Income Tax Appellate Tribunal - Delhi
Manish Buildwell Pvt. Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E', NEW DELHI
BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER
&
SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA No. 3062/Del/2010
Assessment Year: 2005-06
DCIT, Vs. Manish Buildwell P. Ltd.,
Central Circle 11, 2nd Floor, Usha Chamber,
New Dlehi. 37-38, Ashok Vihar-1,
New Delhi. New Delhi.
ABFPG1603F
(Appellant) (Respondent)
Appellant by : Smt. Sangeeta Gupta, CIT(DR)
Respondent by : Sh. Vinod Kr. Bindal & Ms. Vidhi
Goel, CA's
ORDER
PER R. P. TOLANI, J.M.
This is revenue's appeal. Following grounds are raised are as under: -
1. "The order of the ld. CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 10,97,850/- on account of cancellation charges realized from clients default in payments of installment seven though such entries of realization are recorded in seized material and there is litigation by the assessee to realize the same from defaulters in the courts of law. In doing so, the ld. CIT(A) ignored contents of seized documents and rather relied on mere argument of the assessee that no ITA No. 3062/D/2010 2 enquiries were made from concerned parties.
3. On the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 3,82,94,536/- on account of registration and electrification charges received from clients on the ground that such expenditure are revenue in nature whereas AO held such payments as capital expenditure.
4. On the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 28,21,000/- on the basis of percentage completion method as against project completion method adopted by the assessee whereas the method of project completion method is not in accordance with mercantile method of accounting adopted by the assessee in maintaining books of accounts and by way of following incorrect method the assessee intended to postpone chargeability of profits in his construction business.
5. On the facts and in the circumstances of the case, the order of the ld.
CIT(A) has erred in law in deleting the addition of Rs. 1,61,67,600/- towards unexplained cash credits u/s 68 of Income Tax Act, 1961 whereas the assessee failed to substantiate genuineness and creditworthiness of depositors and genuineness of transactions.
6. On the facts and circumstances of the case, the order of the ld. CIT(A) has erred in law in admitting of additional evidence in the form of confirmations from depositors without affording opportunity to the AO on the ground that the assessee was prevented by sufficient cause in producing such evidence as AO had not desired such details thus, violating provisions of Rule - 46A of Income Tax Rules, 1962.
7. On the facts and circumstances of the case, the order of the ld. CIT(A) has erred in law in admitting of additional evidence in the form of confirmations from depositors without affording opportunity to the AO on the ground that the assessee was prevented by sufficient cause in producing such evidence as AO had not desired such details, which is contrary to the facts of the case as AO made specific query in para 27(b) of notice issued u/s 142(1) on 21.10.08.
ITA No. 3062/D/2010 3
8. The appellant craves leave to add, alter or amend any/all of the ground of appeal before or during the course of the hearing of the appeal."
2. Brief facts are the assessee is real estate developer books are duly maintained audited u/s 44AB. The regular method of accounting and revenue recognition adopted by the assessee is project completion method. In all these grounds there is no allegation about the defects in the books of account. Search and seizure operations were carried out in assessee's premises on 16.3.07 in the premises of the assessee and associated concerns. During the course of assessment proceedings assessee field relevant details and the assessment have been framed u/s 143(3) read with sec. 153(c) of the I.T. Act.
3. Brief facts apropos, ground no. 2 are assessee is in the business of development of commercial real estate and during the relevant period it was developing a mall and commercial complex at Dwarka New Delhi. The appellant agreed to sell several spaces therein to various prospective buyers and received advances in installments from them during the construction period. The appellant recognizes its income only when the possession was handed over to the buyer or registration of the agreement to sell/sale deed whichever was earlier as till then the buyer was free to exit from the project. Assessee adopted project completion method of accounting to recognize its income.
