Smt. ACIT, Circle-3(1), Visakhapatnam., Visakhapatnam v. M/s Dutsons Buildeers & Estates (P) Ltd., Visakhapatnam

ITA 361/VIZ/2009 | 2006-2007
Pronouncement Date: 24-02-2010 | Result: Dismissed

Appeal Details

RSA Number 36125314 RSA 2009
Assessee PAN AAACD4998B
Bench Visakhapatnam
Appeal Number ITA 361/VIZ/2009
Duration Of Justice 8 month(s) 5 day(s)
Appellant Smt. ACIT, Circle-3(1), Visakhapatnam., Visakhapatnam
Respondent M/s Dutsons Buildeers & Estates (P) Ltd., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 24-02-2010
Assessment Year 2006-2007
Appeal Filed On 18-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.318/VIZAG/2009 ASSESSMENT YEAR : 2006-07 DUTSONS BUILDERS & ESTATES (P) LTD. VISAKHAPATNAM ACIT CIRCLE-3(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AAACD 4998B ITA NO.361/VIZAG/2009 ASSESSMENT YEAR : 2006-07 ACIT CIRCLE-3(1) VISAKHAPATNAM DUTSONS BUILDERS & ESTATES (P) LTD. VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI C.V.S. MURTHY CA RESPONDENT BY: SHRI SUBRATA SARKAR DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THESE ARE CROSS APPEALS ONE BY THE ASSESSEE AND O THER BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2006-07 ON A COMMON ISSUE RELATING TO DISALLOWANCE OF PROPORTIONATE EXPENDITURE PERTAINING TO UN-SALEABLE/COMMON AREA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD. 2. THE FACTS BORNE OUT FROM THE ORDER OF THE LOWER AUTHORITIES ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESS ING OFFICER NOTED THAT DURING YEAR UNDER CONSIDERATION THE APPELLANT SOLD THE CONSTRUCTED AREA OF 7192 SQFT ONLY. AS AGAINST SUCH SALE FOR A CONSIDE RATION OF RS.67 95 600/- THE APPELLANT CLAIMED PROJECT EXPENDITURE OF RS.3 6 2 28 584/-. SINCE THERE WAS A MISMATCH BETWEEN THE PROJECT EXPENDITURE AND THE RECEIPT ON ACCOUNT OF SALE OF CONSTRUCTED AREA THE ASSESSING OFFICER CALLED FOR THE DETAILS OF THE 2 PROJECT EXPENDITURE. IN THIS CONTEXT THE APPELLAN T COMPANY EXPLAINED THAT IN TOTAL THE APPELLANT COMPANY CONSTRUCTED 1 45 395 SF T. THE APPELLANT COMPANY STARTED SELLING IN PARTS THE CONSTRUCTED AR EA FROM THE FINANCIAL YEAR 1997-98 AND COMPLETELY SOLD OUT ITS SHARE IN THE PR EVIOUS YEAR RELEVANT TO ASST. YEAR 2006-07. EVERY YEAR AS AND WHEN THE APP ELLANT COMPANY SOLD A PART OF THE CONSTRUCTED AREA THE CORRESPONDING CO ST OF THE SAID CONSTRUCTED AREA WAS ONLY CLAIMED AS AN EXPENDITURE AND DEBITED TO THE PROFIT & LOSS ACCOUNT OF THOSE YEARS. THE BALANCE CONSTRUCTION E XPENDITURE WAS SHOWN AS WORK IN PROGRESS UNDER THE HEAD CURRENT ASSETS IN THE BALANCE SHEET. THUS THE APPELLANT CLAIMED EXPENDITURES FOR THE CONSTRUC TED AREA OF 68 170 SFT WHICH