Income Tax Appellate Tribunal - Mumbai
Enora Construction, Mumbai vs Department Of Income Tax on 10 May, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E", MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL (J.M.)
AND SHRI N.K. BILLAIYA (A.M.)
ITA No. 6766/Mum/2011
Assessment Year : 2008-09
Income Tax Officer - 6(2)(3), M/s Enora Construction Pvt.
Room No. 562, Ltd.,
Aayakar Bhavan, Plot No. 66/98,
M.K. Road, Vs. Touchwood Plaza,
Mumbai - 400 020. 33 Road, Old Khar, (West),
Mumbai - 400 052.
PAN AABCE1794B
(Appellant) (Respondent)
Department by : Shri Charanjit Singh
Assessee by : Shri M.P. Kakhija
Shri S.M. Makhija
Date of hearing 06-9-2012
Date of pronouncement 14-9-2012
ORDER
PER DINESH KUMAR AGARWAL, J.M.
This appeal preferred by the Revenue is directed against the order dtd. 1-7-2011 passed by the ld. CIT(A) - 12 Mumbai for the A.Y. 2008-09.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of construction. During the course of assessment proceeding, on examination of details of sundry creditors, the A.O. observed that out of advance for sale of shops amounting to Rs. 2,14,67,767/- the assessee vide agreement dtd. 15-3-2007 has sold the 2 ITA No. 6766/MUM/2011 entire first floor to M/s Stop and Select for sale consideration of Rs. 1,25,00,000/-. He further observed that similarly another part was sold on 7-11-2007 to M/s Delite Fashions (Spice Girl) for a consideration of Rs. 88 lacs. The A.O. to understand the ground reality, deputed the Ward Inspector to vist the place and to give the status report. The Ward Inspector visited the property on 14-12-2010 and has given the following report:-
"As directed by you I visited the above premise (the property) today i.e. 14-12-2010. During my visit, I observed that the said building was situated in cloth market of Khar. (i) on ground floor there was a way for the basement wherein there was a godown for cloths rollings (bales), (ii) on first floor there was assessee company's office, (iii) a shop of cloths is situated in second floor, (iv) on the last floor there was a open terrace, (v) the offices and shops were open during my visit."
In view of this the assessee was asked to show cause as to why proportionate profit on the above sale should not be taxed. In response the assessee filed his submissions dtd. 10-12-2010 which has been reproduced by the A.O. at page 4 to 6 of the assessment order. The A.O. has also summarised the assessee's submission as under:-
"(A) An under construction project was acquired on 26th Aug. 06 with some structure thereon as well as open land which was proposed to be further developed.
(B) For some legal hitches the project got struck and in F.Y. 2007-08 some expense was incurred and estimated profit at Rs. 1,06,200/-
declared for tax purpose.
(C) The project is not complete and even basic amenities like toilets and outside roads etc. do not exists and the property is not fit for living. (D) Handing over of possession is only token because even as per law the property cannot be occupied for want of occupation certificate. 3 ITA No. 6766/MUM/2011 Property has been occupied illegally and in unauthorised manner and cannot be held to be legally occupied.
(E) To buy peace and avoid litigation and subject to non-levy of penalty the returned income is revised to Rs. 17,88,600/- which is 8% of the total WIP shown by the assessee with the rider that no penal provisions should be invoked."
The A.O. after considering the same applied the ratio of the decision of the Tribunal in the case of M/s Champion Construction Company (5 ITD
495) held that the assessee is liable to pay tax on proportionate basis on the above sale. Accordingly the A.O. on the sales of Rs. 2,13,00,000/- worked the proportionate profit at Rs. 67,06,049/- and added the same to the total income of the assessee.
3. On appeal the ld. CIT(A) while agreeing with the views of the A.O. and in relying on the decision of the Tribunal in DCIT vs. Joginder Construction Company Pvt. Ltd. for A.Y. 1996-97 order dtd. 10-5-2005, applied net rate at 10% of profit on the sales of Rs. 2,13,00,000/- and worked out the income of the assessee at Rs. 21,30,000/- and accordingly allowed a relief of Rs. 46,82,250/-.
4. Being aggrieved by the order of the ld. CIT(A) the Revenue is in appeal before us taking the following grounds of appeal:-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in reducing the addition of Rs. 68,12,250/- to Rs. 21,30,000/- ignoring the inability of the assessee to give details of expenditure and failing to appreciate that the assessee had received the entire consideration of Rs. 2,13,00,000/- and had given possession of the property sold to the purchasers.4 ITA No. 6766/MUM/2011
2. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
5. At the time of hearing the ld. D.R. submits that for the reasons as discussed in the assessment order, the ld. CIT(A) was not justified in reducing the addition of Rs. 68,12,250/- to Rs. 21,30,000/-. He, therefore, submits that the addition made by the A.O. be restored.
6. On the other hand, the ld. counsel for the assessee while relying on the order of the ld. CIT(A) submits that the project is not yet completed inasmuch as assessee is yet to incur substantial expenses on completion of the project for which expenses had to be apportioned to the entire building including the portion yet to be constructed some of which items are as under:-
(i) Till date no completion/occupation certificate has been received in respect of the building.
(ii) When a builder applies for certificate he is asked to make various corrections/additions/alterations in the building as a whole including the sold portions.
(iii) No internal road within the boundary wall has been constructed, no toilets/drainage system and sewerage including septic tanks and soak etc. are yet to provided.
(iv) Overhead and under ground water storage tanks, water pipes, water meters, pump room with pumps and accessories are to be provided.
(v) Electric common load wiring, starters, switches and all common wiring are to be provided.
(vi) Common lights in staircases, landings, gates, terrace and compound.
(vii) Unallotted open bathroom space has to be provided.5 ITA No. 6766/MUM/2011
(viii) Compound gates and common compound walls have to be constructed.
(ix) Lifts have to be provided.
He further submits that since the A.O. has not considered the proportionate cost attributable to the above amenities, the ld. CIT(A) was fully justified in applying net rate of profit at 10% of the sale consideration and hence the order passed by the ld. CIT(A) be upheld.
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee is following project completion method. We further find that as per the agreement dtd. 15-3-2007 the entire first floor was sold to M/s Stop and Select for a consideration of Rs. 1,25,00,000/- and another part was sold on 7.11.2007 to M/s Delite Fashions (Spice Girl) for a consideration of Rs. 88 lacs. It is also not in dispute that the possession of the property was also given by the assessee. On a specific query as to how the sale consideration of Rs. 1,25,00,000/- as per agreement dtd. 15-3-2007 has been considered in the year under consideration, both parties have not addressed on this issue. Be that as it may, we find that there is no dispute that the A.O. has determined the profit of Rs. 67,06,049/- on estimated basis. On appeal, the ld. CIT(A) while holding that the A.O. was justified in applying the percentage completion method, however, held that the appellant must have incurred certain amount of expense before 6 ITA No. 6766/MUM/2011 selling the units and accordingly she applied a net rate of profit at 10% on the amount of sale consideration of Rs. 2,13,00,000/- vide findings recorded in para 7 of the order which are reproduced as under:-
"As stated in the submission of the appellant the relevant portion of which has been reproduced above, it is seen that the appellant has submitted that the appellant be given a benefit of the expenses it has incurred to bring the property in question at a position of sale. It has further been stated that the assessing officer's method is faulty and legally not tenable in respect of estimating the cost of construction as benefits of expenses incurred have not been given. I find that this submission carries weight. It is logical to presume that the appellant must have incurred a certain amount of expense before selling the units. However, it is also seen that the appellant has pleaded an inability to give the details of the expenditure incurred as it is following a project completion system of accounting. Under these circumstances, I find that what needs to be considered here is the application of net profit rate in the case of appellant to arrive at the figure of income for the concerned assessment year that needs to be taxed. The appellant has relied on the case of DCIT vs. Joginder Construction Company Pvt. Ltd. for A.Y. 1996- 97, wherein the Hon'ble ITAT 'I' Bench, Mumbai has in its order dated 10/05/2005 upheld the action of the CIT(A) in adopting a net rate of profit at 10%. As the case relied upon is in respect of the jurisdictional Court placing reliance on the same, I find that it would be justified a net profit rate of 10% was applied in the case of the appellant as far as the sales are considered as by doing so it would cover up for the cost incurred by the appellant for the units sold. The Assessing Officer is to compute the income of the appellant by taking 10% of sale consideration that is Rs. 21,30,000/- (2,13,00,000 x 10 /100) as the profit of the appellant in the concerned year in respect of the sales made in this year. The appellant would, therefore, get a relief of Rs. 46,82,250/- (Rs. 68,12,250 - 21,30,000)."
8. In the absence of any contrary material placed on record by the Revenue against the aforesaid finding of the ld. CIT(A) and keeping in view the assessee's plea that he has incurred substantial amount of expenses on completion of the project as stated hereinabove which was not controverted by the Revenue, we are of the view that the ld. CIT(A) was fully justified in applying the net rate of profit at 10% on the sale 7 ITA No. 6766/MUM/2011 consideration and accordingly the order passed by the ld. CIT(A) does not call for any interference. The grounds taken by the Revenue are, therefore, rejected.
9. In the result, Revenue's appeal stands dismissed.
Order pronounced on 14-9-2012.
Sd/- Sd/-
(N.K. BILLAIYA) (DINESH KUMAR AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated : 14-9-2012.
RK
Copy to:
1. The Appellant
2. The Respondent
3. Commissioner of Income Tax (Appeals)- 12, Mumbai
4. Commissioner of Income Tax - 6 Mumbai
5. Departmental Representative, Bench 'E', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI