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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue is directed against the order dated 23.6.2011 passed by the learned CIT(A)-35, Mumbai and it relates to A.Y. 2007-08. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the addition of ` 62.07 lakhs relating to profits estimated by the Assessing Officer on sale of Building No.5 & 6.
None appeared on behalf of the assessee even though the assessee was given a last opportunity on 31.5.2016 and again the hearing was adjourned at the request of the assessee on 28.6.2016. Hence, we proceed to dispose of the appeal ex-parte, without presence of the assessee.
We have heard learned Departmental Representative and perused the record. The assessee is a partnership firm engaged in the construction of buildings. It has constructed a project named “Sadguru Complex”, Mira Road.
2 M/s. Sadguru Builders During the year under consideration the assessee reported that it had completed building No. 7 & 8 and accordingly offered profit thereon. The Assessing Officer noticed that the assessee has also promoted two buildings namely 5&6 and has received entire sales consideration of ` 4.13 crores during the year under consideration. However, the assessee did not offer profit on building No.5&6. Since, the assessee did not furnish any plausible explanation, the Assessing Officer held that the assessee should have offered profit from m building No.5&6 also and accordingly estimated profit at 15% of the sale consideration, which worked out to ` 62,07,064/-.
In the appellate proceedings, the assessee submitted that it is following mercantile system of accounting and project completion method for recognizing income. It submitted that construction of building No.5&6 was completed in the succeeding year and the flats were handed over to the customers in the succeeding year. The assessee also submitted that it has offered income from sale of building No.5&6 in the succeeding year. The assessee also furnished certain evidences and also details of expenses that were incurred in the succeeding year. Hence, the learned CIT(A) called for the remand report from the Assessing Officer. However, the Assessing Officer stood by the assessment order. The learned CIT(A) was, however, convinced with the submissions made by the assessee and hence deleted the addition made by the Assessing Officer. Aggrieved, the Revenue has filed this appeal before us.
We noticed that the assessee has furnished details of expenses incurred in the succeeding year in respect of building No.5&6 as details below :-
Material purchase ` 2,95,27,958 2. Lift ` 1,90,850 3. Direct expenses and labour charges ` 1,26,63,686 4. MCGM ` 4,79,944 5. Indirect expenses ` 69,44,649 The assessee has also submitted that it has handed over the buildings in the succeeding year and it has also started collecting service charges from the 3 M/s. Sadguru Builders buyers only in the succeeding year. The assessee also furnished Architect certificate to show that the building has been completed in the succeeding year. Hence, the learned CIT(A) has decided this issue in favour of the assessee with the following observations :-
3.6. I have considered the submissions of the representative and the stand taken by the A.O. The A.O. treated the project as completed during this year solely because the appellant received the entire agreed consideration. The A.O. was directed to submit remand report regarding the expenditure incurred by the appellant in the next year. However, the A.O. did not submit any comments with reference to the following observations in the remand order.
"The A.0, did not conduct necessary verification to find out as to when the flats were handed over to the occupants and whether any expenditure is Looked by the appellant against building no. 5 & 6 in the subsequent year"
A perusal of the P&L A/c. filed with the return of income in the next year shows that the appellant incurred substantial expenditure including purchase of lift for Rs.1,90,850/-. Without installation of lift, it cannot be said that the building is completed. Further even as per the remand report, the appellant paid security charges only in the next year in the month of July, 2007 and not during this year. Thus, there is no reason to hold that the building was completed during this year and possession were handed over to the flat owners. The remarks of the A.O. that the architect certificate did not mention the date of inspection is not relevant as in any case the inspection could not have been carried out during this financial year as the certificate was dated 13.2.2008. The architect could have inspected the building either on 13.2.2008 or immediately before and in any case it cannot be held that the building was completed during this year. The A.O. could not bring on record necessary evidences to show that the building was completed during this year and possession was handed over to the occupants even during the course of remand proceedings. Accordingly, I find that there is no justification for treating the project as completed during this year when the appellant has already treated the project as completed in respect of building no.5 & 6 in the next year and admitted the profit for taxation. I, therefore, direct the A.O. to delete the addition of Rs,62,07,06/-.
4 M/s. Sadguru Builders
5. We have gone through the order passed by the learned CIT(A). We are of the view that the learned CIT(A) has passed a reasoned order on the basis of materials available on record. We agree with the view taken by the learned CIT(A) that mere receipt of entire amount of sale consideration would not give rise to the income and income can be taxed only when it accrued to the assessee. On the basis of the details available on record, the learned CIT(A) has taken the view that building No.5&6 have been completed in the succeeding year and they have also been handed over to the buyers in the succeeding year. Hence, income has accrued to the assessee on sale of building No.5&6 only in the succeeding year. Since, the assessee is following mercantile system of accounting and project completion method for recognising income, we are of the view that the learned CIT(A) was justified in taking decision in favour of the assessee. Accordingly, we uphold the order passed by him.
In the result, appeal filed by the Revenue is dismissed.
Order has been pronounced in the Court on 8.2.2017.