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2016 (6) TMI 171
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....in confirming the act of the A. O. of rejecting appellant's claim of Rs. 48,22,390/- being the capital cost of improvement as contemplated by section 43(6)(c)(i)(A) of the Income Tax Act 1961. (2) Reasons given by the CIT(A) for confirming the act of the A. O. of rejecting appellant's claim of Rs. 48,22,390/- being the capital cost of improvement as contemplated by section 43(6)(c)(i)(A) of the Income Tax Act 1961, are wrong insufficient and contrary to the facts and evidence on record. (3) In the facts and circumstances of the case and in law the learned CIT (A) erred in confirming the addition made by the A. O. of Rs. 77,99,056/- by way of alteration and addition to work in progress over that determined by the appellant. (4) Reasons given by the learned CIT(A) for confirming the addition made by the A. O. of Rs. 77,99,056/- by way of alteration and addition to work in progress over that determined by the appellant, are wrong insufficient and contrary to the facts and evidence on record. (5) In the facts and circumstances of the case and in law the learned CIT (A) erred in confirming the act of the A.O. of making addition of Rs. 77,99,05....
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....ctory by the assessee prior to year 2003-04 and since 2004-05, It was not in good condition and was rented out and used as a godown. Thus, in order to make the property saleable and to finalize the deal, the assessee agreed for the repairs and alterations as per the requirement of the buyer. With respect to the query of the A.O. regarding the approval and plan from local authority, it was submitted that since the work carried out is in the nature of strengthening, alterations and repairs of existing structure , no approval from the local authorities was required. The assessee submitted that the assessee himself is engaged in the construction activities and he has the technical expertise and resources to carry out the work. The assessee has spent Rs. 48,22,390/- towards the above work and necessary copies of the bills with respect to the work done have also been submitted before the A.O. The A.O. rejected the contentions of the assessee on the grounds that the assessee has not obtained any approval from the local authority for carrying out the alteration and strengthening of existing structure and such a huge amount will not be required to carry out the said work. The constructed....
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....enuineness of the suppliers, Inspector from the Department was deputed to serve notice u/s 133(6) of the Act and it was reported by the Inspector that neither M/s Payal Enterprises nor M/s Bhumi Enterprises have ever existed in the given address as stated in the invoice. The assessee was confronted with the findings of the Inspector. The assessee submitted that the payments were made through account payee cheques and the copy of the bank statements were furnished. The submission made by the assessee was not acceptable to the A.O. as various accommodation entry providers are giving bogus bills and receive the payment by cheques and return the money back to the assessee. Thus , it was held by the AO that purchases of steel from M/s Payal Enterprises and M/s Bhumi Enterprises are bogus and are not genuine purchases. The A.O. observed that the amount of purchases from various parties is not matching with the bill amount and the assessee being engaged in the building activities and electrical contractor, managed to get the bills for showing investment in construction. The AO further observed that the cement purchased from Thakkar Popatlalji Velji shown of Rs. 2,85,000/- but the bill amo....
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....given detail bifurcation of the cost of improvement including the persons who has supplied material and labour to the assessee. The AO issued notices u/s 133(6) of the Act to the parties and in response to the notices u/s 133(6) of the Act, all the parties except one have confirmed that they were supplying building material to the assessee and also confirmed that TDS was duly deducted on amount paid to them from time to time. The assessee submitted that the A.O. was wrong in concluding that all the bills are accommodation bills. The suppliers were regularly supplying building material to the assessee and therefore outstanding as on 31-03-2009 has nothing to do with the goods supplied by them. It was contended by the assessee that because of the said expenditure , the assessee was able to realize a consideration more than the market value of the said factory building and the expenditure was incurred wholly and exclusively in connection with the cost of improvement which was a precondition laid down by the buyer. The assessee submitted that because of the said expenditure, the assessee was able to realize the sum of Rs. 49,40,027/- for the factory building as against the cost of the ....
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.... of assignment dated 20-01-2009. Hence, the learned CIT(A) held that the MOU dated 3rd September, 2007 is not a genuine document to support the assessee claim that the expenses for repairing work were incurred. It was also observed by the CIT(A) that there was a mismatch in the amount shown by the assessee that material and labour expenses claimed by the assessee at Rs. 48,22,390/- as against the bill amount as raised by these 15 parties comes to total Rs. 36,83,451/-. With respect to the genuineness of the suppliers, Income Tax Inspector was deputed by serving notice u/s 133(6) of the Act and after verifying, it was reported that the parties M/s Payal Enterprises and M/s Bhumi Enterprises never existed at the given addresses and some other persons were staying for many years. When it was confronted to the assessee, it was stated by the assessee that the payments were made through the banking channel and copy of bank statements were furnished before the A.O. . The CIT(A) , thus, concluded that construction expenses are not genuine. During the appellate proceedings, the assessee has not disputed the finding of the A.O. made by physical and on the spot enquiries conducted in the case....
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....on surmises and conjectures on suspicion while all the cogent material has been brought on record to substantiate that major structural repairs and modification work was carried out by the assessee at the factory building . He also drew our attention to the certificate of Architect dated 10th September, 2007 describing the work to be carried on for the purposes of repairing to avoid collapsing of the building which is placed at paper book page 89. It was submitted that the learned CIT(A) erred in referring to the MOU dated 3rd September, 2007 being not incorporated in the deed of assignment dated 20th January, 2009 , though the other relevant agreement to lease dated 21st January, 1999 and 14th May, 2008 did find mention in the deed of assignment dated 20-01-2009. The ld. Counsel submitted that the payment has been made by account payee cheques to all the suppliers of the material and labour , and where-ever applicable under Chapter XVII-B of the Act, even taxes were deducted at source and deposited with government treasury .He drew our attention to page 166 of paper book to contend that tax of Rs. 31,765/- was deducted at source on labour charges of Rs. 15,42,000/- paid for struct....
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....nsive repair and modification work required in the factory building to avoid the building from collapsing. The architect has also certified that the beams and columns have developed cracks and water is seeping into the interiors of the building. The architect has also certified that the reinforcements are damaged severely. This architect certificate dated 10-09-2007 and the MOU dated 03-09-2007 are certified by the assessee in the paper book certificate that these documents were duly placed before the learned AO and the learned CIT(A) during the course of relevant proceedings before these authorities. The assessee has incurred these expenses for the extensive structural repairs and modifications in the factory building apart from repairs to the compound wall and leveling of plot, for which the assessee submitted the details/documents including invoices regarding the material cost and labour charges etc. incurred for these extensive structural repairs and modifications towards the factory building apart from repairs to the compound wall and leveling of plot, in terms of the MOU dated 03-09-2007. The payments for this work carried on by the assessee, have been stated to be made throu....
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....ted property was recorded. No technical expert such as DVO was appointed by the Revenue to enquire about the extensive structural repairs and modification claimed to be carried on by the assessee to disprove and demolish the contentions of the assessee . No enquiry was even made with the office of the municipal authorities to ascertain the status of construction and structural repairs and modification of the factory building , if any carried on by the assessee in the impugned assessment year to disprove the contentions of the assessee. The case of the Revenue is based on the non-existence of two parties at the given addresses vide inspector report, which is not sufficient enough to come to the conclusion that the entire theory of extensive structural repair and modification of the factory building as brought out by the assessee is a farce , in-fact the reliance by the Revenue on the inspector report without conducting further probe to conclusively disprove and demolish the contentions of the assessee, has led the revenue conclusions fall into the realm of conjectures and surmises on suspicion which is not permissible. Suspicion howsoever strong cannot take the place of the proof is....
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....e stated to be made by account payee cheques and tax was also deducted at source on these invoices where-ever applicable as per provisions of Chapter XVII-B of the Act. These cogent material brought on record by the assessee backed with the chain of events starting from signing of MOU dated 03-09-2007 and ending with deed of assignment dated 20-01-2009 , which comprised agreement to sell land and factory building for Rs. 1.16 crores vide MOU dated 03-09-2007 with conditions agreed by the assessee to make the factory building fit and usable as the building required extensive structural repairing and modification to suit the buyers requirement, architect certificate dated 10-09-2007 pointing out deficiencies in the factory building structure to avoid the collapsing of building, invoices for material and labour expenses incurred by the assessee towards extensive repairs and modification to the factory building during the period April - November 2008 , payments of these invoices by account payee cheque's, deduction of tax at source on these payments where-ever applicable under Chapter XVII-B of the Act, permission vide approval dated 31-10-2008 from the CIDCO to sell the said land and ....
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.... at page 100 and101 being Ritesh Transport of Rs. 92,192/- bearing number 385 dated 31/05/2008) ) against the expenses of Rs. 48,22,390/- claimed by the assessee, to that extent , we are directing the AO to undertake limited verification before allowing the claim of the assessee after satisfying that complete invoices of Rs. 48,22,390/-backed with account payee cheque payments as claimed by the assessee are on record with the Revenue duly reconciled to protect the interest of Revenue. We direct accordingly. 11. With respect to the second issue, on perusal of the details filed by the assessee, the A.O. observed that the Project Carmel at Kamothe is completed during the previous year 2008-09 relevant to the assessment year 2009-10. The occupancy certificate of the said project issued by the CIDCO was obtained on 30th March, 2009. The assessee has already taken booking advance from the buyers and agreement to sale was also executed still no sale booked for many buyers by the assessee . The assessee has booked sale of Rs. 1,98,47,560/- in the Project Carmel and advance against the booking of Rs. 2,55,68,200/- was shown in the balance sheet as at 31-03-2009. The details of booking ad....
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....0, against the profits on the sale of said units for which the working of such proportionate cost incurred in the subsequent year was submitted to the A.O. by the assessee. The A.O. rejected the contentions of the assessee by holding that the occupancy certificate was obtained by the assessee of the Project Carmel on 30th March, 2009 and then how the possession has been given to the buyers whose sale has been booked and how he booked sale for some of the buyers and not booked sale for some of the buyers is not clear. The AO observed that the project is complete and price almost equal to the sale consideration has been received and since the assessee is following percentage completion method, the profit are to be brought to tax as the project is completed before the end of the previous year relevant to the assessment year and the chargeability to tax cannot be postponed to when the full consideration is received and possession is handed over as now there is no risk of loss in future for the assessee. The A.O. held that as per the guidance note on recognition of revenue by the real estate developers issued by ICAI, the revenue should be recognized when (i) the seller has transferr....
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....as 'Carmel Project' which the assessee was constructing on the plot of land bearing no 12 , Sector-6, Kamothe , Raigad District , Maharashtra. The plot was purchased by the assessee in the assessment year 2006-07 and construction on the said plot started in the assessment year 2007-08 ,which was completed in the assessment year 2010-11. The CIDCO has given occupation certificate with respect to 'Project Carmel' on 30-03-2009 to the assessee, though the construction of the remaining flats continued and building was completed in the assessment year 2010-11. The assessee submitted that building occupation certificate is a mere formality in order to get the water connection, electric connection, drainage connection etc.. The assessee submitted that detailed cost of the material and construction expenses were duly given to show that the construction of the building continued till the assessment year 2010-11. The assessee submitted the details of profit shown in the return of income filed with the Revenue since inception of the Project Carmel till the assessment year 2011-12, which is reproduced hereunder: A.Y. Closing WIP Sale Book Profit 2007-08 46,94,166.00 -- ....
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....he real estate unit to the buyer forming the part of the transaction (c) No significant uncertainty exist regarding the amount of consideration that will be derived from real estate sale, and (d) It is not unreasonable to expect ultimate collection of revenue from the buyer. The said method also recognizes following indicator of such transactions and activities:- (i) The revenue is recognized based on the stage of completion reached (ii) The cost incurred in reaching the stage of completion is matched or compared with the revenue. (iii) Reporting of the result which can be attributed to the proportion of the work completed. (iv) Based on the principle of prudence the revenue is recognized on realization (v) The stage of completion is measured in an appropriate manner. No weightage is given to a single factor, instead of all the relevant factors are considered. (vi) While recognizing the profit under this method and appropriate allowance for future unforeseeable factors which may affect the ultimate quantum of profit is generally made. The assessee submitted that the assessee is following the said ac....
