M/S. S.J. ASSOCIATES, MUMBAI v. THE ITO WD 24(2)(2), MUMBAI

ITA 5718/MUM/2007 | 2001-2002
Pronouncement Date: 31-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 571819914 RSA 2007
Assessee PAN AACFS1260Q
Bench Mumbai
Appeal Number ITA 5718/MUM/2007
Duration Of Justice 2 year(s) 8 month(s) 27 day(s)
Appellant M/S. S.J. ASSOCIATES, MUMBAI
Respondent THE ITO WD 24(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 31-05-2010
Date Of Final Hearing 12-10-2009
Next Hearing Date 12-10-2009
Assessment Year 2001-2002
Appeal Filed On 03-09-2007
Judgment Text
ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI D K AGARWAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER). ITA NO. 5718/MUM/07 ASSESSMENT YEARS 2001-02 S J ASSOCIATES .APPELLANT SHYAMA 11 KHANDELWAL LAYOUT LINK ROAD MALAD (WEST) MUMBAI 400 064 (PAN : AACFS1260Q) VS. INCOME TAX OFFICER - WARD 24(2)(2) MUMBAI . RESPONDENT APPELLANT BY : SHRI ASHOK J PATIL RESPONDENT BY : SMT MONIKA KHARE O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 13 TH JULY 2007 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE I NCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001-02. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN THE ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 2 OF 8 CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICER S ORDER THAT THE INCOME OF THE BUILDING CONSTRUCTION PROJECT IS TAXABLE IN THE ASSESSMENT YEAR 2001-02. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN THE CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICER S ORDER THAT INCOME TO THE EXTENT OF 15% OF SALE CONSIDERATION O F EIGHT FLATS AMOUNTING TO RS 19 14 450 BE TAXED IN THE ASSESSME NT YEAR 2001-02. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS IN NOT PASSING ORDER ON THE APPEAL GROUND THAT TAXABLE INC OME SHOULD BE ADDED TO THE CLOSING WORK IN PROGRESS AND EFFE CT SHOULD BE GIVEN TO SUCCEEDING ASSESSMENT YEAR 2003-04 BY WAY OF INCREASE IN COST TO AVOID DOUBLE TAXATION OF THE SAME AMOUN T. 2. LEARNED REPRESENTATIVES AGREE THAT WHATEVER IS D ECIDED IN THE CASE OF THIS VERY ASSESSEE FOR THE ASSESSMENT YEAR 2002-03 WHICH WAS HEARD ALONGWITH THIS APPEAL WILL APPLY IN THIS CASE AS W ELL. VIDE OUR ORDER OF EVEN DATE WE HAVE DISMISSED THE SAID APPEAL AND OB SERVED AS FOLLOWS: 2. THE RELEVANT MATERIAL FACTS GIVING RISE TO THIS APPEAL BEFORE US ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 3 OF 8 ARE LIKE THIS. THE ASSESSEE IS A PARTNERSHIP FIRM E NGAGED IN THE BUILDING CONSTRUCTION ACTIVITIES. ON 30 TH OCTOBER 2002 THE ASSESSEE FILED ITS INCOME TAX RETURN SHOWING NIL INCOME. THI S INCOME TAX RETURN WAS PICKED UP FOR SCRUTINY ASSESSMENT UNDER SECTION 143(3). DURING THE COURSE OF THE ENSUING SCRUTINY ASSESSMEN T PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE AS SESSEE IS INVOLVED IN DEVELOPING BUILDING AT PLOT NO. 18 IN KHADELWAL LAYOUT AT MALAD (WEST) MUMBAI. THE ASSESSEE HAS CONSTRUCTED THE BU ILDING STILTS AND SEVEN UPPER FLOORS. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS ALREADY SOLD ELEVEN FLATS SO FAR OUT OF WHICH THREE FLATS WERE SOLD IN THE RELEVANT PREVIOUS YEAR AND THE REMAINING EIGHT SOLD IN THE IMMEDIATELY PRECEDING P REVIOUS YEAR. THE POSSESSION OF THESE FLATS WAS ALSO HANDED OVER TO THE BUYERS. HOWEVER AS THE ASSESSEE CLAIMS TO BE FOLLOWING PRO JECT COMPLETION METHOD AND AS ACCORDING TO THE ASSESSEE PROJECT W AS NOT FULLY COMPLETED NO PART OF INCOME ON SALE OF THESE FLATS WAS OFFERED TO TAX EITHER IN THIS YEAR OR IN THE IMMEDIATELY PRECEDI NG YEAR. IN RESPONSE TO THE ASSESSING OFFICERS REQUISITION TO SHOW CAUSE AS TO WHY THE AMOUNTS SHOWN AS ADVANCES RECEIVED FROM THE CUSTOMERS NOT BE TREATED AS SALES AND PROFIT ON SUCH SALE BE BROUGHT TO TAX IT WAS SUBMITTED BY THE ASSESSEE THAT THE PROJECT WAS NOT COMPLETED TILL THE END OF THE RELEVANT PREVIOUS YEAR AND AS SUCH NO PART OF INCOME ON ACCOUNT OF SUCH SALES CAN BE BROUGHT TO T AX IN THE PRESENT ASSESSMENT YEAR OR THE PRECEDING ASSESSMENT YEARS. THESE SUBMISSIONS HOWEVER DID NOT IMPRESS THE ASSESSING OFFICER. HE NOTED THAT NOT ONLY THAT THE ASSESSEE HAS SOLD THE FLATS AND HANDED OVER POSSESSION OF THE SAME THE ASSESSEE APPLIED F OR THE OCCUPATION CERTIFICATE FOR BUILDING ON 17 TH NOVEMBER 2000 AND THE SAME WAS ALSO ISSUED BY THE BOMBAY MUNICIPAL CORPORATION ON 17 TH JANUARY 2001. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT FOLLOWING DECISION OF THIS TRI BUNAL IN THE CASE OF CHAMPION CONSTRUCTION CO VS FIRST INCOME TAX OFF ICER (51 ITD 495) AND BEARING IN MIND THE FACT THAT PROJECT WAS ALREADY COMPLETED INCOME ON SALE OF THREE FLATS SOLD DURIN G THE YEAR WAS TO BE BROUGHT TO TAX ON ESTIMATED BASIS @ 30% OF SALE CONSIDERATION IN THE CURRENT YEAR. THERE WERE CERTAIN OTHER ADDI TIONS TO THE RETURNED INCOME AS WELL WHICH WERE MADE BY THE ASS ESSING OFFICER BUT SINCE THOSE ADDITIONS ARE NOT SUBJECT MATTER OF THIS APPEAL WE ARE NOT DEALING WITH THE SAME. ACCORDINGLY THE ASS ESSING OFFICER INTER ALIA MADE AN ADDITION OF RS 14 10 000 TO THE INCOME RETURNED BY THE ASSESSEE. THE ONLY ISSUE THAT WE ARE REQUIR ED TO ADJUDICATE WITH REGARD TO THESE ADDITIONS IS THE QUESTION OF C ONSEQUENTIAL DIRECTIONS ABOUT VALUATION OF CLOSING STOCK BUT WE WILL DEAL WITH THAT ASPECT SEPARATELY AGGRIEVED BY THE ADDITION O F RS 14 10 000 ON ACCOUNT OF ESTIMATED INCOME ON SALE OF FLATS ASSES SEE CARRIED THE ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 4 OF 8 MATTER IN APPEAL BEFORE THE CIT(A) AND THE CIT(A) R ESTRICTED THE ADDITION TO ESTIMATED INCOME @ 15% OF SALE CONSIDER ATION. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. THE MAIN THRUST OF LEARN ED COUNSELS SUBMISSIONS IS THAT THE OCCUPANCY CERTIFICATE ISSUE D BY THE BMC ON 17 TH JANUARY 2001 IS ONLY A CONDITIONAL CERTIFICATE AND THEREFORE IT COULD NOT BE CONCLUDED THAT THE PROJECT WAS COMPLET ED. OUR ATTENTION WAS INVITED TO THE FACT THAT THE CERTIFIC ATE WAS SUBJECT TO THE CONDITION THAT THE CERTIFICATE UNDER SECTION 2 70A OF THE BMC ACT SHALL BE OBTAINED FROM AEWWP NORTH AND A CER TIFIED COPY OF THE SAME SHALL BE SUBMITTED TO THIS OFFICE. IT IS POINTED OUT THAT THE CERTIFICATE UNDER SECTION 270 A OF THE BMC ACT WAS FINALLY OBTAINED BY THE ASSESSEE ON 13 TH NOVEMBER 2001 AND THAT THE FINAL COMPLETION CERTIFICATE WAS ISSUED BY THE MUNICIPAL CORPORATION ON 2 ND APRIL 2002. IT IS SUBMITTED THAT SINCE THE COMPLET ION CERTIFICATE WAS ISSUED ON 2 ND APRIL 2002 WHICH FALLS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04 THE PROJEC T SHOULD BE TREATED AS COMPLETED IN THE ASSESSMENT YEAR 2003-04 . IT IS ALSO POINTED OUT THAT AS EVIDENT FROM THE POSSESSION LE TTERS ISSUED TO THE BUYERS OF THE FLATS COPIES OF WHICH WERE PLACED B EFORE US IN THE PAPER-BOOK THE POSSESSION WAS GIVEN ONLY FOR INTE RIOR WORK ETC AS THE PERIPHERAL WORK LIKE PAVING FLOORING OF LOBB Y AND PART TERRACE FINISHING OF GATE PILLARS STAIRCASE 7 TH FLOOR WORK TERRACE LANDING MID LANDINGS STILTS AND EXTERNAL PAINTING FINAL COAT ARE IN PROGRESS RENDERING THE BUILDING NOT HABITABLE. WE ARE THUS URGED TO HOLD THAT NO PART OF THE INCOME ON SALE OF FLATS IS TAXABLE IN THE PRESENT YEAR. WITHOUT PREJUDICE TO THIS ARGUMENT L EARNED COUNSEL ALSO SUBMITS THAT IN ANY EVENT THE PROFIT RATE OF 15% IS HIGHLY EXCESSIVE AND NOT IN CONSONANCE WITH GROUND REALITI ES. WE ARE ALSO URGED TO AT LEAST SCALE DOWN THE ESTIMATED PROFIT R ATE IN CASE WE ARE TO HOLD THAT TAXABILITY ARISES IN THE CURRENT YEAR. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HAS MAINLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMIT TED THAT IT IS AN ADMITTED POSITION THAT THE WORK OF THE BUILDING PRO JECT WAS SUBSTANTIALLY COMPLETED AND AS SUCH FOLLOWING THE CONSISTENT VIEW TAKEN BY THE COORDINATE BENCHES THE TAXABILITY OF PROFITS CANNOT BE DELAYED BEYOND THE YEAR IN WHICH THE PROJECT IS SUB STANTIALLY COMPLETED. AS REGARDS THE RATE OF PROFIT IT IS POI NTED OUT THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO JUSTIFY THE LOWER PROFIT RATE AND THEREFORE CONSISTENT WITH THE DEC ISIONS OF THE TRIBUNAL ESTIMATION OF PROFIT IS DONE @ 15% OF GRO SS SALE PROCEEDS. ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 5 OF 8 WE ARE THUS URGED TO CONFIRM THE ORDER OF THE CIT(A ) AND DECLINE TO INTERFERE IN THE MATTER. 4. IN OUR CONSIDERED VIEW IT IS BEYOND ANY SERIOUS DISPUTE OR CONTROVERSY THAT THE PROJECT WAS SUBSTANTIALLY COMP LETED ON 17 TH JANUARY 2001 WHEN ASSESSEE WAS ISSUED A OCCUPATION CERTIFICATE BY THE BMC. NO DOUBT THIS OCCUPATION CERTIFICATE IS SU BJECT TO ANOTHER CERTIFICATE FOR WATER CONNECTION TO BE FILED BY THE ASSESSEE BUT THAT IS SOMEWHAT A PROCEDURAL COMPLIANCE REQUIREMENT IN NATURE INASMUCH WHILE IT DOES SHOW THAT WATER CONNECTION C ERTIFICATE WAS TO BE FILED BY THE ASSESSEE IT DOES NOT ALSO SHOW THAT PROJECT WAS SUBSTANTIALLY COMPLETED . THE TAXABLE EVENT IS COMP LETION OF PROJECT AND NOT ITS OCCUPANCY AND THEREFORE THERE IS NOT MUCH SUBSTANCE IN LEARNED COUNSELS REPEATED EMPHASIS TO THE POINT OF TIME WHEN FLATS WERE ACCORDING TO HIM ACTUALLY FIT TO BE OC CUPIED BY THE BUYERS. WE THEREFORE APPROVE THE CONCLUSIONS ARR IVED AT BY THE CIT(A) IN PRINCIPLE AND DECLINE TO INTERFERE SO FAR AS THE ASSESSMENT YEAR OF TAXABILITY IS CONCERNED. HAVING SAID THAT HOWEVER WE DO SEE MERITS IN LEARNED COUNSELS SUBMISSION THAT ESTIMAT ION @ 15% IS PURELY ADHOC IN NATURE AND THE ASSESSEE WAS NOT GIV EN A REASONABLE OPPORTUNITY TO MAKE HIS SUBMISSIONS ON THE CORRECT RATE TO BE ADOPTED FOR SO ADOPTING THE ESTIMATED PROFITS. WE THEREFORE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF T HE ASSESSING OFFICER FOR THE LIMITED PURPOSES OF GIVING AN OPPORTUNITY T O THE ASSESSEE TO MAKE HIS SUBMISSIONS ON THE RATE AT WHICH PROFITS A RE TO BE COMPUTED. THE ASSESSING OFFICER WILL DEAL WITH THE SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE BY WAY OF A SPEAKING O RDER AND IN ACCORDANCE WITH THE LAW. IN CASE THE ASSESSEE DOES NOT MAKE ANY SUBMISSIONS OR FAILS TO SHOW A REASONABLE BASIS FOR THE RATE OF PROFIT TO BE ADOPTED IT WILL BE OPEN TO THE ASSESSING OFF ICER TO REPEAT THE SAME RATE FOR ESTIMATION OF PROFITS AND TAKE SUCH A CTION AS THE ASSESSING OFFICER MAY DEEM FIT. WITH THESE DIRECTIO NS THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. GROU ND NO. 1 IS THUS DISMISSED AND GROUND NO. 2 IS ALLOWED FOR STATISTI CAL PURPOSES. 