Om Developers, Pune vs Assessee

Om Developers, Plot No.35, Laxmi Park Society, Above Hotel Sangam, Navi Peth, Pune - 411 030. PAN : AAAFO2068A .... Appellant

Vs.

Asstt. Commissioner of Income Tax, Circle- 3, Pune. .... Respondent

Assessee by : Mr. Nikhil Pathak/ Suhas Bora Department by : Mr. B. C. Malakar Date of hearing : 09-02-2015 Date of pronouncement : 31-03-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against the order of

the Commissioner of Income Tax (Appeals)-II, Pune dated 20.12.2010 which,

in turn, has arisen from an order dated 31.12.2007 passed by the Assessing

Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to

the assessment year 2005-06.

2. In this appeal, assessee has raised the following Grounds of Appeal :-

"1. The learned CIT(A) has erred in dismissing the appeal, without appreciating the facts of the case and submissions of the appellant.

2. The learned CIT(A) has erred in confirming the addition of Rs.1,07,48,442/- made by the A.O. on account of estimated profit on the alleged sales in the current year on the ground that appellant has completed the project and also handover the possession to the unit purchasers.

3. The learned CIT(A) ought to have appreciated that -

2 ITA No.206/PN/2011 a) the work of the appellant was stopped by the PMC on the ground that the construction carried out by the appellant on Building A & C was illegal,

b) Completion certificate from the PMC was not received till last week of the March 2005,

c) Water connection to the Building A & C was received on 04.04.2005,

d) Affidavits submitted by the flat purchasers, categorically stated that the possession was taken by them for carrying out furniture activity.

4. As a consequence to the above, the learned CIT(A) erred in law and on facts in confirming the levy of interest U/sec. 234B and 234C of the Income Tax Act, 1961.

5. The appellant craves leave to add or amend, modify or delete any of the grounds of the appeal, if deemed necessary."

3. The appellant before us is a partnership firm which is engaged in the

business of builders and developers. Assessee firm filed a return of income

for assessment year 2005-06 declaring total income of Rs.26,17,220/- which

was primarily derived from a project at Pune styled as "Om Megasparsh",

Bibvewade, Pune. The Assessing Officer assessed the total income at

Rs.1,33,65,662/- which, inter-alia, included an addition of Rs.1,07,48,442/-.

The stand of the Assessing Officer was that the income liable to be assessed

from the project in question was short computed by the assessee by a sum of

Rs.1,07,48,442/-. This aspect of the controversy has also been upheld by the

CIT(A) and therefore the assessee is in further appeal before us.

4. The short point involved is the manner in which assessee has

computed its income from project - "Om Megasparsh". The assessee is

maintaining its accounts on project completion method and it is recognizing

income on the basis of handing over of possession of flats to the customers.

Pertinently, the aforesaid method of accounting adopted by the assessee is

not in dispute. At the time of hearing, the Ld. Representative for the assessee

pointed out that similar method of accounting has been accepted by the

Revenue in the past.

3 ITA No.206/PN/2011

5. In this background, the difference in the stand of the assessee and the

Revenue can be appreciated in the following manner. The appellant firm had

three Wings, namely, A, B & C in the project, "Om Megasparsh". The

development and execution of the project was in progress during the year

under consideration. So far as the flats in Wing B are concerned, assessee

had recognized income on the sale of such flats and it was offered for tax

during the year under consideration in terms of the method of accounting

followed by it. So far as the flats constructed in Wings A & C were concerned,

assessee did not recognize income therefrom. In other words, the income

from flats in Wing A & C were accounted for and offered for tax in the

subsequent assessment year. The Assessing Officer carried out a verification

exercise with the customers who had contracted for the flats in Wings A & C.

Such verification exercise revealed that the flats in A & C Wings were also

taken possession by the customers before the close of the previous year

relevant to the assessment year under consideration. The list of 20 such

customers from whom the verification was carried out is annexed as Annexure

- A to the assessment order. On this basis, the Assessing Officer concluded

that income from flats in Wings A & C was also to be recognized during the

year under consideration itself and therefore he brought to tax a sum of

Rs.1,07,48,442/- on account of the corresponding profits on such sales. The

aforesaid aspect has also been affirmed by the CIT(A).

