A.G HOMES,MUMBAI vs. ITO 19(3)(1), MUMBAI

सुनवाई क� तार�ख /Date of Hearing : 27-09-2016 घोषणा क� तार�ख /Date of Pronouncement : 08-11-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee-firm, being 1st November, 2013 passed by learned Commissioner of Income Tax (Appeals)- 30, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2005-06, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 21st December, 2009 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 144 r.w.s. 147 of the Income-tax Act,1961 (Hereinafter called “the Act”).

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“Ground No. 1:

On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) (,CIT (A)') has erred in confirming the action of the learned Assessing Officer ('AO') of issuance of notice u/s 148 of Income Tax Act, 1961 ('IT Act') and completion of assessment u/s. 147 of IT Act, as valid.

Ground No. 2:

On the facts and circumstances of the case and in law, the Learned CIT (A) has erred in confirming the action of the Learned 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.

Ground No. 3:

On the facts and circumstances of the case and in law, the Learned CIT (A) has erred in confirming the action of the Learned 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

Ground No.4:

On the facts and circumstances of the case and in law, the Learned CIT (A) has erred in confirming the action of the Learned AO in not allowing the deduction of remuneration paid to partners by making a best judgment assessment u/s. 144 of the Act and invoking the provisions of Section 184(5) of the Act.”

The A.O. observed that the assessee derived income from business of Rs 48,915/- , being profit derived from construction activity carried out at Bandra(W.), Mumbai. It was observed that most of the details as called for were not furnished by the assessee and even the assessee failed to file the details of advances received towards flat thereby preventing verification of the genuineness of the assessee by the Revenue. In order to verify the business activity of the assessee, notices u/s 133(6) of the Act was issued to the Executive Engineer, Building proposal(W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai and in reply it was informed by Executive Engineer, Building proposal(W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai to the AO that the assessee firm has completed the construction and also has constructed additional illegal floors. The assessee has shown in its return of income the closing WIP at Rs. 5,42,38,000/-. The ITA 1092/Mum/2014 4 A.O. observed that as per the plan approved by the Municipal Authorities, the assessee was permitted to construct 8670 sq. ft. wherein the Building approved was Ground + 6 floors. . Whereas it was observed by the AO from the copies of Index-II issued by the Registration authorities filed during the course of assessment proceedings of Mr. Abdul Khaliq Bhatti that the assessee has constructed ground floor plus 18 floors on the said plot resulting in construction of additional 12 illegal floors on the said plot , wherein the constructed area was taken at 17,340 sq. ft by the AO of illegal construction. Thus, the business income of the assessee firm as arrived at by the A.O. on the basis of information is as follows:-`

Area Rate Value remarks Area sold as 5,340 sq. - 2,99,50,000 As per copies of Index- II per registered available in the file of Shri ft. documents Abdul Khaliq Bhatti Area other 2,898 sq. 7,234 2,09,64,132 Total area 8,670 – sold area than the 5,340 ft. above as per approved plan Illegal area as 17,340 sq. 7,234 12,54,37,560 As per clause 3)(C) above. discussed ft. above Total 17,63,51,692/- Thus, the A.O. observed that the profit derived by the assessee on the total value of the project taken at 10% of Rs.17,63,51,692/- i.e. at Rs. 1,76,35,169/- and after deducting the income declared by the assessee on this project till 31-03-2005 of Rs. 41,76,627/-, the balance amount of Rs. 1,34,58,542/- was brought to tax by the A.O. vide assessment order dated 21.12.2009 passed by the AO u/s. 144 r.w.s. 147 of the Act. Further, due to non co-operation of the assessee during the assessment proceedings as set- out above, the AO invoked provisions of Section 184(5) and 185 of the Act wherein the assessee-firm was treated as ‘AOP’ for all tax purposes.

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The assessee submitted in the remand proceedings before the AO that the assessee is engaged in the activity of construction of residential buildings and the assessee follows percentage completion method of accounting. The assessee started construction of the building in year 1992 and has not completed the construction till March, 2011. It was submitted by the assessee in remand proceedings that the assessment for the assessment years 2003-04 and 2004-05 were completed 143(3) of the Act and for the assessment year 2004-05, the closing WIP as at 31st March, 2004 was assessed at Rs. 5,09,80,000/- which does not include land cost and cost of TDR. It was submitted that the assessee is yet to complete certain work like construction of parking building, water connection, permanent electricity connection, asphalting of the compound, TDR regularization etc. . The assessee submitted that the occupation/ completion certificate which are legal documents proving the completion of the building have not yet been received by the assessee till date. The compliances and the conditions of IOD are yet to be complied with. The assessee submitted that in view of above submissions , the construction of the building is incomplete as the above items of expenditure cost more than Rs. 4-5 crores.

ITA 1092/Mum/2014 6 However, the A.O. observed that except mere submissions , the assessee has not filed any supporting details/documents to substantiate its claim of non- completion of the project during the year under consideration, hence, assessee was again asked to produce supporting documents, however, no evidence has been filed by the assessee during the remand proceedings before the AO also . The AO, therefore, stated in remand report submitted to the learned CIT(A) that the necessary additions made in the assessment order are correct and need to be confirmed. Copy of the A.O.s report was also furnished to the assessee and the assessee in reply submitted that the assessee is engaged in the activity of construction of residential buildings and the assessee is following percentage completion method . It was submitted by the assessee that the assessee has shown profit and WIP as follows in the earlier years: Year W.I.P. Net profit 1996 19,88,057 1,78,925 1997 1,41,61,943 8,49,539 1998 1,11,70,000 7,55,871 1999 60,82,000 5,03,240 2000 36,54,000 3,01,498 2001 38,35,000 3,42,012 2002 28,41,000 2,19,435 2003 38,63,000 3,13,838 2004 33,85,000 2,74,357 Closing 5,09,80,000 37,38,713 WIP as per profit & Loss A/c The assessee submitted that the assessee has started construction of the building in year 1992 and has not completed the construction till December, ITA 1092/Mum/2014 7 2009 and even by January, 2013. It was submitted that the assessment for assessment years 2003-04 and 2004-05 were completed u/s 143(3) of the Act and for assessment year 2004-05, the closing WIP as at 31-03-2004 was assessed at Rs. 5,09,80,000/- which does not included land cost and cost of TDR. The assessee is yet to complete certain work like construction of parking building, water connection, permanent electricity connection and TDR regularization etc. . The legal documents like occupation certificate , building completion certificate indicating completion of the building have not been received. It was submitted that during the assessment proceedings, the A.O. called for information from the Executive Engineer, Building proposal(W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai as to whether the construction of the building is completed or not , wherein the A.O. has misquoted the file No. as 9753 instead of correct file no 9755. It was submitted that the assessee was constructing 18 floors building on plot No. 9755 at Bandra Hill Road, Bandra(W), Mumbai, whereas the A.O. by mistake called for the information of the adjacent plot No. 9753 at Bandra Hill Road, Bandra(W), Mumbai on which a 6 floors building was constructed by someone else and the A.O. had passed an best judgment assessment estimating the sales revenue and percentage of profit based on information received with respect to wrong plot no 9753 and hence, the basis on which the assessment order was passed was incorrect. It was submitted that the revenue has accepted all through percentage completion method followed by the assessee and assessed the assessee firm accordingly. It was submitted that the information received by the AO from Executive Engineer, Building proposal(W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai was not provided to the assessee before framing best judgment assessment by the AO. No opportunity was granted to the assessee to rebut the same. It was submitted by the assessee that the AO insisted that the assessee submit a proof that the construction was not completed while it was submitted that the BMC did not certify that the construction of the building is not completed.

ITA 1092/Mum/2014 8 The A.O. was requested to show the completion certificate available with him but the AO refused to show the same. The assessee accordingly filed application under RTI for such information which was also denied to the assessee. The assessee filed an appeal under RTI Act which was decided in favour of the assessee and the information was received by the assessee.

It was submitted by the assessee that it had entered into sale agreement for three flats during the assessment year 2005-06 but while registering the agreement with the Sub-Registrar the partner of the firm wrongly submitted his PAN No. to the registering authority instead of giving PAN No. of the assessee firm. The Sub-Registrar had forwarded the information of sale of three flats by the partner to the concerned AO of the partner who also happened to be the AO of the assessee and on this basis, the case was selected for scrutiny. During assessment proceedings, the A.O. called for information from the BMC as to if the construction of the building was completed or not and in reply the BMC clearly stated that the construction of the building was not completed but still the A.O. passed the best judgment assessment order by assuming that the construction of the building was completed and estimating the sales revenue and percentage of profit thereon, hence, the base of the assessment is incorrect as the building is not yet competed.

The assessee submitted before the learned CIT(A) that the reopening of the assessment was not in accordance with the provisions of the law as the A.O. could not have reasons to believe that the income of the assessee firm has escaped assessment because the information received by the AO as per AIR is about sale or purchase of immovable property above certain financial limits and as per administrative instructions only.

ITA 1092/Mum/2014 9 The ld. CIT(A) dismissed the appeal of the assessee on the ground of re- opening u/s 147/148 of the Act as the return of income filed on 19th October, 2005 was processed u/s 143(1) of the Act. The A.O. has reopened the assessment u/s 147/148 of the Act on the basis of submission of one of the partners of the assessee firm during the course of assessment proceedings in the partners case for the assessment year 2005-06.

With respect to the denial of opportunity to cross verify the correctness of the statement made by the Executive Engineer, Building proposal(W.S.), ‘H’ Ward of Municipal Corporation of Greater Mumbai, the matter was remanded to the A.O. for remand report, whereby the assessee did not attended. The assessee has made submissions before the AO vide letter dated 05-04-2011 that the assessment in the case of the assessee for assessment year 2003-04 and 2004-05 were completed u/s 143(3) of the Act and WIP as on 31-03-2004 has been assessed at Rs. 5,09,80,000/- which does not include land cost and cost of TDR , assessee is following percentage completion method of accounting and since the project has not been completed till March 2011. The learned CIT(A) considered the submission of the assessee which were rejected by the learned CIT(A) as sufficient opportunity was provided to the assessee.

On merits, the learned CIT(A) observed that the assessee has not furnished any supporting details with documents to show that the building project was incomplete. It was observed that the assessee himself submitted during remand proceedings that some work remained to be completed was ancillary in nature like minor work relating to parking space, permanent water connection, permanent electricity connection , TDR regularization etc. which clearly shows that electricity connection and water connection had already been taken and it had to be regularized by way of making an application for permanent connection. With respect to the construction of parking space, it was observed by learned CIT(A) that the assessee has not furnished any ITA 1092/Mum/2014 10 evidence to show what part of construction of parking space had not been completed. Regarding occupation certificate(OC) and building completion certificate(BCC) , it was observed by the learned CIT(A) that the A.O. has discussed in his order that the assessee has constructed 17340 sq. ft. area illegally, hence, OC and BCC had remained pending. It was observed by the learned CIT(A) that it is a known fact that the residential flats are sold in Mumbai without obtaining OC and BCC and in absence of these certificates also, the purchasers have taken possession of the flats and started residing there. The ld. CIT(A) upheld the assessment order and confirmed the addition of Rs. 1,34,58,542/-, vide appellate orders dated 01-11-2013 .

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Order pronounced in the open court on 8th November, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 8-11-2016 को क� गई ।