TMI Blog2015 (8) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal Corporation for issuance of occupation certificate, through an Architect on 16/7/2002 itself, which would show that as per the assessee the building Tower-B was completed before it approached the Municipal Corporation for issuance of the occupation certificate. Having regard to the fact-situation and the material on record, we find enough justification for the lower authorities to hold that the project of the assessee was substantially completed in the previous year relevant to the assessment year 2005-06 and, therefore, income from such project was liable to be assessed in assessment year 2005-06 itself by application of the project completion method. - Decided against assessee. Income from other sources - Held that:- Factually speaking, it cannot be disputed that the aforestated incomes, namely, the interest on overdue installments, interest on overdue out comings, interest on bank deposits, transfer charges as transfer of ownership of flats/shops, etc. on resale transactions and brokerage income on resale of flats are not incomes arising in the course of assessees business activity of construction and development of the real estate project. Therefore, in our view, the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/4/2005 till 31/3/2007 is ₹ 98,81,184/- and the provision for expenses was ₹ 79,02,200/-, totaling to ₹ 1,77,83,184/-. In the assessment for A.Y 2007- 08 provision for expenses claimed amounted to ₹ 79,02,200/- out of which 10% was disallowed as excess provision leaving the balance of ₹ 71,11,800/-, which was allowed. No reason to interfere in the findings of Ld. CIT(A) confirming disallowance, which are quite fair and proper. Thus, on this aspect assessee fails. - Decided against assessee. Addition made by the AO out of payments to contractor for labour charges - CIT(A) deleted the addition - Held that:- It is notable that the Ld. CIT(A) has relied upon the material before him which proved that M/s. PM Construction had rendered services to the assessee firm and that the payment made by assessee stood duly confirmed in the course appellate proceedings. There is no material led by the Revenue which would enable us to disagree with the finding of the Ld. CIT(A) on this aspect, which we hereby affirm. It is also discernible that the material and evidence relied upon by the CIT(A) for deleting the addition was very much made available to the AO in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the income from the said project during the year. Your appellant submits that the project has been completed in F.Y.2006- 2007 and CIT(A) ought to have held so and the income computed by the Assessing Officer ought have been deleted. Your appellant submits that the said income is wrongly taken as the income of the year and the same ought to be deleted. 2) The learned CIT(A) erred in confirming the addition of income of ₹ 62,11,417/- pertaining to various years as income of the year. 3) The learned CIT(A) erred in confirming 30% of Corporate Expenses incurred during F.Y. 1994 - 1995 to F.Y. 2001 - 2002 while computing the income from the project and thereby sustaining the addition of ₹ 24,32,562/-. Your appellant submits that the above disallowance is incorrect and the same ought to be deleted. Without prejudice to the above disallowance confirmed by CIT(A) is excessive and unreasonable and the same ought to be reduced substantially. 4. The Learned CIT(A) erred in enhancing the disallowance of Corporate Expenses from 50% to 60% of the expenses incurred during F.Y. 2002-03 to F.Y.2004 - 2005 and 50% to 70% for F.Y. 2005 - 2006 and F.Y.2006 - 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, whereas the Revenue is also in appeal in relation to the reliefs allowed by Ld. CIT(A). 5.1 In so far as the ground of appeal No.1 raised by the assessee is concerned, the same relates to the manner in which income of the assessee is liable to be computed from the development of its project named Pranik Garden at Mahavir Nagar, Kandivali(West), Mumbai. In this context, brief facts are that the assessee firm has undertaken development and construction of a project consisting of various buildings. In the return of income filed the assessee did not declare any income from the said project on the ground that the same was still under construction and not complete. The assessee was accounting for the income from the development and construction of the project on the basis of project completion method. Though the AO did not disagree with the assessee on the method of accounting employed i.e. project completion method, so however, he differed with the assessee on the aspect of completion of the project. As per the AO the project was completed during the year under consideration and therefore, the profit from the project was liable to be computed and assessed for in the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the previous year relevant to the assessment year under consideration. In fact it is seen that the project consisted of construction of Tower-A,B,D E, Tower Ekata and shopping arcade/parking space. The AO has noticed that except for Tower-B the occupation certificates for all other buildings were received prior to 31/3/2005 and in fact they have been received in the earlier years. With respect of Tower- B, it is seen that though the occupation certificatewas issued by the Mumbai Municipal Corporation on 21/4/2005 but 30 flat owners out of 40 flats, took possession of the flats before 31/3/2005 and the flats were occupied. The maintenance society confirmed before the AO that the flat owners were occupying the flats even before 31/3/2005. In any case, it is not disputed that assessee approached the Mumbai Municipal Corporation for issuance of occupation certificate, through an Architect on 16/7/2002 itself, which would show that as per the assessee the building Tower-B was completed before it approached the Municipal Corporation for issuance of the occupation certificate. Having regard to the fact-situation and the material on record, we find enough justification for the lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head income from other sources. 6.3 On the other hand, the Ld. DR appearing for the Revenue has defended the orders of lower authorities on this aspect. 6.4 We have carefully considered the rival submissions. Factually speaking, it cannot be disputed that the aforestated incomes, namely, the interest on overdue installments, interest on overdue out comings, interest on bank deposits, transfer charges as transfer of ownership of flats/shops, etc. on resale transactions and brokerage income on resale of flats are not incomes arising in the course of assessees business activity of construction and development of the real estate project. Therefore, in our view, the lower authorities have made no mistake in assessing the aforesaid incomes under the head income from other sources, which we hereby affirm. Thus, ground of appeal No.2 of the assessee fails. 7. In the ground of appeal Nos.3 4, the issue relates to corporate expenses disallowed by the AO while computing income from the project. In brief, the relevant facts are that in computing the cost of construction of the project, the AO noticed that assessee had claimed a sum of ₹ 1,15,73,539/- as corporate expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction work was remaining, 60% of the claim is not exclusively for the purpose of business. The disallowance for the latter period would work out to ₹ 20,79,000/- (60% of ₹ 34,65,000/-). For the periods thereafter, since the project is completed in FY 2004-05, although the appellant claims it to be completed in FY 2006-07 and has claimed expenses in the following two financial years, reasonable disallowance of corporate expenses would be @ 70% of the claim, since the Assessing Officer would have to consider the expenses booked after FY 2004-05 upto FY 2006-07. 7.3 The aforesaid discussion reveals that so far as expenses claimed for the period 1994-95 to 2001-02 are concerned, the Ld. CIT(A) reduced the disallowance to 30% as against 50% disallowed by the AO and for the period thereafter upto 31/3/2005 the disallowance was enhanced to 60%, as against 50% disallowed by the AO. Further, for the period 2005-06 to 2006-07, the CIT(A) enhanced the disallowance to 70% as against 50% disallowed by the AO. 7.4 By way of Ground of appeal No.1, assessee is contesting the disallowance of 30% retained by the CIT(A) out of corporate expenses pertaining to the period 1994- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period 2005-06 to 2006-07. The said ground, in our view, is quite misconceived in as much as the Ld. CIT(A) has enhanced the disallowance to 70% and not reduced the disallowance made by the AO at 50%. Nevertheless, in view of our decision in the assessee s appeal on ground Nos.3 4 above, the aforesaid ground in the appeal of the Revenue is liable to be dismissed. We hold so. 9. Now, we may take up the ground of appeal No.5 of the assessee, which relates to a sum of ₹ 3,45,375/- on account of unaccounted interest. 9.1 In this context, the brief facts are that during the course of survey certain loose papers were found which showed of installments due and interest on overdue installments to be charged from the purchasers of flats. The AO noticed that on comparison of the interest recoverable as per said statement with the actual interest income accounted for in the books of accounts, there was a difference of ₹ 19,55,281/-. It was noticed by the AO that the interest income credited in the books of account was lower by a sum of ₹ 19,55,281/- in comparison to the interest recoverable shown in the documents found in the course of survey. 9.2 The stand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a J. Malavia Ors. on overdue installments. The addition has been made by AO only on the basis of the document found during survey, which is merely a tabulation showing interest due and does not clinchingly establish actual receipt of interest without any corroborative evidence. On the contrary, assessee furnished a confirmation from the flat buyer, a copy of which is also placed in the Paper Book filed before us, which establishes that no interest was paid to the assessee. In the orders of the authorities below, we find no negation qua the aforesaid evidence furnished by the assesse. Therefore, we deem it fit and proper to direct the AO to delete the said addition. Thus, on this aspect, assessee succeeds. 9.7 The last ground in this appeal relates to an addition of ₹ 7,90,200/- on account of 10% of expenses on construction of swimming pool and gymnasium disallowed by the AO. 9.8 In this context the relevant facts are that in computing the cost of construction of the project, the AO also took into consideration the provision for committed liabilities on account of the expenses incurred on the project in the subsequent period. It was noticed that construction of some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PM Construction also appeared before him and confirmed rendering of services and the receipt of payment from the assessee firm. 10.3 After considering assessment order, the submissions of the assessee, remand report of the AO as well as the material before him, the CIT(A)has found it expedient to delete the addition made in respect of payments to M/s. PM Construction. Revenue is in appeal before contending that the genuineness of transaction with M/s. PM Construction could not be proved by the assessee during the course of assessment proceedings. 10.4 On the other hand, Ld. AR has defended the order of Ld. CIT(A) by placing reliance there on. 10.5 We have carefully considered the rival submissions. It is notable that the Ld. CIT(A) has relied upon the material before him which proved that M/s. PM Construction had rendered services to the assessee firm and that the payment made by assessee stood duly confirmed in the course appellate proceedings. There is no material led by the Revenue which would enable us to disagree with the finding of the Ld. CIT(A) on this aspect, which we hereby affirm. It is also discernible that the material and evidence relied upon by the CIT(A) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The contention of the assessee is that while following the project completion method at the time of preparation of its income tax return, there was no reason to consider that its accounts were liable to be audited under section 44AB of the Act. It was also pointed out that in the past years the assessee has also been filing its return on similar basis.It is only as a consequence of assessment finalized by the AO that the assessee had become liable for getting its accounts audited u/s.44AB of the Act. 12.3 Having considered the submissions put forth by the assessee we find that there was a reasonable cause prevailing with the assessee for not getting his accounts audited under section 44AB of the Act as the prescription of section 44AB of the Act was triggered only after AO rejected the assessee s methodology of booking profit from its project. Therefore, in our view, having regard to the provisions of section 273B r.w.s. 271B of the Act, there was a reasonable cause prevailing with the assessee for not getting its accounts audited under section 44AB of the Act. Accordingly, the penalty levied under section 273B is liable to be deleted. We hold so. 12.4 Thus, appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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