SIROYA DEVELOPERS, MUMBAI v. DCIT 24(3), MUMBAI

ITA 600/MUM/2010 | 2005-2006
Pronouncement Date: 12-01-2011 | Result: Allowed

Appeal Details

RSA Number 60019914 RSA 2010
Bench Mumbai
Appeal Number ITA 600/MUM/2010
Duration Of Justice 11 month(s) 17 day(s)
Appellant SIROYA DEVELOPERS, MUMBAI
Respondent DCIT 24(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 12-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 12-01-2011
Date Of Final Hearing 24-04-2012
Next Hearing Date 24-04-2012
Assessment Year 2005-2006
Appeal Filed On 25-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO.600/MUM/2010 (ASSESSMENT YEAR-2005-06) M/S. SIROYA DEVELOPERS 43 SUNVILLA YASHODHAM GENERAL A.K. VAIDYA MARG GOREGAON (E) MUMBAI-400 063 PAN-AANFS 1544G VS. THE DCIT 24(3) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B.V. JHAVERI RESPONDENT BY: SHRI S.K. SINGH O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-XXIV MUMBAI DATED 16.11.2009 FOR THE A. Y.2005-06. 2. IN THIS CASE PENALTY NOTICE U/S.271B OF THE I.T. ACT 1961 WAS ISSUED IN RESPECT OF ASSESSMENT YEAR 2005-06. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SEEN THAT THE ASSESSEE FILED RET URN OF INCOME ON 30.03.2006 AND ALSO FILED AUDIT REPORT DATED 31.10. 2005 ALONG WITH THE RETURN OF INCOME. 3. AS PER THE PROVISIONS OF SECTION 44AB THE ASSES SEE IS NOT ONLY REQUIRE TO OBTAIN THE AUDIT REPORT BEFORE THE DUE DATE OF F ILING OF RETURN I.E. 31.10.2005 BUT ALSO REQUIRE TO FILE THE SAME BEFOR E THE SAID DATE I.E. 31.10.2005. IN THE INSTANT CASE IT IS SEEN THAT THE ASSESSEE HAS FILED THE AUDIT REPORT DATED 31.10.2006 AND ALONG WITH THE SA ID RETURN ALSO FILED THE ITA NO. 600/M/10 2 AUDIT REPORT DATED 31.10.2005. ACCORDINGLY IT MA Y BE SEEN THAT THE ASSESSEE HAS NOT FILED THE AUDIT REPORT ON OR BEFOR E 31.10.2005 AS PER THE PROVISIONS OF SECTION 44AB ALTHOUGH CURIOUSLY ENOU GH IT IS DATED 31.10.2005. NO REASON HAS BEEN MENTIONED AS TO WH Y THE AUDIT REPORT WAS NOT FILED BY 31.10.2005 ALTHOUGH THE SAME WAS OBTA INED ON THE SAID DATE. LATER ON PENALTY NOTICE DATED 26.12.2007 WAS ISSUED TO ASSESSEE AND IN RESPONSE TO THE SAID NOTICE THE ASSESSEE FILED HIS SUBMISSIONS VIDE LETTER DATED 14.01.2007. 4. IN THE SAID LETTER THE ASSESSEE HARPED ON THE TH EME THAT THERE WAS NO TURNOVER OF BUSINESS EXCEEDING 40 LAKHS IN THE YEAR UNDER CONSIDERATION AND HENCE THERE WAS NO REQUIREMENT OF GETTING THE A CCOUNTS AUDITED U/S.44AB BY THE ASSESSEE. THE ASSESSEE HAS INTER-A LIA RELATED VARIOUS CASE LAWS MENTIONED IN HIS LETTER AND TRIED TO POINT OUT THAT THE WIP OR THE ADVANCES RECEIVED CANNOT BE TREATED AS PART OF TOTA L SALES TURNOVER OF GROSS RECEIPTS. THE CONTENTION OF THE ASSESSEE THAT THE ADVANCES RECEIVED AGAINST FLATS SOLD CANNOT BE TREATED AS SALES TURNOVER IS N OT ONLY UNFOUNDED BUT BUSINESS TOO. PERUSAL OF THE BALANCE SHEET FILED B Y THE ASSESSEE ALONG WITH THE RETURN OF INCOME SHOW THAT THE ASSESSEE HAS REC EIVED ADVANCES AGAINST THE FLAT SOLD TO THE TUNE OF RS. 4 02 82 000/- DURI NG THE YEAR UNDER CONSIDERATION I.E. F.Y. 2004-05 WHICH IS MORE THAN RS. 40 LAKHS LIMITS PRESCRIBED U/S.44AB. 5. IT WAS EXPLAINED BEFORE THE ASSESSING OFFICER AS WELL AS IN APPELLATE PROCEEDINGS THAT THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND THE OPENING WORK IN PROGRESS AS ON 01.04.2004 WAS R S. 4.35 CRORES AND CLOSING WORK IN PROGRESS WAS RS. 10.07 CRORES WHICH WAS ONLY 33.59% OF THE ASSESSEES PROJECT WORK. BECAUSE THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD COST INCURRED BY THE ASSESSEE UPT O 31.10.2005 WAS SHOWN AS WORK IN PROGRESS IN BALANCE SHEET AS AGAIN ST THE SAME THE ADVANCES RECEIVED FROM CUSTOMERS FOR BOOKING OF FLA TS WERE SHOWN IN THE LIABILITY SIDES OF HE BALANCE SHEET AND BOOKING OF FLATS WERE NOT TREATED AS ITA NO. 600/M/10 3 SALE OF FLAT. THE ASSESSEE REFERRED THE FINANCIAL STATEMENT PUBLISHED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA WHEREIN THE SALES TURNOVER WAS DEFINED AS UNDER: THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR SERVICES RENDERED BY AN ENTERPRISE. THE TERM GROSS TURNOVE R AND NET TURNOVER (GROSS SALE AND NET SALE) ARE SOME T IMES USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DE DUCTION OF RETURN AND TRADE DISCOUNTS. 6. THE ASSESSEE HAS ARGUED THAT THE WORK-IN-PROGRES S CANNOT BE TREATED AS TURNOVER FOR THE PURPOSE OF SECTION 44AB. THE ASSESSEE HAS ALSO REFERRED CBDTS CIRCULAR NO.387 DATED 06.07.1984 WHICH EXPLA INS THE PURPOSE FOR WHICH SECTION 44AB WAS INTRODUCED IN THE ACT. PAR A 7.2 OF THE EXPLANATORY NOTES CIRCULATED IN THE AFORESAID CIRCULAR READS AS UNDER: 17.2 A PROPER AUDIT FOR TAX PURPOSES WOULD ENSURE THAT THE BOOKS OF ACCOUNT AND OTHER RECORDS ARE PRO PERLY MAINTAINED THAT THEY FAITHFULLY REFLECT THE INCOME OF THE TAXPAYER AND CLAIMS FOR DEDUCTION ARE CORRECTLY MAD E BY HIM. SUCH AUDIT WOULD ALSO HELP IN CHECKING FRAUDU LENT PRACTICE. IT CAN ALSO FACILITATE THE ADMINISTRATI ON OF TAX LAWS BY A PROPER PRESENTATION OF THE ACCOUNTS BEFOR E THE AX AUTHORITIES AND CONSIDERABLY SAVING THE TIME OF THE ASSESSING OFFICER IN CARRYING OUT ROUTINE VERIFICAT IONS LIKE CHECKING CORRECTNESS OF TOTALS AND VERIFYING WHETHE R PURCHASES AND SALES ARE PROPERLY VOUCHED OR NOT. THE TIME OF THE ASSESSING OFFICER THUS SAVED COULD BE U TILIZED FOR ATTENDING TO MORE IMPORTANT INVESTIGATIONAL ASP ECTS OF A CASE. 7. IT IS ALSO ARGUED THAT NO DEFECTS WERE POINTED O UT BY THE ASSESSING OFFICER IN THE AUDIT REPORT FILED BY THE ASSESSEE. THE FLAT PURCHASERS HAVE A RIGHT TO CANCEL THE BOOKINGS AND GET REFUNDS. THE REFORE THE ASSESSEE FIRM WAS NOT FALLING WITHIN THE PARAMETERS OF SECTION 44 AB. THE ASSESSEE HAS REFERRED CERTAIN DECISIONS FOR DEFINING THE WORD TU RNOVER. IT IS ARGUED THAT THE ADVANCES RECEIVED AGAINST THE BOOKING OF FLATS ARE NOT PARTS OF SALES/TURNOVER BECAUSE THE ASSESSEE WAS FOLLOWING P ROJECT COMPLETION METHOD. THEREFORE THE ASSESSEE WAS NOT LIABLE FO R GETTING HIS ACCOUNTS AUDITED U/S.44AB AND HENCE THE ASSESSING OFFICER W AS NOT JUSTIFIED IN ITA NO. 600/M/10 4 LEVYING PENALTY U/S.271B FOR NON FILING OF TAX AUDI T REPORT ON OR BEFORE 31.10.2005. 8. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE ASSESSEE. I DO NOT FIND ANY CAUSE IN THE ARGUMENTS OF THE ASSESSEE THAT IT WAS NOT LIABLE TO GET ITS ACCOUNTS AUDITED U/S.44AB BECAUSE IT WAS FO LLOWING PROJECT COMPLETION METHOD AND ADVANCES RECEIVED AGAINST SAL E OF FLATS OF 4.02 CRORES WAS SHOWN AS LIABILITY IN THE BALANCE S HEET AND EXPENSES HAVE BEEN INCURRED OF 10 CRORES WHICH WERE SHOWN AS WORK-IN-PROGRESS. THIS ARGUMENT OF ASSESSEE MAY BE CORRECT FOR TAXATION OF INCOME BECAUSE THE ASSESSEE IS FOLLOWIN G PROJECT COMPLETION METHOD BUT THIS CANNOT BE ACCEPTED FOR A UDIT PURPOSE. THE PURPOSE OF AUDIT HAS BEEN CIRCULATED VIDE CBDT CIRCULAR NO.387 DATED 06.07.1984 AS UNDER: 17.2 A PROPER AUDIT FOR TAX PURPOSES WOULD ENSURE THAT THE BOOKS OF ACCOUNT AND OTHER RECORDS ARE PROPERLY MAINTAINED THAT THEY FAITHFULLY REFLECT THE INCOME OF THE TAXPAYER AND CLAIMS FOR DEDUCTION ARE CORRECTLY MADE BY HIM. SUCH AUDIT WOULD ALSO HELP IN CHECKING FRAUDULENT PRACTICES. IT CAN ALSO FACILITATE THE ADMINISTRATION OF TAX LAWS BY A PROPER PRESENTATION OF THE ACCOUNTS BEFORE THE TAX AUTHORITIES AND CONSIDERABLY SAVING THE TIME OF THE ASSESSING OFFICER IN CARRYING OUT ROUTINE VERIFICATIONS LIKE CHECKING CORRECTNESS OF TOTALS AND VERIFYING WHETHER PURCHASES AND SALES ARE PROPERLY VOUCHED OR NOT. THE TIME OF THE ASSESSING OFFICER THUS SAVED COULD BE UTILIZED FOR ATTENDING TO MORE IMPORTANT INVESTIGATIONAL ASPECTS OF A CASE. SO IT IS VERY CLEAR FROM THE AFORESAID GUIDELINES T HAT HE PURPOSE OF AUDIT IS TO HELD THE ASSESSING OFFICER IN CHECKI NG FRIVOLOUS PRACTICES AND FOR SAVING THE TIME OF ASSESSING OFFI CER IN CARRYING ROUTINE VERIFICATION OF CHECKING OF CORRECTNESS OF TOTAL AND VERIFYING GENUINENESS OF PURCHASE AND SALES WHETHE R THEY ARE FULLY VOUCHED OR NOT ETC. THE ASSESSEE IS NO DENY ING THAT THE WORK IN PROGRESS DURING THE YEAR WAS A ROUND 10 CRORES. IT HAS ALSO NOT DENIED THAT ADVANCES OF 4.2 CRORES WERE RECEIVED FROM CUSTOMERS AGAINST BOOKING OF FLATS. IF THE AR GUMENTS OF ITA NO. 600/M/10 5 ASSESSEE IS ACCEPTED AND THE PROJECT IS COMPLETED A FTER 10 YEARS THAN THE ASSESSEE WILL FILE THE AUDIT REPORT IN THE 10 YEAR ONLY AND AT THAT TIME IT WILL NOT BE POSSIBLE FOR THE AS SESSING OFFICER AT ALL TO LOOK INTO THE DETAILS OF 10 YEARS. THIS WA S NOT AN INTENTION OF LEGISLATION AT ALL WHILE INTRODUCING 44AB IN THE STATUE. OTHERWISE ALSO THE ASSESSEE HAS ALREADY ENTERED INT O AGREEMENTS INTO THE PURCHASERS OF THE FLAT AND IT H AS RECEIVED RS. 4.2 CRORES FROM THE PURCHASER OF THE FLAT WHICH WAS AVAILABLE WITH THE ASSESSEE FOR UTILIZING THE SAME FOR BUSINESS. FURTHER UNDOUBTEDLY THE PURCHASES OF ASSESSEE WERE ALSO IN CRORES WHICH IS EVIDENT FROM THE WORK-IN-PROGRESS SHOWN BY THE A SSESSEE. THEREFORE I FIND NO LOGIC IN THE ARGUMENT OF THE A SSESSEE THAT ITS SALES/TURNOVER WAS RECEIPT WAS LESS THAN RS. 40 LAK HS THIS YEAR AND THEREFORE PROVISIONS OF SECTION 44 AB WAS NOT A PPLICABLE. IN VIEW OF THE AFORESAID FACTS I FIND NO REASONS TO I NTERFERE WITH THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER. HEN CE ALL GROUNDS OF APPEALS ARE DISMISSED. 9. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ASSESSE E IS IN APPEAL BEFORE US. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI B.V. JHAVERI RELIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE O F ACIT VS SOUTH INDIA PRODUCE CO. 262 ITR 20 WHEREIN THEY HAVE EXPL AINED THE MEANING OF TURNOVER AND CONTENDED THAT THE ADVA NCE ON BOOKING OF THE FLATS HAS COME TO THE ASSESSEES TILL AS BELONG ING TO THE ASSESSEE BECAUSE THE ASSESSEE HAS NOT SOLD THE FLATS BY EXEC UTING THE DOCUMENTS AND THE PERSON BOOKING THE FLAT IS ENTITL ED TO CANCEL THE BOOKING AND ASK FOR REFUND OF THE ADVANCES GIVEN BY HIM. THE ADVANCES RECEIVED AGAINST FLATS BOOKED ARE A LIABIL ITY AND IS CORRECTLY SO SHOWN IN THE AUDITED BALANCE SHEET OF THE ASSESS EE. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 12. WE HEARD BOTH THE PARTIES. WE FIND THAT THE D CIT IN THE PENALTY ORDER HAS ACCEPTED THAT THE ASSESSEE GOT ITS ACCOUN T AUDITED AND THE ITA NO. 600/M/10 6 AUDIT REPORT DT. 31.10.2005 WAS FILED ALONG WITH TH E RETURN OF INCOME. THE DCIT HAS OBSERVED THAT THE ASSESSEE FALLS IN TH E AMBIT OF SEC. 44AB OF THE ACT BECAUSE AS PER BALANCE SHEET IT HAD RECEIVED ADVANCES AGAINST FLATS OF MORE THAN RS. 40 LAKHS AND THE ADV ANCES RECEIVED AGAINST FLATS ARE ITS SALES TURNOVER. 13. WE ARE OF THE OPINION THAT THE ADVANCES RECEIVE D AGAINST BOOKING OF FLATS CANNOT BE TREATED AS SALE PROCEEDS OR A TU RNOVER OR AS PART OF GROSS RECEIPT BECAUSE THE SAME WAS NOT RECEIVED BY THE ASSESSEE FIRM UNCONDITIONALLY AND HENCE THE SAID ADVANCES RECEIVE D ON BOOKING OF THE FLATS CANNOT BE TREATED AS A PART OF THE TURNOV ER OR GROSS RECEIPTS. IN THIS CONNECTION WE LIKE TO DRAW INFERENCE FROM THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA WHICH IS AS FOLLOWS: THE FIGURE OF TURNOVER/GROSS RECEIPTS WILL BE COMP UTED ON THE BASIS OF METHOD OF ACCOUNTING FOLLOWED BY A L TD. IF THE INCOME WERE RECOGNIZED ONLY ON COMPLETION OF THE PR OJECT THE AMOUNT RECEIVED AGAINST AGREEMENTS FOR SALE OF FLAT S IN 1982 AND 1983 WOULD BE TREATED AS ADVANCE AGAINST SALES AND WILL NOT FORM PART OF SALES IN THESE YEARS. THE CREDIT TO SALES ACCOUNT WILL BE GIVEN IN SUCH A CASE ONLY IN THE YEAR 1984 AND THER EFORE IF THE TOTAL SALES EXCEEDS RS. 40 LAKHS IT WILL BE NECESS ARY TO GET THE ACCOUNTS FOR THE YEAR 1984 AUDITED U/S. 44AB. IF A LTD. IS RECOGNIZING THE INCOME ON A PROPORTIONATE BASIS EVE RY YEAR ON THE BASIS OF SALE OF FLATS IN EACH YEAR A LTD WILL HA VE TO GET ITS ACCOUNTS AUDITED U/S. 44AB FOR THE YEAR 1984 IF THE FIGURE OF SALE OF FLATS IN THAT YEAR EXCEEDS 40 LAKHS. 14. THE DECISION OF THE PUNE BENCH IN THE CASE OF ACIT VS B.K. JHALA & ASSOCIATES (69 ITD 141) IS RELEVANT TO THIS ISSUE. THE JUDGEMENT READS AS FOLLOWS: THE WORDS SALES TURNOVER GROSS RECEIPTS ARE COMMERCIAL TERMS AND THEY SHOULD BE CONSTRUED IN TH E COMMERCIAL SENSE AND IN ACCORDANCE WITH THE NORMAL RULES OF ACCOUNTANCY. ACCORDINGLY IN OUR CONSIDERED OPI NION ITA NO. 600/M/10 7 TURNOVER AND GROSS RECEIPTS MEAN GROSS IN-FLOW OF CASH RECEIVABLES AND OTHER CONSIDERATIONS ARISING IN THE COURSE OF ORDINARY ACTIVITIES OF AN ENTERPRISE FROM THE SALE OF GOODS OR FROM THE RENDERING OF SERVICES TO THE BUYER OR CLIE NT. IN CASE OF WORK-IN-PROGRESS THERE IS NO BUYER AND ACCORDI NGLY WORK-IN-PROGRESS CANNOT BE CONSIDERED AS TURNOVER. IT ONLY REPRESENTS THE CURRENT ASSETS AND IT INCLUDES THE C OST OF MATERIAL LABOUR AND OTHER DIRECT OVERHEADS INCURRE D BY THE ASSESSEE. IT IS THE COST OF INCOMPLETE AND UNFINIS HED WORK AND HENCE IT IS QUITE SIMILAR TO STOCK-IN-TRADE T HE OWNERSHIP OF WHICH REMAINS VESTED WITH THE ASSESSEE. TURNOV ER AND SALES PRECISELY AND ESSENTIALLY REQUIRE THE TRANS FER OF TITLE OF THE GOODS TO THE PURCHASER. THE ASSESSEE COULD BE SAID TO HAVE EFFECTED SALES ONLY IN RESPECT OF THOSE FLATS/ SHOPS CONSTRUCTION OF WHICH IS COMPLETE AND THE POSSESSIO N OF WHICH IS GIVEN TO THE PURCHASER. THE SALE OR TU RNOVER REQUIRES TWO PARTIES TO A CONTRACT NAMELY A SELLER AND A BUYER. IN THIS CASE IN RELATION TO WORK-IN-PROGRE SS THE ASSESSEE IS THE SELLER BUT THERE IS NO BUYER AND H ENCE AGAIN WORK-IN-PROGRESS DONE CANNOT BE CONSIDERED AS SALE. 15. HENCE WE ARE OF THE OPINION THAT ADVANCES RECE IVED AGAINST BOOKING OF FLAT ARE NOT PART OF TOTAL SALES TURNO VER OR GROSS RECEIPTS AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METH OD OF ACCOUNTING. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF JANUARY 2011. SD/- SD/- (S.V.MEHROTRA) ( ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI DATED 12 TH JANUARY 2011. RJ ITA NO. 600/M/10 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI ITA NO. 600/M/10 9 DATE INITIALS 1 DRAFT DICTATED ON: 11. 1..201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 11.1 .201 1 ______ SR. PS/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/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ S R. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE ON WHICH FILE GOES TO THE AR 10 . DATE OF DISPATCH OF ORDER: _________ ______