WORLD TRADE PARK LIMITED,MUMBAI vs. PCIT - 5 , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI BASKARAN BR, ACCOUNTANT MEMBER & SHIR PAVAN KUMAR GADALE, JUDICIAL MEMBER World Trade Park Ltd., Vs. Pr. CIT -5 4th Floor, WTP, JLN Room No. 515, 5th Marg, Jaipur, Floor, Aaykar Bhavan, Rajasthan – 302107 MK Road, Mumbai-400020. "थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCR8969E Appellant .. Respondent Appellant by : Shri Rajiv Sahai.AR Respondent by : Shri.Dr.KishorDhule.CIT-DR Date of Hearing 08.02.2023 Date of Pronouncement 17.03.2023 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of the Pr. Commissioner of Income Tax (Pr.CIT)-52, Mumbai passed u/s 263 of the Act. The assessee has raised the fallowing grounds of appeal.

(ii) depreciation claimed (iii) deduction and deposit of TDS (iv) High Loans and Advances and income from House Property. Further notice u/s 143(2) and 142(1) of the Act along with questionnaire issued through ITBA portal. In compliance to the notice the assessee has filed submissions. The AO on perusal of the financial statement and information found that the assessee has disclosed revenue from sale of building/shops/offices, other goods and rent on revenue sharing basis aggregating to Rs. 48,79,77,459/- and has disclosed profit for the period of Rs. 2,96,144/-. The AO found that the assessee has filed the return of income beyond the time limit specified under Sec. 139(1) of the Act and initiated penal provisions under Sec.271B of the Act and denied the claim of loss of set off of carry forward from earlier year and assessed the total income of Rs. 90,16,363/- and passed the order u/s 143(3) of the Act dated 29.12.2019. World Trade Park Ltd., Mumbai. 3. Subsequently, the Pr. CIT on perusal of the records and information found that the order passed by the AO under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue and issued revision notice U/sec 263 of the Act as under:

In view of above facts, notice u/s 263 was issued on 12.03.2022 through ITBA, thereby providing the assessee, an opportunity of being heard. In response to the notice dated 12.03.2022, the assessee company vide letter dated 19.03.2022, has made its submissions World Trade Park Ltd., Mumbai. electronically. The submission of the assessee company is being reproduced here as under:-

"The return for A.Y 2017-18 filed at NIL income, was assessed at Rs.90,16,360/- u/s 143(3) of the Act vide order dated 29.12.2019. During the course of assessment proceedings, the A.O. raised various and voluminous queries vide notices u/s 142(1) of the Act, (a) dated 31.05.2019 (1-12 pages); (b) dated 30.09.2019 (1-2 pages); (c) dated 25.11.2019 (1-2 pages); and (d) dated 12.12.2019 (1-2 pages). The questionnaires along with these notices included specific queries regarding expenses incurred towards construction of the infrastructure project named WT, the method of accounting being followed and its rationale, (even more specifically in notice ITBA/AST/F/17/2019- 20/1022240110(1) dated 12.12.2019), WDV, Loans & Advances, nature of income, details of properties sold vide registered deeds, details regarding section 43B, 40A(2) (b), deductions claimed, reconciliation of AIR information, modvat & excise, break-up of expenses debited to P&L A/C, TDS made, details of advances received against booking etc. These notices/questionnaires were responded vide replies dated 07.10.2019, 23/25.11.2019, 04.12.2019, 18.12.2019. The A.O has acknowledged that submissions on different dates were filed through e-filing portal.

"4. Therefore, it is clear that the assessment order passed u/s 143(3) of the IT Act dated 29:12.2019, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 o, the Act. Therefore, it is proposed to revise the aforesaid order u/s 263 of the Act."

