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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member:
The above titled appeals one by the assessee and the other by the Revenue preferred against the order dated 23.03.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
ITA No. 2887/Mum/2008 (Assessee’s appeal)
The grounds raised by the assessee are as under:
1) On the facts and circumstances of the case and in law the learned CIT(A) erred in enhancing income. 2) On the facts and circumstances of the case and in law the learned CIT(A) erred not following direction of Hon'ble ITAT given for in appeal for A. Y. 2009-2010 that for determine percentage of work completed actual cost of construction expenses incurred during the year are to be considered, during the year. 3) On the facts and circumstances of the case and in law the learned CIT(A) erred in considering direct cost, construction cost and administrative expenses of Rs. 89,08,83,8177- from A Y 2006-2007till 2010-2011 for working out percentage of work completed instead of Rs 9,22,50,953 actual cost of construction cost incurred during A Y 2010-2011 and disregarding Hon'ble ITAT's order to consider actual construction cost incurred during the year for working out percentage of work completed. 4) On the facts and circumstances of the case and in law the learned CIT(A) erred in considering percentage of work completed at 33.4479% instead of 3.46% worked out on the basis of actual cost of construction cost incurred during the year. 5) On the facts and circumstances of the case and in law the learned CIT(A) erred in exceeding his jurisdiction by commenting upon CIT(A)'s order for A Y 2009- 2010 and working out estimated profit at RS 15,55,93,919 as against Rs 2,44,73,005 worked out by CIT (A) in his order for the A Y 2009-2010. 6) On the facts and circumstances of the case and in law the learned CIT(A) erred in not following order of CIT(A) passed in A Y 2009-2010. 7) On the facts and circumstances of the case and in law the learned CIT(A) erred in not considering letter of A R dt 22/3/2018 sent through courier. 8) On the facts and circumstances of the case and in law the learned CIT(A) erred taxing income from A Y 2006-2007 to A Y 2008-2009 by considering higher percentage of work completed and not considering the fact that as per Hon'ble ITAT's order difference in profit worked out on estimated basis and actual profit the same will be taxed in year of completion of project. 9) On the facts and circumstances of the case and in law the learned CIT(A) erred in relying upon AS -7 and Guidance note on accounting for real estate transaction revised 2012 which are not applicable to the appellant. 10) On the facts and circumstances of the case and in law the learned CIT(A) erred in rejecting admission of additional grounds of appeal. 11) On the facts and circumstances of the case and in law the learned CIT (A) erred confirming rejection of books of accounts. II. PRAYERS :- 1) It is therefore prayed that the procedure laps in filing of appeal be condoned and appeal be delayed.
3 & ITA No.3196/M/2018 M/s. Sandhu Builders III. The appellant craves leaves to add, amend ,modify and/or delete any ground of appeal
.” Besides the assessee has also filed some additional evidences raised some additional evidences under rule 29 of the ITAT Rules.
3. At the outset the ld. AR pointed out that the appeal of the assessee is squarely covered by the order of Tribunal in assessee own case for the earlier assessment year 2009-10 and therefore the current assessment year may kindly be decided following the tribunal order in AY 2009-10. Besides, the ld AR also drew the attention of the bench to certain developments, qua which some additional evidences qua two issues were filed, which have significant bearing on the determination of correct income of the assessee from the project in question. The AR submitted that the facts qua first issue are that at the time of granting permission to commence the construction , The Airport Authority of India had granted permission to construct A wing up to 110 sq. mts. After completion of construction and before occupation was granted by Municipal Corporation of Greater Mumbai, the assesse was asked to confirm height of A wing . On actual measurement it was found to be 111.62 meters. In other words 1.62 metres height were more than prescribed limit. Therefore, 19th floor was suo-motto was demolished by the assesse as other wise Occupation certificate would not have been granted by MCGM. Ld. AR argued that the same needs to be taken into consideration while calculating the income of the assessee since the income calculated earlier was based upon the projected sales including the projected sales of 19th floor flat of Wing A which needs to be excluded from the total sales revenue of the project while the expenses has to be treated as expenses of project in order to ascertain the correct income from the project. In other
4 & ITA No.3196/M/2018 M/s. Sandhu Builders words, since the 19th floor of Wing A was demolished so there is no question of any revenue realization by way of sale of flat on 19th floor. At the time of working out estimated sale/revenue, the entire area admeasuring 1,35,518 was considered which included 19th floor also . Area of 19th floor was 3350 sq.ft Similarly the area corresponding to FSI/TDR rights not transferred in favour of the assessee by five members of the society was required to be reduced while calculating the saleable area and the total sales from the project. The ld AR submitted that the area of 19th floor Wing A and FSI/TDR rights not transferred to the assessee needs to be excluded from the saleable area.
Before going into specific grounds raised by the assessee we would like to narrate the facts and history of the assessee. The assessee is a partnership firm, engaged in the business of builders and developers. The co-operative housing society known as Chetak Co-op Housing society (hereinafter referred to as CCHS) owns 4 different plots at Pali Hill, Bandra (West), Mumbai. A cooperative housing society, namely, Chetak Co-op. Housing Society [‘the Society’], is the owner of 4 different plots at Pali Hill, Bandra (West), Mumbai. As per the development agreement dated 31.12.2005, the assesse acquired development rights from the Society to construct a building comprising of A and B wings. The total area available for construction was 12599.12 sq. mtrs. i.e. 1,35,616sq.ft., rounded of to 1,35,000 sq. ft .As per the plans, A wing consists of ground plus 19 floors, each floor having 2 flats, except 19th floor having one flat. B wing consists of ground plus 5 floors having 1 flat per floor. Dispute arose between CCHS and the assessee in relation to the 5 & ITA No.3196/M/2018 M/s. Sandhu Builders project on some clauses of the agreement. One of the clauses in agreement was that if any of the members does not wish to transfer his right of construction to the assessee, then to that extent assessee cannot construct the said area . Five members in CCHS having FSI/TDR rights of 1,111 sq. mtrs. i.e. 11.959 had not transferred their rights however the assesses has constructed and utilized the entire area of 1,35,616 before dispute was commenced. Consequently, CCHS terminated its Development Agreement with the appellant and also Power of Attorney given in favour of the appellant in 2011. The project is still not yet completed. The society, CCHS filed a suit before Hon’ble Bombay High Court and the Hon'ble Bombay High Court granted injunction vide order dated 30.7.2012 staying the construction and also the selling of the flats. The stay was ultimately vacated vide order dated 19.8.2014, however matter is still sub-judice before the Hon’ble Bombay High Court. The construction of B Wing was also stayed by the Hon’ble Bombay High Court. Now the future of the project hangs in balance and totally shrouded with uncertainties. The project is at standstill even as on today. The Municipal Corporation of Greater Mumbai had granted part occupation certificate up to 18th floor in Oct 2018. CCHS has also challenged OC before Hon’ble Bombay High Court wherein it is prayed that OC may be cancelled. In case of wing B, in 5.7.2019, the Hon’ble High Court granted stay on construction. Even due to height restriction qua 19th floor of A wing, the entire floor had to be demolished in May 2018. Hence area available for sale was to be reduced to that extent. CCHS has also challenged before Hon’ble Bombay high Court,
There is only effective issue raised by the assessee in the various grounds of appeal is that the ld. CIT(A) has erred in enhancing the assessment by not following the order of the Tribunal in assessee’s own case in the preceding assessment year 2009-10 and thus income needs to be assessed in terms of the said order and not the way ld. CIT(A) has done.
6. The assessee was following project completion method read with AS-7 / AS-9. Accordingly, the profit for the entire project was to be offered to tax upon completion of the project. The final Profit & Loss Account was to be prepared upon such completion. During the construction period, the expenses incurred were shown under the head Work In Progress and reflected in balance sheet under the head “current assets” on assets side of the balance sheet. Similarly, advances received against sale of flats were reflected on the liability side of the balance sheet. A survey action under section 133 A of the Act was conducted on the assessee during the preceding financial year relevant to assessment year 2009-10 on 26.9.2008 and statement of the partner was recorded. The project was in progress and only completed to the extent of 12% till the date of survey. The partners of the assessee undertook to offer income on the this project equal to 12% of the advance money received from the flat buyers, who had booked flats in the project, during the course of recording of statement u/s 133 of the Act for AY 2009-10. Accordingly, the return of income was filed on 25.03.2010 for assessment year 2009-10 by offering income of 7 & ITA No.3196/M/2018 M/s. Sandhu Builders Rs. 5.26 crores being 12% of the advances of Rs. 43.83 crores received upto 31.03.2008. In the scrutiny assessment, the A.O. applied 12% to the amount calculated by clubbing the advances received and receivable from the flat purchasers, instead of the actual amounts received from the flat purchasers as offered in the statement recorded during the survey thereby calculating the income from the project for the year at Rs. 6.90 crores in place of Rs. 5.26 crores as per the return filed by the assessee. The CIT (A) confirmed the assessment order. In the second appeal before tribunal, the tribunal set aside the order of ld. CIT(A) and directed A O to assess the income from the project on the basis of percentage completion of the project . The percentage of work completed is to be worked out by considering expenses incurred during the year to the total estimated total cost of the project and to work out percentage of work completed during the year . Based on the said percentage ,gross profit for the year is to be worked out and from the said gross profit of the year , the percentage of total estimated direct cost and actual administrative expenses incurred during the year are to be reduced. The tribunal also directed to account for any short fall or increase in profit which may result after actual sales and expenditures are ascertained upon completion of the project would be assessed in the year in which the project would be completed and accordingly the matter was remanded to the file of A O to recalculate the income of the assessee with certain directions.
In the second round of assessment also, the matter reached the tribunal and tribunal directed to assess the income of the assessee over a period of the construction on the basis of 8 & ITA No.3196/M/2018 M/s. Sandhu Builders percentage completion method depending upon the status of work done calculated on the basis of expenditure incurred. The order of ITAT attained finality as the same was not challenged further.
Now the first effective issue raised before us is that whether enhancement of income by CIT(A) by taking the % completion done till current financial year by considering cumulative total of all expenses incurred from A. Y. 2006-2017 till 2010-2011 is incorrect and not in consonance with the order of the Tribunal for assessment year 2009-10.
The facts in brief are that the assessee filed nil return of income for the current year by following % completion method. The assessee filed nil return of income after calculating the income on the same basis as in the earlier assessment year 2009-10 in consonance with Tribunal order. The work done during the year was 10.30%. After deducting proportionate direct expenses and administrative expenses incurred during the year , the return income was in negative so nil return of income was filed. During the course of assessment proceedings , the AO did not have the occasion to consider the order of the Tribunal for 2009-10 in the second round as it had not come by that time and as such the AO estimated the income of the assessee by applying 12% on mercantile system i.e 12% was applied on the total consideration received and receivable from the flats buyers 31.3.2010. Thus, the AO treated the work completed at 12% as against the actual work completion of 10.30% during the year. The total sales accrued to the assessee in respect of earlier agreements entered into prior to the current financial year were 9 & ITA No.3196/M/2018 M/s. Sandhu Builders Rs.7,80,00,000/- and sales accrued to the assessee in respect of sale agreements entered into during the year came to Rs. 24,00,00,000/- aggregating to Rs.31,80,00,000/- and accordingly, the AO estimated the income of the assessee at Rs. 3,81,60,000/- as discussed by the AO in the assessment order in para no.5. The AO also added a sum of Rs. 3,98,15,088/- in respect of suppressed income on sale of flats which has been discussed in para no. 6 and was based upon primarily due to difference in sales price of various flats. Thus the assessment was framed u/s 143(3) of the Act assessing the income at Rs. 7,79,75,090/- as against the nil return of income filed by the assessee.
Aggrieved by the order of AO, the assessee filed appeal before CIT(A). The ld. CIT(A) issued show cause notice for enhancement of assessed income by calling upon the assessee to show cause as to why percentage of work completed should not be taken at 33.44% as against 12% considered by the AO. The ld. CIT(A) taking into consideration the expenses incurred from A Y 2006-2007 to A Y 2010-2011 worked out percentage of work completed at 33.44%. Thus , Ld. CIT(A) enhanced income by Rs 30,29,02,398/- and after reducing Rs. 3,81,60,000/-, the amount of income offered to tax upto preceding assessment year 2009-10 , a net enhancement of 26,47,42,398/- was made on the ground that the appellant is consistently following the percentage completion method but has not offered the income correctly in the respective years and hence, considering the stage of completion of work till the year under consideration, the income has to be computed and brought to tax by holding and observing as under:-
10 & ITA No.3196/M/2018 M/s. Sandhu Builders “4.1.7. I have considered the reply of the appellant in response to the show cause and do not find any merit in the submission made. The appellant submits that the Hon'ble ITAT's order did not provide that earlier year's income should be reduced from current year's income proposed and in fact, current year's income is to be ascertained with respect to current year's activities. The appellant argues that the revenue and the cost is to be appropriated only in relation to the work executed in the year under consideration and the percentage completion method is to be applied accordingly to work out the profitability for the year under consideration. In that view of the matter, the appellant submits that in the year under consideration, it has carried out only 3.46% of the work and hence, the profits in accordance to it computed at Rs. 2,52,29,868/- shall be restricted only to that extent. 4.1.8. Though, the appellant has made an attempt to pick and choose the selected words / phrases from the order of the Hon'ble ITAT in its own case but has failed to appreciate the concept of percentage completion method and the intent of its application in true sense. It is no denying of the fact that the revenue and costs for the year under consideration are only to be considered for working out the income to be taxed in the year under consideration. However, this holds true when the appellant has been consistently offering such income year-wise in earlier years. In the present facts of the case, the appellant has started the project since 2006 and the income is taxed in A.Y. 2009-10 for the first time and that too only for the relevant year's appropriated profit / income arising out of the project as per the Id. CIT(A)'s order for A.Y. 2009-10. This means that the appellant can go tax free by not offering the income to tax in earlier years where assessments are not carried out and when the question arises about the percentage completion method of accounting in one of the years where scrutiny takes place, it will plead that the income only to the extent of work done / completed in respective year should be taxed. This is completely illogical and does not hold any water in substance and intent as to how the percentage completion method is explained by the Hon'ble ITAT. The Hon'ble ITAT has also given an illustration in its order at page no. 18 which has been quoted in earlier paragraph. Citing the illustration, the Hon'ble ITAT had set aside the orders of the authorities below on this issue and restored the matter to the file of the A.O. for determining / estimating the profit of the assessee from the project of Sandhu Palace for the year under consideration taking corresponding figures based on the actual construction cost incurred by the assessee and following the method as given by it and explained with the example. 4.1.9. On perusal of the order of the Hon'ble ITAT, it is nowhere corning out of the order that the appellant has duly offered any income in earlier years as per the percentage completion method. Thus, the Hon'ble ITAT has merely explained the percentage completion method. It is to be noted that what the Hon'ble ITAT has opined is only the theoretical application of percentage completion method. On the contrary, if the view of the appellant is accepted, then there would be a position where the appellant would be defaulting in proper application of percentage completion method in some of the years for the purpose of recognising income and then when the question arises to tax the revenue, it would argue that only that year's income in proportion to the work carried out in that year is to be taxed which 11 & ITA No.3196/M/2018 M/s. Sandhu Builders is totally absurd, baseless and unjustified. It is significant to note that the percentage completion method has direct bearing on to the state of completion of work. It would not be out of place to refer the Accounting Standard (AS-7) on Construction Contracts in this context, of which para 21 reads as under:- "Recognition of Contract Revenue and Expenses 21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35." Thus, what it states is that once the outcome can be estimated reliably, the contract revenue and contract costs associated with the contract should be recognised as revenue and expunge respectively by reference to the stage of completion at the reporting date which clearly indicates that the approach of working out the profit /income out of the project /contract should be cumulatively worked as on the reporting date or the balance sheet date of the year in which the income is to be recognised. Gainfully, attention can also be drawn even to the Guidance Note on Accounting for Real Estate Transactions revised in 2012 in the context of application of percentage completion method which refers to the stage of completion and that the revenue is to be recognised on achievement of 25% of incurrence of the construction and development cost. So, if the argument of the appellant is to be upheld, then he will offer the revenue only for that year in proportion to which work might have been carried out by him in that year alone; then what about the balance percentage of work already done in earlier years and where and when would the revenue be taxed? Thus, it needs to be appreciated that the revenue for the purpose of percentage completion method is to be brought to tax considering the stage of completion of work till the year under consideration and due credit of income already offered in earlier ought to be given. 4.1.10 Further, it is an admitted fact that the appellant is consistently following the percentage completion method but has not offered the income with due application in the respective years. Hence, considering the stage of completion of work till the year under consideration, income is to be computed and brought to tax. 4.1.11 Thus, in effect, the correct application of percentage completion method leads to the following calculation of income for the year under consideration:- Total Cumulative Revenue considering % of work done till the year under consideration (minus) Total Cumulative Cost considering % of work done till the year under consideration (minus) Profit/ income already recognised in earlier years. 4.1.12 In view of the above discussion, the addition made on account of the application of percentage completion method stands enhanced to the extent of the differential amount of Rs. 30,29,02,398/- as reduced by Rs.3,81,60,000/- the 12 & ITA No.3196/M/2018 M/s. Sandhu Builders income already offered/brought to tax upto the immediately preceding year i.e. A.Y. 2009-10. Accordingly, the ground nos. 1.01 to 1.04 stands dismissed and enhanced.
The Ld. CIT(A) had passed order on 23.03.2018 whereas ITAT’s order in second round for A Y 2009-2010 was passed on 11/03/2019. Thus , the ld. CIT(A)’s order for A Y 2010-2011 was passed prior to order passed by Hon’ble ITAT for A Y 2009-2010 which has reached finality now. The ld. CIT(A) grossly erred in working out percentage of work completed during the year by considering cumulative WIP comprising all expenses incurred on construction from A Y 2006-2007 to A Y 2009-2010 by ignoring the percentage completion method. The Hon'ble ITAT in A.Y 2009-2010 had laid down guidelines wherein it was specifically mentioned that cost incurred during the year is to be considered for working out percentage of work completed during the year and income from the project would be taxed accordingly. The department has accepted order of the ITAT for AY 2009-2010 which has reached finality. Hence view and conclusion of ld. CIT(A) is not sustainable and valid in view of ITAT’s order for A Y 2009-2010.
We have heard the rival parties and perused the materials on records carefully as placed before us. We note that the coordinate bench in the preceding assessment year 2009-10 has already decided the issue as to how the income of the assessee is to be assessed over the period of construction. It is settled position of law that the authorities below have no option but to follow the coordinate bench decision in assessee own case, if any, which has attained finality and revenue has not gone in further appeal. In the present case the ld. CIT(A) enhanced the 13 & ITA No.3196/M/2018 M/s. Sandhu Builders income by taking the work in progress completed from AY 2006- 07 to 2009-10 cumulatively and reducing the same by Rs. 3,81,60,000/- , the amount of income already offered to tax up to assessment year 2009-10. The ld. CIT(A) considered cumulative construction expenses from A Y 2006-2007 to A Y 2009-2010 for working out percentage of work completed during the year by observing that the income of earlier year have not been assessed. Learned CIT(A) failed to appreciate that as per para 53 of the ITAT’s order dt.06/12/2013 for A Y 2009-2010 (first round) it was held that if there is any change in the actual sales vis a vis the projected sales or actual expenses vis a vis projected expenses , the effect of the same is to be given in the last year in which the project is completed and accordingly any difference in the projected profit and the actual profit would get adjusted in that year. Ld. CIT(A) failed to appreciate that no income will go tax free. As per ITAT’s order difference between estimated profit and actual profit will be taxed in the year of completion of project . Now considering the facts of the case, we are of the considered view that ld. CIT(A) has grossly erred in enhancing the income of the assessee and accordingly the enhancement by not based on wrong appreciation of facts and therefore the order of ld. CIT(A) can not be sustained and has to be deleted. Needless to say that income of the assessee has to be assessed in terms of decision of the coordinate bench in AY 2009-10 which directed that percentage of work done would be measured on the basis of expenses incurred during the year and income of the project is to be assessed accordingly on the basis of percentage of work done during the year . For the sake of clarity we would like to add that first the Gross Profit on the 14 & ITA No.3196/M/2018 M/s. Sandhu Builders work done during the year is to be calculated and then in order to work out the net profit, the % of estimated direct expenses and administrative expenses incurred during the year are to be deducted. The resultant figure would be the income assessable in the current year. Undisputedly , since the percentage of work done during the year was 10.30% based upon the actual expenses incurred during the year , therefore the gross profit has to be calculated accordingly. This has to be done so because this is the method adopted and approved in AY 2009-10 in terms of coordinate bench decision in AY 2009-10. Since there is no change of facts and circumstances during the current year vis a vis the preceding year , therefore the same formula has to be followed . Moreover the order of ITAT in AY 2009-10 has attained finality. Since there is no change of facts and law during the current assessment year vis a vis the earlier assessment year 2009-10 , therefore the said decision has to be followed. The case of the assessee also derives strength from the principle of consistency and is supported by the decisions of the Hon’ble Apex Court squarely applicable to the facts of the present case on the principle of consistency as laid down by Hon’ble Supreme Court in Radhasoami Satsang vs. CIT 193 ITR 321 SC. Even the Hon’ble Supreme Court in the subsequent decision in Bharat Sanchar Nigam Ltd. vs. UOI (282 ITR 273 (SC) and the Hon’ble Bombay High Court in PCIT vs. Quest Investment Advisor Pvt. Ltd. (ITA No.280 of 2016) have held that the principle of consistency would be applicable unless there is a change of facts and change in law. In view of these facts and circumstances , we set aside the order of CIT(A) on the issue of enhancement of income and direct the AO to assess the income
15 & ITA No.3196/M/2018 M/s. Sandhu Builders strictly on the basis of percentage of work completed during the year as has been stated hereinabove. Needless to say that in the year of completion of the project the actual profits shall be ascertained based upon the actual sales and actual expenses after making due allowances for the income offered during the construction period on the basis of percentage completion method and shall be brought to tax. In result the grounds raised by the assessee are allowed. The AO is directed accordingly.
The assessee has filed some additional evidences vide application filed on 9.9.2019 under rule 29 of the Income Tax Appellate Tribunal Rules for admission of additional evidences as the same go the root of matter for correct assessment of income. These evidences are contained in the paper book. These evidences of demolition of 19th floor of Wing A and documents qua non transfer of FSI/TDR rights by five members of CCHS measuring 1,111 sq. mtrs. i.e 12,000 sq. ft (approx.)in favour of the assessee. The appellant contended that area of 19th floor which was demolished and also the area corresponding to FSI/TD not transferred to the assessee measuring 12,000 sqft are to be reduced from are total saleable area admeasuring 1,35,000 sqft available for sale on the basis of which the sales/revenues of the project were estimated.
The ld. At the outset submitted before us that the 19th floor of wing A had to be demolished otherwise the assessee would not have got the completion from Municipal Corporation of Greater Mumbai as the building of wing A was raised more than the permitted height. Similarly five members of CCHS did not transfer their FSI/TDR measuring 1,111 sq. mtrs. i.e 12,000 sq.
16 & ITA No.3196/M/2018 M/s. Sandhu Builders ft (approx.) in favour of the assessee however while estimating the sales from the project this area was also included which is required to be excluded. In the agreement with the society CCHS ,it was provided that if any of the owner/member of CCHS was not willing to sell his FSI/TDR entitlements to the assessee then the assessee cannot construct area to that extent. As per society 5 members having TDR rights of 1,111 sq. mtrs. i.e 12,000 sq. ft (approx.) had not sold their rights to CCHS and has filed writ petition against the appellant. In the suit filed by the CCHS one of the prayers was not to allow the appellant to sell the said area. The Ld. AR vehemently argued that the said area may be reduced from total area available for sale for calculating profit for the year. The said 5 persons have not yet collected consideration to be paid by CCHS to the members of CCHS for grant of development rights. The appellant contended that area of 12,000 sqft is to be reduced from total saleable area admeasuring 1,35,000 sqft available for sale. The ld AR ,therefore , referring to the application filed under rule 29 of the Rules ,submitted that additional evidences may kindly be admitted and adjudicated as the same go the root of correct assessment of income and go to corroborate the fact that 19th floor was demolished and therefore there can not be sale of flat on that floor. The ld AR stated that the while estimating the sales for the entire project the sales price of 19th floor was also included which will never accrue to the assessee as there is no floor now after demolition. The ld AR therefore prayed that the additional evidences may be admitted and the matter and the issue may be adjudicated or may be restored to the file of the AO for proper appreciation of these additional evidences and 17 & ITA No.3196/M/2018 M/s. Sandhu Builders adjusting the sales of the project accordingly. Thus the litigations, court cases and the issue of demolition of 19th floor of A wing and evidences with regard to the same were not before the lower authorities as the same were raised/decided after passing of assessment order and CIT(A)’s order. The ld AR contended that there will be substantial increase in cost of the project as completion of project has been delayed due to litigation, increase in cost due to repairs as project was stayed for more than 2 years and due to litigation which will affect profitability of the project. The Ld. A.R also submitted that due to various litigations, the viability of the project is also in doubt.
Ld D.R on the other hand opposed the arguments of the ld. AR justifying the admission of additional evidences qua the demolition of 19th floor. Similarly the issue of non transfer of FSI/TDS rights in favour of the assessee was also not raised before the AO or CIT(A). The ld DR submitted that all these issues need to be examined at the level of AO and therefore may be restored to the file of AO to appreciate these evidences and decide the issue accordingly.
After hearing the rival counsel of the parties and perusing the additional evidences filed, we find that so far as demolition of 19th floor in wing A is concerned, this a new development as the assessee has to do this in order to reduce the height of Wing A which has increased the permitted limit set by the Airport Authority of India. The assessee has also filed additional evidences in respect of 5 members of CCHS not assigning the FSI/TDS developmental rights for construction in favour of the assessee which works out to 12,000 Sq. fts. Therefore, we find
18 & ITA No.3196/M/2018 M/s. Sandhu Builders merits in arguments of the ld. AR that area which is demolished and also the area for which the assessee was not authorized to construct have to be excluded from the saleable area. The assessee has filed application under rule 29 filing the evidences such as petition filed against assessee dated 31.10.2018, copy of judgement dated 5.7.2019 passed by Hon’ble Bombay High Court, copy of letter dated 6.1.2018 qua issued by GVK qua the Wing A height, letter dated 17.4.2018 issued by BMC certifying that height of the Wing A was excess by 1.62 metres and copy of joint inspection report. Apparently after examining these evidences we are of the considered view that area of 19th floor of wing A was demolished and no more saleable and has to be excluded while calculating the income from the project. Similarly, the area measuring 1111 sq. mtrs. i.e. 12000 sq. ft. (rounded off) the FSI/TDR rights were not assigned to the assessee had to be excluded from saleable area. We are of the considered opinion that these developments have materials effect on the correct assessment of income and therefore, admitting the same however these matters are being restored back to the AO to be decided in accordance with facts and law after appreciation, verification and examination of the additional evidences.
Next ground of appeal pertains to rejection of books of account. AO had rejected books of account on the basis of A.Y 2009-2010. The Ld. A.R contended that no profit and loss account was prepared therefore AO’s observation that assessee follows hybrid system of accounting is incorrect. Ld. A.R’s contention is found to be correct hence ground is allowed.
The Revenue has challenged the order of ld. CIT(A) raising common issue in various grounds of appeal that ld. CIT(A) has erred in deleting the addition of Rs.3,98,15,088/- being addition made by the AO to bring to tax the income on suppressed sales.