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....ts which were cancelled was received in the assessment year 2011-12, (v) the assessee spent further amount of Rs. 31,79,171.00 during the accounting year ended 31st March 2010 i.e. the assessment year. 2010-11. Thus, the assessee submitted that assessee is following approved method of accounting which reflects true and correct profit, therefore, as a rule of consistency the same method may be accepted. The book results have not been rejected by the A.O.. Thus the assessee prayed that the addition of Rs. 77,99,056 is required to be deleted. In support, the assessee relied upon the decision of ITAT , Mumbai Bench in the case of Awadhesh Builders v. ITO, (2010) 37 SOT 122(Mum.) and ITAT , Ahmadabad Benches in ACIT v. National Builders, (2012) 137 ITD 277(Ahd. Trib.). The assessee also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Realest Builders & Services Ltd.(2008)307 ITR 202(SC) , wherein the Hon'ble Supreme Court held that in the absence of any specific finding to demonstrate that there is an underestimation of income, the presumption would be that the entire exercise is a revenue natural. The assessee also relied upon the decision of Hon'ble Gujarat High ....
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.... a mercantile method of accounting. With respect to the two flats cancelled included in the sale receipt by the AO, the CIT(A) held that when the flats were sold by the assessee , agreements were registered and the amount were realized , it amounts to sale by the assessee and when later on flats were cancelled , the cancelled flats will come back to the stock and further sale will be considered in the year in which they are resold and hence the CIT(A) agreed with the contentions of the AO in recognizing sale of the flats which were subsequently cancelled by the buyers. With respect to the contention of the assessee that in case same is accounted as revenue in the assessment year 2009-10, then the expenses incurred in subsequent years should be allowed, the ld. CIT(A) rejected the contention of the assessee as the projects have been completed and all the flats are sold ,revenue recognized, there is nothing left to allow as expenses pertaining to the same project in the subsequent year. , vide orders dated 09-11-2012. 14. Aggrieved by the orders dated 09-11-2012 of the ld. CIT(A), the assessee is in second appeal before the Tribunal. 15. The ld. Counsel for the assessee submitt....
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....mel for the previous year ended 31-03-2010 corresponding to the assessment year 2010-11. The ld. counsel submitted that the assessment for the assessment year 2010-11 has also been framed u/s 143(3) of the Act whereby Revenue accepted the method of accounting being percentage completion method adopted by the assessee and the assessment order is placed at paper book,page 82-84 . The ld. Counsel relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Realest Builders and Services Ltd. [2008] 307 ITR 202 (SC) ,wherein the Hon'ble Supreme Court held that in the absence of any specific finding to demonstrate that there is an underestimation of income, the presumption would be that the entire exercise is a revenue neutral. The ld. Counsel for the assessee submitted that if the entire income from this Project Carmel is to be treated as income of this year and brought to tax, the benefit of cost which is incurred subsequently in the succeeding year with respect to this Project Carmel should be allowed while computing the income of the assessee for the impugned assessment year. It is submitted that Income is taxed twice with this additions so made by the AO and sustained by ....
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....ucted is stated by the assessee to have been duly offered for taxation with respect to Project Carmel and due taxes being paid to the Revenue by following percentage completion method of accounting . The assessee has received the occupation certificate on 30-03-2009 from CIDCO which is placed at paper book page 118-119. The assessee has deferred the sale to the assessment year 2010-11 with respect to 13 flats on the ground that construction and finishing work was not completed till 31st March, 2009 with respect to these 13 flats and the possession was also given with respect to these 13 flats in the financial year 2009-10 and 2010-111, although almost entire sales consideration has been received till 31-03-2009 with respect to these flats barring one flat where very little amount vis-à-vis total consideration has been received . The assessee has stated to have incurred expenses of Rs. 31,79,171/- in the financial year 2009-10 towards these 13 flats as these flats were not finished by the end of the relevant previous year i.e. 2008-09 and details furnished to the Revenue during the assessment proceedings. The assessee has submitted that merely by receiving occupation certific....