WAS IN TOTAL SOLD IN DIFFERENT YEARS INCLUDIN G THE YEAR UNDER CONSIDERATION. THE EXPENDITURE PERTAINING TO THE B ALANCE CONSTRUCTED AREA OF 19 067 SFT WHICH WAS LYING AS WORK IN PROGRESS WAS DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION AS THE PROJECT WAS COMPLETE AND THERE WAS NO SALEABLE AREA LEFT. THUS OUT OF THE T OTAL PROJECT EXPENDITURE OF RS.3 62 28 584/- CLAIMED FOR THE YEAR AN AMOUNT OF RS.3 35 29100/- REPRESENTED THE COST OF WORK IN PROGRESS WHICH WAS WRITTEN OFF THIS YEAR AS THE SAME AS THE PROJECT WAS COMPLETE. THE UN-SALEA BLE AREA OF 19 067 SFT WAS NOTHING BUT THE COMMON AREAS THE COST OF CONST RUCTION OF WHICH WAS NOT TAKEN INTO ACCOUNT IN EARLIER YEARS WHILE DEBITED T HE COST OF CONSTRUCTION TO THE PROFIT & LOSS ACCOUNT OF THOSE YEARS. THE SAME WAS ASCERTAINED ONLY WHEN THE PROJECT WAS COMPLETE AND THE SAME WAS NOT ASCER TAINABLE WHEN THE PROJECT WAS UNDER CONSTRUCTION. 3. THE ASSESSING OFFICER OBSERVED THAT THE SAID EXP ENDITURE WAS NEITHER INCURRED NOR HAD ACCRUED DURING THE PREVIOUS YEAR R ELEVANT TO THE ASST. YEAR UNDER CONSIDERATION. THE SAID EXPENDITURE WAS NOTH ING BUT A PRIOR PERIOD EXPENDITURE WHICH WAS NOT ALLOWABLE AS THE SAME DID NOT PERTAIN TO THE PREVIOUS YEAR UNDER CONSIDERATION. THE ASSESSING O FFICER ALSO NOTICED THAT THOUGH THE APPELLANT CLAIMED THAT THE COMMON AREAS WERE NOT SOLD IN THE BOOKS OF ACCOUNTS NO CLOSING STOCK OF SUCH CONSTRU CTED AREA WAS EVER EXHIBITED. IN ADDITION TO THE ABOVE CLAIM OF EXPEN DITURE WHICH WAS NOT RELATABLE TO THE PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSING OFFICER NOTICED THAT THE QUANTITATIVE DETAILS OF MATERIALS CONSUMED FOR CONSTRUCTION AS 3 WELL AS DETAILS OF CONSTRUCTIONS COMPLETED DURING T HE RELEVANT YEAR WERE NOT FURNISHED IN COURSE OF THE ASSESSMENT PROCEEDINGS. FURTHER THE ASSESSING OFFICER NOTED THAT THE EXPENDITURES INCURRED ON ACC OUNT OF SITE EXPENSES WERE SUPPORTED BY SELF-MADE VOUCHERS WHICH WERE NOT VERI FIABLE. IN VIEW OF THESE DEFECTS THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ACCOUNTS ARE NOT RELIABLE FOR THE PURPOSES OF ARRIVING AT THE PROFIT . HENCE HE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE INCOME FROM THE DUTSONS PROJECT AT 8% OF THE TOTAL SALE VALUE OF THE CONSTRUCTED AREA OF RS.67 95 600/- AMOUNTING TO RS.5 43 648/-. IN VIEW OF THE ESTIMATION OF THE IN COME THE ASSESSING OFFICER DID NOT ALLOW THE COST OF THE PROJECT INCLUDING THE WORK IN PROGRESS. 4. IN SO FAR AS THE INCOME OF ANNAPURNA LAYOUT IS C ONCERNED THE ASSESSING OFFICER NOTED THAT THE APPELLANT HAD PURC HASED 5.49 ACRES OF LAND AT MULAGADA FOR AN AMOUNT OF RS.3 05 148/- AND INCURRE D AN EXPENDITURE OF RS.81 59 735/- FOR THE DEVELOPMENT OF THE SAID LAND AND CONVERSION OF THE SAME TO HOUSE PLOTS. THE APPELLANT SOLD THE ENTIRE DEVELOPED PLOTS FOR AN AMOUNT OF RS.3 70 08 786/-. AS AGAINST THE SAID RE CEIPTS THE ASSESSING OFFICER ALLOWED EXPENDITURE TOWARDS THE COST OF PRO JECT OF RS.84 64 883/- AS CLAIMED BY THE APPELLANT AND THE ENTIRE BALANCE EXP ENDITURE OF RS.48 62 982/- EXCLUDING THE PROJECT COST EXPENDITU RE OF DUTSON PROJECTS DEBITED TO THE PROFIT & LOSS ACCOUNT ON THE GROUND THAT DURING THE PREVIOUS YEAR UNDER CONSIDERATION THE APPELLANT COMPANYS EN TIRE BUSINESS ACTIVITY WAS WITH REFERENCE TO THE TRANSACTIONS CARRIED OUT WITH RESPECT TO ANNAPURNA NAGAR LAYOUT AND IN DUTSONS PROJECTS THERE WAS NO ACTIVITY OTHER THAN SELLING THE REMAINING CONSTRUCTED AREA AVAILABLE FOR SALE. THUS THE ASSESSING OFFICER DETERMINED THE INCOME FROM ANNAPURNA NAGAR LAYOUT A T RS.2 36 80 921/-. 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSIONS THAT THE ASSESSEE WAS CLAIMING COST OF CONSTRUCTION ONLY FOR THAT PORTION RELATING TO ACTUALLY SOLD AREA WITHOUT TAKI NG INTO CONSIDERATION OF COMMON AREA OR UN-SALEABLE AREA THAT MAY REMAIN THE SALE OF THE ENTIRE PROPERTY. ACCORDINGLY THE COST OF CONSTRUCTION OF UNSOLD AREA AS WELL AS THE SOLD AREA DURING THE YEAR WAS WORKED OUT AND DEBITE D TO THE PROFIT & LOSS ACCOUNT. IN FACT OUT OF TOTAL CONSTRUCTED AREA OF 87 237SFT. ONLY AN AREA OF 4 68 170 SFT. WAS SOLD AND THE BALANCE 19 067 SFT. A REA WAS FOUND SALEABLE WHICH WAS CONSTITUTED COMMON AREA OF THE ENTIRE STR UCTURE. THE UN-SALEABLE COMMON AREA COULD BE ASCERTAINED ONLY AFTER THE COM PLETION OF THE ENTIRE PROJECT. THEREFORE THE COST ATTRIBUTABLE TO THE C ONSTRUCTION OF SUCH COMMON AREA WAS NOT DEBITED TO THE PROFIT & LOSS ACCOUNT Y EAR AFTER YEAR. ACCORDINGLY THE COST OF CONSTRUCTION OF SUCH COMMO N AREA WAS INCLUDED IN THE WORK IN PROGRESS EVERY YEAR AND WAS ACCEPTED AS A CURRENT ASSET IN THE BALANCE SHEET. THIS IS AN EXCEPTIONAL METHOD OF AC COUNTING OF SUCH PROJECT. AFTER THE COMPLETION OF PROJECT IN THE FINANCIAL YE AR 2005-06 RELEVANT TO ASSESSMENT YEAR 2006-07 THE OPENING STOCK IN PROGR ESS REPRESENTING THE COST OF CONSTRUCTION OF SUCH UN-SALEABLE AREA WAS D EBITED TO THE PROFIT & LOSS ACCOUNT IN ORDER TO ASCERTAIN THE CORRECT PROFIT & LOSS AT THE TIME OF COMPLETION OF THE PROJECT. 6. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJEC TING THE BOOKS OF ACCOUNTS OF THE ASSESSEES AND HE ESTIMATED INCOME A T 8% OF THE SALE VALUE OF CONSTRUCTED AREA IN VIEW OF THE FACT THAT APPELL ANT BEING A PRIVATE LIMITED COMPANY ITS ACCOUNTS WERE AUDITED SEPARATELY UNDER THE COMPANIES ACT AS WELL AS UNDER 44AB OF THE ACT. THE ASSESSEE HAS MA INTAINED BILLS & VOUCHERS FOR THE EXPENDITURE INCURRED AND EXCEPTING THE EXPE NDITURE PERTAINING TO THE SITE DEVELOPED THE ASSESSING OFFICER DID NOT DOUBT THE GENUINENESS OF THE BALANCE BILLS AND VOUCHERS. HE FURTHER CONTENDED T HAT THE RATE OF 8% ADOPTED BY THE ASSESSING OFFICER IS AS PER THE PROV ISIONS OF SECTION 44AB OF THE ACT BUT THIS PROVISION IS NOT APPLICABLE IN THE ASSESSEES CASE AS THE TURNOVER WAS MORE THAN RS.40 LAKHS. THE CIT(A) RE- EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTIONS AND FINALLY CAM E TO THE CONCLUSION THAT ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEES COMPANY AND ESTIMATED THE INCOME FROM DU TSONS PROJECTS. BUT SO FAR AS DISALLOWANCE OF PROJECT EXPENDITURE ARE CONC ERNED THE CIT(A) HAS CONCLUDED THAT TOTAL PROJECT EXPENDITURE ALLOWABLE FOR THE YEAR UNDER CONSIDERATION TOWARDS DUTSONS PROJECT WOULD BE RS .1 26 97 830/-. ACCORDINGLY ALLOWED THE SAME AND RESTRICTED THE DI SALLOWANCE TO RS.2 35 30 754/-. THE RELEVANT OBSERVATION OF THE CIT(A) IS EXTRACTED HEREUNDER: 5 I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS MADE BY THE AUTHORISED REPRESENTATI VE OF THE APPELLANT IN THIS REGARD. AFTER CAREFULLY PERUSING THE CASE IT IS NOTED THAT THE FOLLOWING TWO ISSUES NEED CONSIDERAT ION (A) WHETHER THE REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION O F INCOME WITH RESPECT TO DUTSON PROJECT IS JUSTIFIED; AND (B) WHE THER THE ENTIRE PROJECT EXPENDITURE OF RS.3 62 28 584/- CLAIMED WIT H RESPECT TO DUTSON PROJECT IS ALLOWABLE FOR THE YEAR UNDER CONS IDERATION. IN SO FAR AS THE FIRST ISSUE IS CONCERNED THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS BASICALLY ON THE GROUNDS THAT (I) THE APPELLANT FAILED TO FURNISH QUANTITATIVE DETAILS AS WELL AS S UPPORTING BILLS & VOUCHERS IN SUPPORT OF THE PROJECT EXPENSES WITH RE SPECT TO THE DUTSON PROJECT (II) THE APPELLANT FAILED TO FURNIS H DAY TO DAY CONSUMPTION OF MATERIALS AND DAY TO DAY MEASUREMENT OF CONSTRUCTION ETC. (III) THE SITE EXPENSES OF RS.2 58 516/- WERE SUPPORTED BY SELF-MADE VOUCHERS (IV) THOUGH THE AP PELLANT CLAIMED THAT CONSTRUCTED AREA OF 19067 SFT WAS NOT SALEABLE BEING THE COMMON AREA THE SAME WAS NOT SHOWN AS STOCK IN TRA DE AND (V) THE COST OF CONSTRUCTION OF 7192 SFT COULD NOT BE R S.3.62 CRORES. IN THIS CONTEXT IT IS OBSERVED THAT THE APPELLANT BE ING A PRIVATE LIMITED COMPANY ITS ACCOUNTS WERE REQUIRED TO BE S TATUTORILY AUDITED UNDER THE COMPANIES ACT AS WELL AS THE SAME WAS SUBJECT TO TAX AUDIT REPORT UNDER U/S 44AB OF THE ACT. SUC H AUDIT REPORTS HAVE BEEN FURNISHED ALONG WITH THE RETURN OF INCOME . IN THE AUDIT REPORTS THE AUDITORS HAVE