Income Tax Appellate Tribunal - Bangalore
Dy. Cit vs Ranka Developers on 23 February, 2005
Equivalent citations: [2006]6SOT815(BANG)
ORDER
Joginder Singh, JM.
This is an appeal by the revenue against the order of the first appellate authority dated 8-11-2001 on the following grounds:-
(i) That the learned CIT(A) erred in holding that the application of proviso to section 145(1) is erroneous on the facts and circumstances of the case of the assessee by holding that the decision of the Karnataka High Court in the case of CIT v. Khoday Distilleries is applicable to the assessee's case inasmuch as the facts and circumstances of the assessee's case are different from that of the case of Khoday Distilleries.
(ii) That the learned CIT(A) erred in not appreciating that the facts of the assessee's case are similar to that of the case of M/s. United Property Developers Pvt. Ltd. wherein on similar circumstances, the ITAT, Bangalore in its order in ITA No. 546/Bang./97, dated 10-9-1999 has confirmed the estimate of income made by the Assessing Officer.
2. The assessee is a partnership firm doing the business of constructing flats and developing sites, declared an income of Rs. 2,10,520 on 25-7-1997. The return was processed under section 143(1)(a) and subsequently, notices under sections 143(2) and 142(1) were issued, in response to which the authorised representative of the assessee appeared before the Assessing Officer. The assessee-firm had been following Completed Project Method of accounting. The assessee-firm was having seven projects, which were ongoing and were incomplete at various levels. The assessee firm is also doing the business of developing sites and selling them. Two such projects, where the land was developed and demarcated into boundaries, were sold as sites. Out of the projects, six are residential projects and one is a commercial project, as none of the projects were completed, no income was offered for any of the projects. The income was returned only on account of other receipts. The Assessing Officer adopted a fixed percentage of project method in respect of two of the seven construction projects and also in respect of both the site projects and added the income so arrived at, to the income returned by the assessee. The assessee carried the same successfully in appeal before the first appellate authority. Now the revenue is aggrieved and is in appeal before the Tribunal.
3. At the time of hearing we have heard Shri William Menezes, learned representative for the revenue and Shri H.N. Kincha, learned CA for the assessee. The gist of argument on behalf of the revenue is that 90 per cent of flats are sold and the project was complete. The learned DR argued that the Assessing Officer estimated the income as the projects were substantially completed and occupation certificate was issued by the Municipal Corporation. Our attention was drawn to pages 4, 5, 8 and 9 of the order of the Assessing Officer. Mr. Kincha, the learned AR argued that this is a case of application of provisions of section 145. It was contended that I am an old assessee, following Project Completed Method, which was accepted by the department in all the previous years and no fault was ever found by the department. It was strongly contended that the project was incomplete and out of 58 villas, only 24 villas were completed at the relevant time. The learned AR, in nutshell, supported the order of the first appellate authority and relied upon the decision of the Tribunal pronounced in the case of H.M. Construction. We have considered the rival submissions.
4. The assessee-firm is in the business of developers, promoters and builders of real estate. The return was accompanied by profit and loss account, balance sheet and other schedules, which were prepared as per books of accounts maintained by the assessee. The assessing officer completed the assessment under section 143(3) of the Act on 31-3-1999 and the income was assessed at Rs. 39,68,148. There is no dispute to the fact that the assessee is in this line of business since 1989 and takes up the construction of residential and commercial properties, converts the land into smaller sites and sells the same. There is also no dispute to the fact that each of the projects takes years to complete and the advances received by the assessee are spent on the works and the assessee follows the completed project method. The assessee filed the following note to the statement filed with the return of income :-
"The firm follows completed project method of accounting for its project. Under this method, revenue is recognised only when the project is completed. Costs and progressive payment received are accumulated during the course of the project, but revenue is not recognised until the project activity is completed."
The completed project method has been constantly followed since beginning of the business and the assessing authorities have accepted the same in the preceding years. The appellant was having seven construction projects and two site development projects in hand during the relevant assessment years and were not complete at all and were at the various stages of construction/ development. There is no dispute to the fact that the income returned was only on account of other receipts. The assessing officer adopted the fixed percentage of profit method in respect of two of the seven construction projects and also in respect of both the sites and added to the income. The learned counsel for the assessee produced the copy of earlier assessment years ie., assessment years 1993-94 and 1994-95 before the first appellate authority and also relied upon the decision of the Hon'ble High Court of Orissa in CIT v. Guttoffnungashutto Sterkrado (1992) 197 ITR 66 (Ori) and also relied upon the decision on account of the Government Co., HDFC Ltd., which was also following the completed contract method of accounting along with the decision in the case of CIT v. V.S. Dempo & Co. (P.) Ltd. (1996) 131 CTR (Bom.) 203 for the proposition that the completed contract method followed by the assessee was correct and resort to section 145(1) was not justified. Reliance was also placed on the decision of the Hon'ble High Court of Karnataka in the case of CIT v. Khoday Distilleries where the High Court held that the assessee was right in following the completed contract method. The assessing officer himself has mentioned that more than 50 per cent of the work was completed or the projects were substantially completed. From this conclusion of the assessing officer, it cannot be said that the project was complete in all respect. We have perused the orders of the learned Commissioner (Appeals) in which we have not seen any defect on the basis of which a different conclusion may be drawn.
The Hon'ble High Court of Orissa in the case of CIT v. Guttottnungashutto Sterkrado (1992) 197 ITR 66 (Ori) wherein the assessee was a non-resident company incorporated in West Germany. It entered into a contract with HSL for delivery, supervision, assembling and putting into operation its Blast Furnace No. IV at the Rourkela Steel Plant. The work of erection was taken up and completed during the period of 7-11-1963 to 31-3-1968. Since the performance of the contract was spread over a number of years, the assessee made up its accounts relating to this work on what is commonly known as "complete contract" basis as the real profit could be determined only at the end of the contract. The account books which were maintained in the regular and usual course of business were audited by qualified chartered accountants of West Germany. Initially, the assessments for the first two years were completed by the Income Tax Officer by accepting the net profit arrived at on "complete contract" basis. The Commissioner set aside those assessments. The Tribunal restored the orders of the Income Tax Officer and set aside the orders of the Commissioner. On reference, the orders of the Tribunal were approved by the Hon'ble High Court. While coming to a conclusion, the case of Chhabild as Tribhuvandas Shah v. CIT (1966) 59 ITR 733 (SC) was referred and considered by the Hon'ble Court. The Hon'ble Court, in nutshell, held that assessee should be subjected to assessment on two different methods though the contract was one and parts of the contractual receipts were received in different years. Therefore, the Tribunal was justified in following its view expressed for the assessment years 1965-66 and 1966-67.
Similar views were expressed by the Bangalore Benches of the Tribunal in the case of H.M. Constructions. There is a specific finding by the learned Commissioner (Appeals) that the project was incomplete. In view of these facts, the order of the learned Commissioner (Appeals) is correct and no fresh look is required. The same is upheld.
In the result, the appeal of the revenue is dismissed.