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Income Tax Appellate Tribunal, “G”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue against the order of CIT(A)- Mumbai, for the assessment year 2011-2012, in the matter of order passed under Section 144 of the IT Act.
The first grievance of the assessee relate to deleting the addition of 58.97 lacs made by the AO on the plea that assessee following the Mercantile system of accounting did not offer its income during the year under consideration.
Rival contentions have been heard and record perused.
The facts in brief are that Assessee is a partnership firm and is engaged in the business of building development. During the year under 2 consideration, assessee was involved into ongoing project “Balaji Avenue” at Navi Mumbai. The project was started in the year 2008. Apart from this, assessee also undertook project called Balaji residency. During the course of scrutiny assessment, AO rejected method of accounting on the ground that profit from one of its projects is not offered to tax in the year under consideration by observing that project was completed in the Assessment Year 2011-2012 only.
The AO estimated income of the project at Rs.58,97,073/-. During the course of the assessment proceedings assessee submitted occupancy certificate (O.C.) dated 20.05.2011 issued by CIDCO. From the said O.C., AO noted that CIDCO had inspected project of the assessee on 07.03.2011 and therefore he came to the conclusion that assessee's project is completed on that date. He also observed that as on March 31,2011, 95.83% of the project was completed and assessee had received around 63% of the sale consideration. AO, therefore, held that year of accrual of income is A Y 2011-2012 and not AY 2012-2013 as declared by the assessee.
By the impugned Order CIT(A) deleted the addition after observing as under:- 4.4 I have considered assessment order and the submissions of the appellant carefully. In the case on hand, the undisputed fact is that the assessee has been consistently following a particular method of accounting viz project completion method of accounting. Its accounts are audited under Section 44AB of the Income-tax Act. Such accounts are being filed with the Income- tax Department for more than past 3 years. Method or accounting regularly employed and adopted by the assessee year after year have not been found fault with. Auditors of the Income-tax Act have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such 3 method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omission 4.5 On these facts and circumstances, the question that arises is whether it would be justified on the principles of consistency to uphold the accounts of the assessee. No doubt the courts have held that though the doctrine of res judicata does not apply, in particular, to income-tax proceedings. Nevertheless, at the same time, the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 3211 (SC) declared that though the principles of res judicata do not apply to income-tax proceedings, each assessment year being a unit by itself, yet in cases, when a fundamental, aspect permeating through the different assessment years has been found as a fact one way or the other and parties have been allowed that position to be sustained by not challenging the order, it may not be appropriate to allow that position to be changed in a subsequent year. Their cardships extracted with approval the following passage from Hoysted v. Commissioner of Taxation [1926] AC 155 (PC) (page 328): «Parties are not permitted to begin fresh litigations because of new views held may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents of the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.(p. 328)" 4.6 Further the Court reiterated the following observation made by it in Paraashuram Pottery Works Co. Ltd. v. ITa: "At the same time we have to bear in mind that the policy of law 'is that there must be. a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set eat rest judicata and quasi-judicial controversies as it must in other sphere of human activity.(p. 10) Following the above decision the Delhi High Court in the case of CIT v. A.R,J. Security Printer and CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 4922 (Delhi) held that even when the doctrine of res judicata does not apply to income-tax proceedings, where an issue has been decided consistently in a particular manner for earlier assessment years, the same view should prevail, even during the subsequent years unless there is: a material change in the facts. The law is, 4 therefore, fairly well settled. For rejecting the view taken for the earlier assessment years, there must be a material change in the fact situation. There is no gainsaying that the previous view will have no application even in cases where the law itself has undergone a change but before an earlier view can be upset or digressed from, one of the two must be demonstrated, namely, a change in the fact situation or a material change in law whether enacted or declared by the Supreme Court. 4.7 In the case of a builder like the one of the appellant who undertakes construction of buildings, such construction activity is spread over several years. In this ground the short question to be answered is which is the correct year of taxability of Rs.58,97, 073/-. 4.8 It is admitted fact that occupation certificate and water connection for the project was obtained in May 2011 i.e. during the financial year 2011-2012 relevant to Assessment Year 2012- 2013. It is also undisputed fact that appellant is not covered by AS-7 not being a contractor and is governed by AS-9 revenue recognition issued by ICAI. 4.9 As per AS 9 revenue from service transaction can be recognized as the service is performed either by proportionate completion method or completed service contract method. Standards permit both these methods. 4.10 The nature of business of a builder is often confused with the business of a construction contractor, but the only similarity in their activity is that both are engaged in civil construction; the nature of business of a builder and a contractor is completely different and distinct. A construction Contractor engages in civil construction on behalf of others under a contract. His gross revenue is known or can be reasonably estimated before he commences work and is fixed under the contract. A builder or a developer is as much in business of purchase and sale as any other trader Or manufacturer. It is only the nature of 'product' which is different, but the nature of transaction is of sale. A builder purchases land and he constructs buildings or bungalows on such land and sells such houses. He engages in civil construction for benefit of his own business and the nature of transaction for him is of sale. Income accrues to a builder or developer only when transaction of sale is complete and any advances received under the agreement for sale are mere earnest money and cannot be taxed as income before the transaction of sale is complete. [CIT u. Motilal C. Patel & Co., (1988) 173 ITR 666 (Guj)] Transaction is complete for a builder only when a unit proposed to be sold under an agreement for 5 sale is constructed and ready for occupation and at least possession is handed over. Till such time, even if the builder has right to collect advance payments in terms of agreement for sale, they are advances and the same cannot be appropriated as income till the transaction is complete by at least handing over of possession. Even if a builder has right to receive progress payments in terms of the agreement, they are not due as income but as advances and it accrues as income only on completion of transaction. 4.11- Undoubtedly possession to all the flat owners of Balaji Avenue was not handed over by the appellant in the year under consideration and the actual possession was handed over in FY 2011-2012 i.e. A Y 2012-2013. Therefore, I hold that appellant was right in not recognizing income of Rs. 58,97,073/- in the year under consideration in the absence of transfer of substantial risk and reward associated with the project. AO was therefore not justified in bringing the said sum to tax in AY 2011-2012 merely on the basis of inspection conducted by CIDCO authorities. This ground of appeal
is decided in favour of the assessee.
7. Against the above order of CIT(A), revenue is in further appealed before us.
8. It was contended by learned DR that the assessee has completed this project and sale amount was also received by the assessee more than 80%. accordingly AO was justified in taxing the income of the project during year under consideration.
9. On the other hand learned AR placed reliance on the order passed by the tribunal in the case of Maitri Developers I.T.A.No.2819/Mum/2010 order dated 20/05/2011, whererin under similar facts, the tribunal observed as under:-
The assessee is in further appeal before the Tribunal. It is well- settled that the "completion of the project" method of declaring profits, in the case of a builder/developer, is a recognized method of accounting. There is no doubt that the assessee is following the said method. It is recognized by the AS-
In para.3 (not numbered) of the assessment order (first page) for the year under appeal, the Assessing Officer himself refers to the fact that the assessee is following the project completion method and that the Matunga project was commenced during the year ended 31-3-2005. Even in the assessment order for the assessment year 2005-06 (copy filed) the Assessing Officer, while examining the return, would appear to have asked the assessee by letter dated 15-11-2007 (page 112 of the paper book) as to why revenue should not be taken credit on the basis of "percentage completion method" since in that year 26% of the project had been completed. On being informed (by letter dated 22-11-2007 at page 113 of the paper book) that the assessee is following the project completion method, the Assessing Officer did not pursue the matter further and accepted the assessee to carry forward the work-in- progress. In accordance with the method adopted by the assessee, he has shown the profit from the Matunga project in the return filed for the assessment year 2007-08. A perusal of the return (pages 68-93 of the paper book) shows that after claiming depreciation and remuneration paid to partners the profit from the project has been shown at Rs.14,69,036; before these deductions, the profit is Rs.23,90,873/-. These facts have also been pointed out to the Assessing Officer during the assessment proceedings for the year under appeal, vide letter dated 14-7-2008, a copy of which is placed at pages 31-32 of the paper book. 9. The project ("Maitri Heights") was completed on 24-4- 2006, during the previous year relevant to the assessment year 2007-08. The copy of the letter dated 3-5-06 written by the Executive Engineer of MCGB to the assessee's architect shows that the completion certificate was submitted on 24-4-2006, which date falls within the year ended 31-3-2007, relevant to the assessment year 2007-08. The letter of the Executive Engineer says that the certificate has been accepted, subject to submission of certificate u/s.270A of the MMC Act within 3 months. 10. So far as the handing over of the possession is concerned, the assessee has placed the copies of the letters from page 53 onwards. A perusal thereof shows that in all cases possession has been handed over after 31-3-2006, mostly in the months of May, June and even November 2006. Page 103 of the paper book is a certificate issued by the Hydraulic Engineer's Department of the Brihanmumbai Mahanagarapalika on 20-6- 2006, to the effect that adequate water supply has been provided in the premises. Thus, even the water supply has been given only in the previous year ended 31-3-2007, relevant to the assessment year 2007-08. It cannot be postulated that possession was handed over long before the water supply was provided. 11. The learned Sr.DR pointed out from the details given in page 34 of the paper book that some flats had been registered in the names of the buyers in the years 2004 and 2005 and even in respect of these flats it cannot be said that income did not accrue to the assessee. We have seen the list. There are only 6 such cases - 5 in 7 which registration was completed in 2005 and 1 in which it was completed in 2004. There are totally 40 flats. Registration has not been taken as conclusive as to the assessability of the income because it is the project as a whole that has to be taken into consideration. Even the Assessing Officer did not go by the year of registration of the flats, and rightly so, because by not registering the flats one can delay the taxation of the profits which cannot be permitted. Only two methods are recognized: the project completion method and the percentage on the completion method. Registration of the flats has never been considered to be an effective criterion for assessment of the profits from the housing projects.
Another point made by the learned Sr.DR was that the letter of the Executive Engineer referring to the completion certificate dated 24-4-2006 might be indicative of the fact that even on 31-3-2006 the project was substantially completed. There is some force in the point, but when we take into account the fact that the possession has been handed over only in May, June and November 2006 coupled with the confirmation from the water supply authorities in June 2006 that adequate supply to the premises has been ensured, it would appear that it cannot be categorically asserted that the project was fully or substantially completed in the year ended 31-3- 2006. What clinches the issue in favour of the claim that the project was completed in the year ended 31-3-2007 (asst.year 2007-08) is that the project account (page 89 of the paper book) for the year ended 31-3-2007 shows, in addition to the opening work-in- progress of Rs.4,88,30,226, purchases amounting to Rs.53,25,795 which is quite substantial. If in the next year the assessee had to buy materials for such a substantial amount, which approximates to 11% of the opening work-in-progress, it stands to reason that the project might have been completed only in the year ended 31-3- 2007. Further, in that year the sale price received by the assessee as per the project account was Rs.6,09,12,002 which is twice the amount of sale price received by the assessee in the year under appeal.
For the above reasons, we accept the contentions of the assessee. The alternative plea of the assessee that in case the addition is confirmed in the year under appeal, directions should be issued for deletion of the profits from the project in the assessment order for the assessment year 2007-08 becomes infructuous.
The appeal is allowed with no order as to costs.
Learned AR also relied upon the order of the tribunal in the case of Champion Construction Company, 1983 ITR 495 wherein under similar facts Tribunal held as under:
We have examined the facts of the case from this point of view. We find that out of the total accommodation of 58,970 sq.f.t. constructed, the assessee was able to sell only 25,530 sq.f.t. during the previous year relevant for the assessment year 1977-78. Neither the construction of the multi-storeyed building was complete nor even the half portion of the building sold. The net sale proceed received were much less than the total expenditure/cost incurred by the assessee up to date. In the circumstances, so far as the assessment year 1977-78 is concerned we accept the assessee's' submission that it would ,be .in order if no profits or losses are estimated from the venture for the assessment year'1977-78. The assessment for this year is, therefore, cancelled even on this score.
However, the position as regards the assessment year 1978-79 is, materially different. The construction of the building is completed in that year.' Total area earmarked for sale is 61,396 sq. ft. out of which up to the end of that year the assessee had sold 49,965 sq. ft., i.e., about 80 per cent of the area. The net receipts have far exceeded the total cost or expenditure to the assessee. Assuming there is any possibility of the assessee's incurring some liability in future in connection with the completion of the project or otherwise,' the unsold portion comprising-of 12,33'1 sq. ft. and the difference between the net receipts and the total expenditure and the amount actually treated as the assessee's income are more than sufficient to take care of any such contingency.
We have considered rival contentions and carefully gone through the orders of the authorities below. From the record, we found that the possession of all flat owners of Balaji Avenue was not handed over by the assessee in the year under consideration and actual possession was handed over in financial year 2011-12 relevant to the assessment year 2012-2013. Corresponding income has also been offered by AO in the Assessment Year 2012-13. A clear finding to this effect has also been recorded by CIT(A). In view of this finding, CIT(A) was justified in deleting the addition of Rs. 58,97,073/- on account of flat sold in Balaji Avenues.
12. Next grievance of revenue relates to deletion of addition of Rs.241.26 lacs on account of large variation in the rates of sale of flats. Facts in brief are that during the course of assessment proceedings, the assessee was 9 asked to give name & address of the customer, flat no, area, agreement value, booking date, advances received as on different dates etc. The assessee submitted required details vide its submission dated 03.12.2013. On the basis of submission made by the assessee, a chart was drawn by AO in the ascending order of "date of booking" of the flats. This chart was enclosed by AO at Annexure-II of his order. A graph was also prepared on the basis of data given by the assessee wherein horizontal axis represents 'date of booking' and vertical axis represents 'rate of sale of flat' in Rs. Per sq. ft. The graph was enclosed by AO at Annexure-III. 13. As per the graph, the AO included that there is huge variation in sale price of different flats, the AO also observed that within a gap of few days / weeks, the price variation is very high. 14. The AO finally observed that annexure-II & annexure-Ill show that there is large variation in the price between the flats which were booked in the period 31.03.2007 to 08.06.2009. Similarly, large variation is there in the sale rate of flats which were booked in the period 10.08.2009 to 11.3.2011. Large variation in rates is evident all along the graph. In the period 31.03.2007 to 06.06.2008, total of 24 flats are booked wherein price varied from Rs.1,110/- to Rs. 8,185/- per Sq..ft. These variations do not follow any pattern or logic and these points to the fact that only a fraction of actual sale proceeds is accounted in the books of account. Moreover, the assessee did not give for variation in the rice of each flat.
In view of the detailed working given by the AO at page 10 to 16, the AO reached to the conclusion that the assessee took large portion of sale proceeds in cash which remained unaccounted. So the books of assessee is not reliable and it does not give true, correct and complete picture of business affairs. As per the AO, Section 145 of the Income-tax Act puts triple onus on the assessee to provide for and maintain the correctness, completeness and regularity of the method of accounting strictly to the satisfaction of the Assessing Officer; in order to meet the rigours of the Section 145. The failure to meet even one of the requirements of section 145 of the Income Tax Act, 1961 renders the books maintained by the assessee liable to rejection on account of incorrectness or incompleteness or irregularity. In present case, due to reasons discussed in previous paragraphs the books of assessee is rejected as per Section 145 of the Act. Logical conclusion after rejecting books of account of the assessee is to go for estimation of profit as per Section 144 of the Income Tax Act, 1961.
On the basis of tables drawn at page 17 and 18 of his order, the AO worked out unaccounted sale receipts of Rs.2,41,26,879/-. 17. By the impugned order CIT(A) deleted the addition by observing as under:-
5.5 I have gone through the assessment order and submissions made by the appellant in this behalf. It is undisputed fact that the addition is made by AO on account of variation in prices of sale of flats and the basis of such addition was also information available to AO on a private website. Apart from this AO did not bring on record any material showing that assessee did receive cash from its customers. This act of the AO in estimating income cannot be justified on 11 one more ground. If for the time being information on the private website is held to be sacrosanct, it should have been applied in all the cases. Wherever AO found that actual price received by the appellant is more than price shown by the appellant, such price has been conveniently ignored by him under the style "aberration". The approach of the AO is akin to saying "Head I win , Tell you loose". Such an approach does not find place in the assessment provisions framed under the Income Tax Act. On the contrary it has been consistently held by the judicial courts that it is the duty of the AO to establish with cogent evidence that assessee has done some clandestine sale. It is undisputed fact that no such material is brought on record by the AO in the instant case. Much reliance on the website information indicates that AO presumed that these are the actual sale price of flats sold by the appellant. Thus, the addition is based on the presumption or opinion or feeling of a third person rather than concrete evidence or fact demonstrating clearly actual-handing over cash consideration by the owners of the flat to the appellant. The AO has a right to make all kinds of presumptions but while making an addition, if any, or best judgment, must be based on some reasonable evidence. AO has not found any unexplained cash or investment of whatever sort in the hands of the assessee.
18. Against the above order of CIT(A), revenue is in further appeal before us.
19. We have considered rival contentions and carefully gone through the orders of the lower authorities and found that AO has made detailed working to find out cash component of sale price not accounted for. The AO has drawn Annexure-II and Annexure-III to find out sale price on the basis of date of booking of flat, flat number, area, agreement value, booking date, advance received etc., However, without controverting all these findings of the AO, CIT(A) after giving general observation deleted the addition. We do not find any merit in the order of CIT(A). Accordingly, the same is set aside and matter is restored back to him for deciding afresh after controverting the findings recorded by AO as discussed above.