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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri G. Manjunatha & Shri Ravish Sood
PAN – AAKFK5930H (Appellant) (Respondent) Appellant by: S/shri Naresh Jain, Mahavir Jain A.R‟s Respondent by: Shri Manoj Kumar Singh, D.R Date of Hearing: 11.10.2019 Date of Pronouncement: 13.12.2019 O R D E R
PER RAVISH SOOD, JM
The present appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-54, Mumbai for A.Y. 2014-15 & 2015-16, both dated 24.12.2018, which in turn arises from the respective assessment orders passed under Sec.143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 16.12.2016 AND under Sec.143(3) r.w.s 147 of the Act, dated 11.12.2017, respectively. As certain common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal of the assessee for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before us :
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of „on- money‟ receipts on sale of flats in the projects „Duncan Heights‟ in the assessment year under consideration ignoring the method of accounting followed by the appellant, i.e., the project completion method, and that P a g e | 2 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) revenue can be recognized only on completion of project, and as such, the addition is bad in law and is liable to be deleted.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in observing that the appellant's method of accounting has no relevance in so far as taxation of „on m o n e y ‟ i s c o n c e r n e d , i . e . , undisclosed income ought to be taxed in the year of receipt.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by Ld. Assessing officer amounting to Rs. 6,13,00,000/-.
4. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in assessing the income of Rs. 6,13,00,000/- as unexplained income instead of business income.
Without prejudice to above grounds of appeal
, on the facts and the circumstances of the case and in law, the Ld. AO as well the Ld. CIT(A) erred in taxing the gross „on money‟ receipts of Rs.6,13,00,000/- as income, without providing for any allowance for expenditure, and as such, only reasonable proportion of such receipts ought to be taxed in the year of completion of the project.”
2. Briefly stated, the assessee firm which is engaged in the business of real estate development had filed its return of income for A.Y. 2014-15 on 31.07.2014, declaring a loss of (Rs.7,10,362/-). Return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the course of the assessment proceedings, it was observed by the A.O that survey proceedings under Sec. 133A were conducted on the assessee on 24.09.2014. On a perusal of certain incriminating documents found during the course of the survey proceedings, it stood revealed that the assessee was in receipt of “on money” amounting to Rs. 8,33,95,755/- at the time of booking sales of its project viz. “Duncan Heights” situated at Mumbai Central. It was noticed by the A.O that the “on money” received by the assessee was spread over a period of two years viz. (i). Financial year 2013-14: Rs.6.13 crore; and (ii). Financial year 2014-15: Rs.2.20 crores. On being confronted with the aforesaid fact, Shri Zuzar Kathawala, director had admitted in his „statement‟ recorded during the course of the survey proceedings that the assessee concern during the aforesaid two years was in receipt of “on money” in respect of its aforesaid project viz. “Duncan Heights”, amounting to Rs.8,33,95,755/-. Also, he had disclosed the aforesaid amount as the „unaccounted income‟ of the assessee concern and had agreed to P a g e | 3 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) offer the same for tax as its „additional income‟ over and above its regular income. Apart therefrom, it was stated by him, that the taxes due on the aforesaid income would be immediately deposited. However, as the assessee in its „return of income‟ for the year under consideration viz. A.Y 2014-15, failed to offer the „additional income‟ of Rs.6,13,00,000/- that was admitted as „additional income‟ at the time of the survey proceedings, therefore, the A.O called upon it to explain as to why the same may not be added back to its total income. In reply, it was submitted by the assessee that as it was following a „project completion method‟, therefore, the booking advances received from the customers either in cash or by way of cheques in respect of its project viz. “Duncan Heights” which during the year under consideration was in its nascent stage could not be brought to tax till the project was completed. In order to drive home its aforesaid claim, it was submitted by the assessee that as its case was covered under “Accounting Standard-9” (for short “AS-9”), therefore, the revenue, costs and profits were to be recognized only when the revenue recognition process was completed. However, the aforesaid explanation of the assessee did not find favour with the A.O, who was of the view that the assesses case did not fall within the realm of AS-9. In fact, the AO was of the view that as the assessee was a builder/developer, therefore, as per the guidelines issued by the Institute of Chartered Accountant of India (for short „ICAI‟), it was required to follow “percentage completion method” for all the projects where it had commenced the activities on or after 2012. Accordingly, the A.O directed the assessee to provide the details like the commencement certificate, architect certificate with regard to the stage of completion of the project etc. After perusing the documents filed by the assessee, it was observed by the A.O that the commencement certificate pertaining to the project viz. “Duncan Heights” was issued to the assessee on 04.12.2013. Observing, that the aforesaid project was commenced by the assessee after 2012, therefore, the A.O was of the view that as per the guidelines issued by the ICAI (2012) for real estate developers, it was mandatory for the assessee to have followed “percentage completion method” for recognizing revenue in respect of its aforesaid project. On the basis of his aforesaid observations the A.O rejected the “project completion method” followed by the assessee, and therein observed that the revenue from the said project during the current year under consideration and the subsequent years was to be recognised on the basis of “percentage completion method”. After considering the submissions of the assessee, the A.O held that the unaccounted cash sales of Rs.6,13,00,000/- were to be taxed during the P a g e | 4 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) year itself and thus added the same to the returned income of the assessee. Alternatively, it was observed by the A.O, that in case if at any time it was to be held that the assessee could apply “project completion method”, then the same would only be as regards the cheque component which was duly accounted for by the assessee and formed part of its „books of account‟. Accordingly, it was observed by the A.O, that the unaccounted income of the assessee could not be offered for tax as per the said “project completion method”. In the backdrop of his aforesaid observations the A.O made an addition of the entire cash sales/on money of Rs. 6,13,00,000/- to the returned income of the assessee company.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating on the contentions advanced by the assessee was not persuaded to subscribe to the same. It was observed by the CIT(A), that it was an admitted fact that the assessee had received “on money” in respect of its aforesaid project. Also, it was noticed by the CIT(A), that though the assessee on being confronted with the incriminating „material‟ found in the course of the survey proceedings had admitted an „additional income‟ (over and above its regular income) aggregating to Rs.8,33,95,755/-, which was spread over a period of two years viz. (i). Financial year 2013-15: Rs.6.13 crore; and (ii). Financial year 2014-15: Rs.2.2 crore, and had agreed to pay tax on the same, but it had thereafter retracted from its statement and had claimed that the same would be offered as its income only when the project was completed. Observing, that the claim of the assessee that the amount of “on money” received was an advance from its customers did not merit acceptance as the same was not recorded in its „books of account‟, the CIT(A) finding favour with the view taken by the A.O confirmed the addition of Rs.6,13,00,000/-. Resultantly, the appeal filed by the assessee was dismissed.
5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee, took us through the facts of the case. It was submitted by the ld. A.R, that the amount of “on money” admitted by the assessee was in respect of its aforesaid project viz. “Duncan Heights”. It was the claim of the ld. A.R, that if the amount given by cheques by the customers was to be given color and character as an advance against sale consideration, then the amount of “on money” that was received by the assessee in cash would also carry the same character, and a differential treatment could not be accorded to the amounts received from the customers in P a g e | 5 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) cash. It was averred by the ld. A.R that as it was following the “project completion method”, therefore, the revenue recognition in respect of the booking advances received through cheques or cash, whether accounted or not would partake the colour as that of income of the assessee only when the transfer of the property concerned would be executed and the possession thereof was handed over to the respective customers. In sum and substance, it was the contention of the ld. A.R that as the amount of “on money” received by the assessee formed part of the booking receipts/advances, therefore, the same could only be brought to tax after the aforesaid project was completed. The ld. A.R in order to buttress his aforesaid contention took us through the relevant observations of the lower authorities. It was submitted by the ld. A.R, that as the assessee was a real estate developer, therefore, the principle of AS-9 was applicable in its case, because as per him the transactions of real estate were in substance similar to delivery of goods, where the revenue, costs and profits was recognised only when the revenue recognition process was completed. In support of his aforesaid contention the ld. A.R relied upon Para 5.2 & 5.3 of the “guidance note of accounting for real estate transactions” (revised 2012) issued by ICAI. To sum up, it was averred by the ld. A.R, that the amount of “on money” received by the assessee in respect of its aforesaid project viz. “Duncan Heights” was to be brought to tax in conformity with the “project completion method” that was followed by the assessee, and the revenue could be recognised only after the project was completed (after adjusting the expenses for the project). The ld. A.R in order to fortify his aforesaid contention relied on the order of the Hon‟ble High Court of Gujarat in the case of CIT (Central), Surat Vs. Happy Homes Corporation (2018) 95 taxman.com 292 (Guj). It was submitted by the ld. A.R, that in the aforesaid case the Hon‟ble High Court had observed, that where the assessee is engaged in construction business, its income could be brought to tax only in the year when „sale deeds‟ of the units sold were registered, even though the sale consideration might have been received earlier from the buyer. It was submitted by the ld. A.R that the „Special Leave Petition‟ (for short „SLP‟) filed by the revenue against the aforesaid order had been dismissed by the Hon‟ble Supreme Court in the case of CIT, Central Vs. Happy Homes Corporation (2019) 103 taxmam.com 22 (SC). Apart therefrom, the ld. A.R had also relied on certain orders of the coordinate benches of the Tribunal forming part of the assesse‟s paper book‟ (for short „APB‟).
P a g e | 6 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) 6. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that the lower authorities had rightly concluded that the amount of “on money” that was unearthed during the course of the survey proceedings was admittedly the „unaccounted income‟ of the assessee for the year under consideration, and there was no reason for deferring the taxability of the same till the completion of the project. The ld. D.R in order to support his aforesaid contention took us through the relevant observations of the lower authorities. Apart therefrom, it was submitted by the ld. D.R, that Shri Zuzar Kathawala, director in his „statement‟ recorded in the course of the survey proceedings had categorically admitted that the amount of “on money” received from various customers was the „unaccounted income‟ of the assessee for Financial year 2013-14 & Financial year 2014-15. It was submitted by the ld. D.R, that the assessee had categorically admitted the „on money‟ as the „additional income‟ of the assessee (over and above its „regular income‟), and had agreed to offer the same for tax in the said respective years of receipt. It was submitted by the ld. D.R, that the complete turnaround by the assessee which had now claimed that the amount of Rs.8,33,95,755/- was an „advance‟ received from the customers, the revenue recognition in respect of which would take place in the year in which the project viz. “Duncan Heights” would be completed, was without any basis and had rightly been rejected by the lower authorities. The ld. D.R in order to buttress his claim that the assessee was obligated to follow “percentage completion method” as prescribed by ICAI under AS-9, therein relied on the order of the ITAT, Jaipur bench in the case of Krish Infrastructure (P) Ltd. Vs. ACIT, Central Circle-Alwar (2013) 35 taxmann.com 38 (Jaipur-Trib).
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, in the course of the survey action conducted under Sec. 133A on the assessee on 24.09.2014 certain incriminating documents were found, which revealed that the assessee was in receipt of an amount of “on money” while booking the sales of its project “Duncan Heights” situated at Mumbai Central. As observed by the A.O, a perusal of the incriminating documents found in the course of the survey proceedings revealed that the assessee was in receipt of “on money” aggregating to Rs.8,33,95,755/- which was spread over a period of two years viz. (i). F.Y. 2013-14: Rs.6.13 crores; and (ii). F.Y 2014-15:
P a g e | 7 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) Rs.2.20 crores. As is discernible from the orders of the lower authorities Shri Zuzar Kathawala, director had in his statement recorded under Sec.131 of the Act, admitted, that the aforesaid amount of “on money” was the unaccounted income of the assessee for the aforementioned respective years. Also, he had disclosed the aforesaid amount as the „unaccounted income‟ of the assessee and had stated that the same would be offered for tax as the „additional income‟ of the assessee (over and above its regular income) for the aforementioned respective years. As observed by us hereinabove, the assessee had failed to offer the aforesaid additional income of Rs.6,13,00,000/- that was admitted by him in the course of the survey proceedings as its „additional income‟ for the year under consideration viz. A.Y 2014-15. On a query by the A.O, it was the claim of the assessee that as the aforesaid amount of “on money” was in the nature of „advances‟ received from the customers in respect of its project viz. “Duncan Heights” which was in its nascent stage during the year (as only the basement work was done), therefore, the revenue recognition in respect of the same would be done after the project was completed. In fact, it was the claim of the assessee that the advances received in respect of its aforesaid project from the customers either in cash or cheques were to be accorded a similar treatment and the same thus could not be taxed till the project was completed. Accordingly, it was the claim of the assessee that the revenue recognition in respect of the amounts received from the customers was to be deferred till the completion of the project. Apart therefrom, the assessee had tried to impress upon the lower authorities that as it was a real estate developer, therefore, the principles of AS-9 would be applicable in its case and resultantly the revenue, costs and profits were to be recognised only when the revenue recognition process was completed.
We find that our indulgence in the present appeal has been sought by the assessee for adjudicating as to whether the CIT(A) is right in law and the facts of the case in concurring with the view taken by the A.O that the amount of “on money” received in respect of its project viz. “Duncan Heights” was to be assessed during the year, despite the fact that the said project was in its nascent stage and had yet not been completed. In order to answer the aforesaid issue we are also confronted with another aspect i.e as to whether the assessee was justified in following the “project completion method” and thus not accounting for its income on the basis of the “percentage completion method”. A perusal of the financials of the assessee company reveals
P a g e | 8 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) that it had during the year under consideration followed the „„project completion method‟‟ in respect of its aforesaid project. Also, the said method was thereafter followed by it in the subsequent years. As is discernible from the assessment order, the assessee had submitted before the A.O that it being a real estate developer was justified in following the “project completion method” as per the principles of AS-9. However, the A.O was of the view, that by virtue of the guidelines issued by ICAI (2012) the assessee being a builder/developer was required to follow percentage completion method for all its projects where the activities were commenced on or after 2012. Observing, that the commencement certificate pertaining to the project viz. “Duncan Heights” was issued to the assessee on 04.12.2013, the A.O was of the view that as the same was commenced after 2012, therefore, as per the guidelines issued by the ICAI (2012) for real estate developers it was mandatory for the assessee to have followed “percentage completion method” for recognizing revenue as regards the same. We may herein observe that the Hon‟ble Supreme Court in the case of CIT Vs. Bilahari Investments Pvt. ltd. 299 ITR 1 (SC) has held that a recognition/identification of income under the Act is attainable by several methods of accounting and that project completion method is one of such acceptable method. As observed by us hereinabove, a perusal of the „financial statements‟ of the assessee reveals that the receipts of the units booked were accounted for by the assessee as a „trade payable‟ appearing on the liability side of its „balance sheet‟, and all the project expenses were appearing as the project „work-in-progress‟ on the asset side of its „balance sheet‟. Accordingly, only at the time of the completion of the project both these items were to be recognised as „incomes‟ and „expenses‟, respectively, and the resultant project profits were to be offered for tax. As such, as observed by us hereinabove, the assessee was admittedly following the “project completion method” in respect of its aforementioned project viz. “Duncan Heights”. We find that the „Special Bench‟ of the Tribunal in the case of Wallstreet Construction Ltd. Anr. Vs. JCIT 101 ITD 156 (Mum) (SB), had observed, that in case of an assessee following “project completion method” of accounting, income identifiable with that project is to be considered only in the year when the project is completed and the resultant income from that project is to be offered for tax. Also, a similar view had been taken by the coordinate benches of the Tribunal viz. (i) ITO Vs. Panchvati Developers 115 TTJ 139 (Mum); (ii) JCIT Vs. K. Raheja (P) Ltd. 102 ITD 401 (Mum); and (iii) M/s Runwell Homes Pvt. Ltd. Vs. Dy. CIT [2017 (12) TMI 1216 - Mumbai Trib]. Further, we find that the Hon‟ble High Court
P a g e | 9 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) of Gujarat in the case of CIT Vs. Advance Construction Company (P) Ltd. 275 ITR 30 (Guj), has held that „project completion method‟ is a duly accepted method in case of a real estate developer. Further, the ITAT, Pune in the case of Dhanvarsha Buildes and Developers (P) Ltd. Vs. DCIT (102 ITD 375) (Pune), had observed, that the undisclosed income in the form of “on money” should be taxed in the respective assessment years as per the method of accounting followed by the assessee. Accordingly, in the backdrop of our aforesaid observations, it can safely be concluded that the addition of the amount of “on money” has to be made on the basis of the method of accounting followed by the assessee. As observed by us hereinabove, since the project of the assessee during the year under consideration was in its nascent stage (as only basement was completed), therefore, the amount received from its customers by way of „on money‟ was inextricably a part of the „booking amount‟ i.e advance received for booking of the respective properties. We thus are of the considered view, that in the backdrop of the fact that the assessee was following “project completion method”, therefore, the amount of „on money‟ could not have been brought to tax during the year under consideration. As regards the observations of the A.O that the assessee had admitted the amount of „on money‟ of Rs.6,13,00,000/- as its income for the year under consideration viz. A.Y. 2014-15 in his „statement‟ recorded during the course of the survey proceedings conducted on 24.09.2014, we are of the considered view that what is to be examined is as to when the said amount can be brought to tax as per the mandate of law. In fact, once it is established that the amount to be brought to tax is the „on money‟, then what requires to be looked into is as to when the same has to be taxed. Admittedly, Shri. Zuzar Kathawala, director, had in his statement recorded under Sec. 131 of the Act on 24.09.2014 stated that the assessee had earned the amount of “on money” of Rs.8,33,95,755/- during the F.Y. 2013-14 and F.Y. 2014-15. Apart therefrom, he had offered the amount of “on money” of Rs.6,13,00,000/- as the „additional income‟ of the assessee (over and above the „regular income‟) for the year under consideration and had agreed to pay tax on the same. In our considered view, the receipt of amount of “on money” is part and parcel of the „booking advance‟ received by the assessee from its customers at the time of booking of the property. In sum and substance, the advance received by a real estate developer, whether by way of cheques or in the nature of “on money”, in either case has to be similarly construed and cannot be given a different meaning. In other words, the amounts received by cheques/cash before P a g e | 10 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) actually transferring the flats to the purchasers will retain the color and character as that of an advance and cannot be said to have accrued as income to the assessee. Accordingly, the „advance‟ money received by the assessee cannot be held to be the assesses income during the year, and would only be shown as a liability in its „balance sheet‟ as advances received from the customers which thereafter would be adjusted against the sale proceeds of the properties as and when the same are transferred to the purchasers. As such, the accrual of income to the assessee before us would not arise on the date when it had received cheques or cash against sale of flats but would arise only when the flats are transferred to the buyers. In fact, till the property is not transferred by the assessee to the buyers the advance received from them would retain the character as such and cannot be construed as a sale consideration. As observed by us hereinabove, the assessee in the case before us had admittedly received „booking advances‟ from the customers both by way of cheques and “on money” in the Financial year 2013-14 and Financial year 2014-15. However, the aforesaid advances had crystallised and formed part of the sale consideration only when the assessee had transferred the respective properties to the buyers. The ld. A.R on a specific direction by the bench had furnished the complete bifurcated details as regards the properties pertaining to which the amount of “on money” of Rs.6,13,00,000/- in the course of survey proceedings was found to have been received by it during the year under consideration. The aforesaid details furnished by the assessee, reads as under:
Sr. No. Name Cash Cheque Amount Allocation UNIT TYPE CARPET Received AREA IN SQ FT 1. Ebrahim Khan 4400000 100000 4500000 NO ALLOCATION 2. Fakruddin Md 1420000 5780000 7200000 1903 TWO BHK 750 Husain Rangwala 3. Saifudeen F 1250000 2222000 3472000 BOOKING Dhila CANCELL 4. Saifudden 950000 5400022 6350022 1503 ONE BHK 450 Abbas Talawala 5. Abbasbai 4810000 18600000 23410000 BOOKING Hamzabhai CANCELL Dudhwala 6. Abid Bhai 2102000 5151000 7243000 1104 ONE BHK 450 Boxbala/Rashida Abid Boxwala 7. Hasan Ali 5025000 2600000 7625000 1203 TWO BHK 750 Haiderali Khandwala 8. Mustalfa 2750000 7000000 9750000 NO Fakruddin ALLOCATION Aantriwala P a g e | 11 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) 9. Nasir Gadiwala 7000000 1087500 8087500 NO ALLOCATION 10. Saifuddin M 2100000 2200000 4300000 1101.00 ONE BHK 405 Gulamali Amjawala 11. Shaikh Abbasi 5000000 4462500 9462500 2101,2102 2 ONE BHK 470 EACH Kanga 12. Yusuf Ali 3000000 552786 35527786 BOOKING Hussain Kothari CANCELL 13. Hussani 2000000 2950000 4950000 901 ONE BHK 405 Alimohammed Jigar 14. Shaikh abbasi 5337500 4375000 9712500 2104 TWO BHK 750 Kanga 15. Mustafa 5000000 2217500 7217500 1803 TWO BHK 750 Alihusain Kais 16. Kutubdin Abbsa 2000000 3000000 5000000 1204 ONE BHK 450 Topiwala 17. Saifuddin 6100000 700000 6800000 1001 & 1002 2 ONE BHK 450 EACH Yusufali Nagaria 18. Mustafa M 100000 400000 500000 BOOKING Rangwala CANCELL 19. Yash 1009000 46500000 47509000 NO Enterprises ALLOCATION Total 61353500 115288308 176641808 On the basis of the aforesaid details, we find, that the assessee has claimed to have received amount of „on money‟ aggregating to Rs. 6,13,53,500/- from 19 parties. In case of 11 parties it is claimed that the respective properties had been allotted to the concerned parties. In respect of 4 parties, it is claimed, that the respective bookings had been cancelled. As regards the remaining 4 parties, it is claimed that till date the property has not been allocated. In the backdrop of the aforesaid facts, we herein restore the matter to the file of the A.O with a direction to make certain verifications viz. (i). that, the A.O shall verify that the amount of “on money” that was received by the assessee as regards the properties which had been transferred to the aforementioned 11 parties in the aforementioned succeeding years were considered by it as per its “project completion method” while recognising the revenue as regards the same; (ii). that, as regards the 4 parties where the booking is stated to have been cancelled, the A.O shall verify the treatment of “on money” that was received by the assessee from the said persons; and (iii). that, as regards the remaining 4 parties to whom the properties had not been allotted, the A.O shall make necessary verifications as regards their current status. In the course of the „set aside‟ proceedings, the A.O shall remain at a liberty to make necessary verifications from the concerned 19 parties from whom the assessee had claimed to have received “on money” during the year under consideration. Needless to say, if the P a g e | 12 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) aforesaid claim of the assessee is factually not found to be correct, then the A.O shall be at a liberty to take necessary remedial action as per the extant law.
The appeal of the assessee is allowed in terms of our aforesaid observations. A.Y.2015-16 10. We shall now advert to the appeal of the assessee for A.Y. 2015-16. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. That on the facts and circumstances of the case and in law, Ld. A.O erred in proceedings with extra-ordinary power u/s 147, particularly when normal procedure of assessment of income u/s 143(3) are available which otherwise within time.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of „on money‟ receipts on sale of flats in the projects „Duncan Heights‟ in the assessment year under consideration ignoring the method of accounting followed by the appellant, i.e. the project completion method, and that revenue can be recognized only on completion of project, and as such, the addition is bad in law and is liable to be deleted.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in observing that the appellant‟s method of accounting has not relevant in so far as taxation of „on money‟ is concerned, i.e., undisclosed income ought to be taxed in the year of receipt.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition solely on the ground that the appellant‟s director had himself admitted that the Rs.2,20,42,255/- was to be taxed in the year under consideration, completely ignoring the settled legal principles in this regard that there is no estoppels against law, and as such, the addition is liable to be deleted.
5. On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition made by ld. Assessing Office amounting to Rs.2,2042,255/-.
On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in assessing the income of Rs.2,20,42,255/- as unexplained income instead of business income.
7. Without prejudice to above grounds of appeal
, on the facts and the circumstances of the case and in law, the ld. A.R as well the Ld. CIT(A) erred in taxing the gross „on money‟ receipts of Rs.2,20,42,255/- as income, without providing for any allowance for expenditure, and as such, only reasonable proportion of such receipts ought to be taxed in the year of completion of the project.
11. Also, the assessee had raised the following „additional ground of appeal‟:
P a g e | 13 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) “That on the facts and circumstances of the case and in law, Ld. A.O erred in proceeding with issuing notice u/s 148 and in making assessment u/s 147 of the Act, despite the fact that time period for issuing notice u/s 143(2) and making assessment u/s 143(3) had not expired.”
12. Briefly stated, the assessee had filed its return of income for A.Y. 2015-16 under Sec. 139(4) on 16.01.2017, declaring its total income at Rs.Nil. Subsequently, the case of the assessee was reopened on 17.02.2017 under Sec.147 of the Act.
During the course of the assessment proceedings it was observed by the A.O that survey proceedings under Sec.133A were conducted on the assessee on 24.09.2014. It was noticed by the A.O that Shri Zuzar Kathawala, director, in his „statement‟ recorded under Sec.131 on 24.09.2014, had admitted that the assessee firm had received an amount of “on money” of Rs.2.20 crores during the year under consideration, viz. A.Y. 2015-16 from various buyers in respect of its project viz. “Duncan Heights” situated at Mumbai, Central. The aforesaid amount was admitted by the assessee as its „undisclosed income‟ for the year under consideration which was agreed to be offered for tax as its „additional income‟ (over and above the regular income) for the year under consideration viz. A.Y. 2015-16. However, the assessee in its return of income did not offer for tax the aforesaid „additional income‟ of Rs.2.20 crores. On a query raised by the A.O, it was submitted by the assessee that as it was following „project completion method‟, therefore, the aforesaid “on money” received in respect of its project viz. “Duncan Heights” could only be brought to tax in the year when the said project was completed. The A.O not finding favour with the aforesaid explanation of the assessee declined to accept the same. Accordingly, the A.O vide his order passed under Sec. 143(3) r.w.s. 147, dated 11.12.2017 added the aforesaid amount of “on money” of Rs.2,20,42,255/- as the „unaccounted income‟ of the assessee for the year under consideration.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) was not inclined to accept the contention of the assessee that the aforesaid amount of “on money” being in the nature of advance was to be offered as income when the project was completed. It was observed by the CIT(A) that the assessee had himself admitted in the course of the survey proceedings that the aforesaid amount was in the nature of “on money”, and had agreed to offer the same as its „additional income‟ for the year under consideration. On the basis of his aforesaid observations the CIT(A) declined to accept the contentions advanced by the assessee and dismissed the appeal.
P a g e | 14 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) 15. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal, it was submitted by the Ld. A.R that the A.O had traversed beyond the scope of his jurisdiction and framed the assessment under Sec. 143(3) r.w.s. 147, vide his order dated 11.12.2017. Adverting to the additional „Ground of appeal
‟, it was submitted by the Ld. A.R that as the assessee by raising the same had sought adjudication of the validity of the jurisdiction assumed by the A.O for framing the assessment under Sec. 143(3) r.w.s 147 of the Act, on the basis of the facts already available on record, therefore, the same may be admitted. We have given a thoughtful consideration and are in agreement with the contention of the Ld. A.R that the assessee by raising the aforesaid additional „Ground of appeal‟ had assailed the validity of the jurisdiction assumed by the A.O for framing of the impugned assessment, which would require to be adjudicated on the basis of the facts already available on record. Accordingly, in view of the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC) the aforesaid additional ground of appeal is admitted.
16. It was submitted by the Ld. A.R that the A.O could have validly issued a notice under Sec. 143(2) for framing of a regular assessment till 30.09.2017, being six months from the end of the financial year in which the return was filed by the assessee. It was averred by the ld. A.R, that as the A.O instead of issuing a notice for regular assessment under Sec. 143(2), had proceeded with and invoked reassessment proceedings by issuing a notice under Sec. 148 on 17.02.2017, therefore, the consequent reassessment order passed by him under Sec. 143(3) r.w.s. 147 was bad in law. In sum and substance, it was the claim of the Ld. A.R that as the time limit for framing a regular scrutiny assessment by issuing of a notice under Sec. 143(2) had not yet lapsed, therefore, the initiation of reassessment proceedings by the A.O by issuing a notice under Sec. 148, dated 17.02.2017 had no sanctity of law and resultantly the assessment framed under Sec. 143(3) r.w.s. 147 could not be sustained. In support of his aforesaid contentions, the Ld. A.R had relied on the judgment of the Hon‟ble High Court of Bombay in the case of Smt. Suman W/o Keshaorao Burde Vs. ITO [2017(8) TMI 567 (Bom). The Ld. A.R drawing our attention to the aforesaid judgment of the Hon‟ble jurisdictional High Court submitted, that the Hon‟ble Court had observed that a notice issued under Sec. 148 during the availability of time limit for issuing a notice under Sec. 143(2) was to the held as bad P a g e | 15 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) in law and liable to be quashed. In the backdrop of the aforesaid position of law, it was submitted by the Ld. A.R that as the time limit for issuing a notice under Sec. 143(2) for framing a regular assessment in the case of the assessee for A.Y. 2015-16 was available till 30.09.2017, therefore, the issuance of a notice under Sec. 148 by the A.O on 17.02.2017 i.e. during the availability of the time limit for issuance of a notice under Sec. 143(2) was bad in law and was liable to be quashed. Alternatively, on merits, it was submitted by the Ld. A.R that the facts and the issue involved the present appeal remained the same as were there in the appeal of the assessee for the immediately preceding year i.e. A.Y. 2014-15 in . On a specific query by the bench the ld. A.R had furnished the complete bifurcated details as regards the properties pertaining to which the “on money” of Rs. 2.20 crores was found to have been received by the assessee during the year under consideration, as under :
Sr. No. Name Cash Cheque Amount Allocation UNIT TYPE CARPET Received AREA IN SQ FT 1. Saifuddin 1600000 1100000 2700000 1001 &1002 2 ONE BHK 450 EACH Yusufali Nagaria 2. Ali Akbar M 3093750 5440000 8533750 BOOKING KARLAWALA CANCELLED 3. Shabbir Rajab 3956250 3437000 7393250 1205 ONE BHK 645 Ali Ghadiayali 4. Yusuf Juzer 3100000 6344500 94444500 2001-2002 TWO ONE 470-470-645 Khomosi BHK 5. Juzer SF 3100000 6344500 9444500 1306 TWO BHK 645 Khomosi 6. Hussaini G. 1000000 2000000 3000000 BOOKING Najmi CANCELLED 7. Kutubuddin 2325000 7500000 9825000 BOOKING Moiz Ali CANCELLED Amjawala 8. Taher Chikhly 1000000 2425000 3425000 9004 ONE BHK 450 9. Yash 2867255 5000000 7867255 NO Enterprise ALLOCATION Total 22042255 39591000 61633255 In the backdrop of his aforesaid contentions it was averred by the Ld. A.R that as the A.O had invalidly assumed jurisdiction and framed assessment under Sec. 143(3) r.w.s 147, dated 11.12.2017, therefore, the same was liable to be struck down. Alternatively, it was submitted by the Ld. A.R that as the amount of “on money” of Rs. 2.20 crores pertained to its project viz. “Duncan Heights” situated at Mumbai, Central, in respect of which it was following „project completion method‟, therefore, the same could only be brought to tax in the year in which the said project was completed.
P a g e | 16 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) 17. Per contra, the Ld. D.R relied on the orders of the lower authorities. The Ld. D.R rebutted the claim of the assessee that the assessment framed by the A.O under Sec.143(3) r.w.s. 147 was invalid and not sustainable in the eyes of law. On merits, the Ld. D.R reiterated the submissions which were advanced by him in the case of the assessee for the immediately preceding year.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As the assessee by raising the aforesaid additional „Ground of appeal‟ has assailed the validity of the jurisdiction assumed by the A.O for framing the assessment under Sec. 143(3) r.w.s. 147, therefore, we shall first advert to the same. On a perusal of the orders of the lowers authorities, we find, that the assessee had filed its return of income for the year under consideration i.e. A.Y. 2015-16 under Sec. 139(4) on 16.01.2017. Accordingly, the time limit available with the A.O for issuing notice under Sec. 143(2) for framing a regular assessment was available till 30.09.2017, being six months from the end of the financial year in which the return was filed. As is discernible from the records, the A.O instead of issuing a notice for regular assessment under Sec. 143(2) during the said available time limit had however proceeded with and issued a notice under Sec. 148, dated 17.02.2017. In sum and substance, despite the fact that the time limit for issuing a notice under Sec. 143(2) for framing a regular scrutiny assessment was available and had yet not lapsed, the A.O had however issued a notice under Sec. 148, dated 17.02.2017. In our considered view, there is substantial force in the claim of the Ld. A.R that a notice issued under Sec. 148 during the availability of time limit for issuance of a notice under Sec. 143(2) would be bad in law. As observed by the Hon‟ble High Court of Bombay in the case of Smt. Suman W/o Keshaorao Burde Vs. ITO [2017(8) TMI 567 (Bom)], so long time is available to complete an assessment under Sec. 143(3) of the Act after having issued intimation under Sec. 143(1), there can be no occasion for the A.O to have a reason to believe that the income of the assessee chargeable to tax had escaped assessment, as he could validly issue a notice under Sec. 143(2) and complete the assessment under Sec. 143(3) of the Act. Accordingly, it was observed by the Hon‟ble High Court that no notice under Sec. 148 can be issued till the period to issue notice under Sec. 143(2) had expired. It was observed by the Hon‟ble High Court that so long P a g e | 17 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) assessment proceedings on the basis of return of income filed by the assessee were pending i.e. either till an order under Sec. 143(3) was passed or the time limit to issue a notice under Sec. 143(2) had expired, no reassessment proceedings can be initiated by the A.O. The Hon‟ble High Court while concluding as hereinabove had observed as under :
“8. Before dealing with the rival contentions, it may be useful to reproduce Section 143 of the Act as existing, when notice dated 25.01.2000 was issued under Section 147/148 of the Act and it read as under : "143[(1) Where a return has been made under section 139, or in response to a notice under subsection(1) of section 142,(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of subsection (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii)....................... Provided that except as otherwise provided in this subsection, the acknowledgment of the return shall be deemed to be an intimation under this subsection where either no sum is payable by the assessee or no refund is due to him : Provided further that no intimation under this subsection shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.] (2) Where a return has been made under section 139, or in response to a notice under subsection(1) of section 142, the Assessing Office shall, if he] considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return : Provided that no notice under this subsection shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.] 3...................... 4......................." (emphasis supplied).
9. It is an undisputed position before us that on 25.01.2000 when the Assessing Officer issued a notice under Section 148 of the Act to reopen the assessment for Assessment Year 1999-2000, even before the time to issue notice under Section 143(2) of the Act to assess under section 143(3) of the Act had expired. It is clear from Section 143(1)(i) of the Act as in force at the relevant time that the intimation thereunder is without prejudice to the right of the Revenue to proceed under Section 143(2) of the Act. Thus, issue of intimation by itself does not bring to an end an assessment proceeding. It comes to an end only when the time to issue a notice under Section 143(2) of the Act expires/come to an end.
P a g e | 18 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) 10. On the other hand, Section 147/148 of the Act empowers an Assessing Officer to reopen an assessment wherever he has reason to believe that income chargeable to tax has escaped assessment. This power under Section 147/148 of the Act is subject to various limitation provided therein. The power of reopening of assessment can be exercised where assessment has not been completed under Section 143(3) of the Act or even where intimation under Section 143(1)(i) of the Act has been issued provided the time to take further proceeding by issuing notice under Section 143(2) of the Act to complete assessment under Section 143(3) have already expired. So long the time is available to complete an assessment under Section 143(3) of the Act after having issued intimation under Section 143(1) of the Act, there can be no occasion for the Assessing Officer to have reason to believe ? the income chargeable had escaped assessment, for the reason that the Assessing Officer can issue notice under Section 143(2) of the Act, to complete assessment under Section 143(3) of the Act. Thus, it is a power vested in the Assessing Officer to disturb a concluded issue within a specified period by reopening an assessment. Therefore, it cannot be exercised till the period for completion of assessment has expired. Section 147/148 of the Act is not a power to be exercised to abort the regular assessment proceeding by issuing notice for reopening an assessment. The proceedings under Section 147/148 are not parallel to regular assessment proceedings under Section 143(2) & (3) of the Act.
The impugned order relies upon Explanation 2(b) to Section 147 of the Act to sustain the reopening notice. Explanation 2(b) to Section 147 reads as under :" Section 147.............. 2: Explanation: For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has been escaped assessment, namely (a)............ (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss deduction, allowance or relief in the return;" The aforesaid explanation deals with case where income chargeable to tax escapes assessment including a case where a return of income has been filed, but no assessment has been made. The aforesaid explanation seeks to clarify that merely because no assessment has been made even after filing a return, it will not be open to suggest that no income chargeable to tax has escaped assessment. This covers issue where there is no possibility of making an assessment on the date when the notice under Section 147/148 of the Act is issued. So long as the time to issue notice under Section 143(2) of the Act is available, it cannot be said that no assessment has been made as the possibility of making an assessment is always available. The Assessing Officer is obliged to complete assessment under Section 143(3) of the Act by issuing a notice under Section 143(2) of the Act, if he is of the view that the assessee has understated his income or computed excessive loss or understated his tax to the prejudice of the Revenue. Therefore, we are clear that in view of the provisions of Section 143(1)(i) of the Act is in force at the relevant time, no notice under Section 148 of the Act can be issued, till the period to issue notice under Section 143(2) of the Act has expired.
Reliance is placed upon the decision of the Apex Court in Rajesh Jhaveri (supra) by the Revenue and in particular upon paragraph 18 thereof which reads as under :"
18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will P a g e | 19 & 1634/Mum/2019 AYs.2014-15 & 2015-16 M/s Kathawala Realtors LLP Vs. DCIT(A)-6(4) not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued." The aforesaid observation by the Apex Court is made in the context of the contention of the assessee that an Assessing officer cannot initiate reassessment proceedings, where intimation under Section 143(1) has been issued and the Revenue failed to take steps to issue notice under Section 143(2) and complete assessment under Section 143(3) of the Act. The aforesaid contention was negatived in the above referred para on the ground that in the context of the facts before it, the time to issue notice under Section 143(3) of the Act had expired. It is only thereafter that the Assessing Officer could have reason to believe that the income chargeable to tax has escaped assessment. It is in such cases that the Assessing Officer would not be prohibited under Section 147/148 of the Act from seeking to recover tax on income which has escaped assessment. It is clear that no reassessment proceedings can be initiated so long assessment proceedings on the basis of return of income filed by the assessee is pending. The assessment proceedings would cease to be pending either by passing of an order under Section 143(3) of the Act or by expiry of time to issue a notice under Section 143(2) of the Act, to complete an assessment under Section 143(3) of the Act. So long as the above event has not passed, the Assessing Officer cannot render the provision of Section 143(2) of the Act redundant/otiose by issuing a notice for reopening an assessment under Section 147/148 of the Act. Therefore, the above decision of the Apex Court in Rajesh Jhaveri's case have no application to the present facts, when admittedly the time to issue notice under Section 143(2) of the Act to complete the regular assessment under section 143(3) of the Act has not expired.” Also, we find that a similar view was taken by the Hon‟ble High Court of Madras in CIT Vs. Qatalys Software Technologies Ltd. (2009) 308 ITR 249 (Mad). In the aforesaid case, it was observed by the Hon‟ble High Court that where the period of issuing of a notice under Sec. 143(2) of the Act had not expired, then the reassessment notice issued under Sec. 147/148 of the Act would be invalid. Accordingly, in the backdrop of the aforesaid position of law, we are of the considered view that in the case before us as the period for issuing the notice under Sec. 143(2) was available with the A.O till 30.09.2017 and had not yet expired, therefore, the notice issued by him under Sec. 148, dated 17.02.2017 was invalid and bereft of any force of law. As such, the assessment framed by the A.O under Sec. 143(3) r.w.s. 147, dated 11.12.2017 on the basis of the aforesaid invalid notice issued under Sec. 148, dated 17.02.2017 cannot be sustained and is liable to be struck down. The additional „Ground of appeal‟ raised by the assessee is accordingly allowed.
As we have struck down the assessment framed by the A.O under Sec. 143(3) r.w.s. 147, dated 11.12.2017 for want of jurisdiction on his part, therefore, we refrain from adverting to and therein adjudicating upon the contentions advanced by the Ld. A.R as regards the merits of the case, which are left open.