TMI Blog2007 (1) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire multi-storeyed commercial complex at their own cost on the land provided by the assessees jointly. In consideration thereto, the assessees would allot a specified built up area to M/s. L T. The project being a huge one, it was completed in phases spanning over so many assessment years in between. 3. When the construction was under progress, certain units of the commercial complex were completed. Before finally settling the contractual obligations and selling the built up areas to others, the assessees had let out certain units fit for consumption. As per the leave and licence agreements executed between the assessees in one hand and the tenants on the other hand, the consideration flowing from the tenants to the assessees comprised of two segments. The first segment is the Rent proper; the second segment is the charges against various services rendered by the assessees to those tenants. 4. The assessees in their returns of income for the impugned assessment year 2004-05, computed their income on the basis of dividing the total amounts received between rent and service charges. As far as the rent portion is concerned, the assessees claimed statutory deductions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. Regarding the sale of built up area to various parties including M/s. L T, the ld. Commissioner held that the Assessing Officer has not made any necessary enquiries before accepting the proposition made by the assessees. He observed that the method of accounting followed by the assessee in computing the profit on sale of built up area is not scientific and proper and there was no basis to make an estimate of 20 per cent of the consideration as profit of the impugned assessment year. He observed that the method of accounting followed by the assessee has not reflected the correct value of the built up stock by way of work-in-progress and the appropriation of expenditure project-wise and year-wise were not properly arranged and thereby distorting the working results to the advantages of the assessees from time to time. He also found that the assessees have not accounted any profit on the sale of 23,307 sq.ft. super built up area allotted to M/s. L T. According to the Commissioner, the correct procedure in the matter of accounting in respect of the construction was to provide the entire cost of the land and building in the books of account and the cost of the constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order unless the view taken by the assessing authority is unsustainable in law. ( ii )That the Assessing Officer exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be held erroneous only for the reason that the Commissioner does not agree with the conclusion. That where the Assessing Officer has made enquries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanations in writing and the Assessing Officer accepts the explanations furnished by the assessee upon his satisfaction, then the decision arrived at by the Assessing authority cannot held erroneous. ( iii )The decision of the assessing authority to treat the income from tenants under two heads viz. , house property and business income are supported by a number of decisions; Some of which are : Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC) CIT v. Russell Properties (P.) Ltd. [1982] 137 ITR 473 (Cal.) CIT v. Associated Building Co. Ltd. [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed before us the details of the income furnished by the assessees for the three assessment years i.e. 2002-03, 2003-04 and 2004-05 along with copies of assessment orders to bring home the point that the assessees were following a regular method of accounting to ascertain the income and the final position would be declared on completion of the project as a whole. He has also filed copies of the judgments relied on him. The ld. counsel has also filed paper books before us containing copies of agreements, notices, replies etc. 12. Shri N.N. Mishra, the ld. Commissioner of Income-tax (DR) argued the case along with Shri Z.S. Klar, the Commissioner of Income-tax who passed the impugned revision orders. 13. The revenue has filed before us four sets of paper books containing all the relevant matters available in the assessment files. The case has been strenuously argued by the revenue. The detailed arguments and contentions advanced by the ld. Commissioner are briefed below : ( i ) The assessment orders passed by the assessing authority have not touched any of the vital aspects of the assessments concerning property income and profit on sale of built up units. This is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold during the year as shown in the return of income in the light of the prevailing market price. Regarding house property income/business income, the assessees have shown the leave and licence income entirely as business income for the earlier assessment years 2001-02 and 2002-03 whereas for the impugned assessment year, the assessees have bifurcated the income as income from house property and business income. This shift in the stand has provoked the Commissioner of Income-tax to make further enquiries on the issue. The cost of the built up units sold by the assessees in the relevant previous year had to be recomputed because the transfer of built up area to M/s. L T was not disclosed by the assessees in the returns. There is no restriction on the Commissioner to consider only those issues raised in the first show-cause notice. If subsequent issues come to the notice, those issues could again be considered by the Commissioner, on which an opportunity was given to the assessee. Therefore, it is not true to argue with the recomputation of the cost of construction was made by the Commissioner without hearing the assessee. ( vi )The revisional power conferred on the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng work-in-progress method. The Commissioner in his order passed under section 263 has not disturbed the method of work-in-progress followed by the assessee except making mathematical calculation of profit on the basis of work-in-progress method rather than ad hoc percentage adopted by the assessee. ( iv )As per the revised accounting standard AS-7 issued in 2002, project completion method is not applicable in the matter of long-term projects involving construction of their own projects. 15. Regarding the nature of leave and licence income, the Commissioners argued that detailed discussions have been made in the respective revision orders establishing that the assessees have not rendered any service to the tenants and, therefore, no justification to treat part of rental income as business income. The assessees are not running business centres. Assessees were not in a position to explain why different treatment has been given for the service charges received from different tenants. The service charges are inseparable from the rental amount and the Commissioner has rightly revised the decision of the assessing authority on the issue. 16. We heard both sides in detail and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "business" has been defined in section 2(13) of the Income-tax Act, 1961, to include any trade, commerce or manufacture. This definition, being an inclusive one, is indicative of an extensive and expanded meaning rather than a restricted or narrow meaning. The Court held that in view of this, the activities, which may amount to business need not necessarily be by way of trade, commerce or manufacture, or be in the nature of a profession. They may even consist of rendering of services as in the case of selling agents, managing agents and these services may be of a variegated character. Since a specific head of charge is provided for income from the ownership of house property, rents or other income from the ownership of house property cannot be brought to tax under any other head. However, when the property has been let out not only as a property but with services which is a complex letting, the income cannot be said to be derived from mere ownership of house property but may be assessable as income from business. The Court thus concluded that if an owner holds a property for a business purpose and receives from his tenants rents which include charges for supplying various services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no material on record to show that the assessees have deviated from the consistent method for the impugned assessment year 2004-05. For the assessment years 2002-03, 2003-04 and 2004-05, the assessees have consistently estimated the profit on sale of built up area at 20% of the consideration. There are no materials available on files that the sale consideration stated in the agreements were false and some higher considerations have changed hands. The finding of the Commissioner in a different line is on the basis of cost of construction worked out by him where he has not included the cost of construction incurred by M/s. L T Ltd. Thereby the Commissioner has reduced the cost of construction compared to the cost declared by the assessee. Further to the above, the Commissioner has included the market value of the built up area allotted to M/s. L T Ltd. on the basis of the agreement between the assessees and M/s. L T. Thereby he has increased the receipts. Therefore, the disparity pointed out by the Commissioner of Income-tax is the dual effect of reducing the cost of construction and increasing the amount of sale consideration. At this point, the Commissioner of Income-tax has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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