6. Before us, the Ld. Representative for the assessee vehemently pointed

out that the verification exercise carried out by the Assessing Officer has been

wrongly used to say that assessee had handed-over possession of the flats in

Wings A & C to the respective buyers. It was pointed out that, before the

lower authorities assessee submitted that the possession referred to by the

respective buyers was only a temporary possession given in order to complete

the furniture work, etc. and that the final possession was handed-over to the

flat-holders of Wings A & C only in the month of April, 2005. It was contended 4 ITA No.206/PN/2011

that the sales with regard to the flats in Wings A & C were liable to be

recognized in the previous year from April, 2005 to March, 2006 corresponding

to the next assessment year 2006-07. It was also pointed out that assessee

had obtained affidavits from such persons stating that only temporary

possession of flats was taken for carrying out furniture work during the year

under consideration.

7. On the other hand, the Ld. Departmental Representative appearing for

the Revenue contended that the CIT(A) has appropriately dealt with the

submissions put-forth by the assessee in this regard and found the same to be

untenable. By referring to the discussion in para 3.7 to 3.10 of the impugned

order of the CIT(A), it was submitted that the affidavits obtained by the

assessee were unconvincing. According to the Ld. Departmental

Representative, the CIT(A) appreciated that it was highly unlikely that most or

all the flats owner would have taken possession for interior work together.

Moreover, it was pointed out that in the course of the verification exercise

carried out by the Assessing Officer such customers did not say that they had

taken possession on a temporary basis in the year 2003 or during the year

under consideration.

8. We have carefully considered the rival submissions. The crux of the

controversy is the income deduced by the assessee on application of its

method of accounting to account for sales on the basis of handing over of

possession to the customers. There is no dispute between the assessee and

the Revenue that assessee recognizes sale of a flat on handing over of its

possession to the customers. The verification exercise carried out by the

Assessing Officer revealed that even with respect to the flats in Wings A & C

assessee had handed-over possession to the customers whereas in the return

of income filed, such transactions were not recognized as sales during the

year itself. The assessee firm has sought to repudiate the aforesaid 5 ITA No.206/PN/2011

conclusion of the Assessing Officer by attempting to demonstrate that the

possession given to the customers was only a temporary possession whereas

the final possession was to be given only after obtaining the completion

certificate from the 'local authority', which happened in the month of April,

2005, which corresponds to the next assessment year. In our considered

opinion, the case being set-up by the assessee is quite superfluous and is

devoid of merit. We find that at no stage it was the case of the assessee that

it is recognizing sale of flats on the basis of final handing over of possession.

In-fact, there is no material on record to suggest that assessee has

differentiated between a temporary possession and final possession so as to

recognize income on sale of flats. Therefore, the verification exercise carried

out by the Assessing Officer which revealed that even with respect to the flats

in Wings A & C assessee had handed-over possession of certain flats would

justify assessment of such income during the year itself, having regard to the

methodology adopted by the assessee consistently over a period of time.

Thus, we upheld the action of the Revenue in-principle.

9. At this stage, Ld. Representative for the assessee made an alternate

plea to the effect that the Assessing Officer had carried out verification

exercise only with respect to 20 customers as detailed in Annexure - A to the

assessment order. According to the Ld. Representative, only the transactions

with such 20 customers be considered for recognizing sale of such flats during

the year itself and not with respect to the other flats in Wings A & C for which

there is no evidence to suggest that assessee has handed-over possession to

the respective buyers during the year itself. The Ld. Representative pointed

out that the case of the assessee is that in the absence of any adverse

evidence other than the aforesaid 20 cases, for other flats in Wings A & C, no

addition is merited in the year under consideration.

6 ITA No.206/PN/2011

10. In our view, the alternate plea raised by the assessee is quite justified.

We deem it fit and proper to restore the matter back to the file of the

Assessing Officer to re-quantify the addition liable to be made on the basis of

the evidence available with the Assessing Officer which demonstrates that the

possession was handed-over by the assessee to the respective buyers in

Wings A & C in the previous year relevant to the assessment year under

consideration. The Assessing Officer shall compute the profit relatable to the

20 flats as enumerated in Annexure - A to the assessment order and delete

the balance of the addition. Needless to say, the Assessing Officer shall allow

the assessee a reasonable opportunity to put-forth its say on the amount of

profit assessable in this year on the above basis. The Assessing Officer shall

consider the submissions of the assessee and thereafter re-compute the total

income of the assessee accordingly, as per law.

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

Order pronounced on 31 st March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 31 st March, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-II, Pune; 4) The CIT-II, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune