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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI G MANJUNATHA
Appellant by Ms. Rutuja N Pawar Respondent by Shri Amit Pratap Singh Date of hearing 25-09-2019 Date of pronouncement 01-10-2019 O R D E R
Per Pawan Singh, Judicial Member:
This appeal by assessee is directed against the order of CIT(A)-50, Mumbai dated 28-02-2018, which in turn, arises from assessment order passed u/s 143(3) on 29-01-2016. The assessee has raised the following grounds of appeal:-
“1. The Hon'ble Commissioner of Income Tax (Appeals) (C1T (A)) has erred in confirming the action of Learned Assistant Commissioner ("AO"), of not reducing the income by Rs. 2,40,47,466/-, which was preponed and brought to tax by AO in A.Y 2010-11 and 2011-12 by disturbing percentage of completion. While doing so he has given following reason - • the addition made by the AO in A.Y 2010-11 & A.Y 2011-12 is contested by the appellant before appellate authorities, hence addition has not reached finality; • that there is no provision under the Income-tax Act to make amendment in the return of income. On the facts and circumstances of the case and in law, the assessed income ought to be reduced by Rs.240,47,466/-.”
Eskay Construction Pvt Ltd 2. At the outset of hearing, the Ld.AR of the assessee submits that the grounds of appeal raised in the present appeal is covered in favour of assessee by the decision of Tribunal in assessee’s own case for AYs 2010-11 & 2011-12 in ITAs No.3722/Mum/2016, 3466/Mum/2016 & 3465/Mum/2016. The Ld.AR further submits that the Ld. CIT(A) confirmed the action of AO by taking view that the addition made by AO in AYs 2010- 11 & 2011-12 has not attained finality. It was submitted appeals for AYs 2010-11 & 2011-12, has been decided vide order dated 10.07.209, the Ld.AR of the assessee also furnished the copy of order of Tribunal for AYs 2010-11 & 2011-12 dated 10-07-2019.
The Ld. DR for the revenue, after going through the grounds of appeal and the decision of Tribunal for AYs 2010-11 & 2011-12 fairly agreed that the grounds of appeal raised by revenue are covered.
We have considered the submissions of both the parties and perused the records. For proper appreciation of facts, the facts in brief are that assessee is a builder and developer, filed its return of income for AY 2012-13 declaring total income at Rs.23,74,33,983/-. The case was selected for scrutiny. The assessee is following percentage completion method for revenue recognition. During the assessment proceedings, the assessee filed revised computation of income on 21-12-2015. and made the following contentions:-
Eskay Construction Pvt Ltd "The Assessee till the AY 2012--13 was offering income from its residential project at the Taraporwala mansion, Cuff Parade on percentage completion method. The Assessee in the A.Y. 2010-11 and A.Y. 2011-12 has estimated that the said project is completed to the extent of 67.28% and 81.42% respectively and accordingly has offered the income for tax. However, in the Assessment the learned AO has modified the computation of income estimation and determination the percentage of completion at the 77.16% and 87.88% respectively. This resulted into addition to the total income, by Rs. 2,39,00,000/- and Rs.1,17,00,000/- for the A.Y. 2010-11 and A.Y. 2011-12, respectively. The Assessee has completed the said project in the year under consideration and offered the final profit of Rs.23,58,32,369/- offered by the Assessee .in the A.Y. 2013-14. Consequently, the total income of the Assessee for the A.Y, . 2013-14 needs to be reduced by the aforesaid sum of Rs. 3,56,00, 000/- (i.e. Rs. 2,39,00, 000 and Rs.1, 17,00,000/-. The revised computation without prejudice to the pending appeals for the above two assessment years is enclosed for your ready reference."
5. The revised claim of the assessee was not accepted by AO holding that the law did not permit him to reduce the returned income shown by the assessee. The AO further noted that appeals for AYs 2010-11 and 2012-13 were pending before CIT(A) against the addition made in those assessments thereby the AO accepted the returned income filed originally and rejected the revised computation. On appeal before CIT(A), the action of AO was upheld with the following observations:-
“8.0. 1 have considered the observations of the A.O. in the assessment order, submissions of the appellant and also perused the materials available on record, on this issue. The facts are that the appellant offered income based on Percentage Completion Method in relation to the residential project at Taraporwala Mansion. The A.O, has disturbed the % applied by the Appellant and made additions in A.Y. 2010-11 & A.Y. 2011-12, Thus, income amounting Rs. 3,56,00,000/- (i.e. Rs. 2,39,00,000/- and Rs. 1,17,00,000/- added in A.Y. 2010-11 & AY 2011-12 respectively) was proponed by the AO. The Appellant has claimed consequential
Eskay Construction Pvt Ltd relief in the year under consideration, as the project was completed in the current year. 8.2 Firstly, 1 have noted that the addition made by the A.O. in A.Y. 2010-11 & A.Y. 2011-12 has not attained finality. The CD (A) has vide order dated 26.02.016 & 26.02.2016 given partial relief to the Appellant and income to the extent of Rs. 2,40,47,466/- i.e. Rs. 85,18,702/- and Rs. 1,55,28,764/- for 2010-11 & A.Y. 2011-12 respectively has been upheld. In the written submissions, the Appellant has failed to furnish the present status of the appellate proceedings. From the material on record, it is inferred that this is not the case, wherein the Appellant has accepted the additions made by the A.O.”
From the aforesaid orders, we have noted that in AYs 2010-11 & 2011- 12 assessee has estimated the completion of project to the extent of 67.28% and 81.48% respectively and offered the income to tax. However, the AO modified the computation of income on estimation and determined the completion of project at 77.16% and 87.88%, which ultimately resulted in addition of Rs.2.39 crores and Rs.1.17 crores for AYs 2010-11 & 2011-12, respectively. The assessee claimed that the project is completed during the year under consideration, i.e. in AY 2013-14 and accordingly claimed that income needs to be reduced to the extent of Rs.3.56 crores. The AO did not accept the revised computation on the ground that law did not permit him to reduce the returned income. The Ld. CIT(A) did not allow relief to the assessee on the ground that appeal for AYs 2010-11 & 2011-12 were pending.
We have noted that the co-ordinate bench of Tribunal in assessee’s own case for AYs 2010-11 & 2011-12 vide order dated 10.07.2019 allowed relief to the assessee on the issue of claim of percentage completion by passed the following order:-
“7. We have heard the rival submissions and perused the materials available on record. We find that the subject mentioned project was started by the assessee in the year 2006 and the said project was completed subsequent to assessment years under consideration before us. Thus the Asst Years 2010- 11 and 2011-12 are the intervening years when the project was under construction. The adoption of percentage of completion method for recognizing revenue from the real estate project is not in dispute. The manner in which such income was recognized is in dispute between the assessee and the revenue. We find that the assessee had declared the percentage of work completed at 67.38% in the return. We find that the Id AO had arrived at the percentage of work completed at 77.16% by including the cost of land both in the estimate of total project and in the estimate of cost of work completed as on 31.3.2010. The manner of determination of revenue by the Id AO and consequential addition made thereon in the sum of Rs 2.39 crores is reproduced in table supra. We find that the Id CIT(A) had accepted the contention of the assessee that the cost of land should be excluded and accepted the percentage of work completed to be at 67.38% as disclosed by the assessee. We find that the acquisition of land is the very first step for the commencement of the project. The work on the project takes place after the acquisition of land. Generally, cost of land constitutes a very large portion but by the acquisition of land itself, there is no work-in-progress. At the stage where land only is acquired, it cannot be said that the project has commenced but if the cost of land is included in the percentage of the project completion, then it would show that the project has been substantially completed say, to the extent of 50-60% at the beginning itself. Hence, for working out the stage of completion of the project land value should not be included. Hence we hold that the Id CIT(A) is justified in excluding the value of land while working out the Eskay Construction Pvt Ltd percentage of work completed. Moreover, we find that the Id AO had considered the sale area while determining the percentage of completion method as against the cost incurred up to 31.3.2010. Hence we hold that the percentage of work completed up to 31.3.2010 should be considered at 67.38% as determined by the assessee in the return of income. 7.1----------- 7.2----------- 7.3----------- 7.4. Accordingly, the Ground No. 1 raised by the revenue for Asst Year 2010-11 is dismissed and Ground No. 1 raised by the assessee for Asst Year 2010-11 is allowed. In view of our decision for Ground No. l raised by the assessee, the adjudication of Ground No. 2 in assessee's appeal becomes academic in nature and does not require any adjudication at this stage.
8. Both the parties before us agreed that the Ground No. 1 in Asst Year 2011-12 in assessee's appeal is similar to grounds raised
by the assessee in Asst Year 2010-11. Hence the decision rendered by us for Asst Year 2010- 11 thereon would apply with equal force for Asst Year 2011-12 also except with variance in figures. The Id DR confirmed the fact that there was no appeal preferred by the revenue for the Asst Year 2011-12 before this tribunal. Accordingly, the Ground No. l raised by the assessee for Asst Year 2011-12 is allowed. In view of our decision for Ground No. l for Asst Year 2011-12, the adjudication of Grounds 2 and 3 thereon becomes academic in nature and does not require any adjudication at this stage.”
7. Considering the decision of co-ordinate bench for AYs 2010-11 & 2011-12, we find that the Assessee in the A.Y. 2010-11 and A.Y. 2011-12 has estimated that the said project is completed to the extent of 67.28% and 81.42% respectively and accordingly has offered the income for tax and admittedly remaining income was offered in the year under consideration (AY 2013-14) in the return of income, which has been correctly accepted by Eskay Construction Pvt Ltd assessing officer by accepting the return income. Hence, the appeal filed by the assessee is dismissed.
In the result, appeal of the assessee is dismissed.