDITION WAS WRONGLY MADE IN THIS YEAR BY HIS PREDECESSOR. FOR THE ABOVE REASONS I FIND THAT ADDITION IS NOT JUSTIFIED AND THE SAME IS DELETED. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND OURSELVES IN AGREEMENT WITH THE LD. CIT(A) THAT ONLY THE DIRECT COST INCURRED IN RELATION TO THE RESPECTIVE PROJECTS HAS TO BE TAKEN INTO CONSIDERATION IN THE VALUE OF WORK IN PR OGRESS AND NOT THE INDIRECT COST. THE GENERAL AND ADMINIST RATIVE EXPENSES WHICH ARE IN THE NATURE OF INDIRECT EXPEN SES ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 6 CANNOT BE TAKEN INTO ACCOUNT TO DETERMINE THE VALUE OF CLOSING WORK-IN-PROGRESS. EVEN OTHERWISE IF SUCH E XPENSES ARE DISALLOWED ON THE GROUND THAT THE SAME ARE RELA TABLE TO CLOSING WORK IN PROGRESS THE VALUE OF OPENING WIP FOR THE IMMEDIATELY SUCCEEDING YEAR TO THAT EXTENT WILL GO UP AND THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION OF THE SAID AMOUNT IN THAT YEAR. AS NOTED BY THE LD. CIT (A) IN HIS IMPUGNED ORDER NO SUCH BENEFIT HOWEVER HAS BEEN GI VEN BY THE AO TO THE ASSESSEE IN A.Y. 2007-08 WHICH AGA IN GOES TO SHOW THAT THE ADDITION MADE ON THIS ISSUE FOR TH E YEAR UNDER CONSIDERATION WAS NOT SUSTAINABLE. AS SUCH CONSIDERING ALL SUCH FACTS OF THE CASE WE ARE OF T HE VIEW THAT THE LD. CIT(A) IS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO ON THIS ISSUE AND CONTRIBUTING THE S AME WE DISMISS THE GD. NO.2 OF THE REVENUES APPEAL. 8. AS REGARDS GROUND NO.3 IT IS OBSERVED THAT THE CLOSING WORK-IN-PROGRESS WAS REDUCED BY THE AO BY 2 0% ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE THE DETAILS OF WIP AS REQUIRED BY HIM. THE SAID DETAILS HOWEVER WERE FURNISHED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND AFTER HAVING SATISFIED WITH THE SAID DETAILS THE LD. CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. SINC E NO OPPORTUNITY WAS GIVEN BY THE LD. CIT(A) TO THE ASSE SSING OFFICER TO VERIFY THE SAID DETAILS FURNISHED BY THE ASSESSEE FOR THE FIRST TIME BEFORE HIM IT WOULD HAVE BEEN A PPROPRIATE TO RESTORE THIS MATTER TO THE FILE OF AO FOR GIVING SUCH OPPORTUNITY IN THE ORDINARY COURSE. HOWEVER KEEPIN G IN VIEW THE FACT THAT EVEN WHILE COMPLETING THE ASSESS MENT FOR THE A.Y. 2007-08 U/S.143(3) THE AO HAS NOT GIVEN A NY EFFECT TO THE ORDER OF THE AO FOR THE YEAR UNDER CONSIDERATION WHEREBY HE REDUCED THE CLOSING WORK-I N- PROGRESS WE ARE OF THE VIEW THAT NO MEANINGFUL PUR POSE WILL BE SERVED BY RESTORING THIS MATTER TO THE FILE OF THE AO. THE REAL EFFECT OF THE DECISION OF THE AO ON THIS I SSUE WOULD BE ON THE INCOME OF THE ASSESSEE FOR THE IMMEDIATEL Y SUCCEEDING YEAR I.E. 2007-08 AND SINCE THE AO IN T HE ASSESSMENT COMPLETED FOR THAT YEAR HAS NOT GIVEN AN Y EFFECT TO THE ORDER OF THE AO; FOR THE YEAR UNDER CONSIDERATION ON THIS ISSUE THIS ISSUE IN OUR OPIN ION HAS BECOME ONLY ACADEMIC. ACCORDINGLY THE IMPUGNED ORD ER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD DISMISSING G D. NO.3 OF THE REVENUES APPEAL. IN THE SAID CASE ONE OF US NAMELY THE AM IS A PARTY AND AUTHOR OF THE ORDER. ACCORDINGLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSEES SISTER CONCERNS CASE WE DECIDE THESE ISSUES AGAINST THE REVENUE AN D IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 7 ORDER PRONOUNCED ON THE 27TH DAY OF JULY 201 1. SD/- SD/- (P.M. JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 27TH JULY 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-35 MUMBAI. 4 CIT-25 MUMBAI. 5.DR H BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. ITA NO. 3188/M/10 MANSI CONSTRUCTIONS. 8 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 19-07-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 20-07-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER