M/S. ITO 20(2)(1), MUMBAI v. THE PETER FERNANDES, MUMBAI

ITA 3968/MUM/2008 | 2001-2002
Pronouncement Date: 15-12-2010 | Result: Dismissed

Appeal Details

RSA Number 396819914 RSA 2008
Bench Mumbai
Appeal Number ITA 3968/MUM/2008
Duration Of Justice 2 year(s) 6 month(s) 10 day(s)
Appellant M/S. ITO 20(2)(1), MUMBAI
Respondent THE PETER FERNANDES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 15-12-2010
Date Of Final Hearing 07-12-2010
Next Hearing Date 07-12-2010
Assessment Year 2001-2002
Appeal Filed On 05-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C : MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B.RAMAKOTAIAH ACCOUNTANT MEMBER ITA. NOS. 3968 & 3969/MUM/2008 ASSESSMENT YEARS 2000-2001 & 2001-2002 ITO 20 (2) (1) MUMBAI VS. MR. PETER FERNANDES MUMBAI 400 093 PAN AACPF-5048-H (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI SUMEET KUMAR (DR) FOR RESPONDENT : -NONE- ORDER PER B. RAMAKOTAIAH A.M. 1. THESE ARE REVENUE APPEALS AGAINST THE ORDERS OF THE CIT(A) DATED 28-3-2008 FOR THE ASSESSMENT YEARS 200 0-2001 AND 2001-2002. THE REVENUE IS CONTESTING THE ISSUE OF E STIMATION OF INCOME IN THE ASSESSEES CASE. 2. NOTICES SENT TO THE ASSESSEES ADDRESS WERE RET URNED UN- SERVED AS LEFT. SINCE ASSESSEE WAS NOT REPRESENTE D BY ANYBODY OR WHEREABOUTS NOT KNOWN AT PRESENT THE REVENUE APPEA LS HAVE BEEN CONSIDERED ON MERITS AFTER HEARING THE LEARNED DR. IT IS ALSO NOT ON RECORD WHETHER THE ASSESSEE HAS FILED ANY CROSS-APP EALS FOR THESE ASSESSMENT YEARS. FOR THE SAKE OF RECORD THE GROUN DS RAISED BY THE REVENUE IN ASSESSMENT YEAR 2000-2001 ARE EXTRACTED WHICH ARE AS UNDER : 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW A ND IN THE CIRCUMSTANCES OF THE CASE IN REDUCING THE ESTIMATED PROFIT OF THE ASSESSEE MADE BY THE A.O. F ROM 5% TO 2.5% OF THE TOTAL SALES VALUE OF THE FLAT WIT HOUT CONSIDERING THE REMUNERATIVE NATURE OF THE BUSINESS OF THE ASSESSEE WHO IS A BUILDER AND WITHOUT CONSIDERI NG THE AREA OF THE OPERATION OF THE ASSESSEE VIZ. NALASOPARA MUMBAI WHERE YIELD IS QUITE HIGH. ITA. NOS. 3968 & 3969/MUM/2008 MR. PETER FERNANDES 2 2. THE LEARNED CIT(A) HAS ERRED IN ESTIMATING THE PROF IT @ 2.5% WITHOUT ASSIGNING ANY REASONS AND WITHOUT TAKI NG COGNIZANCE OF PROFIT DERIVED IN COMPARABLE CASES. I N THIS RELATION THE CASE OF M/S CHAMPION CONSTRUCTION CO. VS. ITO 5 ITD 495 WAS NOT TAKEN INTO CONSIDERATION IN WHICH THE HONBLE ITAT UPHELD THE PROFIT RATE OF 15 %. 3. LEARNED CIT(A) ERRED IN GIVING NO WEIGHTAGE TO THE FACT THAT THE ASSESSEE WAS NOT MAINTAINING BOOKS OF ACCOUNTS YEAR AFTER YEAR. 2. THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND ADMITTEDLY IS FOLLOWING THE PROJECT COMPLETION METH OD OF ACCOUNTING. THE ASSESSEE IS PROPRIETOR OF M/S. TANIA BUILDERS AND DEVELOPERS AND M/S. TANIA ENTERPRISE. THE ASSESSEE HAS SHOWN SALE OF FLAT AMOUNTING TO RS.2.87 CRORES AND WORK-IN-PROGRESS AT RS. 2.37 CRORES IN THE CASE OF M/S. TANIA BUILDERS AND DEVELOPERS AND IN OTHER CONCERN HE HAS SHOWN WORK-IN-PROGRESS OF RS.31.17 LAKHS. THE ASSES SEE ADMITTED PROFIT OF RS.4 15 328/- ON THE SALE OF FLAT OF RS. 2. 87 CRORES WHICH COMES TO 1.44%. SINCE THE ASSESSEE HAS NOT FURNISHE D THE BOOKS OF ACCOUNTS HAVING BEEN LOST IN THE MUMBAI FLOODS TH E ASSESSING OFFICER CONSIDERED THAT ASSESSEE SHOULD HAVE OFFERED INCOME ON THE BASIS OF THE DECISION OF THE ITAT IN THE CASE OF CHAMPION CO NSTRUCTION CO.4 ITD 494 AND CONSIDERING THE LOCATION OF THE PROJECT IN NALASOPORA ESTIMATED THE NET PROFIT AT 5% OF THE TURNOVER IN T HE ASSESSMENT YEAR 2000-2001AND ON THE SAME RATIO IN ASSESSMENT YEAR 2 001-2002 ON TURNOVER OF RS. 4 LAKHS. THE MATTER WAS CARRIED TO THE CIT(A). THE LEARNED CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE THAT HE WAS NOT GETTING PROFIT AT 5% AND WAS FOLLOWING T HE PROJECT COMPLETION METHOD OF ACCOUNTING AND ALSO CONSIDERIN G THE PAST RECORD OF THE ASSESSEE DETERMINED THE RATE OF NET PROFIT AT 2.5%. HIS FINDINGS IN PARA 2.3 ARE AS UNDER : I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUB MISSIONS OF THE APPELLANT. AS I FIND THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT @ 5% BASED ON THE DECISION IN THE CASE C HAMPION CONSTRUCTION CO. VS. 1 ST INCOME TAX OFFICER AND THE LOCATION OF THE PROJECT. CONSIDERING THE FACT THAT THE APPELLAN T WAS UNABLE TO PRODUCE THE BOOKS OF ACCOUNT I FIND THE ASSESSI NG OFFICERS ITA. NOS. 3968 & 3969/MUM/2008 MR. PETER FERNANDES 3 ACTION IN RESORTING TO THE ESTIMATION OF THE PROFIT JUSTIFIABLE. AT THE SAME TIME I FIND THAT HIS ESTIMATION OF THE RA TE OF THE NET PROFIT AT 5% IS WITHOUT A FAIR BASIS. WHEREAS THE L OCATION OF A PROJECT IS INDICATIVE OF THE PROFIT POTENTIAL OF A PROJECT IT IS NOT ALWAYS FAIR AND CORRECT AS EACH PROJECT HAS TO BE EVALUATED ON THE UNIQUE FACTS RELATED TO THAT PROJECT. IN THESE CIRCUMSTANCES I FIND THAT IT WOULD HAVE BEEN FAIRER TO ADOPT THE TREND OF THE PROFITS DECLARED BY THE APPELLANT IN THE PROJECT IN THE YEARS PRECEDING AND SUCCEEDING THE PRESENT FINANCIAL YEAR . IN THIS RESPECT I FIND THAT THE APPELLANT IN HIS SUBMISSIO NS HAS SHOWN NET PROFIT RATIO @ 2.32% FOR A.Y. 1999-2000 1.44% FOR THE A.Y. 2000-01 NIL FOR THE A.Y. 2002-03 AND 0.042% FOR TH E A.Y. 2003-2004. IN THE FACE OF NON-AVAILABILITY OF THE B OOKS OF ACCOUNTS THIS TREND OF NET PROFIT RATIO WILL BE A F AIR BASIS TO ESTIMATE THE PROFIT FOR THE PRESENT ASSESSMENT YEAR . CONSIDERING THIS TREND AND CONSIDERING THAT THE PRE SENT ASSESSMENT YEAR IS THE THIRD ASSESSMENT YEAR FROM T HE ASSESSMENT YEAR 1999-2000 I FIND THAT IT WOULD BE FAIR TO TAKE THE NET PROFIT AT 2.5% ON THE SALE OF FLAT DURING T HE YEAR. ACCORDINGLY I DIRECT THE ASSESSING OFFICER TO COMP UTE THE NET PROFIT ADOPTING THIS RATE. 3. LEARNED DR RELIED ON THE ORDERS OF THE ASSESSIN G OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS REASON ABLY ESTIMATED THE PROFIT AT 5% WHEREAS THE RATIO IN THE CONSTRUCT ION ACTIVITY IS MUCH MORE. IN VIEW OF THIS IT WAS HIS SUBMISSION THAT T HE CIT(A) HAS ERRED IN REDUCING THE G.P. RATE. 4. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE R ECORD. THE ASSESSING OFFICER IN OUR OPINION HAS RESORTED T O THE ESTIMATION OF INCOME EVEN THOUGH THE ASSESSEE IS FOLLOWING THE PR OJECT COMPLETION METHOD AND THERE IS NO FINDING THAT ASSESSEE HAS CO MPLETED THE PROJECT IN THE YEAR UNDER CONSIDERATION. AS SEEN FR OM THE DETAILS ASSESSEE HAS SOLD FLATS TO THE EXTENT OF RS. 2.87 C RORES WHEREAS WORK- IN-PROGRESS WAS ALSO SHOWN AT RS. 2.37 CRORES. ESTI MATION OF INCOME ITA. NOS. 3968 & 3969/MUM/2008 MR. PETER FERNANDES 4 ON THE BASIS OF CHAMPION CONSTRUCTION CO. (SUPRA) W ILL ARISE ONLY WHEN THE ASSESSEE HAS COMPLETED SUBSTANTIAL PART OF THE PROJECT. THE TOTAL PROJECT COST WAS ALSO NOT ON RECORD TO EXAMIN E THIS ISSUE. BE THAT AS IT MAY THE CIT(A) CONSIDERED THE PAST RECORD OF THE ASSESSEES PROFITS AND REDUCED THE NET PROFIT TO 2.5%. IN THE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE RATE ADOPTED BY THE CIT (A) IS REASONABLE AND DOES NOT REQUIRE ANY INTERFERENCE AS THE ASSESS ING OFFICER HAS ALSO NOT GIVEN ANY REASONING FOR HIS ESTIMATION OF 5% NET PROFIT. 5. IN GROUND NO. 2 THE REVENUE IS CONTESTING THE I SSUE WHICH HAS NO MERIT AS THE ASSESSING OFFICER HIMSELF HAS A DOPTED 5% OF NET PROFIT WHEREAS IN THE RELATED CASE OF CHAMPION CONS TRUCTION CO. 5 ITD 494 THE HONBLE ITAT UPHELD THE PROFIT RATE AT 15%. SINCE THE ASSESSING OFFICER HIMSELF HAS ADOPTED RATE OF 5% WE ARE UNABLE TO APPRECIATE THE GROUND RAISED BY THE REVENUE IN THIS REGARD ON THE BASIS OF CHAMPION CONSTRUCTION CO. THEREFORE GROUN D IS REJECTED. GROUND NO 3 ALSO DOES NOT REQUIRE ANY CONSIDERATION AS THE BOOKS OF ACCOUNTS WERE REJECTED AND ESTIMATION WAS RESORTED TO. UNDER THESE CIRCUMSTANCES THERE IS NO MERIT IN THE REVENUE GRO UNDS. ACCORDINGLY THEY ARE DISMISSED. ITA. NO. 3968/MUM/2008 : 6. THE FACTS IN THE CASE ARE SIMILAR TO THE FACTS DISCUSSED IN ASSESSMENT YEAR 2000-2001. THE ASSESSEE HAS SOLD ON E FLAT FOR RS. 4 LAKHS ON WHICH ASSESSING OFFICER ESTIMATED INCOME A T RS.20 000/- AND THE CIT(A) REDUCED IT TO 2.5% ON THE SAME PRINC IPLES ADOPTED FOR ASSESSMENT YEAR 2000-2001. 7. WE HAVE CONSIDERED THE ISSUE IN DETAIL IN ASSES SMENT YEAR 2000-2001. HENCE THERE IS NO MERIT IN GROUNDS RAIS ED IN THIS YEAR AS WELL. MORE OVER THIS ISSUE IS ALSO COVERED BY THE BOARD CIRCULAR WITH REFERENCE TO THE TAX EFFECT. THE INCOME ITSELF IS E STIMATED AT RS.20 000/-. HENCE REVENUE SHOULD NOT HAVE COME IN APPEAL FOR THIS ITA. NOS. 3968 & 3969/MUM/2008 MR. PETER FERNANDES 5 ASSESSMENT YEAR AS THE TAX EFFECT IS TOO LOW TO PRE FER AN APPEAL. ON BOTH THE COUNTS THE REVENUE GROUNDS ARE DISMISSED. 8. IN THE RESULT APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 15 TH DAY OF DECEMBER 2010. SD/- (R.S. PADVEKAR) JUDICIAL MEMBER SD/- (B.RAMAKOTAIAH) ACCOUNTANT MEMBER DATED : 15 TH DECEMBER 2010 VBP/- COPY TO : 1. ITO 20 (2) (1) PIRAMAL CHAMBERS LALBAUG PAREL M UMBAI-012. 2. MR. PETER FERNANDES FLAT NO. A/13 4 TH FLOOR ADLYAMAN SOC. NEAR J.B. NAGAR JAIN MANDIR ANDHERI (E) MUMBAI 40 0 093 PAN AACPF-5048-H. 3. CIT(A)-XX MUMBAI 4. CIT-XX MUMBAI 5. DR C BENCH 6. GUARD FILE TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI