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2016 (6) TMI 33 - ITAT MUMBAI

2016 (6) TMI 33 - ITAT MUMBAI - TMI - Deduction u/s 80-IB - Addition as projects not completed during the year on the basis of project completion method regularly followed by the assessee - Held that:- It is only after the end of the litigation and vacation of the stay order the assessee got the occupation certificate on 18.02.2010 for the additional floors. We also find that the possession were given to the buyers of the flats as per the original sanction plan whereas the additional floors were .....

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ed by the assessee. Thus we are of the considered view that the method of accounting followed by the assessee i.e. project completion method was correct and recognized one and AO was wrong in rejecting the same while accepting the same method in the earlier and preceding years - Decided in favour of assessee. - I.T.A. No 6787/Mum/2012, I.T.A. No 6774/Mum/2012 - Dated:- 25-4-2016 - SHRI AMIT SHUKLA, JM AND SHRI RAJESH KUMAR, AM For The Appellant : Shri J.P. Bairagra For The Respondent : Shri S.S. .....

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he same is not the income of the year under consideration without appreciating the fact that the said projects were already complete and the assessee was merely deferring the payment of taxes on the same. b. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the disallowance made u/s. 40A(2)(b) in respect of services rendered to Kukreja Services P Ltd to ₹ 7,50,000/- as against ₹ 9,30,000/- made in the assessment order. 2. The facts in b .....

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raised in ground no.1 is against the deletion of addition of ₹ 52,71,02,218/- by the CIT(A) on the ground that three projects namely, Sai Ashish , Hari Kunj and Chembur Heights were not completed during the year on the basis of project completion method regularly followed by the assessee and accepted by the department in the preceding and succeeding years. 3.1 The ld. AO treated the above three projects as completed during the year on the basis of Occupation Certificate obtained by the as .....

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he assessee by holding that the assessee had completed substantial part of the construction in these three projects and also received considerations for sale of flats. In some cases the AO observed that the money received from the buyers were more than the sales consideration. While framing the assessment the ld. AO relied heavily on the spot verification report by the inspector. Only those projects were treated as completed during the year in which the advance against the sale of flats received .....

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he appellant is on account of the definition or completion of project. In respect of Sai Ashish project, the fact is that the appellant has completed the project as per the approved plan and sold them out to prospective buyers. While doing so, due to certain progress in litigation in respect of DC Rules, the appellant received approval for additional floors and has therefore, treated the construction and sale of additional floors as part of the original project. On the other hand, the Id .AO has .....

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of one tower as completion of that part of the project. 3.7 Before coming to any definite conclusion, it is necessary to analyse the reasons given by the Id.AO to hold that the projects namely Sai Ashish, Harikunj Heights and Chembur Heights stood completed during the year under consideration. The main reason for considering Sai Ashish project to be completed is that the sanctioned floors of Wing A,B,C,D & E at 6,6,6,6 & 7 respectively were completed by 2008, whereas the appellant receiv .....

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gh Court has passed a stay order on the debit of TDR in the restricted zone. The original plan could only be approved subject to such a stay order and when the litigation came to an end and the stay order was vacated, the appellant received the commencement certificate on 18.02.2010 for the additional floors. However, the ld. AR claimed that notwithstanding the fact that the possession given to the buyers who purchased the flat as per the original plan, the project continued to take shape until .....

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the buildings of the project, has to be treated as the date of completion of project. The Id.AR stated that this practice has been followed by the appellant and approved by the ITAT in the group cases. Reliance was placed on ITAT's decision in the Wazarina Estate & Investment P. Ltd V/s. ACIT dated 29.01.2004 in ITA.No.2107 & 3934/Mum/2000 for A.Yrs 1996-97 and 1997-98. The appellant's submission in respect of other two projects namely Chembur Heiqhts and Harikunj Heights furthe .....

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each wing has been taken. b. The Harikunj building is situated near Chembur Heights and it is a stilt plus 14 floor building having stilt area for parking. Building has single wing of 84 flats. Landscaped garden is located in the premises. On a spot enquiry, the watchman has stated that the building Harikunj is 4 to 5 years old. Photographs of the site as well as the name plate displayed in each wing have been taken. c. The Sai Ashish building has A,B,C,D & E wings. The structure of the bui .....

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watchman has stated that tile building Sai Ashish is around 4 to 5 years old and all the flats are occupied and there are two flats on the 8th floor of the C and B wing. Photographs of the site as well as the name plate displayed in each wing have been taken. 3.8 As is apparent from the Inspector's report cited at para 7.4 of the assessment order that Chembur Heights project is supposed to be having 14x2=112 flats. Similarly, Harikunj Heights is supposed to be having 84 flats. On the other h .....

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y 112 flats in Chembur Heights project and 84 flats in Harikunj Project. 3.9 All these factors clearly indicate that till the year under consideration, the three projects were in different stages of completion. In respect of Sai Ashish project, as against the 199 flats to be constructed, the appellant received advance against sales in respect of only 121 flats and the remaining 78 flats were unsold, which works out to less than 80% of the total flats being sold, The appellant claimed that the pr .....

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completed, Until Champion Construction's ratio was being followed, the project was taken to be complete when substantial construction had been completed and/ or substantial advance against sales had been received, Subsequently, the ITAT has been supporting the view that the issue date of last of the Occupation Certificates should be taken to be the date of completion of project. Even Section 80IB( 10) defines the completion of project to be the date of Occupation Certificate. 3.10 Having ana .....

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on method was to be followed. In Sai Ashish project, only 121 flats have been sold and the remaining 78 are in the stock. Realization against sales till the year end in respect of this project has been ₹ 22.01 crores against the realization upto 31.03,2012 of ₹ 39.99 crores, Similarly, in Harikunj Project, only 76 flats have been sold and the remaining 150 are in the stock, Realization against sales till the year end in respect of this project has been ₹ 28.35 crores against th .....

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ed to be complete during the year, the profit in respect of that project only should have been worked out by excluding advance in respect of incomplete projects. Therefore, since it is a case where none of the three projects is completed during the year under consideration, there is no occasion for the Id.AO to indulge in such an exercise. . Accordingly, it is held that the profit worked out from the three projects at ₹ 52,71,02,218/- is not the income of the year under consideration and t .....

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were fully occupied by flat owners with all amenities and facilities connected there with proper landscaped garden etc. The ld. DR heavily relied upon the orders of AO and prayed that the order of CIT(A) be set aside and that of AO to be restored. The ld. AR on the other hand strongly objected to the argument of the ld. DR by submitting that all these projects were incomplete as on 31.03.2009. On the other hand, Ld. AR submitted that Sai Ashish project has two buildings with building no 1 which .....

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ut that spot verification by inspector was wrong as the said report pertained to the completed towers/buildings only and not for ones which were under construction. The ld. AR also filed the details of advance received and cost incurred qua these three projects for the assessment year 2009-2010 to 2012-2013 to prove that the assessee incurred various expenditure on the construction of these flats and also received advances against booking/ sale of flat in these projects meaning thereby that thes .....

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- in assessment year 2012-2013 on both these accounts. Similarly in Chembur Heights Project the advance for sale of flats had gone up from ₹ 31,04,10,112/- to ₹ 51,58,45,848/-and cost incurred also increased from ₹ 10,45,34,625/- to 26,08,01,188/- over a period of three years. The ld. Counsel for the assessee on the basis of these facts vehemently submitted that the assessee even after the close of financial year under consideration continued to incur the expenditure on the con .....

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accepted accounting methods to account for income from the projects one is percentage completion method and another is project completion method . The ld. Counsel submitted that the assessee is following the project completion method since beginning which was being accepted by the department in all the years prior and subsequent to assessment year under consideration and it is only during the year the AO has assessed the income of the assessee by adopting the method which is invariance to the me .....

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was engaged in the business of developing various residential and commercial projects of which some projects were eligible u/s 80-IB(10) of the Act, whereas some were not. The assessee was following the project completion method to recognize the income from various projects undertaken by the assessee. The said method of accounting stands accepted by the department in the preceding and succeeding years as is clear from the records and various assessment orders passed u/s 143(3) for assessment yea .....

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e status of the project and buildings in respect of which the assessee has received entire sale amount along with society charges, Inspector was deputed to make inspection on the spot and submit his report. As directed, the Inspector of Income-tax visited on the site of all the projects and submitted his report as under: a. The building namely Chembur Heights is a stilt plus 14 floor building and there are two wings namely A and B in the said building with four flats on each wing. On a spot enqu .....

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5 years old. There is a landscape garden. Photographs of the site as well as the name plate displayed in each wing has been taken. c. The building namely Sai Ashish has A,B, C, D & E wings. The structure of the building is stilt plus 7 floors. There are four flats on each floor starting from the first floor. The stilt parking area has been constructed in the inner side of the premises whereas in the outerside i.e. on the road side, there are shops. Most of the shops have been sold as it is a .....

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report reveals that in Chembur Heights there were two wings namely A and B with four flats on each wing and these were three to four years old with proper landscape around the building. In respect of Hari Kunj project the said report stated that said project had single building of 84 flats which was duly landscaped and was completed 4 to 5 years before. In respect of Sai Ashish project the report states that there were 5 wings in the said project with seven floors with stilt having four flats on .....

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arized as under:_ Project Total flats constructed Total flats under construction Total flats Total Flats Sold/advance received Flats unsold SAI ASHISH (1) (2) (1+2) (4) (5) Building No.1 155 24 179 121 58 Building No.2 0 20 20 0 20 199 78 Project Total flats constructed Total flats under construction Total flats Total Flats Sold/advance received Flats unsold HARI KUNJ (1) (2) (1+2) (4) (5) Building No.1 82 0 82 76 6 Building No.2 0 84 84 0 84 Building No.3 0 60 60 0 60 226 150 Project Total flat .....

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of 226 flats the construction was completed only in respect of 112 flats and 144 flats were under construction. Similarly in the third project namely, Chembur Heights out of 426 only 124 flats were completed and 302 flats were under construction. The above table also reveals the various flats sold out of the completed buildings and remaining unsold at the year end. The ld. AR also filed before us projectwise and yearwise break up of advance received and work in progress from assessment year 2009 .....

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1,248/- 14,63,65,013/- 2011-12 36,70,86,670/- 16,69,78,226/- 2012-13 39,99,38,320/- 18,28,92,916/- HARIKUNJ PROJECT: Assessment Year Advance received Work in progress 2009-10 28,34,91,801/- 13,97,48,363/- 2010-11 30,69,02,869/- 20,38,91,615/- 2011-12 38,19,90,559/- 27,70,30,257/- 2012-13 48,99,91,273/- 30,34,14,437/- CHEMBUR HEIGHTS PROJECT: Assessment Year Advance received Work in progress 2009-10 38,04,10,112/- 10,45,34,625/- 2010-11 47,46,77,503/- 22,64,58,546/- 2011-12 50,42,10,793/- 23,43,1 .....

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s on 31.03.2009 Profit of the project computed by AO A B A-B Chembur Heights-100 38,04,10,112/- 10,45,34,624/- 27,58,75,488/- Hari Kunj-80 28,34,91,800/- 13,97,48,362/- 14,37,43,438/- Sai Ashish-124 22,01,81,404/- 11,26,98,112/- 10,74,83,292/- Total 88,40,83,316/- 35,69,81,098/- 52,71,02,218/- The ld. AO computed the profit by subtracting the cost as per work in progress of these three projects form the total advance received against the sale of flats as is clear from the table above which we fi .....

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e on 18.02.2010 for the additional floors. We also find that the possession were given to the buyers of the flats as per the original sanction plan whereas the additional floors were still under construction during the year. The total number of flats as per the original plan were 155 to which 44 flats were added after revised occupation certificate obtained from the BMC. In view of above facts, we do not find any infirmity in the order of CIT(A) and further the case of the assessee is fortified .....

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appeal of the revenue in ITA No 548 of 2012 vide order dated 12th March, 2012. In the case of CIT vs. Manish Builders (P) Ltd (2011)245 CTR(Del)397, the Delhi High Court has held that project completion method is one of the recognized method of accounting and therefore the order of tribunal upholding the order of the CIT(A) and accepting the project completion method followed by the assessee did not give rise to the substantial question of law. In view of the ratio laid down in the above decisio .....

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ar 2009-10 in the assessee s own case herein below and therefore our decision in ITA NO. 6774/Mum/2012 shall mutatis mutandis apply to this as well. In result the ground of the revenue is dismissed. In the result appeal filed by the revenue is dismissed. ITA No.6774: The assessee raised following Grounds of Appeal: 1. The ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 7,50,000/- u/s 40A(2) on account of Business Centre Charges and Administrative Charges .....

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The ld. Commissioner of Income Tax (Appeals) further erred in confirming the action of the assessing officer in reducing the deduction u/s 80-IB(10) in respect of the project Sai Deep on account of other income of 7,46,332/-. 5. The ground No. 1 is against the confirmation of disallowance u/s 40A(2) of the Act in respect of business centre and administrative charges paid to M/s. Kukreja Services Pvt. Ltd. a sister concern of the assessee of ₹ 7,50,000/- as against ₹ 9,30,000/- made b .....

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of the revenue be dismissed by following the same. Per contra, ld. DR appeared to be reasonably agreed with the arguments of the ld. AR. 5.2. We have considered the rival submissions and perused the material on record. We find that the similar issue had arisen during the assessment year 2006- 07, 2007-08 and 2008-09 which was decided in favour of the assessee by the Tribunal vide order dated 16.01.2015. The relevant finding of the Tribunal is reproduced as under: In view of the consistent findin .....

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ister concern is not assessed to tax. Accordingly, we delete the disallowance confirmed by CIT(A) on this account for both the years. We find that the case of the assessee is fully covered in his favour by the decision of co ordinate bench in the case of the assessee itself in assessment year 2006-07, 2007-08 and 2008-09 and, we therefore, respectfully following the said decision of the coordinate bench allow the ground raised by the assessee. 6. The issue raised in ground No.2 to 5 is against t .....

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at these income has no direct nexus with the assessee core construction activities and therefore the said income could not be treated as income derived from the construction activity but from the amenities/other services provided by the assessee and therefore were not eligible u/s 80-IB(10) of the Act. The AO further observed that in assessment year 2008-09 the CIT(A) failed to appreciate that there was no direct nexus with assessee s core construction activities as these were only reimbursement .....

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