4. Ground no. 1 as per the agreement between assessee and customers there was a condition that in case a booked flat is cancelled by the customer ITA No. 3062/D/2010 4 earnest money will be forfeited. In the assessee's case though there was cancellations of booked flat the assessee had not shown any income by way of forfeiture of earnest money consequent to such cancellation. During the course of search in the associate concern M/s K.K. Enterprises in case of a cancellation by Mr. Kailash Khandelwal earnest money was forfeited. Assessee contended that it was policy of the company to insure that customers do not cancel the flats. However, in such event it was the discretion of the company to go for forfeiture of earnest money. This was in order to maintain good customer relations and market reputation, since is no cancellation amount has been received by the assessee the notional addition should not be made. The AO made the addition holding that assessee ought to have forfeited the 25% of the amount in respect of cancellation of booking out of a flat booked for Rs. 4391400/-. In first appeal CIT(A) deleted the addition by holding as under:
"As regards the statement of Mr. Manish Aggarwal given in the legal suit filed by one Mr. Kailash Chand Khandelwal, it was stated that the same was given in the case of M/s K.K. Enterprises which is a separate assessee. However, further on reading of the statement of Mr. Manish Aggarwal submitted before the Court in the civil suit as mentioned in the assessment orders itself, it is seen that Mr. Manish Aggarwal stated that the said plaintiff, i.e. Mr. K. C. Khandelwal defaulted in payment of installments. The plaintiff failed to pay the installments in spite of the repeated demands and therefore, the booking was cancelled and the earnest money of Rs. 417425/- was forfeited. Thus, it was a specific case of forfeiture and not of cancellation. In the said case, the Mr. Khandelwal never applied for cancellation and consequent refund. Forfeiture of the booking ITA No. 3062/D/2010 5 amount due to non fulfillment of stipulated conditions is different from charging any amount against cancellation and the same cannot be equated. Thus, even the said statement of Mr. Manish Aggarwal does not suggest that the said amount was taken as cancellation charges.
Undisputedly no evidence was found during the course of search to suggest that any cancellation charges were received by the assessee outside the books of account as nothing has been mentioned in the assessment order. In the absence of any such evidence found during the course of search and no adverse material brought on record by the AO suggesting the receipt of cancellation money out of books of account and in view of the evidences placed on record by the appellant that no cancellation charges were taken by the appellant, no adverse cognizance can be taken against the assessee merely on the opinion that no addition can be made on presumption for cancellation charges. Thus, the addition of Rs. 10,97,850/- is hereby deleted."
5. Ground no. 3: In the ground of appeal the appellant has challenged the addition of Rs. 3,82,94,536/- made by the AO on account of Registration and Electrification charges paid to the government, agencies and shown as recoverable from the buyers. At the best they could be capitalized and added to the cost of work in progress. The addition has been made stating that setting off revenue receipts against capital expenditure is not an acceptable principle of accountancy.
In this regard the appellant submitted that the appellant incurred stamp duty charges for registration of the plot of land purchased for development of ITA No. 3062/D/2010 6 the mall. Similarly, the appellant incurred expenses for provision of the electricity in the mall complex. These expenses were recoverable from the buyers of the space in the mall over and above the sale price but only at the time of handing over the possession or execution of sale agreement whichever is earlier. Therefore, the amounts paid were shown independently in the balance sheet as recoverable for a proper monitoring and computation of recovery from each buyer. These amounts were not included in the work in progress nor debited in the profit and loss account in any manner. This amount was not the capital expenses for the appellant as it was to be defrayed on behalf of customers. It was further submitted that whatever surplus would be available from the recoveries would be offered as income in the year of receipt. Nothing was recovered from the buyers on this account till 31.3.05 as neither any possession nor any agreement of sale of any space was given or executed till then. Thus, the same was shown as receivable. AO considered the same as income of the appellant though the said amount was spent but not claimed as an expense. Further even if it is held that the said amount recoverable should be shown as income of the year yet no addition could be made as neither any amount for the expenses incurred was claimed in the profit and loss account nor any amount was due for recovery. Moreover there is no evidence that the appellant received any amount outside the books of account from the flat buyers on this account. Thus, the addition must be deleted.
6. The AO made the addition aggrieved assessee preferred first appeal, where CIT(A) held that from the perusal of balance sheet these amounts were ITA No. 3062/D/2010 7 received by the assessee and declared as advances recoverable and these amounts were paid by the assessee towards payment of stamp duty and electrification charges in respect of the mall project. It was held to be revenue in nature by following observations -
"The said amount can be recovered in the books of account in two ways as an expense or as recoverable from buyer. i. If the same is debited as expense then the amount will be a part of work in progress till the project is completed and will increase the cost of the project. When the amount from buyers is received against the same, the same will be treated as part of the sale proceeds and the profit will be computed after deducting the cost of the project from the sale proceeds, or alternatively.
ii. If the same is shown as recoverable from buyers, then the same is adjusted against the amount recovered from then and surplus if any is offered for taxation.
In both ways, the said amount incurred gets adjusted against receipts from the buyers on this account. The assessee has adopted the second method and did not claim any expenditure on this account in the profit and loss account.
Any amount can be added in the hands of the appellant only when it is an income or a capital expenditure claimed as revenue or expenditure incurred for non business purpose is debited to profit and loss account to reduce the taxable income. In this case, it is not an income as the amount has been paid by the appellant from the declared source in the books of account and not received by him. Further, this is also not a capital expenditure as no asset of enduring nature or benefit is coming into existence but the same is related to the stock-in-hand. This is a payment of revenue in nature made for the purpose of the ITA No. 3062/D/2010 8 business. However, the same has not been claimed in the profit and loss account at all and therefore, the same cannot be added in any manner as the same has never been claimed as an expense in the computation of assessable income. Further, no amount towards these charges has been recovered in the year under consideration nor it is case wherever such amounts were recovered but were not shown in the profit and loss account. Thus, the amount so paid and shown as recoverable has not been adjusted against any revenue receipt as has been alleged in the assessment order but without any basis. In view of the above findings, no addition for the registration and electrification charges can be made in the hands of the appellant and the addition of Rs. 3,82,94,536/- stands deleted."
7. Ground no. 4, the facts are though assessee has been following a consistent method based on project completion method i.e. to recognize the revenue on the completion of project. The AO however, held that the assesee in this year should pay tax on percentage of completion method and made the addition of Rs. 28,21,000/-. Aggrieved, the assessee preferred first appeal, where the addition was deleted by CIT(A) by following observations: -
CIT(A) held that (i) the assessee is consistently following project completion method for revenue recognition and it has been allowed to assessee in earlier years as well as associate concern cases. Project completion method was one of them recognize method for recognizing profits in construction business reliance was placed on Nandi Housing (P) Ltd. Vs. DCIT, 80 TTJ (Bangalore) 750 and ACIT Vs. Rajesh Builders 3 SOT 917 (Mumb.);
(ii) No adverse material has been referred to by AO to alleged that there was ITA No. 3062/D/2010 9 any discrepancy in the books of account and ascertainment of profits was being unduly derived.
(iii) Books of accounts have neither been rejected nor any discrepancy in books of account have been pointed out by AO.
8. Assessee following one of the recognize methods cannot be subjected to a new treatment without there being a material available on record. The addition was deleted by following conclusion: -
"Thus, on overall perusal of the assessment order it is seen that neither any defect has been pointed out by the AO in the method of accounting followed by the appellant nor any finding has been given that true and fair profits cannot be deduced following the said method of accounting. No evidence was found during the course of search to show that the books of account are not properly maintained by the appellant. The main thrust of the AO in making the addition is that the assessee is deferring the payment of taxes. But this allegation of the AO cannot be accepted as the assessee is consistently following a method of accounting which is well recognized in development business and has been accepted by the AO also in the other group cases. Thus, the addition is hereby deleted."
9. Ground no. 5, 6 & 7 raises one issue in respect of deletion of addition of Rs. 16167600/- by CIT(A) u/s 68 contravening provisions of Rule 46A in admitting additional evidence. The AO made the addition holding as under:
"It was noticed that the assessee company has made huge investments in purchase of land and a large portion of the money used to finance the purchase of land ahs been ITA No. 3062/D/2010 10 withdrawn from the current account of the assessee company. It was also noticed that the assessee is showing a large amount of advances from customers its books of accounts which are the main source of finance of the purchase of these lands and construction activity shown by the assessee company. To verify the genuineness of the advances, the assessee company was asked to file the details of advances received against sale of property. The assessee has field reply giving details of advances received against bookings. The assessee submitted details. It was noticed that in many of the cases there were a number of customers who have booked flats/spaces against which sales have still not been shown. The assessee was asked to submit confirmations from these customers to confirm that the advances were actually given by them. However, he was not able to produce confirmations in respect of many of the parties. Since the assessee has not produced many of the confirmations he has not discharged the burden placed on him under the provisions of sec. 68 of the Act. Accordingly, all such advances are held to be unexplained cash credits and added back to the income of the assessee as below: -
1) Shaily Singla, 2) Arun Moga, 3) Manju Paliwal, 4) Raminder Singh, 5) Rubina Wadhwa, 6) Onkar Lal Aggarwal, 7) S. Sunpreet Singh and S. Gurcharan Singh, 8) Tatheget Jain, 9) Tathgset Jain, 10) Om Prakash, 11) B.M. Builders, 12) L.K. Jain & Vipin Dang, 13) Kamal Kishore Kain, 14) Ajay Kumar Kain,
15) Archana Saini, 16) Manju Bala, 17) Indovest Financial Service Ltd., 18) Shahi Goel, 19) Mukesh Kumar, 20) Inder Sain Arora, 21) Raj Chopra, 22) Ashish Comboj, 23) Jagvinder Singh Solanki, 24) Lt. Col. Meher Singh, 25) Prem Sancheti, 26) Sarita Sharma, 27) Om Prakash Lohani, 28) Mohan Lal. Total advance from these persons for the period ending 31.3.06 amounting to Rs. 1,61,67,600/- are added to the income of the assessee as ITA No. 3062/D/2010 11 neither the sales in these cases have been effected though more than three years have elapsed, nor proper confirmations have been filed."
10. Aggrieved, against this addition assessee preferred first appeal: -
"In this regard, the appellant submitted that the AO desired confirmations only from those buyers who had made some payment in cash for booking the spaces. He never desired to file any confirmation from those buyers who made the entire payments by cheque. A photocopy of the requirement letter dated 21.10.08 given by the AO for the purpose was placed on record wherein para 27 he desired to file confirmations only from those buyers who had given payment otherwise than through account payee cheque. Therefore, the appellant submitted confirmations from those parties only who have made payment otherwise than account payee cheque. Photocopies of the confirmations from all the said 28 buyers who made the payments through account payee cheques but for whom additions have been made were placed on record. A list was also submitted to show that possessions of the spaces booked by them have already been given to 19 buyers and the corresponding sales have also been recorded on the respective dates. It was further submitted that since the AO never desired to file the said confirmations, those cannot be termed as fresh evidence to attract Rule 46A of the Income Tax Rules because the failure to furnish the same was not at all on account of the appellant. It is the sole prerogative of the AO as to which information he wanted to call. If he did not ask the assessee to submit some information, then the appellant could not be held responsible for not filing the same. Thus, the said addition must be deleted as the same was made not only without ITA No. 3062/D/2010 12 confrontation but also against the facts on record in the books of account."
