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2016 (1) TMI 1083 - ITAT MUMBAI

2016 (1) TMI 1083 - ITAT MUMBAI - TMI - Accountability of project income - CIT(A) accounted for its income on project completion method - Held that:- We are in agreement with the findings of the CIT(A) that the project was completed in the assessment year 2005-06 and the assessee had rightly accounted for its income on project completion method in the said year and not in AY 2004-05.

Enhancement of assessment on the basis of fair market price - Held that:- The order of CIT(A) enhanci .....

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referred to in table A. The assessee was under contractual obligation to sell the flats to the original purchasers at the price agreed to by the original owners. Neither the AO nor the CIT(A) brought any materials on records to show that the assessee received more than what had been shown in the sale deeds. The Ld CIT(A) also failed to bring any cogent materials on records for enhancing the assessement. No defects were pointed out in the records maintained by the assessee and therefore the invok .....

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icable for ascertaining the full value of consideration in respect of business assets i.e inventories as the said provisions deals with ascertaining the full value of consideration in case of capital assets for the purpose of capital gain. Further our attention was drawn to the newly inserted section 43CA of the act which deals with ascertaining the full value of consideration in case of assets other than capital assets but the said section is applicable w.e.f. 2014-15. After taking into account .....

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. Kusum Bansal, DR For The Assessee : Shri Hiro Rai, AR ORDER PER RAJESH KUMAR, A. M: 1. These appeals by the assessee and by the Revenue for two different years directed against the order of Commissioner of Income Tax (Appeals)-20, Mumbai (hereinafter called as the CIT(A)) for assessment year 2004-05 and 2005-06 both dated 22-11-2010. Since both these appeals relate to the same assessee and therefore these are clubbed together, heard together and disposed off by this consolidated order for the .....

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l b. Ambalal Premji Patel c. Kanji Dharamshi Patel d. Bharat Nanji Patel 2. Failing to consider relevance of time and terms of payment with reference to each of the registered agreements for sale of flats while comparing the rate of realization from the flats and replacing it by applying a uniform rate for sale at ₹ 8,990/- per sq.ft. for the entire project of 12 flats. 3. Holding that any further amount was realized/realizable from sale of flats accounted as per the registered agreement o .....

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meditated with the only object of understating the profits from the project. 7. Holding and alleging that the contracts on 28th May 2001 with the four purchasers before the development of the project undertaken by the appellant in or around 14th July 2001 were pre-mediated and ill conceived only for understating the income of the project completed during the year. 8. Confirming that there was suppression of sales value in six out of eight flats sold by the appellant. 9. Holding that the appellan .....

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s declared and disclosed. 14. Adopting market rate of ₹ 8,990/- per sq. ft. for estimating income from the project of Joanna Villa. 15. Determining and holding that there is understatement of sale value of the project of Joanna Villa to the extent of ₹ 5,30,80,200/- 16. Each of the above ground is independent of the other. 2. The assessee filed concise ground in place of all the grounds taken above in form 36 which is reproduced as under:- The Ld CIT(A) was not justified in enhancing .....

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cts of the case are that the assessee was engaged in the business of property development and during the year it had two projects in hand namely, one at Pali, Dr. Ambedkar Road, Bandra, Mumbai and other Goanna Vila, 28th Road, Bandra (W), Mumbai. The assessee was following project completion method for accounting the income from these projects. The project at Pali was started in July 1997 and was said to be in progress since then but there was hardly any activity on the said project whereas Joan .....

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loss of ₹ 2,00,222/- , returned a total income of ₹ 94,76,650/-. 4. The AO during the course of assessment proceedings of the current year noticed that out of twelve flats constructed in the said project, eight flats were booked in the F.Y. 2003-04 and full sale considerations in respect of seven flats were received during the year. AO further observed on the basis of WIP at the year end vis-à-vis previous year that 89% of the project was completed at the end of the F.Y. 2003- .....

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see. 5. Being aggrieved by the order of AO, assessee preferred appeals before CIT(A) for both assessment year i.e. 2004-05 and 2005-06. Ld. CIT(A) deleted the addition made by the AO in the assessment year 2004-05 and agreed with the contention of the assessee that the project was completed during the year and the income from the said project was rightly shown by the assessee in the current year as per the method of accounting regularly followed. However, the Ld. CIT(A) disagreed with the method .....

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ame is not sustainable in law. Ld. Counsel submitted that the Joanna Villa project was owned by Rose Margaret Dorothy Nazareth nee D souza and Joseph Peter Francis D souza (hereinafter referred to as original owners) and the said original owners of the property got the plans sanctioned from BMC vide order dated 31.03.2001 whereby the original owners were permitted to construct an additional floor comprising four flats bearing no. 201, 202, 203, & 204 and entered into four separate agreements .....

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the same rate. However, the project did not come through and finally a Memorandum of intended agreement for development dated 14.07.2001 was entered into with the assessee by the said original owners under which the rights to develop the said property were transferred to the said assessee for a total consideration of 2.70 crores. As per the MOI, the assessee was to use the balance FSI if any and also to use additional FSI by purchasing the TDR from outside at its own cost and put up additional c .....

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loors in place of second floor above the old structure as got approved by the original owners. The Ld. Counsel argued that the CIT(A) has grossly erred in ignoring the fact that the assessee under MOI had undertaken to honour the commitment of original owners made to four persons with whom they had entered into agreements to sell. The counsel further submitted that the assessee entered into separate modificatory agreements for sale with four purchasers. Agreement with Harilal Sabji Patel was ent .....

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per consideration received from the purchasers at the agreed rate and the balance flats were sold at the rate ranging between ₹ 6,750 per sq. ft. to ₹ 7034.22 per sq. ft. and thus showing gross sale from the project at 7,71,46,062/-, however, the Ld. CIT(A) enhanced the sale by applying fair market rate of 8,990 per sq. ft to all the twelve flats and estimated the turnover at ₹ 13,02,26,260/- and thus made the addition of ₹ 5,30,80,200/- on account of suppressed sales on .....

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ascertaining the full value of consideration of an assets other than a capital assets is applicable w.e.f. assessment year 20104-15. Thus, the action of CIT(A) in applying the fair market value without any bringing material on records and invoking provisions of section 145(3) of the Act without pointing any defects in the books of accounts and estimating the sales value and consequential enhancement of assessment was not correct. He therefore prayed that the appeal of the assessee be allowed. 7. .....

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tuated at 28th Road, off Turner Road, Bandra, Mumbai having a structure on the said property comprising ground floor and an upper floor. The original owners intended to develop the property by putting up additional construction above the existing structure on exterior columns on all sides without demolishing the existing structure. They got plan sanctioned by BMC vide order dt.21-03-2001 permitting them to construct an additional floor, i.e., 2nd Floor comprising 4 flats bearing nos.201, 202, 20 .....

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atel 417.13 (600) ₹ 3,000 Rs.12,51,390 203 Kanji Dharamshi 447.75 (600) ₹ 3,000 Rs.13,43,250 204 Bharat Nanji Patel 701.12 (500) ₹ 3,000 Rs.21,03,360 Note: Figures in bracket represent entitlement to additional area constructed, if any, at the same rate of ₹ 3, 000 per sq. ft. It was also agreed that in the event the owners putting up additional floors by utilizing the FSI if any available in the existing premises or by way of purchase of TDR from outside at any time in f .....

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and the original owners entered into a Memorandum of Intended Agreement (MOl) for Development dt.14- 07-2001 with the appellant (called in the agreement as 'the Developer ) transferring the right to develop the said property to the appellant at total consideration of ₹ 2.7 crores. In terms of the MOl the appellant was to utilize the balance FSI, if any, available on the said property and also to utilize additional FSI by purchasing TDR from outside at own cost and put up additional co .....

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sting structure and also obtained the commencement certificate vide order dt.09-11-2001.The owners entered into regular Agreement for Development on 21-12-2001, with the appellant and transferred the right to develop the said property for a total consideration of ₹ 2.70 crores. It was stipulated that all the flats to be constructed in the said property shall belong to the appellant which shall be entitled to deal with or dispose them off in own ways and also entitled to receive and appropr .....

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flats, additional space and the agreed rates were provided for in the modified agreements: TABLE-B *represents open terrace at 7th floor, value which was valued for only 40% of the terrace area (e.g., for Flat 601 terrace area of 473.23 sq. ft. , the same for valuation was taken at 40%, i.e., 189.30 sq.ft. X ₹ 6, 000 = ₹ 11,35,800) 10. On completion of the project the appellant accounted for the sales of all the 12 flats constructed in the financial year 2004-05 and furnished the fl .....

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,00,222 returned total income was ₹ 94,76,650. However the AO assessed income from Joanna Villa Project on protective basis in the AY 2005-06. The appellant had another project on hand at Pali, Bandra which was in progress during the year. The AO observed that opening work in progress in respect of Pali Project had gone up from ₹ 8,70,477/- to ₹ 11,61,727/- at the end of the current year. He was of the view that a part of the other expenses debited to the P&L A/C related to .....

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e appellant contested this apart from challenging the validity of protective assessment of income from Joanna Villa Project. The AO in the reassessment proceedings framed the assessment order for the AY 2004-05 by adding of ₹ 1,13,62,449/- and ₹ 1,37,23,455/- in relation to the above project by computing a total sum of ₹ 2,12,26,659 as the sales value of the four flats including the additional space and after adjusting ₹ 1,13,62,449 accounted for by the appellant, the AO .....

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87,13,295. After adjusting the sales of ₹ 49,89,840 accounted for by the appellant, he added the difference of ₹ 1,37,23,455 as suppressed sales value for these two flats. Thus the AO made total addition of ₹ 2,50,85,904 (1,13,62,449 + 1,37,23,455) on account of suppressed sales. We note that the CIT(A) held that the AO was right in forming an opinion that that there was suppression of sales value but he was wrong in calculating the suppression only to 6 flats and not for all t .....

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r Table C below and enhanced the asseassment by ₹ 5,30,80,200/- by holding that the market value of the flats sold by the appellant during the period from 30-10- 2002 and 29-03-2004 ranged between ₹ 8,583.65 per sq. ft and ₹ 8,992.56 per sq.ft. Admittedly, the project was completed on 01-04-2004. The project has to be valued on this date. The CIT(A) observed the market rate nearest to this date was ₹ 8,992.56 per sq.ft. CIT(A) thereafter applied at the rate of ₹ 8,9 .....

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1,23,79,680 603 556.19 19,56,000 0,50,00,150 Total 7,71,46,062 13,02,26,260 12. On the basis of completion certificate in respect Joanna Villa Project, we are in agreement with the findings of the CIT(A) that the project was completed in the assessment year 2005-06 and the assessee had rightly accounted for its income on project completion method in the said year and not in AY 2004-05. But the order of CIT(A) enhancing the assessment by ₹ 5,30,80,200/- on the basis of fair market price of .....

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he flats to the original purchasers at the price agreed to by the original owners. Neither the AO nor the CIT(A) brought any materials on records to show that the assessee received more than what had been shown in the sale deeds. The Ld CIT(A) also failed to bring any cogent materials on records for enhancing the assessement. No defects were pointed out in the records maintained by the assessee and therefore the invoking the provisions of section 145(3) of the Act to estimate the income is wrong .....

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assets i.e inventories as the said provisions deals with ascertaining the full value of consideration in case of capital assets for the purpose of capital gain. Further our attention was drawn to the newly inserted section 43CA of the act which deals with ascertaining the full value of consideration in case of assets other than capital assets but the said section is applicable w.e.f. 2014-15. After taking into accounts all the facts, arguments of both the parties and records before us, we are of .....

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