DCIT 15(3), MUMBAI v. SHAH BUILDERS & DVELOPERS, NAVI MUMBAI

ITA 6250/MUM/2010 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 625019914 RSA 2010
Assessee PAN AATFS0744C
Bench Mumbai
Appeal Number ITA 6250/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 11 day(s)
Appellant DCIT 15(3), MUMBAI
Respondent SHAH BUILDERS & DVELOPERS, NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 30-11-2011
Date Of Final Hearing 16-11-2011
Next Hearing Date 16-11-2011
Assessment Year 2007-2008
Appeal Filed On 18-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER & BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.6250/MUM/2010 A.Y 2007-08 DY. COMMISSIONER OF I.T-15(3) MUMBAI. VS. M/S. SHAH BUILDERS & DEVELOPERS 323-329 ARENJA CORNER PLOT NO.71 SECTOR 17 VASHI NAVI MUMBAI 400 705. PAN: AATFS 0744 C (APPELLANT) (RESPONDENT) APPELLANT BY : MR. B. JAYA KUMAR. RESPONDENT BY : MR. A.K.GHOSH. DATE OF HEARING: 16-11-2011 DATE OF PRONOUNCEMENT: 30-11-2011 O R D E R PER T.R.SOOD AM: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GR OUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW THE ID. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITL ED TO DEDUCTION U/S.801B(1O) OF RS. 9 03 02 289/- BY PLACING RELIAN CE UPON THE DECISION OF ITAT SPECIAL BENCH PUNE(2009) 30 SOT 15 5 IN THE CASE OF M/S. BRAHMA ASSOCIATES WHICH HAS NOT BEEN ACCEPTED BY THE REVENUE AND APPEAL HAS BEEN PREFERRED BEFORE THE HONBLE HI GH COURT ON THE QUESTION OF LAW INVOLVED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW THE LD.CIT(A)HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO ADDITIONAL DEDUCTION U/S. 801B(10) OF RS. 61 42 053/- INCLUDED IN RS. 9 03 02 289/- IGNORING THE FACTS THAT THE ASSESSEE HAS NOT CLAIMED THE SAME IN THE RETURN OF INCOME AND THEREFORE IN CONTRAVENTION OF THE PROVISION OF SEC. 80A(5) AMENDED RETROSPECTIVEL Y. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW THE LD. CIT(A)HAS ERRED IN HOLDING THAT NERUL AND KHARGHAR ARE NOT IN SAME VICINITY THOUGH BOTH ARE LOCATED IN NAVI MUMBAI A ND ALLOWING EXCESS LABOUR EXPENSES OF RS24 04 494/- RELATED TO M/S. S HAH HERITAGE PROJECT WITHOUT ANY PROPER JUSTIFICATION FOR VARIA TION IN THE HIGHER EXPENDITURE OF THE SHAH HERITAGE PROJECT IN COMPARI SON TO SHAH ARCADE PROJECT. 2. GROUND NOS.1 & 2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT A SSESSEE HAD ITA NO.6250/M/10 2 MADE A CLAIM FOR DEDUCTION U/S.80IB(10) FOR RS.8 41 50 236/- WHICH WAS LATER ON REVISED TO RS.9 03 03 389/-. THE DEDUC TION WAS DENIED MAINLY ON THE BASIS OF ASSESSMENT ORDERS FOR A.YRS. 2005-06 AND 2006- 07. FURTHER IT WAS OBSERVED THAT ASSESSEE HAS CONS TRUCTED THE COMMERCIAL AREA OF MORE THAN 10% AND IN VIEW OF THE AMENDMENT THAT WHERE COMMERCIAL AREA IS MORE THAN 5% DEDUCTION SHO ULD NOT BE ALLOWED. 3. ON APPEAL LD. CIT(A) DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE FOLLOWING EARLIER YEARS ORDERS FOR A.YRS. 2005-06 AND 2006- 07. 4. BEFORE US LD. DR STRONGLY SUPPORTED THE ORDER O F THE AO AND SUBMITTED THAT THE PROJECT WAS APPROVED ON 26-3-200 4 BY WHICH TIME THE LAW HAS ALREADY BEEN AMENDED AND CLAUSE (D) INS ERTED IN SEC. 80IB(10) BY FINANCE ACT (NO.2) OF 2004 W.E.F. 1-4-2 005 THEREFORE NEW PROVISION COULD BE MADE APPLICABLE. 5. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT IT IS A COVERED MATTER BECAUSE TRIBUNAL HAS ALREADY DE CIDED THE ISSUE REGARDING DEDUCTION U/S.80IB(10) IN A.YRS. 2005-06 AND 2006-07 IN FAVOUR OF THE ASSESSEE IN I.T.A.NOS.3195 & 3196/M/1 0. IN ANY CASE THE MUMBAI BENCH OF THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW THAT IF A PROJECT HAS BEEN APPROVED BEFORE THE EFFE CTIVE DATE OF AMENDMENT BY WAY OF CL. (D) I.E. 31-3-2005. IN THIS REGARD HE RELIED ON THE FOLLOWING DECISIONS: A) DCIT VS. M/S. PNK CORPORATION I.T.A.NO.5792/M/08 A.Y 2006-07. ITA NO.6250/M/10 3 B) ITO VS. KINJAL ASSOCIATES I.T.A.NO.5656/M/09 A.Y 2006- 07. THE ABOVE VIEW HAS BEEN CONFIRMED BY THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. BRAMHA ASSOCIATES [333 ITR 389]. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT BASICALLY THE ISSUE IS COVERED AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITNS.3195 & 3196/M/10 WHEREIN SIMILAR ISSUE REGARDING DEDUCTION U/S.80IB(10) WAS DECIDED VIDE PARA- 14 WHICH IS AS UNDER: 14. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT TH IS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS BRAHMA ASSOCIATES 239 C TR 30 WHEREIN IT HAS BEEN HELD AS FOLLOWS: UPTO 31ST MARCH 2005 DEDUCTION U/S. 8018(1 0) IS ALLOWABLE TO HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY HAVING RESIDENTIAL UNITS WITH COMMERCIAL USER TO THE EXTEN T PERMITTED UNDER THE DC RULES/REGULATIONS FRAMED BY THE RESPEC TIVE LOCAL AUTHORITY IRRESPECTIVE OF THE FACT THAT THE PROJECT IS APPROVED AS HOUSING PROJECT OR RESIDENTIAL PLUS COMMERCIAL TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT UPTO 31ST MARCH 2005 DEDUCTION U/S. 8018(10) WOULD BE ALLOWABLE TO THE PROJECTS AP PROVED BY THE LOCAL AUTHORITY HAVING RESIDENTIAL BUILDING WIT H COMMERCIAL USER UPTO 10% OF THE TOTAL BUILT-UP AREA OF THE PLO T; CL (D) INSERTED IN S. 80-18(1 0) W.E.F. 1ST APRIL 2005 IS PROSPECTIVE AND NOT RETROSPECTIVE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT THE GROUND RAISED BY THE REVENUE IS DISMISSE D. FURTHER WE FIND THAT ALREADY THE PROJECT HAD BEEN APPROVED BY THE CIDCO ON 26-3-2004 AND EVEN THE REVISED APPROVAL HA S BEEN GIVEN ON 22-2-2005 WHICH MAKES IT CLEAR THAT THE PROJECT HAS BEEN APPROVED BEFORE 31-3-2005. IN THE CASE OF DCIT VS. PNK CORPO RATION [SUPRA] IT WAS HELD VIDE PARAS 7 TO 10 AS UNDER: 7. IN SAROJ SALES ORGANISATION (SUPRA) SINCE REPORT ED IN (2008) 115 TTJ 485 (MUM) IT HAS BEEN HELD BY THE TRIBUNAL IN PARA 13 OF ITS ORDER AS UNDER :- ITA NO.6250/M/10 4 AS REGARDS THE OBJECTION OF THE AO THAT THE PERMIS SIBLE SHOPPING AREA OF HOUSING PROJECT EXCEEDS 5 PER CENT THE ASSESSEE IS NOT ENTITLED FOR RELIEF UNDER S. 801B(10). WE AR E OF THE VIEW THAT THE HOUSING PROJECT WERE APPROVED BEFORE 31ST MARCH 2005 AND FOR SUCH PROJECT WHICH WERE SO APPROVED THERE WAS NO STIPULATION AS TO THE SHOPPING COMPLEX AREA IS PERM ISSIBLE IN THE PROJECT. AS ALREADY STATED EARLIER THAT THE AMENDME NTS WERE SUBSEQUENTLY MADE WHILE EXTENDING THE DEDUCTION OF INCOME FROM HOUSING PROJECT APPROVED UPTO 31ST MARCH 2007 THE DENIAL OF DEDUCTION IN OUR VIEW IS CLEARLY NOT IN ACCORD ANCE WITH LAW. 8. IN HIRANANDANI AKRUTI JV VS. DCIT REPORTED IN 3 9 SOT 498 (MUM) IT HAS BEEN HELD BY THE TRIBUNAL VIDE PARA 2 7 OF THE ORDER AS UNDER: WE ARE OF THE VIEW THAT WE ARE NOT SUPPLYING ANY W ORDS TO THE STATUTE BUT ARE ONLY HOLDING THAT THE LAW AS IT EXI STED IN THE ASST. YR. 2004-05 WHEN THE ASSESSEE SUBMITTED ITS PROPOSA L FOR SLUM REHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17TH NOV. 2003 AND WHEN THE ASSESSEE COMMENCED DEVELOPMENT IS TO BE APPLIED. TH EREFORE THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTAT IVE IN THIS REGARD CANNOT BE ACCEPTED. WE ARE OF THE VIEW THAT THE LEGISLATURE WOULD NOT HAVE INTENDED TO TAKE AWAY A VESTED RIGHT WITHOUT CLEAR WORDS TO THAT EFFECT IN THE PROVISIONS OF S. 80-IB( 10) AS AMENDED BY THE FINANCE ACT 2005 W.E.F. 1ST APRIL 2005. W E THEREFORE HOLD FOLLOWING THE DECISION IN THE CASE OF SAROJ SA LES ORGANISATION (SUPRA) THAT THE LAW AS IT EXISTED IN THE ASST. YR. 2004-05 WHEN THE ASSESSEE SUBMITTED ITS PROPOSAL FO R SLUM REHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17TH NOV. 2003 AND WHEN THE ASSESSEE COMMENCED DEVELOPMENT IS TO BE APPLIED. 9. IN POONAM CONSTRUCTION (SUPRA) THE A.O. DISALLO WED THE CLAIM OF DEDUCTION U/S 80 IB(10) ON THE GROUND THAT THE COMM ERCIAL AREA OF THE SHOP INCLUDED IN THE ASSESSEES PROJECT IS 4382 SQ. FT. WHICH IS IN EXCESS OF 2000 SQ. FT. THEREFORE THE ASSESSEE HAS VIOLAT ED THE CONDITION LAID DOWN IN CLAUSE (D) OF SECTION 801B(L0). THE ID. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN SAROJ SALES ORGANISATION (SUPRA). ON FURTHER APPEAL BY TH E REVENUE THE TRIBUNAL FOLLOWING THE DECISION IN SAROJ SALES ORGA NISATION (SUPRA) AND HIRANANDANI AKRUTI JV (SUPRA) UPHELD THE ORDER OF T HE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. 10. SINCE IN THE CASE BEFORE US THERE IS NO DISPUT E THE HOUSING PROJECT GOT APPROVED ON 19.7.2003 I.E. MUCH BEFORE 1ST APRI L 2005 PROVIDED U/S 801B(10)(D) OF THE ACT AND KEEPING IN VIEW THAT THE ASSESSEE HAS COMMENCED THE PROJECT IN A.Y. 2003-04 WE RESPECTFU LLY FOLLOWING THE CONSISTENT VIEW OF THE CO-ORDINATE BENCH OF THE TRI BUNAL HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 801B(10) OF T HE ACT AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. THE GROU NDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. ITA NO.6250/M/10 5 FROM THE ABOVE IT IS CLEAR THAT IF A PROJECT HAS BE EN APPROVED BEFORE 31-3-2005 THEN EVEN IF COMMERCIAL AREA IS MORE THAN RESTRICTED AREA CL. (D) IN SEC.80IB(10) WILL NOT BE ATTRACTED. THIS POSITION HAS BEEN FURTHER APPROVED BY THE HON'BLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. BRAHMA ASSOCIATES [SUPRA WHEREIN IT WAS OBSERV ED AS UNDER: THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION PROJECT A T PUNE UNDER THE LAYOUT APPROVED BY THE PUNE MUNICIPAL CORPORATION W HICH IS THE LOCAL AUTHORITY. THE PROJECT CONSISTED OF FIFTEEN RESIDEN TIAL BUILDINGS AND TWO COMMERCIAL BUILDINGS. THE LOCAL AUTHORITY HAD A PPROVED THE PROJECT AS RESIDENTIAL PLUS COMMERCIAL. THE PERCE NTAGE OF THE COMMERCIAL AREA TO THE TOTAL AREA OF THE PLOT WAS 2 0.83 PER CENT. THE PROJECT COMMENCED ON AUGUST 14 2000 AND WAS COMPLET ED ON OCTOBER 3 2005. THE ASSESSEE CLAIMED SPECIAL DEDUC TION IN RESPECT OF THE PROFITS. THE CLAIM WAS REJECTED BY THE ASSESSIN G OFFICER AND THE COMMISSIONER [APPEALS]. THE TRIBUNAL HELD THAT WHER E THE PROJECT IS APPROVED AS RESIDENTIAL PLUS COMMERCIAL THE DEDUCT ION U/S.80IB(10) WOULD BE ALLOWABLE ONLY IF THE TOTAL BUILT-UP AREA USED FOR RESIDENTIAL UNITS IN THE PROJECT WAS 90 PER CENT. OR MORE; WHER E THE COMMERCIAL USER WAS MORE THAN 10 PER CENT. OF THE TOTAL BUILT- UP AREA AND THE PROFITS OF THE RESIDENTIAL UNITS CAN BE WORKED OUT ON STAND ALONE BASIS THEN DEDUCTION UNDER SECTION 80IB(10) WOULD BE ALLO WABLE ONLY ON THE RESIDENTIAL UNITS. HELD THAT CLAUSE (D) INSERTED IN SECTION 80IB[10] WITH EFFECT FROM APRIL 1 2005 IS PROSPECTIVE AND NOT RETROSPECTIVE AND HENCE COULD NOT BE APPLIED FOR THE PERIOD PRIOR TO APRIL 1 2005. S INCE DEDUCTION UNDER SECTION 80IB[10] WERE ON THE PROFITS DERIVED FROM T HE HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY AS A WHOLE THE TRI BUNAL WAS NOT JUSTIFIED IN RESTRICTING THE SECTION 80IB[10] DEDUC TION ONLY TO A PART OF THE PROJECT. HOWEVER IN THE PRESENT CASE SINCE TH E ASSESSEE HAD ACCEPTED THE DECISION OF THE TRIBUNAL IN ALLOWING S ECTION 80IB[10] DEDUCTION TO A PART OF THE PROJECT THE FININGS OF THE TRIBUNAL IN THAT BEHALF COULD NOT BE DISTURBED. IN VIEW OF THE ABOVE VERDICT OF THE HON'BLE BOMBAY HIGH COURT WE ARE OF THE OPINION THAT ASSESSEE IS ENTITLED TO DEDUCTI ON U/S.80IB(10) SINCE THE PROJECT HAS BEEN APPROVED BEFORE 31-3-2005. ACC ORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 7. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT NET PROF IT RATIO IN THE CASE OF SHAH HERITAGE PROJECT WAS ONLY 4.39%. HE OBSERVE D THAT DURING ITA NO.6250/M/10 6 SAME PERIOD ASSESSEE HAD CONSTRUCTED ANOTHER PROJEC T BY THE NAME OF SHAH ARCADE AND BOTH THE PROJECTS ARE IN NEAR VICIN ITY. BOTH THE PROJECTS WERE COMPLETED IN ALMOST SAME PERIOD. THER EFORE HE COMPARED THE COST OF CONSTRUCTION OF SHAH HERITAGE PROJECT WITH SHAH ARCADE PROJECT AND EXTRACTED THE FOLLOWING RATES: COST COMPARISON PROJECT WISE --------------------------------------------------- ------------------------------------------- SR.NO. PARTICULARS SHAH HERITAGE SHAH ARCADE AMOUNT (IN RUPEES) RATE PER SQ FTS ON BUILT UP AMOUNT (IN RUPEES) RATE PER SQ FTS ON BUILT UP DIFF. OF % 2 3 4 5 6 7 1 BRICKS & SAND 263 459 8.17 831 638 7.13 115% 2 CEMENT 3 583 670 111.14 8 022 228 68.81 162% 3 CONTRACTOR & LABOUR WORK 19 716 385 611.46 53 567 820 459.49 133% 4 ELECTRIFICATION WORK 3 497 712 108.47 10 747 890 92.19 118% 5 DOOR WINDOWS FINISHING WORK 8927713 276.88 23 011 121 197:38 140% 6 FLOORING & TILING WORK 3 388 995 105.10 11 492 681 98.58 107% 7 PLUMBING WORK 1 219 724 37.83 4 236 784 36.34 104% 8 STEEL 4 493 935 139.37 11 072 816 94.98 147% 9 OTHERS 469 909 14.57 1 654 328 14.19 103% 10 INTEREST EXPENSES 7 576 445 234.96 26 172 780 224.50 105% 11 ADVERTISEMENT EXPENSES 11 020 883 341.79 120.98 273% 12 ADMIN & OTHER EXPENSES 18 687 686 579.56 14 103 629 37 483 731 321.53 FROM THE ABOVE HE CONCLUDED THAT THE RATE PER SQUAR E FEET IN THE CASE OF SHAH HERITAGE PROJECT WAS RS.2569 PER SQ. FT. WH EREAS IT WAS ITA NO.6250/M/10 7 RS.1736 IN THE CASE OF SHAH ARCADE PROJECT. THEREFO RE HE CONCLUDED THAT COST IN THE CASE OF SHAH HERITAGE PROJECT HAS BEEN INFLATED PARTICULARLY BECAUSE NO DEDUCTION WAS AVAILABLE U/S .80IB(10). ACCORDINGLY HE MADE A DISALLOWANCE FOR POSSIBLE HI KE OF LABOUR CHARGES @ 10% AND DISALLOWED A SUM OF RS.24 92 590/ -. 8. ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY S UBMITTED THAT COST OF ALMOST 12 ITEMS WAS MORE IN THE CASE OF SHA H HERITAGE PROJECT BECAUSE SHAH ARCADE PROJECT WAS VERY LARGE PROJECT OF ALL MOST FOUR TIMES THAN THAT OF SHAH HERITAGE PROJECT. IN THE CA SE OF SHAH HERITAGE PROJECT AREA WAS 32244 SQ.FT. WHEREAS IN THE CASE OF SHAH ARCADE IT WAS 116580 SQ.FT. THEREFORE MERE SIZE OF THE PROJEC T HAS MADE SHAH ARCADE PROJECT A VERY EFFICIENT AND COST EFFECTIVE PROJECT. IT WAS FURTHER SUBMITTED THAT AO HAD NO BASIS FOR THE ALLEGATION T HAT LABOUR MATERIAL CHARGES HAVE BEEN INFLATED. IT WAS ALSO ARGUED THAT SHAH HERITAGE PROJECT WAS BEING EXECUTED BY SHAH GROUP DURING THE RELEVANT A.Y 2005-06 AND OUT OF THE TOTAL COST OF RS.10.27 CRORE S THE COST OF RS.8.18 CRORES HAD ALREADY BEEN INCURRED BY SHAH GROUP. AFT ER WHICH THE ASSESSEE TOOK OVER THE PROJECT FROM SHAH GROUP. SIN CE AO HAD NO OCCASION TO VERIFY THE BOOKS OF SHAH GROUP HE HAD NO BASIS TO SAY THAT EXPENSES HAVE BEEN INCURRED IN CASH. THE ASSESSEE H AS TAKEN OVER THE EXISTING PROJECT OF M/S. SHAH GROUP AS ON 1-4-2006 AT ITS BOOK VALUE [W.I.P] AT RS.8 72 32 730/- INCLUDING PROFIT OF RS. 53 58 964/- ESTIMATED BY SHAH GROUP AND OFFERED TO TAX IN THE RETURN OF I NCOME OF SHRI NALIN V. SHAH FOR A.Y 2006-07. THEREFORE IT WAS ARGUED T HAT NO PART OF W.I.P COULD BE DISALLOWED IN THE HANDS OF THE ASSES SEE AS THE FULL ITA NO.6250/M/10 8 CONSIDERATION HAS BEEN PAID BY THE ASSESSEE AND GEN UINENESS OF WHICH HAS NOT BEEN DOUBTED BY THE AO. IT WAS ALSO ARGUED THAT PROFIT DECLARED ON SUCH W.I.P. BY SHRI NAVLN V. SHAH HAS B EEN ACCEPTED BY THE AO AND THEREFORE THERE WAS NO ROOM FOR DOUBT FOR SUCH WIP TAKEN OVER BY THE ASSESSEE. IT WAS ALSO POINTED OUT THAT SHAH HERITAGE PROJECT WAS SITUATED AT NERUL SEAWOOD LOCALITY WHER EAS SHAH ARCADE PROJECT WAS SITUATED AT KHARGHAR WHICH IS ABOUT 12 KM. AWAY FROM NERUL AND THEREFORE IT CANNOT BE SAID THAT THE PR OJECTS ARE IN THE SAME VICINITY. THE LD. CIT(A) AFTER EXAMINING THE I SSUE DECIDED THE SAME VIDE PARA 6.3 WHICH IS AS UNDER: 6.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AR AND PERUSED THE ASSESSMENT ORDER CAREFULLY. THE OBSERV ATION MADE BY THE LD. AO THAT THE PROJECTS SHAH ARCADE AND SHA H HERITAGE ARE LOCATED IN THE SAME VICINITY IS NOT CORRECT. TH E PROJECT SHAH HERITAGE IS LOCATED AT NERUL WHEREAS THE PROJECT SH AH ARCADE IS SITUATED AT KHARGHAR WHICH IS A PLACE 12 KILO METE RS AWAY FROM NERUL. IT APPEARS FROM THE ASSESSMENT ORDER THAT LD . AO HAS NOT PROPERLY CONSIDERED THE FACTS OF THE CASE. THE NET PROFIT RATIO OF SHAH HERITAGE IS LOW BECAUSE OF THE FACT THAT THE C OST OF LAND IS ALMOST 3 TIMES MORE AS COMPARED TO THE COST OF LAND OF SHAH ARCADE. THE AOS ALLEGATION THAT MOST OF THE EXPENS ES RELATING TO LABOUR AND CONTRACT PAYMENT WERE MADE BY CASH IS ALSO NOT BORNE OUT FROM THE MATERIAL AVAILABLE WITH THE AO I N VIEW OF THE FACT THAT ALMOST THE ENTIRE CONSTRUCTION EXPENDITUR E IN RESPECT OF PROJECT SHAH HERITAGE WERE INCURRED BY SHRI NALIN V SHAH WHICH WERE RECORDED IN HIS BOOKS OF ACCOUNTS AND THE AO H AD NO OCCASION TO EXAMINE THE BOOKS OF ACCOUNTS OF SHRI N ALIN V SHAH. THE PROJECT SHAH HERITAGE WAS STARTED BY SHRI NALIN V SHAH DURING THE PERVIOUS YEAR RELEVANT TO THE AY 2005-06 AND MOST OF THE EXPENDITURE RELATED TO THE CONSTRUCTION OF THE PROJECT WERE INCURRED BY SHRI NALIN V SHAH DURING THE PERVIOUS Y EARS RELEVANT TO THE AYS 2005- 06 2006-07 AND 2007-08 (UPTO 20.1 1. 2006) THE PROJECT SHAH HERITAGE WAS TAKEN OVER BY THE APP ELLANT FROM SHRI NALIN V SHAH W.E.F. 21.11.2006 AT ITS BOOK VAL UE AND THEREFORE NO PART OF THE SAID EXPENDITURE CAN BE D ISALLOWED IN THE HANDS OF THE APPELLANT UNLESS IT IS PROVED THAT FIRST OWNER HAS INFLATED THE EXPENDITURE OR HAVING NO EVIDENCE OF SUCH EXPENSES. IT IS SEEN THAT THE APPELLANT IN THE P&L ACCOUNT FOR ITA NO.6250/M/10 9 THE YEAR ENDED 31.03.2007 HAS DEBITED THE FOLLOWING EXPENDITURE: SR.NO. PARTICULARS AMOUNT (RS.) 1 2 3 4 5 6 7 8 9 10 11 12. 13. 14. 15. 16 OPENING STOCK OF WIP SITE PURCHASES EXTRA WORK PROJECT EXPENSES BANK INTEREST ELECTRICITY EXPENSES ADVERTISEMENT EXPS ARCHITECT FEES EXHIBITION EXPENSES HERITAGE RESIDENTIAL MAINT NMMC MSEB HERITAGE NMMC TAXES PROFESSIONAL FEES WATER CHARGES-SHAH ARCADE SHARE OF COMMON EXPENSES 87 232 730.29 33 307 697.03 72 395.00 3 266 579.00 511 107.51 637 437.00 939 269. 13 428.139.00 162 520.22 664.00 61 180.00 6 629.00 380 570.00 11 224.00 88 196.00 3 422 330.74 TOTAL 130 528 667.92 AS EVIDENT FROM THE ABOVE EXPENSES THAT ALL THE EXP ENSES ARE OF COMPULSORY NATURE. WHILE CONSIDERING THE NATURE AND AMOUNT OF EXPENDITURE DEBITED IN THE P&L ACCOUNT BY THE APPEL LANT IT CAN NOT BE PRESUMED THAT THE ASSESSES HAS INFLATED THE LABOUR CHARGES AND CONTRACT EXPENSES. IT IS CLARIFIED BY T HE AR THAT THE LABOUR AND CONTRACT EXPENSES ARE INCLUDED UNDER THE HEAD PROJECT EXPENSES. WHICH IS ONLY RS. 32 66 579/- AN D THEREFORE THE AOS ACTION IN MAKING DISALLOWANCE OF RS. 24 92 590/- IS NOT PROPER AND NOT BASED ON ANY MATERIAL EVIDENCE. HOWE VER IT IS SEEN THAT THE APPELLANT HAD DEBITED WATER CHARGES R ELATED TO SHAH ARCADE PROJECT AMOUNTING TO RS. 88 196/- IN TH E P&L ACCOUNT IS NOT ALLOWABLE DEDUCTION FOR THE PURPOSE OF COMPUTING PROFIT OF THE PROJECT SHAH HERITAGE AND THEREFORE THE DISALLOWANCE TO THE EXTENT OF RS. 88 196/- COULD BE MADE. LOOKING IT TO THE TOTALITY OF THE FACTS THE ADDITI ON MADE BY THE AO IS NOT SUSTAINABLE EXCEPT THE WATER CHARGES OF R S. 88 196/- RELATED TO SHAH ARCADE PROJECT HENCE REST OF THE A DDITION OF RS. 24 04 394/- IS ALLOWED AND DISALLOWANCE OF EXPENSES OF RS. 88 196/- IS SUSTAINED. 9. BEFORE US LD. DR MAINLY SUPPORTED THE ORDER OF THE AO AND PARTICULARLY INVITED OUR ATTENTION TO THE CHART EXT RACTED ABOVE BY THE AO AT PAGES 7 & 8 OF HIS ORDER COMPARING THE COSTS AND POINTED OUT ITA NO.6250/M/10 10 THAT IN SIMILAR TIME THE COST HAS BEEN SHOWN AT HIG HER RATE IN THE CASE OF SHAH HERITAGE PROJECT. 10. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT AO HAS NOT F OUND ANY SPECIFIC DEFECT IN ANY PARTICULAR ITEM OF EXPENDITURE AND CO ST OF ANY PROJECT DEPENDS UPON THE QUALITY OF THE CONSTRUCTION AND MA NY OTHER FACTORS. ONLY AN ADHOC ADDITION HAS BEEN MADE WHICH IS NOT P ERMISSIBLE UNDER THE LAW AND IN ANY CASE ASSESSEE HAS INCURRED ONLY A SUM OF RS.32 66 579/- DURING THE YEAR ON PROJECT EXPENSES AND THE BALANCE OF AMOUNT WAS ALREADY INCURRED BY SHAH GROUP AND THER EFORE DISALLOWANCE OF RS.24 92 590/- IS TOTALLY UNJUSTIFI ED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE. FIR STLY LD. CIT(A) HAS POINTED OUT THAT PROJECTS ARE NOT IN THE SIMILAR VI CINITY. FURTHER ASSESSEE HAS TAKEN OVER THE PROJECT FROM SHAH GROUP AT THE COST PRICE WHICH HAS BEEN ACCEPTED IN CASE OF SHAH GROUP AND H AD INCURRED ONLY A SUM OF RS.32 66 579/- ON THIS PROJECT AS PROJECT EXPENSES. WITHOUT POINTING OUT ANY DEFECT IN SUCH EXPENSES AO CANNOT MAKE AN ADHOC ADDITION. THE COST WOULD ALWAYS DEPEND UPON THE QUA LITY AND SO MANY OTHER FACTORS. ACCORDINGLY WE FIND NOTHING WRONG W ITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 12. IN THE RESULT REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0-11-2011. SD/- SD/- (B.R.MITTAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 30-11-2011. ITA NO.6250/M/10 11 P/-*