ITO 4(2)(4), MUMBAI v. MEGHA PROPERTY DEVELOPERS LTD, MUMBAI

ITA 4604/MUM/2009 | 2005-2006
Pronouncement Date: 18-11-2011 | Result: Allowed

Appeal Details

RSA Number 460419914 RSA 2009
Assessee PAN AAFFM5593B
Bench Mumbai
Appeal Number ITA 4604/MUM/2009
Duration Of Justice 2 year(s) 3 month(s) 11 day(s)
Appellant ITO 4(2)(4), MUMBAI
Respondent MEGHA PROPERTY DEVELOPERS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 18-11-2011
Date Of Final Hearing 09-11-2011
Next Hearing Date 09-11-2011
Assessment Year 2005-2006
Appeal Filed On 06-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D. MANMOHAN (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO.4455/MUM/2009 ASSESSMENT YEAR : 2005-06 M/S. MEGHA PROPERTY DEVELOPERS LTD. 701- A NIRANJAN 99 MARINE DRIVE MUMBAI-400 002. ..( APPELLANT ) P.A. NO. (AAFFM 5593 B) VS. INCOME TAX OFFICER WARD 4(2)(4) AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. ..( RESPONDENT ) ITA NO.4604/MUM/2009 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER WARD 4(2)(4) MUMBAI-20. ..( APPELLANT ) VS. M/S. MEGHA PROPERTY DEVELOPERS LTD. MUMBAI-400 002. ..( RESPONDENT ) ASSESSEE BY : SHRI B.V. JHAVERI DEPARTMENT BY : SHRI O .A. MAO DATE OF HEARING : 14.11.11 DATE OF PRONOUNCEMENT : 18 TH NOVEMBER 2011 ITA NO.4455 & 4604/M/09 A.Y:05-06 2 O R D E R PER RAJENDRA SINGH (AM). THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21.5.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. T HE DISPUTE RAISED IN THESE APPEALS RELATE TO COMPUTATION OF INCOME FROM MADHURI PROJECT AND ADDITION ON ACCOUNT OF CASH CREDIT. THE CROSS APPEALS ARE BEING DISPOSED OF BY SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE FIRST TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.4455/M/2009 . THE ONLY DISPUTE RAISED IS REGARDING THE COMPUTATION OF INCOME FROM THE MADHURI PROJECT IN THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A BUILDER AND DEVELOPER W HO HAD BEEN EXECUTING SEVERAL PROJECTS AND HAD BEEN DECLARING INCOME ON PROJECT COMPLETION METHOD. THE AO NOTED THAT FOR ASSESSMENT YEA R 2005-06 THE ASSESSEE HAD SHOWN BOOKING ADVANCE OF RS.5.52 CRORES WHI CH INCLUDE BOOKING ADVANCE OF RS.5.51 CRORES AGAINST MADHURI PROJECT AND WORK-IN-PROGRESS (WIP) WAS SHOWN AT RS.7.87 CRORES WHICH IN CLUDED WIP OF MADHURI PROJECT AT RS.7.12 CRORES. THE AO NOTED THAT AS PER COMPLETION CERTIFICATE THE MADHURI PROJECT HAD BEEN COMP LETED IN THE YEAR 2002. THEREFORE HE ASKED THE ASSESSEE AS TO WHY THE INCOME SHOULD NOT BE COMPUTED IN THIS YEAR. THE ASSESSEE EXPLAIN ED THAT PROJECT IS CONSIDERED COMPLETE ONLY ON RECEIPT OF OCCUPATIO N CERTIFICATE ITA NO.4455 & 4604/M/09 A.Y:05-06 3 WHICH WAS DATED 21.4.2005 AND THEREFORE THE ASSESSEE H AD DECLARED INCOME FROM PROJECT IN ASSESSMENT YEAR 2006-07. THE AO HO WEVER DID NOT ACCEPT THE CONTENTIONS RAISED AND OBSERVED THAT MAJO R SALE CONSIDERATION HAD BEEN RECEIVED TILL THE END OF ASSESSMENT YEAR 2005- 06 AND SOME AGREEMENTS FOR SALE HAD ALSO BEEN REGISTERED DURING THE YEAR. HE GAVE DETAILS OF SUCH AGREEMENTS AS UNDER:- UNIT NO. AREA SQ.FT. SALE CONSIDERATION DATE OF AGREEMENT AMOUNT RECEIVED 100 561.15 14 50 000 15.02.2005 14 50 000 402 394.50 6 28 300 07.02.2005 6 28 300 701 561.15 9 77 750 30.09.2004 9 77 750 801 561.15 10 25 000 05.04.2004 10 25 000 802 394.50 07 03 707 20.05.2004 07 03 707 1102 394.50 7 98 250 09.06.2004 09 98 250 3 238.82 10 63 200 22.07.2004 10 63 200 31A 80.65 3 45 000 15.05.2005 3 45 000 202 278 10 32 200 22.10.2005 10 32 200 2.1 THE AO FURTHER OBSERVED THAT IN VIEW OF THE REVI SED ACCOUNTING STANDARD AS-7 THE PROJECT COMPLETION METHOD HAD BEE N DONE AWAY WITH AND INCOME HAD TO BE DECLARED AS PER PERCENTAGE COM PLETION METHOD. HE REFERRED TO SEVERAL DECISIONS SUCH AS JUDGMENT OF HONBLE PATNA HIGH COURT IN THE CASE OF SRI SUKHDEODAS JALAN VS . CIT (26 ITR 617) THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHAMPION CONSTRUCTION CO. (5 ITD 495) AND SEVERAL OTH ER DECISIONS IN SUPPORT OF THE SAID PROPOSITION. MOREOVER THE AO ALSO OBSERVED THAT MAJOR SALE CONSIDERATION HAD BEEN RECEIVED TILL THE EN D OF THE RELEVANT ITA NO.4455 & 4604/M/09 A.Y:05-06 4 YEAR. HE THEREFORE ESTIMATED INCOME FROM THE PROJECT @ 8% OF BOOKING ADVANCE WHICH CAME TO A SUM OF RS.41 27 500/- WH ICH WAS ASSESSED AS INCOME OF MADHURI PROJECT FOR THE ASSESSMENT YEAR 2005- 06. IN APPEAL CIT(A) AGREED WITH THE FINDING OF AO THAT MAJOR SALE CONSIDERATIONS HAVING BEEN RECEIVED TILL THE END OF THE RELEVANT YEAR THE ASSESSEE WAS NOT JUSTIFIED IN POSTPONING THE OFFERING OF INCOME. HE DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE THAT THE A SSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD SINCE INCEPTION A ND AO HAD ALREADY ACCEPTED THE INCOME FROM TWO PROJECTS COMPLETED B EFORE ASSESSMENT YEAR 2005-06 ON THAT BASIS. IT WAS ALSO OBSERV ED BY HIM THAT THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNT BEF ORE AO. ACCORDINGLY HE CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT THE ASSESSEE WAS FOLLO WING THE PROJECT COMPLETION METHOD WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS EVEN AFTER THE REVISE D ACCOUNTING STANDARD AS-7 WERE ISSUED. IT WAS ALSO SUBMITTED THAT TH E CONSTRUCTION OF MADHURI PROJECT STARTED IN ASSESSMENT YEAR 1 995-96. HE REFERRED TO THE DETAILS OF CONSTRUCTION COST YEAR-WISE ALONG WITH BOOKING ADVANCE RECEIVED FROM ASSESSMENT YEAR 1995-96 TO ASSESSMENT YEAR 2005-06 TO POINT OUT THAT THE CONSTRUCTI ON COST TILL ITA NO.4455 & 4604/M/09 A.Y:05-06 5 THE END OF A PARTICULAR YEAR WAS ALWAYS HIGHER THAT TH E ADVANCE RECEIVED. FOR EXAMPLE TILL ASSESSMENT YEAR 2005-06 CONST RUCTION COST WAS RS.7.46 CRORES AND ADVANCE RECEIVED WAS RS.7.15 CRORES. SIMILARLY IN EARLIER YEARS THE CONSTRUCTION COST WAS ALSO ALWAYS HIGHER THAN THE BOOKING COST RECEIVED. THE ASSESSEE WAS THUS NOT ABLE TO RECOVER THE COST OF CONSTRUCTION. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD CONSTRUCTED SALEABLE AREA OF 47791 SQ.FT. FOR T OTAL COST OF RS.7 84 79 705/- GIVING THE COST OF CONSTRUCTION AT RS.16 74.52 PER SQ.FT. THE ASSESSEE HAD SOLD 25377 SQ.FT. FOR RS.4 09 25 50 3/- TILL ASSESSMENT YEAR 2006-07 GIVING THE AVERAGE SALE RATE OF 1613 PER SQ.FT. THE ASSESSEE WAS THEREFORE INCURRING LOSSES AND TH EREFORE EVEN IF INCOME WAS DECLARED IN ASSESSMENT YEAR 2005-06 THERE WAS LOSS. IT ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2006-07 THE ASSESSEE HAD SOLD 53% OF SALEABLE AREA AND THEREFORE IN THAT YEAR IT COULD BE SAID THAT MAJOR SALE CONSIDERATIONS HAD BEEN RE CEIVED AND NOT IN ASSESSMENT YEAR 2005-06. THE ASSESSEE DECLARED INCOME FROM THE PROJECT IN ASSESSMENT YEAR 2006-07 WHICH HAD BEEN ACCEPTED BY THE AO UNDER SECTION 143(3). SIMILARLY THE ASSESSEE HAD DECL ARED INCOME OF RS.30 84 280/- IN ASSESSMENT YEAR 2007-08 AND RS.17 22 713/- IN ASSESSMENT YEAR 2008-09 FROM THE SAME PROJECT WHICH HAD B EEN ACCEPTED BY THE AO UNDER SECTION 143(3). IT WAS ALSO POI NTED OUT THAT AO WAS NOT CORRECT IN STATING THAT MAJOR SALE CONSIDERATIO N HAD BEEN ITA NO.4455 & 4604/M/09 A.Y:05-06 6 RECEIVED IN THE ASSESSMENT YEAR 2005-06. IN THAT YEAR FULL SALE CONSIDERATION HAD BEEN RECEIVED ONLY IN RESPECT OF NINE FLATS WITH AGGREGATE SALES OF RS.82 23 407/-. THE LD. AR ALSO SUB MITTED THAT AO WAS NOT CORRECT INSTATING THAT BOOKS OF ACCOUNT WERE NOT P RODUCED. HE REFERRED TO LETTER DATED 27.12.2007 ADDRESSED BY THE ASSESSEE TO THE AO IN WHICH IT WAS MENTIONED THAT BOOKS OF ACCOUNT WITH BILLS AND VOUCHERS WERE PRODUCED BEFORE AO ON 26.12.2007 WHICH HA D NOT BEEN DENIED BY THE AO IN THE ASSESSMENT ORDER. THE LD. AR A LSO ARGUED THAT THE DECISIONS RELIED UPON BY THE AUTHORITIES BELO W WERE DISTINGUISHABLE ON FACTS. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN RESPECT OF THE ORDERS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING COMPUTA TION OF INCOME FROM MADHURI PROJECT. THERE IS NO DISPUTE THAT THE ASSE SSEE HAD BEEN EXECUTING SEVERAL BUILDING PROJECTS IN THE PAST INCOME F ROM WHICH HAD BEEN ACCEPTED BY THE AO ON PROJECT COMPLETION METHOD EV EN AFTER THE REVISED ACCOUNTING STANDARD AS-7 WERE ISSUED. IN CASE OF T HIS PROJECT IT IS TO BE NOTED THAT THE PROJECT WAS BEING CONSTRUCTED SINCE ASSESSMENT YEAR 1995-96. THOUGH THE ASSESSEE HAD BEEN RECEIV ING ADVANCES AGAINST BOOKINGS THE TOTAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE WAS ONLY RS.82 23 407/- IN ASSESSMENT YEAR 2005-06 A GAINST ITA NO.4455 & 4604/M/09 A.Y:05-06 7 SALE OF NINE FLATS. THE TOTAL SALEABLE AREA CONSTRUCTED WAS 47791 SQ.FT. OUT OF WHICH 25377 SQ.FT. WAS SOLD TILL 31.3.2006 FOR A TOTAL SALE CONSIDERATION OF RS.4 09 25 503/-. THUS ONLY IN ASSESSMENT YEAR 2006-07 53% OF SALEABLE AREA HAD BEEN SOLD. THE OCCUP ATION CERTIFICATE DATED 21.4.2005 WAS ALSO RECEIVED IN ASSESSMENT YEAR 2006-07. THE ASSESSEE THEREFORE STARTED DECLARING INCOM E FROM THE PROJECT FROM ASSESSMENT YEAR 2006-07 IN WHICH MAJOR SALES HAD TAKEN PLACE AND OCCUPANCY CERTIFICATE HAD ALSO BEEN RECEIVED. THEREFORE IN OUR VIEW THE DECISION OF THE ASSESSEE TO DECLARE INCOME FRO M PROJECT FROM ASSESSMENT YEAR 2006-07 CANNOT BE FAULTED WITH. IN ASSESSMENT YEAR 2005-06 NINE FLATS WITH TOTAL SALE CONSIDERATION OF RS.82 23 407/- HAD BEEN SOLD AND THEREFORE IT IS POSS IBLE TO TAKE A VIEW THAT THE ASSESSEE WAS REQUIRED TO DECLARE INCOME IN R ESPECT OF SUCH SALES IN ASSESSMENT YEAR 2005-06. HOWEVER WE NOTE TH AT COST OF CONSTRUCTION OF THE FLATS TILL ASSESSMENT YEAR 2006-07 WAS MORE THAN THE SALE CONSIDERATION RECEIVED PER SQ.FT. AND THER EFORE EVEN IF ANY INCOME WAS TO BE COMPUTED IN ASSESSMENT YEAR 2005-06 IT WOULD HAVE BEEN LOSS WHICH WOULD HAVE BEEN CARRIED FORWARD TO THE NEXT ASSESSMENT YEAR. THEREFORE NOT DECLARING ANY INCOME FRO M 2005-06 DOES NOT HAVE ANY IMPACT ON THE TAXABILITY. ITA NO.4455 & 4604/M/09 A.Y:05-06 8 4.1 THE AO HAS ESTIMATED THE INCOME AT 8% OF ADVANCE RE CEIVED FOR WHICH THERE IS NO JUSTIFICATION PARTICULARLY WHEN THE FA CTS AND FIGURES GIVEN BY THE ASSESSEE CLEARLY SHOW THAT THE ASSESSEE WAS INCUR RING LOSS IN RESPECT OF SALES MADE TILL 2006-07 AS THE BOOKING HAD BEEN MADE AT LOWER RATE LONG AGO. MOREOVER THE INCOME F ROM THESE SALES INCLUDING THE SALES MADE IN ASSESSMENT YEAR 2005-06 HAD B EEN DECLARED BY THE ASSESSEE IN ASSESSMENT YEAR 2006-07 IN WHICH THE SAME HAS BEEN ACCEPTED BY THE AO WITHOUT MAKING ANY CHAN GES IN THE SALE CONSIDERATIONS. THEREFORE ONCE SALES HAD BEEN ACCEPTED BY THE AO AFTER SCRUTINY NO ESTIMATED ADDITIONS CAN BE MADE. S INCE ASSESSMENT FOR THE 2006-07 WAS COMPLETED AFTER SCRUTINY AO IS SUPPOSED TO HAVE SCRUTINIZED ALL SALES AS WELL AS EXPENSES R ELATING TO SALE OF FLATS AND THEREFORE NON-PRODUCTION OF BOOKS OF ACCOUNT IN ASSESSMENT YEAR 2005-06 EVEN IF CORRECT HAS NO RELEVANCE AS ULTIMATELY SALES AND CONSTRUCTION COSTS HAVE BEEN ACCEPTED B Y THE AO IN THE SUBSEQUENT YEAR 2006-07 AFTER SCRUTINY. HOWEVER THE ASSESSEE HAS PRODUCED DOCUMENTS TO SHOW THAT IT HAD PRODUCED BOOKS BEFORE AO AND EVEN THE AO HAS NOT DENIED PRODUCTION OF BOOKS OF ACCOUNT IN THE ASSESSMENT ORDER. THEREFORE CONSIDERING THE ENTIRET Y OF THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE ADDITION MADE BY AO IN T HIS YEAR ON ESTIMATE BASIS CANNOT BE SUSTAINED. WE THEREFORE SE T ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE BY THE AO. ITA NO.4455 & 4604/M/09 A.Y:05-06 9 5. THE APPEAL OF THE REVENUE IN ITA NO.4604/MUM/2009. THE ONLY DISPUTE IS REGARDING ADDITION OF RS.11 70 325/- UNDER SECTION 68 OF THE INCOME TAX ACT. 5.1 AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THER E WAS CASH DEPOSIT OF RS.10 47 125/- IN THE STANDARD CHARTERE D BANK AND RS.1 23 200/- IN ANDHRA BANK TOTALING TO RS.11 70 325 /-. THE AO OBSERVED THAT THE ASSESSEE WAS ASKED TO GIVE SOURCE OF CASH D EPOSIT BUT HE WAS UNABLE TO EXPLAIN THE SOURCE. THE AO THER EFORE ADDED THE SAID AMOUNT AS CASH CREDIT U/S. 68 OF THE INCOME TAX ACT. IN APPEAL ASSESSEE SUBMITTED THAT THE CASH DEPOSITS WERE THE CASH RECEIVE D FROM VARIOUS PARTIES TO WHOM ASSESSEE HAD SOLD FLATS. THE ASSESSEE ALSO GAVE NAME ADDRESS AND CONFIRMATION OF PERSONS FROM WHOM CASH HAD BEEN RECEIVED ALONGWITH THEIR RESPECTIVE FLAT/SHOP NUMBERS. THE CIT(A) THEREFORE ACCEPTED THE SOURCE OF CASH DEPOSIT AND DELETED THE ADDITION MADE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. 5.2 BEFORE US THE LD. A.R FOR THE ASSESSEE SUBMITTED THA T AO WAS NOT CORRECT IN STATING THAT NO EXPLANATION HAD BEEN GIVEN BEFORE HIM. HE REFERRED TO LETTER DATED 27.12.07 ADDRESSED BY THE ASSE SSEE TO THE AO PLACED AT PAGE 99 OF THE PAPER BOOK IN WHICH ASSESSEE HA D EXPLAINED THAT CASH DEPOSITS WERE FROM CASH RECEIVED FROM VARIOUS PA RTIES AS ITA NO.4455 & 4604/M/09 A.Y:05-06 10 BOOKING ADVANCE. THE ASSESSEE ONLY FILED CONFIRMATION BE FORE CIT(A) AND ALL OTHER DETAILS WERE GIVEN BEFORE AO. THE LD . D.R SUPPORTED THE ORDERS OF THE AO. 5.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITIO N OF RS.11 70 325/- ON ACCOUNT OF CASH DEPOSITS IN STANDARD CHA RTERED BANK AND ANDHRA BANK. THE AO MADE ADDITION ON THE GROUND THAT NO EXPLANATION HAD BEEN GIVEN BY THE ASSESSEE. LD. AR HA S POINTED OUT THAT THE ASSESSEE HAD EXPLAINED THAT THE DEPOSITS WERE O UT OF BOOKING ADVANCE RECEIVED FROM BUYERS OF FLATS IN CASH VIDE LETTER DATED 27.12.07 PLACED AT PAGE 99 OF THE PAPER BOOK. HOWEVE R WE NOTE THAT THE ASSESSMENT ORDER HAS BEEN PASSED ON 27.12.2007 AND THE RE IS NO EVIDENCE TO SHOW THAT THIS LETTER WAS AVAILABLE BEFORE AO. MOREOVER THE CONFIRMATIONS REGARDING CASH RECEIVED WERE FILED BEF ORE CIT(A) WHICH WAS FRESH EVIDENCE AND THEREFORE THE AO WAS REQ UIRED TO BE GIVEN AN OPPORTUNITY BY CIT(A) WHICH HAS NOT BEEN DON E. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.4455 & 4604/M/09 A.Y:05-06 11 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED WHERE AS THAT BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2011. SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 18.11.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.