THE ITO 18(3)(4), MUMBAI v. M/S. UNIVERSAL ESTATE DEVELOPERS, MUMBAI

ITA 4706/MUM/2007 | 2003-2004
Pronouncement Date: 30-09-2010 | Result: Dismissed

Appeal Details

RSA Number 470619914 RSA 2007
Assessee PAN AAAFU0680J
Bench Mumbai
Appeal Number ITA 4706/MUM/2007
Duration Of Justice 3 year(s) 3 month(s) 4 day(s)
Appellant THE ITO 18(3)(4), MUMBAI
Respondent M/S. UNIVERSAL ESTATE DEVELOPERS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 30-09-2010
Date Of Final Hearing 21-09-2010
Next Hearing Date 21-09-2010
Assessment Year 2003-2004
Appeal Filed On 26-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI `F BENCH BEFORE SHRI R.V.EASWAR (PRESIDENT) & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NOS.4706 & 5843/MUM/2007 A.YRS. 2003-04 & 2004-05 INCOME TAX OFFICER 18(3)(4) MUMBAI. VS. M/S UNIVERSAL ESTATE DEVELOPERS 5/3 BHAGWAN SINGH COLONY SENAPATI BAPAT MARG MAHIM MUMBAI 400 016. PAN: AAAFU 0680 J (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. M.KHARE. RESPONDENT BY : SHRI Y.P.TRIVEDI & MS. USHA DALAL. O R D E R PER T.R.SOOD AM: THE APPEALS BY THE REVENUE ARE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.4706/M/07 A.Y 2003-04 : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN TAKEN BY THE REVENUE BUT AT THE TIME OF HEARING LD. DR SUBMITTED THAT ONLY TWO DISPUTES ARE INVOLVE D VIZ. (I) DELETION OF AN ADDITION AMOUNTING TO ` `` ` .42 30 700/- BEING ESTIMATED 10% PROFIT ON SALE OF FLATS AND (II) DELETION OF AN ADDITION A MOUNTING TO ` `` ` .7 50 000/- IN RESPECT OF UNPROVED LOANS AND ADVANC ES. 3. ISSUE NO.(I) : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT THE ASSESSEE HAD SHOWN TOTAL SALES AT ` `` ` .4 23 07 000/- WHEREAS THE NET PROFIT WAS SHOWN AT NIL. ON ENQUIRY IT WAS SUBMITTED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS 2 OF CIVIL CONSTRUCTION AND DEVELOPERS AND HAS FOLLOW ED THE COMPLETED CONTRACT METHOD OF ACCOUNTING AND THEREFORE ALL E XPENSES INCURRED ON ACCOUNT OF CONSTRUCTION PROJECT ARE SHOWN AS WORK-I N-PROGRESS AND ALL SALES PROCEEDS RECEIVED DURING THE YEAR WERE ADJUST ED AGAINST THE SAID WORK-IN-PROGRESS AND THE BALANCE AMOUNT IN THE WORK -IN-PROGRESS WAS CARRIED AS CLOSING WORK-IN-PROGRESS. A FURTHER QUER Y WAS RAISED AS TO WHY THE COMPLETED CONTRACT METHOD SHOULD NOT BE REJ ECTED AND 10% OF THE SALES/ADVANCES RECEIVED TOWARDS SALES SHOULD NOT BE TAXED AS INCOME. IN RESPONSE TO THE SAME THE ASSESSEE SUBMI TTED THE FOLLOWING REPLY VIDE LETTER DATED 22-3-2003: THE ASSESSEE FIRM HAD ADOPTED CONTRACT METHOD ACCO UNTING SINCE 1986. THIS IS A NORMAL METHOD OF ACCOUNTING WHICH THE ASSESSEE FIRM HAS ADOPTED AS A GOING CONCERN. THE CONTRACT/PROJECT HAS NOT BEEN FI NISHED/ COMPLETED DURING THE RELEVANT YEAR UNDER CONSIDERATION AND AS SUCH T HERE IS NO QUESTION OF OFFERING ANY INCOME FOR PURPOSE OF TAXATION. MOREOV ER THE PROJECT HAS NOT REACHED 80% COMPLETION STAGE. IN FACT DURING THE RE LEVANT YEAR UNDER CONSIDERATION THE PROJECT HAS NOT REACHED EVEN 50% COMPLETION STAGE. THE PROJECT HAS REACHED 80% COMPLETION IN THE ASST. YEA R 2005 -06 AND THE ASSESSEE HAS OFFERED FOR TAXATION INCOME FOR THE AS ST. YEAR 2005-06 AND PAID TAXES AS APPLICABLE. AO AFTER EXAMINING THE ABOVE REPLY REJECTED THE SAM E BECAUSE ASSESSEE HAD DEBITED ALL THE EXPENSES TO PROFIT & L OSS ACCOUNT AND SALE PROCEEDS WERE CREDITED TO WORK-IN-PROGRESS WHICH WO ULD MEAN THAT TAX OBLIGATION WAS POSTPONED TO FUTURE PERIOD. 4. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT PROJECT COMPLETION METHOD WAS BEING FOLLOWED SINCE INCORPOR ATION OF THE FIRM. SINCE THE PROJECT WAS NOT COMPLETED DURING THE YEAR THE EXPENSES WERE TAKEN INTO WORK-IN-PROGRESS. IT WAS FURTHER SU BMITTED THAT PROJECT 3 COMPLETION METHOD WAS ONE OF THE RECOGNISED METHOD AND THE AO HAS SIMPLY REJECTED IT AND HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNTS. AO HAS ALSO NOT BROUGHT ANY MATERIAL OR C ONNECTED PROVISION UNDER WHICH 10% PROFITS HAVE BEEN ESTIMATED. IT WAS ALSO POINTED OUT THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. TATA HOUSING DEVELOPMENT CO. LTD. IN I.T.A.NOS.215/216/2 17/218 OF 2000 HAS ACCEPTED THE PROJECT COMPLETION METHOD. RELIANC E WAS ALSO PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHREE NIRMAL COMMERCIAL LTD. VS. CIT 193 ITR 694 WHERE A GAIN IT WAS OBSERVED THAT ISSUE REGARDING NON REFUNDABLE DEPOSI TS FROM CUSTOMERS ETC. AND TREATMENT OF THE SAME AS TRADING RECEIPTS SHOULD BE DECIDED ONLY ON THE COMPLETION OF THE PROJECT. A CHART WAS ALSO SUBMITTED SHOWING THAT SO FAR ONLY 56.56% OF THE PROJECT WAS COMPLETED AND NO PROFIT WAS EARNED. 5. THE LD. CIT[A] AFTER EXAMINING THE SUBMISSIONS A CCEPTED THAT ASSESSEE HAS CORRECTLY APPLIED THE PROJECT COMPLETI ON METHOD VIDE PARA-3 WHICH READS AS UNDER: 3. I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY T HE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE ASSESSING OFFICER WHILE ESTIMATING THE PROFIT OF 10% ON THE TOTAL SALE OF RS.4 23 07 0 00 AND ESTIMATED INCOME AT RS.42 30 700 OUT OF PROJECT WITHOUT POINT ING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THE ASSE SSING OFFICER HAS SIMPLY STATED THAT ALL THE EXPENSES DEBITED TO P & L ACCOUNT ARE ABSORBED IN WORK-IN-PROGRESS BY ADOPTING CONTRACT M ETHOD OF ACCOUNTING SYSTEM AND AS SUCH PROLONGED THE TAX FOR FUTURE PERIOD. THE APPELLANT IS FOLLOWING COMPLETION METHOD OF CONTRAC T AND PROFIT CANNOT BE ESTIMATED UNLESS THE PROJECT IS COMPLETED OR AT LEAST COMPLETED UPTO 80% AND THE TOTAL RECEIPT ON ACCOUNT OF SALE AND AD VANCES IS EXCEEDED TO THE WORK-IN-PROGRESS. THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED NET PROFIT @ 10% 4 WITHOUT ASSIGNING ANY REASON. PERUSAL OF THE CHART FILLED BY THE APPELLANT IT IS SEEN THAT THE PERCENTAGE OF COMPLET ION OF PROJECT ON TOTAL SALE VALUE IS SHOWN 56.56%. THE TOTAL CUMULATIVE WO RK-IN-PROGRESS IS RS.8 50 22 267/- WHILE THE ADVANCES IS TO THE TUNE OF RS.7 54 20 501/- HENCE THERE IS NO PROFIT DURING THE YEAR IN THE PRO JECT. THE APPELLANT HAS NOT APPLIED FOR COMPLETION OF THE PROJECT AND POSSE SSION HAS NOT BEEN HANDED OVER TO THE ALLOTTEES/CUSTOMERS THEREFORE NO PROFIT CAN BE ESTIMATED AT THIS STAGE. 