ITO 16(3)(2), MUMBAI v. PROGRESHIVE CORPORATION, MUMBAI

ITA 3929/MUM/2009 | 2006-2007
Pronouncement Date: 05-01-2011 | Result: Dismissed

Appeal Details

RSA Number 392919914 RSA 2009
Assessee PAN AAEFP6149D
Bench Mumbai
Appeal Number ITA 3929/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 16 day(s)
Appellant ITO 16(3)(2), MUMBAI
Respondent PROGRESHIVE CORPORATION, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 05-01-2011
Date Of Final Hearing 22-12-2010
Next Hearing Date 22-12-2010
Assessment Year 2006-2007
Appeal Filed On 19-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 3929/MUM/2009 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 16(3)(2) M/S. PROGRESSIVE CORP ORATION MATRU MANDIR TARDEO 24-30 ALI UMAR STREET NULL B AZAR MUMBAI VS. MUMBAI 400004 PAN - AAEFP 6149 D APPELLANT RESPONDENT APPELLANT BY: SHRI P.N. DEVDASAN RESPONDENT BY: SHRI VIJAY MEHTA O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XVII MUMBAI DATED 2003.2009. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - 1. THE LD. CIT(A) ERRED IN LAW IN ALLOWING THE PRO JECT COMPLETION METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WITHO UT APPRECIATING THE FACT THAT IS SUBSTANTIAL WORK IN PROGRESS AND S UBSTANTIAL ADVANCES HAVE BEEN RECEIVED BY THE ASSESSEE. 3. BRIEFLY STATED THE A.O. NOTICED THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD BUT IN THE PROJECT OF ALI UMER ST REET IT HAS RECEIVED SUBSTANTIAL ADVANCES AND THE PROJECT WAS ALSO SHOWN AS WORK-IN-PROGRESS AT ` 14.04 CRORES. HOLDING THAT THE PROJECT COMPLETION M ETHOD ADOPTED BY THE ASSESSEE WILL POSTPONE THE TAX LIABILITY INDEFINITE LY WHICH IS NOT ACCEPTABLE IN LAW HE CONSIDERED THE INCOME AT 8% ON THE WORK-IN- PROGRESS AND CLOSING STOCK AS ON 31.03.2006 AND BROUGHT TO TAX AN AMOUNT OF ` 1 23 35 964/-. THE MATTER WAS CONTESTED BEFORE THE CIT(A) WHO AFT ER CONSIDERING ASSESSEES SUBMISSION AND FACTS ON RECORD GAVE RELIEF TO THE ASSESSEE IN THE FOLLOWING OBSERVATIONS: - 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE REASONING OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE LD . AUTHORIZED ITA NO. 3929/MUM/2009 M/S. PROGRESSIVE CORPORATION 2 REPRESENTATIVE OF THE APPELLANT. THE CONTENTION OF THE ASSESSING OFFICER CANNOT BE ACCEPTED FOR VARIOUS REASONS. THE APPELLA NT HAD DISCLOSED INCOME FROM BUSINESS OF RS.5 13 879/-. THE ARGUMENT THE ASSESSING OFFICER THAT THE APPELLANT IS POSTPONING TAX LIABIL ITY IS NOT CORRECT. THE VARIOUS FACTS WHICH LEAD TO THIS CONCLUSION MAY BE SUMMED UP IN THE PARAGRAPH BELOW. (A) APPELLANT HAS BEEN CONSISTENTLY FOLLOWING PROJECT C OMPLETION METHOD FOR RECOGNIZING ITS PROFIT. IN A.Y. 2005-06 THE FIRST PROJECT I.E. J.J. ROAD PROPERTY OF THE APPELLANT HA S BEEN COMPLETED. THE PROFIT FROM THIS PROJECT HAS BEEN OF FERED FOR TAXATION. FOR A.Y. 2005-06 THE APPELLANT FILED RETU RN OF INCOME DISCLOSING RS.13 67 560/- WHICH HAS BEEN ASSESSED T O TAX. HENCE THE ARGUMENT OF THE ASSESSING OFFICER THAT AP PELLANT IS FOLLOWING A METHOD OF ACCOUNTING WHERE PROFIT IS IN DEFINITELY POSTPONED FOR THE PURPOSE OF TAXATION IS NOT CORREC T. (B) THE ASSESSING OFFICER HAS INVOKED SECTION 145 FOR R EJECTING THE BOOKS OF ACCOUNT AND ESTIMATING PROFIT. THE PRO VISIONS OF SECTION 145 CAN BE INVOKED ONLY AFTER POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINE D BY THE APPELLANT. THERE IS NO SPECIFIC DEFECT POINTED OUT TO DISREGARD THE AUDITED BOOK RESULTS. (C) THE REVENUE RECOGNITION IS POSSIBLE ONLY WHEN THE S UBSTANTIAL PART OF THE PROJECT IS COMPLETE OR SUBSTANTIAL SALE HAVE BEEN MADE. AS PER THE DETAILS AVAILABLE ON RECORD THE AD VANCES RECEIVED ACCOUNT FOR ONLY 47% OF THE TOTAL COST INC URRED UPTO 31.3.2006. THEREFORE PROFIT ON THE PROJECT HAS NOT ACCRUED AND CANNOT BE ESTIMATED. (D) THE PROFIT @ 8% HAS BEEN ESTIMATED ON INVENTORY OR WORK-IN- PROGRESS. THIS IS NOT PERMISSIBLE IN ACCOUNTING. TH E PROFIT HAS TO BE ESTIMATED ONLY ON SALES. (E) AS PER THE DETAILS FURNISHED THE TOTAL WORK-IN-PROG RESS OF RS.15 41 99 547/- ALSO INCLUDES LAND ADVANCES OF RS.1 37 94 464/-. THESE LANDS ARE FOR PROPOSED PROJ ECTS WHICH HAVE NEITHER STARTED NOR TAKEN OFF. THEREFORE PROFIT ON PROPOSED PROJECTS CANNOT BE ESTIMATED. (F) THE INCOME OF THE APPELLANT CAN BE TAXED ONLY WHEN IT HAS BEEN EARNED. ACCORDINGLY TO THE DETAILS AVAILABLE A S ON 31.3.2006 THE TOTAL COST FOR CONSTRUCTION AMOUNTS T O RS.3 490/-. THIS IS SO BECAUSE TOTAL SALEABLE AREA IS 39 867 SFT. AGAINST A TOTAL COST OF RS.13 91 26 371/-. AS AGAINST THIS THE SALE CONSIDERATION IS AT A RATE OF RS.3122/- PE R SQ.FT. FROM THIS IT CAN BE SEEN THAT THERE IS A NET LOSS I NCURRED PER SQ.FT. HENCE AT THE GIVEN MOMENT THERE IS NO ACCRU AL OF PROFIT. (G) AN IMPORTANT MATERIAL FACT WHICH HAS TO BE CONSIDER ED IS THAT THE BUILDING ITSELF WAS UNDER LITIGATION. THE MUMBA I BUILDING REPAIR RECONSTRUCTION BOARD HAD PLANNED TO REDEVELO P OLD AND DILAPIDATED BUILDINGS AND THE APPELLANT IS THE DEVELOPER ITA NO. 3929/MUM/2009 M/S. PROGRESSIVE CORPORATION 3 OF SUCH BUILDING. BUT BECAUSE OF BUILDERS DEMANDING EXTRA FSI THE ISSUE GOT STUCK IN MUMBAI HIGH COURT IN 200 6. ONLY IN SEPTEMBER 2006 THE HIGH COURT ORDER WAS REVERSED BY THE SUPREME COURT IN A RULING AGAINST THE NOVEMBER 2006 DIRECTIVE OF MUMBAI HIGH COURT. HENCE WHEN THE SALE OF CONSTRUCTED AREA ITSELF WAS CONTINGENT UPON COURT V ERDICTS THERE CANNOT BE AN ESTIMATE OF PROFITS. IN VIEW OF THIS THE ESTIMATED ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.1 23 35 964/- IS DELETED. T HIS GROUND IS ALLOWED. REVENUE IS AGGRIEVED. 4. THE LEARNED D.R. REITERATED THE STAND TAKEN BY THE A.O. WHEREAS THE LEARNED COUNSEL SUBMITTED THAT THE PROJECT WAS INCO MPLETE AND THE MATTER WAS IN DISPUTE FOR A LONG PERIOD AND ALSO PLACED ON RECORD THE COMPUTATION FOR A.Y. 2010-11 IN WHICH THE ASSESSEE HAS OFFERED INCOME ON PROJECT COMPLETION METHOD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND EXAMIN ED THE PAPER BOOK PLACED ON RECORD AND ORDERS OF THE A.O. AND TH E CIT(A). THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING PROJECT COMP LETION METHOD. IT IS ALSO NOT IN DISPUTE THAT DURING THE IMPUGNED ASSESSMENT YEAR ASSESSEES PROJECT WAS STAYED DUE TO VARIOUS JUDGEMENTS GIVEN WITH REF ERENCE TO FSI AND ULTIMATELY THE MATTERS ARE CLEARED ONLY IN THE YEAR 2008. EVEN ON FACTS IT IS ON RECORD THAT THE ADVANCES RECEIVED WERE ONLY ` 6.56 CRORES WHEREAS THE WORK-IN-PROGRESS ON THE PROJECT WAS ABOUT ` 13.91 CRORES. EVENTHOUGH THE A.O. HAS TAKEN THE VALUE AT ` 15.42 CRORES FOR ESTIMATING THE INCOME HE HAS INCLUDED THE WORK-IN-PROGRESS FROM THE CLOSING STOC K OF SEVERAL OTHER PROJECTS WHICH HAVE NOT EVEN STARTED AND ONLY LAND WAS PURCHASED AND SHOWN IN WORK-IN-PROGRESS. IT IS ALSO ON RECORD THA T DURING THE IMPUGNED YEAR THERE IS NO SCOPE FOR ESTIMATING ANY INCOME EV EN IF ONE WERE TO CONSIDER THE DECISION OF THE CHAMPION CONSTRUCTION CO. 5 ITD 495 TO ESTIMATE THE INCOME IF THE PROJECT WAS SUBSTANTIALL Y COMPLETED. AS FAR AS THE IMPUGNED ASSESSMENT YEAR IS CONCERNED THE PROJECT W AS NEITHER SUBSTANTIALLY COMPLETED NOR ADVANCE RECEIVED ON SAL E OF PROPERTY WAS SUBSTANTIAL SO AS TO ESTIMATE INCOMES. ON THESE FAC TS WE ARE OF THE OPINION ITA NO. 3929/MUM/2009 M/S. PROGRESSIVE CORPORATION 4 THAT THE ORDER OF THE CIT(A) DOES NOT REQUIRE ANY I NTERFERENCE AND ACCORDINGLY REVENUES GROUNDS ARE REJECTED. 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JANUARY 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 5 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XVII MUMBAI 4. THE CIT XVI MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.