(a) At the outset, it may be pointed out that you have considered incorrect and invalid amounts which give a distorted picture of the stated error and prejudice caused without specifying it. Thus, as per you the corresponding & related cost of construction of said sale worked to Rs. 56,50,34,653/- This is incorrect and and inflated arbitrarily since, the total expenses, as per note 3.6 to 4.3 of the audited P&L A/C itself comes to Rs. 51,15,34,408/- i.e an arbitrary increase of Rs.5,35,00,245/- by you.

(b) Similarly, you have considered the incorrect and invalid arount of advance received against sale amounting to Rs. 76,31,53,398/-. This is incorrect and inflated arbitrarily, since booking advances as per note 2.6 of the audited balance sheet as on 31.03.2017 itself is Rs71,12,41,050/-an arbitrary increase of Rs, 5,19,12,343/-by you. Thus, the distortion in the amounts considered by you itself is Over Rs.10,54 Crores and World Trade Park Ltd., Mumbai. indicates the lack of application of mind. Moreover, the consideration of factually incorrect details is fatal to the validity of the proposed action us 263 of the Act, as held in case of Sagar Enterprises Vs. ACIT 257 TR 335 (Gujarat);- "the settled legal position is that in such circumstances, it would not be possible to say with certainty as to which factor would have weighed with the officer concerned and Once it is shown that an irrelevant fact has been taken into consideration, to what extent the decision is vitiated would be difficult to say. On this count alone, the petition requires to be accepted." (para 4)

(c) Similarly, it was held by the jurisdictional court in the case of PCIT Vs. Shodimal Investments (P) Ltd, 422 TR 337 (Bombay), that-

"This is a settled position as observed by the Supreme Court inS. Narayanappa v. CIT (1967) 63 TR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in TO v. Lakhmani Merwal Das (1976) 103 TR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of re- opening of Assessment and assuming jurisdiction on the part of the Assessing Officer." The ratio of this decision is analogical to the facts in this case.

Sir, the fact is that the construction of the Mall project, named WTP is in stages and progressive in nature. A large portion of mall especially on the 4" to 7* Floor consists of only offices/showrooms and proposed hotel which are still in form of shell structures, to be finished later at the tire of giving its possession to a buyer on receiving the full consideration at the registration of the related sale deed. Even otherwise, the advances received against booking of property in the mall cannot be, by any stretch of imagination, construed as sales, since sale has different attributes and connotations. The assessee company has consistently followed policy of the Revenue Recognition as per applicable Accounting Standard 9, since inception, as detailed in the Notes to the audited Financial Statement and is following the Project Completion Method and has stuck to same policy

4A. The application of principles of AS 9 in respect of a Real Estate project requires recognition of revenues, on completion of the transaction/activity. Revenue from sale or rendering services should be recognized at the time of the sale or rendering of services. It is recognized when all the following conditions are fulfilled:

> Seller has transferred the ownership of goods to buyer for a price. Or > All significant risks and rewards of ownership have been transferred to buyer World Trade Park Ltd., Mumbai. > Seller does not retain any effective control of ownership of the transferred goods

> There is no significant uncertainty in collection of the amount of consideration (e. cash, receivables etc.).

> Accordingly, the point of time at which all significant risks and rewards of ownership can be considered as transferred, is required to be determined on the basis of the terms and conditions of the agreement for sale.

As such, the sales of property in the project are recognized when the sale deed is registered after getting the full value of consideration and transfer of possession of the premises has been given. As explained in the notes to financial statement, the company has received booking advances from prospective customers. The break-up of booking advance had been furnished to the A.0. The same have been classified under the head 'Other current liabilities' This amount was to be adjusted / treated as sales consideration as and when sale deed was executed, possession given and property registered in favour of customer on receipt of full consideration by the assessee company.

As held by the Hon'ble Supreme Court in United Commercial Bank v CIT 119991 240 ITR 355/106 Taxman World Trade Park Ltd., Mumbai. 601, the choice of method of accounting is of the assessee. The assessee has chosen/adopted the Project Completion Method of accounting and has been consistently following it over the years, It is not pen to the revenue to reject a method because according to the Assessing Officer another method is preferable.

"The assessee was undertaking two construction objects, following the project completion method of accounting. The assessment was made by the Assessing Officer. The Commissioner in exercise of power under section 263 set aside assessment order and directed the Assessing Officer, to recompute the income of the assessee by applying the percentage completion method.

Held that assessee had chosen/adopted the Project completion method of accounting and had been consistently following it over the years. It was not open to revenue to reject a method because, according to the Assessing Officer, another method was preferable. Moreover, the most appropriate method of accounting to correctly reflect the true financial statement is a matter of opinion an amenable to the revisional jurisdiction under section 263". 9. Your attention is drawn to (a) the decision in case of R.S. Suriya Vs. ACIT, 68 taxmann.com 441 (Chennai), which relied on the decision in the case of World Trade Park Ltd., Mumbai. Laxminarain Films Vs. CIT, 244 TR 344 (Madras), held that:

"Held that the amount received by the assessee is only advance and the same will crystallize as income only on fulfilment of the obligation specified in the agreement by the assessee. During the relevant assessment year, the ossessee has not fully complied with the conditions stipulated in the agrement. Therefore, the income has not crystallized to the assessee. In the case of the assessee, advance was received for future performance and there were specific conditions stipulated in the agreement for refund of the same, if the assessee failed to comply with the conditions. Accordingly, the Assessing Officer was directed to delete the addition."

(b) the decision in the case of CIT Vs. Excel industries Ltd 358 TR 295, Supreme Court, held "It is now well settled that income tux cannot be levied on hypothetical income. [Paro 171 An income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it can be said that for the purposes of taxability said income is not hypothetical and it has really accrued to the assessee. (Para 20)* It echoes the decision in the case of CIT Vs, Shoorji Vallabhdas, 46 TR 144, Supreme Court that "A mere book-keeping entry cannot be income, unless income has actwally res

(c) Similarly, the jurisdictional High Court of Mumbai held in the case of CIT Vs: Shah Construction, 237 TR 814 (Bombay), held:-

"Section 4 of the Income-tax Act, 1961-Income chargeable as- Assessment year 1979-80 - Assessee having taken some contract work in foreign countries received advance World Trade Park Ltd., Mumbai. payment to be adjusted against running bills, converted same to Indian rupees for accounting purposes at end of accounting year - Assessing Officer brought said amount to tox - Whether until such amount was adjusted with running bills it could not be said to belong to assessee, and its conversion to Indian currency could not be regarded as income in hands of assessee, -Held, yes

In fact, the amount in question lying in tie Exchange reserve account did not even belong to the assessee. It was a port of the amount received by the assessee from his parties in Middle East by way of advance to be adjusted against the running bills. Till it was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year obviously was only for accounting purposes. That being so, the said amount could not be regarded as income of the assessee."

In case of assessee, the accounts were not rejected, the opening stock/closing stock/sales were not disturbed and the consistently followed accounting method as per Accounting Standard-9 accepted. The booking advance was only earnest money and advance towards sale price to be adjusted as and when sale agreement of the booked property was registered on receipt of full value of consideration and giving of the possession of the booked property. Till then the said amount of advance could not be regarded as income of the assessee.

(ii) FIS Global Solutions India Pvt. Ltd. Vs. ACIT, 408 ITR 75 (Delhi), SLP of Revenue against it dismissed in 262 Taxman 369 (SC):

(iii) Jurisdictional High Court in the case of IL and FS Investment Managers Ltd. Vs. Income Tax Officer, 298 ITR 32 (Bombay);

(iv) CIT Vs. Rajan N. Aswani, 403 ITR 30 (Bombay) (2018), held:-

"It was noted that reasons recorded by Assessing Officer to reopen assessment were identical to audit objections - There was no material on record to even remotely suggest that Assessing Officer had any independent application of mind (without being influenced by audit report) - Whether impugned reassessment notice was unjustified for Assessing Officer having not formed his independent belief, therefore, same was to be quashed - Held, yes" 11. Sir, you are requested to rebut the contentions of the assessee and the applicability of ratio of various cited decisions of Hon'ble Supreme Court & High Court(s), only by a speaking and reasoned order. In the facts and circumstances and in law the proposed action u/s 263, is ab- initio void and may please be dropped. If any clarification/detail is needed kindly revert and provide adequate time and opportunity to the assessee. If the contentions of the assessee are not accepted further opportunity/personal hearing may also be provided." World Trade Park Ltd., Mumbai. 5. Whereas the Pr.CIT was not satisfied with the explanations and submissions and is of the opinion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue, and accordingly issued directions to the AO observing at page 7 para 5 to 6.2 of the order as under:

5.1 The assessee has next argued that the project is constructed in stages and is progressive in nature. 4th to 7th floor of the project are offices etc. and still in shell form and not finished. The finishing is done while giving possession to the buyer on receiving full payment and World Trade Park Ltd., Mumbai. registration of documents. The company follows AS 9 accounting standard for its books consistently. As per AS 9, revenue is to be recognized on completion of sale. Accordingly, on receipt of full consideration, handing over the possession and registration of the document, sale is complete. Accordingly booking advances would be shown as sales as and when the sale is completed. The assessee follows the completed project method of accounting over last several years and it should not be changed.

5.2 This argument of the assessee has been considered carefully. However, it is not correct on facts. As per return of income filed, in the schedule of balance sheet the assessee has shown closing stock of finished goods Rs.359,20,79,736/-. Even in the opening stock in the schedule of P&L account the assessee has shown finished goods Rs.377,21,92,932/-. Therefore, admittedly the stock of the assessee is the stock of finished goods and there is no work-in-progress. Secondly the example of 4th to 7th floors being only the shell structure is a fresh submission which was never before AO. Moreover, assessee is conspicuously silent on the condition of other floors of the project including ground to 3rd floor and those above 7th floor. AO has not conducted any enquiry in these aspects during assessment proceedings.

5.3 Further the argument of the assessee that the sale is complete only on i) receipt of full payment, ii) handing over of possession and iii) registration of document is not correct. It is settled law that registration of document of transfer of property is a mere formality. Sale is completed on execution of the document and coupled with handing over of possession and receipt of even part payment. This is as per Sec.53A of Transfer of Property Act. AO has not conducted any enquiry into this aspect and also that how much possession has been handed over against part or World Trade Park Ltd., Mumbai. full payment but document has not been registered. Hence, the assessment is erroneous and also prejudicial to the interests of revenue.

5.4 As far as the argument of project completion method is concerned, this method is no more valid as per law and percentage completion method is the correct method as per law for real estate projects. Hence the assessment is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Sec.263 of the Act.

6.1 Hence, considering the facts in totality, I am of the considered opinion that the AO in the instant case has failed to conduct all necessary enquiries as warranted on facts of the case and as discussed in this order supra. Hence, the assessment order is erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly, the same is hereby set aside.

6.2 The AO is hereby directed to reframe the assessment order denovo after conducting all necessary enquiries and verifications as warranted on facts of the case and also after giving due opportunity of being heard to the assessee before passing the assessment order. World Trade Park Ltd., Mumbai. 6. Finally the Pr.CIT has passed order u/s 263 of the Act dated 26.03.2022. Aggrieved by the order of the Pr.CIT, the assessee has filed an appeal before the Honble Tribunal.

10.The Ld. AR emphasized that the assessee has been fallowing project completeion method from the earlier years and was being accepted by the revenue and it cannot be disturbed. When the Pr.CIT observes that the order passed by the A.O. is erroneous, he should make necessary inquiries or verification. Whereas the AO has applied the mind and accepted the assessee’s project completion method, were the assessee has been consistently fallowed the policy of revenue recoginition as per Accounting Standard (AS)- 9 of ICAI and the method/ basis is accepted by the AO. We rely on the decision of the Honble High Court of Bombay in the case of M/S Grasim Industries Ltd World Trade Park Ltd., Mumbai. Vs CIT (321 ITR 92) considered the law laid down by the Honble Supreme Court on the scope of the revisionary proceedings initiated under sec263 of the Act and the observations are read as under:

“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is World Trade Park Ltd., Mumbai. prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.” 11. Further In the case of Nagesh Knitwears P Ltd (2012)(345 ITR 135), the Hon’ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT Vs. Goetze (India) Ltd (361 ITR 505) as under:-

“Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such World Trade Park Ltd., Mumbai. cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/ssie to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question….” Similar view has been expressed by Hon’ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963).

Considering the ratio of decisions of the Honble Hight courts, it is clear the Pr.CIT before holding the order World Trade Park Ltd., Mumbai. of the A.O. is erroneous should conduct necessary inquiries. The Ld.AR submitted that the Pr.CIT has not considered the facts that the A.O has called for the information on the expenses incurred towards construction of the infrastructure project and the method of accounting fallowed and the advances received against the booking of the office spaces and details of property sold and there cannot be any non application of mind by the A.O. 12.The assessee is engaged in construction of mall on its own, it was contend by the Ld.AR that the ICDS notified under section145(2) of Act applicable to construction contracts and in the instant case, it is not just construction contract but it is a construction of building and sale of flats and office space and the provisions U/sec43CB of the Act are not applicable.Therefore the method of accounting regularly followed by the assessee has to be adopted. We find that the A.O has considered one of the possible views based on the information and it is not necessary that the A.O should put all the discussions/observations in the assessment order, as per explanations (2) to sec 263 of the Act the World Trade Park Ltd., Mumbai. authority has to invoke provisions only when there is no verification and enquiry conducted by the A.O. Whereas the A.O has applied his mind and verified the facts. The Ld. AR referred to the submissions, financial statements, judicial decisions and explanations filed before the A.O. We find the Hon’ble High Court of Bombay in CIT Vs. Gabriel India Ltd.(203 ITR 108) has observed as under:

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1973-74 - Assessee claimed a sum of Rs. 99,326 described 'as plant relay out expenses' as revenue expenditure and ITO, after making enquiries in regard to nature of said expenditure and considering explanation furnished by assessee in that regard, allowed assessee's claim - Subsequently, Commissioner, exercising powers under section 263, cancelled order of ITO observing that order of ITO did not contain discussion in regard to allow ability of claim for deduction which indicated non-application of mind and that claim of assessee required examination as to whether expenditure in question was a revenue or capital expenditure and directed ITO to make a fresh assessment on lines indicated by him - Whether under section 263 substitution of judgment of Commissioner for that of ITO is permissible - Held, no - Whether ITO's conclusion can be termed as erroneous simply because Commissioner does not agree with his conclusion - Held, no - Whether ITO's order could be held to be 'erroneous' simply because in his order he did not make an elaborate discussion - Held, no - Whether provisions of section 263 were applicable to instant case and Commissioner was justified in setting aside assessment order - Held, no World Trade Park Ltd., Mumbai. 13.We Considering the overall facts, circumstances, ratio of the judicial decision and the details submitted in the course of hearing are of the view that the if any query is raised in the assessment proceedings and it was responded by the assessee, mere fact that it is not dealt within by the A.O. in the order cannot implied that there is no application of mind and the A.O. has applied one of the possible view. Hence, the action of the Pr.CIT cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee.

Order pronounced in the open court on 17.03.2023. (BASKARAN BR) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated 17.03.2023 KRK, PS World Trade Park Ltd., Mumbai. आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / The CIT(A) 4. आयकर आयु"त(अपील) / Concerned CIT "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स"या"पत ""त ////()

( Asst.