NOT FOUND ANY DEFECT IN THE METHOD OF ACCOUNTING AS WELL AS THE MANNER OF ACCOUNTING OF T HE APPELLANT COMPANY. FURTHER IT IS NOTED THAT THERE WAS NO NE CESSITY FOR THE APPELLANT TO TAKE MEASUREMENTS OF THE CONSTRUCTION EVERY DAY TO CLAIM THE EXPENDITURES INCURRED TOWARDS THE COST OF CONSTRUCTION. IT IS ONLY IN THE CASES OF CONTRACTORS WHO UNDER TA KE CIVIL CONTRACT WORKS FROM VARIOUS LOCAL AUTHORITIES COMPANIES IN STITUTIONS AND GOVERNMENT AUTHORITIES THAT THEY ARE REQUIRED TO TA KE THE MEASUREMENTS FOR PREPARATION OF THE BILLS IN SUPPOR T OF THE WORKS EXECUTED BY THEM. THE APPELLANT FURNISHED THE ENTI RE DETAILS OF PROJECT EXPENSES AND OUT OF THE TOTAL AMOUNT OF RS. 3 62 28 584.- THE OPENING WORK IN PROGRESS WAS RS.3 35 29 100/-. THE SAID OPENING WORK IN PROGRESS WAS ACCEPTED AS CLOSING WO RK IN PROGRESS IN THE ASST. YEAR 2005-06 AND SIMILARLY THE QUANTUM OF WORK IN PROGRESS WAS ACCEPTED IN THE RETURNS FILED FOR VARI OUS ASST. YEARS PRIOR TO ASST. YEAR 2005-06 ALSO. THE WORK IN PROG RESS WAS SHOWN AS CURRENT ASSET IN THE BALANCE SHEET AND THEREFORE THE QUESTION OF SHOWING THE COMMON AREAS OF 19067 SFT AS A STOCK IN TRADE DO NOT ARISE. THE APPELLANT IS FOLLOWING A CONSISTENT AND REGULAR METHOD OF ACCOUNTING WHICH IS SUBJECT TO AUDIT BOTH UNDER THE COMPANIES ACT AS WELL AS U/S 44AB OF THE ACT AND THE SAID ME THOD WAS NEVER DISPUTED IN EARLIER ASST. YEARS. IN VIEW OF THE AB OVE FACTS IT IS CONCLUDED THAT IN SO FAR AS THE FIRST ISSUE IS CONC ERNED THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY AND ESTIMATING THE INCOME FROM DUTSON PROJECTS. 6 COMING TO THE SECOND ISSUE I.E. WHETHER THE ENTIR E PROJECT EXPENDITURE OF RS.3 62 28 584/- HAS TO BE ALLOWED I N THE YEAR UNDER CONSIDERATION IT IS NOTED THAT IN THE NOTES TO THE AUDIT REPORT FILED ALONG WITH THE RETURN OF INCOME IT HAS BEEN MENTIONED THAT IN RESPECT OF CONTRACTS IN PROGRESS AS AT THE END OF THE FINANCIAL YEAR REVENUE IS RECOGNIZED BY ADOPTING PERCENTAGE COMPLE TION METHOD TAKING CONTRACT COST AS THE BASIS. THEREFORE AS P ER THE ACCOUNTING POLICIES DISCLOSED IN THE AUDIT REPORT THE APPELLA NT IS FOLLOWING PERCENTAGE COMPLETION METHOD FOR ACCOUNTING FOR THE CONSTRUCTION ACTIVITIES CARRIED ON BY IT. UNDER THE PERCENTAGE OF COMPLETION METHOD REVENUE IS RECOGNIZED AS THE CONTRACT ACTIV ITY PROGRESSES BASED ON THE STAGE OF COMPLETION REACHED. THE COST INCURRED IN REACHING THE STAGE OF COMPLETION ARE MATCHED WITH T HE REVENUE RESULTING IN THE REPORTING OF RESULTS WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED. IN THE YEAR UNDER CO NSIDERATION THE APPELLANT SOLD 7192 SFT OF THE CONSTRUCTED AREA FOR A SALE CONSIDERATION OF RS.67 95 600/-. FOR THE EARLIER A SST. YEARS THE APPELLANT CLAIMED THE EXPENDITURE TOWARDS COST OF C ONSTRUCTION IN PROPORTION TO THE AREA SOLD. AS FOR EXAMPLE FOR T HE ASST. YEAR 2005-06 WHEN THE APPELLANT SOLD 950 SFT OF THE CONS TRUCTED AREA THE EXPENDITURE TOWARDS COST OF CONSTRUCTION WAS CL AIMED AS UNDER: TOTAL SALEABLE AREA (145395X60%) 58048 SFT. 291 89 SFT AREA SOLD DURING THE FINANCIAL YEAR 2004-05 9 50 SFT PROJECT WORK IN PROGRESS FOR THE FINANCIAL YEAR 200 4-05 RS.3 46 57 066 COST PER SFT. RS.3 46 57 066/29189 RS.1187.33 COST OF PROPERTY SOLD (I.E. 950XRS.1187.33PS) RS .11 27 966.46 IN THE ABOVE COMPUTATION THE FIGURE (145395X60%) R EPRESENTS THE APPELLANTS SHARE IN THE TOTAL CONSTRUCTED AREA WHI CH IS 87237 SFT THE FIGURE 58048 REPRESENTS THE CONSTRUCTED AREA SO LD UPTO THE END OF FINANCIAL YEAR 2003-04 I.E. 31.3.2004 THE FIGU RE 29189 SFT REPRESENTS THE TOTAL SALEABLE AREA AS ON 1.4.2004 A ND THE FIGURE RS.3 46 57 066/- REPRESENTS THE TOTAL EXPENDITURE I NCURRED IN THE PROJECT UPTO THE END OF FINANCIAL YEAR 2004-05 WHIC H INCLUDES THE EXPENDITURES INCURRED DURING THE YEAR AS WELL AS TH E OPENING WORK IN PROGRESS. RIGHT FROM THE ASST. YEAR 1998-99 WH EN THE APPELLANT FIRST STARTED SELLING THE CONSTRUCTED AREA THE ABO VE METHODOLOGY OF APPORTIONING THE COST OF CONSTRUCTION AND DEBITING THE SAME TO THE PROFIT & LOSS ACCOUNT OF THE RESPECTIVE YEARS HAVE BEEN FOLLOWED. THE SAID METHOD BEING CONSISTENTLY FOLLOWED HAS AL SO TO BE APPLIED FOR THE ASST. YEAR 1998-99 ONWARDS AND UPON SUCH VE RIFICATION FOUND THAT CERTAIN ARITHMETICAL MISTAKES WERE COMMI TTED WHILE COMPUTING THE COST OF CONSTRUCTION OF DIFFERENT YEA RS. IF SUCH MISTAKES ARE RECTIFIED THE PROGRESSIVE AREA SOLD Y EAR-WISE WOULD BE AS UNDER: 7 FIN. YEAR ASST. YEAR AREA SOLD (IN SFT) PROGRESSIVE AREA SOLD (IN SFT.) 1997-98 1998-99 1980 1980 1998-99 99-2000 -- 1980 99-2000 2000-01 8097 10077 2000-01 2001-02 13029 23106 2001-02 2002-03 22540 45646 2002-03 2003-04 5086 50732 2003-04 2004-05 9296 60028 2004-05 2005-06 950 60978 2005-06 2006-07 7192 68170 CONSEQUENTLY THE TOTAL SALEABLE AREA YEAR-WISE WOU LD BE AS UNDER: TOTAL SALEABLE AREA (IN SFT) AS ON 31.03.1998 87237 - 1980 = 85257 31.03.1999 NO SALE - -- = -- 31.03.2000 87237 - 10077 = 77160 31.03.2001 87237 - 23106 = 64131 31.03.2002 87237 - 45646 = 41991 31.03.2003 87237 - 50732 = 36505 31.03.2004 87237 - 60028 = 27209 31.03.2005 87237 - 60978 = 26259 31.03.2006 87237 - 68170 = 19067 ON THE BASIS OF THE ABOVE THE COST OF CONSTRUCTION FOR THE AREA SOLD OF 7192 SFT IN THE ASST. YEAR UNDER CONSIDERATION W OULD BE AS UNDER: TOTAL SALEABLE AREA (145395 X 60%) 60978 SFT. 26 259 SFT AREA SOLD DURING THE FINANCIAL YEAR 2005-06 7192 SFT PROJECT WORK IN PROGRESS FOR THE FINANCIAL YEAR 200 5-06 RS.3 62 28 584 COST PER SFT RS.3 62 28 584/26259 RS.1379.66 COST OF PROPERTY SOLD (I.E. 7192XRS.1379.66PS) RS .99 22 515 THUS OUT OF THE TOTAL COST OF CONSTRUCTION CLAIME D OF RS.3 62 28 584/- AS PER THE METHOD OF ACCOUNTING OF COST OF CONSTRUCTION REGULARLY AND CONSISTENTLY FOLLOWED BY THE APPELLANT COMPANY THE COST ATTRIBUTABLE TO THE AREA SOLD OF 7192 SFT FOR THE ASST. YEAR UNDER CONSIDERATION IS RS.99 22 515/- ON LY WHICH IS ALLOWABLE AND THE SAME IS TO BE ALLOWED. THE APPELLANTS ARGUMENT IS THAT THE TOTAL COST OF CONSTRUCTION INCLUDES THE COST OF CONSTRUCTION OF T HE COMMON AREA WHICH WAS NEITHER SOLD NOR SALEABLE. THIS IS EVIDE NT FROM THE FACT THAT THOUGH THE TOTAL SHARE OF AREA CONSTRUCTED OF THE APPELLANT WAS 87237 SFT THE AREA SOLD WAS ONLY 68170 SFT AND THERE WAS NO FURTHER AREA TO SELL. THE SAME OBVIOUSLY REPRESENT S THE COMMON 8 AREA WHICH WAS NOT SALEABLE. FOR CONSTRUCTING SUCH COMMON AREA CERTAINLY SOME COST WAS INCURRED. THE APPELLANTS ARGUMENTS IS THAT SUCH COST WAS ASCERTAINED ONLY AFTER THE COMPL ETION OF THE PROJECT AND AFTER THE SALE OF THE CONSTRUCTED AREAS AND THEREFORE THE ENTIRE COST SHOULD BE ALLOWED IN THE YEAR IN WH ICH THE PROJECT WAS COMPLETED. IN THIS CONTEXT IT IS OBSERVED THA T THE CONSTRUCTION OF THE COMMON AREA WAS NOT UNDERTAKEN IN THE FINAL YEAR OF THE PROJECT ONLY. CONSTRUCTION OF SUCH COMMON AREA WAS A CONTINUOUS PROCESS RIGHT FROM THE BEGINNING OF THE PROJECT. H ENCE THE ENTIRE EXPENDITURE CANNOT BE ATTRIBUTABLE TO THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR UNDER CONSIDERATION. THE SAID EXPEN DITURE INCLUDES PRIOR PERIOD EXPENDITURE WHICH WAS NEITHER INCURRED NOR WHICH ACCRUED IN THE PREVIOUS YEAR RELEVANT TO ASST. YEAR UNDER CONSIDERATION. THE APPELLANT IS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING. THEREFORE ON PRINCIPLE THE PRIOR PER IOD EXPENDITURES CANNOT BE ALLOWED IN THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR UNDER CONSIDERATION. IN FACT HON'BLE DELHI HIGH C OURT IN DELHI TOURISM & TDC LTD. V. COMMISSIONER OF INCOME TAX R EPORTED IN 155 TAXMAN 10 HELD THAT IF THE ASSESSEE FAILS TO P ROVIDE FOR A KNOWN EXPENDITURE IN THE PREVIOUS YEAR HE CANNOT C LAIM DEDUCTION ON SUCH EXPENDITURE IN SUBSEQUENT ASST. YEARS. IN THIS CASE THE ASSESSEE DID NOT PROVIDE FOR ELECTRICITY CHARGES FO R WANT OF RECEIPT OF BILL. THE ASSESSEE THEREFORE MADE A CLAIM IN THE SUCCEEDING YEAR ON THE BASIS OF BILL ACTUALLY RECEIVED. THE H ON'BLE HIGH COURT HELD THAT THE ELECTRICITY CONSUMED IS A KNOWN EXPEN DITURE TO THE ASSESSEE AND THE ASSESSEE ON THE BASIS OF AVERAGE COULD MAKE PROVISION FOR THIS EXPENDITURE FOR EVERY YEAR OF AS SESSMENT EVEN IF NO BILL IS RECEIVED IN A PARTICULAR YEAR OF ASSESSM ENT. IN THE INSTANT CASE THE COMMON AREA CONSTRUCTED YEAR-WISE COULD H AVE BEEN CLEARLY ASCERTAINED AND COST ATTRIBUTABLE TO SUCH C ONSTRUCTION COULD HAVE BEEN APPROPRIATED OUT OF WORK IN PROGRESS AND DEBITED TO THE PROFIT & LOSS ACCOUNT OF EACH ASST. YEAR ON A PROPO RTIONATE BASIS AS HAS BEEN DONE BY THE APPELLANT IN CASE OF SALE OF C ONSTRUCTED AREAS IN DIFFERENT YEARS. THEREFORE THE EXPENDITURE ATT RIBUTABLE TO THE COMMON AREA AS A WHOLE CANNOT BE ALLOWED IN THE PRE VIOUS YEAR RELEVANT TO ASST. YEAR UNDER CONSIDERATION. HOWEVE R A PROPORTIONATE EXPENDITURE OUT OF THE BALANCE EXPEND ITURE WITH RESPECT TO SUCH COMMON AREA CAN BE ALLOWED THIS YEA R ON THE BASIS OF THE PROPORTION OF COMMON AREA TO THE AREA SOLD B Y THE APPELLANT. THE SAME IS CALCULATED AS UNDER: UN-SALEABLE/COMMON AREA 19067 SFT AREA SOLD 68170 SFT TOTAL PROJECT EXPENDITURE CLAIMED IN THE FINANCIAL YEAR 2005-06 RS.3 62 28 584/- COST OF THE PROPERTY SOLD IN FINANCIAL YEAR 2005-06 AS COMPUTED IN THE EARLIER PARA RS.99 22 515/- BALANCE PROJECT EXPENDITURE (RS.3 62 28 584-99 22 515/-) RS.2 63 06 069/- THE PROPORTIONATE EXPENDITURE PERTAINING TO UN-SALEABLE/COMMON AREA ALLOWABLE IN THE FINANCIAL YEAR 2005-06 (7192X26306069/68170) RS.27 75 315/- 9 THUS THE TOTAL PROJECT EXPENDITURE ALLOWABLE FOR THE YEAR UNDER CONSIDERATION TOWARDS DUTSON PROJECT WOULD BE (RS.99 22 515+27 75 315) = RS.1 26 97 830/-. HENCE THE BALANCE EXPENDITURE CLAIMED BY THE APPELLANT I.E. (RS.3 62 28 584 1 26 97 830)-RS.2 35 30 754/- IS TO BE DISALLOWED. THUS THIS GROUND OF APPEAL IS PARTLY ALLOWED. 7. AGGRIEVED WITH THE ORDER OF THE CIT(A) BOTH THE PARTIES BEFORE US AND THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED ITS CONTENTIONS WHEREAS THE REVENUE HAS PLACED HEAVY RELIANCE UPON THE A.OS OR DER. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES AND THE FINDINGS GIVEN BY THE CIT(A) AND WE ARE OF THE VIEW THAT CIT(A) HAS MINUT ELY EXAMINED THE ISSUES IN THE LIGHT OF THE ASSESSEES CONTENTIONS BEFORE A RRIVING TO THE CONCLUSION. WE THEREFORE DO NOT FIND ANY INFIRMITY THEREIN. T HUS WE CONFIRM THE ORDER OF THE CIT(A). 8. IN THE RESULT THE REVENUES APPEALS AS WELL AS CROSS APPEAL ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 24.2.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 24 TH FEBRUARY 2010 COPY TO 1 M/S. DUTSONS BUILDERS & ESTATES (P) LTD. 10-1-47 SIRIPURAM VISAKHAPATNAM 2 THE ACIT CIRCLE-3(1) VISAKHAPATNAM 3 THE CIT-1 VISAKHAPATNAM 4 THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM