THE SOLITUDE, MUMBAI v. ACIT 19(3), MUMBAI

ITA 3673/MUM/2010 | 2006-2007
Pronouncement Date: 15-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 367319914 RSA 2010
Assessee PAN AACFT2606H
Bench Mumbai
Appeal Number ITA 3673/MUM/2010
Duration Of Justice 7 month(s) 8 day(s)
Appellant THE SOLITUDE, MUMBAI
Respondent ACIT 19(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 15-12-2010
Date Of Final Hearing 07-12-2010
Next Hearing Date 07-12-2010
Assessment Year 2006-2007
Appeal Filed On 07-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI R K PANDA ACCOUNTANT MEMBER I T A NO: 3673/MUM/2010 (ASSESSMENT YEAR: 2006-07) THE SOLITUDE MUMBAI APPELLANT (PAN: AACFT2606H) VS ASSISTANT COMMISSIONER OF INCOME TAX 19(3) RESPON DENT MUMBAI APPELLANT BY: SHRI MADHUR AGARWAL RESPONDENT BY: SHRI HEMANT LAL O R D E R R V EASWAR PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2006-07 AND ARISES OUT OF THE ASSESSMENT ORDER PASS ED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 ON 24 TH DECEMBER 2008. THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON LAND DEVELOPMENT BUSINESS. 2. WHILE COMPLETING THE ASSESSMENT THE ASSESSING O FFICER NOTICED THAT THE ASSESSEE HAD UNDERTAKEN A PROJECT CALLED SOLITUDE FOR PUTTING UP A HOLIDAY RESORT IN THE H ILLY TRACKS OF MUGAON VILLAGE MULSHI TALUKA PUNE DISTRICT AND HA D ENTERED INTO VARIOUS AGREEMENTS WITH THE LAND OWNERS AND ALSO HA D MADE APPLICATION TO THE GOVERNMENT FOR APPROVAL OF THE P ROJECT. THE ASSESSEE HAD ALSO DEVELOPED PLOTS OF HALF ACRE SIZE AND OFFERED THEM TO PROSPECTIVE BUYERS WITH AN INTENTION TO DEV ELOP A RESORT. BOOKINGS WERE MADE IN THE FIRST TWO YEARS BUT SINCE THE APPROVAL OF THE GOVERNMENT WAS NOT FORTHCOMING THE BUSINESS SL ACKENED IN THE SUBSEQUENT YEARS. DURING THE YEAR UNDER CONSIDERAT ION I.E. THE ITA NO: 3673/MUM/2010 2 YEAR ENDED 31.03.2006 THE ASSESSEE RECEIVED ` 3 82 65 086/- AS ADVANCE FOR THE SALE OF THE PLOTS SHOWN AS SUCH IN THE BALANCE SHEET. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS DELAYING THE SALES AND WAS NOT BOOKING THE SALE S EVEN THOUGH PAYMENTS WERE RECEIVED AND SALE AGREEMENTS WERE BEI NG ENTERED INTO. ACCORDING TO HIM THE ASSESSEE WAS SIMPLY SH OWING THE AMOUNTS RECEIVED AS ADVANCES IN THE BALANCE SHEET. HE THEREFORE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE AMOUNT SHOULD NOT BE TREATED AS THE ASSESSEES INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUBMITTED THAT THE REV ENUE CAN BE RECOGNIZED ONLY WHEN THERE WAS AN AGREEMENT AND CON SIDERATION WAS RECEIVED EITHER FULLY OR PARTLY AS PER THE AGRE EMENT AND EVEN WHERE PART PERFORMANCE WAS PERMITTED. THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO AGREEMENTS WITH THE PURCHASERS IN WRITING AND THE PURCHASER HAS EITHER PAID OR IS READY TO PAY THE CONSIDERATION AND HE HAS ALSO TAKEN POSS ESSION OF THE PROPERTY. IN THIS SITUATION HE HELD THAT EVEN AS P ER THE REVENUE RECOGNITION POLICY ADOPTED BY THE ASSESSEE THE INC OME WAS ASSESSABLE IN THE YEAR UNDER CONSIDERATION. HE ACC ORDINGLY BROUGHT THE ENTIRE ADVANCES AS THE INCOME FROM SALE S AND ASSESSED THEM TO TAX AS BUSINESS INCOME. 3. ON APPEAL THE ASSESSEE SUBMITTED THAT WHERE SAL E OF PLOTS IS INVOLVED THERE CAN BE NO PART REVENUE RECOGNITIO N AND UNLESS THE PURCHASERS FULFILL THEIR OBLIGATION UNDER THE AGREE MENTS THE ASSESSEE CANNOT HAND OVER POSSESSION OR REGISTER TH E SALE DOCUMENT. IT WAS SUBMITTED THAT THE ASSESSEE DID N OT TREAT THE ITA NO: 3673/MUM/2010 3 AGREEMENT AS A CONCLUDED SALE AS SOON AS IT WAS ENT ERED INTO BECAUSE WHEN THE AGREEMENT IS EXECUTED ONLY A SMALL TOKEN MONEY IS RECEIVED FROM THE PURCHASER. IT WAS ALSO SUBMIT TED THAT IN NO CASE THE ASSESSEE HAS GIVEN POSSESSION AS SOON AS T HE AGREEMENTS WERE ENTERED INTO OR RECOGNIZED THE RECE IPT AS REVENUE RECEIPT. IT WAS FURTHER ARGUED BEFORE THE CIT(A) T HAT IN THE CASE OF SINGLE PLOT BOOKINGS THERE WAS NO QUESTION OF PART PERFORMANCE AND THAT REVENUE CANNOT BE RECOGNIZED UNLESS THERE IS A SALE. IT WAS POINTED OUT THAT THIS IS NOT A CASE OF CONSTRUCTION OF A BUILDING WHERE A PROGRESSIVE INCOME CAN BE RECOGNIZED DEPENDING UP ON THE PROGRESS OF THE CONSTRUCTION ACTIVITY. 4. THE ASSESSEES CONTENTIONS WERE NOT ACCEPTED BY THE CIT(A) WHO AGREED WITH THE ASSESSING OFFICER AND U PHELD THE ASSESSMENT OF THE ADVANCES AS SALE PRICE. HENCE T HE PRESENT APPEAL. 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS. THE MAIN CONTENTION OF THE ASSESSEE W AS THAT REVENUE IS RECOGNIZED ONLY ON FULFILLMENT OF THE FO LLOWING CRITERIA: - 1. THE EXISTENCE OF AN AGREEMENT FOR SALE FOR A SPECIFIED PLOT / LAND CLEARLY QUANTIFIED WITH MEETS AND BOUNDS. 2. THE CONSIDERATION HAS BEEN RECEIVED FULLY BEFORE THE RESPECTIVE FINANCIAL YEAR OR IF AS PER PROVISIONS IN THE AGREEMENT PART PERFORMANCE IS PERMITTED AND AMOUNTS ARE PARTLY RECEIVED AS PER THE STAGES MENTIONED IN THE AGREEMENT IRRESPECTIVE OF WHETHER THE PLOT IS REGISTERED OR NOT. IT WAS ALSO SUBMITTED THAT A MAJOR PART OF THE ADVA NCES HAS BEEN SHOWN AS INCOME IN THE SUBSEQUENT YEARS WHICH WAS A LSO ACCEPTED ITA NO: 3673/MUM/2010 4 BY THE ASSESSING OFFICER AND THUS THERE WILL BE DOU BLE ASSESSMENT OF THE SAME INCOME. IT WAS CONTENDED THAT UNDER NO CIRCUMSTANCES CAN THE ADVANCES BE TREATED AS INCOME AND THAT EVEN IF IT IS FOUND THAT SOME PART OF THE ADVANCES HAS NOT BEEN SHOWN A S INCOME IN ANY OF THE SUBSEQUENT YEARS THAT CANNOT BE A GROUND FOR ASSESSING THE SAME AS INCOME OF THE YEAR UNDER APPEAL BECAUSE THE REVENUE CAN BE RECOGNIZED ONLY WHEN IT ARISES TO THE ASSESS EE ON COMPLETION OF THE SALE. IN SHORT THE CONTENTION I S THAT TILL THE ADVANCES ARE APPROPRIATED AS INCOME ON ACCOUNT OF T HE SALES BEING REGISTERED NO ADDITION CAN BE MADE. ANOTHER ARGUM ENT ADVANCED BEFORE US BY THE ASSESSEE WAS THAT THESE ADVANCES W ERE NOT RECEIVED IN THE YEAR UNDER APPEAL AND THAT THEY WER E RECEIVED IN THE EARLIER YEARS. OUR ATTENTION WAS DRAWN TO SCHE DULE 6 TO THE BALANCE SHEET AS ON 31.03.2006 (PAGE 8 OF THE PAPER BOOK). IT IS POINTED OUT THAT A COMPARISON OF THE ADVANCES FROM CUSTOMERS AS ON 31.03.2005 AND 31.03.2006 WILL SHOW THAT DURING THE YEAR NO FRESH ADVANCES WERE RECEIVED FROM THE PURCHASERS EX CEPT TO THE EXTENT OF ` 24 85 000/- IN RESPECT OF THE TAV LAND. IT IS SUBM ITTED THAT EVEN ON THIS GROUND THE ASSESSMENT OF THE ADVA NCES CANNOT BE UPHELD. 6. THE DEPARTMENT HAS STRONGLY REITERATED ITS STAND APPROVED BY THE CIT(A). ON A CAREFUL CONSIDERATION OF THE ISSU E WE ARE OF THE VIEW THAT THE MATTER SHOULD BE RESTORED TO THE ASSE SSING OFFICER FOR DE NOVO CONSIDERATION IN THE LIGHT OF THE CONTENTIO NS ADVANCED BEFORE US ESPECIALLY THE CLAIM THAT NO FRESH ADVAN CES WERE RECEIVED DURING THE YEAR UNDER APPEAL EXCEPT ` 24 85 000/- IN ITA NO: 3673/MUM/2010 5 RESPECT OF TAV LAND. THE ASSESSING OFFICER WILL AL SO CONSIDER THE CRITERIA FOR REVENUE RECOGNITION WHICH WAS FOLLOWED BY THE ASSESSEE. HE WILL ALSO TAKE NOTE OF THE ASSESSEES ARGUMENT THAT A MAJOR PART OF THE ADVANCES HAS BEEN OFFERED AS INCO ME IN SOME OF THE SUBSEQUENT ASSESSMENT YEARS AND HAS BEEN ALSO A CCEPTED BY THE ASSESSING OFFICER. BRIEFLY STATED THE ASSESSEE S CONTENTION THAT THE AMOUNTS ARE ONLY ADVANCES THAT TOO NOT RECEIVE D DURING THE YEAR UNDER APPEAL AND THEREFORE TILL THEY FORTIFY INTO SALES NO INCOME CAN BE TAKEN CREDIT FOR NEEDS VERIFICATION. THE AS SESSING OFFICER WILL CONSIDER ALL THESE ASPECTS AFRESH AND TAKE A D ECISION AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE OF PUTTING F ORTH ALL THE FACTS AND EVIDENCE. THE MATTER IS THUS RESTORED TO THE F ILE OF THE ASSESSING OFFICER WITH THESE DIRECTIONS. GROUND NO .1 IS DISPOSED OF ON THE ABOVE TERMS. 7. AS REGARDS GROUND NO.2 WHICH IS AGAINST THE DIS ALLOWANCE OF ` 84 566/- TOWARDS TRAVELLING EXPENSES TELEPHONE EXP ENSES AND CAR HIRE CHARGES; AFTER HEARING BOTH THE SIDES WE CONSIDER IT REASONABLE TO REDUCE THE DISALLOWANCE TO 10% OF THE TOTAL EXPENDITURE. THE GROUND IS PARTLY ALLOWED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER 2010. SD/- SD/- (R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 15 TH DECEMBER 2010 SALDANHA ITA NO: 3673/MUM/2010 6 COPY TO: 1. THE SOLITUDE 56 1 ST FLOOR BANK OF INDIA BUILDING HILL ROAD BANDRA (WEST) MUMBAI 400 050 2. ACIT 19(3) 3. CIT-19 4. CIT(A)-30 5. DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI