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2015 (8) TMI 329 - ITAT MUMBAI

2015 (8) TMI 329 - ITAT MUMBAI - TMI - Computation of income - 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 - Held that:- The project of the assessee was substantially completed 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. T .....

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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 lower autho .....

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due 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. - Decided against assessee.
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he has made the disallowance without bringing out any material or evidence to say that the expenses were not genuine or that the same were false. Therefore, the Ld. CIT(A) ought to have deleted the entire addition instead of scaling down the disallowance out of the expenses pertaining to the period 1994-95 to 2001-02 and enhancing the disallowance in respect of the period from 2005-06 to 2006-07. As a consequence, we hereby set-aside the order of Ld. CIT(A) and direct the AO to delete the impug .....

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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. - Decided in favour of assessee.

Addition on account of 10% of expenses on construction of swimmi .....

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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 .....

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ted by the CIT(A) to conduct enquiries and furnish a remand report. We do not find any adverse finding by the AO in this context. Even before us, no cogent reasoning or material has been lead by the Revenue to establish any infirmity in the fining of the Ld. CIT(A). - Decided against revenue.

Penalty under section 273B r.w.s. 271B - assessee failed to obtain the requisite tax audit report prescribed under section 44AB - Held that:- there was a reasonable cause prevailing with the asse .....

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e to be deleted. - Decided against revenue. - ITA No.4772/MUM/2011, ITA No.4705/MUM/2011, ITA No.4771/MUM/2011, ITA No.4773/MUM/2011, ITA No.4774/MUM/2011 31-07-2015 - Dated:- 31-7-2015 - SHRI G.S.PANNU AND SHRI AMIT SHUKLA, JJ For The Assessee : Shri Amit Khatiwala For The Respondent : Shri Premanand J ORDER PER G.S.PANNU, A.M: The above captioned five appeals relate to the same assessee which involve certain common/inter linked issues pertaining to assessment year 2005-06, 2006-07 and 2007-08, .....

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Act) dated 24/12/2007. 3. In the appeal of the assessee, the following revised grounds of appeal have been raised. 1) The Learned Commissioner of Income Tax (Appeals) - 23, Mumbai [CIT(A)] erred in holding that the project at Pranik Garden at Kandivli has been completed during the year under appeal and thereby erred in 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 .....

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by 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 .....

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CIT(A) erred in confirming the addition of ₹ 3,45,375/- on account of unaccounted interest. Your appellant submits that the said addition is incorrect and ought to be deleted. 6) The learned CIT(A) erred in confirming the disallowance of 10% of the expenses on construction of swimming pool and gymnasium including garden and children play equipments amounting to ₹ 7,90,200/-. Your appellant submits that the above disallowance is incorrect and the same ought to be deleted. 4. In the c .....

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red in deleting the addition on account of disallowance of expenses of payment to contractor M/s. PM Construction, ignoring the fact that the genuineness of the assessee is not proved during assessment proceeding as well as during remand proceedings. 5. Before proceeding further, it would be appropriate to note that the assessee is a partnership firm engaged in the business of builders and developers. For the assessment year 2005-06 it filed the return of income declaring total income at nil, wh .....

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nd 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 t .....

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from the project was liable to be computed and assessed for in the year under consideration itself. This stand of the AO has since been upheld by Ld. CIT(A) also and the assessee is in appeal before us by way of ground of appeal No.1. 5.2 The discussion in the orders of authorities below reveal that as per AO the project was substantially completed during the year under consideration in as much as all the buildings comprised in the projects were constructed, sold and the flat buyers had taken po .....

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l Corporation on 21/04/2005. The AO has also recorded a finding that not only all the flats/shops were sold but assessee had also collected 98% of the total sale proceeds. The AO has also referred to information obtained by issuance of notice under section 131 of the Act to the maintenance society of the flats, which revealed that the possession of flats was taken by the flat- owners prior to 31/3/2005. The AO has also noticed that the maintenance society was collecting maintenance charges from .....

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ious year relevant to next assessment year and therefore, the profits from the project should be booked in the next assessment year under the project completion method. The aforesaid plea has been reiterated before us in order to assail the stand of the income tax authorities. 5.4 In our considered opinion, the aforesaid plea set up by the assessee does not vitiate the conclusion of the lower authorities that the project of the assessee was substantially completed in the previous year relevant t .....

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t 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 .....

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No.1 is concerned assessee fails. 6. As a consequence of his decision to assess the income earned from the project in A.Y 2005-06 itself, the AO worked out the profit of the project by taking the full value of sale consideration (i.e. consideration actually received + receivable) and the cost of construction of the project. The AO has arrived at the total income from the project at ₹ 3,70,22,113/- Apart from the aforesaid, Assessing Officer assessed an amount of ₹ 62,11,417/- as an .....

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land cost, material cost, labour cost, corporate cost and also credits in respect of various incomes earned in the course of resale of flats already sold in the past. The AO noted that credit for various incomes earned amounting to ₹ 62,11,417/- could not be said to be generated out of the construction and development of the project. Such income was by way of interest on overdue instalments of the purchasers, interest on overdue outgoings, interest on bank deposits, transfer charges as tr .....

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be treated as business income and not as an income assessable 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 .....

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rate 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 expenses which pertain to the period from the year 1995 to 2005. The assessee had claimed that such expenses were reimbursed to M/s. Prankik Jasnil & Associates, who was rendering corporate services to various group entities operating from the .....

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at the site office, etc. the incurrence of ₹ 1,15,73,539/- was quite excessive. The AO also noted that the payment was made to persons specified under section 40A(2)(b) of the Act and, therefore, the same was not reasonable. The AO treated 50% of such expenses i.e. ₹ 57,86,770/- as excessive and unreasonable and disallowed the same. 7.1 The assessee assailed the matter in appeal before Ld. CIT(A) by pointing out that the corporate expenses amounting to ₹ 1,15,73,539/- were for .....

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e stand of the assessee, as according to him, the expenses have to be based on actuals and not on the basis of percentage of the project cost, as done by the assessee. However, the Ld. CIT(A) differed with the estimation made by the AO, and he varied the disallowance, as can be understood from the following discussion in his order:- Thus in the facts and circumstances of the case and the explanation furnished by the appellant it is held that out of the expenses claimed from the F.Y. 1994-95 to 2 .....

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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 wa .....

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period 2002-03 to 2004-05 and to 70% for the period 2005-06 to 2006-07. 7.5 On the other hand, the Revenue by way of its ground of appeal No.1 in the cross-appeal is contesting the disallowance made by the CIT(A) @70% in relation to the expenses for the period 2005-06 to 2006-07. 7.6 As the aforesaid discussion shows that the issue relating to disallowance of corporate expenses has been raised in the cross-appeals, therefore, the cross-grounds are taken up together. 7.7 At the time of hearing t .....

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or the Revenue had defended the orders of the lower authorities. 7.9 We have carefully considered the rival submissions. Having perused the orders of the authorities below, we find that the entire addition is not based on any evidence or material. In fact, the entire corporate expenses have been incurred by way of reimbursement to a concern, who is maintaining common facilities for all the group concerns operating from a common premise. While the AO cannot be faulted for examining the impugned e .....

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O to delete the impugned addition. Thus, assessee succeeds in ground of appeal Nos.3 &4. 8. In so far as the Ground of appeal No.1 raised by the Revenue is concerned, the same relates to the corporate expenses disallowed for the 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 .....

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hat 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 the assessee was that the statement found during the course of survey only .....

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the flats. Therefore, according to him the difference of ₹ 19,55,281/- was interest already collected by the assessee outside the books of account, which he brought to tax. 9.3 Ld. CIT(A) has also affirmed the stand of the AO in principle but with regard to the transaction of Flat No94 in Tower-A, he directed the AO to verify the plea of the assessee that the booking of the flat was cancelled and thus the interest shown in the statement found during the survey was actually not received. L .....

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essee had furnished a confirmation to the effect that the said party did not pay any interest on overdue installments to the assessee. Copy of such confirmation has also been placed in the Paper Book at pages 21 to 22. On this basis it is sought to be pointed out that the AO has wrongly considered the said amount as assessable in the hands of the assessee. 9.5 On the other hand, Ld. DR appearing for the Revenue pointed out that the statement found during the survey showed interest on overdue ins .....

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d 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 .....

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f some of common amenities was still in progress and the relevant expenditure was incurred in later years. The AO noted that total expenses in the project after 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 w .....

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By way of this ground, the grievance of the Revenue is against the direction of the Ld. CIT(A) in deleting an addition made by the AO out of payments to M/s. P.M Construction, a contractor for labour charges. 10.1 In brief, the relevant facts are that the AO has made disallowance out of labour charges of ₹ 1,67,55,600/-, which, inter-alia, included payments to M/s.PM Construction of ₹ 31,69,358/-. The AO made the disallowance on the ground that the payments made to the contractor wer .....

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report. 10.2 The Ld. CIT(A) considered the remand report of the Assessing Officer and also the other documents furnished by the assessees, namely, confirmation of the contractor, assessment order of the contractor, other income tax details of the contractor viz. PAN, return of income, etc. The Ld. CIT(A) has further noticed in the impugned order that Shri Shyam Mundra, proprietor of M/s. PM Construction also appeared before him and confirmed rendering of services and the receipt of payment from .....

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f 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. .....

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In the result, whereas the appeal of the assessee for assessment year 2005-06 is partly allowed, the cross appeal of the Revenue is hereby dismissed. 11. Now, we may refer to the captioned appeals of the assessee for assessment years 2006-07 and 2007-08, which are directed against the respective orders of Ld. CIT(A) dated 01/04/2011 and 29/03/201. 11.1 In these appeals, the issue relates to the year in which the project of the assessee is said to be completed so as to deduce the income there fr .....

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ssed. 12. The last captioned appeal is vide ITA No.4771/Mum/2011 pertaining to A.Y. 2005-06, which relates to the order of Ld. CIT(A) dated 01/04/2011, whereby the penalty levied by the AO under section 271B of the Act of ₹ 1.00 lac has been sustained. 12.1 The AO levied the penalty on the ground that the assessee failed to obtain the requisite tax audit report prescribed under section 44AB of the Act. As per the AO the total sale proceeds for the A.Y 2005-06 exceeded the prescribed limit, .....

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