TaxTMI 
TaxTMI 
2020 (9) TMI 534
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....the order u/s 263 of the Act. The CIT(A) cannot make an addition on the points on which were not directed in the order passed by the Commissioner of Income-tax u/s 263 of the Act. 3). On the facts and the circumstances of the case and in law, the learned CIT(A) erred in treating amount of Rs. 2,01,22,773/- recovered from Omega Investment and Properties Pvt. Ltd. as a income from Other Sources instead of reducing from the cost of construction of the project. The CIT(A) wrongly confirmed the said amount as "Income from other sources". 4). On the facts and the circumstances of the case and in law, the learned CIT(A) erred in not considering the matching concept of accounting thereby reducing the amount received from the expenditure incurred. The appellant submits that the expenditure incurred for which amount received from Omega Investment and Properties Pvt. Ltd. has to be adjusted against each other since the expenses as well as amount received from the Omega Investment and Properties Pvt. Ltd. were for project. 5). Without prejudice to above, the CIT(A) ought to have allowed necessary effect by way of adjustment in closing stock. 6). On ....
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.... CIT(A) erred in confirming the estimated profit of Rs. 1,05,32,819/- on account of sale of certain flats, which were sold in earlier year and the income of the same was correctly declared and shown & accepted by the department u/s 143(3) of the Act in that year. The appellant submits that income has correctly been shown in earlier year and has been assailed by the assessing officer after due scrutiny. The CIT(A) erred in not deciding the issue on merit and instead sending back the issue which has already been decided by the A.O. 17). On the facts and the circumstances of the case and in law, the learned CIT(A) erred in confirming the estimation of profit which is an arbitrary and without any basis and on surmise and conjectures. 18). On the facts and the circumstances of the case and in law, the learned CIT(A) erred in confirming the cost of the flats which were wrongly arrived at by the A.O. 19). On the facts and the circumstances of the case and in law, the learned CIT(A) erred in totally contrary to what has been held by the CIT(A) while valuing the closing stock as on 31/03/2009 for the purpose of addition of the closing stock. The learned C....
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....the sale consideration of the flats in the year under consideration, as against A.Y 2008-09, as claimed by the assessee : Rs. 1,05,32,819. 4. Aggrieved, the assessee assailed the aforesaid additions /disallowances before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the impugned additions made by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them. We shall first take up the grievance of the assessee that the lower authorities had erred in assessing the interest received by the assessee firm on the capital overdrawn by one of its partner viz. Shri. Shrenik Siroya, as its income under the head "Other sources". For a fair appreciation of the issue under consideration we shall briefly cull out the facts therein relevant. During the year under consideration the assessee firm had received/paid interest from/to its partners, as under: Name of Partn....
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.... The Board have been advised that while there is an express provision in s. 40(b) which expressly prohibits the deduction from the firm's income of any payment by way of interest made to a partner, there is no provision in the Act which provides for adjustment of the interest paid by the partner to the firm. In view thereof the gross amount of interest paid to the partner will have to be added back to the income of the firm. The earlier clarification issued in the Circular No. 33D(XXV-24) of 1965 (F. No. 9/55/64-IT(A-I) dt. 8th Nov., 1965, to the effect that where the firm pays interest as well as receives interest from the same partner, only the net interest can be said to have been received or paid by the firm and only such net interest should be taken into consideration, is not in accordance with the provisions of the Act. The above instructions will apply to all pending assessments. Completed assessments need not be disturbed." As such, to the extent Sec. 40(b) was concerned, we find that as per the CBDT Instruction No. 882[33-D(XXV-24) of 1965], dated 25.09.1975, even in a case where the firm pays interest as well as receives interest from the same partner, th....
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....tock, from which it had reduced the aforesaid amount of estimated expenses of Rs. 2 crore. On the basis of its aforesaid calculations, the value of the closing stock was worked out by the assessee at Rs. 21,24,09,160/-. For the sake of clarity, the valuation of the closing stock as was carried out by the assessee on 31.03.2009 is reproduced as under: "Stock Valuation as on 31/03/2009 AREA CALCULATION SIROYA'S SHARE IN AREA Opening Balance (31/03/2009) : 3142.13 Sq. Mts Stock Acquired from Omega not recorded last year : 107.47 Sq. Mts VALUATION OF CLOSING STOCK AMOUNT PROJECT COST Opening Stock (01.04.2008) : Rs. 13,55,42,560.30 Add: Expense during the year : Rs. 9,33,35.961.58 Add: Provision for expenses to be incurred in next year. : Rs. 2,00,00,000.00 Total Cost : Rs. 24,88,78,521.88 COST PER SQ. MTR. Total Cost : Rs. 24,88,78,521.88 Total Area (Sq. Mtr) : 3,249.60 Sq. Mtr Cost per Sq. Mtr. :Rs. 76,587.43 Sold Area : 215.04 Sq. Mtr Unsold Area : 3034.5....
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.... in the valuation of stock. 9. Aggrieved, the assessee has assailed the sustaining of the aforesaid addition of undervaluation of closing stock by the CIT(A). We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them. As observed by us hereinabove, the assessee for the purpose of valuation of its unsold area of 3034.56 Sq. mtr of land had after including on an adhoc basis the estimated expenses of Rs. 2 crore (to be incurred upto the completion of project), therein worked out the cost per square meter at Rs. 76,587.43. Adopting the said rate, the closing stock was initially valued by the assessee at Rs. 23,24,09,160/- [3034.56 Sq. mtr. X Rs. 76,587.43]. But then, the assessee reduced the aforesaid estimated expenses of Rs. 2 crores from the aforesaid value of closing stock, and by so doing, scaled down its value to Rs. 21,24,09,160/-. In the course of the assessment proceeding the A.O rejected the inclusion of the estimated expense (to be incurred upto the completion of project) for the purpose of valuing the closing stock....
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....the view taken by the lower authorities who had rightly rejected the same. In fact, we endorse the view taken by the lower authorities that in order to deduce the true profits of the assessee for the year under consideration the closing stock was to be valued at cost (i.e after excluding estimated costs). As regards the claim of the ld. A.R that the assessee was consistently following the aforesaid method for valuation of closing stock, the same we are afraid does not find favour with us. As observed by the Hon'ble Supreme Court in the case of CIT Vs. British Paints Ltd. (1991) 188 ITR 44 (SC), in a case where an assessee was not following the correct system of accounting and the valuation of the stock-in-trade was likely to result in a distorted picture of the true state of business for the purpose of computing the chargeable income, there even if the assessee had adopted a regular system of accounting, it was the duty of the A.O u/s 145 of the Act, to consider whether the correct profits and gains of the assessee could be deduced from the accounts so maintained. It was observed by the Hon'ble Apex Court that if the A.O was of the opinion that the correct profits could not be dedu....
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....d on the judgment of the Hon'ble High Court of Calcutta in the case of CIT Vs. Bengal Jute Mills Co. Ltd. (1992) 107 CTR 34 (Cal) and that of the Hon'ble High Court of Madhya Pradesh in the case of Radheysham Aggarwal & Co. Vs. CIT (1994) 119 CTR 263 (MP). We thus in terms of our aforesaid observations restore the issue to the file of the A.O with a direction that the valuation of the opening stock may also be carried out as per the method substituted by the A.O for valuing the closing stock. Accordingly, the issue is 'set aside' to the file of the A.O for giving effect to our aforesaid observations. The Grounds of appeal No. 12 to 15 are partly allowed for statistical purposes in terms of our aforesaid observations. 11. We shall now advert to the claim of the assessee that the CIT(A) had erred in confirming the estimated profit of Rs. 1,05,32,819/- on account of sale of certain flats, which were sold in earlier year and the income of the same was correctly declared and shown & accepted by the department u/s 143(3) of the Act in that year. Succinctly stated, the A.O in the course of the assessment proceedings observed, that the assessee had offered income from sale of Flat Nos. ....
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....dya & Co. had acknowledged the completion of construction upto 23rd floor vide his letter dated 28.08.2008, which pertained to A.Y 2009-10 and not A.Y 2008-09. Further, it was noticed by the A.O that the aforesaid purchasers had already paid substantial amount of sale consideration which was being shown as advance against flats in the books of the assessee, as under: Flat No. Name of purchase Sale Consideration Date of payments Date of sale A.Y (during which sale was offered) 903 Manish & Shialesh Chopra Rs. 37,50,000/- 27.01.2004 24.02.2009 A.Y 2008-09 904 Jayesh & Shialesh Chopra Rs. 37,50,000/- 27.01.2004 24.02.2009 A.Y 2008-09 1803 Shialesh & Sangeeta Chopra Rs. 37,50,000/- 27.01.2004 24.02.2009 A.Y 2008-09 1804 Rajesh & Shialesh Chopra Rs. 37,50,000/- 26.02.2004 24.02.2009 A.Y 2008-09 2005 Kirti Chauvan & Vela Chauvan Rs. 29,16,700/- 31.10.2003 07.06.2004 02.09.2008 A.Y 2008-09 2006 Bela Chauvan & Kirti Chauvan Rs. 29,16,700/- 31.10.2003 07.06.2004 02.09.2008 A.Y 2008-09 2203 Asha Pranjpee Rs. 97,50,000/- 12.05.2007 26.07.2007 27.02.2008 26.....
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.... and also the profit & loss a/c of the assessee firm for A.Y 2008-09, Page 139-142 of APB. It was further submitted by the ld. A.R that as the sale consideration of the 8 flats in question was substantially received by the assessee in the period relevant to A.Y 2008-09, therefore, the assessee as per its consistent method of accounting had accounted for the same as a part of its sales for the said year. The ld. A.R took us through a 'Chart', Page 149 of APB, wherein the complete details of the sale transactions (including the impugned 8 sale transactions) aggregating to Rs. 26,03,30,190/- were reflected in A.Y 2008- 09. On the basis of the aforesaid details, it was submitted by the ld. A.R that irrespective of the date of execution of the 'agreement to sell' the assessee had accounted for the sale transactions in the year in which consideration against sale of flats was substantially received, construction upto a particular floor was completed, and revenue there from could reasonably be determined. It was further submitted by the ld. A.R that the aforesaid sale transactions were duly accepted by the A.O in his assessment framed u/s 143(3), dated 21.12.2010 for A.Y 2008-09. Per cont....
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....sing of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i). the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii). no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods." Now, in the case before us the assessee had executed the respective agreement's to sell for the aforesaid properties under consideration during the year under consideration viz. A.Y 2009-10. In fact, as observed by us hereinabove, the construction of the property upto 23rd floor in itself was completed on 23.08.2008, which pertains to the period relevant to the year in question i.e A.Y 2009-10. In the backdrop of the aforesaid facts, we are unable to comprehend as to on what ba....
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....s "Developer") for re-development of a Slum-Rehabilitation project known as "Kingston Tower", Parel, Mumbai, Page 16 -57 of APB. On a perusal of the details, it was observed by the A.O that the assessee during the year was in receipt of an amount of Rs. 2,01,22,773/- that was credited against the labour expenses incurred and booked by it under the head "Labour account for buildings". On being called upon to explain the nature of the aforesaid transaction, it was submitted by the assessee that the developer, viz M/s Omega Investment and Properties Pvt. Ltd. had got a plan approved for constructing nine buildings, out of which eight buildings of different heights were to be constructed for rehabilitation of the tenants/occupants of the property being developed, and one tower consisting of Ground + 24 storeys was to be constructed as the sale building. As on the date of execution of the sub-development agreement, dated 19.03.2003, the developer had completed the construction of two buildings and had commenced the construction of the third building for rehabilitation of the tenants/occupants. As per the sub-development agreement the developer for the purpose of expertise, knowledge,....
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.... of its aforesaid terms of agreement, it was the claim of the assessee before the lower authorities that it had incurred the aggregate amount of expenditure of Rs. 2,01,22,773/- for construction and completion of the tenants/occupants building during the year ended 31.03.2009. Out of the aforesaid amount of Rs. 2,01,22,773/-, it was submitted by the assessee that the same comprised of an amount of Rs. 1,98,41,458/- towards labour charges for extra FSI and other small amounts on account of petty expense viz. sale of material, and also other such expenses incurred on behalf of the developer. It was submitted by the assessee that as the expenditure that was incurred by it towards construction and completion of the tenants/occupants building was thereafter reimbursed by the developer, viz. M/s Omega Investments & Properties Pvt. Ltd., therefore, the same was credited to the 'Labour account for buildings a/c' wherein the expenses incurred on behalf of he developer were booked. As such, it was the claim of the assessee that after crediting the labour expenses of Rs. 2,01,22,773/- that was reimbursed by M/s Omega Investments & Properties Pvt. Ltd., as against the labour charges of Rs. 2,8....
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....ncome of the assessee from "Other sources". On appeal, the CIT(A) concurred with the addition made by the A.O and upheld the addition. 16. Aggrieved, the assessee has contested before us the aforesaid addition sustained by the CIT(A). We have heard the authorised representatives for both the parties in context of the issue under consideration, perused the orders of the lower authorities and the material available on record. Admittedly, the assessee had received an amount aggregating to Rs. 2,01,22,773/- from the developer, viz. M/s Omega Investment & Properties Ltd, which were claimed to be towards reimbursement of labour charges aggregating to Rs. 1,98,41,458/- and other such miscellaneous expense of Rs. 2,81,315/-, that in the first instance were incurred by the assessee on behalf of the developer. As observed by us hereinabove, the assessee had executed a sub-development agreement, dated 19.03.2003 with M/s Omega Investment and Properties Pvt. Ltd. for re-development of a Slum-Rehabilitation project at Parel, Mumbai. On a perusal of the sub-development agreement, we find, that the developer, viz M/s Omega Investment and Properties Pvt. Ltd. had got a plan approved for constru....
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....reased FSI available thereon with the specifications and amenities therein as mentioned in the Annexure "D" thereto; and (c) All cost of further development in excess of 1,10,000 sq. ft of saleable area or as approved by SRA (which can be less or more than 1,10,000 sq. ft of saleable area) as per the potential of the said Plots No. 183 and 185 including costs of constructions, purchase of TDR FSI, charges of the Architects, costs of construction of additional tenements for the Tenants/occupants beyond 260 tenements or as may be stipulated by SRA, as also fees and professional charges of the Architects/R.C.C consultants and all other persons whose services would be engaged for the construction project as also all further expenses shall be shared between the Developers and the Sub-developers equally. Similarly the premises of the said excess saleable area over and above saleable area of 1,10,000 sq. ft or as approved by SRA (which can be less than 1,10,000 sq. ft of saleable area) as per the potential of the said Plot Nos. 183 and 185 was also to be shared between the Developers and Sub-developers equally. Further, as per Clause 5 of the sub-development agreement, it is provided that....
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.... requisite documents/information as was called for by the A.O, but then, in the backdrop of the aforesaid factual matrix the rejection of the claim of the assessee that the receipts being in the nature of reimbursement of expenses were rightly reduced from the amount of labour expenses debited in the profit & loss a/c, does not inspire much of confidence. As a matter of fact, the veracity of the aforesaid claim of the assessee finds support from the view taken by the A.O in the case of the assessee for A.Y 2012-13. As pointed out by the assessee, in A.Y 2012-13 the account of the developer, viz. M/s Omega Investment & Properties Ltd. was debited by a sum of Rs. 1,14,82,082/- pursuant to the resolution of the disputes between the assesee firm and the developer regarding labour charges and FSI debited in the earlier years. Accordingly, the labour account for building was credited and the account of the developer, viz. M/s Omega Investment & Properties Ltd. was debited by the aforesaid amount in the books of the assessee. As such, it is the claim of the assessee that the cost of goods sold for A.Y 2012- 13 was computed under identical facts by crediting an amount of Rs. 1,14,82,082/- ....