3.1 THE APPELLANT HAS POINTED OUT THAT THE DEPARTM ENT HAS ACCEPTED THE CONTRACT COMPLETION METHOD FOLLOWED BY THE APPE LLANT YEAR TO YEAR SINCE ITS INCEPTION AND IN RESPECT OF THIS PROJECT ALSO. THE ASSESSMENT FOR ASSTT. YEAR 1998-99 2001-02 HAS BEEN COMPLETED U/S. 143(3) AFTER ACCEPTING THE METHOD OF THE APPELLANT AND NO REASON WHATSOEVER WAS GIVEN FOR DEPARTURE FROM THE COMPLETION METHOD ADOP TED BY THE APPELLANT. 3.2 THE APPELLANT HAS ALSO BROUGHT TO MY NOTICE RE GARDING THE DECISION OF HONBLE ITAT IN THE CASE OF CHAMPION CO NSTRUCTION 5 ITR 495 IN WHICH THE ITAT HAS OBSERVED THAT NEITHER TH E CONSTRUCTION OF THE MULTISTORY BUILDING WAS COMPLETE NOR EVEN THE H ALF PORTION OF THE BUILDING SOLD. THE NET SALE PROCEEDS WERE MUCH LESS THAN THE TOTAL EXPENDITURE/ COST BY THE ASSESSEE UPTO DATE. HENCE NO INCOME CAN BE ASSESSABLE. THIS ISSUE HAS COME UP BEFORE THE HONB LE ITAT MUMBAI IN THE CASE OF SOT 124 (MUM) PAREKH PROPERTIES PVT. LTD. IN WHICH THE ITAT HAVE HELD THAT THE ASSESSEE BUILDER WAS FO LLOWING PROJECT COMPLETION METHOD. ASSESSING OFFICER REJECTED ASSES SEES METHOD AND ASSESSED INCOME ON BASIS OF PERCENTAGE OF WORK COMP LETED WHETHER IT WAS PROPER TO TAX INCOME ONLY IN YEAR IN WHICH 75% OF TOTAL AREA CONSTRUCTED BY ASSESSEE WAS SOLD-HELD YES THE PRO JECT COMPLETION METHOD HAS BEEN ACCEPTED BY THE MUMBAI HIGH COURT I N THE CASE OF CIT VS TATA HOUSING DEVELOPMENT CO. LTD. IN INCOME TAX APPLICATION NO.215/2000 DATED 31-7-06 FOLLOWING ITS OWN DECISIO N IN THE CASE OF 193 ITR 694 SHREE NIRMAL COMMERCIAL LTD. VS CIT. TH E PROJECT OF THE APPELLANT COMPLETED TO THE EXTENT OF 56.56% AND TOTAL RECEIPT / ADVANCE AGAINST FLAT IS RS.7 54 20 501/- WHILE EXPE NDITURE OF PROJECT IS RS.8 50 22 267/- THEREFORE THERE IS NO PROFIT DUR ING THE YEAR. THEREFORE RATIO OF THE DECISION OF MUMBAI ITAT IN C ASE OF CHAMPION CONSTRUCTION & PAREKH PROPERTIES (SUPRA) IS CLEARLY APPLICABLE AND NO INCOME CAN BE ASSESSED DURING THE YEAR. 3.3 IN VIEW OF THE ABOVE FACTS IT IS CLEAR THAT AS SESSING OFFICER HAS ONLY REJECTED THE METHOD OF PROJECT COMPLETION METHOD AD OPTED BY THE ASSESSEE WITHOUT ASSIGNING ANY REASON AND FOLLOWING THE DECISION OF THE HONBLE ITAT IN THE CASE OF CHAMPION CONSTRUCTI ON 5 ITD 595 AND THE DECISION OF HONBLE ITAT MUMBAI BENCH E IN THE CASE OF PAREKH PROPERTIES PVT. LTD. VS ACIT THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.42 30 700/-. THE APPEL LANT WOULD GET RELIEF OF RS.42 30 700/- 5 6. BEFORE US LD. DR MAINLY SUBMITTED THAT ASSESSEE WAS TRYING TO POSTPONE THE PROFITS BY ADOPTING THE PROJECT COMPLE TION METHOD. HE ALSO STRONGLY SUPPORTED THE ORDER OF THE AO. 7. ON THE OTHER HAND LD. SENIOR COUNSEL OF THE ASS ESSEE SHRI Y.P.TRIVEDI SUBMITTED THAT CONTRACT COMPLETION MET HOD WAS A RECOGNISED METHOD. HE FURTHER POINTED OUT THAT THIS METHOD WAS BEING FOLLOWED BY THE FIRM RIGHT FROM 1986 ONWARDS AND TH E SAME HAS BEEN ACCEPTED IN THE EARLIER YEARS. HE ALSO SUBMITTED TH AT PROJECT COMPLETION METHOD WAS DULY ACCEPTED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TATA HOUSING DEVELOPMENT CO. L TD. [SUPRA] AS WELL AS SHREE NIRMAL HOUSING COMMERCIAL LTD. [SUPRA]. HE ALSO FILED A COPY OF THE DECISION IN THE CASE OF CIT VS. V.S.DEMPO & CO. PVT. LTD. I.T.REF. NO.292 OF 1980 WHERE AGAIN THE ORDER OF TH E TRIBUNAL WAS CONFIRMED WHEREIN THE CONTRACT COMPLETION METHOD WA S APPROVED. HE SUBMITTED THAT SINCE THE PROJECT WAS COMPLETED AT 5 6.56% ONLY AND ALSO AN APPLICATION FOR OCCUPATION/COMPLETION OF BU ILDING CERTIFICATE WAS MADE ONLY ON 2-12-2004 I.E. BEYOND THE END OF F.Y THEREFORE PROJECT COULD NOT BE CONSIDERED AS COMPLETED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE LD. CIT[A] HAS CORRECTLY DECIDED THE ISSUE BECA USE THE PROJECT WAS COMPLETED ONLY AT 56.56%. IN ANY CASE THE PROJECT COMPLETION METHOD IS ONE OF THE RECOGNISED ACCOUNTING METHOD AND THE SAME CANNOT BE REJECTED MERELY BECAUSE THIS MAY AMOUNT TO POSTPONE MENT OF PROFITS. 6 THIS IS NOT THE CORRECT WAY OF UNDERSTANDING OF THE PROJECT COMPLETION METHOD BECAUSE WHEN THE PROJECT IS NOT COMPLETED I T IS VERY DIFFICULT TO ASSESS AT A PARTICULAR STAGE OF PROJECT THE EXAC T PROFIT AND THAT IS WHY PROJECT COMPLETION CAME INTO VOGUE. IN ANY CASE THIS METHOD WAS APPROVED BY THE OLD DECISION OF THE TRIBUNAL IN THE CASE OF CHAMPION CONSTRUCTION [5 ITD 495]. THIS POSITION HAS ALSO BE EN CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. V. S.DEMPO & CO. PVT. LTD. [SUPRA] COPY OF WHICH WAS FILED BEFORE U S. THEREFORE WE FIND NOTHING WRONG IN THE ORDER OF THE CIT[A] AND CONFIR M HIS DECISION. 9. ISSUE NO.(II ): AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS AO NOTICED FROM THE BALANCE- SHEET THAT THERE WERE LOANS TO THE EXTENT OF ` `` ` .56 01 950/- AGAINST WHICH ASSESSEE FILED CONFIRMATIONS EXCEPT IN TWO CASES I.E. IN THE CAS E OF SHRI CHANDRAPRAKASH SANGHVI AND SMT. JAYASHREE SANGHVI F OR ` `` ` .3 75 000/- EACH. SINCE ON CONFIRMATIONS WERE FILED THESE AMOU NTS WERE ADDED TO THE INCOME OF THE ASSESSEE. 10. BEFORE THE LD. CIT[A] IT WAS SUBMITTED THAT THE SE AMOUNTS WERE RECEIVED FROM THE CLIENTS AND WERE ADVANCES AGAINST SALE OF FLATS AND NOT UNSECURED LOANS. IT WAS ALSO SUBMITTED THAT ALL DETAILS WERE FILED. THE LD. CIT[A] ASKED FOR A REMAND REPORT FROM THE A O AND IN THE REMAND REPORT DATED 8-2-2007 IT WAS OBSERVED BY THE AO AS UNDER: ON PERUSAL OF ABALCE SHEET AND PURCHASE AGREEMENT OF THE FLAT ETC IT IS SEEN THAT SUNDRY CREDITORS NAMELY (1) SHRI. CHANDRA PRAKASH SANGHVI (2) MS. JAYSHRI SANGHVI HAVE SHOWN THAT THEY HAVE PURCHASED THE FLA T DURING THE YEAR UNDER CONSIDERATION. THEREFORE IT IS CLEAR THAT RS.7 50 000 IS AN INVESTMENT IN THEIR RESPECTIVE BALANCE SHEET AND NOT LOAN GIVEN TO THE ASSESSEE FIRM. 7 IN VIEW OF THE ABOVE SITUATION THE ADDITION MADE BY THE ASSESSING OFFICER STANDS GOOD AND NO INTERFERENCE IS REQUIRED. FURTHER IF THE SALE TRANSACTION HAS BEEN AFFECTED FOR THE IMMOVABLE PROPERTY THE ASSESSEE SHOULD HAVE SHOWN IT AS SALE INSTEAD O F UNSECURED LOAN. THE ASSESSES HAS NOT INCREASED THE TURNOVER BY THE ABOVE SALE TR ANSACTION AND OF COURSE THE ASSESSEE SHOULD HAVE SHOWN ENHANCED NET PROFIT. AS SUCH THE CONTENTION OF THE ASSESSEE IS NOT MAINTAINABLE AND OUT RIGHTLY IT CAN BE REJECTED. ON THE BASIS OF THE ABOVE LD. CIT[A] DELETED THE A DDITION VIDE PARA-20 WHICH IS AS UNDER: 20. I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE APPELLANT HAS EXPLAINED THE A MOUNT OF ` `` ` .7 50 000/- WAS NOT A LOAN BUT ADVANCES FROM INVESTORS FOR PURCHASE FOR F LAT. THIS FACTS DOES NOT MAKE ANY DIFFERENCE AS FAR AS THE CREDIT OF THE AMOUNT IS AP PEARING IN BALANCE SHEET AS UNSECURED LOAN OR ADVANCE AS BOTH ARE LIABILITIES U NLESS THE FLATS IS SOLD TO THE INVESTORS. THE ASSESSING OFFICER HAS FAILED TO POIN T OUT WHETHER THE IDENTITY OF THE CREDITORS OR ITS CREDITWORTHINESS OR GENUINENESS OF THE TRANSACTION AS PER SECTION 68 OF THE I.T.ACT NOT PROVED. THERE IS NO OTHER SECTION I N WHICH THE ADDITION ON ACCOUNT OF ADVANCE GIVEN AGAINST PURCHASE OF FLAT CAN BE TAXED . IN VIEW OF THE ABOVE THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ADDITI ON OF ` `` ` .7 50 000/- WHICH WAS IN FACT AN ADVANCE TO PURCHASE THE FLAT. THE ADDITION MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. THE APPELLANT WOULD GET REL IEF OF ` `` ` .7 50 000/-. 11. BEFORE US LD. DR RELIED ON THE ORDER OF THE AO . 12. ON THE OTHER HAND LD. SENIOR COUNSEL OF THE AS SESSEE SHRI Y.P.TRIVEDI REITERATED THE SUBMISSIONS MADE BEFORE THE CIT[A]. HE ALSO POINTED OUT THAT IN ANY CASE THE POSITION TH AT AMOUNTS HAVE BEEN RECEIVED AGAINST SALE HAS BEEN ACCEPTED BY THE AO I N HIS REMAND REPORT AND THEREFORE ADDITION HAS BEEN CORRECTLY DELETED BY THE LD. CIT[A]. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT IN THE REMAND REPORT ITSELF THE FACT HAS BEEN ACCEP TED BY THE AO THAT THE AMOUNTS HAVE BEEN RECEIVED AGAINST SALE OF FLAT S {OBSERVATIONS 8 HAVE BEEN REPRODUCED BY US IN THE ABOVE PARA}. THER EFORE NO ADDITION IS CALLED FOR. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT[A]. 14. I.T.A.NO.5843/M/07 A.Y 2004-05 : IN THIS APPEAL THE ONLY DISPUTE RAISED BY THE DEPARTMENT IS REGARDING DELET ION OF AN ADDITION OF ` `` ` .35 81 500/- BEING 10% OF THE SALES. 15. BOTH THE PARTIES HAVE BEEN HEARD. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THIS ISSUE IS IDENTICAL TO THE FIRST ISSUE RAISED IN I.T.A.NO.470 6/M/07 BY THE REVENUE FOR A.Y 2003-04 WHICH HAS BEEN ADJUDICATED BY US VI DE PARA-8. FOLLOWING THAT ORDER WE DECIDE THIS ISSUE AGAINST THE REVENUE. 17. IN THE RESULT REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2010. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 30 TH SEPTEMBER 2010. P/-* 9