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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI PAWAN SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2005-06. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-30 [in short ‘CIT(A)’], Mumbai and arises out of the assessment completed u/s 144 r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the assessee read as under:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the Assessing Officer (‘AO') of issuance of notice u/s 148 of Act and completion of assessment u/s. 147 of IT Act, as valid.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the AO in estimation of income from building project @ 10% of notional revenue, ignoring the fact that the construction of building was incomplete and even transaction of sale was not completed.
On the facts and circumstances of the case and in law, the Ld. CIT(A)has erred in confirming the action of the AO of considering notional revenue of total area of flats proposed to be constructed and sold, ignoring the fact that the building was a re-development project under which the existing owners /tenants were entitled to certain area in lieu of their existing area. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A)has erred in confirming the action of the AO in not allowing the deduction of remuneration paid to partners by making a best judgment assessment u/s. 144 of the Ad and invoking the provisions of Section 184(5) of the Act 3. We begin with the 1st ground of appeal. The appellant filed its return of income for the assessment year (AY) 2005-06 on 18.10.2005 declaring total income of Rs.1,90,135/-. The Assessing Officer (AO) noticed from the AIR information received in the case of Mr. Abdul Khaliq Bhatti, one of the partner of the appellant-firm that he had shown to have purchased/sold immovable properties amounting to Rs.42,72,000/-. Therefore, the AO issued a notice u/s 148 on 09.05.2008 to the appellant. In response to it, the appellant vide its letter dated 21.05.2008 requested the AO that the return of income filed on 18.10.2005 may be treated as return having been filed in response to notice u/s 148 of the Act. In the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (SC), it has been held by the Hon’ble Supreme Court that intimation u/s 143(1)(a) is not an assessment and therefore, held the notice issued u/s 148 as valid.
M/s A.G. Developers In view of the above position of law we uphold the action of the AO in issuing notice u/s 148 and dismiss the 1st ground of appeal
4. Then we deal with the 2nd, 3rd and 4th ground of appeal together as they address a common issue. The background facts have been delineated by the Ld. CIT(A) in para 2.2 of his order dated 01.10.2013 and we refer to it below. During the course of assessment proceedings, the AO observed that the appellant failed to comply to the notice issued u/s 142(1) and 143(3) of the Act. In view of the above non-compliance, the AO made the assessment u/s 144 of the Act. The AO noticed that the income of Rs.1,08,189/- declared by the assessee under the business head is profit derived from construction activity carried out at Bandra (W). In order to verify the same, he issued notice u/s 133(6) to the Executive Engineer, Building Proposal (W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai. A reply dated 23.11.2009 was received from the said office, wherein it was informed that the appellant firm had completed the construction which included additional illegal floors. The AO, further, noticed that though the construction of the building had been completed, the appellant, in the return of income, had shown closing work-in- progress at Rs.2,48,50,000/-. He was, therefore, of the view that the correct income of the appellant firm from the building project is required to be determined. As the appellant failed to furnish the requisite details, the AO, on the basis of details available on record, viz. two registered sale agreements dated 15.05.2004 and 26.07.2004 for sale of flat at agreement price of Rs.30,00,000/- and Rs.12,72,000/- for area of 996 and 636 sq. ft M/s A.G. Developers Rs.3000/- and Rs.2000/- in the respective agreements and the average rate for flat at Rs.2500/- per sq. ft. The AO noticed from the plan approved by the Municipal Authority that the appellant was permitted to construct 9772 sq. ft. of built up area and the building had been approved for construction of ground plus three floors only. Since, the ground floor was reserved for car parking area, the floor area of ground floor was not considered, which meant that the appellant was permitted to construct three floors of having aggregate area (built up) area of 9772 sq. ft. Further, from the copy of Index-II issued by the Registration Authorities, which was filed during the course of assessment proceedings in the case of Mr. Abdul K. Bhatti for AY 2005- 06, the AO noticed that the appellant had constructed ground plus eight floors on the said building i.e. five additional floors had been constructed illegally. The constructed area of the same was taken at 16,289 sq. ft. The AO also found that upto 31.03.2005, the profit from the above project had been declared at Rs.5,47,641/-. On the basis of the above information, the AO computed the area of 1632 sq. ft sold as per the registered agreements @ Rs.2,500/- and arrived at the value of Rs.42,72,000/-. Similarly, for the area other than the above, as per the approved plan i.e. 8140 sq. ft, the AO applied the same rate of Rs.2,500/- per sq. ft and computed its value at Rs.2,03,50,000/- and for the area of 16289 sq. ft also, illegally constructed, he applied the rate of 2,500/- sq. ft and arrived at the value of Rs.4,07,22,500/-. The total value of the project completed by the appellant was, thus, determined at Rs.6,53,44,500/-, being the sum total of the above three values. Thereafter, the AO determined the profit @ 10% of the above value i.e. at Rs.65,34,450/- and after reducing the M/s A.G. Developers 31.03.2005 i.e. Rs.5,47,641/-, the balance amount of Rs.59,86,809/- was added to the income of the appellant. The AO also treated the status of the appellant as ‘AOP’ for tax purpose. Further, the rent received of Rs.9,03,000/- from MTNL and Tata Tele Services Ltd. was assessed under the head ‘Income from house property’. The taxable income computed under the above head is Rs.6,32,100/-. Thus the AO arrived at the total income of Rs.60,98,640/-.
Aggrieved by the order of the AO the assessee filed an appeal before the Ld. CIT(A). On merits, the Ld. CIT(A) held : “7.2 In ground of appeal no.4, the appellant has stated that the AO has erred in assuming that the whole of the constructed area is available for sale, whereas, this being a re-development project, some flats were given to the existing tenants. This ground of appeal is also no longer maintainable, because in the submission dtd. 5.4.11 filed before the AO during the remand proceedings, the appellant has not furnished any details concerning its claim that some flats were given to the existing tenants and therefore, whole of the constructed area was not available for sale. I, accordingly, dismiss this ground of appeal. 7.3.1 The remaining ground of appeal, that is no.2 is that that the AO erred in completing the assessment assuming that construction of the building has been completed, which, in fact, has not been completed till December 2009 and even upto Sept. 2013. This ground of appeal is to be seen in the context of the reply dtd. 23.11.09 furnished by the Executive Engineer, Building Proposal (W.S.), 'H' Ward of Municipal Corporation of Greater Mumbai. In the said letter, the Executive Engineer informed the AO that appellant firm completed the construction and also constructed additional illegal 4th floor. The appellant's M/s A.G. Developers submissions vide letter dtd. 5.4.11 during the remand proceedings have been that it is still to complete certain work like construction pertaining to building, permanent water connection, permanent electricity connection, asphalting of the compound, TDK regularization, etc., and, occupation certificate/building completion certificate which are legal documents proving the completion of building, have also not been received till date and the compliance and the conditions of IOD are yet to be complied with, therefore, in their opinion construction of the building is incomplete and the expenditure for incomplete work is likely to cost more than Rs.4.5 crores. A proper appreciation of the above submission of the appellant would show that the building project has been completed and some ancillary activities only like asphalting of the compound, permanent electricity and water connection, parking, are left to be completed. The appellant's another contention is that occupation certificate and building completion certificate has not been issued to it so far. In this regard, it is worth noting that these are legal documents and it is the responsibility of the builder to take these certificates from the authorities concerned, and, it is, no way connected with the recognition of the income of the appellant from the project, which the appellant himself has stated is being shown on percentage completion method. Therefore, when the project has been completed fully, the appellant ought to have offered the entire amount during the year. It is also worth noting that the appellant has not only constructed the floors for which FSI was available, but also additional floors, without fully complying with the regulation of loading TDR on the building project. 7.3.2 In view of the discussion made above, I am of the considered view that the building project was completed during the year and the appellant was liable to disclose revenue from the said project during the year. In the absence of complete details filed by the appellant, the AO, on the basis of two agreements for sale available on record, as well as other details, was fully justified in computing the income from the project. I, therefore, confirm the M/s A.G. Developers Rs.59,86,809/- to the income of the appellant, on account of undeclared profit from the building project. 7.4 As discussed in para no. 2.2 above, the AO has also added an amount of Rs.9,03,000/- under the head ‘Income from House Property'. There is neither any specify ground of appeal
nor, any submission on the said treatment given by the AO to the above amount. The same, therefore, stands confirmed.”
6. Before us, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) return of income, (ii) submission filed before the CIT(A), (iii) order u/s 7(1) of the Right to Information Act, 2005 and (iv) letter dated 10.08.2011 addressed to the assessee by the AO. It is submitted that the appellant-firm had entered into sale agreement of three flats during the AY 2005-06. While registering the document, the partner wrongly submitted his PAN to the Registering Authority instead of giving the PAN of the firm. The Sub-Registrar had forwarded the information of sale of three flats by the partner to the concerned AO, who also happened to be the AO of the firm. On this basis, the partner’s case was selected for scrutiny. It was submitted during the assessment proceedings that the flats had in fact been sold by the firm and not by the partner. Hence, the AO on the basis of this information reopened the assessment of the firm. It is stated that during the assessment of the firm, the AO called for information from the Executive Engineer, BMC as to if the construction of the building is completed or not. The Executive Engineer has clearly stated in his letter that the construction of the building is not complete. In spite of the receipt of this information, the AO passed a best judgment M/s A.G. Developers assessment, assuming the construction of the building is complete and estimating the sales revenue and percentage of profit. Thus it is stated that basis on which the assessment is completed is totally incorrect.
7. On the other hand, the Ld. DR submits that there was no compliance by the appellant to the notice u/s 142(1) and 143(2) issued by the AO during the course of assessment proceedings. Even during the remand proceedings before the AO, the assessee failed to file the relevant documents/evidence. The Ld. DR draws our attention to para 7.1.2 of the order dated 01.10.2013 passed by the Ld. CIT(A). Thus the Ld. DR submits that the Ld. CIT(A) has rightly confirmed the order passed by the AO.
We have heard the rival submissions and perused the relevant materials on record. We find that vide letter dated 11.01.2012, the AO had furnished the appellant the information as available from his records. This was in pursuance to the order u/s 19 of the RTI Act, 2005 passed on 28.12.2011 by the Addl. CIT-19(3), Mumbai. We also find that there was no compliance by the assessee to the notice u/s 143(2) and 142(1) issued by the AO during the course of assessment proceedings. Even during the remand proceedings before the AO, there was no proper compliance by the appellant. In the instant case, the AO has completed the assessment u/s 144 r.w.s. 147 of the Act. The difference between an assessment u/s 143(3) and an assessment u/s 144 is that under the latter, the Act contemplates a more summary method, when the AO is acting by reason of the M/s A.G. Developers deliberate default of the assessee. In a best judgment assessment, there is always a certain degree of guess work. But the authorities concerned should try to make an honest and fair estimate of the income in a best judgment assessment, and should not act totally arbitrarily as held in Kachwala Gems v. JCIT 288 ITR 10 (SC). The Hon'ble Supreme Court in State of Kerala vs. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine witnesses and that includes equally the right to cross-examine witnesses. Having gone through the relevant records, we are of the considered view that in the instant case proper income could be arrived at. Therefore, we set aside the order of the Ld. CIT(A) and remit the matter to the file of the AO to make a de novo order, keeping in mind the above ratio laid down in K.T. Shaduli Grocery Dealer (supra) and after giving the appellant a reasonable opportunity of being heard, before finalizing the order. We direct the appellant to file the relevant documents/evidence before the AO.