11. CIT(A) deleted the addition by following observations:
"I have considered the assessment order and submissions including the evidences placed on record by the assessee. On perusal of the questionnaire dated 21.10.08 placed in the paper book, it is seen that the AO asked details of advance received against sale of property otherwise than through account payee cheques and giving complete details and confirmations from such buyers/parties. The appellant submitted those and no addition has been made for the said advances received. Thus, it is clear that the AO never desired to submit any confirmation for the advances received against sale through account payee cheques and, therefore, correctly the same were not submitted by the appellant. However, the confirmations along with copies of ledger accounts of the said buyers in the books of the assessee were filed by the assessee during the course of appellate proceedings.
The same technically is fresh evidence to attract rule 46A as the AO never called for the said confirmations. However, even if those are treated so yet the appellant was prevented from filing the said evidences which are relevant to the ground of appeal. I hereby admit the said evidence as the assessee has fulfilled the condition prescribed u/s 46A.
On perusal of the confirmations on record, it would be seen that the complete details like names, addresses, cheque number, bank details and PAN of the buyers have been duly mentioned therein. On perusal of the list submitted by the appellant, it would be seen that the sale has also been booked for 19 out of 28 buyers in the books of the appellant. Since these advances ITA No. 3062/D/2010 13 were received through account payee cheques and were duly recorded in the books of account as part of the sale proceeds and the buyers confirmed the transactions, it is clear that the appellant has discharged its onus regarding the said buyers. Thus, the addition made u/s 68 stands deleted."
12. Ld. DR apropos ground no. 2, 3 & 4 relied on the order of AO. Apropos issue of addition u/s 68 in ground no. 5, 6 & 7 which is contended that the assessee had not furnished confirmations in respect of customers which are mentioned in his order, therefore, the addition was made. CIT(A) admitted the additional evidence and has not given any opportunity to AO to verify these confirmations. Therefore, the matter may be set aside restored back to the file of AO.
13. Ld. Counsel for the assessee referred to the AO's notice u/s 142(1) dated 21.10.08 in which question 27(a) is reproduced as under: -
(a) "Please give details of the deposits accepted as well as repaid during the year specifying cases which are otherwise than through Account Payee Cheque/Draft.
(b) Give details of advances against sale of property' received otherwise than through Account Payee Cheque/Draft giving complete address of the person particulars of property booked, amount of transaction, amount of advance paid, date of transfer or property and date of receipt of balance amount. These facts should be got confirmed from the parties."
14. Ld. Counsel for the assessee relied upon CIT(A)'s order for ground 2, 3 ITA No. 3062/D/2010 14 & 4 and in respect of ground 5, 6 & 7 contended that all these details were called for in respect of advance amounts received by assessee otherwise then by account payee cheques i.e. by way of cash. These details were filed and there is no addition u/s 68 in respect of advances received by cash. In respect of booking amounts received by account payee cheques no detailed documents were asked for and assessee had given complete addresses with PAN numbers before AO which have not been denied by him. Since assessee during the course of assessment was never asked to furnish confirmations in respect of advances received by account payee cheques they were not furnished. Thus, the AO made the addition without calling for such information. The assessee in first appeal before CIT(A) has raised a specific ground of appeal no. 5 as under: -
"The Assessing Authority erred in law and on facts in making an addition of Rs. 1,61,67,600/- u/s 68 as unexplained cash credit for advances received from some customers mentioned in the assessment order alleging that confirmations from those customers were not filed by the appellant; whereas the appellant was never asked to file such confirmations and without issuing summons u/s 131 to those persons even when their complete addresses with PAN numbers had been furnished in writing by the appellant. Thus, the addition so made on surmises and conjectures must be deleted."
15. CIT(A) on perusal of the entire record has held that AO during the course of assessment did not require the assessee to submit confirmations of advances received by account payee cheques. As a matter of caution ITA No. 3062/D/2010 15 assessee filed the copies of confirmations and ledger accounts before CIT(A). CIT(A) held that it is only technically fresh evidence and assessee was prevented by a sufficient reason from filing it as it was not asked for. Since the AO did not ask for confirmations and made the addition on this observation only, CIT(A) verified the entire record and being satisfied deleted the addition. The CIT(A) is a higher appellate authority and apart from appellate functions has powers of enquiry coterminous with AO. Therefore, no violation of Rule 46A has been caused by CIT(A)'s order.
16. We have heard the rival contentions and perused the material available on record.
17. Apropos the first issue about notional addition of cancellation charges, we find no infirmity in the order of CIT(A), in as much as the addition has been made by AO on the ground that assessee should have charged the cancellation charges from customers who cancelled their bookings. In our view the AO cannot step into the shoes of businessman and review the business expediency of the assessee's decision of not charging cancellation charges. Assessee contends it to be in the interest of market reputation and customer's relations. It has not been alleged that assessee have received cancellation charges and did not disclose in the books. Assessee having not received any such charges CIT(A) has rightly deleted this addition.
18. Apropos, ground no. 3 in respect of registration and electrification ITA No. 3062/D/2010 16 charges.
19. In our view CIT(A) has considered this aspect in right prospective by observing that the assessee could have adopted two ways i.e. by crediting the amount received from buyers in this behalf in cost of project account and claiming debit at the time of payment for registration and electrification connection of the customers. The other way was to show the account as recoverable from buyers and adjust it against amount recovered and if there is any surplus to offer it for taxation. The assessee having adopted one of the proper method the amount cannot be held as capital in this accounting period. Besides the amount has not been claimed in profit and loss account as the receipts were separately accounted for. In our view considering the entirety of facts and circumstances the addition has been rightly deleted by CIT(A).
20. Apropos ground no. 4 we see no infirmity in the order of CIT(A) as department has accepted assessee's method of accounting on project completion method. There is no justification in adopting percentage completion method for one year on selective basis. We uphold the order of CIT(A) deleting the addition of Rs. 28,21,000/- in this behalf.
21. Coming to the last issue about deletion of addition u/s 68 i.e. ground 5, 6 & 7 we have gone through the entire material on record in this aspect and the notice issued by AO u/s 142(1). The requirement of confirmations was in respect of advances received in cash and not by account payee cheques. It is ITA No. 3062/D/2010 17 peculiar that AO has made no addition in respect of cash advances received by assessee and the same has been made in respect of advances received by account payee cheques. Be that as it may, revenue has questioned the violation of Rule 46A. In our view, assessee supplied addresses and permanent account numbers of the customers with books of accounts before AO, which is not disputed. The basis of addition i.e. non furnishing of confirmations has not been specifically insisted by AO and addition was made ignoring addresses and PAN nos.. Assessee filed a specific ground of appeal before CIT(A) challenging the AO's finding for asking such confirmations. In the circumstances, assessee produced before CIT(A) the relevant confirmations from the same customers and their ledger accounts in their books of account claiming that 19 customers have been already sold the flats by the time of first appeal.
22. In our view in these facts and circumstances it cannot be held that CIT(A) violated Rule 46A, he has acted in a judicious and proper manner and his order being based on proper appreciation of facts and record cannot be called violative of a procedural provision. CIT(A) is a statutory first appellate authority and has independent powers of calling for information and examination of evidence and possess coterminous powers of assessment apart from appellate powers. In our view CIT(A)'s order is to be upheld. The matter should not be set aside on general grounds as it amounts to causing the assessee injustice and giving the AO another innings. Besides it is not explicit that AO insisted for confirmations. In our view CIT(A) has decided the issue in ITA No. 3062/D/2010 18 just and proper manner the same is upheld.
23. In the result, the revenue appeal is dismissed.
Order pronounced in the Open Court on 22.12.10
(A.K. GARODIA) (R. P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: *Kavita Chopra
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
DEPUTY REGISTRAR