5. THE ONLY OTHER ISSUE RAISED BEFORE US IN GROUND NO. 3 IS REGARDING SEEKING A DIRECTION THAT TAXABLE INCOME S HOULD NOT BE ADDED TO THE CLOSING WORK IN PROGRESS AND EFFECT SHOULD BE GIVEN TO SUCCEEDING ASSESSMENT YEAR 2003-04 BY WAY OF INCRE ASE IN COST TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. AS FAR A S THIS ISSUE IS CONCERNED WE HAVE NOTED THAT THE ASSESSING OFFICER HAD DISALLOWED CERTAIN EXPENSES AND GIVEN CERTAIN DIRECTIONS TO RE DUCE THE SAME FROM CLOSING WORK IN PROGRESS. THE CIT (A) HAS DELETED T HESE DISALLOWANCE ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 6 OF 8 AND WE ARE TOLD THAT THE REVENUE IS NOT IN APPEAL A GAINST THE ACTION OF THE CIT(A). IN THESE CIRCUMSTANCES AND HAVING ACCE PTED THE CIT(A)S DELETION OF DISALLOWANCES IT IS ONLY A NATURAL COR OLLARY TO THIS POSITION THAT THE RELATED ADJUSTMENTS FROM THE WIP MUST ALSO GO. HOWEVER THAT POSITION WILL BE RELEVANT WHEN PROFITS ARE COMPUTED IN THE SUBSEQUENT YEARS. THE GRIEVANCE CAN THEREFORE ARISE ONLY WHE N THE CAUSE OF ACTION ARISES. AS ON NOW THERE IS NO CAUSE OF ACTI ON OF THE ASSESSEES GRIEVANCE AND WE THEREFORE DECLINE TO DEAL WITH THE SAME ON MERITS. 6. WITH THESE OBSERVATIONS WE DISMISS THE GROUND N O. 3 AS INFRUCTUOUS AND HOLD THAT IT DOES NOT CALL FOR ANY ADJUDICATION BY US AT THIS STAGE. 3. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN VIEW SO TAKEN BY US IN THE ABOVE CASE. THE MATERIAL FACT S AND CIRCUMSTANCES OF THE CASE AS ALSO THE PLEADINGS OF THE ASSESSEE AR E IDENTICAL. 4. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY US IN A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 WE UPHOLD THE ACTI ON OF THE CIT(A) IN PRINCIPLE BUT REMIT THE MATTER TO THE FILE OF THE A SSESSING OFFICER FOR THE LIMITED PURPOSES OF FRESH ADJUDICATION ON RATE AT W HICH PROFITS ARE TO BE ESTIMATED. OUR ABOVE OBSERVATIONS WILL APPLY MUTATIS MUTANDI FOR THIS ASSESSMENT YEAR AS WELL. 5. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 7 OF 8 THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN C OURT TODAY ON __ TH DAY OF MAY 2010. SD/XX SD/XX (D K AGARWAL) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 31 ST DAY OF MAY 2010. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE J BENCH ITAT MUMB AI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI ITA NO . 5718/MUM/07 ASSESSMENT YEAR 2001-02 PAGE 8 OF 8 DATE INITIAL 1. DRAFT DICTATED ON 28.5.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 28.5.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 28.5.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 28.5.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 28.5.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 31.5.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 31.5.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER