Narsinha J. Ghate, Mumbai vs Assessee

Mr.Narsinha J Ghate, बनाम/ Income Tax Officer Ward 21, Veena Beena, Ground floor, Vs. 22(2)(3), Opp Bandra Rly station, Vashi Railway Station Building, Bandra (W), Mumbai-400050 Vashi, Navi Mumbai-400703 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AACPG9377L

अपीलाथ ओर से / Assessee by: Shri M Subramanian

यथ क$ ओर से/ Revenue by:: Shri S J Singh

सन ु वाई क$ तार(ख / Date of Hearing :8.1.2015 घोषणा क$ तार(ख /Date of Pronouncement : 18.2.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated

12.10.2008 passed by the ld. CIT(A)-22, Mumbai and it relates to the

assessment year 2004-05.

2. The ld. counsel appearing for the assessee invited our attention to

the additional ground of appeal filed by the assessee, wherein initiation of

reassessment proceedings is being questioned.

ITA No.1256/M/09 2

3. We have heard the parties on this preliminary issue and perused the

record. The assessee has furnished a copy of reasons recorded by the AO

for reopening of assessment at page 18 of the paper book filed by the

assessee. The reasons recorded by the AO read as under:

"SHRI NARASINHA J GHATE : ASSESMETN YEAR 2004-05

In this case Income tax return for the AY 2004-05 was filed on 1.11.2004 declaring total income at Rs.2,79,690/-. The return is accompanied with tax audit report which shows the assessee is proprietor of M/s Orient Associates doing the business as Builders and developers. The asset side of the balance sheet shows WIP at Rs.14,42,034/- and various plots of land at Ulve and Kamothe. The assessee has also shown advance against booking at Rs.29,00,556/-. However, on examination assessee's return for AY 2005-06, it is seen that the assessee has shown salary income of Rs.2,36,925/-. No balance sheet is enclosed with the return. It is therefore, presumed that the assessee has sold the work-in-progress in the AY 2004-05 itself.

In view of the above facts and circumstances of the case I have reason to believe that income to the tune of Rs.14,42,034/- and further income on sale other assets, chargeable to tax has escaped assessment for the AY 2004-05 within the meaning of sub- section (b) of section 147 of the IT Act. Accordingly, this is a fit case for issue of notice under section 148 of the IT Act, 1961"

4. The ld. counsel submitted that the AO has reopened the assessment

on presumption without pointing out the income which has escaped

assessment. He further submitted that the AO has made reference to the

income relating to WIP amounting to Rs.14.42 lakhs, but he has failed to

make any addition with regard to the same in the re-assessment

proceedings. Accordingly he contended that, in view of the decision of the

Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd.(331 ITA No.1256/M/09 3

ITR 336(Bom.), the AO is not entitled to make any other addition, if he

fails to make addition in respect of items on which the assessment was

reopened.

5. On the contrary, the ld. DR submitted that the AO has reopened the

assessment not only with regard to the WIP but also with regard to the

other income relating to the sale of assets. Further, the AO has made

reference to the advance received by the assessee towards booking of

flats. Accordingly, the ld. DR submitted that the AR was not right in

presuming that the AO has reopened the assessment with regard to WIP

only. The ld. DR further submitted that the AO has added the sum of

Rs.1,36,525/- relating to capital gain arising on sale of assets.

Accordingly, he submitted that the AO has made addition with respect to

the one of the points on which the impugned assessment was reopened.

6. Having heard the rival submissions, we are of the view that there is

no merit in the contentions of the assessee. As pointed out by the ld. DR

that the AO has reopened the assessment, inter-alia, with regard to the

income arising on sale of other assets. The AO has also made addition

with regard to the sale of assets, and hence, we are of the view that the

reopening has been done in accordance with law. Accordingly, we reject

the contention of the assessee in this regard.

ITA No.1256/M/09 4

7. Other grounds urged by the assessee are relating to the following

issues:

a) disallowance out of electricity charges; b) disallowance of telephone expenses; c) assessment of profit on plot no.12 and d) assessment of profit at 11 %.

The assessee is engaged in the business of builder and developer. During

the course of assessment proceedings, the AO disallowed electricity

expenses to the tune of Rs.2,83,485/-, which pertained to Plot No.21

(CIT(A) has stated as 200) and Plot No.132B. The assessee did not offer

any income during the instant year from Plot No.21 and Plot No. 132B

happened to be the residence of the assessee. Hence the AO disallowed

the above said sum of Rs.2,83,485/-.

8. Before the ld. CIT(A), the assessee submitted that the construction

on plot No.200 had already been completed and possession of flats were

also given in the immediately preceding year. It was submitted that the

assessee received a bill for an amount of Rs.2,81,034/- during the year

under consideration from the Electricity department and the same was

paid by the assessee and claimed as deduction. Accordingly it was

submitted that the electricity expenses is related to the year under

consideration. The assessee further submitted that he has incurred a sum

of Rs.7980/- towards the electricity charges of his residence and claimed

the same as expenditure, since he was carryon the business activities from

his residence. The ld. CIT(A), by accepting the contention of the assessee ITA No.1256/M/09 5

with regard to the electricity charges pertaining to Plot No.200, granted

relief to the tune of Rs.2,81,034/-. However, the ld. CIT(A) confirmed the

electricity charges of Rs.7980/- pertaining to residence. Aggrieved by the

decision of the ld.CIT(A) in confirming the addition of Rs.7980/- towards

electricity charges the assessee is in appeal before us.

9. We notice that the electricity charges of Rs.7980/-pertain to

residence of the assessee. Though the assessee has contended that he

was using the residence as his office, yet no proof whatsoever was placed

before us to substantiate the same. Under these circumstances, we are of

the view that the ld. CIT(A) was justified in confirming the addition of

Rs.7980/- towards electricity charges.

10. The next issue relates to disallowance of telephone expenses. The

AO disallowed 20% of telephone expenses towards personal usage and

the ld. CIT(A) also confirmed the said disallowance. Before us, the ld. AR

submitted that the assessee has been using the telephone for official

purposes only and the personal usage was negligible.

11. We have heard the ld. DR on this issue. We notice that the assessee

has claimed a sum of Rs.1,03,939/- in aggregate as telephone expenses,

which included residential phone also and the AO has disallowed 20% of

the same towards personal use. Considering the activity of the assessee,

we are of the view that the disallowance of 20% of the aggregate amount ITA No.1256/M/09 6

of telephone expenses is on higher side. Accordingly, we modify the order

of ld. CIT(A) on this issue and direct the AO to restrict the disallowance to

10% of the telephone expenses claimed by the assessee.

12. The next issue relates to assessment of profit on plot No.42. The AO

noticed that the assessee has carried out the construction work on three

plots viz plot N.42, 57 and 76. The AO further noticed that the project on

plot no.42 has been completed during the year under consideration and

the projects on remaining two plots were in progress. The assessee has

not furnished project wise profit and loss account and hence the AO

proceeded to work out the profit from each of the project. Though the AO

allocated direct expenses to the concerned project, the indirect or common

expenses were allocated equally @ 1/3 each between the three projects

referred above. In this process, the AO arrived at profit from the project

carried out at Plot No.42 at Rs.10,95,869/- and assessed the same. The

ld. CIT(A) also confirmed the same.

13. We have heard both the parties and perused the record on this

issue. According to the assessee, he was preparing consolidated profit

and loss account. The Ld A.R submitted that the assessee has completed

the project in Plot No.42 and the other projects are only at infancy state.

Accordingly he submitted that the AO was not justified in preferring profit

and loss account project wise. Accordingly, the ld. AR submitted that the ITA No.1256/M/09 7

profit declared by the assessee should be accepted. In the alternative, he

submitted the allocation of administrative expenses on the project carried

out in Plot No.42 is on the lower side. On the contrary, the ld DR strongly

defended the orders of authorities below on this issue.

14. The undisputed facts remains that the assessee has completed the

project carried on plot no.42. However, while estimating the profit on the

said project, the AO allocated administrative expenses equally on all the

three projects viz Plot No.42 (which is completed), Plot No.57 and Plot

No.76 (under progress). We notice from the assessment order, that the

assessee has received a sum of Rs.95,85,736/- on sale of flats constructed

on plot no.42 and the total expenses incurred was Rs.82,03,672/-.

However amount spent on Plot No.57 and 76 was Rs.9,71,227/- and

2,40,497/- only. Thus it is seen that the projects carried in Plot No.57 and

76 are comparatively lower in size. Under these set of facts, we are of the

view that the AO was not justified in allocating the administrative expenses

equally between all the three projects. Since the assessee has been selling

flats constructed on Plot No.42, naturally he would have spent more time

and energy in respect of this project. Accordingly, we are of the view that

the major portion of the administrative expenses should be allocated to

Plot No.42. Considering the status of each of the project, we are of the

considered view that the allocation of administrative expenses would meet

ends of justice, if it is allocated in the following manner: ITA No.1256/M/09 8

a) Plot No.42 70% b) Plot No.57 20% and c) Plot No.76 10%

Accordingly, we set aside the order of the ld. CIT(A) on this issue and

direct the AO to recompute the profit on construction of flats on Plot

No.42 by adopting the administrative expenses in the ratio cited above.

15. The next issue relate to assessment of profit from construction on

flats on plot Nos. 57 and 76. The AO estimated the profit at 11% of WIP

and the ld. CIT(A) also confirmed the same. Before us, the ld.AR

submitted that both the projects are at initial stages and hence no profit

need to be estimated. However, the ld. AR failed to show about the stage

of completion of project. In the absence of the details, we are not able to

appreciate the contention of the ld. AR. At the same time, we notice that

the estimate of profit from WIP made by the AO at 11% is on the higher

side. Accordingly, we modify the order of ld. CIT(A) and direct the AO to

estimate the profit from WIP of Plot Nos.57 and 76 at 8% of the WIP.

While computing the WIP, the AO should adopt the figure of administrative

expenses as per our direction given in the earlier paragraph. ITA No.1256/M/09 9

16. In the result, the appeal of the assessee is partly allowed.

The above order was pronounced in the open court on 18th Feb, 2015.

घोषणा खल ु े यायालय म+ ,दनांकः18th Feb, 2015 को क$ गई ।

sd sd

(आय.पी. बंसल/I.P. BANSAL) (बी.आर. बा करन,/ B.R. BASKARAN) या यक सद य / Judicial Member लेखा सद य/Accountant Member

मुंबई Mumbai: 18th Feb,2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आय6 ु त(अपील) / The CIT(A)- concerned 4. आयकर आय6 ु त / CIT concerned 5. 7वभागीय त न9ध, आयकर अपील(य अ9धकरण, मंब ु ई/ DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील(य अ9धकरण, मंब ु ई /ITAT, Mumbai