THE ACIT 17(2), MUMBAI v. M/S. DILIP S. HATE, MUMBAI

ITA 4629/MUM/2007 | 2004-2005
Pronouncement Date: 07-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 462919914 RSA 2007
Assessee PAN AAAPH4943F
Bench Mumbai
Appeal Number ITA 4629/MUM/2007
Duration Of Justice 2 year(s) 10 month(s) 18 day(s)
Appellant THE ACIT 17(2), MUMBAI
Respondent M/S. DILIP S. HATE, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 07-05-2010
Date Of Final Hearing 23-03-2010
Next Hearing Date 23-03-2010
Assessment Year 2004-2005
Appeal Filed On 19-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVAN JM ITA NO.4629/MUM/2007 : ASST.YEAR 2004-2005 THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 17(2) MUMBAI. VS. SHRI DILIP S.HATE 101 SHRI SAI SHRADHHA CHS 114 BHAVANI SHANKAR ROAD DADAR MUMBAI 400 028. PA NO.AAAPH4943F. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PEEYUSH JAIN SR.DR RESPONDENT BY : S/SHRI K.SHIVARAM & PARAS SAVLA O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 11.4.2007 I N RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. THE FIRST GROUND IS AGAINST THE DELETION OF ADDI TION OF RS.1 73 45 250 ON ACCOUNT OF VALUE OF IMMOVABLE PROPERTY AS CONSIDER ATION ON TRANSFER OF DEVELOPMENT RIGHTS HELD BY THE CIT(A) TO BE TAXABLE ON ACTUAL TRANSFER. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF DEVELOPING HOUSING PROJECTS AT THE MATERIAL TIME. THE FACTUAL MATRIX OF THIS GROUND AS RECORDED BY THE ASSESSING OFFICER ON PAGE 4 ONWA RDS IS AS FOLLOWS. THE ASSESSEE ENTERED INTO DEED OF PARTNERSHIP ON 17.4.2 003 WITH SHRI MOHAN JETHALAL SINGHANI CHANDU JETHALAL SINGHANI PURUSHOTAM JETH ALAL SINGHANI AND NARSI AMRITLAL SINGHANI UNDER THE NAME AND STYLE OF SKYL ARK BUILD SHREE SAI JANTA COLONY (GHATKOPAR) PROVIDING THAT THE PROFIT AND LOSS OF THE PARTNERSHIP FIRM WILL BE SHARED BY THE ASSESSEE AT 50% AND BY OTHER FOUR PARTNERS COLLECTIVELY AT 50%. THE SPENT A SUM OF RS.23 63 549 TOWARDS DEVELOPMENT EXPENSES OF PLOT AT GHATKOPAR WHICH RIGHTS WERE TRANSFERRED BY THE AS SESSEE TO THE FIRM. ALL THE ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 2 INITIAL STEPS FOR OBTAINING NECESSARY PERMISSION FORMATION OF TENANTS ASSOCIATION ETC. WERE DONE BY THE ASSESSEE. AS PER CLAUSE 7 O F THE PARTNERSHIP DEED DATED 17.4.2003 THE ASSESSEE BROUGHT IN THE DEVELOPMENT R IGHTS ENTRUSTED TO HIM AS CAPITAL WHICH WERE VALUED BY THE FIRM AT RS.30 00 0 00. THIS AMOUNT WAS CREDITED TO HIS CAPITAL ACCOUNT. APART FROM THAT THE ASSESS EE WAS ALSO REIMBURSED A SUM OF RS.24.25 LACS BY THE FIRM TOWARDS THE DEVELOPMENT E XPENSES INCURRED BY HIM. ON 28.4.2003 THE ASSESSEE RETIRED FROM THE PARTNERSHIP FIRM AND HE WAS GIVEN A SUM OF RS.54.25 LAKHS IN TOTAL AS RETIREMENT CONSIDERATION . CLAUSE NO.3 OF THE RETIREMENT DEED PROVIDES THAT IN ADDITION TO THE AMOUNT IN TE RMS OF MONEY THE CONTINUING PARTNERS AGREED THAT THE REDEVELOPMENT OF THE PROPE RTY WOULD BE DONE BY THEM AND THE ASSESSEE WOULD BE ALLOTTED TOTAL 10 000 SQ.FT. OF PREMISES FREE OF COST ON OWNERSHIP BASIS THE POSSESSION OF WHICH WILL BE H ANDED OVER DULY COMPLETE IN ALL RESPECTS. CLAUSE 5 OF THE DEED OF RETIREMENT FURTHE R PROVIDED THAT THE RETIRING PARTNER SHALL BE AT LIBERTY TO KEEP THE SAID RESIDE NTIAL PREMISES AND SHOP PREMISES FOR HIMSELF OR TO SELL / TRANSFER/ DISPOSE OFF THE SAME IN THE OPEN MARKET TO THE PROSPECTIVE BUYERS THEREOF FOR SUCH CONSIDERATION A ND UPON SUCH TERMS AND CONDITIONS AS THE RETIRING PARTNER MAY DEEM FIT PR OPER AND NECESSARY WITHOUT HAVING ANY REFERENCE OF WHATSOEVER NATURE TO CONTIN UING PARTNERS. CLAUSE 6 WAS FURTHER OBSERVED AS PROVIDING THAT THE CONTINUING P ARTNERS WILL NOT DEMAND TRANSFER CHARGES WHEN THE RETIRING PARTNER DESIRED TO SELL / TRANSFER AND DISPOSE OFF THE SAID PROPERTY. SUBSEQUENTLY A SUPPLEMENTARY DEED DATED 25.4.2006 WAS EXECUTED BETWEEN THE PARTNERS OF THE FIRM AND THE ASSESSEE A S PER WHICH IT WAS DECIDED THAT THE ASSESSEE IN ADDITION TO RS.54 25 000 SHALL B E ALLOTTED THREE SHOPS ADMEASURING ABOUT 900 SQ.FT. OF SUPER BUILT UP AREA AND 8 RESID ENTIAL UNITS ADMEASURING 225 SQ.FT. OF CARPET AREA EACH IN REHAB BUILDING NO.3 OF THE P ROJECT OF THE FIRM AND ALSO 4 RESIDENTIAL FLATS BEARING NO.1104 905 605 & 502 A DMEASURING ABOUT 1156 1181 1181 & 1489 SQ.FT. OF SUPER BUILT UP AREA RESPECTIV ELY AND 5 CAR PARKING SPACE IN RESPECT OF THESE FLATS. THUS TOTAL AREA IN THE FORM OF SHOPS AND FLATS AT 7707 SQ.FT. WAS IN SUBSTITUTION OF 10 000 SQ.FT. AGREED EARLIER TO BE ALLOTTED TO THE ASSESSEE AS ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 3 PER THE RETIREMENT DEED DATED 28.3.2003. IN THE RET URN OF INCOME THE ASSESSEE SHOWED SALE PRICE OF RS.54.25 LAKHS IN ITS PROFIT AND LOSS ACCOUNT. IN THIS BACKDROP OF FACTS THE ASSESSING OFFICER OPINED THAT THE ASS ESSEE HAD TRANSFERRED DEVELOPMENT RIGHT IN GHATKOPAR PLOT THROUGH A ROUTE OF FORMATION OF PARTNERSHIP FIRM AND THEN SUBSEQUENTLY RETIRING WITHIN 11 DAYS TIME. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE VALUE OF THE PREM ISES OF 7707 SQ.FT. SHOULD ALSO NOT BE TREATED AS A PART OF SALE CONSIDERATION TO A RRIVE AT THE PROFIT FROM THE PROJECT. THE ASSESSEES CHARTERED ACCOUNTANT APPEARED BEFORE THE A.O. WHO ARGUED THAT THE ASSESSEE WOULD BE ENTITLED TO SHOPS/FLATS ONLY AFTER THE COMPLETION OF THE PROJECT AND HENCE THE INCOME ON THIS COUNT BE CONSI DERED FOR TAXATION ONLY WHEN THESE ARE ACTUALLY ALLOTTED. LATER THE ASSESSEES COUNSEL AGREED TO BE TAXED ON ADDITIONAL INCOME TO BE DETERMINED BY VALUING THE T OTAL AREA OF 7707 SQ.FT. AT THE RATE OF RS.500 PER SQ.FT. THIS SUBMISSION DID NOT FIND FAVOUR WITH THE A.O. HE OUTRIGHTLY REJECTED THE PRIMARY CONTENTION OF THE FURTHER TAX LIABILITY ARISING AT THE TIME OF SALE OF SHOPS/FLATS. HE WENT AHEAD WITH TH E DETERMINATION OF THE VALUATION OF THE PREMISES TO BE ALLOTTED TO THE ASSESSEE IN T HE PROJECT TO BE CONSTRUCTED ON THE GHATKOPAR PLOT. SUMMONS WERE ISSUED TO THE CONTINU ING PARTNERS OF THE FIRM. SHRI MOHAN SINGHANI PARTNER OF THE FIRM ATTENDED THE PR OCEEDINGS WHOSE STATEMENT WAS RECORDED. IN RESPONSE TO QUESTION NO.8 HE STATED TH AT THE FIRM WAS EXPECTING THE BOOKING RATE OF RS.2 500 PER SQ.FT. HE FURTHER INT IMATED THAT FLAT NO.804 WITH CARPET AREA OF 788.25 SQ.FT. WAS BOOKED FOR RS.23 48 750 G IVING THE RATE OF RS.2 979 PER SQ.FT. CONSIDERING THE ABOVE FACTS AND AFTER ALLOWI NG THE MARGIN OF PROFIT AT ABOUT 10% FROM THE EXPECTED BOOKING RATE OF RS. 2 500 T HE A.O. ESTIMATED THE RATE OF RS.2 250 PER SQ.FT. SINCE THE TOTAL AREA ALLOTTED T O THE ASSESSEE WAS 7 709 SQ.FT. AN ADDITION OF RS.1 73 45 250 WAS MADE BY APPLYING S UCH RATE OF RS.2 250 PER SQ.FT. IN THE FIRST APPEAL THE ASSESSEE FURNISHED DETAILE D SUBMISSION IN SUPPORT OF HIS CASE. THE LEARNED CIT(A) EXAMINED THE PROVISIONS OF SECTI ON 45(3) AND 45(4) AND OPINED THAT WHATEVER ASSET WAS TRANSFERRED BY THE FIRM T O THE RETIRING PARTNER COULD BE REGARDED AS TRANSFER AND WAS TO BE SUBJECTED TO CAP ITAL GAIN TAX. HE HELD THAT AT THE ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 4 TIME OF RETIREMENT OF THE ASSESSEE WHATEVER HE WAS YET TO RECEIVE SHOULD BE REGARDED AS ASSESSABLE ONLY WHEN THE TITLE OF THE P ROPERTY CHANGED AS IN THIS YEAR NEITHER THE CONSTRUCTED PROPERTY WAS HANDED OVER NO R REGISTRATION OF SUCH PROPERTY TOOK PLACE IN THE NAME OF THE ASSESSEE. HE THEREF ORE HELD THAT CHARGEABILITY OF TAX OF CONSIDERATION TO BE RECEIVED IN THE FORM OF 7 70 9 SQ.FT. OF BUILT UP AREA WILL ARISE IN THE HANDS OF THE ASSESSEE ONLY IN THE YEAR OF HA NDING OVER THE POSSESSION OF THE PROPERTY TO THE ASSESSEE AND THEN THE ONLY EXTINGUI SHMENT OF HIS RIGHTS IN FULL IN THE PARTNERSHIP DEED SHALL TAKE PLACE. ABOUT THE CHALL ENGE TO THE VALUATION DONE BY THE ASSESSING OFFICER AT RS.2 250 PER SQ.FT. THE LEARN ED CIT(A) HELD THAT THE DISCUSSION ON THIS ASPECT IN THIS YEAR WAS ONLY ACADEMIC AS TA XABILITY IN RESPECT OF AREA OF 7 709 SQ.FT. WOULD ARISE ONLY WHEN THE FLATS WERE H ANDED OVER AFTER CONSTRUCTION AND NOT BEFORE THAT. THE REVENUE HAS COME UP IN APP EAL AGAINST THE VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACTUAL POSITION IN NUTSHELL IS THA T THE ASSESSEE WAS BUILDER AND ACQUIRED RIGHTS OVER GHATKOPAR PLOT. HE ENTERED I NTO PARTNERSHIP ON 17.4.2003 WITH FOUR OTHER PARTIES. THE ASSESSEE RETIRED FROM SAID FIRM AFTER A GAP OF 11 DAYS ON 28.4.2003. HE RECEIVED A SUM OF RS.54 25 000 INC LUSIVE OF THE DEVELOPMENT EXPENSES INCURRED BY HIM AND ALSO RIGHTS IN SHOPS AND FLATS TO BE CONSTRUCTED WITH TOTAL AREA OF 7 707 SQ.FT.. THE ASSESSING OFFICER H ELD THAT THE INTRODUCTION OF THE ASSESSEE IN THE PARTNERSHIP FIRM AND HIS RETIREME NT WAS A CLOAK FOR GIVING A DIFFERENT LOOK TO THE REAL TRANSACTION OF SALE OF THE RIGHTS IN GHATKOPAR PLOT BY THE ASSESSEE TO SUCH FOUR PERSONS. IN ORDER TO APPRECIA TE THE CONTROVERSY BEFORE US IN RIGHT PERSPECTIVE IT WILL BE APPOSITE TO FIND ANSWE R TO THE QUESTION OF GENUINENESS OR OTHERWISE OF THE ASSESSEE JOINING AND RETIRING FROM THE FIRM. ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 5 WHETHER ASSESSEES ADMISSION TO AND RETIREMENT FRO M FIRM WAS GENUINE OR PLOY 4. IT IS SEEN THAT THE ASSESSEE ENTERED INTO PARTNE RSHIP ON 17.4.2003 WITH THE FOUR PERSONS NAMED ABOVE BY CONTRIBUTING RIGHTS IN GHATKOPAR PLOT WHICH WERE VALUED AT RS.30 LAKHS AND SUCH AMOUNT WAS CREDITE D TO HIS CAPITAL. ON 28.4.2003 HE RETIRED FROM THE FIRM AND OBTAINED A SUM OF RS.3 0 LAKHS AS CAPITAL AND RS.24 25 000 AS DEVELOPMENT EXPENSES WHICH WERE INC URRED BY HIM TO THE TUNE OF RS.23 63 549. A COPY OF DEED OF RETIREMENT DATED 28 .4.2003 IS AVAILABLE AT PAGES 52 TO 65 OF THE PAPER BOOK. ON THE PERUSAL OF SUCH RETIREMENT DEED IT IS FOUND THAT THE STAMP PAPERS FOR THIS RETIREMENT DEED WERE PURC HASED ON 17.4.2003 WHICH HAPPENS TO BE THE DATE ON WHICH THE SAID FIRM WAS CONSTITUTED. APART FROM TRANSFERRING OF DEVELOPMENT RIGHT OF GHATKOPAR PLOT IN THE PARTNERSHIP FIRM THERE IS NO EVIDENCE TO DEMONSTRATE THAT THE ASSESSEE WAS IN ANY MANNER INVOLVED IN THE ACTIVITIES OF THE SAID PARTNERSHIP FIRM. FURTHER NO MATERIAL HAS BEEN PLACED FOR OUR CONSIDERATION WHICH COULD VINDICATE THE ASSESSEES STAND THAT HE BECAME A GENUINE PARTNER IN THE FIRM. IT IS A SIMPLE AND STRAIGHT C ASE OF SALE OF DEVELOPMENT RIGHT OF GHATKOPAR PLOT BY THE ASSESSEE TO THE SAID FIRM FOR A CONSIDERATION OF RS.30 LAKHS AND ODD PLUS TOTAL AREA OF 7 707 SQ.FT. BY WAY OF SHOPS / FLATS IN THE BUILDING TO BE CONSTRUCTED OVER SUCH GHATKOPAR PLOT. THE DEVICE OF CONSTITUTING PARTNERSHIP FIRM WITH THE ASSESSEE AS ONE OF ITS PARTNERS AND THEN H IS RETIREMENT AFTER 11 DAYS ON THE BASIS OF RETIREMENT DEED THE STAMP PAPERS FOR WHIC H WERE PURCHASED SIMULTANEOUSLY WITH THE FORMATION OF THE PARTNERSHI P FIRM DO GO TO SHOW THAT THE ASSESSEE WAS NOT GENUINELY INDUCTED IN AND THEN REM OVED FROM THE FIRM AS PARTNER IN THE SAID FIRM. ON THE OTHER HAND THE REALITY OF THE TRANSACTION WHICH CAN BE VIEWED BY THE NAKED EYES IS THAT THE ASSESSEE AGREE D TO SELL DEVELOPMENT RIGHT IN GHATKOPAR PLOT TO THE FOUR PERSONS. IN ORDER TO EXT INGUISH OR DEFER THE GENUINE TAX LIABILITY ON ACCOUNT OF SUCH TRANSACTION OF SALE A CIRCUITOUS ROUTE WAS ADOPTED BY WHICH THE ASSESSEE WAS TO FIRST JOIN THE PARTNERSHI P FIRM AND THEN RETIRE FROM IT WITHIN FEW DAYS LEAVING THE DEVELOPMENT RIGHT IN GH ATKOPAR PLOT WITH THE FIRM FOR ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 6 THE AGREED CONSIDERATION. WE THEREFORE HOLD THAT THE ASSESSEE WAS NEITHER GENUINELY INDUCTED IN NOR ACTUALLY RETIRED AS PAR TNER FROM THE FIRM. HEAD UNDER WHICH SUCH INCOME IS TAXABLE 5. IT IS NOTED THAT THE ASSESSEE VOLUNTARILY OFFERE D A SUM OF RS.30 61 451 (RS.30.00 LACS PLUS RS.61 451 REPRESENTING THE DIF FERENCE BETWEEN RS.24 25 000 AND RS.23 63 549 BEING THE EXCESS OF RECEIPTS OVER ACTUAL EXPENDITURE ON DEVELOPMENT) FOR TAXATION UNDER THE HEAD `PROFITS A ND GAINS OF BUSINESS OR PROFESSION. THE ASSESSING OFFICER CAME TO HOLD THA T A SUM OF RS.1.73 CRORE AND ODD BEING VALUE OF SHOPS / FLATS WAS ALSO LIABLE TO BE ADDED UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN THE FIRST APPEAL IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT ONLY A SUM OF RS.61 451 BE REGARDED AS BUSINESS INCOME AND THE REMAINING AMOUNT OF RS.30 LAKHS BE ASSESSED UNDER THE HEAD `CAPITAL GAINS. THE LEARNED CIT(A) BIFURCATED HIS FINDING QUA THE ASSESSMENT OF INCOME FROM THIS TRANSACTION IN TWO PARTS. IN PARA 6.6 HE HELD THAT THE ENTIRE AMOUNT OF RS.30 61 451 WHICH WAS INCOME ON CONVERSION OF STOC K-IN-TRADE / INTRODUCTION OF CAPITAL ASSET INTO FIRM WAS TO BE ASSESSED AS `BUS INESS INCOME. ABOUT THE SECOND PART HE HELD IN PARAS 6.7 TO 6.9 OF THE IMPUGNED ORDER THAT THE ASSESSMENT OF INCOME ON RETIREMENT OF PARTNER I.E. RETIREMENT CON SIDERATION WAS TO BE CHARGED TO TAX UNDER THE HEAD `CAPITAL GAINS IN VIEW OF SECTI ON 45(3) AND 45(4). HE FURTHER HELD THAT THE QUANTIFICATION OF INCOME IN RESPECT O F SHOPS AND FLATS WOULD BE DONE ONLY WHEN THE PROPERTY WAS HANDED OVER AND TAX WOUL D BE CHARGED ACCORDINGLY IN SUCH LATER YEAR. 6. IT IS FOUND THAT THE DIVISION OF FIND ING GIVEN BY THE LEARNED CIT(A) IN TWO PARTS VIZ. ASSESSMENT OF INCOME ON CONVERSION O F STOCK-IN-TRADE AND ASSESSMENT OF INCOME ON RETIREMENT OF PARTNER IS BASICALLY BAS ED ON THE PREMISE THAT THE EVENTS OF FIRM TAKING THE ASSESSEE AS PARTNER AND THEN HI S SUBSEQUENT RETIREMENT FROM THE FIRM WERE GENUINE AND BONA FIDE . IN VIEW OF OUR DECISION GIVEN SUPRA HOLDING ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 7 THAT THE ASSESSEES INDUCTION IN THE FIRM AND RETIR EMENT THEREFROM WAS NOT GENUINE THE FINDING GIVEN BY THE LEARNED CIT(A) THEREFORE GETS AUTOMATICALLY VACATED. 7. THE LEARNED A.R. HAS CANDIDLY ADMIT TED BEFORE US THAT THE ASSESSEE WAS A BUILDER AND THE RIGHTS IN GHATKOPAR PLOT WAS HIS STOCK-IN-TRADE ON WHICH DEVELOPMENT EXPENSES TO THE TUNE OF RS.23.62 LACS WERE ALSO INCURRED. IT IS TRITE THAT ANY PROFIT OR GAIN ON THE TRANSFER OF STOCK IN TRADE IS REGARDED AS BUSINESS INCOME AND THERE IS NO QUESTION OF ASSESSING ANY PA RT OF IT UNDER THE HEAD `CAPITAL GAINS. UNDER SUCH CIRCUMSTANCES AND FURTHER CONS IDERING THE FACT THAT THE ASSESSEE HIMSELF SHOWED INCOME OF RS.30 61 451 AS A SSESSABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION WE H OLD THAT THE ENTIRE INCOME FROM THIS TRANSACTION IS TO BE REGARDED AS BUSINESS INC OME AND NO PART IT CAN BE TAXED UNDER THE HEAD `CAPITAL GAINS. COMPUTATION OF BUSINESS INCOME 8. THE ASSESSING OFFICER MADE ADDITION OF RS.1.73 C RORE AND ODD UNDER THE HEAD `BUSINESS INCOME TOWARDS THE VALUE OF 7 707 SQ.FT. REPRESENTING SHOPS / FLATS AT THE RATE OF RS.2 250 PER SQ.FT. ON THE BASIS OF STATEMENT OF SHRI MOHAN SINGHANI ONE OF THE CONTINUING PARTNERS OF THE FIRM. THE LEA RNED CIT(A) HELD THAT THIS ADDITION WAS NOT SUSTAINABLE ON THE GROUND THAT THE INCOME WOULD BE ASSESSED IN FUTURE YEARS DEPENDING ON THE HANDING OVER OF POSSE SSION OF 7 707 SQ.FT. OF BUILT UP AREA TO THE ASSESSEE AND ITS SUBSEQUENT SALE. THE L EARNED A.R. HAS FILED AN APPLICATION UNDER RULE 27 OF THE ITAT RULES 1963 CONTENDING THAT THE LEARNED CIT(A) FAILED TO CONSIDER THE CORRECT VALUATION AND AREA ALLOCABLE. IN SUPPORT OF HIS APPLICATION THE LEARNED A.R. PUT FORTH THAT THE F IRST APPELLATE AUTHORITY HAD NOT GIVEN ANY DECISION ON THE CORRECT AREA AND THE ASPE CT OF VALUATION IN VIEW OF HIS DECISION THAT INCOME ON THIS ACCOUNT WOULD ARISE ON LY WHEN PROPERTY IS HANDED OVER TO THE ASSESSEE OR SUBSEQUENTLY SOLD. IT WAS THEREFORE CONTENDED THAT NO ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 8 ADDITION BE MADE IN THIS YEAR ON ACCOUNT OF THE VAL UE OF SHOPS/FLATS AND IN THE YEARS OF SALE BY THE ASSESSEE THE CORRECT AREA AND VALUE BE DIRECTED TO BE CONSIDERED. 9. THE FIRST ISSUE FOR OUR DETERMINATION HERE IS W HETHER VALUE OF SHOPS / FLATS TO BE ALLOTTED TO THE ASSESSEE AT A FUTURE DATE ARE LI ABLE TO BE CONSIDERED AS SALE CONSIDERATION OF THE RIGHTS IN GHATKOPAR PLOT AND H ENCE ASSESSABLE TO TAX AT THE TIME OF SALE. AS WE HAVE NOTED ABOVE THAT THESE RIGHTS CONSTITUTED STOCK-IN-TRADE OF THE ASSESSEE NATURALLY PROFIT ARISING ON TRANSFER OF S UCH RIGHTS SHALL RESULT INTO INCOME ACCRUING TO THE ASSESSEE IN THIS YEAR. WE DO NOT FI ND ANY FORCE IN THE VIEW CANVASSED BY THE LD. FIRST APPELLATE AUTHORITY AS R EITERATED BY THE LEARNED A.R. THAT THE VALUE IN RESPECT OF SHOPS / FLATS CANNOT BE MAD E SUBJECT MATTER OF TAXATION IN THE CURRENT YEAR BECAUSE IT SHALL ACCRUE LATER ON. IT I S SEEN THAT THE ASSESSEE TRANSFERRED ITS RIGHT IN GHATKOPAR PLOT IN THE CURRENT YEAR F OR CONSIDERATION OF RS.30 61 451 (NET) AND FURTHER RIGHT IN SHOPS / FLATS IN THE BUI LDING TO BE CONSTRUCTED ON SUCH PLOT. THE ENTIRE CONSIDERATION COMPRISING OF RIGHT IN SHO PS / FLATS IS IN LIEU OF THE TRANSFER OF DEVELOPMENT RIGHT WHICH EVENT TOOK PLACE IN THE INSTANT YEAR. THE VIEW POINT OF THE LEARNED A.R. THAT NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE IN THE CURRENT YEAR TOWARDS RIGHT IN SHOPS / FLATS IS DE VOID OF ANY MERITS FOR THE REASON THAT THE INCOME HAS ACCRUED EVEN THOUGH IT DID NOT BECOME DUE. THERE IS DIFFERENCE BETWEEN THE INCOME ACCRUING AND BECOMING DUE. IT AC CRUES WHEN THE RIGHT TO RECEIVE IS ACQUIRED AND IT BECOMES DUE WHEN THE EVE NT OF EXERCISING SUCH RIGHT GETS RIPE. FOR INSTANCE IF THE GOODS WORTH RS. 100 ARE SOLD IN THE YEAR ONE FOR A CONSIDERATION OF RS.125 WITH THE UNDERSTANDING THAT A SUM OF RS. 50 SHALL BE PAID IN THE YEAR ONE AND RS. 75 IN THE YEAR TWO THE SALE C ONSIDERATION SHALL REMAIN AT RS. 125 AND PROFIT OF RS.25 SHALL BE DETERMINED IN THE FIRST YEAR ITSELF NOTWITHSTANDING THE FACT THAT A SUM OF RS.75 THOUGH ACCRUED IN THE YEAR ONE SHALL BECOME DUE IN THE YEAR TWO. IN CERTAIN CASES THE INCOME MAY ACCRUE AS WELL AS GET DUE SIMULTANEOUSLY WHILE IN OTHERS THERE MAY BE TIME GAP BETWEEN THE T WO. IN ANY CASE INCOME IS CONSIDERED ON ITS ACCRUAL. AS THE TIME FOR RECKONI NG THE INCOME IS ITS ACCRUAL THE ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 9 DUE ASPECT TAKES BACK SEAT. IT IS HERE THAT THE M ATCHING CONCEPT COMES INTO PICTURE AS PER WHICH THE COSTS AND REVENUES ARE TO BE MATC HED AND CONSIDERED SIMULTANEOUSLY. SINCE THE REVENUE IN THE SHAPE OF RS.54.25 LACS PLUS RIGHT IN SHOPS / FLATS ARE IN LIEU OF COST BEING THE RIGHT IN GHATKOPAR PLOT AND DEVELOPMENT EXPENSES OF RS.23.63 LAKHS INCURRED BY THE ASSESS EE THE ENTIRE AMOUNT INCLUDING THE VALUE OF FLATS/SHOPS IS TAXABLE IN THE CURRENT YEAR AS IT IS IN LIEU OF THE COST INCURRED AND CLAIMED AS DEDUCTION IN ENTIRETY IN TH IS YEAR ITSELF. WE THEREFORE HOLD IN PRINCIPLE THAT THE LEARNED CIT(A) WAS NOT JUSTIF IED IN COMING TO THE CONCLUSION THAT THE INCOME IN RESPECT OF SHOPS / FLATS WOULD A CCRUE ONLY WHEN THE ASSESSEE TAKES POSSESSION OF SUCH PROPERTIES AND SUBSEQUENTL Y SELLS. 10. THE SECOND LIMB OF THIS ISSUE IS THE DISPUTE RE GARDING BUILT UP AREA TO BE ALLOTTED TO THE ASSESSEE IN SHOPS / FLATS. THE LEAR NED A.R. CONTENDED THAT THE ASSESSING OFFICER WENT WRONG IN ADOPTING AREA OF 7 709 SQ.FT. AS THE PART OF THE SALE CONSIDERATION. HE PLEADED THAT THE ACTUAL AREA ALL OTTED TO THE ASSESSEE WAS LESS. IN SUPPORT OF HIS CONTENTION HE TRIED TO PLACE RELIANC E ON SOME ADDITIONAL EVIDENCE BEING THE PAYMENT ACTUALLY RECEIVED BY THE ASSESSEE ON SALE OF SUCH PROPERTIES IN THE LATER YEARS. WE ARE NOT INCLINED TO DISTURB THE FINDING OF THE ASSESSING OFFICER ABOUT THE AREA OF 7 707 SQ.FT. ALLOTTED TO THE ASSE SSEE FOR THE REASON THAT SUPPLEMENTARY DEED DATED 25.4.2006 A COPY OF WHICH IS AVAILABLE AT PAGES 66 ONWARDS OF THE PAPER BOOK CLEARLY INDICATES THAT T HE ASSESSEE SHALL BE ALLOTTED 3 SHOPS ADMEASURING IN AGGREGATE 900 SQ.FT. OF SUPER BUILT UP AREA AND 8 RESIDENTIAL UNITS ADMEASURING ABOUT 225 SQ.FT. OF CARPET AREA E ACH IN REHAB BUILDING NO.3 AND ALSO 4 RESIDENTIAL FLATS ADMEASURING ABOUT 1156 11 81 1181 & 1489 SQ.FT. OF SUPER BUILT UP AREA RESPECTIVELY. THE TOTAL AREA OF SUCH SHOPS / FLATS COMES TO 7 707 SQ.FT. WHICH FIGURE HAS BEEN ADOPTED BY THE ASSESSING OFFI CER. WE THEREFORE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE LEARNED A.R. ON THIS ISSUE WHICH DESERVES THE FATE OF DISMISSAL. ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 10 11. ANOTHER ASPECT OF THIS ISSUE WHICH HAS BE EN ARGUED BY THE LEARNED A.R. WITH VEHEMENCE IS ABOUT THE VALUATION. HE CONTENDE D THAT THE A.O. WAS NOT JUSTIFIED IN ADOPTING THE VALUE OF RS.2250 PER SQ.F T. IT WAS STATED THAT THE PRICE ACTUALLY REALIZED BY THE ASSESSEE ON SUBSEQUENT SAL E OF SUCH PROPERTIES SHOULD BE SUBSTITUTED. WE ARE AGAIN UNABLE TO AGREE WITH TH IS VIEW CANVASSED ON BEHALF OF THE ASSESSEE FOR THE REASON THAT THE RATE OF RS.2 2 50 PER SQ.FT. ESTIMATED BY THE ASSESSING OFFICER IS NOT IN THE AIR. IN FACT IT IS BASED ON THE STATEMENT GIVEN BY SHRI MOHAN SINGHANI PARTNER OF THE FIRM WHO GAVE THE ESTIMATED BOOKING RATE OF RS.2 500 PER SQ.FT. AND ACTUAL RATE AT WHICH ONE F LAT WAS BOOKED AT THE RATE OF RS.2979 PER SQUARE FEET. RATHER THE A.O. WAS REAS ONABLE IN ALLOWING FURTHER DISCOUNT OF 10% FOR DETERMINING THE RATE OF RS.2 25 0 PER SQ.FT. THE CONTENTION OF THE LD. AR THAT THE ACTUAL AMOUNT REALIZED IN SUBSE QUENT YEARS BE ADOPTED CANNOT BE ACCEPTED FOR THE OBVIOUS REASON THAT ONLY THE M ATERIAL AVAILABLE WITH THE AO AT THE TIME OF ASSESSMENT CAN BE CONSIDERED. IF THE FLATS/SHOPS ARE SUBSEQUENTLY SOLD AT LOWER OR HIGHER RATES THAT WOULD FORM THE SUBJ ECT MATTER FOR DETERMINATION OF PROFIT/LOSS IN THE YEAR(S) IN WHICH THE ACTUAL SAL E TAKES PLACE. IN SUCH LATER YEAR(S) OF ACTUAL SALE THE PRICE OF FLATS/SHOPS NOW DETERM INED IN THE CURRENT YEAR SHALL CONSTITUTE THE COST PRICE AND THE PROFIT OR LOSS S HALL BE DETERMINED ACCORDINGLY ON THE BASIS OF THE SALE CONSIDERATION. WE THEREFORE HOLD THAT THE VIEW TAKEN BY THE AO ON THIS ISSUE IS UNIMPEACHABLE. THE IMPUGNED OR DER IS SET ASIDE TO THIS EXTENT AND THAT OF THE A.O. IS RESTORED. EX CONSEQUENTI THIS GROUND IS ALLOWED. 12. THE ONLY OTHER GROUND RAISED BY THE REVENUE IS A TRIVIAL ISSUE AGAINST THE DELETION OF ADDITION OF RS.4.10 LAKHS AND RESTRICTI NG DISALLOWANCE TO RS.90 000 IN RESPECT OF DISALLOWANCE OF CONSULTANCY CHARGES OF R S.5 00 000 WHICH IN THE VIEW OF THE REVENUE SHOULD HAVE BEEN CAPITALIZED BY THE ASS ESSEE BEING PRE-OPERATIVE EXPENSES. THE FACTS OF THIS GROUND ARE THAT THE ASS ESSEE CLAIMED DEDUCTION FOR CONSULTANCY CHARGES AMOUNTING TO RS.5 LAKHS. ON TH E PERUSAL OF DETAILS IT WAS NOTICED THAT THE ASSESSEE HAD APPOINTED M/S.VASTUSH ILP AS PROJECT MANAGEMENT ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 11 CONSULTANT VIDE MOU DATED 4.2.2004. AS PER THE MOU M/S.VASTUSHILP WAS REQUIRED TO COORDINATE THE EXECUTION OF PROJECT BET WEEN SAHANA BUILDERS AND THE ASSESSEE FOR SMOOTHER COMPLETION OF THE PROJECT FOR WHICH ASSESSEE WAS TO PAY 5% OF THE AMOUNT RECEIVED FROM SAHANAS BUILDERS & DEVE LOPERS. THE A.O. MADE ADDITION OF THE SAID SUM ON THE GROUND THAT THE AGR EEMENT WAS ENTERED INTO ON 4.2.2004 ABOUT THE FUTURE PROJECT AND NO PAYMENT WA S MADE DURING THE YEAR. THE LEARNED CIT(A) HOWEVER REDUCED THE ADDITION TO RS.9 0 000. 13. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE DISCHARGED THE LI ABILITY OF RS.5 00 000 AFTER DEDUCTING TAX AT SOURCE FROM PROFESSIONAL CHARGES A MOUNTING TO RS.27 500 AND PAYING THE NET AMOUNT OF RS.4 72 500 ON 4.2.2004. IT IS PERTINENT TO NOTE THAT AS PER ASSESSEES OWN EXPLANATION GIVEN BEFORE THE LEA RNED FIRST APPELLATE AUTHORITY ONLY A SUM OF RS.4 10 000 PERTAINED TO THE YEAR IN QUESTION. IN OUR CONSIDERED OPINION THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS.4 10 000. THIS GROUND IS NOT ALLOWED. 14. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 7 TH DAY OF MAY 2010. SD/- SD/- ( ASHA VIJAYARAGHAVAN ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI : 7 TH MAY 2010 . DEVDAS* ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 12 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENTS. 3. THE CIT CONCERNED 4. THE CIT(A) - XVII MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI. FIT FOR PUBLICATION (J.M.) (A.M.) ITA NO.4629/MUM/2007 SHRI DILIP S.HATE. 13 DATE INITIAL 1. DRAFT DICTATED ON 28 .04.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2 9 .04.2010 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/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER. *